TIDMMRO
RNS Number : 1013R
Melrose Industries PLC
04 March 2021
4 March 2021
MELROSE INDUSTRIES PLC
AUDITED RESULTS
FOR THE YEARED 31 DECEMBER 2020
Melrose Industries PLC today announces its audited results for
the year ended 31 December 2020.
Highlights
Adjusted(1) results Statutory results
2020 2019 2020 2019
Continuing operations GBPm GBPm GBPm GBPm
--------- ---------- ---------- -------
Revenue 9,361 11,592 8,770 10,967
--------- ---------- ---------- -------
Operating profit/(loss) 340 1,102 (338) 318
--------- ---------- ---------- -------
Profit/(loss) after tax 120 699 (523) 55
--------- ---------- ---------- -------
Diluted earnings per share 2.4p 14.3p (10.8)p 0.9p
--------- ---------- ---------- -------
Free cash flow 628 591 n/a n/a
--------- ---------- ---------- -------
Net debt 2,847 3,283 n/a n/a
--------- ---------- ---------- -------
Group
-- Trading was at the top end of management expectations
throughout the second half of 2020. Excluding Aerospace, the other
divisions on average achieved increased second half revenue over
2019 of 2%(2) and 9%(2) in the final quarter
-- Adjusted(1) free cash generation was GBP628 million, 6%
higher than 2019, prior to GBP172 million of restructuring costs.
In achieving this cashflow investment levels in R&D and new
products have been protected and working capital levels
significantly improved, with more to come
-- The strong cash generation resulted in Group net debt(1)
reducing by over GBP400 million (13% of net debt) to GBP2.85
billion at the end of 2020 (31 December 2019: GBP3.3 billion). Year
end leverage(1) was 4.1x EBITDA, but annualising the second half
performance the proforma leverage(1) was approximately 3.2x
EBITDA
-- The Group made an adjusted(1) operating profit of GBP340
million in 2020. The statutory operating loss was GBP338 million;
of the GBP678 million adjusting items, only GBP178 million were
cash items, almost all related to restructuring
-- Savings from restructuring projects underway in GKN are
expected to improve the 2021 trading performance by approximately
GBP125 million, with more to come
-- The accounting deficit on the GKN UK defined benefit pension
schemes has been cut by over 80% from GBP0.7 billion just before
acquisition to GBP0.1 billion
-- A sale process for Nortek Air Management has commenced; the
business is trading very strongly, but there can be no certainty a
disposal will be completed
-- An Investor Day for GKN Automotive and Powder Metallurgy will
be held on 20 May which will focus on the significant improvements
made to the businesses, and their sustainable growth prospects from
exciting new technologies
-- A final dividend is proposed of 0.75 pence per share for 2020
given the excellent cash generation achieved in the year. The Board
recognises the importance of dividends to shareholders and is
pleased Melrose has returned to paying a dividend. A progressive
dividend policy is intended to be reintroduced for future
periods
Divisions
-- No recovery has been seen in the civil aerospace market and
this is not expected to change in 2021. Sales for the division were
down 27%(2) in 2020 compared to last year, which was within the
expected range. Good progress is being made in adapting this
business to the current demand levels, improving working capital
and continuing to develop new technologies by investing heavily in
R&D
-- Sales and margins recovered sharply in the second half of
2020 in Automotive and Powder Metallurgy. The second half
adjusted(1) operating margins of Automotive recovered to 6.5% and
Powder Metallurgy recovered to 8.3%. The final quarter of 2020 saw
sales ahead of Q4 2019 although overall sales for the year were
down
-- Nortek Air Management is trading very strongly with sales for
2020 up 5%(2) year on year. Margins are also growing and reached
17.3% in the second half of the year, doubling since
acquisition
Justin Dowley, Chairman of Melrose Industries PLC, today
said:
"Whilst the COVID-19 crisis has had a major detrimental effect
this year, Melrose has generated record cash flows and continued to
invest to improve our businesses. All of this positions the Group
well for a good recovery and strong performance in the future.
Amidst these difficult conditions, Melrose has also managed to
significantly reduce the GBP1 billion GKN UK pension scheme funding
deficit that we inherited at the time of acquisition."
(1. Described in the glossary to the Preliminary Announcement
and are considered by the Board to be a key measure of
performance)
(2. Growth is calculated at constant currency against 2019
results)
S
Enquiries:
Montfort Communications: +44 (0) 20 3514 0897
Nick Miles +44 (0) 7739 701634 / Charlotte McMullen +44 (0) 7921
881 800
miles@montfort.london / mcmullen@montfort.london
Investor Relations: +44 (0) 7974 974690
ir@melroseplc.net
CHAIRMAN'S STATEMENT
I am pleased to report our 18th set of annual results since
flotation in 2003.
CALAR YEAR 2020
The past year has been one of the most challenging Melrose has
experienced since it was established. We started the year with good
momentum, as a number of the improvements being made to unlock the
full potential of the GKN businesses began to take hold. However,
the impact of the COVID-19 pandemic in March was both immediate and
significant. Within weeks, governments across the globe had imposed
wide ranging restrictions, impacting both supply and demand and
causing a large number of our factories to temporarily close.
Without delay, we took the difficult decision to prioritise cash
generation to put the Group in the best position to emerge strongly
from the crisis. We again thank our shareholders and banking
syndicate for their support as we took the early and decisive
action necessary to adapt to the crisis and reshape the Group for
the new post-COVID landscape.
That decision has been very successful, with adjusted free cash
flow for the Group improving on an already strong 2019 by 6% to
GBP628 million. This contributed to reducing net debt by 13% to
GBP2.85 billion, whilst ensuring that the level of investment in
R&D and new products was protected. This cashflow has enabled
us to undertake the necessary improvement plans for the businesses
sooner than we had thought would be possible earlier in the year
when the pandemic took hold.
All of this has had a noticeable impact on the results we
announce today. We achieved statutory revenue for the Melrose Group
of GBP8,770 million (2019: GBP10,967 million), with an adjusted
operating profit of GBP340 million (2019: GBP1,102 million) based
on a statutory operating loss of GBP338 million (2019: profit of
GBP318 million). While these results show a sharp decline, they are
mostly impacted by events at the height of the crisis in the second
quarter, with the end markets for all businesses except GKN
Aerospace showing good signs of a return in the fourth quarter to
give confidence for the coming year.
I would like to thank all employees for their efforts this year
in the most challenging circumstances.
DIVID
Having taken the decision to withdraw the final 2019 dividend
and not pay an interim 2020 dividend due to the impact of the
global pandemic, the Board is particularly pleased that the
stability and performance of the Group since then has enabled us to
propose a final dividend for 2020 of 0.75 pence per share (2019:
nil). With no 2020 interim dividend having been paid, this
represents the total dividend for the year (2019: 1.7 pence). It
should be noted that all payments received by the Group under the
UK Coronavirus Job Retention Scheme were fully repaid last
year.
The Board recognises the importance of dividends to its
shareholders and, with the worst of the COVID-19 crisis we hope
behind us and the actions taken to reshape the Group, the Board
expects to return to its progressive dividend policy for future
periods. The final dividend will be paid on 19 May 2021 to those
shareholders on the register at 6 April 2021, subject to approval
at the Annual General Meeting ("AGM") on 6 May 2021.
PENSIONS
In spite of the difficulties presented by the COVID-19 crisis,
our excellent track record in improving the funding position of
pension schemes under our stewardship has continued at pace. We are
delivering on our commitment to GKN pension members ahead of
schedule by significantly reducing the accounting deficit in their
UK defined benefit pensions schemes to just over GBP100 million,
which represents a reduction in the accounting deficit of over 80%
compared to pre-acquisition.
BOARD MATTERS
As announced previously, co-founder and Executive Vice Chairman
David Roper agreed to delay his retirement to assist the Company in
navigating the challenges presented by the pandemic. His knowledge
and experience have been very helpful in ensuring the Group ended
the year in a strong position. David's retirement will now take
effect at the end of May. We thank him for his long and successful
service, particularly for the last twelve months, and wish him all
the best. We will miss him.
The Board's decision to delay David's retirement was the reason
we did not achieve our goal of 33% female board members by the end
of last year as we had intended. The middle of the crisis was not
the time to lose someone of David's experience, but this is now
being addressed. As part of the wider Board succession plans, along
with David's departure in May, we are currently at the initial
stages of conducting a search for a further female non-executive
director.
PURPOSE, STRATEGY AND SUSTAINABILITY
Melrose was founded in 2003 to empower businesses to unlock
their full potential for the collective benefit of stakeholders,
whilst providing shareholders with a superior return on their
investment. This has been delivered through Melrose's 'Buy,
Improve, Sell' strategy, which means we buy good quality
manufacturing businesses that are underperforming their potential
and then invest heavily to improve performance and productivity as
they become stronger, better businesses under our stewardship. At
the appropriate time, we identify new owners who will take them to
the next stage of their development and return proceeds to our
shareholders.
From a sustainability perspective, Melrose is committed to
reducing greenhouse gas emissions in the Group to net zero by 2050.
Clearly the nature of our model means the Group will fundamentally
change within that timescale as we sell businesses and buy others.
We provide the focus and investment to improve our businesses'
sustainability and value to the benefit of all stakeholders.
Melrose sees this as a key part of our stewardship: environmental,
social and governance (ESG) priorities have always been central to
our 'Buy, Improve, Sell' strategy. Our factories are focused on
delivering year on year economically justifiable improvements in
waste and emissions and have achieved an 11% reduction in emissions
in 2020.
The importance of ESG in our product development strategy is
clearly evident in initiatives such as:
- GKN Automotive's P4 eDrive powertrains which reduce CO2 emissions by up to 100%;
- Nortek Air Management's StatePoint technology , which enables
savings of up to 30% for energy consumption and up to 90% for water
usage in giant data centre cooling systems around the world;
and
- GKN Aerospace's H2Gear initiative to develop a ground-breaking
UK hydrogen propulsion system to power a zero emissions
aircraft.
We are focused on improving our businesses for the good of
shareholders, the environment and other stakeholders. Technological
development will be at the forefront of creating a better
environment. We were also pleased to play a leading role in the
UK's award-winning Ventilator Challenge Consortium, which produced
more than 13,000 life-saving ventilators.
Disclosures are an increasingly important part of this
improvement strategy. We are committed to informing our
shareholders and wider audiences of the improvements we are making.
Our 2020 Sustainability Report builds on our inaugural report last
year, not only providing information on our performance during
2020, but also greater insight into our materiality mapping,
alignment with United Nations Sustainable Development Goals and our
sustainability roadmap for 2021 as we prepare for reporting on Task
Force on Climate Related Financial Disclosures next year.
We welcome the evolving focus and clarity on ESG matters as yet
another opportunity to demonstrate how we build better, stronger
businesses. The nature of the businesses we buy is that they often
have challenges to decarbonise, but can become sustainable
themselves and help transform the sectors they serve. In doing so
we not only deliver significant financial returns, but also
significant ESG returns to stakeholders. I refer you to the
Sustainability Report for full details.
OUTLOOK 2021
2020 was dominated by the impact of the global pandemic as we
worked closely with our businesses to overcome the unprecedented
challenges that arose. The aerospace sector has been particularly
hard hit and a recovery looks some way off while global travel
restrictions remain. Nonetheless, GKN Aerospace remains a very good
business with a growing Defence division and is taking the
improvement steps to ensure it is well positioned for when the
recovery does emerge.
Encouragingly, the end markets for our other businesses ended
the year with good momentum, providing some optimism for the year
ahead. Doubtless, challenges remain, particularly in the management
of supply chains in 2021. The Group's strong performance throughout
the pandemic has been a validation of the business model. Your
Board continues to see significant value creation opportunities in
the businesses we hold and believes Melrose is well positioned to
seize future opportunities as they present themselves.
Justin Dowley
Chairman
4 March 2021
CHIEF EXECUTIVE'S REVIEW
We entered one of the most challenging years in Melrose's
history with good momentum as our investments in operational
improvements in the GKN businesses since acquisition began to take
hold. Results in the first quarter showed all businesses making
good progress. However, the speed and scale of the onset of the
COVID-19 pandemic in March forced a quick and strong adjustment in
approach for the entire Group.
With major disruptions to supply chains and customer demand, we
took the decision to focus on cash generation as many of our sites
were shut for lengthy periods during the second quarter of the
year. The principal driver for this was highly disciplined working
capital management practices, based on strict inventory control and
backed by forensic weekly cash management calls with each
business.
The high degree of uncertainty and volatility meant that we
focused on ensuring the Group would emerge strongly and swiftly
into the post COVID-19 business and customer environment. We took
all actions necessary, including agreeing temporary covenant relief
from our supportive banking syndicate, withdrawing the dividend,
and implementing across-the-board cost control initiatives.
The impact of these decisions is clear from these results.
Profit did decline significantly, albeit ending ahead of
expectations at the height of the pandemic. The performance on cash
generation has been exceptional. Our businesses have responded to
the challenge laudably, generating GBP628 million in gross cash
across the period. We are extremely grateful for the hard work from
all our employees to produce this performance. Performance in the
second half, if annualised, was consistent with proforma debt
leverage of approximately 3.2x EBITDA. This demonstrates the
performance of our businesses this year and gives a sense of their
capabilities as markets return.
Another key priority throughout the crisis has been the health
and safety of our workforce. Keeping workers safe has always been a
top priority, but never more so than during the global pandemic.
Like the wider community, our businesses experienced COVID-19 cases
at sites across the globe, but there has been an intense focus on
securing all the necessary PPE and implementing changes to
processes and other measures to protect our employees.
Pleasingly, this also translated into an improvement across all
our key health and safety performance indicators, a trend we are
keen to continue into this year. Within this focus on workers'
safety, our businesses sought to minimise disruption to their
production schedules wherever possible. Although there were
undoubted challenges, particularly with forced site closures at the
height of the pandemic, this has been very successful and I thank
our employees for their hard work and dedication in this area
during this particularly difficult time.
The second half of the year saw an easing of some of the more
extreme volatility, as all our end markets except aerospace showed
some signs of recovery, resulting in the Group (excluding GKN
Aerospace) having a 2% year on year sales growth for the second
half of the year and 9% year on year growth for the final quarter
alone, providing some helpful momentum into the new year.
The strong cash generation meant we were able to undertake the
necessary restructuring programmes in the second half of the year
to ensure the businesses were adapted to meet the new reduced
demand levels. Group restructuring programmes are expected to
deliver over GBP125 million full year benefit for 2021. We
acknowledge that such actions are very difficult for those affected
but they are unfortunately necessary in these difficult times.
On acquisition we inherited onerous GKN contracts and we have
encouraged all GKN businesses to take significant steps during the
year to resolve a number of the most material examples. Since our
acquisition, these actions, undertaken with the support of key
customers, have helped to reduce the exposure by over 60%.
We have been mindful throughout the crisis of preserving the
technology leadership of our businesses, despite the financial
challenges. We have continued to invest in cutting edge
technologies across our businesses, with a particular focus towards
sustainable products that assist our key customers. In parallel
with our Group commitment to achieve the target of net zero
greenhouse gas emissions by 2050, our businesses are also key
partners with their customers in the drive to decarbonise some of
the world's most challenging sectors. Your Group is at the
forefront of the drive to reduce carbon emissions in the key
sectors of transport and data communication with world leading
technology.
Some of these developments are well established and are already
generating benefits, like GKN Automotive's eDrive solutions that
have sold over 1.3 million units and save up to 100% of carbon
emissions, GKN Aerospace's additive manufacturing expertise making
aircraft lighter and more efficient and Nortek Air Management's
StatePoint Technology that delivers up to 30% energy and 90% water
savings in cooling systems for the fast growing data centre market.
Others, like GKN Aerospace's H2Gear, Wing of Tomorrow and Powder
Metallurgy's hydrogen fuel storage, are just starting to deliver on
their promise. Our investments are critical to these long-term
developments and we will continue to invest at pace to ensure our
businesses hold their place at the forefront of technology
leadership.
For the businesses themselves, GKN Aerospace has endured a very
difficult year reflecting the wider sector experience, with sales
for the division down 27% and the business doing well to stay
profitable on an adjusted basis this year. It is nonetheless
continuing to invest in technology, with the Global Technology
Centre in Filton, UK, due to become fully operational later this
year. GKN Aerospace has not seen recovery in its civil markets yet,
although we believe it will start to do so towards the end of the
year. In the meanwhile there has been a focus on cost reduction
which should position the business for an improvement in
performance this year.
Both GKN Automotive and GKN Powder Metallurgy entered the year
with the lingering effects of the global automotive sector
downturn, which was materially compounded by the pandemic in the
second quarter. However, as restrictions eased in the second half
of the year, a combination of low global stock levels and pent up
demand contributed to a strong recovery. Although this is not
expected to continue at quite the same intensity, it does provide
momentum for this year. Pleasingly, the second half market return
has been matched by a strong improvement in adjusted operating
margins by both businesses, delivering 6.5% and 8.3% respectively
for the half year, with further gains to come. We will provide
further insight for both GKN Automotive and Powder Metallurgy at
the Investor Day now scheduled for May, with full details to be
confirmed in due course.
Nortek Air Management has enjoyed a record year with 5% sales
growth and adjusted operating margins for the second half over 17%.
HVAC enjoyed a very strong year in which it began delivering on the
exciting promise of its world leading StatePoint Technology(R).
With the first customer installation completed and accelerating
production planning for the second, StatePoint has a fast growing
sales pipeline. Similarly, our substantial investments over recent
years in new product development for AQH resulted in market share
gains across a number of platforms and a strong performance for the
year. We have recently commenced a formal sale process for the
division. While the outcome remains uncertain, we are hopeful that
the outstanding performance of the businesses will translate into a
good result for both them and our shareholders.
In the Other Industrial division, we continued to streamline the
Group with the sale of non-core businesses, GKN Wheels &
Structures being the latest. The remaining businesses felt the
effect of the pandemic, with action being taken to reshape them for
the new demand profile. For Brush, travel restrictions have
presented difficulties for their Services business, but Generators
and Transformers enjoyed a strong year and have a solid order book
for 2021. Ergotron had a mixed year, with Healthcare initially
benefiting from the increase in medical spending, but Office
understandably suffering due to widespread business closures.
Nortek Control continued its important product development, which
is expected to deliver benefits in the coming year.
Further details for each business are included in the divisional
summaries below.
AEROSPACE DIVISION
GKN Aerospace is a global tier 1 aerospace business with
market-leading positions driven by technological innovation,
advanced processes and engineering excellence that help aircrafts
fly safely, faster, further, and more sustainably. Following a
reorganisation in 2019, GKN Aerospace is structured according to
its three core customer markets - Civil Airframe, Defence and
Engines. It operates in 14 countries. GKN Aerospace's technology is
used throughout the aerospace industry: from high-use single aisle
aircraft and the world's longest haul passenger planes, through to
business jets, helicopters, the world's most advanced fighter jets
and space launchers.
Improvements in 2019 meant that the business made a strong start
to the year, with performance comfortably in line with expectations
until mid-March. However, the impact of COVID-19, and in particular
the widespread introduction of global travel restrictions, had a
swift and material impact on the business. Along with the rest of
the aerospace sector, GKN Aerospace experienced a rapid decline in
sales which included a reduction of approximately 50% across its
Civil Airframe and Civil Engines markets in the second quarter that
persisted for the rest of the year. Although partially offset by
the refocus towards the Defence business, which experienced 8%
sales growth across the year, 2020 was undoubtedly an extremely
challenging year for GKN Aerospace overall, in line with the rest
of the aerospace industry.
In order to mitigate the impact of such a significant market
decline the business quickly implemented strict cash management
measures and with a focus on control over inventory achieved a cash
conversion before capital expenditure of 328%. As soon as it became
apparent that the COVID-19 impact was not going to be temporary,
GKN Aerospace undertook appropriate production rescheduling to
rebalance the business with its new commercial and operating
environments. Unfortunately, this has meant a reduction in the
workforce during 2020. Together, these initiatives have been
critical to the business achieving a relatively small adjusted
profit for the year and will be of considerable benefit during
2021, even without any recovery in the aerospace market. In
parallel the business continued to implement its 'One Aerospace'
global model, which was introduced during 2020 to further integrate
and streamline business operations to create a much leaner
operating model.
The onset of the COVID-19 pandemic brought into sharp focus the
health, safety and protection of the GKN Aerospace workforce and
the communities in which it operates. In close cooperation with
public authorities, the business rapidly took decisive action to
ensure that employees could continue to operate safely throughout
the pandemic. Business planning was refocused on mapping the
expected future impact of COVID-19 across the organisation, its
customers and supply chains. The business also made a material
contribution to its local communities, manufacturing PPE within a
number of its facilities and performing a leading role in the UK's
award-winning Ventilator Challenge Consortium, which produced more
than 13,000 life-saving ventilators.
Despite uncertain commercial markets, GKN Aerospace's continued
progress and investment in technology led to several landmark
achievements in 2020. Critically, it strengthened its position as a
key partner to both existing major blue-chip OEMs and small-scale
start-up customers to create the next generation of sustainable
aircraft. In combination, GKN Aerospace is at the forefront of
technology in wings, additive manufacturing and power generation
and will continue to play a leading part in the drive to reduce
emissions from airflight.
Civil Airframe continued its development of the Wing of Tomorrow
with the National Composites Centre and initiated a new
collaboration with Eviation to design and manufacture the wings,
aircraft tail and electrical wiring systems for Alice, a
ground-breaking regional electric aircraft. In Engines, GKN
Aerospace's world-leading additive manufacturing capability has led
to the introduction of lighter and more efficient fan case mount
rings, leading to a reduction of 20% in emissions and additionally
has accelerated the inaugural flight testing of light-weight,
recycled thermoplastic components with Bell on the V-280 Valor
helicopter. It has commenced development of H2Gear, an exciting new
hydrogen propulsion system for a zero emissions aircraft. In 2021,
GKN Aerospace will also commence full operations at its flagship
GBP32 million Global Technology Centre in Filton, UK, to work in
partnership with the business's existing Global Technology Centres
in the USA, Sweden and The Netherlands.
Throughout the year, GKN Aerospace further cemented its
strategic position in the important Asia market that is benefiting
from a relatively faster recovery after the initial wave of the
COVID-19 pandemic. In addition to the establishment of two wholly
owned production sites, one for windows in China and the other for
engine components in Malaysia, GKN Aerospace also entered into a
new strategic joint venture with a COMAC subsidiary to manufacture
advanced aerostructures in Jingjiang, Jiansu Province, China. The
state-of-the-art 80,000m(2) facility in Jingjiang will be GKN
Aerospace's first aerostructures JV in China, and offers the
opportunity to become an important part of local supply of advanced
aerostructures in the region.
Outlook
After a particularly challenging 2020, GKN Aerospace does not
expect meaningful recovery in its civil markets in 2021. The
restructuring work in 2020 provides a good base for further
adjustment this year to adapt GKN Aerospace to the current
realities of the aerospace sector. Continued progress in the
implementation of its 'One Aerospace' lean operating model will
enable the business to further strengthen its customer
relationships and reduce costs and it remains well positioned to
maintain a leading role in the sustainable recovery of civil
aviation. Whilst the timing of recovery for the civil aviation
markets remains uncertain, the business has benefited from
increased Defence sales. As the market returns, the reshaped GKN
Aerospace has the technology leadership to deliver profitable and
sustainable growth in the years ahead.
AUTOMOTIVE DIVISION
GKN Automotive is a global leader in drive systems for all
segments of the automotive industry, from the smallest
ultra-low-cost cars to the most sophisticated premium vehicles
demanding the most complex driving dynamics. 90% of the world's
automotive manufacturers choose GKN Automotive and almost 50% of
cars sold worldwide use GKN Automotive technologies. GKN Automotive
has operations in 20 countries and is primarily organised around
two major business divisions: (i) Driveline, the global leader in
driveline technologies with an extensive portfolio of products
covering sideshafts, propshafts and constant velocity joints for
every type of propulsion system whether that be hybrid, electric or
internal combustion; and (ii) ePowertrain, a global leader and
pioneer with over 18 years' experience in electric drive
technologies ("eDrive") and intelligent all-wheel drive ("AWD")
systems.
In 2020, as a result of COVID-19, the global automotive industry
experienced a 17% decline in light vehicle production compared to
2019. All GKN Automotive operational facilities globally were
forced to close for varying durations throughout the year.
In line with the market, GKN Automotive sales declined 19% year
on year. With the exception of China, this sales decline was
consistent across all regions. The market rebound in China in the
second half of the year resulted in an annual drop in sales of only
4% compared to 2019. Fourth quarter sales for GKN Automotive
overall were 8% higher year on year, reflecting an encouraging
return in demand levels towards the end of 2020.
The reaction of the organisation to the pandemic was
commendable. The business remained responsive and agile throughout
the crisis whilst GKN Automotive employees demonstrated care and
respect for their colleagues and their local communities.
Despite the revenue challenges resulting from COVID-19, GKN
Automotive's operating performance was robust. Disciplined
execution of cost reduction initiatives and a rigorous focus on key
operational levers, resulted in an adjusted operating profit margin
of 6.5% for the second half of the year. The 'Full Potential'
transformation programme significantly contributed to this
performance and delivered over GBP70 million of cost savings in
2020 through procurement, fixed cost reduction, commercial
discipline and operating excellence. A continued focus on working
capital and rigorous cash management throughout 2020 also resulted
in strong cash generation for the business, with a conversion rate
before capital expenditure of 153% for the full year.
In 2020 the Driveline division increased its focus on new-energy
vehicles and significantly expanded its product range to further
strengthen its industry-leading position. It executed 36 new
programme launches and implemented operational efficiency
initiatives whilst managing the operational challenges of COVID-19.
In parallel, the team secured over GBP4 billion of lifetime revenue
in new contracts. Its expertise in high performance shafts is in
high demand in electric vehicle production, meaning it is well
placed to benefit from the growth in electric vehicles. Driveline
components are already enjoying an equivalent market share in
hybrid and electric vehicles as they do in their existing markets
based on its differentiated market leading technology in this
exciting, growing sector.
At the start of the year, GKN Automotive announced a strategic
collaboration with Delta Electronics Inc, a global power
electronics specialist. This partnership will enhance ePowertrain's
existing capabilities and accelerate the time to market for
innovative, cost competitive eDrive systems. Eight eDrive systems
were launched for four global OEMs, over ten brands and 13
different PHEV and BEV models in the year. The business also
completed its first phase of in-house eMotor industrialisation.
China continues to be a key strategic market for GKN Automotive,
through its 50% interest in the long-standing joint venture,
Shanghai GKN HUAYU Driveline Systems ("SDS") with local partner
HASCO. One of the first parts of the business to feel the effects
of the pandemic, it also benefited from the strong, early recovery
of the Chinese market, limiting SDS sales reduction for the year to
4% whilst still implementing operational improvement measures.
Outlook
2021 is set to be a year of recovery for the industry and one of
continued transformation for GKN Automotive, as margin improvement
initiatives will provide real substance to the recovery seen in the
second half of 2020. The Driveline business will continue to
reinforce its industry leading position, focusing on margin
expansion and top-line growth through the delivery of operational
excellence and industrial initiatives. ePowertrain will accelerate
the growth of eDrive through continued expansion of in-house
software, mechatronics, and system integration capabilities, and
capitalising on the strategic partnership with Delta Electronics.
Whilst the speed of recovery is unclear and may increase the risk
of supply chain issues, we are confident that GKN Automotive will
continue to improve its business.
POWDER METALLURGY DIVISION
GKN Powder Metallurgy is a global leader in both precision
powder metal parts for the automotive and industrial sectors, and
the production of metal powder, through its prized vertically
integrated business platform. In 2020 GKN Powder Metallurgy
streamlined its organisation into three divisions: (i) Sinter
Metals - the world's leading manufacturer of precision automotive
components and components for industrial and consumer applications
spread across its Precision and Structural segments; (ii) Hoeganaes
- the world's second largest manufacturer of metal powder, the
essential raw material for powder metallurgy, with manufacturing
facilities in North America, Europe, and China; and (iii) Additive
- a leading digital manufacturer of additive manufacturing parts,
both metals and polymer, and materials for prototypes, manufactured
through a global, digitally connected print-network.
After a strong performance during the first quarter of 2020, the
COVID-19 pandemic caused significant disruption throughout the rest
of the year. By the middle of March 2020, production across the GKN
Powder Metallurgy business was forced to cease in almost all
countries. This presented a number of unprecedented challenges
throughout the business and its key end-markets. GKN Powder
Metallurgy met those setbacks with the rapid implementation of
sharp, rigorous discipline with respect to finances and
operations.
A renewed focus on tight resource management was immediately
implemented, characterised within the business's operations by
flexible work patterns and restructuring programmes to match the
new demand levels. Such operational initiatives sat alongside a
strong focus on preserving cash, resulting in a conversion rate
before capital expenditure of 156% for the year, including ensuring
strong and well-controlled working capital management, and reducing
capital expenditure.
The positive impact of the business's strict financial and
operational control during 2020 was reflected in reductions in
productive inventory days by 25%, and approximately a 33% reduction
in overdue receivables. This focus strengthened the business's
foundations and enabled GKN Powder Metallurgy to continue to
provide customers with the strong support free from disruption they
required during uncertain times.
With the second quarter of 2020 characterised by these initial
responses to the pandemic, the third quarter transitioned towards a
quick recovery, with the final quarter of the year seeing a 7%
revenue increase compared to the final quarter of 2019, requiring
management to cope with some capacity constraint issues. New
business wins during the year reached GBP150 million on an
annualised basis, particularly targeted to better margin sinter
metals production.
Full year adjusted operating profit margin of 4.3% is a
combination of close to break even in the first half and a strong
recovery in the second, with the fourth quarter margins above
8%.
Despite the trading challenges GKN Powder Metallurgy continued
to invest in its cutting edge technology, integrating its Forecast
3D acquisition into its Additive segment and broadening the range
of products to include non-metal. 2020 also saw the first prototype
production of its exciting new sustainable metal hybrid hydrogen
storage system. Initial market interest looks very promising and
this will become a key focus and potential source of growth in the
mid term future.
Outlook
The delivery of operational improvement opportunities started in
2020 and strategic rationalisations will remain the key drivers for
GKN Powder Metallurgy in achieving its margin targets in due
course. Further investment in all business units including Additive
Manufacturing, and the business's new sustainable hydrogen systems,
supported by digitised manufacturing upgrades will help GKN Powder
Metallurgy continue its expected strong trajectory as its core
markets move towards recovery. The business is optimistic that the
actions initiated in 2020 will support its performance for the year
ahead.
NORTEK AIR MANAGEMENT DIVISION
The Nortek Air Management division comprises (i) Nortek Global
HVAC ("HVAC") and (ii) Air Quality and Home Solutions ("AQH"), both
of which delivered a very strong performance in 2020.
NORTEK GLOBAL HVAC
The Nortek Global HVAC ("HVAC") business includes the custom and
commercial business of Nortek Air Solutions, the residential and
light commercial business of HVAC and the dedicated data centre
business of StatePoint Liquid Cooling. It employs a strategic
framework of sustained profitable growth, operational excellence,
technological innovation, and a commitment to its customers.
The COVID-19 pandemic caused some uncertainty within HVAC's
end-markets during the first half of 2020, but its markets quickly
recovered after that. By focusing on its core values, coupled with
an unwavering dedication to the safety of its people, the business
successfully overcame the unprecedented global challenges posed by
the pandemic. It executed a series of operational excellence
initiatives to support its continued pursuit of increased
productivity and margin expansion through further quality
improvements, increased plant utilisation, innovative process
optimisation and increased productivity. There is much more to
come.
The immediate result was good revenue growth for the year of 4%,
with strong growth in the second half of 17%, 126% cash conversion
before capital expenditure and expanded adjusted operating margins
to 15.5%. Critical initiatives implemented in 2020 laid strong and
supportive foundations for achieving the business's core strategy
to further expand margins and achieve profitable growth over the
longer term, whilst simultaneously improving its products'
sustainability performance for the benefit of its customers.
HVAC has successfully completed delivery of its first Statepoint
customer installation, in Europe, a major milestone for the
business, and accelerated the production of the second, in
Singapore. The ability to achieve up to 30% power and 90% water
consumption savings clearly demonstrates StatePoint's superior
performance and geographic flexibility in the design and
construction of world-class hyperscale data centres across the
world. HVAC also developed its next iteration of StatePoint
Technology(R) in the form of the HyperScale Data Centre, and
further developed its technology roadmap for future StatePoint
Technology(R) products. HVAC's longstanding commitment to
technological innovation and continuous improvement has maintained
its technological agility in addressing the key sustainability
challenges faced by the data centre sector, which are driven by
global megatrends such as reducing energy usage intensity,
improving water efficiency, and the expansion of broader air
management standards.
Building on its market leading position in data centres, during
2020 HVAC continued to harness the advantages of its technology
leadership to target further mission critical and highly complex
adjacent product lines, including unit heaters and furnaces, light
commercial dedicated outdoor air systems, and manufactured housing
solutions. The residential business faced market challenges, but
HVAC continued to advance further operational efficiency
initiatives to overcome their impact.
Outlook
Although the COVID-19 pandemic resulted in a slightly
unpredictable market during the first half of 2020, the strong
recovery during the second half of 2020 is carrying into 2021. HVAC
sees the significant regulatory changes currently impacting its
sector as a further opportunity to differentiate itself from its
peers to its advantage. Added to this, the continuing market
recovery is expected to be underpinned by a fast growing global
data centre demand, a robust replacement cycle in residential, a
recovery in commercial construction driven by the institutional
markets, and new opportunities in the retrofit segment. The
business is excited about its prospects for the coming year and
beyond.
AIR QUALITY AND HOME SOLUTIONS
AQH is a leading manufacturer of ventilation products for the
professional building remodelling and replacement market, the
residential new construction market, and the consumer DIY market.
It supplies to distributors and dealers of electrical and lighting
products, kitchen and bathroom dealers, retail home centres and
private label customers from its four manufacturing locations
around the world. AQH enjoys a leading market share and installed
base in US residential ventilation fans and range hoods.
A strong second half recovery after the COVID-19 downturn in the
second quarter, resulted in a 6% annual sales growth over the prior
year. The recovery was bolstered by the strong bounce back in the
housing market, the surge in remodelling activity and the new
product launches. The result was increased sales in every region
and business unit over last year. Specific category growth of 25%
in fresh air systems in North America helped to drive growth in
2020 and momentum for the coming year.
The significant investment in new product development over
recent years is now yielding results and creating momentum moving
into 2021. The business continued to invest in its product
portfolio across multiple categories, with an overarching purpose
to address demand for 'whole house' ventilation solutions. Timely
new ventilation products are now launching in multiple segments of
fresh air, cooking, bath and whole house.
COVID-19 accelerated the business's efforts to build on the
momentum of new products centred around fans that eliminate
bacteria. Lockdown measures drove significant further growth from
digital sales channels including Amazon, which will provide a
further focus for sales development into 2021. Digital sales were
again 30% more than prior year, becoming a real strength for the
business. The Zephyr business continues to bring innovation and
market disrupting products to the appliance channel with unique
kitchen designs and features.
As part of its continuous improvement programme, AQH continued
to drive production efficiencies and cost savings, and generated
further margin opportunities through product transfers,
manufacturing optimisation, sourcing initiatives and supplier
proximity improvements. The business maintained its strong focus
on, and investment in, optimising its manufacturing footprint, and
increasing capacity.
Outlook
Continued momentum is expected in the North American market due
to forecast strong first half housing demand. In addition, growth
will continue to be driven by a continuous pipeline of new product
development, scheduled product extensions, and capitalising on the
desire to ventilate for fresh air. Operationally, additional
optimisations in supply chain, logistics and products are planned
for 2021 which will continue to have sales and margin benefits. The
business is very optimistic about 2021.
OTHER INDUSTRIAL DIVISION
The Other Industrial Division comprises (i) Brush, (ii) Nortek
Control, and (iii) Ergotron. GKN Wheels & Structures was sold
during the year and was classified as a discontinued operation.
BRUSH
Brush is a leading independent provider of Turbogenerators,
Transformers and Switchgear, and a provider of Services across
these core product segments. Trading conditions initially proved
challenging in 2020 primarily due to COVID-19 but enjoyed some
recovery in the second half. The now reshaped business successfully
mitigated the impact of the pandemic, by taking proactive measures
to control costs, supplemented by tight working capital and cash
management initiatives which resulted in cash conversion before
capital expenditure of 121%. Turbogenerators, Transformers and DC
Switchgear all performed well and worked to offset the decline in
Field Services across all product segments due to COVID-19 travel
restrictions and related deferrals to maintenance activities.
The business continued to invest in product development across
all of its segments, including broadening its product range in
Switchgear and Transformers and enhancing its Turbogenerators'
product portfolio. Such investment further enabled Brush to benefit
from macro trends by delivering products that promote sustainable
energy infrastructure and transmission, green efficiencies, and
less consumption.
Outlook
Brush is now a profitable, cash generative business. Having
demonstrated that it is more agile than ever before, it has secured
a positive order backlog stretching well into 2021 and beyond, and
firm foundations for improvement based upon a more diversified
customer portfolio across a broad range of traditional and emerging
end-markets. After implementing a strategic growth plan for 2021,
the business is increasingly confident of a good performance in the
coming years.
NORTEK CONTROL (formerly Security & Smart Technology)
Nortek Control is a leading developer and manufacturer of
security, home automation, access control, health and artificial
intelligence technologies for the residential and commercial
markets, principally in North America. Nortek Control continues to
bolster its expertise in the design and manufacture of
analytics-embedded wireless connectivity devices, to leverage its
strong brand presence in professional security, integrator and
custom installer channels.
After a reasonable start to 2020, the impact of COVID-19 was
significant as restrictions to access for professional installers
onsite, traditionally a key driver for sales growth, was curtailed.
This was somewhat offset by growth in the home automation market
and perimeter access markets, as well as increased awareness of
customers' home security requirements in the second half of the
year.
With a new management team in place focused on innovation and
technology leadership, Nortek Control has a strong pipeline of
exciting new product introductions planned for 2021. The transition
of production out of China, in response to increasing tariffs, was
also completed in 2020, with the majority of products now being
produced in Mexico and Malaysia.
Outlook
Whilst the impact of COVID-19 will extend into 2021 in
restricting important installer access, the launch of its
highly-anticipated new residential security panel EDGE and other
new products provide some level of optimism. This and the
transition of manufacturing to countries less impacted by tariffs,
mean the business is positioned to achieve an improved performance
in 2021.
ERGOTRON
Ergotron is a leading designer, manufacturer and distributor of
ergonomic products for use in a variety of working, learning and
healthcare environments. Based near Minneapolis, US, Ergotron
comprises four business segments: Healthcare, Office, Education and
Industrial.
International growth in Asia and in the global Healthcare sector
in 2020 partially offset the headwinds of the COVID-19 pandemic,
resulting in a decline in revenue of 11% for the year. The growth
in Asia was primarily driven by the Education and Office segments
of the Japanese market.
In Healthcare, demand growth primarily centred around increased
requirements for medical carts as health systems prepared for and
battled with COVID-19. Changes in working patterns triggered by the
pandemic caused significant market disruption for the Office
segment in the US and a reshaping of its product development plans
to realign to future demand. Several strategic operational and cost
optimisations implemented during 2020 helped grow adjusted
operating margins to 23.9% and are expected to deliver further
benefits in the coming year.
Outlook
Ergotron expects growth in 2021, led by a limited recovery in
the Office and ongoing growth in the Healthcare segment. Ergotron's
expected refocus on to the Industrial sector will provide another
area of longer term growth. Strong cost control and new product
launches should also support an improved 2021.
Simon Peckham
Chief Executive
4 March 2021
FINANCE DIRECTOR'S REVIEW
The Group's trading conditions and results in the year ended 31
December 2020 were significantly disrupted by the worldwide impact
of COVID-19. Despite the second half showing signs of improvement,
the Group's results for the year are substantially lower than last
year.
MELROSE GROUP RESULTS - CONTINUING OPERATIONS
Statutory results:
The statutory IFRS results are shown on the face of the Income
Statement and show revenue of GBP8,770 million (2019: GBP10,967
million), an operating loss of GBP338 million (2019: profit of
GBP318 million) and a loss before tax of GBP535 million (2019:
profit of GBP106 million). The diluted earnings per share ("EPS"),
calculated using the weighted average number of shares in issue
during the year of 4,858 million (2019: 4,858 million), were a loss
of 10.8 pence (2019: profit of 0.9 pence).
Adjusted results:
The adjusted results are also shown on the face of the Income
Statement. They are adjusted to include the revenue and operating
profit from 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 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 year ended 31 December 2020 show
revenue of GBP9,361 million (2019: GBP11,592 million), an operating
profit of GBP340 million (2019: GBP1,102 million) and a profit
before tax of GBP153 million (2019: GBP889 million). Adjusted
diluted EPS were 2.4 pence (2019: 14.3 pence).
Tables summarising the statutory results and adjusted results by
reportable segment are shown later in this review.
RECONCILIATION OF STATUTORY RESULTS TO ADJUSTED RESULTS
The following tables reconcile the Group statutory revenue and
operating (loss)/profit to adjusted revenue and adjusted operating
profit:
2020 2019
Continuing operations: GBPm GBPm
---------------------------------------------------- ------ ------
Statutory revenue 8,770 10,967
Adjusting item:
Revenue from equity accounted investments ("EAIs") 591 625
---------------------------------------------------- ------ ------
Adjusted revenue 9,361 11,592
---------------------------------------------------- ------ ------
Adjusting revenue item:
The Group has some investments in which it does not hold full
control ("EAIs"), the largest of which is a 50% interest in
Shanghai GKN HUAYU Driveline Systems ("SDS"), within the Automotive
business. During the year ended 31 December 2020, EAIs in the Group
generated GBP591 million of revenue (2019: GBP625 million), 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 from
these EAIs is included.
2020 2019
Continuing operations: GBPm GBPm
-------------------------------------------------- ------ -----
Statutory operating (loss)/profit (338) 318
Adjusting items:
Amortisation of intangible assets acquired in
business combinations 526 534
Restructuring costs 220 238
Write down of assets 184 179
Currency movements in derivatives and movements
in associated financial assets and liabilities (182) (55)
Net release of fair value items (118) (153)
Other 48 41
-------------------------------------------------- ------ -----
Adjustments to statutory operating (loss)/profit 678 784
-------------------------------------------------- ------ -----
Adjusted operating profit 340 1,102
-------------------------------------------------- ------ -----
Adjusting items to operating (loss)/profit are consistent with
prior years and include:
The amortisation charge on intangible assets acquired in
business combinations of GBP526 million (2019: GBP534 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.
Restructuring and other associated costs in the year totalling
GBP220 million (2019: GBP238 million), which are shown as adjusting
items due to their size and non-trading nature, during the year
ended 31 December 2020 these included:
-- A charge of GBP110 million (2019: GBP79 million) within the
Aerospace division primarily relating to costs incurred globally to
reduce the business' headcount and cost structure in reaction to
the significant impact that COVID-19 is having on the aerospace
industry. This charge also included costs in respect of the
continuation of the business' global integration, announced last
year, to create "One Aerospace", ensuring the business is well
positioned and able to react to changes in its new environment; and
the continuation of costs relating to rationalisation projects
commenced in the previous year.
-- A charge of GBP60 million (2019: GBP83 million) within the
Automotive division as the business has accelerated its efforts to
address its high cost base, inherited on acquisition, and best
position itself as it recovers post COVID-19.
-- A charge of GBP48 million (2019: GBP19 million) within the
Powder Metallurgy division including costs associated with
realigning the business for future demand, along with consolidation
actions started in 2019 and the commencement during 2020 of the
closure of a site in its underperforming North American Structural
business.
-- A net charge of GBP2 million (2019: GBP57 million) within the
Nortek Air Management, Other Industrial and Corporate divisions
which includes the completion of a factory consolidation within the
HVAC business; the finalisation of the changes made in the Nortek
Control business (formerly the Security & Smart Technology
business) to move to a third party contract manufacturing model;
and the profit from the disposal of a Dutch property held within
the Brush business left vacant following the factory consolidation
programme commenced in 2018.
The write down of assets in the year of GBP184 million, mostly
recognised in the second quarter of the year as a result of the
impact of COVID-19, of which GBP133 million was within the
Aerospace division. As a result of the impact of the pandemic, a
review of the operating assets of the Group was performed, and
resulted in GBP159 million of fixed assets and GBP25 million of
other net operating assets being written down across certain sites
within the businesses, as they adapted to new levels of industry
demand. The write down of these assets is shown as an adjusting
item due to the unprecedented nature of the COVID-19 pandemic, its
non-trading nature and size. The charge of GBP179 million,
recognised in 2019, related to impairment of goodwill allocated to
the Nortek Control group of CGUs.
The net release of fair value items in the year of GBP118
million (2019: GBP153 million) where items have been resolved for
more favourable amounts than first anticipated. During the year
this included a net release of GBP101 million in respect of
loss-making contract provisions held within the GKN businesses,
where either contractual terms have been renegotiated with the
relevant customer or operational efficiencies have been identified
and demonstrated for a sustained period. The net release of fair
value items is shown as an adjusting item, avoiding positively
distorting adjusted results.
Movements in the fair value of derivative financial instruments
(primarily forward foreign currency exchange contracts where hedge
accounting is not applied) entered into within the GKN businesses
to mitigate the potential volatility of future cash flows, on
long-term foreign currency customer and supplier contracts, along
with foreign exchange movements on the associated financial assets
and liabilities. This totalled a credit of GBP182 million (2019:
GBP55 million) in the year and is shown as an adjusting item
because of its volatility and size.
Other adjusting items of GBP48 million (2019: GBP41 million)
include items consistent with prior years, the largest of which is
an adjustment of GBP30 million (2019: GBP28 million) to gross up
the post-tax profits of EAIs to be consistent with the adjusted
operating profits of subsidiaries within the Group.
STATUTORY AND ADJUSTED RESULTS BY REPORTING SEGMENT
The following table shows revenue split by reporting segment,
including EAIs for adjusted revenue:
Powder Nortek
Aerospace Automotive Metallurgy Air Mgmt. Other Industrial Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ----------- ------------ ----------- ----------- ---------------- --------
Statutory revenue 2,798 3,231 886 1,227 628 8,770
------------------- ----------- ------------ ----------- ----------- ---------------- --------
Reconciling
item:
Revenue from
EAIs 6 566 19 - - 591
------------------- ----------- ------------ ----------- ----------- ---------------- --------
Adjusted revenue 2,804 3,797 905 1,227 628 9,361
------------------- ----------- ------------ ----------- ----------- ---------------- --------
The following table shows operating (loss)/profit split by
reporting segment. Adjusting items are described earlier in this
review.
Powder Nortek
Aerospace Automotive Metallurgy Air Mgmt. Other Industrial Corporate Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ----------- ------------ ----------- ----------- ---------------- ----------- --------
Statutory operating
(loss)/profit (410) (183) (57) 149 34 129 (338)
--------------------- ----------- ------------ ----------- ----------- ---------------- ----------- --------
Reconciling
item:
Adjusting items 424 265 96 39 29 (175) 678
--------------------- ----------- ------------ ----------- ----------- ---------------- ----------- --------
Adjusted operating
profit/(loss) 14 82 39 188 63 (46) 340
--------------------- ----------- ------------ ----------- ----------- ---------------- ----------- --------
The performances of each of the reporting segments are discussed
in the Chief Executive's Review. The adjusted operating loss in the
corporate cost centre of GBP46 million (2019: GBP52 million)
included GBP34 million (2019: GBP32 million) of operating costs and
GBP12 million (2019: GBP20 million) of costs relating to divisional
cash-based long-term incentive plans, which have been re-evaluated
following the impact of COVID-19 on the businesses.
FINANCE COSTS AND INCOME - CONTINUING OPERATIONS
Total net finance costs in the year ended 31 December 2020 were
GBP197 million (2019: GBP212 million), GBP187 million (2019: GBP213
million) shown within the adjusted results and GBP10 million of
charges (2019: credit of GBP1 million) treated as adjusting
items.
Net interest on external bank loans, bonds, overdrafts and cash
balances was GBP133 million (2019: GBP143 million). The Group uses
interest rate swaps to fix the majority of the interest rate
exposure on its drawn debt. More detail on these swaps is given in
the finance cost risk management section of this review.
In addition, finance charges included: a GBP12 million (2019:
GBP11 million) amortisation charge relating to the arrangement
costs of raising the Group's current bank facility; an interest
charge on net pension liabilities of GBP19 million (2019: GBP31
million); a charge on lease liabilities of GBP21 million (2019:
GBP21 million); and a charge for the unwind of discounting on
long-term provisions of GBP2 million (2019: GBP7 million).
Adjusting items:
Adjusting items, within finance costs and income, include a
charge of GBP2 million (2019: credit of GBP1 million) relating to
the fair value changes on cross-currency swaps, and GBP8 million
(2019: GBPnil) relating to costs incurred renegotiating the Group's
financial covenants with its banking facility syndicate in response
to the impact of COVID-19. These charges are shown as adjusting
items because of their volatility and non-trading nature.
DISCONTINUED OPERATIONS
Discontinued operations include the GKN Wheels & Structures
business results which was classified as held for sale at 31
December 2019 and subsequently disposed on 25 November 2020 for
total proceeds of GBP21 million, resulting in a loss on disposal in
the year of GBP8 million.
In the prior year, discontinued operations also included the
results of Walterscheid Powertrain Group up to the date of disposal
on 25 June 2019.
For the year ended 31 December 2020 discontinued operations show
revenue of GBP144 million (2019: GBP423 million), a statutory
operating loss of GBPnil (2019: GBP80 million) and a statutory loss
before tax of GBPnil (2019: GBP82 million).
TAX - CONTINUING OPERATIONS
The statutory results show a tax credit of GBP12 million (2019:
charge of GBP51 million) which arises on a statutory loss before
tax of GBP535 million (2019: profit of GBP106 million), a statutory
tax rate of 2% (2019: 48%). During the year, the Ergotron division
was legally separated from the Nortek tax group, realising an
adjusting tax charge of GBP71 million, of which GBP20 million will
be settled in cash in 2021, with the remainder being settled by the
utilisation of tax assets held within the Group. In addition to
this adjusting tax charge, several of the adjusting items,
discussed earlier in this review, do not give rise to tax
deductions, meaning that the statutory tax rate is lower than the
adjusted tax rate.
The effective rate on the adjusted profit before tax for the
year ended 31 December 2020 was 22% (2019: 21%).
The Group has tax losses and other deferred tax assets with a
value of GBP810 million (31 December 2019: GBP819 million). These
are offset by deferred tax liabilities on intangible assets of
GBP1,161 million (31 December 2019: GBP1,243 million) and GBP201
million (31 December 2019: GBP188 million) of other deferred tax
liabilities. Most of the tax losses and other deferred tax assets
will generate future cash tax savings, whereas the deferred tax
liabilities on intangible assets are not expected to give rise to
cash tax payments.
Cash tax receipts from the refund of advance payments and the
closure of enquiries offset cash tax payments made in the year. Net
cash tax in the year ended 31 December 2020 was GBPnil (2019: net
payments of GBP117 million).
MELROSE EMPLOYEE SHARE PLAN
The Melrose 2017 Incentive Plan ("2017 Plan") expired on 31 May
2020 with no value payable to its participants, despite being on
track to generate a share reward before the impact of COVID-19.
A new Melrose Employee Share Plan ("2020 Plan") was approved on
21 January 2021 which mirrors the previous 2017 Plan, in most
respects, with a three year performance period and a further two
year holding period. Details of the 2020 Plan are included in the
Directors' Remuneration report in the 2020 Annual Report.
The charge in respect of the 2020 Plan will be GBP16 million per
annum (2017 Plan: GBP13 million), excluding the associated
employer's tax charge.
CASH GENERATION AND MANAGEMENT
Robust cash management was set as the top commercial priority
for the Group this year as the realisation of the significant
impact that COVID-19 would have on the global economy and the
Group's businesses materialised. Comprehensive cash preservation
actions were successfully implemented in each business in the first
half of the year and strong cash management continued throughout
the second half as certain businesses within the Group showed some
signs of recovery.
As a result, an adjusted free cash inflow of GBP628 million
before restructuring spend (2019: GBP591 million before
restructuring spend and one-off special contributions to defined
benefit pension plans), was generated in the year, 6% more than the
adjusted free cash generated in 2019.
An analysis of the adjusted free cash flow is shown in the table
below:
2020 2019
GBPm GBPm
----------------------------------------------------- ------ -----
Adjusted operating profit 340 1,102
Adjusted operating profit from EAIs (62) (66)
Depreciation and amortisation 492 498
Lease obligation payments (76) (70)
Positive non-cash impact from loss-making contracts (59) (81)
Working capital movements 424 58
----------------------------------------------------- ------ -----
Adjusted operating cash flow (pre-capex) 1,059 1,441
Net capital expenditure (292) (495)
Net interest and net tax paid (162) (295)
Defined benefit pension contributions - ongoing (111) (72)
Defined benefit pension contributions - special
contribution - (111)
Restructuring (172) (190)
Dividend income from equity accounted investments 54 67
Net other 80 (55)
----------------------------------------------------- ------ -----
Free cash flow 456 290
----------------------------------------------------- ------ -----
Adjusted free cash flow 628 591
----------------------------------------------------- ------ -----
Net working capital was reduced by GBP424 million in the year
(2019: GBP58 million), mainly by reducing inventory and receivables
levels in the businesses, along with net capital expenditure in the
year being GBP292 million (2019: GBP495 million), representing 0.7x
depreciation of owned assets.
Net interest paid in the period was GBP162 million (2019: GBP178
million), net tax payments were GBPnil as explained in the tax
section of this review (2019: GBP117 million) and ongoing
contributions to defined benefit pension schemes were GBP111
million (2019: GBP72 million), which included GBP60 million paid
into the GKN UK pension plans.
Free cash flow in the year, after restructuring spend of GBP172
million (2019: GBP190 million), was an inflow of GBP456 million
(2019: GBP290 million), contributing to the reduction in net debt
(as defined in the glossary to the Financial Statements) of 13% in
the year.
The movement in net debt is summarised as follows:
2020 2019
GBPm GBPm
--------------------------------------------------- -------- -------
At 1 January (3,283) (3,482)
Non-trading items and discontinued operations:
Net cash flow from acquisition and disposal
related activities (11) 103
Dividend paid to Melrose shareholders - (231)
Foreign exchange and other non-cash movements (2) 74
Discontinued operations (7) (37)
--------------------------------------------------- -------- -------
Cash flow from non-trading items and discontinued
operations (20) (91)
Free cash flow 456 290
--------------------------------------------------- -------- -------
At 31 December at closing exchange rates (2,847) (3,283)
--------------------------------------------------- -------- -------
At 31 December at 12 month average exchange
rates (2,953) (3,385)
--------------------------------------------------- -------- -------
Group net debt at 31 December 2020, translated at closing
exchange rates (being US $1.37 and EUR1.12), was GBP2,847 million
(31 December 2019: GBP3,283 million, translated at closing exchange
rates at 31 December 2019).
The movement in net debt during the year included a free cash
inflow of GBP456 million, being partly offset by GBP11 million of
net spend on acquisition and disposal related activities, primarily
relating to the acquisition of FORECAST 3D in the Powder Metallurgy
division and proceeds relating to the disposed GKN Wheels &
Structures business, and a GBP2 million increase to net debt in
respect of foreign exchange and other non-cash movements.
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 GBP2,953 million.
The Group net debt leverage was not required to be tested at 31
December 2020 following a waiver for this test date being
unanimously agreed with the Group's lending banks earlier in the
year as the initial impact of COVID-19 on the businesses was being
understood. Group net debt leverage was 4.1x EBITDA at 31 December
2020 (31 December 2019: 2.3x EBITDA) and will be next tested at 31
December 2021, when the bank covenant test level will be 5.25x.
ASSETS AND LIABILITIES
The summarised Melrose Group assets and liabilities are shown
below:
2020 2019
GBPm GBPm
---------------------------------------------- -------- --------
Goodwill and intangible assets acquired with
business combinations 8,790 9,342
Tangible fixed assets, computer software and
development costs 3,541 3,874
Equity accounted investments 430 436
Net working capital 346 821
Retirement benefit obligations (838) (1,121)
Provisions (1,021) (1,087)
Deferred tax and current tax (717) (698)
Lease obligations (555) (582)
Net other (19) (151)
---------------------------------------------- -------- --------
Total 9,957 10,834
---------------------------------------------- -------- --------
These assets and liabilities are funded by:
2020 2019
GBPm GBPm
---------- -------- ---------
Net debt (2,847) (3,283)
Equity (7,110) (7,551)
---------- -------- ---------
Total (9,957) (10,834)
---------- -------- ---------
Net debt shown in the table above is defined in the glossary to
the Financial Statements and is consistent with the banking
facility covenant testing definition.
GOODWILL, INTANGIBLE ASSETS AND IMPAIRMENT REVIEW
The total value of goodwill as at 31 December 2020 was GBP3,640
million (31 December 2019: GBP3,653 million) and intangible assets
acquired with business combinations was GBP5,150 million (31
December 2019: GBP5,689 million). These items are split by
reporting segment as follows:
Powder Nortek Other Industrial
Aerospace Automotive Metallurgy Air Mgmt. GBPm Total
31 December 2020 GBPm GBPm GBPm GBPm GBPm
----------------------------- ----------- ------------ ----------- ----------- ---------------- --------
Goodwill 942 1,026 524 575 573 3,640
Intangible assets acquired
with business combinations 2,793 1,146 628 302 281 5,150
----------------------------- ----------- ------------ ----------- ----------- ---------------- --------
Total goodwill and
acquired intangible
assets 3,735 2,172 1,152 877 854 8,790
----------------------------- ----------- ------------ ----------- ----------- ---------------- --------
The Group's goodwill and intangible assets have been tested for
impairment, and in accordance with IAS 36 "Impairment of assets"
the recoverable amount has been assessed as being the higher of the
fair value less costs to sell and the value in use.
Under IAS 36, the value in use basis for calculating the
recoverable amount prohibits the inclusion of future uncommitted
restructuring plans, whilst the fair value less costs to sell basis
of valuation allows the inclusion of these plans if it is deemed
that a market participant would also restructure.
With the future benefits of restructuring projects currently
forming a material part of valuations for certain businesses within
the Group, because they are substantially reducing their cost
structure to align with the new levels of demand post COVID-19, the
fair value less costs to sell basis gives the higher valuation at
this point in time and therefore in accordance with IAS 36, has
been used in assessing the recoverable amount for these
businesses.
Sensitivity analysis and increased disclosures have been
provided in the Financial Statements for the Aerospace, Automotive,
Powder Metallurgy, Ergotron and Nortek Control businesses, being
the businesses showing the tightest headroom.
Whilst the headroom on impairment testing has inevitably reduced
in certain businesses compared to the previous year, the Board is
comfortable that no impairment is required in respect of the
valuation of goodwill and intangible assets in its businesses as at
31 December 2020.
PROVISIONS
Total provisions at 31 December 2020 were GBP1,021 million (31
December 2019: GBP1,087 million).
The following table details the movement in provisions in the
year:
Total
GBPm
-------------------------------------------------------- -----
At 1 January 2020 1,087
Spend against provisions (277)
Net charge to adjusted operating profit 169
Net charge shown as adjusting items 188
Release of loss-making contract provision to adjusting
items (101)
Utilisation of loss-making contract provision (59)
Other (including foreign exchange) 14
-------------------------------------------------------- -----
At 31 December 2020 1,021
-------------------------------------------------------- -----
The net charge to adjusted operating profit in the year of
GBP169 million is primarily in respect of ongoing warranty, product
liability and workers' compensation charges which are closely
matched by similar cash payments in the year, such that the
provision for these categories has not changed significantly during
the year.
The net charge shown as adjusting items in the Income Statement
of GBP188 million primarily includes costs associated with
restructuring actions of GBP203 million, discussed within the
adjusting items section of this review, net of a release, mainly
relating to fair value items settled for an amount more favourable
than first anticipated.
The utilisation of the loss-making contract provision was GBP59
million in the year (31 December 2019: GBP83 million). Furthermore,
GBP101 million, approximately 30%, of the remaining loss-making
contract provision was released as an adjusting item in the year,
either because contracts have been favourably resolved following
positive negotiations with customers or because operational
efficiencies have been demonstrated for a sustained period of time.
At 31 December 2020 the loss-making contract provision was GBP241
million, 60% lower than when GKN was acquired in 2018.
During the period GBP172 million of cash was spent on
restructuring.
Included within Other for the Group are foreign exchange
movements of GBP7 million, the unwind of discounting on certain
provisions of GBP6 million and the provisions acquired with
FORECAST 3D in the year totalling GBP1 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 31 December 2020
by independent actuaries to reflect the latest key assumptions. A
summary of the assumptions used are shown in the Financial
Statements.
At 31 December 2020 total plan assets of the Melrose Group's
defined benefit pension plans were GBP3,775 million (31 December
2019: GBP3,412 million) and total plan liabilities were GBP4,613
million (31 December 2019: GBP4,533 million), a net deficit of
GBP838 million (31 December 2019: GBP1,121 million).
The most significant pension plans in the Group are the GKN
Group Pension Schemes (Numbers 1 - 4) created when the GKN UK 2012
pension plan was split into four schemes, two of which are
allocated to the Aerospace division and two to the Automotive
division. At 31 December 2020 in total these four pension plans had
aggregate gross assets of GBP2,556 million (31 December 2019:
GBP2,243 million), gross liabilities of GBP2,755 million (31
December 2019: GBP2,711 million) and a net deficit of GBP199
million (31 December 2019: GBP468 million), split 58% of the
deficit held within Aerospace and 42% within Automotive.
The GKN Group Pension Schemes (Numbers 1 - 4) are closed to new
members and to the accrual of future benefits for current
members.
In total ongoing contributions to the Group defined benefit
pension plans and post-employment medical plans in the year ended
31 December 2020 were GBP111 million and are expected to be
approximately GBP98 million in 2021.
The Group's ongoing annual contributions include GBP60 million
to the GKN UK plans. The Group has also committed to contribute 10%
of the net proceeds from disposal of GKN businesses (other than
Powder Metallurgy) and 5% of the net proceeds from disposal of
non-GKN businesses. Additionally, the Group has committed to
contribute GBP270 million to the GKN UK plans when Powder
Metallurgy is sold. These commitments cease when the funding
target, which has been agreed with the Trustees, is achieved, being
gilts plus 25 basis points for the GKN UK 2016 plan and gilts plus
75 basis points for the GKN Group Pension Schemes (Numbers 1 - 4).
At 31 December 2020, the funding target on the GKN UK 2016 plan had
been achieved, and the funding deficit on the GKN Group Pension
Schemes (Numbers 1 - 4) was approximately GBP370 million.
It is noted that a 0.1 percentage point decrease in the discount
rate would increase the retirement benefit accounting liabilities
of the Group, on an IAS 19 basis, by GBP78 million, or 2%, and a
0.1 percentage point increase to inflation would increase the
liabilities by GBP46 million, or 1%. Furthermore, an increase by
one year in the expected life of a 65 year old member would
increase the pension liabilities on these plans by GBP250 million,
or 5%.
FINANCIAL RISK MANAGEMENT
The financial risks the Group faces continue to be considered
and policies are implemented to appropriately deal with each risk.
The most significant financial risks are considered to be liquidity
risk, finance cost risk, exchange rate risk, contract and warranty
risk and commodity cost risk.
These are discussed in turn below.
Liquidity risk management
Following the impact of COVID-19 on the Group's businesses and
their end markets, the liquidity of the Group has been a key focus
in the year.
The Group's net debt position at 31 December 2020 was GBP2,847
million (31 December 2019: GBP3,283 million).
The Group's committed bank funding includes: a multi-currency
denominated term loan of GBP100 million and US$960 million that was
due to mature in April 2021; and a multi-currency denominated
revolving credit facility of GBP1.1 billion, US$2.0 billion and
EUR0.5 billion that matures in January 2023. In February 2021, the
Company exercised its option to extend the term loan for a further
three years to April 2024.
As at 31 December 2020, the term loan was fully drawn and there
remains a significant amount of headroom on the multi-currency
committed revolving credit facility. Applying the exchange rates at
31 December 2020, the headroom equated to GBP1,632 million (31
December 2019: GBP1,136 million applying the exchange rates at 31
December 2019).
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 GBP160
million at 31 December 2020 (31 December 2019: GBP317 million).
The Group also holds capital market borrowings as at 31 December
2020 consisting of:
Interest rate
Notional Cross-currency on
amount Coupon swaps swaps
Maturity date GBPm % p.a. million % p.a.
---------------- ---------- ------- -------------- --------------
September 2022 450 5.375% US$373 5.70%
EUR284 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 normally tested half-yearly in June and
December.
During the year the Group agreed, with its lending banks, a
waiver for its net debt to adjusted EBITDA covenant test as at 31
December 2020 and 30 June 2021. The Group also renegotiated the net
debt to adjusted EBITDA covenant test level to be 5.25x at 31
December 2021; 4.75x at 30 June 2022; and 4.0x at 31 December 2022,
before returning to 3.5x at 30 June 2023 and onwards. At 31
December 2020 the Group net debt leverage was 4.1x.
Similarly, the interest cover bank covenant test was
renegotiated such that at 31 December 2020 the test is set at 2.5x;
3.0x at 30 June 2021 and 31 December 2021; and 3.25x at 30 June
2022, before returning to 4.0x from 31 December 2022 onwards. At 31
December 2020 the Group interest cover was 5.1x, affording
comfortable headroom.
Following the completion of a material disposal from within the
Group, the net debt to adjusted EBITDA covenant test level would be
adjusted downwards to be 4.25x at 31 December 2021; 4.0x at 30 June
2022; and 3.75x at 31 December 2022, before returning to 3.5x at 30
June 2023 and onwards. No such adjustment would be made to the
interest cover bank covenant test following a material
disposal.
A limited number of Group trade receivables are subject to
non-recourse factoring and customer supply chain finance
arrangements, taking advantage of facilities where the cost of
finance is cheaper than the Group's own cost of funds and where
OEMs have extended their own programmes to support their supply
chain through the COVID-19 global pandemic. As at 31 December 2020,
these amounted to GBP314 million (31 December 2019: GBP200
million), and the net cash benefit in the year was approximately
GBP60 million.
In addition, some suppliers have access to utilise the Group's
supplier finance programmes, which are provided by a number of the
Group's banks. As at 31 December 2020 there were drawings on these
facilities of GBP62 million (31 December 2019: GBP75 million).
There is no cost to the Group for providing these programmes as the
cost is borne by the suppliers. These programmes allow suppliers to
choose whether they want to accelerate the payment of their
invoices, by the financing banks, at a low interest cost, based on
the credit rating of the Group as determined by the financing
banks. If the Group exited these arrangements or the banks ceased
to fund the programmes there could be a potential impact of
approximately GBP30 million (31 December 2019: approximately GBP35
million) on the Group's cash flows. The risk of this happening is
considered low as the Group has extended the number of banks that
provide this type of financing to ensure there is not a significant
exposure to any one bank.
Finance cost risk management
The bank margin on the bank facility depends on the Group
leverage, and ranges from 0.75% to 2.0% on the term loan, and 0.95%
to 2.25% on the revolving credit facility. As at 31 December 2020
the margin was 2.0% (31 December 2019: 1.4%) on the term loan and
2.25% (31 December 2019: 1.65%) on the revolving credit
facility.
In addition to the cross-currency swaps associated with the
fixed rate capital market borrowings, inherited as part of the GKN
acquisition, the Group holds interest rate swap instruments to fix
the cost of LIBOR on borrowings under the bank facility. The policy
of the Board is to fix approximately 70% of the interest rate
exposure of the Group. Under the terms of the existing swap
arrangements and excluding the bank margin, the Group will pay a
weighted average fixed cost of approximately 2% until the swaps
terminate on 17 January 2023.
The Group also holds cross-currency swaps used to convert US
Dollar bank debt into Euro borrowings and at 31 December 2020, US
$507 million had been swapped into EUR425 million. These swaps are
rolled on a monthly basis and help to reduce the cost of the
Group's borrowings.
At 31 December 2020, the fair value liability of all
cross-currency swaps held by the Group was GBP89 million (31
December 2019: GBP80 million).
The average cost of the debt for the Group is expected to be
approximately 4.2% over the next 12 months.
Exchange rate risk management
The Group trades in various countries around the world and is
exposed to movements in a number of foreign currencies. The Group
therefore carries exchange rate risk that can be categorised into
three types: transaction, translation and disposal related risk, as
described in the paragraphs below. The Group's policy is designed
to protect against the majority of the cash risks but not the
non-cash risks.
The most common exchange rate risk is the transaction risk the
Group takes when it invoices a customer or purchases from suppliers
in a different currency to the underlying functional currency of
the relevant business. The Group's policy is to review
transactional foreign exchange exposures, and place necessary
hedging contracts, quarterly on a rolling basis. To the extent the
cash flows associated with a transactional foreign exchange risk
are committed, the Group will hedge 100% at the time the cash flow
becomes committed. For forecast and variable cash flows, the Group
hedges a proportion of the expected cash flows, with the percentage
being hedged lowering as the time horizon lengthens. The average
time horizons are longer for GKN Aerospace, GKN Automotive and GKN
Powder Metallurgy to reflect the longer-term nature of the
contracts within these divisions. Typically, in total the Group
hedges around 90% of foreign exchange exposures expected over the
next twelve months and approximately 60% to 80% of exposures
expected between 12 and 24 months. This policy does not eliminate
the cash risk but does bring some certainty to it.
The translation rate risk is the effect on the Group results in
the period due to the movement of exchange rates used to translate
foreign results into Sterling from one period to the next. No
specific exchange instruments are used to protect against the
translation risk because it is a non-cash risk to the Group, until
foreign currency is subsequently converted to Sterling. However,
the Group utilises its multi-currency revolving credit facility and
cross-currency swaps, where relevant, to maintain an appropriate
mix of debt in each currency. The hedge of having debt drawn in
these currencies funding the trading units with US Dollars or Euro
functional currencies protects against some of the Balance Sheet
and banking covenant translation risk.
Lastly, exchange rate risk arises when a business that is
predominantly based in a foreign currency is sold. The proceeds for
those businesses may be received in a foreign currency and
therefore an exchange rate risk may arise on conversion of foreign
currency proceeds into Sterling, for instance to pay a Sterling
dividend or Capital Return to shareholders. Protection against this
risk is considered on a case by case basis and, if appropriate,
hedged at the time.
Exchange rates for currencies most relevant to the Group in the
year were:
US Dollar Average rate Closing rate
----------- -------------- -------------
2020 1.28 1.37
2019 1.28 1.33
Euro
----------- -------------- -------------
2020 1.13 1.12
2019 1.14 1.18
A 10 percent strengthening of the major currencies within the
Group, if this were to happen in isolation against all other
currencies, would have the following impact on the re-translation
of adjusted operating profit into Sterling:
GBPm USD EUR CNY Other
-------------------------------- ---- ---- ---- ------
Increase in adjusted operating
profit 45 12 7 11
-------------------------------- ---- ---- ---- ------
% impact on adjusted operating
profit 7% 2% 1% 2%
-------------------------------- ---- ---- ---- ------
The impact from transactional foreign exchange exposures is not
material in the short term due to hedge coverage being
approximately 90%.
A 10 percent strengthening in either the US Dollar or Euro would
have the following impact on debt as at 31 December 2020:
USD EUR
-------------------------------- ---- ----
Increase in debt - GBP million 187 72
-------------------------------- ---- ----
Increase in debt 6% 2%
-------------------------------- ---- ----
Contract and warranty risk management
Under Melrose management a suitable bid and contract management
process exists in the businesses, which includes thorough reviews
of contract terms and conditions, contract-specific risk
assessments and clear delegation of authority for approvals. These
processes aim to ensure effective management of risks associated
with complex contracts. The financial risks connected with
contracts and warranties include the consideration of commercial,
legal and warranty terms and their duration, which are all
considered carefully by the businesses and Melrose centrally before
being entered into.
Commodity cost risk management
The cumulative expenditure on commodities is important to the
Group and the risk of base commodity costs increasing is mitigated,
wherever possible, by passing on the cost increases to customers or
by having suitable purchase agreements with suppliers which fix the
price over a certain period. These risks are also managed through
sourcing policies, including the use of multiple suppliers, where
possible, and procurement contracts where prices are agreed in
advance to limit exposure to price volatility. Occasionally,
businesses within the Group enter financial instruments on
commodities when this is considered to be the most efficient way of
protecting against price movements.
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 data and internal
information and recent past experience. Given the global political
and economic continuing uncertainty resulting from the COVID-19
pandemic, it is difficult to estimate with precision the impact on
the Group's prospective financial performance.
The Group has modelled a reasonably possible downside scenario
against these future cash forecasts and throughout this scenario
the Group would not breach any of the revised financial covenants
and would not require any additional sources of financing.
The long-term impact of COVID-19 remains uncertain and the
impacts of the pandemic on trading conditions 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
agreed with the Group's supportive 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 the Financial Statements .
Geoffrey Martin
Group Finance Director
4 March 2021
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.
Consolidated Income Statement
Year ended Year ended
31 December 31 December
2020 2019
Continuing operations Notes GBPm GBPm
----------------------------------------------------- ----- ------------ ------------
Revenue 8,770 10,967
Cost of sales 3 (7,492) (8,732)
----------------------------------------------------- ----- ------------ ------------
Gross profit 1,278 2,235
Share of results of equity accounted investments 32 38
Net operating expenses 9 (1,648) (1,955)
----------------------------------------------------- ----- ------------ ------------
Operating (loss)/profit 3, 4 (338) 318
----------------------------------------------------- ----- ------------ ------------
Finance costs (200) (221)
Finance income 3 9
----------------------------------------------------- ----- ------------ ------------
(Loss)/profit before tax (535) 106
Tax 5 12 (51)
----------------------------------------------------- ----- ------------ ------------
(Loss)/profit after tax for the year from continuing
operations (523) 55
----------------------------------------------------- ----- ------------ ------------
Discontinued operations
Loss for the year from discontinued operations (10) (106)
----------------------------------------------------- ----- ------------ ------------
Loss after tax for the year (533) (51)
----------------------------------------------------- ----- ------------ ------------
Attributable to:
Owners of the parent (536) (60)
Non-controlling interests 3 9
----------------------------------------------------- ----- ------------ ------------
(533) (51)
----------------------------------------------------- ----- ------------ ------------
Earnings per share
Continuing operations
- Basic 7 (10.8)p 0.9p
- Diluted 7 (10.8)p 0.9p
Continuing and discontinued operations
- Basic 7 (11.0)p (1.2)p
- Diluted 7 (11.0)p (1.2)p
Adjusted (1) results from continuing operations
----------------------------------------------------- ----- ------------ ------------
Adjusted revenue 3 9,361 11,592
Adjusted operating profit 3, 4 340 1,102
Adjusted profit before tax 4 153 889
Adjusted profit after tax 4 120 699
Adjusted basic earnings per share 7 2.4p 14.3p
Adjusted diluted earnings per share 7 2.4p 14.3p
----------------------------------------------------- ----- ------------ ------------
(1) Defined in note 2.
Consolidated Statement of Comprehensive Income
Year ended Year ended
31 December 31 December
2020 2019
Notes GBPm GBPm
------------------------------------------------------ ----- ------------ ------------
Loss after tax for the year (533) (51)
------------------------------------------------------ ----- ------------ ------------
Items that will not be reclassified subsequently
to the Income Statement:
Net remeasurement gain/(loss) on retirement
benefit obligations 244 (32)
Fair value loss on investments in equity instruments (16) -
Income tax (charge)/credit relating to items
that will not be reclassified 5 (42) 15
------------------------------------------------------ ----- ------------ ------------
186 (17)
Items that may be reclassified subsequently
to the Income Statement:
Currency translation on net investments (42) (346)
Share of other comprehensive income/(expense)
from equity accounted investments 16 (23)
Transfer to Income Statement from equity of
cumulative translation differences
on disposal of foreign operations - (13)
Derivative losses on hedge relationships (99) (17)
Transfer to Income Statement on hedge relationships 8 -
Income tax credit/(charge) relating to items
that may be reclassified 5 9 (19)
------------------------------------------------------ ----- ------------ ------------
(108) (418)
------------------------------------------------------ ----- ------------ ------------
Other comprehensive income/(expense) for the
year 78 (435)
------------------------------------------------------ ----- ------------ ------------
Total comprehensive expense for the year (455) (486)
------------------------------------------------------ ----- ------------ ------------
Attributable to:
Owners of the parent (458) (494)
Non-controlling interests 3 8
------------------------------------------------------ ----- ------------ ------------
(455) (486)
------------------------------------------------------ ----- ------------ ------------
Consolidated Statement of Cash Flows
Year ended Year ended
31 December 31 December
2020 2019
Notes GBPm GBPm
--------------------------------------------------------- ----- ------------ ------------
Operating activities
Net cash from operating activities from continuing
operations 12 768 769
Net cash used in operating activities from discontinued
operations 12 (4) (20)
--------------------------------------------------------- ----- ------------ ------------
Net cash from operating activities 764 749
--------------------------------------------------------- ----- ------------ ------------
Investing activities
Disposal of businesses, net of cash disposed 10 169
Purchase of property, plant and equipment (275) (465)
Proceeds from disposal of property, plant and
equipment 25 24
Purchase of computer software and capitalised
development costs (42) (54)
Dividends received from equity accounted investments 54 67
Purchase of investments (2) (50)
Settlement of derivatives used in net investment
hedging - (100)
Acquisition of subsidiaries, net of cash acquired (19) -
Interest received 3 9
--------------------------------------------------------- ----- ------------ ------------
Net cash used in investing activities from continuing
operations (246) (400)
Net cash used in investing activities from discontinued
operations 12 (2) (15)
--------------------------------------------------------- ----- ------------ ------------
Net cash used in investing activities (248) (415)
--------------------------------------------------------- ----- ------------ ------------
Financing activities
Repayment of borrowings (598) (456)
New bank loans raised - 350
Costs of raising debt finance (1) -
Repayment of principal under lease obligations (76) (70)
Dividends paid to non-controlling interests - (6)
Dividends paid to owners of the parent 6 - (231)
--------------------------------------------------------- ----- ------------ ------------
Net cash used in financing activities from continuing
operations (675) (413)
Net cash used in financing activities from discontinued
operations 12 (1) (2)
--------------------------------------------------------- ----- ------------ ------------
Net cash used in financing activities (676) (415)
--------------------------------------------------------- ----- ------------ ------------
Net decrease in cash and cash equivalents,
net of bank overdrafts (160) (81)
Cash and cash equivalents, net of bank overdrafts
at the beginning of the year 12 317 415
Effect of foreign exchange rate changes 12 3 (17)
--------------------------------------------------------- ----- ------------ ------------
Cash and cash equivalents, net of bank overdrafts
at the end of the year 12 160 317
--------------------------------------------------------- ----- ------------ ------------
As at 31 December 2020, the Group had net debt of GBP2,847
million (31 December 2019: GBP3,283 million). A definition and
reconciliation of the movement in net debt is shown in note 12.
Consolidated Balance Sheet
Restated(1) Restated(1)
31 December 31 December 31 December
2020 2019 2018
Notes GBPm GBPm GBPm
-------------------------------------------- ----- ----------- ------------ -------------
Non-current assets
Goodwill and other intangible assets 9,198 9,784 11,098
Property, plant and equipment 3,133 3,432 3,171
Investments 34 48 -
Interests in equity accounted investments 430 436 492
Deferred tax assets 180 160 132
Derivative financial assets 101 38 26
Trade and other receivables 439 424 504
-------------------------------------------- ----- ----------- ------------ -------------
13,515 14,322 15,423
Current assets
Inventories 1,126 1,332 1,489
Trade and other receivables 1,658 1,970 2,328
Derivative financial assets 47 19 15
Current tax assets 23 20 74
Cash and cash equivalents 311 512 511
Assets classified as held for sale - 65 -
-------------------------------------------- ----- ----------- ------------ -------------
3,165 3,918 4,417
-------------------------------------------- ----- ----------- ------------ -------------
Total assets 3 16,680 18,240 19,840
-------------------------------------------- ----- ----------- ------------ -------------
Current liabilities
Trade and other payables 2,456 2,461 2,583
Interest-bearing loans and borrowings 165 284 473
Lease obligations 81 71 5
Derivative financial liabilities 58 106 204
Current tax liabilities 188 106 137
Provisions 415 412 391
Liabilities associated with assets held
for sale 10 - 46 -
-------------------------------------------- ----- ----------- ------------ -------------
3,363 3,486 3,793
-------------------------------------------- ----- ----------- ------------ -------------
Net current (liabilities)/assets (198) 432 624
-------------------------------------------- ----- ----------- ------------ -------------
Non-current liabilities
Trade and other payables 421 444 762
Interest-bearing loans and borrowings 2,926 3,464 3,378
Lease obligations 474 511 52
Derivative financial liabilities 210 216 227
Deferred tax liabilities 732 772 874
Retirement benefit obligations 11 838 1,121 1,413
Provisions 10 606 675 1,080
-------------------------------------------- ----- ----------- ------------ -------------
6,207 7,203 7,786
-------------------------------------------- ----- ----------- ------------ -------------
Total liabilities 3 9,570 10,689 11,579
-------------------------------------------- ----- ----------- ------------ -------------
Net assets 7,110 7,551 8,261
-------------------------------------------- ----- ----------- ------------ -------------
Equity
Issued share capital 333 333 333
Share premium account 8,138 8,138 8,138
Merger reserve 109 109 109
Other reserves (2,330) (2,330) (2,330)
Translation and hedging reserve (30) 78 495
Retained earnings 861 1,197 1,492
-------------------------------------------- ----- ----------- ------------ -------------
Equity attributable to owners of the parent 7,081 7,525 8,237
-------------------------------------------- ----- ----------- ------------ -------------
Non-controlling interests 29 26 24
-------------------------------------------- ----- ----------- ------------ -------------
Total equity 7,110 7,551 8,261
-------------------------------------------- ----- ----------- ------------ -------------
(1) Cash and cash equivalents and current interest-bearing loans
and borrowings have been restated to meet the requirements of IAS
32 as further described in note 1. This has had no impact on net
assets.
The Financial Statements were approved and authorised for issue
by the Board of Directors on 4 March 2021 and were signed on its
behalf by:
Geoffrey Martin Simon Peckham
Group Finance Director Chief Executive
4 March 2021 4 March 2021
Consolidated Statement of Changes in Equity
Equity
attributable
Issued Share Translation to owners
share premium Merger Other and hedging Retained of the Non-controlling Total
capital account reserve reserves reserve earnings parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------- ------- ------- -------- ----------- -------- -------------- --------------- ------
At 1 January 2019 333 8,138 109 (2,330) 495 1,492 8,237 24 8,261
---------------------------- ------- ------- ------- -------- ----------- -------- -------------- --------------- ------
(Loss)/profit for the
year - - - - - (60) (60) 9 (51)
Other comprehensive
expense - - - - (417) (17) (434) (1) (435)
---------------------------- ------- ------- ------- -------- ----------- -------- -------------- --------------- ------
Total comprehensive
(expense)/income - - - - (417) (77) (494) 8 (486)
Dividends paid - - - - - (231) (231) (6) (237)
Equity-settled share-based
payments - - - - - 13 13 - 13
---------------------------- ------- ------- ------- -------- ----------- -------- -------------- --------------- ------
At 31 December 2019 333 8,138 109 (2,330) 78 1,197 7,525 26 7,551
---------------------------- ------- ------- ------- -------- ----------- -------- -------------- --------------- ------
(Loss)/profit for the
year - - - - - (536) (536) 3 (533)
Other comprehensive
(expense)/income - - - - (108) 186 78 - 78
---------------------------- ------- ------- ------- -------- ----------- -------- -------------- --------------- ------
Total comprehensive
(expense)/income - - - - (108) (350) (458) 3 (455)
Equity-settled share-based
payments - - - - - 14 14 - 14
---------------------------- ------- ------- ------- -------- ----------- -------- -------------- --------------- ------
At 31 December 2020 333 8,138 109 (2,330) (30) 861 7,081 29 7,110
---------------------------- ------- ------- ------- -------- ----------- -------- -------------- --------------- ------
Notes to the Financial Statements
1. Corporate information
The financial information included within this Preliminary
Announcement does not constitute the Company's statutory Financial
Statements for the years ended 31 December 2020 or 31 December 2019
within the meaning of s435 of the Companies Act 2006, but is
derived from those Financial Statements. Statutory Financial
Statements for the year ended 31 December 2019 have been delivered
to the Registrar of Companies and those for the year ended 31
December 2020 will be delivered to the Registrar of Companies
during April 2021. The auditor has reported on those Financial
Statements; their reports were unqualified, did not draw attention
to any matters by way of emphasis and did not contain statements
under s498(2) or (3) of the Companies Act 2006.
While the financial information included in this Preliminary
Announcement has been prepared in accordance with the recognition
and measurement criteria of International Financial Reporting
Standards ("IFRSs") adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union in addition to IFRSs
as issued by the IASB, this announcement does not itself contain
sufficient information to comply with IFRSs. The Company expects to
publish full Financial Statements that comply with IFRSs during
April 2021.
Corporate structure
On 2 January 2020, the Powder Metallurgy division completed the
acquisition of Forecast 3D, a leading US specialist in plastic
additive manufacturing and 3D printing services offering a full
range of services from concept to series production for
consideration of up to GBP29 million. The acquisition furthers
Powder Metallurgy's ambition to achieve global market leadership in
industrialising additive manufacturing.
On 25 November 2020, the Group completed the disposal of the
Wheels & Structures business to Aurelius Group AG, and in the
prior year completed the disposal of the Walterscheid Powertrain
Group. The Wheels & Structures business is shown as a
discontinued operation in these Consolidated Financial Statements
prior to its disposal.
Prior year restatement of cash and cash equivalents and bank
overdrafts
During the year, the Group changed the presentation of cash and
cash equivalents and bank overdrafts within the Balance Sheet
relating to cash pooling arrangements. While the Group has the
legal right to offset amounts under these cash pooling
arrangements, it was determined that the appropriate current and
prior year presentation should be on a gross basis in line with the
requirements of IAS 32: "Financial Instruments: Presentation" and
other associated interpretations. Prior year comparatives have been
restated accordingly. The impact of this change is to increase both
cash and cash equivalents and bank overdrafts within current
interest-bearing loans and borrowings by GBP195 million as at 31
December 2019, and by GBP96 million as at 31 December 2018 in the
Balance Sheet. This has no impact on net assets or other primary
statements.
Going concern
The Consolidated 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
headroom in excess of GBP1.6 billion at 31 December 2020 and
sufficient headroom throughout the going concern forecast period.
There has been a greater focus on forecast covenant compliance
which is considered further below.
Covenants
The Group's banking facility 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 net debt to adjusted EBITDA covenant test was
originally set at 3.5x and the interest cover covenant was
originally set at 4.0x for each of the half yearly measurement
dates for the remainder of the term of the facility.
Due to the pervasive impact of COVID-19 on certain of the
Group's businesses, it was necessary to formally renegotiate the
financial covenants with lending banks. The revised financial
covenants during the period of assessment for going concern are as
follows:
31 December 30 June 31 December
2020 2021 2021
----------------------------- ------------ -------- ------------
Net debt to adjusted EBITDA Waived Waived 5.25x
----------------------------- ------------ -------- ------------
Interest cover 2.5x 3.0x 3.0x
----------------------------- ------------ -------- ------------
Testing
The Group has modelled two scenarios in its assessment of going
concern; a base case and a reasonably possible sensitised case.
Please refer to note 8 for further details of the Group's
forecasting considerations.
The base case takes into account the estimated impact of the
COVID-19 global pandemic as well as other end market and
operational factors throughout the going concern period and has
been monitored against the actual results and cash generation in
the year. Due to the severe impact on trading during the second
quarter of 2020, along with ways of working to accommodate social
distancing and other regulations in factories, it is difficult to
estimate with precision the impact on the Group's prospective
financial performance although improvements were seen in certain
businesses within the Group in the second half of 2020.
The reasonably possible sensitised case models a reduction in
sales in 2021 and the first half of 2022 compared to the base case.
A 5% decline in revenue in 2021 and 9% decline in H1 2022 over and
above the base case has been included, taking into account the
different businesses and geographies affected, with an impact on
adjusted operating profit of between 27% and 41% of absolute
revenue changes. This does not take into account the potential
outcome of further factory closures for any significant length of
time.
Under the reasonably possible sensitised case, no covenant is
breached at any of the forecast testing dates being; 30 June 2021
and 31 December 2021, with the testing at 30 June 2022 also
favourable, and the Group will not require any additional sources
of finance.
The reasonably possible sensitised case has also been used as a
'reverse stress test' 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, including reducing capital
expenditure to minimum maintenance levels. Annual adjusted
operating profit would need to fall by c.GBP150 million from that
achieved in the year ended 31 December 2020 or by c.GBP350 million
from the annualised amount achieved in the second half of the year,
before a covenant breach would occur in the assessment period.
2. Alternative Performance Measures
The Group presents Alternative Performance Measures ("APMs") in
addition to the statutory results of the Group. 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 this
Preliminary Announcement 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 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 costs;
-- 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;
-- Costs associated with the gender equalisation of guaranteed
minimum pension ("GMP") for occupational schemes; 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; 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.
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; and
-- The tax effects of adjustments to profit/(loss) before
tax.
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 year results and
comparative periods where provided.
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 operating segments are as follows:
Aerospace - a multi-technology global tier one supplier of both
civil and defence airframes 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.
Nortek Air Management - comprises the Group's Air Management
businesses, which includes the Air Quality and Home Solutions
business ("AQH") and the Global Heating, Ventilation & Air
Conditioning business ("HVAC"). AQH is a leading manufacturer of
ventilation products for the professional remodelling and
replacement markets, residential new construction market and DIY
market. HVAC manufactures and sells split-system and packaged air
conditioners, heat pumps, furnaces, air handlers and parts for the
residential replacement and new construction markets along with
custom designed and engineered products and systems for data
centres and non-residential applications.
Other Industrial - comprises the Group's Ergotron, Brush and
Nortek Control (formerly Security & Smart Technology)
businesses.
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 year ended 31 December 2020.
a) Segment revenues
The Group derives its revenue from the transfer of goods and
services over time and at a point in time. The Group has assessed
that the disaggregation of revenue recognised from contracts with
customers by operating segment is appropriate as this is the
information regularly reviewed by the CODM in evaluating financial
performance. The Group also believes that presenting this
disaggregation of revenue based on the timing of transfer of goods
or services provides useful information as to the nature and timing
of revenue from contracts with customers.
Year ended 31 December 2020 Powder Nortek Other
Aerospace Automotive Metallurgy Air Management Industrial Total
Continuing operations GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ --------- ---------- ----------- --------------- ----------- ------
Adjusted revenue 2,804 3,797 905 1,227 628 9,361
Equity accounted investments (6) (566) (19) - - (591)
------------------------------ --------- ---------- ----------- --------------- ----------- ------
Revenue 2,798 3,231 886 1,227 628 8,770
------------------------------ --------- ---------- ----------- --------------- ----------- ------
Timing of revenue recognition
At a point in time 1,704 3,231 886 1,155 624 7,600
Over time 1,094 - - 72 4 1,170
------------------------------ --------- ---------- ----------- --------------- ----------- ------
Revenue 2,798 3,231 886 1,227 628 8,770
------------------------------ --------- ---------- ----------- --------------- ----------- ------
Year ended 31 December 2019 Powder Nortek Other
Aerospace Automotive Metallurgy Air Management Industrial Total
Continuing operations GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ --------- ---------- ----------- --------------- ----------- ------
Adjusted revenue 3,852 4,739 1,115 1,178 708 11,592
Equity accounted investments (16) (593) (16) - - (625)
------------------------------ --------- ---------- ----------- --------------- ----------- ------
Revenue 3,836 4,146 1,099 1,178 708 10,967
------------------------------ --------- ---------- ----------- --------------- ----------- ------
Timing of revenue recognition
At a point in time 2,644 4,146 1,099 1,157 705 9,751
Over time 1,192 - - 21 3 1,216
------------------------------ --------- ---------- ----------- --------------- ----------- ------
Revenue 3,836 4,146 1,099 1,178 708 10,967
------------------------------ --------- ---------- ----------- --------------- ----------- ------
b) Segment operating profit
Year ended 31 December
2020 Powder Nortek Other
Aerospace Automotive Metallurgy Air Management Industrial Corporate(2) Total
Continuing operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- --------- ---------- ----------- -------------- ----------- ------------ ------
Adjusted operating
profit/(loss) 14 82 39 188 63 (46) 340
Items not included in
adjusted
operating profit(1)
:
Amortisation of intangible
assets (256) (147) (52) (36) (35) - (526)
acquired in business
combinations (110) (60) (48) (3) 3 (2) (220)
Restructuring costs (133) (21) (30) - - - (184)
Impairment of assets - (30) - - - - (30)
Equity accounted investments
adjustments
Melrose equity-settled
compensation - - - - - (11) (11)
scheme charges - - - - - (5) (5)
Acquisition and disposal
costs
Impact of GMP equalisation
on UK pension schemes (1) (1) - - - - (2)
Movement in derivatives
and associated
financial assets and
liabilities (9) (2) - - - 193 182
Net release and changes
in discount rates
of fair value items 85 (4) 34 - 3 - 118
------------------------------- --------- ---------- ----------- -------------- ----------- ------------ ------
Operating (loss)/profit (410) (183) (57) 149 34 129 (338)
------------------------------- --------- ---------- ----------- -------------- ----------- ------------ ------
Finance costs (200)
Finance income 3
------------------------------- --------- ---------- ----------- -------------- ----------- ------------ ------
Loss before tax (535)
Tax 12
------------------------------- --------- ---------- ----------- -------------- ----------- ------------ ------
Loss for the year from
continuing operations (523)
------------------------------- --------- ---------- ----------- -------------- ----------- ------------ ------
Year ended 31 December
2019 Powder Nortek Other
Aerospace Automotive Metallurgy Air Management Industrial Corporate(2) Total
Continuing operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- --------- ---------- ----------- -------------- ----------- ------------ ------
Adjusted operating
profit/(loss) 409 367 117 175 86 (52) 1,102
Items not included in
adjusted
operating profit(1)
:
Amortisation of intangible
assets
acquired in business
combinations (261) (148) (48) (36) (41) - (534)
Restructuring costs (79) (83) (19) (11) (37) (9) (238)
Impairment of assets - - - - (179) - (179)
Equity accounted investments
adjustments (1) (27) - - - - (28)
Melrose equity-settled
compensation
scheme charges - - - - - (17) (17)
Net release and changes
in discount rates
of fair value items 34 79 28 11 1 - 153
Movement in derivatives
and associated
financial assets and
liabilities 2 (2) - - - 55 55
Acquisition and disposal
costs - - (1) - - 5 4
------------------------------- --------- ---------- ----------- -------------- ----------- ------------ ------
Operating profit/(loss) 104 186 77 139 (170) (18) 318
------------------------------- --------- ---------- ----------- -------------- ----------- ------------ ------
Finance costs (221)
Finance income 9
------------------------------- --------- ---------- ----------- -------------- ----------- ------------ ------
Profit before tax 106
Tax (51)
------------------------------- --------- ---------- ----------- -------------- ----------- ------------ ------
Profit for the year from
continuing operations 55
------------------------------- --------- ---------- ----------- -------------- ----------- ------------ ------
(1) Further details on adjusting items are discussed in note 4.
(2) Corporate adjusted operating loss of GBP46 million (2019:
GBP52 million), includes GBP12 million (2019: GBP20 million) of
costs in respect of divisional long-term incentive plans.
c) Segment total assets and liabilities
Total assets Total liabilities
------------------------- -------------------------
Restated
(1)
Restated
(1) 31 December 31 December
31 December 31 December
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
---------------------------- ----------- ------------ ----------- ------------
Aerospace 6,614 7,478 2,691 3,089
Automotive 5,172 5,391 2,407 2,304
Powder Metallurgy 1,816 1,906 476 472
Nortek Air Management 1,436 1,415 500 362
Other Industrial 1,129 1,237 215 259
Corporate 513 748 3,281 4,157
---------------------------- ----------- ------------ ----------- ------------
Total continuing operations 16,680 18,175 9,570 10,643
---------------------------- ----------- ------------ ----------- ------------
Discontinued operations - 65 - 46
---------------------------- ----------- ------------ ----------- ------------
Total 16,680 18,240 9,570 10,689
---------------------------- ----------- ------------ ----------- ------------
(1) Cash and cash equivalents and current interest-bearing loans
and borrowings have been restated to meet the requirements of IAS
32 as further described in note 1. This impacts the total assets
and total liabilities within Corporate.
d) Segment capital expenditure and depreciation
Capital expenditure Depreciation of Depreciation of
(1) owned assets (1) leased assets
-------------------------- -------------------------- --------------------------
Year ended Year ended Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December 31 December 31 December
2020 2019 2020 2019 2020 2019
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Aerospace 98 178 121 139 28 30
Automotive 130 231 199 194 18 16
Powder Metallurgy 33 55 61 59 9 8
Nortek Air Management 23 37 26 23 13 11
Other Industrial 6 8 10 11 5 6
Corporate - - 1 - 1 1
-------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Total continuing
operations 290 509 418 426 74 72
-------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Discontinued operations - 11 - 12 - 1
-------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Total 290 520 418 438 74 73
-------------------------- ------------ ------------ ------------ ------------ ------------ ------------
(1) Including computer software and development costs. Capital
expenditure excludes lease additions.
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 its segment assets (non-current assets excluding deferred tax
assets; non-current trade and other receivables; and non-current
derivative financial assets) by geographical location are detailed
below:
Revenue (1)
from external customers Segment assets
------------------------------ ------------------------
Year ended Year ended
31 December 31 December 31 December 31 December
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
------------------------ ------------ ------------ ----------- -----------
UK 646 1,048 2,166 2,319
Rest of Europe 1,989 2,426 4,871 5,136
North America 5,004 6,073 4,535 4,917
Other 1,131 1,420 1,223 1,328
------------------------ ------------ ------------ ----------- -----------
Continuing operations 8,770 10,967 12,795 13,700
------------------------ ------------ ------------ ----------- -----------
Discontinued operations 144 423 - -
------------------------ ------------ ------------ ----------- -----------
Total 8,914 11,390 12,795 13,700
------------------------ ------------ ------------ ----------- -----------
(1) Revenue is presented by destination.
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
operating performance of the Group.
a) Operating profit
Year ended Year ended
31 December 31 December
2020 2019
Continuing operations Notes GBPm GBPm
---------------------------------------------------- ------ ------------ ------------
Operating (loss)/profit (338) 318
------------------------------------------------------------ ------------ ------------
Amortisation of intangible assets acquired in
business combinations a 526 534
Restructuring costs b 220 238
Impairment of assets c 184 179
Equity accounted investments adjustments d 30 28
Melrose equity-settled compensation scheme charges e 11 17
Acquisition and disposal costs f 5 (4)
Impact of GMP equalisation on UK pension schemes g 2 -
Movement in derivatives and associated financial
assets and liabilities h (182) (55)
Net release and changes in discount rate of fair
value items i (118) (153)
---------------------------------------------------- ------ ------------ ------------
Total adjustments to operating (loss)/profit 678 784
------------------------------------------------------------ ------------ ------------
Adjusted operating profit 340 1,102
------------------------------------------------------------ ------------ ------------
a. The amortisation charge on intangible assets acquired in
business combinations of GBP526 million (2019: GBP534 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. Restructuring and other associated costs in the year
totalling GBP220 million (2019: GBP238 million) are shown as
adjusting items due to their size and non-trading nature. During
the year ended 31 December 2020 these included:
-- A charge of GBP110 million (2019: GBP79 million) within the
Aerospace division primarily relating to costs incurred globally to
reduce the business' headcount and cost structure in reaction to
the significant impact that COVID-19 is having on the aerospace
industry. This charge also included costs in respect of the
continuation of the business' global integration, announced last
year, to create "One Aerospace", ensuring the business is well
positioned and able to react to changes in its new environment; and
the continuation of costs relating to rationalisation projects
commenced in the previous year.
-- A charge of GBP60 million (2019: GBP83 million) within the
Automotive division, as the business has accelerated its efforts to
address its high cost base, inherited on acquisition, and best
position itself as it recovers post COVID-19.
-- A charge of GBP48 million (2019: GBP19 million) within the
Powder Metallurgy division including costs associated with
realigning the business for future demand, along with consolidation
actions started in 2019 and the commencement during 2020 of the
closure of a site in its underperforming North American Structural
business.
-- A net charge of GBP2 million (2019: GBP57 million) within the
Nortek Air Management, Other Industrial and Corporate divisions
which includes the completion of a factory consolidation within the
HVAC business; the finalisation of the changes made in the Nortek
Control business to move to a third party contract manufacturing
model; and the profit from the disposal of a Dutch property held
within the Brush business left vacant following the factory
consolidation programme commenced in 2018.
c. The write down of assets in the year of GBP184 million,
mostly recognised in the second quarter of the year as a result of
the impact of COVID-19, includes GBP133 million within the
Aerospace division. As a result of the impact of the pandemic, a
review of the operating assets of the Group was performed and
resulted in GBP159 million of fixed assets and GBP25 million of
other net operating assets being written down across certain sites
within the businesses, as they adapted to new levels of industry
demand. The write down of these assets is shown as an adjusting
item due to the unprecedented nature of the COVID-19 pandemic, its
non-trading nature and size. The charge of GBP179 million,
recognised in 2019, related to impairment of goodwill allocated to
the Nortek Control group of CGUs.
d. 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. The EAIs generated GBP591
million (2019: GBP625 million) of revenue in the year, 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.
e. The charge for the Melrose equity-settled Employee Share
Scheme, including its associated employer's tax charge, of GBP11
million (2019: GBP17 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.
f. Acquisition and disposal related costs of GBP5 million (2019:
net credit of GBP4 million), arose in the year. These items are
excluded from adjusted results due to their non-trading nature.
g. During the year the Company incurred a further GBP2 million
in respect of gender equalisation of guaranteed minimum pensions
for occupational pension schemes in the UK. This charge resulted
from amendments made in 2020 to a High Court judgment from October
2018. For consistency with the accounting treatment in 2018 and
because of its non-trading nature the charge is excluded from
adjusted results.
h. Movements in the fair value of derivative financial
instruments (primarily forward foreign currency exchange contracts
where hedge accounting is not applied) entered into within the GKN
businesses to mitigate the potential volatility of future cash
flows, on long-term foreign currency customer and supplier
contracts, along with foreign exchange movements on the associated
financial assets and liabilities is shown as an adjusting item
because of its volatility and size. This totalled a credit of
GBP182 million (2019: GBP55 million) in the year.
i. The net release of fair value items in the year of GBP118
million (2019: GBP153 million) where items have been resolved for
more favourable amounts than first anticipated is shown as an
adjusting item, avoiding positively distorting adjusted operating
profit. During the year this included a net release of GBP101
million in respect of loss-making contract provisions, held within
the GKN businesses, where either contractual terms have been
renegotiated with the relevant customer or operational efficiencies
have been identified and demonstrated for a sustained period.
b) Profit before tax
Year ended Year ended
31 December 31 December
2020 2019
Continuing operations Notes GBPm GBPm
------------------------------------------------ ------ ------------ ------------
(Loss)/profit before tax (535) 106
-------------------------------------------------------- ------------ ------------
Adjustments to operating (loss)/profit as above 678 784
Bank facility negotiation fees j 8 -
Fair value changes on cross-currency swaps k 2 (1)
------------------------------------------------ ------ ------------ ------------
Total adjustments to (loss)/profit before tax 688 783
-------------------------------------------------------- ------------ ------------
Adjusted profit before tax 153 889
-------------------------------------------------------- ------------ ------------
j. Following the impact of COVID-19, the Group paid fees in
negotiating waivers and amendments to its bank facility covenants
for the remaining period of the facilities. These fees were
immediately written off and are shown as an adjusting item because
of their non-trading nature.
k. The fair value changes on cross-currency swaps relating to
cost of hedging which are not deferred in equity, is shown as an
adjusting item because of its volatility and non-trading
nature.
c) Profit after tax
Year ended Year ended
31 December 31 December
2020 2019
Continuing operations Notes GBPm GBPm
--------------------------------------------------- ----- ------------ ------------
(Loss)/profit after tax (523) 55
--------------------------------------------------- ----- ------------ ------------
Adjustments to (loss)/profit before tax as above 688 783
Tax effect of adjustments to (loss)/profit before
tax 5 (115) (123)
Tax effect of significant restructuring 5 78 (9)
Equity accounted investments - tax l (8) (7)
--------------------------------------------------- ----- ------------ ------------
Total adjustments to (loss)/profit after tax 643 644
--------------------------------------------------- ----- ------------ ------------
Adjusted profit after tax 120 699
--------------------------------------------------- ----- ------------ ------------
l. As explained in paragraph d 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.
5. Tax
Year ended Year ended
31 December 31 December
2020 2019
Continuing operations GBPm GBPm
---------------------------------------------------------------- ------------ ------------
Analysis of tax (credit)/charge in the year:
Current tax
Current year tax charge 88 156
Adjustments in respect of prior years (12) (10)
---------------------------------------------------------------- ------------ ------------
Total current tax charge 76 146
---------------------------------------------------------------- ------------ ------------
Deferred tax
------------
Origination and reversal of temporary differences (188) (89)
Adjustments in respect of prior years - 5
Tax on the change in value of derivative financial instruments 41 (10)
Adjustments to deferred tax attributable to changes
in tax rates (6) (2)
Non-recognition of deferred tax 65 17
Recognition of previously unrecognised deferred tax
assets - (16)
---------------------------------------------------------------- ------------ ------------
Total deferred tax credit (88) (95)
---------------------------------------------------------------- ------------ ------------
Tax (credit)/charge on continuing operations (12) 51
---------------------------------------------------------------- ------------ ------------
Tax charge on discontinued operations 2 3
---------------------------------------------------------------- ------------ ------------
Total tax (credit)/charge in the year (10) 54
---------------------------------------------------------------- ------------ ------------
Analysis of (credit)/charge on continuing operations
in the year: GBPm GBPm
---------------------------------------------------------------- ------------ ------------
Tax charge in respect of adjusted profit before tax 33 190
Tax credit recognised as an adjusting item (45) (139)
---------------------------------------------------------------- ------------ ------------
Total tax (credit)/charge on continuing operations (12) 51
---------------------------------------------------------------- ------------ ------------
The tax charge of GBP33 million (2019: GBP190 million) arising
on adjusted profit before tax of GBP153 million (2019: GBP889
million), results in an effective tax rate of 21.6% (2019:
21.4%).
The GBP45 million (2019: GBP139 million) tax credit recognised
as an adjusting item includes GBP115 million (2019: GBP123 million)
in respect of tax credits on adjustments to (loss)/profit before
tax of GBP688 million (2019: GBP783 million), GBP8 million (2019:
GBP7 million) in respect of the tax on equity accounted investments
and a charge of GBP78 million (2019: credit of GBP9 million) in
respect of restructuring, being a GBP71 million (2019: GBPnil) tax
charge arising on the legal separation of the Nortek Air Management
and Ergotron businesses and a GBP7 million charge (2019: credit of
GBP9 million) arising from other internal Group restructuring.
The tax (credit)/charge for the year for continuing and
discontinued operations can be reconciled to the (loss)/profit
before tax per the Income Statement as follows:
Year ended Year ended
31 December 31 December
2020 2019
GBPm GBPm
----------------------------------------------------------- ------------ ------------
(Loss)/profit before tax:
Continuing operations (535) 106
Discontinued operations - (82)
----------------------------------------------------------- ------------ ------------
(535) 24
----------------------------------------------------------- ------------ ------------
Tax (credit)/charge on (loss)/profit before tax at the
weighted average rate of 27.0% (2019: 21.0%) (144) 5
Tax effect of:
Disallowable expenses and other permanent differences
within adjusted profit - 6
Disallowable items included within adjusting items 3 54
Temporary differences not recognised in deferred tax 65 17
Recognition of previously unrecognised deferred tax
assets - (16)
Tax credits, withholding taxes and other rate differences 6 4
Adjustments in respect of prior years (12) (5)
Tax charge/(credit) classified within adjusting items 78 (9)
Effect of changes in tax rates (6) (2)
----------------------------------------------------------- ------------ ------------
Total tax (credit)/charge for the year (10) 54
----------------------------------------------------------- ------------ ------------
The reconciliation has been performed at a blended Group tax
rate of 27.0% (2019: 21.0%) which represents the weighted average
of the tax rates applying to profits and losses in the
jurisdictions in which those results arose in 2020.
Tax charges included in Other Comprehensive Income are as
follows:
Year ended Year ended
31 December 31 December
2020 2019
GBPm GBPm
----------------------------------------------------- ------------ ------------
Deferred tax on retirement benefit obligations 42 (15)
Deferred tax on hedge relationship gains and losses (9) 16
Deferred tax on foreign currency gains and losses - 3
----------------------------------------------------- ------------ ------------
Total charge for the year 33 4
----------------------------------------------------- ------------ ------------
6. Dividends
Year ended Year ended
31 December 31 December
2020 2019
GBPm GBPm
-------------------------------------------------------- ------------ ------------
Final dividend for the year ended 31 December 2019 - -
Interim dividend for the year ended 31 December 2020 - -
Final dividend for the year ended 31 December 2018 of
3.05p - 148
Interim dividend for the year ended 31 December 2019
of 1.7p - 83
-------------------------------------------------------- ------------ ------------
- 231
-------------------------------------------------------- ------------ ------------
Proposed final dividend for the year ended 31 December 2020 of
0.75p per share totalling GBP36 million. The initially proposed
final dividend for the year ended 31 December 2019 of 3.4p per
ordinary share was withdrawn as announced on 7 May 2020.
The final dividend of 0.75p per share was proposed by the Board
on 4 March 2021 and in accordance with IAS 10: "Events after the
reporting period", has not been included as a liability in the
Consolidated Financial Statements.
7. Earnings per share
Year ended Year ended
31 December 31 December
2020 2019
Earnings attributable to owners of the parent GBPm GBPm
--------------------------------------------------------- ------------ ------------
Earnings for basis of earnings per share (536) (60)
Less: loss for the year from discontinued operations 10 106
--------------------------------------------------------- ------------ ------------
Earnings for basis of earnings per share from continuing
operations (526) 46
--------------------------------------------------------- ------------ ------------
Year ended Year ended
31 December 31 December
2020 2019
Number Number
------------------------------------------------------------ ------------ ------------
Weighted average number of ordinary shares for the purposes
of basic earnings per share (million)
Further shares for the purposes of diluted earnings 4,858 4,858
per share (million) - -
------------------------------------------------------------ ------------ ------------
Weighted average number of ordinary shares for the purposes
of diluted earnings per share (million) 4,858 4,858
------------------------------------------------------------ ------------ ------------
Year ended Year ended
31 December 31 December
2020 2019
Earnings per share pence pence
------------------------------------------- ------------ ------------
Basic earnings per share
From continuing and discontinued operations (11.0) (1.2)
From continuing operations (10.8) 0.9
From discontinued operations (0.2) (2.1)
------------------------------------------- ------------ ------------
Diluted earnings per share
From continuing and discontinued operations (11.0) (1.2)
From continuing operations (10.8) 0.9
From discontinued operations (0.2) (2.1)
------------------------------------------- ------------ ------------
Year ended Year ended
31 December 31 December
2020 2019
Adjusted earnings from continued operations GBPm GBPm
----------------------------------------------------- ------------ ------------
Adjusted earnings for the basis of adjusted earnings
per share(1) 117 693
----------------------------------------------------- ------------ ------------
(1) Adjusted earnings for the year ended 31 December 2020
comprises adjusted profit after tax of GBP120 million (2019: GBP699
million) (note 4), net of an allocation to non-controlling interest
of GBP3 million (2019: GBP6 million).
Adjusted earnings per share from continuing operations
Year ended Year ended
31 December 31 December
2020 2019
pence pence
------------
Adjusted basic earnings per share 2.4 14.3
Adjusted diluted earnings per share 2.4 14.3
------------------------------------ ------------ ------------
8. Goodwill and other intangible assets
Goodwill acquired in business combinations, net of impairment,
has been allocated to the businesses, each of which comprises
several cash-generating units ("CGUs").
31 December 31 December
2020 2019
Goodwill GBPm GBPm
-------------------------- ----------- -----------
AQH 345 355
HVAC 230 237
Nortek Control 167 172
Ergotron 406 418
Aerostructures(1) 605 595
Aerospace Engine Systems 337 346
-------------------------- ----------- -----------
Aerospace 942 941
-------------------------- ----------- -----------
Automotive Driveline 690 688
Automotive ePowertrain 336 339
-------------------------- ----------- -----------
Automotive 1,026 1,027
-------------------------- ----------- -----------
Powder Metallurgy 524 503
-------------------------- ----------- -----------
3,640 3,653
-------------------------- ----------- -----------
(1) Reflects the revised groups of CGUs effective 1 January 2020
whereby the Aerostructures and Aerospace Special Technologies
groups of CGUs were organised into one group of CGUs.
Impairment testing
The Group tests goodwill annually or more frequently if there
are indications that goodwill might be impaired. In accordance with
IAS 36: "Impairment of assets" the Group values goodwill at the
recoverable amount, being the higher of the value in use basis and
the fair value less costs to sell basis. Due to the maturity of the
different groups of CGUs within Melrose's strategic life cycle of
"Buy, Improve, Sell" the value in use methodology generally yields
a higher recoverable amount for businesses owned for a longer time
and fair value less costs to sell give a higher value where the
improvement phase is ongoing.
Value in use calculations have been used to determine the
recoverable amount of goodwill and other relevant net assets
allocated to the AQH, HVAC and Ergotron groups of CGUs. The
calculation used the latest approved forecasts extrapolated into
perpetuity using growth rates shown below, which do not exceed the
long-term growth rate for the relevant market.
Fair value less costs to sell calculations have been used to
determine the recoverable amount of goodwill and other relevant net
assets allocated to the Aerostructures, Aerospace Engine Systems,
Automotive Driveline, Automotive ePowertrain, Powder Metallurgy and
Nortek Control groups of CGUs. When applying the fair value less
cost to sell methodology, it has been difficult to assess a sale
value using observable market inputs (level 1) or inputs based on
market evidence (level 2) in the current environment and so
unobservable inputs (level 3) have been used. A combination of
discounted cash flows and EBITDA multiples have been used to
establish fair values for each of the groups of CGUs.
Under IAS 36, the value in use basis prohibits inclusion of
benefits from future uncommitted restructuring plans although this
is permitted when applying the fair value less costs to sell basis,
to the extent that similar actions would be carried out by a market
participant.
Based on impairment testing completed no impairment was
identified in respect of any of the groups of CGUs. Impairment
testing has been performed for both the groups of CGUs as at 31
October 2020, as well as those revised groups of CGUs as at 31
December 2020. There is no reasonably possible change in key
assumptions that could result in an impairment in the AQH and HVAC
groups of CGUs.
The COVID-19 pandemic is having a significant impact on global
end markets in which certain of the Group's businesses operate
which has resulted in reduced levels of headroom, such that
sensitivity analysis has been provided in respect of reasonably
possible changes to key assumptions.
Significant assumptions and estimates
The basis of impairment tests and the key assumptions are set
out in the tables below:
31 December 2020(1) 31 December 2019
-------------------------- ---------------------------------- ----------------------------------
Pre-tax Long-term Pre-tax Long-term
Groups of CGUs - value in discount growth Years discount growth Years
use rates rates in forecast rates rates in forecast
-------------------------- --------- --------- ------------ --------- --------- ------------
AQH 9.5% 3.0% 3 11.0% 3.3% 3
HVAC 9.5% 2.8% 3 11.2% 3.1% 3
Ergotron 9.4% 3.0% 3 10.9% 3.4% 3
-------------------------- --------- --------- ------------ --------- --------- ------------
31 December 2020(1) 31 December 2019
---------------------------- ---------------------------------- ----------------------------------
Post-tax Long-term Pre-tax Long-term
Groups of CGUs - fair value discount growth Years discount growth Years
less costs to sell rates(3) rates in forecast rates(3) rates in forecast
---------------------------- --------- --------- ------------ --------- --------- ------------
Nortek Control 7.8% 2.9% 3 11.5% 3.5% 3
Aerostructures(2) 7.5% 2.9% 5 9.4% 2.9% 5
Aerospace Engine Systems 7.0% 2.7% 5 9.4% 3.0% 5
Automotive Driveline 9.8% 2.5% 5 13.5% 2.5% 5
Automotive ePowertrain 7.8% 2.4% 5 10.0% 2.8% 5
Powder Metallurgy 9.0% 2.5% 5 11.8% 2.5% 5
---------------------------- --------- --------- ------------ --------- --------- ------------
(1) Shows discount rates used in the annual impairment test for
the year ended 31 December 2020, which was performed on 31 October
2020.
(2) Reflects the revised groups of CGUs effective 1 January 2020
whereby the Aerostructures and Aerospace Special Technologies
groups of CGUs were organised into one group of CGUs.
(3) The groups of CGUs tested in 2020 had a higher recoverable
amount under the fair value less costs to sell methodology, which
requires the use of post-tax discount rates. The groups of
CGUs tested in 2019 had a higher recoverable amount under the
value in use methodology, which requires the use of pre-tax
discount rates, and so pre-tax discount rates are shown as a
comparative.
Risk adjusted discount rates
Cash flows within the AQH, HVAC and Ergotron groups of CGUs are
discounted using a pre-tax discount rate specific to each group of
CGUs. Cash flows within the Aerostructures, Aerospace Engine
Systems, Automotive Driveline, Automotive ePowertrain, Powder
Metallurgy and Nortek Control groups of CGUs are discounted using a
post-tax discount rate specific to each group of CGUs. Discount
rates reflect the current market assessments of the time value of
money and the territories in which the group of CGUs operates. In
determining the cost of equity, the Capital Asset Pricing Model
("CAPM") has been used. Under CAPM, the cost of equity is
determined by adding a risk premium, based on an industry
adjustment ("Beta"), to the expected return of the equity market
above the risk-free return. The relative risk adjustment reflects
the risk inherent in each group of CGUs relative to all other
sectors and geographies on average.
The cost of debt is determined using a risk-free rate based on
the cost of government bonds, and an interest rate premium
equivalent to a corporate bond with a similar credit rating to
Melrose.
Assumptions applied in financial forecasts
The Group prepares cash flow forecasts derived from financial
budgets and medium-term forecasts. Each forecast has been prepared
using a cash flow period deemed most appropriate by management,
considering the nature of each group of CGUs. The key assumptions
used in forecasting cash flows relate to future budgeted revenue
and operating margins likely to be achieved and the expected rates
of long-term growth by market sector. Underlying factors in
determining the values assigned to each key assumption are shown
below:
Revenue growth and operating margins:
Revenue growth assumptions in the forecast period are based on
financial budgets and medium-term forecasts by management, taking
into account industry growth rates and management's historical
experience in the context of wider industry and economic
conditions. Projected sales are built up with reference to markets
and product categories. They incorporate past performance,
historical growth rates, projections of developments in key
markets, secured orders and orders forecast to be achieved in the
short to medium term given trends in the relevant market sector.
Revenue assumptions are made using external market data, where
available, and also consider the recovery period to return to pre
COVID-19 levels, and have been disclosed where appropriate for
groups of CGUs within the sensitivities below.
Operating margins have been forecast based on historical levels
achieved considering the likely impact of changing economic
environments and competitive landscapes on volumes and revenues and
the impact of management actions on costs. Projected margins
reflect the impact of all initiated projects to improve operational
efficiency and leverage scale and increase from returning sale
volumes. The projections do not include the impact of future
restructuring projects to which the Group is not yet committed,
where testing has been performed using a value in use methodology.
Where testing has been performed using the fair value less costs to
sell methodology, the assumptions to derive operating profit
margins take into account both normal cost saving activities and a
significant contribution from planned restructuring activity.
Forecasts for other operating costs are based on inflation
forecasts and supply and demand factors.
Aerospace - The key drivers for growth in revenue and operating
margins are global demand for commercial and military aircraft.
Consumer spending, passenger load factors, raw material input
costs, market expectations for aircraft production requirements,
technological advancements, and other macro-economic factors
influence demand for these products.
Automotive - The key drivers for growth in revenue and operating
margins are global demand for a large range of cars including
smaller low-cost cars to larger premium vehicles. Demand is
influenced by technological advancements particularly in electric
and full hybrid vehicles, market expectations for global vehicle
production requirements, fuel prices, raw material input costs,
consumer spending, credit availability, and other macro-economic
factors.
Powder Metallurgy - The key drivers for growth in revenue and
operating margins are trends in the automotive and industrial
markets. Market expectations for global light vehicle production
requirements, raw material input costs, technological advancements,
particularly in additive manufacturing, influence demand for these
products along with other macro-economic factors.
HVAC and AQH - The key drivers for growth in revenue and
operating margins are the levels of residential remodelling and
replacement activity, data centre global expansion and the levels
of residential and non-residential new construction in the markets
in which these businesses operate. New residential and
non-residential construction activity and, to a lesser extent,
residential remodelling and replacement activity are affected by
seasonality and cyclical factors such as interest rates, credit
availability, inflation, consumer spending, employment levels and
other macro-economic factors.
Nortek Control - The key driver for growth in revenue and
operating margins is global demand for newly-launched security and
home automation products. Consumer spending, employment levels,
regulation, technological advancements and the evolution of the
traditional security market towards home automation and other
macro-economic factors influence demand for these products.
Ergotron - The key driver for growth in revenue and operating
margins is demand for technology and wellness products in the
markets in which Ergotron operates. Seasonal factors, public
authority spending, corporate and consumer spending, employment
levels, the public awareness of wellness, regulation, technological
advancements and other macro-economic factors influence demand for
these products.
Long-term growth rates:
Long-term growth rates are based on long-term forecasts for
growth in the sectors and geography in which the group of CGUs
operates. Long-term growth rates are determined using long-term
growth rate forecasts that take into account the international
presence and the markets in which each business operates.
Sensitivity analysis impacting certain groups of CGUs
Due to the impact of COVID-19, certain businesses are mitigating
the impact of lower levels of demand through cost reduction and
efficiency actions, including restructuring. The Aerospace groups
of CGUs remain the most severely affected by the pandemic, and as
such management are not assuming that revenue returns to pre
COVID-19 levels within the five year forecast period. Other groups
of CGUs are assumed to recover within their forecast period.
Aerostructures group of CGUs - sensitivity analysis
The forecasts show headroom of GBP309 million above the carrying
amount for the Aerostructures group of CGUs. Sensitivity analysis
has been carried out and a reasonably possible change in the
discount rate and long-term growth rate from 7.5% to 8.2% or from
2.9% to 2.1% respectively would reduce headroom to GBPnil. A
failure to execute restructuring plans or a delay in currently
anticipated market recovery would impact operating profit and
operating margin assumptions and a reduction in the terminal
operating profit of 14% would reduce the terminal operating margin
by 1.0 percentage points and would reduce headroom to GBPnil. A
reasonably possible change to revenue in the final year of the
forecast period of 16% would also reduce the headroom to
GBPnil.
Aerospace Engine Systems group of CGUs - sensitivity
analysis
The forecasts show headroom of GBP437 million above the carrying
amount for the Aerospace Engine Systems group of CGUs. Sensitivity
analysis has been carried out and a reasonably possible change in
the discount rate and long-term growth rate from 7.0% to 7.7% or
from 2.7% to 1.9% respectively would reduce headroom to GBPnil. A
delay in the forecast market recovery or execution of restructuring
plans would impact operating profit and operating margin
assumptions and a reduction in the terminal operating profit of 15%
would reduce the terminal operating margin by 2.9 percentage points
and would reduce headroom to GBPnil. A reasonably possible change
to revenue in the final year of the forecast period of 16% would
also reduce the headroom to GBPnil.
Powder Metallurgy group of CGUs - sensitivity analysis
The forecasts show headroom of GBP186 million above the carrying
amount for the Powder Metallurgy group of CGUs. Sensitivity
analysis has been carried out and a reasonably possible change in
the discount rate and long-term growth rate from 9.0% to 9.8% or
from 2.5% to 1.4% respectively would reduce headroom to GBPnil.
Executing restructuring plans and optimising market penetration are
key to margin assumptions and a reduction in the terminal operating
profit of 13% would reduce the terminal operating margin by 1.8
percentage points and would reduce headroom to GBPnil.
Automotive Driveline group of CGUs - sensitivity analysis
The forecasts show headroom of GBP288 million above the carrying
amount for the Automotive Driveline group of CGUs. Sensitivity
analysis has been carried out and a reasonably possible change in
the discount rate and long-term growth rate from 9.8% to 10.6% or
from 2.5% to 1.3% respectively would reduce headroom to GBPnil. If
restructuring plans are not appropriately executed or if there is a
change in the market dynamics this could impact margin assumptions
and a reduction in the terminal operating profit of 11% would
reduce the terminal operating margin by 1.3 percentage points and
would reduce headroom to GBPnil.
Automotive ePowertrain group of CGUs - sensitivity analysis
The forecasts show headroom of GBP213 million above the carrying
amount for the Automotive ePowertrain group of CGUs. Sensitivity
analysis has been carried out and a reasonably possible change in
the discount rate and long-term growth rate from 7.8% to 8.7% or
from 2.4% to 1.1% respectively would reduce headroom to GBPnil. If
restructuring plans are not competed on a timely basis or there is
a change in the electric vehicle market dynamics these could impact
margin assumptions and a reduction in the terminal operating profit
of 18% would reduce the terminal operating margin by 1.5 percentage
points and would reduce headroom to GBPnil.
Nortek Control - sensitivity analysis
The forecasts show headroom of GBP135 million above the carrying
amount for the Nortek Control group of CGUs. Sensitivity analysis
has been carried out and a reasonably possible change in the
discount rate and long-term growth rate from 7.8% to 9.8% or from
2.9% to 0.5% respectively would reduce headroom to GBPnil. A
failure to deliver the successful launch of a new product and
exploit potential market share could impact margin assumptions and
a reduction in the terminal operating profit of 31% would reduce
the terminal operating margin by 3.2 percentage points and would
reduce headroom to GBPnil.
Ergotron - sensitivity analysis
As part of an internal reorganisation during the year, the
Ergotron group of CGUs was valued at a little above its carrying
amount. A failure to rebalance sales mix or exploit potential
market share could impact margin assumptions and a reasonably
possible small reduction in discount rate, growth rate or the
terminal operating margin would reduce headroom to GBPnil.
9. Equity accounted investments
Year ended Year ended
31 December 31 December
2020 2019
Group share of results from continuing operations GBPm GBPm
-------------------------------------------------- ------------ ------------
Revenue 591 625
Operating costs (529) (559)
-------------------------------------------------- ------------ ------------
Adjusted operating profit 62 66
Adjusting items (22) (21)
-------------------------------------------------- ------------ ------------
Profit before tax 40 45
Tax (8) (7)
-------------------------------------------------- ------------ ------------
Share of results of equity accounted investments 32 38
-------------------------------------------------- ------------ ------------
10. Provisions
Property Warranty
Loss-making related Environmental related
contracts costs and litigation costs Restructuring Other Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ----------- -------- --------------- -------- ------------- ----- ------
At 1 January 2020 384 45 155 324 114 65 1,087
Utilised (59) (2) (52) (48) (172) (3) (336)
Charge to operating
profit(1) 15 1 108 83 216 15 438
Release to operating
profit(2) (108) (2) (17) (34) (13) (8) (182)
Unwind of discount(3) 6 - - - - - 6
Acquisition of businesses - 1 - - - - 1
Exchange adjustments 3 - (3) 5 2 - 7
--------------------------- ----------- -------- --------------- -------- ------------- ----- ------
31 December 2020 241 43 191 330 147 69 1,021
--------------------------- ----------- -------- --------------- -------- ------------- ----- ------
Current 44 5 95 135 126 10 415
Non-current 197 38 96 195 21 59 606
--------------------------- ----------- -------- --------------- -------- ------------- ----- ------
241 43 191 330 147 69 1,021
--------------------------- ----------- -------- --------------- -------- ------------- ----- ------
(1) Includes GBP234 million of adjusting items and GBP204
million recognised in adjusted operating profit.
(2) Includes GBP147 million of adjusting items and GBP35 million
recognised in adjusted operating profit.
(3) Includes GBP2 million within finance costs relating to the
time value of money and GBP4 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 (note 4).
Loss-making contracts
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.
Calculation of loss-making contract provisions is based on
contract documentation and delivery expectations, along with an
estimate of directly attributable costs and represents management's
best estimate of the unavoidable costs of fulfilling the
contract.
Utilisation during the year of GBP59 million (2019: GBP83
million) has benefited adjusted operating profit with GBP32 million
recognised in Aerospace, GBP21 million recognised in Automotive,
GBP5 million recognised in Powder Metallurgy and GBP1 million
recognised in Other Industrial. In addition, GBP93 million has been
released on a net basis with a net GBP101 million shown as an
adjusting item, as described in note 4, as part of the release of
fair value items split; GBP72 million in Aerospace, GBP36 million
in Powder Metallurgy and a charge of GBP7 million in
Automotive.
Property related costs
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. Calculation of dilapidation
obligations are based on lease agreements with landlords and
external quotes, or in the absence of specific documentation,
management's best estimate of the costs required to fulfil
obligations.
Environmental and litigation
Environmental and litigation provisions relate to the estimated
remediation costs of pollution, soil and groundwater contamination
at certain sites and estimated future costs and settlements in
relation to legal claims and associated insurance obligations.
Liabilities for environmental costs are recognised when
environmental assessments are probable and the associated costs can
be reasonably estimated.
Provisions are recorded for product and general liability claims
which are probable and for which the cost can be reliably
estimated. These liabilities include an estimate of claims incurred
but not yet reported and are based on actuarial valuations using
claim data. Due to their nature, it is not possible to predict
precisely when these provisions will be utilised.
The Group has on occasion been required to take legal or other
actions to defend itself against proceedings brought by other
parties. Provisions are made for the expected costs associated with
such matters, based on past experience of similar items and other
known factors, considering professional advice received. This
represents management's best estimate of the likely outcome. The
timing of utilisation of these provisions is frequently uncertain,
reflecting the complexity of issues and the outcome of various
court proceedings and negotiations. Contractual and other
provisions represent management's best estimate of the cost of
settling future obligations and reflect management's assessment of
the likely settlement method, which may change over time. However,
no provision is made for proceedings which have been, or might be,
brought by other parties against Group companies unless management,
considering professional advice received, assess that it is more
likely than not that such proceedings may be successful.
Warranty related costs
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. The provision for warranty related costs
represents the best estimate of the expenditure required to settle
the Group's obligations, based on past experience, recent claims
and current estimates of costs relating to specific claims.
Warranty terms are, on average, between one and five years.
Restructuring
Restructuring provisions relate to committed costs in respect of
restructuring programmes, as described in note 4, usually resulting
in cash spend within one year. A restructuring provision is
recognised when the Group has developed a detailed formal plan for
the restructuring and has raised a valid expectation in those
affected that it will carry out the restructuring by either
starting to implement the plan or by announcing its main features
to those affected by it. The measurement of a restructuring
provision includes only the direct expenditures arising from the
restructuring, which are those amounts that are necessarily
entailed by the restructuring programmes.
Other
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
in the next five years.
Where appropriate, provisions have been discounted using
discount rates between 0% and 7% (31 December 2019: 0% and 7%)
depending on the territory in which the provision resides and the
length of its expected utilisation.
11. Retirement benefit obligations
Defined benefit plans
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.
Contributions
The Group committed on acquisition of GKN to contribute, and
during 2019 completed payment of, GBP150 million in total to the
GKN UK pension plans in the first 12 months of ownership, as well
as ongoing annual contributions of GBP60 million. In addition, the
Group has committed to contribute GBP270 million upon the disposal
of Powder Metallurgy, 10% of the proceeds from disposal of other
GKN businesses and 5% of the proceeds from disposal of non-GKN
businesses to the GKN UK pension plans. These commitments cease
when the funding target which has been agreed with Trustees is
achieved, being gilts plus 25 basis points for the GKN UK 2016 plan
and gilts plus 75 basis points for the GKN Group Pension Schemes
(Numbers 1 - 4).
The Group contributed GBP111 million (2019: GBP185 million,
including the remaining GBP94 million of the GBP150 million
commitment on acquisition of GKN and a GBP17 million special
contribution paid on disposals) to defined benefit pension plans
and post-employment plans in the year ended 31 December 2020. The
Group expects to contribute GBP98 million to defined benefit
pension plans and post-employment plans in 2021.
Actuarial assumptions
The major assumptions used by the actuaries in calculating the
Group's pension liabilities are as set out below:
Rate of increase Price inflation
of pensions in Discount
payment rate (RPI/CPI)
% per annum % per annum % per annum
------------------------------------ ---------------- ------------ ---------------
31 December 2020
GKN Group Pension Schemes (Numbers 1
- 4) 2.4 1.4 2.7/2.2
GKN UK 2016 Pension Plan 1.9 1.4 2.7/2.2
GKN US plans n/a 2.4 n/a
GKN Europe plans 1.4 0.6 1.4/1.4
Brush UK Pension Plan 3.1 1.4 2.7/2.2
------------------------------------ ---------------- ------------ ---------------
31 December 2019
GKN Group Pension Schemes (Numbers 1
- 4) 2.8 2.0 2.9/2.1
GKN UK 2016 Pension Plan 2.8 2.0 2.9/2.1
GKN US plans n/a 3.1 n/a
GKN Europe plans 1.5 1.1 1.5/1.5
Brush UK Pension Plan 2.8 2.0 2.9/2.1
------------------------------------ ---------------- ------------ ---------------
Balance Sheet disclosures
The amount recognised in the Consolidated Balance Sheet arising
from net liabilities in respect of defined benefit plans was as
follows:
31 December 31 December
2020 2019
GBPm GBPm
------------------------------------------------------- ----------- -----------
Present value of funded defined benefit obligations (3,930) (3,899)
Fair value of plan assets 3,775 3,412
------------------------------------------------------- ----------- -----------
Funded status (155) (487)
Present value of unfunded defined benefit obligations (683) (634)
------------------------------------------------------- ----------- -----------
Net liabilities (838) (1,121)
------------------------------------------------------- ----------- -----------
The net retirement benefit obligation is attributable to
Aerospace: liability of GBP171 million (2019: GBP353 million),
Automotive: liability of GBP693 million (2019: GBP753 million),
Powder Metallurgy: liability of GBP47 million (2019: GBP48
million), Nortek Air Management: liability of GBP21 million (2019:
GBP28 million), Other Industrial: asset of GBP30 million (2019:
GBP17 million) and Corporate: asset of GBP64 million (2019: GBP44
million).
The plan assets and liabilities at 31 December 2020 were as
follows:
UK US European Other
Plans(1) Plans Plans Plans Total
GBPm GBPm GBPm GBPm GBPm
------------------ --------- ------ -------- ------ --------
Plan assets 3,442 271 27 35 3,775
Plan liabilities (3,560) (408) (603) (42) (4,613)
------------------ --------- ------ -------- ------ --------
Net liabilities (118) (137) (576) (7) (838)
------------------ --------- ------ -------- ------ --------
(1) Includes a net liability in respect of the GKN Group Pension
Schemes (Numbers 1 - 3), GKN post-employment medical plans, and the
Nortek UK plan, and a net asset in respect of the Brush UK Pension
Plan, the GKN UK 2016 Pension Plan and the GKN Pension Scheme
Number 4.
12. Cash flow statement
Year ended Year ended
31 December 31 December
2020 2019
Notes GBPm GBPm
------------------------------------------------------ ----- ------------ ---------------
Reconciliation of operating (loss)/profit to
net cash from operating activities generated
by continuing operations
Operating (loss)/profit (338) 318
Adjusting items 4 678 784
------------------------------------------------------ ----- ------------ ---------------
Adjusted operating profit
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of computer software and development 340 1,102
costs
Share of adjusted operating profit of equity 435 434
accounted investments 57 64
Restructuring costs paid and movements in provisions (62) (66)
Defined benefit pension contributions paid(1) (150) (320)
Change in inventories (111) (183)
Change in receivables 187 (12)
Change in payables 250 72
Acquisition costs and associated transaction 4 (13) (2)
taxes - (16)
Tax paid - (117)
Interest paid on loans and borrowings (144) (166)
Interest paid on lease obligations 9 (21) (21)
------------------------------------------------------ ----- ------------ ---------------
Net cash from operating activities 768 769
------------------------------------------------------ ----- ------------ ---------------
(1) In the year ended 31 December 2019, the Company made one-off
contributions of GBP111 million, being the GBP94 million balance of
the GBP150 million upfront commitment on acquisition of GKN, and a
GBP17 million contribution following the disposal of the
Walterscheid Powertrain Group.
31 December 31 December
Reconciliation of cash and cash equivalents, net of 2020 2019
bank overdrafts GBPm GBPm
---------------------------------------------------------- ----------- -----------
Cash and cash equivalents per Balance Sheet 311 512
Bank overdrafts included within current interest-bearing
loans and borrowings (151) (195)
---------------------------------------------------------- ----------- -----------
Cash and cash equivalents, net of bank overdrafts per
Statement of Cash Flows 160 317
---------------------------------------------------------- ----------- -----------
Cash flow information relating to discontinued operations is as
follows:
Year ended Year ended
31 December 31 December
2020 2019
Cash flow from discontinued operations GBPm GBPm
-------------------------------------------------------- ------------ ------------
Net cash used in discontinued operations (3) (16)
Defined benefit pension contributions paid - (2)
Interest paid on lease obligations - (1)
Tax paid (1) (1)
-------------------------------------------------------- ------------ ------------
Net cash used in operating activities from discontinued
operations (4) (20)
-------------------------------------------------------- ------------ ------------
Purchase of property, plant and equipment (2) (12)
Disposal costs - (3)
-------------------------------------------------------- ------------ ------------
Net cash used in investing activities from discontinued
operations (2) (15)
-------------------------------------------------------- ------------ ------------
Repayment of principal under lease obligations (1) (2)
-------------------------------------------------------- ------------ ------------
Net cash used in financing activities from discontinued
operations (1) (2)
-------------------------------------------------------- ------------ ------------
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 considered to be 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:
Restated(1)
31 December 31 December
2020 2019
GBPm GBPm
------------------------------------------------------- ----------- ------------
Interest-bearing loans and borrowings - due within one
year (165) (284)
Interest-bearing loans and borrowings - due after one
year (2,926) (3,464)
------------------------------------------------------- ----------- ------------
External debt (3,091) (3,748)
Less:
Cash and cash equivalents 311 512
------------------------------------------------------- ----------- ------------
(2,780) (3,236)
Adjustments:
Impact of cross-currency swaps (89) (80)
Non-cash acquisition fair value adjustments 22 33
------------------------------------------------------- ----------- ------------
Net debt (2,847) (3,283)
------------------------------------------------------- ----------- ------------
(1) Cash and cash equivalents and current interest-bearing loans
and borrowings have been restated to meet the requirements of IAS
32 as further described in note 1. This has had no impact on net
debt.
The table below shows the key components of the movement in net
debt:
At Other Effect At
31 December Acquisitions non-cash of foreign 31 December
2019 Cash flow and disposals movements exchange 2020
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------------ --------- -------------- ----------- ------------ ------------
External debt (excluding
bank overdrafts) (3,553) 552 - - 61 (2,940)
Cross-currency swaps (80) 46 - - (55) (89)
Non-cash acquisition
fair value adjustments 33 - - (11) - 22
---------------------------- ------------ --------- -------------- ----------- ------------ ------------
(3,600) 598 - (11) 6 (3,007)
Cash and cash equivalents,
net of bank overdrafts 317 (149) (11) - 3 160
---------------------------- ------------ --------- -------------- ----------- ------------ ------------
Net debt (3,283) 449 (11) (11) 9 (2,847)
---------------------------- ------------ --------- -------------- ----------- ------------ ------------
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.
Income Statement Measures
APM
Adjusted revenue
Closest equivalent statutory measure
Revenue
------------------------------------------------------------------------------------
Reconciling items to statutory measure
Share of revenue of equity accounted investments (note 3)
------------------------------------------------------------------------------------
Definition and purpose
Adjusted revenue includes the Group's share of revenue of equity accounted
investments ("EAIs"). This enables comparability between reporting periods.
------------------------------------------------------------------------------------
Year ended Year ended
31 December 31 December
2020 2019
Revenue GBPm GBPm
-------------------------------------------------------- ------------ ------------
Revenue 8,770 10,967
Share of revenue of equity accounted investments (note
3) 591 625
-------------------------------------------------------- ------------ ------------
Adjusted revenue 9,361 11,592
-------------------------------------------------------- ------------ ------------
APM
Adjusting items
Closest equivalent statutory measure
None
------------------------------------------
Reconciling items to statutory measure
Adjusting items (note 4)
------------------------------------------
Definition and purpose
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.
------------------------------------------
APM
Adjusted operating profit
Closest equivalent statutory measure
Operating (loss)/profit(1)
---------------------------------------------------------------------------------
Reconciling items to statutory measure
Adjusting items (note 4)
---------------------------------------------------------------------------------
Definition and purpose
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.
---------------------------------------------------------------------------------
Year ended Year ended
31 December 31 December
2020 2019
Operating profit GBPm GBPm
----------------------------------------------------- ------------ ------------
Operating (loss)/profit (338) 318
Adjusting items to operating (loss)/profit (note 4) 678 784
----------------------------------------------------- ------------ ------------
Adjusted operating profit 340 1,102
----------------------------------------------------- ------------ ------------
APM
Adjusted operating margin
Closest equivalent statutory measure
Operating margin(2)
------------------------------------------
Reconciling items to statutory measure
Share of revenue of equity accounted
investments (note 3) and adjusting
items (note 4).
------------------------------------------
Definition and purpose
Adjusted operating margin represents
Adjusted operating profit as a percentage
of Adjusted revenue. The Group uses
adjusted profit measures to provide
a useful and more comparable measure
of the ongoing performance of the
Group.
------------------------------------------
APM
Adjusted profit before tax
Closest equivalent statutory measure
(Loss)/profit before tax
----------------------------------------------------------------------------------
Reconciling items to statutory measure
Adjusting items (note 4)
----------------------------------------------------------------------------------
Definition and purpose
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.
----------------------------------------------------------------------------------
Year ended Year ended
31 December 31 December
2020 2019
Profit before tax GBPm GBPm
------------------------------------------------------ ------------ ------------
(Loss)/profit before tax (535) 106
Adjusting items to (loss)/profit before tax (note 4) 688 783
------------------------------------------------------ ------------ ------------
Adjusted profit before tax 153 889
------------------------------------------------------ ------------ ------------
APM
Adjusted profit after tax
Closest equivalent statutory measure
(Loss)/profit after tax
---------------------------------------------------------------------------------
Reconciling items to statutory measure
Adjusting items (note 4)
---------------------------------------------------------------------------------
Definition and purpose
Profit after tax but before the impact of the 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.
---------------------------------------------------------------------------------
Year ended Year ended
31 December 31 December
2020 2019
Profit after tax GBPm GBPm
----------------------------------------------------- ------------ ------------
(Loss)/profit after tax (523) 55
Adjusting items to (loss)/profit after tax (note 4) 643 644
----------------------------------------------------- ------------ ------------
Adjusted profit after tax 120 699
----------------------------------------------------- ------------ ------------
APM
Adjusted EBITDA for leverage covenant purposes
Closest equivalent statutory measure
Operating (loss)/profit(1)
--------------------------------------------------------------------------------------------
Reconciling items to statutory measure
Adjusting items (note 4), depreciation of property, plant and equipment
and amortisation of computer software and development costs, imputed
lease charge, share of non-controlling interests and other adjustments
required for covenant purposes(3)
--------------------------------------------------------------------------------------------
Definition and purpose
Adjusted operating profit for 12 months prior to the reporting date,
before depreciation and impairment of property, plant and equipment and
before the amortisation and impairment of computer software and development
costs.
Adjusted EBITDA for covenant purposes is a measure used by external stakeholders
to measure performance.
--------------------------------------------------------------------------------------------
Year ended Year ended
31 December 31 December
2020 2019
Adjusted EBITDA for leverage covenant purposes GBPm GBPm
---------------------------------------------------------------- ------------ ------------
Adjusted operating profit 340 1,102
Depreciation of property, plant and equipment and amortisation
of computer software and development costs 492 498
Imputed lease charge (97) (91)
Non-controlling interests (3) (6)
Other adjustments required for covenant purposes(3) (8) 2
---------------------------------------------------------------- ------------ ------------
Adjusted EBITDA for leverage covenant purposes 724 1,505
---------------------------------------------------------------- ------------ ------------
APM
H2 annualised adjusted EBITDA for proforma leverage
Closest equivalent statutory measure
Operating (loss)/profit(1)
-----------------------------------------------------------------------------
Reconciling items to statutory measure
Adjusting items (note 4), depreciation of property, plant and equipment
and amortisation of computer software and development costs, imputed
lease charge, share of non-controlling interests and other adjustments
required for covenant purposes(3)
-----------------------------------------------------------------------------
Definition and purpose
Adjusted operating profit for the six months prior to the reporting date,
before depreciation and impairment of property, plant and equipment and
before the amortisation and impairment of computer software and development
costs. This is doubled to give a H2 annualised adjusted EBITDA for proforma
leverage.
H2 annualised adjusted EBITDA for proforma leverage is a useful indicator
to measure performance considering the pervasive impact of COVID-19 on
the Group's results for the first half of the year.
----------------------------------------------------------------------------- -----------
31 December
2020
H2 annualised adjusted EBITDA for proforma leverage GBPm
----------------------------------------------------------------------------- -----------
Adjusted EBITDA for leverage covenant purposes 724
Less: Adjusted EBITDA for leverage covenant purposes for six
months to 30 June 2020 (266)
Adjustment to H2 2020 average foreign exchange rates -
----------------------------------------------------------------------------- -----------
H2 adjusted EBITDA for proforma leverage 458
----------------------------------------------------------------------------- -----------
H2 annualised adjusted EBITDA for proforma leverage 916
----------------------------------------------------------------------------- -----------
APM
Adjusted tax rate
Closest equivalent statutory measure
Effective tax rate
-------------------------------------------------------------------------------
Reconciling items to statutory measure
Adjusting items, adjusting tax items and the tax impact of adjusting
items (note 4 and note 5)
-------------------------------------------------------------------------------
Definition and purpose
The income tax charge for the Group excluding adjusting tax, 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.
-------------------------------------------------------------------------------
Year ended Year ended
31 December 31 December
2020 2019
Adjusted tax rate GBPm GBPm
------------------------------------------------ -------------- -------------
Tax credit/(charge) per Income Statement 12 (51)
Adjusted for:
Tax impact of adjusting items (115) (123)
Tax impact of restructuring 78 (9)
Tax impact of EAIs (8) (7)
------------------------------------------------ -------------- -------------
Adjusted tax charge (33) (190)
------------------------------------------------ -------------- -------------
Adjusted profit before tax 153 889
------------------------------------------------ -------------- -------------
Adjusted tax rate 21.6% 21.4%
------------------------------------------------ -------------- -------------
APM
Adjusted basic earnings per share
Closest equivalent statutory measure
Basic earnings per share
---------------------------------------
Reconciling items to statutory measure
Adjusting items (note 4 and note
7)
---------------------------------------
Definition and purpose
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 year.
---------------------------------------
APM
Adjusted diluted earnings per share
Closest equivalent statutory measure
Diluted earnings per share
----------------------------------------
Reconciling items to statutory measure
Adjusting items (note 4 and note
7)
----------------------------------------
Definition and purpose
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 year 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
Interest cover
Closest equivalent statutory measure
None
----------------------------------------------------------------------------------
Reconciling items to statutory measure
Not applicable
----------------------------------------------------------------------------------
Definition and purpose
Adjusted EBITDA calculated for covenant purposes (including EBITDA of
businesses disposed) as a multiple of net interest payable on bank loans
and overdrafts.
This measure is used for bank covenant testing.
----------------------------------------------------------------------------------
Year ended Year ended
31 December 31 December
2020 2019
Interest cover GBPm GBPm
------------------------------------------------------ ------------ ------------
Adjusted EBITDA for leverage covenant purposes 724 1,505
Adjusted EBITDA from businesses disposed in the year 2 36
------------------------------------------------------ ------------ ------------
Adjusted EBITDA for interest cover 726 1,541
------------------------------------------------------ ------------ ------------
Interest on bank loans and overdrafts (136) (152)
Finance income 3 9
Other interest for covenant purposes(4) (9) -
------------------------------------------------------ ------------ ------------
Net finance charges for covenant purposes (142) (143)
------------------------------------------------------ ------------ ------------
Interest cover 5.1x 10.8x
------------------------------------------------------ ------------ ------------
Balance Sheet Measures
APM
Working capital
Closest equivalent statutory measure
Inventories, trade and other receivables
less trade and other payables
-----------------------------------------
Reconciling items to statutory measure
Not applicable
-----------------------------------------
Definition and purpose
Working capital comprises inventories,
current and non-current trade and
other receivables and current and
non-current trade and other payables.
This measure provides additional
information in respect of working
capital management.
-----------------------------------------
APM
Net debt
Closest equivalent statutory measure
Cash and cash equivalents less interest-bearing
loans and borrowings and finance
related derivative instruments
------------------------------------------------
Reconciling items to statutory measure
Reconciliation of net debt (note
12)
------------------------------------------------
Definition and purpose
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.
------------------------------------------------
APM
Bank covenant definition of net debt at average rates and leverage
Closest equivalent statutory measure
Cash and cash equivalents less interest-bearing loans and borrowings
and finance related derivative instruments
--------------------------------------------------------------------------------
Reconciling items to statutory measure
Impact of foreign exchange and adjustments for bank covenant purposes
--------------------------------------------------------------------------------
Definition and purpose
Net debt (as above) is presented in the Balance Sheet translated at year
end 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.
--------------------------------------------------------------------------------
31 December 31 December
2020 2019
Net debt GBPm GBPm
------------------------------------------------------ ----------- -----------
Net debt at closing rates (note 12) 2,847 3,283
Impact of foreign exchange 106 94
------------------------------------------------------ ----------- -----------
Net debt at average rates 2,953 3,377
Other adjustments required for covenant purposes - 8
------------------------------------------------------ ----------- -----------
Bank covenant definition of net debt at average rates 2,953 3,385
------------------------------------------------------ ----------- -----------
Leverage 4.1x 2.25x
------------------------------------------------------ ----------- -----------
APM
Net debt at H2 average rates and H2 annualised proforma leverage
Closest equivalent statutory measure
Cash and cash equivalents less interest-bearing loans and borrowings
and finance related derivative instruments
--------------------------------------------------------------------------------
Reconciling items to statutory measure
Impact of foreign exchange and adjustments for bank covenant purposes
--------------------------------------------------------------------------------
Definition and purpose
Net debt (as above) is presented in the Balance Sheet translated at year
end exchange rates.
H2 annualised proforma leverage is calculated as net debt at H2 average
rates divided by H2 annualised adjusted EBITDA for proforma leverage.
H2 annualised proforma leverage is a useful measure of performance considering
the pervasive impact of COVID-19 on the Group's results for the first
half of the year.
-------------------------------------------------------------------------------- -----------
31 December
2020
Net debt GBPm
-------------------------------------------------------------------------------- -----------
Net debt at closing rates (note 12) 2,847
Impact of foreign exchange 85
-------------------------------------------------------------------------------- -----------
Net debt at H2 average rates 2,932
-------------------------------------------------------------------------------- -----------
H2 annualised proforma leverage 3.2x
-------------------------------------------------------------------------------- -----------
Cash Flow Measures
APM
Adjusted operating cash flow (pre-capex) and Adjusted operating cash
flow (pre-capex) conversion
Closest equivalent statutory measure
Net cash from operating activities
--------------------------------------------------------------------------------------------
Reconciling items to statutory measure
Non-working capital items (note 12)
--------------------------------------------------------------------------------------------
Definition and purpose
Adjusted operating cash flow (pre-capex) is calculated as adjusted operating
profit before depreciation and amortisation attributable to subsidiaries,
repayment of principal under lease obligations, the positive non-cash
utilisation from loss-making contracts and movements in working capital.
Adjusted operating cash flow (pre-capex) conversion is adjusted operating
cash flow (pre-capex) divided by adjusted profit before depreciation
and amortisation attributable to subsidiaries, less repayment of principal
under lease obligations and the positive non-cash utilisation from loss-making
contracts.
This measure provides additional useful information in respect of cash
generation and is consistent with how business performance is measured
internally.
--------------------------------------------------------------------------------------------
Year ended Year ended
31 December 31 December
2020 2019
Adjusted operating cash flow (pre-capex) GBPm GBPm
---------------------------------------------------------------- ------------ ------------
340 1,102
Adjusted operating profit (62) (66)
Share of adjusted operating profit of equity accounted
investments
Depreciation of owned property, plant and equipment
and amortisation of computer software and 418 426
development costs
Depreciation of leased property, plant and equipment
and amortisation of leased computer software and development
costs 74 72
Repayment of principal under lease obligations (76) (70)
Positive non-cash utilisation from loss-making contracts (59) (81)
---------------------------------------------------------------- ------------ ------------
635 1,383
Change in inventories 187 (12)
Change in receivables 250 72
Change in payables (13) (2)
---------------------------------------------------------------- ------------ ------------
Adjusted operating cash flow (pre-capex) 1,059 1,441
---------------------------------------------------------------- ------------ ------------
Adjusted operating cash flow (pre-capex) conversion 167% 104%
---------------------------------------------------------------- ------------ ------------
APM
Movement in net working capital and percentage change
Closest equivalent statutory measure
Change in inventories, change in receivables and change in payables as
included within net cash from operating activities (note 12).
----------------------------------------------------------------------------
Reconciling items to statutory measure
Not applicable.
----------------------------------------------------------------------------
Definition and purpose
Movement in working capital represents the cash flow from inventories,
receivables and payables during the year. The percentage reduction in
net working capital is the movement in working capital divided by net
working capital as at the prior Balance Sheet date.
----------------------------------------------------------------------------
Year ended Year ended
31 December 31 December
2020 2019
Movement in working capital GBPm GBPm
----------------------------------------------- ------------- ------------
Change in inventories (note 12) 187 (12)
Change in receivables (note 12) 250 72
Change in payables (note 12) (13) (2)
----------------------------------------------- ------------- ------------
Movement in working capital 424 58
----------------------------------------------- ------------- ------------
Year ended Year ended
31 December 31 December
2019 2018
----------------------------------------------- ------------- ------------
Net working capital comprises:
Inventories 1,332 1,489
Current trade and other receivables 1,970 2,328
Non-current trade and other receivables 424 504
Current trade and other payables (2,461) (2,583)
Non-current trade and other payables (444) (762)
----------------------------------------------- ------------- ------------
Net working capital 821 976
----------------------------------------------- ------------- ------------
Percentage reduction in net working capital 52% 6%
----------------------------------------------- ------------- ------------
APM
Free cash flow
Closest equivalent statutory measure
Net increase/decrease in cash and cash equivalents
--------------------------------------------------------------------------------
Reconciling items to statutory measure
Acquisition related cash flows, dividends paid to owners of the parent,
foreign exchange, discontinued operating cash flows and other non-cash
movements
--------------------------------------------------------------------------------
Definition and purpose
Free cash flow represents cash generated from trading from continuing
businesses after all costs including restructuring, pension contributions,
tax and interest payments.
--------------------------------------------------------------------------------
Year ended Year ended
31 December 31 December
2020 2019
Free cash flow GBPm GBPm
-------------------------------------------------- ------------- -------------
Adjusted operating cash flow (pre-capex) 1,059 1,441
Net capital expenditure (292) (495)
Net interest and tax paid (162) (295)
Defined benefit pension contributions paid (111) (183)
Restructuring costs paid (172) (190)
Dividends received from EAIs 54 67
Trading net other cash flows(5) 80 (55)
-------------------------------------------------- ------------- -------------
Free cash flow 456 290
-------------------------------------------------- ------------- -------------
APM
Adjusted free cash flow
Closest equivalent statutory measure
Net increase/decrease in cash and cash equivalents
----------------------------------------------------------------------------------
Reconciling items to statutory measure
Free cash flow, as defined above, adjusted for special pension contributions
and restructuring cash flows
----------------------------------------------------------------------------------
Definition and purpose
Adjusted free cash flow represents free cash flow adjusted for special
pension contributions and restructuring cash flows.
----------------------------------------------------------------------------------
Year ended Year ended
31 December 31 December
2020 2019
Adjusted free cash flow GBPm GBPm
------------------------------------------------------ ------------ ------------
Free cash flow 456 290
Special pension contributions(6) - 111
Restructuring costs paid 172 190
------------------------------------------------------ ------------ ------------
Adjusted free cash flow 628 591
------------------------------------------------------ ------------ ------------
Increase in adjusted free cash flow compared to 2019 6% n/a
------------------------------------------------------ ------------ ------------
APM
Capital expenditure (capex)
Closest equivalent statutory measure
None
-------------------------------------------------------------------------------
Reconciling items to statutory measure
Not applicable
-------------------------------------------------------------------------------
Definition and purpose
Calculated as the purchase of owned property, plant and equipment and
computer software and expenditure on capitalised development costs during
the year, 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.
-------------------------------------------------------------------------------
APM
Capital expenditure to depreciation
ratio
Closest equivalent statutory measure
None
-----------------------------------------------------------------------------
Reconciling items to statutory measure
Not applicable
-----------------------------------------------------------------------------
Definition and purpose
Net capital expenditure divided by depreciation of owned property, plant
and equipment and amortisation of computer software and development costs.
-----------------------------------------------------------------------------
APM
Dividend per share
Closest equivalent statutory measure
Dividend per share
-------------------------------------------------------------------
Reconciling items to statutory measure
Not applicable
-------------------------------------------------------------------
Definition and purpose
Amounts payable by way of dividends in terms of pence per share.
-------------------------------------------------------------------
(1) Operating (loss)/profit is not defined within IFRS but is a
widely accepted profit measure being (loss)/profit before finance
costs, finance income and tax.
(2) Operating margin is not defined within IFRS but is a widely
accepted profit measure being derived from operating
(loss)/profit(1) divided by revenue.
(3) Included within other adjustments required for 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 in
respect of businesses classified as held for sale.
(4) Other interest for covenant purposes includes bank facility
renegotiation fees and debt issue costs paid during the year.
(5) Trading net other cash flows include non-cash movements
included in adjusted operating profit, cash paid against provisions
and dividends paid to non-controlling interests.
(6) Special pension contributions in 2019 included GBP111
million of one-off payments, being the GBP94 million balance of the
GBP150 million upfront commitment on acquisition of GKN, and a
GBP17 million contribution following the disposal of the
Walterscheid Powertrain Group.
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END
FR UOURRABUORUR
(END) Dow Jones Newswires
March 04, 2021 02:00 ET (07:00 GMT)
Melrose Industries (LSE:MRO)
Historical Stock Chart
From Mar 2024 to Apr 2024
Melrose Industries (LSE:MRO)
Historical Stock Chart
From Apr 2023 to Apr 2024
