Melrose Industries Plc · LSE:MRO
Melrose Industries — H1 2019 Earnings Presentation
30 slides from Melrose Industries's earnings presentation, Sep 5, 2019
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 2019 5 September 2019 Buy Improve Sell
Slide 2: Contents
Contents 1 Highlights 2 The results 3 Businesses – investment & improvement 4 Appendices Buy Improve The revenue and profit numbers included in this presentation are shown in round millions. Margin calculations included in this presentation are calculated using unrounded numbers. Sell 1
Slide 3: Highlights
Buy Improve Sell Highlights 2
Slide 4: Highlights - Group
Highlights - Group Adjusted1 results Statutory results 2019 2018 2019 2018 Continuing operations £m £m £m £m Revenue 6,002 2,971 5,700 2,847 Operating profit/(loss) 539 284 (11) (325) Profit/(loss) before tax 429 244 (128) (372) Profit/(loss) after tax 330 188 (150) (330) Diluted earnings per share
Slide 5: Highlights - Divisions
Highlights - Divisions Aerospace performance is significantly better than prior year period; adjusted1 operating profit growth2 of 37% and adjusted1 operating margin improvement of 2.0 percentage points Aerospace increasing to 34% of Group adjusted1 profits, becoming the largest division and pro
Slide 6: The results
Buy Improve Sell The results Buy Improve Sell 5
Slide 7: Reconciliation between statutory and adjusted results
Reconciliation between statutory and adjusted results Cash £m Total items Statutory operating loss (11) Amortisation of intangible assets acquired in business combinations 269 - Impairment of goodwill 179 - Restructuring costs 75 68 Exchange movements not hedge accounted 13 - Acquisition and disposa
Slide 8: Cash generation in the period
Cash generation in the period Free cash flow Reconciliation of opening to closing net debt Cash flow Group Reconciliation of net debt Group £m 2019 £m 2019 Adjusted operating cash flow (pre capex)1 599 Net debt brought forward (3,482) Net capital expenditure (235) Net cash flow from disposals 172 Ne
Slide 9: GKN working capital – cash release of £400 million
GKN working capital – cash release of £400 million Opportunity for Pre-Melrose situation New approach improvement Inventory • Not centrally reviewed previously • Build to order • Excess stock due to quality issues • Supply chain fulfilment driven by demand ‘pull’ • High work in progress due to ineff
Slide 10: Segmental performance – adjusted results
Segmental performance – adjusted results Adjusted1 results Operating Operating Operating margin profit/(loss) profit/(loss) pre-positive Positive post-positive Pre-positive Post-positive impact of impact of impact of impact of impact of loss-making loss-making loss-making loss-making loss-making £m
Slide 11: Businesses – investment & improvement
Buy Improve Sell Businesses – investment & improvement Buy Improve Sell 10
Slide 12: GKN Aerospace
GKN Aerospace 34% of Melrose1 Revenue by market Revenue by product type Revenue by destination 1 Commercial (72%) 1 Civil Air Frame (45%) 1 North America (60%) 2 Military (28%) 2 Defence Air Frame (21%) 34 2 Europe (36%) 2 3 3 Engines (34%) 3 Asia (3%) 1 2 4 RoW (1%) 4 RoW (1%) 1 1 2 Buy Improve 1.
Slide 13: Aerospace – trading
Aerospace – trading 2019 £m Adjusted1 results Growth2 Revenue 1,904 7% EBITDA 276 24% EBITDA margin % 14.5% +1.7 ppts Operating profit 192 37% Operating margin % 10.1% +2.0 ppts Highlights Outstanding performance; adjusted1 operating profit growth of 37%, adjusted1 operating margin improvement of
Slide 14: Aerospace – trading: investment and restructuring
Aerospace – trading Investment and restructuring Creation of ‘One GKN Aerospace’; major new operational improvement programme announced: − Business refocused to better serve customers − Operational excellence – many initiatives underway, supported by the recently announced new operating model Co
Slide 15: GKN Automotive
GKN Automotive 33% of Melrose1 Revenue by product type Revenue by destination 1 Driveline (72%) 1 Europe (35%) 34 2 All Wheel Drive (25%) 4 2 North America (35%) 3 eDrive (2%) 3 1 3 Asia (25%) 2 4 Cylinder Liners (1%) 4 RoW (5%) 1 2 Buy Improve 1. Based on adjusted first half 2019 operating profit f
Slide 16: Automotive – trading
Automotive – trading Revenue by half year 2019 (First half 2019 4% higher than second half 2018) £m Adjusted1 results Growth2 Revenue 2,450 (7%) EBITDA 298 (3%) EBITDA margin % 12.1% +0.4 ppts Operating profit 186 (10%) Operating margin % 7.6% -0.2 ppts H1 H2 H1 H2 H1 H2 H1 H2 H1 15 15 16 16 17 17 1
Slide 17: Automotive – first half margin maintained despite tough market
Automotive – first half margin maintained despite tough market Adjusted1operating margin 2018 H1 Volume China Cost inflation Cost reduction 2019 H1 (excl. China) actions Significant structural cost reduction actions underway, business better placed Cost reduction actions showing first half year
Slide 18: Automotive – trading: investments and restructuring
Automotive – trading Investments and restructuring Significant restructuring programmes underway: − Layers of management removed − Structural reductions in fixed costs − Early retirement programmes initiated at several plants − Footprint reduction taking place Focus on improving production flows
Slide 19: GKN Powder Metallurgy
GKN Powder Metallurgy 12% of Melrose1 Revenue by market type Revenue by destination 1 Automotive (67%) 1 North America (48%) 3 4 2 Industrial (17%) 3 2 Europe (32%) 3 Hoeganaes Metal 3 Asia (15%) Powder (16%) 1 2 4 RoW (5%) 1 2 Buy Improve 1. Based on adjusted first half 2019 operating profit for al
Slide 20: Powder Metallurgy – trading
Powder Metallurgy – trading 2019 £m Adjusted1 results Growth2 Revenue 581 (7%) EBITDA 100 (4%) EBITDA margin % 17.1% +0.5 ppts Operating profit 66 (10%) Operating margin % 11.4% -0.3 ppts Investment and restructuring Continued investment in additive manufacturing technologies Footprint consolida
Slide 21: Nortek Air & Security
Nortek Air & Security 16% of Melrose1 Revenue by business Revenue by market Revenue by destination 1 AQH (32%) 1 Home (67%) 1 North America (95%) 5 23 3 2 HVAC (47%) 3 4 2 Work (22%) 2 Europe (4%) 1 3 Security & Smart 3 Health (6%) 3 Asia (1%) Technology (21%) 2 4 Education (3%) 5 Aftermarket (2%) 1
Slide 22: Nortek Air & Security - trading
Nortek Air & Security - trading 2019 £m Adjusted1 results Growth2 Revenue 732 (4%) EBITDA 112 (14%) EBITDA margin % 15.3% -1.8 ppts Operating profit 92 (17%) Operating margin % 12.5% -2.0 ppts Investment and restructuring Significant investment in StatePoint Technology® liquid cooling system and a
Slide 23: Security & Smart Technology – first half performance
Security & Smart Technology – first half performance First half 2016 Benefits of initial actions: − Consolidation of Security & Smart Technology, Core Brands, and GTO Revenue $311 million businesses Operating margin 10.3% − Back office consolidation, move to Carlsbad − Warehousing and distribution b
Slide 24: Other Industrial
Other Industrial 5% of Melrose1 Revenue by business Revenue by destination 1 Ergotron (36%) 1 Europe (43%) 4 2 Brush (26%) 3 2 North America (42%) 3 3 Asia (9%) 1 3 Wheels & 1 Structures (38%) 4 RoW (6%) 2 2 1. Based on adjusted first half 2019 operating profit for all businesses 23
Slide 25: Other Industrial - trading
Other Industrial - trading 2019 £m Adjusted1 results Growth2 Revenue 335 (5%) EBITDA 39 (16%) EBITDA margin % 11.4% -1.4 ppts Operating profit 31 (16%) Operating margin % 9.0% -1.2 ppts Investment and restructuring Ergotron market impacted by US tariffs on Chinese goods. New product launches under
Slide 26: Appendices
Buy Improve Sell Appendices 25
Slide 27: Pensions
Pensions UK defined benefit schemes – accounting surplus/(deficit) 30 June 2019 Surplus/ £m Assets Liabilities (deficit) GKN 2016 558 (521) 37 GKN 2012 2,191 (2,774) (583) GKN post retirement medical - (9) (9) Nortek Air & Security 20 (32) (12) Brush 270 (258) 12 Total UK defined benefit schemes 3,0
Slide 28: Aerospace future potential cash profile
Aerospace future potential cash profile Indicative cash flows from RRSP1 portfolio 700 600 500 $m per annum 400 300 200 100 0 2020 2025 2030 2035 2040 2045 2050 2055 2060 Over $14 billion of cash expected from existing RRSP1 arrangements Buy Improve 1. Revenue risk sharing partnership Sell 27
Slide 29: Interest and tax
Interest and tax Interest At Income Interest Facility 30 June Statement £m size 2019 rate Cash rate Approximately 70% of interest exposure Bonds fixed on projected gross debt 2019 6.75% unsecured bond 350 350 1.9% 6.8% 450 Significant committed facility headroom 2022 5.375% unsecured bond 450 2.
Slide 30: Foreign exchange forward looking
Foreign exchange forward looking H1 2019 H1 2018 2018 Exchange rates USD EUR USD EUR USD EUR Average rates 1.29 1.15 1.38 1.14 1.33 1.13 Closing rates 1.27 1.12 1.32 1.13 1.27 1.11 Income Statement volatility – Translational impact Balance Sheet volatility Impact on adjusted1 operating profit of a