Melrose Industries PLC Final Results 2020

Highlights

Group

§ Trading was at the top end of management expectations throughout the second half of 2020.  Excluding Aerospace, the other divisions on average achieved increased second half revenue over 2019 of 2%² and 9%² in the final quarter

§ Adjusted¹ free cash generation was £628 million, 6% higher than 2019, prior to £172 million of restructuring costs.  In achieving this cashflow investment levels in R&D and new products have been protected and working capital levels significantly improved, with more to come

§ The strong cash generation resulted in Group net debt ¹ reducing by over £400 million (13% of net debt) to £2.85 billion at the end of 2020 (31 December 2019: £3.3 billion).  Year end leverage ¹ was 4.1x EBITDA, but annualising the second half performance the proforma leverage ¹ was approximately 3.2x EBITDA

§ The Group made an adjusted¹ operating profit of £340 million in 2020.  The statutory operating loss was £338 million; of the £678 million adjusting items, only £178 million were cash items, almost all related to restructuring

§ Savings from restructuring projects underway in GKN are expected to improve the 2021 trading performance by approximately £125 million, with more to come

§ The accounting deficit on the GKN UK defined benefit pension schemes has been cut by over 80% from £0.7 billion just before acquisition to £0.1 billion

§ A sale process for Nortek Air Management has commenced; the business is trading very strongly, but there can be no certainty a disposal will be completed

§ An Investor Day for GKN Automotive and Powder Metallurgy will be held on 20 May which will focus on the significant improvements made to the businesses, and their sustainable growth prospects from exciting new technologies

§ A final dividend is proposed of 0.75 pence per share for 2020 given the excellent cash generation achieved in the year.  The Board recognises the importance of dividends to shareholders and is pleased Melrose has returned to paying a dividend. A progressive dividend policy is intended to be reintroduced for future periods

Divisions

§ No recovery has been seen in the civil aerospace market and this is not expected to change in 2021. Sales for the division were down 27%² in 2020 compared to last year, which was within the expected range.  Good progress is being made in adapting this business to the current demand levels, improving working capital and continuing to develop new technologies by investing heavily in R&D

§ Sales and margins recovered sharply in the second half of 2020 in Automotive and Powder Metallurgy.  The second half adjusted¹ operating margins of Automotive recovered to 6.5% and Powder Metallurgy recovered to 8.3%.  The final quarter of 2020 saw sales ahead of Q4 2019 although overall sales for the year were down

§ Nortek Air Management is trading very strongly with sales for 2020 up 5%² year on year.  Margins are also growing and reached 17.3% in the second half of the year, doubling since acquisition.

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

“Whilst the COVID-19 crisis has had a major detrimental effect this year, Melrose has generated record cash flows and continued to invest to improve our businesses.  All of this positions the Group well for a good recovery and strong performance in the future. Amidst these difficult conditions, Melrose has also managed to significantly reduce the £1 billion GKN UK pension scheme funding deficit that we inherited at the time of acquisition.”