Melrose Industries PLC · LSE:MRO
Melrose Industries — Investor Day (July 2011)
54 slides from Melrose Industries's investor day presentation, Jul 6, 2011
Slide 1: Capital Markets Day - Two Way Bet
Capital Markets Day - “Two Way Bet” 6 July 2011 Excellent „buy, improve, sell‟ track record Strong end market exposure Ready for the next one but Now investing for growth will remain patient
Slide 2: Disclaimer
Disclaimer By attending the meeting where this presentation is made, or by reading this document, you agree to be bound by the limitations set out below. This presentation is being communicated only to those persons falling within Article 19 or Article 49 of the Financial Services and Market Act 200
Slide 3: Agenda
Agenda Sections Title Title 1 Introducing the team 2 Melrose 3 Bridon 23% of Melrose’s revenue¹ 4 Crosby 16% of Melrose’s revenue¹ 5 Brush Turbogenerators 27% of Melrose’s revenue¹ 6 Conclusion and Q&A Notes 1 2010 revenue post sale of Dynacast 2 Agenda
Slide 4: Introducing the team
Introducing the team Melrose Executive team Christopher Miller David Roper Simon Peckham Geoffrey Martin Executive Chairman Chief Executive Chief Operating Officer Group Finance Director Business Chief Executives Jonathan Templeman Larry Postelwait Martyn Vaughan Chief Executive Chief Executive Mana
Slide 5: Melrose
| Melrose
Slide 6: What is our strategy: buy, improve, sell
What is our strategy : „buy, improve, sell‟ Buy We are opportunistic in our approach Buy good manufacturing businesses, underperforming their potential − Look for opportunity to grow value and margins Use public market leverage Melrose management are substantial equity investors Improve Mu
Slide 7: Our track record for a shareholder
Our track record for a shareholder … even through a downturn Earnings and dividends per share1 Total shareholder return2 Acquisition equity increase Source: Datastream 25.4 Melrose 35% 3.2x FTSE 350 2.5x so far 16.1 16.6 21% 21% 11.0 7.0 7.7 9% 7% 7% 2008 2009 2010 Start of Melrose McKechnie / FKI
Slide 8: Our track record operational improvement
Our track record operational improvement Revenue growth (compound) Operating margin¹ improvement Cash generation +6pps 24% 16% +5pps >120% 16% 18% +5pps 6% 15% Average6 headline5 11% operating profit 2 conversion to cash 10% (post capex) Dynacast McKechnie³ Entry Exit / current Superior revenue
Slide 9: Current position: two way bet
Current position: two way bet Leading with current businesses Current businesses End markets have strong growth prospects over have strong markets the medium term 1 and more operational Energy, Oil & Gas and Mining make up half the improvement to come Group‟s end markets Investment plans to su
Slide 10: Group profile post Dynacast - 2010
Group profile post Dynacast - 2010 Revenue by division Revenue by end markets Headline operating margin by division1,2 Oil & Gas, Energy and Mining (51%) 17.2% 19% 41% 17% 15.8% 21% Oil & Gas 11.7% Energy Energy Lifting Mining 9% Other Industrial Industrial Hardware 40% 19% 29% Other Energy Lifting
Slide 11: Investment for growth
Investment for growth Three current examples of investments being made: New facility bringing leading technological capabilities Creating international platform Aftermarket – considerable margin and unexploited potential Melrose average and expected investment (x depreciation) Melrose invest
Slide 12: Bridon
Bridon Jonathan Templeman – Chief Executive 23% of Melrose‟s 2010 revenue (post sale of Dynacast): 23%
Slide 13: Products overview
Products overview Oil & Gas Mining Crane and industrial Specialist fibre and steel rope High quality steel wire ropes High performance wire ropes Mooring, drilling, pipe laying and crane ropes for Shaft mining, surface mining and cable-belt ropes Construction (cranes) and general engineering /
Slide 14: Locations overview
Locations overview Global reach - 11 manufacturing and 12 distribution / sales locations worldwide Big Hydra rope - Take Pre - form head on up stand closer machine Frigerio wire drawing machine Large closer Galvanising International Site Services machine 11 manufacturing locations 12 distribution/sa
Slide 15: Financial performance
Financial performance Revenue Headline³ operating profit growth (%) Cash conversion £246m +35% £238m £237m (15%) +3% (4%) +21% 105% Average headline³ operating profit conversion to cash (post capex) in Melrose ownership 1,2 2008 2009 2010 2007 2008 2009 2010 Revenue in 2010 4% below 2009 Margin
Slide 16: Sales by end market and geography
Sales by end market and geography Sales breakdown by end market, 2010 Sales breakdown by geography, 2010 9% 3% 14% 6% 28% 8% 39% Oil & Gas and Mining (45%) 31% 32% 17% 1% 12% Oil & Gas Mining Asia North America Oceania South & Central America Industrial Structures Europe & ME Af rica Fishing & marin
Slide 17: Competitive position
Competitive position Wire rope sector – c.1,800k tonnes¹ Served by sector Sector suppliers c.550k tonnes 9% 2% 15% 44% Served c.5 50k 46% 12% t o nn es 26% 12% Oil & Gas and Mining (63%) 2% 7% 3% 5% 17% Oil & Gas Mining Industrial KisWire Bridon WireCo Usha Structures Fishing Haggie Redaelli WWW Oth
Slide 18: Medium term growth prospects
Medium term growth prospects Strong, continued growth in the world’s oil & gas demand World energy demand by fuel World Demand Demand move from West to East 18000 16000 Higher oil prices enable exploitation of more 14000 12000 challenging reserves 10000 8000 IEA forecasts annual oil demand gro
Slide 19: Medium term growth prospects
Medium term growth prospects Increased global mining demand Steel consumption per capita (kg/year) Emerging Countries 10 100 1000 Metals demand in India is predicted to double in five 0 Japan & Korea years and remain robust for a decade (Bloomberg US & Canada CIS & CEE Population (million) Analyst
Slide 20: Key developments under Melrose ownership
Key developments under Melrose ownership Culture change Technology leadership Awaking the sleeping giant! Solutions Strategic direction and leadership Technical expertise Performance management system New product development – process, 3D design and FEA From “Blame” to “Game for” Eng
Slide 21: Investment and growth phase
Investment and growth phase Key investment overview Newcastle – new facility – New manufacturing facility – c. £20m investment in 2011 and 2012 – 9,000 tonnes of additional capacity – Will produce the next generation of ropes, the biggest and most capable in the world Doncaster – Investment in o
Slide 22: Global technology leadership
Global technology leadership Significant investment for the future: Project Neptune Overview State-of-the-art manufacturing facility Heavy lift transportation Leading rope technology Logistical flexibility Supporting ultra deep challenges Installation expertise World leading capacities
Slide 23: Global technology leadership
Global technology leadership At the forefront of technology: technology centre Overview Towards being the global technological leader Leading edge testing equipment Support to our new product development, leading to innovative products Artist’s impression 22 Global technology leadership
Slide 24: Global technology leadership: new products launched
Global technology leadership 11 new products launched in 2010, and strong pipeline New products Future developments Big T 8 Bristar Dragline Ropes Mooring lines made with highly drawn polymer wires Endurance Dyform 50DB Stainless Steel Dyform Assembly 23 Global technology leadership
Slide 25: Concluding remarks
Concluding remarks 1 Continued investment under Melrose’s ownership Investing in innovative new products that will deliver real benefits for our customers Investing to create the world‟s leading rope manufacturer A pipeline of projects - new facility in Newcastle coming on-line next year 2 Cle
Slide 26: The Crosby Group
The Crosby Group Larry Postelwait – Chief Executive 16% of Melrose‟s 2010 revenue (post sale of Dynacast): 16%
Slide 27: Products overview
Products overview World leading manufacturer of lifting products Block and Sheave Energy products Heavy lifts Standard products family Hardware family Manufacturer of a complete line of lifting products, marketed through a worldwide group of specialty distributors and OEMs 26 Products overview
Slide 28: Locations overview
Locations overview Global reach with manufacturing facilities in Europe, North America and China Belgium, Putte Holland, IP Clamps UK, Premier Stampings Approximate number of distributors Crosby USA: 1,190 Canada, Brampton Crosby International: 80 Crosby Europe: 1,070 Crosby Canada: 98 Engineering M
Slide 29: Financial performance
Financial performance Revenue Headline¹ operating profit growth (%) Cash conversion £192m +14% +27% £170m 120% £160m (41%) (17%) +6% Average headline¹ operating profit conversion to cash (post capex) in Melrose ownership 2008 2009 2010 2007 2008 2009 2010 Revenue in 2010 11% below Operating marg
Slide 30: Sales by end market and geography
Sales by end market and geography Sales breakdown by end market, 2010¹ Sales breakdown by geography, 2010 52% 28% 20% Energy, Oil & Gas and Mining (61%) 15% 11% 65% 9% North America Energy and Oil & Gas Latin America, Asia and Middle East Mining Infrastructure Europe and Africa Industrial/Constructi
Slide 31: Competitive position
Competitive position Sector share analysis Crosby NA Crosby Europe Crosby International Sector size¹ c. $380m c. $280m c. $190m 22% 18% 43% Sector share¹ Key customers Certex Certex KTL HHI SIRTEF Aqua Terra Delta Cosalt Offshore Lam Hong Ackland Global Lifting Services ProCa
Slide 32: Medium term growth prospects
Medium term growth prospects Market sectors – Energy and Oil & Gas Global Oil & Gas upstream capex outlook ($m) $600m 2010-12E CAGR of 17% Energy and Oil & Gas (52%) 17% $500m 483 424 $400m 379 338 353 $300m 22% $200m 4% $100m 9% Energy - offshore - Energy - land-based 2008 2009 2010 2011E 2012E Alt
Slide 33: Medium term growth prospects
Medium term growth prospects Market sectors – Mining, Construction and Industrial Global mining capital and exploration expenditure ($bn) 200 190 180 2010-15E CAGR of 14% 173 180 Mining, Construction 154 160 140 10% and Industrial (48%) 140 122 120 111 95 92 98 100 9% 80 65 72 60 41 40 20 0 2011E 20
Slide 34: Key developments under Melrose ownership
Key developments under Melrose ownership 1 Provided the investment to grow the business 2 Targeted several emerging markets that will continue to expand our global scope 3 Expanded focus on emerging markets has supported the entry to new markets and driven the penetration of growing markets in China
Slide 35: Investment and growth phase
Investment and growth phase Capital investment greater than depreciation Comments Previously focused on the North America markets 2008 – 2010 Melrose invested In the last three years $23.8 million dollars or an average of $8m/year Investing into international platform – Target key growth marke
Slide 36: International expansion
International expansion The Europe plan Key strategic actions Crosby in Europe Reorganised outside sales similar to the US model Consolidated all inside sales into one location in Belgium with our new warehouse Currently rationalising manufacturing performed in all of Europe United Opened a
Slide 37: International expansion
International expansion The Brazil plan Key strategic actions Crosby in Brazil Identified as a key growth market Ve. G. 50oW Colombia Sur. F.G. 500 KM Roraima N Crosby products address what management Amapá 1px = 10.6 km believes to be expanding Brazilian offshore and Rio Grande ship-building ma
Slide 38: International expansion
International expansion The China plan Key strategic actions Crosby in China Expand distribution network: GLE (mining), LV Yang (Offshore) Increased customer base with new OEM for Sheaves and Blocks New manufacturing capabilities with value added Hangzhou, China services (e.g. welding, cleanin
Slide 39: Concluding remarks
Concluding remarks 1 Present in attractive end markets with strong growth prospects 2 International expansion remains a key priority A plan to grow global exposure with focused investment Strategy paying off in Europe, Brazil, China, India and Sakhalin Island 3 Investment focus under Melrose’s o
Slide 40: BRUSH Turbogenerators
BRUSH Turbogenerators Martyn Vaughan – Managing Director 27% of Melrose‟s 2010 revenue (Post sale of Dynacast): 27%
Slide 41: Products overview
Products overview The world’s largest independent manufacturer of turbogenerators for the power generation industry Products Applications Aftermarket 2 and 4 pole air cooled Hydrogen and combined cooled Power stations Combined cycle plants Parts turbogenerators generators Offshore platforms FPSO Tra
Slide 42: Locations overview
Locations overview Manufacturing sites Locations of BRUSH generators around the world Loughborough, UK 903 employees North America – 1,059 Established 120 years 2 Pole DAX 10-150 MVA generators 11/33/132 kV transformers Power/load management Europe- 1,162 DAX Aftermarket Ridderkerk, Neth
Slide 43: Financial performance
Financial performance Revenue Headline² operating profit growth (%) Cash conversion £295m +41% £282m £272m +67% +9% 126% (8%) +4% Average headline² operating profit conversion to cash (post capex) in Melrose ownership 1 2008 2009 2010 2007 2008 2009 2010 Revenue still 4% below 2008 Continued mar
Slide 44: Sales by end market and geography
Sales by end market and geography Sales¹ breakdown by end market, 2010 Sales² breakdown by installation, 2010 Base load power Peak lopping Combined heat/power plants Combined cycle plants Solar power plants 6% 1% 5% North America Aftermarket: 30% 30% South America Europe 45% 26% MEA OEM As
Slide 45: Competitive position
Competitive position Sector share, 2010 All sectors > 20MW Key customers Gas turbine Steam turbine Others, 25% Siemens, 27% BHEL, 6% Shanghai, 8% GE, 22% BRUSH, 12% Focus - Gas Turbine Sector 20 – 130MW BHEL, 3% Others, 2% Nanjing, 1% Siemens, GE, 29% 14% BRUSH, 51% The l
Slide 46: Medium-term growth prospects
Medium-term growth prospects …replacement capacity required in Emerging markets in need of new capacity… mature economies The global power market Installed plant exceeding 40 years of age By technology By region China 8% 6% 1% Middle East 6% Coal 8% 39% GW 30% Gas Russia & Eastern Europe Wind 8% 16%
Slide 47: Key developments under Melrose ownership
Key developments under Melrose ownership Brush Turbogenerators – the first three years Key developments Productivity - sales and profit per employee Increased productivity Greater focus on Aftermarket £295m 120 Margin improvement £272m £282m 115 110 Reduced lead times 105 100 95 Extend cur
Slide 48: Focusing on Aftermarket
Focusing on Aftermarket Growing the offering Strengths of BRUSH – Knowledge and product strong … but need investment Target to get “They are technologically “Overall, its their to >30% competent and the engineers professionalism and you they have are very know if BRUSH are doing a experienced and co
Slide 49: Focusing on Aftermarket
Focusing on Aftermarket The strategy Why? Exploit large Brush installed base and Brush brand 25 year average generator lifespan Aftermarket revenue potential Attractive gross margins End customer preference for OEM service Brush historically under-represented How? New investment in peopl
Slide 50: Investment and growth phase
Investment and growth phase Strategy First 3 years Increased productivity – Sales / employee +19% – Profit / employee +90% Aftermarket sales 30% – % of total sales Reduced lead times -15% – Order to delivery Considerable investment opportunities in Aftermarket (e.g. GMS) Historically under
Slide 51: Concluding remarks
Concluding remarks 1 Strong and respected brand with premium product Supplying to over 130 markets worldwide 2 Good forecast market growth in next 5 years Strong energy and oil & gas market exposure 3 Greater focus on Aftermarket Installed fleet of 4,000+ generators Significant investment op
Slide 52: Conclusion
| Conclusion
Slide 53: Conclusion: Two Way Bet
Conclusion “Two Way Bet” Excellent „buy, improve, sell‟ track record Strong end market exposure Ready for the next one but Now investing for growth will remain patient 52 Conclusion
Slide 54: Q&A
| Q&A