TIDMMRO

RNS Number : 4652K

Melrose Industries PLC

02 September 2021

2 September 2021

MELROSE INDUSTRIES PLC

UNAUDITED RESULTS

FOR THE SIX MONTHSED 30 JUNE 2021

Melrose Industries PLC today announces its interim results for the six months ended 30 June 2021 ("the Period").

Highlights

 
                             Proforma(1)   Adjusted(2) results    Statutory results 
                            (post Return 
                             of Capital) 
                                    2021       2021        2020      2021       2020 
 Continuing operations              GBPm       GBPm        GBPm      GBPm       GBPm 
                           -------------  ---------  ----------  --------  --------- 
 Revenue                           3,828      3,828       3,624     3,540      3,386 
                           -------------  ---------  ----------  --------  --------- 
 Operating profit/(loss)             223        223        (11)     (137)      (618) 
                           -------------  ---------  ----------  --------  --------- 
 Profit/(loss) after 
  tax                                109        109        (80)     (151)      (585) 
                           -------------  ---------  ----------  --------  --------- 
 Diluted earnings per 
  share                             2.5p       2.2p      (1.7)p    (3.1)p    (12.1)p 
                           -------------  ---------  ----------  --------  --------- 
 Free cash flow(2)                    75         75          29       n/a        n/a 
                           -------------  ---------  ----------  --------  --------- 
 Net debt(2)                       1,029        300       3,399       n/a        n/a 
                           -------------  ---------  ----------  --------  --------- 
 Leverage(2)                        1.5x       0.5x        3.4x       n/a        n/a 
                           -------------  ---------  ----------  --------  --------- 
 

Group

-- Melrose is trading ahead of expectations, with better profit margins, better earnings per share and significantly lower net debt(2) ; building the Group's encouraging momentum

-- The commitment, made on acquisition by Melrose, to improve significantly the funding of the GKN UK defined benefit pension schemes has been delivered ahead of schedule with the funding position of the schemes transformed for the better. The funding deficit of approximately GBP1 billion has currently reduced to approximately GBP150 million. Consequently the annual contribution halves to GBP30 million with no ongoing requirement to contribute from future disposal proceeds

-- Net debt(2) at 30 June 2021 was significantly lower at GBP300 million; proforma net debt(2) at 30 June 2021 is GBP1,029 million after adjusting for the announced Return of Capital to be settled on 14 September 2021 (1.5x proforma leverage(2) )

-- Free cash flow(2) generation in the first half was GBP75 million; all the investment in restructuring costs, capital expenditure and sustainable technology has been self-funded from trading cash flows in the Period

-- The Group recorded an adjusted(2) earnings per share of 2.2 pence. Adjusting for the accretion post the announced Return of Capital and share consolidation, the Proforma EPS(2) increases to 2.5 pence. The statutory loss per share was 3.1 pence

-- The Nortek Air Management and Brush disposals both completed in the Period and Melrose has exchanged contracts for the sale of Nortek Control for $285 million, all of which are consistent with doubling shareholders' money, or more, on each acquisition

-- On 14 September Melrose is returning GBP729 million, 15 pence per share, to shareholders. In addition, the Melrose Balance Sheet has spare capacity for a significant further Capital Return next year

   --       An interim dividend of 0.75 pence per share (2020: nil) is declared 

Melrose Industries PLC Leconfield House Curzon Street London W1J 5JA Tel: 020 7647 4500 Fax: 020 7647 4501

Registered in England & Wales Registered no: 09800044 Registered office: 11(th) floor The Colmore

Building   Colmore Circus Queensway   Birmingham   West Midlands   B4 6AT 

Businesses

-- Melrose businesses own world-leading sustainable technology which provides customers with solutions to significantly reduce their impact on the environment

-- All businesses improved their adjusted(2) operating margin in the Period compared to 2020 full year: Aerospace by +2.9 ppts; Automotive by +4.0 ppts; Powder Metallurgy by +6.9 ppts; and Ergotron by +0.8 ppts. Automotive and Powder Metallurgy are ahead of plan on their restructuring projects

-- Aerospace is well positioned on many significant platforms; the civil aerospace business is now weighted more towards the faster narrowbody recovery and Defence demand remains strong. As previously indicated, significant restructuring is ongoing

-- Automotive is well placed to benefit from the transition to electric vehicles. In the first half of this year over one third of new business bookings awarded were for pure electric platforms, over 50% if full hybrid platforms are included. Additionally, during the last 18 months Automotive has been awarded six major eDrive programmes for global and Chinese vehicle manufacturers. Automotive should grow at more than double the rate of light vehicle production over the long-term

-- Powder Metallurgy is making clear market share gains, growing revenue at 43% in the first half, and with close to 70% of the business achieving more than 14% adjusted(2) operating margins

Justin Dowley, Chairman of Melrose Industries PLC, today said:

"We are continuing to see recovery in all our businesses with trading ahead of expectations. Encouragingly, our Aerospace business is now weighted towards the expected narrowbody recovery. Our Automotive and Powder Metallurgy businesses are poised for strong growth as soon as the well publicised chip shortage abates and the progression in margins is ahead of plan with more to come. As with all its promises, Melrose has delivered its acquisition funding commitment to GKN pensioners early. We have scope on our balance sheet to return more money to shareholders next year and we are excited by the upcoming possibilities."

1. Proforma results are presented to give a meaningful measure of ongoing performance, adjusting for the announced Return of Capital and the associated share consolidation

2. Described in the glossary to the 2021 Interim Financial Statements

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 interim results for the six months ended 30 June 2021 (the "Period"), which are ahead of expectations. These highlight good progress across all Group businesses.

RESULTS FOR THE CONTINUING GROUP

These results include statutory revenue for the Group of GBP3,540 million (2020: GBP3,386 million), an adjusted profit before tax of GBP141 million (2020: adjusted loss of GBP105 million) and a statutory loss before tax of GBP256 million (2020: GBP720 million).

Further details of these results are contained in the Finance Director's Review.

TRADING

The impact of the global pandemic has continued now for over a year and, while we are not yet free from the effects, our businesses are progressing well on their recovery. It is pleasing to see our GKN businesses improving their underlying performance, delivery record and customer relations.

The semi-conductor shortage, whilst not impacting directly, continues to weigh on the production output of the automotive sector and GKN Automotive and GKN Powder Metallurgy are not immune from that. However, as demonstrated at the recent Capital Markets Day, having made a number of necessary structural changes over the past 18 months, both of these businesses are performing strongly, have world-leading technology and, with some further market recovery, are well on their way to achieving their margin targets ahead of schedule.

Encouragingly, after a challenging pandemic experience, GKN Aerospace is making steady progress. We have continued to invest heavily in world-leading technology, and we are taking the necessary actions to reshape the business. With a new CEO now in place and with exposure to narrowbody aircraft, which is currently the largest part of the civil business and beginning to show recovery, GKN Aerospace is building momentum and your Board is confident that it will achieve our margin expectations as volumes recover.

All businesses have continued to be robustly cash generative, even as significant investments have been made for future growth during the market recovery. Proforma net debt has been reduced to GBP1,029 million after adjustment for the announced Return of Capital, and proforma leverage is now a prudent 1.5 times adjusted EBITDA.

The Chief Executive's Review provides greater detail on the Group's trading for the Period.

M&A ACTIVITY

During the Period, we successfully completed the sales of the Nortek Air Management division and the Brush business and have recently agreed the sale of Nortek Control for $285 million. These mark successful outcomes for shareholders, with the businesses going to good new homes in which their development can be continued. The GBP2.8 billion gross sale proceeds (including Nortek Control), together with the value of the retained Ergotron business, mean shareholders are on track to enjoy a doubling of their equity investment in the Nortek acquisition. Meanwhile Brush marks the last business to be sold from the highly successful FKI acquisition, which has delivered shareholders a 2.6x equity return.

RETURN OF CAPITAL

The Return of Capital following the sales of Nortek Air Management and Brush has been approved by shareholders, with the post consolidation shares admitted to trading on Tuesday of this week and the distribution to shareholders to be settled on 14 September 2021.

In addition, as referred to in the 22 June 2021 announcement and recognising the current prudent funding position of the Group, on the assumption that our businesses continue their recoveries, your Board intends to announce a further Return of Capital to shareholders with the full year results next March.

DIVID

Your Board has declared an interim dividend of 0.75 pence per share (2020: nil), which will be paid on 15 October 2021 to shareholders on the register at the close of business on 10 September 2021.

PENSIONS

The GKN UK pension schemes, which we inherited in 2018, had at that time an accounting deficit of GBP0.6 billion. At acquisition of GKN we increased the funding target to a prudent level which increased the funding deficit to approximately GBP1 billion. Within three years we have delivered on our funding commitment to trustees and members, ahead of schedule with the funding position for the schemes being transformed for the better. The current funding deficit has reduced to approximately GBP150 million, and therefore the annual contribution halves to GBP30 million per annum with no requirement for further contributions from future disposals. Your Board is very proud to have been able to achieve this for the GKN UK pension schemes. It is a clear illustration of Melrose delivering its acquisition promises.

Further details are contained in the Finance Director's Review.

BOARD MATTERS

Co-founder and Executive Vice Chairman David Roper retired as scheduled on 31 May 2021. Archie Kane will also retire on 31 December 2021. We thank both of them for their service, but particularly David for his significant contributions since helping to found Melrose in 2003. They will both be missed. We appointed a further two non-executive directors, Heather Lawrence and Victoria Jarman, to the Board on 1 June 2021, who will add their extensive experience, skills, and knowledge to your Board.

I am pleased to report your Board meets the guidelines of both the Hampton Alexander Review and the Parker Report.

STRATEGY AND PURPOSE

Having shown its resilience throughout the pandemic, the Melrose "Buy, Improve, Sell" strategy remains the same, with the disposals in the Period being the latest demonstration of its strength. We buy high quality underperforming manufacturing businesses and invest in making them stronger, better businesses for the benefit of all stakeholders, whilst delivering an excellent return for shareholders. Only Ergotron now remains within the Group from our Nortek acquisition and GKN has been focused on its key businesses. We remain fully committed to the successful strategy we adopted at inception in 2003.

OUTLOOK

We continue to execute well against our strategy and aims. The GKN businesses' operational performance continues to improve and if not for semi-conductor disruption in the auto markets the evidence of this would be even clearer. As end markets recover we expect the full operating margin benefit and targets to be delivered. We also continue to invest in the success of the businesses with a focus on leading sustainable technologies that secure our market positions and drive opportunity over the longer term.

Encouragingly, our Automotive division continues to secure new eDrive platform wins and demand remains strong for its core sideshaft products. Aerospace is seeing more definite signs of end market improvement, but our focus remains on operational change with much work still to be done. Powder Metallurgy performed well in the first half, and we see this progress continuing through the second half as we expect to see a full operating margin benefit when supply chain issues within the automotive sector alleviate.

Justin Dowley

Non-Executive Chairman

2 September 2021

CHIEF EXECUTIVE'S REVIEW

I am pleased with the Group's first half performance. Outlined below is an overview of each Division's performance over the Period. GKN Automotive and GKN Powder Metallurgy are ahead of plan and well progressed, with a number of key improvement and restructuring projects implemented during the year. Restructuring at GKN Powder Metallurgy is expected to be largely complete by the end of the year. A key task for GKN Powder Metallurgy is the development of its additive and hydrogen storage businesses. Whilst we appreciate and regret the effect upon our employees of some aspects of this restructuring, we have to improve our businesses' performance so that they can achieve their potential and create the best possible future prospects and competitiveness in rapidly changing times. Both businesses are being positioned in their markets to benefit from these changes as we transition to a more sustainable environment.

While GKN Aerospace results do not yet reflect the improvements already made to the underlying business, largely because of the continued COVID-19 impact on the sector, there are significant actions being undertaken to drive sustainable profitability, with more to come in the second half and through 2022. Improving the performance of our Aerospace business is a continuing focus for the months to come.

There also continues to be a strong emphasis on working capital discipline across the Group as growth has returned, which contributed to the robust cash performance, but there remains substantial opportunity for further improvements. As ever, we continue to invest heavily in the world-leading technology of our businesses, with sustainability being a key theme.

Our businesses are very well positioned to contribute to the fight against climate change and we are committed to ensuring they do so.

AEROSPACE

In the first half of the year GKN Aerospace made good progress adjusting to the ongoing COVID-related challenges in the sector. During the Period, sales were down 33% versus 2019 and 18% versus 2020 (which included a first quarter largely unaffected by COVID). Encouragingly we have started to see demand pick up in recent months, most notably due to the recovery in narrowbody build rates. We expect this to continue in the second half and then strongly into next year and beyond. GKN Aerospace is well placed to capture this recovery with established supply positions on all major narrowbody platforms, both in aerostructures and engines.

The significant ongoing cost actions taken to adjust the business to lower civil demand levels has started to read through to improving margins. We have adjusted costs to reflect the new market reality, including reducing management layers and simplifying the operating structure. We are taking difficult decisions to exit unprofitable business and sold two non-core Dutch businesses in the Period. There are actions underway to consolidate and focus our production capabilities globally, including ongoing footprint projects in Europe and further projects are planned in North America. In the first half, we facilitated the consolidation of our three Special Security (SSA) sites in the US under one SSA Board. We are already starting to see the benefits of this more coordinated approach. Our work also continues globally to improve operational performance and there is momentum for further gains in quality and delivery performance. All these improvement actions simplify and focus GKN Aerospace, reduce costs and improve productivity. In combination they provide a clear path to achieving the operating margin target of 10% and, with further market recovery, beyond.

From a market perspective, COVID clearly continues to impact the aviation sector significantly, albeit domestic and regional air travel is now recovering in all geographies. GKN Aerospace is well placed to grow revenues given the forecasted increase in narrowbody build rates and the continued positive outlook for major Defence programmes. The business has good positions on all the high volume civil and defence aircraft platforms today. For the Engines division, we are also starting to see an increase in aftermarket demand and increasing air travel will boost revenue from flight-hour related customer contracts. In parallel, we are increasing market share where appropriately profitable, including by incorporating GKN proprietary technology, such as titanium additive manufacturing, into OE engine manufacturing.

To underpin its long-term position, GKN Aerospace has continued to maintain significant investment in developing sustainable product solutions. The business is playing a leading role in the aerospace sector's move to reducing the impact of aviation on the environment. This encompasses building and flying current aircraft far more efficiently, while also developing the next generation of aircraft and engine propulsion systems to reduce emissions. For example, GKN Aerospace continues to invest in the GBP54 million UK H2GEAR collaboration programme and the GBP50 million European Clean Sky 2 programme, both aiming to develop ground-breaking hydrogen propulsion systems to power aircraft using liquid hydrogen and generating just water as a by-product. The business has also delivered the first fully integrated wings, tail and wiring system for Eviation's Alice electric aircraft which is due to have its maiden flight later this year. These and other projects provide future growth opportunities in the years ahead with GKN Aerospace's brand new GBP32 million Global Technology Centre in Bristol, UK playing a central role.

Aerospace Outlook

GKN Aerospace has made good progress in its actions to align with the market and future opportunities although there is still much to accomplish. The business is being improved and restructured in order to benefit from market recovery, while investment continues in developing long-term sustainable technology. With these ongoing management actions and the expected ramp-up in narrowbody demand, GKN Aerospace is well placed to drive sustained sales growth and margin expansion. The recent appointment of a new CEO underpins our confidence in making good progress during the second half of this year and beyond.

AUTOMOTIVE

GKN Automotive had a good first half of the year. While the global semi-conductor shortage continues to weigh on the entire automotive sector, the business has achieved a 34% increase in sales for the Period compared to prior year, with Europe and Asia Pacific ahead of the Americas, and China up by 21%.

Whilst volatility remains, management are ahead of plan in implementing strong, additional measures to control costs and working capital. These efforts have been supported by the continued delivery of GKN Automotive's 'Full Potential' transformational programme. This progress has contributed to the business achieving 8% decremental margins in the first half compared to the second half of 2020 and holding adjusted operating margins at 6.2%, showing a clear path to its operating margin target of at least 10%.

As outlined during the Capital Markets Day in May 2021, GKN Automotive is optimally placed to benefit from the shift towards electrified mobility. As the world transitions to electric vehicles (EV), its world-leading drive system portfolio has secured strong market share amongst both global automotive OEMs and pure-play electric vehicle manufacturers. To compliment the business' leadership position in driveshafts, Melrose has accelerated GKN Automotive's investment in next generation eDrive capabilities, to capture the significant growth opportunities presented by the increasing demand for electric vehicles, including investment in eDrive R&D of over GBP50 million per year. This has been critical in placing GKN Automotive at the forefront of the global switch to electric vehicles.

The UK based Abingdon Innovation Centre, expanded as part of the GKN global R&D investment, has already received over GBP1 million from the Melrose Skills Fund, with a further GBP4 million to follow in supporting the switch to eDrive and the next generation of engineers. This has been supplemented with some grants from the UK government averaging about GBP0.5 million per year for the last three years. An important piece of this investment in Abingdon has been funding partnerships with leading research institutions in the UK automotive ecosystem, including the University of Nottingham and the University of Newcastle, as GKN Automotive continues to proactively contribute to the ongoing decarbonisation of the global automotive sector. These partnerships are leading to the development of lighter, more efficient EV powertrains for the volume automotive market.

GKN Automotive's significant investment in the EV revolution is already yielding success. Despite the pandemic, in the past 18 months GKN Automotive has secured critical eDrive awards on six key platforms for a range of major global and Chinese vehicle manufacturers and has a strong pipeline for the future. Over one third of new business bookings awarded in the first half of this year were on pure electric platforms, and over 50% including full hybrid platforms as well . Automotive is well positioned to grow at more than double the rate for light vehicle production over the long-term.

Automotive Outlook

In the second half, GKN Automotive will need to remain agile and responsive to ongoing market headwinds, including expected production volatility, materials cost inflation and supply chain disruption. However, the benefits of key restructuring projects are expected to lead to improved margins in the second half of the year and into 2022. In the event the sales in 2022 return to 2019 levels, GKN Automotive would be well on track to achieve its margin target. Your Board believes that the underlying strength of the GKN Automotive business and operations, and the results of management's actions, have positioned the business well.

POWDER METALLURGY

GKN Powder Metallurgy has continued to gain market share and sales increased by 43% compared to the first half of 2020, and were broadly equivalent to pre-pandemic sales volumes in 2019. New business wins during the first half reached approximately GBP100 million, almost 30% of which result from further consolidation of the fragmented global sintering sector. We expect to continue to benefit from the market consolidation.

GKN Powder Metallurgy reacted swiftly to the second quarter semi-conductor supply challenges with targeted cost savings. It continued to be swift in exiting non-core and unprofitable business as well as taking the necessary operational improvements to achieve 11.2% adjusted operating margins for the first half. Its targeted operating margins of 14% are within reach and we expect the necessary improvement actions to be substantially complete by the end of this year.

Hydrogen and Additive

Like our other businesses, GKN Powder Metallurgy continues to invest heavily in its technology, including into its Additive Manufacturing and Hydrogen Storage initiatives. In the short time since its successful launch of GKN Hydrogen in May 2021, the business has secured pilot schemes with key targeted partners.

Powder Metallurgy Outlook

With some predictions of an easing of semi-conductor shortage in the second half, GKN Powder Metallurgy expects to see the start of a more normalised supply period. Restructuring actions are expected to be largely complete by the end of the year and the continued investments in technology, together with a fully digitised manufacturing approach, provides the business with the confidence that it will thrive as its markets return.

OTHER INDUSTRIAL

With the sale of Brush in the Period and the agreement on 23 August 2021 to sell Nortek Control, the Other Industrial division now comprises only Ergotron.

Ergotron

Ergotron's overall sales grew 11% during the Period, driven predominantly by the Office segment as a result of the steady return to work within the US. This growth is despite Ergotron exiting some low margin business. Ergotron continued to capitalise on new market opportunities, supporting companies reopening their office spaces and employees working from home. The business continues to develop and expand its market position to serve the increasingly hybrid approach to office and home working as markets recover from COVID-19.

Following strong demand within the Healthcare segment in 2020 due to pandemic-related purchasing, the first half of 2021 saw the gradual resumption of new medical facility builds and equipment upgrades. The pursuit of these opportunities during the first half of the year was supported by several strategic operational and cost optimisation initiatives.

Ergotron Outlook

During the second half of 2021, management expect continued strong demand within the Office segment. The business is well positioned to capture future growth opportunities as its core US market continues to recover and rebuild.

Simon Peckham

Chief Executive

2 September 2021

FINANCE DIRECTOR'S REVIEW

The presentation of the results in these Condensed Interim Financial Statements is impacted by the disposals of the Nortek Air Management division and the Brush business, previously held within the Other Industrial division, and their classification as discontinued operations.

In addition, on 23 August 2021 contracts were exchanged for the disposal of the Nortek Control business, previously held within the Other Industrial division. Consistent with this, Nortek Control was shown as being held for sale at 30 June 2021 and is similarly classified as a discontinued operation.

MELROSE GROUP RESULTS - CONTINUING OPERATIONS

Statutory results:

The statutory IFRS results show revenue of GBP3,540 million (2020: GBP3,386 million), an operating loss of GBP137 million (2020: GBP618 million) and a loss before tax of GBP256 million (2020: GBP720 million). The diluted earnings per share ("EPS"), calculated using the weighted average number of shares in issue during the Period of 4,860 million (2020: 4,858 million), were a loss of 3.1 pence (2020: loss of 12.1 pence).

Adjusted results:

The adjusted results are also shown on 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. The Group's accounting policy is to consistently 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 Condensed Interim 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 period ended 30 June 2021 show revenue of GBP3,828 million (2020: GBP3,624 million), an operating profit of GBP223 million (2020: loss of GBP11 million) and a profit before tax of GBP141 million (2020: loss of GBP105 million). Adjusted diluted EPS, calculated using the weighted average number of shares in the Period, were 2.2 pence (2020: loss of 1.7 pence).

Proforma results:

Proforma results are presented for the period ended 30 June 2021 to give a meaningful measure of ongoing performance. These include the impact of the Return of Capital and share consolidation, shown as a post Balance Sheet event in these Condensed Interim Financial Statements.

Proforma earnings per share were 2.5 pence, calculated using the ongoing ordinary shares that are in issue following the 9 for 10 share capital consolidation on 31 August 2021, discussed later in this review.

Both proforma net debt and proforma leverage, presented later in this review, include the recently approved Return of Capital of GBP729 million to be made subsequent to the half year.

Tables summarising the statutory results and adjusted results by reportable segment are shown in note 3 of the Condensed Interim Financial Statements.

RECONCILIATION OF STATUTORY RESULTS TO ADJUSTED RESULTS

The following tables reconcile the Group statutory revenue and operating loss to adjusted revenue and adjusted operating profit/(loss):

 
 
                                               2021   2020 
 Continuing operations:                        GBPm   GBPm 
-------------------------------------------  ------  ----- 
 Statutory revenue                            3,540  3,386 
-------------------------------------------  ------  ----- 
 
 Adjusting item: 
-------------------------------------------  ------  ----- 
 Revenue from equity accounted investments      288    238 
-------------------------------------------  ------  ----- 
 
 Adjusted revenue                             3,828  3,624 
-------------------------------------------  ------  ----- 
 

Adjusting revenue item:

The Group has certain investments in businesses 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 period ended 30 June 2021, EAIs in the Group generated GBP288 million of revenue (2020: GBP238 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.

 
                                                     2021   2020 
 Continuing operations:                              GBPm   GBPm 
-------------------------------------------------  ------  ----- 
 Statutory operating loss                           (137)  (618) 
-------------------------------------------------  ------  ----- 
 
 Adjusting items: 
-------------------------------------------------  ------  ----- 
 Amortisation of intangible assets acquired in 
  business combinations                               226    236 
-------------------------------------------------  ------  ----- 
 Restructuring costs                                   85     95 
-------------------------------------------------  ------  ----- 
 Currency movements in derivatives and movements 
  in associated financial assets and liabilities       44     89 
-------------------------------------------------  ------  ----- 
 Other                                                  5      8 
-------------------------------------------------  ------  ----- 
 Write down of assets                                   -    179 
-------------------------------------------------  ------  ----- 
 
 Adjustments to statutory operating loss              360    607 
-------------------------------------------------  ------  ----- 
 
 Adjusted operating profit/(loss)                     223   (11) 
-------------------------------------------------  ------  ----- 
 

Adjusting items to the statutory operating loss are consistent with prior periods and include:

The amortisation charge on intangible assets acquired in business combinations of GBP226 million (2020: GBP236 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 Period of GBP85 million (2020: GBP95 million) which are shown as adjusting items due to their size and non-trading nature. During the period ended 30 June 2021 they included:

-- A charge of GBP26 million (2020: GBP43 million) within the Aerospace division including costs incurred as the business takes further steps to substantially reduce its cost structure, recognising the magnitude and length of the impact of COVID-19 on the aerospace industry. These include costs relating to the initial stages of a major footprint consolidation in The Netherlands, as well as the continued global integration programme, reducing management layers and simplifying the business, ensuring the Aerospace division is well positioned and able to react to changes in its new environment.

-- A charge of GBP52 million (2020: GBP25 million) within the Automotive division, which included the commencement of significant footprint consolidation actions in Europe incurred as the business continues to address its cost base and deliver its 'Full Potential' transformational programme with a clear path to achieving greater than 10% adjusted operating margins.

-- A total charge of GBP7 million (2020: GBP27 million) across the Powder Metallurgy, Other Industrial and Corporate divisions.

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 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 charge of GBP44 million (2020: GBP89 million) in the Period and is shown as an adjusting item because of its volatility and size.

Other adjusting items, which include: acquisition and disposal related net gains, on businesses not shown as discontinued operations, of GBP10 million (2020: net losses of GBP4 million), excluded from adjusted results due to their non-trading nature; the charge for the Melrose equity-settled Incentive Scheme, including its associated employer's tax charge, of GBP9 million (2020: GBP1 million), excluded from adjusted results due to its volatility; an adjustment of GBP15 million (2020: GBP14 million) to gross up the post-tax profits of EAIs to be consistent with the adjusted operating profits of subsidiaries within the Group; and the net release of fair value items totalling GBP9 million (2020: GBP11 million), shown as an adjusting item to avoid positively distorting adjusted results.

In the comparative period, a write down of assets of GBP179 million, which was recognised as a result of the impact of COVID-19, of which GBP133 million was within the Aerospace division, was shown as an adjusting item because of the unprecedented nature of the COVID-19 pandemic, along with its non-trading nature and size.

TAX - CONTINUING OPERATIONS

The statutory results for the Period show a tax credit of GBP105 million (2020: GBP135 million), arising on a statutory loss before tax of GBP256 million (2020: GBP720 million). The Group Income Statement current underlying adjusted tax rate is approximately 22%.

During the Period ended 30 June 2021 the Group paid tax of GBP40 million (2020: GBP5 million).

DISPOSALS AND ASSETS HELD FOR SALE

The Nortek group was acquired on 31 August 2016 for an enterprise value of GBP2.2 billion, funded by GBP1.6 billion of equity and GBP0.6 billion of debt.

On 22 June 2021, the Group completed the disposal of Nortek Air Management to Madison Industries LLC ("Madison") for gross proceeds of GBP2.6 billion, and on 23 August 2021 the Group entered into an agreement to sell Nortek Control for GBP0.2 billion, which together represented 87% of the turnover of Nortek businesses. As such, these businesses are shown as discontinued operations in all periods throughout the Condensed Interim Financial Statements and Nortek Control is held for sale at 30 June 2021.

The net proceeds associated with the disposal of Nortek Air Management and Nortek Control, plus more than GBP700 million of cash generated by the Nortek businesses since acquisition and the retention of the Ergotron business in the Group, means the Group is well placed to achieve the targeted doubling of shareholders' investment on the Nortek acquisition.

In addition, the Group disposed of the Brush business on 18 June 2021, for cash consideration of GBP0.1 billion. Brush is the final business to be sold from the FKI acquisition in 2008, which has been a highly successful investment for Melrose shareholders, providing a 2.6x return on shareholders' initial equity, equivalent to an IRR of 29%.

Discontinued businesses included GBP832 million of revenue and a statutory operating profit of GBP5 million (2020: revenue of GBP817 million and operating profit of GBP35 million) after remeasuring Nortek Control to the disposal value of GBP0.2 billion and before contributing a net GBP1.4 billion profit on disposal of businesses in the Period.

RETURN OF CAPITAL AND NUMBER OF SHARES IN ISSUE

In line with the Group's strategy, following the disposal of Nortek Air Management and Brush, a return of GBP729 million in cash to shareholders, equivalent to 15 pence per existing ordinary share was proposed and subsequently voted in favour by shareholders on 9 July 2021.

This return will be made via a redeemable preference share scheme alongside a 9 for 10 share consolidation which happened on 31 August 2021 and reduced the number of ordinary shares by 10%, from 4,858 million to 4,372 million. The weighted average number of shares used for earnings per share in calculations in 2021 will be 4,695 million.

CASH GENERATION AND MANAGEMENT

As a result of good cash management initiatives adopted by all businesses in the Group, a free cash inflow of GBP75 million (2020: GBP29 million) was achieved in the Period, after restructuring costs of GBP92 million (2020: GBP88 million). Adjusted free cash flow, shown before restructuring cash spend, was GBP167 million (2020: GBP117 million).

An analysis of the adjusted free cash flow from continuing operations is shown in the table below:

 
                                                         2021   2020 
                                                         GBPm   GBPm 
-----------------------------------------------------  ------  ----- 
 Adjusted operating profit/(loss)                         223   (11) 
-----------------------------------------------------  ------  ----- 
 Adjusted operating profit from EAIs                     (28)   (21) 
-----------------------------------------------------  ------  ----- 
 Depreciation and amortisation                            209    227 
-----------------------------------------------------  ------  ----- 
 Lease obligation payments                               (29)   (31) 
-----------------------------------------------------  ------  ----- 
 Positive non-cash impact from loss-making contracts     (23)   (31) 
-----------------------------------------------------  ------  ----- 
 Working capital movements                                  6    220 
-----------------------------------------------------  ------  ----- 
 Adjusted operating cash flow (pre-capex)                 358    353 
-----------------------------------------------------  ------  ----- 
 Net capital expenditure                                (104)  (160) 
-----------------------------------------------------  ------  ----- 
 Net interest and net tax paid                          (113)   (68) 
-----------------------------------------------------  ------  ----- 
 Defined benefit pension contributions                   (12)   (43) 
-----------------------------------------------------  ------  ----- 
 Restructuring                                           (92)   (88) 
-----------------------------------------------------  ------  ----- 
 Dividend income from equity accounted investments         26     27 
-----------------------------------------------------  ------  ----- 
 Net other                                                 12      8 
-----------------------------------------------------  ------  ----- 
 Free cash flow                                            75     29 
-----------------------------------------------------  ------  ----- 
 
 Adjusted free cash flow                                  167    117 
-----------------------------------------------------  ------  ----- 
 

Net working capital was reduced by GBP6 million (2020: GBP220 million) in the first half, despite turnover growing over the same period last year by 12% at constant currency.

Net capital expenditure in the Period was GBP104 million (2020: GBP160 million), representing 0.6x (2020: 0.8x) depreciation of owned assets, net interest paid in the Period was GBP73 million (2020: GBP63 million), tax payments were GBP40 million (2020: GBP5 million) and ongoing contributions to defined benefit pension schemes were GBP12 million (2020: GBP43 million).

The movement in net debt (as defined in the glossary to the Condensed Interim Financial Statements) is summarised as follows:

 
                                                         2021     2020 
                                                         GBPm     GBPm 
---------------------------------------------------  --------  ------- 
 Net debt at 1 January                                (2,847)  (3,283) 
---------------------------------------------------  --------  ------- 
 Non-trading items: 
---------------------------------------------------  --------  ------- 
 Net cash flow from disposal and acquisition 
  related activities                                    2,401     (25) 
---------------------------------------------------  --------  ------- 
 Dividend paid to Melrose shareholders                   (36)        - 
---------------------------------------------------  --------  ------- 
 Free cash flow from discontinued operations               56       89 
---------------------------------------------------  --------  ------- 
 Foreign exchange and other non-cash movements             51    (209) 
---------------------------------------------------  --------  ------- 
 Cash flow from non-trading items and discontinued 
  operations                                            2,472    (145) 
---------------------------------------------------  --------  ------- 
 
 Free cash flow                                            75       29 
---------------------------------------------------  --------  ------- 
 Net debt at 30 June at closing exchange rates          (300)  (3,399) 
---------------------------------------------------  --------  ------- 
 
 Net debt at 30 June at twelve month average 
  exchange rates                                        (335)  (3,330) 
---------------------------------------------------  --------  ------- 
 

Group net debt at 30 June 2021, translated at closing exchange rates (being US $1.38 and EUR1.16), was GBP300 million (31 December 2020: GBP2,847 million).

The movement in net debt during the Period consisted of a free cash inflow of GBP75 million and significant inflows primarily relating to the disposals of Nortek Air Management and Brush totalling GBP2,401 million, shown after the settlement of associated interest rate swaps totalling GBP47 million, tax paid on the extraction of Ergotron and Nortek Control from the Nortek tax group of GBP32 million and one-off contributions to defined benefit pension schemes within disposed businesses of GBP39 million. In addition, cash generated from discontinued operations totalled GBP56 million, a dividend was paid to shareholders of GBP36 million and there was a GBP51 million reduction 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 GBP335 million.

The Group net debt leverage on this basis at 30 June 2021 was 0.5x EBITDA (31 December 2020: 4.1x EBITDA), substantially below the Melrose normal leverage of 2.0x to 2.5x EBITDA.

Proforma net debt following the payment of the approved Return of Capital, discussed earlier in this review, was GBP1,029 million, with proforma leverage of 1.5x. This calculation excludes the agreed net proceeds from the disposal of Nortek Control.

PROVISIONS

Total provisions at 30 June 2021 were GBP838 million (31 December 2020: GBP1,021 million).

The following table details the movement in provisions in the Period:

 
                                                                 Total 
                                                                  GBPm 
---------------------------------------------------------------  ----- 
 Provisions at 1 January 2021                                    1,021 
---------------------------------------------------------------  ----- 
 Spend against provisions                                        (136) 
---------------------------------------------------------------  ----- 
 Net charge to adjusted operating profit                            47 
---------------------------------------------------------------  ----- 
 Net charge shown as an adjusting item in the Income Statement      68 
---------------------------------------------------------------  ----- 
 Utilisation of loss-making contract provision                    (23) 
---------------------------------------------------------------  ----- 
 Disposals                                                       (111) 
---------------------------------------------------------------  ----- 
 Other (including foreign exchange)                               (28) 
---------------------------------------------------------------  ----- 
 Provisions at 30 June 2021                                        838 
---------------------------------------------------------------  ----- 
 

The net charge to adjusted operating profit in the Period of GBP47 million, includes GBP10 million in respect of certain non-cash divisional long-term incentive plan charges. The remainder is primarily in respect of warranty, product liability and workers' compensation charges which are closely matched by similar cash payments in the Period.

The net charge shown as an adjusting item in the Income Statement of GBP68 million includes a net charge of GBP75 million related to restructuring activities which is partly offset by a net release of GBP7 million related to fair value items.

During the Period GBP136 million of cash was spent against provisions with GBP89 million relating to restructuring activities.

Provisions of GBP111 million were disposed of with the sale of the Brush and Nortek Air Management businesses and included within Other are foreign exchange movements of GBP20 million, the transfer of Nortek Control related provisions to held for sale of GBP6 million and the impact of discounting on certain provisions of GBP2 million.

PENSIONS AND POST-EMPLOYMENT OBLIGATIONS

At 30 June 2021 total plan assets of the Melrose Group's defined benefit pension plans were GBP3,212 million (31 December 2020: GBP3,775 million) and total plan liabilities were GBP3,905 million (31 December 2020: GBP4,613 million), a net deficit of GBP693 million (31 December 2020: GBP838 million). The reduction in gross assets and gross liabilities includes defined benefit pension plan assets of GBP428 million and defined benefit pension plan liabilities of GBP372 million, disposed with the Nortek Air Management and Brush businesses.

The most significant pension schemes in the Group are the GKN Group Pension Schemes (Numbers 1 - 4), two of which are allocated to Aerospace and two of which are allocated to the Automotive division. At 30 June 2021 in total these four plans had aggregate gross assets of GBP2,465 million (31 December 2020: GBP2,556 million) and liabilities of GBP2,549 million (31 December 2020: GBP2,755 million), and a net deficit of GBP84 million (31 December 2020: GBP199 million), split 47% of the deficit held within Aerospace and 53% within Automotive.

The funding commitment of the GKN UK defined benefit schemes, made by the Group when GKN was acquired in 2018, has been delivered ahead of schedule and the ongoing contributions to these defined benefit pension schemes will halve to GBP30 million per annum, with no further requirement to contribute amounts following disposals of businesses.

The values of the Group plans were updated at 30 June 2021 by independent actuaries to reflect the latest key assumptions. A summary of the assumptions used are shown in note 12 to the Condensed Interim Financial Statements.

FINANCIAL RISKS AND UNCERTAINTIES

The principal financial risks and uncertainties faced by the Group include: liquidity risk; finance cost risk; exchange rate risk; contract and warranty risk; and commodity cost risk and are explained in detail on pages 41 and 42 of the 2020 Annual Report. Further explanations and details of the strategic risk profile of the Group, which includes non-financial risk, are set out on pages 46 to 53 of the 2020 Annual Report.

EXCHANGE RATES USED IN THE PERIOD

Exchange rates used for currencies most relevant to the Group in the Period were:

 
 
                                       Average   Closing 
 US Dollar                                rate      rate 
-----------------------------------  ---------  -------- 
 Six months to 30 June 2021               1.39      1.38 
-----------------------------------  ---------  -------- 
 Twelve months to 31 December 2020        1.28      1.37 
-----------------------------------  ---------  -------- 
 Six months to 30 June 2020               1.26      1.24 
-----------------------------------  ---------  -------- 
 
 Euro 
-----------------------------------  ---------  -------- 
 Six months to 30 June 2021               1.15      1.16 
-----------------------------------  ---------  -------- 
 Twelve months to 31 December 2020        1.13      1.12 
-----------------------------------  ---------  -------- 
 Six months to 30 June 2020               1.14      1.10 
-----------------------------------  ---------  -------- 
 
 

The Group policy on foreign currency risk is explained on pages 41 and 42 of the 2020 Annual Report, a copy of which is available on the Company's website, www.melroseplc.net .

The following table shows an indication of a full year impact of a 10 percent strengthening of the major currencies, if they were to strengthen in isolation against all other currencies, on the re-translation of adjusted operating profit into Sterling:

 
 GBPm                              USD   EUR   CNY   Other 
--------------------------------  ----  ----  ----  ------ 
 Movement in adjusted operating 
  profit                            29    11     8      12 
--------------------------------  ----  ----  ----  ------ 
 % impact on adjusted operating 
  profit                            6%    2%    2%      2% 
--------------------------------  ----  ----  ----  ------ 
 

In the first half of the year the Group suffered an 8% adverse translational foreign exchange impact compared to the same period last year.

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 result in a partial natural hedge against the translational movement in profits and would have had the following impact on debt as at 30 June 2021:

 
 GBPm                  USD   EUR 
------------------    ----  ---- 
 Increase in debt       85    47 
--------------------  ----  ---- 
 

LIQUIDITY RISK MANAGEMENT

The Group's net debt position at 30 June 2021 was GBP300 million (31 December 2020: GBP2,847 million). Adjusting for the approved Return of Capital to shareholders, proforma net debt at 30 June 2021 was GBP1,029 million, as described earlier.

The Group's committed bank facilities include a multi-currency denominated term loan that is due to mature in April 2024 and a multi-currency denominated revolving credit facility that matures in January 2023:

 
                                  Local currency            GBPm 
--------------------------  -------------------------  --------- 
                              Size   Drawn   Headroom   Headroom 
--------------------------  ------  ------  ---------  --------- 
 Term loan maturing April 
  2024: 
--------------------------  ------  ------  ---------  --------- 
 USD                           960     960          -          - 
--------------------------  ------  ------  ---------  --------- 
 GBP                           100     100          -          - 
--------------------------  ------  ------  ---------  --------- 
 Revolving credit facility maturing January 2023: 
---------------------------------------------------------------- 
 USD                         2,000       -      2,000      1,449 
--------------------------  ------  ------  ---------  --------- 
 GBP                         1,100       -      1,100      1,100 
--------------------------  ------  ------  ---------  --------- 
 Euro                          500       -        500        429 
--------------------------  ------  ------  ---------  --------- 
 Total bank debt                                           2,978 
--------------------------  ------  ------  ---------  --------- 
 
 

As at 30 June 2021, the term loan was fully drawn and the multi-currency committed revolving credit facility was undrawn. Applying the exchange rates at 30 June 2021, the headroom equated to just under GBP3.0 billion (31 December 2020: GBP1.6 billion applying the exchange rates at 31 December 2020).

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 GBP1.3 billion at 30 June 2021 (31 December 2020: GBP160 million). As at 30 June 2021, GBP1.0 billion of the cash was placed in low volatility money market funds that can be withdrawn at short notice.

The Group also holds capital market borrowings as at 30 June 2021 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 tested half-yearly in June and December.

The Group had a waiver for its net debt to adjusted EBITDA covenant test as at 30 June 2021, and following the disposal of Nortek Air Management the net debt to adjusted EBITDA covenant test level will 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. At 30 June 2021 the Group leverage afforded substantial headroom and was 0.5x, or 1.5x when adjusting net debt for the agreed GBP729 million Return of Capital to shareholders.

The interest cover bank covenant test is set at 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. As at 30 June 2021 the Group interest cover was 5.6x, affording comfortable headroom.

FINANCE COST RISK MANAGEMENT

The policy of the Board is to fix approximately 70% of the interest rate exposure of the Group. Following the sale of Nortek Air Management and Brush, the Group's net debt reduced significantly and, to maintain the policy of fixing 70% of the ongoing interest rate exposure, several of the interest rate swaps were cancelled at a cost of GBP47 million.

At 30 June 2021 the weighted average cost of the instruments used to fix the cost of LIBOR on the Group's committed bank facility was c.1.2% and the bank margin on the Group's committed bank facility will reduce, following the disposal of the Nortek Air Management division and Brush business, to 0.95% on the revolving credit facility and 0.75% for the term loan from October 2021 onwards.

The Group also holds cross-currency swaps associated with the remaining fixed rate capital market borrowings, described earlier in this review, with a weighted average income statement cost of c.3.4% per annum.

The combined average Income Statement cost of the Group's debt for the next 12 months is expected to be approximately 3.6% (31 December 2020: 3.9%) before the amortisation of the bank arrangement fees and approximately 4.3% (31 December 2020: 4.2%) including this amortisation charge.

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 and internal data and recent past experience.

The Group has modelled a reasonably possible downside scenario against future cash forecasts. The Group's Balance Sheet is transformed compared to the same time last year, and for any reasonably possible downside scenario, the Group has sufficient headroom to avoid breaching any financial covenant and would not require any additional sources of financing throughout the forecast period.

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 scenario.

The Group's current committed bank facility headroom, its access to liquidity, and the sensible levels of bank covenants in place with 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 these Condensed Interim Financial Statements .

Geoffrey Martin

Group Finance Director

2 September 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.

RESPONSIBILITY STATEMENT

We confirm to the best of our knowledge:

a) the condensed financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the UK;

b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events and their impact, and description of principal risks and uncertainties for the remaining six months of the financial year); and

c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

By order of the Board

   Simon Peckham                                                                     Geoffrey Martin 

Chief Executive Group Finance Director

   2 September 2021                                                                   2 September 2021 

INDEPENT REVIEW REPORT TO MELROSE INDUSTRIES PLC

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2021 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of cash flows, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity and related notes 1 to 15. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the group will be prepared in accordance with United Kingdom adopted International Financial Reporting Standards. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with United Kingdom adopted International Accounting Standard 34, "Interim Financial Reporting".

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2021 is not prepared, in all material respects, in accordance with United Kingdom adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Use of our report

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Deloitte LLP

Statutory Auditor, London, United Kingdom

2 September 2021

Melrose Industries PLC

Condensed Consolidated Income Statement

 
                                                                 Restated 
                                                                      (1)      Restated 
                                                     6 months    6 months           (1) 
                                                        ended       ended    Year ended 
                                                      30 June     30 June   31 December 
                                                         2021        2020          2020 
                                                    Unaudited   Unaudited       Audited 
Continuing operations                       Notes        GBPm        GBPm          GBPm 
----------------------------------------  -------  ----------  ----------  ------------ 
 
Revenue                                      3          3,540       3,386         7,132 
Cost of sales                                         (2,998)     (3,052)       (6,330) 
----------------------------------------  -------  ----------  ----------  ------------ 
 
Gross profit                                              542         334           802 
 
Share of results of equity accounted 
 investments                                 8             13           7            32 
Net operating expenses                                  (692)       (959)       (1,321) 
----------------------------------------  -------  ----------  ----------  ------------ 
 
Operating loss                              3,4         (137)       (618)         (487) 
 
 
Finance costs                                           (120)       (103)         (195) 
Finance income                                              1           1             3 
 
Loss before tax                                         (256)       (720)         (679) 
Tax                                          5            105         135           114 
----------------------------------------  -------  ----------  ----------  ------------ 
 
Loss after tax for the period from 
 continuing operations                                  (151)       (585)         (565) 
 
 
Discontinued operations 
Profit for the period from discontinued 
 operations                                  9          1,318          17            32 
----------------------------------------  -------  ----------  ----------  ------------ 
 
Profit/(loss) after tax for the 
 period                                                 1,167       (568)         (533) 
----------------------------------------  -------  ----------  ----------  ------------ 
 
Attributable to: 
 
Owners of the parent                                    1,166       (569)         (536) 
Non-controlling interests                                   1           1             3 
----------------------------------------  -------  ----------  ----------  ------------ 
 
                                                        1,167       (568)         (533) 
 
 
Earnings per share 
 Continuing operations 
  - Basic                                    6         (3.1)p     (12.1)p       (11.7)p 
  - Diluted                                  6         (3.1)p     (12.1)p       (11.7)p 
 
Continuing and discontinued operations 
  - Basic                                    6          24.0p     (11.7)p       (11.0)p 
  - Diluted                                  6          24.0p     (11.7)p       (11.0)p 
 
Adjusted(2) results from continuing 
 operations 
 
Adjusted revenue                             3          3,828       3,624         7,723 
Adjusted operating profit/(loss)            3,4           223        (11)           141 
Adjusted profit/(loss) before 
 tax                                         4            141       (105)          (41) 
Adjusted profit/(loss) after 
 tax                                         4            109        (80)          (27) 
Adjusted basic earnings per share            6           2.2p      (1.7)p        (0.6)p 
Adjusted diluted earnings per 
 share                                       6           2.2p      (1.7)p        (0.6)p 
----------------------------------------  -------  ----------  ----------  ------------ 
 

(1) Results for the period ended 30 June 2020 and the year ended 31 December 2020 have been restated for discontinued operations (see note 2).

   (2)   Defined in the summary of significant accounting policies (see note 2). 

Melrose Industries PLC

Condensed Consolidated Statement of Comprehensive Income

 
 
                                                            6 months     6 months 
                                                               ended        ended     Year ended 
                                                             30 June      30 June    31 December 
                                                                2021         2020           2020 
                                                           Unaudited    Unaudited        Audited 
                                                  Notes         GBPm         GBPm           GBPm 
----------------------------------------------  -------  -----------  -----------  ------------- 
 
Profit/(loss) after tax for the period                         1,167        (568)          (533) 
---------------------------------------------- 
 
 Items that will not be reclassified 
  subsequently to the 
  Income Statement: 
Net remeasurement gain/(loss) on 
 retirement benefit obligations                                  135        (15 )            244 
Fair value gain/(loss) on investments 
 in equity instruments                                             5          (5)           (16) 
Income tax (charge)/credit relating 
 to items that will not be reclassified            5            (29)            2           (42) 
---------------------------------------------- 
 
                                                                 111         (18)            186 
 
 Items that may be reclassified subsequently 
  to the 
  Income Statement: 
Currency translation on net investments                        (128)          417           (42) 
Share of other comprehensive (expense)/income 
 from equity accounted investments                               (1)           23             16 
Transfer to Income Statement from 
 equity of cumulative translation 
 differences on disposal of foreign 
 operations                                         9             87            -              - 
Derivative gains/(losses) on hedge 
 relationships                                                    47         (97)           (99) 
Transfer to Income Statement on hedge 
 relationships                                                    38            1              8 
Income tax (charge)/credit relating 
 to items that may be reclassified                 5            (13)           10              9 
 
                                                                  30          354          (108) 
 
 
Other comprehensive income for the 
 period                                                          141          336             78 
 
 
Total comprehensive income/(expense) 
 for the period                                                1,308        (232)          (455) 
 
 
Attributable to: 
 
Owners of the parent                                           1,307        (234)          (458) 
Non-controlling interests                                          1            2              3 
----------------------------------------------  -------  -----------  -----------  ------------- 
 
                                                               1,308        (232)          (455) 
 
 

Melrose Industries PLC

Condensed Consolidated Statement of Cash Flows

 
 
                                                                       Restated 
                                                                            (1)      Restated 
                                                          6 months     6 months           (1) 
                                                             ended        ended    Year ended 
                                                           30 June      30 June   31 December 
                                                              2021         2020          2020 
                                                         Unaudited    Unaudited       Audited 
                                               Notes          GBPm         GBPm          GBPm 
-------------------------------------------  -------  ------------  -----------  ------------ 
 
Operating activities 
Net cash from operating activities 
 from continuing operations                    13              181          191           476 
Net cash from operating activities 
 from discontinued operations                  13                3          111           288 
-------------------------------------------  -------  ------------  -----------  ------------ 
 
Net cash from operating activities                             184          302           764 
 
 
Investing activities 
Disposal of businesses, net of cash 
 disposed                                       9            2,519            -            10 
Purchase of property, plant and equipment                     (98)        (145)         (253) 
Proceeds from disposal of property, 
 plant and equipment                                             3            3            25 
Purchase of computer software and 
 capitalised development costs                                 (9)         (18)          (37) 
Dividends received from equity accounted 
 investments                                                    26           27            54 
Purchase of investments                                          -          (2)           (2) 
Acquisition of subsidiaries, net of 
 cash acquired                                                   -         (21)          (19) 
Interest received                                                1            1             3 
 
Net cash from/(used in) investing 
 activities from continuing operations                       2,442        (155)         (219) 
   Net cash used in investing activities 
        from discontinued operations           13             (12)         (15)          (29) 
-------------------------------------------  -------  ------------  -----------  ------------ 
 
Net cash from/(used in) investing activities                 2,430        (170)         (248) 
 
 
Financing activities 
Repayment of borrowings                                    (1,363)         (73)         (598) 
Settlement of interest rate swaps                             (47)            -             - 
Cost of raising debt finance                                     -          (1)           (1) 
Repayment of principal under lease 
 obligations                                                  (29)         (31)          (63) 
Dividends paid to owners of the parent          7             (36)            -             - 
                                                                                 ------------ 
 
Net cash used in financing activities 
 from continuing operations                                (1,475)        (105)         (662) 
Net cash used in financing activities 
 from discontinued operations                  13              (6)          (7)          (14) 
-------------------------------------------  -------  ------------  -----------  ------------ 
 
Net cash used in financing activities                      (1,481)        (112)         (676) 
 
 
Net increase/(decrease) in cash and 
 cash equivalents, net of bank overdrafts                    1,133           20         (160) 
Cash and cash equivalents, net of 
 bank overdrafts at the beginning of 
 the period                                                    160          317           317 
Effect of foreign exchange rate changes                          5            2             3 
-------------------------------------------  ------- 
 
Cash and cash equivalents, net of 
 bank overdrafts at the end of the 
 period                                         13           1,298          339           160 
 
 
 

(1) Results for the period ended 30 June 2020 and year ended 31 December 2020 have been restated for discontinued operations (see note 2).

As at 30 June 2021, the Group had net debt of GBP300 million (31 December 2020: GBP2,847 million). A definition and reconciliation of the movement in net debt is shown in note 13.

Melrose Industries PLC

Condensed Consolidated Balance Sheet

 
                                                                                      Restated 
                                                                                           (1) 
                                                               30 June                 30 June  31 December 
                                                                  2021                    2020         2020 
                                                             Unaudited               Unaudited      Audited 
                                         Notes                    GBPm                    GBPm         GBPm 
--------------------------------------  ------  ----------------------  ----------------------  ----------- 
Non-current assets 
Goodwill and other intangible 
 assets                                                          7,607                  10,039        9,198 
Property, plant and equipment                                    2,675                   3,422        3,133 
Investments                                                         39                      49           34 
Interests in equity accounted 
 investments                                                       416                     439          430 
Deferred tax assets                                                221                     259          180 
Derivative financial assets                                         68                      42          101 
Trade and other receivables                                        463                     501          439 
--------------------------------------  ------ 
 
                                                                11,489                  14,751       13,515 
Current assets 
Inventories                                                        972                   1,317        1,126 
Trade and other receivables                                      1,317                   1,518        1,658 
Derivative financial assets                                         31                      10           47 
Current tax assets                                                  14                      18           23 
Cash and cash equivalents                                        1,329                     415          311 
Assets classified as held for 
 sale                                     9                        282                      55            - 
 
                                                                 3,945                   3,333        3,165 
 
 
Total assets                              3                     15,434                  18,084       16,680 
 
 
Current liabilities 
Trade and other payables                                         2,115                   2,274        2,456 
Interest-bearing loans and borrowings                               44                      90          165 
Lease obligations                         14                        52                      79           81 
Derivative financial liabilities                                    36                     182           58 
Current tax liabilities                                            146                     121          188 
Provisions                                10                       370                     397          415 
Liabilities associated with assets 
 held for sale                            9                         72                      40            - 
 
                                                                 2,835                   3,183        3,363 
 
 
Net current assets/(liabilities)                                 1,110                     150        (198) 
 
 
Non-current liabilities 
Trade and other payables                                           442                     438          421 
Interest-bearing loans and borrowings                            1,538                   3,615        2,926 
Lease obligations                         14                       317                     524          474 
Derivative financial liabilities                                   124                     371          210 
Deferred tax liabilities                                           627                     756          732 
Retirement benefit obligations            12                       693                   1,162          838 
Provisions                                10                       468                     711          606 
--------------------------------------  ------  ----------------------  ---------------------- 
 
                                                                 4,209                   7,577        6,207 
 
 
Total liabilities                         3                      7,044                  10,760        9,570 
 
 
Net assets                                                       8,390                   7,324        7,110 
 
 
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                                      -                     431         (30) 
Retained earnings                                                2,110                     615          861 
 
Equity attributable to owners of 
 the parent                                                      8,360                   7,296        7,081 
 
 
Non-controlling interests                                           30                      28           29 
 
 
Total equity                                                     8,390                   7,324        7,110 
 
 
 

(1) Cash and cash equivalents and current interest-bearing loans and borrowings have been restated, with no impact on net assets (see note 2).

Melrose Industries PLC

Condensed Consolidated Statement of Changes in Equity

 
                                                                                                       Equity 
                                                                                                 attributable 
                                   Issued    Share                        Translation               to owners          Non- 
                                    share  premium     Merger     Other   and hedging  Retained        of the   controlling    Total 
                                  capital  account    reserve  reserves       reserve  earnings        parent     interests   equity 
                                     GBPm     GBPm       GBPm      GBPm          GBPm      GBPm          GBPm          GBPm     GBPm 
                   ----------------------  -------  ---------  --------  ------------  -------- 
 
At 1 January 2020                     333    8,138        109   (2,330)            78     1,197         7,525            26    7,551 
 
(Loss)/profit 
 for the period                         -        -          -         -             -     (569)         (569)             1    (568) 
Other 
 comprehensive 
 income/(expense)                       -        -          -         -           353      (18)           335             1      336 
-----------------  ----------------------  -------  ---------  --------  ------------  --------  ------------  ------------  ------- 
 
Total 
 comprehensive 
 income/(expense)                       -        -          -         -           353     (587)         (234)             2    (232) 
Equity-settled 
 share-based 
 payments                               -        -          -         -             -         5             5             -        5 
-----------------  ----------------------  -------  ---------  --------  ------------  --------  ------------  ------------  ------- 
 
At 30 June 2020 
 (unaudited)                          333    8,138        109   (2,330)           431       615         7,296            28    7,324 
 
Profit for the 
 period                                 -        -          -         -             -        33            33             2       35 
Other 
 comprehensive 
 (expense)/income                       -        -          -         -         (461)       204         (257)           (1)    (258) 
-----------------  ----------------------  -------  ---------  --------  ------------  --------  ------------  ------------  ------- 
 
Total 
 comprehensive 
 (expense)/income                       -        -          -         -         (461)       237         (224)             1    (223) 
Equity-settled 
 share-based 
 payments                               -        -          -         -             -         9             9             -        9 
 
At 31 December 
 2020 (audited)                       333    8,138        109   (2,330)          (30)       861         7,081            29    7,110 
 
Profit for the 
 period                                 -        -          -         -             -     1,166         1,166             1    1,167 
Other 
 comprehensive 
 income                                 -        -          -         -            30       111           141             -      141 
-----------------  ----------------------  -------  ---------  --------  ------------  --------  ------------  ------------  ------- 
 
Total 
 comprehensive 
 income                                 -        -          -         -            30     1,277         1,307             1    1,308 
Dividends paid                          -        -          -         -             -      (36)          (36)             -     (36) 
Equity-settled 
 share-based 
 payments                               -        -          -         -             -         8             8             -        8 
 
At 30 June 2021 
 (unaudited)                          333    8,138        109   (2,330)             -     2,110         8,360            30    8,390 
 
 

Notes to the Condensed Interim Financial Statements

   1.   Corporate information 

The interim financial information for the six months ended 30 June 2021 has been reviewed by the auditor, but not audited. The information for the year ended 31 December 2020 shown in this report does not constitute statutory accounts for that year as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor has reported on those accounts. Their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

   2.   Summary of significant accounting policies 

The interim financial information for the six months ended 30 June 2021, which has been approved by the Board of Directors, has been prepared on the basis of the accounting policies set out in the Group's 2020 Annual Report on pages 143 to 152.

The Group's 2020 Annual Report can be found on the Group's website www.melroseplc.net. These Condensed Interim Financial Statements should be read in conjunction with the 2020 information. The Condensed Interim Financial Statements have been prepared in accordance with UK-endorsed International Financial Reporting Standards ("IFRS") which does not differ from the previous EU-endorsed IFRS, and hence the previously reported accounting policies still apply. These Condensed Interim Financial Statements do not comprise statutory accounts within the meaning of section 435 of the Companies Act 2006 and should be read in conjunction with the Annual Report 2020. These Condensed Interim Financial Statements have been prepared in accordance with IAS 34: "Interim Financial Reporting" contained in UK-adopted IFRS.

Discontinued operations and assets held for sale

During the first half of the year, the Group completed the disposal of the Nortek Air Management segment and the Brush business, previously included in the Other Industrial segment. In addition, the Board formally commenced a disposal process aligned to its strategic priorities, to dispose of the Nortek Control business, previously included in the Other Industrial segment, with a high expectation that this would conclude within one year. An update is provided in note 15. In accordance with IFRS 5: "Non-current assets held for sale and discontinued operations", associated assets and liabilities at 30 June 2021 are classified as held for sale and separately shown on the Balance Sheet.

The results of Nortek Air Management, Brush and Nortek Control have been classified within discontinued operations for all periods presented; with the Income Statement, the Statement of Cash Flows and their associated notes being restated accordingly. In addition, discontinued operations for 2020 include the results of the Wheels and Structures business, also classified as held for sale at 30 June 2020, which was disposed in November 2020. Further detail is shown in note 9.

Prior half year restatement of cash and cash equivalents and bank overdrafts

During the second half of 2020, the Group changed its presentation of cash and cash equivalents and bank overdrafts within the Balance Sheet relating to cash pooling arrangements. Whilst the Group has the legal right to offset amounts under these cash pooling arrangements, it was determined that the appropriate presentation should be on a gross basis in line with the requirements of IAS 32: "Financial Instruments: Presentation" and other associated interpretations. The 30 June 2020 Balance Sheet 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 GBP76 million as at 30 June 2020. This has no impact on net assets or other primary statements.

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 these Condensed Interim Financial Statements 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 gains and losses; 
 
   -- 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; 
   2.   Summary of significant accounting policies (continued) 
   -- 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; 
 
   -- Significant settlement gains and losses associated with interest rate swaps following acquisition or disposal 
      related activity, which is not considered by the Group to be part of the normal operating costs; 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; 
 
   -- The net effect of significant new tax legislation; 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 period results and comparative periods where provided.

Going concern

The Condensed Interim 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/financing headroom (c. GBP3 billion) at 30 June 2021 and throughout the going concern forecast period. Forecast covenant compliance 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.

Due to the pervasive impact of COVID-19 on certain of the Group's businesses, revised financial covenants with lending banks were agreed in 2020. These revised financial covenants, updated for the disposal of Nortek Air Management, for the going concern period are as follows:

 
                                30 June   31 December   30 June 
                                   2021          2021      2022 
-----------------------------  --------  ------------  -------- 
 Net debt to adjusted EBITDA     Waived         4.25x     4.00x 
-----------------------------  --------  ------------  -------- 
 Interest cover                   3.00x         3.00x     3.25x 
-----------------------------  --------  ------------  -------- 
 

Testing

The Group has modelled two scenarios in its assessment of going concern; a base case and a reasonably possible sensitised case.

The base case takes into account the estimated impact of a continued recovery from the COVID-19 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 period since 1 July 2021.

The reasonably possible sensitised case models more conservative sales assumptions in the remaining period of 2021 and the relevant period in 2022, however, given there is liquidity headroom of approximately GBP3 billion and the Group's leverage was 0.5x at 30 June 2021, no further sensitivity detail is provided.

Under the reasonably possible sensitised case, even with significant reductions, no covenant is breached at any of the forecast testing dates being 31 December 2021 and 30 June 2022, with the testing at 31 December 2022 also favourable, and the Group does not require any additional sources of finance, even following repayment of the GBP450 million bond in September 2022.

   2.   Summary of significant accounting policies (continued) 

In addition to the reasonably possible sensitised case a 'reverse stress test' has been prepared 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, such as reducing capital expenditure to minimum maintenance levels.

   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.

As a result of the disposal, the results of the Nortek Air Management business during the period are classified within discontinued operations and the comparative results in 2020 have been restated accordingly. In addition, the results of the Brush business, which was disposed in June 2021, and the Nortek Control business, which has been classified as held for sale as described in note 2, have also been classified as discontinued operations. The Brush and Nortek Control businesses were previously classified within the Other Industrial segment and comparative results for 2020 have been restated accordingly.

The operating segments are as follows:

Aerospace - a multi-technology global tier one supplier of both civil and defence air frames 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.

Other Industrial - comprises the Group's Ergotron business.

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 six month period ended 30 June 2021 and comparative periods.

   a)   Segment revenues 

6 months ended 30 June 2021

 
 
                                                                   Powder          Other 
                                 Aerospace      Automotive     Metallurgy     Industrial     Total 
   Continuing operations              GBPm            GBPm           GBPm           GBPm      GBPm 
------------------------------  ----------  --------------  -------------  -------------  -------- 
 
 Adjusted revenue                    1,219           1,965            535            109     3,828 
 Equity accounted investments          (3)           (272)           (13)              -     (288) 
------------------------------  ----------  --------------  -------------  -------------  -------- 
 
 Revenue                             1,216           1,693            522            109     3,540 
 
 

6 months ended 30 June 2020 - restated(1)

 
 
                                                                   Powder          Other 
                                 Aerospace      Automotive     Metallurgy     Industrial     Total 
   Continuing operations              GBPm            GBPm           GBPm           GBPm      GBPm 
------------------------------  ----------  --------------  -------------  -------------  -------- 
 
 Adjusted revenue                    1,580           1,541            396            107     3,624 
 Equity accounted investments          (3)           (228)            (7)              -     (238) 
------------------------------  ----------  --------------  -------------  -------------  -------- 
 
 Revenue                             1,577           1,313            389            107     3,386 
 
 

(1) Revenue has been restated for discontinued operations (see note 2).

   3.   Segment information (continued) 
   a)   Segment revenues (continued) 

Year ended 31 December 2020 - restated(1)

 
 
                                                              Powder          Other 
                            Aerospace      Automotive     Metallurgy     Industrial     Total 
   Continuing operations         GBPm            GBPm           GBPm           GBPm      GBPm 
-------------------------  ----------  --------------  -------------  -------------  -------- 
 
 Adjusted revenue               2,804           3,797            905            217     7,723 
 Equity accounted 
  investments                     (6)           (566)           (19)              -     (591) 
 
 Revenue                        2,798           3,231            886            217     7,132 
 
 

(1) Revenue has been restated for discontinued operations (see note 2).

   b)   Segment operating profit 
 
 6 months ended 30 June 
  2021 
 
                                                                       Powder          Other   Corporate 
                                     Aerospace      Automotive     Metallurgy     Industrial         (2)     Total 
   Continuing operations                  GBPm            GBPm           GBPm           GBPm        GBPm      GBPm 
----------------------------------  ----------  --------------  -------------  -------------  ----------  -------- 
 
 Adjusted operating profit/(loss)           41             121             60             27        (26)       223 
 
 Items not included in 
  adjusted operating profit 
  (1) : 
 Amortisation of intangible 
  assets acquired in business 
  combinations                           (122)            (71)           (25)            (8)           -     (226) 
 Restructuring costs                      (26)            (52)            (3)              -         (4)      (85) 
 Movement in derivatives 
  and associated financial 
  assets and liabilities                     -               1              -              -        (45)      (44) 
 Equity accounted investments 
  adjustments                                -            (15)              -              -           -      (15) 
 Melrose equity-settled 
  compensation scheme charges                -               -              -              -         (9)       (9) 
 Acquisition and disposal 
  related gains                              2               -              8              -           -        10 
 Net release and changes 
  in discount rates of 
  fair value items                           3               4              2              -           -         9 
 
 
 Operating (loss)/profit                 (102)            (12)             42             19        (84)     (137) 
 
 
 Finance costs                                                                                               (120) 
 Finance income                                                                                                  1 
 
 
 Loss before tax                                                                                             (256) 
 Tax                                                                                                           105 
 
 
 Loss for the period from 
  continuing operations                                                                                      (151) 
 
 

(1) For further details on adjusting items, refer to note 4.

(2) C orporate adjusted operating loss of GBP26 million includes GBP10 million of costs in respect of divisional long-term incentive plans.

   3.   Segment information (continued) 
   b)   Segment operating profit (continued) 
 
  6 months ended 30 June 
   2020 - restated(1) 
                                                                      Powder         Other   Corporate 
                                     Aerospace      Automotive    Metallurgy    Industrial         (3)     Total 
   Continuing operations                  GBPm            GBPm          GBPm          GBPm        GBPm      GBPm 
----------------------------------  ----------  --------------  ------------  ------------  ----------  -------- 
 
 Adjusted operating profit/(loss)           54            (64)           (3)            22        (20)      (11) 
 
 Items not included in 
  adjusted operating profit 
  (2) : 
 Amortisation of intangible 
  assets acquired in business 
  combinations                           (129)            (74)          (24)           (9)           -     (236) 
 Impairment of assets                    (133)            (18)          (28)             -           -     (179) 
 Restructuring costs                      (43)            (25)          (23)           (2)         (2)      (95) 
 Movement in derivatives 
  and associated financial 
  assets and liabilities                     8             (4)             -             -        (93)      (89) 
 Equity accounted investments 
  adjustments                                -            (14)             -             -           -      (14) 
 Acquisition and disposal 
  related costs                              -               -             -             -         (4)       (4) 
 Melrose equity-settled 
  compensation scheme charges                -               -             -             -         (1)       (1) 
 Net release and changes 
  in discount rates of 
  fair value items                          18            (12)             5             -           -        11 
 
 
 Operating (loss)/profit                 (225)           (211)          (73)            11       (120)     (618) 
 
 
 Finance costs                                                                                             (103) 
 Finance income                                                                                                1 
 
 
 Loss before tax                                                                                           (720) 
 Tax                                                                                                         135 
 
 
 Loss for the period from 
  continuing operations                                                                                    (585) 
 
 

(1) Operating profit has been restated for discontinued operations (see note 2).

(2) For further details on adjusting items, refer to note 4.

(3) C orporate adjusted operating loss of GBP20 million includes GBP5 million of costs in respect of divisional long-term incentive plans.

 
 Year ended 31 December 
  2020 - restated(1)                                                  Powder         Other   Corporate 
                                     Aerospace      Automotive    Metallurgy    Industrial         (3)     Total 
  Continuing operations                   GBPm            GBPm          GBPm          GBPm        GBPm      GBPm 
----------------------------------  ----------  --------------  ------------  ------------  ----------  -------- 
 
 Adjusted operating profit/(loss)           14              82            39            52        (46)       141 
 
 Items not included in 
  adjusted operating profit 
  (2) : 
 Amortisation of intangible 
  assets acquired in business 
  combinations                           (256)           (147)          (52)          (17)           -     (472) 
 Restructuring costs                     (110)            (60)          (48)           (1)         (2)     (221) 
 Impairment of assets                    (133)            (21)          (30)             -           -     (184) 
 Equity accounted investments 
  adjustments                                -            (30)             -             -           -      (30) 
 Melrose equity-settled 
  compensation scheme charges                -               -             -             -        (11)      (11) 
 Acquisition and disposal 
  related costs                              -               -             -             -         (5)       (5) 
 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             -           -       115 
 
 
 Operating (loss)/profit                 (410)           (183)          (57)            34         129     (487) 
 
 
 Finance costs                                                                                             (195) 
 Finance income                                                                                                3 
 
 
 Loss before tax                                                                                           (679) 
 Tax                                                                                                         114 
 
 
 Loss for the year from 
  continuing operations                                                                                    (565) 
 
 

(1) Operating profit has been restated for discontinued operations (see note 2).

(2) For further details on adjusting items, refer to note 4.

(3) C orporate adjusted operating loss of GBP46 million includes GBP12 million of costs in respect of divisional long-term incentive plans.

   3.   Segment information (continued) 
   c)   Segment total assets and liabilities 
 
                                  Total assets                          Total liabilities 
                     --------------------------------------  -------------------------------------- 
                                 Restated(1)    Restated(2)              Restated(1)    Restated(2) 
                       30 June       30 June    31 December    30 June       30 June    31 December 
                          2021          2020           2020       2021          2020           2020 
                          GBPm          GBPm           GBPm       GBPm          GBPm           GBPm 
-------------------  ---------  ------------  -------------  ---------  ------------  ------------- 
 Aerospace               6,295         7,384          6,614      2,337         3,096          2,691 
 Automotive              4,902         5,276          5,172      2,128         2,163          2,407 
 Powder Metallurgy       1,737         1,897          1,816        426           493            476 
 Other Industrial          607           690            604         89            94             76 
 Corporate               1,611           695            513      1,992         4,287          3,281 
-------------------  ---------  ------------  -------------  ---------  ------------  ------------- 
 Continuing 
  operations            15,152        15,942         14,719      6,972        10,133          8,931 
-------------------  ---------  ------------  -------------  ---------  ------------  ------------- 
 Discontinued 
  operations               282         2,142          1,961         72           627            639 
-------------------  ---------  ------------  -------------  ---------  ------------  ------------- 
 
 Total                  15,434        18,084         16,680      7,044        10,760          9,570 
 
 

(1) Assets and liabilities at 30 June 2020 have been restated for discontinued operations and presentation of cash and cash equivalents and bank overdrafts (see note 2).

(2) Assets and liabilities at 31 December 2020 have been restated for discontinued operations (see note 2).

   d)   Segment capital expenditure and depreciation 
 
                          Capital expenditure                        Depreciation of                       Depreciation of leased 
                                   (1)                               owned assets (1)                              assets 
                ---------------------------------------  ---------------------------------------  --------------------------------------- 
                                            Restated(2)                              Restated(2)               Restated(2)    Restated(2) 
                  6 months   Restated(2)                   6 months   Restated(2)                   6 months 
                     ended      6 months                      ended      6 months                      ended      6 months 
                                   ended     Year ended                     ended     Year ended                     ended     Year ended 
                   30 June       30 June    31 December     30 June       30 June    31 December     30 June       30 June    31 December 
                      2021          2020           2020        2021          2020           2020        2021          2020           2020 
                      GBPm          GBPm           GBPm        GBPm          GBPm           GBPm        GBPm          GBPm           GBPm 
--------------  ----------  ------------  -------------  ----------  ------------  -------------  ----------  ------------  ------------- 
 Aerospace              23            61             98          60            65            121          11            15             28 
 Automotive             46            54            130          97           100            199           8             8             18 
 Powder 
  Metallurgy            18            12             33          27            31             61           4             5              9 
 Other 
  Industrial             -             2              2           1             2              3           -             -              1 
 Corporate               -             -              -           -             -              1           1             1              1 
--------------  ----------  ------------  -------------  ----------  ------------  -------------  ----------  ------------  ------------- 
 Continuing 
  operations            87           129            263         185           198            385          24            29             57 
--------------  ----------  ------------  -------------  ----------  ------------  -------------  ----------  ------------  ------------- 
 Discontinued 
  operations            12            16             27          16            16             33           7             9             17 
--------------  ----------  ------------  -------------  ----------  ------------  -------------  ----------  ------------  ------------- 
 
 Total                  99           145            290         201           214            418          31            38             74 
 
 
 

(1) Includes computer software and development costs. Capital expenditure excludes lease additions.

(2) Capital expenditure and depreciation have been restated for discontinued operations (see note 2).

   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 specific 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 
                  ----------------------------------------  -------------------------------------- 
                               Restated(2) 
                    6 months      6 months 
                       ended         ended     Restated(2)              Restated(2) 
                     30 June       30 June      Year ended    30 June       30 June    Restated(2) 
                                               31 December                             31 December 
                        2021          2020            2020       2021          2020           2020 
                        GBPm          GBPm            GBPm       GBPm          GBPm           GBPm 
----------------  ----------  ------------  --------------  ---------  ------------  ------------- 
 
 UK                      301           309             571      2,051         2,215          2,132 
 Rest of Europe        1,027           861           1,892      4,527         5,220          4,820 
 North America         1,693         1,761           3,642      3,005         3,568          3,137 
 Other                   519           455           1,027      1,154         1,290          1,216 
----------------  ----------  ------------  --------------  ---------  ------------  ------------- 
 Continuing 
  operations           3,540         3,386           7,132     10,737        12,293         11,305 
----------------  ----------  ------------  --------------  ---------  ------------  ------------- 
 Discontinued 
  operations             832           817           1,782          -         1,656          1,490 
----------------  ----------  ------------  --------------  ---------  ------------  ------------- 
 
 Total                 4,372         4,203           8,914     10,737        13,949         12,795 
 
 

(1) Revenue is presented by destination.

(2) Revenue and segment assets have been restated for discontinued operations (see note 2).

   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 performance of the Group.

   a)   Operating profit 
 
                                                             Restated(1) 
                                                   6 months     6 months    Restated(1) 
                                                      ended        ended     Year ended 
                                                    30 June      30 June    31 December 
                                                       2021         2020           2020 
 Continuing operations                    Notes        GBPm         GBPm           GBPm 
                                                                          ------------- 
 
Operating loss                                        (137)        (618)          (487) 
------------------------------------------------  ---------  -----------  ------------- 
Amortisation of intangible assets 
 acquired in business combinations           a          226          236            472 
Restructuring costs                         b            85           95            221 
Movement in derivatives and associated 
 financial assets and liabilities            c           44           89          (182) 
Equity accounted investments 
 adjustments                                d            15           14             30 
Melrose equity-settled compensation 
 scheme charges                             e             9            1             11 
Acquisition and disposal related 
 gains and losses                           f          (10)            4              5 
Net release and changes in discount 
 rates of fair value items                  g           (9)         (11)          (115) 
Impairment of assets                                      -          179            184 
Impact of GMP equalisation on 
 UK pension schemes                                       -            -              2 
 
Total adjustments to operating 
 loss                                                   360          607            628 
 
Adjusted operating profit/(loss)                        223         (11)            141 
 
 

(1) Results have been restated for discontinued operations (see note 2).

a. The amortisation charge on intangible assets acquired in business combinations of GBP226 million (2020: GBP236 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 period of GBP85 million (2020: GBP95 million) are shown as adjusting items due to their size and non-trading nature. During the period ended 30 June 2021 they included:

-- A charge of GBP26 million (2020: GBP43 million) within the Aerospace division including costs incurred as the business takes further steps to substantially reduce its cost structure, recognising the magnitude and length of the impact of COVID-19 on the aerospace industry. These include costs relating to the initial stages of a major footprint consolidation in The Netherlands, as well as the continued global integration programme, reducing management layers and simplifying the business, ensuring the Aerospace division is well positioned and able to react to changes in its new environment.

-- A charge of GBP52 million (2020: GBP25 million) within the Automotive division, which included the commencement of significant footprint consolidation actions in Europe incurred as the business continues to address its cost base and deliver its 'Full Potential' transformational programme with a clear path to achieving greater than 10% adjusted operating margins.

-- A total charge of GBP7 million (2020: GBP27 million) across the Powder Metallurgy, Other Industrial and Corporate divisions.

c. Hedge accounting is not app lied within the GKN businesses for transactional foreign exchange exposure. Consequently, for consistency and because of their volatility and size, the movements in the fair value of derivative financial instruments (primarily forward foreign currency exchange contracts) entered into to mitigate the potential volatility of future cash flows, on long-term foreign currency customer and supplier contracts in the businesses, along with foreign exchange movements on the associated financial assets and liabilities, totalled a charge of GBP44 million (2020: GBP89 million).

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 GBP288 million (2020: GBP238 million) of revenue in the period, 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.

   4.          Reconciliation of adjusted profit measures (continued) 
   a)         Operating profit (continued) 

e. The charge for the Melrose equity-settled Incentive Scheme, including its associated employer's tax charge, of GBP9 million (2020: GBP1 million) is excluded from adjusted results due to its 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 net gains in continuing businesses of GBP10 million (2020: net losses of GBP4 million) were recorded in the period and related to profits on disposal of manufacturing sites, associated costs and reassessment of contingent consideration on a previous bolt-on acquisition. These items are excluded from adjusted results due to their non-trading nature and volatility.

g. Certain items previously recorded as fair value items on acquisitions, have been resolved for more favourable amounts than first anticipated. The net release of fair value items recognised on acquisitions in the period of GBP9 million (2020: GBP11 million) included a credit of GBP6 million relating to provisions recognised on the acquisition of GKN and a credit of GBP3 million relating to the movement in discount rates on the loss-making contract provisions recognised as fair value items. The net release of any excess fair value item is shown as an adjusting item to avoid positively distorting adjusted results.

   b)    Profit before tax 
 
                                                           Restated(1) 
                                                 6 months     6 months    Restated(1) 
                                                    ended        ended     Year ended 
                                                  30 June      30 June    31 December 
                                                     2021         2020           2020 
 Continuing operations                  Notes        GBPm         GBPm           GBPm 
-------------------------------------  -------  ---------  -----------  ------------- 
 
Loss before tax                                     (256)        (720)          (679) 
----------------------------------------------  ---------  -----------  ------------- 
 
Adjustments to operating loss 
 per above                                            360          607            628 
Settlement of interest rate swaps         h            39            -              - 
Fair value changes on cross-currency 
 swaps                                    i           (2)            4              2 
Bank facility negotiation fees                          -            4              8 
 
Total adjustments to loss before 
 tax                                                  397          615            638 
----------------------------------------------  ---------  -----------  ------------- 
 
Adjusted profit/(loss) before 
 tax                                                  141        (105)           (41) 
 
 

(1) Results have been restated for discontinued operations (see note 2).

h. On disposal of Nortek Air Management and Brush, the significant proceeds received together with future expectations of debt requirements enabled the Group to settle certain interest rate swap instruments that were no longer needed. Specific recycling from the cash flow hedge reserve, under IFRS 9, of GBP39 million has been accelerated and shown as an adjusting item due to its non-trading nature.

i. The fair value changes on cross-currency swaps relating to cost of hedging which are not deferred in equity, are shown as an adjusting item because of their volatility and non-trading nature.

   c)     Profit after tax 
 
                                                                                  Restated(1) 
                                                              6 months               6 months    Restated(1) 
                                                                 ended                  ended     Year ended 
                                                               30 June                30 June    31 December 
                                                                  2021                   2020           2020 
 Continuing operations                     Notes                  GBPm                   GBPm           GBPm 
----------------------------------------  ------  --------------------  ---------------------  ------------- 
 
Loss after tax                                                   (151)                  (585)          (565) 
----------------------------------------  ------  --------------------  ---------------------  ------------- 
 
Adjustments to loss before tax 
 per above                                                         397                    615            638 
Tax effect of adjustments to 
 loss before tax                            5                     (77)                  (106)           (99) 
Tax effect of significant legislative 
 changes                                    5                     (55)                      -              - 
Tax effect of significant restructuring                              -                      -              7 
Equity accounted investments 
 - tax                                      j                      (5)                    (4)            (8) 
----------------------------------------  ------  --------------------  ---------------------  ------------- 
 
Total adjustments to loss after 
 tax                                                               260                    505            538 
----------------------------------------  ------  --------------------  ---------------------  ------------- 
 
Adjusted profit/(loss) after 
 tax                                                               109                   (80)           (27) 
 
 

(1) Results have been restated for discontinued operations (see note 2).

j. 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 
 
                                                                 Restated(1) 
                                              6 months              6 months    Restated(1) 
                                                 ended                 ended     Year ended 
                                               30 June               30 June    31 December 
                                                  2021                  2020           2020 
Analysis of the (credit)/charge in 
 the period:                                      GBPm                  GBPm           GBPm 
--------------------------------------------  --------  --------------------  ------------- 
 
Continuing operations 
Current tax                                         33                    20              6 
Deferred tax                                     (138)                 (155)          (120) 
--------------------------------------------  --------  --------------------  ------------- 
 
Total tax credit from continuing operations      (105)                 (135)          (114) 
--------------------------------------------  --------  --------------------  ------------- 
 
Discontinued operations 
Current tax                                         59                     -             70 
Deferred tax                                       (3)                    10             34 
--------------------------------------------  --------  --------------------  ------------- 
 
Total tax charge from discontinued 
 operations                                         56                    10            104 
--------------------------------------------  --------  --------------------  ------------- 
 
Total tax credit                                  (49)                 (125)           (10) 
 
 
 

(1) Tax has been restated for discontinued operations (see note 2).

Continuing operations:

The effective tax rate in respect of adjusted profit before tax for the half year is 22.7% (2020: 23.8%). Adjusted tax has been calculated by applying the expected tax rate to the adjusted profit before tax of GBP141 million (2020: loss of GBP105 million), giving an adjusted tax charge of GBP32 million (2020: credit of GBP25 million).

The adjusted tax charge of GBP32 million (2020: credit of GBP25 million) excludes a tax credit on adjusting items of GBP77 million (2020: GBP106 million). This represents a deferred tax credit on intangible asset amortisation of GBP43 million (2020: GBP33 million) and a tax credit on other adjusting items of GBP34 million (2020: GBP73 million). The adjusted tax charge also excludes a tax credit of GBP55 million (2020: GBPnil) in respect of recognition of deferred tax assets as a result of legislative changes. In addition, the adjusted tax charge/(credit) includes a charge in respect of EAIs of GBP5 million (2020: GBP4 million).

In addition to the amount credited in the Income Statement, a charge of GBP42 million (2020: credit of GBP12 million) has been recognised directly in the Statement of Comprehensive Income. This represents a tax charge of GBP29 million (2020: credit of GBP2 million) in respect of the remeasurement of retirement benefit obligations and a tax charge of GBP13 million (2020: credit of GBP10 million) in respect of movements on hedge relationships and translation differences.

   6.   Earnings per share 
 
                                                          Restated(1) 
                                                             6 months    Restated(1) 
                                                6 months 
                                                   ended        ended     Year ended 
                                                 30 June      30 June    31 December 
                                                    2021         2020           2020 
Earnings attributable to owners of the 
 parent                                             GBPm         GBPm           GBPm 
----------------------------------------------  --------  -----------  ------------- 
 
Earnings for basis of earnings per share           1,166        (569)          (536) 
Less: profit for the period from discontinued 
 operations (note 9)                             (1,318)         (17)           (32) 
----------------------------------------------  --------  -----------  ------------- 
 
Earnings for basis of earnings per share 
 from continuing operations                        (152)        (586)          (568) 
 
 
 
                                             6 months  6 months 
                                                ended     ended    Year ended 
                                              30 June   30 June   31 December 
                                                 2021      2020          2020 
                                               Number    Number        Number 
-------------------------------------------  --------  --------  ------------ 
Weighted average number of ordinary shares 
 for the purposes of basic earnings per 
 share (million)                                4,858     4,858         4,858 
Further shares for the purposes of diluted 
 earnings per share (million)                       2         -             - 
 
Weighted average number of ordinary shares 
 for the purposes of diluted earnings 
 per share (million)                            4,860     4,858         4,858 
 
 
   6.   Earnings per share (continued) 
 
                                              6 months  Restated(1) 
                                                           6 months 
                                                 ended        ended    Restated(1) 
                                               30 June      30 June     Year ended 
                                                                       31 December 
                                                  2021         2020           2020 
Earnings per share                               pence        pence          pence 
--------------------------------------------  --------  -----------  ------------- 
Basic earnings per share 
From continuing and discontinued operations       24.0       (11.7)         (11.0) 
From continuing operations                       (3.1)       (12.1)         (11.7) 
From discontinued operations                      27.1          0.4            0.7 
--------------------------------------------  --------  -----------  ------------- 
 
Diluted earnings per share 
From continuing and discontinued operations       24.0       (11.7)         (11.0) 
From continuing operations                       (3.1)       (12.1)         (11.7) 
From discontinued operations                      27.1          0.4            0.7 
--------------------------------------------  --------  -----------  ------------- 
 
 
                                                 Restated(1) 
                                       6 months     6 months    Restated(1) 
                                          ended        ended     Year ended 
                                        30 June      30 June    31 December 
                                                                       2020 
                                           2021         2020           GBPm 
  Adjusted earnings from continuing        GBPm         GBPm 
  operations 
------------------------------------  ---------  -----------  ------------- 
 
Adjusted earnings (2) for the basis 
 of adjusted earnings per share             108         (81)           (30) 
------------------------------------  ---------  -----------  ------------- 
 
 
 
Adjusted earnings per share from 
 continuing operations 
 
                                                 Restated(1) 
                                       6 months     6 months    Restated(1) 
                                          ended        ended     Year ended 
                                        30 June      30 June    31 December 
                                                                       2020 
                                           2021         2020          pence 
                                          pence        pence 
------------------------------------  ---------  -----------  ------------- 
 
Adjusted basic earnings per share           2.2        (1.7)          (0.6) 
Adjusted diluted earnings per share         2.2        (1.7)          (0.6) 
 
 

(1) Earnings has been restated for discontinued operations (see note 2).

(2) Adjusted earnings for the 6 months ended 30 June 2021 comprises adjusted profit after tax (see note 4c) of GBP109 million (2020: loss after tax of GBP80 million), net of an allocation of profit to non-controlling interests of GBP1 million (2020: GBP1 million). Adjusted earnings for the year ended 31 December 2020 comprises adjusted loss after tax of GBP27 million, net of an allocation to non-controlling interests of GBP3 million.

   7.   Dividends 
 
                                    6 months  6 months 
                                       ended     ended    Year ended 
                                     30 June   30 June   31 December 
                                        2021      2020          2020 
                                        GBPm      GBPm          GBPm 
----------------------------------  --------  --------  ------------ 
 
Final dividend for the year ended 
 31 December 2020 of 0.75p                36         -             - 
 
Total dividends paid                      36         -             - 
 
 

An interim dividend of 0.75 pence per ordinary share (2020: nil) is declared by the Board. Following a 9 for 10 share consolidation on 31 August 2021, detailed in the Finance Director's Review, the interim dividend will be paid on 4,372 million ordinary shares, totalling GBP33 million (2020: GBPnil).

In addition, a proposed Return of Capital of 15 pence per ordinary share, totalling approximately GBP729 million was approved by shareholders on 9 July 2021 and is expected to be paid in September 2021 (see note 15).

   8.   Share of results of equity accounted investments 

Summary information for the Group's equity accounted investments is as follows:

 
                                       6 months  6 months 
                                          ended     ended    Year ended 
                                        30 June   30 June   31 December 
                                           2021      2020          2020 
Continuing operations                      GBPm      GBPm          GBPm 
-------------------------------------  --------  --------  ------------ 
 
Revenue                                     288       238           591 
Operating costs                           (260)     (217)         (529) 
-------------------------------------  --------  --------  ------------ 
 
Adjusted operating profit                    28        21            62 
-------------------------------------  --------  --------  ------------ 
 
Adjusting items                            (10)      (10)          (22) 
 
Profit before tax                            18        11            40 
Tax                                         (5)       (4)           (8) 
-------------------------------------  --------  --------  ------------ 
 
Share of results of equity accounted 
 investments                                 13         7            32 
 
 
   9.   Disposals, discontinued operations and assets held for sale 

On 18 June 2021, the Group completed the sale of the Brush business, previously included in the Other Industrial division, for cash consideration of GBP127 million. The costs charged to the Income Statement associated with the disposal were GBP2 million. The profit on disposal was GBP24 million after the recycling of cumulative translation gains of GBP22 million.

On 22 June 2021, the Group announced the completion of the sale of the Nortek Air Management business for net cash consideration of GBP2,470 million. The costs charged to the Income Statement associated with the disposal were GBP41 million. The profit on disposal was GBP1,347 million after the recycling of cumulative translation losses of GBP110 million.

During the first half of the year, the Board formally commenced a sale process aligned to its strategic priorities, to dispose of the Nortek Control business, previously included in the Other Industrial division, with a high expectation that this would conclude within one year. An update is provided in note 15. In accordance with IFRS 5: "Non-current assets held for sale and discontinued operations", associated assets and liabilities at 30 June 2021 are classified as held for sale and are separately shown on the Balance Sheet.

During the period, the Aerospace and Powder Metallurgy businesses disposed of certain non-core entities. Cumulative disposal proceeds from these activities amounted to GBP3 million and the profit on disposal was GBP1 million after the recycling of cumulative translation gains of GBP1 million, and disposal costs of GBP1 million.

The results of Nortek Air Management, Brush and Nortek Control have been classified within discontinued operations for all periods presented. In addition, discontinued operations for 2020 include the results of the Wheels and Structures business which was disposed in November 2020.

Financial performance of discontinued operations:

 
                                                                                          Restated(1) 
                                                                6 months                     6 months 
                                                                   ended                        ended    Restated(1) 
                                                                 30 June                      30 June     Year ended 
                                                                                                         31 December 
                                                                    2021                         2020           2020 
                                                                    GBPm                         GBPm           GBPm 
 Revenue                                                             832                          817          1,782 
 Operating costs(2)                                                (827)                        (782)        (1,633) 
-----------------------------------------  -----------------------------  ---------------------------  ------------- 
 
 Operating profit                                                      5                           35            149 
 Finance costs                                                       (2)                          (2)            (5) 
-----------------------------------------  -----------------------------  ---------------------------  ------------- 
 
 Profit before tax                                                     3                           33            144 
 Tax                                                                (56)                         (10)          (104) 
-----------------------------------------  -----------------------------  ---------------------------  ------------- 
 
 (Loss)/profit after tax                                            (53)                           23             40 
 Gain/(loss) on disposal of net assets 
  of discontinued operations, net 
  of recycled cumulative translation 
  differences                                                      1,371                          (6)            (8) 
 
 Profit for the period from discontinued 
  operations                                                       1,318                           17             32 
 
 
 

(1) Restated for discontinued operations (see note 2).

(2) Operating costs in the period ended 30 June 2021, included an GBP85 million charge on remeasurement to fair value less costs to sell related to the Nortek Control business on reclassification to assets held for sale (see note 2).

Cash flow information relating to discontinued operations is shown in note 13.

   9.   Disposals, discontinued operations and assets held for sale (continued) 

Classes of assets and liabilities held for sale and disposed of during the period were as follows:

 
 
                                                          Held for sale 
------------------------------------------  --------------------------------------  ----------- 
                                                                              Held   Businesses 
                                               Reclassified     Remeasured     for     disposed 
                                                                              sale 
------------------------------------------  ---------------  -------------  ------  ----------- 
                                                       GBPm           GBPm    GBPm         GBPm 
------------------------------------------  ---------------  -------------  ------  ----------- 
 
 Goodwill and other intangible assets                   267           (85)     182          901 
 Property, plant and equipment                           18              -      18          254 
 Retirement benefit obligations                           -              -       -           56 
 Inventories                                             46              -      46          233 
 Trade and other receivables                             36              -      36          247 
 Cash and cash equivalents                                -              -       -           41 
------------------------------------------  ---------------  -------------  ------  ----------- 
 
 Total assets                                           367           (85)     282        1,732 
 
 
                                                                                           (328 
 Trade and other payables                              (35)              -    (35)            ) 
                                                                                           (138 
 Lease obligations                                     (13)              -    (13)            ) 
                                                                                           (111 
 Provisions                                             (6)              -     (6)            ) 
 Current and deferred tax                              (18)              -    (18)        (58 ) 
------------------------------------------  ---------------  -------------  ------  ----------- 
 
                                                                                           (635 
 Total liabilities                                     (72)              -    (72)            ) 
 
 
 Net assets                                             295           (85)     210        1,097 
                                            ---------------  -------------  ------ 
 Cash consideration, net of costs 
  (1)                                                                                     2,556 
 Cumulative translation difference 
  recycled on disposals                                                                    (87) 
------------------------------------------  ---------------  -------------  ------  ----------- 
 
 Profit on disposal of businesses                                                         1,372 
 
 
 Profit on disposal of businesses 
  classified as discontinued operations                                                   1,371 
 Profit on disposal of businesses 
  classified within continuing operations                                                     1 
------------------------------------------  ---------------  -------------  ------  ----------- 
                                                                                          1,372 
------------------------------------------  ---------------  -------------  ------  ----------- 
 
 Net cash inflow arising on disposal: 
 Consideration received in cash and 
  cash equivalents, net of costs (2)                                                      2,560 
 Less: cash and cash equivalents 
  disposed                                                                                 (41) 
------------------------------------------  ---------------  -------------  ------  ----------- 
 
                                                                                          2,519 
 
 

(1) Cash consideration of GBP2,600 million net of GBP44 million of disposal costs charged to the Income Statement, GBP4 million of these costs were accrued at 30 June 2021.

(2) Cash consideration of GBP2,600 million net of GBP40 million of disposal costs paid in the period.

   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 
 2021                            241        43              191       330            147        69      1,021 
Utilised                        (23)         -             (26)      (20)           (89)       (1)      (159) 
Charge to operating 
 profit(1)                         2         -               24        43             82        13        164 
Release to operating 
 profit(2)                         -         -             (26)      (16)            (7)         -       (49) 
Impact of discounting 
 (3)                             (2)         -                -         -              -         -        (2) 
Transfer to held 
 for sale                          -         -              (2)       (4)              -         -        (6) 
Disposal of businesses           (5)       (6)             (29)      (35)           (18)      (18)      (111) 
Exchange adjustments             (4)         -              (3)       (9)            (3)       (1)       (20) 
-----------------------  -----------  --------  ---------------  --------  -------------  --------  --------- 
 
At 30 June 2021                  209        37              129       289            112        62        838 
 
 
Current                           51        12               67       139             93         8        370 
Non-current                      158        25               62       150             19        54        468 
-----------------------  -----------  --------  ---------------  --------  -------------  --------  --------- 
 
                                 209        37              129       289            112        62        838 
 
 
 

(1) Includes GBP82 million of adjusting items and GBP82 million recognised in adjusted operating profit.

(2) Includes GBP14 million of adjusting items and GBP35 million recognised in adjusted operating profit.

(3) Includes GBP1 million charge within finance costs relating to the time value of money and a credit of GBP3 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.

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.

   10.   Provisions (continued) 

The provision for property related costs represents the estimated dilapidation costs for ongoing leases. This is expected to result in cash expenditure over the next eight years.

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. Due to their nature, it is not possible to predict precisely when these provisions will be utilised.

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. Warranty terms are, on average, between one and five years.

Restructuring provisions relate to committed costs in respect of restructuring programmes, usually resulting in cash spend within one year.

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 over the next two to five years.

Where appropriate, provisions have been discounted using discount rates between 0% and 9% (31 December 2020: 0% and 7%) depending on the territory in which the provision resides and the length of its expected utilisation.

   11.   Financial instruments 

The table below sets out the Group's accounting classification of each category of financial assets and liabilities and their fair values as at 30 June 2021, 30 June 2020 and 31 December 2020:

 
                                            Current          Non-current     Total 
                                               GBPm                 GBPm      GBPm 
-----------------------------------------  --------  -------------------  -------- 
 30 June 2021 
 Financial assets 
 Classified as amortised cost: 
 Cash and cash equivalents                    1,329                    -     1,329 
 Net trade receivables                          898                    -       898 
 Classified as fair value: 
 Investments                                      -                   39        39 
 Derivative financial assets: 
    Foreign currency forward contracts           26                   59        85 
    Cross-currency swaps                          3                    -         3 
    Embedded derivatives                          2                    9        11 
 Assets classified as held for 
  sale                                          282                    -       282 
 Financial liabilities 
 Classified as amortised cost: 
 Interest-bearing loans and borrowings         (44)              (1,538)   (1,582) 
 Government refundable advances                 (8)                 (49)      (57) 
 Lease obligations                             (52)                (317)     (369) 
 Other financial liabilities                (1,736)                 (32)   (1,768) 
 Classified as fair value: 
 Derivative financial liabilities: 
    Foreign currency forward contracts         (35)                 (38)      (73) 
  Interest rate swaps                             -                 (15)      (15) 
    Cross-currency swaps                          -                 (67)      (67) 
 Embedded derivatives                           (1)                  (4)       (5) 
 Liabilities associated with assets 
  held for sale                                (72)                    -      (72) 
 30 June 2020 
 Financial assets 
 Classified as amortised cost: 
 Cash and cash equivalents - restated(1)        415                    -       415 
 Net trade receivables                        1,048                    -     1,048 
 Classified as fair value: 
 Investments                                      -                   49        49 
 Derivative financial assets: 
    Foreign currency forward contracts            8                   27        35 
  Embedded derivatives                            2                   15        17 
 Assets classified as held for 
  sale                                           55                    -        55 
 Financial liabilities 
 Classified as amortised cost: 
 Interest-bearing loans and borrowings 
  - restated(1)                                (90)              (3,615)   (3,705) 
 Government refundable advances                 (8)                 (63)      (71) 
 Lease obligations                             (79)                (524)     (603) 
 Other financial liabilities                (1,777)                 (21)   (1,798) 
 Classified as fair value: 
 Derivative financial liabilities: 
    Foreign currency forward contracts        (121)                (155)     (276) 
  Interest rate swaps                          (35)                 (96)     (131) 
    Cross-currency swaps                       (25)                (112)     (137) 
 Embedded derivatives                           (1)                  (8)       (9) 
 Liabilities associated with assets 
  held for sale                                (40)                    -      (40) 
 31 December 2020 
 Financial assets 
 Classified as amortised cost: 
 Cash and cash equivalents                      311                    -       311 
 Net trade receivables                        1,228                    -     1,228 
 Classified as fair value: 
 Investments                                      -                   34        34 
 Derivative financial assets: 
    Foreign currency forward contracts           45                   90       135 
  Embedded derivatives                            2                   11        13 
 Financial liabilities 
 Classified as amortised cost: 
 Interest-bearing loans and borrowings        (165)              (2,926)   (3,091) 
 Government refundable advances                 (7)                 (51)      (58) 
 Lease obligations                             (81)                (474)     (555) 
 Other financial liabilities                (1,941)                 (49)   (1,990) 
 Classified as fair value: 
 Derivative financial liabilities: 
    Foreign currency forward contracts         (46)                 (40)      (86) 
    Interest rate swaps                         (2)                 (85)      (87) 
    Cross-currency swaps                        (9)                 (80)      (89) 
  Embedded derivatives                          (1)                  (5)       (6) 
-----------------------------------------  --------  -------------------  -------- 
 

(1) Restated for the presentation of cash and cash equivalents and bank overdrafts (see note 2).

   11.   Financial instruments (continued) 

The fair value of the derivative financial instruments, other than embedded derivatives, is derived from inputs other than quoted prices that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) and they are therefore categorised within level 2 of the fair value hierarchy set out in IFRS 13: "Fair value measurement". The embedded derivatives are classified as level 3 fair value under the IFRS 13 fair value hierarchy. The Group's policy is to recognise transfers into and out of the different fair value hierarchy levels at the date of the event or change in circumstances that caused the transfer to occur. There have been no transfers between levels in the period.

   12.   Retirement benefit obligations 

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.

During the period, defined benefit pension plans with a net surplus of GBP56 million were disposed with the Nortek Air Management and Brush businesses (see note 9).

The most significant defined benefit pension plans in the Group at 30 June 2021 were:

GKN Group Pension Schemes (Numbers 1 - 4)

The GKN Group Pension Schemes (Numbers 1 - 4) are funded plans, closed to new members and were closed to future accrual in 2017. The valuation of the plans was based on a full actuarial valuation as of 30 June 2019, updated to 30 June 2021 by independent actuaries.

GKN UK 2016 Pension Plan

The GKN UK 2016 Pension Plan is a funded plan, closed to new members with no active members, containing assets and liabilities in respect of the pension schemes from various legacy GKN businesses. The valuation of the plan was based on a full actuarial valuation as of 5 April 2019, updated to 30 June 2021 by independent actuaries.

GKN US Consolidated Pension Plan

The GKN US Consolidated Pension Plan is a funded plan, closed to new members and closed to future accrual. The US Pension Plan valuation was based on a full actuarial valuation as of 1 January 2020, updated to 30 June 2021 by independent actuaries.

GKN Germany Pension Plans

The GKN Germany Pension Plans provide benefits dependent on final salary and service with the Company. The plans are generally unfunded and closed to new members.

Other plans include a number of funded and unfunded defined benefit arrangements and retiree medical insurance plans, predominantly in the US and Europe.

The cost of the Group's defined benefit plans is determined in accordance with IAS 19 (revised): "Employee benefits" using the advice of independent professionally qualified actuaries on the basis of formal actuarial valuations and using the projected unit credit method. In line with normal practice, these valuations are undertaken triennially in the UK and annually in the US and Germany.

The amount recognised in the Balance Sheet in respect of defined benefit plans was as follows:

30 June 2021

 
 
                     UK plans                European 
                        (1 ()    US plans       plans    Other plans    Total 
                         GBPm        GBPm        GBPm           GBPm     GBPm 
-----------------  ----------  ----------  ----------  -------------  ------- 
Plan assets             2,959         197          24             32    3,212 
Plan liabilities      (3,006)       (303)       (557)           (39)  (3,905) 
 
Net liabilities          (47)       (106)       (533)            (7)    (693) 
 
 

(1) Includes a net liability in respect of the GKN Group Pension Schemes (Numbers 1 and 3) and GKN post-employment medical plans and a net asset in respect of the GKN UK 2016 Pension Plan and the GKN Group Pension Schemes (Numbers 2 and 4).

30 June 2020

 
 
                     UK plans                European 
                        (1 ()    US plans       plans    Other plans    Total 
                         GBPm        GBPm        GBPm           GBPm     GBPm 
-----------------  ----------  ----------  ----------  -------------  ------- 
Plan assets             3,357         264          30             42    3,693 
Plan liabilities      (3,755)       (460)       (586)           (54)  (4,855) 
 
Net liabilities         (398)       (196)       (556)           (12)  (1,162) 
 
 

(1) Includes a net liability in respect of the GKN Group Pension Schemes (Numbers 1 - 4), GKN post-employment medical plans and the Nortek UK plan and a net asset in respect of the Brush UK Pension Plan and the GKN UK 2016 Pension Plan.

   12.   Retirement benefit obligations (continued) 

31 December 2020

 
 
                     UK plans                European 
                          (1)    US plans       plans    Other 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 Group Pension Scheme Number 4.

Valuations of material plans have been updated at 30 June 2021 by independent actuaries to reflect updated assumptions regarding discount rates, inflation rates and asset values. The major assumptions were as follows:

 
 
                                 Rate of increase 
                                      of pensions 
                                       in payment  Discount rate    Price inflation 
                                           % p.a.         % p.a.   % p.a. (RPI/CPI) 
-------------------------------  ----------------  -------------  ----------------- 
30 June 2021 
GKN UK - Group Pension Schemes 
 (Numbers 1 - 4)                              2.5            1.9            2.9/2.4 
GKN UK - 2016 Pension Plan                    2.0            1.9            2.9/2.4 
GKN US plans                                  n/a            2.7                n/a 
GKN Europe plans                              1.7            1.0            1.7/1.7 
 
30 June 2020 
GKN UK - Group Pension Schemes 
 (Numbers 1 - 4)                              2.7            1.5            2.8/2.1 
GKN UK - 2016 Pension Plan                    2.7            1.5            2.8/2.1 
GKN US plans                                  n/a            2.7                n/a 
GKN Europe plans                              1.3            1.1            1.3/1.3 
Brush UK Pension Plan                         2.7            1.5            2.8/2.1 
 
31 December 2020 
GKN UK - 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 
-------------------------------  ----------------  -------------  ----------------- 
 

In addition, the defined benefit plan assets and liabilities have been updated to reflect the contributions made to the defined benefit plans and the benefits earned during the period to 30 June 2021.

   13.   Notes to the Cash Flow Statement 
 
                                                   Restated(1) 
                                         6 months     6 months   Restated(1) 
                                            ended        ended    Year ended 
                                          30 June      30 June   31 December 
                                             2021         2020          2020 
Continuing operations                        GBPm         GBPm          GBPm 
---------------------------------------  --------  -----------  ------------ 
 
Reconciliation of operating loss 
 to net cash generated from operating 
 activities 
Operating loss                              (137)        (618)         (487) 
Adjusting items (note 4)                      360          607           628 
---------------------------------------  --------  -----------  ------------ 
Adjusted operating profit/(loss)              223         (11)           141 
 
Adjustments for: 
Depreciation of property, plant and 
 equipment                                    183          199           391 
Amortisation of computer software 
 and development costs                         26           28            51 
Share of adjusted operating profit 
 of equity accounted investments             (28)         (21)          (62) 
Restructuring costs paid and movements 
 in provisions                              (103)        (110)         (135) 
Defined benefit pension contributions 
 paid                                        (12)         (43)         (107) 
Change in inventories                       (104)           69           173 
Change in receivables                           3          512           269 
Change in payables                            107        (361)          (71) 
Acquisition costs and associated                -          (2)             - 
 transaction taxes 
Tax paid                                     (40)          (5)          (14) 
Interest paid on loans and borrowings        (67)         (57)         (144) 
Interest paid on lease obligations            (7)          (7)          (16) 
                                                   -----------  ------------ 
 
Net cash from operating activities            181          191           476 
 
 
 

(1) Restated for discontinued operations (see note 2).

 
                                                   Restated(1) 
                                         6 months     6 months 
                                            ended        ended    Year ended 
                                          30 June      30 June   31 December 
                                             2021         2020          2020 
 Reconciliation of cash and cash 
  equivalents, net of bank overdrafts        GBPm         GBPm          GBPm 
--------------------------------------- 
 Cash and cash equivalents per Balance 
  Sheet                                     1,329          415           311 
 Bank overdrafts included within 
  current interest-bearing loans and 
  borrowings                                 (31)         (76)         (151) 
---------------------------------------  -------- 
 Cash and cash equivalents, net of 
  bank overdrafts per Statement of 
  Cash Flows                                1,298          339           160 
--------------------------------------- 
 

(1) Restated for the presentation of cash and cash equivalents and bank overdrafts (see note 2).

 
                                                           Restated(1) 
                                                 6 months     6 months   Restated(1) 
                                                    ended        ended    Year ended 
                                                  30 June      30 June   31 December 
                                                     2021         2020          2020 
 Cash flow from discontinued operations              GBPm         GBPm          GBPm 
 
Net cash from discontinued operations                  86          116           284 
Defined benefit pension contributions 
 paid                                                (40)            -           (4) 
Tax (paid)/received                                  (41)          (3)            13 
Interest paid on lease obligations                    (2)          (2)           (5) 
 
Net cash from operating activities 
 from discontinued operations (2)                       3          111           288 
 
 
Purchase of property, plant and equipment            (11)         (12)          (24) 
Purchase of computer software and capitalised 
 development costs                                    (1)          (3)           (5) 
 
Net cash used in investing activities 
 from discontinued operations                        (12)         (15)          (29) 
 
 
Repayment of principal under lease obligations        (6)          (7)          (14) 
 
 
Net cash used in financing activities 
 from discontinued operations                         (6)          (7)          (14) 
 
 

(1) Restated for discontinued operations (see note 2).

(2) Includes tax paid of GBP32 million following the extraction of Ergotron and Nortek Control from the Nortek tax group prior to the disposal of Nortek Air Management and specific defined benefit pension contributions of GBP39 million paid on disposal of Nortek Air Management and Brush.

   13.   Notes to the Cash Flow Statement (continued) 

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 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) 
                                              30 June      30 June  31 December 
                                                 2021         2020         2020 
                                                 GBPm         GBPm         GBPm 
 
Interest-bearing loans and borrowings 
 - due within one year                           (44)         (90)        (165) 
Interest-bearing loans and borrowings 
 - due after one year                         (1,538)      (3,615)      (2,926) 
                                              -------               ----------- 
External debt                                 (1,582)      (3,705)      (3,091) 
Less: 
Cash and cash equivalents                       1,329          415          311 
                                              -------               ----------- 
                                                (253)      (3,290)      (2,780) 
Adjustments: 
Impact of cross-currency swaps                   (64)        (137)         (89) 
Non-cash acquisition fair value adjustments        17           28           22 
 
Net debt                                        (300)      (3,399)      (2,847) 
 
 
 

(1) Restated for the presentation of cash and cash equivalents and bank overdrafts (see note 2).

The table below shows the key components of the movement in net debt:

 
 
                                    At                  Acquisitions                 Other           Effect         At 
                           31 December        Cash     and disposals              non-cash       of foreign    30 June 
                                  2020        flow                               movements         exchange       2021 
                                  GBPm        GBPm              GBPm                  GBPm             GBPm       GBPm 
                        --------------  ----------  ----------------  --------------------                   --------- 
 
External debt 
 (excluding bank 
 overdrafts)                   (2,940)       1,360                 -                     -               29    (1,551) 
Cross-currency 
 swaps                            (89)           3                 -                     -               22       (64) 
Non-cash acquisition 
 fair value 
 adjustments                        22           -                 -                   (5)                -         17 
                        --------------  ----------  ----------------  --------------------                   --------- 
                               (3,007)       1,363                 -                   (5)               51    (1,598) 
Cash and cash 
 equivalents, net 
 of bank overdrafts                160     (1,386)             2,519                     -                5      1,298 
                        --------------  ----------  ----------------  --------------------                   --------- 
 
Net debt                       (2,847)        (23)             2,519                   (5)               56      (300) 
 
 
   14.   Lease obligations 

Amounts payable under lease obligations:

 
                                        30 June  30 June  31 December 
                                           2021     2020         2020 
Minimum lease payments                     GBPm     GBPm         GBPm 
 
Amounts payable: 
Within one year                              66       99          101 
After one year but within five years        158      262          239 
Over five years                             214      359          325 
Less: future finance charges               (69)    (117)        (110) 
                                        -------           ----------- 
 
Present value of lease obligations          369      603          555 
 
 
  Analysed as: 
Amounts due for settlement within one 
 year                                        52       79           81 
Amounts due for settlement after one 
 year                                       317      524          474 
 
Present value of lease obligations          369      603          555 
 
 
 

During the period GBP151 million of lease obligations were either disposed with the Nortek Air Management and Brush businesses (GBP138 million) or reclassified as held for sale (GBP13 million) (see note 9).

   14.   Lease obligations (continued) 

It is the Group's policy to lease certain of its property, plant and equipment. The average lease term is 10 years. Interest rates are fixed at the contract date.

   15.   Post balance sheet events 

On 9 July 2021 shareholders approved a Return of Capital of 15 pence per ordinary share, along with a share consolidation of 9 ordinary shares for every 10 held. The share consolidation took place on 31 August 2021, reducing ordinary shares in issue from 4,858 million to 4,372 million. The Return of Capital of GBP729 million will be settled on 14 September 2021.

On 23 August 2021, the Group signed a sale and purchase agreement to dispose of Nortek Control for an enterprise value of $285 million. This business has been presented within discontinued operations and held as an asset for sale in these Condensed Interim Financial Statements.

 
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.

 
          Closest      Reconciling 
           equivalent   items to 
           statutory    statutory 
APM        measure      measure      Definition and purpose 
Income Statement Measures 
Adjusted  Revenue      Share of      Adjusted revenue includes the Group's 
 revenue                revenue       share of revenue of equity accounted 
                        of equity     investments ("EAIs"). This enables comparability 
                        accounted     between reporting periods. 
                        investments                                    Restated(1) 
                        (note 8)                             6 months     6 months   Restated(1) 
                                                                ended        ended 
                                                              30 June      30 June    Year ended 
                                                                 2021         2020   31 December 
                                                                 GBPm         GBPm          2020 
                                      Revenue                                               GBPm 
 
                                      Revenue                   3,540        3,386         7,132 
                                      Share of revenue 
                                       of equity accounted 
                                       investments 
                                       (note 8)                   288          238           591 
 
                                      Adjusted revenue          3,828        3,624         7,723 
 
 
Adjusting  None  Adjusting     Those items which the Group excludes 
 items            items (note   from its adjusted profit metrics in 
                  4)            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. 
 
 
Adjusted     Operating           Adjusting       The Group uses adjusted profit measures 
 operating    profit/(loss)(2)    items (note     to provide a useful and more comparable 
 profit                           4)              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. 
                                                                              Restated(1) 
                                       6 months                                  6 months    Restated(1) 
                                          ended                                     ended 
                                        30 June                                   30 June     Year ended 
                                           2021                                      2020    31 December 
                                           GBPm                                      GBPm           2020 
 Operating profit                                                                                   GBPm 
 
Operating loss                            (137)                                     (618)          (487) 
Adjusting items 
 to operating 
 loss (note 4)                              360                                       607            628 
 
Adjusted operating 
 profit/(loss)                              223                                      (11)            141 
 
 
              Closest            Reconciling 
               equivalent         items to 
               statutory          statutory 
APM            measure            measure        Definition and purpose 
             ------------------ 
Adjusted      Operating          Share of        Adjusted operating margin represents 
 operating     margin(3)          revenue         Adjusted operating profit as a percentage 
 margin                           of equity       of Adjusted revenue. The Group uses 
                                  accounted       adjusted profit measures to provide 
                                  investments     a useful and more comparable measure 
                                  (note 8)        of the ongoing performance of the Group. 
                                  and adjusting 
                                  items (note 
                                  4) 
             ------------------ 
Adjusted      Loss before        Adjusting       Profit before the impact of adjusting 
 profit        tax                items (note     items and tax. As discussed above, adjusted 
 before                           4)              profit measures are used to provide 
 tax                                              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. 
                                                                              Restated(1) 
                                       6 months                                  6 months    Restated(1) 
                                          ended                                     ended 
                                        30 June                                   30 June     Year ended 
                                           2021                                      2020    31 December 
                                           GBPm                                      GBPm           2020 
 Profit before tax                                                                                  GBPm 
 
Loss before tax                           (256)                                     (720)          (679) 
Adjusting items 
 to loss before tax 
 (note 4)                                   397                                       615            638 
 
Adjusted profit/(loss) 
 before tax                                 141                                     (105)           (41) 
 
 
 
 
Adjusted     Loss after     Adjusting      Profit after tax but before the impact 
 profit       tax            items (note    of the adjusting items. As discussed 
 after                       4)             above, adjusted profit measures are 
 tax                                        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. 
                                                    Restated(1) 
                                 6 months              6 months             Restated(1) 
                                    ended                 ended 
                                  30 June               30 June              Year ended 
                                     2021                  2020             31 December 
                                     GBPm                  GBPm                    2020 
 Profit after tax                                                                  GBPm 
 
Loss after tax                      (151)                 (585)                   (565) 
Adjusting items 
 to loss after tax 
 (note 4)                             260                   505                     538 
 
Adjusted profit/(loss) 
 after tax                            109                  (80)                    (27) 
 
 
 
 
Adjusted    Operating         Adjusting        Adjusted operating profit for 12 months 
EBITDA       profit/          items (note       prior to the reporting date, before 
for          (loss)(2)        4),               depreciation and impairment of property, 
leverage                      depreciation      plant and equipment and before the amortisation 
covenant                      of property,      and impairment of computer software 
purposes                      plant and         and development costs. 
                              equipment 
                              and               Adjusted EBITDA for leverage covenant 
                              amortisation      purposes is a measure used by external 
                              of computer       stakeholders to measure performance. 
                              software                                   12 months  12 months(4) 
                              and development                                ended         ended  Year ended(4) 
                              costs,                                       30 June       30 June    31 December 
                              imputed                                         2021          2020           2020 
                              lease charge,     Adjusted EBITDA 
                              share of           for leverage covenant 
                              non-controlling    purposes                     GBPm          GBPm           GBPm 
                              interests 
                              and other         Adjusted operating 
                              adjustments        profit                        375           617            340 
                              required          Depreciation of 
                              for leverage       property, plant 
                              covenant           and equipment and 
                              purposes(5)        amortisation of 
                                                 computer software 
                                                 and development 
                                                 costs                         424           507            492 
                                                Imputed lease charge          (77)          (95)           (97) 
                                                Non-controlling 
                                                 interests                     (3)           (4)            (3) 
                                                Other adjustments 
                                                 required for leverage 
                                                 covenant purposes 
                                                 (5)                           (8)          (31)            (8) 
                                                                         ---------  ------------  ------------- 
 
                                                Adjusted EBITDA 
                                                 for leverage covenant 
                                                 purposes                      711           994            724 
 
             Closest          Reconciling 
              equivalent       items to 
              statutory        statutory 
APM           measure          measure           Definition and purpose 
            ---------------- 
H1          Operating         Adjusting          Adjusted operating profit for the six 
annualised  profit/(loss)(2)   items (note        months prior to the reporting date, 
adjusted                       4), depreciation   before depreciation and impairment of 
EBITDA                         of property,       property, plant and equipment and before 
for                            plant and          the amortisation and impairment of computer 
leverage                       equipment          software and development costs. This 
covenant                       and amortisation   is doubled to give a H1 annualised adjusted 
purposes                       of computer        EBITDA for leverage covenant purposes. 
                               software           H1 annualised adjusted EBITDA for leverage 
                               and development    covenant purposes is a useful indicator 
                               costs, imputed     to measure the ongoing performance of 
                               lease charge,      the Group. 
                               share of                                                6 months 
                               non-controlling                                            ended 
                               interests                                                30 June 
                               and other           H1 annualised adjusted EBITDA           2021 
                               adjustments         for leverage covenant purposes          GBPm 
                               required 
                               for leverage       Adjusted EBITDA for leverage 
                               covenant            covenant purposes                        711 
                               purposes(5)        Less: Adjusted EBITDA for leverage 
                                                   covenant purposes for six months 
                                                   to 31 December 2020                    (308) 
 
                                                  H1 adjusted EBITDA for leverage 
                                                   covenant purposes                        403 
 
                                                  H1 annualised adjusted EBITDA 
                                                   for leverage covenant purposes           806 
 Adjusted    Effective        Adjusting          The income tax charge for the Group 
  tax rate    tax rate         items, adjusting   excluding adjusting tax, and the tax 
                               tax items          impact of adjusting items, divided by 
                               and the            adjusted profit/(loss) before tax. 
                               tax impact 
                               of adjusting       This measure is a useful indicator of 
                               items (note        the ongoing tax rate for the Group. 
                               4 and note                                                  Restated(1) 
                               5)                                                6 months     6 months   Restated(1) 
                                                                                    ended        ended 
                                                                                  30 June      30 June    Year ended 
                                                                                     2021         2020   31 December 
                                                                                     GBPm         GBPm          2020 
                                                  Adjusted tax rate                                             GBPm 
 
                                                  Tax credit per 
                                                   Income Statement                   105          135           114 
                                                  Adjusted for: 
                                                    Tax impact of adjusting 
                                                     items                           (77)        (106)          (99) 
                                                    Tax impact of significant 
                                                     legislative changes             (55)            -             - 
                                                    Tax impact of significant 
                                                     restructuring                      -            -             7 
                                                    Tax impact of EAIs                (5)          (4)           (8) 
 
                                                  Adjusted tax (charge)/credit       (32)           25            14 
 
                                                  Adjusted profit/(loss) 
                                                   before tax                         141        (105)          (41) 
 
                                                  Adjusted tax rate                 22.7%        23.8%         34.1% 
 
 
 
Adjusted      Basic       Adjusting        Profit after tax attributable to owners 
 basic         earnings    items (note      of the parent and before the impact 
 earnings      per share   4 and note       of adjusting items, divided by the weighted 
 per share                 6)               average number of ordinary shares in 
                                            issue during the financial period. 
             ----------- 
 Adjusted     Diluted      Adjusting       Profit after tax attributable to owners 
  diluted      earnings     items (note     of the parent and before the impact 
  earnings     per share    4 and note      of adjusting items, divided by the weighted 
  per share                 6)              average number of ordinary shares in 
                                            issue during the financial period 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. 
-----------  -----------  --------------- 
 Proforma     Basic       Adjusting        Profit after tax attributable to owners 
  earnings     earnings    items (note      of the parent and before the impact 
  per share    per share   4 and note       of adjusting items, divided by the number 
                           6) and changes   of ordinary shares in issue of 4,372 
                           to the number    million, following the 9 for 10 share 
                           of shares        consolidation which took place on 31 
                           (note 15)        August 2021. 
 
 
            Closest                  Reconciling 
             equivalent               items to 
             statutory                statutory 
  APM        measure                  measure           Definition and purpose 
Interest    None                     Not applicable   Adjusted EBITDA calculated for covenant 
 cover                                                 purposes (including adjusted EBITDA 
                                                       of businesses disposed) as a multiple 
                                                       of net interest payable on bank loans 
                                                       and overdrafts. 
 
                                                       This measure is used for bank covenant 
                                                       testing. 
                                                                                     12 months   12 months(4) 
                                                                                         ended          ended   Year ended(4) 
                                                                                       30 June        30 June     31 December 
                                                                                          2021           2020            2020 
                                                        Interest cover                    GBPm           GBPm            GBPm 
                                                                                                ------------- 
                                                       Adjusted EBITDA 
                                                        for leverage covenant 
                                                        purposes                           711            994             724 
                                                       Adjusted EBITDA 
                                                        from businesses 
                                                        disposed in the 
                                                        year                               271              -               2 
 
                                                       Adjusted EBITDA 
                                                        for interest cover                 982            994             726 
 
                                                       Interest on bank 
                                                        loans and overdrafts             (126)          (144)           (136) 
                                                        Finance income                       3              1               3 
                                                       Other interest 
                                                        for covenant purposes(6)          (53)            (1)             (9) 
                                                                                                ------------- 
 
                                                       Net finance charges 
                                                        for covenant purposes            (176)          (144)           (142) 
 
 
                                                       Interest cover                     5.6x           6.9x            5.1x 
 
Balance Sheet Measures 
 Working     Inventories,             Not applicable  Working capital comprises inventories, 
  capital     trade                                    current and non-current trade and other 
              and other                                receivables and current and non-current 
              receivables                              trade and other payables. 
              less trade 
              and other                                This measure provides additional information 
              payables                                 in respect of working capital management. 
----------  -----------------------  --------------- 
 Net debt    Cash and                 Reconciliation  Net debt comprises cash and cash equivalents, 
              cash equivalents         of net debt     interest-bearing loans and borrowings 
              less interest-bearing    (note 13)       and cross-currency swaps but excludes 
              loans                                    non-cash acquisition fair value adjustments. 
              and borrowings 
              and finance                              Net debt is one measure that could be 
              related                                  used to indicate the strength of the 
              derivative                               Group's Balance Sheet position and is 
              instruments                              a useful measure of the indebtedness 
                                                       of the Group. 
----------  -----------------------  --------------- 
 Proforma    Cash and                Reconciliation   Net debt (as above) is adjusted for 
  net debt    cash equivalents        of net debt      the shareholder approved Return of Capital 
              less interest-bearing   (note 13)        (note 15) to measure the ongoing indebtedness 
              loans                   and a Return     of the Group and indicate the strength 
              and borrowings          of Capital       of the Group's Balance Sheet position. 
              and finance             (note 15) 
              related                                                                     30 June 
              derivative                                                                     2021 
              instruments                               Net debt                             GBPm 
                                                                                         -------- 
 
                                                       Net debt at closing rates (note 
                                                        13)                                   300 
                                                       Return of Capital (note 15)            729 
                                                                                         -------- 
 
                                                       Proforma net debt                    1,029 
 
 
               Closest               Reconciling 
                equivalent            items to 
                statutory             statutory 
  APM           measure               measure            Definition and purpose 
Bank covenant  Cash and              Impact of         Net debt (as above) is presented in 
 definition    cash equivalents       foreign           the Balance Sheet translated at period 
 of net        less                   exchange          end exchange rates. 
 debt at       interest-bearing       and adjustments 
 average       loans                  for bank          For bank covenant testing purposes net 
 rates         and borrowings         covenant          debt is converted using average exchange 
 and leverage  and finance            purposes          rates for the previous 12 months. 
               related 
               derivative                               Leverage is calculated as the bank covenant 
               instruments                              definition of net debt divided by adjusted 
                                                        EBITDA for leverage covenant purposes. 
                                                        This measure is used for bank covenant 
                                                        testing. 
 
                                                                                   30 June  30 June(4)  31 December(4) 
                                                                                      2021        2020            2020 
                                                        Net debt                      GBPm        GBPm            GBPm 
                                                                                                        -------------- 
 
                                                        Net debt at closing 
                                                         rates (note 13)               300       3,399           2,847 
                                                        Impact of foreign 
                                                         exchange                       35        (69)             106 
                                                                                                        -------------- 
 
                                                        Bank covenant definition 
                                                         of net debt at average 
                                                         rates                         335       3,330           2,953 
                                                                                                        -------------- 
 
                                                        Leverage                      0.5x        3.4x            4.1x 
Proforma       Cash and              Adjustments       Proforma leverage is calculated as the 
 leverage      cash equivalents       for bank          bank covenant definition of net debt, 
               less                   covenant          adjusted for the shareholder approved 
               interest-bearing       purposes,         Return of Capital (note 15), divided 
               loans                  a Return          by adjusted EBITDA for leverage covenant 
               and borrowings         of Capital        purposes. This measure shows the effect 
               and finance            (note 15),        of material disposal-related transactions 
               related                and the           on the Group's ongoing leverage for 
               derivative             impact of         bank covenant testing purposes. 
               instruments            foreign                                               30 June 
                                      exchange                                                 2021 
                                                                                               GBPm 
                                                                                            ------- 
 
                                                        Bank covenant definition of 
                                                         net debt at average rates              335 
                                                        Return of Capital (note 15)             729 
 
                                                        Bank covenant definition of 
                                                         net debt at average rates, after 
                                                         proforma adjustment                  1,064 
                                                                                            ------- 
 
                                                        Proforma leverage                      1.5x 
 
 
       Closest      Reconciling 
        equivalent   items to 
        statutory    statutory 
  APM   measure      measure       Definition and purpose 
Cash Flow Measures 
 
 
Adjusted         Net cash          Non-working    Adjusted operating cash flow (pre-capex) 
 operating        from operating    capital        is calculated as adjusted operating 
 cash flow        activities        items (note    profit before depreciation and amortisation 
 (pre-capex)                        13)            attributable to subsidiaries, repayment 
 conversion                                        of principal under lease obligations, 
 and Adjusted                                      the positive non-cash utilisation from 
 operating                                         loss-making contracts and movements 
 cash flow                                         in working capital. 
 conversion 
                                                   Adjusted operating cash flow (pre-capex) 
                                                   conversion is adjusted operating cash 
                                                   flow (pre-capex) divided by adjusted 
                                                   operating 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. 
                                                           Restated(1) 
                                        6 months              6 months               Restated(1) 
                                           ended                 ended 
                                         30 June               30 June                Year ended 
                                            2021                  2020               31 December 
 Adjusted operating                         GBPm                  GBPm                      2020 
  cash flow 
  (pre-capex)                                                                               GBPm 
 
Adjusted operating 
 profit/(loss)                               223                  (11)                       141 
Share of adjusted 
 operating profit of 
 EAIs (note 8)                              (28)                  (21)                      (62) 
Depreciation of owned 
 property, plant and 
 equipment and amortisation 
 of owned computer 
 software and development 
 costs (note 3)                              185                   198                       385 
Depreciation of leased 
 property, plant and 
 equipment and amortisation 
 of leased computer 
 software and development 
 costs (note 3)                               24                    29                        57 
Repayment of principal 
 under lease obligations                    (29)                  (31)                      (63) 
Positive non-cash 
 utilisation from loss-making 
 contracts (note 10)                        (23)                  (31)                      (59) 
                                             352                   133                       399 
Change in inventories                      (104)                    69                       173 
Change in receivables                          3                   512                       269 
Change in payables                           107                 (361)                      (71) 
 
Adjusted operating 
 cash flow (pre-capex)                       358                   353                       770 
 
 
Adjusted operating 
 cash flow (pre-capex) 
 conversion                                 102%                  265%                      193% 
 
 
 
 
Free cash     Net increase/  Acquisition         Free cash flow represents cash generated 
 flow          decrease       related             from trading from continuing businesses 
               in cash        cash flows,         after all costs including restructuring, 
               and cash       dividends           pension contributions, tax and interest 
               equivalents    paid to             payments. 
                              owners of 
                              the parent,         A reconciliation of free cash flow is 
                              foreign             included within the Finance Director's 
                              exchange,           Review. 
                              discontinued 
                              operating 
                              cash flows 
                              and other 
                              non-cash 
                              movements 
             -------------- 
 Adjusted     Net increase/  Free cash           Adjusted free cash flow represents free 
  free cash    decrease       flow, as            cash flow adjusted for special pension 
  flow         in cash        defined             contributions and restructuring cash 
               and cash       above, adjusted     flows. 
               equivalents    for special 
                              pension             A reconciliation of adjusted free cash 
                              contributions       flow is included within the Finance 
                              and restructuring   Director's Review. 
                              cash flows 
 
 
                  Closest      Reconciling 
                   equivalent   items to 
                   statutory    statutory 
  APM              measure      measure          Definition and purpose 
Capital           None         Not applicable  Calculated as the purchase of owned 
 expenditure                                    property, plant and equipment and 
 (capex)                                        computer software and expenditure 
                                                on capitalised development costs 
                                                during the period, 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. 
Capital           None         Not applicable  Net capital expenditure divided by 
 expenditure                                    depreciation of owned property, plant 
 to depreciation                                and equipment and amortisation of 
 ratio                                          computer software and development 
                                                costs. 
Dividend          Dividend     Not applicable  Amounts payable by way of dividends 
 per share         per share                    in terms of pence per share. 
 

(1) Results for the period ended 30 June 2020 and the year ended 31 December 2020 have been restated for discontinued operations (see note 2).

(2) Operating profit/(loss) is not defined within IFRS but is a widely accepted profit measure being profit/(loss) before finance costs, finance income

and tax.

(3) Operating margin is not defined within IFRS but is a widely accepted profit measure being derived from operating profit/(loss)(2) divided by revenue.

(4) Year ended 31 December 2020 and period ended 30 June 2020 remain aligned to the original calculations supporting the Group's bank debt compliance certificate, and have not been restated for discontinued operations.

(5) Included within other adjustments required for leverage covenant purposes are dividends received from equity accounted investments, the removal of adjusted operating profit of equity accounted investments and the inclusion of operating profit, depreciation and an imputed lease charge in respect of businesses classified as held for sale.

(6) Other interest for covenant purposes includes bank facility renegotiation fees and costs associated with the cancellation of interest rate swap arrangements.

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September 02, 2021 02:00 ET (06:00 GMT)

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