- Full-year guidance upgraded
- £500 million buyback brought forward
- Founders set to leave in 2024
A key part of industrial turnaround specialist Melrose Industries’ (MRO) mission has been to improve profitability. It is therefore encouraging to both management and shareholders that margin improvements are a driving force behind today’s upgrade to guidance.
This accompanied a strong set of first half results and news that a £500 million buyback programme is being brought forward. Combined, this pushed the shares 7.9% higher to 549.3p.
Melrose’s historic model was straightforward; it bought poorly managed manufacturing businesses which were suffering from a lack of investment, then looked to drive operational improvements and boost cash generation.
Although this approach has been compared to private equity Melrose could justly point to differences. It typically invested fresh capital in the businesses it acquired rather than simply stripping out costs.
When it achieved the targeted improvements, management would choose what it felt was the appropriate time to sell. Often this came three to five years post-acquisition but there was a degree of flexibility.
A CHANGE IN DIRECTION
It went big with the acquisition of GKN in 2018 and demerged the automotive arm of that business as Dowlais (DWL) in April 2023, leaving it with the aerospace assets.
Dowlais shares worth buying after demerger from careful owner Melrose
This has resulted in a shift in its strategic direction to be a long-term aerospace group with Melrose founder and CEO Simon Peckham and long-serving finance director Geoffrey Martin set to hand over the reins to group chief operating officer Peter Dilnot and the current chief financial officer of GKN Aerospace Matthew Gregory respectively in March 2024. Co-founder and executive vice chair Chris Miller will also depart.
Given their track record the market will be watching the next moves of Peckham, Martin and Miller closely.
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In the six months to 30 June Melrose posted adjusted pre-tax profit jumped to £134 million from £9 million in the same period in 2022.
Full-year revenue is now expected to be between £3.35 billion and £3.45 billion, while the aerospace adjusted operating profit range increased by more than 8% to between £375 million and £385 million, with a higher engines margin than previously guided.
Aerospace adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) is now set to be £525 million to £535 million.
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