RNS Number : 7392I

Melrose Industries PLC

03 April 2020

The 2019 Annual Report and Notice of Annual General Meeting

Melrose Industries PLC (the "Company") announces that its Annual Report and financial statements for the year ended 31 December 2019 (the "Annual Report"), Notice of Annual General Meeting (the "AGM"), and Form of Proxy for the AGM have each been sent to shareholders, under the cover of a letter from our Chairman, Mr Justin Dowley ("Chairman's Letter"), and subject to the trading update released on 30 March 2020 ("Trading Update") which together confirmed that the previously proposed resolutions in relation to approval of the final dividend and the new long term incentive scheme have been withdrawn due to the continuing impact of the global outbreak of COVID-19. Please refer to those documents for further information. The Annual Report, Notice of AGM, Chairman's Letter and the Trading Update are available to view or download from the Company's website at https://www.melroseplc.net/investors/ .

The Company's AGM will be held at 11.00 a.m. on 7 May 2020 at Leconfield House, Curzon Street, London W1J 5JA.


If, despite this request, any shareholder nonetheless seeks to attend in person, the Chairman reserves the right to introduce further appropriate safety measures such as temperature checks and self-certifications, as well as to suspend the meeting immediately and seek an alternative time when it can be held safely and in accordance with UK Government guidance.

The Company's preliminary results announcement on 5 March 2020 included, in addition to the preliminary financial results, the text of the Chairman's statement, Chief Executive's review (including the Divisional review) and Finance Director's review, in each case as contained in the Annual Report. In the few short weeks since we announced our very successful set of 2019 financial results, the global situation has completely changed and we all face very difficult health and economic circumstances. As we release our Annual Report, the impact of this outbreak is still uncertain. However, it is clear that the language and tone of our preliminary results announcement, as reflected in our Annual Report, are no longer appropriate for 2020.

The appendix to this announcement sets out the required disclosures with regard to the Directors' responsibility statement, the principal risks and uncertainties and related party transactions, in each case as contained in the Annual Report. Together, this information is provided in accordance with Disclosure & Transparency Rule 6.3.5(2). This information is not a substitute for reading the full Annual Report for the year ended 31 December 2019.

The Company confirms that, in compliance with Listing Rule 9.6.1, an electronic copy of each of the Company's Annual Report for the year ended 31 December 2019, Notice of AGM and Form of Proxy for the AGM have been submitted to the National Storage Mechanism, appointed by the Financial Conduct Authority, and will be available shortly for inspection at www.morningstar.co.uk/uk/NSM .


Montfort Communications:

Nick Miles, +44 (0) 20 3514 0897

Charlotte McMullen, +44 (0) 7973 130 669 / +44 (0) 7921 881 800


Directors' Responsibility Statement

We confirm that to the best of our knowledge:

-- the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

-- the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

-- the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

Principal Risks and Uncertainties

This section outlines the principal risks and uncertainties that may affect the Group and highlights the mitigating actions that are being taken. This section is not intended to be an exhaustive list of all the risks and uncertainties that may arise, nor is the order of the content intended to be any indication of priority.

A risk management and internal controls framework is in place within the Group, which is continually reviewed and adapted where necessary to reflect the risk profile of the Group and to continue to ensure that such risks and uncertainties can be identified and, where possible, managed suitably. Each Group business unit maintains a risk register which is aggregated into an interactive data-driven dashboard reporting tool, to facilitate review by the Melrose senior management team, the Audit Committee and the Board.

   Key risk      Description and impact      Mitigation      Responsibility     Risk     Trend commentary   Strategic 
                                                                               trend                        priorities 
 Strategic risks 
 Acquisition     The success of the        Structured and    Executive                   Following the      Buy 
 of new          Group's acquisition       appropriate       management                  acquisition         Improve 
 businesses      strategy depends on       due diligence                                 of GKN in 2018, 
 and             identifying available     undertaken                                    the Group 
 improvement     and suitable targets,     on potential                                  remains 
 strategies      obtaining any consents    new targets                                   focused 
                 or authorisations         where permitted                               principally 
                 required                  and                                           on improvement. 
                 to carry out an           practicable.                                  Whilst no large 
                 acquisition,              Focus on                                      acquisitions 
                 and procuring the         acquisition                                   were made in 
                 necessary                 targets                                       2019 
                 financing, be this        that have                                     relative to the 
                 from equity, debt or      strong headline                               2018 GKN 
                 a combination of the      fundamentals,                                 acquisition, 
                 two. In making            high-quality                                  some 
                 acquisitions,             products,                                     small bolt-on 
                 there is a risk of        leading market                                acquisitions 
                 unforeseen liabilities    share but which                               were made by 
                 being later discovered    are                                           certain 
                 which were not            underperforming                               businesses and 
                 uncovered                 their potential                               are expected to 
                 or known at the time      and ability                                   improve those 
                 of the due diligence      to generate                                   businesses. 
                 process, particularly     sustainable 
                 in the context of         cash flows and 
                 limited                   profit growth. 
                 access in public bids.    Hands-on role 
                 Further, as per the       taken by 
                 Group's strategy to       executive 
                 buy and improve good      Directors and 
                 but underperforming       other senior 
                 manufacturing             employees 
                 businesses,               of the Group. 
                 once an acquisition       Development of 
                 is completed, there       strategic 
                 are risks that the        plans, 
                 Group will not succeed    restructuring 
                 in driving strategic      opportunities, 
                 operational               capital 
                 improvements              expenditure, 
                 to achieve the expected   procurement 
                 post-acquisition          and working 
                 trading                   capital 
                 results or value which    management. 
                 were originally           Proper 
                 anticipated,              incentivisation 
                 that the acquired         of operational 
                 products                  management 
                 and technologies may      teams to align 
                 not be successful,        with Melrose 
                 or that the business      strategy. 
                 may require 
                 greater resources and 
                 investment than 
                 If anticipated benefits 
                 are not realised or 
                 trading by acquired 
                 businesses falls below 
                 expectations, it may 
                 be necessary to impair 
                 the carrying value 
                 of these assets. The 
                 Group's return on 
                 investment may fall 
                 if acquisition hurdle 
                 rates are not met. 
                 The Group's financial 
                 performance may suffer 
                 from goodwill or other 
                 impairment charges, 
                 or from the 
                 of additional 
                 not known at the time 
                 of the acquisition. 
                ------------------------  ----------------  ---------------  ---------  -----------------  ----------- 
 Timing of       In line with our          Directors are     Executive                   Although global    Sell 
  disposals      strategy                  experienced       management                  M&A markets 
                 and depending where       in judging and                                continue 
                 the Group is within       regularly                                     to experience 
                 the "Buy, Improve,        reviewing the                                 some 
                 Sell" cycle, the          appropriate                                   uncertainty 
                 expected                  time in a                                     there 
                 timing of any disposal    business cycle                                remain 
                 of businesses is          for a disposal                                opportunities 
                 considered                to realise                                    for value 
                 as a principal risk       maximum value                                 realisation. 
                 which could have a        for                                           Some non-core 
                 material impact on        shareholders.                                 businesses 
                 the Group strategy.       Each disposal                                 were placed 
                 Further, due to the       is assessed                                   under 
                 Group's global            on its merits,                                strategic review 
                 operations,               with a key                                    during 2019. 
                 there may be a            focus on a                                    However, 
                 significant               clean disposal.                               management 
                 impact on the timings                                                   continue 
                 of disposals due to                                                     to remain 
                 political and                                                           disciplined 
                 macro-economic                                                          and there is no 
                 factors. Depending                                                      obligation to 
                 on the timings of                                                       sell 
                 disposals                                                               before it is 
                 and nature of the                                                       appropriate 
                 businesses'                                                             to do so. 
                 operations there may 
                 be long-term 
                 which could be retained 
                 by the Group following 
                 a disposal. 
                 allowance for such 
                 retained liabilities 
                 may affect the Group's 
                 financial position. 
                ------------------------  ----------------  ---------------  ---------  -----------------  ----------- 
 Operational risks 
 Economic and    The Group operates,       Regular           Executive                   Geopolitical       Buy 
  political      through manufacturing     monitoring of     management                  uncertainty         Improve 
                 and/or sales              order                                         continued during    Sell 
                 facilities,               books, cash                                   2019. However, 
                 in numerous countries     generation                                    the Board notes 
                 and is affected by        and other                                     that economic 
                 global economic           leading                                       uncertainty 
                 conditions.               indicators,                                   can depress 
                 Businesses are also       to ensure the                                 business 
                 affected by government    Group and                                     valuations and 
                 spending priorities       each of its                                   this may 
                 and the willingness       businesses                                    increase 
                 of governments to         can respond                                   the number of 
                 commit                    quickly to                                    potential 
                 substantial resources.    any adverse                                   acquisition 
                 Current global economic   trading                                       opportunities 
                 and financial market      conditions.                                   for Melrose. 
                 conditions, including     This includes                                 The Melrose 
                 continued headwinds       the                                           senior 
                 in the automotive         identification                                management team 
                 sector                    of cost                                       continues to 
                 and a continued           reduction and                                 actively 
                 slowdown                  efficiency                                    engage with the 
                 in US new-build           measures.                                     executive teams 
                 residential               Finance for                                   of each division 
                 housing markets, any      acquisitions                                  to track the 
                 fluctuation in            is readily                                    potential 
                 commodity                 available to                                  impacts of 
                 prices, the potential     the Group from                                Brexit 
                 for a significant and     banking                                       and imposition 
                 prolonged global          syndicates.                                   of future 
                 recession                 This has proven                               expected 
                 and any uncertainty       to be available                               tariffs, engage 
                 in the political          to the                                        actively with 
                 environment,              Group even                                    those 
                 may materially and        during periods                                who are working 
                 adversely affect the      of economic                                   on the impact 
                 Group's operational       downturn, for                                 assessments and 
                 performance and           example during                                mitigation 
                 financial condition,      the global                                    actions, 
                 and could have            financial                                     and report the 
                 significant               crisis in 2008.                               material 
                 impact on the timing      Short-term                                    findings to the 
                 of acquisitions and       inventory                                     Board. Melrose 
                 disposals.                buffers                                       senior 
                 A recession may also      are being                                     management 
                 materially affect         planned to                                    team monitors 
                 customers,                minimise                                      key 
                 suppliers and other       the initial                                   issues with the 
                 parties with which        impact of                                     divisional 
                 the Group does            Brexit                                        management 
                 business.                 on import costs                               teams including 
                 Adverse economic and      and tariffs                                   the impact of 
                 financial market          and border                                    geopolitical 
                 conditions                disruption.                                   uncertainty on 
                 may cause customers       Sales from the                                order books, 
                 to terminate existing     EU to the                                     cash 
                 orders, to reduce their   UK within the                                 generation, 
                 purchases from the        GKN Automotive                                legal 
                 Group, or to be unable    and GKN                                       and regulatory 
                 to meet their             Aerospace                                     threats and 
                 obligations               divisions                                     other 
                 to pay outstanding        are frequently                                key operational 
                 debts to the Group.       on ex-works                                   and commercial 
                 These market conditions   terms and                                     indicators, to 
                 may also cause our        therefore a                                   ensure the Group 
                 suppliers to be unable    cost                                          and each of its 
                 to meet their             to customers.                                 businesses can 
                 commitments               This continues                                respond 
                 to the Group or to        to be reviewed                                appropriately 
                 change the credit terms   in light                                      to adverse 
                 they                      of the possible                               trading 
                 extend to the Group's     terms on                                      conditions. 
                 businesses.               which the UK                                  Tactics 
                 Since the period under    fully departs                                 for mitigating 
                 review, the UK left       from the EU.                                  the potential 
                 the EU on 31 January      Strong customer                               impact 
                 2020. There continues     relationships                                 of geopolitical 
                 to be uncertainty in      built on                                      uncertainty 
                 the UK regarding the      long-term                                     include 
                 nature of the UK's        partnerships                                  identifying cost 
                 future trading            often with                                    reduction and 
                 relationship              plants in close                               operational 
                 with the EU and other     proximity,                                    efficiency 
                 international trading     technical                                     measures. 
                 partners with which       excellence 
                 the UK intends to         and quality. 
                 establish                 Planning for 
                 new terms on which        potential 
                 to trade, and what        discussions in 
                 this will mean for        respect of 
                 business and the UK       increased 
                 economy following         tariff costs 
                 expiry                    that 
                 of the initial Brexit     materialise if 
                 transition period on      a 'No 
                 31 December 2020.         Deal' Brexit 
                 Whilst                    emerges when 
                 the long-term impact      the initial 
                 of Brexit is not          transition 
                 isolated                  period expires. 
                 as a principal risk       The Group 
                 to the Group as a         remains agile, 
                 whole,                    diversified and 
                 it does present           well positioned 
                 potential                 to deal with 
                 risks that the business   any short-term 
                 units continue to         uncertainty in 
                 monitor                   the UK. 
                 and assess closely 
                 relating to potential 
                 changes to the 
                 trade and regulatory 
                 environment. The Board 
                 continues to assess 
                 and review mitigation 
                 A significant amount 
                 of the Group's revenue 
                 is generated from 
                 located in North 
                 which this year has 
                 continued to (i) 
                 challenging tariffs 
                 relating to the 
                 trade war; and (ii) 
                 require close 
                 of the expected short 
                 to medium- term impact 
                 of potential changes 
                 to international 
                 relationships following 
                 Brexit. The Group's 
                 exposure to these 
                 as a whole has been 
                 inherently mitigated 
                 since acquiring GKN, 
                 which created a more 
                 geographically balanced 
                 and resulted in a 
                 proportion of the 
                 revenue being generated 
                 from the UK and 
                 GKN Aerospace and GKN 
                 Automotive divisions. 
                 Further, the Group's 
                 businesses operating 
                 in North America 
                 to take regular 
                 actions to mitigate 
                 the impact of new 
                 North American tariffs 
                 and changes to 
                 trading regulations 
                 by engaging with the 
                 relevant authorities 
                 prior to and after 
                 any such changes are 
                 Since the period under 
                 review, the potential 
                 rapid spreading of 
                 COVID-19 has become 
                 a significant emerging 
                 risk to the global 
                 economy. The Board 
                 continues to monitor 
                 the impact of the virus 
                 on the Group as more 
                 information about the 
                 epidemic emerges, with 
                 particular focus on 
                 the potential for staff 
                 shortages and 
                 delays that could arise 
                 and potentially affect 
                 Group businesses' 
                 operations and their 
                 supply chains, as well 
                 as monitoring how other 
                 operations around the 
                 world could become 
                 affected depending 
                 on the extent to which 
                 the virus spreads 
                 of China. 
                ------------------------  ----------------  ---------------  ---------  -----------------  ----------- 
 Commercial      The Group operates        The Group         Executive                   The Melrose        Improve 
                 in competitive markets    continued to      management                  senior 
                 throughout the world      actively invest                               management team 
                 and is diversified        in research                                   actively engages 
                 across a variety of       and development                               with the 
                 industries and            activities                                    divisional 
                 production                in 2019 to                                    executive 
                 and sales geographies.    augment its                                   teams to track, 
                 This provides a degree    platforms for                                 monitor and 
                 of Group-level impact     future product                                support 
                 mitigation from the       expansion,                                    strategic 
                 potential commercial      quality                                       planning 
                 challenges and market     improvements,                                 activities and 
                 disruptions that face     customer                                      impact 
                 each of the divisions.    alignment and                                 mitigation 
                 Each division is          achieving                                     assessments in 
                 exposed                   further                                       respect of 
                 to particular             production                                    ongoing 
                 commercial                efficiencies.                                 commercial 
                 and market risks, which   Details about                                 risks. 
                 are primarily             some of the                                   Particular focus 
                 accentuated               Group's                                       is placed on 
                 where                     research and                                  certain 
                 customer/competitor       development                                   GKN Aerospace 
                 concentration is high     activities are                                and 
                 within their respective   provided                                      GKN Automotive 
                 market segments.          in the ESG                                    end-markets 
                 Melrose operates a        report on pages                               where 
                 decentralised control     58 to 69 of the                               customer and/or 
                 and management            2019 Annual                                   competitor 
                 structure                 Report.                                       concentration 
                 which empowers            Health and                                    is high and 
                 divisional                safety                                        heavier 
                 management teams to       awareness                                     reliance is 
                 take full                 initiatives and                               placed 
                 responsibility            performance                                   on supply chain 
                 for planning,             enhancements                                  efficiency and 
                 mitigating,               continued                                     programme 
                 navigating and            to be                                         partner 
                 responding                implemented in                                management. The 
                 to the specific           alignment                                     divisional CEOs 
                 commercial                with                                          report material 
                 risks and challenges      regulation,                                   updates directly 
                 facing their respective   market                                        to members of 
                 businesses. The Melrose   practice and                                  the 
                 senior management team    site-based                                    Melrose senior 
                 monitors the aggregated   risk                                          management team 
                 impact of such risks      assessments and                               which maintains 
                 and provide active        requirements.                                 a number of 
                 support and challenge     Further details                               contact 
                 to the divisional         are provided                                  points 
                 management                in the                                        throughout 
                 teams in fulfilling       nonfinancial                                  the Group to 
                 their responsibilities.   KPIs                                          increase 
                 Common commercial risk    on pages 36,                                  awareness. The 
                 areas that potentially    37, 65 of                                     Group continued 
                 affect a large            the 2019 Annual                               to actively 
                 proportion                Report.                                       invest 
                 of the Group's            Since acquiring                               in research and 
                 businesses                GKN, the                                      development 
                 include those related     Melrose senior                                initiatives 
                 to production quality     management                                    during 2019 to 
                 assurance, health and     team has                                      augment its 
                 safety performance,       actively                                      platforms 
                 customer concentration    engaged                                       for future 
                 and uncertainties         with and                                      expansion, 
                 related                   supported the                                 to benefit 
                 to future customer        GKN businesses'                               product 
                 demand, onerous           divisional                                    quality 
                 customer                  management                                    improvements 
                 and supplier contracts,   teams in                                      and increased 
                 the impact of increased   identifying                                   customer 
                 competitive pressures     embedded                                      alignment, and 
                 on the maintenance/       contractual and                               to achieve 
                 improvement of market     business                                      further 
                 share, potential          conduct risks                                 production 
                 disruptions               relating to key                               efficiencies. 
                 to supply chains and      supply 
                 increases to the price    chain and 
                 of raw materials,         production 
                 technological             programme 
                 innovation and market     partners. Those 
                 disruption, and the       management 
                 performance and           teams have 
                 management                continued to 
                 of programme partners     implement and 
                 (the "Common Commercial   direct a 
                 Risks").                  series of 
                                           programmes to 
                                           mitigate the 
                                           risks they 
                                           The Melrose 
                                           team, in 
                                           with Ernst & 
                                           Young, enhanced 
                                           the Board and 
                                           visibility of 
                                           the Group's 
                                           2019 by 
                                           building and 
                                           an intelligent, 
                                           Group reporting 
                                           to automate the 
                                           and reporting 
                                           of numerous 
                                           across each of 
                                           the Group's 
                                           including those 
                                           identified from 
                                           the diligence 
                                           efforts and 
                                           site visits 
                                           undertaken to 
                                           prepare the 
                                           GKN opening 
                                           Balance Sheet 
                                           during 2018, 
                                           and ongoing 
                                           divisional risk 
                ------------------------  ----------------  ---------------  ---------  -----------------  ----------- 
 Loss of key     The success of the        Succession        Executive                   Succession         Buy 
 management      Group is built upon       planning within   management                  planning            Improve 
 and             strong management         the Group is                                  remains a core      Sell 
 capabilities    teams.                    coordinated                                   focus for the 
                 As a result, the loss     via the                                       Nomination 
                 of key personnel could    Nomination                                    Committee and 
                 have a significant        Committee                                     the 
                 impact on performance,    in conjunction                                Board. 
                 at least for a time.      with the                                      Succession 
                 The loss of key           Board and                                     planning of 
                 personnel                 includes all                                  executive 
                 or the failure to plan    Directors and                                 Directors and 
                 adequately for            senior Group                                  senior 
                 succession                employees. In                                 management, 
                 or develop new talent     line with                                     together 
                 may impact the            the Group's                                   with visibility 
                 reputation                decentralised                                 of potential 
                 of the Group or lead      structure, each                               successors 
                 to a disruption in        divisional                                    within the 
                 the leadership of the     CEO, in                                       Group, 
                 business. Competition     consultation                                  will remain an 
                 for personnel is          with                                          area of 
                 intense                   the Chief                                     particular 
                 and the Group may not     Executive, is                                 management focus 
                 be successful in          responsible for                               in 2020. 
                 attracting                the appointment 
                 or retaining qualified    of their 
                 personnel, particularly   respective 
                 engineering               executive 
                 professionals.            team members, 
                                           with disclosure 
                                           to the 
                                           via the Melrose 
                                           The Company 
                                           that, as with 
                                           those operating 
                                           within a 
                                           it is dependent 
                                           on Directors 
                                           and employees 
                                           with particular 
                                           or technical 
                                           packages and 
                                           are offered in 
                                           an effort 
                                           to attract and 
                                           retain such 
                ------------------------  ----------------  ---------------  ---------  -----------------  ----------- 
 Compliance and ethical risks 
 Legal,          Considering the           Regular           Executive                   Each business      Improve 
 regulatory      breadth,                  monitoring of     management                  has 
 and             scale and complexity      legal                                         a fully 
 environmental   of the Group, there       and regulatory                                developed 
                 is a risk that the        matters                                       legal function, 
                 Group may not always      at both a Group                               headed by their 
                 be in complete            and business                                  respective 
                 compliance                unit level.                                   General 
                 with laws, regulations    Consultation                                  Counsel 
                 or permits. The Group     with external                                 reporting 
                 could be held             advisors                                      to their 
                 responsible               where                                         executive 
                 for liabilities and       necessary.                                    management team, 
                 consequences arising      Group-wide                                    and are properly 
                 from (i) past or future   standard and                                  staffed and 
                 environmental damage,     enhanced                                      supported 
                 including potentially     application to                                by 
                 significant               trade                                         external 
                 remedial costs; (ii)      authorisation                                 advisors 
                 employee matters          procedures                                    where necessary 
                 including                 are in place                                  or helpful to 
                 liability for employee    and regularly                                 ensure 
                 accidents in the          reviewed                                      ongoing 
                 workplace                 against the                                   compliance 
                 or consequences of        ever-changing                                 in the 
                 environmental             global trade                                  jurisdictions 
                 liabilities,              compliance                                    in which they 
                 which may be              landscape,                                    operate 
                 susceptible               supported by                                  across the 
                 to class action law       access to                                     globe. 
                 suits, particularly       external trade                                This is 
                 but not exclusively       compliance                                    augmented 
                 with respect to Group     legal and                                     by central 
                 businesses operating      regulatory                                    oversight 
                 in North America; (iii)   specialists and                               from the Melrose 
                 restrictions arising      electronic                                    legal team and 
                 from economic             counterparty                                  robust annual 
                 sanctions,                screening                                     reviews 
                 export controls and       systems.                                      to ensure it has 
                 customs, which can        Our businesses                                a strong legal 
                 result in fines,          are validated                                 and compliance 
                 criminal                  and certified                                 framework and 
                 penalties, adverse        in respect                                    considers 
                 publicity, payment        of quality                                    the risk to be 
                 of back duties and        management,                                   consistent with 
                 suspension or             environmental                                 prior years. 
                 revocation                management 
                 of the Melrose Group's    and health and 
                 import or export          safety with 
                 privileges;               the appropriate 
                 and (iv) product          bodies 
                 liability                 including ISO 
                 claims, which can         and BS OHSAS, 
                 result                    where relevant 
                 in significant total      to their 
                 liability or remedial     operations. The 
                 costs, particularly       Group's 
                 for products supplied     businesses are 
                 to large volume global    either already 
                 production programmes     compliant with 
                 spanning multiple         or working 
                 years,                    towards timely 
                 for example in the        compliance 
                 aerospace and             with new and 
                 automotive                upcoming 
                 industries, or to         standards. 
                 consumer                  This includes 
                 end-markets for example   Group 
                 in the air management     businesses 
                 industry. There can       that are 
                 also be no assurance      currently 
                 that any provisions       certified to 
                 for expected              BS OHSAS 18001 
                 environmental             and are 
                 liabilities and           actively 
                 remediation               driving towards 
                 costs will adequately     full transition 
                 cover these liabilities   to ISO 
                 or costs.                 45001:2018. 
                 The Group operates        A robust 
                 in highly regulated       control 
                 sectors, which has        framework 
                 been accentuated by       is in place, 
                 the GKN acquisition.      underpinned 
                 In addition, new          by 
                 legislation,              comprehensive 
                 regulations or            corporate 
                 certification             governance and 
                 requirements may          compliance 
                 require                   procedures at 
                 additional expense,       both a Group 
                 restrict commercial       and business 
                 flexibility and           unit level. 
                 business                  Where possible 
                 strategies or introduce   and 
                 additional liabilities    practicable, 
                 for the Group or          due diligence 
                 Directors.                processes 
                 For example, the          during the 
                 Group's                   acquisition 
                 operations are subject    stage seek to 
                 to anti-bribery and       identify 
                 anti-corruption,          legal, 
                 anti-money                regulatory 
                 laundering,               and 
                 competition,              environmental 
                 anti-trust and trade      risks. 
                 compliance laws and       At the business 
                 regulations. Failure      unit level, 
                 to comply with certain    controls are in 
                 regulations may result    place to 
                 in significant            prevent such 
                 financial                 risks from 
                 penalties, debarment      crystallising. 
                 from government           Any 
                 contracts                 environmental 
                 and/or reputational       risks 
                 damage, and may impact    that 
                 our business strategy.    crystallise are 
                                           to mitigation 
                                           by specialist 
                                           engaged for 
                                           this purpose. 
                                           the Group in 
                                           with new and 
                                           Insurance cover 
                                           certain levels 
                                           of risk 
                                           and the Group's 
                                           are instructed 
                                           to carry 
                                           out external 
                                           audits of 
                                           specified areas 
                                           of legal 
                                           and compliance 
                                           risk including 
                                           health and 
                ------------------------  ----------------  ---------------  ---------  -----------------  ----------- 
 Information     Information security      Management        Executive                   Information        Improve 
 security and    and cyber threats are     continues to      management                  security 
 cyber threats   an increasing             work with its                                 and cyber 
                 priority across all       business                                      threats 
                 industries and remain     leaders and                                   are an 
                 a key UK Government       external                                      increasing 
                 agenda item.              security                                      priority across 
                 Like many businesses,     consultants to                                all industries. 
                 Melrose recognises        better                                        Cyber security 
                 that the Group may        understand                                    breaches of the 
                 have a potential          the Group's                                   Group's IT 
                 exposure                  increased                                     systems 
                 in this area. Potential   exposure                                      could result in 
                 exposure to such risks    to cyber                                      the 
                 remains high due to       security risk                                 misappropriation 
                 the scale, complexity     and to ensure                                 of confidential 
                 and public-facing         appropriate                                   information 
                 nature                    mitigation                                    belonging 
                 of the Melrose Group.     measures are                                  to it or its 
                 In addition, Melrose      in place for                                  customers, 
                 recognises that the       the Group.                                    suppliers or 
                 inherent security         In 2019,                                      employees. 
                 threat                    Melrose                                       In response to 
                 is considered highest     completed                                     the increased 
                 in GKN Aerospace where    the deployment                                sophistication 
                 data is held in           of its                                        of information 
                 relation                  information                                   security and 
                 to civil aerospace        security                                      cyber 
                 technology and            strategy and                                  threats, the 
                 controlled                risk-based                                    Group 
                 defense contracts.        governance                                    has worked, and 
                                           framework to                                  continues to 
                                           all businesses                                work, 
                                           within the                                    with external 
                                           Group. The                                    security 
                                           framework                                     companies to 
                                           follows                                       monitor, 
                                           the UK                                        improve and 
                                           Government's                                  refine 
                                           recommended                                   its Group-wide 
                                           steps on cyber                                strategy to aid 
                                           security.                                     the prevention, 
                                           This strategy                                 identification 
                                           has enabled                                   and mitigation 
                                           risk profiling                                of any threats. 
                                           and mitigation 
                                           plans to be 
                                           developed for 
                                           each business 
                                           to mitigate 
                                           and reduce 
                                           their exposure 
                                           to cyber risk. 
                                           As part of 
                                           IT Security 
                                           was deployed to 
                                           all Melrose 
                                           The progress of 
                                           each business 
                                           is measured 
                                           against the 
                                           and is 
                                           monitored on a 
                ------------------------  ----------------  ---------------  ---------  -----------------  ----------- 
 Financial risks 
 Foreign         Due to the global         The Group         Executive                   Group results      Buy 
 exchange        nature                    policy is to      management                  are                 Improve 
                 of operations and         protect against                               reported in         Sell 
                 volatility                the majority                                  Sterling 
                 in the foreign exchange   of foreign                                    but a large 
                 market, exchange rate     exchange risk                                 proportion 
                 fluctuations have,        which affects                                 of the revenues 
                 and could continue        cash, by                                      are denominated 
                 to have, a material       hedging such                                  in currencies 
                 impact on the reported    risks with                                    other 
                 results of the Group.     financial                                     than Sterling, 
                 The Group is exposed      instruments.                                  primarily US 
                 to three types of         Protection                                    Dollar 
                 currency                  against                                       and Euro. 
                 risk: transaction risk,   specific                                      Following 
                 translation risk, and     transaction                                   the GKN 
                 the risk that when        risks is taken                                acquisition, 
                 a business that is        by the Board on                               the Group has 
                 predominantly based       a case-by-case                                exposure 
                 in a foreign currency     basis.                                        on both a 
                 is sold, it is sold                                                     transactional 
                 in that foreign                                                         and 
                 currency.                                                               translational 
                 The Group's reported                                                    basis to more 
                 results will fluctuate                                                  currencies. 
                 as average exchange                                                     Sensitivity to 
                 rates change. The                                                       the key currency 
                 Group's                                                                 pairs is shown 
                 reported net assets                                                     in the Finance 
                 will fluctuate as the                                                   Director's 
                 year-end exchange rate                                                  review 
                 changes.                                                                on pages 38 to 
                                                                                         44 of the 2019 
                                                                                         Annual Report. 
                ------------------------  ----------------  ---------------  ---------  -----------------  ----------- 
 Pensions        Any shortfall in the      The Group's key   Executive                   Although the       Buy 
                 Group's defined benefit   funded            management                  risks               Improve 
                 pension schemes may       UK defined                                    are well            Sell 
                 require additional        benefit pension                               understood 
                 funding. As at 31         plans are                                     and funding 
                 December                  closed to new                                 plans 
                 2019, the Group's         entrants and                                  for the GKN 
                 pension                   future service                                Schemes 
                 schemes had an            accrual.                                      have already 
                 aggregate                 Long-term                                     been 
                 deficit, on an            funding                                       agreed with 
                 accounting                arrangements                                  Scheme 
                 basis, of GBP1,121        are agreed                                    trustees, the 
                 million (2018: GBP1,413   with the                                      size 
                 million). Changes in      trustees and                                  of the gross 
                 discount rates,           reviewed                                      liabilities 
                 inflation,                following                                     as a proportion 
                 asset values or           completion of                                 of the Group's 
                 mortality                 actuarial                                     net assets 
                 assumptions could lead    valuations.                                   remains 
                 to a materially higher    Active                                        significant. 
                 deficit. For example,     engagement with                               During 
                 the cost of a buyout      trustees on                                   the period, 
                 on a discontinued basis   pension plan                                  gross 
                 uses more conservative    asset                                         liabilities were 
                 assumptions and is        allocations and                               reduced as a 
                 likely to be              strategies.                                   result 
                 significantly             On 1 July 2019                                of people 
                 higher than the           the large                                     leaving 
                 accounting                UK GKN defined                                group schemes on 
                 deficit.                  benefit                                       the sale of 
                 Alternatively, if the     pension scheme                                their 
                 plans are managed on      was split                                     employer 
                 an ongoing basis, there   into four new                                 company, 
                 is a risk that the        schemes,                                      voluntarily or 
                 plans' assets, such       two of which                                  through an 
                 as investments in         have been                                     insurance 
                 equity                    allocated to                                  buy-out, which 
                 and debt securities,      GKN Aerospace                                 together with 
                 will not be sufficient    and two to GKN                                contributions 
                 to cover the value        Automotive,                                   of GBP185 
                 of the retirement         in order to                                   million 
                 benefits                  more                                          (including the 
                 to be provided under      appropriately                                 balance of the 
                 the plans. The            balance                                       initial GBP150 
                 implications              liabilities                                   million funding 
                 of a higher pension       across                                        commitment to 
                 deficit include a         supporting                                    the 
                 direct                    businesses.                                   GKN schemes) and 
                 impact on valuation,                                                    the better 
                 implied credit rating                                                   hedging 
                 and potential                                                           of interest and 
                 additional                                                              inflation risks 
                 funding requirements                                                    decreased both 
                 at subsequent triennial                                                 the overall 
                 reviews. In the event                                                   liability 
                 of a major disposal                                                     and volatility 
                 that generates                                                          risk to the 
                 significant                                                             Group. 
                 cash proceeds which 
                 are returned to the 
                 shareholders, the Group 
                 may be required to 
                 make additional cash 
                 payments to the plans 
                 or provide additional 
                ------------------------  ----------------  ---------------  ---------  -----------------  ----------- 
 Liquidity       The ability to raise      To ensure it      Executive                   The Group is       Buy 
                 debt or to refinance      has               management                  satisfied           Improve 
                 existing borrowings       comprehensive                                 that it has 
                 in the bank or capital    and timely                                    adequate 
                 markets is dependent      visibility of                                 resources 
                 on market conditions      the liquidity                                 available 
                 and the proper            position,                                     to meet its 
                 functioning               the Group                                     liabilities. 
                 of financial markets.     conducts 
                 As set out in more        monthly 
                 detail in the Finance     reviews of its 
                 Director's review on      cash forecast, 
                 pages 38 to 44 of the     which are in 
                 2019 Annual Report,       turn revised 
                 the Group has term        quarterly. 
                 loans of US$960 million   The Group 
                 and GBP100 million        operates cash 
                 and revolving credit      management 
                 facilities comprising     mechanisms, 
                 US$2.0 billion, EUR0.5    including cash 
                 billion and GBP1.1        pooling 
                 billion.                  across the 
                 In addition, the GKN      Group and 
                 net debt at acquisition   maintenance 
                 included capital market   of revolving 
                 borrowings across three   credit 
                 unsecured bonds that      facilities 
                 totalled GBP1.1           to mitigate the 
                 billion.                  risk of 
                 Two of these bonds        any liquidity 
                 - totalling GBP750        issues. 
                 million - remain          The Group 
                 outstanding               gained 
                 as at 31 December 2019    agreement 
                 and further detail        from its 
                 is provided in the        lenders to a 
                 Finance Director's        three-year 
                 review on pages 38        extension, at 
                 to 44 of the 2019         the Group's 
                 Annual                    option to be 
                 Report.                   built into 
                 Furthermore, in line      its 
                 with the Group's          multi-currency 
                 strategy,                 term 
                 investment is made        loan 
                 in the businesses         denominated 
                 (capital                  GBP100 
                 expenditure in excess     million and 
                 of depreciation) and      US$960 million, 
                 there is a requirement    exercisable at 
                 to assess liquidity       any time 
                 and headroom when new     prior to 1 
                 businesses are            April 2021 
                 acquired.                 that would 
                 In addition, the Group    extend the 
                 may be unable to          maturity 
                 refinance                 date of the 
                 its debt when it falls    loan to April 
                 due.                      2024. 
                                           The Group 
                                           operates a 
                                           level of 
                                           headroom across 
                                           its financing 
                                           which is 
                                           designed to 
                                           the need for 
                                           any unplanned 
                ------------------------  ----------------  ---------------  ---------  -----------------  ----------- 

Related Party Transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

In the ordinary course of business sales and purchases of goods take place between subsidiaries and equity accounted investment companies priced on an arm's length basis. Sales by subsidiaries to equity accounted investments in the year ended 31 December 2018 totalled GBP28 million (2017: GBPnil). Purchases by subsidiaries from equity accounted investments in the year ended 31 December 2018 totalled GBP14 million (2017: GBPnil). At 31 December 2018, amounts receivable from equity accounted investments totalled GBP6 million (31 December 2017: GBPnil) and amounts payable to equity accounted investments totalled GBP2 million (31 December 2017: GBPnil).

Sales to and purchases from Group companies are priced on an arm's length basis and generally are settled on 30-day terms.

                           Year ended     Year ended 
                          31 December    31 December 
                                 2019           2018 
                                 GBPm           GBPm 
 Short-term employee 
  benefits                          4              3 
                        -------------  ------------- 
 Share-based payments               9              9 
                        -------------  ------------- 
                                   13             12 
                        -------------  ------------- 

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(END) Dow Jones Newswires

April 03, 2020 06:04 ET (10:04 GMT)