REG - Melrose Industries - Half-year Report
08/09/2022 07:00
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RNS Number : 6908Y Melrose Industries PLC 08 September 2022
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
8 September 2022
MELROSE INDUSTRIES PLC ('MELROSE' OR THE 'COMPANY')
INTENDED DEMERGER AND UNAUDITED RESULTS
FOR THE SIX MONTHS ENDED 30 JUNE 2022
Melrose Industries PLC today announces its interim results for the six months
ended 30 June 2022 ("the Period").
Highlights
Adjusted1 results Statutory results
2022 20212 2022 20212
Continuing operations £m £m £m £m
Revenue 3,878 3,719 3,594 3,431
Operating profit/(loss) 171 196 (317) (156)
Profit/(loss) before tax 128 114 (358) (275)
Diluted earnings per share 2.2p 1.8p (6.3)p (3.4)p
Net debt1 1,294 950 n/a n/a
Leverage1 1.8x 1.3x n/a n/a
Intention to demerge GKN Automotive and GKN Powder Metallurgy3
• Melrose 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 Stratton House 5 Stratton Street London
W1J 8LA Tel: 020 7647 4500 Fax: 020 7647 4501
Registered in England & Wales Registered no: 09800044 Registered
office: 11(th) floor The Colmore Building Colmore Circus Queensway
Birmingham
West Midlands B4 6AT
• 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
ENDS
Enquiries:
Montfort Communications: +44 (0) 20 3514 0897
Nick Miles +44 (0) 7739 701634 / Charlotte McMullen +44 (0) 7921 881 800
miles@montfort.london (mailto:miles@montfort.london) /
mcmullen@montfort.london (mailto:mcmullen@montfort.london)
Investor Relations: +44 (0) 7974 974690
ir@melrosePLC.net (mailto:ir@melroseplc.net)
CHAIRMAN'S STATEMENT
In addition to announcing the intention to demerge GKN Automotive and GKN
Powder Metallurgy, I am pleased to report our interim results for the six
months ended 30 June 2022 (the "Period"), which highlight good progress across
all Group businesses and are at the higher end of expectations, giving
confidence in achieving full year results.
INTENDED DEMERGER OF GKN AUTOMOTIVE AND GKN POWDER METALLURGY
We are excited to announce our intention to separate the GKN Automotive and
GKN Powder Metallurgy businesses from the Melrose Group to form DemergerCo, an
independent company which 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 is expected that this separation will be by way of a
demerger of new ordinary shares in DemergerCo directly to Melrose
shareholders.
The Demerger is expected to unlock value for shareholders and will allow both
Melrose Industries PLC and DemergerCo to fulfil their potential independently
in their respective markets with clear organic growth and strategic
acquisition rationale. 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.
Meanwhile, the strategy and structure of Melrose Industries PLC following the
Demerger will be unaffected. It will maintain its listing on the premium
segment of the Official List, its admission to trading on the Main Market of
the London Stock Exchange and its ownership of GKN Aerospace. Under its
successful "Buy, Improve, Sell" model, which has delivered an annualised total
shareholder return of 18% since its first deal in 2005 and cash returns to
shareholders in excess of £5.7 billion, Melrose will continue to seek out
value enhancing acquisition opportunities, whether in aerospace or the wider
industrial sector, to deliver above market returns for shareholders. It is
expected that the Demerger will help Melrose to pursue these exciting
opportunities at pace.
Melrose has positioned both GKN Automotive and GKN Powder Metallurgy as
excellent generators of cash, with sustainable world leading technology and
experienced management teams executing successful strategies on a clear path
to their margin targets of 10%+ and 14% respectively. The internal work under
Melrose ownership to transform GKN Automotive and GKN Powder Metallurgy to
achieve these stated margin targets is materially complete, although the full
run rate benefits are yet to be realised. Furthermore, there are potentially
additional opportunities, beyond those announced so far, that could provide
further upside to their performance.
A newly independent DemergerCo will have significant momentum for making
further operational gains. Already a global leader in automotive drive
systems, and power source agnostic, GKN Automotive has enjoyed great success
in the transition to electric vehicles ('EV'), especially in its core
business, recently growing ahead of what is an expanding and accelerating
market. Equally, GKN Powder Metallurgy is leveraging its strength to grow
faster than the market as well as expand its product platform. Its leading
powder and sintering technology has recently enabled it to launch its exciting
e-motors magnet capabilities 1 and it has significant EV opportunities in its
core business. Together with other EV transitional wins, this is expected to
deliver substantial annual revenue increases and incremental margin growth in
the medium-term.
The pace and scale of these organic gains is expected to continue and be
further amplified by a proactive acquisition strategy to secure strategic and
value enhancing targets in the automotive sector. To help ensure DemergerCo is
well-positioned to execute on these opportunities, Simon Peckham and Geoffrey
Martin will take up additional executive directorship roles on the DemergerCo
board, backed by transitional support from the wider Melrose team. Both will
also continue to perform their current roles at Melrose Industries PLC
throughout as it also develops GKN Aerospace and pursues further acquisitions.
The DemergerCo board will align to best practice, led by an independent
non-executive chairman and benefit from selected non-executive directors with
the requisite skills and experience to enhance DemergerCo's success. The
high calibre CEO and Finance Director of GKN Automotive, Liam Butterworth and
Roberto Fioroni, will assume these roles on the DemergerCo board, having
previously served in equivalent positions for other listed companies. The
capital structure for DemergerCo is intended to be similarly conservative to
that employed by Melrose currently, and is expected to include a progressive
dividend policy.
We intend to launch the formal Demerger process and to seek shareholder
approval in the first half of 2023, underpinned by the 2022 audited
accounts. Your Board is excited about delivering on the multiple
opportunities this proposal offers for creating value for shareholders and
looks forward to presenting the full detail to shareholders for their
consideration and approval in due course.
RESULTS FOR THE CONTINUING GROUP
These results include statutory revenue for the Group of £3,594 million
(2021: £3,431 million), an adjusted profit before tax of £128 million (2021:
£114 million) and a statutory loss before tax of £358 million (2021: £275
million). The sale of Ergotron was agreed on 3 June and completed shortly
after the end of the Period, meaning it was held for sale and shown as
discontinued in these results.
Further details of these results are contained in the Finance Director's
Review.
TRADING
Each of the businesses has performed well during the Period. 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.
All businesses had good success in recovering the significant inflationary
pressures through a mix of commercial and operational initiatives,
demonstrating their strength. They remain strongly cash generative, with the
ability to self-fund their capital expenditure, growth in working capital and
restructuring measures, the last of which are largely complete for GKN
Automotive and GKN Powder Metallurgy to achieve their stated margin targets,
but remain in full swing for GKN Aerospace. This investment in working capital
has led to a slight increase in leverage to 1.8x EBITDA, or 1.6x EBITDA when
excluding the share buyback executed during the Period.
SALE OF ERGOTRON
The sale of Ergotron, which completed shortly after the Period, marks the end
of our ownership of the businesses from the Nortek acquisition. That
acquisition has been highly successful both in terms of doubling the initial
investment and transforming the businesses themselves.
Adjusted operating margins across the Nortek businesses were almost doubled,
which was coupled with a focus on profitable business and strong cash
generation. Melrose also invested heavily in world leading technology and
revitalised product portfolios, such as the transformatory StatePoint Liquid
Cooling system for data centres.
Together with the £0.8 billion of cash generated by the Nortek businesses
under our ownership, their disposals over the past 18 months produced over
£3.1 billion in cash proceeds. Part of these proceeds have enabled Melrose to
benefit from a conservative capital structure in what has been a turbulent
period for the world economy. We wish all Nortek businesses further success
under their new ownership.
BUYBACK OF MELROSE SHARES
The £500 million buyback programme, commenced on 9 June 2022, was completed
on 1 August 2022. Approximately 318 million ordinary shares (equating to
7.3% of shares in issue) were bought and cancelled at an average purchase
price of 157p per share, leaving a total of 4,054,425,961 ordinary shares of
160/21p in issue. The buyback allowed a rapid return of capital to
shareholders and will be considered for future returns.
DIVIDEND
Your Board has declared an interim dividend 0.825 pence per share (2021:
0.75p), which represents a 10% increase and will be paid on 20 October 2022 to
shareholders on the register at the close of business on 15 September 2022.
BOARD MATTERS
Liz Hewitt retired from the Board as scheduled at the conclusion of this
year's AGM on 5 May 2022. David Lis has taken on the role as Senior
Independent Director and Heather Lawrence has taken up the Chairmanship of the
Audit Committee. Having overseen a number of changes on the Board over the
past two years, my tenure as Chairman is due to expire in 2023. However,
recognising the significant events related to the proposed Demerger, the
Company has requested that I extend my tenure for a further two years to help
oversee these events.
STRATEGY AND PURPOSE
The disposal of Ergotron against a backdrop of challenging market conditions
provides further proof of the strength of the Melrose "Buy, Improve, Sell"
model, with approximately £4 billion in cash generated by all Nortek
businesses, including from their disposals over the past 18 months. We buy
high quality underperforming manufacturing businesses and invest in making
them stronger, better businesses for the benefit of all stakeholders, whilst
delivering an excellent return for shareholders.
We remain nimble and opportunistic, with the intention to demerge the GKN
Automotive and GKN Powder Metallurgy businesses the latest example of the
focus on delivering value to shareholders, with the potential to benefit from
further market recovery and future M&A opportunities. Melrose has been
listed in the UK for almost 20 years, growing to become a FTSE 100 business,
enjoying the support of the capital markets - both equity and debt. We have
chosen to return the holding company for GKN Automotive and Powder Metallurgy
to the London Stock Exchange because it presents the best opportunities to
pursue its strategy and attract investment.
At Melrose we deliver on our promises. We are particularly pleased to have
fulfilled the commitment we made at the time we acquired the GKN businesses to
protect their pensioners and continue to invest in R&D. We are returning
GKN Automotive and Powder Metallurgy to the London market in a much stronger
financial position and with leadership positions in the fast-growing global
electric vehicle market. Together they will be well placed to continue
delivering for all stakeholders.
OUTLOOK
The Group remains on track to meet its full year expectations, with good first
half momentum. GKN Automotive and GKN Powder Metallurgy expect supply chain
pressures to begin to ease towards the end of the year, while for GKN
Aerospace, the aviation sector recovery is accelerating. This will be
augmented by an expected full recovery of inflation, notably in Automotive,
with customer negotiations going to plan, which will remain a focus into the
new year with cost pressures expected to continue. This strong inflation
recovery performance, together with further operational efficiencies and the
benefit of ongoing group-wide cost savings, mean 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.
Justin Dowley
Non-Executive Chairman
8 September 2022
CHIEF EXECUTIVE'S REVIEW
Although we continue to formally report the results of the four divisions
separately, with the sale of Ergotron complete and the announcement of our
intention to demerge GKN Automotive and GKN Powder Metallurgy, we have started
to refer to them from their post Demerger perspective of two distinct segments
- Aerospace/Melrose and Automotive/DemergerCo.
In the Aerospace segment, the restructuring projects continue at pace. As
described in June's Capital Markets Event, the business is realigning around
profitable, differentiated programmes and is executing this strategy well. The
restructuring process is expected to be materially complete next year.
In the intended Demerger group, both GKN Automotive and GKN Powder Metallurgy
enjoyed good commercial progress. GKN Automotive secured significant electric
vehicle ('EV') programme awards, while GKN Powder Metallurgy launched its
e-motors magnets strategy, a major milestone in its EV transition strategy,
that is gathering good momentum.
All businesses in the Group faced significant inflationary pressures during
the Period but have all been successful in their recovery strategies,
underlining their quality. In addition to their strong cash management, there
was selected investment of c.£200 million in working capital to support
growth, plant rationalisations and address supply chain pressures. We also
continue to invest heavily in all their sustainable technology roadmaps, which
will put them at the forefront of their industries and provide benefits for
years to come.
Further details are set out in the segment reviews below.
AEROSPACE/MELROSE SEGMENT
GKN Aerospace first half update
GKN Aerospace made good progress during the first half and continued to
execute against its improvement plan presented during the Capital Markets
Event in June. During the Period, like-for-like revenue was up 11% versus
2021, and there remains a further c.35% upside to reach 2019 volume levels, 2
while adjusted operating margins improved 1.5 percentage points to 4.9%. This
has been achieved in the face of testing macro-economic conditions, notably
recent global supply chain challenges, although deliveries remain on schedule,
and inflationary pressures.
In the first half, new leadership was brought into the Defence business, with
a strategy to refocus the business from build-to-print to higher quality
design-to-build activity. Defence demand has remained positive and the closure
of the St Louis plant is in progress. Elsewhere, Engines has good revenue
momentum and Civil Airframes is ramping up production to meet higher OEM build
rates, particularly for narrowbody aircraft.
Having acted swiftly to adjust to the impact of the global pandemic, GKN
Aerospace is now driving further improvements to unlock its full potential,
with all required major restructuring projects to reach the stated 14%+ margin
target now underway. During the first half, additional restructuring plans
were announced to rationalise its US and European footprint, bringing the
total number of sites globally from 38 today down to 33 by the end of 2023.
One US site was sold during the Period and the remaining improvements are
progressing to plan and will be largely completed in the coming 18 months.
During the Period, GKN Aerospace also continued to push the boundaries of
sustainable technology development. The Engines business confirmed its place
as a technology demonstration partner in both the CFM RISE engine programme
and the next-generation Pratt & Whitney GTF programme, whilst continuing
its strong progress on both H2GEAR and H2JET hydrogen propulsion development
programmes. On the structures side, GKN Aerospace delivered the latest
ground-breaking 18-metre wing spar demonstrator for the Airbus 'Wing of
Tomorrow' programme, while in the area of zero emissions flight, it also
reached an important milestone in its partnership with electric aircraft
manufacturer Vertical Aerospace, by delivering the wiring system for the VX4
all-electric aircraft from its UK Global Technology Centre in Bristol.
GKN Aerospace Outlook
We expect revenue growth to continue in line with the market recovery in the
second half of 2022 and beyond, driven by the ramp up in narrowbody deliveries
and strong demand from key Defence platforms. The business is highly confident
of addressing emerging supply chain constraints and continuing to fully
recover inflationary pressures. All the business improvement initiatives
remain on track to deliver the upgraded margin target of 14%+ on a fully
recovered market.
AUTOMOTIVE/DEMERGERCO SEGMENT
GKN Automotive first half update
COVID-related lockdowns in China and semi-conductor shortages contributed to
continued sector volatility and a 1.2% decline in global light-vehicle
production in the first half compared to 2021. Europe experienced a
significant year on year decline in production of 11.9%, whilst in contrast
China and the Americas saw an increase in production volumes of 1.3% and 3.8%
respectively.
Inflation recovery enabled GKN Automotive to maintain its first half revenue,
despite volumes being down 3% broadly in line with the global market. Whilst
revenue was flat compared to the first half of 2021, it was a positive
improving trend against the second half of 2021, with strong underlying demand
and a further c.15% recovery to come to return to 2019 levels. 3 In parallel,
the business significantly expanded its order pipeline during the Period,
securing approximately £2.6 billion of lifetime revenue in new business
bookings (19% ahead of the same period last year). Over half of these
bookings 4 are on electrified platforms (Battery Electric Vehicles ('BEV') or
Full Hybrid ('FH')), further demonstrating the competitiveness of GKN
Automotive's portfolio as electrification of the industry accelerates.
Despite experiencing multiple inflationary headwinds across labour, energy,
logistics and raw materials in the first half, the business remains on track
to fully recover all of these in the second half through customer agreements,
continuous operational improvement and the proactive management of its cost
base. This short time lag has meant first half operating margin declined by
2.3 percentage points compared to the first half of 2021, but is expected to
recover to plan by the end of the year. Throughout the Period, GKN Automotive
has also continued to execute significant improvements that have reshaped its
cost base, further strengthening its resilience. All projects to achieve its
margin target on market recovery are due to complete this year, with a
potential pipeline of additional projects providing opportunities for ongoing
margin expansion meaning it is well positioned for the proposed Demerger.
One of this year's most notable eDrive achievements has been the development
of GKN Automotive's next-generation inverter, offering OEMs highly advanced
800V electric vehicle technology. Aside from efficiency and light-weighting
improvements, 800V technology enables faster charging times, increased battery
size, and improved performance for future electric vehicles. GKN Automotive is
also collaborating on the development of a circular supply chain for recycled
rare-earth magnets as a partner in the SCREAM (Secure Critical Rare Earth
Magnets for UK) project. The reuse of rare earth magnets in future electric
motors will enable GKN Automotive to improve product sustainability by
reducing embedded emissions and the use of raw materials, as well as lowering
production costs.
GKN Automotive Outlook
Looking ahead, there are signs that volatility in global light vehicle
production is beginning to ease. For GKN Automotive, the second half will be
focused on operational agility and efficiency, inflation mitigation and the
ongoing growth of the electrified vehicle portfolio. We do expect a stronger
second half performance benefiting from full inflation recovery, including the
£30 million delayed from the first half.
GKN Powder Metallurgy first half update
Good inflation recovery offset ongoing automotive sector volatility in the
first half of 2022, which resulted in revenue only slightly down by 1% on 9%
lower volumes compared to the same period last year. This reflects the exiting
of low margin business, but otherwise follows the wider automotive industry
impacted by COVID lockdowns and supply chain issues. However, like GKN
Automotive, this reflects a positive revenue momentum from the second half of
2021.
The impact of inflation on the business has been fully mitigated by a
combination of pass-through agreements (primarily on the cost of commodities,
notably metal scrap, copper, nickel and molybdenum), operational improvements,
and one-off base price adjustments with customers. Adjusted operating profit
margin of 10.5% was ahead of the full year 2021, demonstrating the benefits of
reorganisation actions and the divestment of the non-core low margin
structural plant in the US last year. All projects required to achieve their
stated margin target of 14% are due to complete this year.
During the Period a new additive manufacturing facility was opened in Auburn
Hills, US, contributing to a 42% revenue growth for the additive business and
enabling it to increase its presence and to serve the local global automotive
manufacturers. The additive business was also awarded parts with GM for the
Cadillac Celestiq in both polymers and metals, a significant endorsement of
its capabilities.
GKN Powder Metallurgy's EV transition strategy gained good momentum during the
first half. Recently, the business announced its roadmap to expand share in
BEVs, by entering into production of permanent magnets for the European and
North American markets, and there are advanced commercial discussions ongoing
with several key customers in line with its stated margin target. The
well-established global footprint, demand for local supply, and the strong
capabilities to serve the automotive industry with metal powders and parts, as
well as a firm commitment to sustainability, strongly positions GKN Powder
Metallurgy for success.
In parallel, the business has been successful in leveraging its existing
capabilities, and leading technology, to secure significant wins on EV
platforms in its core competencies for components on differential gears and
clutches, that are expected to enjoy substantial volume increases in coming
years. Similar to GKN Automotive, this gives confidence that in addition to
the exciting opportunities in new segments like e-motor magnets, there will be
upside from the EV transition for GKN Powder Metallurgy's core business.
GKN Powder Metallurgy Outlook
Supply chain issues and automotive sector volatility are expected to continue
into the second half, but as in Automotive, there are emerging signals that
these will ease towards the end of the year. The business is highly focused on
continuing the good momentum in its EV transition strategy, both seeking to
secure new segments such as e-motor magnets, as well as developing promising
EV opportunities through existing capabilities.
GKN Hydrogen Trading and Outlook
Now a standalone business under Melrose ownership, but intended to form part
of the Demerger group, GKN Hydrogen has a dedicated executive team providing
greater focus on its route to market. The first half saw good progression on
the roll out of the pilot programmes and the wider commercialisation plan.
The business remains on track with its strategy, with a growing pipeline of
interest and the outlook is encouraging.
Simon Peckham
Chief Executive
8 September 2022
FINANCE DIRECTOR'S REVIEW
During the six months ended 30 June 2022 ("the Period"), contracts were
exchanged for the disposal of the Ergotron business, previously held within
the Other Industrial division. Consistent with this, Ergotron has been shown
as held for sale in the Balance Sheet at the Period end and is classified as a
discontinued operation in these Condensed Interim Financial Statements.
Ergotron was disposed on 6 July 2022.
The continuing operations now consist of three businesses acquired with GKN in
2018: Aerospace; Automotive; and Powder Metallurgy, along with the recently
formed GKN Hydrogen business shown within the Other Industrial division.
Each of these businesses are on track to fully recover inflationary headwinds
in the year and remain committed to achieving previously stated adjusted
operating margin targets when end markets recover.
MELROSE GROUP RESULTS - CONTINUING OPERATIONS
Statutory results:
The statutory IFRS results are shown on the face of the Income Statement and
show revenue of £3,594 million (2021: £3,431 million), an operating loss of
£317 million (2021: £156 million) and a loss before tax of £358 million
(2021: £275 million). The diluted earnings per share ("EPS"), calculated
using the weighted average number of shares in issue during the Period of
4,366 million (2021: 4,860 million), were a loss of 6.3 pence (2021: loss of
3.4 pence).
Adjusted results:
The adjusted results are also shown on the face of the Income Statement.
They are adjusted to include the Group's share of revenue and operating profit
from certain investments in which the Group does not hold full control, equity
accounted investments ("EAIs"), and to exclude certain items which are
significant in size or volatility or by nature are non-trading or
non-recurring, or are items released to the Income Statement that were
previously a fair value item booked on an acquisition. It is the Group's
accounting policy to exclude these items from the adjusted results, which are
used as an Alternative Performance Measure ("APM") as described by the
European Securities and Markets Authority ("ESMA"). APMs used by the Group
are defined in the glossary to the Condensed Interim Financial Statements.
The Melrose Board considers the adjusted results to be an important measure
used to monitor how the businesses are performing as they achieve consistency
and comparability between reporting periods when all businesses are held for
the complete reporting period.
The adjusted results for the Period show revenue of £3,878 million (2021:
£3,719 million), an operating profit of £171 million (2021: £196 million)
and a profit before tax of £128 million (2021: £114 million). Adjusted
diluted EPS, calculated using the weighted average number of shares in issue
in the Period of 4,366 million (2021: 4,860 million), were 2.2 pence (2021:
1.8 pence).
Tables summarising the statutory results and adjusted results by reportable
segment are shown in note 3 of the Condensed Interim Financial Statements.
RECONCILIATION OF STATUTORY RESULTS TO ADJUSTED RESULTS
The following tables reconcile the Group statutory revenue and statutory
operating loss to adjusted revenue and adjusted operating profit:
Continuing operations: 2022 2021
£m £m
Statutory revenue 3,594 3,431
Adjusting item:
Revenue from equity accounted investments ("EAIs") 284 288
Adjusted revenue 3,878 3,719
Adjusting item:
Adjusted revenue includes revenue from EAIs, the largest of which is a 50%
interest in Shanghai GKN HUAYU Driveline Systems Co Limited ("SDS"), within
the Automotive segment. During the Period, the Group generated £284 million
of revenue from EAIs (2021: £288 million), which is not included in the
statutory results but is shown within adjusted revenue so as not to distort
the adjusted operating margins reported in the businesses when the adjusted
operating profit from these EAIs is included.
Continuing operations: 2022 2021
£m £m
Statutory operating loss (317) (156)
Adjusting items:
Amortisation of intangible assets acquired in business combinations 223 218
Currency movements in derivatives and movements in associated financial assets 154 44
and liabilities
Restructuring costs 82 85
Write down of assets 20 -
Other 9 5
Adjustments to statutory operating loss 488 352
Adjusted operating profit 171 196
Adjusting items to statutory operating loss are consistent with prior periods
and include:
The amortisation charge on intangible assets acquired in business combinations
of £223 million (2021: £218 million), which is excluded from adjusted
results due to its non-trading nature and to enable comparison with companies
that grow organically. However, where intangible assets are trading in
nature, such as computer software and development costs, the amortisation is
not excluded from adjusted results.
Where hedge accounting is not applied, movements in the fair value of
derivative financial instruments (primarily forward foreign currency exchange
contracts), along with foreign exchange movements on the associated financial
assets and liabilities, entered into within the businesses to mitigate the
potential volatility of future cash flows on long-term foreign currency
customer and supplier contracts. This totalled a charge of £154 million
(2021: £44 million) in the Period and is shown as an adjusting item because
of its volatility and size.
Costs associated with restructuring projects in the Period totalling £82
million (2021: £85 million). These are shown as adjusting items due to
their size and non-trading nature and these included:
§ A charge of £52 million (2021: £26 million) within the Aerospace division,
primarily relating to the continuation of significant restructuring projects,
necessary for the business to achieve its full potential. These included
further progress on the European footprint consolidations in both the Civil
and Engines businesses which commenced in 2021, and significant restructuring
programmes in North America, commenced in the Period across all three
Aerospace sub-segments. These programmes are expected to materially conclude
in 2023.
§ A charge of £19 million (2021: £52 million) within the Automotive division,
primarily relating to the progression of European and North American footprint
consolidations which commenced in 2021 and are expected to conclude this year.
§ A charge of £11 million (2021: £7 million) within the Powder Metallurgy and
Corporate divisions.
A write down of assets of £20 million (2021: £nil), recognised as a result
of exiting any direct trading links with Russian operations as a consequence
of the conflict in Ukraine. The asset write downs are predominantly within
the Automotive division and are shown as an adjusting item because of their
non-trading nature and size.
Other net adjusting items of £9 million (2021: £5 million), consistent with
prior periods, the largest of which is an adjustment of £14 million (2021:
£15 million) to gross up the post-tax profits of EAIs to be consistent with
the adjusted operating profits of subsidiaries within the Group.
PROPOSED DEMERGER OF GKN AUTOMOTIVE, GKN POWDER METALLURGY & GKN HYDROGEN
The proposed strategy, discussed in more detail in the Chairman's Statement
and Chief Executive's Review, will separate the GKN Automotive, GKN Powder
Metallurgy and GKN Hydrogen businesses from the Melrose Group to form
DemergerCo. The following table shows how the adjusted results of the
continuing businesses for the Period, pre Melrose central costs, would have
been split had the Demerger already happened:
Total Melrose/ Powder Metallurgy Hydrogen
Aerospace pre-central costs Automotive £m £m Total DemergerCo pre-central costs
£m £m £m
Revenue 1,366 1,997 515 - 2,512
Operating profit 67 78 54 (6) 126
Operating margin 4.9% 3.9% 10.5% n/a 5.0%
The performances of each of the businesses, along with further details of the
proposed demerger, are discussed in the Chairman's Statement and Chief
Executive's Review.
TAX - CONTINUING OPERATIONS
The statutory results for the Period show a tax credit of £86 million (2021:
£109 million), arising on a statutory loss before tax of £358 million (2021:
£275 million). The Group Income Statement current underlying adjusted tax
rate is approximately 22% (2021: 23%). During the Period, the continuing
businesses paid tax of £53 million (2021: £36 million).
ASSETS HELD FOR SALE
On 3 June 2022, the Group entered into an agreement to sell the last remaining
Nortek business, Ergotron, to funds managed by The Sterling Group for total
proceeds of £519 million and this transaction completed on 6 July 2022. As
such, Ergotron was classified as held for sale at 30 June 2022 and shown as a
discontinued operation in all periods throughout the Condensed Interim
Financial Statements.
The Nortek group was acquired on 31 August 2016 for an enterprise value of
£2.2 billion, funded by £1.6 billion of equity and £0.6 billion of debt.
Having sold the Nortek Air Management and Nortek Control businesses last year,
this successfully concludes the ownership cycle of Nortek and means the Group
has again more than doubled the equity invested, achieving an IRR of 17%.
Discontinued businesses included £132 million of revenue and a statutory
operating loss of £80 million after remeasuring Ergotron as held for sale in
the Period.
SHARE BUYBACK AND NUMBER OF SHARES IN ISSUE
Following the agreed sale of Ergotron, the Group commenced a share buyback
programme on 9 June 2022 to make market purchases of existing ordinary shares
in issue in the capital of the Company. In line with the Group's strategy, the
purpose of the programme was to distribute £500 million of capital to
shareholders in the most suitable way following the agreed disposal of
Ergotron.
The programme ended on 1 August 2022, with 318 million ordinary shares
purchased at an average price per share of 157 pence. These ordinary shares
have been cancelled and the number of ordinary shares in issue has reduced by
7.3%, from 4,372 million to 4,054 million. The weighted average number of
shares used for earnings per share in calculations in these Condensed Interim
Financial Statements was 4,366 million and for the full year will be 4,218
million.
CASH GENERATION AND MANAGEMENT
Robust cash management initiatives continue to be run in each of the
businesses within the Group.
Free cash flow in the Period was an outflow of £104 million (2021: inflow of
£131 million), after restructuring spend of £53 million (2021: £92
million), resulting in an adjusted free cash outflow of £51 million (2021:
inflow of £223 million).
An analysis of the free cash flow is shown in the table below:
2022 2021
£m £m
Continuing operations (unless otherwise stated):
Adjusted operating profit 171 196
Adjusted operating profit from EAIs (24) (28)
Depreciation and amortisation 202 208
Lease obligation payments (24) (29)
Positive non-cash impact from loss-making contracts (17) (23)
Working capital movements (195) 8
Adjusted operating cash flow (pre-capex) 113 332
Net capital expenditure (79) (104)
Net interest and net tax paid (95) (109)
Defined benefit pension contributions (11) (12)
Restructuring (53) (92)
Dividend income from equity accounted investments 29 26
Cash flows from operations discontinued in the Period, after all costs 16 78
Net other (24) 12
Free cash flow (104) 131
Adjusted free cash flow (51) 223
The continuing businesses incurred a net working capital outflow in the Period
of £195 million (2021: inflow of £8 million). The working capital cash
performance of the Group is usually stronger in the second half of the year
than the first because of the seasonality trends of the businesses, but this
was further emphasised in the Period by the businesses selectively investing
in working capital because of the impact of global supply chain disruption
along with the expected growth in the second half of the year. This is
expected to partially unwind as supply constraints ease and end markets
recover in the second half.
Net capital expenditure in the continuing businesses in the Period was £79
million (2021: £104 million), with gross capital expenditure of £109
million, net of proceeds from disposal of properties of £30 million. This
gross capital expenditure represented 0.6x (2021: 0.6x) depreciation of owned
assets. Restructuring spend within the businesses was £53 million (2021: £92
million).
In the continuing Group, net interest paid in the Period was £42 million
(2021: £73 million), net tax payments were £53 million (2021: £36 million)
and ongoing contributions to defined benefit pension schemes were £11 million
(2021: £12 million).
The movement in net debt (as defined in the glossary to the Condensed Interim
Financial Statements) is summarised as follows:
£m
Opening net debt (950)
Adverse foreign exchange movement (67)
Opening net debt at 30 June 2022 closing exchange rates (1,017)
Free cash flow in the Period (104)
Net cash flow from acquisition and disposal related activities (10)
Buy back of own shares (119)
Dividends paid to shareholders (44)
Net debt at 30 June 2022 at closing exchange rates (1,294)
Net debt at 30 June 2022 at twelve month average exchange rates (1,230)
Group net debt at 30 June 2022, translated at closing exchange rates (being US
$1.22 and €1.16), was £1,294 million (31 December 2021: £950 million;
£1,017 million using exchange rates at 30 June 2022).
The movement in net debt during the Period included a free cash outflow of
£104 million, a dividend paid to shareholders of £44 million, £119 million
spent buying back shares in the market and spend on acquisition and disposal
related activities of £10 million.
For bank covenant purposes the Group's net debt is calculated at average
exchange rates for the previous twelve months, to better align the calculation
with the currency rates used to calculate profits, and was £1,230 million.
The Group net debt leverage on this basis at 30 June 2022 was 1.8x EBITDA (31
December 2021: 1.3x EBITDA). Excluding the share buyback payments of £119
million, which were made before the receipt of Ergotron proceeds, leverage
would have been 1.6x EBITDA, below the Melrose normal leverage of 2.0x to 2.5x
EBITDA.
PROVISIONS
Total provisions at 30 June 2022 were £683 million (31 December 2021: £701
million).
The following table details the movement in provisions in the Period:
Total
£m
Provisions at 1 January 2022 701
Net charge in the Period 68
Spend against provisions (75)
Utilisation of loss-making contract provision (17)
Other (including foreign exchange) 6
Provisions at 30 June 2022 683
The net charge to the Income Statement in the Period of £68 million, included
£74 million from restructuring activities and a release of £7 million
relating to certain items previously recorded as a fair value item on
acquisition. These two items are both shown as adjusting items and included in
the adjusting items section discussed earlier in this review. Net provision
movements relating to property, environmental & litigation, warranty and
long-term incentive arrangements were not material in the Period.
During the Period, £75 million of cash was spent against provisions with £53
million relating to restructuring activities. In addition, £17 million was
utilised against loss-making contract provisions.
The Other category of £6 million includes foreign exchange movements of £33
million, partly offset by the transfer of provisions on businesses disposed or
held for sale of £23 million and the favourable net impact of discounting on
certain provisions of £4 million.
PENSIONS AND POST-EMPLOYMENT OBLIGATIONS
Melrose operates a number of defined benefit pension schemes and retiree
medical plans across the Group, accounted for using IAS 19 Revised: "Employee
Benefits".
The values of the Group plans were updated at 30 June 2022 by independent
actuaries to reflect the latest key assumptions and are summarised as follows:
Liabilities Accounting surplus/(deficit)
Assets £m £m
£m
GKN UK Group pension schemes (Numbers 1 - 4) 2,146 (1,854) 292
Other Group pension schemes 226 (740) (514)
Total Group pension schemes 2,372 (2,594) (222)
At 30 June 2022, total plan assets of Melrose Group's defined benefit pension
plans were £2,372 million (31 December 2021: £3,010 million) and total plan
liabilities were £2,594 million (31 December 2021: £3,471 million), a net
deficit of £222 million (31 December 2021: £461 million).
The most significant pension plans remaining in the Group are the GKN UK Group
Pension Schemes (Numbers 1 - 4), two of which are allocated to the Aerospace
division and two to the Automotive division. At 30 June 2022, in total these
four pension plans had aggregate gross assets of £2,146 million (31 December
2021: £2,754 million), gross liabilities of £1,854 million (31 December
2021: £2,575 million) and a net surplus of £292 million (31 December 2021:
£179 million), split 62% of the surplus held within Aerospace and 38% within
Automotive. These GKN schemes are closed to new members and to the accrual
of future benefits for current members.
The largest deficits within the other pension schemes in the Group relate to
German GKN pension plans which provide benefits dependent on final salary and
service, and which are generally unfunded and closed to new members. At 30
June 2022, these plans had a net deficit of £400 million (31 December 2021:
£530 million).
A summary of the assumptions used are shown in note 12 to the Condensed
Interim Financial Statements.
FINANCIAL RISKS AND UNCERTAINTIES
The principal financial risks and uncertainties faced by the Group include:
liquidity risk; finance cost risk; exchange rate risk; contract and warranty
risk; and commodity cost risk and are explained in detail on pages 37 to 39 of
the 2021 Annual Report, a copy of which is available on the Company's website,
www.melrosePLC.net
(https://eur02.safelinks.protection.outlook.com/?url=http%3A%2F%2Fwww.melroseplc.net%2F&data=05%7C01%7Cmichael.payne%40melroseplc.net%7C4841703fe325453fb6e808da6e2d3c79%7C4e0526a9ff5648619c67c5618bc7d5ff%7C0%7C0%7C637943437819532274%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=Cg8jrNTMNWXtZNgGEN%2FcZxHP5HOsS622qncbjQjapZk%3D&reserved=0)
.
Further explanations and details of the strategic risk profile of the Group,
which includes non-financial risk, are set out on pages 42 to 49 of the 2021
Annual Report.
EXCHANGE RATES USED IN THE PERIOD
Exchange rates used for currencies most relevant to the Group in the Period
were:
US Dollar Closing
Average rate rate
Six months to 30 June 2022 1.30 1.22
Twelve months to 31 December 2021 1.38 1.35
Six months to 30 June 2021 1.39 1.38
Euro
Six months to 30 June 2022 1.19 1.16
Twelve months to 31 December 2021 1.16 1.19
Six months to 30 June 2021 1.15 1.16
The Group policy on foreign currency risk is explained on page 38 of the 2021 Annual Report.
The following table shows an indication of a full year impact of a 10 percent
strengthening of the major currencies, if they were to strengthen in isolation
against all other currencies, on the re-translation of adjusted operating
profit into Sterling:
£m USD EUR CNY Other
Movement in adjusted operating profit 25 5 8 10
% impact on adjusted operating profit 6% 1% 2% 2%
In the first half of the year, the Group incurred a 4% translational foreign
exchange gain compared to the same period last year.
The impact from transactional foreign exchange exposures is not material in
the short-term due to hedge coverage being approximately 90%.
The Group utilises its multi-currency banking facility and cross-currency
swaps, where relevant, to maintain an appropriate mix of debt in US Dollars,
Euros and Sterling. The hedge of having debt drawn in US Dollars and Euros
protects against some of the Balance Sheet and banking covenant foreign
exchange translation risk. A 10 percent strengthening in either the US Dollar
or Euro would have had the following impact on debt as at 30 June 2022:
£m USD EUR
Increase in debt 83 40
LIQUIDITY RISK MANAGEMENT
The Group's net debt position at 30 June 2022 was £1,294 million (31 December
2021: £950 million).
The Group's committed bank facilities include a multi-currency denominated
term loan and a multi-currency denominated revolving credit facility that
mature in June 2024:
Local currency £m
Size Drawn Headroom Headroom
Term loan:
USD 788 788 - -
GBP 30 30 - -
Revolving credit facility:
USD 2,000 - 2,000 1,642
GBP 1,100 62 1,038 1,038
Euro 500 21 479 412
Total headroom 3,092
As at 30 June 2022, the term loan was fully drawn and there was £0.1 billion
of drawings on the multi-currency committed revolving credit facility.
Applying the exchange rates at 30 June 2022, the headroom equated to
approximately £3.1 billion (31 December 2021: £3.0 billion applying the
exchange rates at that date).
In addition to the headroom on the multi-currency committed revolving credit
facility, cash, deposits and marketable securities, net of overdrafts, in the
Group amounted to £223 million at 30 June 2022 (31 December 2021: £468
million).
The Group also holds capital market borrowings as at 30 June 2022 consisting
of:
Maturity date Coupon Cross-currency Interest rate on
Notional % p.a. swaps swaps
amount million % p.a.
£m
September 2022 450 5.375% US$373 5.70%
€284 3.87%
May 2032 300 4.625% n/a n/a
The committed bank funding has two financial covenants, being a net debt to
adjusted EBITDA covenant and an interest cover covenant, both of which are
tested half-yearly in June and December.
The Group net debt to adjusted EBITDA covenant test level is set at 4.0x at 30
June 2022, 3.75x at 31 December 2022 and 3.5x for 30 June 2023 and onwards.
At 30 June 2022 the Group net debt leverage was 1.8x, affording comfortable
headroom.
The interest cover test is set at 3.25x at 30 June 2022 and 4.0x from 31
December 2022 onwards. As at 30 June 2022, the Group interest cover was
11.1x, again showing comfortable headroom compared to the covenant test.
FINANCE COST RISK MANAGEMENT
The policy of the Board is to fix approximately 70% of the interest rate
exposure of the Group.
At 30 June 2022, the weighted average cost of the instruments used to fix the
cost of LIBOR on the Group's committed bank facility was c.2.2% and the bank
margin on the Group's committed bank facility is currently 1%.
The Group also holds cross-currency swaps associated with the short-term fixed
rate capital market borrowings, described earlier in this review, with a
weighted average income statement cost of c.3.4% per annum.
The combined average Income Statement cost of the Group's debt for the year
ending 31 December 2022 is expected to be approximately 3.8% (31 December
2021: 3.4%) before the amortisation of the bank arrangement fees and
approximately 4.5% (31 December 2021: 4.1%) including this amortisation
charge.
GOING CONCERN
As part of their consideration of going concern, the Directors have reviewed
the Group's future cash forecasts and profit projections, which are based on
market and internal data and recent past experience.
The Group has modelled a reasonably possible downside scenario against future
cash forecasts and for this reasonably possible downside scenario, the Group
has sufficient headroom to avoid breaching any of its financial covenants and
would not require any additional sources of financing throughout the forecast
period.
The macroeconomic environment remains uncertain and volatile and the impacts
of political conflict and unrest on trading conditions and supply chain
constraints could be more prolonged or severe than that which the Directors
have considered in this reasonably possible downside scenario.
However, the Group's current committed bank facility headroom, its access to
liquidity, and the sensible levels of bank covenants in place with lending
banks, allow the Directors to consider it appropriate that the Group can
manage its business risks successfully and adopt a going concern basis in
preparing these Condensed Interim Financial Statements.
Geoffrey Martin
Group Finance Director
8 September 2022
CAUTIONARY STATEMENT
This announcement contains forward-looking statements. These statements are
made in good faith based on the information available up to the time of the
approval of this announcement, and should be treated with caution due to the
inherent uncertainties, including both economic and business risk factors,
underlying any such forward-looking information. Accordingly, readers are
cautioned not to place undue reliance on any such forward-looking
statements. Subject to compliance with applicable laws and regulations, the
Company does not undertake any obligation to update any forward- looking
statement to reflect events or circumstances after the date of this
announcement.
This announcement has been prepared solely to provide information to
shareholders to assess the Company's strategies and the potential for those
strategies to succeed, and neither the Company nor its directors accept any
liability to any other person save as would arise under English law.
NO OFFER OF SECURITIES
Nothing in this announcement constitutes an offer of securities for sale in
the U.S. Securities may not be sold in the U.S. absent registration or an
exemption from registration.
RESPONSIBILITY STATEMENT
We confirm to the best of our knowledge:
a) the condensed financial statements have been prepared in accordance
with IAS 34 "Interim Financial Reporting" as adopted by the UK;
b) the interim management report includes a fair review of the information
required by DTR 4.2.7R (indication of important events and their impact, and
description of principal risks and uncertainties for the remaining six months
of the financial year); and
c) the interim management report includes a fair review of the information
required by DTR 4.2.8R (disclosure of related parties' transactions and
changes therein).
By order of the Board
Simon Peckham
Geoffrey Martin
Chief Executive
Group Finance Director
8 September 2022
8 September 2022
INDEPENDENT REVIEW REPORT TO MELROSE INDUSTRIES PLC
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30(th)
June 2022 which comprises the condensed consolidated income statement, the
condensed consolidated statement of comprehensive income, the condensed
consolidated statement of cash flows, the condensed consolidated balance
sheet, the condensed consolidated statement of changes in equity and related
notes 1 to 15.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30(th) June 2022 is not prepared, in
all material respects, in accordance with United Kingdom adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council for use in the United Kingdom (ISRE (UK) 2410). A review of interim
financial information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 2, the annual financial statements of the group are
prepared in accordance with United Kingdom adopted international accounting
standards. The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with United
Kingdom adopted International Accounting Standard 34, "Interim Financial
Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This Conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410; however future events or conditions may cause the entity to
cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the group's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for
expressing to the group a conclusion on the condensed set of financial
statements in the half-yearly financial report. Our Conclusion, including our
Conclusion Relating to Going Concern, is based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the company in accordance with ISRE (UK) 2410.
Our work has been undertaken so that we might state to the company those
matters we are required to state to it in an independent review report and for
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company, for our review work,
for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
8 September 2022
Melrose Industries
PLC
Condensed Consolidated Income Statement
Continuing operations 6 months Restated((1)) Restated((1))
ended 6 months Year ended
Notes 30 June ended 31 December 2021
2022 30 June Audited
Unaudited 2021 £m
£m Unaudited
£m
Revenue 3 3,594 3,431 6,650
Cost of sales (3,101) (2,941) (5,750)
Gross profit 493 490 900
Share of results of equity accounted investments 8 10 13 38
Net operating expenses (820) (659) (1,431)
Operating loss 3,4 (317) (156) (493)
Finance costs (41) (120) (169)
Finance income - 1 2
Loss before tax (358) (275) (660)
Tax 5 86 109 180
Loss after tax for the period from continuing operations (272) (166) (480)
Discontinued operations
(Loss)/profit for the period from discontinued operations 9 (85) 1,333 1,317
(Loss)/profit after tax for the period (357) 1,167 837
Attributable to:
Owners of the parent (360) 1,166 833
Non-controlling interests 3 1 4
(357) 1,167 837
Earnings per share
Continuing operations
- Basic 6 (6.3)p (3.4)p (10.3)p
- Diluted 6 (6.3)p (3.4)p (10.3)p
Continuing and discontinued operations
- Basic 6 (8.2)p 24.0p 17.7p
- Diluted 6 (8.2)p 24.0p 17.7p
Adjusted((2)) results from continuing operations
Adjusted revenue 3 3,878 3,719 7,263
Adjusted operating profit 3,4 171 196 317
Adjusted profit before tax 4 128 114 194
Adjusted profit after tax 4 100 88 151
Adjusted basic earnings per share 6 2.2p 1.8p 3.1p
Adjusted diluted earnings per share 6 2.2p 1.8p 3.1p
( )
((1)) Results for the period ended 30 June 2021 and the year ended 31 December
2021 have been restated for discontinued operations (see note 2).
((2)) Defined in the summary of significant accounting policies (see note 2)
Melrose Industries PLC
Condensed Consolidated Statement of Comprehensive Income
6 months
ended 6 months
30 June
2022 ended Year ended
30 June
Unaudited
2021 31 December
£m Unaudited 2021
£m Audited
Notes £m
(Loss)/profit after tax for the period (357) 1,167 837
Items that will not be reclassified subsequently to the
Income Statement:
Net remeasurement gain on retirement benefit obligations 258 135 297
Fair value (loss)/gain on investments in equity instruments (27) 5 43
Income tax charge relating to items that will not be reclassified 5 (72) (29) (71)
159 111 269
Items that may be reclassified subsequently to the
Income Statement:
Currency translation on net investments 512 (128) (101)
Share of other comprehensive income/(expense) from equity accounted
investments
22 (1) 13
Transfer to Income Statement from equity of cumulative translation differences
on disposal of foreign operations
- 87 113
Derivative (losses)/gains on hedge relationships (19) 47 54
Transfer to Income Statement on hedge relationships (1) 38 46
Income tax credit/(charge) relating to items that may be reclassified 5 6 (13) (19)
520 30 106
Other comprehensive income for the period 679 141 375
Total comprehensive income for the period 322 1,308 1,212
Attributable to:
Owners of the parent 318 1,307 1,208
Non-controlling interests 4 1 4
322 1,308 1,212
Melrose Industries PLC
Condensed Consolidated Statement of Cash Flows
6 months ended Restated((1))
30 June Restated((1)) Year ended
2022
Notes
6 months ended 31 December
Unaudited
2021
30 June
£m
2021 Audited
Unaudited £m
£m
Operating activities
Net cash (used in)/from operating activities from continuing operations 13 (48) 159 222
Net cash from operating activities from discontinued operations 13 18 25 41
Net cash (used in)/from operating activities (30) 184 263
Investing activities
Disposal of businesses, net of cash disposed (8) 2,519 2,703
Purchase of property, plant and equipment (98) (98) (218)
Proceeds from disposal of property, plant and equipment 30 3 13
Purchase of computer software and capitalised development costs (11) (9) (18)
Dividends received from equity accounted investments 29 26 52
Purchase of investments - - (10)
Interest received - 1 2
Net cash (used in)/from investing activities from continuing operations (58) 2,442 2,524
Net cash used in investing activities from discontinued 13 (1) (12) (13)
operations
Net cash (used in)/from investing activities (59) 2,430 2,511
Financing activities
Repayment of borrowings - (1,363) (1,555)
Drawings on borrowing facilities 7 - -
Settlement of interest rate swaps - (47) (47)
Costs of raising debt finance - - (4)
Repayment of principal under lease obligations (24) (29) (53)
Purchase of own shares 7 (119) - -
Return of capital - - (729)
Return of capital costs - - (1)
Dividends paid to owners of the parent 7 (44) (36) (69)
Net cash used in financing activities from continuing operations (180) (1,475) (2,458)
Net cash used in financing activities from discontinued operations 13 (1) (6) (8)
Net cash used in financing activities (181) (1,481) (2,466)
Net (decrease)/increase in cash and cash equivalents, net of bank overdrafts
(270) 1,133 308
Cash and cash equivalents, net of bank overdrafts at the beginning of the
period
468 160 160
Effect of foreign exchange rate changes 25 5 -
Cash and cash equivalents, net of bank overdrafts at the end of the
period
13 223 1,298 468
((1)) Results for the period ended 30 June 2021 and year ended 31 December
2021 have been restated for discontinued operations (see note 2).
As at 30 June 2022, the Group had net debt of £1,294 million (31 December
2021: £950 million). A definition and reconciliation of the movement in net
debt is shown in note 13.
Melrose Industries PLC
Condensed Consolidated Balance Sheet
30 June 30 June 31 December
2022
2021
2021
Unaudited Unaudited
Notes
Audited
£m £m
£m
Non-current assets
Goodwill and other intangible assets 7,022 7,607 7,390
Property, plant and equipment 2,561 2,675 2,528
Investments 68 39 87
Interests in equity accounted investments 432 416 429
Deferred tax assets 318 221 250
Derivative financial assets 32 68 47
Other receivables 875 463 707
11,308 11,489 11,438
Current assets
Inventories 1,002 972 893
Trade and other receivables 1,467 1,317 1,184
Derivative financial assets 31 31 23
Current tax assets 28 14 11
Cash and cash equivalents 293 1,329 473
Assets classified as held for sale 9 641 282 -
3,462 3,945 2,584
Total assets 3 14,770 15,434 14,022
Current liabilities
Trade and other payables 2,661 2,115 2,051
Interest-bearing loans and borrowings 548 44 462
Lease obligations 14 56 52 57
Derivative financial liabilities 223 36 119
Current tax liabilities 129 146 142
Provisions 10 285 370 293
Liabilities associated with assets held for sale 9 97 72 -
3,999 2,835 3,124
Net current (liabilities)/assets (537) 1,110 (540)
Non-current liabilities
Other payables 402 442 390
Interest-bearing loans and borrowings 973 1,538 903
Lease obligations 14 311 317 319
Derivative financial liabilities 171 124 79
Deferred tax liabilities 673 627 614
Retirement benefit obligations 12 517 693 645
Provisions 10 398 468 408
3,445 4,209 3,358
Total liabilities 3 7,444 7,044 6,482
Net assets 7,326 8,390 7,540
Equity
Issued share capital 327 333 333
Share premium account 3,271 8,138 3,271
Merger reserve 109 109 109
Capital redemption reserve 735 - 729
Other reserves (2,330) (2,330) (2,330)
Translation and hedging reserve 595 - 76
Retained earnings 4,582 2,110 5,319
Equity attributable to owners of the parent 7,289 8,360 7,507
Non-controlling interests 37 30 33
Total equity 7,326 8,390 7,540
Melrose Industries PLC
Condensed Consolidated Statement of Changes in Equity
Issued Share Merger Other reserves Retained Equity attributable
share premium account reserve Capital redemption reserve £m Translation and hedging earnings to owners Non-
capital £m £m £m reserve £m of the parent controlling Total
£m £m £m interests equity
£m £m
At 1 January 2021 333 8,138 109 - (2,330) (30) 861 7,081 29 7,110
Profit for the period - - - - - - 1,166 1,166 1 1,167
Other comprehensive income - - - - - 30 111 141 - 141
Total comprehensive income - - - - - 30 1,277 1,307 1 1,308
Dividends paid (note 7) - - - - - - (36) (36) - (36)
Equity-settled share-based payments - - - - - - 8 8 - 8
At 30 June 2021 (unaudited) 333 8,138 109 - (2,330) - 2,110 8,360 30 8,390
(Loss)/profit for the period - - - - - - (333) (333) 3 (330)
Other comprehensive income - - - - - 76 158 234 - 234
Total comprehensive income/(expense) - - - - - 76 (175) (99) 3 (96)
Capital reduction - (4,138) - - - - 4,138 - - -
Return of capital - (729) - 729 - - (729) (729) - (729)
Dividends paid (note 7) - - - - - - (33) (33) - (33)
Equity-settled share-based payments - - - - - - 8 8 - 8
At 31 December 2021 (audited) 333 3,271 109 729 (2,330) 76 5,319 7,507 33 7,540
(Loss)/profit for the period - - - - - - (360) (360) 3 (357)
Other comprehensive income - - - - - 519 159 678 1 679
Total comprehensive income/(expense) - - - - - 519 (201) 318 4 322
Purchase of own shares (note 7) (6) - - 6 - - (500) (500) - (500)
Dividends paid (note 7) - - - - - - (44) (44) - (44)
Equity-settled share-based payments - - - - - - 8 8 - 8
At 30 June 2022 (unaudited) 327 3,271 109 735 (2,330) 595 4,582 7,289 37 7,326
Notes to the Condensed Interim Financial Statements
1. Corporate information
The interim financial information for the six months ended 30 June 2022 has
been reviewed by the auditor, but not audited. The information for the year
ended 31 December 2021 shown in this report does not constitute statutory
accounts for that year as defined in section 434 of the Companies Act 2006. A
copy of the statutory accounts for that year has been delivered to the
Registrar of Companies. The auditor has reported on those accounts. Their
report was unqualified, did not draw attention to any matters by way of
emphasis and did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
2. Summary of significant accounting policies
The interim financial information for the six months ended 30 June 2022, which
has been approved by the Board of Directors, has been prepared on the basis of
the accounting policies set out in the Group's 2021 Annual Report on pages 133
to 143.
The Group's 2021 Annual Report can be found on the Group's website
www.melroseplc.net. These Condensed Interim Financial Statements should be
read in conjunction with the 2021 information and have been prepared in
accordance with UK-endorsed International Financial Reporting Standards
("IFRS"). These Condensed Interim Financial Statements do not comprise
statutory accounts within the meaning of section 435 of the Companies Act 2006
and have been prepared in accordance with IAS 34: "Interim Financial
Reporting" contained in UK-endorsed IFRS.
Discontinued operations and assets held for sale
During the period, the Board formally commenced a process, aligned to its
strategic priorities, to dispose of the Ergotron business, previously included
within the Other Industrial segment and on 3 June 2022, the Group entered into
an agreement to dispose of Ergotron to funds managed by The Sterling Group.
Completion took place on 6 July 2022. In accordance with IFRS 5: "Non-current
assets held for sale and discontinued operations", associated assets and
liabilities at 30 June 2022 are classified as held for sale and separately
shown on the Balance Sheet.
The results of Ergotron have been classified within discontinued operations
for all periods presented; with the Income Statement, the Statement of Cash
Flows and their associated notes being restated accordingly. In addition,
discontinued operations for the period ended 30 June 2021 and year ended 31
December 2021 include the results of the Nortek Air Management, Brush and
Nortek Control businesses which were disposed of during 2021. At 30 June 2021,
Nortek Control was classified as held for sale. Further detail is shown in
note 9.
Furthermore, during the period, the Aerospace segment disposed of a non-core
business, which has not been treated as a discontinued operation.
Alternative performance measures
The Group presents Alternative Performance Measures ("APMs") in addition to
the statutory results. These are presented in accordance with the Guidelines
on APMs issued by the European Securities and Markets Authority ("ESMA"). APMs
used by the Group are set out in the glossary to these Condensed Interim
Financial Statements and the reconciling items between statutory and adjusted
results are listed below and described in more detail in note 4.
Adjusted revenue includes the Group's share of revenue from equity accounted
investments ("EAIs").
Adjusted profit measures exclude items which are significant in size or
volatility or by nature are non-trading or non-recurring, any item released to
the Income Statement that was previously a fair value item booked on an
acquisition, and include adjusted profit from EAIs.
On this basis, the following are the principal items included within adjusting
items impacting operating profit:
· Amortisation of intangible assets that are acquired in a business combination,
excluding computer software and development costs;
· Significant restructuring project costs and other associated costs, including
losses incurred following the announcement of closure for identified
businesses, arising from significant strategy changes that are not considered
by the Group to be part of the normal operating costs of the business;
· Acquisition and disposal related gains and losses;
· Impairment charges that are considered to be significant in nature and/or
value to the trading performance of the business;
· Movement in derivative financial instruments not designated in hedging
relationships, including revaluation of associated financial assets and
liabilities;
· Removal of adjusting items, interest and tax on equity accounted investments
to reflect operating results;
· The charge for the Melrose equity-settled compensation scheme, including its
associated employer's tax charge; and
· The net release of fair value items booked on acquisitions.
Further to the adjusting items above, adjusting items impacting profit before
tax include:
· Acceleration of unamortised debt issue costs written off as a consequence of
Group refinancing;
· Significant settlement gains and losses associated with interest rate swaps
following acquisition or disposal related activity, which is not considered by
the Group to be part of the normal financing costs; and
· The fair value changes on cross-currency swaps, entered into by GKN prior to
acquisition, relating to cost of hedging which are not deferred in equity.
2. Summary of significant accounting policies (continued)
In addition to the items above, adjusting items impacting profit after tax
include:
· The net effect on tax of significant restructuring from strategy changes that
are not considered by the Group to be part of the normal operating costs of
the business;
· The net effect of significant new tax legislation; and
· The tax effects of adjustments to profit before tax, described above.
The Board considers the adjusted results to be an important measure used to
monitor how the businesses are performing as this provides a meaningful
reflection of how the businesses are managed and measured on a day-to-day
basis and achieves consistency and comparability between reporting periods,
when all businesses are held for a complete reporting period.
The adjusted measures are used to partly determine the variable element of
remuneration of senior management throughout the Group and are also in
alignment with performance measures used by certain external stakeholders. The
adjusted measures are also taken into account when valuing individual
businesses as part of the "Buy, Improve, Sell" Group strategy model.
Adjusted profit is not a defined term under IFRS and may not be comparable
with similarly titled profit measures reported by other companies. It is not
intended to be a substitute for, or superior to, GAAP measures. All APMs
relate to the current period results and comparative periods where provided.
Going concern
The Condensed Interim Financial Statements have been prepared on a going
concern basis as the Directors consider that adequate resources exist for the
Company to continue in operational existence for the foreseeable future. The
Group's liquidity and funding arrangements are described in the Finance
Director's Review. There is significant liquidity/financing headroom at 30
June 2022 (c. £3.1 billion) and throughout the going concern forecast period.
Forecast covenant compliance is considered further below.
Covenants
The Group's banking facility has two financial covenants being a net debt to
adjusted EBITDA (leverage) covenant and an interest cover covenant, both of
which are tested half yearly in June and December. Covenant calculations are
detailed in the glossary to these Condensed Interim Financial Statements.
The financial covenants for the going concern period are as follows:
30 June 31 December 30 June
2022 2022 2023
Net debt to adjusted EBITDA 4.00x 3.75x 3.50x
Interest cover 3.25x 4.00x 4.00x
Testing
The Group modelled two scenarios in its assessment of going concern; a base
case and a reasonably possible sensitised case.
The base case takes into account the estimated impact of a continued recovery
in end markets as well as other operational factors throughout the going
concern period and has been monitored against the actual results and cash
generation in the period since 1 July 2022.
The reasonably possible sensitised case models more conservative sales
assumptions in the remaining period of 2022 and the relevant period in 2023,
however, given there is liquidity headroom of approximately £3.1 billion and
the Group's leverage is 1.8x at 30 June 2022, no further sensitivity detail is
provided.
Under the reasonably possible sensitised case, with significant reductions, no
covenant is breached at either of the forecast testing dates being 31 December
2022 and 30 June 2023, with the testing at 31 December 2023 also favourable,
and the Group does not require any additional sources of finance following
repayment of the £450 million bond in September 2022.
In addition to the reasonably possible sensitised case, a 'reverse stress
test' has been prepared to consider the point at which the covenants may be
breached. This reverse stress test indicates that a significant reduction in
sales, beyond what is considered reasonable, would be required in order to
breach covenants. In this remote situation, management could take further
mitigating actions to protect profits and conserve cash, such as reducing
capital expenditure to minimum maintenance levels.
Impairment assessment
Since the prior year annual impairment testing was performed, as at 31 October
2021, discount rates have increased substantially. The adverse movements have
been impacted by risk free rates, interest rates and general economic
conditions in many areas of the world. Impairment testing for each group of
cash generating units ("CGUs") has been performed as at 30 June 2022. Whilst
discount rates have increased, there have been compensating changes from
increased long-term growth rates and a further period of recovery from the
Covid-19 pandemic. No impairment charges have been recorded in the period
ended 30 June 2022 (30 June 2021: £nil), as all groups of CGUs have
recoverable amounts in excess of their carrying values.
As noted above, discount rates have increased substantially in the period and
macro-economic factors mean that further increases could arise. Should
discount rates increase in the future other factors could also change, for
instance long-term growth rates, which could mitigate any impact.
3. Segment information
Segment information is presented in accordance with IFRS 8: "Operating
segments" which requires operating segments to be identified on the basis of
internal reports about components of the Group that are regularly reported to
the Group's Chief Operating Decision Maker ("CODM"), which has been deemed to
be the Group's Board, in order to allocate resources to the segments and
assess their performance.
The results of the Ergotron business, which has been classified as held for
sale at 30 June 2022, as described in note 2, have been presented within
discontinued operations. The Ergotron business was previously included within
the Other Industrial segment and comparative results for 2021 have been
restated accordingly.
During the second half of 2021, following a change in the information reviewed
by the CODM in evaluating financial performance, the Hydrogen Technology
business was included in the Other Industrial segment, having previously been
presented within Powder Metallurgy. Accordingly, segment information at 30
June 2021 has been restated.
The operating segments are as follows:
Aerospace - a multi-technology global tier one supplier of both civil and
defence air frames and engine structures.
Automotive - a global technology and systems engineer which designs, develops,
manufactures and integrates an extensive range of driveline technologies,
including electric vehicle components.
Powder Metallurgy - a global leader in precision powder metal parts for the
automotive and industrial sectors, as well as the production of powder metal.
Other Industrial - comprises the Group's Hydrogen Technology business which
was launched in the prior year.
In addition, there are central cost centres which are also reported to the
Board. The central corporate cost centres contain the Melrose Group head
office costs and charges related to the divisional management long-term
incentive plans.
Reportable segment results include items directly attributable to a segment as
well as those which can be allocated on a reasonable basis. Inter-segment
pricing is determined on an arm's length basis, in a manner similar to
transactions with third parties.
The Group's geographical segments are determined by the location of the
Group's non-current assets and, for revenue, the location of external
customers. Inter-segment sales are not material and have not been disclosed.
The following tables present the results and certain asset and liability
information regarding the Group's operating segments and central cost centres
for the six month period ended 30 June 2022 and comparative periods.
a) Segment revenues
6 months ended 30 June 2022
Aerospace
£m Powder Metallurgy Other
Automotive £m Industrial Total
Continuing operations £m £m £m
Adjusted revenue 1,366 1,997 515 - 3,878
Equity accounted investments (2) (270) (12) - (284)
Revenue 1,364 1,727 503 - 3,594
( )
( )
6 months ended 30 June 2021 - restated((1))
Aerospace
£m Powder Metallurgy Other
Automotive £m Industrial Total
Continuing operations £m £m £m
Adjusted revenue 1,219 1,965 535 - 3,719
Equity accounted investments (3) (272) (13) - (288)
Revenue 1,216 1,693 522 - 3,431
((1)) Revenue has been restated for discontinued operations (see note 2) and
the re-presentation of Hydrogen Technology.
3. Segment information (continued)
a) Segment revenues (continued)
Year ended 31 December 2021 - restated((1))
Aerospace
£m Powder Metallurgy Other Industrial
Automotive £m £m Total
Continuing operations £m £m
Adjusted revenue 2,543 3,745 975 - 7,263
Equity accounted investments (5) (581) (27) - (613)
Revenue 2,538 3,164 948 - 6,650
((1)) Revenue has been restated for discontinued operations (see note 2).
b) Segment operating profit
6 months ended 30 June 2022
Aerospace Corporate((2))
£m Powder Metallurgy Other Industrial £m
Automotive £m £m Total
Continuing operations £m £m
Adjusted operating profit/(loss) 67 78 54 (6) (22) 171
Items not included in adjusted operating profit((1)):
Amortisation of intangible assets acquired in business combinations
(126) (72) (25) - - (223)
Movement in derivatives and associated financial assets and liabilities
13 (3) (1) - (163) (154)
Restructuring costs (52) (19) (10) - (1) (82)
Impairment of assets - (20) - - - (20)
Equity accounted investments adjustments - (14) - - - (14)
Melrose equity-settled compensation scheme charges - - - - (8) (8)
Acquisition and disposal related (losses)/gains (5) - - - 6 1
Net release and changes in discount rates of fair value items
10 - 2 - - 12
Operating (loss)/profit (93) (50) 20 (6) (188) (317)
Finance costs (41)
Loss before tax (358)
Tax 86
Loss for the period from continuing operations (272)
((1)) For further details on adjusting items, refer to note 4.
((2)) Corporate adjusted operating loss of £22 million includes £3 million
of costs in respect of divisional management long-term incentive plans.
3. Segment information (continued)
b) Segment operating profit (continued)
6 months ended 30 June 2021 - restated((1))
Aerospace Powder Metallurgy Other Industrial Corporate((3)) Total
£m Automotive £m £m £m £m
Continuing operations £m
Adjusted operating profit/(loss) 41 121 64 (4) (26) 196
Items not included in adjusted operating profit((2)):
Amortisation of intangible assets acquired in business combinations
(122) (71) (25) - - (218)
Restructuring costs (26) (52) (3) - (4) (85)
Movement in derivatives and associated financial assets and liabilities
- 1 - - (45) (44)
Equity accounted investments adjustments - (15) - - - (15)
Melrose equity-settled compensation scheme charges - - - - (9) (9)
Acquisition and disposal related gains 2 - 8 - - 10
Net release and changes in discount rates of fair value items
3 4 2 - - 9
Operating (loss)/profit (102) (12) 46 (4) (84) (156)
Finance costs (120)
Finance income 1
Loss before tax (275)
Tax 109
Loss for the period from continuing operations (166)
((1)) Operating profit has been restated for discontinued operations (see note
2) and the re-presentation of Hydrogen Technology.
((2)) For further details on adjusting items, refer to note 4.
((3)) Corporate adjusted operating loss of £26 million includes £10 million
of costs in respect of divisional management long-term incentive plans.
Year ended 31 December 2021 - restated((1)) Aerospace Powder Metallurgy Other Industrial Corporate((3)) Total
£m Automotive £m £m £m £m
Continuing operations £m
Adjusted operating profit/(loss) 112 172 91 (7) (51) 317
Items not included in adjusted operating profit((2)):
Amortisation of intangible assets acquired in business combinations
(245) (142) (49) - - (436)
Restructuring costs (92) (147) (18) - (12) (269)
Movement in derivatives and associated financial assets and liabilities
4 (1) (3) - (114) (114)
Equity accounted investments adjustments - (28) - - - (28)
Melrose equity-settled compensation scheme charges - - - - (19) (19)
Net release and changes in discount rates of fair value items
23 14 11 - 1 49
Acquisition and disposal related costs 2 1 8 - (4) 7
Operating (loss)/profit (196) (131) 40 (7) (199) (493)
Finance costs (169)
Finance income 2
Loss before tax (660)
Tax 180
Loss for the year from continuing operations (480)
((1)) Operating profit has been restated for discontinued operations (see note
2).
((2)) For further details on adjusting items, refer to note 4.
((3)) Corporate adjusted operating loss of £51 million includes £17 million
of costs in respect of divisional management long-term incentive plans.
3. Segment information (continued)
c) Segment total assets and liabilities
( )
Total assets Total liabilities
Restated((1)) Restated((1)) Restated((1)) Restated((1))
30 June 30 June 31 December 30 June 30 June 31 December
2022 2021 2021 2022 2021 2021
£m £m £m £m £m £m
Aerospace 6,866 6,295 6,267 2,487 2,337 2,231
Automotive 4,932 4,902 4,608 2,103 2,128 2,042
Powder Metallurgy 1,813 1,736 1,669 467 425 405
Other Industrial 15 1 14 2 1 -
Corporate 503 1,611 847 2,288 1,992 1,718
Continuing operations 14,129 14,545 13,405 7,347 6,883 6,396
Discontinued operations 641 889 617 97 161 86
Total 14,770 15,434 14,022 7,444 7,044 6,482
( )
((1)) Assets and liabilities have been restated for discontinued operations
(see note 2) and, at 30 June 2021, re-presented for Hydrogen Technology.
( )
d) Segment capital expenditure and depreciation
( )
Capital expenditure((1)) Depreciation of owned assets((1)) Depreciation of leased assets
Restated((2)) 6 months ended Restated((2)) Restated((2)) 6 months ended Restated((2)) Restated((2)) Restated((2))
6 months ended 30 June Year ended 6 months ended 30 June Year ended 6 months ended 6 months ended Year ended
30 June 2021 31 December 30 June 2021 31 December 30 June 30 June 31 December
2022 £m 2021 2022 £m 2021 2022 2021 2021
£m £m £m £m £m £m £m
Aerospace 27 23 66 61 60 122 11 11 24
Automotive 64 46 113 92 97 198 7 8 15
Powder Metallurgy 19 18 40 26 27 51 4 4 9
Other Industrial - - 1 - - - - - -
Corporate - - - - - 1 1 1 1
Continuing operations
110 87 220 179 184 372 23 24 49
Discontinued operations
1 12 14 2 17 20 - 7 8
Total 111 99 234 181 201 392 23 31 57
( )
((1)) Includes computer software and development costs. Capital expenditure
excludes lease additions.
((2)) Capital expenditure and depreciation have been restated for
discontinued operations (see note 2) and, for the period ended 30 June 2021,
re-presented for Hydrogen Technology.
( )
e) Geographical information
The Group operates in various geographical areas around the world. The parent
company's country of domicile is the UK and the Group's revenues and
non-current assets in the rest of Europe and North America are also considered
to be material.
The Group's revenue from external customers and information about specific
segment assets (non-current assets excluding deferred tax assets, non-current
other receivables and non-current derivative financial assets) by geographical
location are detailed below:
Revenue((1)) from external customers Segment assets
6 months ended Restated((2)) Restated((2)) 30 June Restated((2)) Restated((2))
30 June
2022
30 June
2022 6 months ended Year ended
2021 31 December 2021
30 June
£m
£m
2021 31 December 2021 £m £m
£m £m
UK 319 295 570 1,866 2,051 1,977
Rest of Europe 940 1,010 1,824 4,460 4,526 4,374
North America 1,828 1,619 3,275 2,603 2,475 2,404
Other 507 507 981 1,154 1,153 1,145
Continuing operations 3,594 3,431 6,650 10,083 10,205 9,900
Discontinued operations 132 941 1,117 - 532 534
Total 3,726 4,372 7,767 10,083 10,737 10,434
((1)) Revenue is presented by destination.
((2)) Revenue and segment assets have been restated for discontinued
operations (see note 2).
4. Reconciliation of adjusted profit measures
As described in note 2, adjusted profit measures are an alternative
performance measure used by the Board to monitor the performance of the Group.
a) Operating profit
Restated((1))
6 months 6 months Restated((1))
ended ended Year ended
30 June 30 June 31 December
2022 2021 2021
Continuing operations Notes £m £m £m
Operating loss (317) (156) (493)
Amortisation of intangible assets acquired in business combinations
a 223 218 436
Movement in derivatives and associated financial assets and liabilities
b 154 44 114
Restructuring costs c 82 85 269
Impairment of assets d 20 - -
Equity accounted investments adjustments e 14 15 28
Melrose equity-settled compensation scheme charges f 8 9 19
Acquisition and disposal related gains and losses g (1) (10) (7)
Net release and changes in discount rates of fair value items h (12) (9) (49)
Total adjustments to operating loss 488 352 810
Adjusted operating profit 171 196 317
((1)) Results have been restated for discontinued operations (see note 2).
a. The amortisation charge on intangible assets acquired in
business combinations of £223 million (2021: £218 million), is excluded from
adjusted results due to its non-trading nature and to enable comparison with
companies that grow organically. However, where intangible assets are trading
in nature, such as computer software and development costs, the amortisation
is not excluded from adjusted results.
b. Movements in the fair value of derivative financial
instruments (primarily forward foreign currency exchange contracts where hedge
accounting is not applied) entered into to mitigate the potential volatility
of future cash flows, on long-term foreign currency customer and supplier
contracts, including foreign exchange movements on the associated financial
assets and liabilities, are shown as an adjusting item because of their
volatility and size. This totalled a charge of £154 million (2021: £44
million).
c. Costs associated with restructuring projects in the
period totalling £82 million (2021: £85 million) are shown as adjusting
items due to their size and non-trading nature and during the period ended 30
June 2022 these included:
· A charge of £52 million (2021: £26 million) within
the Aerospace division, primarily relating to the continuation of significant
multi-year restructuring projects, necessary for the business to achieve its
full potential. These included further progress on the European footprint
consolidations in both the Civil and Engines businesses which commenced in
2021, and significant restructuring programmes in North America which
commenced in the period across all three Aerospace sub-segments. These
programmes are expected to materially conclude in 2023.
· A charge of £19 million (2021: £52 million) within
the Automotive division, primarily relating to the progression of European and
North American footprint consolidations which commenced in 2021 and are
expected to conclude this year.
· A net charge of £11 million (2021: £7 million) within
the Powder Metallurgy and Corporate divisions.
d. A write down of assets of £20 million (2021: £nil), has
been recognised as a result of exiting any direct trading links with Russian
operations as a consequence of the conflict in Ukraine. The asset write downs
are predominantly within the Automotive division and are shown as an adjusting
item because of their non-trading nature and size.
e. The Group has a number of equity accounted investments
("EAIs") in which it does not hold full control, the largest of which is a 50%
interest in Shanghai GKN HUAYU Driveline Systems ("SDS"), within the
Automotive business. EAIs in the Group generated £284 million (2021: £288
million) of revenue in the period, which is not included in the statutory
results but is shown within adjusted revenue so as not to distort the
operating margins reported in the businesses when the adjusted operating
profit earned from these EAIs is included.
In addition, the profits and losses of EAIs, which are shown after
amortisation of acquired intangible assets, interest and tax in the statutory
results, are adjusted to show the adjusted operating profit consistent with
the adjusted operating profits of the subsidiaries of the Group. The revenue
and profit of EAIs are adjusted because they are considered to be significant
in size and are important in assessing the performance of the business.
4. Reconciliation of adjusted profit measures (continued)
a) Operating profit (continued)
f. The charge for the Melrose equity-settled Incentive
Scheme, including its associated employer's tax charge, of £8 million (2021:
£9 million) is excluded from adjusted results due to its size and volatility.
The shares that would be issued, based on the Scheme's current value at the
end of the reporting period, are included in the calculation of the adjusted
diluted earnings per share, which the Board considers to be a key measure of
performance.
g. Acquisition and disposal related net gains of £1 million
(2021: £10 million) were recorded in the period and related to the disposal
of a manufacturing site, associated costs and other transaction related
amounts. These items are excluded from adjusted results due to their
non-trading nature and volatility.
h. Certain items previously recorded as fair value items on
acquisitions, have been resolved for more favourable amounts than first
anticipated. The net release of fair value items recognised on acquisitions in
the period of £12 million (2021: £9 million) included a credit of £7
million relating to provisions recognised on the acquisition of GKN and a
credit of £5 million relating to the movement in discount rates on the
loss-making contract provisions recognised as fair value items. The net
release of any excess fair value item is shown as an adjusting item to avoid
positively distorting adjusted results.
b) Profit before tax
Restated((1)) Restated((1))
6 months 6 months Year ended
31 December
ended ended
2021
£m
30 June 30 June
2022 2021
Continuing operations Notes £m £m
Loss before tax (358) (275) (660)
Adjustments to operating loss per above 488 352 810
Fair value changes on cross-currency swaps i (3) (2) (3)
Equity accounted investments - interest j 1 - 2
Settlement of interest rate swaps k - 39 45
Total adjustments to loss before tax 486 389 854
Adjusted profit before tax 128 114 194
((1)) Results have been restated for discontinued operations (see note 2).
i. The fair value changes on cross-currency swaps relating to
cost of hedging which are not deferred in equity, are shown as an adjusting
item because of their volatility and non-trading nature.
j. As explained in paragraph e above, the profits and losses of EAIs
are shown after interest and tax in the statutory results.They are adjusted
to show the profit before tax and the profit after tax, consistent with the
subsidiaries of the Group.
k. In the prior year, on disposal of Nortek Air Management and
Brush, the significant proceeds received together with future expectations of
debt requirements enabled the Group to settle certain interest rate swap
instruments that were no longer needed. Specific recycling from the cash flow
hedge reserve, under IFRS 9, of £39 million was accelerated and shown as an
adjusting item due to its non-trading nature.
c) Profit after tax
6 months Restated((1)) Restated((1))
ended 6 months Year ended
31 December
30 June ended
2021
£m
2022 30 June
£m 2021
Continuing operations Notes £m
Loss after tax (272) (166) (480)
Adjustments to loss before tax per above 486 389 854
Tax effect of adjustments to loss before tax 5 (110) (75) (176)
Equity accounted investments - tax j (4) (5) (9)
Tax effect of significant legislative changes 5 - (55) (70)
Tax effect of significant restructuring - - 32
Total adjustments to loss after tax 372 254 631
Adjusted profit after tax 100 88 151
((1)) Results have been restated for discontinued operations (see note 2).
5. Tax
Analysis of the (credit)/charge in the period: 6 months Restated((1)) Restated((1))
ended 6 months Year ended
31 December
30 June ended
2021
2022 30 June
£m
£m 2021
£m
Continuing operations
Current tax 23 28 52
Deferred tax (109) (137) (232)
Total tax credit from continuing operations (86) (109) (180)
Discontinued operations
Current tax 6 64 67
Deferred tax (1) (4) (6)
Total tax charge from discontinued operations 5 60 61
Total tax credit (81) (49) (119)
((1)) Tax has been restated for discontinued operations (see note 2).
Continuing operations:
The effective tax rate in respect of adjusted profit before tax for the period
is 21.9% (2021: 22.8%). Adjusted tax has been calculated by applying the
expected tax rate to the adjusted profit before tax of £128 million (2021:
£114 million), giving an adjusted tax charge of £28 million (2021: £26
million).
The adjusted tax charge of £28 million (2021: £26 million) excludes a tax
credit on adjusting items of £110 million (2021: £75 million). This
represents a deferred tax credit on intangible asset amortisation of £54
million (2021: £41 million) and a tax credit on other adjusting items of £56
million (2021: £34 million). The adjusted tax charge in the prior period also
excluded a tax credit of £55 million in respect of recognition of deferred
tax assets as a result of legislative changes. In addition, the adjusted tax
charge includes a charge in respect of EAIs of £4 million (2021: £5
million).
In addition to the amount credited in the Income Statement, a charge of £66
million (2021: £42 million) has been recognised directly in the Statement of
Comprehensive Income. This represents a tax charge of £72 million (2021: £29
million) in respect of the remeasurement of retirement benefit obligations and
a tax credit of £6 million (2021: charge of £13 million) in respect of
movements on hedge relationships and translation differences.
6. Earnings per share
Earnings attributable to owners of the parent 6 months ended Restated((1)) Restated((1))
30 June 6 months Year ended
31 December
2022 ended
2021
£m 30 June
£m
2021
£m
Earnings for basis of earnings per share (360) 1,166 833
Less: loss/(profit) for the period from discontinued operations (note 9) 85 (1,333) (1,317)
Earnings for basis of earnings per share from continuing operations (275) (167) (484)
((1)) Earnings has been restated for discontinued operations (see note 2).
6 months ended 6 months Year ended
31 December
30 June ended
2021
2022 30 June
2021
Number Number Number
Weighted average number of ordinary shares for the purposes of basic earnings
per share (million)
4,366 4,858 4,695
Further shares for the purposes of diluted earnings per share (million) - 2 -
Weighted average number of ordinary shares for the purposes of diluted
earnings per share (million)
4,366 4,860 4,695
( )
6. Earnings per share (continued)
Earnings per share 6 months Restated((1)) Restated((1))
ended 6 months Year ended
31 December 2021
30 June ended
pence
2022 30 June
pence 2021
pence
Basic earnings per share
From continuing and discontinued operations (8.2) 24.0 17.7
From continuing operations (6.3) (3.4) (10.3)
From discontinued operations (1.9) 27.4 28.0
Diluted earnings per share
From continuing and discontinued operations (8.2) 24.0 17.7
From continuing operations (6.3) (3.4) (10.3)
From discontinued operations (1.9) 27.4 28.0
Restated((1))
6 months 6 months Restated((1))
ended ended Year ended
30 June 30 June 31 December 2021
2022 2021 £m
Adjusted earnings from continuing operations £m £m
Adjusted earnings((2)) for the basis of adjusted earnings per share 97 87 147
Adjusted earnings per share from continuing operations
Restated((1))
6 months 6 months Restated((1))
ended ended Year ended
30 June 30 June 31 December 2021
2022 2021 pence
pence pence
Adjusted basic earnings per share 2.2 1.8 3.1
Adjusted diluted earnings per share 2.2 1.8 3.1
( )
( )
((1)) Earnings has been restated for discontinued operations (see note 2).
((2)) Adjusted earnings for the 6 months ended 30 June 2022 comprises adjusted
profit after tax (see note 4c) of £100 million (2021: £88 million), net of
an allocation of profit to non-controlling interests of £3 million (2021: £1
million). Adjusted earnings for the year ended 31 December 2021 comprises
adjusted profit after tax of £151 million, net of an allocation to
non-controlling interests of £4 million.
( )
7. Dividends
6 months 6 months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021 £m
£m £m
Final dividend for the year ended 31 December 2021 of 1.0p 44 - -
Interim dividend for the year ended 31 December 2021 of 0.75p - - 33
Final dividend for the year ended 31 December 2020 of 0.75p - 36 36
Total dividends paid 44 36 69
An interim dividend of 0.825 pence per ordinary share (2021: 0.75 pence) is
declared by the Board, totalling £33 million.
On 9 June 2022, the Group commenced a £500 million share buyback programme.
At 30 June 2022, £119 million had been paid to purchase 112,595,520 shares.
The £500 million share buyback programme concluded on 1 August 2022 with
318,003,512 shares re-purchased and subsequently cancelled.
8. Share of results of equity accounted investments
Summary information for the Group's equity accounted investments is as
follows:
Continuing operations 6 months 6 months Year ended
ended ended 31 December
30 June 30 June 2021
2022 2021 £m
£m £m
Revenue 284 288 613
Operating costs (260) (260) (547)
Adjusted operating profit 24 28 66
Adjusting items (11) (10) (21)
Net finance income 1 - 2
Profit before tax 14 18 47
Tax (4) (5) (9)
Share of results of equity accounted investments 10 13 38
9. Discontinued operations and assets held for sale
During the period, the Board formally commenced a process, aligned to its
strategic priorities, to dispose of the Ergotron business, previously included
within the Other Industrial segment and on 3 June 2022, the Group entered into
an agreement to dispose of Ergotron to funds managed by The Sterling Group.
Completion took place on 6 July 2022. In accordance with IFRS 5: "Non-current
assets held for sale and discontinued operations", associated assets and
liabilities at 30 June 2022 are classified as held for sale and separately
shown on the Balance Sheet.
The results of Ergotron have been classified within discontinued operations
for all periods presented. In addition, discontinued operations for the period
ended 30 June 2021 and year ended 31 December 2021 include the results of the
Nortek Air Management, Brush and Nortek Control businesses which were disposed
of during 2021.
Furthermore, a corporate property is classified as held for sale at 30 June
2022.
Financial performance of discontinued operations:
6 months Restated((1)) Restated((1))
ended 6 months Year ended
30 June ended 31 December 2021
2022 30 June £m
£m 2021
£m
Revenue 132 941 1,117
Operating costs((2)) (212) (917) (1,070)
Operating (loss)/profit (80) 24 47
Finance costs - (2) (2)
(Loss)/profit before tax (80) 22 45
Tax (5) (60) (61)
Loss after tax (85) (38) (16)
Gain on disposal of net assets of discontinued operations, net of recycled
cumulative translation differences
- 1,371 1,333
(Loss)/profit for the period from discontinued operations (85) 1,333 1,317
((1)) Restated for operations discontinued in the period (see note 2).
((2)) Operating costs in the period ended 30 June 2022 include a remeasurement
loss on goodwill of £86 million, costs of disposal of £6 million and a fair
value loss on foreign exchange forward contracts taken to provide certainty on
the conversion of US Dollar consideration into Sterling of £15 million.
Operating costs in the period ended 30 June 2021 and the year ended 31
December 2021, included an £85 million charge on remeasurement to fair value
less costs to sell related to the Nortek Control business on reclassification
to assets held for sale.
Cash flow information relating to discontinued operations is shown in note 13
9. Discontinued operations and assets held for sale (continued)
Classes of assets and liabilities held for sale at 30 June 2022 were as
follows:
Held for sale
Reclassified Remeasured Held for sale
£m £m £m
Goodwill and other intangible assets 571 (86) 485
Property, plant and equipment((1)) 27 - 27
Inventories 51 - 51
Trade and other receivables 51 - 51
Derivative financial assets 1 - 1
Cash and cash equivalents 26 - 26
Total assets 727 (86) 641
Trade and other payables (63) - (63)
Lease obligations (7) - (7)
Derivative financial liabilities((2)) (1) - (1)
Provisions (5) - (5)
Current and deferred tax (21) - (21)
Total liabilities (97) - (97)
Net assets 630 (86) 544
((1)) Includes £10 million relating to a corporate property classified as
held for sale.
((2)) Excludes a £15 million derivative financial liability held outside of
the disposal group in relation to disposal proceeds.
10. Provisions
Loss-making contracts Property related costs Environmental and litigation Warranty related costs Restructuring Total
£m £m £m £m £m Other £m
£m
At 1 January 2022 167 29 135 222 81 67 701
Utilised (17) - (7) (14) (53) (1) (92)
Charge to operating profit((1)) - - 1 17 74 8 100
Release to operating profit((2)) (3) - (6) (23) - - (32)
Impact of discounting((3)) (4) - - - - - (4)
Transfer to held for sale - - (2) (3) - - (5)
Disposal of businesses (9) (5) - (2) - (2) (18)
Exchange adjustments 9 2 6 10 5 1 33
At 30 June 2022 143 26 127 207 107 73 683
Current 45 5 51 97 74 13 285
Non-current 98 21 76 110 33 60 398
143 26 127 207 107 73 683
( )
((1)) Includes £74 million of adjusting items and £26 million recognised in
adjusted operating profit.
((2)) Includes £7 million of adjusting items and £25 million recognised in
adjusted operating profit.
((3)) Includes a £1 million charge within finance costs relating to the time
value of money and a credit of £5 million relating to changes in discount
rates on loss-making contract provisions recognised as fair value items on the
acquisition of GKN, which has been included as an adjusting item within
operating profit.
Provisions for loss-making contracts are considered to exist where the Group
has a contract under which the unavoidable costs of meeting the obligations
exceed the economic benefits expected to be received under it. This obligation
has been discounted and will be utilised over the period of the respective
contracts, which is up to 15 years.
The provision for property related costs represents dilapidation costs for
ongoing leases and is expected to result in cash expenditure over the next
eight years.
Environmental provisions relate to the estimated remediation costs of
pollution, soil and groundwater contamination at certain sites and at 30 June
2022 amounted to £25 million (2021: £25 million). Litigation provisions
amounting to £102 million (2021: £110 million) relate to estimated future
costs and settlements in relation to legal claims and associated insurance
obligations. Due to their nature, it is not possible to predict precisely when
these provisions will be utilised.
Provisions for the expected cost of warranty obligations under local sale of
goods legislation are recognised at the date of sale of the relevant products
and subsequently updated for changes in estimates as necessary. Warranty terms
are, on average, between one and five years.
10. Provisions (continued)
Restructuring provisions relate to committed costs in respect of restructuring
programmes (as described in note 4), usually resulting in cash spend within
one year.
Other provisions include long-term incentive plans for divisional senior
management and the employer tax on equity-settled incentive schemes which are
expected to result in cash expenditure over the next two to five years.
Where appropriate, provisions have been discounted using discount rates
between 1% and 12% (31 December 2021: 0% and 11%) depending on the territory
in which the provision resides and the length of its expected utilisation.
11. Financial instruments
The table below sets out the Group's accounting classification of each
category of financial assets and liabilities and their fair values as at 30
June 2022, 30 June 2021 and 31 December 2021:
Current Non-current Total
£m £m £m
30 June 2022
Financial assets
Classified as amortised cost:
Cash and cash equivalents 293 - 293
Net trade receivables 971 - 971
Classified as fair value:
Investments - 68 68
Derivative financial assets:
Foreign currency forward contracts 29 22 51
Embedded derivatives 2 10 12
Assets classified as held for sale 641 - 641
Financial liabilities
Classified as amortised cost:
Interest-bearing loans and borrowings (548) (973) (1,521)
Government refundable advances (5) (54) (59)
Lease obligations (56) (311) (367)
Other financial liabilities (2,203) (44) (2,247)
Classified as fair value:
Derivative financial liabilities:
Foreign currency forward contracts (120) (166) (286)
Interest rate swaps (5) - (5)
Cross-currency swaps (98) - (98)
Embedded derivatives - (5) (5)
Liabilities associated with assets held for sale (97) - (97)
30 June 2021
Financial assets
Classified as amortised cost:
Cash and cash equivalents 1,329 - 1,329
Net trade receivables 898 - 898
Classified as fair value:
Investments - 39 39
Derivative financial assets:
Foreign currency forward contracts 26 59 85
Cross-currency swaps 3 - 3
Embedded derivatives 2 9 11
Assets classified as held for sale 282 - 282
Financial liabilities
Classified as amortised cost:
Interest-bearing loans and borrowings (44) (1,538) (1,582)
Government refundable advances (8) (49) (57)
Lease obligations (52) (317) (369)
Other financial liabilities (1,736) (32) (1,768)
Classified as fair value:
Derivative financial liabilities:
Foreign currency forward contracts (35) (38) (73)
Interest rate swaps - (15) (15)
Cross-currency swaps - (67) (67)
Embedded derivatives (1) (4) (5)
Liabilities associated with assets held for sale (72) - (72)
31 December 2021
Financial assets
Classified as amortised cost:
Cash and cash equivalents 473 - 473
Net trade receivables 824 - 824
Classified as fair value:
Investments - 87 87
Derivative financial assets:
Foreign currency forward contracts 21 38 59
Embedded derivatives 2 9 11
Financial liabilities
Classified as amortised cost:
Interest-bearing loans and borrowings (462) (903) (1,365)
Government refundable advances (5) (50) (55)
Lease obligations (57) (319) (376)
Other financial liabilities (1,618) (39) (1,657)
Classified as fair value:
Derivative financial liabilities:
Foreign currency forward contracts (49) (67) (116)
Interest rate swaps - (7) (7)
Cross-currency swaps (69) - (69)
Embedded derivatives (1) (5) (6)
11. Financial instruments (continued)
The fair value of the derivative financial instruments, other than embedded
derivatives, is derived from inputs other than quoted prices that are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices) and they are therefore categorised
within level 2 of the fair value hierarchy set out in IFRS 13: "Fair value
measurement". The embedded derivatives are classified as level 3 fair value
under the IFRS 13 fair value hierarchy. The Group's policy is to recognise
transfers into and out of the different fair value hierarchy levels at the
date of the event or change in circumstances that caused the transfer to
occur. There have been no transfers between levels in the period.
12. Retirement benefit obligations
The Group sponsors defined benefit plans for qualifying employees of certain
subsidiaries. The funded defined benefit plans are administered by separate
funds that are legally separated from the Group. The Trustees of the funds are
required by law to act in the interest of the fund and of all relevant
stakeholders in the plans. The Trustees of the pension funds are responsible
for the investment policy with regard to the assets of the fund.
The most significant defined benefit pension plans in the Group at 30 June
2022 were:
GKN Group Pension Schemes (Numbers 1-4)
The GKN Group Pension Schemes (Numbers 1-4) are funded plans, closed to new
members and were closed to future accrual in 2017. The valuation of the plans
was based on a full actuarial valuation as of 30 June 2019, updated to 30 June
2022 by independent actuaries.
GKN US Consolidated Pension Plan
The GKN US Consolidated Pension Plan is a funded plan, closed to new members
and closed to future accrual. The US Pension Plan valuation was based on a
full actuarial valuation as of 1 January 2021, updated to 30 June 2022 by
independent actuaries.
GKN Germany Pension Plans
The GKN Germany Pension Plans provide benefits dependent on final salary and
service with the Company. The plans are generally unfunded and closed to new
members.
Other plans include a number of funded and unfunded defined benefit
arrangements and retiree medical insurance plans, predominantly in the US and
Europe.
The cost of the Group's defined benefit plans is determined in accordance with
IAS 19 (revised): "Employee benefits" using the advice of independent
professionally qualified actuaries on the basis of formal actuarial valuations
and using the projected unit credit method. In line with normal practice,
these valuations are undertaken triennially in the UK and annually in the US
and Germany.
The amount recognised in the Balance Sheet in respect of defined benefit plans
was as follows:
30 June 2022
UK plans US plans European plans Other plans Total
£m £m £m £m £m
Plan assets 2,146 174 23 29 2,372
Plan liabilities (1,861) (262) (435) (36) (2,594)
Net assets/(liabilities) 285 (88) (412) (7) (222)
Analysed as:
Retirement benefit surplus (non-current assets: other receivables)((1)) 295
Retirement benefit obligations (non-current liabilities) (517)
Net liabilities (222)
( )
((1)) Includes a surplus relating to the GKN Group Pension Schemes (Numbers
1-4) of £292 million and the Japan employee plan of £3 million.
30 June 2021
UK plans US plans European plans Other plans Total
£m £m £m £m £m
Plan assets 2,959 197 24 32 3,212
Plan liabilities (3,006) (303) (557) (39) (3,905)
Net liabilities (47) (106) (533) (7) (693)
12. Retirement benefit obligations (continued)
31 December 2021
UK plans US plans European plans Other plans Total
£m £m £m £m £m
Plan assets 2,754 203 23 30 3,010
Plan liabilities (2,582) (289) (566) (34) (3,471)
Net assets/(liabilities) 172 (86) (543) (4) (461)
Analysed as:
Retirement benefit surplus (non-current assets: other receivables)((1)) 184
Retirement benefit obligations (non-current liabilities) (645)
Net liabilities (461)
((1)) Includes a surplus relating to the GKN Group Pension Plans (Numbers 1-4)
of £179 million and the Japan employee plan of £5 million.
( )
Valuations of material plans have been updated at 30 June 2022 by independent
actuaries to reflect updated assumptions regarding discount rates, inflation
rates and asset values. The major assumptions were as follows:
Rate of increase of pensions in payment
% p.a. Discount rate Price inflation
% % (RPI/CPI)
30 June 2022
GKN UK - Group Pension Schemes (Numbers 1-4) 2.6 3.8 3.1/2.6
GKN US plans n/a 4.5 n/a
GKN Europe plans 2.3 3.2 2.3/2.3
30 June 2021
GKN UK - Group Pension Schemes (Numbers 1-4) 2.5 1.9 2.9/2.4
GKN UK - 2016 Pension Plan 2.0 1.9 2.9/2.4
GKN US plans n/a 2.7 n/a
GKN Europe plans 1.7 1.0 1.7/1.7
31 December 2021
GKN UK - Group Pension Schemes (Numbers 1-4) 2.7 2.0 3.2/2.7
GKN US plans n/a 2.7 n/a
GKN Europe plans 2.1 1.1 2.1/2.1
In addition, the defined benefit plan assets and liabilities have been updated
to reflect the contributions made to the defined benefit plans and the
benefits earned during the period to 30 June 2022.
13. Notes to the Cash Flow Statement
Continuing operations 6 months Restated((1)) Restated((1))
ended 6 months Year ended
30 June ended 31 December
2022
2021
30 June
£m
2021 £m
£m
Reconciliation of operating loss to net cash (used in)/from operating
activities
Operating loss (317) (156) (493)
Adjusting items (note 4) 488 352 810
Adjusted operating profit 171 196 317
Adjustments for:
Depreciation of property, plant and equipment 176 182 370
Amortisation of computer software and development costs 26 26 51
Share of adjusted operating profit of equity accounted investments (24) (28) (66)
Restructuring costs paid and movements in provisions (94) (103) (233)
Defined benefit pension contributions paid (11) (12) (88)
Change in inventories (108) (92) (14)
Change in receivables (254) 11 89
Change in payables 167 89 -
Acquisition costs and associated transaction taxes (2) - (5)
Tax paid (53) (36) (57)
Interest paid on loans and borrowings (36) (67) (128)
Interest paid on lease obligations (6) (7) (14)
Net cash (used in)/from operating activities (48) 159 222
((1)) Restated for discontinued operations (see note 2).
Reconciliation of cash and cash equivalents, net of bank overdrafts 30 June 30 June 31 December
2022
2021
2021
£m £m £m
Cash and cash equivalents per Balance Sheet 293 1,329 473
Bank overdrafts included within current interest-bearing loans and
borrowings
(96) (31) (5)
Cash and cash equivalents classified as held for sale 26 - -
Cash and cash equivalents, net of bank overdrafts per Statement of Cash
Flows
223 1,298 468
6 months Restated((1)) Restated((1))
ended
6 months Year ended
30 June
ended
2022
31 December
30 June
2021
£m
2021
£m
£m
Cash flow from discontinued operations
Net cash from discontinued operations 27 112 133
Defined benefit pension contributions paid - (40) (40)
Tax paid (9) (45) (50)
Interest paid on lease obligations - (2) (2)
Net cash from operating activities from discontinued operations((2)) 18 25 41
Purchase of property, plant and equipment (1) (11) (14)
Proceeds from disposal of property, plant and equipment - - 2
Purchase of computer software and capitalised development costs - (1) (1)
Net cash used in investing activities from discontinued operations (1) (12) (13)
Repayment of principal under lease obligations (1) (6) (8)
Net cash used in financing activities from discontinued operations (1) (6) (8)
((1)) Restated for discontinued operations (see note 2).
((2)) The period ended 30 June 2021 and year ended 31 December 2021 include
tax paid of £32 million following the extraction of Ergotron and Nortek
Control from the Nortek tax group prior to the disposal of Nortek Air
Management and specific defined benefit pension contributions of £39 million
paid on disposal of Nortek Air Management and Brush.
13. Notes to the Cash Flow Statement (continued)
Net debt reconciliation
Net debt consists of interest-bearing loans and borrowings (excluding any
acquisition related fair value adjustments), cross-currency swaps and cash and
cash equivalents. Currency denominated balances within net debt are translated
to Sterling at swapped rates where hedged by cross-currency swaps.
Net debt is an alternative performance measure as it is not defined in IFRS.
The most directly comparable IFRS measure is the aggregate of interest-bearing
loans and borrowings (current and non-current) and cash and cash
equivalents.
A reconciliation from the most directly comparable IFRS measure to net debt is
given below.
30 June 30 June 31 December
2022
2021
2021
£m £m £m
Interest-bearing loans and borrowings - due within one year (548) (44) (462)
Interest-bearing loans and borrowings - due after one year (973) (1,538) (903)
External debt (1,521) (1,582) (1,365)
Less:
Cash and cash equivalents 293 1,329 473
Cash and cash equivalents included within assets classified as held for sale 26 - -
(1,202) (253) (892)
Adjustments:
Impact of cross-currency swaps (98) (64) (69)
Non-cash acquisition fair value adjustments 6 17 11
Net debt (1,294) (300) (950)
The table below shows the key components of the movement in net debt:
Cash flow Other At
At Acquisitions and disposals non-cash movements Effect of foreign exchange 30 June
31 December 2021 2022
£m £m £m £m £m £m
External debt (excluding bank overdrafts)
(1,360) - - - (65) (1,425)
Cross-currency swaps (69) (7) - 3 (25) (98)
Non-cash acquisition fair value adjustments
11 - - (5) - 6
(1,418) (7) - (2) (90) (1,517)
Cash and cash equivalents, net of bank overdrafts
468 (260) (10) - 25 223
Net debt (950) (267) (10) (2) (65) (1,294)
14. Lease obligations
Amounts payable under lease obligations:
Minimum lease payments 30 June 30 June 31 December
2022
2021
2021
£m £m £m
Amounts payable:
Within one year 68 66 64
After one year but within five years 170 158 166
Over five years 198 214 206
Less: future finance charges (69) (69) (60)
Present value of lease obligations 367 369 376
Analysed as:
Amounts due for settlement within one year 56 52 57
Amounts due for settlement after one year 311 317 319
Present value of lease obligations 367 369 376
During the period £7 million of lease obligations were reclassified as held
for sale (see note 9).
It is the Group's policy to lease certain of its property, plant and
equipment. The average lease term is ten years. Interest rates are fixed at
the contract date.
15. Post balance sheet events
On 6 July 2022, the Group completed the disposal of Ergotron for total
proceeds of US $650 million (£519 million using the rates within the foreign
exchange forward contracts hedging the consideration). Prior to disposal, on 1
July 2022, £23 million of cash was extracted from the business. The balance
of £496 million prior to costs of disposal, was received on 6 July 2022.
Ergotron has been presented within discontinued operations and held as an
asset for sale in these Condensed Interim Financial Statements.
Glossary
Alternative Performance Measures ("APMs")
In accordance with the Guidelines on APMs issued by the European Securities
and Markets Authority ("ESMA"), additional information is provided on the APMs
used by the Group below.
In the reporting of financial information, the Group uses certain measures
that are not required under IFRS. These additional measures (commonly referred
to as APMs) provide additional information on the performance of the business
and trends to stakeholders. These measures are consistent with those used
internally, and are considered important to understanding the financial
performance and financial health of the Group. APMs are considered to be an
important measure to monitor how the businesses are performing because this
provides a meaningful comparison of how the business is managed and measured
on a day-to-day basis and achieves consistency and comparability between
reporting periods.
These APMs may not be directly comparable with similarly titled measures
reported by other companies and they are not intended to be a substitute for,
or superior to, IFRS measures. All Income Statement and Cash Flow measures are
provided for continuing operations unless otherwise stated.
APM Closest equivalent Reconciling Definition and purpose
statutory measure items to statutory
measure
Income Statement Measures
Adjusted revenue Revenue Share of revenue of equity accounted investments (note 3) Adjusted revenue includes the Group's share of revenue of equity accounted
investments ("EAIs"). This enables comparability between reporting periods.
Restated((1))
6 months ended 6 months ended Restated((1))
30 June 30 June Year ended
2022 2021 31 December
£m £m 2021
Adjusted revenue £m
Revenue 3,594 3,431 6,650
Share of revenue of equity accounted investments (note 3)
284 288 613
Adjusted revenue 3,878 3,719 7,263
Adjusting items None Adjusting items (note 4) Those items which the Group excludes from its adjusted profit metrics in order
to present a further measure of the Group's performance.
These include items which are significant in size or volatility or by nature
are non-trading or non-recurring, any item released to the Income Statement
that was previously a fair value item booked on an acquisition, and includes
adjusted profit from EAIs.
This provides a meaningful comparison of how the business is managed and
measured on a day-to-day basis and provides consistency and comparability
between reporting periods.
Adjusted operating profit Operating loss((2)) Adjusting items (note 4) The Group uses adjusted profit measures to provide a useful and more
comparable measure of the ongoing performance of the Group. Adjusted measures
are reconciled to statutory measures by removing adjusting items, the nature
of which are disclosed above and further detailed in note 4.
Restated((1))
6 months ended 6 months ended Restated((1))
30 June 30 June Year ended
2022 2021 31 December
£m £m 2021
Adjusted operating profit £m
Operating loss (317) (156) (493)
Adjusting items to operating loss (note 4)
488 352 810
Adjusted operating profit 171 196 317
APM Closest Reconciling Definition and purpose
equivalent items to statutory
statutory measure measure
Adjusted operating margin Operating margin((3)) Share of revenue of equity accounted investments (note 3) and adjusting items Adjusted operating margin represents Adjusted operating profit as a percentage
(note 4) of Adjusted revenue. The Group uses adjusted profit measures to provide a
useful and more comparable measure of the ongoing performance of the Group.
Adjusted profit before tax Loss before tax Adjusting items (note 4) Profit before the impact of adjusting items and tax. As discussed above,
adjusted profit measures are used to provide a useful and more comparable
measure of the ongoing performance of the Group. Adjusted measures are
reconciled to statutory measures by removing adjusting items, the nature of
which are disclosed above and further detailed in note 4.
Restated((1))
6 months ended 6 months ended Restated((1))
30 June 30 June Year ended
2022 2021 31 December
£m £m 2021
Adjusted profit before tax £m
Loss before tax (358) (275) (660)
Adjusting items to loss before tax (note 4)
486 389 854
Adjusted profit before tax 128 114 194
Adjusted profit after tax Loss after tax Adjusting items (note 4) Profit after tax but before the impact of adjusting items. As discussed above,
adjusted profit measures are used to provide a useful and more comparable
measure of the ongoing performance of the Group. Adjusted measures are
reconciled to statutory measures by removing adjusting items, the nature of
which are disclosed above and further detailed in note 4.
Restated((1))
6 months ended 6 months ended Restated((1))
30 June 30 June Year ended
2022 2021 31 December
£m £m 2021
Adjusted profit after tax £m
Loss after tax (272) (166) (480)
Adjusting items to loss after tax (note 4)
372 254 631
Adjusted profit after tax 100 88 151
Constant currency Income Statement, which is reported using actual average foreign exchange Constant currency foreign exchange rates The Group uses GBP based constant currency models to measure performance.
rates These are calculated by applying 2022 6 month average exchange rates to local
currency reported results for the current and prior periods. This gives a GBP
denominated Income Statement which excludes any variances attributable to
foreign exchange rate movements.
APM Closest Reconciling Definition and purpose
equivalent items to statutory
statutory measure measure
Adjusted EBITDA for leverage covenant purposes Operating Adjusting items (note 4), depreciation of property, plant and equipment and Adjusted operating profit for 12 months prior to the reporting date, before
amortisation of computer software and development costs, imputed lease charge, depreciation and impairment of property, plant and equipment and before the
loss((2)) share of non-controlling interests and other adjustments required for leverage amortisation and impairment of computer software and development costs.
covenant purposes((5))
Adjusted EBITDA for leverage covenant purposes is a measure used by external
stakeholders to measure performance.
12 months ended 12 months((4)) ended
30 June 30 June Year ended((4))
2022 2021 31 December
£m £m 2021
Adjusted EBITDA for leverage covenant purposes £m
Adjusted operating profit 292 375 375
Depreciation of property, plant and equipment and amortisation of computer
software and development costs
415 424 425
Imputed lease charge (61) (77) (68)
Non-controlling interests (6) (3) (4)
Other adjustments required for leverage covenant purposes((5))
62 (8) (14)
Adjusted EBITDA for leverage covenant purposes
702 711 714
Adjusted tax rate Effective tax rate Adjusting items, adjusting tax items and the tax impact of adjusting items The income tax charge for the Group excluding adjusting tax items, and the tax
(note 4 and note 5) impact of adjusting items, divided by adjusted profit before tax.
This measure is a useful indicator of the ongoing tax rate for the Group.
Restated((1))
6 months ended 6 months ended Restated((1))
30 June 30 June Year ended
2022 2021 31 December
£m £m 2021
Adjusted tax rate £m
Tax credit per Income Statement 86 109 180
Adjusted for:
Tax impact of adjusting items (110) (75) (176)
Tax impact of EAIs (4) (5) (9)
Tax impact of significant legislative changes
- (55) (70)
Tax impact of significant restructuring
- - 32
Adjusted tax charge (28) (26) (43)
Adjusted profit before tax 128 114 194
Adjusted tax rate 21.9% 22.8% 22.2%
Adjusted tax rate
Effective tax rate
Adjusting items, adjusting tax items and the tax impact of adjusting items
(note 4 and note 5)
The income tax charge for the Group excluding adjusting tax items, and the tax
impact of adjusting items, divided by adjusted profit before tax.
This measure is a useful indicator of the ongoing tax rate for the Group.
Restated((1))
6 months ended 6 months ended Restated((1))
30 June 30 June Year ended
2022 2021 31 December
£m £m 2021
Adjusted tax rate £m
Tax credit per Income Statement 86 109 180
Adjusted for:
Tax impact of adjusting items (110) (75) (176)
Tax impact of EAIs (4) (5) (9)
Tax impact of significant legislative changes
- (55) (70)
Tax impact of significant restructuring
- - 32
Adjusted tax charge (28) (26) (43)
Adjusted profit before tax 128 114 194
Adjusted tax rate 21.9% 22.8% 22.2%
Adjusted basic earnings per share Basic earnings per share Adjusting items (note 4 and note 6) Profit after tax attributable to owners of the parent and before the impact of
adjusting items, divided by the weighted average number of ordinary shares in
issue during the financial period.
Adjusted diluted earnings per share Diluted earnings per share Adjusting items (note 4 and note 6) Profit after tax attributable to owners of the parent and before the impact of
adjusting items, divided by the weighted average number of ordinary shares in
issue during the financial period adjusted for the effects of any potentially
dilutive options.
The Board considers this to be a key measure of performance when all
businesses are held for the complete reporting period.
APM Closest Reconciling Definition and purpose
equivalent items to statutory
statutory measure measure
Interest cover None Not applicable Adjusted EBITDA calculated for covenant purposes (including adjusted EBITDA of
businesses disposed) as a multiple of net interest payable on bank loans and
overdrafts.
This measure is used for bank covenant testing.
12 months ended 12 months((4)) ended
30 June 30 June Year ended((4)) 31 December 2021
2022 2021 £m
£m £m
Interest cover
Adjusted EBITDA for leverage covenant purposes
702 711 714
Adjusted EBITDA from businesses disposed
- 271 127
Adjusted EBITDA for interest
cover 702 982 841
Interest on bank loans and
overdrafts (60) (126) (138)
Finance income 1 3 2
Other interest for covenant purposes((6))
(4) (53) (6)
Net finance charges for covenant purposes
(63) (176) (142)
Interest cover 11.1x 5.6x 5.9x
Balance Sheet Measures
Working capital Inventories, trade and other receivables less trade and other payables Not applicable Working capital comprises inventories, current trade and other receivables,
non-current other receivables (excluding retirement benefit surpluses),
current trade and other payables and non-current other payables.
This measure provides additional information in respect of working capital
management.
Net debt Cash and cash equivalents less interest-bearing loans and borrowings and Reconciliation of net debt (note 13) Net debt comprises cash and cash equivalents, interest-bearing loans and
finance related derivative instruments borrowings and cross-currency swaps but excludes non-cash acquisition fair
value adjustments.
Net debt is one measure that could be used to indicate the strength of the
Group's Balance Sheet position and is a useful measure of the indebtedness of
the Group.
Balance Sheet Measures
Working capital
Inventories, trade and other receivables less trade and other payables
Not applicable
Working capital comprises inventories, current trade and other receivables,
non-current other receivables (excluding retirement benefit surpluses),
current trade and other payables and non-current other payables.
This measure provides additional information in respect of working capital
management.
Net debt
Cash and cash equivalents less interest-bearing loans and borrowings and
finance related derivative instruments
Reconciliation of net debt (note 13)
Net debt comprises cash and cash equivalents, interest-bearing loans and
borrowings and cross-currency swaps but excludes non-cash acquisition fair
value adjustments.
Net debt is one measure that could be used to indicate the strength of the
Group's Balance Sheet position and is a useful measure of the indebtedness of
the Group.
Closest equivalent Reconciling
statutory measure items to statutory
APM measure Definition and purpose
Bank covenant definition of net debt at average rates and leverage Cash and cash equivalents less interest-bearing loans and borrowings and Impact of foreign exchange and adjustments for bank covenant purposes Net debt (as above) is presented in the Balance Sheet translated at period end
finance related derivative instruments exchange rates.
For bank covenant testing purposes net debt is converted using average
exchange rates for the previous 12 months.
Leverage is calculated as the bank covenant definition of net debt divided by
adjusted EBITDA for leverage covenant purposes. This measure is used for bank
covenant testing.
30 June 30 June((4)) 31 December((4))
2022 2021 2021
Net debt £m £m £m
Net debt at closing rates (note 13) 1,294 300 950
Impact of foreign exchange (64) 35 (3)
Bank covenant definition of net debt at average rates
1,230 335 947
Leverage 1.8x 0.5x 1.3x
Cash Flow Measures
Free cash flow Net increase/ Acquisition and disposal related cash flows, dividends paid to owners of the Free cash flow represents cash generated after all trading costs including
parent, transactions in own shares, movements on borrowing facilities and the restructuring, pension contributions, tax and interest payments.
decrease in cash and cash equivalents (net of bank overdrafts) settlement of interest rate swaps
6 months ended 6 months ended
30 June 30 June Year ended
2022 2021 31 December
£m £m 2021
Free cash flow £m
Net (decrease)/increase in cash and cash equivalents (net of bank overdrafts)
(270) 1,133 308
Debt related:
Repayments of borrowings - 1,363 1,555
Drawings on borrowing facilities (7) - -
Settlement of interest rate swaps - 47 47
Equity related:
Dividends paid to owners of the parent 44 36 69
Purchase of own shares 119 - -
Return of capital - - 729
Acquisition and disposal related:
Disposal of businesses, net of cash disposed
8 (2,519) (2,703)
Purchase of investments - - 10
Acquisition costs and associated transaction taxes
2 - 5
Extraction tax paid and special pension contributions
- 71 105
Free cash flow (104) 131 125
Closest equivalent Reconciling
statutory measure items to statutory
APM measure Definition and purpose
Adjusted free cash flow Net increase/ Free cash flow, as defined above, adjusted for restructuring cash flows Adjusted free cash flow represents free cash flow adjusted for restructuring
cash flows.
decrease in cash and cash equivalents (net of bank overdrafts)
6 months ended 6 months ended ( )
30 June 30 June Year ended
2022 2021 31 December
£m £m 2021
Adjusted free cash flow £m
Free cash flow (104) 131 125
Restructuring costs paid((7)) 53 92 198
Adjusted free cash flow (51) 223 323
Capital expenditure (capex) None Not applicable Calculated as the purchase of owned property, plant and equipment and computer
software and expenditure on capitalised development costs during the period,
excluding any assets acquired as part of a business combination.
Net capital expenditure is capital expenditure net of proceeds from disposal
of property, plant and equipment.
Capital expenditure to depreciation ratio None Not applicable Capital expenditure divided by depreciation of owned property, plant and
equipment and amortisation of computer software and development costs.
Dividend per share Dividend per share Not applicable Amounts payable by way of dividends in terms of pence per share.
Capital expenditure (capex)
None
Not applicable
Calculated as the purchase of owned property, plant and equipment and computer
software and expenditure on capitalised development costs during the period,
excluding any assets acquired as part of a business combination.
Net capital expenditure is capital expenditure net of proceeds from disposal
of property, plant and equipment.
Capital expenditure to depreciation ratio
None
Not applicable
Capital expenditure divided by depreciation of owned property, plant and
equipment and amortisation of computer software and development costs.
Dividend per share
Dividend per share
Not applicable
Amounts payable by way of dividends in terms of pence per share.
( )
((1)) Results for the period ended 30 June 2021 and the year ended 31 December
2021 have been restated for discontinued operations (see note 2).
((2)) Operating loss is not defined within IFRS but is a widely accepted
profit measure being loss before finance costs, finance income and tax.
((3)) Operating margin is not defined within IFRS but is a widely accepted
profit measure being derived from operating loss((2)) divided by revenue.
((4)) Period ended 30 June 2021 and year ended 31 December 2021 calculations
remain aligned to the original calculations supporting the Group's bank debt
compliance certificates, and have not been restated for discontinued
operations.
((5)) Included within other adjustments required for leverage covenant
purposes are: dividends received from equity accounted investments; the
removal of adjusted operating profit of equity accounted investments; and the
inclusion of adjusted operating profit, depreciation and an imputed lease
charge in respect of businesses classified as held for sale.
((6)) Other interest for covenant purposes includes bank facility
renegotiation fees and debt issue costs paid and cash paid to settle interest
rate swaps not included in finance costs.
((7)) Includes restructuring costs of £nil (2021: £3 million) relating to
operations discontinued in the period.
1 https://www.gknpm.com/en/solutions/permanent-magnets/
(https://eur02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.gknpm.com%2Fen%2Fsolutions%2Fpermanent-magnets%2F&data=05%7C01%7CAbigail.Adair%40melroseplc.net%7C647e9a4aa9ef492c2c9508da8cb85a28%7C4e0526a9ff5648619c67c5618bc7d5ff%7C0%7C0%7C637977020659714227%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=FBa7RHHZ5PDOoyy2MpGWWDMOMBQm8iXLxOqPDDI3tFM%3D&reserved=0)
2 Recovery to 2019 volumes as adjusted for disposed businesses and announced
closures
3 Recovery to 2019 volumes as adjusted for disposed businesses and announced
closures
4 Assuming lifetime revenue value of new business bookings
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