REG - Melrose Industries - Final Results <Origin Href="QuoteRef">MRON.L</Origin> - Part 4
20/02/2018 07:16
- Part 4: For the preceding part double click ID:nRST3300Fc
comparative of year-on-year performance.
This measure is presented as a means of eliminating the effects of exchange
rate fluctuations, acquisitions and business closures on the year-on-year
reported results.
2017 2016
Group - Revenue £m £m %
Statutory 2,092.2 889.3
Full year impact of acquisitions - 1,187.3
Exited sales channels (28.8) (108.4)
Impact of foreign exchange (100.0) -
Proforma revenue at
constant currency 1,963.4 1,968.2 flat
2017 2016
Nortek - Revenue £m £m %
Statutory (note 3) 1,873.2 642.9
Full year impact of acquisitions - 1,187.3
Exited sales channels (28.8) (108.4)
Impact of foreign exchange (92.5) -
Proforma revenue at
constant currency 1,751.9 1,721.8 +2%
2017 2016
Brush - Revenue £m £m %
Statutory (note 3) 219.0 246.4
Impact of foreign exchange (7.5) -
Proforma revenue at
constant currency 211.5 246.4 -14%
Non-underlying items None See note 4 Those items which the Group excludes from its underlying profit metrics in
order to present a further measure of the Group's performance.
Underlying profit/(loss) excludes items which are significant in size or
volatility or by nature are non-trading or
non-recurring, and excludes any item released to the Income Statement that was
previously a fair value item booked on acquisition.
The Board consider the underlying results to be a key measure to monitor how
the businesses are performing because this provides a more meaningful
comparison of how the business is managed and measured on a day-to-day basis
and achieves consistency and comparability between reporting periods.
The underlying measures are used to partly determine the variable element of
remuneration of senior management throughout the Group and are also in
alignment with performance measures used by certain external stakeholders. The
underlying measures are also one measure used to value individual businesses
as part of the "Buy, Improve and Sell" Melrose strategy model.
Underlying operating profit/(loss) Operating profit/(loss)((1)) Non-underlying items (note 4) Profit before the impact of non-underlying items, finance costs, finance
income and tax.
As discussed above, the Group uses underlying profit measures to provide a
useful and more comparable measure of the ongoing performance of the Group.
These are adjusted from statutory measures to remove non-underlying items, the
nature of which are disclosed above.
Underlying operating margin Operating margin((2)) Non-underlying items (note 4) Underlying operating profit as a percentage of revenue.
Proforma underlying operating profit growth Movement in Non-underlying items (note 4), full year impact of acquisitions and The year-on-year change in underlying operating profit including the full year
translational currency impacts impact of acquisitions, retranslating the current year underlying operating
operating profit/(loss)((1)) per the Income Statement profit at the average actual periodic exchange rates used in the prior year.
This measure is presented as a means of eliminating the effects of exchange
rate fluctuations and acquisitions on the year-on-year reported results.
To aid comparability, the full year impact of acquisitions includes an
additional charge of £7.6 million for divisional long-term incentive plans in
2016 as if Nortek were owned for the full year.
Group - Underlying 2017 2016
operating profit £m £m %
As reported 278.4 104.1
Full year impact of acquisitions - 83.9
Impact of foreign exchange (15.1) -
At constant currency 263.3 188.0 +40%
Nortek - Underlying 2017 2016
operating profit £m £m %
As reported (note 3) 284.3 86.3
Full year impact of acquisitions - 91.5
Impact of foreign exchange (14.5) -
At constant currency 269.8 177.8((a)) +52%
((a)) Translated at an average GBP:USD exchange rate of 1.3554
equates to $241.0 million.
( )
Nortek - Underlying 2017 2015
operating profit £m £m %
( ) ( ) ( ) ( )
As reported (note 3) 284.3 - ( )
Full year impact of acquisitions - 144.0 ( )
Impact of foreign exchange (43.6) - ( )
( ) ( ) ( ) ( )
At constant currency 240.7 144.0((a)) +67%
( ) ( ) ( ) ( )
((a)) Translated at an average GBP:USD exchange rate of 1.5284
equates to $220.1 million.
( )
Brush - Underlying operating 2017 2016
profit £m £m %
As reported (note 3) 17.5 32.0
Impact of foreign exchange (0.6) -
At constant currency 16.9 32.0 -47%
( )
Underlying EBITDA None Not applicable Underlying operating profit before depreciation and impairment of property,
plant and equipment and before the amortisation and impairment of computer
software and development costs.
Underlying EBITDA is one measure used to value individual businesses as part
of the "Buy, Improve and Sell" Melrose strategy model and by certain external
stakeholders to measure performance.
2017 2016
Underlying EBITDA £m £m
Underlying operating profit 278.4 104.1
Depreciation 30.9 15.9
Amortisation 3.8 2.2
Underlying EBITDA 313.1 122.2
Underlying profit/(loss) before tax Profit/(loss) before tax Non-underlying items (note 4) Profit before the impact of non-underlying items and tax.
As discussed above, the Group uses underlying profit measures to provide a
useful and more comparable measure of the ongoing performance of the Group.
These are adjusted from statutory measures to remove non-underlying items, the
nature of which are disclosed above.
Underlying profit/(loss) after tax Profit/(loss) after tax Non-underlying items Profit after tax attributable to owners of the parent and before the impact of
non-underlying items.
(note 4)
As discussed above, the Group uses underlying profit measures to provide a
useful and more comparable measure of the ongoing performance of the Group.
These are adjusted from statutory measures to remove non-underlying items as
well as non-underlying tax and the tax effects of non-underlying items, the
nature of which are disclosed above.
Underlying Income Statement tax rate Effective tax rate Non-underlying items, non-underlying tax and the tax impact of non-underlying The income tax charge for the Group excluding non-underlying tax and the tax
items (note 4) impact of non-underlying items divided by underlying profit before tax.
This measure is a useful indicator of the ongoing tax rate for the Group.
Underlying Income 2017 2016
Statement tax rate £m £m
Tax credit per Income
Statement 3.7 30.3
Non-underlying tax (26.4) (10.4)
Tax impact of non-underlying
items (44.1) (45.9)
Underlying tax charge (66.8) (26.0)
Underlying profit before tax 257.7 96.4
Underlying Income
Statement tax rate 25.9% 27.0%
Underlying diluted earnings per share Diluted earnings per share Non-underlying items (note 4) Profit after tax attributable to owners of the parent and before the impact of
non-underlying items, divided by the weighted average number of ordinary
shares in issue during the financial year adjusted for the effects of any
potentially dilutive options.
The Board considers this to be a key measure of performance.
Proforma underlying diluted earnings per share and proforma underlying diluted Diluted earnings per share Full year impact of acquisitions, non-underlying items (note 4) and Underlying diluted earnings per share adjusted to include the full year impact
earnings per share growth translational currency impacts of businesses acquired and, for growth purposes, translational currency
impacts.
This measure uses the proforma underlying operating profit, described above,
and to aid comparability, this measure also makes allowance for the same net
finance costs, effective tax rate and number of shares in both periods to aid
comparability.
2017 constant currency
£m
Proforma underlying diluted 2017 2016 £m
earnings per share £m
Proforma underlying operating 188.0
profit 278.4 263.3
Finance costs (proforma) (20.7) (20.7) (20.7)
Tax (proforma) (66.8) (62.8) (43.3)
Underlying proforma profit
after tax 190.9 179.8 124.0
Number of shares (million) 1,941.2 1,941.2 1,941.2
Proforma underlying diluted
earnings per share 9.8p 9.3p 6.4p
Proforma underlying diluted earnings per share growth at constant currency is
45%.
Interest cover None Not applicable Underlying EBITDA as a multiple of net interest payable on bank loans and
overdrafts.
This measure is used for bank covenant testing.
Balance Sheet Measures
Net debt Cash and cash equivalents less interest-bearing loans and borrowings Reconciliation of net debt (note 11) Net debt comprises total borrowings (interest-bearing loans and finance
leases) and cash and cash equivalents.
Net debt is one measure that could be used to indicate the strength of the
Group's Balance Sheet position and is a useful measure of the indebtedness of
the Group.
Net debt at average exchange rates Cash and cash equivalents less interest-bearing loans and borrowings Translational currency impacts Net debt (as above) is presented in the Balance Sheet translated at year end
exchange rates. For bank covenant testing purposes net debt is converted using
average exchange rates for the year.
31 Dec 17 31 Dec 16
Net debt £m £m
As reported 571.8 541.5
Impact of foreign exchange 22.8 (51.1)
At average exchange rates 594.6 490.4
Leverage or net debt to underlying EBITDA None Not applicable Net debt at average exchange rates divided by underlying EBITDA for existing
businesses at each year end.
This measure is used for bank covenant testing.
Working capital Inventories, trade and other receivables less trade and other payables Not applicable Working capital comprises inventories, current and non-current trade and other
receivables, and current and non-current trade and other payables.
Cash Flow Measures
Underlying operating cash flow (pre capex) Net cash from operating Non-working capital items Underlying operating cash flow (pre capex) is calculated as underlying EBITDA
adjusted for movements in working capital.
activities
This measure provides additional useful information in respect of cash
generation and is consistent with how business performance is measured
internally.
Underlying operating cash 2017 2016
flow £m £m
Underlying EBITDA 313.1 122.2
(Increase)/decrease in
inventory (8.1) 15.0
Decrease in receivables 8.1 22.5
Decrease in payables (16.1) (9.3)
Underlying operating cash
flow 297.0 150.4
Underlying profit conversion to cash (pre capex) percentage None Not applicable Underlying operating cash flow (pre capex) as a percentage of underlying
EBITDA, being 95% in 2017 and 123% in 2016.
This is a key performance measure that is used by the Board to measure
performance.
Other Measures
Capital expenditure (capex) Additions to non-current assets Refer to definition Calculated as the purchase of property, plant and equipment and computer
software, and expenditure on capitalised development costs during the year,
excluding any assets acquired as part of a business combination.
Capital expenditure to depreciation ratio
- More to follow, for following part double click ID:nRST3300Fe 50.6
Net debt reconciliation
31 December 2016 Cash flow Other non-cash movements Foreign exchange difference 31 December 2017
£m £m £m £m £m
Bank borrowings (582.0) (56.0) (0.9) 51.4 (587.5)
Finance leases (1.6) 1.0 - - (0.6)
Gross debt (583.6) (55.0) (0.9) 51.4 (588.1)
Cash 42.1 (23.0) - (2.8) 16.3
Net debt (541.5) (78.0) (0.9) 48.6 (571.8)
Net debt is presented in the closing Balance Sheet at year end exchange rates. For bank covenant testing purposes net debt
is converted using average exchange rates for the year, which increases net debt at 31 December 2017 by £22.8 million (31
December 2016: decreases net debt by £51.1 million) to £594.6 million (31 December 2016: £490.4 million).
12. Post Balance Sheet events
On 17 January 2018 the Melrose Group announced the terms of a firm offer to acquire the entire issued share capital of GKN
plc and on 1 February 2018 issued a public offer document containing the full terms and conditions of the offer.
In conjunction with this offer, the Company entered into a senior term and revolving credit facilities agreement with
Lloyds Bank plc and Royal Bank of Canada as original lenders which is subject to the acquisition taking place. The new
facilities agreement provides for term facilities and revolving credit facilities in an aggregate principal amount up to
£2.6 billion, US $2.0 billion and E0.5 billion. The maturity of the facilities ranges from 3 years and 6 months to 5 years,
after the date of the agreement of the new facility.
On 1 February 2018 Melrose announced that Brush had commenced consultations with employees in relation to restructuring its
Turbogenerator business to reflect the reduced levels of activity. These reduced levels have been caused by worldwide
environmental policy which has triggered a fall in volumes in the gas turbine market of over 60% from its peak in 2011.
This in turn has resulted in Brush's turbogenerator sales falling.
This restructuring involves the intended closure of the turbogenerator production facility at Ridderkerk, Netherlands and
the transfer of its 4-pole turbogenerator production to the facility in Plzen, Czech Republic, while the factory in
Changshu, China has already been closed. In the UK, Brush has entered into consultation with its workforce about the future
of 2-pole turbogenerator production at the Loughborough, UK facility, which accounts for approximately half the workforce
at the site. The 520-strong workforce employed at Brush's other UK sites in the transformers, switchgear and mobile
generator businesses remain unaffected.
The cash cost of these restructuring items is estimated to be £40 million and is expected to be materially complete by the
end of 2018.
Glossary
Alternative Performance Measures ("APMs")
In response to the Guidelines on Alternative Performance Measures issued by the European Securities and Markets Authority
("ESMA"), additional information is provided on the APMs used by the Group below.
In the reporting of financial information, the Group uses certain measures that are not required under IFRS. These
additional measures (commonly referred to as Alternative Performance Measures) provide additional information on the
performance of the business and trends to shareholders. These measures are consistent with those used internally, and are
considered critical to understanding the financial performance and financial health of the Group. APMs are considered to be
a key measure to monitor how the businesses are performing because this provides a more meaningful comparison of how the
business is managed and measured on a day-to-day basis and achieves consistency and comparability between reporting
periods.
These alternative performance measures may not be directly comparable with similarly titled profit measures reported by
other companies and they are not intended to be a substitute for, or superior to, IFRS measures.
APM Closest equivalentstatutory measure Reconcilingitems to statutorymeasure Definition and purpose
Income Statement Measures
Proforma revenue and proforma revenue growth Revenue and movement inrevenue per theIncome Statement Full year impact of acquisitions, revenue from exited sales channels and translational currency impacts The year-on-year change in revenue from
sales that are continuing, retranslating
the current year revenue at the average
actual periodic exchange rates used in the
prior year. This measure includes the
full year impact of businesses acquired
and excludes the impact of exited sales
channels from both years to provide a more
direct comparative of year-on-year
performance. This measure is presented as
a means of eliminating the effects of
exchange rate fluctuations, acquisitions
and business closures on the year-on-year
reported results.
Group - Revenue 2017 £m 2016 £m %
Statutory 2,092.2 889.3
Full year impact of acquisitions - 1,187.3
Exited sales channels (28.8) (108.4)
Impact of foreign exchange (100.0) -
Proforma revenue at constant currency 1,963.4 1,968.2 flat
Nortek - Revenue 2017 £m 2016 £m %
Statutory (note 3) 1,873.2 642.9
Full year impact of acquisitions - 1,187.3
Exited sales channels (28.8) (108.4)
Impact of foreign exchange (92.5) -
Proforma revenue at constant currency 1,751.9 1,721.8 +2%
Brush - Revenue 2017 £m 2016 £m %
Statutory (note 3) 219.0 246.4
Impact of foreign exchange (7.5) -
Proforma revenue at constant currency 211.5 246.4 -14%
Non-underlying items None See note 4 Those items which the Group excludes from
its underlying profit metrics in order to
present a further measure of the Group's
performance. Underlying profit/(loss)
excludes items which are significant in
size or volatility or by nature are non
-trading ornon-recurring, and excludes any
item released to the Income Statement that
was previously a fair value item booked on
acquisition. The Board consider the
underlying results to be a key measure to
monitor how the businesses are performing
because this provides a more meaningful
comparison of how the business is managed
and measured on a day-to-day basis and
achieves consistency and comparability
between reporting periods. The underlying
measures are used to partly determine the
variable element of remuneration of senior
management throughout the Group and are
also in alignment with performance
measures used by certain external
stakeholders. The underlying measures are
also one measure used to value individual
businesses as part of the "Buy, Improve
and Sell" Melrose strategy model.
Underlying operating profit/(loss) Operating profit/(loss)(1) Non-underlying items (note 4) Profit before the impact of non-underlying
items, finance costs, finance income and
tax. As discussed above, the Group uses
underlying profit measures to provide a
useful and more comparable measure of the
ongoing performance of the Group. These
are adjusted from statutory measures to
remove non-underlying items, the nature of
which are disclosed above.
Underlying operating margin Operating margin(2) Non-underlying items (note 4) Underlying operating profit as a
percentage of revenue.
Proforma underlying operating profit growth Movement inoperating profit/(loss)(1) per the Income Statement Non-underlying items (note 4), full year impact of acquisitions and translational currency impacts The year-on-year change in underlying
operating profit including the full year
impact of acquisitions, retranslating the
current year underlying operating profit
at the average actual periodic exchange
rates used in the prior year. This measure
is presented as a means of eliminating the
effects of exchange rate fluctuations and
acquisitions on the year-on-year reported
results. To aid comparability, the full
year impact of acquisitions includes an
additional charge of £7.6 million for
divisional long-term incentive plans in
2016 as if Nortek were owned for the full
year.
Group - Underlying operating 2017 £m 2016 £m %
profit
As reported 278.4 104.1
Full year impact of acquisitions - 83.9
Impact of foreign exchange (15.1) -
At constant currency 263.3 188.0 +40%
Nortek - Underlying operating 2017 £m 2016 £m %
profit
As reported (note 3) 284.3 86.3
Full year impact of acquisitions - 91.5
Impact of foreign exchange (14.5) -
At constant currency 269.8 177.8(a) +52%
(a) Translated at an average GBP:USD
exchange rate of 1.3554 equates to
$241.0 million.
Nortek - Underlying operating 2017 £m 2015 £m %
profit
As reported (note 3) 284.3 -
Full year impact of acquisitions - 144.0
Impact of foreign exchange (43.6) -
At constant currency 240.7 144.0(a) +67%
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