Melrose Industries : 2021 Full Year Results Presentation

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Melrose Industries PLC

Full Year Results

Year ended 31 December 2021

3 March 2022

Contents

1. Highlights
2. Melrose key financial numbers
3. The results
4. Business update
5. Appendices

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Highlights

3

Highlights

Group

• The results are ahead of expectations with better cash generation and a bigger reduction in net debt1 and leverage1
• At constant currency, despite global supply challenges, sales were up 2% year on year and, notably, Group adjusted1 operating profit tripled to £375 million, showing the substantial benefit of restructuring actions increasingly coming through
• The Group statutory operating loss was £451 million; of the £826 million adjusting items, only £200 million were cash items, almost all relating to restructuring projects
• All businesses returned to growth, with further benefits coming from restructuring actions. The Melrose businesses are actively working to mitigate the current inflationary pressures through all necessary means and remain fully committed to achieving their previously stated operating margin targets
• Melrose generated free cash flow1 of £125 million in the year, prior to disposal proceeds, with net debt1 reduced to £0.95 billion and leverage1 to 1.3x adjusted1 EBITDA. All businesses continued to be cash positive, therefore fully funding all their improvement and restructuring costs, with their cash generation qualities transformed since acquisition
• Working capital in the GKN businesses has reduced to 3% of sales from 5% at the GKN acquisition, with further opportunities existing to improve Aerospace inventory levels

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 trading conditions
• The GKN UK pension schemes are now in surplus helped by £1 in every £3 of free cash flow1 since acquisition being paid into the
  Group's pension schemes, thereby freeing up more free cash flow1 in the future
• Melrose has improved its ESG positioning and reporting in the year, including highlighting the substantial benefits delivered by its proprietary sustainable technology. A new stand-alone Melrose Sustainability Report will be published, for the first time, alongside the 2021 Annual Report
• A final dividend of 1.0 pence per share is proposed, up by one third on last year, giving a full year dividend of 1.75 pence per share

Businesses

• Aerospace has seen adjusted1 operating margins improve by c.4 percentage points and growth return with sales in the second half of 2021 up 18%2 on 2020. Under new leadership, it has materially advanced the restructuring of its cost base and operations, with all required significant restructuring projects now underway
• The underlying qualities of the Aerospace businesses are being improved including the accelerated development of new sustainable technologies. The Group will also benefit from exceptionally strong long-term future cash flows in Engines. An Aerospace Investor Day is to be held on 8 June 2022 to explain its exciting full shareholder value potential
• Automotive ended the year positively with 2021 fourth quarter sales up 12% on the third quarter, being almost back to levels seen in the first half of the year. Sales in early 2022 have started similarly positively, consistent with the most recent industry data
• Powder Metallurgy sales volume grew at more than double the rate of growth in car production in 2021 due to continued significant market share gains
• In 2021, adjusted1 operating margins in both Automotive and Powder Metallurgy more than doubled despite the well-publicised supply challenges. During 2022, the full run rate benefits from the required restructuring projects in Automotive and Powder Metallurgy will materialise giving the opportunity to realise this shareholder value