Full Year Results Announcement Twelve months to 31 December 2007 - - PowerPoint PPT Presentation

Full Year Results Announcement

Twelve months to 31 December 2007

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Contents

• Introduction
• Melrose PLC summary financial performance
• Summary of operating divisions
• Dynacast
• Other businesses
• Questions
• Appendix

Introduction

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Introduction

Good Melrose trading performance

• Increased dividend
• Disposals and return of capital
• Aerospace and PSM sold
• £220 million capital returned
• 95% of capital subscription returned
• Acquisitions
• Good market conditions
• FKI

Melrose PLC summary financial performance

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Income statement – statutory format

(7.3) (5.8) Net exceptional costs and intangible amortisation 37.8 215.0 Profit for the year 11.9 (7.1) 18.7 2.5 Operating profit Net finance income/(cost) 323.6 344.0 Revenue 3.2 34.6 4.8 (1.6) Year ended 31 Dec 2006 £’m 15.6 199.4 Profit for the year from continuing operations Profit for the year from discontinued operations 21.2 (5.6) Profit before tax Tax Year ended 31 Dec 2007 £’m Year ended 31 December 2007 ¹ 2007 headline operating profit excludes £2.0m intangible asset amortisation, £4.9m exceptional costs and £1.1m exceptional income. 2006 headline operating

profit excludes £2.1m intangible asset amortisation, £5.9m exceptional costs and £0.7m exceptional income.

Financial results

Headline operating profit¹ 24.5 19.2

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(1.9) (1.1) (0.8) Crystallisation of original Melrose incentive scheme (5.8) (4.0) (1.8) TOTAL (1.5) (1.5)

• MVC old plater impairment

(1.5) (0.5) (1.0) Dynacast restructure (2.0) 1.1 Total £’m (2.0) 1.1 Non cash costs £’m

• Intangible asset amortisation¹
• Pensions curtailment gain

Cash costs £’m

Exceptional costs, exceptional income and intangible asset amortisation¹

Year ended 31 December 2007 ¹ Excludes computer software amortisation

Financial results

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Income statement – Continuing Group

7.4p* (2.0p)* 9.4p* EPS 15.6 (4.2) 19.8 Profit after tax 18.7 (5.8) 24.5 Operating profit 344.0

• 344.0

Sales (5.6) 21.2 2.5 Total £’m 1.6 (5.8)

• Other²

£’m (7.2) Tax 27.0 Profit before tax 2.5 Net finance income Headline results¹ £’m Year ended 31 December 2007 ¹ Before exceptional costs, exceptional income and intangible asset amortisation other than computer software. ² Consists of exceptional costs, exceptional income and intangible asset amortisation other than computer software. ³ Using current issued shares and adjusting interest income for Continuing Group net cash level post full return of capital.

Financial results

• Headline operating profit increased by 28%, or 30% at constant currency.
• Headline return on sales increased by 1.2 percentage points to 7.1% (2006: 5.9%).
• Estimated Proforma 2007 EPS c.14.3p.³

* Weighted average of 210 million shares.

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Financial Results

(0.8) (0.9) Melrose 7.1% 7.4% (0.9%) 12.3% ROS%¹ 2006 £’m 2007 £’m 5.6% 3.0 53.9 3.9 52.7 MPC (4.8%) (2.3) 48.0 (0.5) 55.4 MVC 24.5 (5.8) (1.1) 28.9 EBIT¹ 344.0 235.9 Sales 323.6 221.7 Sales 19.2 (5.5) (0.3) 25.1 EBIT¹ 5.9% Group Central Costs - corporate Central Cost - LTIP Dynacast 11.3% ROS%¹ Dynacast ¹ Before exceptional costs, exceptional income and intangible asset amortisation other than computer software.

2007 v 2006 headline results for Continuing Group – by division

• All three divisions improved during the year.
• MVC loss greatly reduced despite market conditions.

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Financial results

Cash flow

(212.6) Capital distribution (8.7) Acquisitions of subsidiaries (6.7) Other (including all cash flows on discontinued operations) 191.3 Cash inflow (2.8) Net interest and tax paid 446.7 Cash generated from disposals – businesses (net of costs) (13.0) Dividend (26.1) Pension contributions (1.9) Restructuring costs paid and other provision movements 10.4 Depreciation and computer software amortisation 24.5 Headline operating profit¹ (15.6) (2.9) £’m Net capital expenditure² Working capital movement ¹ Before exceptional costs, exceptional income and intangible asset amortisation other than computer software. ² Net of £0.4 million disposal of assets. Year ended 31 December 2007 191.3 Cash inflow (162.6) Opening debt 32.4 3.7 Closing net cash Exchange & finance lease movements

Net debt reconciliation

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Financial results

Cash flow

• £32.4 million net cash at the end of 2007
• c.£25 million after full capital return – (£7.4 million deferred)
• Continuing Group now trades on only 14 days of net working capital

Profit conversion to cash (headline operating profit & loss + depreciation – working capital – net capex)

• 2005 to 2007 average profit conversion to cash for Continuing Group of 94%
• 67% in 2007 including the exceptional MVC capex. Adjusting for this it was 94%

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Financial results

£m

Capital expenditure for Continuing Group

1.5 x 10.4 16.0 Total 1.6 x 1.7 2.8 MPC¹ 4.1 x 1.9 7.8 MVC 0.8 x 6.8 5.4 Dynacast Multiple of depreciation Depreciation £’m Capex £’m

• Capex in 2007 at 1.5 x depreciation. Average during ownership 1.2 x depreciation.
• Exceptional investment on a new plating line at MVC.
• Investment in Dynacast includes further expansion in capacity in China and Mexico.

Restructuring

• Cash spend of £1.0 million on integrating the two small acquisitions for Dynacast.

¹ Including £0.1 million of depreciation on central.

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Financial Results

• Agreed positions with trustees and Pension Regulator (formal clearance achieved).
• Upfront cash payment of £20 million made in May 2007.
• A further £18.3 million in total to be paid in quarterly instalments over 3 years, £15.2 million

remaining to be paid.

• Deficit on all schemes reduced to c.£25.2 million from £55.4 million at December 2006 (McKechnie UK

defined benefit plan £16.0 million (2006: £45.4 million) ). All gross of deferred tax.

• Built in a further improvement in future life expectancy in 2007 v 2006 of £7.6m.¹
• MPC and remainder of PSM still ‘’participating employers’’.

Pensions

¹ Life expectancy for a male aged 65 in 2007 now 85.6 (2006: 83.6) and for a male aged 65 in 2020, 86.8 (2006: 85.1).

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Financial results

Tax

• c.26% headline underlying profit and loss charge in 2007 for Continuing Group.
• 16% cash tax rate for Continuing Group, still significantly below P & L rate but gap is forecast to narrow.
• No tax due on the Aerospace and PSM disposals.
• £167 million of tax losses available in the Group (£139 million in the UK) only £3 million of these are

recognised as deferred tax assets due to geographical split of profits in the Group.

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Financial results

c.86% of sales in the Continuing Group are denominated in a foreign currency (29% in US$ and 31% in Euro).

• Exchange effect in 2007
• £0.5 million translation loss v 2006.
• £1.0 million transaction cost.
• For guidance on translation risk a 10 cent strengthening of the Euro against Sterling increases operating profit

by c.£1.1 million and a 10 cent strengthening of the US Dollar against Sterling increases operating profit by c.£0.2 million.

• Financial instruments are not used for commodity risks – potentially increases risk in some circumstances.

Exchange and commodity risk

1.46 2.00 31 Dec 2007 Average Closing 1.36 2.00 Euro US$ 31 Dec 2006 Average Closing Exchange rate used 1.47 1.84 1.49 1.96

Summary of operating divisions

Dynacast

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Dynacast

Proprietary Die-Casting process Sales by Sector

Connectors Telecommunications Automotive Consumer Computing Industrial products

Products Sales by Geography

26% 11% 7% 16% 40% Automotive Electronics Healthcare Hardware Other 43% 33% 24% Europe North America Far East

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12.3% 11.5% 14.2% 10.1% ROS¹ % 221.7 50.3 92.4 79.0 Sales £’m 25.1 5.6 12.1 7.4 EBIT¹ £’m 11.3% 11.1% 13.1% 9.4% ROS¹ % 235.9 56.4 102.6 76.9 Sales £’m 14.6 Europe 7.8 North America 28.9 Total 6.5 Far East EBIT¹ £’m Year ended 31 December 2007 2007 Headline Results¹

Trading results

Dynacast

¹ Before exceptional costs, exceptional income and intangible asset amortisation other than computer software.

² After all working capital movement, capital expenditure and restructuring costs.

2006 Headline Results¹

Headline operating profit growth, North America 5.4%, Europe 20.7% and the Far East 16.1%.

• £3.0 million 2006 zinc under recovery not repeated.
• Negative exchange effect of £1.5 million in 2007
• £0.5 million translation loss v 2006
• £1.0 million transaction cost
• £68 million² net cash generated from Dynacast during Melrose ownership (pre-acquisitions).
• QZD and Techmire acquired for £8.7 million.

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Trading results – zinc adjusted

Dynacast

¹ Before exceptional costs, exceptional income and intangible asset amortisation other than computer software.

Return on sales improvement being delivered as expected.

• Added 2.7 percentage points to underlying like for like ROS% since acquisition (adjusting for zinc price

and constant currency).

• Average annual sales growth during ownership of c.5.0% and profit growth of c.10.0% (adjusting for zinc

price and constant currency).

• 2007 spend on zinc now c.£61 million, 185% increase in price since acquisition. All recovered from
• customers. Now 26% of total sales versus 11% previously.

14.8% 28.9 195.5 2007 @ 2004 Zinc price Full pass through so no profit effect c.£40m more zinc now recovered from customers 12.3% Return on Sales %¹ 28.9 EBIT¹ 235.9 2007 Actual Sales

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Dynacast

2007 Actual sales growth Underlying sales growth

(0.4) Other 8.7 Underlying improvement 14.2 Total sales growth (7.5) Foreign exchange (translational and transactional) 8.4 Higher raw material recovery 5.0 Small acquisitions £’m Underlying performance = 4% underlying growth Underlying sales growth of 4% achieved in 2007, within the total 6.4% growth. = 6.4% actual total growth

• Sales increased by £14.2 million, 6.4% from £221.7 million in 2006 to £235.9 million in 2007.

MVC

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Locations Percentage revenue by key customer (2007) Products

Source McKechnie management analysis

Troy Staples Newberry Nicholasville

MVC

Rank Company Percentage

• Cum. Percentage

1 Ford 17% 17% 2 Toyota 15% 32% 3 General Motors 14% 46% 4 Chrysler 11% 57% 5 Other 66% 9% Hayes Superior Prime 7% 6% 21% 73% 79% 100% 6 7 8

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• Sales growth but sales in H2 below H1.
• Improved 2007 result, though disappointing not at breakeven.
• Underlying operational turnaround being achieved.

Year ended 31 December 2007

MVC

(4.8%) (2.3) 48.0 (0.9%) (0.5) 55.4 Total

• 0.4

34.3 13.3 Sales £’m (4.2) 0.1 (1.0) 2.8 EBIT¹ £’m

• 25%

(2.9%) 21.1% ROS¹ %

• 25%

(1.3)% 22.2% ROS¹ %

• 0.4

38.3 16.7 Sales £’m (0.5) Nicholasville 3.7 Newberry (3.8) Head Office (Engineering) 0.1 MT&E (Tooling) EBIT¹ £’m 2007 Headline Results¹ 2006 Headline Results¹

¹ Before exceptional costs, exceptional income and intangible asset amortisation other than computer software.

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MVC

Improving in difficult marketplace

• New plating line successfully installed.
• Capable of full production
• Introduction costs in 2007 P & L
• Sales
• Volume growth
• 2007 sales increase for better margin plastic clads from $4 million (2006) to $16

million (2007)

• Important launch for GM in June 2008
• Pricing issues on lower margin legacy products being addressed
• Increased raw material recovery (especially nickel) from customers.
• 20% nickel recovery in 2006 c.50% nickel recovery in 2007
• Still $2.5 million additional nickel cost over 2006
• Labour efficiency improved.
• c.10% reduction in labour content of sales at Nicholasville
• Scrap rates reduced but still further to go.

MPC

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Sales by sector Products 2 year share price performance Key customers

Automotive

• Ford PAG
• Intier Honda
• Toyota
• Decoma

Consumer

• Diageo
• Scotco
• Makita Manufacturing Europe
• SSL
• Wavin

Source McKechnie management analysis

Pickering Stamford Bridge

Locations

17% 3% 11% 59% 10% Automotive Food/Beverage/Healthcare Electronics Construction/DIY Other

MPC

Canning Brett Prelok

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Year ended 31 December 2007

MPC

8.2% 0.5 6.1 8.1% 0.6 7.4 Prelok 5.9% 0.1 1.7 10.0% 0.2 2.0 Canning Brett 8.7% 1.9 21.9 11.2% 2.0 17.9 Stamford Bridge 2.1% 0.5 24.2 4.3% 1.1 25.4 Pickering 5.6% 3.0 53.9 7.4% 3.9 52.7 Total Sales £’m EBIT¹ £’m ROS¹ % ROS¹ % Sales £’m EBIT¹ £’m 2007 Headline Results¹ 2006 Headline Results¹

• Good improvements delivered at all sites, strategically walked away from lower margin sales.
• Well managed and benefiting from ‘last man standing’ strategy in the UK for high end, value added plastic

injection moulded products.

• Encouraging outlook.

¹ Before exceptional costs, exceptional income and intangible asset amortisation other than computer software.

Questions

Appendix

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Disposals and Return of capital

• May 2007 McKechnie Aerospace sold for $850 million (£428 million).
• Exit multiple of c.12 x 2006 Ebitda
• c.2.5 x investment (including net cash generated during ownership)
• IRR of c.65%
• Cash profit of over $500 million (including net cash generated during ownership)
• In May 2007 McKechnie PSM sold for $58 million plus cash (£30 million).
• Canning Brett and Prelok retained

Return of capital

• Special repayment of £220 million and a 1 for 2 share consolidation.
• Shareholders received payments totalling c.95% of capital subscription.
• Number of shares reduced to c.134 million.

Disposals