Melrose Industries Plc · LSE:MRO
Melrose Industries — H1 2021 Earnings Presentation
39 slides from Melrose Industries's earnings presentation, Sep 2, 2021
Slide 1: Melrose Industries PLC Half Year Results
Buy Improve Sell Strictly private and confidential Melrose Industries PLC Half Year Results Six months ended 30 June 2021 2 September 2021 Buy Improve Sell
Slide 2: Contents
Contents 1 Highlights 2 Melrose key financial numbers 3 The results 4 Business update 5 Appendices Buy Improve The revenue and profit numbers included in this presentation are shown in round millions and unless otherwise stated growth metrics are at constant currency Sell 2
Slide 3: Highlights
Buy Improve Sell Highlights 3
Slide 4: Highlights
Highlights Proforma1 (post Return of Capital) Adjusted2 results Statutory results 2021 2021 2020 2021 2020 Continuing operations £m £m £m £m £m Revenue 3,828 3,828 3,624 3,540 3,386 Operating profit/(loss) 223 223 (11) (137) (618) Profit/(loss) after tax 109 109 (80) (151) (585) Diluted earnings per
Slide 5: Highlights
Highlights ▪ On 14 September Melrose is returning £729 million, 15 pence per share, to shareholders. In addition, the Melrose Balance Sheet has spare capacity for a significant further Capital Return next year ▪ An interim dividend of 0.75 pence per share (2020: nil) is declared Businesses ▪ Melrose
Slide 6: Melrose key financial numbers
Buy Improve Sell Melrose key financial numbers Buy Improve Sell 6
Slide 7: Melrose key financial numbers: ahead of expectations
Melrose key financial numbers: ahead of expectations 1. H1 2021 Proforma1 results: showing better profit margins, better earnings per share and significantly lower net debt1 EPS1 Net debt1 Leverage1 2.5p £1,029m 1.5x ▪ Proforma EPS1 of 2.5p, calculated using the number of shares in issue following t
Slide 8: Melrose key financial numbers: increasing momentum
Melrose key financial numbers: increasing momentum 2. Increasing momentum: significant upside potential in the continuing businesses Melrose margin target Based on 2020 revenue Businesses sold in 2021 (average)3 2 1 Continuing businesses (83%) Continuing businesses (average) 2 Businesses sold in 202
Slide 9: Melrose key financial numbers: good margin progression
Melrose key financial numbers: good margin progression 3. Margin progression: Automotive & Powder Metallurgy ahead of plan and restructuring fully underway H1 2021 Target % of required operating operating projects already margins margins underway Half the required projects have started, Aerospace 3.
Slide 10: GKN & Nortek both highly cash generative
Melrose key financial numbers: GKN & Nortek both highly cash generative 4. Strong cash generation since the GKN acquisition from all businesses Total Melrose cash flows since GKN acquisition: Total cash inflow Total cash inflow £3.5bn £3.5bn Total paid to shareholders (£1.1bn) Total debt reduction £
Slide 11: GKN & Nortek both highly cash generative (continued)
Melrose key financial numbers: GKN & Nortek both highly cash generative (continued) 4. Strong cash generation since the GKN acquisition from all businesses (continued) Free cash inflow1 since GKN acquisition £1 billion: ▪ GKN has generated £1.7 billion of gross cash inflow Central costs, tax & since
Slide 12: Balance Sheet currently more conservative than normal
Melrose key financial numbers: Balance Sheet currently more conservative than normal 5. The Melrose Balance Sheet has spare capacity for a further significant Return of Capital next year Proforma1 Potential size of Capital Return next year June 2021 based on various leverage scenarios (uses H1 Actua
Slide 13: GKN pension commitment delivered ahead of schedule
Melrose key financial numbers: GKN pension commitment delivered ahead of schedule 6. GKN UK defined benefit pension scheme commitment has been delivered ahead of schedule Funding deficit: Significantly increased Acquisition contributions in Melrose Improved investment commitment ownership1 strategy
Slide 14: Nortek delivering good returns for shareholders
Melrose key financial numbers: Nortek delivering good returns for shareholders 7. Nortek: 87% complete (following Nortek Control exchange of contracts) Nortek shareholder returns1 2.2x 21% Return on equity2 IRR2 ▪ Nortek Air Management disposal for gross proceeds of £2.6 billion ($3.6 billion), 12.5
Slide 15: The results
Buy Improve Sell The results Trading ahead of expectations Buy Improve Sell 15
Slide 16: Summary of results
Summary of results Proforma1 (post Return of Capital) Adjusted2 results Statutory results 2021 2021 2020 2021 2020 Continuing operations £m £m £m £m £m Revenue 3,828 3,828 3,624 3,540 3,386 Operating profit/(loss) 223 223 (11) (137) (618) Profit/(loss) after tax 109 109 (80) (151) (585) Diluted earn
Slide 17: Reconciliation between statutory and adjusted results
Reconciliation between statutory and adjusted1 results Cash Continuing operations spent in £m Total 2021 Statutory operating loss (137) Amortisation of intangible assets acquired in business combinations 226 - Restructuring costs 85 92 Exchange movements not hedge accounted 44 - Net release of fair
Slide 18: Cash generation in the period: net debt significantly reduced
Cash generation in the period: net debt significantly reduced Free cash flow2 Reconciliation of opening to closing net debt2 Cash flow from continuing operations Group Reconciliation of net debt2 Group £m 2021 £m 2021 Adjusted1 EBITDA 404 Net debt2 brought forward (2,847) Lease obligation payments (
Slide 19: Business update
Buy Improve Sell Business update Clear momentum to target margins Buy Improve Sell 19
Slide 20: Melrose business portfolio
Melrose business portfolio Aerospace Automotive Powder Metallurgy ▪ Leading global tier one supplier ▪ #1 in Driveline with technology ▪ #1 in supply of precision leadership powder metal parts Strong market ▪ Strong positions on major civil position and defence platforms ▪ Supplies 90% of OEMs, 50%
Slide 21: Business results: improved performance
Business results: improved performance Adjusted1 results H1 2020 H1 2020 Continuing operations Operating Operating H1 2020 Operating Operating £m Revenue profit/(loss) margin Revenue profit/(loss) margin Aerospace 1,219 41 3.4% 1,580 54 3.4% Automotive 1,965 121 6.2% 1,541 (64) (4.2%) Powder Metallu
Slide 22: GKN Aerospace
GKN Aerospace 32% of Melrose1 Buy Improve 1. Based on adjusted H1 2021 revenue for all continuing businesses Sell 22
Slide 23: Aerospace: overview
Aerospace: overview Adjusted1 Adjusted1 ▪ Markets remain impacted by COVID-19 with sales down 33%2 on H1 results results 2019 and 18%2 on H1 2020 £m H1 2021 FY 2020 Revenue 1,219 2,804 ▪ Modest sequential sales growth of 4%2 versus H2 2020 linked to initial EBITDA 112 163 recovery EBITDA margin % 9.
Slide 24: Aerospace: portfolio
Aerospace: portfolio Mix Product Demand Technology Civil airframes & components ▪ Narrowbody 39% Provides main Primarily driven by OE Excellent position on structures for all major civil build rates (>50% sustainable aircraft ▪ Widebody 27% civil OE players Airbus) (e.g. Wing of ▪ Regional 34% Tomor
Slide 25: Aerospace: improvement actions
Aerospace: improvement actions Progress to date Future actions ▪ Reduced exposure to legacy onerous ▪ Continued/accelerated renegotiation contracts by >60% or exit Commercial ▪ Renegotiated or exited some ▪ Focus growth in attractive Commercial mix mix unattractive business aftermarket and repair ▪
Slide 26: Aerospace: highlights
Aerospace: highlights Global tier one leader in civil and defence ▪ Balanced portfolio covering airframes, engines and components ▪ Established positions on all high volume platforms - e.g. A320, B737, F35 ▪ Expanding ‘design to build’ capability ▪ Growth in engines and components aftermarket Well p
Slide 27: GKN Automotive
GKN Automotive 51% of Melrose1 Buy Improve 1. Based on adjusted H1 2021 revenue for all continuing businesses Sell 27
Slide 28: Automotive: overview
Automotive: overview Adjusted1 Adjusted1 results results £m H1 2021 FY 2020 ▪ Approximately 9% annualised sales growth (2x H1 2021 versus FY 2020 at constant currency) Revenue 1,965 3,797 EBITDA2 238 322 ▪ Strong margin progress from 2.2% to 6.2% EBITDA2 margin % 12.1% 8.5% ▪ Improvement actions rea
Slide 29: Automotive: highlights
Automotive: highlights Global leader in drive systems ▪ #1 in Driveline, with clear technology leadership and over 40% market share in its core product ▪ Increased torque and power requirements of electric vehicles benefits GKN Automotive’s core product strengths Structural growth in core products ▪
Slide 30: GKN Powder Metallurgy
GKN Powder Metallurgy 14% of Melrose1 Buy Improve 1. Based on adjusted H1 2021 revenue for all continuing businesses Sell 30
Slide 31: Powder Metallurgy: overview
Powder Metallurgy: overview Adjusted1 Adjusted1 results results £m H1 2021 FY 2020 ▪ Growing faster than the market due to share gains, annualised sales up 25% (2x H1 2021 versus FY 2020 at constant currency) Revenue 535 905 EBITDA2 92 110 ▪ Excellent margin progress from 4.3% to 11.2% EBITDA2 margi
Slide 32: Powder Metallurgy: highlights
Powder Metallurgy: highlights Global leader in Powder Metallurgy ▪ #1 global producer of precision powder metal parts – 17% market share ▪ #2 global producer of powder metal – 24% market share Growth in the core business with market share gains ▪ Growing faster than the market due to share gains – 4
Slide 33: Other Industrial
Other Industrial 3% of Melrose1 Buy Improve 1. Based on adjusted H1 2021 revenue for all continuing businesses Sell 33
Slide 34: Other Industrial: highlights
Other Industrial: highlights Adjusted1 Adjusted1 results results £m H1 2021 FY 2020 Revenue 109 217 EBITDA 28 56 EBITDA margin % 25.7% 25.8% Operating profit 27 52 Operating margin % 24.8% 24.0% Overview Following the disposal of Brush and the reclassification of Nortek Control to held for sale, bot
Slide 35: Sustainable technology
Sustainable technology Aerospace Automotive Powder Metallurgy Improving efficiency and Producing driveline solutions Commercialising additive sustainability of current aircraft: tailored to electric vehicles: manufacturing (AM) across sectors: Wing of Tomorrow High efficiency, high Intricate metal p
Slide 36: Appendices
Buy Improve Sell Appendices 36
Slide 37: Pensions
Pensions Pension schemes Accounting 30 June 2021 surplus/ Movement in £m Assets Liabilities (deficit) the period UK 2,959 (3,006) (47) 71 Europe 24 (557) (533) 43 USA 197 (303) (106) 31 Rest of World 32 (39) (7) - Total pension schemes 3,212 (3,905) (693) 145 ▪ Of the £145 million movement in the Pe
Slide 38: Foreign exchange → forward looking
Foreign exchange → forward looking H1 2021 H1 2020 FY 2020 Exchange rates USD EUR USD EUR USD EUR Average rates 1.39 1.15 1.26 1.14 1.28 1.13 Closing rates 1.38 1.16 1.24 1.10 1.37 1.12 Income Statement volatility – Translational impact Balance Sheet volatility Impact on adjusted1 operating profit o
Slide 39: Some helpful data for H1 2021
Some helpful data for H1 2021 Continuing operations Income Statement Cash Flow Item H1 2021 adjusted1 results H1 2021 adjusted1 results Adjusted1 operating profit £223 million N/A £26 million (includes a divisional Central costs (£16 million) LTIP charge of £10 million) Adjusted1 free cash flow1 N/A