Melrose in £550m loss after GKN deal
. . . but shares rise as investors cheer signs of recovery
MElrOSE Industries has made a £550m loss following its £8.1bn hostile takeover of British engineering stalwart GKN, largely due to costs related to the deal.
Bosses were upbeat about the progress of the deal, which was doing better than City analysts had expected and the company said it had made an underlying profit of £784m.
Shares in the FTSE 100- listed takeover specialist rose as much as 6pc after management said its performance in 2018 had been ‘transformational’ and beaten the board’s own hopes.
Melrose narrowly won a bitterly fought contest last year to take over GKN, in the biggest hostile bid since Kraft swooped on Cadbury in 2009.
Melrose brought in £8.6bn of revenue in 2018, up from £2.1bn the year before – reflecting the size of the GKN acquisition. It boosted its annual dividend by 10pc, meaning investors will take home 4.6p per share.
Chief executive Simon Peckham made a string of outspoken criticisms of the previous GKN management, highlighting the scope for improvement. He described its previous relationships with its customers as ‘troubled’ and said the company used to have a ‘significant creditor stretch’ – meaning it took a long time to pay its suppliers.
Around 10pc of revenues come from loss- making contracts, according to Melrose.
New initiatives in the last year include a £17m investment into a new Aerospace Global Technology Centre in Filton, Gloucestershire, which will make aircraft wings. The Government is putting £15m into the project.
A spokesman for Melrose said it ploughed £350m worth of invest- ment back into the company last year, £200m of which went to GKN-related businesses.
Melrose’s takeover led to speculation that it could sell GKN’s aerospace business, which raised national security concerns.
The Government green-lit the deal, which was criticised by unions, politicians and the media, after Melrose agreed to tell ministers of any decision to sell a part of GKN that works on defence contracts. But the firm has come under fire for the hefty pay packages handed out to its four top executives who received £42m apiece in 2017.
Melrose fired the starting gun on its break-up of GKN earlier this week, saying it would net £200m from the sale of a GKN division as well as the sale of a minority stake in an aerospace firm.
Melrose said it was selling Walterscheid Powertrain Group, which makes gearboxes and driving shafts for mining and farming vehicles, to US private equity firm One Equity Partners.
GKN’s powder metallurgy business, which makes car and industrial components from powdered metal, is thought to be on the market for £1.6bn.
A spokesman said that because the unit performed well last year, Melrose will not actively seek to sell it. But if the right offer came in, it would consider a sale. Melrose shares rose 2pc, or 3.7p, to 183.75p.