Melrose Industries Plc · LSE:MRO
Melrose Industries — FY2022 Earnings Presentation
37 slides from Melrose Industries's earnings presentation, Mar 2, 2023
Slide 1: Melrose Industries PLC Full Year Results
Buy Improve Sell Strictly private and confidential Melrose Industries PLC Full Year Results Year ended 31 December 2022 2 March 2023 Buy Improve Sell
Slide 2: Disclaimer
Disclaimer This presentation has been prepared by or on behalf of Melrose Industries PLC (“Melrose”). The information set out in this presentation is not intended to form the basis of any contract. By attending (whether in person, by telephone or webcast) this presentation or by reading the presenta
Slide 3: Contents
Contents 1 Introduction 2 The shape of the two groups post demerger 3 Full year results: Group 4 Full year results: Businesses 5 Appendices Buy The revenue and profit numbers included in this presentation are shown in round millions and unless otherwise stated growth metrics are at constant currency
Slide 4: Introduction
Buy Improve Sell Introduction Buy Improve 4 Sell
Slide 5: Introduction
Introduction ▪ A very encouraging set of results – recovery is happening across the Group ▪ Demerger is on track and the split is well positioned and financed ▪ Dowlais1 is set up to produce good returns for shareholders – in these results we are focusing on Melrose ▪ Melrose has an exceptional Aero
Slide 6: The shape of the two groups post demerger
Buy Improve Sell The shape of the two groups post demerger Five summary slides Buy Improve 6 Sell
Slide 7: 2022 Results: better than signalled in September
1. 2022 Results: better than signalled in September Both groups well positioned ahead of the proposed demerger Melrose (Aerospace) Adjusted1 Dowlais2 Adjusted1 pre-PLC costs Results Growth vs pre-PLC costs Results Growth vs £m 2022 2021 £m 2022 2021 Revenue 2,957 11% Revenue 5,234 7% EBITDA (pre-PLC
Slide 8: Revenue growth and outlook
2. Revenue growth and outlook Both groups’ end markets are growing Melrose (Aerospace) Dowlais1 Actual revenue growth (2022) 11% 7% Outlook for growth in 2023 15%+ 10% 6% VS Current analysts’ c.3% VS Current analysts’ Current external Current external consensus3 for consensus3 for market data2 marke
Slide 9: On track to achieve adjusted operating margin targets
3. On track to achieve adjusted1 operating margin targets Significant upside to come Margin targets pre-PLC costs Melrose (Aerospace) Dowlais2 Operating margin Operating margin 6.3% 14%+ 6.3% 11%+ 2022 Target 2022 Target EBITDA margin EBITDA3 margin 11.2% 18%+ 11.8% 16%+ 2022 Target 2022 Target Buy
Slide 10: Net debt and leverage: both businesses sensibly positioned
4. Net debt1 and leverage1: both businesses sensibly positioned Proforma net debt at demerger 2nd interim Proforma dividend net debt at UK pension payment3 demerger buyout fee3, 4 c.£60m Net debt1 at Demerger c.£45m 31 December costs2 2022 c.£70m c.£1,315m £1,139m Leverage1 Leverage5 1.4x 1.6x Profo
Slide 11: Interest and adjusted tax rates
5. Interest and adjusted1 tax rates Other information Melrose (Aerospace) Dowlais2 Interest cost for the new bank facilities c.5.5%3 c.5.5%3 Adjusted1 tax rate c.21% c.24% Buy 1. Described in the glossary to the Preliminary Announcement and considered by the Board to be a key measure of performance
Slide 12: Full year results: Group
Buy Improve Sell Full year results: Group Group highlights and cash generation Buy Improve 12 Sell
Slide 13: Highlights
Highlights Adjusted1 results Statutory results 2022 20212 2022 20212 Continuing operations £m £m £m £m Revenue 8,191 7,263 7,537 6,650 Operating profit/(loss) 480 317 (236) (493) Profit/(loss) before tax 384 194 (307) (660) Diluted earnings per share 7.0p 3.1p (5.4)p (10.3)p Net debt1 1,139 950 n/a
Slide 14: Reconciliation between statutory and adjusted results
Reconciliation between statutory and adjusted1 results Cash spent/ Continuing operations (received) £m Total 2022 Statutory operating loss (236) Amortisation of intangible assets acquired in business combinations 458 - Restructuring costs 144 136 Exchange movements not hedge accounted 87 - Net relea
Slide 15: Melrose Group cash generation
Melrose Group cash generation Free cash flow1 Cash flow 2022 2022 2022 Reconciliation of net debt1 2022 £m Melrose2 Dowlais2 Group £m Group Adjusted EBITDA3 293 515 808 Net debt1 brought forward (950) Lease obligation payments (29) (22) (51) Adverse foreign exchange and other non-cash movements (61)
Slide 16: Melrose Aerospace: long-term cashflow dynamics
Melrose Aerospace: long-term cashflow dynamics GKN Aerospace: Engines’ estimated RRSPs cash profile1,2 from 1980 to 2060 £m 700 Orders3 (cash inflow) 600 Forecast orders4 (cash inflow) Investment (cash outflow) Significant upturn in 500 cash flow underway 400 300 200 100 0 -1001980 1985 1990 1995 20
Slide 17: Full year results: Businesses
Buy Improve Sell Full year results: Businesses Positive momentum and strong platform for value creation Buy Improve 17 Sell
Slide 18: Dowlais 64% of Melrose
Dowlais1 64% of Melrose2 Buy Improve 1. Comprises the Automotive, Powder Metallurgy and Hydrogen businesses 18 Sell 2. Based on 2022 adjusted revenue for all continuing businesses
Slide 19: Dowlais: overview
Dowlais1: overview Adjusted2 results pre-PLC costs 2022 2022 2021 2021 Continuing operations 2022 Operating Operating 2021 Operating Operating £m Revenue profit/(loss) margin Revenue profit/(loss) margin Automotive 4,211 250 5.9% 3,745 172 4.6% Powder Metallurgy 1,022 96 9.4% 975 91 9.3% Other Indus
Slide 20: GKN Aerospace 36% of Melrose
GKN Aerospace 36% of Melrose1 Buy Improve 1. Based on 2022 adjusted revenue for all continuing businesses 20 Sell
Slide 21: Aerospace results: overview
Aerospace results: overview Adjusted1 results Growth vs ▪ Sales up 11% versus 2021 and civil market recovery gaining momentum £m 2022 2021 ▪ Strong H2 performance leading to 51% increase in 2022 adjusted1 operating profit Revenue 2,957 11% ▪ Continued excellent progress and performance in world-clas
Slide 22: Aerospace results: 2022 highlights
Aerospace results: 2022 highlights Market recovery gained momentum ▪ Fast recovery in air travel; very strong demand for civil narrow body aircraft and engine maintenance ▪ Industry became supply constrained due to post-pandemic supply chain issues and labour shortfalls Business improvements deliver
Slide 23: Aerospace: positive earnings momentum
Aerospace: positive earnings momentum Adjusted1 operating margin (%) Achieved breakeven on 27% lower sales 1 4 16 ▪ Immediate actions to reduce costs based on lower demand 14%+ 14 Delivered 390bps operating margin expansion on broadly flat sales 12 2 10.6% ▪ Accelerated restructuring and focused cos
Slide 24: Aerospace: Leading global Tier 1 technology supplier
Aerospace: Leading global Tier 1 technology supplier Onboard 90% >70% 95% Revenue from Industry leading sole source position of commercial positions #1, 2 or 3 globally2 aircraft made today1 >10% ~£18.5bn £100m Cash flows expected joint investment Sales CAGR from RRSPs3 alone in sustainable to 2025
Slide 25: Aerospace: compelling outlook
Aerospace: compelling outlook Structurally growing market with faster near-term recovery 1 Sole source Tier 1 technology positions on world leading high-volume platforms 2 Excellent Engines business with differentiated technology IP, growing 3 aftermarket and unique RRSPs1 portfolio entering “sweet
Slide 26: Aerospace outlook: structurally growing market
Aerospace outlook: structurally growing market Flight hours returning strongly OEM deliveries ramping up fast Defence spending increasing 1 Million 200 250 2500 190 180 200 2000 170 150 1500 160 100 150 1000 140 50 500 130 0 0 120 2019 2020 2021 2022 2023 2024 2025 2026 2027 Source: Cirium Narrow bo
Slide 27: Aerospace outlook: established platform positions
Aerospace outlook: established platform positions GKN position on world’s highest volume platforms Illustrative examples of content and value Expected Engine: P&W GTF (cornerstone of narrow body power) production Engine Structures to 20301 position2 position2, 3 • Powers A320/A220 aircraft, already
Slide 28: Aerospace outlook: exceptional RRSP contribution
Aerospace outlook: exceptional RRSP contribution GKN has established portfolio of 19 RRSPs on leading engine platforms Revenue Risk Sharing Partnership RRSP ▪ Revenue and cashflows ▪ Partners also share risk of ▪ OEM has majority share ▪ Nature of engine structure shared through full engine engine t
Slide 29: RRSP portfolio entering sweet spot of engine lifecycles
Aerospace outlook: exceptional RRSP contribution RRSP portfolio entering “sweet spot” of engine lifecycles Technology Product OE Aftermarket ▪ All 19 RRSP engines are launched and operating development1 development production services successfully 7 years 7 years 15 years 30 years ▪ Initial heavy in
Slide 30: GKN technology requires limited work after engine produced
Aerospace outlook: exceptional RRSP contribution GKN technology requires limited work after engine produced ▪ GKN components on RRSP engines typically last for full Fan Case engine lifetime Mount Rings Low Pressure Turbine Cases ▪ GKN technology requires limited work after engine produced ▪ On wing
Slide 31: Aerospace outlook: business transformation well underway
Aerospace outlook: business transformation well underway Completed To follow ▪ 14 sites closed or sold where non-core/unprofitable ▪ All required projects to be substantially complete by the end of 2023 Restructuring ▪ Key project milestones in the USA, NL and Nordics £50m1 ▪ Completion of current p
Slide 32: Aerospace outlook: summary
Aerospace outlook: summary A compelling equity story… …further details to follow at May CME1 1. 1 Structurally growing market with faster near-term ▪ Split of Aerospace by ‘Engines’ and ‘Structures’ with recovery associated financials: 2. 2 Sole source Tier 1 technology positions on world’s ➢ Growth
Slide 33: Appendices
Buy Improve Sell Appendices Buy Improve 33 Sell
Slide 34: Business results
Business results Adjusted1 results 2022 2022 2021 2021 Continuing operations 2022 Operating Operating 2021 Operating Operating £m Revenue profit/(loss) margin Revenue profit/(loss) margin Aerospace 2,957 186 6.3% 2,543 112 4.4% Dowlais2 5,234 332 6.3% 4,720 256 5.4% Central - (38) - - (51) - Total 8
Slide 35: Pensions
Pensions Protecting members by further de-risking Aerospace UK pension plan Aerospace UK pension plan transferred to annuity provider £m Plan assets at 31 December 2022 485 Plan liabilities at 31 December 2022 (433) Plan surplus at 31 December 2022 52 ▪ Trustees of one of the two UK pension plans in
Slide 36: New bank facilities
New bank facilities Melrose Bank Facilities Dowlais1 Bank Facilities c. £1.55bn2 multi-currency unsecured c. £1.8bn2 multi-currency unsecured facility facility Guaranteed by various group companies Guaranteed by various group companies 3 year 3 year 3-5 year 3 year Term loan 3-5 year RCF3 Term loan
Slide 37: Some helpful data for 2022
Some helpful data for 2022 Continuing operations Proforma post-demerger Item Melrose Melrose (Aerospace) Dowlais1 Income Statement Adjusted2 revenue £8,191 million £2,957 million £5,234 million Adjusted2 operating profit (pre-PLC costs) £518 million £186 million £332 million Adjusted2 EBITDA3 (pre-P