Melrose Industries PLC · LSE:MRO
Melrose Industries — FY2021 Earnings Presentation
44 slides from Melrose Industries's earnings presentation, Mar 3, 2022
Slide 1: Melrose Industries PLC Full Year Results 2021
Buy Improve Sell Strictly private and confidential Melrose Industries PLC Full Year Results Year ended 31 December 2021 3 March 2022 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 Adjusted1 results Statutory results 2020 2021 2021 2020 Actual Constant Actual Actual Actual rates currency1 rates rates rates Continuing operations £m £m £m £m £m Revenue 7,496 7,351 7,723 6,883 7,132 Operating profit/(loss) 375 122 141 (451) (487) Profit/(loss) after tax 197 (36) (27) (
Slide 5: Highlights
Highlights Ahead of plan, the opening net debt1 of £3.4 billion at the GKN acquisition has been fully repaid in less than four years, save cash returned to shareholders over the period, helping to protect shareholder value and de-risking the GKN transformation during some of the most challenging t
Slide 6: Highlights
Highlights Life of programme business wins of c.£5 billion in Automotive in 2021, of which more than one third are for pure electric vehicles (BEV), confirm that Automotive is both gaining market share and keeping pace with the faster than expected market conversion to electric vehicles. Important
Slide 7: Melrose key financial numbers
Buy Improve Sell Melrose key financial numbers Buy Improve Sell 7
Slide 8: Ahead of expectations
Ahead of expectations 1. 2021 results: showing significantly better cash generation and lower net debt1 than expected EPS1 Net debt1 Leverage1 4.1p £950m 1.3x Net debt1 reduced from £2,847 million to £950 million in the year and leverage1 reduced from 4.1x to 1.3x, transforming the Balance Sheet The
Slide 9: GKN acquisition net debt fully repaid
GKN acquisition net debt1 fully repaid 2. Acquisition net debt1 repaid: protecting shareholder value and de-risking the transformation in challenging conditions Acquisition net debt At GKN repaid At 31 acquisition December (2018) 2021 £nil £1.0bn free £1.2bn net debt1 paid to £0.95bn £3.4bn cash inf
Slide 10: Stronger finish to 2021
Stronger finish to 2021 3. Improved momentum: Q4 better than Q3 Automotive Aerospace Average monthly sales Average monthly sales 2019 Initial COVID- 2020 H2 Q3 2021 Q4 2021 FY 19 H1 20 H2 20 H1 21 H2 21 19 impact bounce back Supply constrained but in demand demand strong Recent trends in Automotive
Slide 11: Impressive revenue gains
Impressive revenue gains 4. Revenue gains: Life of programme business wins in Automotive rose substantially and sales in Powder Metallurgy significantly outpaced the growth in car production in 2021 Automotive & Powder Metallurgy 2021 +13%3 +20% increase in Automotive life +4% of programme business
Slide 12: Keeping pace with the faster than expected conversion to electric vehicles
Keeping pace with the faster than expected conversion to electric vehicles 5. Electrification: Being won at margins consistent with the Automotive higher margin target Automotive 2021 lifetime business wins BEV & FCEV1 35% Won at terms Full hybrid 15% consistent with the Automotive higher margin tar
Slide 13: Restructuring in GKN is well advanced
Restructuring in GKN is well advanced 6. Automotive and Powder Metallurgy nearing completion, all significant Aerospace projects now underway Automotive & Powder Metallurgy Aerospace Group (required restructuring actions (2021 margin improvement (profits tripled on 2% sales nearing completion) on fl
Slide 14: Significant upside potential being multiple times today's level
Significant upside potential being multiple times today’s level 7. GKN positioned for significant upside: the full potential on a recovery is multiple times today’s level Average upside1 Assuming an from current average sales Average uplift2 margins to recovery to potential if full As an illustratio
Slide 15: Cash generation qualities of all the businesses transformed
Cash generation qualities of all the businesses transformed 8. Each business has been cash positive since acquisition Cash generation (post restructuring) since GKN acquisition Powder Aerospace Automotive Metallurgy Other Total £0.6bn £0.7bn £0.4bn £0.7bn £2.4bn (£0.9bn) Interest & tax Group pension
Slide 16: GKN pension commitment delivered ahead of schedule
GKN pension commitment delivered ahead of schedule 9. GKN UK pension schemes now in surplus Aerospace 107% funded so far 81% funded at 107%1 funded acquisition so far Automotive 108% funded so far GKN UK pension schemes1 transformed into an accounting surplus of £179 million, 107% funded at 31 Decem
Slide 17: The results
Buy Improve Sell The results Trading ahead of expectations Buy Improve Sell 17
Slide 18: Reconciliation between statutory and adjusted results
Reconciliation between statutory and adjusted1 results Cash Continuing operations spent in £m Total 2021 Statutory operating loss (451) Amortisation of intangible assets acquired in business combinations 452 - Restructuring costs 269 193 Exchange movements not hedge accounted 114 - Net release of fa
Slide 19: Cash generation in the year: net debt significantly reduced
Cash generation in the year: net debt1 significantly reduced Free cash flow1 Reconciliation of opening to closing net debt1 Cash flow Group Reconciliation of net debt1 Group £m 2021 £m 2021 Adjusted2 EBITDA 734 Net debt1 brought forward (2,847) Lease obligation payments (54) Net cash flow from acqui
Slide 20: Business update
Buy Improve Sell Business update Well positioned for strong profit growth Buy Improve Sell 20
Slide 21: Melrose business portfolio
Melrose business portfolio Powder Aerospace Automotive Metallurgy Leading global tier one supplier #1 in Driveline with ICE, hybrid #1 in supply of precision Strong market on major civil and defence and EV technology leadership powder metal parts platforms positions Supplies 90% of OEMs, 50%
Slide 22: Business results: expanded margins and strong cash flow
Business results: expanded margins and strong cash flow Adjusted1 results 2021 2021 2020 2020 2021 cash 2020 cash Continuing operations 2021 Operating Operating 2020 Operating Operating conversion conversion £m Revenue profit/(loss) margin Revenue profit/(loss) margin (pre-capex)1 (pre-capex)1 Aeros
Slide 23: GKN Aerospace
GKN Aerospace 34% of Melrose1 Buy Improve 1. Based on adjusted 2021 revenue for all continuing businesses Sell 23
Slide 24: Aerospace: overview
Aerospace: overview Adjusted1 Markets remain impacted by COVID-19 with sales down 27%2 on 2019 results £m 2021 Growth Initial recovery started during year with sales growth of 18%2 versus H2 2020 Revenue 2,543 Flat2 EBITDA 258 68% £98 million more operating profit on lower sales; margins up 3.
Slide 25: Aerospace: portfolio
Aerospace: portfolio Sustainable 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 24% civil OE players Airbus) (e.g. Wing of Region
Slide 26: Aerospace: highlights
Aerospace: highlights Well positioned to benefit from ongoing market recovery Civil market anticipated to continue to improve throughout 2022; narrowbody recovery faster than widebody Working closely with customers, well prepared for Airbus and Boeing production ramp-up, especially A320 and B737
Slide 27: Aerospace: earnings improvement trajectory
Aerospace: earnings improvement trajectory 2018 – 2019 2020 – 2021 Outlook Good demand and revenue Major revenue decline due to Steady civil market recovery growth COVID-19 Execution of all restructuring Strong decisive cost actions projects Quality fixes Quality and delivery improveme
Slide 28: GKN Automotive
GKN Automotive 50% of Melrose1 Buy Improve 1. Based on adjusted 2021 revenue for all continuing businesses Sell 28
Slide 29: Automotive: overview
Automotive: overview Adjusted1 results Sales 4% above last year, constrained by semi-conductor shortages £m 2021 Growth Revenue 3,745 4% Gaining momentum in electrification with core and eDrive products EBITDA2 411 36% Adjusted1 operating margin more than doubled, from 2.2% to 4.6% EBITDA2 mar
Slide 30: Automotive: highlights
Automotive: highlights Structural growth in core products Growth at 4% year-on-year, with electrification gains Market remaining constrained by semi-conductor and labour shortages, however, in-month order cancellations are reducing Well positioned to capture incremental electrification growth
Slide 31: Automotive: dual path electrification growth
Automotive: dual path electrification growth GKN electric vehicle/hybrid portfolio Core sideshafts eDrive systems & components Above market growth from differentiated core products Strong growth from new eDrive solutions required for xEV1 required for xEV1 Increased torque and power requirements d
Slide 32: GKN Powder Metallurgy
GKN Powder Metallurgy 13% of Melrose1 Buy Improve 1. Based on adjusted 2021 revenue for all continuing businesses Sell 32
Slide 33: Powder Metallurgy: overview
Powder Metallurgy: overview Adjusted1 Sales 13% above last year, 8% volume plus 5% material surcharge pass- results through, growing faster than the market £m 2021 Growth Revenue 975 13% Adjusted1 operating profit up 162% EBITDA2 152 49% Adjusted1 operating margin more than doubled, from 4.3%
Slide 34: Powder Metallurgy: highlights
Powder Metallurgy: highlights Growth in the core businesses with market share gains Growing faster than the market due to share gains and business mix Expanding business into electrification – many opportunities to pursue as electric vehicle volume grows Additive manufacturing delivered 16% gr
Slide 35: Other Industrial
Other Industrial 3% of Melrose1 Buy Improve 1. Based on adjusted 2021 revenue for all continuing businesses Sell 35
Slide 36: Other Industrial: highlights
Other Industrial: highlights Ergotron Hydrogen Adjusted1 Adjusted1 Adjusted1 results results results £m 2021 Growth 2021 Growth 2021 Revenue 233 15% 233 15% - EBITDA 55 5% 62 18% (7) EBITDA margin % 23.6% (2.2ppts) 26.6% 0.8ppts - Operating profit 51 5% 58 19% (7) Operating margin % 21.9% (2.1ppts)
Slide 37: Sustainability: overview
Sustainability: overview Driving sustainable improvements in our businesses’ financial, operational and environmental performance is at the heart of the Melrose “Buy, Improve, Sell” model All of our businesses have a major opportunity and responsibility to decarbonise their industries – we are p
Slide 38: Sustainability: decarbonising technology
Sustainability: decarbonising technology Aerospace Automotive Powder Metallurgy Improving efficiency and sustainability Producing driveline solutions tailored to Focusing on supporting vehicle of current aircraft: electric vehicles: electrification: Wing of Tomorrow High efficiency, Cooling pump hig
Slide 39: Sustainability: hydrogen (H2) investments
Sustainability: hydrogen (H2) investments GKN Aerospace H2 propulsion GKN Hydrogen storage Cornerstone contributor to two flagship projects aiming to Proprietary GKN technology for storing H2 safely in specialist eliminate carbon emissions from flights metal hydride powders H2GEAR - £54 million pr
Slide 40: Appendices
Buy Improve Sell Appendices 40
Slide 41: Pensions
Pensions Pension schemes Accounting 31 December 2021 surplus/ Movement in £m Assets Liabilities (deficit) the year UK 2,754 (2,582) 172 290 Europe 23 (566) (543) 33 USA 203 (289) (86) 51 Rest of World 30 (34) (4) 3 Total pension schemes 3,010 (3,471) (461) 377 GKN UK schemes now in accounting surp
Slide 42: Foreign exchange and forward looking
Foreign exchange forward looking FY 2021 FY 2020 Exchange rates USD EUR USD EUR Average rates 1.38 1.16 1.28 1.13 Closing rates 1.35 1.19 1.37 1.12 Income Statement volatility – Translational impact Balance Sheet volatility Impact on adjusted1 operating profit of a 10% strengthening2 of: Impact on
Slide 43: Aerospace Engines RRSP contracts: longer term cash inflows
Aerospace Engines RRSP contracts: longer term cash inflows GKN Aerospace - Engines' estimated RRSP longer term cash profile 700 £ billion Total value c.18 Net present value c.3 600 Discount rate c.10% 500 400 £ millions 300 200 100 0 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2
Slide 44: Some helpful data for 2021
Some helpful data for 2021 Continuing operations Income Statement Cash Flow Item 2021 adjusted1 results 2021 adjusted1 results Adjusted1 operating profit £375 million N/A £51 million (includes a divisional Central costs (£34 million) LTIP charge of £17 million) Free cash flow1 N/A £125 million Under