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Melrose Industries PLC said Thursday its first-half performance was at the top end of expectations, as it unveiled plans to break up UK engineering firm GKN.
Shares in Melrose were up 1.2% in London on Thursday morning at 139.35 pence, while the wider FTSE 100 index was up just 0.4%.
The industrial turnaround specialist has decided to separate GKN Automotive and GKN Powder Metallurgy, to form DemergerCo. The new business will then seek admission to the London Stock Exchange.
Melrose will retain GKN Aerospace.
Chair Justin Dowley 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.’
Back in 2018, the board of then-London listing GKN accepted defeat and asked shareholders to accept a £8.4 billion hostile takeover offer made by Melrose. At that time, Melrose committed not to sell the GKN Aerospace business before April 1, 2023.
Melrose said the new listed firm will be an ‘automotive platform’.
‘The demerger is expected to unlock value for shareholders and will allow both Melrose Industries and DemergerCo to fulfil their potential independently in their respective markets with clear organic growth and strategic acquisition rationale,’ Melrose explained.
‘On admission, the newly independent DemergerCo will have a dual strategy of pursuing organic market beating profitable growth with sector leading margins based on its global technology excellence and positioning. It will also have the platform and independent access to capital to take advantage of the M&A opportunities available in the automotive sector.’
The current chief executive and finance director of GKN Automotive, Liam Butterworth and Roberto Fioroni, will take up equivalent roles for DemergerCo, Melrose said.
Melrose will seek shareholder approval for the proposed demerger in the first half of 2023.
Melrose Chair Dowly added: ‘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.’
In the six months to June 30, pretax loss widened to £358 million from the £275 million loss reported a year prior. Revenue in the first half increased by 4.7% to £3.59 billion from £3.43 billion.
Adjusted for its equity accounted investments, pretax profit rose 12% to £128 million from £114 million, and revenue was up 4.3% to £3.88 billion from £3.72 billion.
Melrose said all of its businesses are on track to recover inflationary headwinds in the year.
‘There were good commercial wins for each of GKN Automotive and GKN Powder Metallurgy, despite market headwinds principally driven by supply chain shortages. GKN Aerospace saw the accelerating recovery of the civil aviation sector,’ it added.
Melrose declared an interim dividend of 0.825 pence per share, growing 10% from the 0.75p paid to shareholders last year.
The company added: ‘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.’
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