Slide 1: Acquisition of Elster - Analyst presentation
Buy Improve Sell Strictly private and confidential Melrose PLC Acquisition of Elster Analyst presentation
Slide 2: Disclaimer
Disclaimer By attending the meeting where this presentation is made (whether in person, or by telephone), or by reading this document, you agree to be bound by the limitations set out below. This presentation has been prepared by or on behalf of Melrose PLC (“Melrose” or the “Company”) in relation t
Slide 3: Contents
Contents Sections 1 Executive summary 2 Elster – buy, improve, sell 3 Balance sheet 4 Melrose post acquisition 5 Transaction structure & timetable 6 Appendix Buy Improve Sell 3
Slide 4: Executive summary
Buy Improve Sell Executive summary Buy Improve Sell 4
Slide 5: Executive summary - an excellent opportunity
Executive summary - an excellent opportunity Elster is a world leading engineering company, established over 100 years ago, designing and making meters and gas utilisation products mainly for the energy market Elster has strong end markets and has margin improvement opportunities A fair price
Slide 6: Elster - an excellent fit
Buy Improve Sell Elster an excellent fit Buy Improve Sell Buy Improve Sell 6
Slide 7: Elster - Buy
Buy Improve Sell Elster Buy Buy Improve Sell 7
Slide 8: Six clear reasons to buy
Buy Six clear reasons to buy… A good 1. manufacturing Strong fundamentals, fits the Melrose acquisition criteria business Fair price for a 2. high quality Recognising there are opportunities to improve performance business Strong end 3. Growth drivers of energy demand, energy conservation and gasifi
Slide 9: A good manufacturing business
Buy A good manufacturing business… …We buy good manufacturing businesses that can be improved… A good quality business Strong end markets Good market share Strong cash generation Energy demand, energy Global number 1 in gas Turns profit into cash conservation and gasification Global top 3 in both Lo
Slide 10: Strong end markets
Buy Strong end markets… Key growth drivers Melrose Pre acquisition revenue by Post acquisition Energy demand end market1 6 6 Energy conservation 1 5 Gasification 5 4 1 3 4 2 2 3 Elster is dominated by gas 54% Energy, Oil & Gas, Mining 68% Energy, Oil & Gas, Mining Gas 1 Energy 31% 1 Energy 57% (Upst
Slide 11: Significantly better market position than competitors
Buy Significantly better market position than competitors Global gas no.1… Overall position in metering Gas dominated highest margin sector Total market share Gas market share 1 1 7 6 2 Elster, 16% Elster, 29% No.2 overall 6 2 Clear No.1 in Gas 5 3 5 4 4 3 1 Itron 19% 1 Elster 29% 2 Elster 16% 2
Slide 12: Global leader in gas solutions
Buy Global leader in gas solutions… Golden age of gas usage 79% of profit¹ driven by gas sector Products supplied to many parts of the gas chain… <75% of gas sector in Elster4 >25% of gas sector in Elster4 Upstream Midstream Downstream Utilisation Production Meters and Processing regulators for: Liq
Slide 13: Smart technology - increasing global adoption
Buy Smart technology – increasing global adoption… Current Elster revenue split: Smart market growing significantly faster¹ Smart 27% Smart +14% Traditional 73% 1. CAGR 09 - 14 Traditional -5% Gas Electricity Water SOURCE: Pike Research 3Q 2010 : Smart Meter Market Forecasts (2011) “Smart Gas Meters
Slide 14: Elster - Improve
Buy Improve Sell Elster Improve Buy Improve Sell 14
Slide 15: Five opportunities to improve
Improve Five opportunities to improve… Recent profit 1. performance Reasonable revenue growth but costs increased and margins down relatively static Announced 2. operational Gross cost saving equivalent to 2 percentage points of margin restructuring 3. Product mix Revenue growth in higher margin pro
Slide 16: Recent profit performance relatively static
Improve Recent profit performance relatively static… Elster results 2009 2010 2011 Revenue (£m) 1,059 1,100 1,168 Ebitda1 (£m) 175 186 183 Ebitda1 margin (%) 16.5% 16.9% 15.7% Headline2 operating profit (£m) 142 154 150 Headline2 operating profit margin (%) 13.4% 14.0% 12.8% 2009 – 2011 performance
Slide 17: Significant restructuring opportunity and benefits
Improve Significant restructuring opportunity and benefits… Current operations Trades in 130+ countries Some centres of real excellence Opportunity to restructure Operations in 30+ countries Restructuring opportunity This is the existing Elster plan, endorsed by Melrose 2011 2014 Large sites 21 17
Slide 18: Significant product mix benefits
Improve Significant product mix benefits… More Gas highest margin More Smart highest value products 2011 ebitda¹ margin by sector Average selling price2 Traditional vs. ‘Smart’ Smart – two way communication3 24% Smart – one way communication3 Traditional3 11% 5% Gas Electricity Water Gas Electri
Slide 19: Investment & development opportunities
Improve Investment & development opportunities… Investment and development opportunities to improve the quality of the business Global operations Technology Bolt on New products infrastructure improvements acquisitions Invest in operations to Significant opportunities c.40% of the market consists
Slide 20: Elster - Sell
Buy Improve Sell Elster Sell Buy Improve Sell 20
Slide 21: Plenty of flexibility
Sell Plenty of flexibility… Normal hold time frame approximately 3 - 5 years but flexible Melrose track record equity increase No current intention to sell any part of Elster 3.2x Previous ownership in the sector has been by: 2.5x ‒ Trade ‒ Private equity ‒ Public McKechnie / FKI to date 1 So
Slide 22: Balance sheet - strong and clean
Buy Improve Sell Balance sheet strong and clean Buy Improve Sell 22
Slide 23: Balance sheet - strong and clean
Balance sheet strong and clean… Pensions Working capital £117 million gross liabilities Working capital as a percentage of revenue is 12.1%. This is considered Equal to only 7% of Enterprise Value efficient Gross pension liabilities as a percentage of purchase price Tax FKI McKechnie/ Elster Dynac
Slide 24: Melrose - post acquisition
Buy Improve Sell Melrose post acquisition Buy Improve Sell 24
Slide 25: Melrose and Elster combined
Melrose and Elster combined… Headline4 Existing debt Headline4 Revenue Ebitda3 operating / acquisition Net debt / operating Proforma 2011 year end numbers¹ (£m) (£m) profit margin debt ebitda3 profit (£m) (%) (£m) Melrose 1,154 204 181 15.7% 290 1.4x Elster 1,168 1835 1505 12.8% 310 1.7x Combined 2,
Slide 26: Transaction structure & timetable
Buy Improve Sell Transaction structure & timetable Buy Improve Sell 26
Slide 27: Summary of deal
Summary of deal… Melrose proposing to acquire Elster for $20.50 per ADS¹ − Values Elster enterprise value at £1.75 billion Fully underwritten Rights Issue for c.£1.2 billion New bank facility of £1.5 billion, committed on a certain funds basis, to refinance existing Melrose facilities, repay e
Slide 28: Transaction funding
Transaction funding… Rights Issue summary New Debt Facility £1.5 billion committed 5 year facility Proposed gross proceeds c.£1.2bn Underwritten on certain funds basis by 7 banks; Barclays, Commerzbank, HSBC, J.P. Morgan, Lloyds, Royal Bank of Canada, Royal Bank of Scotland Rights Issue term
Slide 29: Expected Timetable
Expected Timetable… Transaction announcement, posting of circular and notice of General Meeting and publication of the prospectus: 29 June 2012 Record date for rights issue: COB on 12 July 2012 Melrose General Meeting: 16 July 2012 Nil-paids trading expected to commence: 17 July 2012 Lates
Slide 30: Appendix
Buy Improve Sell Appendix Buy Improve Sell 30
Slide 31: Elster US GAAP to IFRS conversion
Elster US GAAP to IFRS conversion Depreciation Other (incl non- Operating Finance Net 2011 results (£m)5 Ebitda¹ and Tax GAAP profit costs income amortisation adjustments) Elster results under US GAAP 175 (52) 123 (25) (21) (11) 66 Exclude amortisation of acquisition related intangible assets - 19 1
Slide 32: Price paid - multiple of ebitda
Price paid – multiple of ebitda¹ £m3 Elster 2011 ebitda1 under US GAAP 175 Net impact of IFRS adjustments 8 Elster 2011 ebitda1 restated under IFRS 183 Cash consideration at $20.50 per ADS4 1,446 Elster net debt at 31 March 2012 294 Enterprise value excluding net5 pension liabilities 1,740 Enterpris
Slide 33: Bonus adjustments
Bonus adjustments The effects of the Rights Issue Rights Issue summary4 Rights issue is treated as a bonus issue of Bonus element shares and an issue of fully paid up shares Share price at close 28 June 2012 369p Rights issue price 142p The bonus factor is used to reflect the bonus TERP 218p ele