REG - Melrose Industries - Capital Markets Event & New 2025 Guidance

Melrose IndustriesAnnouncement

17/05/2023 13:00

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RNS Number : 7358Z  Melrose Industries PLC  17 May 2023

 

 

 

17 May 2023

 

                            MELROSE INDUSTRIES PLC

 

Capital Markets Event & New 2025 Guidance

 

Ahead of today's Capital Markets Event starting at 2.15pm in London, Melrose
Industries PLC ("Melrose") publishes the following statement.  All numbers
are calculated at constant currency and exclude the businesses recently
demerged to Dowlais Group PLC.

 

Material new information

 

Material new information is announced today and will be discussed at the
Capital Markets Event.  A presentation will be available on the Melrose
website before the event starts and a recording of the event will be available
on the Melrose website after the event has concluded.

 

Trading expectations for 2023 were announced last week, on 10 May, along with
a statement that the 14%+ Aerospace adjusted(1) operating margin target is
expected to be reached on a run rate basis during 2024.  Today, new guidance
for 2025 is given which materially exceeds previous adjusted(1) operating
margin expectations.

 

In addition, for the first time Aerospace is reported as two divisions,
Engines and Structures.  The expected 2025 adjusted(1) operating margin for
Engines is 28% and Structures 9%, thus increasing the blended expected
Aerospace adjusted(1) operating margin from 14%+ previously, to between 17%
and 18%.

 

For ease of presentation in the following tables, the 2023 guidance is assumed
to be in the middle of the expected ranges announced by Melrose on 10 May
2023.

 

Aerospace 2023 and new 2025 guidance (prior to PLC costs(2))

Assumes £1 = $1.25

 

 Total Aerospace(3)  2023(4)     2025
 Revenue             £3.4bn(5)   £4.0bn
 Operating profit    £350m       £700m
 Operating margin    10% to 11%  17% to 18%
 EBITDA              £505m       £870m
 EBITDA margin       15%         22%

 

 Engines(3)        2023     2025
 Revenue           £1.3bn   £1.8bn
 Operating profit  £290m    £500m
 Operating margin  22%      28%
 EBITDA            £350m    £580m
 EBITDA margin     27%      32%

 

 Structures(3)     2023        2025
 Revenue           £2.1bn(5)   £2.2bn
 Operating profit  £60m        £200m
 Operating margin  3%          9%
 EBITDA            £155m       £290m
 EBITDA margin     7%          13%

 

The Capital Markets Event today will lay out clearly why Aerospace is on track
to achieve this higher performance and that further growth is expected beyond
2025.

 

The Aerospace profits are increasingly coming from Engines with over 85% of
this being from aftermarket activities by 2025.

 

In addition, lifetime net cash inflows, from RRSP engines contracts, being
approximately half the Engines business today, are expected to total £20
billion with a net present value of £5.5 billion(6).

 

Free cash flow margin(7) is expected to reach 12% in 2025 and long-term 15%
rising to greater than 20%.

 

This gives Melrose the capacity from 2024 onwards, after the completion of
current restructuring programmes, to buy back between 5% and 10% of its market
capitalisation per annum in addition to paying a progressive annual dividend,
whilst maintaining a prudent Balance Sheet.

Simon Peckham, Chief Executive of Melrose Industries PLC, said:

 

"We are making clear today that after 5 years hard work, Aerospace is now
positioned to fulfil the potential it had at acquisition, with a highly
enviable aftermarket presence and predictable strong cashflows. This is a
great business in a very attractive global aerospace sector and is being
deliberately focused to produce both top level equity performance and very
significant cash returns.  We are totally focused on completing, over the
next 12 months, the work we need to do to maximise returns for shareholders."

 

1.    Described in the glossary to the Melrose Industries PLC Annual Report
and considered by the Board to be a key measure of performance

2.    PLC costs reducing to c.£30 million in 2023 and to c.£25 million in
2025

3.    Unless otherwise stated, metrics refer to adjusted(1) measures

4.    Consistent with guidance given in the 10 May 2023 trading update

5.    Including c.£150 million of Structures revenue from planned site
closures to be exited in 2024

6.    Using a discount rate of 7.5%, which is between a debt related
discount rate and a GKN Aerospace pre-tax weighted average cost of capital

7.    Unlevered and pre-tax

 

-ends-

 

 

 

Enquiries:

 

Montfort Communications: +44 (0) 20 3514 0897

Nick Miles +44 (0) 7739 701634 / Charlotte McMullen +44 (0) 7921 881800

miles@montfort.london (mailto:miles@montfort.london) /
mcmullen@montfort.london (mailto:mcmullen@montfort.london)

 

Investor Relations: Chris Dyett +44 (0) 7974 974690

ir@melroseplc.net (mailto:ir@melrosePLC.net)

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