GKN could be “£10bn powerhouse” under Melrose control

Christopher Miller, chairman, Melrose

The turnaround specialist bidding to acquire Midlands engineering group GKN has used its annual results announcement to reaffirm its belief that the business would be better off under its control.

Christopher Miller, chairman of Melrose Industries, said in the results statement: “We are convinced that GKN would gain significantly from becoming part of an enlarged £10 billion UK industrial powerhouse, benefitting from the proven Melrose operating model.”

Alcester-based Melrose has bid £7.4bn for GKN, although the Redditch-based group has said the bid seriously undervalues the business.

Another reason for Melrose’s interest was underlined within its full year results which showed that while it made a £257.7m underlying pre-tax profit, in terms of its statutory results it incurred a loss of £27.6m, largely due to restructuring costs within one of the company’s in its portfolio.

He added that the board believed that GKN was a company in need of fundamental change to reverse its long-term underperformance.

“We believe GKN will respond to Melrose’s methods and deliver lasting results for all stakeholders,” he said.

It could point to the success of its latest acquisition, US-based Nortek where revenue has grown 2% under its first full year under Melrose’s ownership. In the second half, sales were up 4%, operating margin was 15.2%, while operating profit rose 52% on last year and was up 67% on the last full year prior to Melrose’s acquisition.

However, Melrose said that as 2017 was the first full year of Nortek ownership, significant restructuring costs had been incurred and, following the structural decline of the core gas turbine market for Brush, its balance sheet value has been reduced to £300m.

The two items have been included in the adjustments made between statutory and underlying results.

Melrose said its restructuring plan for Brush, once complete, would position the turbogenerator business well for the future.

The proposed final dividend of 2.8p (2016: 1.9p) per share together with the interim dividend of 1.4p (2016: 0.3p) resulted in a 91% increase in the full year dividend of 4.2p per share (2016: 2.2p).

“We are delighted with the performance Nortek is achieving freed from the previous culture of ‘head office knows best’. Substantial long-term value is being created with significant investment in new technology, new products and operations. Brush is implementing a restructuring plan to reflect its changed market place which will position it well for the future,” added Mr Miller.

It also revealed that it had incurred £1.8m of committed costs associated with the potential acquisition of GKN.