Melrose Industries Plc · LSE:MRO
Melrose Industries — FY2020 Earnings Presentation
36 slides from Melrose Industries's earnings presentation, Mar 4, 2021
Slide 1: Melrose Industries PLC Full Year Results 2020
Buy Improve Sell Strictly private and confidential GKN Automotive GKN Aerospace Melrose Industries PLC Full Year Results Year ended 31 December 2020 4 March 2021 Buy Improve Sell
Slide 2: Contents
Contents 1 Introduction 2 Melrose track record 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. Margins are calculated Sell using unro
Slide 3: Introduction
Buy Improve Sell Introduction 2
Slide 4: Introduction: 2020 Focus
Introduction: 2020 Focus 2020 Focus Prioritise cash Record adjusted free cashflow1 of £628 million (6% higher than 2019) Level of spend on R&D protected Reduce debt Group net debt reduced by over £400 million (13%) to £2.85 billion H2 annualised proforma leverage1 of c.3.2x EBITDA Continued
Slide 5: Introduction: 2021 Focus
Introduction: 2021 Focus 2021 Focus Continued focus on cash generation Capex – 2020 tightly managed, will build from here Significant working capital improvement achieved, more to come Continued focus on improvement Aerospace not yet in recovery mode, restructuring therefore a particular focus
Slide 6: Melrose track record: managing successfully in a crisis
Buy Improve Sell Melrose track record Managing successfully in a crisis Buy Improve Sell 5
Slide 7: Melrose track record: managing successfully in a crisis
Melrose track record: managing successfully in a crisis Six key stats to show real progress: 1. Significant progress on reshaping GKN’s cost base to reach current margin targets Aerospace 10% Further progress has been made to Half way Two thirds reshape the GKN cost base through through Automotive
Slide 8: Melrose track record: managing successfully in a crisis
Melrose track record: managing successfully in a crisis 4. Aerospace cut the most inventory in 2020 and has the highest year over year restructuring cost savings for 2021 Aerospace is not currently seeing a recovery in Aerospace inventory Aerospace year over year its civil end market, so is having
Slide 9: The results
Buy Improve Sell The results At the top end of expectations Buy Improve Sell 8
Slide 10: Summary of results
Summary of results Adjusted1 results Statutory results 2020 2019 2020 2019 Continuing operations £m £m £m £m Revenue 9,361 11,592 8,770 10,967 Operating profit/(loss) 340 1,102 (338) 318 Profit/(loss) after tax 120 699 (523) 55 Diluted earnings per share 2.4p 14.3p (10.8)p 0.9p Free cash flow2 628 5
Slide 11: Reconciliation between statutory and adjusted results
Reconciliation between statutory and adjusted1 results Cash Continuing operations spent in £m Total 2020 Statutory operating loss (338) Amortisation of intangible assets acquired in business combinations 526 - Restructuring costs 220 172 Asset write downs due to COVID-19 (largely booked in H1) 184 -
Slide 12: Cash generation in the year: highest ever for Melrose
Cash generation in the year: highest ever for Melrose Free cash flow Reconciliation of opening to closing net debt2 Cash flow from continuing operations Group Reconciliation of net debt2 Group £m 2020 £m 2020 Adjusted EBITDA1 770 Net debt2 brought forward (3,283) Lease obligation payments (76) Net c
Slide 13: Cash management: significant working capital improvements
Cash management: significant working capital improvements Free cash flow in 2020 Cash flow from continuing operations £m H1 2020 H2 2020 2020 Working capital1 inflow 251 173 424 Net capital expenditure1 174 118 292 Capital expenditure to depreciation ratio2 0.8x 0.6x 0.7x Trade debtors lower by Inve
Slide 14: Pensions: despite COVID-19, deficits have reduced
Pensions: despite COVID-19, deficits have reduced UK defined benefit schemes 31 December 2020 Surplus/ £m Assets Liabilities (deficit) GKN 2016 554 (481) 73 GKN Divisional Pension Schemes 2,556 (2,755) (199) GKN post retirement medical - (9) (9) Nortek Air Management 22 (35) (13) Brush 310 (280) 30
Slide 15: Sales performance: improving momentum quarter by quarter
Sales performance: improving momentum quarter by quarter Sales growth1 2020 Q2 2020 Q3 2020 Q4 2020 Continuing operations revenue revenue revenue revenue £m growth growth growth growth Aerospace (27%) (36%) (37%) (35%) Automotive (19%) (58%) (7%) 8% Powder Metallurgy (18%) (54%) (11%) 7% Nortek Air
Slide 16: Segmental results: stronger second half margins
Segmental results: stronger second half margins Adjusted1 results H2 2020 H2 2020 Continuing operations Operating Operating H2 2020 Operating Operating £m Revenue profit/(loss) margin Revenue profit/(loss) margin Aerospace 2,804 14 0.5% 1,224 (40) (3.3%) Automotive 3,797 82 2.2% 2,256 146 6.5% Powde
Slide 17: Foreign exchange forward looking
Foreign exchange forward looking 2020 2019 Exchange rates USD EUR USD EUR Average rates 1.28 1.13 1.28 1.14 Closing rates 1.37 1.12 1.33 1.18 Income Statement volatility – Translational impact Balance Sheet volatility Impact on adjusted1 operating profit of a 10% strengthening2 of: Impact on debt
Slide 18: Business update
Buy Improve Sell Business update Driving improvement through COVID-19 crisis Buy Improve Sell 17
Slide 19: GKN Aerospace
GKN Aerospace 30% of Melrose1 Revenue by market Revenue by product type Revenue by destination 1 Civil (59%) 1 Airframes (68%) 1 North America (66%) 2 Defence (41%) 2 Engines (32%) 34 2 Europe (29%) 2 3 Asia (4%) 2 2 4 RoW (1%) 4 RoW (1%) 1 1 1 Buy Improve 1. Based on adjusted 2020 revenue for all c
Slide 20: Aerospace: highlights
Aerospace: highlights H2 2020 H2 2020 2020 Adjusted1 Year on Year £m Adjusted1 results Growth2 results Growth2 Revenue 2,804 (27%) 1,224 (36%) EBITDA 163 (72%) 29 (90%) EBITDA margin % 5.8% -9.2 ppts 2.4% -13.2 ppts Operating profit 14 (97%) (40) (119%) Operating margin % 0.5% -10.1 ppts (3.3%) -14.
Slide 21: Aerospace: restructuring
Aerospace: restructuring Initial restructuring “One Aerospace” launched to drive scale efficiencies and productivity COVID-19 demand response Initial indirect overhead reduction, Significant sustained reduction in direct especially at site-level labour across all businesses/regions Structural
Slide 22: GKN Automotive
GKN Automotive 41% of Melrose1 Revenue by product type Revenue by destination 1 Driveline (71%) 1 Europe (35%) 34 2 All Wheel Drive (25%) 4 2 North America (33%) 3 eDrive (3%) 3 1 3 Asia (28%) 2 4 Cylinder Liners (1%) 4 RoW (4%) 1 2 Buy Improve 1. Based on adjusted 2020 revenue for all continuing bu
Slide 23: Automotive: highlights
Automotive: highlights H2 2020 H2 2020 2020 Adjusted1 Year on year £m Adjusted1 results Growth2 results growth2 Revenue 3,797 (19%) 2,256 1% EBITDA3 322 (45%) 267 (9%) EBITDA3 margin % 8.5% -4.1 ppts 11.8% -1.2 ppts Operating profit 82 (77%) 146 (16%) Operating margin % 2.2% -5.5 ppts 6.5% -1.3 ppts
Slide 24: Automotive: restructuring
Automotive: restructuring Initial restructuring Restructured management teams to drive performance COVID-19 demand response Rapid focused global SG&A reduction Immediate actions taken to shut plants in Completed plant closures in Germany, line with OEMs (mainly Q2) Structural cost actions So
Slide 25: GKN Powder Metallurgy
GKN Powder Metallurgy 10% of Melrose1 Revenue by market type Revenue by segment Revenue by destination 1 Automotive (67%) 1 Precision (48%) 1 North America (44%) 4 4 3 2 Industrial (17%) 3 2 Structural (34%) 2 Europe (32%) 3 3 Hoeganaes Metal 3 Powder (16%) 3 Asia (18%) 1 Powder (16%) 1 2 4 Additive
Slide 26: Powder Metallurgy: highlights
Powder Metallurgy: highlights Segment Comments 2020 H2 2020 H2 2020 Adjusted1 Adjusted1 Year on year • Growing sales and market share £m results Growth2 results growth2 Precision • Attractive margins, advanced technology Revenue 905 (18%) 509 (3%) • More commoditised products Structural EBITDA 110 (
Slide 27: Powder Metallurgy: restructuring & technology
Powder Metallurgy: restructuring & technology Initial restructuring Reorganised business structure to focus on differentiated precision COVID-19 demand response products Rapid, successful immediate COVID-19 Reduced overheads across global actions – especially in direct labour Structural cost a
Slide 28: Nortek Air Management
Nortek Air Management 13% of Melrose1 Revenue by business Revenue by market Revenue by destination 1 HVAC (58%) 1 Residential (60%) 1 North America (91%) 2 AQH (42%) 2 Commercial (40%) 2 3 2 Europe (6%) 3 Asia (3%) 2 2 1 1 1 Buy Improve 1. Based on adjusted 2020 revenue for all continuing businesses
Slide 29: Nortek Air Management: highlights
Nortek Air Management: highlights H2 2020 H2 2020 2020 Adjusted1 Year on year £m Adjusted1 results Growth2 results Growth2 Revenue 1,227 5% 677 16% EBITDA 227 10% 136 22% EBITDA margin % 18.5% 0.8 ppts 20.1% 0.9 ppts Operating profit 188 8% 117 24% Operating margin % 15.3% 0.5 ppts 17.3% 1.1 ppts Hi
Slide 30: Other Industrial
Other Industrial 6% of Melrose1 Revenue by business Revenue by destination 1 Nortek Control (38%) 1 North America (64%) 4 3 2 Ergotron (34%) 3 2 Europe (20%) 3 Brush (28%) 3 Asia (11%) 1 2 4 RoW (5%) 1 2 Buy Improve 1. Based on adjusted 2020 revenue for all continuing businesses Sell 29
Slide 31: Other Industrial: highlights
Other Industrial: highlights H2 2020 H2 2020 2020 Adjusted1 Year on year £m Adjusted1 results Growth2 results Growth2 Revenue 628 (11%) 336 flat EBITDA 78 (23%) 53 15% EBITDA margin % 12.4% -2.0 ppts 15.8% 2.0 ppts Operating profit 63 (26%) 45 19% Operating margin % 10.0% -2.0 ppts 13.4% 2.2 ppts Br
Slide 32: Appendices
Buy Improve Sell Appendices 31
Slide 33: Loss-making contracts
Loss-making contracts At 31 On December Utilisation Released £m acquisition Utilised Released Other1 2020 2020 2020 Aerospace 316 (108) (101) 14 121 32 72 Automotive 200 (68) (53) 7 86 21 (7) Powder Metallurgy 106 (22) (69) 19 34 5 36 Other 7 (7) - - - 1 - Total 629 (205) (223) 40 241 59 101 Since
Slide 34: Pensions
Pensions Pension schemes Accounting 31 December 2020 surplus/ Year on year £m Assets Liabilities (deficit) movement UK 3,442 (3,560) (118) 302 Europe 27 (603) (576) (43) USA 271 (408) (137) 18 Rest of World 35 (42) (7) 6 Total pension schemes 3,775 (4,613) (838) 283 Accounting deficit by region On
Slide 35: Borrowing facilities
Borrowing facilities Facility size At 31 December Maturity Headroom on the Group’s committed bank £m 2020 date facility at 31 December 2020 was £1,632 Bonds million 2022 5.375% unsecured bond 450 450 September 2022 The Group targets 70% of interest exposure 2032 4.625% unsecured bond 300 300 May
Slide 36: Some helpful data for 2020
Some helpful data for 2020 Continuing operations Income Statement Cash Flow Item 2020 adjusted1 results 2020 adjusted1 results Operating profit £340 million N/A £46 million (includes a divisional Central costs (£34 million) LTIP charge of £12 million) Adjusted free cash flow1 N/A £628 million Financ