Melrose Industries Plc · LSE:MRO
Melrose Industries — FY2018 Earnings Presentation
31 slides from Melrose Industries's earnings presentation, Mar 7, 2019
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 2018 7 March 2019
Slide 2: Contents
Contents 1 Highlights 2 The results 3 Annualised adjusted results 4 Businesses – investment & improvement 5 Appendix Buy Improve Sell 1
Slide 3: Highlights
Buy Improve Sell Highlights 2
Slide 4: Highlights
Highlights The results for 2018 are ahead of the Board’s previous expectations This outperformance has been achieved before including a £63 million positive impact from the required IFRS accounting treatment for loss-making contracts. Resolution of these loss-making positions offers significant
Slide 5: The results
Buy Improve Sell The results Buy Improve Sell 4
Slide 6: Income Statement
Income Statement The results Statutory Adjusted1 £m results results Revenue 8,605 9,102 Operating (loss)/profit (392) 847 (Loss)/profit before tax (550) 703 Diluted earnings per share (12.0)p 13.3p The statutory and adjusted1 results include GKN for the eight months since acquisition on 19 April 2
Slide 7: Reconciliation between statutory, adjusted and annualised adjusted results
Reconciliation between statutory, adjusted and annualised adjusted results £m Statutory operating loss (including 8 months of GKN) (392) Amortisation of intangible assets acquired in business combinations 401 Restructuring costs 240 Acquisition and disposal costs including associated transaction tax
Slide 8: Cash generation in the year
Cash generation in the year Free cash flow Reconciliation of opening debt to closing debt Cash flow Group Reconciliation of net debt Group £m 2018 £m 2018 Adjusted operating cash flow (pre capex)1 921 Net debt brought forward (572) Net capital expenditure (359) Net debt acquired with GKN (1,159) Net
Slide 9: Annualised adjusted results
Buy Improve Sell Annualised adjusted results Buy Improve Sell 8
Slide 10: Income Statement
Income Statement The unaudited annualised adjusted1 results – including 12 months of GKN Annualised adjusted1 results £m including 12 months of GKN Revenue 12,247 Operating profit 1,095 Profit before tax 886 Diluted earnings per share 13.8p The annualised adjusted1 results include a full 12 months
Slide 11: 2018 annualised adjusted Income Statement
2018 annualised adjusted Income Statement Annualised adjusted1 Income Statement Pre-positive Positive impact of impact of loss-making loss-making Annualised £m contracts contracts results Revenue 12,247 - 12,247 Operating profit 1,002 93 1,095 Finance costs (195) (14) (209) Profit before tax 807 79
Slide 12: Segmental performance
Segmental performance Annualised adjusted1 results – assumes ownership of GKN from 1 January 2018 Operating Operating Operating margin profit/(loss) profit/(loss) Annualised pre-positive Positive post-positive Pre-positive Post-positive sales impact of impact of impact of impact of impact of growth2
Slide 13: GKN acquisition – loss-making contracts
GKN acquisition – loss-making contracts Loss-making contracts 2018 annualised Percentage of Total utilisation of annual sales provision the provision that are recognised on in operating £m loss-making acquisition profit Aerospace 9% 316 51 Automotive 13% 200 27 Powder Metallurgy 6% 106 12 Other Indu
Slide 14: Foreign exchange forward looking
Foreign exchange forward looking 2018 2017 Exchange rates USD EUR USD EUR 12 month average rates 1.33 1.13 1.29 1.14 8 month average rates for GKN (19 April – 31 December) 1.31 1.13 n/a n/a Closing rates (December) 1.27 1.11 1.35 1.13 Income Statement volatility – Translational impact Balance Shee
Slide 15: Businesses – investment & improvement
Buy Improve Sell Businesses – investment & improvement Buy Improve Sell 14
Slide 16: GKN Aerospace, Automotive & Powder Metallurgy
GKN Aerospace, Automotive & Powder 79% of Melrose1 Metallurgy Aerospace Automotive Powder Metallurgy Revenue by product type Revenue by product type Revenue by product type 1 Aerostructures (63%) 1 Driveline (73%) 1 Automotive (67%) 2 Engine Systems 34 2 All Wheel Drive (25%) 2 Industrial (16%) 3 (3
Slide 17: Aerospace – trading
Aerospace – trading Annualised adjusted1 results Operating Operating £m Revenue profit/(loss) margin US Aerostructures 617 (6) (1.0%) Aerospace other 2,917 296 10.1% Positive impact of loss-making - 51 - contracts Total 3,534 341 9.6% Growth / Markets Global aerospace market remains strong and GKN
Slide 18: Automotive – trading
Automotive – trading Annualised adjusted1 results Operating Operating £m Revenue profit/(loss) margin Driveline 3,015 242 8.0% China 650 84 12.9% All Wheel Drive 1,219 89 7.3% eDrive 65 (54) - Total 4,949 361 7.3% Growth / Markets Current uncertainties in the automotive market but the GKN improvem
Slide 19: Powder Metallurgy – trading
Powder Metallurgy – trading Annualised adjusted1 results Growth2 Revenue 1,212 6% EBITDA1 197 5% EBITDA1 margin % 16.3% -0.2 ppts Operating profit 143 3% Operating margin % 11.8% -0.3 ppts Growth / Markets Some market uncertainty due to automotive but has consistently outperformed peers’ sales gro
Slide 20: Nortek Air & Security
Nortek Air & Security 12% of Melrose1 Revenue by geographical destination Revenue by end market 1 N America (95%) 1 Home (69%) 2 2 RoW (5%) 3 4 2 Work (21%) 3 Health (6%) 2 4 Education (4%) 1 1 1. Based on annualised adjusted 2018 revenue for all businesses 19
Slide 21: Nortek Air & Security
Nortek Air & Security 2018 £m adjusted1 results Growth2 Revenue 1,458 (4%) EBITDA1 222 (3%) EBITDA1 margin % 15.2% +0.2 ppts Operating profit 198 (4%) Operating margin % 13.6% flat Growth / Markets A good market backdrop in Air Management with a significant growth opportunity in StatePoint Liquid
Slide 22: Other Industrial
Other Industrial 9% of Melrose1 Revenue by geographical destination Revenue by business 1 Europe (49%) 1 Ergotron (22%) 4 2 N America (37%) 3 4 2 Brush (17%) 1 3 Asia (9%) 3 Walterscheid 1 4 RoW (5%) Powertrain (38%) 2 4 Wheels & 2 Structures (23%) 3 1. Based on annualised adjusted 2018 revenue for
Slide 23: Other Industrial
Other Industrial Annualised £m adjusted1 results Growth2 Revenue 1,094 1% EBITDA1 136 (8%) EBITDA1 margin % 12.4% -1.2 ppts Operating profit 116 (3%) Operating margin % 10.6% -0.4 ppts Ergotron is operating in a challenging market influenced by tariffs - Brand new management team - New products be
Slide 24: Appendix
Buy Improve Sell Appendix 23
Slide 25: Some helpful data for 2018
Some helpful data for 2018 Item Income Statement Cash Flow 2018 adjusted results annualised results 2018 adjusted results annualised results Adjusted operating profit £847 million £1,095 million £847 million £1,095 million Positive impact of loss-making (£63 million) (£93 million) (£63 million) (£93
Slide 26: Segmental performance
Segmental performance Adjusted1 results Operating margin Operating Operating profit/(loss) pre- profit/(loss) Pre-positive Post-positive positive impact Positive impact post-positive impact of impact of of loss-making of loss-making impact of loss- loss-making loss-making £m Revenue contracts contra
Slide 27: Acquisition of GKN – assets and liabilities
Acquisition of GKN – assets and liabilities Impact of fair value adjustments Fair value Acquisition at 19 April 2018 Acquired and other Fair value £m Balance Sheet adjustments Balance Sheet Goodwill 466 2,056 2,522 Intangible assets 488 5,243 5,731 Tangible assets (including computer software and de
Slide 28: Pensions – Group defined benefit schemes
Pensions – Group defined benefit schemes Group 2018 2019 2019 annualised Accounting deficit – 31 December 2018 annual cash special cash interest £m Assets Liabilities Deficit contributions contributions charge UK 2,791 (3,378) (587) 62 94 18 USA 412 (565) (153) 10 - 5 Europe 29 (690) (661) 23 - 13 R
Slide 29: Pensions – UK defined benefit schemes
Pensions – UK defined benefit schemes UK 2019 2019 31 December 2018 Surplus annual cash special cash £m Assets Liabilities /(deficit) contributions contributions GKN 2016 522 (495) 27 - - GKN 2012 2,007 (2,613) (606) 60 94 GKN post retirement medical - (9) (9) 1 - Nortek Air & Security 18 (30) (12)
Slide 30: Interest and tax
Interest and tax Interest At 31 Income Interest Facility December Statement £m size 2018 rate Cash rate Approximately 50% of interest exposure Bonds fixed on projected gross debt, will move 2019 6.75% unsecured bond 350 350 1.8% 6.8% towards 70% 2022 5.375% unsecured bond 450 450 2.9% 5.4% Signi
Slide 31: Impact of IFRS 16: Leases
Impact of IFRS 16: Leases After Current lease application of £m accounting IFRS 16 Net impact Income Statement Revenue - - - Depreciation - (75) (75) Other operating costs (85) - 85 Adjusted operating profit (85) (75) 10 Finance costs - (20) (20) Adjusted profit before tax (85) (95) (10) Cash flow A