Melrose Industries Plc · LSE:MRO
Melrose Industries — H1 2023 Earnings Presentation
29 slides from Melrose Industries's earnings presentation, Sep 7, 2023
Slide 1: Melrose Industries PLC Half Year Results
Strictly private and confidential Melrose Industries PLC Half Year Results Six months ended 30 June 2023 7 September 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 Highlights 2 Group results 3 Business overview 4 Appendices The revenue and profit numbers included in this presentation are shown in round millions and unless otherwise stated growth metrics are at constant currency 3
Slide 4: Highlights
Highlights Trading ahead, upgraded outlook; buyback to start early Buy Improve Sell 4
Slide 5: Highlights: trading ahead, upgraded outlook; buyback to start early
Highlights: trading ahead, upgraded outlook; buyback to start early ▪ Melrose performing very well – Upgrading 2023 expectations – new guidance – Promises being delivered and future very exciting – Full quality of Aerospace being realised and value released – Further underpins 2025 guidance ▪ Buybac
Slide 6: Group results
Group results Trading ahead of expectations and upgraded outlook 6
Slide 7: Results overview: trading ahead of expectations
Results overview: trading ahead of expectations Adjusted1 results Growth vs £m H1 2023 H1 2022 Revenue 1,633 19%2 EBITDA (pre-PLC costs) 245 68% EBITDA margin % 15.0% 4.8ppts Operating profit (pre-PLC costs) 175 146% Operating margin % 10.7% 5.8ppts PLC costs (16) £6m less Operating profit (post-PLC
Slide 8: Melrose Group cash generation: leverage reducing
Melrose Group cash generation: leverage1 reducing Free cash flow1 Cash flow Reconciliation of net debt1 £m H1 2023 £m H1 2023 Adjusted1 operating profit 159 Net debt1 as at 1 January 2023 (1,139) Depreciation and amortisation 71 Net cash outflow from Dowlais businesses to date of demerger2 (54) Leas
Slide 9: Upgraded 2023 full year guidance
Upgraded 2023 full year guidance Aerospace total (assuming US$ = 1.25) Adjusted1 2023 upgraded 2025 unchanged £m results H1 2023 guidance guidance Revenue 1,633 3,350 to 3,450 4,000 Adjusted1 operating profit 175 375 to 385 700 Adjusted1 operating margin 10.7% 11.2% 17% to 18% EBITDA1 245 525 to 535
Slide 10: Early share buyback and annual dividend
Early share buyback and annual dividend Early share ▪ Higher confidence and strong progress buyback ▪ Early start of October 2023 ▪ Starting with a £500 million buyback over 12 months and being well placed to continue thereafter ▪ Leverage comfortably within previous guidance of up to 2.5x Annual ▪
Slide 11: Business overview
Business overview Strong margin progression and structurally growing aftermarket 11
Slide 12: Unique Tier 1 technology supplier
Unique Tier 1 technology supplier Established positions on >70% >650 ALL insert revenue from sole source global patents of the world’s high icon? positions2 granted volume aircraft1 Engines RRSP4 >85% aftermarket entitlement on £20bn future Engines 100% future cash flow profit from of legacy narrowb
Slide 13: Encouraging H1 progress
Encouraging H1 progress Key themes from recent Capital Markets Event1 H1 2023 update ▪ Two market-leading Aerospace divisions: exceptional ▪ Strong growth and margin progression from both divisions Engines portfolio and design-led Structures business ▪ Good commercial and operational progress ▪ Stro
Slide 14: Structurally growing market
Structurally growing market Flight hours returning strongly OEM deliveries ramping up fast Defence spending increasing1 $bn Million 1 250 2,500 1,000 200 2,000 800 150 1,500 600 100 1,000 400 50 500 200 0 0 0 Source: Cirium Narrowbody Widebody Source: Teal Narrowbody Widebody Source: Statista ▪ Full
Slide 15: Positive earnings momentum
Positive earnings momentum Achieved breakeven on 27% lower sales Adjusted1 operating margin (%) ▪ Immediate actions to reduce costs based on lower demand 20 Delivered 390bps operating margin expansion on broadly flat 17-18% 18 sales 16 ▪ Accelerated restructuring and focused cost reduction 14 Margin
Slide 16: Divisional results
Divisional results Adjusted1 results H1 2023 Growth vs H1 2022 H1 2023 H1 2023 H1 2022 H1 2022 H1 2023 Operating Operating H1 2022 Operating Operating £m Revenue profit margin Revenue profit/(loss) margin Operating profit Operating margin Engines 608 149 24.5% 484 77 15.9% 82% 8.6ppts Structures 1,0
Slide 17: Engines: results
Engines: results Adjusted1 results Growth vs ▪ Sales growth of 19% including strong RRSP market growth and growing aftermarket repair £m H1 2023 H1 2022 2. Growth Revenue 608 19% ▪ Aftermarket sales up 46% led by 56% growth in civil engines aftermarket initiatives EBITDA 173 60% ▪ 82% increase in op
Slide 18: Engines: increasing RRSP contribution
RRSP market growth Engines: increasing RRSP contribution RRSP lifecycle OEM decision Programme Entry Production to invest launch into service ends Technology Product OE Aftermarket services development development production 30 years 7 years 7 years 15 years Turns cash Light investment Heavy investm
Slide 19: Engines: GTF overview
RRSP market growth Engines: GTF overview Fundamentally excellent engine platform GTF engine ▪ Powers 1,600 aircraft with 60+ operators; 10,000 engines ordered by 90+ customers1 ▪ 23 million hours flown, carrying 860 million passengers1 ▪ Market leading fuel efficiency makes GTF valuable, especially
Slide 20: Engines: outstanding future cash flows
RRSP market growth Engines: outstanding future cash flows 1 GKN Engines RRSP net cash inflow Net present values £m of future expected cash flow5 ▪ 19 RRSP programmes across OEMs 750 £5.5bn ▪ 17 programmes already cash positive Actual annually 650 OE delivery forecast² ▪ ~55%6 of Engines sales from R
Slide 21: Engines: expansion plan on track
Engines: expansion plan on track 2. Growth initiatives Growth initiatives Business improvements ▪ Outstanding growth opportunity in parts repair with 21% ▪ Operational excellence to improve productivity growth in H1 2023 ‒ Cost of poor quality reduced by 19% due to ongoing adoption – Johor, Malaysia
Slide 22: Structures: results
Structures: results Adjusted1 results Growth vs ▪ Sales growth of 18%2 as customer deliveries ramp-up despite supply chain constraints £m H1 2023 H1 2022 Revenue 1,025 18%2 ▪ Structures division profitable after loss-making H1 2022 EBITDA 72 92% ▪ Benefits of revised pricing arrangements and operati
Slide 23: Structures: margin expansion drivers on track
Structures: margin expansion drivers on track Civil ramp-up Defence repricing and Restructuring and rationalisation operational excellence ▪ Strong volume growth, led by narrowbody ▪ Defence multi-year contract renegotiation ▪ Footprint rationalisation well underway and (40% of Civil) revenue up 24%
Slide 24: Sustainability
Sustainability ▪ Improved scores with the ESG rating agencies – MSCI ‘A’ and Sustainalytics management score Refocusing as ▪ New targets to be set – to be published in March 2024 in alignment with UN SDG Aerospace ▪ Evolution of TCFD report, expanded Scope 3 reporting, submitting SBTi targets for va
Slide 25: A compelling equity case
A compelling equity case Strong market ▪ Rapid aerospace market recovery, followed by long-term structural growth growth ▪ Technology embedded on the world's most successful, highest volume platforms 1 ▪ RRSP work largely done on engine build, but with entitlement to lifetime share of Huge Engines a
Slide 26: Q&A
Q&A Buy Improve Sell 26
Slide 27: Appendices
Appendices Buy Improve Sell 27
Slide 28: Reconciliation between statutory and adjusted results
Reconciliation between statutory and adjusted1 results Continuing operations Cash spent £m Total H1 2023 Statutory operating loss (18) Amortisation of intangible assets acquired in business combinations 131 - Restructuring costs 49 53 Equity settled compensation scheme charges 26 - Exchange movement
Slide 29: Some helpful data for H1 2023
Some helpful data for H1 2023 Income Statement H1 2023 Cash flow H1 2023 Revenue: Depreciation: Owned assets £59 million Engines £608 million Leased assets (pre-PLC) £11 million Structures £1,025 million Total depreciation (pre-PLC) £70 million Aerospace £1,633 million Capital expenditure ratio to o