Melrose Industries PLC, UK, reports that it is trading ahead of expectations, with better profit margins, higher earnings per share and significantly lower net debt. All Melrose GKN businesses were said to have improved their adjusted operating margin in the period compared to 2020 full year, with GKN Aerospace up by +2.9 ppts; GKN Automotive by +4.0 ppts and GKN Powder Metallurgy by +6.9 ppts. GKN Automotive and Powder Metallurgy are said to be ahead of plan on their restructuring projects.
GKN Powder Metallurgy was reported to be making clear market share gains, growing revenue at 43% in the first half, and with close to 70% of the business achieving more than 14% adjusted operating margins.
Aerospace was said to be well positioned on many significant platforms; the civil aerospace business is now weighted more towards the faster narrowbody recovery. Additionally, defence demand remains strong.
Automotive is said to be well placed to benefit from the transition to electric vehicles. In the first half of this year over one-third of new business bookings awarded were for pure electric platforms – over 50% if full hybrid platforms are included. Additionally, during the last eighteen months, automotive has been awarded six major eDrive programmes for global and Chinese vehicle manufacturers. Automotive is anticipated to grow at more than double the rate of light vehicle production over the long term.
“We are continuing to see recovery in all our businesses with trading ahead of expectations,” stated Justin Dowley, chairman of Melrose Industries PLC. “Encouragingly, our aerospace business is now weighted towards the expected narrowbody recovery. Our Automotive and Powder Metallurgy businesses are poised for strong growth as soon as the well-publicised chip shortage abates and the progression in margins is ahead of plan with more to come. As with all its promises, Melrose has delivered its acquisition funding commitment to GKN pensioners early. We have scope on our balance sheet to return more money to shareholders next year and we are excited by the upcoming possibilities.”
The company stated that its commitment, made on the acquisition of GKN by Melrose, to improve the funding of the GKN UK defined benefit pension schemes has been delivered ahead of schedule. The funding deficit of around £1 billion has reduced to approximately £150 million. Consequently, the annual contribution halves to £30 million with no ongoing requirement to contribute from future disposal proceeds.
Net debt as of 30 June 2021 was significantly lower at £300 million; proforma net debt at the same date is £1,029 million after adjusting for the announced Return of Capital to be settled on 14 September 2021 (1.5x proforma leverage). The group recorded an adjusted earnings per share of 2.2 pence. Adjusting for the accretion post the announced return of capital and share consolidation, the proforma EPS increases to 2.5 pence. The statutory loss per share was 3.1 pence.
On September 14, Melrose is scheduled to return £729 million, 15 pence per share, to shareholders. In addition, Melrose reports that its balance sheet has spare capacity for a significant further capital return next year.