Intention to demerge Automotive and Powder Metallurgy, 2022 Interim Results - six months ended 30 June 2022

Highlights

• Intention to demerge GKN Automotive and GKN Powder Metallurgy³Melrose announces today its intention to separate the GKN Automotive and GKN Powder Metallurgy businesses from the Melrose Group (the ‘Demerger’) by way of a demerger of shares in a new holding company (‘DemergerCo’) to Melrose shareholders. This will result in two independent and separately listed companies, DemergerCo and Melrose Industries PLC, each with its own distinct strategy and acquisition platform
• DemergerCo will be an independent, London headquartered group and will seek admission to listing on the premium segment of the Official List and to trading on the Main Market of the London Stock Exchange. It will have a dual strategy of profitable organic growth as well as targeted M&A in the automotive sector, where we see opportunities as a consolidator either via an all cash acquisition or a share based transaction
• DemergerCo will effectively become an automotive platform, owning both GKN Automotive, a world leading supplier of driveline technologies to the global automotive industry, and GKN Powder Metallurgy³, a global leader in both the production of metal powder and precision powder metal parts for the automotive and industrial sectors
• The internal work under Melrose ownership to position the businesses to achieve stated margin targets for GKN Automotive and GKN Powder Metallurgy will be completed this year and they are well positioned for further gains post Demerger. Simon Peckham and Geoffrey Martin will be executive directors of DemergerCo, as well as remaining Chief Executive and Group Finance Director of Melrose. The current Chief Executive and Finance Director of GKN Automotive, Liam Butterworth and Roberto Fioroni, will take up equivalent roles for DemergerCo
• Melrose Industries PLC will retain ownership of GKN Aerospace, a world-leading multi-technology manufacturer of airframe structures, engine components and electrical interconnection systems for the global aerospace industry, across both civil and defence platforms. Melrose’s successful “Buy, Improve, Sell” strategy will also continue unchanged and the Board expects to pursue future acquisitions as soon as possible post Demerger. These could either be in aerospace or the wider industrial sector, as appropriate
• We intend to seek shareholder approval for the proposed Demerger in the first half of 2023

First Half Trading Highlights for the Melrose Group

• Melrose is trading in line with expectations for the full year
• First half results are at the higher end of expectations, helping to de-risk the second half performance required to achieve full year expectations
• The Group recorded an adjusted¹ earnings per share of 2.2 pence, 22% higher than the same period last year. The statutory loss per share in the Period was 6.3 pence per share (2021: 3.4 pence per share)
• Group net debt¹ at 30 June 2022 was £1,294 million (31 December 2021: £950 million; equivalent to £1,017 million at like-for-like exchange rates)
• The Group selectively increased its investment in working capital in the Period, to support expected growth and address constrained supply chains. In addition, prior to the Period end, the Group completed £119 million of the £500 million programme to buy back Melrose shares
• Group leverage¹ at 30 June 2022 was 1.8x, or 1.6x if excluding the early buy back of shares before the Period end and prior to Ergotron proceeds being received in July
• An interim dividend of 0.825 pence per share (2021: 0.75 pence per share) is declared, 10% up on the previous period
• The disposal of Ergotron completed post the half year, on 6 July, for total proceeds of £519 million

First Half Trading Highlights for the Businesses⁴

• Aerospace recovery accelerated with revenue up 11% in the Period, while operating profit improved by 65% and margins increased by 1.5 percentage points
• Automotive successfully managed volatile demand caused by industry supply chain issues and revenue was broadly flat. Life of programme business wins of c.£2.6 billion were achieved, with a record 55% proportion on electric and full hybrid vehicles
• Powder Metallurgy performed well in the Period, with underlying business improvements delivering a 10.5% adjusted operating margin despite lower volumes from the supply constrained market
• All Melrose businesses are on track to recover inflationary headwinds in the year and remain committed to achieving previously stated operating margin targets once end markets recover. In the first half Aerospace and Powder Metallurgy fully recovered inflation while Automotive has £30 million yet to be agreed, but is on track to be fully recovered by the end of the year

Justin Dowley, Chairman of Melrose Industries PLC, today said:

“Since acquiring GKN in 2018 we have reinvigorated each business to achieve its potential. The proposed Demerger now gives each an exciting opportunity to individually grow shareholder value through organic growth and acquisition in both platforms. Meanwhile, we remain on track to meet our full year 2022 expectations with full inflation recovery and providing good momentum for the intended Demerger in the new year.”

1. Described in the glossary to the 2022 Interim Financial Statements. Comparatives for Balance Sheet measures are against the year ended 31 December 2021
2. Results for the period ended 30 June 2021 have been restated for discontinued operations
3. Includes GKN Hydrogen
4. Like for like growth is calculated at constant currency against 2021 results

Enquiries:

Montfort Communications: +44 (0) 20 3514 0897
Nick Miles +44 (0) 7739 701634 / Charlotte McMullen +44 (0) 7921 881 800
miles@montfort.london / mcmullen@montfort.london

Investor Relations: +44 (0) 7974 974690
ir@melroseplc.net