Melrose backs London capital market ahead of auto business spin-off

The head of Melrose Industries has thrown his weight behind the London capital market, crediting it with having been a “major factor” in the group’s growth since listing, even as it struggles with a wave of takeovers and take-private deals.

Simon Peckham, chief executive of the FTSE 100 conglomerate, said it had no plans to change its status as a London-listed business. He added that investors had supported Melrose “in raising equity efficiently and through all cycles”. 

Peckham was speaking after news that CRH, the world’s largest building materials group, said it would be moving its listing from London to New York

Melrose, a turnround specialist which acquired GKN in a controversial takeover in 2018, has acquired a loyal following in the City for its “buy, improve, sell” strategy. It has generated substantial returns for executives and shareholders over the years.

The company on Thursday confirmed that its plan to demerge its automotive business Dowlais and list it separately in London by next month was on track. The business, one of the world’s leading suppliers of vehicle driveshafts, has an estimated market value of at least £3bn. Shareholders in Melrose will get shares in Dowlais commensurate with their holding in Melrose.

The group announced in September that it would separate its automotive and smaller powder metallurgy and hydrogen businesses from its aerospace arm through a demerger of shares.

Dowlais’ constituent parts reported a 7 per cent increase in revenues last year to £5.2bn. Operating profit was £332mn, up from £256mn the previous year.

Melrose is retaining ownership of GKN Aerospace, a leading supplier of airframe structures and engine components for aerospace and defence companies including Airbus and US engine-maker Pratt & Whitney.

Revenues at GKN Aerospace last year rose 11 per cent to £2.9bn and its operating profits were 51 per cent higher at £186mn. Profit margins have gone from 4.4 per cent to 6.3 per cent. The company said it expects revenues to grow at 15 per cent this year as the aerospace sector recovers from the pandemic.

The business has 19 “revenue and risk-sharing” partnership agreements with all the large engine makers. After a period of heavy investment, executives now expect the business to reap the rewards of these agreements, with 17 of them now in their “cash generation phase”.

“We consider a restructured aerospace business to be one of the best businesses Melrose has ever owned,” said Justin Dowley, Melrose chair.

“We are confident that a combination of restructured and refocused high class engines and structures businesses, and overall aerospace market recovery, positions these businesses for a significantly better than expected performance in 2023 and beyond.”

The company’s obligations to the British government to retain ownership of the aerospace business agreed under the 2018 takeover of GKN expire in April.