Melrose Industries : 2022 Interim Statement

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

8 September 2022

MELROSE INDUSTRIES PLC ('MELROSE' OR THE 'COMPANY')

INTENDED DEMERGER AND UNAUDITED RESULTS

FOR THE SIX MONTHS ENDED 30 JUNE 2022

Melrose Industries PLC today announces its interim results for the six months ended 30 June 2022 ("the Period").

Highlights

	Adjusted1 results	Statutory results
	2022	20212	2022	20212
Continuing operations	£m	£m	£m	£m
Revenue	3,878	3,719	3,594	3,431
Operating profit/(loss)	171	196	(317)	(156)
Profit/(loss) before tax	128	114	(358)	(275)
Diluted earnings per share	2.2p	1.8p	(6.3)p	(3.4)p
Net debt1	1,294	950	n/a	n/a
Leverage1	1.8x	1.3x	n/a	n/a

Intention to demerge GKN Automotive and GKN Powder Metallurgy3

• Melrose announces today its intention to separate the GKN Automotive and GKN Powder Metallurgy businesses from the Melrose Group (the 'Demerger') by way of a demerger of shares in a new holding company ('DemergerCo') to Melrose shareholders. This will result in two independent and separately listed companies, DemergerCo and Melrose Industries PLC, each with its own distinct strategy and acquisition platform
• DemergerCo will be an independent, London headquartered group and will seek admission to listing on the premium segment of the Official List and to trading on the Main Market of the London Stock Exchange. It will have a dual strategy of profitable organic growth as well as targeted M&A in the automotive sector, where we see opportunities as a consolidator either via an all cash acquisition or a share based transaction
• DemergerCo will effectively become an automotive platform, owning both GKN Automotive, a world leading supplier of driveline technologies to the global automotive industry, and GKN Powder Metallurgy3, a global leader in both the production of metal powder and precision powder metal parts for the automotive and industrial sectors
• The internal work under Melrose ownership to position the businesses to achieve stated margin targets for GKN Automotive and GKN Powder Metallurgy will be completed this year and they are well positioned for further gains post Demerger. Simon Peckham and Geoffrey Martin will be executive directors of DemergerCo, as well as remaining Chief Executive and Group Finance Director of Melrose. The current Chief Executive and Finance Director of GKN Automotive, Liam Butterworth and Roberto Fioroni, will take up equivalent roles for DemergerCo

Melrose Industries PLC Stratton House 5 Stratton Street London W1J 8LA Tel: [phone] Fax: [phone]

Registered in England & Wales Registered no: 09800044 Registered office: 11th floor The Colmore Building Colmore Circus Queensway Birmingham

West Midlands B4 6AT

• Melrose Industries PLC will retain ownership of GKN Aerospace, a world-leading multi- technology manufacturer of airframe structures, engine components and electrical interconnection systems for the global aerospace industry, across both civil and defence platforms. Melrose's successful "Buy, Improve, Sell" strategy will also continue unchanged and the Board expects to pursue future acquisitions as soon as possible post Demerger. These could either be in aerospace or the wider industrial sector, as appropriate
• We intend to seek shareholder approval for the proposed Demerger in the first half of 2023
  First Half Trading Highlights for the Melrose Group
• Melrose is trading in line with expectations for the full year
• First half results are at the higher end of expectations, helping to de-risk the second half performance required to achieve full year expectations
• The Group recorded an adjusted1 earnings per share of 2.2 pence, 22% higher than the same period last year. The statutory loss per share in the Period was 6.3 pence per share (2021: 3.4 pence per share)
• Group net debt1 at 30 June 2022 was £1,294 million (31 December 2021: £950 million; equivalent to £1,017 million at like-for-like exchange rates)
• The Group selectively increased its investment in working capital in the Period, to support expected growth and address constrained supply chains. In addition, prior to the Period end, the Group completed £119 million of the £500 million programme to buy back Melrose shares
• Group leverage1 at 30 June 2022 was 1.8x, or 1.6x if excluding the early buy back of shares before the Period end and prior to Ergotron proceeds being received in July
• An interim dividend of 0.825 pence per share (2021: 0.75 pence per share) is declared, 10% up on the previous period
• The disposal of Ergotron completed post the half year, on 6 July, for total proceeds of £519 million
  First Half Trading Highlights for the Businesses4
• Aerospace recovery accelerated with revenue up 11% in the Period, while operating profit improved by 65% and margins increased by 1.5 percentage points
• Automotive successfully managed volatile demand caused by industry supply chain issues and revenue was broadly flat. Life of programme business wins of c.£2.6 billion were achieved, with a record 55% proportion on electric and full hybrid vehicles
• Powder Metallurgy performed well in the Period, with underlying business improvements delivering a 10.5% adjusted operating margin despite lower volumes from the supply constrained market
• All Melrose businesses are on track to recover inflationary headwinds in the year and remain committed to achieving previously stated operating margin targets once end markets recover. In the first half Aerospace and Powder Metallurgy fully recovered inflation while Automotive has £30 million yet to be agreed, but is on track to be fully recovered by the end of the year

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

"Since acquiring GKN in 2018 we have reinvigorated each business to achieve its potential. The proposed Demerger now gives each an exciting opportunity to individually grow shareholder value through organic growth and acquisition in both platforms. Meanwhile, we remain on track to meet our full year 2022 expectations with full inflation recovery and providing good momentum for the intended Demerger in the new year."

1. Described in the glossary to the 2022 Interim Financial Statements. Comparatives for Balance Sheet measures are against the year ended 31 December 2021
2. Results for the period ended 30 June 2021 have been restated for discontinued operations
3. Includes GKN Hydrogen
4. Like for like growth is calculated at constant currency against 2021 results

ENDS

Enquiries:

Montfort Communications: [phone]

Nick Miles [phone] / Charlotte McMullen [phone] [e-mail]/ [e-mail]

Investor Relations: [phone] [e-mail]

CHAIRMAN'S STATEMENT

In addition to announcing the intention to demerge GKN Automotive and GKN Powder Metallurgy, I am pleased to report our interim results for the six months ended 30 June 2022 (the "Period"), which highlight good progress across all Group businesses and are at the higher end of expectations, giving confidence in achieving full year results.

INTENDED DEMERGER OF GKN AUTOMOTIVE AND GKN POWDER METALLURGY

We are excited to announce our intention to separate the GKN Automotive and GKN Powder Metallurgy businesses from the Melrose Group to form DemergerCo, an independent company which will seek admission to listing on the premium segment of the Official List and to trading on the Main Market of the London Stock Exchange. It is expected that this separation will be by way of a demerger of new ordinary shares in DemergerCo directly to Melrose shareholders.

The Demerger is expected to unlock value for shareholders and will allow both Melrose Industries PLC and DemergerCo to fulfil their potential independently in their respective markets with clear organic growth and strategic acquisition rationale. On admission, the newly independent DemergerCo will have a dual strategy of pursuing organic market beating profitable growth with sector leading margins based on its global technology excellence and positioning. It will also have the platform and independent access to capital to take advantage of the M&A opportunities available in the automotive sector.

Meanwhile, the strategy and structure of Melrose Industries PLC following the Demerger will be unaffected. It will maintain its listing on the premium segment of the Official List, its admission to trading on the Main Market of the London Stock Exchange and its ownership of GKN Aerospace. Under its successful "Buy, Improve, Sell" model, which has delivered an annualised total shareholder return of 18% since its first deal in 2005 and cash returns to shareholders in excess of £5.7 billion, Melrose will continue to seek out value enhancing acquisition opportunities, whether in aerospace or the wider industrial sector, to deliver above market returns for shareholders. It is expected that the Demerger will help Melrose to pursue these exciting opportunities at pace.

Melrose has positioned both GKN Automotive and GKN Powder Metallurgy as excellent generators of cash, with sustainable world leading technology and experienced management teams executing successful strategies on a clear path to their margin targets of 10%+ and 14% respectively. The internal work under Melrose ownership to transform GKN Automotive and GKN Powder Metallurgy to achieve these stated margin targets is materially complete, although the full run rate benefits are yet to be realised. Furthermore, there are potentially additional opportunities, beyond those announced so far, that could provide further upside to their performance.

A newly independent DemergerCo will have significant momentum for making further operational gains. Already a global leader in automotive drive systems, and power source agnostic, GKN Automotive has enjoyed great success in the transition to electric vehicles ('EV'), especially in its core business, recently growing ahead of what is an expanding and accelerating market. Equally, GKN Powder Metallurgy is leveraging its strength to grow faster than the market as well as expand its product platform. Its leading powder and sintering technology has recently enabled it to launch its exciting e-motors magnet capabilities1 and it has significant EV opportunities in its core business. Together with other EV transitional wins, this is expected to deliver substantial annual revenue increases and incremental margin growth in the medium-term.

1https://www.gknpm.com/en/solutions/permanent-magnets/

The pace and scale of these organic gains is expected to continue and be further amplified by a proactive acquisition strategy to secure strategic and value enhancing targets in the automotive sector. To help ensure DemergerCo is well-positioned to execute on these opportunities, Simon Peckham and Geoffrey Martin will take up additional executive directorship roles on the DemergerCo board, backed by transitional support from the wider Melrose team. Both will also continue to perform their current roles at Melrose Industries PLC throughout as it also develops GKN Aerospace and pursues further acquisitions.

The DemergerCo board will align to best practice, led by an independent non-executive chairman and benefit from selected non-executive directors with the requisite skills and experience to enhance DemergerCo's success. The high calibre CEO and Finance Director of GKN Automotive, Liam Butterworth and Roberto Fioroni, will assume these roles on the DemergerCo board, having previously served in equivalent positions for other listed companies. The capital structure for DemergerCo is intended to be similarly conservative to that employed by Melrose currently, and is expected to include a progressive dividend policy.

We intend to launch the formal Demerger process and to seek shareholder approval in the first half of 2023, underpinned by the 2022 audited accounts. Your Board is excited about delivering on the multiple opportunities this proposal offers for creating value for shareholders and looks forward to presenting the full detail to shareholders for their consideration and approval in due course.

RESULTS FOR THE CONTINUING GROUP

These results include statutory revenue for the Group of £3,594 million (2021: £3,431 million), an

adjusted profit before tax of £128 million (2021: £114 million) and a statutory loss before tax of £358

million (2021: £275 million). The sale of Ergotron was agreed on 3 June and completed shortly after the end of the Period, meaning it was held for sale and shown as discontinued in these results.

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

TRADING

Each of the businesses has performed well during the Period. There were good commercial wins for each of GKN Automotive and GKN Powder Metallurgy, despite market headwinds principally driven by supply chain shortages. GKN Aerospace saw the accelerating recovery of the civil aviation sector.

All businesses had good success in recovering the significant inflationary pressures through a mix of commercial and operational initiatives, demonstrating their strength. They remain strongly cash generative, with the ability to self-fund their capital expenditure, growth in working capital and restructuring measures, the last of which are largely complete for GKN Automotive and GKN Powder Metallurgy to achieve their stated margin targets, but remain in full swing for GKN Aerospace. This investment in working capital has led to a slight increase in leverage to 1.8x EBITDA, or 1.6x EBITDA when excluding the share buyback executed during the Period.

SALE OF ERGOTRON

The sale of Ergotron, which completed shortly after the Period, marks the end of our ownership of the businesses from the Nortek acquisition. That acquisition has been highly successful both in terms of doubling the initial investment and transforming the businesses themselves.

Adjusted operating margins across the Nortek businesses were almost doubled, which was coupled with a focus on profitable business and strong cash generation. Melrose also invested heavily in world leading technology and revitalised product portfolios, such as the transformatory StatePoint Liquid Cooling system for data centres.