- Stakeholders to get shares in new company
- Melrose to focus on aerospace business
- Last of Nortek businesses sold off
FTSE 100 engineering group Melrose (MRO) surprised the market with the news it would spin off most of the businesses acquired in the controversial takeover of GKN back in 2018.
Shareholders will receive shares in what is known for now as DemergerCo, an automotive platform business, which will be listed separately on the main market next year.
BUY, IMPROVE, SELL
It’s fair to say not everyone saw the industrial logic in buying GKN four years ago, given its exposure to the auto sector where the big carmakers tend to dominate their suppliers.
However, after a lot of work, Melrose has turned both GKN Automotive and GKN Powder Metallurgy - which will both form part of DemergerCo - into what it calls ‘excellent generators of cash with sustainable world-leading technology’.
Both businesses have clearly-defined operating margin targets - 10% or more for Automotive and 14% or more for Powder Metallurgy - and both will be free to pursue a ‘proactive acquisition strategy’.
GKN Automotive, which supplies driveline technologies, has life of programme business wins of £2.6 billion of which more than 50% are for electric and full hybrid vehicles.
GKN Powder Metallurgy, which makes metal powder and precision parts for the auto and industrial sectors, has moved into magnets for EV (electric vehicle) motors and has ‘significant EV opportunities in its core business’ according to Melrose.
GKN Hydrogen Trading, a new business which is said to have ‘a growing pipeline of interest’, will also be rolled into the new vehicle.
Meanwhile, the FTSE 100 firm will retain ownership of GKN Aerospace, which makes airframes, engine parts and electrical components, and will look for new takeover targets as soon as the demerger is complete.
Melrose also announced the sale of Ergotron, part of its acquisition of Nortek in 2016, for £519 million.
The deal completes the disposal of the Nortek businesses for over £3.1 billion, including cash generated during the firm’s ownership, or double its initial investment.
TRADING ON TRACK
For the six months to June, the company reported sales of £3.59 billion, an increase of 4.8%, adjusted pre-tax profits up 12% to £128 million and a statutory pre-tax loss of £358 million.
The difference between adjusted and statutory profits is mostly due to the amortisation charge on intangible assets acquired in takeovers - a common feature for firms that grow by acquisition - which came to £223 million in the first half, together with £154 million of charges for currency moves due to the weakness of sterling.
Non-executive chairman Justin Dowley said the firm had seen ‘good first half momentum’ and was on track to meet its full year expectations, with all businesses coping with component shortages and pushing through price increases to offset inflation.
Dowley added: ‘We expect full year 2022 to show good progress on 2021, and both DemergerCo and Melrose to be well positioned for further success following the intended Demerger.’
After gaining more than 5% at the open, the shares were trading down 1.5% at 135p by mid-morning.
