Melrose shares lift as half-year losses narrow

Turnaround specialist Melrose has seen shares jump higher after it unveiled narrowed losses thanks to a doubling of revenues led by its controversial £8 billion takeover of GKN.

The group remained firmly in the red, with pre-tax losses of £128 million for six months to June 30, but this marked an improvement on the £372 million loss seen a year ago.

Shares rose 6% as Melrose chairman Justin Dowley said the results showed the “initial fruits” of its first turnaround stage for GKN – the engineering giant it bought in March last year after a bitter and protracted battle punctuated by Government interventions.

Investors were also cheered by a 10% rise in the interim dividend payout, to 1.7p a share.

Melrose said its interim revenues jumped to £5.7 billion from £2.8 billion a year earlier and, on an underlying basis, pre-tax profits jumped 76% to £429 million.

Aerospace revenues surged to £1.9 billion from £713 million and automotive turnover soared to £2.2 billion from £896 million, while
powder metallurgy revenues rose to £574 million from £254 million.

But GKN’s automotive division was hit by the global car market downturn, which Melrose warned was set to continue throughout the rest of the year.

Chief executive Simon Peckham said “GKN Automotive has been dealing with the global market downturn, which we expect to continue into the second half.

“Prompt steps have been taken to control costs, which has included the recently announced closure of one of its German production facilities.”

It said GKN Powder Metallurgy has also been affected by the car market woes.

The group, which also owns ventilation equipment maker Nortek, cheered the first steps of what it branded the “improve” stage of its GKN turnaround.

Melrose also said it had made a “strong start” to addressing the £600 million of loss-making contracts at GKN, which were identified at the time of its acquisition.

And it has started a working capital review across GKN to unlock £400 million of additional working capital.

Mr Dowley said: “These results show the initial fruits of the ‘improve’ stage of Melrose’s ownership of GKN and, with the overall GKN margin increasing positively, we are excited about what is possible.”