GKN takeover lifts Melrose costs

The group posted a pre-tax loss of £303 million in the six months to June 30, compared with a £48 million profit in the same period last year.

Melrose said the loss "occurred due to booking significant acquisition related charges" linked to GKN.

GKN has a wheels and structures plant at the Hadley Castle Works in Telford as well as other factories dotted around the Midlands, with about 1,000 workers.

Stripping out the exceptional costs, adjusted pre-tax profit was up from £131 million to £240 million.

Revenue jumped from £1 billion to £2.9 billion and chairman Christopher Miller said: "Melrose is delighted with the acquisition of GKN, which has the significant potential for improvement which we identified when we made our offer.

"Plans have been agreed and are now being implemented to realise the full potential of GKN's world-leading, but currently under-developed, businesses. This is an exciting opportunity for Melrose, its shareholders and all other stakeholders."

The group added that it has found no "black holes" in GKN's accounts and it is flourishing free from the shackles of "head office bureaucracy".

Shares were up 4.5 per cent in morning trade as investors welcomed the results.

Melrose also revealed it will invest in a new global technology centre for aerospace near Filton. And the group is exploring a sale of its powder metallurgy unit, which could glean £1.8 billion.

Melrose's takeover of GKN drew intense union and political anger.

Its victory earlier this year brought to a close a bitter battle that had raged for months, with unions and MPs warning over job cuts, asset-stripping and national security concerns throughout the takeover saga.

It has also been announced Mr Miller will hand over to the current senior independent director Justin Dowley, who will become non-executive chairman from January. Mr Miller will continue in a full-time role as executive vice-chairman.

Melrose is also looking to appoint an additional non-executive director and has said that search is ongoing.

Mr Miller said: “Whilst we are still in the early days of our GKN ownership, significant progress has already been made.”

During the takeover, Melrose was critical of many aspects of the way GKN was run and it has already put in place some of its plans for the business.

“We moved quickly upon taking control to decentralise GKN and empower the operational management teams in accordance with the Melrose model,” said Mr Miller. “This is the first step in the important cultural change that, alongside our operational investments, we consider is key to securing the improvements we believe are achievable for the world class GKN businesses.”

Russ Mould, of investment firm AJ Bell, said: “While arguments that part of the country’s engineering heritage had been sold off dominated the response of the media and politicians after Melrose Industries completed the £8.1 billion capture of GKN earlier this year, the key concern for investors was that the company might have bitten off more than it could chew.

“First half results should go at least some way to allaying those fears as Melrose reports significant progress with its turnaround of the business.

“It is still early days though, and the company did not respond to speculation it was looking to sell off parts of GKN amid a wider break-up of the group.”