Melrose said it is planning to return GBP729mn to shareholders, equivalent to 15p a share, on 14 September and said in its interims its balance sheet has spare capacity for a significant further capital return next year.
The company, best known for acquiring FT 30-share index founding member GKN (LSE:GKN) in 2018, sold off its Nortek Air management and Brush units in the first half of the year, leaving it with comparatively little debt and a business that is chucking out cash.
Net debt at the end of June was GBP300mln, compared to GBP3.4bn a year earlier. After next month’s return of capital, that will rise to GBP1.03bn. Meanwhile, free cash flow in the first half of the year rose to GBP75mln from GBP29mln the year before as the company said it is trading ahead of expectations, ” with better profit margins, better earnings per share and significantly lower net debt”.
All of this has been achieved while slashing the funding deficit on the GKN pension fund to around GBP150mln from roughly GBP1bn, as a result of which the group’s annual contribution to the fund has halved to GBP30mln with no need to siphon off money from future disposals to plug holes in the pension bucket.
“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,” said Justin Dowley, the chairman of Melrose.
“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.” he added.
The board has resumed the payment of interim dividends, starting with a 0.75p payout.