Melrose Industries Plc · LSE:MRO
Melrose Industries — Investor Day (May 2021)
83 slides from Melrose Industries's investor day presentation, May 20, 2021
Slide 1: Melrose Industries PLC Investor Day
Melrose Industries PLC Investor Day New sustainable technology driving above market growth Clear path to improve operating margins 20 May 2021
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. Key messages from the Melrose CEO 2. Powder Metallurgy 3. Automotive 4. Closing remarks from the Melrose CFO 1
Slide 4: Key messages from the Melrose CEO
Key messages from the Melrose CEO 2
Slide 5: Key messages from the Melrose CEO
Key messages from the Melrose CEO • GKN Automotive and Powder Metallurgy are both high quality businesses with leading market shares • Both can profitably grow ahead of their markets • Operating margin targets for both are achievable and well in progress • Both businesses only require a partial mark
Slide 6: GKN Powder Metallurgy
Buy Improve Sell Melrose GKN Powder Metallurgy
Slide 7: Executive summary
Executive summary Global leader in Powder Metallurgy A clear path to improve to 14% operating margin1, over two thirds of sales already above 14% margins Growth in the core business with market share gains, of which one third of the requirement to 2030 is already won Incremental high growth from exc
Slide 8: Experienced team with a new approach
Experienced team with a new approach Executive leadership team Name Position Experience Peter Oberparleiter Chief Executive Officer 30+ years Diego Laurent Chief Financial Officer 25+ years Chief Operations Officer Guido Degen GKN Additive 30+ years Chief Operations Officer Wolfram Messner GKN Sinte
Slide 9: The world's #1 in powder metallurgy
The world’s #1 in powder metallurgy SINTER METALS POWDERS ADDITIVE NON- ONESINTER PERFORMING #2 global producer #1 global producer of powder metal of precision powder A global market leader Pioneering in safely metal parts in 3D printing storing green hydrogen 300,000 tons of powder sold per annum 1
Slide 10: Refocusing to OneSinter, the premium margin segment
Refocusing to OneSinter, the premium margin segment Revenue by segment + Hydrogen1 10%+ 18% 16% • Sinter business refocused into OneSinter and 12% non-performing to drive efficiencies • 16% non-performing already reduced to 10%+ 10%, to become zero in next few years • Active exit of certain lower ma
Slide 11: Growth through share gains and new technologies (2019-2030)
Growth through share gains and new technologies (2019-2030) Net business wins1 Growth in core New technology (⅓ already won) business Additive & Hydrogen 78% 10%+ c.2 to c.3% CAGR 78% 10%+ Reduction in ICE2 c.2% Plus High -1 to -2% CAGR CAGR Growth 2019 - 2030 Market volumes3 1.3% CAGR • Core busine
Slide 12: GKN PM is well placed to gain market share in OneSinter
GKN PM is well placed to gain market share in OneSinter GKN PM is the #1 player in segment, well GKN PM has been growing share and focusing placed to gain share on high value precision applications GKN (17%) Competitor A (~8%) Competitor B (~5%) Competitor C (~5%) £120 million Competitor D (~5%) Ann
Slide 13: Content per vehicle
Content per vehicle Average PM content per vehicle1 Split of Powder Metallurgy sales (2020)2 78% 10%+ 47% 53% 14 15 6 General industrial and automotive components ICE PHEV BEV Engine and transmission • Currently BEV content per vehicle below ICE and hybrid, but increasing as traditional OEMs ramp up
Slide 14: Medium term outlook robust; gaining pace from new technologies
Medium term outlook robust; gaining pace from new technologies Powder Metallurgy market1 growth, 2019-2030 Additive >20% CAGR Core c.2% CAGR Hydrogen represents a further growth Core growth ahead opportunity of market 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 GKN PM core market mix
Slide 15: Global leader in powder metal solutions
Global leader in powder metal solutions 13
Slide 16: Strategic evolution aligning with emerging megatrends
Strategic evolution aligning with emerging megatrends • Strategically evolved amidst a shifting industry landscape to maintain a competitive advantage • Distinct focus on technological investments 2020/21 • Acquisition of Forecast 3D • Pivoting towards more commercially beneficial California (US), a
Slide 17: GKN Powder Metallurgy today
GKN Powder Metallurgy today 2020 Revenue breakdown Additive RoW Powders 2% 6% 16% Powders 16% Asia 18% OneSinter North Sinter By Non- By America By 66% industrial1 end performing destination 44% segment 17% market Sinter 16% automotive1 67% Europe 32% Global leader in AM Sinter Metals Powders Metal
Slide 18: Long standing relationships with broad customer base
Long standing relationships with broad customer base Top powder customers Top sinter customers Revenue by powder customers Revenue by sinter customers Top 5 customers (38%) Top 5 customers (28%) Top 6-10 customers (14%) Top 6-10 customers (15%) Top 11-15 customers (8%) Top 11-15 customers (10%) Othe
Slide 19: Optimised global footprint strategically located close to our customers
Optimised global footprint strategically located close to our customers GERMANY 2 4 ROMANIA NORTH AMERICA 1 2 6 2 TURKEY CHINA 1 1 2 2 INDIA 2 ITALY MEXICO 2 BRAZIL 1 1 Additive Manufacturing sites Sinter Metals manufacturing plants 29 3 6,600 c. 400+ Powders manufacturing plants manufacturing globa
Slide 20: Highly efficient process that delivers extreme precision
Highly efficient process that delivers extreme precision Example products 1 Why Powder Metallurgy? Powder Metal Powders • Net shape product Various metal powders from Powder metal • Low waste, not a subtractive GKN Powders per requirement process Advanced titanium and steel powders • High precision
Slide 21: Environmental, Social and Governance
Environmental, Social and Governance Products Environment • 100% of the powder produced comes from recycled metal scrap • Significant year-on-year improvement • 99% of all PM products are recyclable • Water: Reduction of -5% in m3/shipped ton • Low waste production, not a subtractive process • Waste
Slide 22: Clear path to 14% operating margin
Clear path to 14% operating margin 20
Slide 23: Summary of 2020 financial performance
Summary of 2020 financial performance Full year revenue and margin (£m, %) 2020 H1 vs. H2 16.6% 2020 10.5% 12.2% H1 H2 ∆ 4.3% Revenue 396 509 +29% (£m) Operating 1,115 905 -0.8% 8.3% +9.1ppts margin (%) 2019 2020 Accelerated strategic actions Operating margin EBITDA margin Revenue • Concentration of
Slide 24: Clear refocus and restructuring plan to deliver 14% margin target
Clear refocus and restructuring plan to deliver 14% margin target Operating profit margin (%) Over two thirds of revenue already above ~2.0 - 14% margin 2.1% 2.25% 14.0% ~2.0 - 2.2% 2.25% 1 Rapidly reacted to the pandemic 11.8% 11.1% ~1.5 - • Adopted flexible workforce from the 1.5% 1.75% Partial fi
Slide 25: Projected improvements to achieve 14% margins
Projected improvements to achieve 14% margins Refocusing Restructuring £25m+ £24m+ opportunity opportunity opportunity 30% 80% realised realised • Commenced end of 2018 • Restructuring projects started in 2019 • Focus of opportunities on higher precision applications • Various projects executed in a
Slide 26: High growth from new technologies
High growth from new technologies 24
Slide 27: Additive Manufacturing
Additive Manufacturing Differentiated Technology Aligned With Our Expertise 25
Slide 28: Opening new markets & applications
Opening new markets & applications ADDITIVE Consumer electronics Space Industrial Technology partners Customers AM enables next Next generation rocket Next generation industrial generation sound engines and propulsion burners experience systems +20% energy efficiency ~10,0001 speakers for commercial
Slide 29: Summary position
Summary position ADDITIVE We offer the full value chain Metal Powder 3D Design 3D Printing First-class Platforms / Process Production end-to-end systems solutions end-to-end GKN Additive is a leading player in plastic and metal 3D printing • With five production locations and over 65 printers, the b
Slide 30: Serving local markets in a global print network
Serving local markets in a global print network ADDITIVE GLOBALLY and DIGITALLY CONNECTED Bonn Auburn Hills Bad Langensalza Carlsbad Danyang US, Carlsbad US, Auburn Hills EUROPE, Bonn EUROPE, Bad CHINA, Laser, FDM1, Laser Laser Langensalza Danyang MJF2 Binder Laser 1. FDM: Fused Deposition Modelling
Slide 31: Exciting new product line targeting Hydrogen storage
Exciting new product line targeting Hydrogen storage New emerging market with wide variety of applications, huge growth opportunity 29
Slide 32: We solve the hydrogen storage problem
We solve the hydrogen storage problem We store green hydrogen safely and use it for electric power, heat and mobility solutions Cost advantage vs. battery storage for capacity over 200kWh Li-ion Batteries Lithium-ion High Pressure Battery hydrogen Safety Medium risk Medium risk Low risk High Pressur
Slide 33: The heart of the system: it's metal hydride storage
The heart of the system: it’s metal hydride storage 100% recyclable Most Here we are at home: reliable system State-of-the-art technology safe on the made by us, the world market market leader for metal powder solutions Metal powder Pressed metal pellets H2 energy storage (<40bar at 60° / inherent)
Slide 34: A modular system for many needs
A modular system for many needs Micro grids & residential buildings Industry / transportation Power back-up Autonomy DUMA Engineering Customers / Partners Strong strategic • Clean Power - CO2 • Durability • Safety • Robustness partnerships optimized • Safety • Reliability • Safety Value • Increase r
Slide 35: Path to commercialisation
Path to commercialisation Develop & Launch Optimise Scale 2021 2022 2023 Market launch Branding GKN Product Hydrogen Mega Optimising Scaling-up timeline 1.0 System BETA Focus Growth with select Strategy application / + Partnerships + customers + Scale with GKN Hydrogen markets Focus Extension Target
Slide 36: Example market drivers for Hydrogen storage
Example market drivers for Hydrogen storage European Green Hydrogen Roadmap 10m tonnes Europe taking leading role on green hydrogen after launching EU hydrogen strategy green hydrogen 40GW 1m tonnes green hydrogen 6GW % 1GW 2019 2020-2024 2025-2030 Storage & flexibility needs Safety requirements Fun
Slide 37: Conclusion
Buy Improve Sell Melrose Conclusion
Slide 38: Conclusion
Conclusion Global leader in Powder Metallurgy A clear path to improve to 14% operating margin1, over two thirds of sales already above 14% margins Growth in the core business with market share gains, of which one third of the requirement to 2030 is already won Incremental high growth from exciting a
Slide 39: GKN Automotive
GKN Powder Metallurgy GKN Automotive 37
Slide 40: Executive summary
Executive summary Global leader in drive systems Transforming the business, with a clear path to >10% profit1 Structural growth in our core business Well positioned to capture incremental electrification growth 1. Operating profit margin requiring only partial market recovery 38
Slide 41: Delivering on our promises
Delivering on our promises What we said in 2019 Where we stand today Ahead of original plan • We will drive operational performance on lower sales • We will focus on selective, profitable growth On track • We will invest in new electrification capabilities On track • We will change the team, flatten
Slide 42: New team with a new approach
New team with a new approach Executive leadership team Name Position Experience & background Liam Butterworth Chief Executive Officer 30+ years Roberto Fioroni1 Chief Financial Officer 25+ years Agile Lean and simplified decision James Pedder1 Chief of Staff 10+ years making processes Chief Procurem
Slide 43: Addressable market growth presents a significant opportunity
Addressable market growth presents a significant opportunity Market1 GKN 1.3% Vehicle ePowertrain CAGR Production eDrive systems ~10% CAGR eDrive systems eDrive components & components >2x market AWD2 systems & components Driveline Growth more than double the market rate for Sideshafts ~1% vehicle p
Slide 44: Financial outlook delivers both profitability & growth
Financial outlook delivers both profitability & growth GKN Automotive revenue growth vs. market1, 2018-2030 Global LV production GKN Automotive revenue2 (Not to scale) 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Securing today Focusing on the future Revenue Grow with the market
Slide 45: GKN Automotive Overview
Buy Improve Sell Melrose GKN Automotive Overview 43
Slide 46: Global leader in drive systems
Global leader in drive systems …trusted partner for 90% of global OEMs1 …content on 50% of vehicles2 Global sales 2019 …ranks #1 in Driveline £4.7 bn 1. Global OEMs are those with manufacturing locations in multiple regions 2. Vehicles refers to individual nameplates of global OEMs 44
Slide 47: A balanced business following market dynamics
A balanced business following market dynamics Product mix1 Customer mix1 Propulsion mix4 2019 2019 2019 Full hybrid (4%) BEV Others (1%) eDrive Other L Mild hybrid A 2% K 7% (5%) J 15% AWD2 25% 5% I 5% B 90% ICE 13% H 6% 2025 BEV 6% 72% G 13% 15% ICE 7% C Full hybrid 7% 11% 45% F 11% Driveline3 E D
Slide 48: GKN Automotive works with 90% of global OEMs
GKN Automotive works with 90% of global OEMs 37% of 35% of 12% of 16% of Americas 2020 sales1 Europe 2020 sales1 Asia-Pacific 2020 sales1 China 2020 sales1 Pure-play EV OEMs Strongly positioned with traditional and emerging OEMs across all regions 1. Sales splits includes JVs at GKN share 46
Slide 49: GKN Automotive – global presence
GKN Automotive – global presence 51 Manufacturing sites 9 Americas 21 Europe 21 Asia Pacific 6 Technology and innovation centres Head office UK Global, localised manufacturing footprint 47
Slide 50: Long established position in China
Long established position in China GKN Automotive in China Balanced customer mix • >30 years of experience and Revenue by customer (2019) profitable growth £1.2bn 2020 sales 1 Others • Established joint venture with L 9% K 2% A Hasco in 1988 J 3% 27% 3% market share, I • In 2013, agreed to extend th
Slide 51: Sustainability
Buy Improve Sell Melrose Sustainability 49
Slide 52: Driving a sustainable future for our industry
Driving a sustainable future for our industry Driving electrification of the industry We are a major force in electrification • 19 years of eDrive system development • Efficient, sustainable driveshafts Investing in innovative solutions • 2021 R&D spend >£100m on the development of future generation
Slide 53: Driving a sustainable future for our business
Driving a sustainable future for our business Ensuring the long term sustainability of our business Driving a more sustainable environment • A core ethos of environmental improvement • Global plant environmental accreditation • 2020 annual energy savings of 13M kWh Investing in our people and our co
Slide 54: Driving a sustainable future for our industry and our business
Driving a sustainable future for our industry and our business Ensuring the long term sustainability Driving electrification of the industry of our business Uniquely our business Action Listens to orientated stakeholders Standards Commercially, risk & opportunities aligned Transformational Suitably
Slide 55: Clear path to best-in-class profitability
Clear path to best-in-class profitability 53
Slide 56: Summary of 2020 financial performance
Summary of 2020 financial performance Full year revenue and margin1 (£m, %) 2020 H1 vs. H2 12.6% 2020 11.6% 7.3% 7.7% 8.5% H1 H2 ∆ 2.2% Revenue 1,541 2,256 +46% (£m) Operating +10.7 -4.2% 6.5% 4,949 4,739 margin (%) ppts 3,797 COVID-19 response actions 2018 2019 2020 • Shut down manufacturing plants
Slide 57: On track to meet communicated profitability targets
On track to meet communicated profitability targets Operating profit margin (%) 1 Successfully navigated COVID-19 ~1.0 - ▪ Maintained positive return on sales for 1.5% >10% 2020 ~2.5 - 3.0% ▪ Utilised flexible adjustments to headcount and plant closures to 7.3% 6.5% Volume match OEM production deman
Slide 58: Further "Full Potential" defined to enable >10% margin ambition
Further "Full Potential“ defined to enable >10% margin ambition Procurement Operations Fixed Cost £60-70m £35-45m £30-35m Incremental Incremental Incremental savings1 savings1 savings1 • Global purchasing • Smart automation • Capacity optimisation strategy leveraging scale • Vertical integration • S
Slide 59: Rapidly changing market
Buy Improve Sell Melrose Rapidly changing market
Slide 60: Key market drivers for GKN Automotive
Key market drivers for GKN Automotive CASE Automotive industry dynamics Electrification Key drivers of market performance Most relevant automotive megatrend for GKN • COVID-19 recovery • Widespread adoption by 2030 • Share of investment between • Strong OEM commitments to electrify megatrends (CASE1
Slide 61: xEVs will become mainstream over the next decade
xEVs1 will become mainstream over the next decade… Global light vehicle2 electrification forecast Actual/projected global light vehicle production • Electrification is expected to 89m 75m 96m 102m progress significantly faster 2% 3% post-pandemic 4% 5% 13% • The main electrification 21% regions are
Slide 62: ...and the pace of change is accelerating
...and the pace of change is accelerating IHS 2030 LV production forecast Selected major xEV product announcements Full-electric vehicles are expected to account for more than 70 +6m BEVs percent of VW's European vehicle sales by 2030 Toyota plans to sell 5.5 million electric vehicles by 2030, inclu
Slide 63: Comprehensive electrification stage product coverage
Comprehensive electrification stage product coverage Share of Full-hybrid & Segment Product ‘19 sales2 ICE & 48V PHEV BEV & FCEV Driveline 59% Sideshafts 13% N/A Propshafts ePower- train 25% AWD1 systems & components 2% N/A eDrive systems & components DHT, 3-in-1 EDU3 3-in-1 EDU3 GKN Automotive cove
Slide 64: Significant opportunity in electrification
Significant opportunity in electrification 2-Wheel Drive 4-Wheel Drive ICE BEV ICE BEV £100- £400 £1100- £1300 £500- £1200 £2500- £3000 • 2 sideshafts • 2 sideshafts • 2 front sideshafts • 2 front sideshafts FWD1 • Differential gearset • 1 electric drive unit • 2 rear sideshafts • 2 rear sideshafts
Slide 65: Impact of electrification on GKN Automotive's portfolio
Impact of electrification on GKN Automotive's portfolio GKN Automotive product portfolio 2% Sideshafts 59% Propshafts 13% AWD 25% eDrive Power transfer units Final Front and rear Front and rear drive units eDrive systems sideshafts propshafts & components Increasing number & size of No propshafts re
Slide 66: Driveline - Sideshafts
Buy Improve Sell Melrose Driveline - Sideshafts 64
Slide 67: Product snapshot – Sideshafts
Product snapshot – Sideshafts Overview Status today Products Technology leadership with high intimacy with global and emerging xEV OEMs. A profitable business with sustainable cash generation Front and rear sideshafts Impact of electrification 2019 sales contribution Increased torque and power on eD
Slide 68: Clear technology leadership in sideshafts
Clear technology leadership in sideshafts GKN Automotive advantage Long history of innovation xEV drive optimisation Leading efficiency, superior NVH1, low weight and a broad product portfolio developed over decades of product technology leadership GKN has developed a suite of technologies tailored
Slide 69: Sideshaft market leadership across all electrification stages
Sideshaft market leadership across all electrification stages Global sideshaft addressable market share Stage Example vehicle 2020 2030 BEV & FCEV 30-35% Jaguar I-Pace Full-hybrid & PHEV 35-40% >40% share across all electrification stages Volvo XC90 ICE & 48V 40-45% BMW 3 Series GKN Automotive is th
Slide 70: Driveline - Propshafts
Buy Improve Sell Melrose Driveline - Propshafts 68
Slide 71: Product snapshot – Propshafts
Product snapshot – Propshafts Overview Status today Products Market and technology leadership in profitable and cash generative business Front & rear propshafts Impact of electrification 2019 sales contribution Components are relevant through eDrive Other hybridisation, but will gradually 2% decline
Slide 72: ePowertrain – All Wheel Drive (AWD)
ePowertrain – All Wheel Drive (AWD) 70
Slide 73: Product snapshot – All Wheel Drive
Product snapshot – All Wheel Drive Overview Status today Products Recognised technology and innovation leadership providing a platform for eDrive growth Power transfer units Final drive units Impact of electrification 2019 sales contribution All AWD products are relevant eDrive Other through hybridi
Slide 74: ePowertrain - eDrive
Buy Improve Sell Melrose ePowertrain - eDrive
Slide 75: Product snapshot – eDrive
Product snapshot – eDrive Overview Status today Products A rapidly growing business that offers competitive systems or components and has delivered >1.5 million units to date eDrive components eDrive systems Impact of electrification 2019 sales contribution Acceleration of electrification eDrive Oth
Slide 76: Flexible approach to eDrive solutions
Flexible approach to eDrive solutions eDrive components Integrated eDrive systems Addressable Addressable market (£ bn) market (£ bn) 14.0 4.0 0.2 0.5 2018 2030 2018 2030 • Higher margin potential • Higher total addressable market • Leverage of GKN Automotive’s AWD • Lower margin potential heritage
Slide 77: eDrive capability development
eDrive capability development eDrive system components Key GKN Automotive advantages Gearbox E-Motor Inverter Software Integration AWD heritage capability • Industry-leading high efficiency transmission systems and features • Leading provider of systems control software and driving dynamics experien
Slide 78: eDrive system competence
eDrive system competence GKN Automotive eDrive system Software = Functionality Gearbox Electric Motor Inverter Software Integration • NVH1 optimised and • Highly efficient and • Drives the eMotor & • Proven and mature • Leveraging AWD highly efficient scalable design controls the system SW platform
Slide 79: Customer adoption of GKN Automotive eDrive solutions
Customer adoption of GKN Automotive eDrive solutions Selected vehicles equipped with GKN Automotive eDrive systems Opel Grandland X Peugeot 3008 Hybrid Citroen DS7 e-Tense Ford Mustang Mach E Peugeot 3008 HY4 FIAT 500e Mitsubishi Outlander Volvo XC90 Recharge London Taxi RR Evoque / LR Discovery Spo
Slide 80: Conclusions
Buy Improve Sell Melrose Conclusions
Slide 81: Conclusions
Conclusions Global leader in drive systems Transforming the business, with a clear path to >10% profit1 Structural growth in our core business Well positioned to capture incremental electrification growth 1. Operating profit margin requiring only partial market recovery 79
Slide 82: Closing remarks from Melrose CFO
Closing remarks from Melrose CFO 80
Slide 83: Closing remarks from the Melrose CFO
Closing remarks from the Melrose CFO • Two clear and powerful strategies have been outlined • All numbers are based on external market data, applying the GKN Auto and Powder Metallurgy product mixes, not internal forecasts. • CAGR’s are from 2019 to 2030, as 2019 is a fair baseline, they would clear