Melrose Industries PLC · LSE:MRO
Melrose Industries — FY2006 Earnings Presentation
48 slides from Melrose Industries's earnings presentation, March 2007
Slide 1: Full Year Results Announcement
Full Year Results Announcement Twelve months to 31st December 2006
Slide 2: Contents
Contents Introduction Melrose PLC summary financial performance Divisional performance - Dynacast - OEM - Other businesses Conclusion Appendix 2
Slide 3: Introduction
| Introduction
Slide 4: Introduction: Trading Status
Introduction Trading Status Metal recovery delivered, underlying 2006 sales growth Dynacast Good underlying performance good. Restructuring well under way. Targeting small acquisitions. In sale process – only be sold at right value. Continued OEM Very good sales & profit growth strong cycle. Effect
Slide 5: Melrose PLC summary financial performance
Melrose PLC summary financial performance
Slide 6: Financial results: Income statement
Financial results Income statement Twelve months ended 31st December 2006 Headline results¹ Other² Total £’m £’m £’m Sales 507.0 - 507.0 Operating profit before disposal of businesses 56.1 (10.1) 46.0 Profit on disposal of businesses - 3.2 3.2 Operating profit after disposal of businesses 56.1 (6.9)
Slide 7: Exceptional costs and income
Financial results Exceptional costs, exceptional income, intangible asset amortisation1 and profit on disposal of land and buildings Twelve months ended 31st December 2006 Cash costs Non cash costs Total £’m £’m £’m Dynacast restructure (2.7) (1.0) (3.7) MPC restructure (1.2) (1.0) (2.2) Pre disposa
Slide 8: Comparative performance – for Melrose PLC
Comparative performance – for Melrose PLC Trading results Performance trends in Melrose ownership – headline results¹ 2006 2006 2005 6 months growth 12 months growth H2 H1 H2 (2006 H2 v 2006 H1) (2006 H2 v 2005 H2) % % Sales 251.5 255.5 226.8 (2%) 11% EBIT¹ 30.3 25.8 21.9 17% 38% +1.9 percentage +2.
Slide 9: Income statement by division
Financial results Income statement by division Twelve months ended 31st December 2006 – headline results¹ Sales EBIT1 EBIT1 EBITDA2 EBITDA2 £’m £’m % £’m % Dynacast 221.7 25.1 11.3% 32.1 14.5% OEM 140.1 33.1 23.6% 35.9 25.6% Aftermarket 19.3 0.6 3.1% 0.7 3.6% MVC 48.0 (2.3) (4.8%) (0.5) (1.0%) MPC 4
Slide 10: Half year comparative performance – by division
Half year comparative performance – by division 2006 H2 v 2005 H2 – headline results¹ 2006 H2 2005 H2 £’m £’m Sales EBIT¹ ROS%¹ Sales EBIT¹ ROS%¹ Dynacast 114.4 14.0 12.2% 88.8 11.4 12.8% OEM 71.0 17.6 24.8% 58.8 12.0 20.4% Aftermarket 7.6 0.2 2.6% 12.7 0.3 2.4% MVC 21.5 (1.6) (7.4%) 26.2 (0.1) (0.4
Slide 11: Tax
Financial results Tax £0.8m net credit consists of £12.3m charge on headline profit before tax and £13.1m credit for exceptional tax¹ c28% headline profit and loss charge in 2006 c10% cash tax rate Substantial exceptional tax credits arising from corporate restructuring and disposal ¹Tax on
Slide 12: Cash Management
Financial Results Cash Management Major focus within Melrose PLC Strong cash management culture now successfully driven into divisions and management incentivised Good profit conversion to cash Melrose invests cash generated back into businesses in - Capital projects – strong payback require
Slide 13: Cash Flow
Financial results Cash Flow Twelve months ended 31st December 2006 £’m Headline operating profit1 56.1 Depreciation and computer software amortisation 14.6 Working capital movement (8.4) Capital expenditure (19.7) Cash generated from disposals 11.8 Cash generated from operations before exceptional c
Slide 14: Capital expenditure
Financial results Capital expenditure Capex Depreciation Ratio £m £’m £’m % Dynacast 6.9 7.0 99% OEM 6.9 2.8 246% Others 5.9 4.8 123% Total 19.7 14.6 135% Significant capital investment continued in 2006 at 135% of depreciation. Investment in Dynacast includes further expansion in capacity in Ch
Slide 15: Net debt
Financial results Net debt Net Debt at 31st December 2006 £162.6m Finance cost average c.5% during the twelve months US dollar interest rate fixed at 4.09% plus bank margin until July 2007 £200m term loan split c.60% US Dollars, c.30% Euro and c.10% Sterling Cash flow Robust cash managemen
Slide 16: Exchange risk and commodity risk
Financial results Exchange risk c80% of sales are denominated in a foreign currency (60% in US$ or Euro). For guidance a 10 cent strengthening of the dollar against sterling increases operating profit by c£1.6m on an annualised basis, this ratio is increasing as US$ profits grow. A 10 cent str
Slide 17: Summary of operating divisions
Summary of operating divisions
Slide 18: Dynacast
| Dynacast
Slide 19: Dynacast
Dynacast Proprietary Die-Casting process Sales by Sector Sales by Geography 15% 23% 8% 38% 42% 11% 35% 28% Automotive Electronics Europe Healthcare Hardware North America Far East Other Products Connectors Telecommunications Automotive Consumer Computing Industrial products 19
Slide 20: Dynacast trading results
Dynacast Trading results Twelve months ended December 31st 2006 Headline Results¹ Sales EBIT¹ ROS¹ £’m £’m % North America 79.0 7.4 9.4% Europe 92.4 12.1 13.1% Far East 50.3 5.6 11.1% Total 221.7 25.1 11.3% ¹Before exceptional costs, exceptional income, intangible asset amortisation other than compu
Slide 21: Dynacast performance trends
Dynacast Trading results Performance trends in Melrose ownership – headline results¹ 2006 2006 2005 6 months growth 12 months growth H2 H1 H2 (2006 H2 v 2006 H1) (2006 H2 v 2005 H2) £’m £’m £’m % % Sales 114.4 107.3 88.8 7% 29% EBIT¹ 14.0 11.1 11.4 26% 23% +1.9 percentage -0.6 percentage Return on s
Slide 22: Dynacast raw material/commodity costs
Dynacast Raw material/Commodity costs Zinc price has risen dramatically in the period LME Zinc price movement 31st Dec 31st Dec Increase Average Average Increase 2006 2005 % price price % 2006 2005 $ per tonne 4330 1915 126% 3272 1388 136% Zinc adjusted results Sales EBIT EBIT/Sales £’m £’m % Ac
Slide 23: Dynacast restructuring and investment
Dynacast Restructuring and investment Four factories closed on time and within budget. (UK, Turkey, Taiwan and Spartanburg) Sixteen factories remain Total restructuring cost incurred during Melrose ownership Cash Non Cash Total Status £’m £’m £’m UK Charged in 2005 1.7 0.3 2.0 Closed Turkey Char
Slide 24: Aerospace OEM
| Aerospace OEM
Slide 25: OEM
OEM Structures Electromechanical Fasteners Products Hartwell TAC Tyee Electromech / Encore Valley Todeco Welco Linread Hartwell – selected applications Sales by Sector Sales by Geography Applications 26% 34% 58% 16% 66% Structures Europe Electromechanical North America Fasteners 25
Slide 26: OEM trading results
OEM Trading results Twelve months ended 31st December 2006 Headline results ¹ Sales EBIT¹ ROS¹ £’m £’m % Structures 81.6 24.4 29.9% Fasteners 35.9 5.0 13.9% Electromechanical 22.6 3.7 16.4% Total 140.1 33.1 23.6% Strong profit growth Return on sales 23.6% Profit growth driven by sales growth,
Slide 27: OEM performance trends
OEM Trading results Performance trends in Melrose ownership – headline results¹ 2006 2006 2005 6 months growth 12 months growth H2 H1 H2 (2006 H2 v 2006 H1) (2006 H2 v 2005 H2) £’m £’m £’m % % Sales 71.0 69.1 58.8 3% 21% EBIT¹ 17.6 15.5 12.0 14% 47% +2.4 percentage +4.4 percentage Return on sales¹ %
Slide 28: OEM key post acquisition actions
OEM Key post acquisition actions Key investment in all businesses especially Hartwell Move of Tyee to single site underway Management changes at TAC and Electromech Investment in inventory for Hasco and Valley Todeco Purchasing savings plan - Target over £1m of savings per annum Customer
Slide 29: Other Divisions
Other Divisions MVC MPC PSM fasteners Aftermarket 29
Slide 30: MVC
) mvc
Slide 31: MVC locations and key customers
MVC Locations Key customers (twelve months to 31st December 2006) Staples Rank Company Percentage Cum. Percentage 1 General Motors 16% 16% Troy 2 Hayes 16% 32% 3 Ford 16% 48% Nicholasville Newberry 4 Toyota 14% 62% 5 Chrysler 11% 73% 6 Other 27% 100% Products Source McKechnie management analysis 31
Slide 32: MVC headline results
MVC Twelve months ended December 31st 2006 Headline Results¹ Sales EBIT¹ ROS%¹ £’m £’m Newberry 17.1 2.8 16.4% Nicholasville 34.8 (1.0) (2.9%) MT&E (Tooling) 1.6 0.1 6.3% Head Office (Engineering) (5.5) (4.2) - Total 48.0 (2.3) (4.8%) ¹Before exceptional costs, exceptional income, intangible asset a
Slide 33: MPC
| MPC
Slide 34: MPC locations, sectors and customers
MPC Locations Sales by sector 10% 5% 8% 8% 52% Pickering Stamford Bridge 17% Automotive Food/Beverage Electronics DIY Construction Other 2 year Key customers share price performance Products Automotive Consumer Ford PAG Diageo Intier Honda Scotco Toyota Makita Manufacturing Europe Deco
Slide 35: MPC headline results
MPC Twelve months ended December 31st 2006 Headline Results¹ Sales EBIT¹ ROS%¹ £’m £’m Stamford Bridge and Burnett (Northampton) 21.9 1.9 8.7% Pickering 24.2 0.5 2.1% Total 46.1 2.4 5.2% ¹Before exceptional costs, exceptional income, intangible asset amortisation other than computer software amortis
Slide 36: PSM (fasteners)
| PSM (fasteners)
Slide 37: PSM locations and key customers
PSM Locations Sales by Geography 46% 45% 9% Subsidiary companies Europe North America Far East Joint ventures Distributors Salesmen Manufacturer Reps. Sales Office 2 year Key customers share price performance Products Automotive IT TL&S Siemens Motorola Bulten Visteon Yi-Hsin Mohling F
Slide 38: PSM headline results
PSM Twelve months ended 31st December 2006 Headline Results¹ Sales EBIT¹ ROS%¹ £’m £’m North America 3.1 0.2 6.5% Europe (including TLS & Canning Brett) 14.2 1.2 8.5% Far East 14.5 3.4 23.4% Total 31.8 4.8 15.1% ¹Before exceptional costs, exceptional income, intangible asset amortisation other than
Slide 39: Aftermarket
| Aftermarket
Slide 40: Aftermarket
Aftermarket Locations Sales by Geography 13% Stamford Heston Hong Kong 47% 40% North America Europe Asia Products Source McKechnie management 40
Slide 41: Aftermarket headline results
Aftermarket Twelve months ended December 31st 2006 Headline Results¹ Sales EBIT¹ ROS%¹ £’m £’m Arger 4.2 - - Sold in May 2006 AQS 15.1 0.6 4.0% Total 19.3 0.6 3.1% ¹Before exceptional costs, exceptional income, intangible asset amortisation other than computer software amortisation and profit on dis
Slide 42: Conclusion
| Conclusion
Slide 43: Conclusion
Conclusion OEM for sale - only dispose at proper value - return of money to shareholders planned Existing group plans well underway - MVC only performance issue Started to look at acquisition opportunities 43
Slide 44: Questions
| Questions
Slide 45: Appendix
) Appendix
Slide 46: Pensions and post retirement benefits
Financial results Pensions and post retirement benefits IAS 19 deficit £55.4m £92.5m of assets and £147.9m of liabilities The main scheme is the McKechnie UK defined benefit scheme which makes up £45.4m of the £55.4m IAS 19 deficit Main assumptions - Discount rate (AA corporate bonds) 5.1% -
Slide 47: Incentive scheme
Financial results Incentive scheme International Financial Reporting Standards require the Melrose share scheme and the Dynacast management LTIP to be accrued in the income statement Results to 31 December 2005 No charge in the income statement accrued due to nature and timing of share awards Di
Slide 48: Working capital
Financial results Working capital New working capital and cash control procedures successfully implemented Working Capital now successfully re balanced with less creditor stretch Stock days at 31/12/06 of 33 days (31/12/05 32 days) reflecting overall improvements at manufacturing sites compens