Melrose Industries PLC

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

AEROSPACE

EXPERTISE

Strategic Report

2023 Highlights �� 1

Chairman’s statement �� 2

Chief Executive Ofﬁcer’s review �� 4

Divisional review �� 8

Market trends �� 12

Our Business Model �� 14

20 years of Melrose�� 16

Why aerospace? Why now?�� 17

Key performance indicators �� 18

Finance Director’s review �� 20

Longer‑term viability statement �� 27

Risk management �� 28

Risks and uncertainties �� 31

Section 172 statement �� 37

Sustainability review �� 43

Non‑ﬁnancial and sustainability information statement �� 94

Governance

Governance overview �� 98

Board of Directors �� 102

Directors’ report �� 104

Corporate Governance report �� 109

Audit Committee report �� 116

Nomination Committee report �� 124

Directors’ Remuneration report �� 128

Statement of Directors’ responsibilities �� 153

Financial statements

Independent auditor’s report to the

members of Melrose Industries PLC �� 156

Consolidated Income Statement �� 166

Consolidated Statement of Comprehensive Income �� 167

Consolidated Statement of Cash Flows �� 168

Consolidated Balance Sheet �� 169

Consolidated Statement of Changes in Equity �� 170

Notes to the Financial Statements �� 171

Company Balance Sheet for Melrose Industries PLC �� 223

Company Statement of Changes in Equity �� 224

Notes to the Company Balance Sheet �� 225

Glossary �� 232

Additional information

Notice of Annual General Meeting �� 240

Company and shareholder information �� 252

CAUTIONARY STATEMENT

The Strategic Report and certain other sections of this Annual Report and ﬁnancial

statements contain statements that are, or may be deemed to be “forward‑looking

statements”� These forward‑looking statements may be identiﬁed by the use of

forward‑looking terminology, including the terms “believes”, “estimates”, “plans”,

“projects”, “anticipates”, “potential”, “predicts”, “expects”, “intends”, “may”, “will”,

“can”, “likely” or “should” or, in each case, their negative or other variations or

comparable terminology, or by discussions of strategy, plans, objectives, goals, future

events or intentions� Forward‑looking statements may and often do differ materially

from actual results� Any forward‑looking statements reﬂect the Company’s current

view with respect to future events and are subject to risks relating to future events

and other risks, uncertainties and assumptions relating to the business, results of

operations, ﬁnancial position, liquidity, prospects, growth and strategies of the Group�

Forward‑looking statements speak only as of the date they are made�

In light of these risks, uncertainties and assumptions, the events in the forward‑looking

statements may not occur or the Company’s or the Group’s actual results,

performance or achievements of the Company might be materially different from

the expected results, performance or achievements expressed or implied by such

forward‑looking statements� Forward‑looking statements contained in this Annual

Report speak only as at the date of this Annual Report� The Company expressly

disclaims any obligation or undertaking to update these forward‑looking statements

contained in this Annual Report to reﬂect any change in their expectations or any

change in events, conditions, or circumstances on which such statements are based

unless required to do so by applicable law, the Listing Rules and the Disclosure

Guidance and Transparency Rules of the FCA or Regulation (EU) 596/2014 as it forms

part of the domestic law of the United Kingdom by virtue of the European Union

(Withdrawal) Act 2018� Some ﬁnancial and other numerical data in this Annual Report

and ﬁnancial statements has been rounded and, as a result, the numerical ﬁgures

shown as totals may vary slightly from the exact arithmetic aggregation of the ﬁgures

that precede them�

CHIEF EXECUTIVE

OFFICER’S REVIEW

Read about our 2023 results and our

strategic priorities for 2024 and beyond�

Chief Executive Ofﬁcer’s review

page 4

OUR BUSINESS MODEL

Read about our strategic transformation

into a pureplay aerospace business,

creating long‑term value for our

shareholders, employees and customers�

Our Business Model

page 14

INVESTING IN SUSTAINABLE

TECHNOLOGY TO SHAPE

THE FUTURE OF FLIGHT

Read our Sustainability review�

Sustainability review

page 43

CONTENTS

Melrose Aerospace has delivered record

results in 2023, ahead of upgraded

guidance driven by strong operating margin

progression in both divisions. The Group

is well positioned to deliver continued

growth and margin improvement supported

by positive end markets and excellent

operational momentum. We have upgraded

guidance for 2024 and are confident about

unlocking significant further potential of the

business going forward."

Peter Dilnot

Chief Executive Ofﬁcer

Chief Executive Ofﬁcer’s review

page 4

RESULTS 2023

£3,350m

Revenue

£390m

Adjusted operating proﬁt

£57m

Statutory operating proﬁt

5.0 pence

Full year dividend

Melrose is moving forward as a world‑class

pureplay Aerospace business, building on a 20‑year

history of outstanding value creation.

A WORLD‑LEADING

AEROSPACE BUSINESS WITH

EXCEPTIONAL POTENTIAL.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

Calendar year 2023

The Group had a transformational year

in 2023 and delivered ﬁnancial results

ahead of expectations. We achieved

statutory revenue for the Melrose Group of

£3,350 million (2022: £2,954 million), with an

adjusted operating proﬁt (post‑PLC costs)

of £390 million (2022: £147 million) based

on a statutory operating proﬁt of £57 million

(2022: loss of £270 million).

Following completion of the Dowlais Group plc

demerger (the “Demerger”) in the ﬁrst half

of the year, Melrose’s strategy shifted from

its previous “Buy, Improve, Sell” model to

becoming a premium‑listed aerospace

business for the long‑term. Your Board is

conﬁdent that Melrose is now well positioned

for strong future performance. This will be

driven by our two industry leading aerospace

divisions which have been restructured and

repositioned, coupled with strong market

growth and a disciplined approach to capital

allocation. The positive trajectory is clearly

demonstrated within these results.

Further details of these results are contained

in the CEO’s review and Finance Director’s

review, and I would like to thank all

employees for their efforts this year.

Purpose, strategy & sustainability

Melrose was founded to empower its

businesses to unlock their full potential for

the collective beneﬁt of stakeholders, whilst

providing shareholders with a superior

return on their investment. Our strategy

remains focused on value creation, driven

by operational and ﬁnancial improvement

over the longer term, now as a pureplay,

UK‑listed aerospace business. Our positive

trajectory is underpinned by leading

positions across the world’s major aircraft

platforms, strong organic growth prospects

within the aerospace sector, and attractive

opportunities to differentiate our business

further through cutting‑edge proprietary

technology that is already shaping the future

of ﬂight.

Our strategy remains focused on value creation,

driven by operational and financial improvement

over the longer term, now as a pureplay,

UK‑listed aerospace business.”

Justin Dowley

Non‑executive Chairman

A TRANSFORMATIONAL YEAR

CHAIRMAN’S STATEMENT

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Melrose sees the decarbonisation of the

aerospace sector as a priority, and this

presents great opportunities to deploy our

innovation and technology leadership to

create and commercialise world‑leading

solutions for cleaner air travel, and to

generate superior ﬁnancial returns for our

shareholders. We are pleased that our

sustainability performance continues to be

recognised by several key benchmarking

agencies, including Sustainalytics which

ranks Melrose in the top decile of our

industrial peers, MSCI which continues

to rank us in the “A” category, and our

recent elevation to a “B” rating by CDP

Climate Change.

This current set of results illustrates our

strategy in action, and our continued

shareholder value creation is reﬂected

in Melrose being one of the strongest

performers in the FTSE 100 in 2023.

Dividend

In line with our progressive dividend policy,

the Board proposes to pay a ﬁnal dividend of

3.5 pence per share for 2023, making a total

dividend for the year of 5.0 pence per share.

The ﬁnal dividend will be paid on 8 May 2024

to those shareholders on the register at

2 April 2024.

Board matters

Given the evolution of Melrose from the

“Buy, Improve, Sell” model into a focused

aerospace business, Victoria Jarman has

decided not to stand for re‑election at the

2024 Annual General Meeting (“AGM”). We

thank her very much for her contributions

over the last three years.

As announced last year, Christopher Miller,

Simon Peckham and Geoffrey Martin will not

stand for re‑election at the Company’s AGM

on 2 May 2024. Their periods of service as

Directors in a variety of leadership roles have

been ﬁlled with great success for Melrose

and its shareholders.

With Melrose’s transformation into a

pureplay aerospace business complete,

your Board is conﬁdent that the time is

right for the new management team to take

the Company forward, led by Peter Dilnot

and Matthew Gregory. To that end, on

6 March 2024 Mr Peckham stepped down

as Chief Executive, and on 7 March 2024

Mr Martin stepped down as Group Finance

Director and Mr Peckham, Mr Martin and

Mr Miller resigned from their positions as

Directors. During their tenure, the business

has grown from a start‑up in 2003, to a

well‑positioned FTSE 100 enterprise, having

delivered total returns of capital of over

£8 billion to shareholders, and an average

return of 2.5x shareholders’ equity for the

businesses sold under the previous business

model. We wish them well for the future.

We are pleased to conﬁrm Mr Dilnot’s

appointment as CEO of Melrose effective

6 March 2024. Peter has been at Melrose

for nearly 5 years, serving as COO and

as an executive Director, and CEO of

GKN Aerospace during this time. He has

many years of public company experience,

including as CEO of Renewi PLC and as a

senior executive at Danaher Corporation. He

has an engineering and aviation background,

and started his career as a helicopter pilot in

the British Armed Forces.

We also welcome Mr Gregory to the Board

as an executive Director, and are pleased

to conﬁrm his appointment as CFO of

Melrose effective 7 March 2024. Matthew

was previously CFO of GKN Aerospace,

and is a seasoned public company CFO

with executive leadership experience across

several complex, UK‑listed manufacturing

and transportation businesses, including as

CFO of Essentra plc, and as CFO then CEO

of FirstGroup plc.

Justin Dowley

Non‑executive Chairman

7 March 2024

Governance overview

page 98

(1) As of 2023.

RECOGNITION

Our recent ESG scores

MSCI ESG Rating of A

(1)

(2022: A)

CDP Climate Change score

2023 improved to B (2022: C)

27.8

Sustainalytics ESG rating

(1)

improved

to 27.8 (medium) (2022: 28.3)

Sustainability review

page 43

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

It has been a transformational year for

Melrose. During 2023 we successfully

evolved into a focused aerospace technology

business while delivering results well

ahead of expectations. Our end markets

continued to recover strongly and we

generated signiﬁcant margin expansion

from our extensive improvement actions,

including restructuring, operational gains

and repositioning our portfolio to improve

the quality of our earnings. We have built

positive momentum and have a very clear

path to deliver further proﬁtable growth and

shareholder value in the years ahead.

Melrose has an extensive range of

proprietary “Tier One” technology that is

in strong demand from Aerospace OEMs.

This technology is already embedded

into the world’s leading commercial

and defence aircraft platforms – both in

aerospace engines and in structures. We

are reinforcing these established positions

with ongoing business improvements,

targeted investments in organic growth

and a disciplined approach to capital

allocation. This includes making an important

contribution to the future of sustainable

ﬂight with breakthrough technologies

such as additive fabrication now and, in

the longer term, developing new forms of

propulsion. We have signiﬁcant opportunities

to create value for all stakeholders going

forward and we are conﬁdent about our

exciting trajectory from here.

2023 results

In 2023, overall Group revenues grew by

17%

(1)

with Engines growth of 16%

(1)

, driven

by RRSP strength despite ongoing industry

supply chain challenges, and Structures

growth of 18%

(1)

largely from OEM deliveries

ramping‑up. There was a 124%

(1)

increase

in adjusted operating proﬁt to £420 million,

with margins doubling from 6.3% to a

record 12.5% (pre‑PLC costs). The Group

statutory operating proﬁt was £57 million

compared to a loss of £270 million in the

prior year. Our leverage reduced to 1.1x,

including £93 million of share buyback cost

in the period, and net debt was better than

expectations. Going forward, we are guiding

to continued proﬁt expansion to £560 million

(pre‑PLC costs) in 2024, at the midpoint of

the range, and £700 million in 2025 as the

beneﬁts of market growth and the full impact

of our improvement plans read through. Our

conﬁdence in these targets is underpinned by

robust commercial and operational progress.

Our new “Design, Deliver, Improve” business

model reflects how value will be created by

Melrose going forward based on differentiated

technology leadership, consistent delivery of

commitments to our stakeholders, and ongoing

improvement in all areas – including progressive

financial results.”

Peter Dilnot

Chief Executive Ofﬁcer

(1)

Like‑for‑like growth is calculated at constant currency against 2022 results and excludes businesses being exited.

EVOLVING INTO A FOCUSED AEROSPACE

TECHNOLOGY BUSINESS

CHIEF EXECUTIVE OFFICER’S REVIEW

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Our plan is to deliver strong proﬁtable

growth driven in particular by our

exceptional Engines division. By 2025,

Engines is forecast to contribute over

70% of Melrose proﬁt with over 85%

of this being from the accretive and

structurally growing aftermarket. Within

this aftermarket business, our unique

RRSP portfolio – which includes leading

engines from all major OEMs – is expected

to generate £22 billion of future cash ﬂows

(using a rate of USD$1.25). The positive

momentum in Engines is demonstrated by

our guidance that its 2025 margin target of

28% will be achieved a year early in 2024.

Our Structures division also has a positive

proﬁtable growth trajectory and is well

on track to deliver its 9% margin target

in 2025. This represents signiﬁcant gains

from the modestly above breakeven result

in 2022 (immediately post COVID‑19) and

the 5% margin that was delivered ahead

of expectations in 2023. The ongoing

Structures margin expansion will continue

to come from civil volumes ramping‑up,

our Defence portfolio repositioning

and repricing, and ongoing wider

business improvements.

Our immediate focus will remain

on delivering organic growth with

an increasing number of exciting

technology‑led opportunities emerging for

the future, particularly in Engines where

returns are highly attractive and accretive.

The Board has conﬁrmed that no material

acquisitions will be made in the near‑term.

On the commercial front, we secured a

ﬂagship new Engines agreement with GE

which is estimated to deliver US$5 billion

in incremental revenue over the contract

lifetime, including an expansion of RRSP

participation on the GEnx programme. In Civil

Structures we agreed a ﬁve‑year extension

with Airbus for the sole‑source production of

A220 wiring, and a new multi‑year contract

covering design and build of ﬂight control

surfaces for the new urban air mobility player,

Joby. In Defence Structures, an agreement

has been signed with the Netherlands MoD

and Airbus for new helicopter developments,

and we have secured favourable positioning

for design and build content on the Global

Combat Air Programme, Future Vertical Lift

Programme and European Next Generation

Rotorcraft Programme. In addition, Defence

repricing is proceeding ahead of plan,

with 42% of core defence work now being

sustainably priced. Our leadership in next

generation technologies was cemented

through a new partnership with Embraer

to explore the implementation of hydrogen

technologies in aviation.

We made further progress with operational

gains in 2023, with safety and quality always

being our top priorities. During the year we

reduced total reportable safety incidents by

19%, and the number of quality escapes

(issues reaching our customers) was 44%

lower than prior year. Our performance

on customer deliveries improved with a

reduction in arrears of £40 million, despite

the signiﬁcant ongoing industry supply

chain issues. Productivity was impacted

by these supply chain shortages, however

underlying gains are being made through

focused Lean implementation, automation

and digitalisation. The plan to rationalise our

footprint from 12 sites to nine in Engines, and

40 sites to 22 in Structures has continued

to progress well. All business improvement

initiatives remain ﬁrmly on, or ahead of, plan

and we expect further gains to read through

as we deliver revenue growth from a more

focused and productive operational base.

Strategy

Following completion of the Demerger,

Melrose has now changed strategy to

being purely an aerospace business, and is

reporting publicly as two divisions, Engines

and Structures. The previous Melrose

business model of “Buy, Improve, Sell”,

has been replaced by “Design, Deliver,

Improve”. This new business model reﬂects

how value will be created by Melrose

going forward based on differentiated

technology leadership, consistent delivery

of commitments to our stakeholders, and

ongoing improvement in all areas – including

progressive ﬁnancial results.

MELROSE HAS AN EXTENSIVE

RANGE OF PROPRIETARY

“TIER ONE” TECHNOLOGY

THAT IS IN STRONG DEMAND

FROM AEROSPACE OEMS.

THIS TECHNOLOGY IS

ALREADY EMBEDDED INTO

THE WORLD’S LEADING

COMMERCIAL AND DEFENCE

AIRCRAFT PLATFORMS – BOTH

IN AEROSPACE ENGINES AND

IN STRUCTURES.

While our strategy has changed, the Group

will retain the most important elements

of what made Melrose successful: rapid

decision making; empowering management

teams; and accountability for results. Our

determination and focus on improving

businesses at pace will also always remain at

the heart of what we do. This coupled with

GKN Aerospace’s technology leadership and

engineering excellence will be a powerful and

competitive combination.

READ MORE ABOUT OUR

TWO OPERATING DIVISIONS

Engines

page 8

Structures

page 10

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

compounded by the fact that over the last

four years there was a signiﬁcant reduction

in aerospace deliveries due to COVID‑19 and

the well‑publicised issues with the Boeing

737 MAX. In addition, the industry supply

chain is currently pacing deliveries due to

capacity and raw material shortages. This

dynamic continues to create a mismatch

between supply and demand, and backlogs

have increased in 2023 in our key markets.

Given our embedded position on all major

civil and defence aircraft, these large

backlogs underpin our expected future

business growth.

In 2023, global revenue passenger kilometres

closed to within 1% of pre‑COVID‑19 levels

and many domestic markets were ahead of

previous peak levels. With strong order intake

and constrained supply, the total civil aircraft

order backlog has reached a record of over

14,000 aircraft.

(1)

Defence demand has also

increased signiﬁcantly due to geo‑political

tensions. The book‑to‑bill ratio for leading

global defence businesses is expected to

remain above 1x in the near‑term.

Our positions on all leading commercial

narrowbody and widebody aircraft are

well established with a stronger weighting

towards Airbus over Boeing. Our positions

are largely design to build and sole

source, including metallic and composite

aerostructures, wiring, transparencies and

anti‑ice systems. Within Defence we have a

similar technology portfolio with extensive

content on the leading global F‑35 ﬁghter jet,

plus positions on leading military helicopters

and cargo aircraft. Our Engine portfolio is

unique in terms of its breadth and coverage

of global ﬂying hours. Our deep design

expertise has been embedded in leading

engines from all major engine OEMs with

RRSP positions on 19 engines, including

100% coverage of legacy narrowbody

engines (CFM56 and V2500). In total, our

technology supports more than 100,000

ﬂights per day and our business is therefore

directly linked to global market growth.

Market trends

page 12

Melrose and GKN

Within the markets in which it operates, the

GKN Aerospace brand conveys quality,

reliability and deep technical expertise. This is

both a function of its position as a long‑term

trusted partner to all major airframe and

engine OEMs, and its pioneering approach to

the delivery of next generation solutions.

Within ﬁnancial markets, since its formation

in 2003, Melrose has established itself as

an excellent steward of capital, empowering

businesses to unlock their full potential for

the collective beneﬁt of stakeholders. As

a focused aerospace group, the Melrose

strategy may have changed but the unstinting

focus on value creation remains.

WHAT MADE MELROSE

SUCCESSFUL: RAPID DECISION

MAKING; EMPOWERING

MANAGEMENT; AND

ACCOUNTABILITY FOR

RESULTS, COUPLED

WITH GKN AEROSPACE’S

TECHNOLOGY LEADERSHIP

AND ENGINEERING

EXCELLENCE WILL BE A

POWERFUL COMBINATION.

We have therefore chosen to preserve

both brands given their inherent value and

reputation to different stakeholders. Going

forward, the Group will operate with one

brand for its customers, GKN Aerospace,

and one brand for ﬁnancial markets,

Melrose Industries PLC. Internally we have

created one uniﬁed and efﬁcient organisation

but with an emphasis on decentralisation that

empowers customer‑facing leaders and local

operating teams.

Market update and

portfolio position

Our end markets continue to recover

strongly and look set for sustained structural

growth in the years ahead. The demand is

CHIEF EXECUTIVE OFFICER’S REVIEW

CONTINUED

GKN ENGINES

GKN STRUCTURES

OUR BUSINESS

OUR TWO DIVISIONS

(1)

Source: Boeing and Airbus websites.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Group outlook

The Group is well positioned to deliver

further signiﬁcant progress in 2024 and

beyond. Our positive momentum gives us

conﬁdence to raise our adjusted operating

proﬁt guidance (pre‑PLC costs) by

£30 million for 2024 (6%), driven primarily

by Engines revenue growth and adjusted

operating margins. Notwithstanding the

upgraded operating proﬁt guidance,

there remain revenue headwinds from

industry‑wide supply chain issues,

short‑term destocking due to the phasing

of commercial aircraft build rates, and the

impact of planned exits and disposals in

our Structures division.

The progress we expect in 2024 will

further narrow the gap to our 2025 targets.

These are increasingly underpinned by

the Engines outlook and mix, Civil ramp

up, Defence portfolio improvements

and ongoing business improvements

throughout the Group.

Peter Dilnot

Chief Executive Ofﬁcer

7 March 2024

OUR POSITIVE MOMENTUM

GIVES US CONFIDENCE TO

RAISE OUR OPERATING

PROFIT GUIDANCE BY

£30 MILLION FOR 2024 (6%)

Sustainability

We are well positioned to play an important

role in the development of sustainable ﬂight

and see this as key to our future success. We

are investing selectively in developing new

technologies, independently or in conjunction

with customers and governments, that

we believe will further enhance our

market position. This includes developing

new manufacturing methods to make

established components more sustainably

today – such as additive fabrication and

thermoplastics. Our partners continue to

embed technological improvements to make

current aircraft more fuel efﬁcient, with Pratt

& Whitney’s Geared Turbofan now certiﬁed

on 50% Sustainable Aviation Fuel (“SAF”) and

successfully tested on 100% SAF. In parallel,

we are working on longer‑term developments

such as our pioneering work on Hydrogen

aircraft propulsion and storage, plus

associated electrical distribution systems.

For example, GKN Aerospace is part of the

Hydrogen in Aviation Alliance, established in

September 2023 to accelerate the delivery of

zero carbon aviation.

We are also taking action to reduce the direct

impact of our business on the environment.

This year has seen continued momentum,

with a number of our environmental targets

being achieved early. New 2025 targets have

therefore been set, including a reduction

in Scope 1 & 2 emission intensity by 50%,

and a 40% reduction in water intensity by

2025. To enable aviation’s route to Net Zero

by 2050, we have set 2025 targets for the

percentage of sustainable R&D at 80%.

Sustainability review

page 43

Guidance for 2024 and 2025

Income Statement

2024 (Targets)

2025 (Targets)

Revenue:

Engines

£1.45bn – £1.50bn

£1.8bn

Structures

£2.15bn – £2.25bn

£2.2bn

Aerospace

£3.60bn – £3.75bn

£4.0bn

Adjusted operating proﬁt (pre‑PLC costs):

Engines

£410m – £420m

£500m

Structures

£140m – £150m

£200m

Aerospace

£550m – £570m

£700m

Adjusted operating proﬁt margin (pre‑PLC costs)

>15%

17% – 18%

Adjusted EBITDA (pre‑PLC costs):

Engines

£480m – £490m

£580m

Structures

£230m – £240m

£290m

Aerospace

£710m – £730m

£870m

PLC costs

c£30m

Capital allocation

The Group commenced a £500 million

share buyback programme in

October 2023 with £93 million paid

within the year. The programme is

anticipated to complete by the end

of September 2024. We will maintain

a disciplined approach to capital

allocation going forward with a singular

focus on generating the most attractive

returns for shareholders. This includes

investing in an increasingly promising

range of organic growth opportunities,

particularly in Engines given its very

accretive economics. We will pursue

these opportunities while keeping

leverage comfortably within the

previous guidance.

We also remain committed to paying

a progressive annual dividend. For

2023 the Board has recommended a

ﬁnal dividend of 3.5 pence per share,

which will be paid on 8 May 2024 to

shareholders on the register at the close

of business on 2 April 2024. This makes

the total dividend for 2023 5.0 pence

per share.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

DIVISIONAL REVIEW

The Engines division made

strong financial, operational

and strategic progress during

2023. Divisional growth

was supported by strong

end markets with increasing

flying hours leading to an

acceleration in shop visits

and spare parts demand. Our

unique RRSP portfolio further

matured during the year,

providing good momentum

and visibility to divisional

margins exceeding 30%

beyond 2025.

ENGINES

£1,193m

Revenue

(2022: £1,035m)

£310m

Adjusted operating proﬁt

(2022: £162m)

26.0%

Adjusted operating proﬁt margin

(2022: 15.7%)

£360m

Adjusted EBITDA

(2022: £215m)

30.2%

Adjusted EBITDA margin

(2022: 20.8%)

INDUSTRY‑LEADING ENGINES DIVISION

POSITIONED TO ACHIEVE EXCEPTIONAL GROWTH

(1)

Like‑for‑like growth is calculated at constant

currency against 2022 results and excludes

businesses being exited.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

manufacturing typically results in around

80% of material being machined away

to achieve the ﬁnal product. By contrast,

additive fabrication effectively builds

and welds parts in near ﬁnal form

thereby minimising raw material waste,

energy use and shipping emissions.

Our commitment to this breakthrough

proprietary technology is illustrated by

a £50 million investment in a low rate

production additive fabrication plant in

Trollhättan, Sweden, which included

£12 million funding support by the Swedish

Energy Agency’s Industriklivet initiative.

Following a successful certiﬁcation

process we are now shipping the initial

additive fabrication engine components

to customers. The future opportunities

are extremely promising and they over

time include manufacturing more parts on

existing engines, as well as development

parts for next generation engines such as

CFMI RISE.

Outlook

The Engines division is extremely well

placed to drive proﬁtability throughout

this decade and beyond. The division has

OEM‑level capability, strategic partnerships

with all major engine OEMs, a lucrative

and diverse RRSP portfolio, and GKN

proprietary breakthrough technologies that

are becoming increasingly valuable to the

industry at large.

To unlock the potential of the division we

have a clear and well‑established path

for delivering proﬁtable growth based on:

increasing RRSP portfolio contribution;

focused Engines growth initiatives

including repairs and additive fabrication;

and ongoing business improvements. In

the context of robust demand, partially

tempered by ongoing supply chain issues,

we expect to deliver strong revenue

progress in 2024, led by aftermarket

growth, and our target 2025 adjusted

operating margin of 28% to be achieved

one year early. We are also increasingly

conﬁdent that Engines will deliver >30%

margins beyond 2025.

Most notably, we have 100% coverage of

legacy narrowbody engines through our

CFM56 and V2500 positions and these

performed strongly with ﬂying hours returning

towards pre‑COVID‑19 levels. The returns

from our widebody engines, GEnx and XWB,

are also continuing to grow with recovering

long‑haul travel.

Our strategically important repair business

grew by 23% in 2023 as demand continued

to increase strongly and our new capacity

came online. Further growth will be driven by

our Malaysian fan blade repair centre which

gained its Civil Aviation Administration of

China (CAAC) certiﬁcation in 2023, opening

up the rapidly expanding China and Asia

markets. The development of our new

state‑of‑the‑art dedicated engine component

repair centre in El Cajon, California (US), is

progressing well and remains on target to

open in 2024.

It was also a positive year operationally

for Engines. A breakthrough quality target

of “zero escapes” (issues reaching our

customers from our sites) in the core

Engines business was successfully achieved

throughout 2023. The division also stayed

ahead of OEM production with reliable

customer deliveries, despite supply chain

issues that impacted our own production

ﬂows and productivity. Further progress

continued during the year with our digital

initiatives, including our internally developed

machine and factory connectivity programme

called CO‑PILOT. These initiatives, coupled

with ongoing Lean implementation across

the global site footprint, will deliver further

quality, delivery and productivity gains

going forward. In addition, the US East

Coast sites consolidation and Nordics

restructuring programmes have progressed

well, providing greater ﬁnancial beneﬁts than

originally envisaged.

The development of our unique additive

fabrication business, using laser wire

deposition in conjunction with other

technologies, has accelerated signiﬁcantly.

This innovative and proprietary new

manufacturing approach enables complex

engine parts to be made with less reliance

on complex and large forgings and castings

– many of which are currently capacity

constrained. Our additive fabrication

approach is gaining signiﬁcant traction with

Engine OEMs as they look to alternative

manufacturing methods which can

provide additional sources of supply with

shorter lead times, lower costs and more

sustainable processes. Current subtractive

During the year, revenue was up 16%

(1)

versus

2022. OE revenue grew 3%, constrained

by ongoing industry supply chain issues.

Underlying demand is therefore higher

than the reported level of growth indicates.

Aftermarket revenue was up 34%, led by 40%

growth in the civil engines aftermarket from a

combination of volume increases, wider shop

visit scope and positive pricing. Adjusted

operating margins improved 10.3 percentage

points to 26%. Encouragingly, the second

half margin was ahead of our initial and most

recent guidance at 27.5%.

Over the course of 2023, commercial

highlights include the signing of a major

new agreement with GE Aerospace. This

agreement expands RRSP participation on

the GEnx programme, the fastest‑selling

high‑thrust engine, and also covers new

technology insertion. The agreement

also enables GKN Aerospace to join

GE Aerospace’s global aftermarket

repair network as well as securing

life‑of‑programme contracts to deliver 100%

of GEnx, CF6 and GE90 fan cases, and

50% of GE9X fan case assembly. Other

commercial highlights include a new contract

with Safran to supply shafts for the LEAP

engine family, plus a ten‑year extension of an

OEM supply agreement with Pratt & Whitney

for their military engine programme family

of cases such as F135, F100 and F119. Our

Engines division also continues to support

the Swedish Air Force with complete engine

production and maintenance for their ﬁghter

ﬂeet and this extends to wider international

military customers who also ﬂy the Gripen

jet. The demand for this support continues

to be elevated due to higher defence ﬂying

hours, most notably due to the ongoing war

in Ukraine.

We continue to work closely with Pratt &

Whitney and other partners to manage the

well‑publicised issues from powder metal

manufacturing on some variants of the GTF.

The associated inspection programme is

now well underway with global airlines and is

progressing according to plan with increasing

clarity on the execution schedule and

regulatory framework. Our previous ﬁnancial

guidance is unchanged with no proﬁt impact

expected from this issue and with a total

cash cost of around £200 million over the

next few years if it is assumed that this is all

a programme cost. More broadly, we remain

conﬁdent that the GTF will be a robust and

attractive narrowbody engine in the decades

ahead. Beyond the GTF, we have 17 other

RRSP life‑of‑programme contracts and these

generated a positive contribution in 2023.

Structures

Divisional Review

page 10

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

DIVISIONAL REVIEW

CONTINUED

STRUCTURES

£2,157m

Revenue

(2022: £1,919m)

£110m

Adjusted operating proﬁt

(2022: £24m)

5.1%

Adjusted operating proﬁt margin

(2022: 1.3%)

£201m

Adjusted EBITDA

(2022: £115m)

9.3%

Adjusted EBITDA margin

(2022: 6.0%)

STRONG GROWTH TRAJECTORY,

EXCEEDING PRE‑PANDEMIC PROFITABILITY

Structures had a strong year

delivering adjusted operating

margins of 5.1%, well ahead of

our original plan of 3%. This

performance was driven by

expected volume growth as

civil production ramped up,

as well as the positive impact

of our extensive business

improvement actions reading

through strongly, especially in

the second half.

(1)

Like‑for‑like growth is calculated at constant

currency against 2022 results and excludes

businesses being exited.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

These business improvements include good

progress on rationalising our global site

footprint, commercial renegotiations and

operational gains. The division is increasingly

design led with excellent customer positions,

and beneﬁts from technological expertise

well suited for next generation aircraft,

expected to drive long‑term growth. The

division remains ﬁrmly on track to achieve

its 9% adjusted operating margin target

by 2025.

The positive trajectory for Structures is

underpinned by strong demand. In civil, order

backlogs are at record levels with A320 order

slots now being booked in 2030 and beyond.

The rate of production ramp‑up is currently

being constrained by ongoing industry wide

supply chain issues, and volumes are set to

increase structurally as capacity expands in

the years ahead. The narrowbody ramp‑up

is evident and is extending to widebody

production rates as long‑haul travel recovers.

In defence, global spending continued its

rapid expansion in 2023 due to geo‑political

tensions and as budgetary plans announced

in the wake of Russia’s 2022 Ukraine invasion

started to positively impact. Total global

defence spending has risen to US$2.2 trillion

in 2023, an increase of 9% on the prior year

(source: IISS). Sustained growth is set to

continue with positive book‑to‑bill ratios

expected for all the leading Defence primes.

We have an established technology position

on all major civil and defence platforms, so

are well placed to capture market growth in

the years ahead.

In 2023 Structures revenue grew 18%

(1)

versus prior year. Civil growth of 28%

(1)

reﬂected higher OEM production rates and

Defence was ﬂat

(1)

due to increased demand

and shipments offset by strategic exit of

business. Divisional adjusted operating

margins improved by 3.8 percentage points

to 5.1% driven by volume increases, improved

pricing and operational improvements, plus

portfolio moves in Defence. Our focused

work on improving the quality of our Defence

portfolio through renegotiation or exit

continues at pace and we are now ahead

of plan. In total 42% of core contracts are

now sustainably priced, more than double

the proportion at the end of 2022. We are

increasingly conﬁdent of achieving the target

85% of the portfolio being sustainably priced

by 2025.

Over the course of 2023 we achieved a

number of signiﬁcant commercial milestones

within our Structures division. This included

successes with Airbus on establishing

electrical wiring interconnectivity systems

(‘EWIS’) capability in Mexico for the A220,

as well as delivering the ﬁnal trailing edge

in the Wing of Tomorrow development

programme. The division also delivered

its 1000th Honeywell HTF Nacelle and its

600th Gulfstream G650 Empennage with

production rates reaching an all‑time high.

Our position at the forefront of the next

generation Air Mobility Market was reinforced

through partnerships with the leading

players Joby, Archer and Supernal. This is a

market in its early stage but one where we

are making good progress and see multiple

opportunities while limiting our ﬁnancial risk.

Operationally, Structures made good

progress and has momentum to deliver

further gains. Our top priority is always

safety and quality, and during 2023 the Civil

business achieved a landmark of zero lost

time accidents and the wider Structures

division delivered a 43% reduction in quality

‘escapes’ (issues reaching the customer)

versus prior year. Our deliveries also

ramped‑up strongly despite the ongoing

industry supply chain challenges with arrears

in the division 34% lower than 2022. The

extensive restructuring programme within

Structures is nearing completion with the

successful consolidation and restructuring

of the Netherlands’ footprint down from six

sites to two multiple technology campuses

in Hoogeveen and Papendrecht. In the

US and Mexico the site footprint has been

rationalised to create three centres of

excellence at Chihuahua, Orangeburg and

Wellington. Going forward, we expect to

deliver further quality, productivity and cost

improvements as volumes increase within our

restructured and leaner operating base.

More broadly, our new COMAC and AVIC

joint venture (“JV”) site in Jingjiang, China

remains under construction with production

expected from Q2 2024 and with the ﬁrst

work packages already agreed. China is set

to become the largest aviation market by

2040, opening 150 new airports by 2035,

and this JV unlocks the path to this promising

and important indigenous market. Our

work on focusing the Defence portfolio has

continued and we divested the non‑core Fuel

Systems business on 1 March 2024.

We are also positioning Structures to play a

valuable and proﬁtable role in future aircraft

developments. This is built upon GKN

Aerospace’s expertise in thermoplastics,

EWIS and lightweight aerostructures, as

well as breakthrough additive manufacturing

methods that can accelerate product

development. During 2023 our technological

leadership was evidenced through our

collaboration with Embraer to explore a

hydrogen ﬂight demonstrator, with Pratt &

Whitney Canada for a hybrid electric ﬂight

demonstrator, and by completing the ﬁrst

high voltage electrical harness for the Lilium

jet. Our Defence business is well positioned

for design and build content on the Global

Combat Air Programme with the UK, Italy

and Japan, and with two leading OEMs for

uncrewed systems. We also remain well

placed on future rotorcraft programmes

in the US (Future Vertical Lift) and EU

(European Next Generation Rotorcraft).

To further support the Structures

positioning in next generation technology,

and the pursuit of Net Zero, a new Global

Technology Centre (“GTC”) opened in

Hoogeveen, Netherlands, with a particular

focus on lightweight thermoplastics and

high voltage wiring systems. This new

centre complements our established

GTCs across the wider Group in Bristol

(UK), Trollhättan (Sweden) and Fort Worth,

Texas (US).

Outlook

Structures has an embedded position as a

Super Tier One partner to the world’s leading

aircraft OEMs, coupled with unrivalled

technical expertise. The division is therefore

well placed to beneﬁt from civil ramp‑up,

defence spending and new platforms,

and the shift to sustainable aviation over

time. Our design to build business model

and increasingly focused portfolio is set to

deliver high quality earnings.

For 2024 we expect to make revenue

progress reﬂecting market growth. However,

reported revenue is likely to be ﬂat versus

prior year due to short‑term destocking

at some Civil customers (caused by their

supply chain challenges), the planned exit of

non‑core work previously outlined, and the

disposal of the Fuel Systems business. For

the full year the division is expected to make

further progress in expanding adjusted

operating margins and we expect the year

to have second half seasonal weighting as

usual. Looking forward, we are increasingly

conﬁdent of achieving our 2025 adjusted

operating margin target of 9%.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

CIVIL

RECOVERY

Global flight hours continued

to recover and finished 2023

within 1% of pre‑COVID‑19

levels. The US led the way,

with traveller numbers well

above pre‑pandemic figures,

while Europe and China are

set to overtake 2019 levels in

2024. Demand for new aircraft

grew, led once again by the

single aisle market, as airlines

look to replace ageing fleets

with newer, more efficient

aircraft. Deliveries continue

to be paced by the complex

supply chain and operating

environment.

SUSTAINABILITY

FOCUS

Tackling climate change

continued as a priority for

policy makers, investors

and the aerospace industry,

with renewed focus on how

to reach net zero emissions

by 2050.

DEFENCE

GROWTH

Geo‑political instability and

conflicts have driven up

defence budgets and the

demand for key military

platforms. 2023 also saw

investment in Trans‑Atlantic

industrial bases to increase

resilience and address supply

chain challenges. These

trends are set to enable future

business growth through

increased orders for F‑35s

and the rapid adoption of

uncrewed systems.

DIVISIONAL REVIEW

CONTINUED

MARKET TRENDS

The Group has responded to these trends, by:

Evolving into a focused Aerospace

technology business, with a

new business model of “Design,

Deliver, Improve”. Following this

strategy, Melrose will create value

through differentiated technology

leadership, consistent delivery for

our stakeholders, and ongoing

improvement in all areas. This

will enable the business to meet

growing customer demand in both

the civil and defence markets,

from a more balanced and

customer‑focused global footprint.

Launching new, more ambitious

2025 Group sustainability targets,

including a reduction in Scope 1 &

2 emission intensity by 50%, and

a 40% reduction in water intensity.

Alongside its own operations, the

Group has continued to push the

boundaries of more sustainable

technology for our customers.

These include ground‑breaking

additive fabrication progress within

our Engines division, and pioneering

zero‑emissions solutions in electric

ﬂight and hydrogen propulsion

development.

Strengthening the Defence business

to take advantage of future growth,

from operational performance and

technology leadership to refocusing

on higher quality “design‑to‑build”

contracts and repricing activities. In

total 42% of core defence work is

now sustainably priced, well ahead

of target. The Defence team will

continue to strengthen its position

on key programmes in 2024, such

as the F‑35, while positioning itself

to support the next generation

platforms in Europe and the US.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

2029

2028

2027

2026

2025

2024

2023

2022

2021

2020

2019

2.5

2.0

1.5

1.0

0.5

2030

2029

2028

2027

2026

2025

2024

2023

2022

2021

2020

2019

250

200

150

100

Narrow Body

Wide Body

2030

2029

2028

2027

2026

2025

2024

2023

2022

2021

2020

2019

2,500

2,000

1,500

1,000

500

Narrow Body

Wide Body

• Strong recovery in passenger

demand continued, with 2023

ending at almost 2019 levels

• Passenger load factors

remained high, above 80%

• Holiday trafﬁc drove a strong

ﬁnish to 2023, with high demand

across the US and Europe

• Global air cargo saw 8.3%

year‑on‑year growth, the highest

for two years

• Airbus booked a record number

of gross aircraft orders (2,319) in

the year

• Airbus and Boeing’s combined

backlog now stands at more

than 14,000 aircraft, stretching

well into the 2030s

• The number of aircraft in service

in 2023 increased signiﬁcantly

year‑on‑year for both single aisle

(8.1%) and widebodies (7.6%)

• Complex supply chain

environment continued to

suppress output, but will ease

over time

• Addressable defence market

spending set to rise from $1.5

trillion in 2021 to $1.9 trillion in

2024, a CAGR of more than 8%

• Defence industrial base is under

signiﬁcant pressure to meet high

rate growth requirements

• Increasing defence budgets

in response to heightened

geopolitical uncertainty

• F‑35 programme ten‑year

forecast now ~$150 billion,

while global military uncrewed

and missile markets set to grow

signiﬁcantly

Engine Flight Hour Forecast (millions)

OEM deliveries chart

Allied defence spend ($ trillions)

Source: AWIN

Source: Teal

Source: AeroDynamic Advisory

Chart relates to spending from NATO, India, Sweden, Finland, Saudi Arabia, Australia, Japan, Israel and South Korea.

STRATEGIC REPORT

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

A COMPELLING BUSINESS MODEL

DESIGNED TO CREATE CONSISTENT

LONG‑TERM VALUE

OUR BUSINESS MODEL

OUR COMPETITIVE STRENGTHS

Aerospace expertise

With our technology leadership, OEM‑heritage and

global manufacturing capability, we are the world’s

leading multi‑technology Tier 1 business across civil

and defence aerospace.

90 yrs

Customer partnerships of up to 90 years

Global partner with market‑leading positions

Our differentiated, high‑quality products give us

established positions on all of today’s high‑volume

aircraft, across all major OEMs, and positions us

strongly for future platforms.

100,000

Technology on‑board 100,000 ﬂights a day

Investment for growth

We invest in our people, in R&D and in sustainable

production to build excellence and generate

long‑term growth across our businesses.

c.£150m

Investment in climate‑related technology

since 2020

(1)

Financial discipline

We have a clear focus on operating cash

generation and proﬁtability. The partnership

risk/reward model gives us long‑term visibility

of strong future cashﬂows.

£22bn

Future cash ﬂows from engine RRSPs

A compelling track record

We have a strong track record of delivering for

our customers and shareholders, securing the

operational and ﬁnancial health of our businesses.

>£8.2bn

Total returns to shareholders by Melrose

OUR VALUE CHAIN/WHAT WE DO

Design

Improve

Deliver

(1) Excluding investments made into climate‑related R&D programmes

within businesses that are no longer part of the Group.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

DELIVERING VALUE FOR

ALL OUR STAKEHOLDERS

We design

Industry‑leading solutions

>650

global patents granted

Technology design partner

Only

Tier 1 partner on both RISE and next‑generation

GTF engine technology programmes

We deliver

Essential products for our customers

c.90%

On board c.90% of major civil aircraft today

Strong ﬁnancial performance

11.6%

(1)

Adjusted operating proﬁt margin in 2023

We improve

Health and safety

in the workplace

>19%

reduction in total injury rate in 2023 vs 2022

Protecting the environment

through operational and

value chain emissions reductions

38%

(2)

reduction in Scope 1 and 2 emissions since 2020

(1)

Described in the ﬁnancial statements on page 232, and

considered by the Board to be a key measure of performance.

(2) Market‑based method has been used for Scope 2 emissions.

Design

We are a design partner for our customers, anticipating their

needs, providing breakthrough technologies and creating

highly engineered solutions where quality always comes

ﬁrst. We think like a peer, act like a partner, and deliver like

a supplier. We invest in our businesses to drive growth

in attractive markets and develop innovative solutions to

the most pressing and complex challenges across the

aerospace sector.

We are committed to sustainable technology development to

accelerate the future of zero emission ﬂight.

Deliver

Delivering on our customer and ﬁnancial commitments is the

foundation of our business. We drive operational excellence

to ensure our customers receive high‑quality products on

time, whilst generating long‑term value for our investors. This

ensures a vibrant and trusted business for all stakeholders.

We take pride in our work, take ownership of our

commitments, and always deliver on our promises.

Improve

Melrose doesn’t stand still. Continuous improvement

applies throughout all that we do and will always remain

central to our success. We are committed to unlocking

value through ongoing improvement in customer fulﬁlment,

employee engagement, environmental impact and

ﬁnancial performance.

We maintain a relentless focus on proﬁtable, sustainable

and cash generative growth.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

Track record for £1 invested in Melrose

Investment in May 2005 with all dividends reinvested since

(Total shareholder return)

(1)

Original investment

in May 2005

Gross return on original

£1 investment

£1

£31.39

20 YEARS OF MELROSE

MELROSE – 20 YEARS OF CREATING

VALUE FOR BUSINESSES AND FOR

OUR SHAREHOLDERS

Shareholder investment and gain

(ﬁgures up to 31 December 2023)

£5.7bn

Shareholder value created since establishment

£8.2bn

Total returns to shareholders

2.5x

Average return on equity across all

businesses sold

20%

Average annual return on equity investment

since the ﬁrst acquisition

(1)(2)

Total shareholder return (TSR)

(1)(2)

Over the last 20 years,

Melrose has delivered

significant value to

shareholders under its

successful “Buy, Improve,

Sell” business model.

By acquiring underperforming manufacturing

businesses, applying disciplined long‑term

operational and ﬁnancial improvement measures,

and with the strong and consistent support of

our shareholders, we have created approximately

£6 billion in shareholder value, made total returns

of over £8 billion to shareholders, and generated

an average return of 2.5x shareholders’ equity for

the businesses we have sold.

Following last year’s demerger of Dowlais

Group plc, Melrose became a pureplay, listed,

aerospace‑only business, marking the end of

“Buy, Improve, Sell”. At its heart, our new strategy

remains focused on value creation, founded

upon continuous operational and ﬁnancial

improvement over the longer term. Our positive

trajectory is underpinned by the strong organic

growth prospects within the aerospace sector,

alongside attractive opportunities to further

differentiate our business through cutting‑edge

proprietary technology.

(1) Source: Datastream Total Shareholder Return Index

(2) Since Melrose’s ﬁrst acquisition (May 2005)

Melrose

TSR

higher

by c.14x

3,039%

210%

FTSE 100

2005

2023

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

GKN Aerospace is the highest quality business Melrose has ever owned. It has significant

positive momentum today and is uniquely positioned for long‑term growth. As a pureplay,

listed aerospace company, Melrose offers a compelling equity case.

WHY AEROSPACE? WHY NOW?

Proﬁt more than doubled

in 2023

£700m

Adjusted operating proﬁt

guidance for 2025

ATTRACTIVE PROFIT GROWTH

• Increasingly higher proﬁt drop through from strong Engines

aftermarket growth

• Proﬁt underpinned by restructuring and further operational

improvements, plus better pricing

HUGE ENGINES AFTERMARKET

• RRSP work largely done on engine build, but with

entitlement to lifetime share of aftermarket proﬁts

• £22 billion of lifetime net cash inﬂow (£5.7 billion NPV)

coming increasingly from Engines aftermarket

100%

of all legacy narrowbody

ﬂying hours covered by

an RRSP

>85%

of all future Engines

proﬁt from aftermarket

STRONG MARKET GROWTH

• Rapid aerospace market recovery, followed by long term

structural growth

• Technology embedded on the world's most successful,

highest volume platforms

30%

Higher global air trafﬁc

in 2023 vs 2022

>70%

revenue from sole

source positions

STRONG BALANCE SHEET

• Well placed to invest in organic growth, alongside delivering

on its ongoing share buyback commitment

• Balance sheet underpinned by Engines’ aftermarket

cashﬂows and improved underlying Group proﬁtability

Progressive

Annual dividend

to be paid

£500m

Share buyback

scheme underway

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

Additional business‑level KPIs are also used, which are relevant to their particular circumstances. Further detail on these KPIs is disclosed

in the glossary to the ﬁnancial statements and further information regarding the performance of the Group against its ﬁnancial KPIs is

included in the Finance Director’s review.

FINANCIAL KPIs

In order to support the Group’s strategy and

to monitor performance, the Board uses a

number of financial and non‑financial key

performance indicators (“KPIs”).

MEASURING OUR

PERFORMANCE

KEY PERFORMANCE INDICATORS

(1)

Described in the glossary to the ﬁnancial statements on pages 232 to 239.

(2)

Data has been restated for discontinued operations in 2022 and 2021.

(3)

Operating proﬁt before depreciation of property, plant and equipment and amortisation of computer software and development costs.

(4)

A ﬁnal dividend for 2023 of 3.5 pence per share will be paid on 8 May 2024. For 2022, a second interim dividend of 4.5 pence per share

(5)

was paid on 11 April 2023 in place of the

ﬁnal dividend.

(5)

Dividends per share have been adjusted for 2022 and 2021 to include the effects of the one for three share consolidation that took place on 19 April 2023.

METHOD OF CALCULATION

STRATEGIC OBJECTIVE

Adjusted

(1)

operating proﬁt margin

(2)

5.0%

11.6%

2022

2021

2023

2.4%

11.6%

Adjusted

(1)

operating proﬁt as a percentage of

revenue, for the continuing businesses in existence

during the year ended 31 December 2023.

To improve proﬁtability of

Group operations.

1.4x

1.1x

2022

2021

2023

1.3x

Net debt to adjusted

(1)

EBITDA

(3)

1.1x

Net debt to adjusted

(1)

EBITDA

(3)

– net debt at

average exchange rates divided by adjusted

(1)

EBITDA

(3)

further adjusted to reﬂect covenant

requirements, for continuing businesses at each

year end. Comparative information remains aligned

to the original calculations supporting the Group’s

bank debt compliance certiﬁcate and has not been

restated for discontinued operations.

To ensure the Group has

suitable amounts of debt and

remains within its banking

covenants.

Final dividend per share

(4)(5)

4.5p

3.5p

2022

2021

2023

3.0p

3.5p

Amount declared as payable by way of dividends in

terms of pence per share.

To operate a progressive

dividend policy whenever

the ﬁnancial position of the

Company, in the opinion

of the Board, justiﬁes the

payment. For discussions on

the dividend, please refer to

the Chairman’s statement on

pages 2 to 3.

Adjusted

(1)

diluted earnings per share

(2)

18.7p

4.1p

(2.6)p

2022

2021

2023

18.7p

Group adjusted

(1)

proﬁt after tax of continuing

businesses, attributable to owners of the parent,

for the year ended 31 December 2023, divided by

the weighted average number of diluted ordinary

shares in issue. Comparative information includes

the effects of the one for three share consolidation.

To create consistent

and long‑term value for

shareholders.

Adjusted

(1)

free cash generation

(2)

£(35)m

£113m

£1m

2022

2021

2023

£113m

Total cash generated from trading after all costs,

excluding restructuring and one‑off payments to

deﬁned beneﬁt pension schemes.

To ensure subsidiary

businesses are suitably

cash‑generative in order to

have adequate cash reserves

for the effective running of the

Group and for signiﬁcant capital

investment where required.

Free cash ﬂow pre-interest and tax margin

(1)(2)

0.0%

2.1%

2022

2021

2023

3.0%

2.1%

Free cash ﬂow pre‑interest and tax margin

(1)

represents free cash ﬂow

(1)

adjusted for interest

and tax and excluding ﬁnance costs on demerger

settled net debt divided by revenue.

To ensure subsidiary

businesses are suitably cash

generative in order to have

adequate cash reserves for

the effective running of the

Group and for signiﬁcant capital

investment where required.

Adjusted

(1)

operating proﬁt

(2)

£147m

£390m

2022

2021

2023

£61m

£390m

Adjusted

(1)

operating proﬁt for the continuing

businesses during the year ended

31 December 2023.

To improve proﬁtability of

Group operations.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

NON‑FINANCIAL KPIs

HEALTH AND SAFETY

Each business line within the Group is

responsible for implementing and maintaining

health and safety excellence across their

respective operations. To provide visibility

and oversight for the Board, information is

collated and presented on a quarterly basis

on three KPIs – Major Accident Frequency,

Lost Time Accident Frequency, and Accident

Severity (each as deﬁned below) – for the

entire Group and covering all sites. This is

supplemented with qualitative analysis of any

key incidents or drivers behind performance,

and any material improvement programmes

that are taking place. A variety of additional

health and safety KPIs are used by the Group

from time to time, which are speciﬁc to the

exact nature of operations and associated

risks. Although responsibility for health and

safety rests with the business units, in the

unfortunate circumstance of a very serious

incident, the Group’s senior management

team will engage directly with the executive

team of the relevant business line and report

any actions taken directly to the Board.

Strategic objective

The Group has an objective to stop all

preventable accidents.

Performance

(1)

Major Accident Frequency Rate

0.036

0.041

2022

2021

2023

0.032

Records the average number of lost time

accidents that have resulted in more than

three days off work (deﬁned as ‘major’

accidents), per 200,000 hours worked.

Lost Time Accident Frequency Rate

0.036

0.053

2022

2021

2023

0.070

Records the number of lost time

accidents, both major and minor,

per 200,000 hours worked.

Accident Severity Rate

7.83

34.4

2022

2021

2023

10.73

Records the average number of days

an employee takes off work following an

accident at work.

(1)

All ESG data across our selected KPIs, including Health & Safety KPIs, over prior years has been restated to only include Melrose and GKN Aerospace performance.

The Group’s health and safety function

continues to elevate health and safety

awareness and accelerate improvement

actions across operations. This is being

approached both from the top‑down,

including via an active rolling programme of

in‑person executive‑led site inspections and

integration of health and safety in executive

management discussions and enterprise

projects, and from the bottom‑up with a

focus on improving shop ﬂoor behaviours,

standards, and local management

awareness and accountability for health and

safety risks.

The Group’s Major Accident Frequency

Rate was 0.041, and its Lost Time Accident

Frequency Rate was 0.053. Speciﬁc lost

time incidents in the Engines business line

drove increases compared to 2022, which

has led to signiﬁcantly increased focus

from the business surrounding compliance

with the Group’s Golden Safety Rules and

safety governance in order to drive physical

safety improvements on the shop ﬂoor,

and to redouble communications around

safety measures and risk assessments.

This resulted in a proactive targeted drive

to enhance risk management education

throughout the organisation. This has been

delivered through in‑person and virtual

task speciﬁc risk management workshops.

The Accident Severity Rate has increased

year‑on‑year due to one isolated incident

involving minor injury which resulted in

an employee taking considerable time off

in line with local government policy for

injury‑related leave.

Each incident is promptly and fully

investigated, and responded to through

robust measures to increase health and

safety awareness within speciﬁc and similar

areas relevant to those incidents, to reinforce

the correct policies and procedures, and to

review the relevant working environments

to identify continuous improvement actions

where necessary.

The Group’s focus on minimising preventable

accidents continues, and our business lines

continue to uphold and further develop high

standards of health and safety performance.

ENVIRONMENT

Method of calculation

Following the shift to becoming an

aerospace‑only Group, Melrose has

refreshed its sustainability targets and

KPIs to reﬂect the new single sector,

integrated Melrose/GKN Aerospace

organisation. Data is provided for relevant

environmental indicators, including

energy consumption, CO

emissions,

water withdrawal, waste disposal, solid

waste generation, and recycling. We have

used the UK Government Environmental

Reporting Guidelines, including the UK’s

Streamlined Energy and Carbon Reporting

requirements and the GHG Protocol

Corporate Accounting and Reporting

Standard (revised edition), and data has

been gathered in accordance with our

Greenhouse gas reporting procedure. For

more information on our environmental

KPIs, please see the Sustainability review

section on pages 43 to 93.

Strategic objective

Our shift to becoming an aerospace‑only

business has enabled a refocus of

investment and efforts to better align

our environmental responsibilities within

our operations and the wider sector. We

are fully committed to making efﬁciency

improvements where possible and to run

our operations with minimum possible

adverse effect on the environment.

Performance

Information in relation to the various

environmental initiatives undertaken by the

Group during 2023 can be found within the

Sustainability review on pages 43 to 93.

The Group is required to disclose its

Greenhouse gas emissions and certain

energy use data for the year ended

31 December 2023. Such data can be

found within the Sustainability review on

page 75.

OTHER NON‑FINANCIAL KPIs

Reﬂective of the new Group structure

and GKN Aerospace’s progress against

existing targets, we have reviewed

non‑ﬁnancial KPIs to ensure they are

relevant to the business and take

into account speciﬁc operational and

reporting requirements. The KPIs are

used to drive business performance

and assist in managing risk. Such KPIs

cover operational, quality, commercial

and human resource measures. Further

information regarding some of the Group’s

recent initiatives in these areas can be

found within the Sustainability review on

pages 43 to 93.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

FINANCE DIRECTOR’S REVIEW

On 20 April 2023 the demerger of the GKN Automotive, GKN Powder

Metallurgy and GKN Hydrogen group of businesses (“Dowlais”)

completed. Dowlais contributed approximately two thirds of the

adjusted revenue and adjusted operating proﬁt of the Group in 2022

and therefore the demerger, and necessary treatment of Dowlais

as discontinued, has a material impact on the presentation of these

Consolidated Financial Statements.

Following the demerger of Dowlais, it was deemed appropriate to

announce a change to the Group’s strategy from ‘Buy, Improve, Sell’,

which has served shareholders well since the ﬁrst Melrose acquisition

in 2005, to being purely an aerospace business that reports as

two separate operating segments, namely Engines and Structures,

alongside the corporate cost centre.

MELROSE GROUP RESULTS

– CONTINUING OPERATIONS

Statutory results:

The statutory IFRS results for continuing operations are shown on the

face of the Income Statement and show revenue of £3,350 million

(2022: £2,954 million), an operating proﬁt of £57 million (2022: loss of

£270 million) and a loss before tax of £8 million (2022: £328 million).

The diluted earnings per share (“EPS”), calculated using the weighted

average number of shares in issue during the year of 1,405 million

(2022: 1,406 million), were 0.1 pence (2022: loss of 16.3 pence).

Revenue

£3,350m

(2022: £2,954m)

Adjusted operating proﬁt

£390m

(2022: £147m)

Full year dividend

5.0p

The year ended 31 December 2023

has seen a signiﬁcant transformation

for the Melrose Group.”

Geoffrey Martin

Group Finance Director

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Adjusted results:

The adjusted results are also shown on the face of the Income

Statement. They are adjusted to exclude certain items which

are signiﬁcant in size or volatility or by nature are non‑trading or

non‑recurring, or are items released to the Income Statement that

were previously a fair value item booked on an acquisition. It is the

Group’s accounting policy to exclude these items from the adjusted

results, which are used as an Alternative Performance Measure

(“APM”) as described by the European Securities and Markets

Authority (“ESMA”). APMs used by the Group are deﬁned in the

glossary to the Consolidated Financial Statements.

The Melrose Board considers the adjusted results to be an important

measure used to monitor how the businesses are performing as they

achieve consistency and comparability between reporting periods

when all businesses are held for the complete reporting period.

The adjusted results for the year ended 31 December 2023 show

an operating proﬁt of £390 million (2022: £147 million) and a proﬁt

before tax of £331 million (2022: £62 million). Adjusted diluted EPS,

calculated using the weighted average number of shares in issue

in the year of 1,405 million (2022: 1,406 million), were 18.7 pence

(2022: 4.1 pence).

The following table shows the adjusted results for the year ended

31 December 2023 split by reporting segment:

Engines

£m

Structures

£m

Aerospace

£m

Corporate

£m

Total

£m

Revenue

1,193

2,157

3,350

–

3,350

Operating proﬁt/(loss)

310

110

420

(30)

390

Operating margin

26.0%

5.1%

12.5%

n/a

11.6%

Revenue for Engines of £1,193 million (2022: £1,035 million) shows

constant currency growth of 16% over 2022, with adjusted operating

proﬁt of £310 million (2022: £162 million) giving an operating margin of

26.0% (2022: 15.7%), an increase of 10.3 percentage points.

Revenue for Structures of £2,157 million (2022: £1,919 million) shows

like‑for‑like (excluding revenue exited in closing businesses) constant

currency growth of 18% over 2022, (12% including revenue exited

in closing businesses), with adjusted operating proﬁt of £110 million

(2022: £24 million) giving an operating margin of 5.1% (2022: 1.3%), an

increase of 3.8 percentage points.

Corporate costs of £30 million (2022: £39 million) included £29 million

(2022: £36 million) of operating costs and £1 million (2022: £3 million)

of costs relating to a divisional cash‑based long‑term incentive plan.

The performances of each of the Aerospace reporting segments are

discussed in the CEO’s Review.

RECONCILIATION OF STATUTORY

RESULTS TO ADJUSTED RESULTS

The following table reconciles the Group statutory operating

proﬁt/(loss) to adjusted operating proﬁt:

Continuing operations:

2023

£m

2022

£m

Statutory operating proﬁt/(loss)

(270)

Adjusting items:

Amortisation of intangible assets acquired

in business combinations

260

Restructuring costs

149

Equity‑settled compensation scheme charges

Currency movements in derivatives and movements

in associated ﬁnancial assets and liabilities

(114)

Other

–

(27)

Adjustments to statutory operating proﬁt/(loss)

333

417

Adjusted operating proﬁt

390

147

Adjusting items to the statutory operating proﬁt/(loss) are

consistent with prior years and include:

• The amortisation charge on intangible assets acquired in

business combinations of £260 million (2022: £260 million),

which is excluded from adjusted results due to its non‑trading

nature and to enable comparison with companies that grow

organically. However, where intangible assets are trading in

nature, such as computer software and development costs,

the amortisation is not excluded from adjusted results.

• Costs associated with restructuring projects in the year

totalling £149 million (2022: £90 million), including £59 million

(2022: £11 million) of losses incurred in closing businesses within

the Group. These are shown as adjusting items due to their size

and non‑trading nature.

There are three signiﬁcant ongoing multi‑year restructuring

programmes, impacting multiple sites across the Engines and

Structures divisions, two of which include European footprint

consolidations, and one signiﬁcant multi‑site restructuring

programme in North America. These programmes incurred a

combined charge, excluding losses, of £62 million in the year.

Since commencement, the cumulative charges, excluding losses,

on these three restructuring programmes to 31 December 2023

has been £217 million (31 December 2022: £155 million), with

approximately 35% relating to the two signiﬁcant European

programmes and approximately 65% in North America.

As at 31 December 2023, actions to complete the European

programmes, on average, are approximately 95% complete.

During the year, the North America multi‑site restructuring

programme has been expanded and is now approximately 70%

complete. In addition to the remaining charges to be incurred on

these projects, £37 million is included in restructuring provisions at

31 December 2023 to be settled in cash over the next two years.

Restructuring costs during the year also included charges

of £12 million (2022: £nil) relating to changes made within

the Melrose corporate cost centre following the announced

change to the Group’s ongoing strategy. These include the

costs of merging the Melrose corporate cost function with the

previously separate Aerospace division head ofﬁce team. These

restructuring actions reshape the corporate cost centre to serve

as an ongoing pureplay aerospace business.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

FINANCE DIRECTOR’S REVIEW

CONTINUED

• The charge for the equity‑settled compensation schemes of

£38 million (2022: £15 million), which includes a charge to the

accrual for employer’s tax payable of £28 million (2022: credit of

£1 million). This is excluded from adjusted results due to its size

and volatility. The shares that would be issued, based on the

scheme’s current valuation at the end of the year, are included in

the calculation of the adjusted diluted earnings per share, which

the Board considers to be a key measure of performance.

• Movements in the fair value of derivative ﬁnancial instruments

(primarily forward foreign currency exchange contracts), where

hedge accounting is not applied, along with foreign exchange

movements on the associated ﬁnancial assets and liabilities,

entered into within the businesses to mitigate the potential

volatility of future cash ﬂows on long‑term foreign currency

customer and supplier contracts. This totalled a credit of

£114 million (2022: charge of £79 million) in the year and is

shown as an adjusting item because of its volatility and size.

• Other adjusting items, net to £nil (2022: net credit of £27 million),

which included a charge of £3 million in respect of acquisition

and disposal costs, net of a credit of £3 million relating to the

release of fair value items in the year, where items have been

resolved for more favourable amounts than ﬁrst anticipated at

acquisition. The net release of fair value items is shown as an

adjusting item, avoiding positively distorting adjusted results

from items booked on acquisition. The prior year also includes

the proﬁt on disposal of two corporate properties.

The following table shows the allocation of adjusting items,

described above, by reporting segment:

Engines

£m

Structures

£m

Corporate

£m

Total

£m

Statutory operating proﬁt/(loss)

147

(130)

Adjusting items

163

240

(70)

333

Adjusted operating proﬁt/(loss)

310

110

(30)

390

FINANCE COSTS AND INCOME

– CONTINUING OPERATIONS

Statutory results:

Total net ﬁnance costs in the statutory IFRS results for the year

ended 31 December 2023 were £65 million (2022: £58 million).

Adjusted results:

Total net ﬁnance costs in the adjusted results in the year ended

31 December 2023 were £59 million (2022: £85 million), which

included net interest on external bank loans, bonds, overdrafts and

cash balances of £48 million (2022: £72 million).

Net ﬁnance costs in adjusted results also included: a £4 million

(2022: £10 million) amortisation charge relating to the arrangement

costs of raising the Group’s current bank facility; an interest charge

on net pension liabilities of £1 million (2022: credit of £1 million);

a charge on lease liabilities of £5 million (2022: £3 million); and a

charge for the unwind of discounting on long‑term provisions of

£1 million (2022: £1 million).

Adjusting items:

Adjusting items, within ﬁnance costs and income, total a net charge

of £6 million (2022: net credit of £27 million).

Adjusting items include a £13 million gain (2022: £24 million) following

the settlement of a portion of the 2032 bond, acquired with GKN,

a £17 million charge (2022: £nil) in respect of the proportion of the

Group’s net debt strategically allocated to Dowlais at the start of the

year and a £2 million charge (2022: £nil) in respect of the write off of

unamortised bank fees when the existing bank facilities at the time of

the demerger were repaid.

In the prior year, adjusting items within ﬁnance costs and income also

included a credit of £3 million relating to the fair value changes on

cross‑currency swaps.

DISCONTINUED OPERATIONS

In accordance with IFRS 5, the results of Dowlais are shown as

discontinued for the period up to demerger in 2023 and are restated

to be shown as discontinued operations for the prior year.

These businesses contributed £1,582 million to revenue and achieved

statutory operating proﬁt of £32 million for the period of the year

under ownership in 2023.

SHARE CONSOLIDATION, SHARE BUYBACK AND

NUMBER OF SHARES IN ISSUE

A one for three share consolidation was performed by the

Group on the eve of the demerger of Dowlais, which resulted

in the number of shares in issue reducing from 4,054 million to

1,351 million. Shareholders then received one Dowlais share for every

post‑consolidation Melrose share they held. In accordance with IAS

33, the one for three consolidation is applied to all periods in these

Consolidated Financial Statements.

The Group commenced a share buyback programme on

2 October 2023, and made market purchases of existing ordinary

shares in issue in the capital of the Company. At 31 December 2023,

18 million ordinary shares had been purchased at an average price

per share of 494 pence. These ordinary shares are being held in

treasury and the number of ordinary shares in issue has reduced by

1.3%, from 1,351 million to 1,333 million at 31 December 2023.

The weighted average number of shares used for basic earnings

per share calculations in the year ended 31 December 2023 was

1,349 million (2022: 1,406 million), and when including the number

of shares expected to be issued from the Melrose equity‑settled

share plan, the weighted average number of shares used for diluted

earnings per share, was 1,405 million (2022: 1,406 million).

TAX – CONTINUING OPERATIONS

The statutory results for continuing operations show a tax credit of

£9 million (2022: £99 million) which arises on a statutory loss before

tax on continuing operations of £8 million (2022: £328 million), a

statutory tax rate of 113% (2022: 30%). The effective rate on the

adjusted proﬁt before tax for the year ended 31 December 2023 was

20.5% (2022: 6.5%).

The statutory tax rate is higher than the adjusted tax rate because

the intangible asset amortisation and certain other adjusting items

generate adjusting tax credits at rates higher than 21%, and these are

applied to a small statutory loss before tax in the year.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

The Group has £747 million (31 December 2022: £856 million) of

deferred tax assets on tax losses, retirement beneﬁt obligations and

other temporary differences. These are offset by deferred tax liabilities

on intangible assets of £479 million (31 December 2022: £923 million)

and £223 million (31 December 2022: £179 million) of other deferred

tax liabilities. Where they arise in the same territory, deferred tax

assets and liabilities must be offset, resulting in deferred tax assets

of £527 million (31 December 2022: £373 million) and deferred tax

liabilities of £482 million (31 December 2022: £619 million) being

shown on the Balance Sheet at 31 December 2023. Most of the tax

losses and other deferred tax assets will generate future cash tax

savings, whereas the deferred tax liabilities on intangible assets are

not expected to give rise to cash tax payments.

Net cash tax paid in the year ended 31 December 2023 by continuing

operations was £17 million (2022: £8 million), 5.1% (2022: 12.9%) of

adjusted proﬁt before tax.

CASH GENERATION AND MANAGEMENT

Adjusted free cash ﬂow for the continuing Group in the year ended

31 December 2023 was an inﬂow of £113 million (2022: outﬂow

of £35 million), after net interest and tax spend of £82 million

(2022: £89 million), but before restructuring spend of £125 million

(2022: £53 million).

Free cash ﬂow pre‑interest and tax was an inﬂow of £70 million

(2022: £1 million), which calculated as a percentage of revenue, gives

a free cash ﬂow margin of 2.1% (2022: 0.0%).

An analysis of free cash ﬂow is shown in the table below:

2023

£m

2022

£m

Continuing operations:

Adjusted operating proﬁt

390

147

Depreciation and amortisation

142

145

Lease obligation payments

(32)

(29)

Positive non‑cash impact from loss‑making contracts

(23)

Working capital movements:

Inventory

(10)

(88)

Receivables and payables

(136)

(60)

Adjusted operating cash ﬂow (pre‑capex)

331

Net capital expenditure

(102)

(72)

Deﬁned beneﬁt pension contributions – ongoing

(22)

(23)

Restructuring

(125)

(53)

Net other

(12)

Free cash ﬂow pre‑interest and tax

Free cash ﬂow pre‑interest and tax margin

2.1%

–

Net interest and net tax paid

(82)

(89)

Free cash ﬂow

(12)

(88)

Adjusted free cash ﬂow

113

(35)

Working capital movements in the continuing Group totalled an

outﬂow of £146 million for the year ended 31 December 2023, being

an outﬂow of £10 million in inventory and £136 million from receivables

and payables combined. The working capital performance in the ﬁrst

half was consistent with revenue growing by 15% in that period, but

in the second half the performance was stronger, as expected, with

an inventory inﬂow of £43 million and with combined receivables and

payables only growing by £20 million, 4%, despite Group revenue

growing by c.12% in the second half of the year.

Capital expenditure in the year ended 31 December 2023 was

£102 million (2022: £72 million). Capital expenditure represented

0.9x (2022: 0.6x) depreciation of owned assets.

Restructuring spend in the year was £125 million

(2022: £53 million).

In the continuing Group, net interest paid in the year was

£65 million (2022: £81 million), net tax payments were £17 million

(2022: £8 million) and ongoing contributions to deﬁned beneﬁt

pension schemes were £22 million (2022: £23 million).

The movement in net debt (as deﬁned in the glossary to the

Consolidated Financial Statements) is summarised as follows:

£m

Opening net debt

(1,139)

Net cash outﬂow from Dowlais businesses to date of demerger

(54)

Reduction in net debt following the demerger of Dowlais

885

2022 second interim dividend paid to shareholders

(61)

Demerger related costs and pension buy‑in

(118)

Proforma opening net debt

(487)

Free cash ﬂow of the continuing Group

(12)

2023 interim dividend paid to shareholders

(20)

Buyback of own shares

(93)

FX and other non‑cash movements

Net debt at 31 December 2023 at closing exchange rates

(572)

Proforma opening net debt of £487 million for the continuing

Melrose Group is calculated after adjusting the closing net debt

at 31 December 2022, of £1,139 million, for: the payment of

demerger related costs of £62 million; bank facility arrangement

fees of £11 million; the cost of fully securing the beneﬁts of all

members of the GKN UK Pension Scheme Number 4 in advance

of an expected buy‑out process, of £45 million; the second interim

dividend for the year ended 31 December 2022 of £61 million; and

the net debt that Dowlais inherited on inception.

Group net debt at 31 December 2023, translated at closing

exchange rates (being US$1.28 and €1.15), was £572 million

(31 December 2022: £1,139 million), after a free cash outﬂow from

the continuing Group of £12 million, described above. Movements

in Group net debt also included the payment of the 2023 interim

dividend to shareholders of £20 million, £93 million spent buying

back shares in the market, net favourable foreign exchange

movements of £24 million and other non‑cash movements of

£16 million.

For bank covenant purposes the Group’s net debt is calculated at

average exchange rates for the previous twelve months, to better

align the calculation with the currency rates used to calculate

proﬁts, and was £584 million.

The Group net debt leverage on this basis at 31 December 2023

was 1.1x EBITDA compared to a proforma opening leverage of 1.8x

EBITDA when using proforma net debt at demerger of £487 million,

described above (31 December 2022: reported 1.4x EBITDA).

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

FINANCE DIRECTOR’S REVIEW

CONTINUED

ASSETS AND LIABILITIES

AND IMPAIRMENT REVIEW

The summarised Melrose Group assets and liabilities are shown

below:

2023

£m

2022

£m

Goodwill and intangible assets acquired

with business combinations

3,106

6,508

Tangible ﬁxed assets, computer software

and development costs

1,022

2,937

Equity accounted investments

435

Net working capital

475

343

Net retirement beneﬁt obligations

(99)

(488)

Provisions

(286)

(611)

Deferred tax and current tax

(358)

Lease obligations

(192)

(366)

Net other

(93)

Total

4,139

8,307

The signiﬁcant reduction in the Group’s net assets in the year

relates primarily to the assets and liabilities demerged with Dowlais.

The Group’s goodwill has been tested for impairment, and in

accordance with IAS 36 “Impairment of assets” the recoverable

amount has been assessed as being the higher of the fair value

less costs to sell and the value in use.

The Board is comfortable that no impairment is required in

respect of the valuation of goodwill in its businesses as at

31 December 2023.

The assets and liabilities shown above are funded by:

2023

£m

2022

£m

Net debt

(572)

(1,139)

Equity

(3,567)

(7,168)

Total

(4,139)

(8,307)

Net debt shown in the table above is deﬁned in the glossary to the

Consolidated Financial Statements.

PROVISIONS

Total provisions at 31 December 2023 were £286 million

(31 December 2022: £611 million).

The following table details the movement in provisions in the year:

Total

£m

Provisions at 1 January 2023

611

Continuing businesses:

Net charge in the year

137

Spend against provisions

(107)

Utilisation of loss‑making contract provision

(23)

Other

(12)

Discontinued businesses:

Movement in provisions in Dowlais in the period to demerger

Demerger of Dowlais

(344)

Provisions at 31 December 2023

286

The net charge to the Income Statement in the year for continuing

operations was £137 million, and included £78 million relating to

restructuring activities and a £20 million loss making contract

provision charge at a closing site as operations wind down. In

addition, the net charge includes a £28 million charge relating to

employer’s tax payable on equity‑settled compensation schemes.

These sizeable items are shown as adjusting items and are included

in the adjusting items section discussed earlier in this review.

During the year, £23 million was utilised against loss‑making contract

provisions in Aerospace and £107 million of cash was spent against

provisions with £79 million relating to restructuring activities.

Net provision movements relating to property, environmental &

litigation and warranty in Aerospace were not material in the year.

Other movements in provisions, in continuing operations,

included £4 million of provisions classiﬁed as held for sale as at

31 December 2023, relating to the contractually agreed sale of a

non‑core business in the Structures segment that completed on

1 March 2024 and £8 million relating to foreign exchange movements.

The net movement on provisions within Dowlais in the period up to

demerger was £24 million, with £344 million of provisions leaving the

Group at the date of demerger.

PENSIONS AND POST‑EMPLOYMENT

OBLIGATIONS

Melrose operates a number of deﬁned beneﬁt pension schemes and

retiree medical plans across the Group, accounted for using IAS 19

Revised: “Employee Beneﬁts”.

The values of the Group plans were updated at 31 December 2023

by independent actuaries to reﬂect the latest key assumptions and

are summarised as follows:

Assets

£m

Liabilities

£m

Accounting

deﬁcit

£m

GKN UK Group pension scheme

– Number 1

632

(692)

(60)

GKN UK Group pension scheme

– Number 4

438

(438)

–

Other Group pension schemes

(87)

(39)

Total Group pension schemes

1,118

(1,217)

(99)

At 31 December 2023, following the demerger of Dowlais, the total

plan assets of Melrose Group’s deﬁned beneﬁt pension plans has

reduced to £1,118 million (31 December 2022: £1,941 million) and total

plan liabilities to £1,217 million (31 December 2022: £2,429 million), a

net deﬁcit of £99 million (31 December 2022: £488 million).

The GKN UK Group Pension Schemes (Numbers 1 and 4) are the

most signiﬁcant pension plans remaining in the Group, and are

closed to new members and to the accrual of future beneﬁts for

current members.

At 31 December 2023, the GKN UK Group Pension Scheme Number

1 had gross assets of £632 million (31 December 2022: £628 million),

gross liabilities of £692 million (31 December 2022: £667 million) and

a net deﬁcit of £60 million (31 December 2022: £39 million).

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

During the year ended 31 December 2023, the Group commenced a

process to buy‑out the GKN UK Group Pension Scheme Number 4.

The ﬁrst stage of the process, purchasing a buy‑in policy which fully

secures all members’ beneﬁts, was completed in the year, resulting

in assets and liabilities of £438 million being recorded equally at

31 December 2023. The buy‑out process is expected to complete in

the ﬁrst half of 2024, when assets and liabilities will leave the Group

and cease being shown in the Balance Sheet.

Other pension schemes in the Group include US pension plans

which are generally funded schemes and closed to new members.

At 31 December 2023, these US pension plans had a net deﬁcit of

£25 million.

In total, ongoing contributions to the Group deﬁned beneﬁt pension

plans and post‑employment medical plans in the year ended

31 December 2023 were £22 million and are expected to be a similar

amount in 2024.

A summary of the assumptions used are shown in note 24 to the

Consolidated ﬁnancial statements.

FINANCIAL RISK MANAGEMENT

The ﬁnancial risks the Group faces continue to be considered and

policies are implemented to appropriately deal with each risk. The

most signiﬁcant ﬁnancial risks are considered to be liquidity risk,

ﬁnance cost risk, exchange rate risk, contract and warranty risk and

commodity cost risk.

These are discussed in turn below.

Liquidity risk management

The Group’s net debt position at 31 December 2023 was £572 million

(31 December 2022: £1,139 million).

The Group’s committed bank facilities were reﬁnanced during

the year. The new facilities consist of a multi‑currency term loan

denominated US$300 million and €100 million, and a US$250 million

revolving credit facility, both of which mature in April 2026. In addition,

the Group also entered into multi‑currency revolving credit facilities

totalling US$690 million, £300 million and €300 million that initially

mature in April 2026, but with the potential to be extended for two

additional one‑year periods at the Company’s option. Details of the

new facilities and amounts borrowed as at 31 December 2023 are

shown below:

Local currency

£m

Size

Drawn

Headroom

Term loan:

USD

300

–

EUR

100

–

Revolving credit facility:

USD

940

298

642

503

GBP

300

299

EUR

300

278

241

Total headroom

1,043

At 31 December 2023, the term loan was fully drawn and there

were drawings of US$298 million, £1 million and €22 million on

the revolving credit facilities. Applying the exchange rates at

31 December 2023, the headroom equated to £1,043 million.

There are also a number of uncommitted overdraft, guarantee and

borrowing facilities made available to the Group.

In addition to the headroom on the multi‑currency committed

revolving credit facility, cash, deposits and marketable securities,

net of overdrafts, in the Group amounted to £57 million at

31 December 2023 (31 December 2022: £292 million).

At the start of the year the Group held capital market borrowings

with an outstanding notional value of £130 million from an original

£300 million bond, issued in May 2017 and due to mature in

May 2032. In December 2023, an agreement was reached with

certain remaining bondholders that resulted in £120 million of

the outstanding nominal value being bought back and cancelled

for a total cost of £109 million (excluding accrued interest). This

represented a gain of £13 million after associated costs and

the release of a fair value adjustment of £2 million on the bond,

recognised on acquisition of GKN. This gain has been recognised

as an adjusting item within ﬁnance income in the Consolidated

Income Statement.

As at 31 December 2023, the capital market borrowings held by

the Group consisted of £10 million of the original £300 million bond

due to mature in May 2032, with a current coupon of 4.625%.

The committed bank funding has two ﬁnancial covenants,

being a net debt to adjusted EBITDA covenant and an interest

cover covenant, both of which are tested half‑yearly in June and

December, with the exception that the ﬁrst testing date for the

interest cover covenant will be 30 June 2024.

The net debt to adjusted EBITDA covenant test level is set at 3.5x

and, as at 31 December 2023, the Group net debt leverage was

1.1x, affording comfortable headroom.

The interest cover test is set at 4.0x for the remaining term of the

bank facility.

A limited number of Group trade receivables are subject to

non‑recourse factoring and customer supply chain ﬁnance

arrangements. As at 31 December 2023, these amounted to

£268 million (31 December 2022: £325 million).

In addition, some suppliers have access to utilise the Group’s

supplier ﬁnance programmes, which are provided by a number of

the Group’s banks. As at 31 December 2023 there were drawings

on these facilities of £86 million (31 December 2022: £200 million).

There is no cost to the Group for providing these programmes

as the cost is borne by the suppliers. These programmes allow

suppliers to choose whether they want to accelerate the payment

of their invoices by the ﬁnancing banks, at a low interest cost,

based on the credit rating of the Group as determined by the

ﬁnancing banks. If the Group exited these arrangements or the

banks ceased to fund the programmes there could be a potential

impact of up to £42 million (31 December 2022: £94 million) on

the Group’s cash ﬂows. The risk of this happening is considered

remote as the Group has extended the number of banks that

provide this type of ﬁnancing to ensure there is not a signiﬁcant

exposure to any one bank.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

FINANCE DIRECTOR’S REVIEW

CONTINUED

Finance cost risk management

In addition to the ﬁxed coupon payable under the remaining

£10 million bond discussed above, the Group uses ﬁnancial

derivatives to ﬁx a portion of the interest cost on its committed

bank facilities.

The policy of the Board is to ﬁx approximately 70% of the interest

rate exposure on the Group’s committed bank borrowings to align

with the maturity of its debt facilities. Following the demerger,

the Group ﬁxed an appropriate amount of debt by currency up

to the initial maturity date of the Group’s new bank facilities. The

maximum weighted average rates, excluding the bank margin, the

Group will pay on the ﬁxed portions of its US Dollar and Euro bank

debt are 3.6% and 3.0% respectively.

The bank margin on the bank facilities depends on Group leverage

and were as follows:

31 Dec 2023

31 Dec 2022

Facility:

Margin

Range

Margin

Range

Term Loan

1.30%

0.9%

– 2.2%

0.75%

– 2.0%

Revolving Credit Facilities

1.30%

– 1.55%

0.9%

– 2.4%

0.75%

– 2.0%

The Group’s cost of drawn debt for the next 12 months is currently

expected to be approximately 5.4%.

Exchange rate risk management

The Group trades in various countries around the world and

is exposed to movements in a number of foreign currencies.

Following the demerger and subsequent update to the Group’s

strategy to be a pureplay aerospace business going forward, the

exposure to foreign exchange movements related to a disposal

now no longer represents a material risk for the Group.

The Group therefore carries exchange rate risk that can be

categorised into two types: transaction and translation risk, as

described in the paragraphs below. The Group’s policy is designed

to protect against the majority of the cash risks but not the

non‑cash risks.

The most common exchange rate risk is the transaction risk the

Group takes when it invoices a customer or purchases from

suppliers in a different currency to the underlying functional

currency of the relevant business. The Group’s policy is to review

transactional foreign exchange exposures, and place necessary

hedging contracts, quarterly on a rolling basis. To the extent the

cash ﬂows associated with a transactional foreign exchange risk

are committed, the Group will hedge 100% at the time the cash

ﬂow becomes committed. For forecast and variable cash ﬂows, the

Group hedges a proportion of the expected cash ﬂows, with the

percentage being hedged lowering as the time horizon lengthens.

The Group hedges on a sliding scale, typically hedging around

90% of foreign exchange exposures expected over the next twelve

months, with the percentage decreasing by approximately 10

percentage points for each subsequent year. This policy does not

eliminate the cash risk but does bring some certainty to it.

The translation rate risk is the effect on the Group results in the

period due to the movement of exchange rates used to translate

foreign results into Sterling from one period to the next. No speciﬁc

exchange instruments are used to protect against the translation risk

because it is a non‑cash risk to the Group, until foreign currency is

subsequently converted to Sterling. However, the Group utilises its

multi‑currency banking facilities and cross‑currency swaps, where

relevant, to maintain an appropriate mix of debt in each currency. The

hedge of having debt drawn in these currencies funding the trading

units with US Dollars or Euro functional currencies protects against

some of the Balance Sheet and banking covenant translation risk.

Exchange rates for currencies most relevant to the Group in the

year were:

Average

rate

Closing

rate

US Dollar

2023

1.24

1.28

2022

1.24

1.21

Euro

2023

1.15

2022

1.17

1.13

A 10 percent strengthening of the major currencies within the Group,

if this were to happen in isolation against all other currencies, would

have the following impact on the re‑translation of adjusted operating

proﬁt into Sterling:

USD

EUR

Increase in adjusted operating proﬁt – £ million

% impact on adjusted operating proﬁt

The impact from transactional foreign exchange exposures is

not material in the short term due to hedge coverage being

approximately 90%.

A 10 percent strengthening in either the US Dollar or Euro would have

the following impact on debt as at 31 December 2023:

USD

EUR

Increase in debt – £ million

Increase in debt

Contract and warranty risk management

Under Melrose management a suitable bid and contract management

process exists in the businesses, which includes thorough reviews

of contract terms and conditions, contract‑speciﬁc risk assessments

and clear delegation of authority for approvals. These processes

aim to ensure effective management of risks associated with

complex contracts. The ﬁnancial risks connected with contracts

and warranties include the consideration of commercial, legal and

warranty terms and their duration, which are all considered carefully

by the businesses and Melrose centrally before being entered into.

Commodity cost risk management

The cumulative expenditure on commodities is important to the

Group and the risk of base commodity costs increasing is mitigated,

wherever possible, by passing on the cost increases to customers or

by having suitable purchase agreements with suppliers which ﬁx the

price over a certain period. These risks are also managed through

sourcing policies, including the use of multiple suppliers, where

possible, and procurement contracts where prices are agreed in

advance to limit exposure to price volatility.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

GOING CONCERN

As part of their consideration of going concern, the Directors

have reviewed the Group’s future cash forecasts and

projections, which are based on both market and internal data

and recent past experience.

The Directors recognise the challenges in the current

economic environment, including challenges in supply chains

and geopolitical risks. The Group is actively managing the

associated impacts on trading through a sharp focus on

pricing, productivity and costs. In addition, the Group’s cash

ﬂow forecasts consider any impacts from further economic

factors such as high interest rates.

The Group has modelled a reasonably possible downside

scenario against these future cash forecasts and throughout

this scenario the Group would not breach any of the revised

ﬁnancial covenants and would not require any additional

sources of ﬁnancing.

The macroeconomic environment remains uncertain and

volatile and the impacts of the economic factors such as

inﬂation, high interest rates, geopolitical conﬂict and challenges

in supply chains could be more prolonged or severe than that

which the Directors have considered in the Group’s reasonably

possible downside scenario.

Considering the Group’s current committed bank facility

headroom, its access to liquidity, and the sensible level of bank

covenants in place with lending banks, the Directors consider

it appropriate that the Group can manage its business risks

successfully and adopt a going concern basis in preparing

these Consolidated Financial Statements.

Geoffrey Martin

Group Finance Director

7 March 2024

LONGER‑TERM VIABILITY STATEMENT

In accordance the UK Corporate Governance

Code, the Directors have assessed the

prospects of the Company over a longer

period than the 12 months required by the

“Going Concern” provision.

A period of three years is believed to continue to be appropriate for

this assessment since this is consistent with the Group’s ﬁnancing

cycle, whereby on average the Group has reﬁnanced debt in line

with this timescale, usually as a result of acquisition or disposal

activity. The current debt facilities consist of a multi‑currency

denominated term loan and multi‑currency denominated revolving

credit facilities that mature in April 2026 subject to (in the case of the

revolving credit facilities) an option for the Group to extend for up to

two one‑year periods, at slightly reduced levels. The Group uses a

period of ﬁve years for impairment testing of its two groups of cash

generating units due to the long‑term nature of cash ﬂows within the

aerospace industry, but this is not necessarily reﬂective of ﬁnancing

arrangements offered by banks.

The Directors conﬁrm that they have a reasonable expectation that

the Group will continue in operation and meet its liabilities, as they fall

due, up to December 2026.

The Directors’ assessment has been made by reference to the

Group’s ﬁnancial position as at 31 December 2023, its prospects,

the Group’s strategy, the Board’s risk appetite and the Group’s

principal risks and their management, all of which are described in

the Strategic Report.

The Directors’ assessment of the Group’s viability is underpinned

by a paper prepared by management. The paper is supported

by comprehensive and detailed analysis and modelling. The

model underpinning this statement is stress‑tested, proven and is

frequently used by management when determining working capital

requirements for contractual obligations, transactions and corporate

restructuring. The main assumptions included in the model relate to

forecast revenue, operating margin and cash generation taking into

account the Group’s share buyback programme. The model includes

three years of forecast data from the Group’s business assets and

incorporates agreed sensitivities for economic risk (impacting revenue

and margins to reduce the rate of growth currently being forecast),

foreign exchange risk (impacting net debt and assuming adverse

movements in foreign exchange rates) and liquidity risk (impacting

net debt and assuming a deterioration in working capital), each of

which have been considered both individually and in combination

by the Board, together with expected achievable mitigating actions

from the working capital model to create severe, but plausible,

scenarios. These scenarios sensitise the main assumptions noted

above, considering a medium‑term impact of continued supply chain

disruptions and ongoing inﬂationary pressures on input costs.

In preparing this statement, the following qualiﬁcations and

assumptions are made:

(i) the viability model is based on the Group as at the date of this

statement, 7 March 2024, with no consideration of any further

acquisitions or future disposals of continuing businesses. We note

future acquisitions would be based on the same proven business

model applied previously, with related bank debt and equity

raised to support the acquisition with sufﬁcient headroom to cover

business risks; and

(ii) ﬁnancing arrangements, which became effective during 2023, and

bank covenant testing, are committed for much of the period under

review and have sufﬁcient headroom for liquidity and covenant

compliance to continue in operation.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

Risk management strategy and framework

The objectives of the Board and Melrose senior management

include safeguarding and increasing the value of the business and

assets of the Group for stakeholders as a whole. Achievement

of these objectives requires the development of policies and

appropriate internal control frameworks to ensure the Group’s

resources are managed properly, and for key risks to be identiﬁed

and mitigated where possible.

The Board recognises that it is ultimately responsible for

determining the nature and extent of the principal risks it is willing

to take in the pursuit of its strategic objectives. It also recognises

the need to deﬁne a risk appetite for the Group, to maintain sound

risk management and internal control systems, and to monitor its risk

exposures and mitigation measures to ensure that the nature and

extent of risks taken by the Group are aligned with, and proportionate

to, its strategic objectives.

The Board has established an organisational structure with clear

reporting procedures, lines of responsibility and delegated authority,

with risk management responsibilities as depicted in the diagram

above. Consistent with this, the Group operates a top‑down,

bottom‑up approach to risk management, comprising Board and

Melrose senior management oversight coupled with bottom‑up risk

management embedded in the day‑to‑day activities of the business.

RISK MANAGEMENT

The Board recognises that operating in a dynamic and rapidly evolving commercial

environment requires a pragmatic, robust and responsive risk management framework

comprising policies, visibility and controls that evolve with the business and provide

management with a comprehensive view of the Group’s risk profile at any given time,

enabling risk to be identified, assessed and managed.

RISK MANAGEMENT RESPONSIBILITIES

The Board, having overall responsibility for risk management, has approved

a formalised but pragmatic Group risk management framework.

BOARD

Overall responsibility for risk

management

• Agrees the Group’s risk management strategy and deﬁnes its

risk appetite

• Reviews reports and recommendations from the Melrose senior

management team and the Audit Committee on risk governance and

risk processes and controls

• Determines the nature and extent of the Group’s principal risks and

regularly discusses and assesses them throughout the year with the

Melrose senior management team to determine the likelihood of those

risks materialising and how they should be managed or mitigated

• Maintains oversight of principal risks, emerging risks and mitigation

plans including cyber security and fraud risk

• Promotes an appropriate risk management culture and rewards system

within the Group in order to maintain sound risk management and

internal control systems

TOP‑DOWN

At the Group level, risk oversight

and assessment

AUDIT COMMITTEE

Monitors the Group’s internal

ﬁnancial control processes

• Monitors the Group’s internal ﬁnancial control processes

• Monitors, oversees and reviews the effectiveness of the Group’s

internal controls and risk management systems and processes

• Supports the Board in monitoring risk exposure against risk appetite

SENIOR MANAGEMENT

• Sets the risk management processes and controls

• Agrees how the principal risks should be managed or mitigated to

reduce the likelihood of their incidence or impact

• Considers actual and emerging risks

• Oversees and challenges risk mitigation plans and supports the legal

and compliance teams within the business

BOTTOM‑UP

Risk exposure identiﬁcation

and assessment at the

business unit level

OPERATIONAL MANAGERS

AND SITE CONTROLLERS

• Risk identiﬁcation, assessment and monitoring at a local level

• Implementing, reviewing and continually monitoring compliance with

risk mitigation plans and controls

• Embedding risk awareness and culture throughout the business

The Board’s view of the Group’s principal risks and uncertainties

is detailed in the table on page 31.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

RISK MANAGEMENT FRAMEWORK

EVALUATION

Risk exposure reviewed and risks prioritised

IDENTIFICATION

Financial and non‑ﬁnancial risks recorded in

controlled risk registers

MITIGATION

Risk owners identiﬁed and action plans implemented

ANALYSIS

Risks analysed for impact and probability to determine

gross exposure

REVIEW AND MONITORING

Robust mitigation strategy subject to regular and rigorous review

The Board conﬁrms that there is an ongoing process for identifying,

evaluating, tracking and managing the principal risks faced by

the Group and that these systems, which are subject to regular

monitoring and review, have been in place for the year under review

up to the date of approval of this Annual Report and ﬁnancial

statements. The Board further conﬁrms that the systems, processes

and controls that are in place accord with the guidance contained in

the Financial Reporting Council’s “Guidance on Risk Management,

Internal Control and Related Financial and Business Reporting” and

the UK Corporate Governance Code (the “Code”).

The Audit Committee monitors, oversees and reviews the

effectiveness of the risk management and internal control processes

implemented across the Group, through regular updates and

discussions with management and a review of the key ﬁndings

presented by the external and internal auditors. The Board is

responsible for considering the Audit Committee’s recommendations

and ensuring implementation by senior management of those

recommendations it deems appropriate for the business. A

description of the Audit Committee’s activities during the year on risk

management can be found on page 121.

The divisional management teams are responsible for monitoring

business‑level risk and implementing and maintaining an effective risk

and control environment as part of day‑to‑day operations, in line with

the Group risk management framework and internal control systems

determined by the Board. They are also responsible for speciﬁc and

ongoing risks related to the business, which are reported into senior

management and in turn formally to the Audit Committee on an

interim and annual basis. The Audit Committee receives a formal risk

management report on a biannual basis, in addition to their regular

receipt of updates from the senior management team on material

items that arise relating to principal Group risks.

Management, with support from Ernst & Young, continued to utilise

a third‑party hosted interactive dashboard which has been tailored

to the requirements of the Group in order to consolidate the Group’s

risk reporting. The dashboard includes data from GKN Aerospace’s

risk register, which was reviewed and approved during 2023

by GKN Aerospace’s senior management key risk owners. The

dashboard has supported the continued enhancement of the

Group’s risk management processes, with in‑depth reporting and

data collection. This has bolstered the Audit Committee’s oversight

of risk areas, mitigations, controls and trends.

The risk management process also involved objective trend

analysis and independent insight from Ernst & Young, and this

year included an analysis of the Group’s principal risk proﬁle

against other aerospace and defence companies based on

public disclosures.

The Audit Committee reviewed and challenged the Group’s

risk management process, and also reviewed and challenged

the interim and annual reports prepared by Melrose senior

management relating to the Group’s principal risk proﬁle. These

reports guided the Board and Audit Committee on relevant

updates to the Group’s principal risks (including the identiﬁcation

of new principal Group risks and emerging risks), as reported

in the Risks and uncertainties section on pages 31 to 36. They

also aided the Audit Committee’s discussions with the Board on

risk appetite, as detailed further below. During the year under

review, in accordance with provisions 28 and 29 of the Code, the

Board continued to monitor the effectiveness of the Group’s risk

management and internal control systems. The Board concluded

that the Group’s risk management and internal control systems

and processes were operating effectively. Follow‑up actions

in respect of progress and improvement in relation to ﬁnancial

controls are further discussed in the Audit Committee report on

pages 116 to 123.

Risk appetite

The Board has undertaken an exercise to consider its risk appetite

across a number of key business risk areas by assessing their

current and optimal level of risk appetite for each of the Group’s

principal risks. The results of this review indicate the relative

appetite of the Board across the Group’s principal risk areas at

a speciﬁc point in time. Any material changes in risk factors will

impact the Board’s assessment of its risk appetite.

The results of the risk appetite review demonstrated that the Board

has an open risk appetite towards operational and commercial risk,

with a cautious appetite towards economic and political, loss of key

management and capabilities, legal and regulatory, climate change

and treasury risks. The Board seeks to minimise all health and

safety and information security and cyber threats risks.

The results of the risk appetite review will support the Board’s

decision‑making processes during 2024. The Board undertakes a

review of its risk appetite at least annually.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

RISK MANAGEMENT

CONTINUED

Risk management actions

During 2023, the Board continued to deliver on the key

management priorities identiﬁed in the 2022 review across the

Group. Risk owners continued to take steps to mitigate the risk

exposures across the Group, supported by speciﬁc actions

undertaken to improve enterprise risk management across the

Group during the year, as follows:

• reviewing and recalibrating the Group’s principal risks based

on Melrose’s change in business strategy to operating as a

long‑term aerospace group, in order to identify any potential

gaps in the Group’s deﬁned risk proﬁle as compared to other

aerospace and defence companies;

• reviewing and reafﬁrming the Board’s risk appetite based on the

optimal and current risk appetite of the Board for each principal

Group risk;

• monitoring the implementation of risk management governance

within the business, including the identiﬁcation, evaluation,

prioritisation, recording, review and reporting of risks and their

management or mitigation throughout the Group;

• continuing to enhance Melrose risk register methods, dashboard

reporting outputs, and risk proﬁle mapping application throughout

the Group. These provide the Board with detail and visibility

on the risk management systems and processes in place, and

illustrate each principal risk facing the Group from both a gross

risk (pre‑mitigation) and net risk (post‑mitigation) position. The

risk mapping application provides the Directors with a clear risk

proﬁle for the Group and enables the Board to determine the

degree to which its proﬁle is aligned with its risk appetite;

• reviewing and improving the Group’s processes, data extraction

and consolidation, and trend analysis around the assessment of

principal risks and the ongoing monitoring and reporting of the

Group’s risk management performance; and

• resetting the Group sustainability strategy, material topics and

targets to reﬂect the Group’s new business strategy, supported

by a refreshed sustainability and climate change governance

framework. As part of climate strategy and disclosure, a new

climate scenario analysis was conducted for the Group to review

the speciﬁc transition and physical climate risks in preparation

for the Group’s third Task Force on Climate‑related Financial

Disclosures (“TCFD”) report. A new Transition Plan was also

developed to serve as a roadmap for achieving Net Zero, aligned

with the Group’s new aerospace sector focus. The new material

topics, sustainability targets, governance framework, a summary

of the Transition Plan and TCFD report are contained in the

Sustainability review on pages 43 to 93.

Assessment of principal risks

During the year, the Board undertook a comprehensive assessment

of the emerging and principal risks facing the Group and speciﬁcally

those that might threaten the delivery of its strategic business

model, its future performance, solvency or liquidity. As part of

the assessment, the Board recalibrated the Group’s principal risk

categories based on Melrose’s change in business strategy to

operating as a long‑term aerospace group, and identiﬁed emerging

risks with the support of the Group’s senior management team.

As a result of this assessment, health and safety risk has been

removed from operations risk and is now a standalone principal

Group risk to fully reﬂect the Group’s zero‑tolerance approach to

preventable accidents. Moreover, liquidity risk, foreign exchange

risk and pension risk have been combined into a new treasury

principal Group risk. Additionally, mergers and acquisitions (“M&A”)

risk has been removed as a principal Group risk given the strategic

shift away from the previous “Buy, Improve, Sell” model, and on the

basis that M&A is no longer a core component of Melrose’s new

aerospace‑only business model. Whilst this is no longer a principal

Group risk, it remains a risk that is monitored and managed by the

Group’s senior management team and, where relevant, the Board

and its committees.

A summary of the principal risks and uncertainties that could impact

on the Group’s performance is shown on pages 31 to 36. Further

information detailing the internal control and risk management

policies and procedures operated within the Group is shown on

pages 109 to 115 of the Corporate Governance report.

Risk management priorities for 2024

Continual improvements were made during 2023 in respect of the

Group’s risk management processes, and the Board recognises that

Melrose cannot be complacent. In 2024, management will continue

to focus on reﬁning the risk management framework and ensure that

this is further tailored to the Group’s change in business strategy

to operating as a long‑term aerospace group. Management will

also further embed a culture of effective risk management across

the Group to ensure that risks and opportunities are identiﬁed and

managed, to support the delivery of long‑term value creation and the

Group’s new strategic focus.

Further resources will continue to be devoted to supporting the

implementation of improved controls around Melrose’s non‑ﬁnancial

reporting together with objective trend analysis on the effectiveness

of the Group’s risk management governance, processes and

controls. Climate change risks, mitigation, adaptation and reporting

will continue to be strengthened with the better understanding of

risks identiﬁed in the Group’s new climate scenario analysis, as

guided by the roadmap set out in Melrose’s new Net Zero Transition

Plan and supported by Melrose investment.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Likelihood

High

Low

Impact

High

Low

RISKS AND UNCERTAINTIES

STRATEGIC RISK

PROFILE

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 appropriately managed.

Each 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.

Strategic risk proﬁle

Our updated view of the

Group’s strategic risk proﬁle

is shown opposite.

The residual risk scores

have been calculated on a

post‑mitigation basis.

Risk trend

Increasing

No change

Decreasing

Realigned risk

No.

Risk title

Risk trend since

last Annual Report

2019

2020

2021

2022

2023

Operations

Increase

n/a

Commercial

No change

Economic and political

Increase

Loss of key management

and capabilities

No change

Health and safety

Realigned risk

n/a

Legal and regulatory

No change

Climate change

No change

n/a

Information security and cyber threats

Increase

Treasury

Realigned risk

n/a

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

RISKS AND UNCERTAINTIES

CONTINUED

OPERATIONAL RISKS

RISK 1 – OPERATIONS

Description and impact

The Group is part of complex global supply chains and major disruption

within the Group’s operations may adversely affect the ﬁnancial performance

of the Group. In particular, such disruption may result in the Group failing to

meet customer commitments, which could result in contractual penalties,

as well as reducing the likelihood of the Group winning future orders from

such customers. Moreover, the Group is dependent on the prompt delivery

of materials and components by suppliers and subcontractors. These

third parties may be impacted by their own economic and geographic

environments (such as pricing pressures and availability issues), which could

impact on the Group’s ability to manufacture and supply products, or to

deliver them in a timely manner.

The Group seeks to drive operational efﬁciencies through its planned

restructuring projects, including the rationalisation of the Group’s operations

in the US and Europe. Whilst such restructuring projects have driven, and

continue to drive, operational efﬁciencies, they can also result in higher

operational risks relating to closure, workforce morale and productivity,

ongoing delivery performance and customer relationships, despite relevant

mitigating actions having been taken.

Mitigation

•

The Group invests in equipment and capacity within its facilities, as well as

identifying dual source suppliers and alternative materials where available.

•

Weekly supply reviews are undertaken in order to assess the Group’s

supplier order book and to conﬁrm commitments over speciﬁed timeframes.

•

Contingency plans have been developed with respect to potential

shortages of key materials or production inputs which may arise as a result

of geopolitical events.

•

The senior management team has actively engaged with and supported

the divisional teams in identifying embedded contractual and business

conduct risks relating to key supply chain and production programme

partners. Those teams have continued to implement and direct a series

of operational change management programmes to mitigate the risks that

they have identiﬁed.

•

Operational management teams are properly incentivised to align with

Melrose strategy.

Trend commentary

Melrose’s change in business strategy to operating as a long‑term aerospace

group has made it more sensitive and susceptible to industry speciﬁc issues

within the aerospace sector that may arise from interdependencies within its

complex global supply chains. As a result, the risk trend for operations risk

has increased during the year. Geopolitical events naturally had an impact

on the Group as well as the aerospace industry as a whole, which in turn

increased operational risks. Speciﬁcally, the war in Ukraine, increased attacks

on merchant ships in the Middle East, and rising tensions between China

and Taiwan, resulted in continued supply constraints of raw materials and

products needed in the Group’s manufacturing processes and supply chains.

Melrose seeks to actively identify and track strategic operational

improvements, together with operational risks which may impact on such

improvements. Furthermore, Melrose seeks to identify, and take advantage

of, beneﬁts from supply chain interdependencies. In particular, supply chain

issues may result in legacy engines ﬂying for longer, which is beneﬁcial to the

Group’s aftermarket business.

RISK 2 – COMMERCIAL

Description and impact

The Group operates in competitive markets throughout the world and

is diversiﬁed across a variety of production and sales geographies. This

provides a degree of Group‑level impact mitigation from the potential

commercial challenges and market disruptions that face the Group. However,

widespread disruption that may be caused by geopolitical events could

heighten the Group’s exposure to end‑market commercial risk.

Product quality also drives certain commercial risks. For example, the supply

of non‑conforming or defective products by the Group could lead to product

recalls, severe ﬁnancial penalties and reputational damage to the Group.

Other common commercial risk areas that may have an adverse impact

on the Group include those related to customer concentration and

uncertainties related to future customer demand, onerous customer and

supplier contracts, the impact of increased competitive pressures on the

maintenance/improvement of market share, technological innovation and

market disruption, and the performance and management of programme

partners (“Common Commercial Risks”).

Mitigation

•

The senior management team keeps track of the Group’s Common

Commercial Risks through a number of mediums including by conducting

reviews of the Group’s risk register and externally facilitated risk reporting

dashboard. The dashboard aggregates and highlights the Common

Commercial Risks and relevant trends across the Group.

•

The Group actively invests in research and development activities to

augment its platforms for future product expansion, quality improvements,

customer alignment and achieving further production efﬁciencies. Details

about some of the Group’s research and development activities are

provided in the Sustainability review on pages 43 to 93.

•

Regular reviews of the Group’s loss‑making contracts take place in order

to identify ways, such as through contract renegotiations, to improve the

Group’s proﬁtability.

•

The Group has a diverse portfolio of RRSP contracts across a number

of leading, global OEMs, retaining relatively small shares in any single

programme. Melrose has mitigated against commercial risks associated

with such arrangements by using conservative ﬁnancial assumptions for all

of its RRSP programmes.

•

The Group operates robust quality assurance and management procedures.

•

To combat against the ﬂuctuations in commodity pricing experienced during

the year as well as the high inﬂation levels, the Group has reviewed and

where relevant renegotiated the terms of customer and supplier contracts.

Trend commentary

The risk trend for commercial risk remained the same during the year, with

macroeconomic events continuing to cause ﬂuctuations in commodity

pricing, in addition to wider inﬂationary pressures. However, the demerger of

Dowlais Group plc (the “Demerger”), coupled with the change in Melrose’s

business strategy, has reframed the nature of this risk. This is because

Melrose no longer owns a diverse range of manufacturing businesses and

instead operates as a single sector business. This enhances the Group’s

exposure to commercial risks that arise within the aerospace industry,

including the shift to new technologies and markets, such as electric and

hydrogen powered aircraft.

The senior management team actively and regularly tracks, monitors and

supports strategic planning activities and impact mitigation assessments

in respect of ongoing commercial risks. This has been a particular focus

of both the Board and senior management team during the year, with the

Group identifying and managing any enhanced or emerging commercial risks

resulting from Melrose’s change in business strategy.

Responsibility

The Executive management team

(comprising executive Directors and

Melrose senior management) are

responsible for our principal risks.

Risk trend

Increasing

No change

Decreasing

Realigned risk

Strategic priorities

Design

Deliver

Improve

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

RISK 3 – ECONOMIC AND POLITICAL

Description and impact

The Group operates through manufacturing and/or sales facilities in

numerous countries and is affected by global economic and political

conditions. Geopolitical events may lead to an adverse impact on the Group’s

operations, particularly those that involve major trading partners or blocs.

For example, they may result in explicit trade protectionism, the potential

for conﬂict or broader political issues, as well as the introduction of new

tariffs and/or taxes which could adversely affect the ﬁnancial performance

of the Group or the delivery of its global strategy. Moreover, global economic

and political events may cause sudden and unanticipated disruption to the

Group’s operations.

Fluctuation in commodity prices and high inﬂation may materially and

adversely affect the Group’s operational performance and ﬁnancial condition.

Further, these factors may materially affect customers, suppliers and other

parties with which the Group does business. High inﬂation levels may result

in increased Group costs both in terms of the operation of plants and the

manufacturing of products, which in turn may be passed on to customers.

More generally, adverse economic and ﬁnancial market conditions may cause

customers to terminate existing orders, to reduce their purchases from the

Group, or to be unable to meet their obligations to pay outstanding debts to

the Group. These market conditions may also cause suppliers to be unable

to meet their commitments to the Group or to change the credit terms they

extend to the Group.

Mitigation

•

The Group has a diversiﬁed global footprint mainly across Europe, the

US and Asia, and its commercial split across both the civil and defence

markets helps to mitigate against geopolitical shocks.

•

Order books, cash performance, cost control and other leading indicators

are regularly monitored to ensure that the Group and both of its divisions

can respond quickly to adverse trading conditions. This includes the

identiﬁcation of cost reduction and efﬁciency measures.

•

Bank ﬁnancing is readily available to the Group from its supportive banking

syndicate. This support has proven to be available to the Group even during

periods of unprecedented turmoil, including during the global pandemic.

•

The Group fosters strong customer relationships which are often

long‑term partnerships, built on technical excellence and quality, and

often with plants in close proximity to customers where feasible and

commercially necessary.

Trend commentary

Signiﬁcant geopolitical and economic uncertainty continued during the year,

leading to an increased risk trend for economic and political risk. The war in

Ukraine and the various sanctions packages imposed upon Russia, increased

attacks on merchant ships in the Middle East, and rising tensions between

China and Taiwan, were a key factor in such uncertainty. Furthermore, the

recent events in Israel and Palestine have further heightened geopolitical

tensions. In each case, Melrose promptly assessed the risks associated

with these events by conducting an analysis into any direct or indirect trade

occurring within the affected regions and the Group. As noted in last year’s

annual report, trade with Russia was found to be very limited and, in any

case, ceased. An impact assessment has also been conducted into the Israel

and Palestine conﬂict, with no material implications on the Group’s operations

being identiﬁed.

GKN Aerospace’s diversiﬁed global footprint, and its commercial split across

both civil and defence markets, provide a degree of natural hedging in

the event of regionalised geopolitical shocks. Senior management closely

monitors economic and political events alongside its dedicated export control

team in order to best react to any associated risks as early as practicable.

RISK 4 – LOSS OF KEY MANAGEMENT AND CAPABILITIES

Description and impact

The success of the Group is built upon a strong management team. The

loss of key personnel, or inability to identify, attract and retain key personnel,

could impact the ability of the Group to deliver its business strategy. As

a result, the loss of key personnel could have a signiﬁcant impact on the

Group’s performance, at least for a time. The loss of key personnel or

the failure to plan adequately for succession or develop new talent may

impact the reputation of the Group or lead to a disruption in the leadership

of the business. Competition for personnel is intense and the Group may

not be successful in attracting or retaining qualiﬁed personnel, particularly

engineering professionals.

Mitigation

•

Succession planning within the Group is coordinated via the Nomination

Committee in conjunction with the Board and includes all Directors and

senior Melrose employees. The Chief Executive Ofﬁcer is responsible

for the appointment of executive team members, with disclosure to the

Nomination Committee.

•

Melrose recognises that, as with most businesses, particularly those

operating within a technical ﬁeld, appointments are dependent on Directors

and employees with particular managerial, engineering or technical skills.

Appropriate remuneration packages and long‑term incentive arrangements

are offered in an effort to attract and retain such individuals.

Trend commentary

In light of the change in Melrose’s business strategy to operating as a

long‑term aerospace group, succession planning for the executive Directors

was a key focus for the Nomination Committee and the Board in 2023.

In particular, the Board, with the support of the Nomination Committee,

approved Mr Simon Peckham and Mr Geoffrey Martin stepping down as

Melrose Chief Executive and Group Finance Director respectively with effect

from 6 and 7 March 2024 respectively, to be replaced by Mr Peter Dilnot

and Mr Matthew Gregory (as Chief Executive Ofﬁcer and Chief Financial

Ofﬁcer respectively). The focus placed on succession planning has

combatted against the risks associated with the loss of key management

and capabilities, with the changes in key personnel reﬂecting strong

management continuity. Please refer to the Nomination Committee report on

pages 124 to 127 for further details.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

RISKS AND UNCERTAINTIES

CONTINUED

RISK 5 – HEALTH AND SAFETY

Description and impact

The Group employs over 14,500 people with many operations often involving

risks related, but not limited, to heavy duty machinery, chemical use,

movement of parts such as lifting or transportation, as well as energy, such

as electricity and pressurised systems. A serious accident in the workplace

could have a major impact on employees as well as their families, colleagues

and communities. Such an incident could also result in legal claims,

reputational damage and ﬁnancial loss.

Mitigation

•

The Group has a dedicated health and safety team which has rolled out

a comprehensive health and safety programme across all sites, led by

business‑wide training on risk management for all operational leaders and

an awareness campaign around GKN Aerospace’s Golden Safety Rules.

All sites are required to self‑certify compliance with the Golden Safety

Rules which is validated through internal independent sampling checks

throughout the year.

•

Investments have been made into the provision of appropriate safety

equipment and employees are provided with the knowledge and skills

necessary to perform their roles safely. All employees are required under

the Golden Safety Rules to use the equipment provided and adhere to any

safety training and instruction given.

•

As at 31 December 2023, 30 sites within the Group were certiﬁed to the

ISO 45001 international standard, with additional relevant sites progressing

towards accreditation. Third‑party auditing on a three‑year certiﬁcation

cycle is required to maintain ISO accreditation, with HSE internal annual

surveillance audits taking place in between on a rotation or risk basis to

ensure minimum standards are being maintained.

•

Through the Leadership Safety Tour Programme, senior management take

an active role in physically attending sites and validating the effectiveness

of HSE controls by site leadership, and ensuring compliance and

continuous improvement. In 2023, particular focus has been placed on

strengthening the risk assessments and risk controls of the Golden Safety

Rules by conducting on‑site Task Speciﬁc Risk Assessment Workshops

through which over 90% of GKN Aerospace’s operational leaders have

been trained.

•

The Board is provided with visibility and oversight on health and safety

risks through the form of quarterly reports, which collates information

for all sites based on three key performance indicators – Major Accident

Frequency, Lost Time Accident Frequency (“LTA”), and Accident Severity.

Trend commentary

Health and safety is of key importance to Melrose and to reﬂect this, the

Board has elevated it to a standalone principal Group risk, having previously

been captured in operations risk. Given the nature of the Group’s operations,

there will always be an inherent health and safety risk within the Group.

However, to combat against this, comprehensive and appropriate mitigations

and controls have been put in place.

Furthermore, Melrose has a Group target to achieve and maintain an annual

LTA Frequency Rate of below 0.1 per 200,000 hours worked. This underpins

our overarching commitment to stop all accidents from occurring, through

the promotion of safe behaviours across all locations, and an enhanced focus

on hazard identiﬁcation and awareness. During 2023, we maintained a LTA

Frequency Rate of below 0.1, and continued to prioritise continuous health

and safety improvements in the push for the LTA Frequency Rate of zero.

Please refer to pages 19 and 88 of the Annual Report for further details.

COMPLIANCE AND ETHICAL RISKS

RISK 6 – LEGAL AND REGULATORY

Description and impact

Considering the breadth, scale and complexity of the Group, there is a

risk that the Group may not always be in complete compliance with laws,

regulations or permits. The Group could be held responsible for liabilities and

consequences arising from: (i) restrictions arising from economic sanctions,

export controls and customs, which can result in ﬁnes, criminal penalties,

adverse publicity, payment of back duties and suspension or revocation of

the Group’s import or export privileges; (ii) product liability claims, which can

result in signiﬁcant total liability or remedial costs, particularly for products

supplied to large volume global production programmes spanning multiple

years, and (iii) employee matters including liability for employee accidents

in the workplace or consequences of environmental liabilities, which may

be susceptible to class action law suits, particularly but not exclusively with

respect to Group businesses operating in North America.

The Group operates in a highly regulated environment across multiple

jurisdictions. The Group’s operations are subject to anti‑bribery and

corruption, anti‑money laundering, competition, anti‑trust and trade

compliance laws and regulations. Failure to comply with certain regulations

may result in signiﬁcant ﬁnancial penalties, debarment from government

contracts and/or reputational damage, and may impact our business strategy.

Mitigation

•

Regular monitoring of legal and regulatory matters takes place at both

a Group and divisional level. Consultation with external advisors is also

undertaken where necessary.

•

Group‑wide standard and enhanced application to trade authorisation

procedures are in place and regularly reviewed against the ever‑changing

global trade compliance landscape, supported by access to external trade

compliance legal and regulatory specialists and electronic counterparty

screening systems.

•

A robust control framework is in place, underpinned by comprehensive

corporate governance and compliance policies and procedures at both

Group and divisional level, including utilisation of third‑party veriﬁcation

providers, training of applicable employees on policies and procedures,

and regular reviews of the Group policies in light of legal and regulatory

changes, as well as best practice.

•

Melrose operates a Group‑wide whistleblowing platform whereby all

employees have access to a multi‑lingual online portal, together with local

hotline numbers that are available 24/7, in order to allow employees to raise

concerns on possible wrongdoing in any aspect of the business.

Trend commentary

As a result of the geopolitical uncertainty and increase in national

protectionism noted under risk 3, the Group was proactive in monitoring

the changing regulations surrounding export controls and sanctions, and

ensuring that the Group had the relevant licences that it needed in order to

operate. The Group continued to have a fully developed legal function both

at a Group and divisional level. The legal function was supported by external

advisors where necessary or helpful to ensure ongoing compliance in the

jurisdictions in which the businesses operate across the globe.

Risk trend

Increasing

No change

Decreasing

Realigned risk

Strategic priorities

Design

Deliver

Improve

Responsibility

The Executive management team

(comprising executive Directors and

Melrose senior management) are

responsible for our principal risks.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

RISK 7 – CLIMATE CHANGE

Description and impact

Increased frequency in extreme weather and climate‑related natural disasters

can lead to physical damage at the Group’s sites in addition to disruptions in

our business lines’ supply chain. Additionally, new legislation and regulations

may require additional investment, restrict commercial ﬂexibility and business

strategies, or introduce additional liabilities for the Group or the Directors.

Changing demand patterns inﬂuenced by climate change concerns create

risks for the sustainability of the Group’s products and solutions.

During the year, as part of the Group’s new assessment of climate change

risks, speciﬁc and potentially material transition risks were identiﬁed. These

risks are related to exposure to carbon pricing mechanisms, raw material

availability, replacement of carbon intensive machinery and successful entry

of new technologies to the market. The physical risk assessment sought

to identify current and potential future physical climate risks facing the

Group’s global facilities and key suppliers, with consideration of revenue

and property value of each facility, to determine the materiality of identiﬁed

risks, most material of which were found to be related to ﬂooding and storm

events, and some potential disruptions to key suppliers caused by extreme

weather events.

Mitigation

•

We seek to integrate climate considerations, such as energy and climate

management efforts in countries where we operate and sell our products,

expectations of our value chains, and the various commitments to achieve

the goals of the Paris Agreement, into strategic decisions and operational

management.

•

To understand better and plan for the effects of climate change within the

Group, a framework has been developed for identifying, understanding,

quantifying, where possible, and, ultimately, managing climate‑related

challenges and opportunities. This framework covers government and

international policy, emissions regulations, energy costs, physical impacts,

access to capital, risks relating to permits, product demand and litigation risks.

•

During the year, a new sustainability and climate change governance

framework was developed by the GKN Aerospace sustainability function,

overseen by the Chief Technology Ofﬁcer. This sets out the responsibilities

for delivering the Group’s climate strategy and addresses progress against

the Group’s climate commitments.

•

Scope 1, 2 and 3 emissions are monitored and reported on. This data is

used to manage operational and supply chain emissions, as well as track

the Group’s emissions, energy, and other climate‑related sustainability

targets. Performance is reported annually within Melrose’s Annual and

Sustainability Reports, Task Force on Climate‑related Financial Disclosures

(“TCFD”) report, and through the CDP Climate Change disclosures.

•

During the year Melrose developed a new Transition Plan in order to help

the Group deliver its ambition of Net Zero by 2050. The Transition Plan

was prepared in line with the TCFD recommendations and the new UK

Transition Plan Taskforce’s guidance. It is available on Melrose’s website at

www.melroseplc.net/sustainability.

•

As part of the assessment of climate transition risks, mitigation and

adaptation opportunities have been identiﬁed related to the development

of new technologies such as hydrogen, battery electric and sustainable

aviation fuels as well as improving inﬂight efﬁciencies by lightweighting

components and energy efﬁciency of engines to ensure continued

motivation to be the most sustainable partner in the sky. Further details

can be found in the Sustainability review on pages 43 to 93.

Trend commentary

Recent years have shown the frequency and severity of climate‑related

events are increasing and the low‑carbon transition is a growing focus area

for governments, investors and the entire aerospace sector. As such, climate

change was given a greater focus in 2023 and addressed through various

strategic and tactical workstreams within the Group. It is an important

consideration across the Group’s business strategy, including in terms of

investment decisions and product development. It is also an increasingly key

strategic concern for the Group’s stakeholders, who are keen to understand

how Melrose is managing climate‑related risk.

Going into 2024, the Group will continue to look to balance where possible the

risks associated with climate change against potential opportunities for the

Group and will report on progress in achieving the Group’s net zero ambition as

set out in the new Net Zero Transition Plan.

RISK 8 – INFORMATION SECURITY AND CYBER THREATS

Description and impact

Information security and cyber threats to our systems are an increasing

priority across all industries and remain a key UK, US and European agenda

item across governments. The Group’s potential exposure to information

security and cyber risks remains at a high status due to its operations within

the aerospace industry, together with the scale and public facing nature of

the Group. There is an inherent security threat within the Group where data is

held in relation to civil aerospace technology and controlled military contracts

in airframe and engines.

The risks associated with information security and cyber threats are far

reaching and include business disruption resulting from attacks to the

Group’s information technology and operational technology infrastructure

and systems, unlawful attempts to obtain access to proprietary or classiﬁed

information held by the Group, and the potential for business disruption and

compromise of information as a result of such attacks and unlawful access

attempts within the Group’s wider supply chain.

Mitigation

•

Management works closely with the Group’s external security consultants,

Ernst & Young, to assess the Group’s increased exposure to cyber security

risk and to ensure appropriate mitigation measures are in place for the Group.

•

During the year, management continued to monitor and enhance its

information security strategy and risk‑based governance framework within

the Group. The framework follows both the UK Government’s National

Cyber Security Centre recommended steps on cyber security and US

NIST Cyber Security Framework, as well as incorporating Dutch MIVD and

Swedish ISM controls. This strategic management approach has delivered

risk proﬁling capabilities for aerospace and defence, and the enablement

of mitigation plans to be developed to reduce the Group’s exposure to

cyber risk.

•

The progress of the Group is measured against its information security

strategy and is monitored on a quarterly basis. These results are externally

veriﬁed on a quarterly basis by Ernst & Young, who also continue to conduct

cyber assurance site reviews covering key locations across the Group.

•

Education and awareness initiatives are considered vital to the

management of information security and cyber threat risks. A number of

initiatives are undertaken throughout the year, including phishing exercises,

to help drive better awareness and engagement with such risks.

Trend commentary

Information security and cyber threats risk is an increasing priority of,

and inherently present within, the aerospace industry. Melrose’s change

in business strategy to operating as a standalone aerospace group has

therefore increased its exposure to such risk. Furthermore, the rising

geopolitical tensions noted under risk 3 have heightened information security

and cyber threats risk within the aerospace industry, which in turn has

resulted in an increase in this risk trend for the Group. To counter this, the

Group has worked, and continues to work, with external security companies

to monitor, improve and reﬁne its Group‑wide strategy to aid the prevention,

identiﬁcation, and mitigation of current and future threats.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

RISKS AND UNCERTAINTIES

CONTINUED

FINANCIAL RISKS

RISK 9 – TREASURY

Description and impact

The Group is exposed to a number of treasury‑related risks, including those

related to liquidity, foreign exchange and pensions. The ability to raise debt or

to reﬁnance existing borrowings in the bank or capital markets is dependent

on market conditions and the proper functioning of ﬁnancial markets. As

set out in more detail in the Finance Director’s review on pages 20 to 27,

as at 31 December 2023, the Group had term loans of US$300 million and

€100 million, and revolving credit facilities (“RCFs”) totalling US$940 million,

£300 million and €300 million.

Due to the global nature of the Group’s operations, it is susceptible to the

volatility inherent in the foreign exchange market in addition to exchange rate

ﬂuctuations. The Group is primarily exposed to two types of currency risk:

transaction risk and translation risk.

Furthermore, any shortfall in the Group’s deﬁned beneﬁt pension schemes

may require additional funding. As at 31 December 2023, the Group’s

pension schemes had an aggregate deﬁcit, on an accounting basis, of

£99 million (2022: £488 million). Changes in discount rates, inﬂation, asset

values or mortality assumptions could lead to a materially higher deﬁcit.

Further, there is a risk that the plans’ assets, such as investments in equity

and debt securities, will not be sufﬁcient to cover the value of the retirement

beneﬁts to be provided under the plans. The implications of a higher pension

deﬁcit include a direct impact on valuation, implied credit rating and potential

additional funding requirements at subsequent triennial reviews.

Mitigation

•

The Group operates a conservative level of headroom for liquidity purposes

and across its ﬁnancial covenants, conducting regular reviews of its cash

forecast, which is designed to avoid the need for any unplanned reﬁnancing.

•

The Group operates cash management mechanisms, including cash

pooling across the Group and maintenance of RCFs and certain

uncommitted facilities to mitigate the risk of any liquidity issues.

•

In preparation for the Demerger, the Group successfully reﬁnanced its

bank facilities to reﬂect the new size of the Group. The term loans and

US$250 million of the RCFs (noted above) expire in April 2026 and the

remainder of the RCFs (noted above) can be extended by two one‑year

extension periods to April 2028 at Melrose’s option.

•

The Group’s policy is to mitigate transactional foreign exchange risk

affecting cash by hedging such risks with ﬁnancial instruments. The Group

utilises its multi‑currency banking facilities and cross‑currency swaps,

where relevant, to maintain an appropriate mix of debt in US Dollars, Euros

and Sterling. The hedge of having debt drawn in US Dollars and Euros

protects against some of the balance sheet and banking covenant foreign

exchange risk.

•

The Group is protected against being over‑hedged due to short to

medium‑term reductions in forecasts, as the percentage of hedges

compared to forecast foreign exchange exposures tapers over future

periods.

•

The GKN UK Group Pension Schemes (Numbers 1 and 4) are the most

signiﬁcant pension plans remaining in the Group and are closed to new

members and to the accrual of future beneﬁts for current members. During

the year, the Group commenced a process to buy‑out the GKN UK Group

Pension Scheme Number 4, which is expected to complete during 2024.

•

Melrose actively engages with the Trustees on pension plan asset

allocations and strategies.

Trend commentary

The Group has maintained its strong cash controls and forecasting

processes, and Melrose senior management has maintained its efforts

throughout the Group to increase visibility and certainty of cash ﬂow

information, robustness of cash controls, and cash‑saving initiatives; these

have been very successful. Debt reduced within the Group on the Demerger

and the reﬁnancing of the Group’s banking facilities has ensured that the

Group has adequate resources available to meet its liabilities. Moreover, the

Demerger has resulted in a signiﬁcant reduction in the Group’s UK deﬁned

beneﬁt pensions plans net deﬁcit. The Group also utilised its usual controls

to combat against foreign exchange risk during the year and to provide

protection for future years, which remains important due to the continuing

risk of volatility in the foreign exchange market. Please refer to the Finance

Director’s review on pages 20 to 27 for further details.

Risk trend

Increasing

No change

Decreasing

Realigned risk

Responsibility

The Executive management team

(comprising executive Directors and

Melrose senior management) are

responsible for our principal risks.

Strategic priorities

Design

Deliver

Improve

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

SECTION 172 STATEMENT

BOARD STAKEHOLDER ENGAGEMENT

AND DECISION‑MAKING

The Board is responsible for the long‑term

success of the Company, for setting

and overseeing its culture, and for

the Company’s purpose, strategy and

values. The Board’s understanding of

the Company’s stakeholders and their

respective interests is central to these

responsibilities, and informs key aspects

of its decision‑making.

Section 172 statement

In accordance with the Companies Act 2006, the Directors

provide this statement describing how they have had regard to the

matters set out in section 172(1) of the Companies Act 2006 when

performing their duty to promote the success of the Company

under section 172.

Melrose’s purpose, strategy and values

Melrose was founded in 2003 with a strategy to empower

businesses to unlock their full potential for the beneﬁt of all

stakeholders, whilst providing shareholders with a superior

return on their investment. Melrose’s strategy has shifted from its

previous “Buy, Improve, Sell” model to becoming an aerospace

business for the long‑term. Our strategy remains focused on

value creation driven by operational and ﬁnancial improvement

over the longer‑term. Our positive trajectory is underpinned by

leading positions on the world’s major aircraft platforms, strong

organic growth prospects within the aerospace sector, and

attractive opportunities to further differentiate our business through

cutting‑edge proprietary technology that is already shaping the

future of ﬂight.

The Company’s purpose and strategy remain underpinned by

the principles and values on which it was founded. We act with

integrity, honesty, transparency and decisiveness, and believe in a

lean operating model, high productivity and sustainable business

practices. We see the decarbonisation of the aerospace sector

as a priority, and indeed a central tenet of GKN Aerospace’s

mission to be “The Most Trusted and Sustainable Partner in

the Sky”. Whilst the sector and our customers provide many

opportunities for further progress towards cleaner air travel through

our innovation and technology leadership, we see no reason why

this priority cannot be achieved at the same time as generating

superior ﬁnancial returns for our shareholders.

The Board is ultimately accountable to the Company’s

shareholders for setting the Group’s strategy, for overseeing

the Group’s ﬁnancial and operational performance in line with

Melrose’s strategic objectives, and for taking into account the

principal risks facing the Group. Implementation of the Group’s

strategic objectives, as determined and overseen by the Board,

is delegated to the senior management team, with day‑to‑day

operational management delegated to the divisional teams.

The Board has established an organisational structure with

clear reporting procedures, lines of responsibility and delegated

authority, as depicted in the diagram on page 28 and in line with

the Group’s governance framework, which the Board reviews

regularly to ensure it continues to align with applicable legal

requirements and corporate governance best practice.

The Board recognises that culture, values and standards are key

contributors to how a company creates and sustains value over

the long‑term. High standards of business conduct guide and

assist the Board’s decision‑making, and in doing so, help promote

the Company’s success, recognising, amongst other things, the

likely consequences of any decision in the long‑term and wider

stakeholder considerations. The standards set by the Board

mandate certain requirements and behaviours with regards to the

activities of the Directors, our employees and others associated

with the Group.

The Group has a number of compliance policies, including a

Code of Ethics, which are implemented across the business.

The Board continues to play an active role in overseeing how the

business manages compliance, with adherence to the compliance

framework being fed back to the Board, to guide and assist in

its decision‑making, and to ensure that the business practices

of the Group remain aligned with Melrose’s purpose. The Board

considers it to be of the utmost importance that the business

continues to uphold high standards of business conduct, and

that continuous improvement is strived for in this area. Further

detail on the Group’s compliance policies and framework, and

reporting to the Board, can be found on pages 43 to 93 of the

Sustainability review.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

OUR PEOPLE

Our approach

We recognise that a capable, engaged and passionate workforce

is central to the Group’s performance and ultimately its success.

Our people are an important stakeholder group and we foster

a culture of effective engagement with employees in order to

encourage open dialogue where employees feel conﬁdent that

their views are taken into consideration.

Engagement activities and consideration

• Melrose operates a Workforce Advisory Panel (“WAP”) in

order to promote effective engagement with, and encourage

participation from, its workforce. The WAP met twice during

the year and the outcomes, together with key workforce views,

were fed back to the Board accordingly.

• Employees have an opportunity to raise concerns conﬁdentially

and anonymously through the Group‑wide whistleblowing

platform. The platform has a multi‑lingual online portal,

and local hotline numbers that are available 24/7. The Audit

Committee receives reports on whistleblowing activity, and this

is ultimately reported to the Board.

• An annual all‑employee engagement survey is undertaken

across the Group in order to collate the views of employees and

identify areas of strength and those in need of development.

The Board receives a summary of these results, and is provided

with feedback on how employees’ views are taken into account

in executive decision making.

• The Board receives quarterly health and safety reports and

regular updates on the Group’s pension arrangements.

• The Nomination Committee, together with the Board, is focused

on promoting diversity and inclusion within the Group. The

Group’s diversity policies are reviewed on an annual basis to

ensure that the importance of having a diverse and inclusive

culture is understood and embraced throughout the Group.

Sustainability review

pages 43 to 93

OUR KEY STAKEHOLDERS

SHAREHOLDERS

Our approach

We provide a consistent and transparent ﬂow of information and

management insight to shareholders and to the wider investment

community, taking an honest, transparent and open approach

to investor relations and communications. We recognise that

analysts require robust information in order to inform the research

and analysis that they provide to investors, and investors beneﬁt

from disclosure in line with regulatory requirements, as well as

enhanced disclosure on topics that are material to the Company,

to inform their independent investment decisions.

Engagement activities and consideration

• The Board and Melrose senior management team have

an annual programme of key information publications and

engagement activities including regular trading updates,

open agenda meetings for key shareholders attended by the

Chairman and/or the Senior Independent Director, where

requested, and a Q&A forum for shareholders at Melrose’s

Annual General Meeting.

• In May 2023, the executive Directors hosted a capital markets

event in London to provide further information to, and

interact directly with, key shareholders, analysts and their

representatives on Melrose’s new business strategy. This was

subsequently followed in October 2023 by an investor event

focusing on our Engines division, which took place at our key

site in Trollhättan, Sweden.

• The Group Company Secretariat engaged with, and facilitated

discussions involving members of the Board with, the

responsible stewardship and sustainability representatives of

key investors on a variety of topics including the Demerger and

the enclosed Directors’ remuneration policy proposal.

Case study

page 40

Directors’ Remuneration report

page 129

KEY STAKEHOLDER ENGAGEMENT IN 2023

The Board cultivates strong relationships with the Group’s key stakeholders so that it

is well placed and sufficiently informed to take their considerations into account when

making decisions, where appropriate, in order to discharge their duties under section

172 and to pursue the Company’s strategic objectives. Stakeholder engagement is on

the Board’s agenda to assess whether the Company’s principal stakeholders and their

priorities have changed, and whether the Board has sufficient engagement with each

key stakeholder group.

Set out below and on the following pages are details of our key stakeholders, how we engaged with them during the year, and the

outcomes of these processes.

SECTION 172 STATEMENT

CONTINUED

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

CUSTOMERS AND SUPPLIERS

Our approach

The relationships that we have with our customers and suppliers

are key to our success, and we foster positive and open business

relationships with them. We continue to work hard to build upon

and strengthen these relationships where possible. The Board

recognises the importance of these relationships, and encourages

regular and meaningful engagement by the divisions with this key

stakeholder group.

Engagement activities and consideration

• The Board holds regular business reviews with the Chief

Executive Ofﬁcer, Chief Financial Ofﬁcer, Group General

Counsel and Business Line Presidents and as part of these

reviews, management shares feedback on key customer and

supplier initiatives and views, as well as supplier performance

and supply chain disruption.

• Management attends major aerospace industry events

including the Paris Air Show and the Farnborough International

Airshow, which promotes an open dialogue with customers,

suppliers, and other industry players.

• The Group continues to focus on helping our customers deliver

their own sustainability agendas by working with them to ﬁnd

ways to make products more sustainable.

• To further improve our supplier engagement and in order to

meet our net zero targets, GKN Aerospace has committed via

the Science Based Targets initiative (“SBTi”) to reduce absolute

Scope 3 emissions (from key Scope 3 categories) by 25% by

2030 from a 2022 base year, as well as committing that 70% of

its suppliers by spend will have science‑based targets by 2028.

• We continued supply chain engagement through the CDP

Supply Chain initiative in order to track and encourage supplier

alignment to Net Zero, achieving a response rate of over 70%.

Sustainability review

pages 43 to 93

ENVIRONMENT AND COMMUNITIES

Our approach

In 2023 we reset the foundations of our sustainability strategy

as a pureplay aerospace business in line with GKN Aerospace’s

mission to be the most trusted and sustainable partner in the

sky. We have refreshed our sustainability governance framework

enabling the delivery of our new sustainability targets and

commitments through an integrated Melrose and GKN Aerospace

sustainability function. This cross‑functional and multi‑disciplinary

team is responsible for executing the Board’s overall sustainability

strategy. The Board as a whole, led by the Chairman, is

responsible for all matters concerning sustainability and climate

change, and sustainability remains a key Board meeting agenda

item, providing a platform for updating the Directors on progress

and strategy.

Engagement activities and consideration

• We conducted our ﬁrst double materiality assessment to

identify the topics that are most relevant for our new aerospace

focused business and aligned stakeholders. We gained these

perspectives through a series of consultations and interviews

with internal experts who were able to represent the views and

concerns of key stakeholder groups including members of the

executive management team, employees, customers, suppliers

and shareholders.

• We formalised our strategy to enable transition to a net

zero economy. We updated our Net Zero Transition Plan

(the “Transition Plan”) to provide clarity to our stakeholders

around the actions we intend to take to achieve our short‑ and

medium‑term emissions reduction targets to reach net zero

Greenhouse gas (“GHG”) emissions across the value chain by

2050, and how we plan to contribute to reducing the climate

impact of aerospace. This has included the submission of

Board‑approved emissions reduction targets through the

SBTi for validation, and progress against these targets will be

reported annually.

• We continued to engage with key ESG benchmarking agencies

to improve data quality and comprehensiveness of their

coverage of our sustainability performance, and to identify and

resolve inconsistencies. A key action has been working with the

benchmarking agencies to realign the business to be assessed

against the aerospace sector.

• The Group submitted its response to the CDP Climate Change

and Water Security questionnaires, achieving B (2022: C)

and C (2022: C) respectively, which the Board views as

encouraging progress.

• We recognise the importance of local communities to the

effective operations of our business. The Sustainability review

on pages 43 to 93 highlights examples of actions taken during

2023 to engage with communities, including through the

Melrose Skills Fund.

Case study

page 41

Sustainability review

pages 43 to 93

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

SECTION 172 STATEMENT

CONTINUED

LENDERS

Our approach

In addition to the long‑term funding requirements of the Group,

we may need to move quickly to secure the opportunities that

we feel will be critical to Melrose’s success. As part of this, we

regularly engage with our supportive banking syndicate to discuss

funding strategy, and maintaining strong banking relationships has

proven to be vital at times where we have needed to act quickly

and decisively.

Engagement activities and consideration

In connection with the Demerger, we engaged extensively with our

banking syndicate in order to reﬁnance our bank facilities to reﬂect

the new size of the Group. As part of this process, a number of

improvements were made to the existing Group facilities with the

agreement of the syndicate.

Finance Directors’ review

pages 20 to 27

GOVERNMENT BODIES, REGULATORS AND

INDEPENDENT BODIES

Our approach

We interact with government bodies and regulators in a number

of jurisdictions across the world, many of which are of strategic

importance to the Group and our long‑term success. It is therefore

important that we maintain ordinary course dialogue with such

stakeholders to allow our businesses to operate effectively.

Furthermore, we invest signiﬁcant time in speaking regularly to

key corporate governance agencies and proxy advisors regarding

certain aspects of corporate governance that we and our investors

consider to be of long‑term strategic importance.

Engagement activities and consideration

• We maintain regular dialogue with government bodies and

regulators, including the Department for Business and Trade,

the Ministry of Defence and the Investment Security Unit in

the UK, as well as the Department of Defense in the US. We

also provided our ﬁfth anniversary report to the UK Panel

on Takeovers and Mergers in April 2023, which detailed

our fulﬁlment of, and compliance with, those post‑offer

undertakings given at the time of Melrose’s acquisition of GKN

plc which had expired during the year.

• We continued to engage with independent reporting bodies

supported by the UK Government where relevant, including

the FTSE Women Leaders Review and the Parker Review.

Signiﬁcant time and effort was also placed on engaging with

various stakeholders on sustainability‑related topics, which

has included sustainability analysts, reporting organisations

and rating agencies such as MSCI, Sustainalytics, V.E., FTSE

Russell, S&P CSA and CDP.

• The Company Secretariat interacts on a regular basis with

independent reporting bodies and other corporate governance

bodies. During 2023, this included participating in round

table discussions with the Financial Reporting Council on its

proposed changes to the UK Corporate Governance Code,

as well discussions with the Investment Association on its

Principles of Remuneration.

KEY BOARD DECISIONS AND

STAKEHOLDER ENGAGEMENT

AEROSPACE‑ONLY BUSINESS STRATEGY

• Our people

• Shareholders

• Customers and suppliers

• Lenders

• Government bodies, regulators and independent bodies

Melrose announced its change in business strategy to operating

as a pureplay aerospace business, focused on value creation

driven by continuous operational and ﬁnancial improvement over

the longer term.

The change in business strategy is the latest example of the

Board’s focus on delivering value to shareholders and other

stakeholders, and the Board’s decision to change the Company’s

business strategy was based on a fully informed and considered

assessment of the performance and trajectory of the business. As

announced, the Board considers the GKN Aerospace business

to be one of the best businesses that Melrose has ever owned,

and remains conﬁdent that the Group’s new composition of the

restructured and refocused high‑class Engines and Structures

businesses, supported by the recovery and growth prospects of

the aerospace sector at large, positions Melrose for a signiﬁcantly

better than expected performance for the future.

We have undertaken a signiﬁcant engagement exercise with

shareholders and other stakeholders in order to provide

transparency and clarity on our new business strategy. This has

been supported from the outset by regular trading updates and

guidance to the market. In May 2023, the executive Directors

hosted a capital markets event in London to provide further

information to, and interact directly with, key shareholders,

analysts and their representatives on our new business strategy.

This was subsequently followed in October 2023 by an investor

event focusing on our Engines division, which took place at one of

our key sites in Trollhättan, Sweden. Both events received positive

feedback with strong attendance rates, and attendees were

provided with an opportunity to ask questions of those Directors

in attendance as well as senior management.

We also recognised the importance of engaging with our

employees on the change in business strategy. This has

included hosting live and online events with leadership to explain

Melrose’s new business strategy and to provide transparency

on the integration of the Melrose and GKN Aerospace senior

management teams. As part of such engagement initiatives,

employees have been given a platform to ask questions and have

been empowered to consider how their roles interlink with the

Company’s new business strategy.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

FURTHER FOCUS ON THE GROUP’S

SUSTAINABILITY PERFORMANCE TO DRIVE

IMPROVEMENTS AND VALUE CREATION

• Our people

• Shareholders

• Customers and suppliers

• Environment and communities

• Government bodies, regulators and independent bodies

Sustainability is a key item on the Board’s agenda, receiving

appropriate consideration throughout the year at its scheduled

meetings. The Board has been integral in supporting the

Group’s sustainability efforts in its shift to becoming an

aerospace‑only business.

The GKN Aerospace sustainability function, overseen by the

Chief Technology Ofﬁcer, has elevated climate change: mitigation

and adaptation; R&D for sustainable aviation; occupational

health, safety, and wellbeing; product safety and quality; and

business integrity as material topics following its completion of

the Group’s ﬁrst double materiality assessment. As we reset our

Group strategy to align with these topics, we have committed to

new sustainability targets and commitments which have been

approved by the Board. These targets exemplify our dedication to

reducing the impact of our operations on the planet. In taking its

decisions, the Board sought to balance the interests of all relevant

stakeholders, to ensure that they are each adequately represented

and can hold the Board accountable for the Group’s progress in

relation to these matters. Detail on some of these key decisions,

and how key stakeholders were engaged with and considered, is

set out in the Sustainability review on pages 43 to 93.

As part of our third year of reporting against the Task Force on

Climate‑related Financial Disclosures (“TCFD”) framework, we

have recalibrated our initial 2021 climate‑scenario assessment of

climate‑related risks and opportunities to focus on the aerospace

sector, providing more sector aligned disclosure to shareholders

and other stakeholders.

In 2023, the Board approved the updated Transition Plan, which

was prepared to provide our stakeholders with clarity around

the actions we intend to take to achieve our emissions reduction

targets to reach net zero GHG emissions across the value

chain by 2050, in light of our new aerospace‑only strategy. The

Transition Plan outlines our objectives, priorities, detailed plans,

and projects to reach our science‑based emissions reduction

targets. It also sets out how climate considerations are integrated

into the Group’s strategic thinking and future planning, such as

major capital expenditure, acquisitions and disposals. In adopting

the Transition Plan, the Board was mindful to ensure that the

actions it sets out are necessary to achieve the agreed‑upon

targets within the envisaged timelines, sufﬁciently focusing our

businesses’ executive management teams on the end goals, yet

without overly diverting resources away from the businesses’

core focuses.

With respect to supply chain, there has been an increased

emphasis on businesses to increase their engagement with

suppliers, to be able to expand our Scope 3 data coverage. We

continued our engagement with the CDP Supply Chain initiative

in order to track and encourage supplier alignment to Net Zero,

achieving an engagement rate of over 70% for the year. To further

improve our supplier engagement and in order to meet our Net

Zero targets, GKN Aerospace has committed via the SBTi to

reduce absolute Scope 3 emissions (from key Scope 3 categories)

by 25% by 2030 from a 2022 base year, as well as committing

that 70% of its suppliers by spend will have science‑based targets

by 2028.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

SECTION 172 STATEMENT

CONTINUED

HELPING TO BUILD THE UK’S INDUSTRIAL

BASE THROUGH THE MELROSE SKILLS FUND

• Our people

• Customers and suppliers

• Environment and communities

In 2023, we met our commitment given at the time of the

acquisition of GKN plc to invest £10 million over ﬁve years through

the Melrose Skills Fund to build the UK’s industrial base. This also

included having met our commitment to support the creation

of between 100 to 150 new apprenticeships in engineering,

technology and science, with the total number of apprenticeships

created having exceeded this target. The Melrose Skills Fund was

a Board approved initiative and the Directors have not only been

kept up to date on the various projects undertaken as part of the

fund, but they have also engaged directly with a number of the

charities and third parties whom we have partnered with as part

of these initiatives.

The Melrose Skills Fund has been utilised to develop the technical

skills that support current and future business needs within the

aerospace industry, using digital delivery methods and accredited

learning management systems. This in turn has helped to support

the training and development of more than 3,000 individuals

within GKN Aerospace alone, with key capability gaps closed

and tangible value added to the business. Our employees have

engaged in a number of different training initiatives. In particular,

cryogenics capability training has been provided to employees as

both our customers and wider society look to more towards more

sustainable fuels for aircraft, such as liquid hydrogen. Additionally,

our employees have engaged in training to help identify ways to

reduce noise pollution for our customers that operate within the

advanced air mobility market.

A key focus of the Melrose Skills Fund has been identifying ways

to work with third parties and the community to help bolster the

UK’s manufacturing and engineering industry. We have worked

closely with The Schools’ Aerospace Careers Programme (the

“SACP”), a charity supporting young people and educational

establishments across the UK to increase the number of young

people undertaking STEM learning and pursuing careers in

engineering‑based industries. In addition to supporting school

roadshows organised by the SACP, we have hosted a student

networking event at our UK Global Technology Centre, which was

attended by over 70 students and provided a full day of insights

into aerospace careers. Furthermore, we have provided funding

to Newcastle University for its research activities into human cell

mapping as a basis for both understanding human health and

for diagnosing, monitoring and treating disease. The funding

has enabled Newcastle University to appoint additional research

software engineers to help aid this important research.

Another core component of the Melrose Skills Fund has been

supporting initiatives which look to improve diversity in all of its

forms within the manufacturing and engineering industry. We

collaborated with Enginuity, a not‑for‑proﬁt organisation, and the

trade union, Unite, to help develop an engineering task‑oriented

computer game contextualised for the aerospace sector to help

encourage school children from ethnic minorities and different

socio‑economic backgrounds to consider a career within the

engineering industry. Furthermore, we partnered with Cajigo,

an app‑based educational platform which offers mentoring

and career guidance for girls and women, with the objective of

closing the gender gap in engineering and technology. As part

of this initiative, a group of our female engineers volunteered to

support Cajigo’s virtual talks and events. We also partnered with

the University of West England and Ambitious about Autism, a

London‑based charity, to provide two internship opportunities at

our UK Global Technology Centre to neurodivergent students.

£10m

invested over ﬁve years through the

Melrose Skills Fund

>3,000

GKN Aerospace employees

supported with technical skills

training and development

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

SUSTAINABILITY

REVIEW 2023

IN THIS SECTION

2023 Sustainability highlights

....................

Outlook for 2024

.......................................

Sustainability targets and commitments ... 48

Environmental impact

...............................

TCFD and CFD

..........................................

Social impact

............................................

Diversity, equity and inclusion

...................

Community impact

....................................

Safety

........................................................

Governance

..............................................

Sustainability risk management

.................

Product quality and safety

.........................

Supply chain management

.......................

Internal ﬁnancial controls and reporting

.....

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

SUSTAINABILITY REVIEW

CONTINUED

2023 SUSTAINABILITY

HIGHLIGHTS

(1)

The Group’s chosen intensity ratio is energy consumption, emissions and water withdrawal reported above normalised megawatts usage (“MWh”), tonnes of CO

e, or m

per £1,000

of revenue. The data has been standardised from the source units in which it was initially collected. The revenue ﬁgures used to calculate the intensity ratio include continuing

operations under operational control only.

(2)

Market‑based method has been used for Scope 2 emissions.

(3)

Where renewable electricity is commercially and reasonably available in the relevant jurisdiction.

(4)

Where permitted by local laws and employee representative bodies.

(5)

Investment distributed in line with the public commitment of the Melrose Skills Fund to build the UK’s industrial base and support the creation of 100‑150 UK apprenticeships over

ﬁve years.

PERFORMANCE AGAINST MELROSE’S

EXISTING SHORT‑TERM SUSTAINABILITY

TARGETS AND COMMITMENTS

During 2023, the Group demonstrated solid performance and strong

dedication to deliver on our targets and standing commitments

initially introduced in 2021. Having achieved most of our short‑term

and interim targets in 2023, we have reset those sustainability

targets for achievement in 2025 to more ambitious levels

(see pages 48 to 51).

Our medium‑ and long‑term targets will be reviewed over the

coming years to incorporate the results from our double materiality

assessment, and to fully align with changes in regulatory expectations

and our strategic priorities to tackle climate change and other

environmental challenges, build stronger communities and a more

diverse workforce, as well as to further embed sustainability across

our governance systems. Our performance against the Melrose Group

existing sustainability targets is depicted below. ESG data across our

selected KPIs over the last years has been restated throughout this

section to only include Melrose and GKN Aerospace performance.

SDG & Sustainability

principle

Measure

Target

Baseline

year

2023

performance

Target

maturity

Progress

against

target

Respect and protect the

environment

Reduce Scope 1 & 2 GHG emissions intensity

(1)

20%

2020

38%

(2)

2025

Achieved

Source global electricity from renewable sources

(3)

50%

2020

34.4%

2025

On track

Divert solid non‑hazardous waste from landﬁll

95%

2020

88%

2025

On track

Reduce water withdrawal intensity

(1)

25%

2021

32%

2030

Achieved

Continue to invest in

products that help

decarbonise aviation

Increase % of total R&D expenditure on climate‑related R&D

annually to contribute to the decarbonisation of aerospace

50%

2020

80%

2025

Achieved

Increase % of new products which contribute to the

decarbonisation of aerospace

50%

2020

100%

2025

Achieved

Prioritise health

and safety, promote

diversity and nurture

the wellbeing and

skills development of

employees, and support

the communities that

they are part of

Protect our employees from injury and lost time accidents

(“LTA”) and maintain a LTA frequency rate below 0.1

<0.1

2020

0.04

Achieved

Ensure that all permanent employees receive regular annual

formal performance reviews

(4)

2020

72%

On track

Invest £10 million

(5)

in the Melrose Skills Fund to promote

engineering skills across the UK over ﬁve years

2018

Achieved

Ensure at least 33% female membership at Board and in

executive committee and its direct reports

2020

40%

Achieved

Maintain achievement of Parker Review recommendations

2020

Achieved

Exercise robust

governance, risk

management and

compliance

Ensure compliance of all employees, suppliers and

contractors with our Code of Ethics, conducting business

with integrity and in a responsible, ethical and sustainable

manner

2020

On track

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

In 2023, we continued to

focus on improving our

material sustainability topics

that impact our business and

are of most concern to our

key stakeholders.

Key developments include:

ENHANCING OUR CLIMATE STRATEGY AND

ENVIRONMENTAL DISCLOSURES TO DRIVE OUR

COMMITMENT TO NET ZERO

• Continued signiﬁcant investment in world leading technologies to

enable aviation’s route to Net Zero by 2050 (£48m investment in

decarbonising R&D in 2023);

• Developing our updated Transition Plan to set out our pathway

to Net Zero with an updated climate risks scenario analysis and

emissions targets;

• Submitted near and long‑term emissions targets to the SBTi for

validation;

• Achieved B for our CDP Climate Change and C for CDP Water

Security disclosures;

• Commenced Water and Biodiversity impact assessments

to improve our understanding of risks, dependencies and

opportunities for improvement.

ACHIEVING KEY MILESTONES AND SHAPING

OUR BUSINESS FOR THE FUTURE

• Met most of our Group short‑term and interim ESG targets ahead of

target year;

• Set more ambitious interim sustainability targets to align with our

transformation into a pureplay aerospace business;

• Commenced a sustainability data pre‑assurance project in

preparation for formal limited assurance in the coming years;

• Updated our Diversity and Inclusion policies to better align with the

latest benchmarks for diversity across the Board and executive

management.

INCREASING ENGAGEMENT

• Completed a double materiality assessment to re‑align the key

focus areas reﬂective of our future as an aerospace only business,

and re‑assess our material sustainability topics based on their

impact and ﬁnancial materiality;

• Continued supply chain engagement through the CDP Supply

Chain initiative in order to track and encourage supplier alignment

to Net Zero, achieving a response rate of over 70% (2022: 50%);

• Continued collaboration with customers, governments, industry and

other key stakeholders to actively inﬂuence and shape the future

of more sustainable ﬂight.

MSCI

(1)

ESG Rating: A

(2022: A)

CDP Climate Change

score 2023: B

(2022: C)

Industry Average 2023: C

(2022: C)

CDP Water Security

score 2023: C

(2022: D)

Industry Average 2023: C

(2022: C)

Sustainalytics

(2)

27.8

ESG risk rating improved to

27.8 (Medium) from 28.3

Ranked 13th out of 129

Industrial Conglomerates

(2022: 8th out of 114 in

Industrial Conglomerates

Category)

63.3

ESG Risk Management

score improved to 63.3

(Strong) from 62.5 in 2023

(1)

As of 2023, Melrose Industries PLC received an MSCI ESG Rating of A.

(2)

As of 2023, Melrose Industries PLC received an ESG Risk Rating of 27.8

from Morningstar Sustainalytics and was assessed to be at medium risk of

experiencing material ﬁnancial impacts from ESG factors. In no event the

ESG Risk Rating shall be construed as investment advice or expert opinion

as deﬁned by the applicable legislation.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

We are committed to remaining at the

forefront of advancing aircraft efficiency

and pioneering the development of

sustainable aircraft of the future.

This endeavour is underpinned by a steadfast commitment to

technological innovation, advanced processes, and the pursuit of

engineering excellence.

We recognise that the global civil aviation commitments to Net Zero

by 2050 will require improvements in aircraft and engine efﬁciency,

improved aircraft ﬂight management, the use of sustainable

aviation fuels, and investment in innovative alternative energy

solutions to address residual emissions. Our network of Global

Technology Centres across the UK, Sweden, the Netherlands and

the US (“GTCs”) is instrumental in directing Melrose investment

into decarbonisation technology, enhancing GKN Aerospace’s

capabilities, promoting collaboration, and expediting technological

breakthrough, with a particular focus on the electric and hydrogen

opportunities for sustainable aviation, lightweight (composite)

materials and wiring systems, aircraft engine efﬁciency and additive

manufacturing. Furthermore, GKN Aerospace will continue to

leverage its distinctive market position to harness the advantages

of newly established partnerships with industry leaders in these

dynamic and emerging markets.

In 2024, we will continue to oversee and enhance our

sustainability performance in the following key areas of focus:

• Identify and drive improvements to attain the new 2025

sustainability targets and associated goals, on or ahead of

time, and across the priority material topics as identiﬁed and

prioritised by the double materiality assessment;

• Continue to drive down business emissions and further develop

our decarbonisation roadmap in line with our recently submitted

Science Based Targets

(1)

, in our own operations and across the

value chain;

• Continue to improve sustainability data quality and reporting,

including in preparation for the new regulatory requirements for

sustainability data disclosures;

• Actively manage and mitigate the risks, and pursue appropriate

opportunities, identiﬁed in the latest climate scenario analysis

and Task Force on Climate‑Related Financial Disclosures

(“TCFD”) and Climate‑related Financial Disclosure (“CFD”);

• Further improve our supplier engagement in line with the

roadmap outlined in the Transition Plan to ensure progress

towards achieving our Scope 3 engagement target

(1)

(1) Submitted to the SBTi in 2023 and pending validation.

SUSTAINABILITY REVIEW

CONTINUED

OUTLOOK FOR 2024

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

OUR SUSTAINABLE

IMPROVEMENT STRATEGY

Sustainable value creation

Sustainability is an important part of our strategy, and we ﬁrmly

believe that this focus is not just the right thing to do but is a central

enabler of our success and value creation.

In partnering with our customers, we create breakthrough

technologies and highly engineered products and systems where

quality always comes ﬁrst. We support our customers in tackling the

most pressing and complex challenges across the aerospace sector

and in achieving their own sustainability and net zero ambitions.

With our aerostructures and engine systems enabling over 100,000

ﬂights every day, empowered by innovative solutions based on

breakthrough R&D and sustainable technology, we are committed to

continuously improve all that we do and will always remain central to

our success.

Our established sustainability governance framework helps drive

longevity and credibility of sustainability performance over time as we

seek to apply a long‑term view and the highest standards of integrity,

honesty, and transparency to any sustainability improvements we

make and align them with commercial and operational success.

Double Materiality Assessment 2023

The transformation of the Melrose Group into a pureplay aerospace

business has triggered the need to re‑envision the sustainability

topics that are material to the Group, and the Group sustainability

targets required to drive improvements. In 2023, we conducted our

ﬁrst double materiality assessment to identify the sustainability topics

that are most relevant for our new aerospace focused business and

aligned stakeholders.

The new double materiality assessment results will help to guide

our sustainability investments and initiatives to help tackle the most

relevant risk exposures to society and the environment. This process

will also help further integrate sustainability into our broader business

strategy. Our near‑term targets have also been reset to ensure

continued drive and focus, with medium and long‑term targets to be

assessed over the coming years.

As illustrated below, the highest priority topics were identiﬁed as

Climate change: Mitigation and adaptation, R&D for sustainable

aviation, Occupational health, safety and wellbeing, Product Safety &

Quality, and Business integrity. Going forward, we will tailor activities,

targets, and commitments based on the results of this materiality

assessment. The “Moderate” category ensures ongoing monitoring

and action when necessary. Our journey toward an integrated, holistic

approach to sustainability management reﬂects our commitment to

supporting GKN Aerospace in its mission to be the most trusted and

sustainable partner in the sky.

Our assessment results are plotted on a materiality matrix to show

both the degree of stakeholder interest (impact materiality) and

potential business impact (ﬁnancial materiality).

Major

High

Moderate

Biodiversity

Business integrity

Circularity and waste reduction

Climate change: mitigation

and adaptation

Community impact

Diversity and equal

opportunities

Information security

Occupational health,

safety and wellbeing

Pollution

Product safety & quality

R&D for sustainable innovation

Respect for human rights

Sustainable supply chain and

responsible sourcing

Talent and workforce

engagement and development

Water stewardship

Financial impact

Environmental and social impact

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

GROUP TARGETS AND COMMITMENTS

Our Group sustainability targets and commitments are designed

to uphold our company’s sustainability principles and directly

address the most pertinent sustainability issues we face. By

aligning our targets and commitments with the United Nations

Sustainable Development Goals (“UN SDGs”), we connect our

sustainability aspirations with those of society at large. This

alignment also ensures that our value creation strategy aligns with

the expectations of our stakeholders, which we are dedicated to

embedding into our core business agenda.

In order to reﬂect the business transformation of Melrose into a

pureplay aerospace business, in 2023 our Group sustainability

targets have been reset to align with GKN Aerospace’s

sustainability ambition and the macroeconomic and broader

industry drive for advancing the environmental and social

improvements in aerospace. Our 2025 targets provide a further

short‑term improvement against our existing measures, whilst

we in parallel will develop our interim and long‑term ambitions

incorporating both strategic and regulatory developments. The

baseline for targets was set in conjunction with the timeframe of

the Group’s target‑setting process.

We summarise below our sustainability improvement principles,

linking them to our targets, commitments, material topics, relevant

stakeholders and UN SDGs. By fostering a culture of sustainability

improvements, both operationally and ﬁnancially, we strengthen our

capabilities and resources, allowing us to pursue sustainable growth.

SUSTAINABILITY REVIEW

CONTINUED

SUSTAINABILITY PRINCIPLE:

RESPECT AND PROTECT THE ENVIRONMENT

UN SDGs

Target 6.4

We have set a water withdrawal intensity target to increase efﬁciency across our business as we seek to address

water challenges such as scarcity and quality

Target 9.4

Contributing to resource‑use efﬁciency, we aim to consider the impact of our manufactured products on the

environment in terms of raw material and energy use, waste, and carbon footprint throughout each product life cycle

Target 13.2

In recognition of climate change as a principal risk, we integrate it into strategic thinking and future planning

Targets

Reduce Scope 1 and 2 GHG emissions intensity by 50% by 2025

(1)

Source 50% of electricity from renewable sources by 2025

(2)

Divert 95% of solid waste from landﬁll by 2025

(3)

Reduce water withdrawal intensity

(1)

by 40% by 2025

(4)

and continue to implement a Group Water Stewardship

Programme to improve water management

Climate targets

submitted

to SBTi for

validation

Reduce absolute Scope 1 and 2 GHG emissions by 50% by 2030

(5)

Reduce absolute Scope 3 GHG emissions by 25% by 2030

(6)

Achieve net zero GHG emissions across the value chain by 2050

Ensure 70% of suppliers by spend covering purchased goods and services have science‑based targets by 2028

Sustainability

improvement

objectives

• Invest to improve operational efﬁciencies by minimising environmental impact through reduced energy consumption,

emissions, water use and waste management

• Align with recognised frameworks such as SASB, TCFD and CDP to increase transparency of actions as a core driver for

change

Material topics

• Climate change: mitigation and adaptation

• Sustainable supply chain and responsible sourcing

• Circularity and waste reduction

• Water stewardship

• Biodiversity

• Pollution

Relevance to

stakeholders

Investors, regulators, contractors, suppliers, customers, communities and joint ventures

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

SUSTAINABILITY PRINCIPLE:

CONTINUE TO INVEST IN DEVELOPMENT PRODUCTS AND SERVICES ALIGNED WITH A NET ZERO FUTURE

UN SDGs

Target 7.3

We invest in improving the energy efﬁciency in manufacturing processes, enabling the development of effective

solutions for climate change adaptation and mitigation

Target 9.5

Our target for climate‑related R&D facilitates the upgrade of our technological capabilities, bolstering our ability to

help customers achieve their own climate goals

Target 13.2

Integrating climate considerations into product development and commercial strategy, we have set a target to

ensure that new product developments contribute to decarbonisation

Targets

Maintain 80% of total R&D spend on climate‑related R&D per year to contribute to the decarbonisation of

aerospace by 2025

Achieve 100% of new product contracts that contribute to the decarbonisation of aerospace by 2025

Sustainability

improvement

objectives

• Support and harness product innovation and quality, to help our customers deliver on their commercial and

environmental goals and ﬁnd effective solutions to assist them in addressing climate change

Material topics

• R&D for sustainable aviation

• Circularity and waste reduction

Relevance to

stakeholders

Investors, contractors, suppliers, customers, communities and joint ventures

(1)

The Group’s chosen intensity ratio is energy consumption, emissions and water withdrawal reported above normalised megawatts usage (“MWh”), tonnes of CO

e, or m

per

£1,000 of revenue. The data has been standardised from the source units in which it was initially collected. The revenue ﬁgures used to calculate the intensity ratio include

continuing operations under operational control only.

(2)

Where renewable electricity is commercially and reasonably available in the relevant jurisdiction.

(3)

Excluding hazardous waste.

(4)

Target baselined on FY2021 with consideration of HY2022 performance.

(5)

From a 2020 baseline year.

(6)

From a 2022 baseline year. Scope 3 emissions primarily based on spend data, more weight data required to improve calculation accuracy. Target includes Scope 3 emissions

from Category 3: Fuel‑ and energy‑related activities, Category 4: Upstream transportation and distribution, Category 5: Waste generated in operations, Category 6: Business

travel and Category 7: Employee commuting.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

SUSTAINABILITY PRINCIPLE:

PRIORITISE HEALTH & SAFETY, PROMOTE DIVERSITY AND NURTURE THE WELLBEING AND SKILLS DEVELOPMENT OF

EMPLOYEES, AND SUPPORT THE COMMUNITIES THAT THEY ARE PART OF

UN SDGs

Target 3.9

Our business has a prominent position at the heart of the net zero transition and our products have a key role to

play in achieving air pollution reductions and reducing the associated health damage

Target 5.5

We promote diversity and inclusion to ensure employees’ full and effective participation and equal opportunities

at all levels

Target 8.8

We implement effective policies and procedures to drive best health and safety practices and promote fair

employment and skills development

Targets

Protect our employees

(1)

from injury and accidents and maintain an LTA

(2)

frequency rate below 0.1

Ensure that all permanent employees receive regular performance reviews

(3)

Invest £5 million on skills development per year

Maintain 40% female Board membership and at least one member of an ethnic minority background on the Board

Achieve 40% female representation in the executive committee and its direct reports by 2025

Sustainability

improvement

objectives

• Follow best health and safety practice across our operations, respect employees’ human rights and positively contribute

to their communities by implementing effective policies and procedures, supported by local management accountability

and a culture of strong awareness, training and investment

• Ensure the pension schemes are managed prudently and effectively for both employees and retirees, and where relevant

seek to create better‑funded schemes with more prudent targets under our stewardship

• Promote diversity and inclusion at all levels

• Promote fair employment and skills development

• Ensure that our people have a voice and can inform executive decisions

Material topics

• Occupational health, safety and wellbeing

• Community impact

• Diversity and equal opportunities

• Product safety and quality

• Talent and workforce engagement and development

• Respect for human rights

Relevance to

stakeholders

Regulators, contractors, suppliers, customers, communities and joint ventures

SUSTAINABILITY REVIEW

CONTINUED

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

SUSTAINABILITY PRINCIPLE:

EXERCISE ROBUST GOVERNANCE, RISK MANAGEMENT AND COMPLIANCE

UN SDGs

Target 8.7

We are committed to acting in an ethical manner with integrity and transparency and create effective systems

and controls across the Group to safeguard our business against adverse human rights impacts

Target 8.8

Protect labour rights of all workers, safeguard their contractual and statutory employment rights and the right to

participate in collective bargaining and freedom of association

Commitment

Ensure that all employees, suppliers and contractors comply with our Code of Ethics, conducting business with

integrity and in a responsible, ethical and sustainable manner

Sustainability

improvement

objectives

• Implement and enforce effective compliance policies, ensuring integrity, responsibility and adherence to ethical

principles

• Protect the ultimate wellbeing of products’ end‑users by adhering to the highest safety standards

• Respect labour and human rights and request suppliers to respect these principles

• Protect information security and data privacy

• Carry out prudent and responsible ﬁnancial and tax planning and management

• Maintain sensible and sustainable leverage to support investment

Material topics

• Business integrity

• Information Security

• Sustainable supply chain and responsible sourcing

Relevance to

stakeholders

Investors, regulators, contractors, suppliers, customers, communities and joint ventures

(1) Excluding contractors.

(2)

Lost time accidents.

(3)

Where permitted by local laws and employee representative bodies.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

SUSTAINABILITY REVIEW

CONTINUED

SUSTAINABILITY GOVERNANCE

In 2023, we further crystallised our sustainability and climate

change governance framework, which enables the delivery

of our sustainability targets and commitments for our new

integrated company. Our sustainability and climate change

governance framework illustrates how we govern the delivery

of our sustainability ambitions, including identifying, assessing

and managing sustainability and climate‑related risks and

opportunities, setting targets and managing material topics, as

overseen by the Board and committees, with the support of the

integrated multi‑function and multidisciplinary senior management

team with respective responsibilities and accountabilities.

The topics discussed with the Board throughout 2023 include

quarterly performance against the existing Melrose Group

sustainability targets, our new targets and material topics,

advancement of our climate ﬁnancial disclosures, new Transition

Plan, progress with ESG ratings, and sustainability governance

among other topics.

The Audit Committee is responsible for ensuring that the Climate

Change principal risk is integrated into Group risk management.

It is responsible for monitoring, overseeing and reviewing the

effectiveness of the Group’s risk management processes and

approach, including reviewing the Group’s principal risks which

include Climate Change risk, and considering the risks and

opportunities identiﬁed by the Melrose senior management team.

The Nomination Committee is responsible for ensuring that

Board membership and pipelines for succession planning are

suitably diverse. The Remuneration Committee is responsible for

recognising sustainability considerations in the strategic element of

the Melrose Group executive remuneration structure.

The GKN Aerospace sustainability function is responsible for

executing the Group’s sustainability priorities, inclusive of climate

change considerations. The function evaluates sustainability

performance against sustainability targets each quarter along

with the implementation status of agreed‑upon actions across the

ESG KPIs.

Group sustainability targets and commitments

pages 48 to 51

TCFD Report: climate change governance, strategy, risk

management and metrics and targets

pages 59 to 77

DELIVERING ON OUR PROMISES

Following strong performance against existing targets and

commitments made, further actions being taken include:

In line with our commitment relating to the setting of

science‑based emissions targets by our businesses,

GKN Aerospace has successfully submitted its application

to SBTi for validation.

We have further advanced our sustainability data

management and reporting tools to track quarterly

performance against our targets which has helped to

bolster regular engagement and focus action planning.

We have increased our Diversity and Inclusion target to

maintain 40% female representation across the Board and

to achieve 40% female representation at Melrose Executive

Committee level and direct reports.

Continuing to evolve the Group’s understanding and

assessment of biodiversity factors prior to the ofﬁcial

release of a global Taskforce on Nature‑Related Financial

Disclosures (“TNFD”) framework. Speciﬁcally, we have

continued to assess our sites’ exposure to water risks

in their locations and started the analysis of associated

biodiversity risks.

Continuing to evolve the Group’s TCFD disclosures, with

increased linkages to quantitative data within the Annual

Report and ﬁnancial statements where relevant and

appropriate.

Continuing to engage with our suppliers with a view to

expanding our Scope 3 data reporting to ensure we are

well positioned to achieve our Scope 3 SBTi target for

engagement with our supply chain.

As part of the renewal of the Company’s Directors’

remuneration policy in 2023, we have integrated ESG

metrics into executive remuneration as a standalone

element of the annual bonus.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

SUSTAINABILITY AND CLIMATE CHANGE GOVERNANCE FRAMEWORK

FUNCTIONS (STANDARDS & COMPLIANCE)

CTO/ESG

HSE

CFO

Legal & CoSec

Quality

Primary

focus

• ESG Sustainability

Function leadership

• ESG integration,

governance and

compliance

• Sustainable R&D

investment.

• Sustainable

products

• Supply chain ESG

integration (Scope

2 and 3 emissions)

• Water stewardship

• Health & Safety

• Environmental

compliance (ISO’s,

water, waste, air,

nuisance etc)

• HSE Auditing

• Waste

management

• Financial resilience

and controls

• TCFD ﬁnancial risks

• Information security

• IT energy efﬁciency

• Ethics and

compliance

• Board & committee

oversight

• Diversity & inclusion

• Engagement

• Education, training

& skills

• Human rights

• Product Safety:

Escape prevention

• SMS – Safety

Management System*

• Global Quality

standards

• Quality culture training

and awareness

Wider

scope

• ESG external

engagement

• Technical

community

leadership

• Strategy &

portfolio

• Innovation & IP

• Site energy

efﬁciency best

practice

• Biodiversity

• Data, systems

& reporting

• Listing rules

• Wellbeing

• Attrition/retention

• Community

outreach

• Fair employment

• Trade union

engagement

• Assurance and

compliance

CTO / ESG SUSTAINABILITY FUNCTION

• A focused central team responsible for cross‑functional integration, coordination and

governance of all ESG activities.

• Leads materiality assessments, climate scenario analysis, sustainability & climate risk

assessment.

• Responsible for Group Transition Plan creation and execution.

• Proposes key strategic ESG priorities for SMT and Board approval & incorporation

into strategy.

• Responsible for governance of ESG data, quarterly performance, internal and

external assurance and audit, and annual reporting and disclosures.

• Responsible for SBTi targets, plans & reporting.

• Engagement with ESG ratings agencies, advisors and shareholders on sustainability

and climate topics.

• Responsible for compliance with public company ESG obligations & regulatory

requirements.

• Coordinates supply chain programme and initiatives.

• Identiﬁcation, assessment and management of sustainability risk and opportunities

into risk process.

• Monitoring and integration of ESG initiatives towards sustainability targets and

commitments.

BUSINESS LINE (EXECUTION)

• Lead the Divisional Business Lines, providing one face to customers and

suppliers, with complete ownership from customer demand management, through

procurement, supplier management, operations, and customer delivery.

• Responsible for keeping our people safe and delivery of safe products to our

customers.

• Responsible for the development and execution of strategy in line with Board

approved ESG targets and market & customer needs.

• Responsible for the performance of operational sites and suppliers including

execution of plans, performance and reporting in line with ESG goals.

• Responsible for integration, cascade and compliance with all regulatory, customer

and internal standards and policies.

• Responsible for effective management of risk, including risk related to ESG topics

and maintaining business continuity.

MELROSE BOARD OF DIRECTORS

Has oversight responsibility of Group sustainability strategy, including climate‑related risks and opportunities and is supported by the senior management team

AUDIT

COMMITTEE

• Meets at least three times a year

• Responsible for monitoring, overseeing and reviewing the effectiveness of the Group’s

risk management processes and approach, including reviewing the Group’s principal

risks which include climate change risk, and considering the risks and opportunities

identiﬁed by the Melrose senior management team

• Reviews and monitors the integrity of the Group ﬁnancial statements, control systems

and compliance controls, which over time shall integrate sustainability related ﬁnancial

information more closely, incl. in relation to climate change

• High‑level visibility of key divisional risks, which may include sustainability or climate

change related risks, following a review of the divisional risk registers by the senior

management team

REMUNERATION

COMMITTEE

• Meets at least twice a year

• Responsible for setting executive

remuneration policy and

integrating sustainability into the

executive remuneration structure

• Addresses sustainability progress

as part of the Annual Bonus Plan

NOMINATION

COMMITTEE

• Meets at least twice a year

• Responsible for ensuring the

membership of the Board and the

pipeline for succession planning

purposes reﬂects diversity

DIVISIONAL SUSTAINABILITY TEAMS

• Delivery of operational ESG initiatives towards fulﬁlling sustainability targets and

commitments in line with the divisional management, business plans and strategy

• Responsible for the management of climate‑related risk assessment and implementing

mitigation actions where necessary

• Implementing actions for adapting to changing customer preferences, divisional

markets’ demands and regulatory requirements for sustainability and climate topics

• Helping to identify sustainability matters, including climate change risks and

opportunities, and relay information to the sustainability function

• Monitoring of performance against sustainability targets at a granular level

SENIOR MANAGEMENT TEAM

• Cross‑functional team, including Group corporate, HR,

ﬁnance, legal, and sustainability (under CTO)

• Responsible for overseeing sustainability strategy incl.

climate change considerations

• Oversees quarterly divisional climate performance reporting

against business KPIs and targets

• Identiﬁes, assesses and prioritises climate risks

and opportunities

• Advises the Board and Committees on governance and

regulatory requirements, incl. on climate change

COMPANY SECRETARIAT

Workforce

advisory panel

Responsible for

promoting the views

and the interests of

the workforce

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

UN SDGs

MATERIAL TOPICS

•

Circularity and waste reduction

•

Water stewardship

• Biodiversity

• Pollution

SUSTAINABILITY REVIEW

CONTINUED

GKN Aerospace performs

a key role in achieving its

climate goals through a number

of UK, EU and US industry bodies

alongside its portfolio of innovative

decarbonising R&D projects, to ensure

that the plan for Net Zero can be met

despite projected passenger growth.”

ENVIRONMENTAL IMPACT

Our strategic sustainability priority is to

respect and protect the environment.

We do so by working to avoid harmful

impact on the air, water and soil as far as

reasonably possible.

Our approach to environmental protection is twofold. Firstly,

we seek to reduce the environmental impact of our operations

through robust and ambitious sustainability targets. Secondly,

we seek to help our customers address their environmental

impact and to contribute to the decarbonisation of aerospace.

Our Group environmental policy, as approved by the Board,

demonstrates our commitment towards driving sustainable

production methods and infrastructure, and minimising the

potential negative impact we may have on the environment

over the longer term. The policy, which applies to all

individuals working across our business, can be found on

our website at https://www.melroseplc.net/governance/

documents‑and‑policies/.

No material environmental ﬁnes or penalties were issued against

any of the businesses in 2023 or in the previous four years.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

UN SDGs

MATERIAL TOPICS

•

Climate change: mitigation and adaptation

•

Sustainable supply chain and responsible sourcing

• R&D for sustainable aviation

ENABLING A SUSTAINABLE TRANSITION

TO NET ZERO

TRANSITION PLAN

In 2023, we developed our updated Transition Plan to provide our

stakeholders with clarity around the actions we intend to take to

achieve our short and medium‑term emissions reduction targets

to reach net zero GHG emissions across the value chain by 2050,

and how we plan to contribute to reducing the climate impact of

aerospace. Our Transition Plan outlines our objectives, priorities,

detailed plans, and projects to reach our science‑based emissions

reduction targets

(1)

, which have been submitted to the Science Based

Targets initiative (“SBTi”) for validation. Progress against these targets

will be reported annually in our Annual and Sustainability Reports and

within our CDP Climate Change responses as applicable.

Opportunity for change

The major manufacturers in the aerospace sector need to collaborate

with all parts of the supply chain to innovate and deliver solutions

that accelerate the path to Net Zero. The size of the challenge cannot

be overestimated and requires a two‑pronged approach whereby

manufacturers need to ﬁnd a way to scale up current production

levels in a sustainable manner, while developing the aircraft of the

future that will eliminate the climate impact of aviation from the top

down. Central to tackling this challenge successfully, is not only

industry‑wide collaboration given the hugely complex aerospace

supply chains, but also cumulative support delivered through

cross‑sector partnerships, investment in renewable energy sources,

and enabling the required infrastructure.

As set out in the Sustainable Aviation Roadmap, the UK Government

has committed to achieving net zero carbon emissions by 2050,

reducing net CO

e output from around 39 million tonnes to zero

whilst still growing UK aviation by 78%. This will require improvements

in aircraft and engine efﬁciency, improved aircraft ﬂight management,

the use of sustainable aviation fuels and investment in innovative

alternative energy solutions to address residual emissions. With

its market‑leading positions driven by technological innovation,

advanced processes and engineering excellence that help aircraft

ﬂy safely and more sustainably, GKN Aerospace’s operational

excellence, high‑volume production and smart industry capabilities

are now driving the global development towards lower energy

consumption, reduced material waste and higher performance,

resulting in shorter production lead times and more affordability for

its global customers.

Roadmap for achieving emissions reduction targets

page 78

Melrose Transition Plan

https://www.melroseplc.net/sustainability/data‑centre/

Strategic ambition

GKN Aerospace performs a key role in achieving this goal through

a number of UK, EU and US industry bodies alongside its portfolio

of innovative sustainable R&D projects, to ensure that the plan

for Net Zero can be met despite projected passenger growth.

GKN Aerospace is driving signiﬁcant progress to support the net

zero agenda through decarbonising our own operations and driving

impact throughout the value chain. Please see pages 59 to 77 of our

TCFD report to read more about our targets and commitments, and

the roadmap for achieving them.

(1) Scope 1 and 2 targets are aligned with the ambition and emissions reduction trajectory

required to curb global temperature rise to 1.5ºC. Scope 3 target is aligned with the

carbon emission reductions needed to curb global temperature rise to well below 2ºC

and is a signiﬁcant step towards our net zero ambition by 2050.

FROM IMPROVING EFFICIENCY THROUGH

TO CUTTING EDGE TRANSFORMATIONAL

SOLUTIONS, OUR TECHNOLOGIES AND

PRODUCTS AIM TO ENABLE THE AVIATION’S

JOURNEY TO NET ZERO.

COLLABORATION AND INVESTMENT MUST

LOOK BEYOND NEW TECHNOLOGIES AND

PRODUCTS. CRITICAL TO SUCCESS WILL BE

ENSURING THAT REGULATORY FRAMEWORKS

AND ECONOMIC POLICIES ENABLE THE MOST

ENVIRONMENTALLY SUSTAINABLE SOLUTIONS

TO ALSO BE ECONOMICALLY VIABLE.

MELROSE INDUSTRIES PLC

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CONTINUED

Industry leadership

From improving efﬁciency through to cutting edge transformational

solutions, our technologies and products aim to enable aviation’s

journey to Net Zero. However, collaboration and investment must

look beyond new technologies and products. Critical to success

will be ensuring that regulatory frameworks and economic policies

enable the most environmentally sustainable solutions to also be

economically viable. Participation in major aerospace sustainability

think tanks, councils, regulatory bodies and collaboration forums,

aims to leverage our focus on sustainability for much greater

impact.

GKN Aerospace is an active player in the leading industry and

collaboration platforms, which places it at the forefront of the latest

breakthrough aerospace trends in both R&D and sustainability.

Set out below are some examples of the way we engage with the

industry globally and across the countries where we operate.

• GKN Aerospace is a signatory to the Joint Declaration of

European Aviation Stakeholders related to Clean Aviation in

Horizon Europe, committing to a European Partnership towards

achieving the goals of the Paris Agreement.

• Within the UK, it also works within the Jet Zero Council, the

Aerospace Technology Institute, the Hydrogen in Aviation

alliance, and the Aerospace Growth Partnership, where

GKN Aerospace plays a key role in developing the policy to

support aviation’s transition to Net Zero.

• In Engines, GKN Aerospace’s Permanova business continued

to support business growth while transforming its supply chain

by offering material solutions that are more sustainable than the

current alternatives available on the market. It is expected to

achieve signiﬁcant savings in emissions through the expansion

of lightweight and much higher buy‑to‑ﬂy product offerings. The

ﬁrst product using Permanova base material will be a fabricated

fan case mount ring for Pratt & Whitney, saving an estimated

1.5 tonnes of CO

e per unit produced.

• GKN Aerospace’s Engines division is also the only partner

in both of today’s sustainable future civil engine technology

development programmes: the SWITCH consortium – alongside

Pratt & Whitney, Airbus, MTU and Collins Aerospace – to

develop the next‑generation of GTF engine, and the CFM RISE

programme.

• Within the Structures division, development work continued as

a key partner with Airbus on the Wing of Tomorrow project. The

project, funded by the UK Aerospace Technology Institute, aims

to provide technologies for a composite single‑aisle wing to

improve aerodynamic performance and reduce CO

emissions.

The technology deployed sees a move away from traditional,

pre‑impregnated resin material to dry composite ﬁbres that are

injected with thermoset resin co‑cured within a highly controlled

out‑of‑autoclave manufacturing process. This enables overall

weight reduction, whilst reducing manufacturing process steps

and signiﬁcantly reducing energy consumption.

• The Wing of Tomorrow programme has also enabled the

testing of more sustainable out‑of‑autoclave thermoplastic

production processes. Initial tests have demonstrated signiﬁcant

environmental beneﬁts, including an 80% lower production time

compared to conventional autoclave technology, as well as an

80% decrease in energy use and therefore emissions.

• 2023 also saw GKN Aerospace lead the Clean Sky 2 STUNNING

programme to successfully manufacture one of the world’s largest

thermoplastic components – an 8m x 4m half‑fuselage made

from novel thermoplastic manufacturing and joining technologies.

These will help enable the performance beneﬁts of composites

to be deployed with reduced manufacturing emissions, whilst

also improving resilience and material recyclability. The project

was part of the Multi‑Functional Fuselage Demonstrator, led by

Airbus, which aims to reduce fuselage weight by 1 tonne (10%),

substantially reducing in‑ﬂight emissions.

• GKN Aerospace was among the ﬁrst companies to sign up to

the UK’s new Defence Aviation Net Zero Strategy, which serves

as a comprehensive roadmap to achieve carbon neutrality in the

aviation domain. GKN Aerospace joined key customers and OEMs

in supporting the strategy and was the only Tier 1 supplier to

• GKN Aerospace has taken a sustainability leadership role in the

defence markets, including working with Saab and other partners

to support the use of Sustainable Aviation Fuels within the Gripen

RM12 engine. Biofuels have been proven to be interchangeable

within the engine, with tests showing excellent results so far.

GKN Aerospace also supported Bell on the ﬁrst ever 100% SAF

single engine helicopter ﬂight.

• In the rapidly developing advanced air mobility sector,

GKN Aerospace signed a series of design‑and‑build production

contracts with emerging companies in 2023, including Lilium,

Supernal and Joby. These relationships combine with existing

partnerships – such as with Eviation and Vertical – to accelerate

the future of battery‑electric‑powered, zero emission ﬂight.

• In the same sector, GKN Aerospace partnered with Pratt &

Whitney Canada on its hybrid‑electric ﬂight demonstrator project

in which it will develop, construct and install the electrical wiring

interconnection system for the demonstrator, targeting a 30%

improvement in fuel efﬁciency and reduced CO

emissions

compared to today’s most advanced regional turboprop aircraft.

• Enabled by the Future Flight Challenge for Innovate UK,

GKN Aerospace delivered its ﬁrst ground‑based demonstrator of a

liquid hydrogen aircraft fuel system. The test helped develop new

understanding to support safe system design, manufacturing and

operational knowledge for liquid hydrogen fuel systems.

• Work continued under the £54m H2GEAR programme to develop

technology for zero emissions hydrogen‑powered aircraft. The

programme is on track to ground test a scalable hydrogen‑electric

fuel cell propulsion system in 2025. A memorandum of

understanding with Marshall and Parker Aerospace will expand

GKN Aerospace hydrogen system capability to liquid hydrogen fuel

systems for zero emission aircraft, whilst a further collaboration

with Embraer aims to accelerate the implementation of hydrogen

technologies and pave the way for a potential ﬂight demonstrator.

• GKN Aerospace also turned its hydrogen leadership towards

defence, partnering with Swift Aircraft to develop design concepts

for zero emission light aircraft. Light aircraft are essential for

training military pilots, and the RAF’s net zero 2040 programme

has made a future ﬂeet of sustainable military training aircraft a key

priority.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

GKN Aerospace is an active

player in the leading industry

and collaboration platforms,

which places it at the forefront

of the latest breakthrough

aerospace trends in both

R&D and sustainability.”

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

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CONTINUED

TCFD AND CFD

COMPLIANCE

For clarity around compliance of the following information with the TCFD framework, the TCFD All Sector Guidance and Supplemental

Guidance for Non‑Financial Groups

(1)

and the requirements arising from Listing Rule 9.8.6R(8), we consider our disclosure to be consistent

with all TCFD recommendations and recommended disclosures and with the climate‑related ﬁnancial disclosure requirements under

the Companies (Strategic Report) (Climate‑related Financial Disclosure) Regulations 2022, as shown in the TCFD cross‑reference and

disclosure consistency summary below.

Recommendation

Recommended disclosures

Page

Governance

Disclose the organisation’s governance around

climate‑related risks and opportunities

a) Describe the Board’s oversight of climate‑related risks and opportunities

b) Describe management’s role in assessing and managing climate‑related risks and

opportunities

Strategy

Disclose the actual and potential impacts of

climate‑related risks and opportunities on the

organisation’s businesses, strategy, and ﬁnancial

planning where such information is material

a) Describe the climate‑related risks and opportunities the organisation has identiﬁed over the

short, medium, and long term

b) Describe the impact of climate‑related risks and opportunities on the organisation’s

businesses, strategy, and ﬁnancial planning

c) Describe the resilience of the organisation’s strategy, taking into consideration different

climate‑related scenarios, including a 2°C or lower scenario

Risk Management

Disclose how the organisation identiﬁes, assesses,

and manages climate‑related risks

a) Describe the organisation’s processes for identifying and assessing climate‑related risks

b) Describe the organisation’s processes for managing climate‑related risks

c) Describe how processes for identifying, assessing, and managing climate‑related risks are

integrated into the organisation’s overall risk management

Metrics and Targets

Disclose the metrics and targets used to assess

and manage relevant climate‑related risks and

opportunities where such information is material

a) Disclose the metrics used by the organisation to assess climate‑related risks and

opportunities in line with its strategy and risk management process

b) Disclose Scope 1, Scope 2, and if appropriate, Scope 3 GHG emissions, and the related risks

c) Describe the targets used by the organisation to manage climate‑related risks and

opportunities and performance against targets

(1) https://assets.bbhub.io/company/sites/60/2021/07/2021‑TCFD‑Implementing_Guidance.pdf.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

GOVERNANCE

Describe the Board’s oversight of climate‑related

risks and opportunities.

Describe management’s role in assessing and

managing climate‑related risks and opportunities.

Board oversight of climate change

The Melrose Board of Directors, supported by the Melrose senior

management team as informed by the GKN Aerospace sustainability

function, has oversight of and ultimate responsibility for Melrose’s

sustainability strategy (including climate change), targets, disclosures,

and reporting. The Board assesses climate‑related risks and

opportunities among other sustainability and environmental material

topics and monitors performance against targets. Climate‑related

opportunities, such as investment in signiﬁcant projects, are

presented to the Board for sign‑off where appropriate. The Board

also oversees our alignment with the TCFD recommendations,

compliance with the Climate‑related Financial Disclosure (“CFD”), and

our sustainability and climate commitments and disclosures.

The Board receives annual training and regular updates on key

sustainability and climate‑related matters that impact Melrose

and the GKN Aerospace divisions, and on the speciﬁc measures

that need to be implemented to improve performance. The Board

regularly considers climate‑related matters when reviewing and

guiding strategy and overseeing its implementation through oversight

of divisional ﬁnancial and operational performance and quarterly

Board meetings.

Progress in improving climate‑related matters is monitored by the

GKN sustainability function and reported to the Melrose senior

management team, for the Board’s onward review, challenge

and discussion where required. This includes the tracking of

company sustainability and climate targets, and key metrics such

as year‑on‑year reduction in emissions, increase in spend on R&D

programmes focused on decarbonisation, the number of new

products contributing to the decarbonisation of aerospace and other

innovation programmes.

The Audit Committee updates the Board on climate risk management

by monitoring and reviewing the effectiveness of the risk

management processes, including the review of our principal risks

of which Climate Change risk is one. The Remuneration Committee

implements the Company’s Directors’ remuneration policy (“Directors’

Remuneration Policy”) and as part of the renewal of the Company’s

Directors’ Remuneration Policy in 2023, we have integrated ESG

metrics into executive remuneration as a standalone element of

the annual bonus. Please see the Directors’ Remuneration report

on pages 128 to 152 for more details. Oversight of sustainability

and climate‑related matters is integrated across our Board and its

Committees as outlined in the sustainability and climate change

governance framework on page 53.

Directors’ Remuneration report

pages 128 to 152

Sustainability and climate change governance

framework

page 53

Management oversight of climate change

The GKN Aerospace sustainability function plays a key role

in escalating material sustainability and climate risks and

opportunities to the Melrose senior management team, who ensure

the implications of these are considered within the Board’s agenda,

governance framework, business strategy and where relevant,

ﬁnancial plans, to address climate‑related risks and pursue

opportunities. The sustainability function meets with relevant

members of the executive team on a quarterly basis to track the

climate‑related risks and opportunities register. More information

on how we determine the materiality of climate‑related risks, and

their ﬁnancial impact can be found in the Strategy b) section on

page 59.

The GKN Aerospace sustainability function is responsible for the

identiﬁcation, design, implementation, monitoring and continuous

evolution of improvement actions and performance towards

achieving our climate targets, and incorporation of the TCFD and

CFD recommendations to improve our disclosures.

Climate‑related risks and opportunities are discussed regularly

within GKN Aerospace and in decision‑making that relates

to setting strategy to mitigate identiﬁed risks or capitalise on

opportunities. Where relevant, the Melrose senior management

team engages with the business line senior management

teams when reviewing and guiding strategy, which can include

the approval of major capital expenditure. This engagement

includes the identiﬁcation and monitoring of sustainability and

climate‑focused improvement plans, performance against climate

targets, management of climate risks and climate reporting

alongside ﬁnancial and operational metrics, the reviews of which

are embedded in a structure of business reviews cascaded

through the business. The GKN Aerospace sustainability function

engages with the respective business line senior management

teams to guide focus, review progress and identify synergistic

opportunities. The GKN Aerospace sustainability function is

responsible for coordinating key stakeholders across the business

to ensure that required controls are in place for appropriate

risk mitigation and management, and that the assessment and

management of sustainability and climate‑related risks and

opportunities are integrated across the business. Management

of sustainability and climate‑related matters is integrated across

executive levels as outlined in the sustainability and climate change

governance framework on page 53.

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RISK MANAGEMENT

Describe the organisation’s processes for identifying and

assessing climate‑related risks.

Describe the organisation’s processes for managing

climate‑related risks.

Describe how processes for identifying, assessing and

managing climate‑related risks are integrated into the

organisation’s overall risk management.

Identifying and assessing risk

As a principal risk, Climate Change risk undergoes continuous

assessment through the established Melrose risk management

processes of identiﬁcation, evaluation, mitigation, analysis, review

and monitoring, as is the case with other principal risks. For further

details on our approach to assessing principal risks, please see

the Risk Management and Risks section of the Strategic Report on

pages 28 to 36. To account for the change of structure within the

organisation, we have carried out a new climate scenario analysis

to ensure that the speciﬁc climate‑related risks and opportunities

identiﬁed by the Company are aligned with the aerospace industry.

Speciﬁc climate‑related risks and opportunities have been

identiﬁed at subsidiary level (GKN Aerospace) and are reported up

to the Group level to inform the assessment of the Climate Change

principal risk. The climate scenario analysis will be renewed at

least every three years to ensure the most up‑to‑date and relevant

information on our exposure to risks and mitigation opportunities.

This year, we have recalibrated our initial 2021 climate scenario

assessment of climate‑related risks and opportunities to focus on

the aerospace sector. Climate risks and opportunities were identiﬁed

through a comprehensive assessment conducted with the assistance

of third‑party consultants. This assessment involved a combination

of interviews with key stakeholders, including several internal

functions and rigorous desktop research. Two separate climate

risk assessments have been carried out to reﬂect the differences

in physical and transition risks and opportunities. Both these risk

assessments included a company‑wide review of operations,

customers, supply chain and how this could impact revenue, assets

and other costs. The analysis combined horizon scanning of external

industry and wider macroeconomic aspects of climate risks, as well

as engagement with internal business functions, including but not

limited to R&D, procurement, operations, customers and products

function, senior management, risk, ﬁnance and sustainability teams

across GKN Aerospace’s business lines of engines and structures,

and at Melrose level. Risks and opportunities have been prioritised to

determine which have a material ﬁnancial impact on the organisation

using both likelihood (the probability of the risk occurring) and impact

(the ﬁnancial and reputational outcome of the risk occurring), resulting

in a combined risk register with a low‑, moderate‑ or high‑risk rating

for each time horizon and scenario. The summary of identiﬁed

risks and opportunities outlines the risk and opportunity exposure,

the timeframe to which the impact of the risk and opportunities

will manifest, and also which scenario is likely to have the greater

likelihood of impact.

Melrose risk assessment criteria

1 Rare

2 Unlikely

3 Possible

4 Likely

5 Almost certain

Likelihood

Highly unlikely, but

the risk event may

occur in exceptional

circumstances. The

risk event could

happen, but probably

never will.

Not expected, but

there's a slight

possibility the risk

event may occur at

some time.

The risk event might

occur at some time

as there is a history of

casual occurrence.

There is a strong

possibility the risk

event will occur as

there is a history of

frequent occurrence.

The risk event is

expected to occur in

most circumstances

as there is a history of

regular occurrence.

1 Minimal

2 Low

3 Medium

4 High

5 Very high

Impact

Inconvenience, but

not impact on ability to

achieve objectives.

Disruption to activities

but limited to the

immediate term. No

longer‑term impact

on ability to achieve

objectives.

Considerable issue

but short term.

Only relatively minor

concern about

longer‑term business

prospects.

Signiﬁcant impact.

Casts signiﬁcant

doubt on the ability to

meet objectives and

places the future of the

business in peril.

Failure of the business.

Unable to achieve

corporate objectives.

Regulator is aware, but

no impact. ‘Slap on the

wrist’. Not in the public

domain.

Small ﬁnes or written

warnings. Customers

aware.

Large ﬁnes and written

judgements. Public

awareness but limited

long‑term impact on

reputation.

Signiﬁcant adverse

regulatory judgement

and/or ﬁnes. National

press coverage and

signiﬁcantly tarnished

reputation.

Loss of licence or

ability to operate. Very

signiﬁcant ﬁnes or

criminal proceedings.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

The Melrose senior management team oversees the identiﬁcation

of climate‑related risks and opportunities with the support of

GKN Aerospace sustainability function, who identify, monitor, and

manage the speciﬁc risks relevant to the GKN Aerospace business

lines’ operating activities and ensure that required controls are in

place for appropriate mitigation and management. The identiﬁcation

and assessment of climate‑related risks and opportunities also

includes horizon scanning as part of our key positions in inﬂuential

industry bodies such as Jet Zero Council in order to monitor key

developments and risks, and to engage with policy makers to

mitigate their impact on the business. We also rely on the support of

advisors where appropriate, who contribute to the awareness and

analysis of climate‑related risks and opportunities that are relevant to

the Company. By engaging in this multifaceted approach, we gained

valuable insights into the potential risks associated with climate

change, as well as the opportunities that might emerge in the context

of emerging regulatory landscapes.

Climate‑related risks were assessed alongside climate‑related

opportunities, based on the same criteria that was used to determine

and rate the divisional‑level risks and their relative signiﬁcance in

comparison to other non‑climate‑related risks. This allowed for their

integration into the overall risk management framework. Our risks

were ranked on a ﬁve‑point scale for both likelihood (the probability of

the risk occurring) and impact (the ﬁnancial and reputational outcome

of the risk occurring), resulting in a combined risk register with a low‑,

moderate‑ or high‑risk rating for each time horizon and scenario.

The likelihood and impact criteria allow the materiality of risks to

be determined as deﬁned in the table on page 60, meaning that

GKN Aerospace can prioritise the management of the most material

risks (those of high and very high impact) by allocating appropriate

resources to it.

Identiﬁed climate‑related transition and physical risks

pages 64 to 71

Management of risk

The GKN Aerospace sustainability function is responsible for regularly

reviewing and considering the levels of signiﬁcant climate‑related risks,

their impact on business strategy and the effectiveness of management

and mitigation controls. The decision to tolerate, transfer or treat a risk

is partially determined by the risk impact and likelihood criteria. Risks

with higher scores will need to be managed appropriately to bring

the risk impact back in line with an appropriate risk appetite. Action

plans are developed for higher scoring risks which detail existing

controls and descriptions of response actions needed to mitigate

the risk. Responsibility for speciﬁc risks is also assigned to ensure

appropriate implementation and management. For more information

on how we manage each identiﬁed climate‑related risk, please refer to

pages 64 to 71.

Integrating climate into existing risk management

Due to the increased frequency of extreme weather and

climate‑related disasters, coupled with tightening legislation and

regulations, Climate Change has been identiﬁed as a standalone

principal risk since 2021 and is incorporated into Melrose’s overall

risk management processes. The Climate Change principal

risk comprises a combination of transition and physical risks as

identiﬁed in our climate scenario analysis on pages 63 to 71. These

risks undergo reassessment every year by the GKN Aerospace

divisional management teams to determine the risk trend, impact

and likelihood. The transition and physical climate risks are then

presented to the Audit Committee for consideration alongside

the other principal risks on a biannual basis in the form of reports

prepared by the Melrose senior management team. The Chairman

of the Audit Committee updates the Board to inform the Board’s

review, challenge and setting of Melrose’s appetite for each

principal risk including Climate Change. The Board’s assessment

of each of the principal risks and their management, are disclosed

on pages 31 to 36 of the Strategic Report which shows the relative

signiﬁcance of climate‑related risks compared to other principal

risks. The output from the climate change risks assessment is

considered in our strategic business planning as relevant.

Risks and uncertainties

pages 31 to 36

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CONTINUED

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGY

Describe climate‑related risks and opportunities the

organisation has identiﬁed over the short, medium

and long term.

Describe the impact of climate‑related risks and

opportunities on the organisation’s businesses,

strategy and ﬁnancial planning.

Describe the resilience of the organisation’s strategy,

taking into consideration different climate‑related

scenarios, including a 2°C or lower scenario.

Melrose’s commitment to net zero emissions by 2050 and to manage

emerging risks associated with extreme weather, pose physical and

transitional risks as well as opportunities. The roadmap for achieving our

targets through operational decarbonisation, products and services and

engagement with our value chain, and the approach for addressing our

risks and opportunities are detailed in our Transition Plan.

This year, we have recalibrated our initial 2021 climate scenario

assessment of climate‑related risks and opportunities to focus on the

aerospace sector. Two separate climate risk assessments have been

carried out to reﬂect the differences in physical and transition risks and

opportunities. Both these risk assessments included a company‑wide

review of operations, customers, supply chain and how this could

impact revenue, assets and other costs. The analysis combined

horizon scanning of external industry and wider macroeconomic

aspects of climate risks, as well as engagement with internal business

functions, including but not limited to R&D, procurement, operations,

customers & products function, senior management, risk, ﬁnance

and sustainability teams across GKN Aerospace’s business lines of

engines and structures, and at Melrose level. Risks and opportunities

have been prioritised to determine which have a material ﬁnancial

impact on the organisation using both likelihood (the probability of the

risk occurring) and impact (the ﬁnancial and reputational outcome of

the risk occurring), resulting in a combined risk register with a low‑,

moderate‑ or high‑risk rating for each time horizon and scenario. The

summary of identiﬁed risks and opportunities outlines the risk and

opportunity exposure, the timeframe to which the impact of the

risk and opportunities will manifest, and also which scenario is

likely to have the greater likelihood of impact.

In aggregate, we conclude that our overall climate risk exposure

is moderate, and our business is ﬁnancially and operationally

resilient and strategically robust to climate risks in the immediate

term within the bounds of our “business‑as‑usual” operations,

considering that many of the risks are already being addressed

through existing or planned mitigation or adaptation activities

and provisions. In addition, signiﬁcant focus and investment,

such as our R&D programmes, is ongoing to support realisation

of a number of related climate‑related business opportunities.

TRANSITION RISKS AND OPPORTUNITIES

The speed at which the economy decarbonises will determine

the severity and impact of climate transition risks, as well as the

ability to capitalise on the opportunities related to the transition to

a low‑carbon economy. The TCFD framework deﬁnes transition

risks in four categories (Policy and Legal, Market, Technology,

and Reputation) and transition opportunities in ﬁve categories

(Resource Efﬁciency, Energy Source, Products & Services,

Markets and Resilience). As part of our transitional scenario

analysis, we considered risks and opportunities within these nine

categories and ranked them on their impact and likelihood to

Melrose. Several other risks and opportunities were considered

and analysed but only the most material have been disclosed. The

assessment of risks and opportunities was carried out at a gross

level, meaning the impacts of the risks and opportunities assumed

no mitigating actions are already in place.

To understand our business resilience to future climate scenarios, in

line with the TCFD guidance, we used International Energy Agency’s

(“IEA”)

(1)

Net Zero Emissions by 2050 Scenario (“NZE”)

(2)

and Stated

Policies (“STEPS”)

(3)

climate scenarios to model transition risks

and opportunities, and the Intergovernmental Panel on Climate

Change (“IPCC”) framework recommended scenarios. The climate

scenarios we use are kept under review to ensure they remain

viable, plausible and stretching.

In our assessment, we considered the short‑, medium‑ and

long‑term impacts of climate change when examining the

identiﬁed transition climate‑related risks (and opportunities) and

their actual and potential business impacts (including on strategy

and ﬁnancial planning). Three time horizons were used to identify

and assess speciﬁc transitional climate‑related issues. These time

horizons allowed us to consider the lifespan of our assets and

infrastructure as well as any longer‑term regulatory changes.

Time horizons

Rationale

Short

2023–2025

In line with short‑term speciﬁc business planning.

Medium

2025–2030

Encompasses Melrose’s near‑term emission targets.

Long

2030–2050

Encompasses Melrose and the UK Government’s Net Zero by 2050 target and other long‑term policy trends.

(1)

IEA (2022), Global Energy and Climate Model, IEA, Paris https://www.iea.org/reports/global‑energy‑and‑climate‑model.

(2)

NZE outlies a pathway for the global energy sector to achieve net zero CO

emissions by 2050, which limits the global temperature rises to 1.5°C by 2100, with 50% probability. This

scenario is included as it informs decarbonisation pathways used by the SBTi.

(3)

STEPS outlines a combination of physical and transition risk impacts as temperatures rise by 2.5°C by 2100, with 50% probability. This scenario is included as it represents a midway

path with the trajectory implied by today’s policy settings.

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CONTINUED

Transition Risks

Risk type

Description

Mitigation

KPIs

(1)

EXPOSURE TO CARBON PRICING MECHANISMS

Policy

& Legal

Increased operational exposure to carbon pricing mechanisms such

as the ReFuel EU, EU Emissions Trading System, and CORSIA.

Additionally, the impact will be felt in our value chain through the EU

and upcoming UK Carbon Border Adjustment Mechanisms (“CBAM”)

applied through raw materials, such as aluminium, imported into

our EU operations. The impact is likely to be felt through potential

increases in airline ticketing prices and increased cost of raw

materials from suppliers. The ultimate impact of increased prices is

a dampening of growth in air trafﬁc, leading to a reduction in future

potential sales. Over time the adoption of carbon pricing instruments

will increase, driving the price levels of all carbon pricing systems

and therefore the overall risk exposure. NZE scenario predicts an

increased number and ambition of carbon pricing mechanisms,

meaning a higher exposure than in STEPS.

• GKN Aerospace’s supplier engagement target

which will reduce exposure to carbon pricing in

our value chain.

•

GKN Aerospace’s SBTi submission and Net Zero

Transition Plan sets out ways in which we will

decarbonise our operations and supply chain,

reducing our emissions and therefore reducing

our exposure to carbon pricing mechanisms.

•

GKN Aerospace monitors exposure to potential

future carbon price increases through the IEA

World Energy Outlooks carbon prices.

•

GKN Aerospace is an active member of the IAEG

and receives regular updates through a newsletter

on global environmental and chemical regulations,

policies, and standards that is shared with key

stakeholders.

Scope 1, 2 and 3

emissions

Carbon pricing

market signals

Potential impact

Risk exposure

Timeframe

Scenario sensitivity

Short 2023–2025

Medium 2025–2030

Long 2030–2050

NZE

STEPS

Higher

costs

High

REGULATORY CHANGES TO FLIGHT TIME AND ROUTES

Policy

& Legal

The risk of an increased number of regulations that prohibit short

haul ﬂights could impact the number of conventional aircraft and

components for conventional aircraft that are sold. NZE scenario

assumes more ambitious sustainable aviation regulations, that could

reduce certain ﬂight routes, are brought in indicating a higher risk

exposure than under STEPS. The regulatory changes transition risk

affects domestic travel directly, while individual country policies can

also have an indirect effect on international air travel.

•

R&D investment in low carbon technologies such

as battery electric and hydrogen can provide

us with avenues to offset potential losses from

conventionally powered aircrafts e.g., H2GEAR

programme. GKN Aerospace is the leader in a

major £54m technology programme, H2GEAR,

to develop core capabilities in electrical power

generation and cryogenic electrical distribution

and motors in ﬁve years. H2GEAR aims to deliver

a ground‑based demonstration of a system

capable of delivering 1MW of power, sufﬁcient

to support sub‑regional aircraft and with the

potential to be scaled to regional aircraft of up to

100 seats.

•

Melrose’s targets for decarbonising R&D and

new products contributing to the decarbonisation

of aerospace drive continued investment and

efforts to become the most sustainable partner in

the sky.

•

Membership in industry bodies such as the IAEG

helps GKN Aerospace stay aware of any incoming

regulatory changes.

Number of regulatory

changes to ﬂight

routes and times

Potential impact

Risk exposure

Timeframe

Scenario sensitivity

Short 2023–2025

Medium 2025–2030

Long 2030–2050

NZE

STEPS

Decreased

revenue

Moderate

Key

Anticipated onset of risks and opportunities

Low likelihood

Estimated full impact of risks and opportunities

High likelihood

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Transition Risks

continued

Risk type

Description

Mitigation

KPIs

(1)

DECLINING DEMAND FOR LEGACY PRODUCT OFFERING AND DAMPENING OF AVIATION MARKET

Market

Changes to societal expectation and behaviour due to concerns

about climate change may impact overall demand for air

transportation and decrease demand for conventional products.

If GKN Aerospace cannot improve alternative technologies such

as electric or hydrogen aviation at the required rate there may be a

demand curtailment of current products. NZE predicts a faster rollout

of lower‑carbon technologies meaning a greater exposure of risk

than under STEPS.

•

To retain value in GKN Aerospace core products,

investment in sustainable aviation fuels is a key

priority. GKN Aerospace is actively engaged in key

industry to government forums, such as the UK

government Jet Zero Council, in order to build a

clear strategy to deliver SAF at the scale required

to retain this market value.

•

A decrease in demand for conventionally powered

aircraft will be offset by an increased demand

in lower carbon technologies that Melrose

is investing in though R&D and new product

development.

•

Engagement to ensure low‑carbon aviation is

at the forefront of regulators and governments

minds to ensure sustainable growth in the aviation

market.

Aviation market

growth predictions

Potential impact

Risk exposure

Timeframe

Scenario sensitivity

Short 2023–2025

Medium 2025–2030

Long 2030–2050

NZE

STEPS

Decreased

revenue

High

RAW MATERIAL AVAILABILITY

Technology

An increased focus on developing lower carbon aviation (battery

and hybrid electric propulsion systems) causes demand in materials

needed in these technologies to increase (Rare Earth Materials

(“REM”), composites and titanium). Increased global conﬂict in areas

where these materials are geographically concentrated could impact

availability. NZE sees a greater demand for REM and other materials

associated with lower carbon aviation, indicating a greater exposure

of risk compared to STEPS. In addition, OEMs are already expecting

manufacturers to increase use of additive manufacturing due to the

much greater “buy‑to‑ﬂy” ratio and also in the view of global concerns

of security of supply.

• Ensure reliable supply from alternative

non‑sanctioned markets.

•

Increased focus on resource efﬁciency by

recycling raw materials and therefore reducing the

amount of virgin materials. For example, there is

an increased use of recycled metals like aluminium

being used in manufactured aerostructures.

• Increasing additive technologies being developed

by GKN Aerospace with a capital investment plan

in Sweden, as well as in the UK and the US.

•

Over stocking on key materials to ensure a reliable

supply.

• Increased investment in resource efﬁciency

technologies such as nesting and additive

manufacturing e.g., the Texas additive

manufacturing centre of excellence for large‑scale

titanium aerostructures.

• Investment in composite recycling.

Percentage of raw

materials recycled

Potential impact

Risk exposure

Timeframe

Scenario sensitivity

Short 2023–2025

Medium 2025–2030

Long 2030–2050

NZE

STEPS

Increased costs

High

(1) Performance measurements on speciﬁc KPI’s are conducted through horizon scanning or internal KPI tracking.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

SUSTAINABILITY REVIEW

CONTINUED

Transition Risks

continued

Risk

type

Description

Mitigation

KPIs

(1)

SUCCESSFUL ENTRY INTO SERVICE OF NEW TECHNOLOGIES

Technology

A lack of certiﬁcation of aircraft with new technologies such as

hydrogen and battery electric could impact the rate to which

production demand is met. Certifying organisations, including

the CAA and EASA, amongst others, have historically wanted to

make decisions based on signiﬁcant amounts of data but with new

technologies, data availability is lacking. The lack of successful entry

of lower carbon aviation could impact our ability to beneﬁt from

the transition to a lower carbon economy and more sustainable

aviation. Under NZE, the rate of new technology certiﬁcation will need

to be high and delays in certiﬁcation could cause a bottle neck in

production, causing a high‑risk exposure.

•

Collaboration with certiﬁcation bodies is a key

mitigation factor to reduce the potential delay in

certiﬁcation of new technologies. Certiﬁers are

regularly invited to new aircraft testing.

•

Extensive use of both ground and ﬂight validation

of technologies is a critical step both in educating

airworthiness authorities as well as building clarity

of what will be required to be proven in full scale

development programmes. GKN Aerospace is

already planning a series of research tests with

strong engagement with regulators in order to

enable this.

Certiﬁcation times of

components used in

low carbon aviation

Potential impact

Risk exposure

Timeframe

Scenario sensitivity

Short 2023–2025

Medium 2025–2030

Long 2030–2050

NZE

STEPS

Reduced revenue

Moderate

REPLACEMENT OF CARBON INTENSIVE MACHINERY

Technology

Risks associated with decarbonising of manufacturing processes

and machinery that are carbon intensive to electric and energy

efﬁcient machinery will increase investment of capital. Currently,

existing technology to electrify carbon intensive processes either

do not exist or are expensive. NZE expects a faster decarbonisation

pathway, meaning carbon intensive assets will need to be replaced

quicker.

• Electriﬁcation of carbon intensive manufacturing

processes e.g., furnaces electriﬁcation.

•

Policies to replace older plant machinery with

electric machinery and more efﬁcient machinery.

•

Focus on additive manufacturing to reduce

weight, lead times, tooling and inventory, and

reduce CO

emissions by 70% compared with

conventional manufacturing processes.

•

Out of autoclave composite technologies (such

as RTM) have the potential to reduce energy

consumption by up to 80% as well as the potential

to eliminate carbon intensive energy supply.

Spend on new

electriﬁed machinery

Potential impact

Risk exposure

Timeframe

Scenario sensitivity

Short 2023–2025

Medium 2025–2030

Long 2030–2050

NZE

STEPS

Increased costs

Moderate

Key

Anticipated onset of risks and opportunities

Low likelihood

Estimated full impact of risks and opportunities

High likelihood

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Transition Opportunities

Opportunity

type

Description

Strategy to capitalise

KPIs

(1)

OPERATIONAL EFFICIENCY IN WATER, WASTE AND ENERGY

Resource

Efﬁciency

Actions to reduce waste, water and energy consumption and improve

efﬁciency will provide incremental improvements to Melrose’s

emissions proﬁle at limited cost to implement. Replacement of older

and less efﬁcient machinery with newer, more efﬁcient, models as

well as improved insulation in certain sites will provide opportunities

to reduce emissions and costs.

Energy

•

Company‑wide energy intensity reduction target.

•

Employee engagement to reduce energy

consumption such as the Project Orville scheme

that encourages employees to make individual

efforts to reduce energy consumption.

•

Energy efﬁciency measures such as LED lighting

installations, insulation of sites and booster systems

to increase the energy efﬁciency of machines using

compressed air.

•

Transition to additive manufacturing processes

will electrify hard metal manufacturing as well as

signiﬁcantly reduce net energy consumption.

•

Transition of composite material manufacturing to

out‑of‑autoclave will reduce energy consumption

signiﬁcantly.

Waste

•

Target to divert 95% of solid non‑hazardous waste

from landﬁll by 2025.

•

Reduction and recycling of packaging such as the

adoption of new cardboard shredders to reduce use

of plastic at the Trollhättan site.

Water

•

40% reduction in water withdrawal intensity by 2025.

•

Water efﬁciency improvements at sites such as

irrigation system leak identiﬁcation at El Cajon.

Energy, waste and

water consumption

Potential impact

Opportunity

exposure

Timeframe

Scenario sensitivity

Short 2023–2025

Medium 2025–2030

Long 2030–2050

NZE

STEPS

Reduced costs

Low

MATERIAL EFFICIENCY IMPROVEMENTS OF RAW MATERIALS

Resource

Efﬁciency

Improved recycling of raw materials and investment in R&D relating

to technologies such as additive manufacturing and nesting provides

opportunities to reduce energy, emissions, waste and associated

costs. Improved efﬁciency of raw materials speciﬁcally provides us

with the opportunity to reduce our Scope 3 emissions associated

with our purchased goods as it means less raw materials are

purchased along with shorter supply chains. NZE sees greater focus

and investment in life cycle sustainability, meaning a greater exposure

to technology that can improve material efﬁciency compared to

STEPS.

•

Nesting technology enables the reduction of scrap

raw material produced during cutting and optimises

production.

•

Additive manufacturing investments such as the

Permanova acquisition, the additive manufacturing

centre of excellence in Texas and collaboration with

Northrop Grumman delivers additively manufactured

alternatives to conventional forgings and castings,

meaning reduced waste and consumables, and

reduced impact of transportation through vertical

integration.

•

Recycling of virgin metals such as aluminium

and titanium means raw materials stay within the

aerospace industry, signiﬁcantly reducing the

amount of embedded carbon in raw materials

consumed.

•

R&D investment in composite recycling.

Percentage of raw

materials recycled

Potential impact

Opportunity

exposure

Timeframe

Scenario sensitivity

Short 2023–2025

Medium 2025–2030

Long 2030–2050

NZE

STEPS

Reduced costs

High

(1) Performance measurements on speciﬁc KPI’s are conducted through horizon scanning or internal KPI tracking.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

SUSTAINABILITY REVIEW

CONTINUED

Transition Opportunities

continued

Opportunity

type

Description

Strategy to capitalise

KPIs

(1)

RENEWABLE ENERGY (PPAS AND INSTALLATION)

Energy

source

The purchase of renewable electricity contracts or PPAs will allow for

the reduction of emissions without the capital spend associated with

onsite renewable energy installation. Electricity purchase agreements

deliver real world GHG emissions reductions by displacing fossil

energy sources in the grid systems where we consume electricity.

Our US and European sites have easy access to renewable electricity

contracts and whilst the cost of electricity under PPAs is variable,

contracts can provide ﬁxed costs over several year and reduce

Scope 2 emissions to potentially zero. The Group is exploring options

to install solar self‑generation where possible. Solar installations will

reduce reliance on the local grid, reduce GKN Aerospace’s emissions

and may provide operating cost savings. NZE sees more rapid scaling

of renewable energy and grid electriﬁcation compared to STEPS.

•

Target to procure 50% of electricity from

renewable sources by 2025.

•

Plans are in place to transition the majority of

our European and US sites to renewable energy

contracts as well as the implementation of PV

cells at appropriate sites.

Percentage of

renewable electricity

Potential impact

Opportunity

exposure

Timeframe

Scenario sensitivity

Short 2023–2025

Medium 2025–2030

Long 2030–2050

NZE

STEPS

Reduced costs

High

IN FLIGHT EFFICIENCY

Products

& Services

The use of advanced materials and engineering methods provides

an opportunity for components to provide the same, or enhanced,

performance while using less or lighter material and improving ﬂight

fuel efﬁciency. This can be through the use of composite materials

or bonding technologies. Improving the fuel efﬁciency of engines

also provides an opportunity to reduce fuel burn and increase ﬂight

efﬁciency. Increased demand for these technologies and heightened

expectations to reduce emissions associated with ﬂying will increase

the exposure of this opportunity under NZE compared to STEPS.

•

GKN Aerospace has an extensive portfolio of

research programmes exploring new design

concepts, materials and manufacturing processes

aimed at increasing air travel efﬁciency and reducing

fuel burn. These include additive fabrication, resin

transfer moulding, metallic and composite bonding

and electriﬁcation of systems. The majority of these

programmes are performed collaboratively with our

airframe and engine customers and within funded

multi‑partner research programmes.

R&D Horizon 1 and 2

programmes

Potential impact

Opportunity

exposure

Timeframe

Scenario sensitivity

Short 2023–2025

Medium 2025–2030

Long 2030–2050

NZE

STEPS

Reduced costs

High

ACCESS TO NEW MARKETS THROUGH LOW‑CARBON AVIATION

Markets

Both battery electric and hydrogen technologies provide potential

new markets for GKN Aerospace. Electric technology opens up the

potential of the commuter market (up to 400 nautical miles) as well as

other regional routes. eVOTLs development also offers new markets

in urban mobility that are low carbon, cheaper and quieter than

current options. Hydrogen technologies can also offset the potential

reduction in market share from conventionally powered engines

as well as opening up the potential for a fragmentation of regional

routes and an overall growth in regional aviation. NZE sees scaled

investment in hydrogen and battery electric technologies resulting in

a greater exposure compared to STEPS.

•

Continued work as main partner in industry

associations, such as the Jet Zero Council, the

Aerospace Technology Institute, Swedish Aerospace

Industries, Swedish Air Transport Society, the

Dutch National Sustainable Aerospace Funding

Programme (“LIT”), and the Aerospace Growth

Partnership, where GKN Aerospace plays a key role

in developing policy to support aviation’s transition to

Net Zero and the development of hydrogen‑fuelled

aircraft and leads on various policy topics such as

the roadmap to fossil‑free aviation.

•

Continued investment in hydrogen propulsion

technologies and the development of routes to

exploitation.

•

Global partnerships with electric aircraft

manufacturers such as Joby, Eviation, Supernal and

Lilium to work on experimental eVTOL and electric

aircraft development.

Revenue from

products that

contribute to

low‑carbon economy

Potential impact

Opportunity

exposure

Timeframe

Scenario sensitivity

Short 2023–2025

Medium 2025–2030

Long 2030–2050

NZE

STEPS

Increased revenue

High

Key

Anticipated onset of risks and opportunities

Low likelihood

Estimated full impact of risks and opportunities

High likelihood

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Transition Opportunities

continued

Opportunity

type

Description

Strategy to capitalise

KPIs

(1)

TECHNOLOGICAL SOLUTIONS FOR CLIMATE CHANGE MITIGATION

Products

& Services

Hydrogen technology

We view hydrogen technology as one of the most impactful ways of

reducing the aviation industry’s impact on climate. This opportunity

manifests through an increased demand for hydrogen powered

aircraft in both hydrogen electric and hydrogen combustion

technologies. Hydrogen electric is seen as the most likely

candidate for an earlier entry into service due to greater potential

use in smaller aircraft which can be used as a proof of concept

for larger aircraft. 80% of ﬂights are less than 2,000km but these

make up only 45% of CO

emissions. Just 10% of ﬂights are more

than 3,000km but account for over 50% of CO

emissions hence

developing the technology to go further will yield signiﬁcantly

greater impact and market size. Hydrogen combustion provides an

opportunity as it enables us to offset potential revenue losses from

a decrease in conventionally powered aircraft. However, hydrogen

propulsion is not without its challenges, both in the development

of technology and also the availability, supply, infrastructure and

renewable energy base required to enable widespread adoption.

NZE sees scaled investment in hydrogen technologies resulting in a

greater exposure compared to STEPS.

•

GKN Aerospace is involved in several R&D

initiatives relating to fuel cell power, liquid

hydrogen, hydrogen combustion and ﬂight trials

such as H2GEAR and H2 Flight Trial.

•

The Horizon 3 team, which focuses on disruptive

technologies, helps to focus Melrose’s efforts into

meeting our low‑carbon R&D investment and new

product decarbonisation targets.

•

GKN Aerospace also works within the Jet Zero

Council, the Aerospace Technology Institute and

the Aerospace Growth Partnership to develop

policy to support aviation’s transition to Net Zero

and the development of hydrogen‑fuelled aircraft.

•

It also carries out engagement activities with the

industry to ensure low‑carbon aviation is at the

forefront of regulators and governments.

R&D investment in

hydrogen and battery

electric technologies

In‑ﬂight

decarbonisation

potential of products

Battery electric technology

Using batteries to power aircraft produces no in‑ﬂight emissions

at all and offers fully net zero travel if renewable electricity is

used. Power density limits the payload and range potential of this

technology. Battery electric ﬂight is likely to have only a small role

in reducing aviation’s impact on global warming, however, this new

market area will be born green and offers the ability to develop

capabilities with wider exploitation such as in commuter markets.

NZE sees greater progression in battery electric technology

than STEPS.

• Global partnerships with electric aircraft

manufacturers such as Joby, Eviation, Supernal

and Lilium to work on experimental eVTOL and

electric aircraft development.

•

GKN Aerospace is actively engaged with both

customers and regulators to ensure low‑carbon

aviation is at the forefront of regulators and

governments.

Sustainable Aviation Fuels (“SAF”)

SAF offers the potential to decarbonise the aviation industry,

without any signiﬁcant aircraft or engine technology development.

The long‑term focus for Melrose is on creating disruptive

technologies to ensure airlines meet their net zero goals,

considering both CO

and non‑CO

impacts (aka “True Zero”).

However, SAF can be used to fuel the existing ﬂeet of approximately

25,000 aircraft around the world, signiﬁcantly reducing aviation’s

impact without requiring ﬂeet replacement with the associated

environmental cost on natural resources and production emissions.

Speciﬁcally, to GKN Aerospace, SAF provides an opportunity to

continue to manufacture the same components while also reducing

the environmental impact of aviation. Under NZE, signiﬁcant

investment into SAF infrastructure occur in comparison to STEPS.

At the same time, the limitations of SAF’s adoption related to the

availability at the right price of the fuel driven means that high level

of investment will be needed to ensure stable SAF production which

may present certain potential limitations to the aviation growth.

•

Test ﬂights have been completed by

GKN Aerospace using SAF in the Gripen aircraft.

•

Development of the RM12 engine which can be

•

GKN Aerospace is active with governments and

policy makers to develop the right conditions

within which SAF investment will be successful.

Potential

impact

Opportunity

exposure

Timeframe

Scenario sensitivity

Short 2023–2025

Medium 2025–2030

Long 2030–2050

NZE

STEPS

Increased

revenue

High

Hydrogen

Moderate

Battery electric

technology

High

SAF

(1) Performance measurements on speciﬁc KPI’s are conducted through horizon scanning or internal KPI tracking.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

SUSTAINABILITY REVIEW

CONTINUED

Physical Risks

As global temperatures rise, the frequency and severity of extreme weather events are expected to increase, resulting in a higher likelihood of disruptions to our

global operations and supply chain. The Munich Re Location Risk Intelligence Tool has been used to assess current and potential future physical climate‑related

risks facing GKN Aerospace’s global facilities and key suppliers. We have assessed potential physical risks, both acute and chronic, at 42 GKN Aerospace

sites including potential material risks such as drought stress, tornados, storms, sea‑level rise and ﬂooding events among other hazards, while heat stress and

ﬁre stress were considered but were not deemed material for our operations. The revenue and property value of each site was considered to determine the

materiality of identiﬁed risks to speciﬁc sites.

For the risks assessed we have chosen to use the best‑case and worst‑case scenarios as described below:

•

RCP 2.6

(approximately 1.8°C warming by 2100). A scenario in line with the United Nations Climate Change Agreement of 2015. According to the IPCC, it

requires that Greenhouse gas emissions start declining immediately and go to zero by 2100. This relies on global implementation of stringent climate policies;

and

•

RCP 8.5

(approximately 4.4°C warming by 2100). A “business as usual” high‑emissions scenario. This scenario is consistent with no major policy changes or

industry moves to reduce emissions globally leading to high atmospheric GHG concentrations.

We have considered three‑time horizons: 2030 (short term), 2050 (medium term) and 2100 (long term). This differs from our time horizons used for our

transitional risk assessment as there are limited predicted material physical climate risks up to 2030 due to the delayed nature of modelled climate impacts.

Risk type

Description

Mitigation

KPIs

(1)

FLOODING (STORM SURGE, RIVERINE AND FLASH FLOOD)

Acute

Risk associated with either costal or riverine ﬂooding can cause

damage to site infrastructure, products and equipment stored at

sites. Floods can also cause disruptions to manufacturing output and

delay production times. Riverine ﬂooding in particular poses a risk to

ﬁve sites, including Cowes, which are currently located in a 50‑year

return period zone. An additional one site is projected to also be in

a 50‑year return period zone by 2030 under RCP 8.5. Cowes and

Papendrecht are the only sites which have been identiﬁed as being at

extreme risk of sea level rise under both scenarios by 2100.

•

Collaboration with local environment agencies and

councils on ﬂooding defences and prior ﬂooding

events.

•

Alternative suppliers are in place to replace key

infrastructure that might be damaged.

•

Flood management plans include the training of

teams to deploy ﬂood barriers and raise at risk

machinery above where ﬂood waters could reach.

•

Safety reports take into account the impact of

ﬂooding in at risk sites.

• Property damage and business interruption

insurance speciﬁc to natural hazards.

Number of days

operations are

disrupted due to

ﬂooding events

Potential impact

Risk exposure

Timeframe

Scenario sensitivity

Short 2030

Medium 2050

Long 2100

RCP 2.6

RCP 8.5

Increased costs

and decreased

revenue

Moderate

STORM

Acute

Increased exposure to extreme weather events such as tornados,

hailstorms and extratropical storms have the potential to impact the

Company’s operations and production processes through power

outages as well as impacting access to sites through damage to

local roads and infrastructure. 17% of sites, including Wellington,

Dallas and Cromwell have been identiﬁed as having a high exposure

to storm risk by Munich RE analysis. However, these sites collectively

only account for 5% of revenue.

•

Alternative suppliers in place to replace key

infrastructure that might be damaged.

•

Incident Commander outlines approach to dealing

with storm events such as internal emergency

communication system for employees to be

notiﬁed of hazards.

•

Tornado shelters are available for employee safety

at impacted sites.

•

Use of semi‑generators for storms that are

anticipated to cause power outages of more than

24 hours.

•

The Garden Grove site has subscribed to

county‑wide emergency alert systems and its

standard operating procedure to shelter under

desks during storms.

• Property damage and business interruption

insurance speciﬁc to natural hazards.

Number of days

operations are

disrupted due to

storm events

Potential impact

Risk exposure

Timeframe

Scenario sensitivity

Short 2030

Medium 2050

Long 2100

RCP 2.6

RCP 8.5

Increased costs

and decreased

revenue

Low

Key

Anticipated onset of risks and opportunities

Low likelihood

Estimated full impact of risks and opportunities

High likelihood

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Physical Risks

continued

Risk type

Description

Mitigation

KPIs

(1)

SUPPLIER DISRUPTION FROM EXTREME WEATHER

Acute

Increased extreme weather events such as ﬂooding and storms

cause supply chain disruptions or site shutdowns. This can impact

the ability of suppliers to provide us with appropriate raw materials

and other services needed to manufacture our products. However, at

this stage, impacts have typically been limited.

•

Buffer stocks to protect manufacturing process

from short interruptions.

•

Supplier business continuity plans that include

speciﬁc climate‑related plans.

•

Ability to switch to alternative suppliers in the

event of an extreme weather event.

Number of days

suppliers are

disrupted due to

extreme weather

events

Potential impact

Risk exposure

Timeframe

Scenario sensitivity

Short 2030

Medium 2050

Long 2100

RCP 2.6

RCP 8.5

Loss in revenue

Moderate

(1) Performance measurements on speciﬁc KPI’s are conducted through horizon scanning or internal KPI tracking.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

SUSTAINABILITY REVIEW

CONTINUED

Our ongoing activities are on

reducing embodied carbon in

materials we consume, as well

as lowering emissions within

operations through reduced energy

consumption, material waste, by

recycling and reusing materials

during the production phase.”

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Impact on strategy and ﬁnancial planning

Climate change has a direct impact on product strategy, development

and ﬁnancial planning across Melrose. Our ambition is to produce

long‑term sustainable growth for the coming years through continued

innovation and product quality across our engines and structures

solutions, with fully integrated emissions reduction activities. In the

short‑term horizon, we do not anticipate any material changes in

resource allocation or operational and capital investment to achieve

our plans and targets.

The point in the value chain where our actions could have prominent

potential impact is the emissions from our products through their

design and manufacture. Our ongoing activities work to reduce

the embodied carbon in materials we consume, as well as lower

emissions within our direct operations, for example, through

developing manufacturing processes which reduce energy

consumption and material waste and by recycling and reusing

materials during the production phase. These activities are already

aligned with our existing business targets and therefore are already

part of our operational and innovation pipelines.

In 2023, Melrose invested £48 million on climate‑related R&D

programmes that primarily aim to develop technologies that help our

customers improve energy efﬁciency and reduce GHG emissions

compared with conventional technologies. For Scope 1 and 2

emissions reductions, our focus in the near term is on implementing

our existing or developing new strategies to minimise emissions in

operations that represent hard to abate carbon intensive assets,

be it through the replacement of old equipment and machinery,

energy efﬁciency programmes or certain upgrades to our existing

procedures at plants. The impact of climate change on our supply

chain has been considered as part of our submission of emissions

reduction targets to the SBTi. A supplier engagement action

plan has been developed which outlines how climate change

considerations should be incorporated into procurement policies

and encourages suppliers to have science‑based targets. This shift

towards climate‑conscious procurement is indicative of a broader

commitment to mitigating climate change and underscores the

growing recognition of the environmental impact of supply chains in

the global business landscape.

Overall, in the short to medium term, the resourcing for the

implementation our net zero commitment is incorporated into the

running and planned capex and spending. While projects currently

planned for the medium and long term may be outside of the existing

capex processes and will require additional funding which is yet to

be determined, we believe that the actions we will directly take to

reduce emissions in the short term will result in costs or impacts on

revenues that are in line with those already in our strategy and growth

projections.

Please see pages 166 to 170 for further details on how

climate change is taken into account in Melrose’s

Consolidated Financial Statements.

Resilience of the organisation’s strategy

to climate change

Melrose has not only invested in reducing its carbon footprint

but has also shown adaptability by embracing renewable energy

sources, improving energy efﬁciency, and investing in low carbon

products for its customers. While acknowledging the risks posed

by climate change, we can conclude that our strategy is resilient

to climate change with appropriate mitigating plans in play for

identiﬁed risks and opportunities. We will continue to develop

our analysis as new data becomes available, both internally and

externally, and we will continue to monitor our climate exposures

and action plans through the Group’s risk management framework.

Our updated scenario analysis, which can be found on

pages 64 to 71, posed key questions on how different physical

and transitional scenarios would impact future revenue, production

costs and the life of current assets. The limitations of the scenario

analysis we carried out are:

• Scenarios often only provide high‑level global and regional

forecasts.

• Not all risks are easily subject to scenario analysis.

• Scenario analysis requires analysis of speciﬁc factors and

modelling them with ﬁxed assumptions.

• Impacts are to be considered in the context of the current

ﬁnancial performance and prices.

• Gross impacts are assumed to occur without the Company

responding with any mitigation actions, which would reduce the

impact of risks.

• Impacts are modelled to occur in a linear fashion, when in

practice, dramatic climate‑related impacts may occur suddenly

after tipping points are breached.

• The analysis considers each risk and scenario in isolation, when

in practice, climate‑related risks may occur in parallel as part of

wider set of potential global impacts.

• Carbon pricing is informed by the Global Energy Outlook 2022

report from the International Energy Agency (“IEA”).

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

SUSTAINABILITY REVIEW

CONTINUED

METRICS AND TARGETS

Disclose the metrics used by the organisation to assess

climate‑related risks and opportunities in line with its

strategy and risk management process.

Disclose Scope 1, Scope 2 and, if appropriate,

Scope 3 GHG emissions and the related risks.

Describe the targets used by the organisation to

manage climate‑related risks and opportunities and

performance against targets.

Climate‑related metrics

We disclose a wide range of metrics associated with climate

change, including GHG emissions by type, energy consumption

by type, as well as renewable electricity consumption, water

withdrawal and waste generation. Speciﬁc metrics used to track

each risk and opportunity are identiﬁed on pages 64 to 71.

Our energy consumption and emissions data, the statement

of alignment with the GHG Protocol and statement on SECR

disclosures can be found on page 75. We currently disclose

Scopes 1 and 2 and applicable Scope 3 GHG emissions in line

with the GHG Protocol methodology, representing a breakdown

of the Group’s emissions by type and intensity measurement.

We review our GHG inventory on an annual basis and will restate

our data and/or recalculate our science‑based targets when

required, to reﬂect signiﬁcant changes to our company structure,

methodology changes or errors.

TCFD: Strategy

page 63

Scope 1 emissions are emissions from sources that we own or

control directly, and Scope 2 emissions are those that we cause

indirectly as they come from where the energy is purchased and

produced.

• Scope 1 emissions are primarily driven by our use of natural gas

used in manufacturing processes and heating.

• Scope 2 emissions are tied to the electricity we use in our

manufacturing processes, for example autoclaves.

Our Scope 3 emissions represent emissions outside of our direct

operations and that occur in our value chains. In line with the

Greenhouse Gas Protocol’s “Corporate Value Chain (Scope 3)

Accounting and Reporting Standard”, we evaluate GHG emissions

from all 15 categories but report only on categories that are

relevant and material to the Company. Aligned with the rest of the

aerospace manufacturing sector, Category 11: Use of Sold Products

is estimated to be our largest category of Scope 3 emissions from

our initial calculations. Category 11 emissions associated with the

use of GKN Aerospace products have been estimated but are not

included in our emissions footprint. These emissions are classed as

indirect as they indirectly consume energy during use (e.g., aircraft

landing gear, fan blade and wings). Therefore, the indirect emissions

are not within the “minimum boundary”, and as such are listed as

optional and excluded from our Scope 3 footprint and reduction

target. All other downstream categories have been screened and

deemed either negligible or not applicable to GKN Aerospace’s value

chain emissions.

The GHG emissions for Melrose, broken down by Scope 1, Scope 2

and select Scope 3 emissions, for 2022 and 2023, are set out in the

table on page 75. In 2023, the Company reported a decrease in total

absolute Scope 1 GHG emissions and a decrease in total operational

energy consumption of 4% (based on the MWh of energy used

across all of our locations).

Scope 3 emissions show an increase in 2023 versus 2022, largely

due to increased spend against Purchased Goods and Services

and Capital goods (both categories were calculated using the

“spend based” approach). Business Travel emissions also increased

year‑on‑year with travel reverting to pre‑COVID‑19 levels in 2023. We

expect Scope 3 emissions to ﬂuctuate in future years as the quality of

our reporting improves.

In 2023, operational energy consumption decreased in absolute and

associated intensity ratio terms compared to 2022. This is reﬂective

of the fact that revenue has increased at a higher rate than energy

consumption year‑on‑year. Decreases in Scope 2 emissions are

due in part to increases in use of renewable electricity. The Group’s

chosen intensity ratio is energy consumption and emissions reported

above normalised megawatts usage (“MWh”) and tonnes of CO

e per

£1,000 of revenue

(1)

, which we believe remains the most appropriate

intensity ratio for Melrose.

Our overall emissions reduction targets are closely linked to our new

strategy and business model of an aerospace focused organisation.

The climate related targets reﬂect our strategy for addressing

climate risks and capitalising on opportunities identiﬁed in our latest

climate scenario analysis. The speciﬁc KPIs and metrics used to

track the identiﬁed climate risks and opportunities are set out in the

individual descriptions of risks and opportunities as demonstrated on

pages 64 to 71.

(1)

The data has been standardised from the source units in which it was initially collected.

The revenue ﬁgure used to calculate the intensity ratio include continuing businesses

only and do not include any share of revenues from entities in which the Group holds an

interest of 50% or less.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Total energy consumption and GHG emissions for the period 1 January 2023 to 31 December 2023

Energy consumption (MWh)

Global

(excl. UK)

Total

2023

Global

(excl. UK)

Total

2022

Change

(2023/22)

Total operational energy consumption

90,949

477,184

568,133

94,218

495,638

589,856

‑4%

Total renewable energy consumption

121,917

106,843

14%

Share of renewable electricity in total electricity mix

34%

29%

Energy consumption intensity

0.170

0.200

‑15%

Fuels

Total fuels consumption

37,155

140,490

177,645

38,236

147,025

185,261

‑4%

Non‑renewable fuels consumption

37,155

140,490

177,645

38,236

147,025

185,261

Renewable fuels consumption

Electricity

Total electricity consumption

53,794

300,350

354,144

55,982

313,663

369,645

‑4%

Renewable electricity consumption (self‑generated, purchased or acquired)

121,917

106,843

14%

Non‑renewable electricity consumption (purchased or acquired)

53,794

178,433

232,227

55,982

206,820

262,802

‑12%

Steam

Steam consumption (purchased or acquired)

36,344

34,950

Operational emissions (tCO

(1)

Scope 1: Direct GHG emissions

(2)

6,858

26,739

33,597

7,204

27,939

35,143

‑4%

Scope 2: Indirect GHG emissions (Location‑based)

(3)

10,788

102,260

113,048

12,351

106,578

118,929

‑5%

– Total purchased electricity

10,788

95,731

106,519

12,351

100,611

112,962

‑6%

– Steam (purchased or acquired)

6,529

5,967

Scope 2: Indirect GHG emissions (Market‑based)

19,643

84,746

104,389

20,442

94,802

115,244

‑9%

– Total purchased electricity

19,643

78,217

97,860

20,442

88,835

109,277

‑10%

– Steam (purchased or acquired)

6,529

5,967

Total Scope 1 and Scope 2 emissions (Location‑based)

17,646

128,999

146,645

19,555

134,517

154,072

‑5%

Total Scope 1 and Scope 2 emissions (Market‑based)

26,501

111,485

137,986

27,646

122,741

150,387

‑8%

Emissions intensity

(4)

(Market‑based)

0.041

0.051

‑20%

Upstream Scope 3 emissions

– Category 1: Purchased Goods & Services

1,539,165

1,492,438

– Category 2: Capital Goods

107,198

96,111

– Category 3: Fuel & Energy Related Activities

26,314

37,361

– Category 4: Upstream Transportation and Distribution

42,391

46,442

– Category 5: Waste Generated in Operations

3,497

3,742

– Category 6: Business Travel

13,185

7,964

– Category 7: Employee Commuting

12,554

16,286

Total Scope 3 emissions

1,744,305

1,700,344

2.6%

Total emissions

Total Scope 1, Scope 2 (Location‑based) and Scope 3 emissions

1,890,950

1,854,416

2.0%

Total Scope 1, Scope 2 (Market‑based) and Scope 3 emissions

1,882,291

1,850,731

1.7%

(1) CO

e – carbon dioxide equivalent, this ﬁgure includes GHGs in addition to carbon dioxide.

(2)

Scope 1 ﬁgures include emissions from fuel used on premises, transport emissions from owned or controlled vehicles, losses of refrigerant, and process and fugitive emission.

(3)

Scope 2 ﬁgures include emissions from electricity and heat purchased.

(4)

Company’s chosen intensity measurement: emissions reported above normalised tonnes CO

e per £1,000 revenue. The data has been standardised from the source units in which

it was initially collected. The revenue ﬁgures used to calculate the intensity ratio include continuing operations under operational control only.

This section has been prepared for the reporting period of 1 January 2023 to 31 December 2023. We report on all of the material emission sources in line with an

operational control approach method, as required in Part 7 under the Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations 2013 and under

the UK’s Streamlined Energy and Carbon Reporting (“SECR”) requirements. These emission sources fall within our Consolidated Financial Statements. We do not

have responsibility for any emission sources that are not included in our Consolidated Financial Statements.

Our energy consumption and emissions data is reported in accordance with the reporting requirements of the Greenhouse Gas Protocol (“GHG Protocol”),

Revised Edition and the Environmental Reporting Guidelines, including the SECR guidance dated March 2019. The GHG Protocol standard covers the accounting

and reporting of seven Greenhouse gases covered by the Kyoto Protocol. The statement of alignment with the GHG Protocol and statement on SECR disclosures

can be found in our Annual and Sustainability Reports. We currently disclose Scopes 1 and 2 and select Scope 3 GHG emissions, representing a breakdown of

the Group’s emissions by type and intensity measurement.

Emission factors from the UK Government’s GHG Conversion Factors for Company Reporting 2023 (the Department for Environment, Food and Rural Affairs

(“DEFRA”) factors) have been used to calculate Scope 1 emissions. Scope 2 emissions associated with the GHG Protocol “Location‑Based” method have been

calculated using International Energy Agency (“IEA”) country‑speciﬁc emission factors. Scope 2 emissions associated with the GHG Protocol “Market‑Based”

method have been calculated using residual mix emission factors from Association of Issuing Bodies 2022 (“AIB”) where applicable. In the absence of residual

mix emission factor availability, International Energy Agency (“IEA”) country speciﬁc emissions factors have been used in line with the GHG Protocol guidance. If

sites generate their own renewable electricity or purchase electricity backed by contractual instruments (such as Renewable Energy Guarantee Origin), this has

been taken into consideration within the calculations. For Scope 3 emissions, we reported in accordance with the GHG Protocol Corporate Value Chain (Scope 3)

Accounting and Reporting Standard and the GHG Protocol Technical Guidance. Emissions factors from DEFRA and the Aerospace Industry Tool for Calculating

Scope 3 Greenhouse Gas Emissions have been used to calculate Scope 3 emissions. A Scope 3 inventory was carried out and the relevant categories were

calculated using a combination of spend based and average data based methodologies. Due to recognised inherent uncertainties in calculating Scope 3, we have

adopted a continuous improvement approach. We will continue to review our processes and disclose any restatements in a timely and transparent manner.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

SUSTAINABILITY REVIEW

CONTINUED

Climate‑related targets

In order to reﬂect Melrose’s transformation into an aerospace

focused business, our Group sustainability targets have been

reset to align with GKN Aerospace’s sustainability ambition, the

macroeconomic and broader industry drive for advancing the

environmental and social improvements in the aerospace sector

at large. Our new 2025 sustainability targets are more ambitious

to ensure that we set the right foundations to keep up the pace of

improvement in the coming years.

GKN Aerospace has set near and long‑term science‑based

emissions reduction targets which were submitted to the SBTi in

2023 for anticipated validation in 2024. Until the point of validation,

they are subject to change. GKN Aerospace’s sustainability

function is responsible for achieving the targets. SBTi requires

that science‑based targets are recalculated to reﬂect material

changes in climate science and business context to ensure their

continued relevance. SBTi stipulates that targets shall be reviewed,

and if necessary, recalculated and revalidated every ﬁve years at a

minimum. Emissions data is reported quarterly as part of our internal

system which enables us to monitor and assess performance

against our targets. Revisions of targets will be conducted as and

when necessary and updates on progress towards achieving them

will be reported on at least an annual basis within our Annual and

Sustainability Reports.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Our new 2025 sustainability targets are

focused on short‑term tangible improvements

as this is where we believe our focus should

be right now.

OUR CLIMATE‑RELATED TARGETS

50%

GKN Aerospace commits to reduce

absolute Scope 1 and 2 GHG emissions

by 50% by 2030 from a 2020 base year.

(1)

Our Group climate‑related targets are:

50%

Reduce Scope 1 and 2 emissions intensity

by 50% by 2025 from a 2020 base year.

50%

Source at least 50% of our electricity from

renewable sources by 2025 from a 2020

base year.

(3)

80%

Maintain 80% of total R&D expenditure on

climate‑related R&D per year to contribute

to aerospace decarbonisation by 2025

from a 2020 base year.

100%

Achieve 100% of new products which

contribute to aerospace decarbonisation by

2025 from a 2020 base year.

95%

Divert 95% of our solid non‑hazardous

waste from landﬁll by 2025 from a 2020

base year.

40%

Reduce water withdrawal by 40% by

2025 from a 2021 base year.

Additional targets proposed for SBTi validation:

70%

Encourage 70% of suppliers by spend,

covering purchased goods and services,

to have science‑based targets by 2028.

(1)

Net Zero

GKN Aerospace commits to reach net

zero GHG emissions across the value

chain by 2050.

(1)

25%

Reduce absolute Scope 3

GHG emissions

(2)

by 25%

by 2030 from a 2022 base year.

(1)

As submitted to the SBTi for validation

(2)

Covering Fuel‑ and energy‑related activities (not included in Scope 1 or Scope 2), Upstream transportation and distribution, Waste generated in operations, Business travel

and Employee commuting.

(3) Where renewable electricity is commercially and reasonably available in the relevant jurisdiction.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

SUSTAINABILITY REVIEW

CONTINUED

(1)

Including Fuel‑ and energy‑related activities (not included in Scope 1 or 2), Upstream transportation and distribution, Waste generated in operations, Business travel and

Employee commuting.

(2)

As submitted to the SBTi for validation.

Achieving business‑wide Net Zero

Contributing to global Net Zero

Net Zero operations

(Scope 1 and 2)

Net Zero upstream

(Scope 3)

Deliver critical internal

and industry‑wide

enabling activities

Co‑create with customers,

invest in R&D and

products contributing to

aerospace decarbonisation

NET ZERO

PATHWAY

STREAMS

GKN AEROSPACE’S MISSION IS TO BE THE MOST TRUSTED

AND SUSTAINABLE PARTNER IN THE SKY

Its ambitious targets to reduce direct environmental impact on climate and the environment are supported

by strong governance foundations, focused investment and strong industry leadership.

By taking a global value chain approach through collaboration with customers, suppliers and partners alike,

it will seek to minimise the collective impact of the aerospace sector to enable global aviation to achieve Net Zero by 2050.

AMBITION

• Improving energy

efﬁciency of our assets

• Green optimisation of

operations and sites,

including equipment

and machinery

• Reducing other

Scope 1 emissions

• Greening our purchased

electricity mix

•

Reducing Scope 3

emissions

(1)

•

Increasing our investment

in additive manufacturing,

energy efﬁcient composite

technologies, bonding and

nesting technology and

investment in raw material

and composite recycling

innovation programmes

to help reduce Scope 3

Category 1 emissions in

the long‑term (waste as

resource)

• Continued engagement

with industry, government

and public sector,

enabling customers to

launch new aircraft and

engine platforms with a

signiﬁcant reduction in

inﬂight emissions, through

the provision of our

innovative technologies

• Continued partnerships

with customers on

innovation and climate

action for sustainable

aviation and supporting

them in achieving their

own net zero ambitions

without compromising

business success and

proﬁtability

DRIVERS

Net Zero

Across the value chain by 2050

(2)

80%

Invest at least 80%

of our R&D spend

into programmes

towards aerospace

decarbonisation by

2025

100%

Ensure that 100% of

new product launches

are products that

contribute to aerospace

decarbonisation by

2025

25%

reduction in absolute Scope 3 emissions

(1)

by 2030

(2)

70%

of suppliers by spend covering purchased goods and services will have

science‑based targets by 2028

(2)

CLIMATE TARGETS AND COMMITMENTS

2050

2028

2025

2023

2030

Creating and fostering the internal foundations and productive industry engagement to drive decarbonisation efforts

On a mission to be the most

trusted and sustainable

partner in the sky

50%

reduction in Scope 1 and 2 emissions intensity

by 2025

50%

reduction in absolute Scope 1 and 2 emissions

by 2030

(2)

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

ENERGY EFFICIENCY

In 2023, GKN Aerospace developed and set a company‑wide energy

intensity target to drive more efﬁcient use of electricity, fuel and

heat across the business. Not only has this resulted in an absolute

reduction in consumption, but employees are now also more

aware and supportive of company‑wide sustainability ambitions.

Complementing this target is an effort to increase renewable energy

procurement and implement other climate‑positive actions such as

sustainable transport initiatives.

Type of energy efﬁciency programmes

2023

2022

LED lighting retroﬁts

£790,000

£900,000

More efﬁcient air conditioning and

heating systems

£410,000

£1,250,000

Renewable energy installations

£600,000

£5,000

Insulation improvements

£250,000

£700,000

Energy efﬁcient equipment

£960,000

£2,360,000

Total

£3,010,000

£5,215,000

WATER

Water is an essential resource for production processes within

GKN Aerospace’s operations. It is acknowledged that water scarcity

is a global challenge and thus water conservation is an increasingly

important topic for our business and stakeholders. Our Water policy

is centred around two key principles of ensuring that we remain

resilient to any risks associated with water by minimising potential

impacts on water availability and quality and facilitating business

contributions to addressing water challenges and improving water

management practices.

The GKN Aerospace sustainability function has overall responsibility

and oversight of the Group Water Policy. The executive management

team of each GKN Aerospace business line has direct responsibility

for ensuring effective management of their respective water‑related

risks and opportunities throughout operations and with suppliers.

The requirements under our Water Policy are supported by a

Group‑level target of a 40% reduction in water withdrawal intensity by

2025 (reported above normalised m

per £1,000 of revenue), and a

process‑oriented drive within our Water Stewardship Programme.

Water withdrawal data is presented in the table below, showing

a decrease in total water withdrawn by the business in 2023

compared to 2022. In 2023, the largest proportion of our water is

withdrawn in North America and Europe. The decrease in the water

intensity is reﬂective of an increase in overall revenue and due to

several water withdrawal reduction strategies that are in place,

especially in North America where particular success was noted

during the reporting period.

GKN Aerospace’s operations use water in production processes to

dilute coolant used in machining, during cleaning cycles, polishing

and chemical treatment processes. In addition, water is required

for staff hydration and hygiene. To date, GKN Aerospace has

not been subject to conditions where water scarcity had led to

interruptions in operations, however, we are aware of the possibility

of operational interruption and are planning to reduce our water

withdrawal to reduce the stress on water supplies.

In 2023, we further advanced the analysis of our operations by

assessing which operational sites are situated in future projected

water stressed

(1)

areas. Our manufacturing and ofﬁce sites

(2)

were

reviewed to identify operations in areas of “high” (40%–80%) or

“extremely high” (>80%) baseline water stress, according to the

Water Research Institute (“WRI”) Aqueduct Water Risk Atlas tool.

WRI deﬁnes these areas as those where human demand for water

exceeds 40% of resources. We have identiﬁed that 26% of our

current sites are located in areas of “extremely high” water stress,

and a further 13% are currently located in areas of “high” water

stress using 2050 projections.

Some sites have already started to explore initiatives which can

reduce water usage by roughly 20 to 50%. This has been achieved

through operational improvements such as maintenance and

adjustments of irrigation systems, increased surveillance to avoid

leaks and improved maintenance of cooling towers, as well as

other measures at various sites.

Melrose Group water withdrawal

(3)

data for the period 1 January 2023 to 31 December 2023

Cubic metres

2023

2022

Change

(2023/22)

Water withdrawal (m

) in operations

(4)

1,271,189

1,372,693

‑7.4%

North America

898,257

1,009,825

‑11.0%

South America

7,272

6,446

13.0%

Europe

333,078

324,929

3.0%

Asia

32,582

31,493

4.0%

Company’s chosen intensity measurement:

Water withdrawal (m

) per £1,000 turnover

(5)

0.379

0.465

‑18.0%

(1)

For these purposes, baseline water stress measures the ratio of total water withdrawals to available renewable surface and groundwater supplies.

(2)

For these purposes a “site” is deﬁned as a manufacturing site or ofﬁce that is under the operational control.

(3)

For these purposes, water withdrawal is deﬁned as the sum of all water drawn into the boundaries of the organisation (or facility) from all sources or any use over the course of the

reporting period.

(4)

Data was collected from 100% of sites across the Group in 2023 and 2022.

(5)

The Group’s chosen intensity ratio is water withdrawal reported above normalised m

per £1,000 of revenue. The data has been standardised from the source units in which it was

initially collected. The revenue ﬁgures used to calculate the intensity ratio include continuing operations under operational control only.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

SUSTAINABILITY REVIEW

CONTINUED

By increasingly incorporating circular

economy principles into design and

manufacturing processes, we are

reducing our environmental impact.

PRODUCT LIFE CYCLE MANAGEMENT

AND CIRCULAR ECONOMY

The global production system promotes a transition

away from the linear model towards maximising

resource intensity and value addition. Business

processes for technology selection, new product

development and supplier selection have been updated

to incorporate sustainability requirements, to ensure

that the life cycle implications are understood as part

of any selection decision. We assess the impact of

our products on the environment in terms of material

usage, waste, energy usage and CO

emissions

throughout each products’ life cycle. Their impact

on the environment is assessed in terms of use of

materials, waste, energy and emissions. Across the

business, life cycle assessments have been completed

for products sold in 2023, representing 7% of

total revenue.

By increasingly incorporating circular economy

principles into design and manufacturing processes,

we are reducing our environmental impact and deliver

products to end‑markets with increased durability and

longevity, reduced emissions and waste. By way of

example, GKN Aerospace’s continued innovation in

Additive Manufacturing has enabled its development

of a leading Fan Case Mount Ring (“FCMR”) structural

design. GKN Aerospace’s fan blade housing structure

allows signiﬁcant reduction in source material use,

energy consumption and product weight, with a

view to reducing Greenhouse gas emissions in both

the manufacturing process and across the product

life cycle. GKN Aerospace’s new fabricated FCMR

promotes resource efﬁciency by reducing the buy‑to‑ﬂy

ratio from 15 in the original design to ﬁve. This

represents a 60% reduction in material waste, which

will save over 90 tonnes of forged titanium annually.

Additionally, in line with the circular economy principles,

GKN Aerospace’s maintenance, repair and operation

(“MRO”) services aim to enable products to be

reintroduced into the production cycle and thereby

extending product lifetime instead of disposal at the

end of useful life. This approach will gradually lead us to

a shift from quantitative‑based concept of “expansion

of recycling industry” to the pursuit of optimum

resource recovery quality through “waste as resource”.

18%

Water withdrawal intensity

reduction in 2023

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

OPERATIONAL WASTE MANAGEMENT

In 2023, GKN Aerospace continued to make an active effort to

reduce the amount of waste generated and to divert waste from

landﬁll. To support this, we have a target to divert 95% of solid

non‑hazardous waste from landﬁll by 2025.

GKN Aerospace’s waste generation data for 2023 shows an overall

decrease in the solid waste generated compared to 2022 due to

operational changes, improvements and a bigger focus placed upon

waste by sustainability and environmental managers. Despite the

decrease in absolute waste weight, there have been increases in the

proportion of non‑hazardous waste per revenue that is sent to landﬁll.

GKN Aerospace is running a number of signiﬁcant operational

improvements to reduce the impact of its waste and associated

emissions in transportation of waste contents. These include, among

other programmes, various recycling initiatives and modiﬁcations to

equipment such as converting materials into packaging, resulting

in potential signiﬁcant savings in costs of new packaging materials,

transportation and disposal services, as well as an estimated

signiﬁcant reduction of the associated emissions if rolled out across

the majority of sites.

Biodiversity

We recognise the importance of biodiversity and how fundamental

it is to our society and are committed to playing our part in

preserving biodiversity for the beneﬁt of future generations. Our

Biodiversity policy sets out the foundational principles in promoting

the growth of the natural world and helping prevent deforestation.

The Group Biodiversity policy can be found on our website at

https://www.melroseplc.net/governance/documents‑and‑policies/.

In 2023, we started a top‑down assessment

(1)

to identify the physical

risks associated with our operational sites, namely the ways in which our

operations depend on and impact nature and surrounding ecosystems.

The initial analysis showed the operational sites, based on their

location and industry speciﬁcs, with the highest risk of direct

pressures on biodiversity. Of 30 industrial sites, ﬁve have a high

physical risk score and 25 have a medium physical risk score. The

analysis also indicated pollution and high risk of natural disasters as

other relevant impact indicators to our operations.

GKN Aerospace’s sites are mostly located in industrial zones and

operate under general binding rules. Permitting processes which

review the impact of our emissions on the environment and set

limits to prevent harm to the surrounding environment provide the

necessary safeguards against extreme natural events. Through this,

we ensure that our sites do not adversely affect the integrity of a

geographic area, local communities or change its ecological features

and functions, meaning that the operation of our sites should not

contribute to any net loss in biodiversity. We continue to further to

deepen our understanding of physical biodiversity risks and assess

possible impacts of our operations.

88%

solid non‑hazardous waste diverted from

landﬁll in 2023 against the 95% target by 2025

(1)

Using the WWF Biodiversity Risk Filter at riskﬁlter.org.

(2) The revenue ﬁgures used to calculate the intensity ratio include continuing operations under operational control only.

Melrose waste generation data for the period 1 January 2023 to 31 December 2023

Tonnes

2023

2022

Change

(2023/2022)

Total solid waste

17,547

50,525

‑65%

thereof non‑hazardous waste

15,781

32,884

‑52%

thereof non‑hazardous waste to landﬁll

1,893

2,628

‑28%

thereof non‑hazardous waste for recycling/reused

10,453

19,102

‑45%

thereof non‑hazardous waste incinerated

3,433

11,154

‑69%

thereof non‑hazardous waste incinerated with energy recovery

thereof hazardous waste

1,766

17,642

‑90%

thereof hazardous waste to landﬁll

952

1,192

‑20%

thereof hazardous waste for recycling/treatment

632

16,450

‑96%

thereof hazardous waste incinerated

182

thereof hazardous waste incinerated with energy recovery

Solid waste to landﬁll (hazardous and non‑hazardous)

2,845

3,820

‑26%

Solid waste diverted from landﬁll (hazardous and non‑hazardous)

14,702

46,706

‑69%

Solid non‑hazardous waste diverted from landﬁll

13,888

30,256

‑54%

Solid non‑hazardous waste diverted from landﬁll rate

88%

92%

Company’s chosen intensity measurement

(2)

Tonnes of solid non‑hazardous waste per £1,000 revenue

0.0047

0.0111

‑58%

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

SUSTAINABILITY REVIEW

CONTINUED

OUR PEOPLE

Promoting diversity, prioritising and nurturing the wellbeing

and skills development of our employees, and contributing

to the communities that we are part of, is instrumental to the

success of our business and our impact in the regions where

we operate.

The Melrose Code of Ethics reinforces our sustainability

principles and provides clear guidance as to how the Board

and the Melrose senior management team expect business

to be conducted, and the consequences of non‑compliance.

The Code of Ethics outlines the policies and procedures that

Melrose has put in place to drive best practice in health and

safety, wellbeing and training, and to promote diversity and

inclusion throughout our business. The Code was approved by

the Board and last updated in December 2022. It can be found

on our website at https://www.melroseplc.net/governance/

documents‑and‑policies/.

To perform well and achieve our potential, it is important to

nurture an engaged, capable and enthusiastic workforce. We

want to ensure that we prioritise people, enabling them to enjoy

the work they do, and that employees’ safety and wellbeing is a

priority. We value and champion diversity in its broadest sense

and encourage working environments that nurture employees

and encourage them to grow and act with integrity.

SOCIAL IMPACT

Social impact highlights

40%

female representation on

the Board, meeting the

expectations of the FTSE

Women Leaders Review

>£5m

invested in workforce

training in 2023

83%

Average response rate for

employee engagement

surveys in 2023

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

EMPLOYEE ENGAGEMENT

We recognise the importance of engaging with employees in a

meaningful way to support their development and ensure that we

provide the best working environment. Consultations with employees

are held regularly to ensure that concerns are addressed in a

meaningful and mutually beneﬁcial way. In 2023, 72% of employees

received performance reviews. Such consultations are performed

through conﬁdential and anonymous all‑employee engagement

surveys. The results are shared with the executive management

teams, plant directors, HR teams and other people leaders, and

are then further analysed through fora such as employee focus

groups. Action plans are then developed to help address areas for

improvement. The survey feedback and resulting measures are

shared with employees through various engagement tools, such as

town hall meetings.

WE RECOGNISE THE IMPORTANCE OF

SUPPORTING THE WELLBEING AND

DEVELOPMENT OF OUR EMPLOYEES,

DRIVING AND MAINTAINING A DIVERSE,

INCLUSIVE AND SAFE ENVIRONMENT.

The Workforce Advisory Panel (“WAP”) enables key views of the

workforce to be heard and considered by the Group’s senior

management team, where it can have maximum impact. The WAP

reports to the Board on an annual basis to provide visibility and

oversight of key workforce views, which are then discussed and

considered at Board meetings. The WAP comprises the Chief Human

Resources Ofﬁcer and Group General Counsel from Melrose and

GKN Aerospace and other relevant internal stakeholders as required

as the Group’s new business strategy and integrated structure

evolves. Each member of the WAP is responsible for promoting

workforce engagement, disseminating information and collating the

voice of their workforce. They are also responsible for demonstrating

how key workforce views are fed into executive management

decisions, as well as ensuring that the workforce is aware of their

impact on such decisions. Key workforce views in 2023 related to

learning and development opportunities. Please refer to the Talent

and career management section on pages 86 to 87 for examples of

how this has been addressed.

We are committed to safeguarding the contractual and statutory

employment rights of their employees through constructive

relationships with employee representative bodies, including unions

and works councils.

Group employees as at 31 December 2023

TOTAL

17,234

Permanent employees of which

some are:

14,234

Full‑time employees

13,492

Part‑time employees

742

Temporary employees

2,786

3 Apprentices

214

Total

17,234

The rights of workers to participate in collective bargaining

and their freedom of association is respected across the

business. Workers are entitled to join or form trade unions of

their own choosing and to bargain collectively where legally

permissible within their jurisdiction. Workers’ representatives

are not discriminated against and have access to carry out their

representative functions in the workplace. Trade union membership

ﬂuctuates year‑on‑year depending on the Group composition.

Melrose and GKN Aerospace pay all UK employees at least the

real living wage, save for Apprentices, Interns and year‑in industry

students, who are paid in accordance with the national minimum

wage rates for their age group. In addition, GKN Aerospace offer all

employees in the UK the opportunity to work for at least 15 hours

per week.

83%

Average response rate for employee

engagement surveys we undertook in 2023

DIVERSITY, EQUITY AND INCLUSION

Driving and maintaining a diverse, inclusive and safe environment

is a priority for us. We recognise the importance of diversity

in building a high‑calibre workforce and are committed to

championing diversity in the broadest sense, be that along

geographical, cultural or personal lines, encompassing gender,

race, ethnicity, country of origin, nationality, colour, social and

cultural background, religion, family responsibilities, sexual

orientation, age and disability.

We do so by ensuring that our employees’ entry into, and

progression within our business are based on aptitude and the

ability to meet fair criteria outlined in job descriptions. For any

employees with a disability, we take steps to ensure reasonable

adjustments are made where required. Melrose is proud to

be a member of the Business Disability Forum, a not‑for‑proﬁt

member organisation that works with the business community to

understand the changes required in the workplace for disabled

persons to be treated fairly, so that they can contribute on

an equal‑opportunity basis to business success, society and

economic growth.

UN SDGs

MATERIAL TOPICS

•

Occupational health, safety

and wellbeing

•

Community impact

•

Diversity and equal

opportunities

•

Product safety and quality

•

Talent and workforce

engagement and development

• Respect for human rights

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

SUSTAINABILITY REVIEW

CONTINUED

Our Code of Ethics highlights the importance of diversity

and inclusion and is supported by our Board of Directors’

Diversity policy and our Melrose Diversity, Equity and Inclusion

policy, both of which are reviewed, updated where relevant

and approved each year by our Nomination Committee.

Copies of these policies can be found on our website at

https://www.melroseplc.net/governance/documents‑and‑policies.

Promoting diversity at all levels

The Board is committed to furthering diversity at all levels. In

particular, the last ﬁve Non‑executive Director appointments have

been female. Furthermore, two of the Committee Chair roles, the

Chair of the Audit Committee and the Chair of the Nomination

Committee, are held by women.

As at 31 December 2023, Melrose had 40% female representation

on the Board (2022: 40%), which meets the expectations of the

FTSE Women Leaders Review, as well as the target set out in

the Financial Conduct Authority’s Listing Rules (the “FCA Listing

Rules”). The FTSE Women Leaders Review and the FCA Listing

Rules also set a target for at least one senior board position, being

that of Chairman of the Board, Senior Independent Director, Chief

Executive, or Chief Financial Ofﬁcer to be held by a woman (the

FTSE Women Leaders Review having a 2025 target date). The

Nomination Committee recognises that Melrose does not currently

meet this requirement and, as noted in the Nomination Committee

report on pages 124 to 127, this is being kept under review

for future improvement. The Nomination Committee currently

takes into account a variety of factors before recommending

any new appointments to the Board, including relevant skills to

perform the role, experience and knowledge needed to ensure

a rounded Board and the beneﬁts each candidate can bring to

the overall Board composition. The Committee also strongly

encourages executives to adopt the same approach when making

appointments to the Melrose Executive Committee and the wider

senior management team. The most important priority of the

Committee, however, has been, and will continue to be, to ensure

that the best candidate is selected, and this approach will remain in

place going forward.

In addition, Melrose also continues to meet the expectations of the

Parker Review, as well as the target set out in the FCA Listing Rules,

of having one director from an ethnic minority background.

Below Board level, Melrose operates an Executive Committee

which facilitates the development of a diverse pipeline for

succession planning purposes. As at 31 December 2023, the

Executive Committee and its direct reports consisted of 41% female

representation (and 37% female representation speciﬁcally at an

Executive Committee level). Melrose therefore currently meets the

expectations of the FTSE Women Leaders Review.

Melrose notes the recent recommendations of the Parker Review

for FTSE 350 companies to set a percentage target for senior

management positions that will be occupied by ethnic minorities in

December 2027, with the target being set by 31 December 2023. The

Nomination Committee and Board agreed that it was not feasible for

Melrose to set a sufﬁciently informed ethnic diversity target for senior

management by the end of last year. However, this target will be set

during the course of 2024. Please refer to the Nomination Committee

report on pages 124 to 127 for further details.

The following tables provide a breakdown of gender and ethnic

diversity at a Board and executive management level as at

31 December 2023. This information was collected by asking both

the Board and executive management team to complete the same

voluntary questionnaire. This questionnaire set out questions related

to gender and ethnic diversity, as extracted from Acas’s equality

and diversity monitoring form template. In advance of circulating the

questionnaire, Melrose engaged external legal advisors to ensure that

the processes and procedures related to such data collection were

compliant with applicable data protection laws and best practice.

Gender diversity as at 31 December 2023

Number of

Board members

Percentage of

Board members

Number of senior

positions on the

Board (CEO, CFO,

SID and Chair)

Number in

executive

management

Percentage

of executive

management

(1)

Men

60%

59%

Women

40%

41%

Not speciﬁed / prefer not to say

Ethnic diversity as at 31 December 2023

Number of

Board members

Percentage of

Board members

Number of senior

positions on the

Board (CEO, CFO,

SID and Chair)

Number in

executive

management

Percentage

of executive

management

White British or other White (including minority white groups)

90%

100%

67%

Mixed / Multiple ethnic groups

Asian / Asian British

Black / African / Caribbean / Black British

10%

Other ethnic group, including Arab

Not speciﬁed / prefer not to say

26%

(1)

Including direct reports.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Group permanent employee gender diversity

at 31 December 2023

MALE:

73%

FEMALE:

27%

Total Group permanent employees

Male

10,718

Female

3,933

Total

14,651

Group senior manager diversity

at 31 December 2023

Senior managers (section 414C of the Companies Act 2006)

MALE:

65%

FEMALE:

35%

Employees in senior

management positions

Male

Female

Total

MALE:

65%

FEMALE:

35%

Directors of Group undertakings,

excluding the above

Male

Female

Total

MALE:

65%

FEMALE:

35%

Total Senior Managers

Male

Female

Total

GKN Aerospace has the ambition to increase the representation

of all currently under‑represented groups across the business.

To proactively support this, in 2022 a dedicated Global Diversity,

Inclusion and Belonging Manager was hired to proactively promote

diversity throughout the organisation. Initiatives include starting to

baseline the extent to which GKN Aerospace employee ethnicity

proﬁles match the communities in which they operate. In 2023,

GKN Aerospace also developed and launched additional Diversity

& Inclusion (“D&I”) training for all employees and managers (via both

e‑learning and face‑to‑face training). This D&I training consists of

ﬁve videos covering topics like bias, understanding difference and

workplace culture. Team sessions have also been rolled out using

a form of boardgame which allows teams to have more open and

honest discussions about sensitive topics.

GKN Aerospace also recognises that some of its colleagues face

different challenges and may need support, either to get their voices

heard or to put their ideas into practice. In recognition of this and to

drive a greater sense of Diversity, Inclusion and Belonging (“DIB”),

GKN Aerospace currently has six dedicated Employee Resource

Groups (“ERGs”). The current six ERG’s are: Connected Women,

Future GKN, LGBTQ+, African Black Caribbean Professionals,

Mastering Neurodiverse Strengths and Veterans & Reservists.

Additionally, in 2023, a Menopause support group was also launched

for the ﬁrst time.

These ERGs are voluntary, company‑endorsed, employee groups, created

by employees speciﬁcally to address the concerns of a particular group

or an aspect of our culture that we want to improve. ERGs have brought

together groups of like‑minded people, providing them with opportunities to

collaborate, educate others about the challenges they face – or ways they

can help the organisation – and help to give them a real sense of belonging

within the organisation. Currently the total membership across these groups

is nearing 2,000 employees. In addition, all main countries have dedicated

Employee Assistance Plans (“EAPs”) providing everything from counselling

support, mental health and wellbeing advice and guidance on legal and

ﬁnancial queries (increasingly important against a backdrop of increased

cost of living).

Melrose is required to report on gender diversity at a senior manager

level. In accordance with section 414C of the Companies Act 2006,

the deﬁnition of senior managers is required to include Group

employees who are directors of Group undertakings but excludes

the Board of Melrose Industries PLC. Melrose does not consider

that including the employee directors of its undertakings provides

an accurate reﬂection of the senior management at Melrose, nor its

executive pipeline.

As reﬂected in note 3 to the ﬁnancial statements, Melrose has

many undertakings, including dormant, non‑trading and immaterial

subsidiaries. However, the Group has continued to make good

progress in increasing senior manager diversity during the year.

40%

Female representation on the Board,

meeting the expectations of the

FTSE Women Leaders Review

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

SUSTAINABILITY REVIEW

CONTINUED

Social impact highlights

£292

Average training spend

per employee in 2023

(2)

512,238

Total number

of training hours

(1)

£5.08m

Total annual spend

on workforce training in 2023

(2)

TALENT AND CAREER MANAGEMENT

Skills development

Melrose is committed to fostering the professional growth and

lifelong learning of its employees. A proactive approach to

anticipating both short and long‑term workforce requirements

and skill prerequisites, is essential in ensuring our workforce

remains at the forefront of innovation. Enhancing productivity

lies at the core of Melrose’s strategy for enhancing performance,

with a strong emphasis on providing extensive training

opportunities that are accessible and actively promoted to

employees at all career stages.

Leadership training is an integral part of ensuring the workforce

remains engaged and innovative. Annual talent reviews help

identify individuals who have the ability and aspiration to grow

into more stretching roles and assist us to develop a diverse

pipeline of successors for key leadership positions.

GKN Aerospace delivers a wide variety of ﬂexible training

programmes through a combination of online and in‑person

training. In 2023, 89% (2022: 87%) of employees received

training during the year. Set out in the table on page 87 is the

average training time per GKN Aerospace’s employee and the

total number of hours spent on workforce training. The average

training time per employee remained static between 2022 and

2023, with increased spend per employee.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

REWARD AND RECOGNITION

Our policies and protocols for recruitment, talent development and

succession planning are supported by robust training programmes

and effective management to ensure that relevant opportunities

are in place for employees to pursue career development. We also

encourage internal applications for open positions.

Where permitted by local laws and employee representative bodies,

performance evaluations are undertaken across the business,

with 72% of employees receiving a performance appraisal in 2023

(2022: 59%). At the time of writing, performance evaluations for 2023

were ongoing.

Annual salary reviews are aligned with performance evaluations

where applicable to ensure that employees are paid fairly and

correctly for the position they hold. In compliance with all applicable

local laws relating to the provision of pensions, over 82% of our

permanent employees (by headcount) beneﬁt from being a member

of a company‑based pension scheme.

TRAINING AND DEVELOPMENT

2023

2022

Average training time per employee (hours)

(1)

Average training spend per employee (£)

(2)

292

279

Total number of training hours

(1)

512,238

496,312

Total annual spend on workforce training (£)

(2)

5,085,732

4,756,851

APPRENTICESHIPS

AND GRADUATE PROGRAMMES

Apprenticeship and graduate programmes assist with training a

new generation of employees and help to ensure that knowledge

is retained within the business. In 2023, over 200 apprenticeships

were in place at GKN Aerospace, providing a mix of on‑the‑job

and classroom training. In turn, in 2023, GKN Aerospace’s Global

Graduate Development Programme enrolled a further 32 graduates

onto the programme, adding to the existing 32 graduates who joined

as part of the 2021 and 2022 cohorts.

In addition to apprenticeships and graduate programmes,

GKN Aerospace also runs a number of internship and cooperative

education programmes, whereby students complement their

studies with paid periods of work over the course of their degree.

These programmes give students the opportunity to gain valuable

industry experience that helps broaden their skillsets, whilst helping

businesses develop a talented and diverse recruitment pool.

MELROSE SKILLS FUND

In 2023, we met our commitment given at the time of the acquisition

of GKN plc to invest £10 million over ﬁve years through the Melrose

Skills Fund to build the UK’s industrial base and to support the

creation of between 100 to 150 new apprenticeships in engineering,

technology and science, with the total number of apprenticeships

created having exceeded this target. The Melrose Skills Fund has

been utilised to develop the technical skills that support current and

future engineering skills needs, using digital delivery methods and

accredited learning management systems.

(1)

Data was collected from 100% (by headcount) of the Group in 2023 and 2022.

(1)

Data was collected from 100% (by headcount) of the Group in 2023, and from 98%

in 2022.

The Melrose Skills Fund has helped to support the training and

development of more than 3,000 individuals across GKN Aerospace’s

UK workforce, with key capability gaps closed and tangible

value added to the business. GKN Aerospace investment was

focused on three areas, emphasising the importance of building

technical capabilities to meet future business challenges and

customer expectations: Tactical Skills Standardisation, Future Skills

Differentiation and Skills Delivery Infrastructure.

• Tactical Skills Standardisation:

A bottom‑up approach used

to identify technical capability gaps and training opportunities

focusing on tactical skills standardisation in areas such as

Manufacturing Engineering, Quality Management, Life Cycle

Assessment Process Development and Automation and Robotics.

• Strategic Skills Differentiation:

A top‑down approach used to

proactively identify emerging capabilities and skills that will be

required over the next 10–15 years in the aerospace industry. Areas

highlighted for strategic skills differentiation included Digital Skills,

STEM Pipeline Industry Collaboration and Academic Institution

Collaboration.

• Skills Delivery Infrastructure:

To address the need to invest

in infrastructure to effectively govern, accelerate and deliver

the Melrose Skills Fund, investments were made to recruit a

GKN Aerospace Skills Fund Programme Manager, review existing

learning and development systems and set‑up a multi‑purpose

training and development function at GKN Aerospace’s UK GTC.

A key focus of the Melrose Skills Fund has been identifying ways to

work with third parties and the community to help bolster the UK’s

manufacturing and engineering industry. The Melrose Skills Fund has

supported the Schools’ Aerospace Careers Programme (the “ACP”),

a charity supporting young people and educational establishments

across the UK to increase the number of young people undertaking

STEM learning and pursuing careers in engineering‑based industries.

This included employees attending multiple school roadshows

and hosting an ACP Student Networking Event in which around

75 students attended the GKN Aerospace GTC for a full day of

insights into aerospace careers.

Another core component of the Melrose Skills Fund has been

supporting initiatives which look to improve diversity within

manufacturing. In collaboration with Enginuity, a not‑for‑proﬁt

organisation, and the trade union Unite, Melrose helped develop an

engineering task‑oriented computer game contextualised for the

aerospace sector to help encourage school children from ethnic

minorities and different socio‑economic backgrounds to consider a

career within engineering.

More information relating speciﬁc projects enabled by the Melrose

Skills Fund can be found in our 2023 Sustainability Report.

TACTICAL SKILLS

STANDARDISATION

SKILLS DELIVERY INFRASTRUCTURE

STRATEGIC SKILLS

DIFFERENTIATION

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

SUSTAINABILITY REVIEW

CONTINUED

COMMUNITY IMPACT

At Melrose, we ﬁrmly believe that our responsibility extends

beyond our core business operations. Our commitment to the

communities where we operate is an integral part of our corporate

ethos. This past year, we continued to contribute to local charitable

and community initiatives, both in terms of volunteering time and

material resources, that create a positive and lasting impact on

the communities we serve. In 2023, GKN Aerospace undertook

community initiatives and invested over £312,000 in a mix of

donations, sponsorships and employee’s volunteering their time

to help others and charitable causes globally. GKN Aerospace

also made cash donations to non‑proﬁt charitable organisations

in excess of £825,000, giving a total contributed of more than

£1,100,000 to support charities and its local communities.

Community investment is led by sites who are required to enter

donation and sponsorship programmes in compliance with the

Anti‑Bribery & Corruption policy. As an example, GKN Aerospace’s

GTC in the UK recently hired, in partnership with a UK Autism

charity, two intern engineers with autism and has since re‑mapped

the hiring processes to make adjustments to the working

environment to ensure they felt safe and included.

SAFETY FIRST

The health, safety and wellbeing of all our employees and

contractors has always been of paramount important to Melrose.

We understand the unique challenges and responsibilities that

come with our industry, and we are resolute in our commitment

to maintaining the highest standards in these areas. In the past

year, we have continued to make signiﬁcant strides in ensuring the

wellbeing of our workforce and the safety of our operations.

Safety is paramount in our industry and thus our safety culture is

ingrained in our business. We have established strong governance

principles, robust policies and rigorous safety protocols, and

invested in safety equipment whilst ensuring employees are

equipped with the knowledge and skills necessary to perform their

roles safely. We take a holistic approach to employee wellness,

which starts with protecting their physical and mental health,

protecting their social wellbeing and respecting their human rights,

and extends to ensuring a positive workplace culture that attracts

and retains a highly‑skilled workforce.

We have a Group target to achieve and maintain an annual LTA

Frequency Rate of below 0.1. This underpins our overarching

commitment to stop all accidents from occurring, through

the promotion of safe behaviours across all locations, and an

enhanced focus on hazard identiﬁcation and awareness. Health

and safety management systems are supported by internal

health and safety effectiveness audits, with regular oversight and

challenge by the Melrose senior management team, quarterly

reporting to the Board, and further regular oversight over any

material incidents or issues that arise.

As at 31 December 2023, 30 sites (2022: 30) (inclusive of ofﬁce,

production and testing sites) within the Group were certiﬁed to

the ISO 45001 international standard, with additional relevant

sites progressing towards accreditation. Third‑party auditing

on a three‑year certiﬁcation cycle is required to maintain ISO

accreditation, with annual surveillance audits taking place in

between to ensure standards are being maintained.

HEALTH AND SAFETY PERFORMANCE

We are focused on cultivating a strong safety culture within our

business through emphasising the importance of preventing incidents

and implementing near miss reporting, which requires an enhanced

focus on hazard identiﬁcation and awareness. Behaviour‑based

programmes and continuous training and awareness campaigns

remain central to the approach in improving safety performance.

In 2023, we maintained an average LTA Frequency Rate of less

than 0.1 and continued to prioritise continuous health and safety

improvements in the push for the LTA Frequency Rate of zero. Please

refer to the Health and Safety section of our Non‑Financial KPIs on

page 19 of the Strategic Report.

HUMAN RIGHTS, MODERN SLAVERY

AND HUMAN TRAFFICKING

Modern slavery and human trafﬁcking

The Group has a zero‑tolerance approach to any form of

modern slavery, as set out in the Melrose Anti‑Slavery and

Human Trafﬁcking policy which is available on the website at

https://www.melroseplc.net/governance/documents‑and‑policies/.

In accordance with the Modern Slavery Act 2015, Melrose publishes

its own Modern Slavery Statement, which is approved by the

Board annually. The latest statement can be found on our website.

GKN Aerospace also is responsible for publishing their own

Modern Slavery Statement in accordance with the requirements

under the Modern Slavery Act 2015, which can be accessed here:

www.gknaerospace.com/en/utilities/modern‑slavery‑statement. This

approach ensures that those senior managers closest to the business

operations devise appropriate measures to ensure that slavery is not

present within supply chains.

Melrose implements employee training with respect to anti‑slavery

and human trafﬁcking, to ensure that all employees understand the

risks and are prepared to take the required action if they suspect that

modern slavery is happening internally or within the supply chain.

Human rights

We are committed to acting in an ethical manner with integrity and

transparency in all business dealings, and to create effective systems

and controls across the Group to safeguard against adverse human

rights impacts. The Group has a strong culture of ethics, which

encompasses key human rights considerations, as set out in our

Human Rights policy, in support of the principles set out in the UN

Declaration of Human Rights. The Human Rights policy can be found

at https://www.melroseplc.net/governance/documents‑and‑policies/.

GKN Aerospace also implements effective and proportionate

measures to identify, assess and mitigate potential labour and human

rights abuses across their operations and supply chains. These

include training, anti‑slavery and human trafﬁcking policies, employee

handbooks and business‑speciﬁc policies. All GKN Aerospace

policies are reviewed locally within each business in order to ensure

compliance with local laws and standards as a minimum.

There have been no violations reported on human rights in 2023 or in

the previous two years.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

ETHICS AND COMPLIANCE

Sound business ethics and integrity, and effective and transparent

governance, are core to the Group’s values and fundamental for

the success of our strategy. Melrose is a premium listed company

with strong, established ﬁnancial and non‑ﬁnancial controls that are

continually assessed, tested and reviewed.

The Melrose Board oversees our robust governance framework

at a Group level, with risk ownership decentralised across

GKN Aerospace’s business lines and functions. This is supported

by independent internal audit and risk functions, regular public

disclosure and ﬁnancial reporting, external audits, public

accountability and conformance with leading benchmarks set by

the UK Corporate Governance Code (the “Code”). The framework

is also supported by direct engagement with investors, corporate

governance and proxy advisors and the Group’s wider stakeholders

to ensure best market practice is being implemented.

GROUP CODE OF ETHICS

AND COMPLIANCE POLICIES

Our commitment to maintaining a responsible and ethical corporate

environment is underscored by a framework that includes robust

ﬁnancial and non‑ﬁnancial controls. This framework is further

reinforced by a strong governance structure that is subject to regular

internal reviews and, when necessary, external assessments to

ensure compliance at every level of the Group.

Directors, ofﬁcers, employees and contractors, whether they are part

of our permanent or temporary workforce, are obligated to uphold

the highest standards of conduct. This entails strict adherence

to Melrose’s Code of Ethics and compliance policies, which are

continually reﬁned to reﬂect the latest industry best practices and to

uphold the principles of corporate citizenship.

Each individual business line is tasked with the responsibility of not

only complying with our Code of Ethics and compliance policies

but also promoting and embedding them within their day‑to‑day

operations. This approach ensures that every facet of our business

is conducted with integrity, responsibility, and sustainability at

its core, reinforcing our commitment to ethical and responsible

corporate practices.

The Code of Ethics and compliance policies, as approved by

the Board, cover best practice with respect to anti‑bribery and

corruption, anti‑money laundering, anti‑facilitation of tax evasion,

competition, conﬂict minerals, trade compliance, data privacy,

whistleblowing, treasury and ﬁnancial controls, anti‑slavery and

human trafﬁcking, document retention, joint ventures, diversity and

inclusion, environmental, human rights, supply chain, biodiversity

and water.

Implementation of the Group Code of Ethics and compliance policies

is supported by risk assessments, audits and reviews and annual

compliance certiﬁcations. Melrose strongly believes that policies and

procedures are only as effective as the people who implement them.

To that end, all of the above measures are backed by investment,

resources and training.

ANTI‑BRIBERY AND CORRUPTION

We take a zero‑tolerance approach to bribery, corruption and

other unethical or illegal practices, and are committed to acting

professionally, fairly and with integrity in all business dealings and

relationships, within all jurisdictions in which we operate. Melrose

adopts high governance standards, to ensure that the Group

conducts business responsibly, sustainably, and in the pursuit

of long‑term success for the collective beneﬁt of stakeholders.

This is outlined in our Anti‑Bribery and Corruption policy, which

is implemented and administered throughout the Group, and

is available on our website at https://www.melroseplc.net/

governance/documents‑and‑policies/.

Although the policy prohibits party political donations, it does

however recognise that from time to time our Group may comprise

businesses that engage in policy debate and advocacy activities on

subjects of legitimate concern to their respective industries and key

stakeholders, including their staff and the communities in which

they operate. There were no political donations made during the

year ended 31 December 2023: £0 (2022: £0).

WHISTLEBLOWING

Melrose runs a Group‑wide whistleblowing platform, which is

overseen by the Audit Committee and supported by the Melrose

senior management team, and ultimately reported to the Board.

The platform is monitored by the businesses’ legal, compliance

and HR functions, with support from the Melrose senior

management team. All employees have access to a multi‑lingual

online portal, together with local hotline numbers that are available

24/7, in order to raise concerns, conﬁdentially and anonymously,

about possible wrongdoing in any aspect of their business,

including ﬁnancial and non‑ﬁnancial matters.

GKN Aerospace takes a number of actions to raise employees’

awareness of the whistleblowing platform, using online and ofﬂine

media as appropriate, including through its six dedicated employee

resource groups: Connected Women, Future GKN, LGBTQ+,

African Black Caribbean Professionals, Mastering Neurodiverse

Strengths and Veterans & Reservists. Currently, the total

membership across these groups is nearing 2,000 employees.

UN SDGs

MATERIAL TOPICS

•

Business integrity

•

Information Security

•

Sustainable supply chain and responsible sourcing

GOVERNANCE

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

SUSTAINABILITY REVIEW

CONTINUED

Employees who come forward with a genuine concern are

treated with respect and dignity and do not face retaliation.

During 2023, 84 whistleblowing cases were recorded through

the platform (2022: 78). This highlights the effectiveness of

awareness campaigns together with the trust placed by employees

in the whistleblowing programme. Each case is investigated

conﬁdentially by the business with appropriate response measures

taken. Whistleblowing cases are regularly reported to the Audit

Committee and ultimately to the Board.

PAYING TAX RESPONSIBLY

Melrose is committed to paying taxes that are due, complying with

all applicable laws, and engaging with all applicable tax authorities

in an open and cooperative manner. The Group does not engage

in aggressive tax planning. The Group’s Tax Strategy is reviewed,

discussed and approved by the Board annually. The Audit

Committee periodically reviews the Group’s tax affairs and risks.

The Group has adopted a policy in respect of the prevention of

the facilitation of tax evasion which has been implemented by the

businesses, with guidance on undertaking risk assessments and

training to employees in relevant roles.

The Group does not operate in countries considered as

partially compliant or non‑compliant according to the OECD tax

transparency report, or in any countries blacklisted by the EU, for

the purposes of tax avoidance and/or harmful tax practices, per

the lists released as at 17 October 2023.

SUSTAINABILITY AND CLIMATE CHANGE

RISK MANAGEMENT

Sustainability risks, including Climate Change, are integrated into

the Company‑wide risk management framework which serves

as the foundation of the Group’s risk management process. The

process includes identiﬁcation of relevant risks, risk scoring,

development and assignment of appropriate response actions,

monitoring the effectiveness of key mitigating controls and

reporting of the overall risk trend to the Audit Committee each

year. During 2023, the GKN Aerospace sustainability function

re‑assessed climate‑related risks, taking into account the evolving

landscape associated with climate change in the areas of existing

and expected legislation, supplier and consumer preferences,

government policies and commitments, as well as changes in

climatic patterns. The core sustainability team also engaged with

Health, Safety and Environment leaders across GKN Aerospace

to start the assessment and better the understanding of potential

water and biodiversity risks that sites can be exposed to, and

therefore addressing those risks through mitigation actions in

sustainability and environmental plans will be an area of focus in

2024. Risks are typically assessed for likelihood, magnitude of

impact and their strategic impact on the business with a view to

develop mitigating action plans for risks where the risk scoring

exceeds the Group’s tolerance levels. For more information on

governance and management of the Climate Change principal

risk, please refer to our TCFD report on pages 58 to 63. For more

information on our approach to management of principal risks,

please see the Risks and uncertainties section on pages 31 to 36.

ENSURING THE HIGHEST STANDARDS OF

PRODUCT QUALITY AND SAFETY

We are committed to ensuring the highest standards of product

quality, reliability and safety. Recognising the importance of protecting

the wellbeing of the ultimate end users of our products, we follow

structured product design and development procedures to ensure

precise delivery to customer speciﬁcation. As we develop new designs

or update existing designs, we seek opportunities to enhance quality

and safety performance. Every site has active plans and targets

to reduce the risk of non‑conformance and to reduce the cost of

poor quality.

The Group takes a preventative approach to product responsibility

through instilling effective controls and processes around social factors

such as safety and quality assurance, including crisis management

procedures and processes, including, but not limited to, potential

recall programmes.

In 2023, 96% (2022: 95%) of the Group’s product portfolio (by revenue)

was certiﬁed to a recognised international quality management

standard of ISO 9001, or EN/AS9100. The relevant certifying bodies

audit the manufacturing facilities and support functions at least

annually, undertaking surveillance audits, and each site is recertiﬁed

once every three years. In addition, a number of GKN Aerospace

certiﬁed entities also have additional regulatory approvals, including

EASA, FAA and EMAR, covering design, production and repair.

SUPPLY CHAIN MANAGEMENT

We participate responsibly and sustainably within our supply chains

and mitigate the risk of supply chain issues. At a minimum, we source

raw materials and manufacture products in a responsible, ethical and

sustainable manner.

We encourage our suppliers to respect, protect and minimise

their impact on the environment, respect their employees’ human

rights and provide good and safe working conditions across

their operations. In practice, this means that we require suppliers

to respect and protect the environment in compliance with the

applicable environmental legislation relating to energy use, waste,

emissions, water and resource consumption and management, to

treat their staff equally, to pay their employees a fair wage that meets

or exceeds the minimum standards or prevailing industry standard,

to eliminate excessive working hours for all workers and protect their

workers’ health and safety rights at work.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Implementing supplier qualiﬁcation processes where relevant,

including through various risk assessments, helps identify and

appropriately manage the risks associated with the environmental

and social sustainability of their operations. Through Melrose’s Supply

Chain Policy and GKN Aerospace’s Supplier Code of Conduct, we

set our ambitions to safeguard both human rights and the natural

environment globally and all suppliers are required to comply with the

policy and the Code.

In 2023, Melrose continued to participate in the CDP Supply Chain

engagement initiative, in order to provide an insight into our supplier’s

environmental data and enable efﬁcient tracking of their alignment

with Net Zero. This second year of engagement has generated an

over 70% response rate (2022: 50%) and provided further insights on

suppliers’ environmental data, their energy consumption, emissions

reduction initiatives and climate targets alongside other environmental

data. The selected organisations were reﬂective of GKN Aerospace’s

largest suppliers by spend, and engagement with them was

therefore important for pinpointing risks and identifying emissions

reduction opportunities. Internal initiatives for streamlining supply

chain management, assessment and engagement are underway

at GKN Aerospace in close collaboration within sustainability,

procurement, ﬁnance and site operations functions to facilitate the

data capture and to ensure we were following best practice.

Responsibility for the implementation and management of

supplier‑related governance principles and policies rests with the

GKN Aerospace business lines and their management teams.

Our Group‑level supplier‑related policies include the new Supply

Chain policy, introduced in 2022 (https://www.melroseplc.net/

governance/documents‑and‑policies/).

CONFLICT MINERALS

As set out in the Group Conﬂict Minerals policy, we have strict

procedures in place in respect of sourcing products or raw

materials containing 3TG minerals to the extent required by

applicable laws or customer expectations, and to seek to

identify whether 3TG minerals are sourced responsibly and from

conﬂict‑free geographies. We also work with our supply chain

partners to ensure compliance with all applicable laws and

regulations. As a minimum, relevant suppliers are required to

perform due diligence to ascertain whether any 3TG minerals in

products are conﬂict‑free and complete the Responsible Minerals

Initiative reporting.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

SUSTAINABILITY REVIEW

CONTINUED

INFORMATION SECURITY AND DATA PRIVACY

Melrose strongly respects privacy and seeks to minimise the amount

of personal data that it collects, as well as to ensure the robust and

sufﬁciently segregated storage of any data that is held. Information

security and cyber threats are an increasing priority across all

industries globally, and Melrose recognises that the Group must

be protected from potential exposures in this area, particularly

considering its scale, reach, complexity and public‑facing nature,

as well as the potential sensitivity of data held in relation to civil

aerospace technology and controlled defence contracts. The Melrose

senior management team routinely works with the GKN Aerospace

Chief Information Ofﬁcer and external cyber security risk consultants

to review the information security and cyber threats risk proﬁle

which is one of our principal risks. This helps to monitor and track

the Group’s exposure to cyber security risk and drive continuous

improvement actions, as well as ensure appropriate compliance with

the General Data Protection Regulation (“GDPR”).

The GKN Aerospace information security strategy and

risk‑based governance framework follows the UK Government’s

recommendations on cyber security. This strategy has enabled risk

proﬁling and mitigation plans to be developed to mitigate and reduce

exposure to cyber risk. This ensures clarity and consistency in the

assessment of IT and cyber security matters. Progress is measured

against the information security strategy and is monitored on a

quarterly basis. To mitigate the impact of external cyber‑attacks, the

Melrose senior management team works with the GKN Aerospace

Chief Information Ofﬁcer and external cyber security risk consultants.

The results of this ongoing review programme are reported to the

Board on a regular basis. The Board, supported by the Melrose

senior management team, oversee the Group’s cyber security

risk proﬁle, and requires each business function to protect any

commercial or personal information ensuring safe and appropriate

usage of their IT systems and processes by their employees.

Regular internal and external testing of perimeter defences through

penetration testing is undertaken, ensuring appropriate threat

monitoring systems are in place. We work towards national and

international business accreditations in varying aspects of cyber

management where applicable and relevant to our business activities,

including the UK’s National Cyber Security Strategy (“NCSS”), ISO

27001, and industry‑speciﬁc National Institute of Standards and

Technology (“NIST”). As part of Melrose’s overall information security

strategy, IT security awareness training in various forms was provided

consistently across the business in 2023 to all its employees.

96%

of the Group’s product portfolio (by revenue)

was certiﬁed to a recognised international

quality management standard of ISO 9001,

or EN/AS9100 (2022: 95%)

INTERNAL FINANCIAL CONTROLS

AND REPORTING

We have a comprehensive and robust system for assessing

the effectiveness of internal controls, including strategic

business planning and regular monitoring and reporting of ESG

data alongside ﬁnancial and operational performance. The

identiﬁcation and oversight of material controls over the ESG data

of the businesses is the responsibility of the GKN Aerospace

sustainability function, which runs an established yet evolving

programme of regular monitoring and review (at least quarterly)

processes that are consistently robust across the Group. This

is complemented by reporting protocols to ensure the business

lines’ management are accountable for achieving progress

on sustainability and climate‑related matters. The quality and

accuracy of ESG data is continually improved against relevant

guidance from prominent international regulatory frameworks

and as tailored for our chosen metrics and targets. In 2023,

we commenced a sustainability data pre‑assurance project in

preparation for formal limited assurance in the coming years.

Horizon‑scanning of applicable external reporting requirements

is conducted regularly to identify the opportunities to strengthen

data management systems and controls and ensure data‑driven

compliance mechanisms.

The Audit Committee also monitors the effectiveness of the internal

control process implemented across the Group through a review of

the key ﬁndings presented by the external and internal auditors.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

ABOUT THIS REPORT

REPORTING STANDARDS

This report has been prepared with reference to the

following frameworks, standards and guidelines:

• Group sustainability targets and commitments have

been aligned to the United Nations Sustainability

Development Goals (“UN SDGs”).

• Additional disclosure on our sustainability

performance has been prepared in line with the

Sustainability Accounting Standards Board (“SASB”)

requirements for Aerospace and Defence sector

standards.

• Energy and emissions reporting has been prepared

in accordance with the principles and requirements

of the Greenhouse Gas (“GHG”) Protocol Revised

Edition, ISO 14064 Part 1 and the Environmental

Reporting Guidelines, including the Streamlined

Energy and Carbon Reporting guidance dated

March 2019. The GHG Protocol standard covers

the accounting and reporting of seven Greenhouse

gases covered by the Kyoto Protocol.

REPORTING BOUNDARIES, SCOPE

AND BASIS OF PREPARATION

Unless otherwise stated, our sustainability

reporting covers all entities in which the Group has

operational control. Data from entities disposed of

during the reporting period (i.e., disposed of before

31 December 2023) are not accounted for in this section

in respect of the FY 2023 data and all previous years.

INTERNAL DATA CONTROLS

All reported ﬁgures represent the latest available

internal data, unless otherwise speciﬁed. Some of the

totals presented may reﬂect the rounding down or up

of subtotals. Melrose has a central internal reporting

system which captures and records the ESG data

alongside ﬁnancial and operational metrics used in this

report. All data is subject to quarterly internal reviews

by subject matter experts at business line level.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

NON‑FINANCIAL AND SUSTAINABILITY INFORMATION STATEMENT

Our efforts to improve non‑ﬁnancial and sustainability performance are supported by a foundation of robust governance, risk management

and compliance, and we continue to engage with key internal and external stakeholders to ensure we deliver upon their expectations.

This section of the Strategic Report constitutes the Group’s Non‑Financial and Sustainability Information Statement for the purposes of

sections 414CA and 414CB of the Companies Act 2006. The information listed is incorporated by reference.

Reporting

requirement

Policies and standards that govern our approach

Principal Group

Risk

Where you can ﬁnd more

Stakeholders

Melrose was founded in 2003 to empower underperforming manufacturing

businesses to unlock their full potential for the collective beneﬁt of stakeholders,

whilst providing shareholders with a superior return on their investment. Melrose

now operates as a pureplay aerospace business. The Board understands

and takes into account the interests of its different stakeholders when taking

decisions and undertakes thorough event‑driven consultations with relevant

stakeholders to ensure that the decisions it takes are based on a fully informed

view of the potential impact of the decision on those stakeholders.

• n/a

2023 Annual Report

•

Our strategy and

business model

• Our strong track record

• Board stakeholder

engagement and

decision‑making

(Section 172 statement)

• Sustainability review

Environmental

matters

The Sustainability review on pages 43 to 93 sets out our approach in respect

of the environment and climate change, and provides examples of the actions

we are taking to contribute to the decarbonisation of the aerospace sector, to

promote energy efﬁciency, decarbonise our operations and supply chain, and to

reduce waste and water consumption.

As we transition to a net zero economy by 2050, we have reset our sustainability

targets and commitments to focus on immediate tangible improvements. These

targets are supported by our four overarching sustainability principles, being

aligned with our new material sustainability topics as identiﬁed within our double

materiality assessment in 2023. For more information on our new sustainability

targets, please see pages 48 to 51 of the Sustainability review. In 2023, we

also updated our Net Zero Transition Plan, prepared in accordance with the UK

Transition Plan Taskforce’s (“TPT”) guidance. The plan sets out the actions we

intend to take in the transition to a net zero economy, how we plan to execute

on our interim and long‑term emissions reduction targets, and how we plan to

achieve Net Zero by 2050.

As part of our third year of reporting against the Task Force on Climate‑related

Financial Disclosures (“TCFD”) framework, we recalibrated our initial 2021

climate‑scenario assessment of climate‑related risks and opportunities to

focus on the aerospace sector, providing more sector aligned disclosure to

shareholders and other stakeholders.

• Climate change

• Legal and

regulatory

2023 Annual Report

• Board stakeholder

engagement and

decision‑making

(Section 172 statement)

• Sustainability review

• Melrose Group Task Force

on Climate‑related Financial

Disclosures (“TCFD”)

Group Policies

• Conﬂict Minerals policy

• Environmental policy

• Biodiversity policy

• Water policy

• Supply Chain policy

Employees

At Melrose, we promote diversity and prioritise and nurture the wellbeing and

skills development of employees and the communities that they are part of. Our

Sustainability review on pages 43 to 93 sets out our approach and the policies

that support it. We recognise the increasing importance of taking a holistic

approach to employee wellness by protecting physical health, mental health and

social wellbeing. This helps to foster a positive workplace, and to attract and

retain a highly‑skilled workforce.

We are committed to building a diverse workforce at all levels and creating an

inclusive culture for all. Our Sustainability review on pages 43 to 93 sets out how

we are doing this, and further information on our policies to promote diversity and

inclusion can be found in the Nomination Committee report.

Investment in people is a key driver of commercial success throughout the

Group, underpinned by employee engagement and a ﬁrmly integrated culture

of employee development, diversity and inclusion. By providing a safe working

environment, encouraging diversity and inclusion at all levels, and ensuring all our

employees have access to training and career development opportunities, we will

continue to attract and retain the best talent.

Our Workforce Advisory Panel provides an important, ongoing forum for

direct engagement and consultation between the workforce and divisional

executive teams.

An annual all‑employee engagement survey is undertaken across the Group in

order to collate the views of employees and identify areas of strength and those

in need of development. The Board receives a summary of these results, and

is provided with feedback on how employees’ views are taken into account in

executive decision making.

• Operations

• Loss of key

management

and capabilities

• Legal and

regulatory

• Treasury

2023 Annual Report

• Board stakeholder

engagement and

decision‑making

(Section 172 statement)

• Sustainability review

• Nomination Committee

report

Group Policies

• Code of Ethics

• Whistleblowing policy

• Anti‑slavery and Human

Trafﬁcking policy

• Melrose Board of Directors

Diversity policy

• Melrose Diversity, Equity

and Inclusion policy

• Human Rights policy

In addition to the operational and financial improvements that we implement

within our business, we recognise our responsibility to improve our

non‑financial performance, focusing on long‑term sustainable value creation

for the aerospace sector and all of our stakeholders.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Reporting

requirement

Policies and standards that govern our approach

Principal Group

Risk

Where you can ﬁnd more

Respect for

human rights

We are committed to acting in an ethical manner with integrity and transparency

in all business dealings, and to creating effective systems and controls across

the Group to safeguard against adverse human rights impacts. The Group has a

strong culture of ethics, which encompasses key human rights considerations,

and which is set out in our Human Rights policy which drives the implementation

of effective and proportionate measures to identify, assess and mitigate potential

labour and human rights abuses across our operations and supply chain. The

Group supports the principles set out in the UN Declaration of Human Rights.

We take a zero‑tolerance approach to any form of modern slavery or human

trafﬁcking and are committed to investing in effective systems and controls to

safeguard against any form of modern slavery taking place within them or their

respective supply chains. You can read more on our approach and the policies in

place to support it in the Sustainability review on pages 43 to 93.

• Legal and

regulatory

2023 Annual Report

• Sustainability review

Group Policies

• Modern Slavery Statement

• Whistleblowing policy

• Anti‑slavery and Human

Trafﬁcking policy

• Human Rights policy

• Supply Chain policy

Social

matters and

communities

Our Sustainability review on pages 43 to 93 details our approach to supporting

communities. There you can ﬁnd out more information on our policies, schemes,

charity programmes and initiatives that support it.

• n/a

2023 Annual Report

• Sustainability review

Group Policies

• Code of Ethics

• Anti‑Bribery and

Corruption policy

• Conﬂict Minerals policy

• Whistleblowing policy

• Anti‑slavery and Human

Trafﬁcking policy

• Environmental policy

• Human Rights policy

• Supply Chain policy

• Biodiversity policy

• Water policy

Anti‑corruption

and anti‑bribery

We take a zero‑tolerance approach to bribery, corruption and other unethical or

illegal practices, and are committed to acting professionally, fairly and with integrity

in all business dealings and relationships, within all jurisdictions in which we operate.

Melrose follows high governance standards, to ensure that the Group conducts

business responsibly, sustainably, and in the pursuit of long‑term success for

the collective beneﬁt of stakeholders. This is outlined in our Anti‑Bribery and

Corruption policy, which is implemented and administered throughout the Group.

• Legal and

regulatory

2023 Annual Report

• Sustainability review

Group Policies

• Code of Ethics

• Anti‑Bribery and Corruption

policy

All Group policies referred to in the table above, as well as additional information in relation to the areas discussed above, are available on

our website at www.melroseplc.net/governance/documents‑and‑policies.

Additional information

Where you can ﬁnd more

Description of principal Group risks and

impact of business activity

Risk management

Risks and uncertainties

Pages 28 to 30

Pages 31 to 36

Description of the business model

Our business model

20 years of Melrose

Why aerospace? Why now?

Pages 14 to 15

Page 16

Page 17

Financial and non‑ﬁnancial KPIs

Key performance indicators

Pages 18 to 19

The Strategic Report, as set out on pages 1 to 95, has been approved by the Board.

On behalf of the Board:

Peter Dilnot

Chief Executive

7 March 2024

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

STRATEGIC REPORT

GOVERNANCE

IN THIS SECTION

Governance overview

...............................

Board of Directors

...................................

102

Directors’ report

......................................

104

Corporate Governance report

.................

109

Audit Committee report

...........................

116

Nomination Committee report

.................

124

Directors’ Remuneration report

................

128

Statement of Directors’ responsibilities

....

153

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

GOVERNANCE

GOVERNANCE OVERVIEW

Succession planning

Succession planning continued to be an area of focus for Melrose

in 2023. The Nomination Committee and the Board considered

the leadership needs of the Group, present and future, together

with the skills, experience and diversity needed from its Directors

going forward. We recognise that succession planning is an

ongoing process and is critical to maintaining an effective and

high‑quality Board.

Melrose is now a pureplay aerospace business. As a result,

succession planning for the executive Directors was a key focus for

the Nomination Committee and the Board in 2023. In particular, the

Board, with the support of the Nomination Committee, approved

Mr Simon Peckham and Mr Geoffrey Martin stepping down as

Melrose Chief Executive Ofﬁcer and Group Finance Director with

effect from 6 and 7 March 2024 respectively, to be replaced by

Mr Peter Dilnot and Mr Matthew Gregory as Chief Executive

Ofﬁcer and Chief Financial Ofﬁcer respectively. The Committee

considers that these changes provide strong management

continuity. Mr Dilnot has served as Melrose Chief Operating Ofﬁcer

since April 2019 as well as serving as Chief Executive Ofﬁcer of

GKN Aerospace for periods during his tenure, most recently from

October 2023 onwards. Mr Gregory has served as Chief Finance

Ofﬁcer of GKN Aerospace since September 2022. Mr Peckham,

Mr Martin, Mr Christopher Miller and Ms Victoria Jarman will not

stand for re‑election as Directors at the 2024 AGM.

During the year, Ms Funmi Adegoke, Non‑executive Director,

resigned from the Board following her appointment to an executive

role at Halma plc. The Board appointed Ms Gillian Elcock as

a Non‑executive Director of the Board in June 2023 after the

completion of a thorough recruitment process conducted by

an external recruitment consultancy ﬁrm which, other than

providing recruitment consultancy services to the Group, has no

commercial dealings or other connection with the Melrose Group

or its Directors. Ms Elcock has extensive asset management and

investment research experience, including in the aerospace and

defence sector. There were no other changes made to the Board’s

composition during 2023. Biographies for the Directors of the

Company as at the date of this Annual Report can be found on

pages 102 to 103.

As previously announced, my tenure will end in 2025, and the

Board has commenced a search for my successor led by our

Senior Independent Director, David Lis. I will therefore be standing

for re‑election at the 2024 AGM as planned, with a view to support

the transition to the new Chair prior to their appointment in 2025.

Furthermore, succession planning arrangements for the Board as

a whole were reviewed and considered in 2023. This included a

review and discussion of the skill set of the Directors in light of the

change in business strategy of the Company, as well as a review

of the tenure, diversity and independence of those already on the

Board. This review allowed the Nomination Committee to satisfy

itself that the right balance of skills, experience and diversity are

reﬂected and being developed, and that the composition of the

Board is consistent with the Board of Directors’ Diversity policy.

The Nomination Committee report on pages 124 to 127 contains

further details on how succession planning arrangements for the

Board and the Melrose senior management team were reviewed

and considered during 2023.

The Board is committed to maintaining the high standards of corporate

governance required to ensure that the Company can continue to deliver

on its strategic goals, and to achieve long‑term success for the benefit of

its stakeholders.

As part of this approach, the Board has

applied the principles and complied with

the provisions of corporate governance

contained in the UK Corporate

Governance Code (the “Code”) issued

by the Financial Reporting Council (the

“FRC”) and available to view on the FRC’s

website at: www.frc.org.uk.

In support of this commitment, the Board

carried out a number of key governance

activities during 2023 designed to

ensure that Melrose remains compliant

with the provisions of the Code and to

enable continuous improvement in line

with best practice corporate governance

guidelines.

Justin Dowley

Non‑executive Chairman

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

DIVERSITY AND SKILLS OVERVIEW

(2)

Melrose Executive Committee

1 Male

63%

2 Female

37%

Melrose Executive Committee and direct reports

1 Male

59%

2 Female

41%

Board Skills

Accounting and Finance

2 Aerospace

3 Aviation

Corporate Governance

5 Industrial

6 Investment

7 Legal

Sustainability (Environmental and Social)

Board gender diversity

1 Male

60%

2 Female

40%

Board ethnic diversity

1 White

90%

Ethnically diverse

10%

(1)

Please refer to page 3 for details of changes to the Melrose Board.

(2) Diversity data as at 31 December 2023.

Non‑executive Chairman

Executive Directors

Non‑executive Directors

Audit Committee

page 116

Nomination Committee

page 124

Remuneration Committee

page 128

MAIN RESPONSIBILITIES OF THE BOARD

The main responsibilities of the Board are to:

•

effectively manage and control the Company via a formal schedule of

matters reserved for its decision;

•

deﬁne the Group’s purpose, determine and review Group strategy

and policy to deliver that purpose, and provide strategic leadership to

the Group;

•

set the Group’s values and behaviours that shape its culture and the

way it conducts business;

•

review ﬁnancial and trading performance in line with the Group’s

strategic objectives;

•

ensure that adequate funding and personnel are in place;

•

engage with stakeholders and key shareholders on issues that are

most important to the long‑term success of the Company;

•

oversee the effective operation of the Workforce Advisory Panel in

ensuring the views of the workforce are considered in its discussions

and decision‑making;

•

report to shareholders and give consideration to all signiﬁcant

ﬁnancial matters;

•

agree Board succession plans and consider the evaluation of the

Board’s performance over the preceding year;

•

oversee the Group’s risk management and internal control systems;

•

determine the nature and extent of the risks the Group is willing

to take;

•

agree the Group’s governance framework and approve Group

compliance policies;

•

monitor, assess and review cyber security and fraud risk for the

Group;

•

consider acquisitions, disposals and requests for major capital

expenditure;

•

delegate and oversee responsibility for entrepreneurial leadership and

strategic management of the Group to the Group senior executives;

•

challenge, review and exercise robust managerial oversight across

key decisions, actions and processes within the Group;

•

promote the long‑term success of the Company for the beneﬁt

of shareholders as a whole, having regard to a range of other key

stakeholders and interests; and

•

oversee and retain ultimate responsibility for Melrose’s enhanced

sustainability and climate‑related initiatives, disclosure and reporting

in respect of improving the sustainability performance of its

businesses.

GOVERNANCE STRUCTURE

(1)

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

GOVERNANCE

GOVERNANCE OVERVIEW

CONTINUED

Sustainability

The Board is mindful of its responsibilities regarding climate change

and sustainability, which are central to implementing the Company’s

purpose and strategy. In particular, the Board assesses the basis on

which the Company generates and preserves value over the long

term, including reviewing opportunities and risks, and the sustainability

of the Company’s business model. Further details on this can be

found in the Sustainability review on pages 43 to 93. The Company

has carefully considered how it can strategically address matters

relating to sustainability in the most efﬁcient and appropriate way. The

Board oversees and retains ultimate responsibility for the Group’s

strategy, initiatives, and disclosure in respect of improving the Group’s

sustainability performance. The Board receives regular training at

least annually on key sustainability and climate‑related issues, and on

the speciﬁc measures that are required to be implemented to drive

improved sustainability performance over the longer term, for the

beneﬁt of all stakeholders. Sustainability and climate change are also a

standing topic on the Board’s quarterly agenda.

As part of the renewal of the Directors’ Remuneration Policy in 2023,

the Remuneration Committee further integrated ESG metrics into

executive remuneration as a standalone element of the annual bonus.

Please see the Directors’ Remuneration report on pages 128 to 152

for further details.

Risk management and internal control

Melrose has implemented a Group Enterprise Risk Management

programme, with complementary processes and procedures. During

2023, the Audit Committee continued to keep under review the

Company’s internal ﬁnancial controls systems that identify, assess,

manage and monitor ﬁnancial risks and other internal control and

risk management systems, and the effectiveness of the Group’s risk

management system, through regular updates from management.

This included a review of the key ﬁndings presented by the external

and internal auditors having agreed the scope, mandate and review

schedule in advance.

Management, with support from external advisors, continued to

utilise a third‑party hosted interactive dashboard which has been

tailored to the requirements of the Group in order to consolidate

the Group’s risk reporting. The dashboard includes data from

GKN Aerospace’s risk register, which was reviewed and approved

by GKN Aerospace’s senior management key risk owners. The

dashboard has supported the continued enhancement of the

Group’s risk management processes, with in‑depth reporting and

data collection. The outputs have informed management’s reporting

to the Audit Committee and has bolstered the Audit Committee’s

oversight of risk areas, mitigations, controls and trends. Furthermore,

it has helped to guide the Audit Committee on relevant updates to the

Group’s principal risks (including assessing, for discussion with the

Board, any new and/or emerging principal Group risks), as reported

in the Risks and uncertainties section on pages 31 to 36.

Full details on the Group’s approach to risk management can be

found in the Risk management section on pages 28 to 30, and in the

Audit Committee report on pages 116 to 123.

Melrose Executive Committee

The Melrose Executive Committee operates under the direction

of the Chief Executive Ofﬁcer. It is chaired by a member of the

Melrose senior management team on a rotating basis to encourage

diversity and comprises members of the Melrose head ofﬁce

team, including the executive Directors. Its key roles are to ensure

that there is full knowledge of, and coordination between, the

Melrose corporate team and the GKN Aerospace business lines,

including in respect of the Group’s key transformation projects, as

well as day‑to‑day management, to ensure that the appropriate

resource is being devoted to resolve any issues, and to ensure that

actions being taken are supportive of the Group’s aims, objectives

and culture.

Remuneration

The Directors’ Remuneration report, comprising the annual

statement from the Chairman of the Remuneration Committee, the

Annual Report on Remuneration and the proposed 2024 Directors’

Remuneration Policy, is available on pages 128 to 152.

Our long‑standing executive remuneration structure has

traditionally been characterised by setting salary, beneﬁts and

annual bonuses below the lower quartile of our FTSE 100 peers,

with the opportunity for signiﬁcant reward being weighted towards

long‑term incentivisation. This approach has been entirely

appropriate in complementing our “Buy, Improve, Sell” strategy

and has been central to the success that has been delivered for

our shareholders. It has also been both well understood and well

supported by our investors, as most recently demonstrated by the

votes in favour of the 2022 Directors’ Remuneration Report and the

2023 Directors’ Remuneration Policy at the 2023 AGM.

With Melrose’s strategy having shifted from its previous “Buy,

Improve, Sell” model to becoming an aerospace business

for the long term, now is the appropriate time to realign the

Company’s executive remuneration structure to reﬂect our new

strategic direction, subject to approval by shareholders of the

2024 Directors’ Remuneration Policy. Our new strategy remains

focused on value creation, driven by operational and ﬁnancial

improvement over the longer term. Our positive trajectory is

underpinned by leading positions on the world’s major aircraft

platforms, strong organic growth prospects within the aerospace

sector, and attractive opportunities to differentiate our business

through cutting‑edge proprietary technology that is already

shaping the future of ﬂight. To support this change in strategy,

the Board believes that the new executive management team

should be remunerated under a structure that resembles more

closely Melrose’s FTSE 100 peers. In particular, we propose to

rebalance Melrose’s weighting of ﬁxed to variable remuneration,

and of medium‑ to longer‑term incentivisation, using a structure

reﬂective of the majority of FTSE 100 companies, including through

the introduction of a performance share plan which will replace the

Melrose Employee Share Plan as the Group’s ongoing long‑term

incentive plan. We have engaged with key shareholders and

other stakeholders in relation to the proposed 2024 Directors’

Remuneration Policy as further described on page 129.

Melrose’s remuneration philosophy remains unchanged in

order to align senior management with shareholders: executive

remuneration should be simple, transparent, support value creation

and pay only for performance.

100

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Ethics and compliance

Our Code of Ethics (which can be found at www.melroseplc.net/

governance/documents‑and‑policies) reinforces our values and

provides guidance for all employees, contractors and business

associates so that they are fully aware of what is expected of them,

their responsibilities and the consequences of non‑compliance.

The principles outlined in our Code of Ethics are embedded within

the Group, and mechanisms and policies are in place for anyone to

whom the Code of Ethics applies to seek guidance on interpreting its

principles, where required.

The Code of Ethics is supported by Group compliance policies

covering best practice with respect to anti‑bribery and corruption,

anti‑money laundering, anti‑facilitation of tax evasion, competition,

conﬂict minerals, trade compliance, data privacy, whistleblowing,

treasury and ﬁnancial controls, anti‑slavery and human trafﬁcking,

document retention, joint ventures, diversity and inclusion,

environmental, human rights, supply chain, biodiversity and water.

The implementation of the Code of Ethics and Group compliance

policies is supported by a combination of risk assessment

requirements, training and ongoing monitoring to ensure their

effectiveness for the Group. Taken together, these initiatives have

enhanced our business’s effectiveness at identifying and managing

risks and have promoted and embedded a more risk‑aware culture.

Further details on the Group’s management of risk can be found in

the Risk management section on pages 28 to 30.

Melrose’s reputation for acting responsibly plays a critical role in

its success as a business and its ability to generate shareholder

value. We maintain high standards of ethical conduct and take a

zero‑tolerance approach to bribery, corruption, modern slavery

and human trafﬁcking and any other unethical or illegal practice.

We are committed to acting professionally, fairly and with integrity

in all business dealings and relationships, within all jurisdictions in

which we operate. Further details of the Group’s stance and focus

on ensuring effective stewardship in respect of key environmental,

social and governance matters are set out in the Sustainability

review on pages 43 to 93. Supporting our compliance policies

are a comprehensive online training platform, an industry‑leading

whistleblowing reporting facility and a data‑driven risk reporting

dashboard providing increased risk management visibility and trend

analysis to senior management and the Audit Committee. The

integrity of the compliance framework is further reinforced by the use

of independent compliance reviews where required.

Engagement with stakeholders

In 2023, the Company continued to run engagement initiatives

with key shareholders and governance bodies on key topics

including diversity, sustainability and remuneration. Members of the

Board also made themselves available to discuss issues with key

investors and other stakeholders on an ad‑hoc basis upon request.

Stakeholder engagement was considered particularly important in

2023 following the Company’s change in business strategy. The

Company held a successful capital markets event in May 2023 to

provide further information on the Company’s new strategy, and

the executive Directors also engaged with key investors on the new

strategy as part of the investor roadshow programme.

Melrose also continued with a variety of workforce engagement

initiatives, most notably through its Workforce Advisory Panel

(“WAP”), which met twice in 2023. The purpose of the WAP is to

promote effective engagement with, and encourage participation

from, the Group’s workforce. The WAP comprises the Chief Human

Resources Ofﬁcer and Group General Counsel from Melrose

and GKN Aerospace and other relevant internal stakeholders as

required as the Group’s new business strategy and integrated

structure evolves. Each member of the WAP is responsible for

promoting workforce engagement, disseminating information

and collating the voice of their workforce. The Board remains of

the view that this structure is the most appropriate and effective

method of ensuring that workforce voices are heard.

It is our intention to continue with our programme of stakeholder

engagement in 2024. Full details of how the Board engages with all

of its stakeholders and considers them in its decision‑making is set

out in our Section 172 statement on pages 37 to 42.

Justin Dowley

Non‑executive Chairman

7 March 2024

101

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

GOVERNANCE

BOARD OF DIRECTORS

Justin Dowley

Independent

Non‑executive Chairman

Year appointed

Appointed as Chairman on 1 January 2019, having previously served as a

Non‑executive Director from 1 September 2011, and as the Senior Independent

Director from 11 May 2017 to 31 December 2018. As previously announced,

Mr Dowley’s tenure will end in 2025, and a search for his successor has been

commenced. Mr Dowley will be standing for re‑election at the Company’s Annual

General Meeting on 2 May 2024 (the “2024 AGM”) as planned, with a view to

support the transition to the new Chairman prior to their appointment in 2025.

Skills and experience

Mr Dowley has extensive experience with over 35 years spent within the

banking, investment and asset management sectors. A chartered accountant,

Mr Dowley qualiﬁed with Price Waterhouse and was latterly Vice Chairman of

EMEA Investment Banking, a division of Nomura International PLC. He was also a

founder partner of Tricorn Partners, Head of Investment Banking at Merrill Lynch

Europe and a director of Morgan Grenfell.

Board meetings attended

(1)

Business reviews attended

Other signiﬁcant appointments

• Chair of Scottish Mortgage Investment

Trust PLC

• Deputy Chairman of The Panel on

Takeovers and Mergers

• Director of a number of private companies

Committee membership

• Nomination

• Remuneration

Independent

Yes

Tenure

(2)

12 years

Peter Dilnot

Chief Executive Ofﬁcer

Year appointed

Appointed as an executive Director on 1 January 2021, having served

as Chief Operating Ofﬁcer since April 2019. Mr Dilnot was appointed as

Chief Executive Ofﬁcer on 6 March 2024.

Skills and experience

Mr Dilnot has been at Melrose since April 2019. As well as serving as an executive

Director and Chief Operating Ofﬁcer during this time, he has also fulﬁlled the

role of Chief Executive Ofﬁcer of GKN Aerospace for periods during his tenure,

most recently from October 2023. Mr Dilnot has considerable public company

and industrial business experience, having been the Chief Executive Ofﬁcer of

international recycling company Renewi PLC (formerly Shanks Group PLC) and

having been a senior executive at Danaher Corporation. He also spent seven

years at the Boston Consulting Group in London and Chicago, working primarily

with industrial businesses. Mr Dilnot has an engineering and aviation background,

and started his career as a helicopter pilot in the British Armed Forces. He also

holds a degree in Mechanical Engineering.

Board meetings attended

(1)

Business reviews attended

Other signiﬁcant appointments

• Trustee of Autistica

Independent

Not applicable

Tenure

(2)

Not applicable

Matthew Gregory

Chief Financial Ofﬁcer

Year appointed

Mr Gregory was appointed as an executive Director on 7 March 2024, joining the

Board as Chief Financial Ofﬁcer. He will stand for election for the ﬁrst time at the

2024 AGM.

Skills and experience

Mr Gregory has extensive knowledge of GKN Aerospace, having served as

Chief Financial Ofﬁcer of GKN Aerospace since September 2022. Matthew is a

seasoned Chief Financial Ofﬁcer, with considerable public company leadership

experience, having served as both Chief Executive Ofﬁcer and Chief Financial

Ofﬁcer of FirstGroup plc and Chief Financial Ofﬁcer of Essentra plc. Matthew

has strong strategic and operational expertise, including in driving strategy and

operational turnaround in complex multinational listed companies, alongside

international and corporate development experience. Mr Gregory is a qualiﬁed

chartered accountant having started his career at Ernst & Young, working in

London and Milan.

Board meetings attended

(1)

Not applicable

Business reviews attended

Not applicable

Other signiﬁcant appointments

None

Independent

Not applicable

Tenure

(2)

Not applicable

David Lis

Senior Independent Director

Year appointed

Appointed as the Senior Independent Director on 5 May 2022, having previously

served as a Non‑executive Director from 12 May 2016, and Chair of the

Remuneration Committee on 1 January 2019.

Skills and experience

Mr Lis has held several senior roles in investment and fund management, as

well as other board appointments. He brings extensive ﬁnancial experience

to the Board. Mr Lis commenced his career at NatWest, and held positions

at J Rothschild Investment Management and Morgan Grenfell after which

David founded Windsor Investment Management. David joined Norwich Union

Investment Management in 1997 (later merging to form Aviva Investors), before

becoming Head of Equities in 2012 and latterly Chief Investment Ofﬁcer, Equities

and Multi Assets, until his retirement in March 2016.

Board meetings attended

(1)

Business reviews attended

Other signiﬁcant appointments

• Chairman of Windar Photonics Plc

• Senior Independent Director of Hostmore plc

• Director of a number of private companies

Committee membership

• Audit

• Nomination

• Remuneration (Chair)

Independent

Yes

Tenure

(2)

7 years

Charlotte Twyning

Independent

Non‑executive Director

Year appointed

Appointed as a Non‑executive Director on 1 October 2018 and Chair of the

Nomination Committee on 1 January 2022.

Skills and experience

Ms Twyning brings a diverse range of experience and commercial acumen to the

Board. After a successful legal career specialising in competition and M&A law

in the City, she held various senior positions across a number of sectors, most

recently in aviation and transportation. Ms Twyning has proven leadership and

operational skills in large, complex organisations and has consistently succeeded

in driving performance and building the foundations for growth throughout her

career. She now enjoys a portfolio career, combining a number of non‑executive,

trustee and advisory roles.

Board meetings attended

(1)

Business reviews attended

Other signiﬁcant appointments

• Governor of the Museum of London

Committee membership

• Audit

• Nomination (Chair)

• Remuneration

Independent

Yes

Tenure

(2)

5 years

102

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Heather Lawrence

Independent

Non‑executive Director

Year appointed

Appointed as a Non‑executive Director on 1 June 2021 and Chair of the

Audit Committee on 5 May 2022.

Skills and experience

Mrs Lawrence originally qualiﬁed as a chartered accountant and subsequently

spent well over a decade working in senior roles within corporate ﬁnance

and investment banking, where she honed her experience across industrials

and transportation businesses. Mrs Lawrence has signiﬁcant non‑executive

directorship experience, including as non‑executive director of Antofagasta PLC

and non‑executive director and audit committee chair of FlyBe Group plc.

(3)

Board meetings attended

(1)

Business reviews attended

Other signiﬁcant appointments

• Non‑executive Director of Antofagasta PLC

Committee membership

• Audit (Chair)

Independent

Yes

Tenure

(2)

2 years

Victoria Jarman

Independent

Non‑executive Director

Year appointed

Appointed as a Non‑executive Director on 1 June 2021.

Skills and experience

Ms Jarman is a chartered accountant who qualiﬁed at KPMG before spending

over ten years with Lazard Ltd working in the investment banking team and then

as Chief Operating Ofﬁcer for the London and Middle East operations until 2009.

Ms Jarman has previously been a non‑executive director of Equiniti Group plc,

Hays plc and De La Rue plc, a Non‑Executive Director of Signature Aviation plc

and Entain plc and Senior Independent Director at Equiniti Group plc. Ms Jarman

will not be standing for re‑election at the 2024 AGM.

Board meetings attended

(1)

Business reviews attended

Other signiﬁcant appointments

• Non‑executive Director of Great Portland

Estates plc

Committee membership

• Audit

• Nomination

• Remuneration

Independent

Yes

Tenure

(2)

2 years

Gillian Elcock

Independent

Non‑executive Director

Year appointed

Appointed as a Non‑executive Director on 21 June 2023.

Skills and experience

Ms Elcock has extensive asset management and investment research

experience, including covering the aerospace and defence sector. Ms Elcock

is the founder and former Managing Director of Denny Ellison, an independent

investment research and training company. She also brings insight gained from

several non‑executive director roles.

Board meetings attended

(1)(4)

Business reviews attended

(4)

Other signiﬁcant appointments

• Non‑executive Director of International

Biotechnology Trust Plc

• Non‑executive Director of STS Global

Income & Growth Trust plc

• Member of the Board of the CFA UK

• Non‑executive Director of Octopus Apollo

VCT plc

Committee membership

• Audit

• Nomination

• Remuneration

Independent

Yes

Tenure

(2)

0 years

Former Directors

Christopher Miller

Former Executive Vice‑Chairman

Co‑founder of Melrose, appointed as Executive Vice‑Chairman on

1 January 2019, having previously served as Executive Chairman from May 2003.

Mr Miller stepped down from the Board on 7 March 2024 and therefore will not be

standing for re‑election at the 2024 AGM.

Board meetings attended

(1)

Business reviews attended

Other signiﬁcant appointments

None

Simon Peckham

Former Chief Executive

Co‑founder of Melrose, appointed as Chief Executive on 9 May 2012, having

previously served as Chief Operating Ofﬁcer from May 2003. Mr Peckham

stepped down from the Board on 7 March 2024, and therefore will not

be standing for re‑election at the 2024 AGM.

Board meetings attended

(1)

Business reviews attended

Other signiﬁcant appointments

None

Geoffrey Martin

Former Group Finance Director

Appointed as Group Finance Director on 7 July 2005. Mr Martin stepped down

from the Board on 7 March 2024, and therefore will not be standing for re‑election

at the 2024 AGM.

Board meetings attended

(1)

Business reviews attended

Other signiﬁcant appointments

• Executive Director of Dowlais Group plc

(1)

Meetings attended refers to scheduled meetings.

(2)

Tenure runs from the date of appointment until 31 December 2023 and is based on full years only.

(3)

Ms Lawrence was also a non‑executive director of Coats Group PLC until 31 March 2023.

(4)

Ms Elcock was appointed to the Board on 21 June 2023. She has attended all Board and applicable meetings and business reviews since her appointment. She will stand for

election for the ﬁrst time at the 2024 AGM.

103

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

GOVERNANCE

DIRECTORS’ REPORT

Insurance and indemnities

In accordance with the Articles and the indemnity provisions of the

Act, the Directors have the beneﬁt of an indemnity from the Company

in respect of any liabilities incurred as a result of their ofﬁce. This

indemnity is provided both within the Articles and through a separate

deed of indemnity between the Company and each of the Directors.

The Company has taken out an insurance policy in respect of those

liabilities for which the Directors may not be indemniﬁed. Neither

the indemnities nor the insurance provide cover in the event that a

Director is proved to have acted dishonestly or fraudulently.

Post balance sheet events

On 1 March 2024, the Group completed the disposal of its Fuel

Systems business for £50 million, before costs and other deductions.

Capital structure

In connection with the demerger of Dowlais Group plc (the

“Demerger”), the ordinary share capital of the Company was

consolidated (the “Share Capital Consolidation”). Recognising that

the Demerger involved the extraction of businesses from the Group

which accounted for a signiﬁcant proportion of the Company’s market

capitalisation, the Share Capital Consolidation was undertaken in

order to enable the post‑Demerger share price of both the Company

and the new demerger entity, Dowlais Group plc (“Dowlais”), to initiate

at sensible levels.

The Share Capital Consolidation was effected by each holding of

three existing ordinary shares of 160/21 pence in the capital of

the Company being consolidated into one new ordinary share of

160/7 pence in the capital of the Company. The record date for the

Share Capital Consolidation was 6.00 pm on 19 April 2023 and the

new ordinary shares were admitted to listing and trading at 8.00 am

on 20 April 2023. Subject to allowance for fractional entitlements,

shareholders continued to own approximately the same proportion of

the ordinary share capital of the Company before and after the Share

Capital Consolidation.

The Share Capital Consolidation was approved by shareholders

of the Company at a general meeting of the Company held on

30 March 2023.

Additionally, the Company commenced a share buyback programme

on 2 October 2023, which is intended to be conducted over a

period of 12 months, and will end no later than 1 October 2024

(the “Share Buyback”). In accordance with the Company’s general

authority to repurchase ordinary shares in the Company granted by

its shareholders at the Annual General Meeting held on 8 June 2023,

the Share Buyback is limited to 202,586,150 ordinary shares in

the Company (the “General Authority”) and was further limited to

a maximum aggregate consideration payable by the Company of

£500 million (the “Limit”). The continuation of the Share Buyback

beyond the conclusion of this year’s AGM is subject to the Company

obtaining approval for a new General Authority from shareholders at

this year’s AGM.

The ordinary shares in the Company repurchased as part of

the Share Buyback are intended to be either held in treasury or

cancelled. As at 31 December 2023, 18,761,840 ordinary shares had

been repurchased, all of which are currently held in treasury, meaning

that the Company had 1,351,475,321 ordinary shares in issue as

at 31 December 2023, with 18,761,840 of these shares being held

in treasury.

The Directors of Melrose Industries PLC

present the Annual Report and financial

statements of the Group for the year

ended 31 December 2023.

Incorporated information

The Corporate Governance report set out on pages 109 to 115, the

Finance Director’s review on pages 20 to 27, and the Sustainability

review on pages 43 to 93 are each incorporated by reference into

this Directors’ report.

Disclosures elsewhere in the Annual Report are cross‑referenced

where appropriate. Taken together, they fulﬁl the combined

requirements of the Companies Act 2006 (the “Act”) and of the

Disclosure Guidance and Transparency Rules and the Listing Rules

of the Financial Conduct Authority (the “FCA”).

AGM

The Annual General Meeting (“AGM”) of the Company will be held

at Butchers’ Hall, 87 Bartholomew Close, London EC1A 7EB at

11.00 am on 2 May 2024. A detailed explanation of each item of

business to be considered at the AGM is included with the Notice

of Annual General Meeting. The notice convening the meeting

is shown on pages 240 to 242 and includes full details of the

resolutions to be proposed, together with explanatory notes in

relation to such resolutions (the “AGM Notice”).

Directors

The Directors of the Company as at the date of this Annual Report,

together with their biographies, can be found on pages 102 to 103.

Changes to the Board during the year are set out in the

Governance overview on pages 98 to 101 and the Corporate

Governance report on pages 109 to 115. Details of Directors’

service contracts are set out in the Directors’ Remuneration report

on pages 128 to 152.

The Statement of Directors’ responsibilities in relation to the

consolidated ﬁnancial statements is set out on page 153, which is

incorporated into this Directors’ report by reference.

Appointment and removal of Directors and their powers

The Company’s articles of association (the “Articles”) give the

Directors the power to appoint and replace other Directors.

Under the terms of reference of the Nomination Committee, any

appointment must be recommended by the Nomination Committee

for approval by the Board.

Pursuant to the Articles and in line with the UK Corporate

Governance Code (the “Code”), all of the Directors of the

Company are required to stand for re‑election on an annual basis.

Mr Simon Peckham, Mr Geoffrey Martin, Mr Christopher Miller and

Ms Victoria Jarman will not stand for re‑election by shareholders

at this year’s AGM. With the exception of Mr Matthew Gregory and

Ms Gillian Elcock, who are standing for election for the ﬁrst time,

all of the remaining Directors of the Company will be standing for

re‑election by shareholders at the forthcoming AGM, and in each

case, an ordinary resolution will need to be passed to approve

such (re‑)election.

The Directors are responsible for managing the business of the

Company and exercise their powers in accordance with the

Articles, directions given by special resolution, and any relevant

statutes and regulations.

104

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

The table below shows details of the Company’s issued share capital

as at 31 December 2022; following the Share Capital Consolidation;

and as at 31 December 2023.

Share class

31 December

2022

19 April 2023

Post Share Capital

Consolidation

(1)

31 December

2023

Ordinary shares of

160/21 pence each

4,054,425,961

Nil

Ordinary shares of

160/7 pence each

n/a

1,351,475,321

The Company’s sole class of ordinary shares is admitted to the

premium segment of the ofﬁcial list.

Shareholders’ voting rights

Subject to any special rights or restrictions as to voting attached to

any class of shares by or in accordance with the Articles, at a general

meeting of the Company, each member who holds ordinary shares

in the Company and who is present (in person or by proxy) at such

meeting is entitled to:

• on a show of hands, one vote; and

• on a poll, one vote for every ordinary share held by them.

There are currently no special rights or restrictions as to voting

attached to any class of shares.

The Company is not aware of any agreements between shareholders

that restrict voting rights attached to the ordinary shares in the

Company.

Where any call or other amount due and payable in respect of an

ordinary share remains unpaid, the holder of such shares shall not

be entitled to vote at or attend any general meeting of the Company

in respect of those shares. As at 7 March 2024, all ordinary shares

issued by the Company are fully paid.

Details of the deadlines for exercising voting rights in respect of the

resolutions to be considered at the 2024 AGM are set out in the AGM

Notice on pages 240 to 242.

Shareholders whose combined shareholdings amount to at least 5%

of the issued voting share capital may, pursuant to section 303 of the

Act, request that the Directors call a general meeting of the Company.

Shareholders whose combined shareholdings amount to at least 5%

of the issued share capital entitled to vote can also request that the

Company introduces a resolution to be voted on at an AGM.

Restrictions on transfer of securities

The Articles do not contain any restrictions on the transfer of

ordinary shares in the Company, aside from the usual restrictions

applicable where shares are not fully paid up, if entitled to do so

under the Uncertiﬁcated Securities Regulations 2001, where the

transfer instrument does not comply with the requirements of the

Articles or in exceptional circumstances approved by the relevant

investment exchange, provided such refusal would not disturb

the market in such shares. Restrictions may also be imposed by

laws and regulations (such as insider trading and market abuse

provisions). Directors and certain senior employees of the Group

may also be subject to internal approvals before dealing in ordinary

shares of the Company and minimum shareholding requirements.

The Company does not have any anti‑takeover devices in place,

including devices that would limit share ownership.

The Company is not aware of any agreements between

shareholders that restrict the transfer of ordinary shares in the

Company.

Articles of association

The Articles may only be amended by a special resolution at

a general meeting of the shareholders of the Company. There

are no amendments proposed to be made to the Articles at the

forthcoming AGM.

Substantial shareholdings

As at 31 December 2023, the following voting interests in the

ordinary share capital of the Company, disclosable under Chapter

5 of the FCA’s Disclosure Guidance and Transparency Rules, had

been notiﬁed to the Directors:

Shareholder

Shareholding

(2)

% of ordinary

share capital as at

31 December

2023

(2)

The Capital Group Companies, Inc.

256,866,618

19.01%

BlackRock Inc

94,720,155

7.00%

Select Equity Group Inc

67,196,570

4.97%

Norges Bank

81,260,011

6.06%

Aviva plc

118,577,085

2.92%

Bank of America Corporation

131,232,533

3.24%

Permian Investment Partners, LP

38,240,723

2.85%

(1)

To effect the Share Capital Consolidation, two ordinary shares of 160/21 pence each were allotted and issued to Investec Bank plc on 19 April 2023 at 163.125 pence per share,

being the closing mid‑market price of an ordinary share on 19 April 2023, in order to ensure that the number of ordinary shares of the Company was exactly divisible by three. These

ordinary shares were issued pursuant to the general authorities granted by the Company’s shareholders in accordance with section 551 and section 570 of the Act at the Company’s

AGM held on 5 May 2022. The terms of this issue were ﬁxed on 19 April 2023 following a meeting of a committee of the Board. These ordinary shares were subject to the Share

Capital Consolidation.

(2)

Where the holding of shares has not been re‑notiﬁed to Melrose since the Share Capital Consolidation, the number of shares and percentage of ordinary share capital is as notiﬁed

to Melrose prior to this consolidation. In addition, where the holding of shares was notiﬁed to Melrose prior to commencement of the Share Buyback and has not been re‑notiﬁed to

Melrose since the commencement of the Share Buyback, and where the holding of shares was notiﬁed to Melrose after commencement of the Share Buyback, the number of shares

and percentage of ordinary share capital is as notiﬁed to Melrose.

105

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

GOVERNANCE

DIRECTORS’ REPORT

CONTINUED

Financial instruments

The disclosures required in relation to the use of ﬁnancial instruments

by the Company, including the ﬁnancial risk management objectives

and policies (including in relation to hedging) of the Company and the

exposure of the Company to liquidity risk, cash ﬂow risk, exchange

rate risk, contract and warranty risk and commodity cost risk, can be

found in the Finance Director’s review on pages 20 to 27, the Risks

and uncertainties section of the Strategic Report on pages 31 to 36,

and in note 25 to the ﬁnancial statements, which are incorporated by

reference into this Directors’ report.

Research and development activities

The aerospace industry is highly competitive and as such the Group

researches and develops new and innovative product lines and

processes in order to meet customer demands in a continuously

evolving environment and to support its sustainability goals.

As noted in the Sustainability review on pages 43 to 93, which is

incorporated by reference into this Directors’ report, investment into

research and development activities continued throughout 2023.

GKN Aerospace is a technology leader in aerostructures, engine

structures and wiring systems. Its lightweight composites, additive

manufacturing, innovative engine systems and smart transparencies

help to reduce emissions and weight on the aircraft and enhance

passenger comfort, pushing the boundaries for the next generation

of aircraft. It is at the forefront of many research and developments

partnerships and industry collaboration programmes, including

the development of a ground‑breaking liquid hydrogen technology

as part of its £54 million collaborative H2GEAR programme which

focuses on technology to accelerate aerospace decarbonisation,

with the goal of zero CO

emissions hydrogen‑powered sub‑regional

aircraft entering the skies as early as 2026. The programme is

expected to create more than 3,000 jobs across the UK and will

reinforce the UK’s position at the forefront of aerospace technology

research and development.

Other examples include the Future of Flight Challenge for Innovate

UK where GKN Aerospace leads in the development of safe

system design, manufacturing and operational knowledge for

liquid hydrogen fuel systems; development of an out‑of‑autoclave

technology, addressing the energy intensive nature of composite

material structures to enable their wider application for lowering an

aircraft’s CO

emissions through their reduced weight and additional

beneﬁts such as material toughness, high processing speeds and

recyclability; work with Eviation on an experimental electric aircraft,

providing expertise for the integration of large‑scale components; as

well as industry collaboration to develop a hydrogen gas generation

solution which aims to substitute natural gas with combined H2

generation and hydrogen storage technologies, thus reducing

reliance on fossil fuels.

The Melrose Skills Fund has also funded initiatives within the Group

and in the wider community. Further details on these initiatives are set

out in the Sustainability review on pages 43 to 93.

Shareholder dividend

The Directors are pleased to recommend the payment of a ﬁnal

dividend of 3.5 pence per share (2022: second interim dividend

of 1.5 pence per share)

(1)

to be paid on 8 May 2024 to ordinary

shareholders on the register of members of the Company at the

close of trading on 2 April 2024. This dividend recommendation will

be put to shareholders at the forthcoming AGM of the Company,

to be held on 2 May 2024. Subject to shareholder approval being

obtained at the AGM for the ﬁnal dividend, this will mean a full year

2023 dividend of 5.0 pence per share (2022: 2.325 pence).

For discussion on the Board’s intentions with regard to the

Company’s dividend policy, please see the Chairman’s statement

on pages 2 to 3, which is incorporated into this Directors’ report

by reference.

The Company offers a Dividend Reinvestment Plan (“DRIP”),

which gives shareholders the opportunity to use their dividend

payments to purchase further ordinary shares in the Company.

Further details about the DRIP and its terms and conditions can

be found within the Investors section of the Company’s website at

www.melroseplc.net.

Historical dividends

Equiniti, the Company’s registrar, administers the unclaimed

dividends of the former GKN plc (now GKN Limited). Pursuant to

law and its articles of association, GKN Limited is obliged to pay

such unclaimed dividends for a period of 12 years from the date

on which they were declared or became due for payment. As at

31 December 2023, the total amount of dividends of GKN Limited

remaining unclaimed for more than 12 years was £244,458.77. If

the unclaimed dividends are not claimed by 30 June 2024, the

Company will look to donate the funds to charity.

Ability to purchase own shares

Pursuant to sections 693 and 701 of the Act and a special

resolution passed at a general meeting of the Company on

8 June 2023, the Company is authorised to make market

purchases of up to 202,586,150 of its ordinary shares, representing

approximately 14.99% of the current issued ordinary share capital

of the Company. The Company has made purchases of its own

shares pursuant to this authority. As described on page 104, the

Company commenced the Share Buyback on 2 October 2023. As

at 31 December 2023, 18,761,840 ordinary shares of the Company

had been repurchased pursuant to, and in compliance with, this

authority. The remainder of this authority will expire at the end of

this year’s AGM.

At the 2024 AGM, the Company is seeking approval to make

market purchases of its ordinary shares up to 197,373,991, being

approximately 14.99% of the issued ordinary share capital of the

Company (excluding treasury shares) as at the latest practicable

date prior to notice of AGM, thereby renewing the authority.

The continuation of the Share Buyback beyond the conclusion

of this year’s AGM is therefore subject to this authority being

renewed. The full text of the resolution, together with minimum

and maximum price requirements, is set out in the AGM Notice on

pages 240 to 242.

(1)

The Company paid a second interim dividend of 1.5 pence per share to replace the ﬁnal dividend which would normally have been approved at the Company’s 2023 AGM.

This second interim dividend was paid on 11 April 2023, prior to the Demerger, to ordinary shareholders on the register of members of the Company at the close of trading on

10 March 2023.

106

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Business review and risks

A review of the Group’s performance, the key risks and uncertainties

facing the Group and details on the likely development of the Group

can be found in the Chairman’s statement on pages 2 to 3 and the

Strategic Report on pages 1 to 94 of this Annual Report (including

the Longer‑term viability statement on page 27 and the Risks and

uncertainties section on pages 31 to 36), which are incorporated into

this Directors’ report by reference.

Employee engagement

The Company operates a Workforce Advisory Panel (the “WAP”) as

its chosen method of complying with the requirements of the Code

on employee engagement. The WAP comprises the Chief Human

Resources Ofﬁcer and Group General Counsel of Melrose and

GKN Aerospace and other relevant internal stakeholders as required

as the Group’s new business strategy and integrated structure

evolves. Details in relation to the WAP, employment policies, and

employee involvement, consultation and development, together

with details of some of the human resource improvement initiatives

implemented during 2023, are highlighted in the Sustainability review

on pages 43 to 93 and in the Section 172 statement set out in the

Strategic Report on pages 37 to 42, both of which are incorporated

by reference into this Directors’ report.

Diversity Policies

The Company acknowledges that diversity, equity and inclusion is

a changing landscape, and the Nomination Committee reviews its

diversity policies on an annual basis, with any recommendations

for amendments being approved by the Board. The policies, which

can be viewed on the Company’s website at www.melroseplc.net/

governance/documents‑and‑policies include a Board of Directors’

Diversity policy and a Melrose Diversity, Equity and Inclusion policy.

The Board of Directors’ Diversity policy sets out the Nomination

Committee’s commitment to ensuring that Board membership and

pipeline for succession remains diverse, which is equally applicable

to each of the Board’s committees. It also sets out the Company’s

diversity targets for the Board. The Melrose Diversity, Equity and

Inclusion policy, which is applicable to all Melrose employees, sets

out the Company’s position on diversity, equity and inclusion in its

workforce. Further details can be found in the Nomination Committee

report on pages 124 to 127.

Business relationships

Details of our business’s clients and suppliers and how we work

and engage with them are described in the Divisional review on

pages 8 to 11, in the Section 172 statement on pages 37 to 42 and

in the Sustainability review on pages 43 to 93, each in the Strategic

Report, and all of which are incorporated by reference into this

Directors’ report.

Environmental

Details of the sustainability initiatives across the Group, and the

Group’s Greenhouse Gas (“GHG”) emissions, waste, water usage

and other energy consumption, as well as the methodology used

to calculate such emissions and consumption, are set out in the

Sustainability review on pages 43 to 93, which is incorporated by

reference into this Directors’ report.

In 2023, the Board oversaw the implementation of the Group’s

sustainability targets and commitments which were set in 2021,

and the setting of new sustainability and environmental targets as

part of the Group’s evolved sustainability strategy as it shifted to

become a pureplay aerospace business. Details on performance

against the existing targets are set out on page 44, and the new

targets and commitments are set out in the Sustainability review

on pages 48 to 51. The GKN Aerospace sustainability function

conducted a Double Materiality Assessment which resulted in a

set of material sustainability topics to reset the foundations of the

Group’s sustainability strategy and address the emerging trend of

assessing material sustainability topics through the prism of the

Company’s impact on the environment and society, and ﬁnancial

materiality of these topics. The Group’s new priority material topics

are: climate change; mitigation and adaptation; research and

development for sustainable aviation; occupational health, safety

and wellbeing; product safety and quality; and business integrity.

As part of the Group’s new business model and strategy, the

GKN Aerospace sustainability function developed an updated

Transition Plan which sets out the Group’s commitment to

addressing climate change and ongoing dedication to reducing

our carbon footprint and promoting climate‑aware practices

throughout the Group’s operations and supply chain.

Political donations

The Group’s policy is not to make any political donations and

there were no political donations made during the year ended

31 December 2023 (2022: nil).

Branches

The Melrose Group and its business operates across various

jurisdictions. The Group, through its various subsidiaries, has

established branches in a number of different countries in which

the business operates.

Disclosures required under Listing Rule 9.8.4R

Other than the following, no further information is required to be

disclosed by the Company in respect of Listing Rule 9.8.4R:

• details of the allotment of ordinary shares to Investec Bank plc

in connection with the Share Capital Consolidation, which is set

out in the “Capital structure” section of this Directors’ report on

pages 104 to 105;

• GKN had historically operated employee share option plan trusts

to satisfy the vesting and exercise of awards of ordinary shares

made under GKN’s share‑based incentive arrangements. On the

acquisition of GKN, these shares were converted into Melrose

shares. A dividend waiver is in place on the shareholdings in

respect of relevant trusts in part, or in full, in accordance with the

provisions of the relevant trust deeds.

107

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

GOVERNANCE

DIRECTORS’ REPORT

CONTINUED

In the event of a takeover of the Company, awards granted under the

Melrose Automotive Share Plan would crystallise, giving participants

a right to receive ordinary shares in Dowlais. The number of Dowlais

shares to which participants would be entitled is based upon the

amount of increase in shareholder value in Dowlais created above

an initial invested capital of £3,525,237,530, as calculated based

on the average market capitalisation of Dowlais for the 40 business

days prior to (but excluding) the date of the change of control of

the Company, subject to certain adjustments and a minimum level

of crystallisation.

A long‑term management incentive plan is in place for

GKN Aerospace which would be triggered upon a sale of the

business or a takeover of the Company. The plan provides for the

payment of bonuses to certain key managers of GKN Aerospace

based upon the increase in value of the business. If a sale of the

business has not occurred within a certain period, the incentive plan

will crystallise and any payment to be made to participants will be

based on the increase in value of the business during this period.

Auditor

So far as each Director is aware, there is no relevant audit information

(being information that is needed by the Company’s auditor to

prepare its report) of which the Company’s auditor is unaware.

Each Director has taken all the steps that he or she ought to have

taken as a Director to make him or her aware of any relevant audit

information and to establish that the Company’s auditor is aware of

that information.

This conﬁrmation is given and should be interpreted in accordance

with the provisions of section 418 of the Act.

On behalf of the Board, the Audit Committee has reviewed the

effectiveness, performance, independence and objectivity of the

existing external auditor, Deloitte LLP, for the ﬁnancial year ended

31 December 2023 and concluded that the external auditor was in

all respects effective. PricewaterhouseCoopers LLP (“PwC LLP”) has

agreed to be appointed as the external auditor from the ﬁnancial year

ending 31 December 2024. Accordingly, resolutions will be proposed

at this year’s AGM for the appointment of PwC LLP as auditor

of the Group and to authorise the Audit Committee to determine

its remuneration.

Approval

Approved by the Board and signed on its behalf by:

Warren Fernandez

Company Secretary

7 March 2024

Signiﬁcant agreements and change of control

With the exception of the Group’s banking facilities, the

Notes (as deﬁned below), the 2020 Employee Share Plan,

the Melrose Automotive Share Plan and the GKN Aerospace

long‑term incentive plan, there are no other agreements that

would have a signiﬁcant effect upon a change of control of

Melrose Industries PLC as at 7 March 2024.

The Group’s committed bank facilities were reﬁnanced during

the year, resulting in term loan facilities of US$300 million

and €100 million and a multi‑currency revolving credit facility

of US$250 million (in each case maturing in April 2026) and

additionally multi‑currency revolving credit facilities totalling

US$690 million, £300 million and €300 million that initially mature in

April 2026, but with the potential to be extended for two additional

one‑year periods at the Company’s option. Details of these facilities

are provided in the Finance Director’s review on page 25 and

note 25 to the ﬁnancial statements.

In the event of a change of control of the Company following a

takeover bid, the Company and lenders under the bank facilities

are obliged to enter into negotiations to determine whether, and

if so how, to continue with the facilities. There is no obligation

for the lenders to either fund new loans requested during the

30‑day period after a change of control, or, if no agreement is

reached, continue to make the facilities available following such

30‑day period. Failure to reach agreement on any revised terms

requested by the lenders could require an acquirer to put in place

replacement facilities.

The Company’s wholly‑owned subsidiary, GKN Holdings Limited,

has approximately £9.74 million ﬁxed rate notes outstanding paying

4.625% p.a. interest and maturing on 12 May 2032 (the “Notes”),

issued under a Euro medium‑term note programme. Pursuant to

their terms and conditions, a holder of the Notes has the option

to require GKN Holdings Limited to redeem or (at GKN Holdings

Limited’s option) purchase the holder’s Notes at their principal

amount together with accrued interest, if there is a change of

control of GKN Limited and either: (i) the Notes are unrated or

do not carry an investment grade credit rating from at least two

ratings agencies at the time the change of control occurs; or (ii) if

the Notes carry an investment grade credit rating from at least two

ratings agencies at the time the change of control occurs, and the

Notes are downgraded to a non‑investment grade rating or that

rating is withdrawn and not restored to an investment grade rating

by them or replaced by an investment grade rating of another rating

agency, within 90 days of the change of control and, in each case,

such downgrade or withdrawal is publicly announced, or notiﬁed in

writing to the Notes trustee, by such ratings agencies as being the

result of the change of control.

In the event of a takeover of the Company, awards granted under

the 2020 Employee Share Plan would crystallise and convert into

ordinary shares in the Company or give rise to an entitlement for

the participants to a dividend paid in cash. The rate of conversion

is based upon the offer price of the Company’s ordinary shares as

calculated on the date of the change of control of the Company. If

the offer price, or any element of the offer price, is not in cash, the

Remuneration Committee will determine the value of the non‑cash

element, having been advised by a reputable investment bank that

such valuation is fair and reasonable.

108

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

CORPORATE GOVERNANCE REPORT

The Board recognises that culture, values and standards are key

contributors to how a company creates and sustains value over

the long term. High standards of business conduct guide and

assist the Board’s decision‑making, and in doing so, help promote

the Company’s success, recognising, amongst other things, the

likely consequences of any decision in the long term and wider

stakeholder considerations. The standards set by the Board

mandate certain requirements and behaviours with regards to the

activities of the Directors, our employees and others associated

with the Group.

Resources and controls

As described in more detail in the Risk management section of

the Strategic Report and the Audit Committee report on pages 28

to 30 and 116 to 123 respectively, the Board has established a

framework of reporting procedures, lines of responsibility and

delegated authority, which is updated regularly and understood

by all Board members and the Melrose senior management team.

These reporting processes allow the Board and the Melrose senior

management team to allocate resources in a sustainable and

appropriate manner, enabling the Group to meet its objectives and

measure performance effectively, whilst promoting sustainability.

The Board and the Audit Committee each have access to the

Melrose senior management team and to external assistance in

order to satisfy themselves that appropriate and effective controls

are in place, including Deloitte, who undertake the Group’s external

audit and BM Howarth and Ernst & Young, who assist with the

Group’s internal audit.

Stakeholder engagement

Through presentations and regular meetings between the

executive Directors, analysts and institutional shareholders,

including those following the announcements of the Company’s

annual and interim results and trading updates, the Company

seeks to build on a mutual understanding of objectives with its

shareholders and other stakeholders. This has been particularly

important following the Company’s change in business strategy

to operating as a pureplay aerospace group. The Company held

a successful capital markets event in May 2023 to provide further

information on the Company’s new strategy, and the executive

Directors also engaged with key investors on the new strategy as

part of the investor roadshow programme. Furthermore, in addition

to the usual disclosure rounds following the release of annual

and interim results, the Company continued its programme of

engagement with key investors and corporate governance bodies

in respect of speciﬁc material topics, including the proposed

2024 Directors’ Remuneration Policy, which can be found on

pages 145 to 152, as well as open‑agenda discussions between

key shareholders and members of the Board.

Engagement with key shareholders, proxy advisors, employee

bodies, ratings agencies (including sustainability ratings agencies)

and other governance bodies remains a central part of the

Company’s approach to stakeholder engagement and governance

and will continue in the lead up to the 2024 Annual General

Meeting (“2024 AGM”).

In line with the UK Corporate Governance

Code (the “Code”) issued by the Financial

Reporting Council (the “FRC”), and the

Listing Rules issued by the Financial

Conduct Authority, this section of the

Annual Report and financial statements

details the ways in which the Company

has applied the principles and complied

with the provisions of the Code applicable

during the year ended 31 December 2023.

The Audit Committee report, Nomination Committee report,

Directors’ Remuneration report, Statement of Directors’

responsibilities, Risk management and Risks and uncertainties

sections of the Strategic Report, together with the Sustainability

review and the Section 172 statement, also form part of this

Corporate Governance report.

Statement of compliance

Throughout the year ended 31 December 2023, the Company

has applied the principles and complied with the provisions of

the Code.

1. Principles A‑E: Board Leadership and Company Purpose

Long‑term sustainable success

The Board comprises individuals from a diverse range of

backgrounds and with a wealth of knowledge, understanding

and experience. The Chairman is responsible for leadership of

the Board. The division of responsibilities is described further in

section 2 on page 111.

The Board’s overarching objective is to generate value for the

Company’s shareholders in a way that is sustainable in the

long term and contributes to wider society. The Section 172

statement on pages 37 to 42 sets out the ways in which the

Board took shareholder and other stakeholder considerations into

account in its decision‑making in 2023.

Our purpose, strategy and values

Melrose is a pureplay, UK‑listed, aerospace business, focused

on value creation driven by continuous operational and ﬁnancial

improvement over the longer term. Our positive trajectory is

underpinned by the strong organic growth prospects within

the aerospace sector, alongside attractive opportunities

to further differentiate our business through cutting‑edge

proprietary technology.

The Company’s purpose and strategy remain underpinned by

the principles and values on which it was founded. We act with

integrity, honesty, transparency and decisiveness, and believe in a

lean operating model, high productivity and sustainable business

practices. We see the decarbonisation of the aerospace sector

as a priority, and indeed a central tenet of GKN Aerospace’s

mission to be “The Most Trusted and Sustainable Partner in

the Sky”. Whilst the sector and our customers provide many

opportunities for further progress towards cleaner air travel through

our innovation and technology leadership, we see no reason why

this priority cannot be achieved at the same time as generating

superior ﬁnancial returns for our shareholders.

109

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

GOVERNANCE

The Company notes that the majority of shareholder resolutions

put to shareholders at the 2023 AGM attracted support in excess

of 97% votes in favour. However, whilst special resolutions 17

(general disapplication of pre‑emption rights) and 18 (disapplication

of pre‑emption rights in connection with an acquisition or speciﬁed

capital investment) were passed, they received just under 80% of

votes in favour. Since the 2023 AGM, in accordance with provision

4 of the Code, the Board has engaged with relevant shareholders to

understand and discuss their views with respect to these resolutions.

Whilst the Board considers the ﬂexibility sought by resolutions 17

and 18 to have been in the best interests of the Company and its

shareholders, and notes that both resolutions had followed the

provisions of the Pre‑Emption Group’s 2022 Statement of Principles

for the disapplication of pre‑emption rights, having taken into

consideration shareholder feedback and to seek alignment with

shareholder preferences, the Board has decided to revert to a limit

of 5% of the issued share capital of the Company (excluding treasury

shares) in respect of the equivalent resolutions at the 2024 AGM.

Further details on the Company’s engagement with stakeholders,

including the material topics discussed with investors and

corporate governance bodies, are contained in the Section 172

statement on pages 37 to 42.

In order to promote effective engagement with, and encourage

participation from, its workforce, Melrose operates a Workforce

Advisory Panel (“WAP”). The WAP comprises the Chief Human

Resources Ofﬁcer and Group General Counsel of Melrose and

GKN Aerospace and other relevant internal stakeholders as required

as the Company’s new business strategy and integrated structure

evolves. Each member of the WAP is responsible for determining

how the workforce should be deﬁned, promoting workforce

engagement, disseminating information and collating the voice of

their workforce. Each member of the WAP is in turn responsible

for demonstrating how key workforce views are fed into executive

management decisions, which may include executive remuneration,

as well as ensuring that the workforce is aware of their impact on

such executive management decisions. The WAP meets twice a

year and an annual report is prepared for the Board which highlights

workforce engagement and key views. Further details on the WAP

are contained in the Sustainability review on page 83.

Workforce policies and practices

Melrose’s reputation for acting responsibly plays a critical role in

its success as a business. It maintains high standards of ethical

conduct which are reﬂected in the Group compliance policies, and

cover best practice with respect to anti‑bribery and corruption,

anti‑money laundering, anti‑facilitation of tax evasion, competition,

conﬂict minerals, trade compliance, data privacy, whistleblowing,

treasury and ﬁnancial controls, anti‑slavery and human trafﬁcking,

document retention, joint ventures, diversity and inclusion,

environmental, human rights, supply chain, biodiversity and water.

The Company also operates an externally hosted whistleblowing

portal which is readily available to all Group employees. This

is supported by regularly updated policies, procedures and

awareness campaigns to create an environment in which the

workforce feels it is safe to raise concerns in conﬁdence without

fear of retaliation, and to foster an ethical and supportive Group

culture. The Board and the Audit Committee are provided with

updates on material whistleblowing events as they are reported

from time to time to the Melrose senior management team, and the

Audit Committee is provided with an overview of whistleblowing

activity on a quarterly basis. An annual report is prepared for

the Audit Committee which highlights whistleblowing activity in

further detail across the Group, together with a summary of the

whistleblowing processes and awareness activities undertaken

during the year; this is then fed back to the Board.

2. Principles F‑I: Division of Responsibilities

The Board

Details of the structure of the Board and its key responsibilities are

shown on page 99.

There were four formally scheduled Board meetings held during the

year and the attendance of each Director at these meetings is shown

on page 112.

Business review meetings are held between scheduled Board

meetings. There were three business review meetings held during

the year, and the attendance of Directors at these review meetings

is set out on page 112. These meetings provide the Directors with

a comprehensive understanding of the current performance of,

and the key issues affecting the Group, without the formality of a

Board meeting. Members of the GKN Aerospace executive team are

periodically invited to attend and present at these meetings, providing

the Directors with an opportunity to further strengthen the relationship

with the team as well as enabling detailed insight into the operation of

the business. The executive Directors also undertake site visits on an

ad‑hoc basis and sessions are held between the executive Directors

and the GKN Aerospace executive team at such site visits.

Detailed brieﬁng papers containing ﬁnancial and operational business

summaries and an agenda are provided to the Directors in advance of

each Board, committee or (where relevant) business review meeting.

The Directors are able to seek further clariﬁcation and information on

any matter from any other Director, the Company Secretary or any

other employee of the Group whenever necessary.

Decisions are taken by the Board in conjunction with the

recommendations of its committees and advice from external

consultants, advisors and the Melrose senior management team.

The Board has a fully encrypted electronic portal, enabling Board,

committee and business review papers to be delivered securely

and efﬁciently to Directors. This facilitates a faster and more secure

distribution of information, accessed using electronic devices, and

reduced resource usage, which in turn helps to reduce paper waste.

The Company Secretary is responsible for advising and supporting

the Chairman and the Board on corporate governance matters

as well as assisting the Chairman in ensuring a smooth ﬂow of

information to enable effective decision‑making. All Directors have

access to the advice and services of the Company Secretary and,

through him, have access to independent professional advice in

respect of their duties, at the Company’s expense. The Company

Secretary, supported by the Assistant Company Secretary, acts

as secretary to the Board, the Audit Committee, the Nomination

Committee and the Remuneration Committee.

In accordance with its articles of association (the “Articles”), and

in compliance with the Companies Act 2006, the Company has

granted a qualifying third‑party indemnity to each Director. This

indemnity is provided both within the Company’s Articles and through

a separate deed of indemnity between the Company and each of

the Directors. The Company also maintains directors’ and ofﬁcers’

liability insurance.

CORPORATE GOVERNANCE REPORT

CONTINUED

110

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

In accordance with the Code requirements, at least half of

the Board, excluding the Chairman, comprises Non‑executive

Directors determined by the Board to be independent, and this will

remain the case after the upcoming Board changes as outlined

on page 3.

The Non‑executive Directors are not entitled to any cash bonus

or shares under the 2020 Employee Share Plan or the Melrose

Automotive Share Plan, nor do they receive taxable beneﬁts

or pension contributions. The Board does not consider it

appropriate to impose minimum shareholding requirements on the

Non‑executive Directors.

Corporate governance framework and terms of

reference

The Board has an overarching corporate governance framework

to ensure continued alignment of the Board and committee

members’ roles and division of responsibilities with the Code,

Melrose’s top‑down Board and senior management risk oversight,

and the Group’s bottom‑up risk management approach. Each

member of the Board is provided with a copy of the Company’s

corporate governance framework, which they review, discuss and

update periodically.

Each committee has its own written terms of reference. The

Company Secretary supports the committees in updating these

terms of reference in order to comply with the Code and other

good corporate practice. The terms of reference are continuously

reviewed, although they are more formally reviewed on an

annual basis in the committee meetings. The terms of reference

are available via the Melrose website at www.melroseplc.net/

governance/documents‑and‑policies.

Board induction, training and support

An induction programme tailored to the needs of individual

Directors is provided for new Directors joining the Board. The

primary aim of the induction programme is to introduce new

Directors to, and educate them about, the Group’s businesses, its

operations and its governance arrangements. Individual induction

requirements are monitored by the Chairman and the Company

Secretary to ensure that new Directors gain sufﬁcient knowledge

to enable them to contribute to the Board’s deliberations as quickly

as possible.

The Board also receives annual training and quarterly updates

on key sustainability issues that impact the sectors in which the

Group’s businesses operate, and on the speciﬁc measures that

are required to be implemented to drive improved sustainability

performance over the longer term for the beneﬁt of all stakeholders.

Chairman and Chief Executive Ofﬁcer

The roles of each of the Chairman and the Chief Executive Ofﬁcer of

the Company are, and will remain, separate in accordance with the

Code and Board policy.

The Chairman is responsible for leadership of the Board. The

Chairman sets the Board agenda and ensures that adequate time

is given to the discussion of issues in order to facilitate constructive

discussions with effective contributions from the Non‑executive

Directors, particularly on those issues of a strategic nature. The

Chairman, with the support of the Company Secretary, also facilitates

constructive Board relations by providing accurate and clear

information in a timely manner. Responsibility for ensuring effective

communications are made to shareholders rests with the Chairman

and the executive Directors.

The Chief Executive Ofﬁcer is responsible for strategic direction and

decisions involving the day‑to‑day management of the Company.

Non‑executive Directors

The Company’s Non‑executive Directors are encouraged to, and do,

scrutinise the performance of the executive Directors in all areas,

including on strategy, risks and ﬁnancial information, through their

roles on the Company’s committees, at the Board’s scheduled

meetings and business review sessions, and on an ad‑hoc basis. The

Non‑executive Directors come from a diverse range of backgrounds

and as such are able to draw on their own specialist knowledge to

give necessary guidance and advice, and to hold management to

account.

During 2023, the Board consisted of four executive Directors, ﬁve

Non‑executive Directors (inclusive of the Senior Independent Director)

and the Non‑executive Chairman. As such, the Board is satisﬁed that

there is sufﬁcient challenge by Non‑executive Directors of executive

management in meetings of the Board, and that no individual or small

group of individuals dominates its decision‑making.

Together with the Chairman, the majority of the Non‑executive

Directors are members of the Nomination Committee and as such,

they play a key role in appointing and removing executive Directors.

As considered in section 3 on page 113, the Non‑executive Directors

are also key in evaluating the performance of the Directors.

Non‑executive Director independence

In accordance with the provisions of the Code, consideration has

been given to the independence of all Non‑executive Directors. The

Board considers all of the Non‑executive Directors to be independent.

Upon Mr Justin Dowley’s appointment to the role of Chairman, he

was considered independent. He has strong shareholder support

for his current tenure to 2025, subject to annual re‑election at the

Company’s AGM each year, and his extended term helps to ensure

continuity and stability following the completion of the Demerger.

It is also important to ensure continuity and stability through 2024

following the change in the Company’s business strategy, as well as

aiding the development of a diverse pipeline for succession planning

purposes, with the planned retirement of Mr Simon Peckham,

Mr Geoffrey Martin and Mr Christopher Miller from the Board.

Mr David Lis is the appointed Senior Independent Director, and acts

as an intermediary for the other Directors and shareholders.

111

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

GOVERNANCE

Time commitments and attendance of Directors at

meetings

When considering appointments to the Board, the Board, in

conjunction with the Nomination Committee, reviews any other

demands on a candidate’s time. New Directors are required to

disclose any directorships held and other business interests, and

existing Directors are required to obtain the Chairman’s consent for

additional external appointments. The ability of Directors to have

sufﬁcient time to meet their Board responsibilities is considered

on an annual basis as part of the performance evaluation process.

Mr Martin

(7)

is an executive director of Dowlais Group plc, the UK

listed holding company incorporated as part of the Demerger,

having agreed to take on this role to provide his knowledge and

expertise to Dowlais for a period of time following the Demerger.

The Board has concluded that this appointment does not affect

Mr Martin’s ability to meet his Board responsibilities. Other than

Peter Dilnot’s position as a trustee of the charity Autistica, which

the Board has concluded does not affect his ability to meet his

Board responsibilities, none of the other executive Directors hold

any signiﬁcant appointments nor do they have any non‑executive

directorships in any FTSE 100 company.

The following table shows the attendance of each of the Directors

at the scheduled meetings of the Board and its committees held

during the year. The quorum necessary for the transaction of

business by the Board and each of its committees is two. The table

also shows attendance at business review meetings held between

scheduled Board meetings. Non‑executive Directors are invited but

are not required to attend such meetings.

Attendance of Directors

Board Audit

Nomination

Remuneration

Business

review

Number of meetings

(1)

Justin Dowley

(2)

Christopher Miller

–

Simon Peckham

–

Geoffrey Martin

(3)

–

Peter Dilnot

–

David Lis

Charlotte Twyning

Funmi Adegoke

(4)

–

Heather Lawrence

–

Victoria Jarman

(5)

–

Gillian Elcock

(6)

–

(1)

In addition to the above scheduled meetings, ad‑hoc Board and committee meetings

are held from time to time which are attended by a quorum of Directors and are

convened to deal with speciﬁc items of business.

(2)

Mr Dowley attended these Audit Committee meetings by invitation. He was unable

to attend the Nomination Committee and Remuneration Committee meetings held in

November due to a conﬂicting mandatory commitment. He was in any case briefed

on the matters discussed at the meetings, with his feedback being considered by the

committees.

(3)

Mr Martin attended by invitation.

(4)

Ms Adegoke resigned as a Non‑executive Director of the Company on 16 June 2023.

She attended all Board and applicable committee meetings, together with all

business reviews, prior to her resignation.

(5)

At the meeting of the Board held on 6 December 2023, Ms Jarman was appointed

to the Audit Committee. No meetings of the Audit Committee were held between

6 December 2023 and 31 December 2023.

(6)

Ms Elcock was appointed as a Non‑executive Director of the Company on

21 June 2023. She has attended all Board and applicable committee meetings,

together with all business reviews, since her appointment. At the meeting of the

Board held on 6 December 2023, Ms Elcock was appointed to the Remuneration

Committee. No meetings of the Remuneration Committee were held between

6 December 2023 and 31 December 2023.

(7)

Mr Peckham, Mr Martin and Mr Miller resigned from the Board on 7 March 2024.

3. Principles J‑L: Composition, Succession and Evaluation

Board composition

The Board believes that the Directors bring a combination of skills,

experience and knowledge to the Board that is complementary

to the activities of the Company. Biographies of the Directors

are shown on pages 102 to 103, and on the Company’s website

at www.melroseplc.net/governance/board‑leadership. These

biographies identify any other signiﬁcant appointments held by

the Directors.

During the year, Ms Funmi Adegoke, Non‑executive Director, resigned

from the Board following her appointment to an executive role at

Halma plc. Ms Gillian Elcock was appointed as a Non‑executive

Director on 21 June 2023 and brings to the Board extensive asset

management and investment research experience, including in the

aerospace and defence sector.

The Board has made signiﬁcant progress in improving its diversity in

recent years. It continues to meet the FTSE Women Leaders Review

target of having 40% female representation on its Board. In particular,

the last ﬁve Non‑executive Director appointments have been female.

In addition, the Board continues to meet the Parker Review target

of having one Director from an ethnic minority background on the

Board. Melrose is committed to continuing to meet these targets. The

FTSE Women Leaders Review and the FCA Listing Rules also set a

target for at least one senior board position, being that of Chairman

of the Board, Senior Independent Director, Chief Executive Ofﬁcer

or Chief Financial Ofﬁcer, to be held by a woman (the FTSE Women

Leaders Review having set a target date of the end of 2025). The

Committee recognises that Melrose does not currently meet this

requirement and that it is under active review. Whilst there is a need

for continuity and stability amongst the Board during the current

period of signiﬁcant strategic change for Melrose, this requirement is

being factored into ongoing succession planning discussions.

Succession planning

Succession planning is coordinated via the Nomination Committee

in conjunction with the Board and includes all Directors and

Melrose senior management. It was a core focus in 2023 in light

of the transition to operating as an aerospace‑only business. In

particular, the Board, with the support of the Nomination Committee,

approved Mr Peckham and Mr Martin stepping down as Melrose’s

Chief Executive Ofﬁcer and Group Finance Director with effect from

6 March 2024 and 7 March 2024 respectively, to be replaced by

Mr Peter Dilnot and Mr Matthew Gregory as Chief Executive Ofﬁcer

and Chief Financial Ofﬁcer respectively. Both changes provide

strong management continuity. Mr Dilnot has served as Melrose’s

Chief Operating Ofﬁcer since April 2019 as well as serving as Chief

Executive Ofﬁcer of GKN Aerospace from October 2023 onwards.

Mr Gregory has served as Chief Finance Ofﬁcer of GKN Aerospace

since September 2022. Mr Peckham, Mr Martin, Mr Christopher Miller

and Ms Victoria Jarman will not stand for re‑election as Directors at

the 2024 AGM.

(7)

As previously announced, Mr Dowley’s tenure will end in 2025, and

the Board has commenced a search for his successor led by our

Senior Independent Director, David Lis. Mr Dowley will therefore be

standing for re‑election at the 2024 AGM as planned, with a view to

support the transition to the new Chairman of the Board prior to their

appointment in 2025.

CORPORATE GOVERNANCE REPORT

CONTINUED

112

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Annual (re‑)election of Directors

Pursuant to the Company’s Articles and in accordance with the

provisions of the Code, all of the Directors stood for re‑election at

the 2023 AGM. As detailed on page 112, Mr Peckham, Mr Martin,

Mr Miller and Ms Jarman will not be standing for re‑election

by shareholders at this year’s AGM.

(7)

With the exception of

Mr Gregory and Ms Elcock, who are standing for election for the

ﬁrst time, all of the remaining Directors of the Company will be

standing for re‑election, and in each case an ordinary resolution

will need to be passed to approve such (re‑)elections.

In considering whether each Director should stand for re‑election,

the Nomination Committee, in consultation with the Board,

considers whether the Board has the appropriate balance of

skills, experience, independence and diversity to enable the

Board to carry out its duties and responsibilities effectively. The

time commitments of each Director are also reviewed as part

of this assessment, and Directors are required to disclose any

directorships held and other business interests. The annual

performance evaluation referred to above assists with determining

whether each Director should stand for re‑election.

Following performance evaluations of each of the Directors, and

having considered in turn the individual skills, relevant experience,

contributions and time commitment of the Directors to the

long‑term sustainable success of the Company, the Chairman

is of the opinion that each Director’s performance continues

to be effective and demonstrates commitment to the role.

Similarly, following performance evaluations of the Chairman, and

having carefully considered the commitments required and the

contributions made by the Chairman, the Non‑executive Directors,

led by the Senior Independent Director, are of the opinion that the

Chairman’s performance continues to be effective and that he

continues to demonstrate commitment to the role.

Justin Dowley, Non‑executive Chairman, is standing for

re‑election as Director due to his extensive and long‑standing

experience within the banking, investment and asset management

sectors. He ﬁrst joined the Board as a Non‑executive Director in

September 2011 and served as the Senior Independent Director in

the two years prior to his appointment as Non‑executive Chairman

in 2019. He has strong shareholder support for his current tenure to

2025, which has been approved by the Nomination Committee and

the Board, subject to annual re‑election. Mr Dowley’s extended

tenure is thought appropriate in order to facilitate succession

planning arrangements for the Board and the development of a

diverse Board, as well as providing continuity and stability following

the change in the Company’s business strategy, and the upcoming

changes in executive leadership. He was considered independent

upon his appointment as Non‑executive Chairman.

Peter Dilnot, Chief Executive Ofﬁcer with effect from 6 March 2024,

is standing for re‑election due to his deep understanding of

Melrose and its investor base and GKN Aerospace, having served

as Chief Operating Ofﬁcer since 2019 as well as serving as

Chief Executive Ofﬁcer of GKN Aerospace for periods during his

tenure, most recently from October 2023 onwards. He has strong

sector experience in engineering and aviation, and has extensive

experience in holding executive roles at listed companies.

Matthew Gregory, Chief Financial Ofﬁcer with effect from

7 March 2024, is standing for election for the ﬁrst time. Mr Gregory

brings strong management continuity and a deep understanding

of GKN Aerospace, having served as Chief Financial Ofﬁcer

for GKN Aerospace since September 2022. He has extensive

experience in holding chief ﬁnancial ofﬁcer roles at listed companies.

Succession planning arrangements for the Board as a whole were

reviewed by the Nomination Committee and the Board. This included

reviewing the skill sets of the Directors in light of the change in

business strategy of the Company, as well as reviewing the tenure,

diversity and independence of those already on the Board. The

Nomination Committee and the Board also reviewed the Melrose

senior management team, including the career planning and talent

management programmes in operation for them. In each case this was

to allow the Nomination Committee to ensure that the right balance of

skills, experience and diversity were reﬂected and being developed.

Board performance review

Evaluation approach and process

The Code requires that FTSE 350 companies undertake an externally

facilitated Board and committee evaluation once every three years.

The last external Melrose Board and committee review was in 2020.

Therefore, the Board engaged Lintstock Ltd in 2023 to undertake an

independently facilitated evaluation of the Board and each committee

in order to identify areas where performance and procedures might

be further improved. As in prior years, Lintstock also conducted an

evaluation of the Chairman of the Board’s performance. Lintstock is

a specialist corporate governance consultancy and, other than the

Board, committee and Chairman evaluations, has no commercial

dealings or other connection with the Melrose Group or its Directors.

The evaluations were conducted and facilitated by the completion

of questionnaires, and discussions at the applicable Board and

committee meetings, with follow‑up actions taking place where

relevant. A range of topics were discussed as part of the evaluations

including reviewing the composition and skills set of the Board in

light of the change in business strategy, consideration of the Board’s

transition to overseeing an aerospace‑only business, succession

planning and diversity, and risk management. Directors were also

given the option for meetings to be scheduled with the Chairman

of the Board, the Senior Independent Director in respect of the

evaluation of the Chairman of the Board, or the Chair of the relevant

committee about any relevant matters that they wished to raise as

part of the review.

Outputs of the evaluation

The report and subsequent discussion concluded that the Board

and its committees, the Chairman of the Board, the Senior

Independent Director and the Chair of each committee continue to

be highly effective.

In order to further enhance the Board’s effectiveness, the following

areas were designated as the subject of focus for the Board and

management during 2024:

• continuing to monitor Board and senior management succession

to ensure effective management at all levels;

• ensuring the adequacy of the Board’s visibility over the impact of

principal risks on the business divisions, and continuing to monitor

and enhance the Group’s management of risk;

• further integrating and embedding sustainability into the Group’s

business strategy and operations, which the Group views as a

process of continuous progression in response to ever‑evolving

sustainability developments;

• continuing to focus on cyber security, recognising that it remains

an ongoing risk for a business of the Group’s nature;

• continuing to monitor the cash management culture within the

businesses and to drive cash performance; and

• continuing to impress upon all levels of the business that the health

and safety of our workers is of the utmost importance and ensuring

that management places a high degree of focus on implementing,

monitoring and maintaining high standards of health and safety

awareness, coupled with appropriate protective measures and high

performance, with a view to eliminating preventable accidents.

113

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

GOVERNANCE

CORPORATE GOVERNANCE REPORT

CONTINUED

Gillian Elcock, Non‑executive Director, is standing for election

for the ﬁrst time. She has extensive asset management and

investment research experience, including covering the aerospace

and defence sector. She also brings insight gained from several

non‑executive director roles.

The following Non‑executive Directors are standing for re‑election

due to their independence, diversity, skills and experience.

In particular:

• David Lis, the Senior Independent Director, brings to the

Board extensive ﬁnancial experience and deep insight into the

expectations of Melrose’s institutional investor base, having held

several roles in investment management.

• Charlotte Twyning brings to the Board a diverse range of

experience and commercial acumen, having held numerous

senior positions in various sectors, most recently in aviation,

alongside her substantial board experience.

• Heather Lawrence brings to the Board a diverse range of

experience across the industrials and transportation sectors,

having held senior roles within corporate ﬁnance and investment

banking, as well as having the necessary expertise required to

perform the role of Chair of the Audit Committee.

Biographies of each of the Directors are shown on pages 102 to

103, and on the Company’s website at www.melroseplc.net/

governance/board‑leadership. Detailed justiﬁcations for each

Director’s re‑election (or election, as the case may be) are set out

in the Notice of Annual General Meeting, on pages 240 to 248.

4. Principles M‑O: Audit, Risk and Internal Control

Objectives and policy

A key responsibility of the Board and Melrose senior management

team is to safeguard and increase the value of the businesses and

assets of the Group for the beneﬁt of its shareholders. Achievement

of their objectives requires the development of policies and

appropriate internal control frameworks and maintaining such

policies and frameworks to ensure that the Group’s resources

are managed properly and that any key risks are identiﬁed and

mitigated where possible.

The Board is ultimately responsible for the development of

the Group’s overall risk management policies and system of

internal control frameworks and for reviewing and maintaining

their respective effectiveness. In assisting the Board with these

responsibilities, the Audit Committee reviews the effectiveness

of, and monitors and oversees, the Group’s risk management,

internal ﬁnancial control systems and processes and compliance

controls, and provides both feedback and recommendations to

the Board. The role of the Melrose senior management team is to

implement these risk management and internal control policies and

frameworks across the Group’s business operations. The Directors

recognise that the systems and processes established by the

Board are designed to manage, rather than eliminate, the risk of

failing to achieve business objectives and cannot provide absolute

assurance against material ﬁnancial misstatement or loss.

The Board is committed to satisfying the internal control guidance

for Directors set out in the FRC’s Guidance on Risk Management,

Internal Control and Related Financial and Business Reporting.

In accordance with this guidance, the Board assumes ultimate

responsibility for risk management and internal controls, including

determining the nature and extent of the principal risks it is willing

to take to achieve its strategic objectives (its “risk appetite”) and

ensuring an appropriate culture has been embedded throughout

the organisation. The Audit Committee also supports the Board in

monitoring risk exposure against risk appetite.

The risk management and internal control system is complemented

by ongoing monitoring and review, to ensure that the Company is

able to adapt to an evolving risk environment.

The Audit Committee report is set out on pages 116 to 123 and

provides details of the role and activities of the Audit Committee and

its relationship with the internal and external auditors.

Managing and controlling risk

The Group’s approach to risk management is regularly reviewed and

enhanced. The systems, processes and controls in place accord

with the Code and the FRC’s guidance. Details on the Group’s risk

management strategy are set out on pages 28 to 30.

Further information regarding the Group’s ﬁnancial risk objectives and

policies can be found in the Finance Director’s review on pages 20

to 27. A summary of the principal risks and uncertainties that could

impact upon the Group’s performance is set out on pages 31 to 36.

Internal ﬁnancial controls and reporting

The Group has a comprehensive system for assessing the effectiveness

of the Group’s internal controls, including strategic business planning

and regular monitoring and reporting of ﬁnancial performance. A detailed

annual budget is prepared by senior management and thereafter is

reviewed and formally adopted by the Board.

The budget and other targets are regularly updated via a rolling

forecast process and regular business review meetings are held with

the involvement of senior management to assess performance. The

results of these reviews are in turn reported to, and discussed by, the

Board at each meeting. As discussed in the Audit Committee report

on pages 116 to 123, the Group engages BM Howarth as internal

auditor with additional support, as required, from Ernst & Young. A

total of 21 GKN Aerospace sites across the Group were assessed by

BM Howarth during 2023.

The Directors can report that based on the sites reviewed in 2023,

there has been progress across the Group following the 2023 internal

audit programme and that the majority of the recommendations

presented in the internal audit report have been or are in the process

of being implemented.

The Audit Committee also monitors the effectiveness of the

internal control process implemented across the Group through

a review of the key ﬁndings presented by the external and internal

auditors. Management is responsible for ensuring that the Audit

Committee’s recommendations in respect of internal controls and risk

management are implemented.

Ethics and compliance

The Company takes very seriously its responsibilities under the

laws and regulations in the countries and jurisdictions in which the

Group operates, and has in place appropriate measures to ensure

compliance. A compliance framework is in place comprising a suite of

Group‑wide policies relating to anti‑bribery and corruption, anti‑money

laundering, anti‑facilitation of tax evasion, competition, conﬂict

minerals, trade compliance, data privacy, whistleblowing, treasury

and ﬁnancial controls, anti‑slavery and human trafﬁcking, document

retention, joint ventures, diversity and inclusion, environmental, human

rights, supply chain, biodiversity and water. Other than in respect of

certain policies where it would not be appropriate for them to have

such a broad reach, these policies generally apply to all Directors,

employees (whether permanent, ﬁxed‑term, or temporary), pension

trustees, consultants and other business advisors, contractors,

trainees, volunteers, business agents, distributors, joint venture

partners or any other person working for or performing a service on

behalf of the Company, its subsidiaries and/or associated companies in

which the Company or any of its subsidiaries has a majority interest.

114

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Development of policies

The Remuneration Committee has a formal and transparent

procedure for developing the Company’s policy on executive

remuneration. It engages with shareholders on a regular basis to

seek their views, takes those views into account when formulating

proposals on executive remuneration, obtains advice from

external remuneration advisors, and undertakes benchmarking

exercises with respect to executive pay to ensure that the executive

remuneration structure remains appropriate. Shareholders have the

opportunity to vote on executive remuneration through their binding

vote at least every three years on the Directors’ remuneration policy

and their advisory vote annually on the Directors’ remuneration

report. As described further in the Directors’ Remuneration

report on pages 128 to 152, the Chief Executive Ofﬁcer retains

responsibility for setting and managing the remuneration of Melrose

senior management, of which the Remuneration Committee

has full disclosure. No Director is involved in deciding their own

remuneration outcome.

Independent judgement and discretion

The Remuneration Committee exercises independent judgement

and discretion when authorising remuneration outcomes, taking

account of both Company and individual performance, and

wider circumstances. As mentioned above, the Remuneration

Committee obtains regular advice from external remuneration

advisors in order to ensure that proposals are in line with the

Code, and benchmarked against the Company’s FTSE 100

peers. The current Directors’ remuneration policy provides the

Remuneration Committee with the ability to exercise discretion

to override formulaic outcomes and, if approved, the renewed

Directors’ remuneration policy will provide the same ability for

the Remuneration Committee to exercise discretion. There were

no deviations from the Directors’ Remuneration Policy in respect

of 2023 and the Remuneration Committee did not exercise any

discretion to alter the 2023 outcomes from the application of the

performance conditions.

Details regarding Directors’ remuneration, both generally and

in relation to the requirements of the Code, are set out in the

Directors’ Remuneration report on pages 128 to 152, which is

presented in the following three sections:

• the annual statement from the Chair of the Remuneration

Committee, which can be found on pages 128 to 129;

• the Annual Report on Remuneration, which can be found on

pages 130 to 145; and

• the proposed 2024 Directors’ Remuneration Policy, which can

be found on pages 145 to 152.

The current Directors’ remuneration policy, which was

approved by shareholders at the 2023 AGM, is available on the

Company’s website

(1)

. It is intended that a revised 2024 Directors’

Remuneration Policy will come into effect at the conclusion of the

2024 AGM. The 2024 Directors’ Remuneration Policy is subject

to shareholder approval at the 2024 AGM and can be found at

pages 145 to 152.

(1)

The full details of the 2023 Directors’ remuneration policy approved at the 2023 AGM

can be found on pages 135 to 144 of the 2022 Annual Report (www.melroseplc.net/

investors/results‑reports‑and‑presentations).

Online compliance training continued to be conducted within the

business, covering topics such as anti‑trust, trade compliance

and export controls, data privacy, anti‑bribery and corruption, and

anti‑money laundering, to enhance and supplement the existing

compliance regime.

The Company’s Modern Slavery Statement is approved by the

Board annually and the most recent statement is available on

the Company’s website at www.melroseplc.net/governance/

documents‑and‑policies. GKN Aerospace (through GKN Aerospace

Services Limited) has also published its own Modern Slavery

Statement, which is available on GKN Aerospace’s website at

www.gknaerospace.com/en/utilities/modern‑slavery‑statement. Both

statements have been published in accordance with the requirements

under the Modern Slavery Act 2015. To support the Company’s belief

in the importance of this matter, it has a Group‑wide policy on the

prevention of modern slavery and human trafﬁcking, which has been

rolled out to employees, along with an online compliance training

module. Please also refer to the Audit Committee report on page 116

for details of the Company’s whistleblowing policies and procedures.

5. Principles P‑R: Executive Remuneration

Policies and practices

Melrose’s remuneration philosophy has been the same since

the business was founded in 2003 and requires that executive

remuneration be simple, transparent, support the delivery of the

value creation strategy, and pay only for performance. Under the

previous “Buy, Improve, Sell” business strategy, the Company’s

policy was to restrict opportunity in annual salary, bonus and beneﬁts

to below the lower quartile of its peers, while heavily weighting

potential reward to the long‑term employee share plan that is entirely

performance based, reﬂects those principles and is intended to align

management’s incentive arrangements directly with the interests

of shareholders. In compliance with the Code, the 2020 Employee

Share Plan promotes long‑term sustainable success for shareholders,

and is expected to be awarded in shares, further aligning

management with shareholders. Whilst the Melrose Automotive Share

Plan has a total vesting and holding period of less than ﬁve years,

value delivered is awarded in shares in Dowlais Group plc in order to

reward participants in respect of any increase in the value attributable

to the businesses comprising the Dowlais group and to properly

recognise the platform built under Melrose ownership.

Melrose became a pureplay aerospace business, marking the end

of the “Buy, Improve, Sell” business strategy. Going into 2024,

and subject to approval by shareholders of the proposed 2024

Directors’ Remuneration Policy, the Company’s remuneration

structure will be revised to reﬂect our change in strategic direction.

The Company’s new strategy remains focused on value creation,

founded on continuous operational and ﬁnancial improvement

over the longer term with a positive trajectory underpinned by the

strong organic growth prospects within the aerospace sector,

alongside attractive opportunities to differentiate its business through

cutting‑edge proprietary technology. To support this change in

strategy, the Board believes that the new executive management

team should be remunerated under a structure that resembles more

closely Melrose’s FTSE 100 peers. In particular, the proposed 2024

Directors’ Remuneration Policy will rebalance Melrose’s weighting

of ﬁxed to variable remuneration, and of medium‑ to longer‑term

incentivisation, using a structure more closely aligned with other

FTSE 100 companies.

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GOVERNANCE

AUDIT COMMITTEE REPORT

The responsibilities of the Audit Committee

(the “Committee”) include overseeing

financial reporting, risk management and

internal financial controls, in addition

to making recommendations to the

Board regarding the appointment of the

Company’s internal and external auditors.

Member

No. of meetings

(1)

Heather Lawrence (Chair)*

4/4

David Lis*

4/4

Charlotte Twyning

4/4

Gillian Elcock

(2)

2/2

Victoria Jarman

(3)

0/0

(1) Reﬂects regularly scheduled meetings of the Committee.

(2)

Ms Gillian Elcock was appointed as a Non‑Executive Director with effect from

21 June 2023. Ms Elcock attended all Committee meetings held during the period

between 21 June 2023 and 31 December 2023. Ms Funmi Adegoke resigned as

a Non‑executive Director and as a member of the Committee on 16 June 2023.

Ms Adegoke attended all Committee meetings held up to the point of her resignation.

(3)

Ms Victoria Jarman was appointed to the Committee on 6 December 2023. There

were no scheduled meetings of the Committee between 6 December 2023 and

31 December 2023.

Indicates Committee members with ﬁnancial expertise. In total, 80% of the

Committee has ﬁnancial expertise.

Role and responsibilities

The Committee’s role and responsibilities are set out in its terms

of reference. These were last reviewed in November 2023 in line

with best practice and are available on the Company’s website

at www.melroseplc.net/governance/documents‑and‑policies

and at the Company’s registered ofﬁce. In discharging its duties,

the Committee embraces its role of protecting the interests of all

stakeholders with respect to the integrity of ﬁnancial information

published by the Company and the effectiveness of the audit. The

responsibilities of the Committee include:

• reviewing and monitoring the integrity of the ﬁnancial statements

of the Group, including the Annual Report, annual ﬁnancial

statements and interim ﬁnancial statements, and reviewing

and reporting to the Board on the signiﬁcant ﬁnancial reporting

issues and judgements which they contain;

• keeping under review the effectiveness of the Group’s ﬁnancial

reporting;

• reviewing the effectiveness of, and monitoring and overseeing,

the Group’s risk management processes (excluding cyber

security and fraud risk, which are retained by the Board), internal

ﬁnancial control systems that identify, assess, manage and

monitor ﬁnancial risks and risk management systems;

• overseeing the adequacy and security of the Company’s

arrangements for its employees to raise concerns in conﬁdence

in accordance with the Company’s whistleblowing policy,

including about possible wrongdoing in ﬁnancial reporting or

other matters;

• monitoring and evaluating the independence and effectiveness

of the external audit function, taking into account relevant UK

laws, regulations, the Ethical Standards and other professional

requirements and the relationship with the auditor as a whole and

approving the external audit plan and fee;

• reviewing, challenging and reporting to the Board on the going

concern assumption and the assessment forming the basis of the

longer‑term viability statement;

• reviewing and, where necessary, challenging the consistency of

accounting policies, the methods used to account for signiﬁcant or

unusual transactions, and compliance with accounting standards;

• reviewing the Company’s procedures for detecting fraud, and its

systems and controls for the prevention of bribery;

• reviewing and, where necessary, challenging the provision of

non‑audit services by the external auditor;

• developing and overseeing the selection process for the

appointment of the external auditor and in respect of an external

audit tender, making a recommendation to the Board on the

appointment of the external auditor following on from such tender

process;

• monitoring and evaluating the independence and effectiveness

of the internal audit function including ensuring the internal audit

function has the unrestricted scope and resources necessary to

enable it to fulﬁl its mandate and approving the internal audit plan

and fee; and

• reviewing and considering the Annual Report and ﬁnancial

statements to ensure that they are fair, balanced and understandable

and advising the Board on whether it can state that this is the case.

Heather Lawrence

Audit Committee Chair

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Composition

The Committee is made up 100% of independent Non‑executive

Directors. Mrs Heather Lawrence continued to act as Chair of the

Committee. She has strong audit experience having acted as audit

committee chair of FlyBe Group plc.

Mrs Lawrence, Mr David Lis, Ms Victoria Jarman and

Ms Gillian Elcock bring signiﬁcant and relevant ﬁnancial experience

to their roles on the Committee. Furthermore, each member of the

Committee, including Ms Charlotte Twyning, brings strong corporate

governance experience to the Committee. Further details of the

relevant experience of each member of the Committee are described

in the biographies on pages 102 to 103.

The Company Secretary acts as secretary to the Committee.

To enable the Committee to provide robust challenge of the reports

submitted to it, the Committee invited the Group Finance Director,

the Head of Financial Reporting, and senior representatives of the

external and internal auditors to attend its meetings during 2023. The

Chair of the Committee also spoke with the Group Finance Director

prior to each Committee meeting. The Committee has the right to

invite any other Directors and/or employees to attend meetings where

this is considered appropriate and during the year, the Chairman

of the Board attended the majority of the scheduled Committee

meetings. In addition, the Committee meets at least once a year with

the external and internal auditors without management present, and

the Chair of the Committee speaks with the external and internal

auditors prior to each Committee meeting.

Summary of meetings in the year

The Committee is expected to meet not less than three times a year.

However, during 2023, the Committee met four times (March, June,

September and November). The scheduling of these meetings is

designed to be aligned with the ﬁnancial reporting timetable, thereby

enabling the Committee to review the Annual Report and ﬁnancial

statements, the interim ﬁnancial statements and the audit plan ahead

of the year‑end audit and to maintain a view of the internal ﬁnancial

controls and processes throughout the year.

Signiﬁcant activities related to the

2023 ﬁnancial statements

As part of its duties the Committee undertook the following

recurring activities that receive annual scrutiny:

• review of the 2023 Annual Report and ﬁnancial statements and

the interim ﬁnancial statements, including the going concern

assumption for the Group and the assessment forming the

basis of the longer‑term viability statement. As part of this

review, the Committee received reports from the external auditor

on their audit of the Annual Report and ﬁnancial statements

and their review of the interim ﬁnancial statements, as well

as papers prepared by management in respect of going

concern, longer‑term viability and signiﬁcant accounting and

control matters;

• consideration of the 2023 Annual Report and ﬁnancial

statements in the context of being fair, balanced and

understandable and a review of the content of papers prepared

by management in relation to the 2023 Annual Report and

ﬁnancial statements. The Committee advised the Board that,

in its view, the 2023 Annual Report and ﬁnancial statements

when taken as a whole is fair, balanced and understandable and

provides the information necessary for shareholders to assess

the Company’s position and performance, business model

and strategy;

• review of the effectiveness of the Group’s risk management

and internal ﬁnancial controls and disclosures made in the 2023

Annual Report and ﬁnancial statements on this matter;

• review of the effectiveness of the Group’s internal and external

auditors; and

• review of, and agreement to, the scope of work to be undertaken

in respect of the 2023 ﬁnancial statements by the external

auditor and the scope of work to be undertaken in 2024 by the

internal auditor.

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AUDIT COMMITTEE REPORT

CONTINUED

In addition to these matters, the Committee considered the following signiﬁcant issues in relation to the ﬁnancial statements during the year:

Signiﬁcant issue considered by the Audit Committee

How the issue was addressed by the Audit Committee

Demerger of GKN Automotive, GKN Powder Metallurgy and

GKN Hydrogen (collectively ‘Dowlais’)

Discontinued operations and an asset held for sale

Prior to 2023, the Dowlais businesses were included as continuing

operations as demerger actions remained outstanding. On

30 March 2023, following shareholder approval for the demerger,

all of the conditions for the Dowlais businesses to be reported as

‘held for sale’ were met and the assets and liabilities of the Dowlais

group were reclassiﬁed accordingly.

It was considered whether any write down to the carrying

value was required, and impairment testing was updated to

30 March 2023. It was concluded that the carrying values were

appropriate and at this date there was no contradictory public

share valuation evidence. On 20 April 2023, the demerger

completed and disposal of the associated net assets took place.

Post demerger, as the businesses were material and separate

operations, the Dowlais group has been treated as discontinued

in the Group’s ﬁnancial statements for 2023 in accordance with

IFRS 5

Non‑current Assets Held for Sale and Discontinued

Operations

, with comparative amounts in the income statement

and cash ﬂow restated as required. Comparative amounts

for earnings per share have also been restated for the

share consolidation.

Distribution to shareholders

The demerger of the Dowlais businesses represented a distribution

to shareholders and it has been recognised at fair value (based on

Dowlais’ public market capitalisation), in accordance with IFRIC 17

Distributions of Non‑cash Assets to Owners

. Considering the

various share price data available, the purest valuation approach

was determined to be the opening traded share price on the day of

ﬂotation because of its proximity to the demerger. The fair value of

the distribution to shareholders has been calculated at £2.0 billion

using the number of Dowlais shares distributed and an opening

price per share of £1.46.

Using this short‑term market value meant there was a loss on

disposal of £1.0 billion when comparing against the carrying value

of the Dowlais businesses, net of transaction costs and recycling

of cumulative foreign exchange differences. Disclosure has been

included in the Group ﬁnancial statements for 2023, including

sensitivity analysis on the distribution value.

Other demerger related matters

Following the demerger, the Group changed its segmental

reporting structure so that rather than reporting just Aerospace in

total alongside Melrose corporate costs, it now reports the Engines

and Structures businesses separately. This change has been

aligned with the internal reporting, as required by IFRS 8

Operating

Segments

, and as a consequence prior period segmental

information has been restated.

To further drive consistency and comply with IAS 36

Impairment

of Assets

, the Group updated its groups of cash generating units

(‘CGUs’) which are used for impairment testing purposes from one

(Aerospace in total) to two; Engines and Structures. This change

has led to additional disclosure in the Group’s ﬁnancial statements

for 2023, with initial testing on both 19 April (old basis) and 20 April

(new basis) all being positive.

(Refer to notes 3, 13 and 27 of the ﬁnancial statements)

The Committee received an update prepared by management

and discussed each aspect of the demerger impact. This included

challenge over the conclusion reached by management when

reassessing the carrying value of the assets prior to classiﬁcation

as held for sale, the rationale for using the opening share price to

derive a fair value of the demerger distribution and the consequential

impairment testing outcomes on the change in groups of CGUs.

The Committee discussed the audit work performed by Deloitte to

assess whether the proposed accounting to be recognised, together

with incremental disclosures, were appropriate.

Considering all of the above, as well as management responses and

Deloitte’s views, the Committee was satisﬁed that the assumptions

used were reasonable and that the conclusions reached together with

disclosures were appropriately presented.

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Signiﬁcant issue considered by the Audit Committee

How the issue was addressed by the Audit Committee

LTIP valuations, Melrose and Dowlais schemes

It was determined that changes to share‑based payment

arrangements were made with the purpose to preserve, rather

than enhance, rights of option holders and so no additional charge

has been made in addition to the IFRS 2

Share‑based Payments

charge already being recorded. As changes made to the Group’s

2020 Melrose Employee Share Plan (“MESP”) were a consequence

of the demerger, with approval by shareholders, there has been

no change to the accounting, with a residual charge of £7 million

recorded in the Group’s ﬁnancial statements for the period until

31 May 2023, being the original maturity date.

The Melrose Automotive Share Plan (“MASP”), for which 2% of

Dowlais’ equity is held by a Melrose sponsored employee beneﬁt

trust, provides a further aspect to incentive arrangements as any

settlement has been advance funded. As any compensation for

this arrangement would be issued in Dowlais rather than Melrose

equity, the accounting is governed by IAS 19

Employee Beneﬁts

rather than IFRS 2, which requires the use of expected value

calculations. The net outcome means that there was an income

statement charge of £3 million in the Group’s ﬁnancial statements

for 2023.

(Refer to note 23 of the ﬁnancial statements)

The Committee received a summary of the accounting impacts

prepared by management and discussed the important implications.

This included challenge over the conclusion reached by management

when assessing the approach, the assumptions used to derive

a fair value of the MASP and the consequential recognition and

presentation of the charges calculated.

The Committee discussed the audit work performed by Deloitte

to assess whether the proposed accounting and disclosures

were appropriate.

Considering all of the above, as well as management responses and

Deloitte’s views, the Committee was satisﬁed that the assumptions

used were reasonable and that the conclusions reached together with

disclosures were appropriately presented.

Impairment testing of goodwill

Impairment testing is inherently subjective as it includes

assumptions in the calculation of recoverable amount for each of

the groups of CGUs being tested. Assumptions include future cash

ﬂows of the relevant groups of CGUs, discount rates that reﬂect the

appropriate risk and long‑term growth rates which are consistent

with the industry and geography of operations.

Due to consequential impacts from continued disruption of supply

chains, interest rate rises and other inﬂationary pressure on input

costs, businesses within the Group are continuing to mitigate the

impact of volatile customer scheduling through cost reduction and

efﬁciency actions.

Given the change in Group strategy during the year, impairment

testing has now been performed using a value in use basis

which prohibits the inclusion of beneﬁts from future uncommitted

restructuring plans. No impairment has been recorded in the

Group ﬁnancial statements for 2023 consistent with the strong

performance seen during the year and expectations for the future.

(Refer to notes 3 and 11 of the ﬁnancial statements)

The Committee challenged the outcome of the impairment testing

in respect of both groups of CGUs. In doing so the Committee

considered the following:

• a paper prepared by management, which included the key outputs

from the impairment models;

• trading assumptions, including macroeconomic factors, applied in

the models;

• the market‑based assumptions for long‑term growth rates and

discount rates; and

• the appropriateness of the disclosures in the ﬁnancial statements in

respect of the impairment testing performed.

The Committee discussed with Deloitte the audit work performed by

them and their conclusion regarding the disclosures presented.

Considering all of the above, as well as management responses and

Deloitte’s views, the Committee was satisﬁed that the assumptions

used were reasonable and that the impairment conclusions together

with disclosures were appropriately presented.

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AUDIT COMMITTEE REPORT

CONTINUED

Signiﬁcant issue considered by the Audit Committee

How the issue was addressed by the Audit Committee

Accounting for revenue under IFRS 15

The majority of the Group’s revenue relates to the sale of

products and services where invoices are raised and amounts

are recognised when control of the goods is transferred to the

customer. However, the Group has one revenue stream which

includes recognition of variable consideration – unbilled work

done, relating to certain risk and revenue sharing partnerships

(“RRSPs”) in a small number of Aerospace businesses.

As required, management continues to review the key assumptions

that have a signiﬁcant impact on the allocation of overall

transaction prices for impacted aerospace engine components.

It is particularly important to reassess the operational progress

and status of engine programmes. Speciﬁcally, in relation to

variable consideration for certain RRSPs, revenue is signiﬁcantly

constrained until there is better visibility over the outcome so as

to comply with the requirement that amounts are only recognised

when it is highly probable that they will not reverse in the future.

Following positive commercial and operational progress on certain

affected engine programmes during the year, it was concluded that

an update to assumptions was appropriate. The changes have had

an impact on 2023 results (£57 million, included a retrospective

catch up of £30 million) and they will impact future results too.

There have been two speciﬁc events during the year which have

meant further reviews of accounting assumptions and the level of

revenue being recognised, both in the year and retrospectively:

• The ﬁrst related to a ﬂeet of the GTF engines which have

been impacted by a rare condition in powder metal used to

manufacture certain of the engine parts, which are not supplied

by the Group. The full potential cash impact to Melrose of

approximately £200 million will be incurred over the next three

to four years, if it is assumed that this is all a programme cost

to be shared by partners in the PW1100G RRSP programme.

Melrose’s ﬁnancial assumptions for all of its RRSP programmes

are very constrained, recognising that most of the Group’s work

is done on the delivery of its parts which typically last the life of

the engine, appropriately allowing for risks to arise over the full

programme duration. The unbilled work done contract asset

remains appropriately constrained at 31 December 2023, in

accordance with the requirements of IFRS 15.

• The second related to an additional programme which has

been included in calculations of unbilled work done during the

year as a result of a modiﬁcation to a contract. Whilst the new

agreement has not had a material impact on the reported results

for the year ended 31 December 2023 or Balance Sheet as at

31 December 2023, the future implications have been assessed

under IFRS 15 and are material in future years. The important

change is that the Group’s involvement on the GEnx RRSP has

been extended beyond its current focus on delivery of original

equipment to include signiﬁcantly greater participation in the

aftermarket phase. The contract modiﬁcation will be accounted

for prospectively, with pricing implications affecting revenue

from 1 January 2024. Following changes to the termination

rights, to commercially protect the Group for its increased

aftermarket share, the Group now has a contractual right to

aftermarket revenue.

The amount of variable consideration recognised in the year is

£173 million. This is due to a ramp‑up in volumes and operational

beneﬁts as well as implications of changes in assumptions.

(Refer to notes 3, 4 and 17 of the ﬁnancial statements)

The Committee received an update prepared by management and

again discussed the implications of IFRS 15, which included an

assessment of estimates used in calculating variable consideration and

the unbilled work done contract asset for certain RRSPs.

The support for changes in estimates, impacting both the amount and

timing of revenue recognition, was considered and this was deemed

to follow commercial progress on speciﬁc programmes. The impact of

changes will be more signiﬁcant in the future.

Speciﬁcally, the accounting for matters arising in the year relating to the

powder metal issues on the PW1100G (GTF) engine and changes to

the GEnx engine contract was considered. The conclusions reached by

management were debated and challenged.

The Committee discussed the audit work performed by Deloitte to

assess whether the proposed revenue to be recognised, together with

incremental disclosures, was appropriate.

The Committee was satisﬁed that the approach and assumptions used

remained both reasonable and appropriate. However, it is understood

that it remains reasonably possible that assumptions may change

which could lead to the recognition of further unbilled work done in the

next year.

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Signiﬁcant issue considered by the Audit Committee

How the issue was addressed by the Audit Committee

Classiﬁcation of adjusting items and use of Alternative

Performance Measures (“APMs”)

The reporting, classiﬁcation and consistency of adjusting

items continues to be an area of focus for the Committee, in

particular, given the guidance on APMs provided by the Financial

Reporting Council (“FRC”) and European Securities and Markets

Authority (“ESMA”).

The Committee considers this a key consideration when reviewing

if the ﬁnancial statements are fair, balanced and understandable.

(Refer to notes 3 and 6 of the ﬁnancial statements)

The Committee has reviewed the nature, classiﬁcation and consistency

of adjusting items, whilst considering the guidance provided by the

FRC and ESMA. These items are deﬁned and discussed in the Finance

Director’s review and detailed in note 6 to the ﬁnancial statements,

together with the glossary to the ﬁnancial statements.

Following a review of management’s paper and challenge, the

Committee is satisﬁed that there has not been any change to the

substance of the policy.

The Committee also considered disclosure of the Group’s APMs with

respect to applicable guidelines and noted that these are set out

in detail in the glossary to the ﬁnancial statements. Reconciliations

of adjusted performance measures to statutory results are set out

in note 6 to the ﬁnancial statements. The Committee found the

disclosures to be clear and transparent, assisting shareholders in

measuring the operating performance of the Group. The Committee

therefore concluded that adjusting items were appropriately captured

and disclosed.

Going concern and viability

The Committee is required to make an assessment of the going

concern assumption for the Group and the basis of the longer‑term

viability statement before making a recommendation to the Board.

The assessment of going concern uses the same forecast data as

in many other areas of estimation within the full year accounting

and takes into account the covenant tests.

(Refer to note 2 of the ﬁnancial statements)

The Committee reviewed and approved management’s

recommendation to prepare the ﬁnancial statements on a going

concern basis. The key principles debated were the level of

committed facility headroom on bank covenants and the ﬂexibility of

liquidity arrangements to meet obligations. In addition to base case

modelling, which uses approved ﬁnancial forecasts, a reasonably

possible downside was also considered.

The Committee considered a paper and ﬁnancial model prepared

by management in respect of the longer‑term viability statement to

be included in the Annual Report and ﬁnancial statements as well as

analysis conducted by the external auditor. The Committee challenged

the assumptions and judgements made by management before

concluding that the longer‑term viability statement was appropriate.

The risk management process also involved objective trend analysis

and independent insight from Ernst & Young, and this year included

an analysis of the Group’s principal risks proﬁle against other

aerospace and defence companies based on public disclosures.

The Committee reviewed and challenged the Group’s risk

management processes, and also reviewed and challenged

the interim and annual reports prepared by Melrose senior

management relating to the Group’s principal risks proﬁle.

These reports guided the Committee on relevant updates to the

Group’s principal risks (including the identiﬁcation of new principal

Group risks and emerging risks), as reported in the Risks and

uncertainties section on pages 31 to 36. They also aided the

Committee’s discussions with the Board on risk appetite, as

detailed further on page 29.

Management also reported on the Group’s internal control

systems supported by the internal audit review. Examples of both

Group and divisional controls, including ﬁnancial, operational and

compliance controls, were presented and examined.

The Group’s risk management and internal ﬁnancial control systems

were reviewed and the Committee conﬁrmed their effectiveness to

the Board. No signiﬁcant weaknesses were identiﬁed.

Risk management and internal control

One of the key roles of the Committee is to review and monitor the

Group’s risk management, internal ﬁnancial control systems and

processes, and compliance controls. The Committee has a high

degree of risk and compliance expertise to enable it to fulﬁl this role.

In particular, Mrs Lawrence and Mr Lis have each held senior roles at

various ﬁnancial institutions. Furthermore, Mrs Lawrence, Mr Lis and

Ms Elcock have held various non‑executive directorship positions on

the boards of UK listed public companies.

During 2023, the Committee continued to keep under review the

Company’s internal ﬁnancial controls systems that identify, assess,

manage and monitor ﬁnancial risks and other internal control and

risk management systems, and the effectiveness of the Group’s risk

management system, through regular updates from management.

This included a review of the key ﬁndings presented by the external

and internal auditors having agreed the scope, mandate and review

schedule in advance.

Management, with support from Ernst & Young, continued to utilise

a third‑party hosted interactive dashboard which has been tailored

to the requirements of the Group in order to consolidate the Group’s

risk reporting for the beneﬁt of the Committee and the Group as

a whole. The dashboard includes data from GKN Aerospace’s

risk register, which was reviewed and approved during 2023 by

GKN Aerospace’s senior management, and key risk owners. The

dashboard has supported the continued improvement of the Group’s

risk management processes, with in‑depth reporting and data

collection. This has bolstered the Committee’s oversight of risk areas,

mitigations, controls and trends.

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AUDIT COMMITTEE REPORT

CONTINUED

Whistleblowing

The Committee is tasked with overseeing the adequacy and

security of the Company’s arrangements for its employees to

raise concerns in conﬁdence in accordance with the Company’s

whistleblowing policy, including about possible wrongdoing

in ﬁnancial reporting or other matters. The Company runs a

Group‑wide whistleblowing platform, which is overseen by the

Committee and supported by the Melrose senior management

team, and ultimately reported to the Board. The platform is

monitored by the legal, compliance and HR functions. All

employees have access to a multi‑lingual online portal, together

with local hotline numbers that are available 24/7, in order to

raise concerns, conﬁdentially and anonymously, about possible

wrongdoing in any aspect of the business, including ﬁnancial

and non‑ﬁnancial matters. The most material whistleblowing

cases are notiﬁed to the Chair of the Committee promptly, and

quarterly whistleblowing reports are prepared by Melrose senior

management for discussion at each Committee meeting with a

view to ultimately reporting such matters to the Board.

Committee evaluation

The UK Corporate Governance Code (the “Code”) requires that

FTSE 350 companies undertake a formal and rigorous annual

evaluation of the performance of the Board, its committees, the

Chairman of the Board and individual Directors. In particular, FTSE

350 companies should undertake an externally facilitated Board

and committee evaluation once every three years. The last external

Melrose Board and committee review was undertaken by Lintstock

Ltd in 2020 and so the Company was required to undertake

another in 2023. For this purpose, the Company engaged Lintstock

who engaged directly with the Directors on: (i) the constitution

and performance of the Board and each committee; (ii) the

Chairman of the Board; and (iii) individual performance reviews.

Lintstock produced a report based on the feedback of Committee

members and analysis of the responses, which was presented and

discussed at the December Board meeting. Alongside such formal

feedback, the Committee continued to facilitate direct ongoing

contact between its members and the Chair of the Committee

about any relevant matters that the members wished to raise as

part of the ongoing review.

External audit

Appointment of new External Auditor

The Committee was pleased to conﬁrm in last year’s report that it

had undertaken an external auditor tender process and, subject to

shareholder approval at the Company’s Annual General Meeting

on 2 May 2024, PricewaterhouseCoopers (“PwC LLP”), had been

selected as the Company’s new external auditor for the ﬁnancial

year ending 31 December 2024. The audit engagement partner

would also change at the same time.

Steps have been taken in order to transition to PwC LLP as the

Company’s external auditor, including PwC LLP ensuring that they

are fully independent in time for their appointment. PwC LLP has

attended all Committee meetings since November 2023 in order to

aid a smooth handover process.

For further information on the audit tender process, please refer to

pages 113 to 114 of the 2022 Annual Report.

Assessment of effectiveness of incumbent External Auditor

The Committee has reviewed the performance and effectiveness

of the incumbent external auditor, Deloitte LLP. For 2023, a series

of questions covering key areas of the audit process that the

Committee is expected to have an opinion on were considered by the

Committee, including:

• the calibre, experience, resources, leadership and technical and

industry knowledge of the engagement partner and of the wider

external audit team;

• the planning and execution of the audit process;

• the quality and timeliness of communications from the external

auditor; and

• the quality of support provided to the Committee by the external

audit partner.

Committee members, together with the Group Finance Director

and the GKN Aerospace Chief Financial Ofﬁcer, were requested

to provide detailed feedback on the effectiveness of the external

auditor. The Chair of the Committee also sought feedback from the

internal auditor. The Company Secretary subsequently produced

a paper summarising the responses, which was considered by the

Committee at length. The Committee subsequently concluded that

the quality of the external audit team remained very high, the external

audit process was operating effectively, and Deloitte LLP continued

to prove effective in its role as external auditor.

Non‑audit services

Under the Competition and Markets Authority (the “CMA”) and

EU regulations (as they form part of retained UK law), there are

restrictions on the type and amount of non‑audit services provided

by Deloitte LLP. These cap the level of permissible non‑audit services

awarded to the external auditor at 70% of the average audit fee for

the previous three years. The cap applies in respect of the current

ﬁnancial year, with audit fees in 2020, 2021 and 2022 being relevant.

A policy on the engagement of the external auditor for the supply of

non‑audit services is in place to ensure that the provision of non‑audit

services does not impair the external auditor’s independence

or objectivity. The policy outlines which non‑audit services are

pre‑approved (being those which are routine in nature, with a fee that

is not signiﬁcant in the context of the audit or audit‑related services),

which services require the prior approval of the Committee and which

services the auditor is excluded from providing. The general principle

is that the audit ﬁrm should not be requested to carry out non‑audit

services on any activity of the Company where the audit ﬁrm may, in

the future, be required to give an audit opinion. In accordance with

best practice FRC guidelines, the Company’s policy in relation to

non‑audit services is kept under regular review and was last updated

in 2020 to reﬂect current market practice.

Despite being well within the CMA guidance, the Committee has

taken into account feedback from institutional shareholder services

and has continued migrating non‑audit work to other ﬁrms, including

in respect of corporate ﬁnance affairs and risk management. It has

also obtained reward, tax, consulting advice and advice on the

remuneration reporting regulations from PwC LLP. During the course

of 2023, these services have been migrated to other ﬁrms as part of

the transition process to PwC LLP as the Company’s new external

auditor for the ﬁnancial year ending 31 December 2024, as detailed

further above.

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The internal auditor’s remit includes assessment of the

effectiveness of internal ﬁnancial control systems, compliance

with the Group’s Policies and Procedures Manual and a review

of GKN Aerospace’s balance sheet. A report of key ﬁndings and

recommendations is presented to Melrose senior management,

including the Head of Financial Reporting, followed by a meeting

to discuss these key ﬁndings and to agree on resulting actions.

Internal audit site visits were conducted by BM Howarth across a

total of 21 GKN Aerospace sites in 2023.

To supplement the internal audit programme, a targeted sample

of sites was selected for a balance sheet review with interviews

of site controllers conducted by the internal auditor and senior

management, together with self‑certiﬁcation questionnaires which

were discussed in detail with the GKN Aerospace chief ﬁnancial

ofﬁcer at the internal control sign‑off meetings.

A report of all signiﬁcant ﬁndings is presented by the internal

auditor to the Committee at each meeting and implementation

of recommendations is followed up at the subsequent

Committee meeting.

Any control ﬁndings are followed up by the business to ensure a

strengthening of the site‑based accounting functions, including

speciﬁc action plans to address any shortcomings identiﬁed. In

the event that signiﬁcant deﬁciencies are found in internal ﬁnancial

controls, these are immediately brought to the attention of the

Group Finance Director and the Melrose accounting function so

that urgent action plans can be agreed. Follow‑up site visits were

performed during 2023 which identiﬁed signiﬁcant progress in the

improvement of ﬁnancial controls at sites.

A review of the internal audit process and scope of work covered

by the internal auditor is the responsibility of the Committee,

to ensure their objectives, level of authority and resources are

appropriate for the nature of the businesses under review. This

also considers the insights provided, improvements achieved and

feedback from a number of sources including key representatives

of the Company.

The Committee reviewed the reappointment of BM Howarth as

internal auditor following an assessment of the services delivered

and approved their reappointment.

The Committee would like to thank the Group ﬁnance team, the

internal auditor, the external auditor and the Group Company

Secretariat for their hard work throughout 2023.

Heather Lawrence

Chair, Audit Committee

7 March 2024

During 2023, no services were provided by Deloitte LLP other than

for statutory audit and audit‑related assurance services. Deloitte

LLP also provided reporting accountant services in relation to the

demerger of Dowlais Group plc (the “Demerger”), and were paid

£0.2 million for this work. This fee was not subject to the non‑audit

fee cap calculation.

The Committee closely monitors the amount of non‑audit work

undertaken by the external auditor and considers using other ﬁrms

for transaction‑related work. However, there are occasions when it is

appropriate, because of background knowledge, to use the auditor

for non‑audit work, such as in the case of the Demerger. In such

cases, the Chair of the Committee must ﬁrst approve such work.

An analysis of the fees earned by the external auditor for audit

and non‑audit services can be found in note 7 to the consolidated

ﬁnancial statements.

Auditor objectivity and independence

The Committee carries out regular reviews to ensure that auditor

objectivity and independence are maintained at all times. As in

previous years, the Committee speciﬁcally considered the potential

threats that each limited non‑audit engagement may present to the

objectivity and independence of the external auditor. In each case,

the Committee was satisﬁed with the safeguards in place to ensure

that the external auditor remained independent from the Company

and its objectivity was not, and is not, compromised. No fees were

paid to Deloitte LLP on a contingent basis.

At each year‑end, the external auditor submits a letter setting out how

it believes its independence and objectivity have been maintained.

The external auditor is also required to rotate the audit partner

responsible for the Group audit every ﬁve years and signiﬁcant

subsidiary audits every ﬁve years.

Based on these strict procedures, the Committee remains conﬁdent

that auditor objectivity and independence have been maintained.

Furthermore, the incoming external auditor, PwC LLP, has provided

the Committee with conﬁrmation of its independence and objectivity

in advance of its appointment as external auditor for the ﬁnancial year

ending 31 December 2024.

Internal audit

An internal audit programme is used within the Group. BM Howarth

Ltd, an external ﬁrm, provides internal audit services to the Group

in accordance with an annually agreed Internal Audit Charter

and internal audit plan. Where additional or speciﬁc resource is

required, additional support is provided by Ernst & Young. A rotation

programme is in place, such that every site will have an internal audit

at least once every three years, with the largest sites being reviewed

at least once every two years. The rotation programme allows local

management’s actions and responses to be followed up on a timely

basis. The internal audit programme of planned visits is discussed

and agreed with the Committee during the year.

123

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GOVERNANCE

NOMINATION COMMITTEE REPORT

The Nomination Committee (the

“Committee”) has overall responsibility

for making recommendations to the

Board on all new Board appointments

and for ensuring that the Board and its

committees have the appropriate balance

of skills, experience, independence,

diversity and knowledge to enable them

to discharge their respective duties and

responsibilities effectively.

Member

No. of meetings

(1)

Charlotte Twyning (Chair)

2/2

Justin Dowley

1/2

(2)

David Lis

2/2

Victoria Jarman

2/2

Gillian Elcock

1/1

(3)

(1) Reﬂects regularly scheduled meetings of the Committee.

(2)

Mr Justin Dowley did not attend the Committee meeting held in November due to

a conﬂicting mandatory commitment. He was in any case briefed on the matters

discussed at the meeting, with his feedback being considered by the Committee.

(3)

Ms Gillian Elcock was appointed as a member of the Committee with effect

from 21 June 2023. Ms Elcock attended all Committee meetings held during the

period 21 June 2023 to 31 December 2023. Ms Funmi Adegoke resigned as a

Non‑executive Director and as a member of the Committee on 16 June 2023.

Ms Adegoke attended all Committee meetings held up to the point of her resignation.

Discharge of responsibilities

The Committee discharges its responsibilities through:

• regularly reviewing the size, structure and composition of the

Board, including by means of overseeing the annual evaluation

processes of the Board and its committees, and providing

recommendations to the Board of any adjustments that may be

necessary from time to time;

• giving full consideration to succession planning in order to

ensure an optimum balance of executive and Non‑executive

Directors in terms of skills, experience and diversity, and in

particular formulating plans for succession for the key roles of

Chairman of the Board and Chief Executive Ofﬁcer;

• reviewing the career planning and talent management

programme related to senior executives of the Company to

ensure that it meets the needs of the business;

• managing the Board recruitment process and evaluating the

skills, knowledge, diversity and experience of potential Board

candidates in order to make appropriate nominations to

the Board;

• reviewing and approving the Board of Directors’ Diversity policy

and the Melrose Diversity, Equity and Inclusion policy; and

• keeping up to date and fully informed on strategic issues and

commercial changes affecting the Company and the markets in

which it operates.

The Committee’s terms of reference, which were last reviewed

and updated by the Committee in November 2023, are available to

view on our website, www.melroseplc.net, and from the Company

Secretary at Melrose’s registered ofﬁce.

Committee membership and attendance

The Committee is made up 100% of independent Non‑executive

Directors and comprises ﬁve out of the six Non‑executive Directors.

As mentioned below, Ms Funmi Adegoke resigned from the Board,

and as a member of the Committee, in June 2023. She attended all

scheduled meetings up to her resignation. Ms Gillian Elcock joined

as a member of the Committee in June 2023. She has attended all

scheduled meetings since her appointment.

The Committee is expected to meet not less than twice a year and,

during 2023, the Committee held two scheduled meetings. The

attendance of its members at these Committee meetings is shown in

the table above. The Committee also held a meeting to discuss the

executive Board changes, further details of which are included below.

The Company Secretary acts as secretary to the Committee. On

occasion, the Committee invites the Chief Executive Ofﬁcer to attend

discussions where his input is required.

Board composition and succession planning

The Committee keeps the membership of the Board under review,

including its size and composition, and makes recommendations to

the Board on any adjustments it thinks are necessary. The Committee

recognises the value in attracting Board members from a diverse

range of backgrounds who can contribute a wealth of knowledge,

understanding and experience. The Committee works with the Board

in order to ensure both of these matters are taken into account to aid

effective succession planning across the short, medium and long term.

Charlotte Twyning

Nomination Committee Chair

124

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Melrose is now a pureplay, listed aerospace business. As a

result, succession planning for the executive Directors was a key

focus for the Committee in 2023. In particular, the Board, with

the support of the Committee, approved Mr Simon Peckham

and Mr Geoffrey Martin stepping down as Chief Executive and

Group Finance Director with effect from 6 March 2024 and

7 March 2024 respectively, to be replaced by Mr Peter Dilnot and

Mr Matthew Gregory as Chief Executive Ofﬁcer and Chief Financial

Ofﬁcer respectively. The Committee considers that these changes

provide strong management continuity. Mr Dilnot has served as

Melrose Chief Operating Ofﬁcer since April 2019 as well as serving

as Chief Executive Ofﬁcer of GKN Aerospace from October 2023

onwards. Mr Gregory has served as Chief Finance Ofﬁcer of

GKN Aerospace since September 2022. Mr Peckham, Mr Martin,

Mr Christopher Miller and Ms Victoria Jarman will not stand for

re‑election as Directors at the 2024 AGM.

During the year, Ms Adegoke, Non‑executive Director, resigned

from the Board following her appointment to an executive role at

Halma plc. The Board appointed Ms Elcock as a Non‑executive

Director of the Board in June 2023 after the completion of a thorough

recruitment process conducted by Stonehaven International, an

external recruitment consultancy ﬁrm unconnected with the Company

or its Directors. Ms Elcock has extensive asset management and

investment research experience, including in the aerospace and

defence sector.

Furthermore, succession planning arrangements for the Board as

a whole were reviewed by the Committee in 2023. This included a

review and discussion of the skills set of the Directors in light of the

change in business strategy of the Company, as well as a review of

the tenure, diversity and independence of those already on the Board.

This review allowed the Committee to satisfy itself that the right

balance of skills, experience and diversity are reﬂected and being

developed, and that the composition of the Board is consistent with

the Board of Directors’ Diversity policy. It also allowed the Committee

to satisfy itself that the Company continues to meet the expectations

of the FTSE Women Leaders Review and the Parker Review.

The Committee also took an active interest in discussing and

reviewing succession planning arrangements for the Melrose

senior management team, including the career planning and talent

management programmes currently in operation for them. Again, this

is to allow the Committee to ensure that the right balance of skills,

experience and diversity are reﬂected and being developed, that the

Melrose senior management team reﬂects the requirements of the

Melrose Diversity, Equity and Inclusion policy, and to ensure that the

Company continues to meet the expectations of the FTSE Women

Leaders Review with respect to its Executive Committee and direct

reports. The Committee is satisﬁed as to the Company’s current

succession planning arrangements, and will continue to keep these

under review and discussion in 2024.

Non‑executive Directors’ tenure

The Committee also continued to review the role of

Mr Justin Dowley as Melrose’s Non‑executive Chairman. Although

Mr Dowley was appointed to this role in 2019, he ﬁrst joined the

Board as a Non‑executive Director in September 2011, meaning

he has served on the Board for over nine years. This is a key date

in the consideration of his independence under the UK Corporate

Governance Code (the “Code”).

Recognising the signiﬁcant events related to the Demerger, in

2022 the Board (upon the Committee’s recommendation) had

approved that Mr Dowley’s tenure be extended for a ﬁnal two years

beyond 2023, subject to annual re‑election at the Company’s AGM

each year. This was to ensure continuity and stability following

the completion of the Demerger, and remains important going

into 2024 to ensure continuity and stability with the retirement of

Mr Peckham, Mr Martin and Mr Miller from the Board. Mr Dowley

had received strong shareholder support for his re‑election at

the 2023 AGM.

In order to aid a smooth transition of the Chairmanship role, during

2023, Mr David Lis, the Senior Independent Director, commenced

a search for the new Chairman of the Board ahead of the expiry

of Mr Dowley’s tenure in 2025. The Committee also has oversight

and input into the recruitment process. Mr Lis’s tenure as a

Non‑executive Director and Senior Independent Director is also

due to expire in 2025.

Details of the tenure of the remaining Non‑executive Directors can

be found on pages 102 to 103.

Re‑election and election of Directors

The effectiveness and commitment of each of the Directors is

reviewed annually as part of the Board performance review upon

recommendations from the Committee. The Committee reviewed

each Director in turn to satisfy itself as to their individual skills,

relevant experience, contributions and time commitments to the

long‑term sustainable success of the Company. Whilst noting

that Mr Peckham, Mr Martin, Mr Miller and Ms Jarman will not

be standing for re‑election by shareholders at this year’s AGM

(1)

the Committee and the Board have each satisﬁed themselves

that each of the remaining Directors, together with Mr Gregory,

should stand for re‑election or election (as applicable), and the

justiﬁcations for such (re‑)elections are set out on pages 113 to 114

of this Annual Report and in the Notice of Annual General Meeting

on pages 240 to 248.

(1)

Mr Peckham, Mr Martin and Mr Miller resigned from the Board on 7 March 2024.

125

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ANNUAL REPORT 2023

GOVERNANCE

NOMINATION COMMITTEE REPORT

CONTINUED

Skills

The Board possesses a wide range of knowledge and experience

from a variety of sectors. In order to ensure the maximum

effectiveness of the Board, the Committee continues to review

the balance of skills and experience of Board members. The

Committee considers that the current Directors, including the

Non‑executive Directors, have a diverse range of skills and

experience that is necessary both to discharge their duties as

Directors of the Company, and to create a culture of collaborative

and constructive discussion, which enables the Board to contribute

effectively to the delivery of the Company’s strategy. The balance

of skills across the Board is regularly reviewed by the Committee.

As set out on page 99, the current Directors have skills and

experience across eight areas that the Committee considers to

be key to delivering the Company’s strategy: aerospace, aviation,

industrial, accounting and ﬁnance, legal, investment, corporate

governance and sustainability (environmental and social).

Wider succession planning

The Committee does not have direct responsibility for the

succession planning arrangements below Board level.

Responsibility for the succession planning arrangements of

the senior management team is the responsibility of the Chief

Executive Ofﬁcer, although the Committee retains oversight of

succession planning for key individuals within this team and has

access to them through a combination of site visits, the business

review cycle, Board and committee meetings, as well as being

provided with relevant information in order to monitor diversity

among them.

Diversity, equity and inclusion

Melrose is a meritocracy and individual performance is the key

determinant in any appointment, irrespective of ethnicity, gender

or other characteristic, trait or orientation. However, the Board and

the Committee also recognise the importance of diversity, and the

Committee keeps its approach to diversity under regular review,

including ensuring the development of a diverse Board and reviewing

its diversity policies on an annual basis. Melrose encourages diversity

at all levels of the Group. In particular, the last ﬁve Non‑executive

Director appointments have been women. Furthermore, two of

the committee Chair roles, including the important role of Audit

Committee Chair, are held by women. Melrose also continued to

meet the Financial Conduct Authority (“FCA”) Listing Rules and Parker

Review target, and its own Board diversity target, of having one

Director from an ethnic minority background on the Board.

The Committee currently takes into account a variety of factors

before recommending any new appointments to the Board, including

relevant skills to perform the role, experience and knowledge needed

to ensure a rounded Board and the beneﬁts each candidate can

bring to the overall Board composition. The Committee also takes

into account race, ethnicity, country of origin, nationality, cultural

background and gender in the selection process to ensure a diverse

Board and it also strongly encourages executives to adopt the same

approach when making appointments to the Melrose Executive

Committee and the wider senior management team. The most

important priority of the Committee, however, has been, and will

continue to be, to ensure that the best candidate is selected, and this

approach will remain in place going forward.

During the year, the Board continued to meet its target of

maintaining at least 40% female representation on its Board. As at

31 December 2023, Melrose had 40% female representation on its

Board, meaning that Melrose has met its target and the expectations

of the FTSE Women Leaders Review and the FCA Listing Rules.

(1)

As at 31 December 2023.

(2)

In accordance with the Code, senior management is deﬁned as the executive committee, or the ﬁrst layer

of management below Board level, including the Company Secretary.

DIVERSITY OVERVIEW

(1)

Board gender diversity

1 Male

60%

2 Female

40%

Melrose Executive Committee

1 Male

63%

2 Female

37%

Senior Management

and direct reports

(2)

1 Male

59%

2 Female

41%

Board ethnic diversity

1 White

90%

Ethnically diverse

10%

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MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

The FTSE Women Leaders Review and the FCA Listing Rules also set

a target for at least one senior board position, being that of chairman

of the board, senior independent director, chief executive or chief

ﬁnancial ofﬁcer, to be held by a woman (the FTSE Women Leaders

Review having set a target date of the end of 2025). The Committee

recognises that Melrose does not currently meet this requirement

and that it is under review. Whilst there is a need for continuity and

stability amongst the Board during the current period of signiﬁcant

strategic change for Melrose, this requirement is being factored into

ongoing succession planning discussions.

During the year, the Board updated its senior management diversity

target to align with the FTSE Women Leaders Review of having

40% female representation within its Executive Committee and

direct reports by the end of 2025. As at 31 December 2023, the

Executive Committee and its direct reports consisted of 41%

female representation (and 37% female representation speciﬁcally

at an Executive Committee level). Melrose therefore currently

meets its diversity target and the expectation of the FTSE Women

Leaders Review.

The Committee notes the recent recommendations of the Parker

Review for FTSE 350 companies to set a percentage target for senior

management positions that will be occupied by ethnic minorities by

the end of 2027, with the target being set by 31 December 2023.

Following engagement by the Company Secretariat with a member

of the Parker Review Committee, and external advice to track the

scope and timing of setting such targets among FTSE 100 peers,

both the Committee and Board agreed that it was not feasible for

Melrose to set a sufﬁciently informed ethnic diversity target for senior

management by the end of last year. In particular, Melrose has not

traditionally collected sensitive data, such as ethnic diversity data,

from its employees. However, the Group is proactively assessing

the collection of such data across its operations noting that there

are legal and regulatory barriers to overcome in certain jurisdictions.

Furthermore, as Melrose’s change in business strategy has meant

that there will be corresponding changes to the senior management

population of the Group into the ﬁrst half of 2024, it would be timely

and appropriate to set a target in light of these changes having

taken place. The Committee will seek to set a senior management

ethnic diversity target during the course of 2024. With the assistance

of external lawyers, Melrose has already reviewed its policies and

procedures for the collection of ethnic diversity data, and has

asked Melrose employees to complete a voluntary equality and

diversity form.

The Committee acknowledges that diversity, equity and inclusion

is a changing landscape, and reviews its diversity policies on an

annual basis, with any recommendations for amendments being

approved by the Board. The policies, which can be viewed on

the Company’s website at www.melroseplc.net/governance/

documents‑and‑policies include a Board of Directors’ Diversity

policy and a Melrose Diversity, Equity and Inclusion policy. The

Board of Directors’ Diversity policy sets out the Committee’s

commitment to ensuring that Board membership and pipeline for

succession remains diverse, which is equally applicable to each of

the Board’s committees. It also sets out the Company’s diversity

targets for the Board, the details of which are noted above. The

Melrose Diversity, Equity and Inclusion policy, which is applicable

to all Melrose employees, sets out Melrose’s position on diversity,

equity and inclusion in its workforce. In particular, it highlights that

Melrose aims to create a workforce that is diverse, equitable and

inclusive. The principles of the policy apply throughout the Group,

and our divisions are encouraged to promote diversity.

Further details of Melrose’s commitment to diversity and the

various diversity initiatives undertaken within the Group can be

found in the Sustainability review on pages 43 to 93. Additionally,

further details on diversity and Board skills can be found on

page 99 of the Governance overview.

Evaluation

The Code requires that FTSE 350 companies undertake a

formal and rigorous annual evaluation of the performance of the

Board, its committees, the Chairman of the Board and individual

Directors. In particular, FTSE 350 companies should undertake

an externally facilitated Board and committee evaluation once

every three years. The last externally facilitated Melrose Board and

committee review was undertaken by Lintstock Ltd in 2020 and so

the Company was required to undertake another in 2023. For this

purpose, the Company engaged Lintstock who engaged directly

with the Directors on: (i) the constitution and performance of the

Board and each committee; (ii) the Chairman of the Board; and

(iii) individual performance reviews. Lintstock produced a report

based on the feedback of Committee members and analysis of the

responses, which was presented and discussed at the December

Board meeting. Alongside such formal feedback, the Committee

continued to facilitate direct ongoing contact between its members

and the Chair of the Committee about any relevant matters that the

members wished to raise as part of the ongoing review.

Charlotte Twyning

Chair, Nomination Committee

7 March 2024

127

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ANNUAL REPORT 2023

GOVERNANCE

DIRECTORS’ REMUNERATION REPORT

CHAIR’S ANNUAL STATEMENT

Dear Shareholders,

On behalf of the Board, I am pleased to present our report on

Director remuneration (the “Annual Report on Remuneration”)

at the end of a highly successful year for Melrose, and one of

signiﬁcant strategic change.

During the year, the Board announced its decision to move away

from its traditional “Buy, Improve, Sell” business model to operate

as a long‑term aerospace group.

Given this signiﬁcant strategic shift, the Remuneration Committee

(the “Committee”) believes that now is the right time to revisit

Melrose’s remuneration structure to reﬂect our new “Design,

Deliver, Improve” business model and help drive the long‑term

performance of the Company.

It is with this background and Company performance during the

year that the Committee has taken its decisions in respect of

executive Director remuneration arrangements for 2023 and 2024.

Melrose remuneration structure

Our long‑standing executive remuneration structure has traditionally

been characterised by setting salary, beneﬁts and annual

bonuses below the lower quartile of our FTSE 100 peers, with the

opportunity for signiﬁcant reward being weighted towards long‑term

incentivisation. This approach has been entirely appropriate in

complementing our “Buy, Improve, Sell” strategy and has been

central to the success that has been delivered for our shareholders.

It has also been both well understood and well supported by our

investors, as most recently demonstrated by the votes in favour

of the 2022 Directors’ Remuneration Report and the current

Directors’ remuneration policy (the “2023 Directors’ Remuneration

Policy”), at the 2023 Annual General Meeting held on 8 June 2023

(the “2023 AGM”).

With Melrose’s strategy having shifted from its previous “Buy,

Improve, Sell” model to becoming an aerospace business for the

long term, now is the appropriate time to realign the Company’s

executive remuneration structure to reﬂect our new strategic

direction, subject to approval by shareholders of the 2024

Directors’ remuneration policy set out below (the “2024 Directors’

Remuneration Policy”) at the 2024 Annual General Meeting to be

held on 2 May 2024 (the “2024 AGM”). Our new strategy remains

focused on value creation, founded on continuous operational and

ﬁnancial improvement over the longer term. Our positive trajectory

is underpinned by the strong organic growth prospects within the

aerospace sector, alongside attractive opportunities to differentiate

our business through cutting‑edge proprietary technology. To

support this change in strategy, the Board believes that the new

executive management team should be remunerated under a

structure that resembles more closely Melrose’s FTSE 100 peers,

having undertaken an external benchmarking exercise, which

also took account of international aerospace peers comprising

companies that are more analogous in make‑up to Melrose. In

particular, we propose to rebalance Melrose’s weighting of ﬁxed to

variable remuneration, and of medium‑ to longer‑term incentivisation,

using a long‑term incentive structure reﬂective of the majority of

FTSE 100 companies.

Operation of the 2023 Directors’ Remuneration Policy

During the year, the Chief Executive’s and the Group Finance

Director’s salaries remained well below the lower quartile of our

FTSE 100 peers, with annual bonuses capped for Melrose’s current

executive Directors well below our peers at 100% of salary. The

Committee amended the operation of the annual bonus plan as part

of the renewal of the 2023 Directors’ Remuneration Policy at the 2023

AGM, by increasing the maximum opportunity from 100% to 200%

of salary for any newly appointed executive Directors. This decision

had been made to provide the Committee with the ability to create a

competitive executive remuneration package to attract the best talent

in the context of succession planning. However, no new executive

Directors were appointed during the year and so no Directors

beneﬁtted from this increased annual bonus entitlement.

Executive Directors received limited beneﬁts and a pension

contribution capped at 15% of salary, being the same percentage

contribution that all Melrose head ofﬁce employees received. The

table on page 132 sets out the most recently available CEO annual

remuneration (excluding the LTIP element for comparison) and puts

this deliberate strategy in context, highlighting that the single total

ﬁgure of remuneration for the Chief Executive

(1)

in 2023 was less than

half, or over £1 million less than, the average FTSE 100 CEO annual

remuneration in 2022 (excluding the LTIP element).

Now is the right time to revisit

Melrose’s remuneration structure

to reflect our new “Design, Deliver,

Improve” business model.”

David Lis

Remuneration Committee Chair

(1)

References in the Directors’ Remuneration report to the “Chief Executive” refer to Simon Peckham who stepped down as Chief Executive on 6 March 2024.

128

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

As this and the table on page 132 clearly indicate, the opportunity

for signiﬁcant reward has traditionally been heavily weighted to

the Company’s long‑term incentive arrangements, which have

been based entirely on value creation. Under the current long‑term

incentive arrangements, executive Directors have the opportunity

to share in the value they create for shareholders above a threshold

return over the performance period; however, if they do not deliver

the required level of performance to achieve the threshold return,

they receive no payout. With the impact of COVID‑19 resulting in the

previous incentive plan maturing with no award, the current plans

represent the only incentive plans with possible beneﬁts for Melrose

management since 2017.

The Committee understands that shareholders expect executive

remuneration to be aligned with the overall experience of the

Company, its shareholders, employees and other stakeholders. As

is demonstrated elsewhere in this Directors’ Remuneration report

– in particular, Comparison to peers (page 132), CEO pay ratio

(pages 137 to 138), and Wider workforce considerations (page 140),

we believe that the remuneration structure operated by Melrose,

and the outcomes produced by the operation of this structure, were

appropriate and resulted in a strong alignment between the executive

Directors, shareholders and other stakeholders.

It is based on this performance, and in the context of Melrose’s

change of strategy, that the Committee has taken its decisions

in respect of executive Director remuneration arrangements for

2023 and 2024. There were no deviations from the 2023 Directors’

Remuneration Policy in respect of 2023 and the Committee did

not exercise any discretion to alter the 2023 outcomes from the

application of the performance conditions. Full details are set out in

the Annual Report on Remuneration on pages 130 to 145 that will be

put to an advisory vote at the 2024 AGM.

2024 Directors’ Remuneration Policy

We are proposing to introduce the 2024 Directors’ Remuneration

Policy, subject to approval at the 2024 AGM. The 2024 Directors’

Remuneration Policy is proposed to rebalance the Company’s

remuneration structure to align with its FTSE 100 peers across

ﬁxed and variable aspects, to reﬂect the new long‑term aerospace

business model, using a structure and mechanics that are more

reﬂective of the majority of FTSE 100 companies.

The main differences between the 2023 Directors’ Remuneration

Policy and the 2024 Directors’ Remuneration Policy are:

• rebalancing the remuneration structure to align with the

Company’s FTSE 100 peers across ﬁxed and variable aspects,

to reﬂect the new long‑term aerospace business model, using

a structure and mechanics that are reﬂective of the majority of

FTSE 100 companies;

• reducing the pension contribution rate for the executive Directors

from 15% to 10% of base salary in order to bring the contribution

to a level consistent with the Group’s wider UK workforce as it

stands after the demerger of Dowlais Group plc in April 2023 (the

“Demerger”) and the merging of Melrose and GKN Aerospace into

a single standalone business; and

• the introduction of the Melrose Performance Share Plan (“PSP”)

which will replace the 2020 Melrose Employee Share Plan (the

“MESP”) as the Group’s ongoing long‑term incentive plan.

As announced last year, our executive Directors and co‑founders,

Christopher Miller and Simon Peckham, together with longstanding

executive Director Geoffrey Martin, will not stand for re‑election

at the 2024 AGM.

(1)

To take forward the Company’s new pureplay

aerospace strategy, we welcome Peter Dilnot as Chief Executive

Ofﬁcer and Matthew Gregory as Chief Financial Ofﬁcer. The

proposed 2024 Directors’ Remuneration Policy would only be

applicable to Mr Dilnot and Mr Gregory and not to the departing

executive Directors.

Stakeholder engagement

We were pleased that the 2022 Directors’ Remuneration Report

and the 2023 Directors’ Remuneration Policy both received strong

shareholder support at the 2023 AGM, receiving voting outcomes

of 97.29% and 82.02% respectively.

At Melrose, we always strive for the full support of our shareholders

in everything we do. This is critical to our success and is

never taken for granted. We have engaged with a wide variety

of stakeholders, including through communications to key

shareholders together representing over 65% of our register and

proxy advisers, on the proposed 2024 Directors’ Remuneration

Policy, and as at the time of writing some of those discussions

are ongoing. It is important to us that we conduct a thorough and

open‑minded engagement, understanding the focus on executive

remuneration in the wider governance community and the views

of our key shareholders in particular, many of whom have been

long‑term investors in Melrose. The engagement process has so

far been informative and feedback received has been factored into

our proposal. We thank the participants for their time.

Your Board considers that the Melrose remuneration structure that

has been adopted to date has been highly successful, appropriate

for the value creation strategy, and integral to the long‑term

performance of the Company under its former “Buy, Improve, Sell”

strategy. As Melrose embarks on its next chapter as a pureplay

aerospace group, your Board considers that the revised Melrose

remuneration structure set out in the 2024 Directors’ Remuneration

Policy is appropriate for the Company’s go‑forward strategy,

as well as being critical to driving long‑term performance and

shareholder value creation, and best meets the expectations of our

shareholders as a whole.

We encourage you to provide your support for the 2023 Directors’

Remuneration Report and the new 2024 Directors’ Remuneration

Policy at the 2024 AGM.

Yours sincerely

David Lis

Chair, Remuneration Committee

7 March 2024

(1)

Mr Peckham, Mr Martin and Mr Miller resigned from the Board on 7 March 2024.

129

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

GOVERNANCE

DIRECTORS’ REMUNERATION REPORT

CONTINUED

ANNUAL REPORT ON REMUNERATION

In this section of the Directors’ Remuneration report, we set out:

• the actual performance and executive remuneration outcomes

for the 2023 ﬁnancial year;

• the application of the 2023 Directors’ Remuneration Policy to the

2023 ﬁnancial year and how the 2023 Directors’ Remuneration

Policy was operated in 2023; and

• details of how the 2024 Directors’ Remuneration Policy is

intended to be implemented in 2024.

The 2023 Directors’ Remuneration Policy was approved by

shareholders at the 2023 AGM with over 82% of votes cast in

favour of the resolution. The full details of the current Directors’

Remuneration Policy can be found on pages 135 to 144 of

the 2022 Annual Report which is available on our website at

www.melroseplc.net/investors/results‑reports‑and‑presentations.

It is proposed that, subject to approval of shareholders at the

AGM on 2 May 2024, the 2023 Directors’ Remuneration Policy

be updated to align the Company’s remuneration principles with

the new business strategy of the Company. The 2024 Directors’

Remuneration Policy is set out on pages 145 to 152.

Key elements of the Annual Report on Remuneration

and where to ﬁnd them

Element

Page

Single ﬁgure of remuneration

131 and 141

Share interests awarded in the 2023 ﬁnancial year

None

(1)

Statement of Director shareholdings and interests

135 and 141

Performance graph

138

CEO pay ratio

137 to 138

Percentage change in remuneration of the CEO

138 to 139

Relative importance of spend on pay

140

Consideration of matters relating to Directors’ remuneration

130 to 131

Statement of voting

145

Payments to past directors or for loss of ofﬁce

141

2024 Directors’ Remuneration Policy

145 to 152

(1)

No value was vested to participants under incentive plans in the 2023 ﬁnancial year

– please see the single total ﬁgure of remuneration for the executive Directors for the

2023 ﬁnancial year (audited) on page 131.

Melrose’s remuneration strategy

Since the Company was ﬁrst established in 2003, the Committee

has pursued a consistent remuneration strategy that has closely

aligned the executive Directors with the Company’s shareholders,

has driven the Company’s traditional “Buy, Improve, Sell” model

prior to its shift to operating as a pureplay aerospace company,

and has been central to its success. This strategy has been based

around four key principles – namely, that executive remuneration

is simple, transparent, supports the delivery of the value creation

strategy, and pays only for performance.

These four key principles are wholly aligned with the UK Corporate

Governance Code (the “Code”) factors of clarity, simplicity, risk,

predictability, proportionality and alignment to culture, as set out on

page 144. The Committee ensured that it took all of these elements

into account when establishing the 2023 Directors’ Remuneration

Policy, as well as its application to executive Directors during

the period.

2023 key decisions

The Committee remained committed to a responsible approach to

executive pay in accordance with the 2023 Directors’ Remuneration

Policy which was approved at the 2023 AGM, and its four key

remuneration principles.

There was no long‑term incentive arrangement due to vest in 2023,

with the crystallisation date under the MESP being 31 May 2024

following shareholder approval at the general meeting related to the

Demerger which took place on 30 March 2023. As such there was no

payout in the year.

In line with the prior year, an inﬂationary increase of 5% was

made to the executive Directors’ base salaries with effect from

1 January 2023, which was below the salary rises awarded to the

wider Melrose head ofﬁce population. The Chief Executive’s and the

Group Finance Director’s salaries remained below the lower quartile

of the FTSE 100, as is demonstrated in the table on page 132. There

were also inﬂationary increases of 5% made to the Non‑executive

Chairman’s fee and the Non‑executive Director basic fees with effect

from 1 January 2023, again consistent with the salary changes for

the executive Directors. There were no changes to the additional fees

for holding the position of Senior Independent Director or committee

chair positions.

For 2024, an increase of 5% was made to the executive Directors’

base salaries with effect from 1 January 2024 as set out on

page 136, which was consistent with the increases awarded across

the wider UK workforce. There were increases of 5% made to the

Non‑executive Chairman’s fee and Non‑executive Director basic

fees with effect from 1 January 2024, consistent with the increases

determined for the executive Directors’ base salaries, as set out on

page 142. There were no changes to the additional fees for holding

the position of Senior Independent Director or committee chair

positions for 2024.

In determining the 2023 remuneration outcomes and the

remuneration approach for 2024, the Committee was mindful of the

evolving macroeconomic challenges impacting the global economy.

As set out in this report, the executive Director salary increases were

determined to be appropriate in light of the Company’s performance

in 2023, whilst recognising and balancing the need to appropriately

remunerate and incentivise the executive team to continue to deliver

value to shareholders.

In light of the appointments of Mr Peter Dilnot to the role of Chief

Executive Ofﬁcer and Mr Matthew Gregory to the role of Chief

Financial Ofﬁcer with effect from 6 and 7 March 2024 respectively,

the Committee has approved new remuneration structures for

these roles. The salary changes are set out on page 136, and

are intended to be effective from their dates of appointment and

prorated accordingly.

The Committee feels that it has been able to balance all relevant

stakeholder considerations when setting salaries for 2024 and having

benchmarked against FTSE 100 peers based on analysis from

external advisers.

130

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Although the annual bonus outcomes for 2023 were ﬁnally

determined by the Committee in 2024, we refer to them here for

completeness, as they are a key decision relating to the reporting

period. The ﬁnancial element of the annual bonus was fully met, and

the Committee did not consider that there was any justiﬁcation for

any exercise of discretion to change this outcome. The Committee

carefully considered the strategic objectives (including ESG

objectives) and the extent to which these were met during 2023.

As is detailed further on page 133, the Committee felt that while

management’s performance had substantially met the strategic

objectives it had not done so in full. We have therefore determined to

make an award of 15% for the strategic objectives (out of a maximum

of 20%), and thus a total award for the annual bonus of 95% of salary.

For the reasons set out in this report, the Committee believes that

the bonus outcome for 2023 is appropriate, taking into consideration

a number of factors, including the Company’s strong business

performance, and the wider stakeholder experience.

The Committee has reviewed the remuneration outcomes for the year

and conﬁrms that the 2023 Directors’ Remuneration Policy operated

as intended during the year, and felt that the incentive outcomes

were in line with the overall performance of the Group. There were no

deviations from the 2023 Directors’ Remuneration Policy in respect of

the year and the Committee did not exercise any discretion to alter the

2023 outcomes from the application of the performance conditions.

Business performance

With the strategic shift to the new, pureplay aerospace business

model, 2023 has been a transformational year for Melrose,

delivering ﬁnancial results ahead of expectations. Revenues grew

substantially in both the Engines and Structures divisions. There

was a 124% increase in adjusted operating proﬁt to £420 million,

with margins doubling from 6.3% to a record 12.5% (pre‑PLC

costs). Leverage reduced to 1.1x, including £93 million of share

buybacks completed over the period. Further details on this are set

out in the CEO’s review on pages 4 to 7 and the Divisional reviews

on pages 8 to 11.

This Annual Report and ﬁnancial statements, and speciﬁcally

the Group’s strategic KPIs on pages 18 to 19, demonstrates the

good progress that was made in 2023 towards the successful

implementation of the Company’s new strategy and business plan

as a pureplay aerospace business. The Company’s annual bonus

plan focuses directly and indirectly on rewarding executive Directors

and Melrose senior management for delivering these KPIs.

Single total ﬁgure of remuneration for the executive Directors for the 2023 ﬁnancial year (audited)

The following chart summarises the single ﬁgure of remuneration for 2023 in comparison with 2022

(1)

Executive Director

Period

Total salary

and fees

£000

Taxable

beneﬁts

£000

Bonus

£000

LTIP

£000

(2)

Pension

£000

(3)

Total

£000

Total

Fixed

£000

Total

Variable

£000

Christopher Miller

2023

596

n/a

(4)

–

688

–

2022

567

n/a

–

654

–

Simon Peckham

2023

596

566

–

1,256

689

566

2022

567

–

1,221

654

567

Geoffrey Martin

2023

487

463

–

1,037

574

463

2022

464

–

1,008

545

464

Peter Dilnot

2023

487

463

–

1,025

562

463

2022

464

–

998

535

464

(1)

The “Total” ﬁgures in the above table may not add up to the sum of the component parts due to rounding.

(2)

The 2020 Employee Share Plan, which has a commencement date of 31 May 2020, has a four‑year performance period. Accordingly, no value was vested to participants under the

2020 Employee Share Plan in respect of the year to 31 December 2022 or the year to 31 December 2023.

(3)

All amounts attributable to pension contributions were paid as a supplement to base salary in lieu of pension arrangements.

(4)

The Executive Vice‑Chairman does not participate in the annual bonus scheme.

131

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

GOVERNANCE

DIRECTORS’ REMUNERATION REPORT

CONTINUED

Comparison to peers

As part of an ongoing commitment to full transparency around remuneration structures at Melrose, the Committee has again benchmarked

the Melrose Chief Executive’s 2023 pay against the most recent available remuneration information from our FTSE 100 peers, being 2022

(1)

excluding long‑term incentives as there was no long‑term incentive vesting in 2023 for Melrose’s Chief Executive.

As the table below shows, the single total ﬁgure of remuneration for the Melrose Chief Executive in 2023 was less than half, and over

£1 million less than, the FTSE 100 average in 2022. This demonstrates in practice the Committee’s policy to date of deliberately setting

salary, beneﬁts and annual bonus for the executive Directors low, with the opportunity for signiﬁcant reward being heavily weighted towards

the Company’s long‑term incentive arrangements, which are entirely performance based, and which ensures that executive Directors only

receive substantial rewards when they have outperformed and created very signiﬁcant value for shareholders.

Metric (GBP ’000)

Melrose Chief Executive

FTSE 100 Lower Quartile

FTSE 100 Average

FTSE 100 Upper Quartile

Total

1,256

1,950

2,737

3,305

Each of the elements in the single ﬁgure table is set out in more detail below, along with the benchmark for the Melrose Chief Executive to

the most recent available information for our FTSE 100 peers.

Base Salary

The Chief Executive’s salary is ﬁxed at a level which is well below the lower quartile of FTSE 100 peers. Each executive Director received an

inﬂationary increase in base salary of 5% effective from 1 January 2023.

Metric (GBP ’000)

Melrose Chief Executive

FTSE 100 Lower Quartile

FTSE 100 Average

FTSE 100 Upper Quartile

Annual Salary

596

742

933

1,058

Pensions

Executive Directors receive the same 15% of base salary pension contribution

(2)

as the rest of the Melrose head ofﬁce employees. The level

of the executive Director pension contributions has not changed since Melrose was founded, and no executive Director participates or has

ever participated in a Group deﬁned beneﬁt or ﬁnal salary pension scheme.

Metric (GBP ’000)

Melrose Chief Executive

FTSE 100 Lower Quartile

FTSE 100 Average

FTSE 100 Upper Quartile

Pension Contribution

121

168

Pension Contribution %

15%

11%

15%

Beneﬁts

Executive Directors receive the same taxable non‑pension beneﬁts as the rest of the Melrose employees, being generally private medical

insurance and a fuel allowance. The Group Finance Director also received paid train travel to and from London.

Metric (GBP ’000)

Melrose Chief Executive

FTSE 100 Lower Quartile

FTSE 100 Average

FTSE 100 Upper Quartile

Beneﬁts

Annual Bonus

Annual bonuses are entirely performance driven. As part of the changes to the 2023 Directors’ Remuneration Policy that were approved

by shareholders at the 2023 AGM, the maximum bonus opportunity was increased to 200% of salary. However, the 2023 Directors’

Remuneration Policy expressly excluded these changes applying to the 2023 annual bonus for the existing executive Directors. No new

executive Director appointments were made in 2023 and the annual bonus for 2023 was calculated by the Committee in accordance with

the 2020 Directors’ Remuneration Policy which stipulates two elements for the current eligible executive Directors, being: 80% based on

adjusted diluted earnings per share growth; and 20% based on the achievement of strategic elements. The maximum bonus opportunity

for these executive Directors is currently set at 100% of base salary, which is signiﬁcantly below the lower quartile maximum annual bonus

opportunity for other FTSE 100 companies as set out in the table below. The Executive Vice‑Chairman does not participate in the annual

bonus scheme.

Metric (GBP ’000)

Melrose Chief Executive

FTSE 100 Lower Quartile

FTSE 100 Average

FTSE 100 Upper Quartile

Annual Bonus

566

956

1,499

1,921

Maximum bonus opportunity %

100%

176%

214%

223%

(1)

The peer group for comparison includes the FTSE 100 constituents as at 31 December 2023, with ﬁnancial year ends between 1 January 2022 and 31 December 2022, excluding

joiners and leavers over the period. For comparison purposes, the included peer information excludes any payments made under long‑term incentive arrangements, as none were

payable to the Melrose Chief Executive in 2023.

(2)

All of the amounts attributable to pension contributions were paid as supplements to base salary in lieu of pension arrangements.

132

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

2023 Annual Bonus (audited)

The 2023 Annual Bonus has applied a consistent approach to previous years, in line with the 2023 Directors’ Remuneration Policy. The

Committee awarded participating executive Directors a bonus of 95% of their 2023 base salary, based on 2023 performance, with the full

breakdown of the award calculation set out below.

As is shown by the table, the ﬁnancial element of the 2023 annual bonus, growth in adjusted diluted earnings per share, was satisﬁed in full

and therefore a full award was made for this part of it, being 80% of the total bonus. The Committee did not seek to exercise any discretion

to adjust for this. With respect to the strategic element, having given detailed and thorough consideration to each of the strategic objectives

and management’s performance against them during 2023, the Committee determined that not all of the strategic objectives had been

fully met during 2023 and therefore that the strategic element should be awarded at 15% (out of a maximum of 20%). The Committee

determined that no exercise of discretion to adjust this element of the award was required. Full disclosure of the strategic objectives and

why the Committee determined that these had been met is provided below. The Committee considers that the payout is consistent with the

wider stakeholder experience, including shareholders and employees.

In determining the 2023 annual bonus award, the Committee was mindful of the macroeconomic challenges impacting the global economy,

and aware of the guidance published by the Investment Association setting out the issues that remuneration committees should consider

as they assess 2023 remuneration outcomes and set remuneration for 2024. In light of the Company’s performance during 2023, and that

the bonus award (both as a percentage of salary and as an absolute ﬁgure) is well below the lower quartile of the FTSE 100, the Committee

believes that the annual bonus awarded for 2023 is appropriate and in line with that guidance.

Financial Objectives (80%)

Percentage of maximum bonus earned

Threshold

Target

Maximum

Actual Performance

Growth in adjusted diluted earnings per share

10%

20%

356%

(1)

% award

20%

40%

80%

Growth in adjusted diluted earnings per share sub‑total:

80%

Strategic Objectives (20%)

Percentage of maximum bonus earned

Execution of the

demerger of Dowlais

Group plc – maximum

The Demerger was completed successfully on 20 April 2023, having been approved by shareholders at the general

meeting of the Company held on 30 March 2023. The Demerger enabled the Group to focus on realising the full

potential of the GKN Aerospace business for the long term, a re‑rating of Melrose as an aerospace business, and the

opportunity for signiﬁcant shareholder value creation over the long term.

Implementation of

strategic shift to an

aerospace‑only business

and transition plan –

maximum 5%

The strategic shift away from Melrose’s traditional “Buy, Improve, Sell” business model to operating as a long‑term

aerospace group and delivering on the Group’s new “Design, Deliver, Improve” business model is transformational for

Melrose. Management has successfully transitioned the business to align it with the new business model and further

de‑risked the operational and ﬁnancial path towards achieving the Group’s 2025 operating margin targets.

Actions to deliver

the GKN Aerospace

enterprise projects are

substantially complete –

maximum 5%

Management implemented a series of GKN Aerospace restructuring projects during the year, including entering

into a binding agreement for the sale of the Portsmouth and Alabama Fuel Systems businesses, and implementing

the actions to deliver an extensive restructuring programme within Structures, including the consolidation and

restructuring of the Netherlands footprint to two multiple technology campuses in Hoogeveen and Papendrecht.

In the US and Mexico site actions were implemented to enable rationalisation to three centres of excellence

at Chihuahua, Orangeburg and Wellington, which is expected to deliver further quality, productivity and cost

improvements as volumes increase within our restructured and leaner operating base. Actions have been delivered

according to planned milestones and the corresponding beneﬁts are materialising, and underpin the Group’s

trajectory towards achieving its stated operating margin targets.

2.5%

ESG – maximum 5%

Enhancing climate strategy and achieving key milestones:

Continued signiﬁcant investment was made in leading technologies to enable aviation’s route to Net Zero by 2050,

with over £45 million invested in decarbonising R&D in 2023. An updated climate physical and transition risks analysis

was undertaken to inform the Company’s sustainability actions, risk mitigation, and strategy as a pureplay aerospace

business. Science‑based targets for near‑ and long‑term emissions were submitted to SBTi for validation.

The Group’s 2025 ESG targets relating to Scope 1 and 2 emissions, water intensity, sustainable R&D investment and

sustainable products, were successfully met ahead of the 2025 target year, and a sustainability data pre‑assurance

project was commenced in preparation for formal limited assurance in the future.

Increasing commitment to diversity:

The Company continued to meet its target of maintaining at least 40% female representation at Board level during

2023, meeting the expectations of the FTSE Women Leaders Review and the FCA Listing Rules. During the year,

the Board updated its senior management diversity target to align with the FTSE Women Leaders Review target

of having at least 40% female representation at Executive Committee and direct reports level by the end of 2025.

As at 31 December 2023, this target was met with 41% female representation at Executive Committee and direct

reports level.

2.5%

Strategic Objectives sub‑total:

15%

Total annual bonus for 2023:

95%

(1)

The 2022 audited results have been restated to account for discontinued businesses (i.e. to account for the Demerger). As a result, adjusted diluted earnings per share for 2022

has been restated from 7.0 pence to 4.1 pence. In order to provide a like for like comparison following the Demerger, the Committee considered it appropriate to use the restated

ﬁgure for 2022 when calculating growth in adjusted diluted EPS between 2022 and 2023. However, if the Committee had used the original ﬁgure for 2022 when calculating growth in

adjusted diluted EPS between 2022 and 2023, growth would have been 167%.

133

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

GOVERNANCE

DIRECTORS’ REMUNERATION REPORT

CONTINUED

The 2023 bonus payments to the former Chief Executive and the

outgoing Group Finance Director will be made in cash, as both have

exceeded their minimum shareholding requirements. As per the

terms of the 2023 Directors’ Remuneration Policy, the 2023 annual

bonus payments are potentially subject to clawback. In accordance

with the terms of the 2023 Directors’ Remuneration Policy, 50%

of the 2023 bonus (post‑tax) payment to Mr Peter Dilnot may be

required to be deferred into shares. Such shares will be subject to

leaver and clawback conditions. No further performance conditions

will apply.

Long‑term incentive arrangements (audited)

As at the end of the period, the Company’s long‑term incentive

arrangements comprised the 2020 Melrose Employee Share Plan

(the “MESP”) and the Melrose Automotive Share Plan (the “MASP”).

MESP

Full details of the MESP, including the participation rate percentages

of the executive Directors, are set out in the circular dated

29 December 2020

(1)

as well as in the 2023 Directors’ Remuneration

Policy approved at the 2023 AGM. Participants in the MESP share in

7.5% of the increase in invested capital above a 5% annual charge,

measured at the end of a performance period commencing on

31 May 2020, which the Committee considers to be the appropriate

performance condition in light of the Company’s traditional business

model and strategy. Awards are subject to an annual rolling cap.

The awards under the MESP are structured as conditional awards,

which are contingent rights to be granted an award of ordinary

shares of the Company or a nil cost option (exercisable into

ordinary shares of the Company) on the crystallisation date. At the

general meeting on 30 March 2023, the MESP was adjusted to

split the invested capital between the continuing Melrose Group

and Dowlais according to a ﬁxed ratio to match the separation of

the businesses under the Demerger, with any increase in value in

the Melrose Group being measured against the invested capital

relating to Melrose as at 31 December 2022 (with the initial invested

capital as at 31 May 2020 having been adjusted and re‑stated to

31 December 2022). The performance period was also extended by

12 months to 31 May 2024. Full details of these adjustments were

set out in the circular to shareholders dated 3 March 2023.

The conditional awards of the executive Directors under the MESP

were made in one grant on 29 December 2020, subject to approval

by shareholders, which was granted on 21 January 2021. No

long‑term incentives were either granted or crystallised during the

2023 ﬁnancial year under the MESP. The Committee did not adjust

any incentive plan share outcome due to share price appreciation

as none crystallised during the year being reported on, nor does it

intend to adjust the incentive plan share outcome due to share price

appreciation on the crystallisation date of the MESP.

As part of an ongoing commitment to full transparency around

remuneration structures at Melrose, set out below is a ‘snapshot’

of the current value of the MESP, as if the crystallisation date

was 31 December 2023. As this table demonstrates, as at

31 December 2023, the minimum return hurdle of £153,636,036 on

invested capital as at 31 December 2022 had been achieved and

therefore value would have accrued to the MESP.

MASP

The MASP is governed by the plan rules tabled and approved at

the general meeting that was held on 30 March 2023 (the “MASP

Rules”). The MASP measures the creation of shareholder value in

the demerged Dowlais group above a threshold invested capital (the

“Threshold MASP Crystallisation Value”) over a performance period

to 31 May 2025, with participants being granted options to acquire

ordinary shares in Dowlais for nil consideration, subject to achieving the

necessary performance.

Following completion of the Demerger, 2% of the Dowlais shares were

placed on trust with an employee share ownership trust (“ESOT”)

established by Melrose for the purposes of satisfying awards under

the MASP. Options over these shares were granted following the

MASP Commencement Date and the extent to which the options vest

and become exercisable depends on performance, measured by the

increase in value of invested capital over the period from and including

completion of the Demerger up to (but excluding) the crystallisation

date on 31 May 2025 (the “MASP Crystallisation Date”) or, where an

exceptional corporate event affecting the Company or Dowlais occurs

prior to that event (such as a change of control or winding up), an

earlier date as determined in accordance with the MASP Rules. On

the MASP Crystallisation Date, to the extent the vesting conditions

have not been met, the ESOT will transfer the relevant shares back to

Dowlais (or its nominee) to be cancelled.

The increase in value of invested capital for the purposes of the MASP

is calculated by reference to the average market capitalisation of

Dowlais for the 40 Business Days prior to (but excluding) the MASP

Crystallisation Date. If the MASP Crystallisation Date had been

31 December 2023, the Threshold MASP Crystallisation Value would

not have been met by reference to the average market capitalisation

of Dowlais for the 40 Business Days prior to (but excluding)

31 December 2023, and therefore no options would have vested and

become exercisable.

Theoretical value under the MESP if crystallised on 31 December 2023

(rather than on the scheduled payment date)

Invested capital at 31 December 2022

(2)

£2,952,358,090

Index adjustment/minimum return

£153,636,036

Invested capital at 31 December 2023

£3,105,994,126

Number of issued ordinary shares on 31 December 2023

(excluding treasury shares)

1,332,713,481

Average price of an ordinary share for 40 business days

prior to and including 29 December 2023

(3)

535.27p

Deemed market capitalisation of Melrose based on average

price of an ordinary share for 40 business days prior to

29 December 2023

(3)

£7,133,648,786

Overall change in value for shareholders since

31 December 2022

£4,027,654,660

Theoretical value to management and shareholder dilution calculated at

31 December 2023

7.5% of change in value

£302,074,099

Total number of new shares issued under the MESP

56,433,704

Theoretical dilution to shareholders due to the MESP

4.06%

Break‑even price of an ordinary share at 31 December 2023

for the MESP to start to deliver value

233p

(1) Available at www.melroseplc.net/investors/shareholder‑meetings.

(2)

While the MESP awards were granted with effect from the deemed commencement

date of 31 May 2020, in connection with the Demerger, the invested capital was

allocated between the Continuing Melrose Group and the Dowlais Group as at

31 December 2022, as further described in the circular dated 3 March 2023. As a result,

the invested capital is shown here as accruing from 31 December 2022, notwithstanding

the four‑year performance period of the MESP, as adjusted for dividends paid and

distributions made on or in respect of the Company’s ordinary shares (including

pursuant to the Company’s share buyback programme) during the period from and

including 1 January 2023 to and including 31 December 2023.

(3)

Being the last business day of the 2023 ﬁnancial year.

134

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Minimum shareholding requirements and equity

exposure of the Board (audited)

Executive Directors are subject to two concurrent minimum

shareholding requirements, the full details of which are set out in

the 2023 Directors’ Remuneration Policy as approved at the 2023

AGM. In summary, the ﬁrst is to always hold at least a value of

shares equal to 300% of salary, for which they are given a period of

ﬁve years from appointment to meet. The second requirement is for

executive Directors to hold all the shares they acquire pursuant to

crystallisation of the MESP (to the extent that crystallisation results

in an award of ordinary shares being made), after satisfying tax

obligations following the crystallisation of that plan and subject to

capital adjustments, for the two‑year holding period.

In the event that an executive Director were to leave the Company,

he would be subject to a post‑cessation minimum shareholding

requirement of 300% of salary (or his actual shareholding on

cessation, if lower), for a two‑year period following the date of

cessation. This obligation is enforceable under direct contractual

arrangements between the Company and each executive Director.

Executive

Directors

(1)

Applicable

shareholding

requirement

(% salary)

(2)

Current

shareholding

(% salary)

(3)(4)

Shareholding

requirement

met?

Shareholding

(% ordinary

share capital)

as at

31 December

2023

(5)

beneﬁcially

held on

31 December

2022

(4)

beneﬁcially

held on

31 December

2023

(4)(6)

Value of

shares on

31 December

2022

(7)

Value of

shares on

31 December

2023

(3)

Difference in

value of

shares between

31 December

2022 and

31 December

2023

(8)

Christopher Miller

300%

7,228%

Yes

0.562%

22,777,659

7,592,553

30,635,951

43,080,146

12,444,194

Simon Peckham

300%

1,927%

Yes

0.150%

12,071,895

2,023,965

16,236,699

11,483,977

(4,752,721)

Geoffrey Martin

300%

2,585%

Yes

0.164%

6,655,730

2,218,576

8,951,957

12,588,200

3,636,243

Peter Dilnot

300%

76%

(9)

0.005%

100,000

65,444

134,500

371,329

236,829

(1)

In addition to the share interests set out in the table, each of the executive Directors as at 31 December 2023 has an additional exposure by virtue of their conditional awards under

the MESP (see “Long‑term incentive arrangements” on page 134).

(2)

The shareholding requirement under the 2023 Directors’ Remuneration Policy is 300% of base salary.

(3)

For these purposes, the value of a share is 567.4 pence, being the closing mid‑market price on 29 December 2023, being the last business day of the 2023 ﬁnancial year, and salary

is 2023 base salary as set out in the single ﬁgure table on page 131.

(4)

For these purposes, the interests of each executive Director listed in the table include any ordinary shares held by a person closely associated with that executive Director within the

meaning of the EU Market Abuse Regulation, as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018.

(5)

Based on the total number of ordinary shares in issue as at 31 December 2023, inclusive of treasury shares.

(6)

Following the one for three share consolidation which took place on 19 April 2023, the Company’s ordinary share capital changed from 4,054,425,961 ordinary shares of

160/21 pence each to 1,351,475,321 ordinary shares of 160/7 pence each, and consequently there was a commensurate reduction in the number of shares held by all shareholders,

including the executive Directors (but not the percentage held).

(7)

For these purposes, the value of a share is 134.50 pence, being the closing mid‑market price on 30 December 2022, being the last business day of the 2022 ﬁnancial year.

(8)

The ﬁgures in this column may not add up to the sum of the component parts due to rounding.

(9)

Under the 2023 Directors’ Remuneration Policy, executive Directors are required to always hold at least an amount of shares equal to 300% of salary, for which they are given ﬁve

years from appointment to meet this requirement. Whilst Mr Dilnot does not currently meet the minimum shareholding requirement, it is anticipated that he will hold far in excess of

this shareholding as a result of any shares he receives in relation to the MESP in May 2024, subject to the performance conditions having been met.

No executive Director may dispose of any ordinary shares without the consent of the Chairman of the Board, which will not normally be

withheld provided the executive Director will continue to hold at least the “minimum number” of ordinary shares referred to in the table

above following any such disposal.

There have been no changes in the ordinary shareholdings of the executive Directors between 31 December 2023 and 7 March 2024 (the

date of this report).

Please see page 141 for a table setting out the equity interests of the Non‑executive Directors as at 31 December 2023.

In reality, the executive Directors have generally held well in excess

of this minimum amount, which reﬂects their long‑term stewardship

of the Company and long‑term investment in the Company’s shares.

It is the Committee’s view that it is important when considering

the remuneration paid in the year under the single ﬁgure to take a

holistic view of how each executive Director’s total wealth is linked to

the performance of the Company. In the Committee’s opinion, the

impact on the total wealth of an executive Director is as important as

the single ﬁgure in any one year; this approach encourages executive

Directors to take a long‑term view of the sustainable performance of

the Company and aligns them with shareholders.

This is demonstrated by the following table, which sets out all

subsisting interests in the equity of the Company held by the

executive Directors as at 31 December 2023, as well as an indication

as to the size of these interests relative to the entire issued share

capital of the Company (excluding treasury shares). It also sets

out the number of ordinary shares of the Company held by each

executive Director at the end of the 2022 and 2023 ﬁnancial years

and the impact on the value of these ordinary shares taking the

closing mid‑market prices for those dates:

135

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

GOVERNANCE

DIRECTORS’ REMUNERATION REPORT

CONTINUED

Key decisions and statement

of implementation for 2024

Salary review

The Committee has awarded salary increases to the executive

Directors of 5% for 2024, which is consistent with the rate of salary

increases made to the wider UK workforce. The executive Director

salary increases were determined to be appropriate in light of the

Company’s performance in 2023, whilst recognising and balancing

the need to appropriately remunerate and incentivise the executive

team to continue to deliver value to shareholders.

In light of Simon Peckham and Geoffrey Martin stepping down

as Chief Executive and Group Finance Director on 6 and 7 March

respectively, and the appointments of Mr Peter Dilnot to the role

of Chief Executive Ofﬁcer and Mr Matthew Gregory to the role of

Chief Financial Ofﬁcer with effect from 6 and 7 March 2024 (the

“Dates of Appointment”) respectively, the Committee has approved

new remuneration structures for these roles as set out in the table

below, which will be effective from their Dates of Appointment

and prorated accordingly. The new remuneration structures were

determined to be appropriate to align executive salary and the

wider executive remuneration package with that of other FTSE 100

companies. The 2024 Directors’ Remuneration Policy is subject to

the approval of shareholders at the 2024 AGM.

The Committee therefore feels that it has been able to balance all

relevant stakeholder considerations when setting salaries for 2024.

The executive Directors’ salaries for 2024 are as follows

(1)

Executive Directors

Position

Salary with

effect from

1 January 2024

£000

Salary change

with effect from

March 2024

£000

Christopher Miller

Executive Vice‑Chairman

626

n/a

Simon Peckham

Chief Executive

626

n/a

Geoffrey Martin

Group Finance Director

511

n/a

Peter Dilnot

Chief Operating Ofﬁcer /

moving to Chief

Executive Ofﬁcer

511

975

Matthew Gregory

Chief Financial Ofﬁcer

n/a

695

(1)

Mr Peckham and Mr Martin stepped down as Melrose Chief Executive and Group

Finance Director respectively with effect from 6 and 7 March 2024 respectively, to

be replaced by Mr Dilnot and Mr Gregory respectively. Mr Peckham, Mr Martin and

Mr Miller will not stand for re‑election at the 2024 AGM.

Pensions and beneﬁts

For 2024, standard beneﬁts will be provided to the executive

Directors in line with the 2024 Directors’ Remuneration Policy.

However, the pension contribution rate for executive Directors

will be reduced from 15% to 10% of base salary for Mr Dilnot and

Mr Gregory, in order to bring the contribution to a level consistent

with the Group’s wider UK workforce as it stands following the

Demerger and the merging of Melrose and GKN Aerospace into

a single standalone business.

The Committee has approved this reduction in the pension

contribution rate and this change is also intended to be effective

from Mr Dilnot and Mr Gregory’s Dates of Appointment and

prorated accordingly.

Annual bonus

As part of the 2024 Directors’ Remuneration Policy, which will

be put forward for shareholder approval at the 2024 AGM, the

maximum bonus opportunity for executive Directors will remain at

200% of base salary. In practice, for 2024, this will be applied such

that the maximum opportunity will be 200% of base salary for the

new Chief Executive Ofﬁcer and 150% of base salary for the new

Chief Financial Ofﬁcer.

The bonuses for the Chief Executive Ofﬁcer and Chief Financial

Ofﬁcer will be prorated for 2024 such that they will be payable for

the portion of the year from 6 and 7 March 2024 onwards (being

the dates on which the relevant individuals commenced their roles

as Chief Executive Ofﬁcer and Chief Financial Ofﬁcer, respectively).

For the period from 1 January to 5 March 2024, Mr Dilnot will be

entitled to a prorated bonus with a maximum opportunity of 100%

of his salary for that period and for the period from 1 January to

6 March 2024, Mr Gregory will be entitled to a prorated bonus for his

role as Chief Financial Ofﬁcer of GKN Aerospace.

The annual bonus will be based on ﬁnancial performance metrics

of 70% with the remaining 30% based on strategic and/or personal

objectives. The ﬁnancial performance metric will comprise cash

ﬂow and operating proﬁt, which the Committee considers to be the

appropriate metrics for the Company. The Committee considers

that the details of the strategic measures are commercially sensitive,

but will disclose the nature of all measures on a retrospective basis,

where appropriate, on a similar basis to the disclosure on page 133 in

respect of the annual bonus for the year ending 31 December 2023.

If an executive Director does not satisfy the minimum shareholding

requirement, up to 50% of any bonus award after tax will be used

to acquire shares to the extent necessary to enable the executive

Director to meet his or her minimum shareholding requirement (as

further described on page 135).

Long‑term incentive arrangements

Given the nature of the MESP (see “Long‑term incentive

arrangements” on page 134), no grants were made to the executive

Directors under the MESP in 2023, nor will any be made to them

in 2024. Grants were made to the executive Directors under the

MASP in 2023. Details of such grants were set out in the circular

published in relation to the Demerger, which is available at

www.melroseplc.net/investors/shareholder‑meetings.

Subject to shareholder approval at the 2024 AGM, going forward,

executive Directors will be granted awards under the Performance Share

Plan (the “PSP”). The intention is that following commencement of the

PSP, the Chief Executive Ofﬁcer will be made an award at the maximum

level allowed of 300% of salary and the Chief Financial Ofﬁcer will be

made an award at 200% of salary, however, as the PSP will commence

following crystallisation of the MESP on 31 May 2024, the 2024 awards

will be prorated from the scheme commencement date (so as to be

made at 7/12ths of 300% of salary for the Chief Executive Ofﬁcer, and

7/12ths of 200% of salary for the Chief Financial Ofﬁcer). Detailed

performance measures will be set by the Committee in relation to the

initial awards to be made under the PSP and are expected to be subject

to three independent performance metrics, comprising growth in fully

diluted adjusted EPS (45%), relative TSR performance versus the FTSE

100 (excluding investment trusts) (45%), and strategic objectives (10%).

Unless performance of a participant during the performance period

is sufﬁcient to earn 25% of the relevant maximum opportunity, none

of the PSP Awards granted to that participant will vest, with 100%

of the PSP Awards granted to a participant vesting if maximum

performance is achieved.

No payment is required for the grant of a PSP Award.

As soon as reasonably practicable after the end of each performance

period, the Committee will conduct a performance assessment.

The Committee will determine the extent to which the PSP Awards

will then vest, taking into account the extent to which performance

conditions have been satisﬁed. PSP Awards will vest on the vesting

date set by the Committee at grant, which will normally be the third

anniversary of the grant date. An additional two‑year post‑vesting

holding period applies to PSP Awards made to executive Directors.

136

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Regulatory disclosures

Chief Executive remuneration for previous ten years

In accordance with the regulations governing the reporting of executive Director remuneration, the total ﬁgure of remuneration set out in

the table below includes the value of long‑term incentives vesting in respect of the relevant ﬁnancial year. This means that the full value of

the 2012 Incentive Plan which crystallised in May 2017 is shown for the year ended 31 December 2017, although this represents rewards

earned over the previous ﬁve years. The 2017 Incentive Plan crystallised in May 2020 for no value. Per the terms of the Company’s current

long‑term incentive arrangements, any awards in relation to the MESP and the MASP are not scheduled until May 2024 and May 2025,

respectively, and only then if the performance conditions are met.

Financial year

Chief Executive

Non‑LTIP

LTIP

Total

remuneration

Annual bonus

as a percentage

of maximum

opportunity

Long‑term

incentives

as a percentage

of maximum

opportunity

Year ended 31 December 2023

Simon Peckham

1,255,595

–

1,255,595

95%

–

Year ended 31 December 2022

Simon Peckham

1,221,011

–

1,221,011

100%

–

Year ended 31 December 2021

Simon Peckham

1,186,316

–

1,186,316

100%

–

Year ended 31 December 2020

Simon Peckham

680,113

–

(1)

680,113

20%

n/a

(2)

Year ended 31 December 2019

Simon Peckham

976,000

–

976,000

72%

–

Year ended 31 December 2018

Simon Peckham

1,049,000

–

1,049,000

95%

–

Year ended 31 December 2017

Simon Peckham

994,000

41,770,000

(3)

42,764,000

90%

n/a

(4)

Year ended 31 December 2016

Simon Peckham

987,725

–

987,725

95%

–

Year ended 31 December 2015

Simon Peckham

928,541

–

928,541

88%

–

Year ended 31 December 2014

Simon Peckham

773,167

–

773,167

58%

–

(1) The 2017 Incentive Plan crystallised in May 2020 for no value.

(2)

Although the 2017 Incentive Plan crystallised in May 2020 for no value, because the value that would have been derived on the crystallisation of the 2017 Incentive Shares and

options depended upon the shareholder value created over the relevant period, it would not have been possible to express the value derived as a percentage of the maximum

opportunity.

(3)

The value derived in 2017 from the 2012 Incentive Shares represents the Chief Executive’s share, determined in accordance with the terms of those shares, of the shareholder value

created over a period of approximately ﬁve years. This amount was paid in shares, not cash.

(4)

On the crystallisation in May 2017 of the 2012 Incentive Plan, participants as a whole were entitled to 7.5% of the increase in shareholder value from 22 March 2012 to 31 May 2017.

Because the value derived on the crystallisation of the 2012 Incentive Shares depended upon the shareholder value created over the relevant period, it is not possible to express the

value derived as a percentage of the maximum opportunity.

CEO pay ratio

Our median CEO to employee pay ratio for 2023 continued to be low at 25:1. The following table provides pay ratio data in respect of the

Chief Executive’s total remuneration compared to the 25th, median and 75th percentile UK employees.

Financial year

Method

25th percentile

pay ratio

Median

pay ratio

75th percentile

pay ratio

Year ended 31 December 2023

Option A

32:1

25:1

21:1

Year ended 31 December 2022

Option A

32:1

26:1

20:1

Year ended 31 December 2021

Option A

34:1

29:1

23:1

Year ended 31 December 2020

Option A

20:1

16:1

13:1

Year ended 31 December 2019

Option A

30:1

24:1

19:1

The employees used for the purposes of calculating the pay ratios in the table above were those employed in the UK by any business within

the Group on 31 December 2023 (for the avoidance of doubt, including the Chief Executive), and the remuneration ﬁgures were determined

with reference to the ﬁnancial year ending 31 December 2023. Option A was chosen as it is considered to be the most accurate way of

identifying the relevant employees. This captures all relevant pay and beneﬁts and aligns to how the single ﬁgure table is calculated for the

Chief Executive and other Directors. The value of each employee’s total pay and beneﬁts was calculated using the single ﬁgure methodology

consistent with the Chief Executive, with the exception of the annual bonus, which was calculated using 2022 ﬁnancial year bonuses (which

were paid during 2023) where the 2023 ﬁnancial year data was not available at the last practical date before the ﬁnalisation of this report. No

elements of pay have been omitted. Where required, remuneration was approximately adjusted to reﬂect full‑time and full‑year equivalents

based on the employees’ contracted hours and the proportion of the year they were employed.

The following table provides salary and total remuneration information in respect of the employees at each quartile (rounded to the nearest

£1,000).

Financial year

Element of pay

25th percentile

pay employee

Median

employee

75th percentile

pay employee

Year ended 31 December 2023

Salary and wages

(1)

£35,000

£44,000

£53,000

Total pay and beneﬁts

£39,000

£50,000

£61,000

(1)

Base salary includes overtime and shift allowances/premiums. The individual at the median received shift premium and overtime during the year.

137

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

GOVERNANCE

DIRECTORS’ REMUNERATION REPORT

CONTINUED

Despite the Demerger resulting in a signiﬁcant decrease in the Group’s employee population (which reduced from an average of 38,772

during 2022 to an average of 14,741 during 2023) all ratios for 2023 remain broadly consistent with those for 2022.

We have considered the pay data for the three employees identiﬁed and believe that it fairly reﬂects pay at the relevant quartiles amongst

the UK workforce. The Committee considers that the median pay ratio is consistent with the relative role and responsibilities of the Chief

Executive and the identiﬁed employee. Base salaries of all employees, including our executive Directors, are set with reference to a range of

factors, including market practice, experience and performance in role. The Chief Executive’s remuneration package is weighted towards

variable pay due to the nature of the role, and this means that the ratio is likely to ﬂuctuate depending on the outcomes of incentive plans in

each year, and is indeed likely to be higher in years where long‑term incentive arrangements crystallise. The Chief Executive’s remuneration

package is otherwise very reasonable compared to the Company’s FTSE 100 peers, which is also demonstrated on page 132 of this report.

To give context to the Chief Executive’s remuneration for the previous ten years and the CEO pay ratio, we have included an illustrative chart

tracking CEO pay and average employee pay over the last ten ﬁnancial years alongside Melrose’s TSR performance and the FTSE 100’s

TSR performance over the same period. The Committee has always been committed to ensuring that the Chief Executive’s reward is

commensurate with performance. The chart shows a clear alignment between shareholder returns and the Chief Executive’s single ﬁgure pay.

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

1,000

900

800

700

600

500

400

300

200

100

Total Shareholder Return (£)

45,000

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

Remuneration (£'000)

Average Employee Pay

CEO Total Single Figures Excl. LTIP

LTIP

Melrose TSR

FTSE 100

Percentage change in Directors’ remuneration

The table opposite sets out, in relation to base salary, taxable beneﬁts and annual bonus, the percentage increase in pay for each Director

compared to the average increase for a group consisting of the Group’s senior head ofﬁce employees. The reporting legislation in this

regard requires companies to publish the annual percentage change in the total remuneration of Directors and employees of the Company.

The Company itself does not have any employees other than the executive Directors. However, in the interests of providing a relevant

comparison to stakeholders, we choose to voluntarily disclose a comparison against the aforementioned group of senior management,

which we consider to be an appropriate comparator group because of their level of seniority and the structure of their remuneration

packages. The spread of the Company’s operations across various countries means that remuneration policies vary to take account of

geography such that the Committee considers that selecting a wider group of employees would not provide a meaningful comparison.

We are required to report on this change based on actual amounts received by the Directors. The percentage increases for 2021 versus

2020 and for 2020 versus 2019 were naturally impacted by the COVID‑19 pandemic, which included temporary salary and fee reductions

and reduced annual bonuses for the executive Directors in 2020.

138

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

2023 vs 2022

2022 vs 2021

2021 vs 2020

2020 vs 2019

Element of remuneration

Basic

salary/fee

percentage

change

(1)

Beneﬁts

percentage

change/

amount

£000

(2)

Annual

bonus

percentage

change

(3)

Basic

salary/fee

percentage

change

(1)

Beneﬁts

percentage

change/

amount

£000

(2)

Annual

bonus

percentage

change

(3)

Basic

salary/fee

percentage

change

(1)

Beneﬁts

percentage

change/

amount

£000

(2)

Annual

bonus

percentage

change

(3)

Basic

salary/fee

percentage

change

(1)

Beneﬁts

percentage

change/

amount

£000

(2)

Annual

bonus

percentage

change

(3)

Executive Directors

Christopher Miller

33% / 2

n/a

15% / 2

n/a

12%

‑30% / 2

n/a

‑6%

‑20% / 2

n/a

Simon Peckham

263% / 4

‑45% / 1

12%

‑26% / 2

415%

‑6%

‑2% / 3

‑71%

Geoffrey Martin

18% / 14

31% / 12

14%

‑6% / 9

422%

‑6%

7% / 10

‑72%

Peter Dilnot

(4)

22% / 2

‑88% / 2

–

– / 15

–

– / –

–

Non‑executive Directors

Justin Dowley

n/a

12%

n/a

‑6%

n/a

David Lis

(5)

n/a

16%

n/a

10%

n/a

‑4%

n/a

Charlotte Twyning

(6)

n/a

22%

n/a

12%

n/a

‑6%

n/a

Funmi Adegoke

(48)%

n/a

12%

n/a

278%

n/a

Heather Lawrence

(7)

14%

n/a

119%

n/a

–

Victoria Jarman

(8)

n/a

77%

n/a

–

Gillian Elcock

(9)

–

Senior employees

10%

92%

167%

‑1%

11%

45%

(1)

The annual percentage change is required to be calculated by reference to actual basic salary or fee (as applicable) paid for the ﬁnancial year compared to that paid for the prior

ﬁnancial year. For the Non‑executive Directors, this fee includes both their basic fee and any additional fee received for holding the position of the Senior Independent Director, and

for holding the Chairmanship of the Audit Committee, the Remuneration Committee and/or the Nomination Committee.

(2)

Beneﬁts data is calculated on the same basis as the beneﬁts data in the single total ﬁgure table. It does not include any pension allowances. Given that the executive Director

beneﬁts are minimal, a small change to the amount of those beneﬁts (for example, an annual increase to the premium charged for private medical insurance) will necessarily result in

a large increase. To provide comfort that these are not large increases in quantum, the beneﬁts data as provided in the single total ﬁgure table is included, for context.

(3)

The annual percentage change in bonus is calculated by reference to the bonus payable in respect of the ﬁnancial year compared to the prior ﬁnancial year, in each case for the

applicable executive Directors and senior employees. Neither the Executive Vice‑Chairman nor the Non‑executive Directors are eligible to receive an annual bonus.

(4)

Peter Dilnot was appointed to the Board with effect from 1 January 2021 and therefore only limited prior year comparisons are possible.

(5)

David Lis was appointed as the Senior Independent Director with effect from 5 May 2022. The increase in his basic fee from 2021 to 2022 reﬂects the additional fee received in

respect of being appointed to this role for the period 5 May 2022 to 31 December 2022 which was not applicable to 2021, so is not a meaningful comparison.

(6)

Charlotte Twyning was appointed as the Chair of the Nomination Committee with effect from 1 January 2022. The increase in her basic fee from 2021 to 2022 reﬂects the additional

fee received in respect of being appointed to this role for 2022 which was not applicable to 2021, so is not a meaningful comparison.

(7)

Heather Lawrence was appointed to the Board with effect from 1 June 2021, and as Chairman of the Audit Committee with effect from 5 May 2022. The increase in her basic fee

from 2021 to 2022 reﬂects the fee actually received for the prorated period of directorship in 2021 for the period 1 June 2021 to 31 December 2021 versus a full year for 2022,

and reﬂects the additional fee received in respect of being appointed to the role of Chair of the Audit Committee for the period 5 May 2022 to 31 December 2022 which was not

applicable to 2021, so is not a meaningful comparison.

(8)

Victoria Jarman was appointed to the Board with effect from 1 June 2021. The increase in her basic fee from 2021 to 2022 reﬂects the fee actually received for the prorated period of

directorship in 2021 for the period 1 June 2021 to 31 December 2021 versus a full year for 2022, so is not a meaningful comparison.

(9)

Gillian Elcock was appointed to the Board with effect from 21 June 2023 and therefore no prior year comparison is available.

Total Shareholder Return

The total shareholder return graph below shows the value as at 31 December 2023 of £100 invested in the Company in October 2003,

compared with £100 invested in the FTSE 100 Index, the FTSE 250 Index and the FTSE All‑Share Index. This shows a TSR of 3,117%

(compared to the FTSE 100 Index TSR of 283%) and demonstrates very clearly the long‑term performance of the Company.

The Committee considers the FTSE 100 Index, the FTSE 250 Index and the FTSE All‑Share Index to be appropriate indices for the year

ended 31 December 2023 for the purposes of this comparison because of the comparable size of the companies which comprise the

FTSE 100 Index and the FTSE 250 Index and the broad nature of companies which comprise the FTSE All‑Share Index. The data shown

below assumes that all cash returns to shareholders made by the Company during this period are reinvested in ordinary shares.

Oct 23

Oct 09

Oct 07

Oct 05

Oct 17

Oct 21

Oct 19

Oct 15

Oct 13

Oct 11

Oct 03

3,500

3,000

2,500

2,000

1,500

1,000

500

Melrose Industries

FTSE All Share

FTSE 100

FTSE 250

Total Shareholder Return (£)

139

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

GOVERNANCE

DIRECTORS’ REMUNERATION REPORT

CONTINUED

Wider workforce considerations

Melrose is committed to creating an inclusive working environment

and to rewarding our employees throughout the organisation

in a fair manner. The Committee is mindful of wider workforce

remuneration and conditions, and uses its awareness of these

arrangements to ensure that Melrose executive pay is aligned with

the Company’s culture and strategy.

The Committee is responsible for setting the remuneration of the

executive Directors and the Non‑executive Chairman. It does not

have responsibility for setting and managing the remuneration

of the Melrose and GKN Aerospace senior management teams,

or the wider workforce, nor is it responsible for determining

wider employee pay. The Melrose Chief Executive is responsible

for engaging with the Melrose workforce and GKN Aerospace

senior management team in relation to remuneration, and the

GKN Aerospace senior management team is responsible for

engaging with the GKN Aerospace workforce in relation to

remuneration, and each do so throughout the year. The Committee

considers such approach to be appropriate on the basis that it still

maintains oversight of workforce pay, policies and incentives at a

Melrose level and within the GKN Aerospace senior management

team, which enables it to ensure that the approach taken to

executive remuneration is consistent with the workforce. In addition,

the CEO pay ratio continues to remain low. The Committee receives

detail on GKN Aerospace senior management remuneration to

ensure that this is consistent with the remuneration of the executive

Directors. The GKN Aerospace Chief Human Resources Ofﬁcer also

provides an annual conﬁrmation, via the Workforce Advisory Panel,

that GKN Aerospace’s senior management team remuneration is

consistent with the remuneration that the business provides to its

wider workforce, and that the incentives it operates align with the

business’s culture and strategy. This provides the Committee with

comfort that it is discharging its obligations under the Code, and

that there is consistency and engagement across all levels of the

Group. Based on these disclosures, the Committee is satisﬁed that

the approach taken to remuneration at all levels is consistent with

the Company’s remuneration philosophy.

Relative Importance of Spend on Pay

The following table sets out the percentage change in dividends and the overall expenditure on pay (as a whole across the Group).

Expenditure

Year ended

31 December 2022

£ million

Year ended

31 December 2023

£ million

Percentage

change

Remuneration paid to all employees

(1)

2,127

1,095

(49)%

Distributions to shareholders by way of dividend and share buyback

577

(2)

173

(3)

(70)%

(1) The ﬁgure is the total staff costs as stated in note 7 to the ﬁnancial statements. In light of the Demerger, your Board does not consider that the table is meaningful.

(2) The ﬁgure for the year ended 31 December 2022 includes the amount returned to shareholders by way of the share buyback in 2022.

(3) The ﬁgure for the year ended 31 December 2023 includes the amount returned to shareholders by way of share buyback in 2023.

In 2023, the Committee was particularly aware of the continuing

macroeconomic challenges impacting the global economy,

including the impact of the war in Ukraine and the resulting impact

on energy prices, supply chain issues, the wider cost of living crisis

and high inﬂationary pressures, all of which continue to contribute

to a challenging economic environment with general uncertainty.

The Committee has sought to ensure that executive pay decisions

in respect of 2023 and 2024 have been taken with this background

in mind, and with the beneﬁt of the oversight described above and

advice from its external remuneration advisors. The Committee

took this into consideration when making its decision for the

executive Director salary increases for 2024, which were consistent

with the increases awarded across the wider UK workforce.

Melrose and GKN Aerospace continue to pay all UK employees

at least the real living wage, and offer all employees in the UK the

opportunity to work for at least 15 hours per week.

Retirement provisions

The Company provides retirement beneﬁts to Melrose employees

and the GKN Aerospace executive team determines the retirement

beneﬁts provided to GKN Aerospace employees.

Long‑term incentives

Participation in the Melrose long‑term incentive arrangements

(being the MESP and the MASP and, subject to approval at the

2024 AGM, the PSP) is limited to senior Melrose head ofﬁce

employees. However, a GKN Aerospace long‑term incentive plan is

in place for senior managers of GKN Aerospace to incentivise them

to create value for the Company and our shareholders. Depending

on the amount of value created, participants in this incentive plan

will receive a cash payment in the event of a sale of the business.

If a sale of the business has not occurred within a certain period,

the incentive plan will crystallise and any payment to be made to

participants will be based on the increase in value of the business

during this period.

140

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Non‑executive Directors

Single ﬁgure table and share interests (audited)

The following table sets out the single ﬁgure of remuneration for 2023 in comparison with 2022 for the Company’s Non‑executive Directors

(1)

Non‑executive Directors

Period

Total basic

fees

£000

Total other

fees

£000

(2)

Other (bonus,

pension,

LTIP, taxable

beneﬁts)

£000

Total

£000

Total

Fixed

£000

Total

Variable

£000

Justin Dowley (Chairman)

2023

402

–

n/a

402

–

2022

383

–

n/a

383

–

Liz Hewitt (Senior Independent Director to 5 May 2022)

(3)

2023

–

2022

n/a

–

David Lis (Senior Independent Director from 5 May 2022)

2023

n/a

126

–

2022

n/a

115

–

Charlotte Twyning

2023

n/a

101

–

2022

n/a

–

Funmi Adegoke

(4)

2023

–

n/a

–

2022

–

n/a

–

Heather Lawrence

(5)

2023

n/a

116

–

2022

n/a

102

–

Victoria Jarman

2023

–

n/a

–

2022

–

n/a

–

Gillian Elcock

(6)

2023

–

n/a

–

2022

–

(1)

The “Total” ﬁgures in the above table may not add up to the sum of the component parts due to rounding.

(2)

These are additional fees for holding the Chairmanship of the Audit Committee, the Remuneration Committee and the Nomination Committee, and for holding the position of the

Senior Independent Director. There are no additional fees payable for membership of a committee. All of our Non‑executive Directors are members of at least one committee.

(3)

Liz Hewitt retired as a Non‑executive Director of the Company on 5 May 2022 and the fees referred to above for 2022 reﬂect her fees for the period 1 January 2022 to 5 May 2022.

(4)

Funmi Adegoke resigned as a Non‑executive Director of the Company on 16 June 2023 and the fees referred to above for 2023 reﬂect her fees for the period 1 January 2023 to

16 June 2023.

(5)

Heather Lawrence was appointed as Chair of the Audit Committee on 5 May 2022 and her “Total other fees” for 2022 reﬂect her Audit Committee Chair fee for the period

5 May 2022 to 31 December 2022.

(6)

Gillian Elcock was appointed as a Non‑executive Director of the Company with effect from 21 June 2023 and the fees referred to above for 2023 reﬂect her fees for the period

21 June 2023 to 31 December 2023.

Payments to past directors or for loss of ofﬁce (audited)

Ms Funmi Adegoke resigned from her position as Non‑executive Director on 16 June 2023. She received her Non‑executive Director fees

from 1 January 2023 up to and including 16 June 2023. Non‑executive Directors do not receive any taxable beneﬁts, pension contributions

or variable remuneration. Other than the amounts disclosed above, no other remuneration payment was made to Ms Adegoke in the year

and therefore no payment was made for loss of ofﬁce.

No other payments to past Directors or for loss of ofﬁce have been made to former Directors during the year.

Share interests

The following table sets out the subsisting interests in the equity of the Company held by the Non‑executive Directors as at 31 December 2023,

as well as an indication as to the size of these interests relative to the entire issued share capital of the Company, including treasury shares:

Non‑executive Directors

Ordinary shares held

as at 31 December 2023

(1)

Shareholding

(% ordinary share capital)

as at 31 December 2023

(2)

Justin Dowley

514,123

0.0380%

David Lis

117,950

0.0087%

Charlotte Twyning

42,896

0.0032%

Heather Lawrence

7,500

0.0005%

Victoria Jarman

11,166

0.0008%

Gillian Elcock

–

Total

693,635

0.0512%

(1)

For these purposes, the interests of each Non‑executive Director listed in the table include any ordinary shares held by a person closely associated with that Non‑executive Director

within the meaning of the EU Market Abuse Regulation, as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018.

(2)

Based on the total number of ordinary shares in issue as at 31 December 2023, inclusive of treasury shares.

There have been no changes in the ordinary shareholdings of the Non‑executive Directors between 31 December 2023 and 7 March 2024

(the date of this report).

141

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

GOVERNANCE

DIRECTORS’ REMUNERATION REPORT

CONTINUED

Non‑executive Directors’ fees

Non‑executive Directors’ basic fees and the Non‑executive

Chairman’s fee have been increased by 5% with effect from

1 January 2024, in line with increases made to the executive

Directors. We note that while all Non‑executive Directors serve

on at least one of the Company’s committees (and most serve

on multiple committees), there are no additional committee

membership fees. As noted in the single ﬁgure table above, the

Company remains of the view that it is not appropriate for our

Non‑executive Directors to receive any taxable beneﬁts, pension

contributions or variable remuneration.

The Non‑executive Director fee levels for 2023 and 2024 are set

out in the table below.

Fee element

Fee with effect from

1 January 2023

Fee with effect from

1 January 2024

Non‑executive Chairman fee

401,650

421,800

Basic Non‑executive Director fee

86,100

90,500

Additional fee for holding the position of

the Senior Independent Director

20,000

Additional fee for holding the

Chairmanship of the Audit Committee

30,000

Additional fee for holding the

Chairmanship of the Remuneration

Committee

20,000

Additional fee for holding the

Chairmanship of the Nomination

Committee

15,000

Service contracts and letters of appointment

Consistent with the best practice guidance provided by the Code,

the Company’s policy is for executive Directors to be employed

on the terms of service agreements, which may be terminated by

either the executive Director or the Company on the giving of 12

months’ written notice (subject to certain exceptions).

The executive Directors’ service contracts do not provide for

predetermined compensation in the event of termination. Any

payments made would be subject to normal contractual principles,

including mitigation as appropriate. The length of service for

any one executive Director is not deﬁned and is subject to the

requirement for annual re‑election under both the Code and the

Company’s Articles of Association.

There is no unexpired term as each of the executive Directors’

contracts is on a rolling basis.

The Non‑executive Directors do not have service contracts but

have letters of appointment for an initial term of three years, which

may be renewed by mutual agreement. Generally, a Non‑executive

Director may be appointed for one or two periods of three years

after the initial three‑year period has expired, subject to re‑election

by shareholders at each AGM. The terms of appointment do not

contain any contractual provisions regarding a notice period or the

right to receive compensation in the event of early termination.

Each executive Director’s service contract and each Non‑executive

Director’s letter of appointment are available for inspection at the

Company’s registered ofﬁce during normal business hours.

Details of the Non‑executive Directors’ current terms of appointment

are set out below:

Non‑executive Directors

First appointment

Expires*

Justin Dowley (Chairman)

1 September 2011

2025

David Lis (Senior Independent Director)

12 May 2016

2025

Charlotte Twyning

1 October 2018

2027

Heather Lawrence

1 June 2021

2027

Victoria Jarman

1 June 2021

2024

Gillian Elcock

21 June 2023

2026

* Subject to annual re‑election.

Governance

Responsibilities

The Board has delegated to the Committee responsibility for

overseeing the remuneration of the Chairman of the Board and the

executive Directors.

The Committee’s responsibilities include:

• establishing and maintaining an executive Director remuneration

policy that is appropriate, consistent and reﬂective of Melrose’s

remuneration philosophy;

• determining the remuneration policy for the executive Directors;

• setting and managing remuneration packages of the executive

Directors and the Chairman of the Board in accordance with the

Directors’ remuneration policy;

• overseeing the remuneration of Melrose senior management

to enable the Committee to consider their consistency with the

executive Director remuneration packages; and

• operating the Company’s long‑term incentive arrangements.

As described on page 140, although it retains oversight, the

Committee is not responsible for setting and managing the

remuneration of the Melrose and GKN Aerospace senior

management teams, or the wider workforce, nor is it responsible

for determining wider employee pay. The Melrose Chief Executive

is responsible for engaging with the Melrose workforce and

GKN Aerospace senior management team in relation to remuneration,

and the GKN Aerospace senior management team is responsible

for engaging with the GKN Aerospace workforce in relation to

remuneration. Responsibility for determining the remuneration of the

Non‑executive Directors (other than the Chairman of the Board) sits

with the Board. No Director plays a part in any decision about his or

her own remuneration.

The Committee’s terms of reference, which were last reviewed and

updated by the Committee in November 2023, are available on our

website, www.melroseplc.net/governance/documents‑and‑policies,

and from the Company Secretary at Melrose’s registered ofﬁce.

142

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Evaluation

The Code requires that FTSE 350 companies undertake a formal

and rigorous annual review of the performance of the Board, its

committees, the Chairman of the Board and individual Directors.

In particular, FTSE 350 companies should undertake an externally

facilitated Board and committee performance review once every

three years. The last external Melrose Board and committee

review was undertaken by Lintstock Ltd in 2020, so the Company

was required to undertake another in 2023. For this purpose, the

Company engaged Lintstock Ltd who engaged directly with the

Directors on: (i) the constitution and performance of the Board and

each committee; (ii) the Chairman of the Board; and (iii) individual

performance reviews. Lintstock Ltd produced a report based on the

feedback of Committee members and analysis of the responses,

which was presented and discussed at the December Board

meeting. Alongside such formal feedback, the Committee continued

to facilitate direct ongoing contact between its members and the

Chair of the Committee about any relevant matters that the members

wished to raise as part of the ongoing review.

Committee Membership and Attendance at meetings

All members of the Committee are independent Non‑executive

Directors within the deﬁnition of the Code. None of the Committee

members have any personal ﬁnancial interest (other than as

shareholders in the Company) in matters to be decided, nor do

they have any conﬂicts of interest from cross‑directorships or any

day‑to‑day involvement in running the business.

The attendance of the Non‑executive Directors at the scheduled

meetings of the Committee in 2023 was as follows:

Member

No. of meetings

(1)

David Lis (Chairman)

2/2

Justin Dowley

(2)

1/2

Charlotte Twyning

2/2

Victoria Jarman

2/2

Gillian Elcock

(3)

0/0

(1)

Reﬂects regularly scheduled meetings of the Committee that took place in 2023.

(2)

Mr Dowley did not attend the Committee meeting held in November due to a conﬂicting

mandatory commitment. He was in any case briefed on the matters discussed at the

meeting, with his feedback being considered by the Committee.

(3)

Ms Elcock was appointed to the Committee on 6 December 2023. There were

no scheduled meetings of the Committee between 6 December 2023 and

31 December 2023.

Compliance with legislation and the Code

We apply the principles of, and are fully compliant with, the key

provisions of the Code and the Financial Conduct Authority’s

Listing Rules and Disclosure Guidance and Transparency Rules,

including in relation to minimum shareholding requirements,

post‑cessation minimum shareholding requirements, pension

alignment, malus and clawback, and discretion to override

formulaic outcomes.

The Directors conﬁrm that this report has also been prepared in

accordance with the Companies Act 2006 and Schedule 8 of the

Large and Medium‑sized Companies and Groups (Accounts and

Reports) (Amendment) Regulations 2013.

As mentioned on page 130, the four principles of the existing

Melrose remuneration structure are wholly aligned with the Code

factors of clarity, simplicity, risk, predictability, proportionality and

alignment to culture, as set out in the table on page 144. The

Committee ensured that it took all of these elements into account

when establishing the 2023 Directors’ Remuneration Policy, as

well as its application to executive Directors during the period. In

addition, the Committee has taken the Code factors into account

when establishing the 2024 Directors’ Remuneration Policy, as set

out on page 151.

143

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

GOVERNANCE

DIRECTORS’ REMUNERATION REPORT

CONTINUED

Factor

How the Remuneration Committee has addressed and link to the Company’s traditional strategy

Clarity

The Company’s performance remuneration has been based on supporting the implementation of the Company’s strategy, which has

traditionally been primarily to create sustainable long‑term shareholder value. This has provided clarity to all stakeholders on the relationship

between the successful implementation of the Company’s strategy and the remuneration paid.

The Company has sought to present its remuneration arrangements to investors in the clearest and most transparent way possible. We have

also remained committed to maintaining an open and transparent dialogue with our investors, both through formal engagement processes

and ad‑hoc discussions, and through the disclosures in our annual reports.

Simplicity

The ﬁxed elements of remuneration have been limited to base salary, pension contribution and beneﬁts, which have all been below the lower

quartile of FTSE 100 peers for the Chief Executive and the Group Finance Director and in the case of pension contributions, the same as

the rest of the Melrose head ofﬁce employees, and therefore aligned with the workforce. There have only been two variable elements of

remuneration: the annual bonus and the long‑term incentive arrangements (currently comprising the MESP and MASP), both of which have

been based on simple and transparent metrics. The operation of the Annual Bonus Plan has been linked to ﬁnancial performance metrics (at

least 50%) and the achievement of strategic and ESG factors. The Company has operated long‑term incentive arrangements for the Melrose

Group, which simply reward the creation of shareholder value over a performance period above a minimum level of return for shareholders.

In the Committee’s view, this has provided a very simple incentive framework which can be understood by all of the Company’s

stakeholders.

Risk

The 2023 Directors’ Remuneration Policy included the following elements to mitigate against the risk of target‑based incentives:

•

setting deﬁned limits on the maximum award that could be earned, including capping the annual bonus to a maximum of 200% of base

salary, with the current executive Directors having their annual bonus capped at a maximum of 100% of base salary, and the application

of the annual rolling cap to the MESP;

•

requiring the deferral of up to 50% of the annual bonus award into ordinary shares of the Company in certain circumstances and requiring

that all of the ordinary shares awarded in relation to the MESP (other than any ordinary shares sold in order to make adequate provision

for any tax liability arising in connection with the crystallisation) be held for a two‑year holding period following the crystallisation date;

•

the post‑cessation minimum shareholding requirements, which required executive Directors to maintain the minimum shareholding for a

period of two years after leaving the Company;

•

aligning the performance conditions with the traditional “Buy, Improve, Sell” strategy of the Company; and

•

ensuring there was sufﬁcient ﬂexibility for the Committee to adjust payments through malus and clawback and an overriding discretion to

depart from formulaic outcomes.

Predictability

Fixed remuneration for the Chief Executive and the Group Finance Director have been set below the lower quartile of FTSE 100 peers to limit

ﬁxed costs for the Group, to provide certainty and to incentivise executive Directors.

Variable remuneration has been limited to: (i) the annual bonus, which has been capped at 200% of salary, and 100% of salary for the

current executive Directors, and has been performance‑driven based on ﬁnancial growth, and strategic and ESG factors; and (ii) the

long‑term incentive arrangements, currently being the MESP and the MASP.

The method of calculation, limits and discretions under the 2023 Directors’ Remuneration Policy have been clearly set out.

Proportionality

The restricted ﬁxed remuneration and capped Annual Bonus Plan has been compensated by the opportunity for potentially signiﬁcant

reward entirely dependent on performance pursuant to the MESP and the MASP, that have supported the Company’s traditional value

creation strategy.

Alignment to

culture

The focus on responsible stewardship and long‑term sustainable performance has been, and remains, a key part of the Company’s culture.

This has been supported by the 2023 Directors’ Remuneration Policy, which has facilitated Committee oversight of workforce pay, policies

and incentives and deliberately restricted the annual salaries, bonuses and beneﬁts for the current Chief Executive and the Group Finance

Director to the lower quartile of the FTSE 100.

Advisors to the Remuneration Committee

During the year, the Committee received reward advice

and advice on the remuneration reporting regulations from

PricewaterhouseCoopers LLP (“PwC LLP”), Ernst & Young LLP

(“EY LLP”) and Alvarez & Marsal Tax LLP (“A&M”). PwC LLP stood

down as the Committee’s remuneration consultants effective

30 June 2023, in anticipation of PwC becoming the external

auditors for the Melrose Group for the reporting period ending

31 December 2024. PwC LLP’s fees for its advice during the

year up to 30 June 2023 was £32,300 excluding VAT, which was

charged on a time/cost basis.

The Committee appointed EY LLP to act as its remuneration

consultants in replacement of PwC LLP for the remainder of the

period under review. EY LLP’s fees for this advice was £7,000

excluding VAT, which was charged on a time/cost basis. During

the year, EY LLP also provided the Company with tax, accounting

and consulting advice. The Committee is satisﬁed that the advice

provided by EY LLP in relation to remuneration matters is objective

and independent.

The Committee also appointed A&M on 21 November 2023 to

act as its remuneration consultants alongside EY LLP for the

remainder of the period. A&M’s fees for this advice was £7,607

excluding VAT, which was charged on a time/cost basis. The

Committee is satisﬁed that the advice provided by A&M in relation

to remuneration matters is objective and independent.

The Company Secretary acts as secretary to the Committee and

attends Committee meetings. Where appropriate and other than

external remuneration advisors, the Committee invites the view of

senior personnel, such as the Chief Executive and Chief Financial

Ofﬁcer, and interacts with other Board members.

144

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Statement of voting at general meetings

The charts below set out the votes on the: (i) 2022 Directors’

Remuneration Report, (ii) 2023 Directors’ Remuneration Policy

at the 2023 AGM, (iii) Demerger resolution setting out (amongst

other matters) adjustments to the Company’s long‑term incentive

arrangements, and (iv) MESP at the January 2021 general meeting.

Resolution to approve the Directors’ Remuneration

Report for the year ended 31 December 2022

(8 June 2023)

Votes cast for the resolution

97.29%

Votes cast against the resolution

2.71%

Votes withheld 57,803,529

Resolution to approve the 2023 Directors’ Remuneration

Policy (8 June 2023)

Votes cast for the resolution

82.02%

Votes cast against the resolution

17.98%

Votes withheld 75,539,706

Resolution to approve Dowlais demerger,

share consolidation and adjustments to

2020 Melrose Employee Share Plan (30 March 2023)

Votes cast for the resolution

99.69%

Votes cast against the resolution

0.31%

Votes withheld 8,718,447

Resolution to approve and implement the

2020 Melrose Employee Share Plan (21 January 2021)

Votes cast for the resolution

82.64%

Votes cast against the resolution

17.36%

Votes withheld 228,313,488

This Annual Report on Remuneration will be put to an advisory vote

at the 2024 AGM on 2 May 2024.

2024 DIRECTORS’ REMUNERATION POLICY

This Directors’ remuneration policy (the “2024 Directors’

Remuneration Policy”) shall, subject to shareholder approval at

the 2024 Annual General Meeting (“2024 AGM”), take binding

effect from the conclusion of that meeting. The Company’s current

Directors’ remuneration policy (the “2023 Directors’ Remuneration

Policy”) was approved by shareholders at the AGM in 2023,

following the demerger of Dowlais Group plc.

The main differences between the 2023 Directors’ Remuneration

Policy and the 2024 Directors’ Remuneration Policy set out below

are as follows:

• rebalancing the remuneration structure to align with the

Company’s FTSE 100 peers across ﬁxed and variable aspects,

to reﬂect the new long‑term aerospace business model, using

a structure and mechanics that are reﬂective of the majority of

FTSE 100 companies;

• reducing the pension contribution rate for the executive Directors

from 15% to 10% of base salary in order to bring the contribution

to a level consistent with the Group’s wider UK workforce as

it stands after the Demerger and the merging of Melrose and

GKN Aerospace into a single standalone business; and

• the introduction of the Melrose Performance Share Plan (“PSP”)

which will replace the MESP as the Group’s ongoing long‑term

incentive plan.

This remuneration structure and the 2024 Directors’ Remuneration

Policy aims to attract, retain and motivate the right talent for the

business, helping to ensure continued success and growth and

allowing for ﬂexibility to remain competitive. The 2024 Directors’

Remuneration Policy aims to continue to align the interests of the

executive Directors with the long‑term interests of shareholders,

incentivising and rewarding the achievement of long‑term

sustainable returns for shareholders by ensuring executive

Directors’ remuneration is simple, transparent, supports value

creation and pays only for performance. Details are set out below.

How did the Remuneration Committee determine the

2024 Directors’ Remuneration Policy?

In determining the 2024 Directors’ Remuneration Policy, the

Remuneration Committee:

• considered the Company’s change of strategy, and how the

2023 Directors’ Remuneration Policy should be adapted to align

with the new strategy;

• benchmarked the proposed 2024 Directors’ Remuneration

Policy against the FTSE 100 in respect of both ﬁxed and variable

elements of remuneration;

• considered feedback from shareholders and investor bodies on

the proposed 2024 Directors’ Remuneration Policy;

• sought advice from its independent remuneration consultants on

the impact of the UK Corporate Governance Code (the “Code”),

applicable law and regulations and current investor sentiment;

• considered wider workforce remuneration to ensure the

approach to executive remuneration is consistent; and

• consulted with the executive Directors and other relevant

members of Melrose senior management on the proposed

changes to the 2023 Directors’ Remuneration Policy (although

noting, for the avoidance of doubt, that no executive Director

played a part in any decision about his or her own remuneration).

The Remuneration Committee was mindful in its deliberations

on the 2024 Directors’ Remuneration Policy of any potential

conﬂicts of interest and sought to minimise them by seeking

independent advice from its external advisors, and by undertaking

a consultation with key shareholders and investor bodies.

145

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

GOVERNANCE

DIRECTORS’ REMUNERATION REPORT

CONTINUED

Salary, bonus and beneﬁts

Elements

Details

Base Salary

Purpose and

link to strategy

Core element of ﬁxed remuneration, reﬂecting the size and scope of the role and the shift of strategy to operating as a long‑term aerospace

business, designed to attract and retain executive Directors of the calibre required for the Group.

Operation

Normally reviewed annually and ﬁxed for 12 months from 1 January, although salaries may be reviewed more frequently or at different times

of the year if the Remuneration Committee determines this to be appropriate. The individual’s contribution and overall performance is one of

the considerations in determining the level of any salary increase.

Salaries are paid in cash and levels are determined by the Remuneration Committee taking into account a range of factors including:

• role, experience and performance;

• prevailing market conditions;

• external benchmarks for similar roles at comparable companies; and

• salary increases awarded for other employees in the Group.

Opportunity

No maximum salary has been set under the 2024 Directors’ Remuneration Policy.

Salary increases will normally take into account the average increase awarded to other Melrose employees and the wider workforce within

the relevant geographic area.

However, increases beyond those of the wider workforce within the relevant geographic area may be made to salary levels in certain

circumstances as required, for example to reﬂect:

• an increase in scope of role or responsibility;

• a material sustained change in the size and/or complexity of the Group;

• performance in role; and

• where salary was initially set at a discount to the market rate on appointment.

Annual Bonus

Purpose and

link to strategy

Rewards performance against annual targets which support the strategic direction of the Company.

Operation

Targets are set annually at the beginning of the relevant year and payout is determined by the Remuneration Committee after the year‑end

based on performance against those targets. The Remuneration Committee has discretion to vary the bonus payout (upwards or

downwards) should any formulaic output not produce a fair result for either the individual executive Director or the Company, taking account

of overall business performance.

If an executive Director does not satisfy the minimum shareholding requirement (see below), up to 50% of any bonus award after tax will

be used to acquire shares (“deferred share awards”) to the extent necessary to enable the executive Director to meet his or her minimum

shareholding requirement. The deferred share awards will be required to be retained and will remain subject to the risk of forfeiture on

cessation of employment until the earlier of the executive Director meeting his or her minimum shareholding requirement and two years after

the relevant bonus award.

Annual bonus awards are discretionary and are subject to malus and clawback provisions (see notes to this table).

Opportunity

Maximum opportunity is 200% of base salary.

Performance

metric

The Remuneration Committee will have regard to various performance metrics (which will be determined by the Remuneration Committee)

measured over the relevant ﬁnancial year, when determining bonuses. At least 50% of the award will be based on ﬁnancial measures, which

may include cash ﬂow and operating proﬁt and the balance will be based on strategic measures, which may include personal objectives

and the integration of appropriate ESG measures to align with the Company’s strategic objectives, in each case as determined by the

Remuneration Committee.

• Financial metrics:

The element of the bonus subject to a ﬁnancial metric will be determined between 0% and 100% for performance

between “threshold” performance (the minimum level of performance that results in any level of payout), “target” performance, and

“maximum” performance, with a linear line for achievement between the threshold and the maximum.

• Strategic element:

The strategic element of an award will be determined to the extent assessed by the Remuneration Committee

between 0% and 100% based on the Remuneration Committee’s assessment of a range of strategic measures.

Stretching performance targets are set each year for the annual bonus, to reﬂect the key ﬁnancial and strategic objectives of the Company

and to reward for delivery against these targets. When setting the targets, the Remuneration Committee will take into account a number of

different reference points, including the Company’s plans and strategy and the market environment.

Retirement beneﬁts

Purpose and

link to strategy

Provides market competitive post‑employment beneﬁts (or cash equivalent) to recruit and retain executive Directors of the calibre required

for the Group.

Operation

The executive Directors may elect to receive a Company contribution to an individual deﬁned contribution pension arrangement or a

supplement to base salary in lieu of a pension arrangement. Any new executive Director will be entitled to receive an equivalent pension

contribution.

Opportunity

10% of base salary, being a percentage of salary that is consistent with the rate payable to the Group’s wider UK workforce, thereby

providing alignment with the wider UK workforce.

Rationale

for change

The Remuneration Committee is proposing to reduce the executive Directors’ pension contribution from 15% to 10% of salary in order to

bring this to a level consistent with the wider UK workforce as it stands following the demerger of Dowlais Group plc, and the subsequent

merger of Melrose with GKN Aerospace to form a single pureplay listed aerospace business.

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Elements

Details

Other beneﬁts

Purpose and

link to strategy

Ensures the overall package is competitive to enable the Company to recruit and retain executive Directors of the calibre required for

the Group.

Operation

Executive Directors receive beneﬁts consistent with other Melrose employees and market practice, which may include private medical

insurance, life insurance and group income protection. Other beneﬁts may be provided based on individual circumstances.

Opportunity

Whilst the Remuneration Committee has not set an absolute maximum on the level of beneﬁts that executive Directors may receive, the

value of beneﬁts is set at a level that the Remuneration Committee considers appropriate against the market and to support the ongoing

strategy of the Company.

Long‑term incentive arrangements – PSP

Purpose and

link to strategy

Incentivises, retains and motivates executive Directors to achieve long‑term sustainable returns for shareholders. Retention of key, high

calibre employees over three‑year performance periods and encouraging long‑term shareholding, through the post‑vesting holding

requirement, and commitment to the Company.

Operation

Annual grant in the form of conditional share awards or nil or nominal cost options (the “PSP Awards”) under the PSP to be approved by

shareholders at the 2024 AGM.

PSP Awards normally vest after a performance period of at least three years, subject to the satisfaction of the performance conditions and

continued employment and will normally be settled in shares. An additional two‑year post‑vesting holding period applies to PSP Awards

made to executive Directors.

Dividend equivalents may be payable in respect of dividends which accrue during the vesting period and, for unexercised options during the

holding period and will be paid in shares or cash.

Malus and clawback provisions apply to the PSP Awards (see notes to this table).

The Remuneration Committee will operate the PSP in accordance with the rules of the PSP.

Opportunity

The maximum PSP Award in respect of a ﬁnancial year is 300% of salary.

Performance

measures

Vesting of PSP Awards is determined by the Remuneration Committee by reference to a period of at least three years, based on challenging

performance measures that the Remuneration Committee considers to be aligned with the delivery of the Group’s strategy and the creation

of long‑term shareholder value.

The performance measures are determined annually by the Remuneration Committee and may include internal ﬁnancial measures, TSR or

non‑ﬁnancial measures such as ESG or other strategic targets.

Unless performance of a participant during the performance period is sufﬁcient to earn 25% of the relevant maximum opportunity, none of

the PSP Awards granted to that participant will vest, with 100% of the PSP Awards granted to a participant vesting if maximum performance

is achieved.

The Remuneration Committee may adjust upwards or downwards (including to zero) the extent to which a PSP Award shall vest if it

considers that the extent to which the PSP Award would otherwise vest is not a fair reﬂection of the performance of the Company or the

executive Director’s performance, taking account of overall business performance.

Material changes proposed for 2024 Directors’ Remuneration Policy for Long‑term incentive arrangements

As no further conditional awards or options can be granted under the plans previously operated by the Group (the 2020 Melrose Employee

Share Plan (the “MESP”) or the Melrose Automotive Share Plan (the “MASP”)), these plans are no longer included in the Remuneration

Policy (though awards and options already issued and payments due to participants under the MESP and the MASP may continue to be

satisﬁed, as further described below). The 2024 Directors’ Remuneration Policy now covers the PSP to be approved by shareholders at the

2024 AGM.

Shareholding obligations

Executive Directors are subject to minimum and post‑cessation shareholding requirements as set out below. They are also subject to

holding periods under the terms of the MESP and, once effective, the PSP.

Component of remuneration

Purpose and link to strategy

Operation

Opportunity

Performance measures

Minimum shareholding

requirements

To align the interests of

executive Directors with

shareholders.

There is a minimum shareholding requirement for

executive Directors of 300% of salary. New executive

Directors will be given a period of ﬁve years from

appointment to build up this shareholding.

Not applicable

Post‑cessation

minimum shareholding

requirements

To ensure alignment

of interests following

the departure of an

executive Director.

The executive Directors are required to retain a

shareholding equal to 300% of base salary, or their actual

shareholding at the date of departure, if lower, for a period

of two years after cessation of employment.

Not applicable

Non‑executive Directors

Non‑executive Director fees are set out as follows:

Purpose and link

to strategy

Operation

Opportunity

Performance measures

Set at a level that

reﬂects market

conditions and is

sufﬁcient to attract

individuals with

appropriate knowledge

and expertise

Fees are reviewed

periodically and

amended to reﬂect

market positioning

and any change in

responsibilities. Fees for

Non‑executive Directors

are determined by the

Board.

Fees are based on the level of fees paid to non‑executive directors serving on

boards of similar‑sized UK‑listed companies and the time commitment and

contribution expected for the role.

Non‑executive Directors receive a basic fee and a further fee for the Chairmanship

of a Board Committee or for holding the ofﬁce of Senior Independent Director.

Non‑executive Directors may be eligible to receive beneﬁts such as use of

secretarial support, reimbursement of travel costs and other beneﬁts that may be

appropriate. This may include the settlement by the Group of any associated tax

liabilities in relation to these expenses.

Not applicable

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CONTINUED

Illustration of the application of the 2024 Directors’

Remuneration Policy

In illustrating the potential reward under the 2024 Directors’

Remuneration Policy, the following assumptions have been made:

• As the purpose of the scenario charts is to show an indication

of the level of remuneration that executive Directors would

receive under the 2024 Directors’ Remuneration Policy in the

ﬁrst year from commencement of the policy, scenario charts

have only been included for the two executive Directors who will

be in place in their new roles from conclusion of the 2024 AGM

when the 2024 Directors’ Remuneration Policy will apply, i.e. for

Peter Dilnot as Chief Executive Ofﬁcer and for Matthew Gregory

as Chief Financial Ofﬁcer. These scenario charts have been

prepared on a proforma basis, as though Peter Dilnot and

Matthew Gregory had started their new roles on 1 January 2024

calendar year (rather than from 6 and 7 March 2024 respectively,

when they were appointed to their new roles and from when their

new remuneration arrangements will in fact apply). No scenario

charts have been provided for the three current executive

Directors stepping down from their roles as executive Directors

at the 2024 AGM.

• Minimum performance:

ﬁxed elements of remuneration only

(base salary applicable to their new roles), beneﬁts as provided

from appointment to their new roles, and a pension contribution

of 10% of base salary).

• Performance in line with expectations:

ﬁxed elements of

remuneration as above, plus bonus of 50% of maximum bonus

available (such maximum being 200% of salary for Peter Dilnot

and 150% of salary for Matthew Gregory) and a PSP Award

at 50% of the maximum PSP Award available (such maximum

being 300% of salary for Peter Dilnot and 200% of salary for

Matthew Gregory).

• Maximum performance:

ﬁxed elements of remuneration as

above, plus maximum bonus and maximum PSP Award.

• Maximum performance +50% share price growth:

as for

Maximum performance but with a 50% increase in the share

price.

Peter Dilnot – Chief Executive Ofﬁcer (£’000)

Max with 50% share

price growth for LTIP

Maximum

£7,412

53%

27%

20%

£5,950

£3,512

£1,075

24%

39%

33%

43%

26%

35%

100%

Target

Minimum

Matthew Gregory – Chief Financial Ofﬁcer (£’000)

Max with 50% share

price growth for LTIP

Maximum

£3,894

£3,199

£1,982

£766

Target

Minimum

Fixed pay

Annual bonus

Long-term incentives

20%

24%

39%

27%

33%

26%

53%

43%

35%

100%

NOTES TO THE REMUNERATION POLICY TABLE

Operation of the annual bonus plan and the PSP

The Remuneration Committee will operate the annual bonus plan and

the PSP in accordance with their respective rules and in accordance

with the Listing Rules and HMRC requirements where relevant.

Within these rules, the Remuneration Committee is required to

retain a number of discretions to ensure an effective operation and

administration of these plans. These discretions are consistent with

standard market practice and, in respect of the executive Directors

include (but are not limited to):

• when awards are granted and/or paid;

• the size of an award and/or a payment (subject to the limits stated

in the policy table above);

• how to determine the level of vesting;

• how to deal with a change of control or restructuring of the Group;

• how to determine a good/bad leaver for incentive plan purposes

and whether to accelerate vesting and/or waive in part or in full any

pro rating and/or any holding period;

• how to determine whether or not adjustments are required in

certain circumstances (e.g. rights issues, corporate restructuring,

events and special dividends); and

• reviewing the performance conditions (range of targets, measures

and weightings) for the annual bonus plan and PSP from year to

year.

If certain events occur, such as a material acquisition or the

divestment of a Group business, the original performance conditions

may no longer be appropriate. Therefore, the Remuneration

Committee retains the discretion to make adjustments to the targets

and/or set different measures and alter weightings as they deem

necessary to ensure the conditions achieve their original purpose, are

appropriate in the revised circumstances and, in any event, are not

materially less difﬁcult to satisfy.

Any use of the above discretions would, where relevant, be explained

in the Directors’ remuneration report.

The Remuneration Committee may adjust upwards or downwards

(including to zero) the extent to which annual bonus shall be paid and/

or PSP Award shall vest if it considers that the extent to which the

annual bonus would be paid and/or the PSP Award would otherwise

vest is not a fair reﬂection of the performance of the Company or the

executive Director’s performance, taking account of overall business

performance.

Malus and Clawback provisions

Annual bonus

The Remuneration Committee may apply the malus or clawback

provisions in the event of: (1) material misstatement of ﬁnancial results

that, in the reasonable opinion of the Remuneration Committee, has

a material negative effect; (2) in the case of clawback only, material

miscalculation of any performance measure on which the bonus

earned was calculated; (3) gross misconduct by the relevant executive

Director; (4) events or behaviour of an executive Director that have led

to the censure of the Company by a signiﬁcant regulatory authority

or have had a signiﬁcant detrimental impact on the reputation of

the Company, provided that the Board is satisﬁed that the relevant

executive Director was responsible for the censure or reputational

damage and that the censure or reputational damage is attributable

to them; and/or (5) the Company becoming insolvent or otherwise

suffering a corporate failure so that the bonus earned is materially

reduced, provided that the Board determines, following an appropriate

review of accountability, that the executive Director should be held

responsible (in whole or in part) for that insolvency or corporate failure

at any time up until the second year following payment of the bonus.

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PSP

In the event of: (1) material misstatement of ﬁnancial results that, in the

reasonable opinion of the Remuneration Committee, has a material

negative effect; (2) gross misconduct by the relevant executive

Director; (3) events or behaviour of an executive Director that have led

to the censure of the Company by a signiﬁcant regulatory authority

or have had a signiﬁcant detrimental impact on the reputation of

the Company, provided that the Board is satisﬁed that the relevant

executive Director was responsible for the censure or reputational

damage and that the censure or reputational damage is attributable

to them; and/or (4) the Company becoming insolvent or otherwise

suffering a corporate failure so that the value of the Company’s

shares is materially reduced, provided that the Board determines,

following an appropriate review of accountability, that the executive

Director should be held responsible (in whole or in part) for that

insolvency or corporate failure prior to the relevant vesting date, the

PSP Awards held by the executive Director may be cancelled in whole

or in part for nil consideration.

In the event of: (1) material misstatement of ﬁnancial results that, in the

reasonable opinion of the Remuneration Committee, has a material

negative effect; (2) material miscalculation of any performance

measure on which the vesting of the PSP Awards was based; (3)

gross misconduct by the relevant executive Director; (4) events or

behaviour of an executive Director that have led to the censure of

the Company by a signiﬁcant regulatory authority or have had a

signiﬁcant detrimental impact on the reputation of the Company,

provided that the Board is satisﬁed that the relevant executive

Director was responsible for the censure or reputational damage

and that the censure or reputational damage is attributable to them;

and/or (5) the Company becoming insolvent or otherwise suffering

a corporate failure so that the value of the Company’s shares is

materially reduced, provided that the Board determines, following

an appropriate review of accountability, that the executive Director

should be held responsible (in whole or in part) for that insolvency

or corporate failure, following the relevant vesting date but prior

to the date falling three years after the relevant vesting date, the

executive Director may be required to transfer (for nil consideration)

the number of Ordinary Shares arising from the vesting of the relevant

PSP Award, less the number of shares sold to fund the tax liability

arising from the vesting of the relevant PSP Award and/or to pay to

the Company the amount of any cash received (whether in lieu of the

issue of shares, or as a result of the sale of any such shares) on or

following the vesting of the relevant PSP Award less the amount of

any tax arising from the vesting of the relevant PSP Award.

Balance between ﬁxed and variable pay

The performance‑related elements of remuneration are dependent

upon the achievement of outcomes that are important drivers of

sustainable growth for the business and therefore the creation of

value for shareholders.

Choice of performance metrics

The annual bonus performance measures are selected each

year to reﬂect the ﬁnancial and strategic performance measures

which the Remuneration Committee considers to be aligned

with the delivery of the strategic priorities and which directly

reinforce the short‑ to medium‑term performance framework. The

PSP performance measures are selected to provide a balance

between external and internal measures of performance, reﬂect

the Group’s long‑term strategic key performance indicators, as

well as measure absolute and relative performance. Adjusted EPS

is a measure of the growth and proﬁtability of the Group that also

reﬂects management performance, and is a measure used by

investors in deciding whether to invest in the Company. TSR aligns

performance with shareholders’ interests. The strategic measures

are selected on an annual basis to support achievement of the

Company’s objectives and business plan by focusing on the most

appropriate targeted strategic priorities, including the integration of

appropriate ESG measures.

Targets applying to the bonus and PSP are set annually, based on

a number of internal and external reference points. Bonus targets

are set by reference to the annual targets agreed by the Board.

PSP targets reﬂect prevailing industry context, expectations of

what will constitute appropriately challenging performance levels

and factors speciﬁc to the Company.

Recruitment remuneration policy

When agreeing a remuneration package for the appointment of a

new executive Director, the Remuneration Committee will apply the

following principles:

• the package will be sufﬁcient to attract the calibre of executive

Director required to deliver the Company’s strategy; and

• the Remuneration Committee will seek to ensure that no more is

paid than is necessary.

In addition to the policy elements set out in this 2024 Directors’

Remuneration Policy, the Remuneration Committee retains

discretion to make appropriate remuneration decisions outside

of this to meet the individual circumstances of the recruitment,

including discretion to include any other remuneration component

or award, with the intention that the outcome of the relevant

remuneration package for the new executive Director be broadly

equivalent in all material respects to the remuneration packages

of existing executive Directors who are governed by the policy.

The Remuneration Committee has never used this discretion

since the Company was founded in 2003, and does not intend to

use this discretion to make a non‑performance related incentive

payment (for example, a “golden hello”) during the period covered

by this 2024 Directors’ Remuneration Policy. Nonetheless, the

Remuneration Committee considers it important to retain the

ability to exercise such discretion in exceptional circumstances,

notwithstanding that no such exceptional circumstances have

arisen in the past.

In this regard, elements that the Remuneration Committee may

consider for the purposes of a remuneration package for the

recruitment of a new executive Director include but are not limited

to the following:

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Element

Approach

Base salary

Salary levels will be set based on the experience, knowledge and skills of the individual and in the context of market rates for equivalent roles

in companies of a similar size and complexity. The Remuneration Committee would also consider Group relativities when setting base salary

levels.

The Remuneration Committee may set initial base salaries below the perceived market rate with the aim to make multi‑year staged increases

(or a one‑off increase) to achieve the desired market position over time. Where necessary these increases may be above those of the wider

workforce within the relevant geographic area, but would be subject to continued development in the role.

Incentive

remuneration

opportunity

The Remuneration Committee’s intention is that a new executive Director’s incentive remuneration opportunity will consist of:

•

an annual bonus opportunity which can be set up to a maximum of 200% of base salary (i.e. no more than the maximum opportunity

under the policy); and

•

awards under the PSP which can be set up to a maximum of 300% of base salary (i.e. no more than the maximum opportunity under the

policy).

Compensation

for forfeited

remuneration

arrangements

The Remuneration Committee may make awards on hiring an external candidate to buy out remuneration arrangements forfeited on leaving

a previous employer. In doing so, the Remuneration Committee will have regard to relevant factors, including any performance conditions

attached to such arrangements, the form of those awards (e.g. cash or shares) and the time frame of such awards. While such awards

are excluded from the maximum level of variable remuneration referred to above, the Remuneration Committee’s intention is that the value

awarded (as determined by the Remuneration Committee on a fair and reasonable basis) would be no higher than the expected value of the

forfeited arrangements. Where considered appropriate, buyout awards will be subject to forfeiture or clawback on early departure.

Notice period

The notice period will be the same as the Company’s ordinary policy of 12 months.

Relocation

costs

Where necessary, the Company will pay appropriate relocation costs. The Remuneration Committee will seek to ensure that no more is paid

than is necessary.

Retirement

beneﬁts

The maximum contribution of 10% of salary referred to on page 146 will apply to any new executive Director. This is consistent with the

contribution level provided to the Group’s wider UK workforce.

Incentive awards and ’buyout’ awards may be granted under

the PSP or under arrangements as permitted under the Listing

Rules, which allow for the grant of awards to facilitate, in unusual

circumstances, the recruitment of a Director. Where a position

is ﬁlled internally, any ongoing remuneration obligations or

outstanding variable pay elements shall be allowed to continue in

accordance with their subsisting terms.

The remuneration package for a newly appointed non‑executive

Director would normally be in line with the structure set out in the

policy table for Non‑executive Directors.

Service contracts and policy on payments for cessation

of employment

The Company’s policy is for executive Directors to be employed

on the terms of service agreements, which may be terminated by

either the executive Director or the Company on the giving of 12

months’ written notice (subject to certain exceptions).

The principles on which the determination of payments for

cessation of employment will be approached are summarised

below and on page 151.

Certain treatment is dependent on whether an executive Director

is classiﬁed as a ‘Good Leaver’ on cessation of employment,

which will occur if that executive Director ceases employment in

the following circumstances: death; permanent ill‑health; disability;

retirement with the agreement of the Company; resignation in

connection with a change of control; or otherwise at the discretion

of the Remuneration Committee. An executive Director will be

a ‘Bad Leaver’ if they cease employment other than as a Good

Leaver.

Payment in lieu of notice

If the Company terminates an executive Director’s employment

with immediate effect, a payment in lieu of notice may be made.

This may include base salary, pension contributions and beneﬁts.

Annual bonus

Bonus in year of cessation

Performance conditions will be measured at the normal bonus

measurement date for Good Leavers only, with the bonus normally to

be prorated for the period worked during the ﬁnancial year and paid

in cash. No bonus will be payable to any executive Director other than

a Good Leaver for the year of cessation.

Deferred share awards

Good Leavers will be entitled to retain deferred share awards. For

an executive Director other than a Good Leaver, any deferred share

awards which remain subject to the risk of forfeiture on cessation of

employment will usually be forfeited.

Discretion

The Remuneration Committee has the following elements of

discretion with respect to the annual bonus and deferred share

awards in the event of cessation of employment:

• to determine whether to prorate a cash bonus for time. The

Remuneration Committee’s normal policy is that it will prorate

for time. It is the Remuneration Committee’s intention to be able

to use discretion to not prorate in circumstances where there is

an appropriate business case which will be explained in full to

shareholders; and

• to vest any deferred share award at the end of the original deferral

period or at the date of cessation and, for an executive Director

who is a Bad Leaver, to allow the deferred share award not to be

subject to forfeiture on cessation.

PSP

If an executive Director ceases to be employed by the Company

before the relevant vesting date, the treatment of the PSP Awards

held by such executive Director will be determined depending on their

classiﬁcation as a ‘Good Leaver’ or a ‘Bad Leaver’ as deﬁned and

summarised below.

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Good Leavers

If an executive Director holding PSP Awards ceases employment

in circumstances where he is a Good Leaver before the relevant

vesting date, unless the Remuneration Committee decides otherwise,

the PSP Award shall continue and vest on the original vesting date

and the PSP Award normally will be reduced on a pro‑rata basis to

reﬂect the number of whole days from the start of the Performance

Period to the date of termination of employment as a proportion of

the total number of days in the Performance Period although the

Remuneration Committee will have discretion to accelerate vesting to

the date of cessation and/or to waive in part or in full any pro‑rating.

Bad Leavers

If an executive Director holding PSP Awards ceases employment

in circumstances where he is a Bad Leaver before the vesting date,

unless the Remuneration Committee decides otherwise, all of

their unvested PSP Awards will lapse as of the date on which their

employment terminates.

If an executive Director ceases to be employed by the Company

after vesting date for whatever reason, they shall be entitled to retain

any outstanding vested PSP Awards held by them pursuant to the

PSP Rules.

Factor

How the Remuneration Committee has addressed and link to the Company’s strategy

Clarity

The Company’s performance remuneration is based on supporting the implementation of the Company’s new strategy as an aerospace

business. This provides clarity to all stakeholders on the relationship between the successful implementation of the Company’s strategy and

the remuneration paid.

The Company seeks to present its remuneration arrangements to investors in the clearest and most transparent way possible. We also

remain committed to maintaining an open and transparent dialogue with our investors, both through formal engagement processes and

ad‑hoc discussions, and through the disclosures in our annual reports.

Simplicity

The ﬁxed elements of remuneration are limited to base salary, pension contribution and beneﬁts.

There are two variable elements of remuneration: the annual bonus and the PSP, both of which are based on simple and transparent

metrics.

In the Remuneration Committee’s view, this provides a very simple incentive framework which can be understood by all participants and all

of the Company’s stakeholders.

Risk

The 2024 Directors’ Remuneration Policy includes the following elements to mitigate against the risk of target‑based incentives:

•

setting deﬁned limits on the maximum award that could be earned under both the annual bonus and the PSP;

•

requiring the deferral of up to 50% of the annual bonus award (after tax) into ordinary shares of the Company in certain circumstances

and requiring that all of the shares awarded in relation to the PSP (other than any ordinary shares sold in order to make adequate

provision for any tax liability arising in connection with the crystallisation) be held for a two‑year holding period following the vesting date;

•

the post‑cessation minimum shareholding requirements, which require executive Directors to maintain the minimum shareholding for a

period of two years after leaving the Company;

•

aligning the performance conditions with the new strategy of the Company, which is to be purely an aerospace business; and

•

ensuring there is sufﬁcient ﬂexibility for the Remuneration Committee to adjust payments through malus and clawback and an overriding

discretion to depart from formulaic outcomes.

Predictability

Fixed remuneration for the executive Directors limits ﬁxed costs for the Group, to provide certainty and to incentivise executive Directors

through the variable elements.

Variable remuneration is limited to: (i) the annual bonus; and (ii) the PSP.

The method of calculation, limits and discretions under the 2024 Directors’ Remuneration Policy in respect of the variable elements have

been clearly set out.

See the scenario charts on page 148 for an illustration of how remuneration outcomes may vary under different performance scenarios.

Proportionality

The link between individual variable awards and the delivery of strategy and long‑term performance of the Group is clear. In addition, as

detailed on pages 146 to 147, the Remuneration Committee may exercise discretion to adjust upwards or downwards (including to zero)

the extent to which annual bonus shall be paid and/or PSP Award shall vest if it considers that the extent to which the annual bonus would

be paid and/or the PSP Award would otherwise vest is not a fair reﬂection of the performance of the Company or the executive Director’s

performance, taking account of overall business performance.

Alignment

to culture

The focus on responsible stewardship and long‑term sustainable performance is a key part of the Company’s culture. This is supported by

the 2024 Directors’ Remuneration Policy, which: (i) facilitates Committee oversight of workforce pay, policies and incentives; (ii) provides that

executive Director pension contributions comprise a percentage of salary that is consistent with the percentage applicable to the Group’s

wider UK workforce; and (iii) sets the annual salaries, bonuses and beneﬁts for the Chief Executive Ofﬁcer and the Chief Financial Ofﬁcer

broadly in line with the median of companies of a comparable size.

Other payments

The Remuneration Committee reserves the right to make additional

exit payments where such payments are made in good faith in

discharge of an existing legal obligation (or by way of damages for

breach of such an obligation) or by way of settlement or compromise

of any claim arising in connection with the termination of an

executive Director’s employment. In appropriate circumstances,

payments may also be made in respect of legal fees.

The overall amount of any payment made in respect of a loss of

ofﬁce will not exceed the aggregate of any payment in lieu of notice

and any payment made in respect of annual bonus, as referred

to on page 150. Entitlements in respect of the PSP will be dealt

with in accordance with the PSP Rules and, were the Company

to make an award on recruitment of an executive Director to buy

out remuneration arrangements forfeited on leaving a previous

employer, the leaver provisions for that award would be determined

at the time of grant.

Other elements

The 2024 Directors’ Remuneration Policy aims to align the

interests of the executive Directors with the long‑term interests of

shareholders, incentivising and rewarding long‑term sustainable

growth of the Company, but is also wholly aligned with the Code

factors of clarity, simplicity, risk, predictability, proportionality

and alignment to culture, as set out in the table below. The

Remuneration Committee ensured that it took all these elements

into account when establishing the 2024 Directors’ Remuneration

Policy, as well as its application to executive Directors. The table

below sets out how the Remuneration Committee has addressed

each factor of the Code and its link to strategy.

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GOVERNANCE

DIRECTORS’ REMUNERATION REPORT

CONTINUED

Differences between the Company’s policy on Directors’

remuneration and its policy on remuneration for other

employees

Remuneration arrangements throughout the Group are determined

based on the same principle that rewards should be sufﬁcient as is

necessary to attract and retain high calibre talent, without paying

more than is necessary and should be achieved for delivery of the

Company’s strategy.

The Company has operations in various countries, with Group

employees of differing levels of seniority. Accordingly, though

based on the over‑arching principle above, reward policies vary to

take account of these factors.

Statement of consideration of employment conditions

elsewhere in the Company

Salary, beneﬁts and performance‑related awards provided

to employees are taken into account when setting policy for

executive Directors’ remuneration. Although there is no direct

consultation by the Remuneration Committee with employees

on Directors’ remuneration, the Melrose Chief Executive is

responsible for engaging with the Melrose workforce in relation to

remuneration, and does so throughout the year. However, the pay

and employment conditions of the wider workforce were taken

into consideration by the Remuneration Committee when making

decisions on Directors’ remuneration in 2023, which will continue

to be the case for the periods governed by the 2024 Directors’

Remuneration Policy.

Statement of consideration of shareholder views

The Company is committed to regular and ongoing engagement

and seeks the views of key shareholders and other stakeholders

on the application of the Directors’ Remuneration Policy and in

advance of amending its Directors’ Remuneration Policy. The

Chairman’s Annual Statement at pages 128 to 129 sets out how this

was done in practice for the 2024 Directors’ Remuneration Policy.

The policy is set to reﬂect the Company’s commercial strategy.

Payments outside the policy in this report

The Remuneration Committee retains discretion to make any

remuneration payments and payments for termination of employment

outside this policy:

• where the terms of the payment were agreed before the policy

came into effect;

• where the terms of the payment were agreed at a time when the

relevant individual was not a Director of the Company and, in

the opinion of the Remuneration Committee, the payment was

not in consideration of the individual becoming a Director of the

Company; and/or

• to satisfy contractual commitments under legacy remuneration

arrangements, including pursuant to the MASP and the MESP.

For these purposes, “payments” includes the satisfaction of awards

of variable remuneration and, in relation to an award or option over

shares, the terms of the payment are “agreed” at the time the award

or option is granted, as subsequently varied in accordance with the

2023 Directors’ Remuneration Policy prior to the 2024 Directors’

Remuneration Policy coming into force. Any such payment shall

include: (i) the conversion of any MESP Conditional Award or the

satisfaction of the exercise of any MESP Nil Cost Option under

the MESP Rules (or the settlement of any such MESP Conditional

Award or MESP Nil Cost Option in exchange for a cash payment, as

described in the MESP Rules), or the exercise of any MASP Option

under the MASP Rules; and (ii) the delivery of the value attributable

to the shares issued upon the conversion of any MESP Conditional

Award or the exercise of any MESP Nil Cost Option in accordance

with the MESP Rules, or the delivery of the value attributable to

the MASP Shares issued upon the exercise of any MASP Option in

accordance with the MASP Rules.

For the purposes of limbs (i) and (ii) of the immediately preceding

paragraph, capitalised terms have the meaning ascribed in the

Directors Remuneration Policy 2023.

This report was approved by the Board and signed on its behalf by:

David Lis

Chairman, Remuneration Committee

7 March 2024

152

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ANNUAL REPORT 2023

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report

and ﬁnancial statements in accordance with applicable laws

and regulations.

Company law requires the Directors to prepare ﬁnancial statements

for each ﬁnancial year. Under that law, the Directors are required to

prepare the Group ﬁnancial statements in accordance with United

Kingdom adopted international accounting standards. The ﬁnancial

statements also comply with International Financial Reporting

Standards (“IFRS”) as issued by the International Accounting

Standards Board. The Directors have also chosen to prepare the

parent company ﬁnancial statements in accordance with United

Kingdom Generally Accepted Accounting Practice (United Kingdom

Accounting Standards and applicable law), including FRS 102 “The

Financial Reporting Standard applicable in the UK and Republic of

Ireland”. Under company law, the Directors must not approve the

ﬁnancial statements unless they are satisﬁed that they give a true and

fair view of the state of affairs of the Company and of the proﬁt or loss

of the Company for that period.

In preparing the parent company ﬁnancial statements, the Directors

are required to:

• select suitable accounting policies and then apply them

consistently;

• make judgements and accounting estimates that are reasonable

and prudent;

• state whether applicable UK Accounting Standards have been

followed, subject to any material departures disclosed and

explained in the ﬁnancial statements; and

• prepare the ﬁnancial statements on the going concern basis unless

it is inappropriate to presume that the Company will continue in

business.

In preparing the Group ﬁnancial statements, International Accounting

Standard 1 requires that Directors:

• properly select and apply accounting policies;

• present information, including accounting policies, in a manner

that provides relevant, reliable, comparable and understandable

information;

• provide additional disclosures when compliance with the speciﬁc

requirements in IFRS are insufﬁcient to enable users to understand

the impact of particular transactions, other events and conditions

on the entity’s ﬁnancial position and ﬁnancial performance; and

• make an assessment of the Company’s ability to continue as a

going concern.

The Directors are responsible for keeping adequate accounting

records that are sufﬁcient to show and explain the Company’s

transactions and disclose with reasonable accuracy at any time

the ﬁnancial position of the Company and enable them to ensure

that the ﬁnancial statements comply with the Companies Act

2006. They are also responsible for safeguarding the assets of the

Company and hence for taking reasonable steps for the prevention

and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of

the corporate and ﬁnancial information included on the Company’s

website. Legislation in the United Kingdom governing the

preparation and dissemination of ﬁnancial statements may differ

from legislation in other jurisdictions.

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

position and performance, business model and strategy.

This responsibility statement was approved by the Board of

Directors on 7 March 2024 and is signed on its behalf by:

Geoffrey Martin

Peter Dilnot

Group Finance Director

Chief Executive Ofﬁcer

7 March 2024

153

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GOVERNANCE

FINANCIAL

STATEMENTS

IN THIS SECTION

Independent auditor’s report to the

members of Melrose Industries PLC

........

156

Consolidated Income Statement

.............

166

Consolidated Statement of

Comprehensive Income

...........................

167

Consolidated Statement of Cash Flows .. 168

Consolidated Balance Sheet

...................

169

Consolidated Statement

of Changes in Equity

................................

170

Notes to the Financial Statements

...........

171

Company Balance Sheet

for Melrose Industries PLC

......................

223

Company Statement

of Changes in Equity

...............................

224

Notes to the Company Balance Sheet

....

225

Glossary

..................................................

232

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ANNUAL REPORT 2023

155

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT TO THE

MEMBERS OF MELROSE INDUSTRIES PLC

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS

1. Opinion

In our opinion:

• the ﬁnancial statements of Melrose Industries PLC (the ‘parent company’) and its subsidiaries (the ‘group’) give a true and fair view of the

state of the group’s and of the parent company’s affairs as at 31 December 2023 and of the group’s loss for the year then ended;

• the group ﬁnancial statements have been properly prepared in accordance with United Kingdom adopted international accounting

standards and International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB);

• the parent company ﬁnancial statements have been properly prepared in accordance with United Kingdom Generally Accepted

Accounting Practice, including Financial Reporting Standard 102 “The Financial Reporting Standard applicable in the UK and Republic

of Ireland”; and

• the ﬁnancial statements have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the ﬁnancial statements which comprise:

• the Consolidated Income Statement;

• the Consolidated Statement of Comprehensive Income;

• the Consolidated Statement of Cash Flows;

• the Consolidated and Parent Company Balance Sheets;

• the Consolidated and Parent Company Statements of Changes in Equity;

• the related notes 1 to 30 and the related notes 1 to 8 to the Parent Company Balance Sheet.

The ﬁnancial reporting framework that has been applied in the preparation of the group ﬁnancial statements is applicable law, United Kingdom

adopted international accounting standards and IFRSs as issued by the IASB. The ﬁnancial reporting framework that has been applied in the

preparation of the parent company ﬁnancial statements is applicable law and United Kingdom Accounting Standards, including FRS 102 “The

Financial Reporting Standard applicable in the UK and Republic of Ireland” (United Kingdom Generally Accepted Accounting Practice).

2. Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under

those standards are further described in the auditor’s responsibilities for the audit of the ﬁnancial statements section of our report.

We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the

ﬁnancial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest

entities, and we have fulﬁlled our other ethical responsibilities in accordance with these requirements. The non‑audit services provided to

the group and parent company for the year are disclosed in note 7 to the ﬁnancial statements. We conﬁrm that we have not provided any

non‑audit services prohibited by the FRC’s Ethical Standard to the group or the parent company.

We believe that the audit evidence we have obtained is sufﬁcient and appropriate to provide a basis for our opinion.

3. Summary of our audit approach

Key audit matters

The key audit matters that we identiﬁed in the current

year were:

• Revenue recognition in respect of certain material Risk

and Revenue Sharing Partnerships (“RRSPs”);

• Classiﬁcation of adjusting items; and

• Demerger of the GKN Automotive, GKN Powder

Metallurgy and GKN Hydrogen businesses.

Within this report, key audit matters are identiﬁed as follows:

Newly identiﬁed

Increased level of risk

Similar level of risk

Decreased level of risk

Materiality

The materiality that we used for the group ﬁnancial statements was £20 million which was determined using a blended

approach with multiple benchmarks including adjusted proﬁt before tax and revenue from continuing operations.

Scoping

We selected nine reporting units where we requested component auditors to perform a full scope audit of the site

components’ ﬁnancial information. We also selected two corporate components for a full scope audit of their ﬁnancial

information.

We also requested component auditors to audit speciﬁc account balances and transactions (“SAB”) at a further 20

reporting units. Coverage from full scope and SAB scope components totals 83% of the group’s revenue, 84% of adjusted

operating proﬁt and 85% of net assets.

Signiﬁcant

changes in our

approach

Two key audit matters identiﬁed in our prior year report pertaining to impairment of goodwill and acquired intangibles,

and completeness of loss‑making contract provisions have not been identiﬁed in the current year as the balances have

been derecognised as a result of the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen

businesses. One new key audit matter in respect of accounting for the demerger has been identiﬁed in the current period.

The number of components we subjected to audit procedures decreased in comparison to the prior period due to a

reduction in components of the group following the demerger.

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4. Conclusions relating to going concern

In auditing the ﬁnancial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of

the ﬁnancial statements is appropriate.

Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt the going concern basis of

accounting included:

• obtained an understanding of the ﬁnancing facilities including nature of facilities, repayment terms and covenants;

• assessed the impact of risk and uncertainties on the business model and future cash ﬂow forecasts (including consideration of climate

change scenarios);

• considered as part of our assessment the nature of the group, its business model and related risks including where relevant the impact of

the recent economic downturn, including increased levels of inﬂation, the requirements of the applicable ﬁnancial reporting framework and

the system of internal control;

• evaluated the directors’ assessment of the group’s ability to continue as a going concern, including challenging the underlying data and

key assumptions used to make the assessment, and evaluated the directors’ plans for future actions. This was done through detailed

assessment of the operating and non‑operating cash ﬂows for reasonableness and consistency with the underlying forecasts and plans for

individual businesses;

• assessed the sufﬁciency of headroom available in the forecasts (cash and covenants) with respect to the risks and uncertainties;

• assessed management’s sensitivity analysis in order to evaluate whether the reasonable worst‑case sensitivities capture all the reasonably

possible downside risks and uncertainties; and

• assessed the appropriateness of the disclosures provided in the ﬁnancial statements.

Based on the work we have performed, we have not identiﬁed any material uncertainties relating to events or conditions that, individually or

collectively, may cast signiﬁcant doubt on the group’s and parent company’s ability to continue as a going concern for a period of at least

twelve months from when the ﬁnancial statements are authorised for issue.

In relation to the reporting on how the group has applied the UK Corporate Governance Code, we have nothing material to add or draw

attention to in relation to the directors’ statement in the ﬁnancial statements about whether the directors considered it appropriate to adopt the

going concern basis of accounting.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

5. Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most signiﬁcance in our audit of the ﬁnancial statements of

the current period and include the most signiﬁcant assessed risks of material misstatement (whether or not due to fraud) that we identiﬁed.

These matters included those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing

the efforts of the engagement team.

These matters were addressed in the context of our audit of the ﬁnancial statements as a whole, and in forming our opinion thereon, and we

do not provide a separate opinion on these matters.

5.1. Revenue recognition in respect of certain material RRSPs

Key audit matter

description

The group has recognised total revenue of £3,350 million in 2023 (2022: £2,954 million).

There are judgements taken within the revenue recognition of certain material RRSPs in the Engines operating segment.

The risk speciﬁcally focuses on the timing at which performance obligations are met, as well as the valuation of revenue

recognised. This is because of the level of estimation and judgement required when applying the principles set out in IFRS

15 Revenue from contracts with customers, and recognising revenue from the RRSPs where the pricing for the same

parts varies across the contract. There is judgement in how the overall price is allocated across the units supplied where

the group has a contractual right to aftermarket revenues because the requirements of IFRS 15 constrain the variable

consideration recognised (referred to as ‘unbilled work done’ in the group ﬁnancial statements). The amount of revenue

recognised from the RRSPs during the year was £680 million (2022: £547 million), which included variable consideration of

£173 million (2022: £106 million).

Furthermore, the revenue recognition models used by management for RRSPs involve a number of signiﬁcant

assumptions based on any modiﬁcations to the contracts including: programme share or changes in pricing, and historical

data and trends, any new events such as manufacturing defects on current engines in service, engineering requirements

to support programmes and the expected life of mature engines. Any changes to these assumptions require a higher level

of judgement and estimation. This increases the risk that revenue recognition may not be appropriate.

Further details are included in notes 4 (including new events during the year) and 17 to the group ﬁnancial statements,

and also in note 3 to the group ﬁnancial statements in relation to the key sources of estimation uncertainty for the variable

consideration. Refer also to page 120 of the Audit Committee report.

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FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT TO THE

MEMBERS OF MELROSE INDUSTRIES PLC

CONTINUED

How the scope

of our audit

responded to the

key audit matter

We obtained an understanding of the relevant controls over the recognition of revenue for RRSPs.

For each RRSP with material variable consideration, we recalculated the amount of revenue recognised to assess that

it has been calculated in accordance with IFRS 15, the contractual agreement, and the latest correspondence with the

customer. In particular, we have:

• agreed the percentage of revenue entitlement to the customer contract;

• reviewed correspondence with the customer in the period, in particular entitlement reports;

• challenged estimations made by management at the year‑end by taking account of historical settlements and checking

historical estimation accuracy;

• challenged the assumptions used in arriving at the element of variable consideration recognised. This was done by

performing a number of procedures listed below;

• performed an assessment of the timing at which control is transferred and revenue is recognised by identifying the

performance obligations from the contract and checking the recognition triggers;

• obtained and reviewed the contract modiﬁcations, including programme share or changes in pricing, and assessed that

they have been appropriately included in the RRSP models; and

• tested underlying data included in the trend analysis above and performed independent industry research for evidence

that may contradict management’s assumptions on margin and engine life.

In assessing the key assumptions in the revenue recognition model, we performed speciﬁc procedures that included:

• obtaining an understanding of the relevant controls in place within the Engines operating segment, that hold RRSPs, to

review the underlying data;

• assessing the position papers prepared by management, and the model prepared;

• considering speciﬁc events in the year, and the ongoing performance of the relevant programmes;

• assessing the accuracy of the underlying data used in the determination of the assumptions, including usage proﬁles,

industry data and customer correspondence; and

• assessing the disclosure provided in the group ﬁnancial statements in relation to the changes in these assumptions

against the requirements of IFRS 15.

Key observations

We are satisﬁed that the key assumptions made in determining the value of revenue recognised on RRSPs with variable

consideration are within an acceptable range including the impact of the speciﬁc events in the current year and that the

overall position is reasonable.

We consider the disclosure provided in the ﬁnancial statements in relation to the changes in the key assumptions is

appropriate and consistent with the requirements of IFRS 15.

5.2. Classiﬁcation of adjusting items

Key audit matter

description

In addition to the statutory results, the group continues to present adjusted proﬁt measures which are before the impact of

adjusting items. Judgements made by management regarding the classiﬁcation of adjusting costs and income therefore

have a signiﬁcant impact on the presentation of the group’s results. In total, adjustments of £333 million have been made

to the statutory operating proﬁt of £57 million to derive adjusted operating proﬁt of £390 million.

Adjusting items included:

• amortisation of acquisition‑related intangible assets (£260 million);

• restructuring costs (£149 million);

• equity settled compensation scheme charges (£38 million);

• acquisition and disposal related charges (£3 million);

• credit from movement in derivatives and associated ﬁnancial assets and liabilities (£114 million); and

• net credit from releases and changes in discount rate of fair value items (£3 million).

We identiﬁed a key audit matter in respect of the classiﬁcation of items recorded as adjusting. While the key measure used

by management to monitor performance is adjusted operating proﬁt, adjusted proﬁt before tax is also a key measure used

in communication with shareholders. There is a risk that costs or income may be classiﬁed as adjusting which are trading

or recurring items, and therefore distort the reported adjusted proﬁt, whether due to manipulation or error. Consistency

in the identiﬁcation and presentation of the adjusted costs or income is important for the comparability of year‑on‑year

reporting.

Explanations of each adjustment are set out in note 6 to the group ﬁnancial statements, and also in note 3 to the group

ﬁnancial statements in relation to the critical judgements involved in determining adjusting items. Refer also to page 121

of the Audit Committee report.

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How the scope

of our audit

responded to the

key audit matter

We obtained an understanding of the relevant controls over the classiﬁcation of adjusting items in the ﬁnancial statements.

We evaluated the appropriateness of the inclusion of items, both individually and in aggregate, within adjusted results.

Speciﬁcally, we:

• assessed the consistency of items included year on year, the content and application of management’s accounting

policy, challenging the nature of these items in comparison to European Securities and Markets Authority (ESMA)

guidance and FRC guidance, and challenging in particular the inclusion of those items that recur annually;

• tested a sample of adjusting items by agreeing to source documentation and evaluating their nature in order to assess

whether they are disclosed in accordance with the group’s accounting policy, and also to assess consistency of

adjusting items between periods in the group ﬁnancial statements;

• focussed our challenge on certain categories within adjusting items where we assessed that increased level of

judgement had been applied by management, and there was increased risk for fraud or error. This included additional

testing of restructuring costs and movements in fair value adjustments;

• agreed the amounts recorded through to underlying ﬁnancial records and other audit support to test that the amounts

disclosed were complete and accurate;

• for releases to fair value adjustments, we challenged this classiﬁcation and assessed whether events and conditions

existed to cause a release of the provision recognised as part of acquisition accounting;

• for restructuring costs, assessed whether the recognised costs meet the recognition criteria set out in IAS 37

Provisions; and

• assessed whether the disclosures within the group ﬁnancial statements provide sufﬁcient detail for the reader to

understand the nature of these items and how adjusted results reconcile to statutory results.

Key observations

The value of adjusting items results in a material difference between the statutory and adjusted results. Whilst we note that

the majority of adjusting items recur from period to period, their classiﬁcation and presentation is consistent with the

group’s policy and the amounts are appropriate.

5.3. Demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses

Key audit matter

description

On 30 March 2023, Melrose shareholders approved the demerger of the GKN Automotive, GKN Powder Metallurgy and

GKN Hydrogen businesses through the ﬂotation of Dowlais Group PLC (“Dowlais”) on the London Stock Exchange. As

a consequence, the assets and liabilities of Dowlais were reclassiﬁed as held for distribution in accordance with IFRS 5

Non‑current Assets Held for Sale and Discontinued Operations.

On 20 April 2023, the group completed the demerger of Dowlais. The results of the Dowlais businesses to the demerger

date have been presented as discontinued operations and the comparative results have been restated on a consistent

basis.

At the demerger date the assets and liabilities of the Dowlais businesses have been derecognised from the balance sheet.

The demerger distribution has been measured at fair value in accordance with IFRIC 17

Distributions of Non‑cash Assets

to Owners.

The difference between the derecognised net assets of £3,142 million and the fair value of the demerger

distribution of £1,973 million was recognised in the consolidated income statement as a loss on demerger. The cumulative

translation differences arising on translation of those demerged foreign currency net assets (credit of £152 million),

previously included in other comprehensive income, have also been recognised in the consolidated income statement.

As a result of the demerger, certain adjustments were made to the group’s equity settled compensation scheme. The

group retained one percent of Dowlais issued equity after the demerger.

We identiﬁed the demerger of Dowlais businesses as a key audit matter because of the signiﬁcant judgements and

estimates related to:

• calculating the loss on demerger especially the measurement of the demerger distribution;

• evaluating the adjustments made to the group’s equity settled compensation scheme and determining the appropriate

accounting treatment;

• remeasuring the retained stake upon demerger;

• validating the assets and liabilities derecognised; and

• cumulative translation difference arising on translation of the foreign currency net assets of the demerged businesses.

Further details are included in note 1, 13 and 23 to the group ﬁnancial statements, and also in note 3 to the group ﬁnancial

statements in relation to the critical judgement for the measurement of the demerger distribution. Refer also to page 118 of

the Audit Committee report.

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FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT TO THE

MEMBERS OF MELROSE INDUSTRIES PLC

CONTINUED

How the scope

of our audit

responded to the

key audit matter

We assessed the group’s accounting conclusions, underlying analysis and calculation, and challenged the

reasonableness of the underlying judgements. Speciﬁcally, our work included, but was not limited to:

• inspecting legal agreements in relation to the demerger of the Dowlais businesses for accuracy and completeness of

transactions to the demerger date;

• evaluating the group’s accounting conclusions for the demerger steps including assessing:

• the classiﬁcation and remeasurement the Dowlais businesses as held for distribution and presentation results of the

Dowlais businesses as discontinued operations under IFRS 5

Non‑current Assets Held for Sale and Discontinued

Operations

;

• the measurement the demerger dividend and calculation of the loss on demerger under IFRIC 17

Distributions of

Non‑cash Assets to Owners

;

• the accounting for the adjustments made to the group’s equity settled compensation scheme under IFRS 2

Share‑based Payment and IAS 19 Employee Beneﬁts

; and

• the measurement and accounting for the retained stake upon demerger under IFRS 9 Financial Instruments and

IFRS 10

Consolidated Financial Statements

• involving our valuation specialists to challenge the judgement applied in determining the fair value of the demerger

distribution, and benchmark it against available market data and comparable organisations.

• recalculating the loss on demerger including validating the assets and liabilities derecognised, and cumulative

translation difference arising on translation of the foreign currency net assets of the demerged businesses.

• assessing whether the disclosures within the group ﬁnancial statements provide sufﬁcient detail for the reader to

understand the transactions related to the demerger of Dowlais and the accounting judgements made.

Key observations

We are satisﬁed that the group’s accounting conclusions and disclosures in respect of the demerger of Dowlais

businesses are appropriate.

6. Our application of materiality

6.1. Materiality

We deﬁne materiality as the magnitude of misstatement in the ﬁnancial statements that makes it probable that the economic decisions of a

reasonably knowledgeable person would be changed or inﬂuenced. We use materiality both in planning the scope of our audit work and in

evaluating the results of our work.

Based on our professional judgement, we determined materiality for the ﬁnancial statements as a whole as follows:

Group ﬁnancial statements

Parent company ﬁnancial statements

Materiality

£20 million (2022: £30 million)

£10 million (2022: £15 million)

Basis for determining materiality

We considered the following benchmarks:

• adjusted proﬁt before tax; and

• revenue.

We determined materiality based on net assets,

which was then capped at 50% (2022: 50%) of

group materiality in order to address the risk of

aggregation when combined with other businesses.

Rationale for the benchmarks

applied

In determining our relevant benchmarks for

materiality, we considered a number of different

metrics used by investors and other readers of the

ﬁnancial statements.

Materiality for the current year represented:

• 6.0% of adjusted proﬁt before tax (2022: 7.8%);

and

• 0.6% of revenue (2022: 0.4%).

In our professional judgement we believe that use

of a balance sheet measure is appropriate for a

holding company. This is with reference to the net

asset position of the company when compared to

the net asset position of the group.

6.2. Performance materiality

We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected

misstatements exceed the materiality for the ﬁnancial statements as a whole.

Group ﬁnancial statements

Parent company ﬁnancial statements

Performance materiality

70% (2022: 65%) of group materiality

70% (2022: 65%) of parent company materiality

Basis and rationale for

determining performance

materiality

In determining performance materiality, we considered the following factors:

• the assessment of the complexity of the group and nature of the group’s business model;

• the group’s control environment and its variation across the group; and

• our past experience of the audit, which has indicated a low number of corrected and uncorrected

misstatements identiﬁed in prior periods.

6.3. Error reporting threshold

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £1.0 million (2022: £1.5 million),

as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee

on disclosure matters that we identiﬁed when assessing the overall presentation of the ﬁnancial statements.

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7. An overview of the scope of our audit

7.1. Identiﬁcation and scoping of components

In order to determine the scoping of components we consider the nature of the group and its structure. Following the demerger there are two

operating segments in the continuing operations of the group:

• Engines; and

• Structures.

In addition to the operating segments above, the group has a number of central cost centres which report to the Board and include head

ofﬁce companies for corporate functions and costs.

Each operating segment consists of a number of components and manages operations on a geographical and functional basis. There are

72 components in total (2022: 192), each of which is responsible for maintaining their own accounting records and controls and using an

integrated consolidation system to report to UK head ofﬁce. Our group audit scope focused on audit work at 31 components (2022: 48), of

which:

• 5 relate to components that form part of the Engines operating segment;

• 15 relate to components that form part of the Structures operating segment; and

• 11 relate to central and corporate cost centres.

Each component was set a speciﬁc component materiality, considering its relative size and any component‑speciﬁc risk factors such as

signiﬁcant estimates and judgements, internal audit ﬁndings and history of error. The component materialities applied were in the range

£7 million to £10 million.

We selected 11 reporting units where we requested component auditors to perform a full scope audit of the components’ ﬁnancial information.

We also requested component auditors to audit speciﬁed account balances and transactions at a further 20 reporting units. Coverage from

full scope and SAB scope components totals 83% of the group’s revenue (2022: 79%), 84% of adjusted operating proﬁt (2022: 81%) and 85%

of net assets (2022: 84%).

Engines

In respect of the Engines operating segment, 2 components were subject to a full scope audit and 3 components were subject to SAB scope

audit. These 5 components together accounted for 91% of the Engines operating segment’s revenue and 94% of the Engines operating

segment’s adjusted operating proﬁt.

Structures

In respect of the Structures operating segment, 7 components were subject to a full audit and 8 components were subject to SAB scope

audit. These 15 components together accounted for 79% of the Structures operating segment’s revenue and 70% of the Structures operating

segment’s adjusted operating proﬁt.

Corporate cost centres

In respect of the corporate cost centres, 2 components were subject to a full audit and 9 components were subject to a SAB scope audit.

Parent company

The audit of the parent company was performed by the group engagement team based at the parent company’s head ofﬁce.

Residual balances

All entities not subject to the audit procedures above were subject to analytical procedures by the group engagement team.

Whilst we understood the relevant controls in key areas, given the number and diverse nature of the components of the group, we tested and

took controls reliance in certain limited areas of the audit only.

Revenue

Adjusted operating proﬁt

Net assets

Full audit scope

66%

2 Speciﬁed audit

17%

procedures

Review at

17%

group level

Full audit scope

63%

2 Speciﬁed audit

21%

procedures

Review at

16%

group level

Full audit scope

83%

2 Speciﬁed audit

procedures

Review at

15%

group level

7.2. Our consideration of the control environment

The Group is reliant on the effectiveness of a number of IT applications and controls to ensure that ﬁnancial transactions are processed and

recorded completely and accurately. As part of our audit we have obtained an understanding of certain key controls, such as general IT

controls for relevant IT systems, controls over signiﬁcant estimates and key ﬁnancial reporting controls. We further tested revenue controls for

signiﬁcant and material components and relied on these controls for speciﬁc components and revenue streams.

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FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT TO THE

MEMBERS OF MELROSE INDUSTRIES PLC

CONTINUED

7.3. Our consideration of climate‑related risks

The Group continues to develop its assessment of the potential impacts of climate change and the transition to a low carbon economy

(“climate change”), as explained in the Sustainability Report on page 43.

We obtained an understanding of management’s process for considering the impact of climate‑related risks. We evaluated these risks to

assess whether they were complete and consistent with our understanding of the entity and our wider risk assessment procedures where they

have the potential to directly or indirectly impact key judgements and estimates within the group ﬁnancial statements. Our audit considered

those risks that could be material to the key judgements and estimates made in the assessment of the carrying value of non‑current assets

and impact on future cashﬂows, as per note 2.

We also considered whether the Task Force on Climate‑related Financial Disclosures (“TCFD”) as well as the mandatory UK Government’s

Climate‑related Financial Disclosure (“CFD”) in the Annual Report were consistent with our understanding of the business and the ﬁnancial

statements with involvement of sustainability specialists.

7.4. Working with other auditors

We continued our site visit plan over the course of the year, which meant senior members of the audit team visited all signiﬁcant components.

Regular communication also took place with component audit teams and component management teams using conference and video calls,

with a particular focus on locations where work was performed on signiﬁcant audit risks.

In addition to the above, the group audit partners including the senior statutory auditor held planning and close meetings covering all

businesses at head ofﬁce and operating segment level. Each operating segment has a dedicated senior member of the group audit team

responsible for the supervision and direction of components, including where appropriate sector‑speciﬁc expertise. We included the

component audit teams in our team brieﬁng, discussed and reviewed their risk assessment, and reviewed documentation of the ﬁndings from

their work. We also reviewed the audit work papers supporting component teams’ reporting to us remotely using shared desktop technology.

8. Other information

The other information comprises the information included in the annual report, other than the ﬁnancial statements and our auditor’s report

thereon. The directors are responsible for the other information contained within the annual report.

Our opinion on the ﬁnancial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report,

we do not express any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the

ﬁnancial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.

If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a

material misstatement in the ﬁnancial statements themselves. If, based on the work we have performed, we conclude that there is a material

misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

9. Responsibilities of directors

As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the ﬁnancial statements

and for being satisﬁed that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the

preparation of ﬁnancial statements that are free from material misstatement, whether due to fraud or error.

In preparing the ﬁnancial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue

as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the

directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

10. Auditor’s responsibilities for the audit of the ﬁnancial statements

Our objectives are to obtain reasonable assurance about whether the ﬁnancial statements as a whole are free from material misstatement,

whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,

but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected

to inﬂuence the economic decisions of users taken on the basis of these ﬁnancial statements.

A further description of our responsibilities for the audit of the ﬁnancial statements is located on the FRC’s website at: www.frc.org.uk/

auditorsresponsibilities. This description forms part of our auditor’s report.

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11. Extent to which the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non‑compliance with laws and regulations. We design procedures in line with our

responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our

procedures are capable of detecting irregularities, including fraud is detailed below.

11.1. Identifying and assessing potential risks related to irregularities

In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non‑compliance with laws and

regulations, we considered the following:

• the nature of the industry and sector, control environment and business performance including the design of the group’s remuneration

policies, key drivers for directors’ remuneration, bonus levels and performance targets;

• results of our enquiries of management, internal audit, legal counsel, operational staff, the directors and the audit committee about their

own identiﬁcation and assessment of the risks of irregularities, including those that are speciﬁc to the group’s sectors;

• any matters we identiﬁed having obtained and reviewed the group’s documentation of their policies and procedures relating to:

• identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non‑compliance;

• detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;

• the internal controls established to mitigate risks of fraud or non‑compliance with laws and regulations; and

• the matters discussed among the audit engagement team including signiﬁcant component audit teams and relevant internal specialists,

including tax, valuations, pensions, and IT specialists regarding how and where fraud might occur in the ﬁnancial statements and any

potential indicators of fraud.

As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identiﬁed

the greatest potential for fraud in the following areas: classiﬁcation of adjusting items and revenue recognition in respect of certain material

RRSPs. In common with all audits under ISAs (UK), we are also required to perform speciﬁc procedures to respond to the risk of management

override.

We also obtained an understanding of the legal and regulatory frameworks that the group operates in, focusing on provisions of those laws

and regulations that had a direct effect on the determination of material amounts and disclosures in the ﬁnancial statements. The key laws and

regulations we considered in this context included the UK Companies Act, Listing Rules, pensions legislation and tax legislation.

In addition, we considered provisions of other laws and regulations that do not have a direct effect on the ﬁnancial statements but compliance

with which may be fundamental to the group’s ability to operate or to avoid a material penalty. These included the UK Bribery Act and the

environmental regulations in the jurisdictions the group operates in.

11.2. Audit response to risks identiﬁed

As a result of performing the above, we identiﬁed classiﬁcation of adjusting items and revenue recognition in respect of certain material RRSPs

as key audit matters related to the potential risk of fraud. The key audit matters section of our report explains the matters in more detail and

also describes the speciﬁc procedures we performed in response to those key audit matters.

In addition to the above, our procedures to respond to risks identiﬁed included the following:

• reviewing the ﬁnancial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws

and regulations described as having a direct effect on the ﬁnancial statements;

• enquiring of management, the audit committee and in‑house and external legal counsel concerning actual and potential litigation and

claims;

• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to

fraud;

• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with HMRC;

and

• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other

adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the

business rationale of any signiﬁcant transactions that are unusual or outside the normal course of business.

We also communicated relevant identiﬁed laws and regulations and potential fraud risks to all engagement team members including internal

specialists and signiﬁcant component audit teams, and remained alert to any indications of fraud or non‑compliance with laws and regulations

throughout the audit.

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FINANCIAL STATEMENTS

INDEPENDENT AUDITOR’S REPORT TO THE

MEMBERS OF MELROSE INDUSTRIES PLC

CONTINUED

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

12. Opinions on other matters prescribed by the Companies Act 2006

In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the

Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

• the information given in the strategic report and the directors’ report for the ﬁnancial year for which the ﬁnancial statements are prepared

is consistent with the ﬁnancial statements; and

• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the

audit, we have not identiﬁed any material misstatements in the strategic report or the directors’ report.

13. Corporate Governance Statement

The Listing Rules require us to review the directors’ statement in relation to going concern, longer‑term viability and that part of the Corporate

Governance Statement relating to the group’s compliance with the provisions of the UK Corporate Governance Code speciﬁed for our review.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance

Statement is materially consistent with the ﬁnancial statements and our knowledge obtained during the audit:

• the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material

uncertainties identiﬁed set out on page 27;

• the directors’ explanation as to its assessment of the group’s prospects, the period this assessment covers and why the period is

appropriate set out on page 27;

• the directors’ statement on fair, balanced and understandable set out on page 153;

• the board’s conﬁrmation that it has carried out a robust assessment of the emerging and principal risks set out on page 29;

• the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on

page 121; and

• the section describing the work of the audit committee set out on page 117.

14. Matters on which we are required to report by exception

14.1. Adequacy of explanations received and accounting records

Under the Companies Act 2006 we are required to report to you if, in our opinion:

• we have not received all the information and explanations we require for our audit; or

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from

branches not visited by us; or

• the parent company ﬁnancial statements are not in agreement with the accounting records and returns.

We have nothing to report in respect of these matters.

14.2. Directors’ remuneration

Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have not been

made or the part of the directors’ remuneration report to be audited is not in agreement with the accounting records and returns.

We have nothing to report in respect of these matters.

15. Other matters which we are required to address

15.1. Auditor tenure

Following the recommendation of the audit committee, we were appointed by the Board of Directors in 2003 to audit the ﬁnancial statements

for the year ending 31 December 2003 and subsequent ﬁnancial periods. The period of total uninterrupted engagement including previous

renewals and reappointments of the ﬁrm is 21 years, covering the years ending 31 December 2003 to 31 December 2023.

15.2. Consistency of the audit report with the additional report to the audit committee

Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK).

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16. Use of our report

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our

audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an

auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other

than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.15R – DTR 4.1.18R, these ﬁnancial

statements form part of the Electronic Format Annual Financial Report ﬁled on the National Storage Mechanism of the FCA in accordance with

DTR 4.1.15R – DTR 4.1.18R. This auditor’s report provides no assurance over whether the Electronic Format Annual Financial Report has been

prepared in compliance with DTR 4.1.15R – DTR 4.1.18R.

Edward Hanson (Senior statutory auditor)

For and on behalf of Deloitte LLP

Statutory Auditor

London, United Kingdom

7 March 2024

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ANNUAL REPORT 2023

FINANCIAL STATEMENTS

Continuing operations

Notes

Year ended

31 December

2023

£m

Restated

(1)

Year ended

31 December

2022

£m

Revenue

Cost of sales

4, 5

3,350

(2,696)

2,954

(2,533)

Gross profit

Operating expenses

654

(597)

421

(691)

Operating profit/(loss)

5, 6

(270)

Finance costs

Finance income

(79)

(83)

Loss before tax

Tax

(8)

(328)

Profit/(loss) after tax for the year from continuing operations

(229)

Discontinued operations

Loss for the year from discontinued operations

(1,020)

(74)

Loss after tax for the year

(1,019)

(303)

ttributable to:

Owners of the parent

Non-controlling interests

(1,019)

–

(308)

(1,019)

(303)

Earnings per share

Continuing operations

– Basic

– Diluted

0.1p

(16.3)p

Continuing and discontinued operations

– Basic

– Diluted

(75.5)p

(21.9)p

djusted

(

)

results from continuing operations

Adjusted operating profit

Adjusted profit before tax

Adjusted profit after tax

Adjusted basic earnings per share

Adjusted diluted earnings per share

5, 6

390

331

263

19.5p

18.7p

147

4.1p

(1) Results for the year ended 31 December 2022 have been restated for discontinued operations (see note 1).

(2) Defined in the summary of material accounting policies (see note 2).

CONSOLIDATED INCOME STATEMENT

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ANNUAL REPORT 2023

Notes

Year ended

31 December

2023

£m

Year ended

31 December

2022

£m

Loss after tax for the year

(1,019)

(303)

Items that will not be reclassified subsequently to the Income Statement:

Net remeasurement loss on retirement benefit obligations

Fair value gain/(loss) on investments in equity instruments

Income tax credit/(charge) relating to items that will not be reclassified

(119)

(32)

(34)

(1)

Items that may be reclassified subsequently to the Income Statement:

Currency translation on net investments

Share of other comprehensive (expense)/income from equity accounted investments

Transfer to Income Statement from equity of cumulative translation differences

on disposal of foreign operations

Derivative gains/(losses) on hedge relationships

Transfer to Income Statement on hedge relationships

Income tax (charge)/credit relating to items that may be reclassified

(55)

(195)

(12)

(152)

–

(8)

(67)

593

(11)

(39)

(365)

563

Other comprehensive (expense)/income for the year

(420)

496

Total comprehensive (expense)/income for the year

(1,439)

193

ttributable to:

Owners of the parent

Non-controlling interests

(1,439)

–

187

(1,439)

193

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

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ANNUAL REPORT 2023

FINANCIAL STATEMENTS

Notes

Year ended

31 December

2023

£m

Restated

(1)

Year ended

31 December

2022

£m

Operating activities

Net cash used in operating activities from continuing operations

Net cash from operating activities from discontinued operations

(7)

(39)

243

Net cash from operating activities

204

Investing activities

Disposal of businesses, net of cash disposed

Settlement receipt from loans held with demerged entities

Purchase of property, plant and equipment

Proceeds from disposal of property, plant and equipment

Purchase of computer software and capitalised development costs

Disposal of equity accounted investments

cquisition of subsidiaries, net of cash acquired

Settlement of derivatives used in net investment hedging

Equity accounted investment additions

Interest received

(320)

1,205

(95)

(11)

–

478

–

(69)

(7)

–

(4)

(109)

(3)

Net cash from investing activities from continuing operations

Net cash used in investing activities from discontinued operations

788

(67)

332

(140)

Net cash from investing activities

721

192

Financing activities

Repayment of borrowings

Drawings on borrowing facilities

Costs of raising debt finance

Repayment of principal under lease obligations

Purchase of own shares, including associated costs

Dividends paid to owners of the parent

(1,371)

628

(11)

(32)

(93)

(81)

(598)

632

–

(29)

(504)

(77)

Net cash used in financing activities from continuing operations

Net cash used in financing activities from discontinued operations

(960)

(6)

(576)

(23)

Net cash used in financing activities

(966)

(599)

Net decrease in cash and cash equivalents, net of bank overdrafts

Cash and cash equivalents, net of bank overdrafts at the beginning of the year

Effect of foreign exchange rate changes

(216)

292

(19)

(203)

468

Cash and cash equivalents, net of bank overdrafts at the end of the year

292

(1) Results for the year ended 31 December 2022 have been restated for discontinued operations (see note 1).

As at 31 December 2023, the Group had net debt of £572 million (31 December 2022: £1,139 million). A definition and reconciliation of the

movement in net debt is shown in note 27.

CONSOLIDATED STATEMENT OF CASH FLOWS

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ANNUAL REPORT 2023

Notes

31 December

2023

£m

31 December

2022

£m

Non-current assets

Goodwill and other intangible assets

Property, plant and equipment

Investments

Interests in equity accounted investments

Deferred tax assets

Derivative financial assets

Other receivables

Retirement benefit surplus

3,351

777

114

527

789

–

6,846

2,599

435

373

670

5,611

11,114

Current assets

Inventories

Trade and other receivables

Derivative financial assets

Current tax assets

Cash and cash equivalents

ssets classified as held for sale

510

713

1,025

1,426

355

–

1,318

2,873

Total assets

6,929

13,987

Current liabilities

Trade and other payables

Interest-bearing loans and borrowings

Lease obligations

Derivative financial liabilities

Current tax liabilities

Provisions

Liabilities associated with assets held for sale

1,179

188

2,347

141

281

–

1,533

2,978

Net current liabilities

(215)

(105)

Non-current liabilities

Other payables

Interest-bearing loans and borrowings

Lease obligations

Derivative financial liabilities

Deferred tax liabilities

Retirement benefit obligations

Provisions

358

576

152

482

431

1,433

306

141

619

581

330

1,829

3,841

Total liabilities

3,362

6,819

Net assets

3,567

7,168

Equity

Issued share capital

Share premium account

Merger reserve

Capital redemption reserve

Other reserves

Translation and hedging reserve

Retained earnings

309

3,271

109

753

(2,330)

273

1,182

309

3,271

109

753

(2,330)

638

4,379

Equity attributable to owners of the parent

3,567

7,129

Non-controlling interests

–

Total equity

3,567

7,168

The Financial Statements were approved and authorised for issue by the Board of Directors on 7 March 2024 and were signed on its behalf by:

Geoffrey Martin

Peter Dilnot

Group Finance Director

Chief Executive Officer

7 March 2024

CONSOLIDATED BALANCE SHEET

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ANNUAL REPORT 2023

FINANCIAL STATEMENTS

Issued

capital

£m

premium

account

£m

Merger

reserve

£m

Capital

redemption

reserve

£m

Other

reserves

£m

Translation

and hedging

reserve

£m

Retained

earnings

£m

Equity

attributable

to owners

of the

parent

£m

Non-

controlling

interests

£m

Total

equity

£m

t 1 January 2022

333

3,271

109

729

(2,330)

5,319

7,507

7,540

(Loss)/profit for the year

Other comprehensive income/(expense)

–

562

(308)

(67)

(308)

495

(303)

496

Total comprehensive income/(expense)

Purchase of own shares

(1)

Dividends paid

Equity-settled share-based payments

–

(24)

–

562

–

(375)

(504)

(77)

187

(504)

(77)

–

193

(504)

(77)

t 31 December 2022

309

3,271

109

753

(2,330)

638

4,379

7,129

7,168

Loss for the year

Other comprehensive expense

–

(365)

(1,019)

(55)

(1,019)

(420)

–

(1,019)

(420)

Total comprehensive expense

Purchase of own shares

(1)

Dividends paid

Demerger distribution (note 13)

Derecognition of non-controlling interests

on demerger (note 13)

Equity-settled share-based payments

Deferred tax on equity-settled share-based

payments (note 8)

–

(365)

–

(1,074)

(93)

(81)

(1,973)

–

(1,439)

(93)

(81)

(1,973)

–

(39)

–

(1,439)

(93)

(81)

(1,973)

(39)

t 31 December 2023

309

3,271

109

753

(2,330)

273

1,182

3,567

–

3,567

(1) Further information is set out in note 1.

Further information on issued share capital and reserves is set out in note 26.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

170

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ANNUAL REPORT 2023

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

171

1. Corporate information

Melrose Industries PLC (“the Company”) is a public company limited by shares. The Company is incorporated in the United Kingdom under

the Companies Act 2006 and registered in England and Wales. The address of the registered office is given on the back cover. The nature

of the Group’s operations and its principal activities by operating segment are set out in note 5 and in the Divisional reviews on pages 8 to 13.

The Consolidated Financial Statements of the Group for the year ended 31 December 2023 were authorised in accordance with a resolution

of the Directors of Melrose Industries PLC on 7 March 2024.

These Financial Statements are presented in pounds Sterling which is the currency of the primary economic environment in which the Company

is based. Foreign operations are included in accordance with the policies set out in note 2.

Corporate structure

Capital structure

On 19 April 2023, a share consolidation took place whereby shareholders received one new share in the Company for every three existing shares

held. In accordance with IAS 33: Earnings per Share, a one for three adjustment is required to the weighted average number of shares in

existence prior to the share consolidation and the prior year has been restated accordingly.

On 2 October 2023, the Group commenced a £500 million share buyback programme which is expected to complete by the end of

September 2024. At 31 December 2023, 18,761,840 shares had been purchased at an average price of 494 pence per share with cash

spent of £93 million, inclusive of costs of £1 million. These are held as treasury shares and the costs of the purchase have been recognised in

retained earnings. No liability has been recognised in respect of the remaining share buyback programme as there is no contractual obligation.

In 2022, the Group completed a share buyback programme with 318,003,512 shares repurchased and subsequently cancelled, with cash spent

of £504 million, inclusive of costs of £4 million.

Discontinued operations, disposals and assets held for sale

On 20 April 2023, the Group completed the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses through

the flotation of Dowlais Group plc (“Dowlais”) on the London Stock Exchange. The results of the Dowlais businesses have been classified within

discontinued operations for both years presented; with the Income Statement, the Statement of Cash Flows and their associated notes being

restated accordingly. See note 13 for further detail.

Dowlais became a related party to the Group on demerger.

On 12 December 2023, the Group agreed a disposal of its Fuel Systems business, a non-core part of the Structures segment. At 31 December 2023,

the disposal was expected to complete within the next twelve months and accordingly the assets and liabilities of the business have been classified as

held for sale as at 31 December 2023. The disposal completed on 1 March 2024.

In addition, discontinued operations for 2022 include the results of the Ergotron business which was classified as held for sale as at 30 June 2022,

and was subsequently disposed on 6 July 2022.

1.1 New Standards, Amendments and Interpretations affecting amounts, presentation or disclosure reported in the current year

In the current financial year, the Group has adopted the following new and revised Standards, Amendments and Interpretations. Their adoption

has not had a significant impact on the amounts reported in these Financial Statements:

•

Amendments to IAS 1: Presentation of Financial Statements and making materiality judgements – disclosure of accounting policies

•

Amendments to IAS 12: Income taxes – deferred tax related to assets and liabilities arising from a single transaction

•

Amendments to IAS 12: Income taxes – international tax reform – pillar two model rules

•

Amendments to IAS 8: Accounting polices, changes in accounting estimates and errors – definition of accounting estimates

1.2 New Standards, Amendments and Interpretations in issue but not yet effective

At 31 December 2023, the following Standards, Amendments and Interpretations were in issue but not yet effective:

•

Amendments to IFRS 10 and IAS 28: Sale or contribution of assets between an investor and its associate or joint venture

•

Amendments to IAS 1: Classification of liabilities as current or non-current and non-current liabilities with covenants

•

Amendments to IAS 7 and IFRS 7: Supplier finance arrangements

•

Amendments to IFRS 16: Lease liability in a sale and leaseback

The Directors do not expect that the adoption of the above Standards, Amendments and Interpretations will have a material impact on the

Financial Statements of the Group in future periods.

Summary of material accounting policies

Basis of accounting

The Consolidated Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006 and International

Financial Reporting Standards (“IFRSs”) as issued by the IASB. The Consolidated Financial Statements have been prepared on an historical cost

basis, except for the revaluation of certain financial instruments and investments which are recognised at fair value at the end of each reporting

period. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

Alternative Performance Measures

The Group presents Alternative Performance Measures (“APMs”) in addition to the statutory results of the Group. These are presented in

accordance with the Guidelines on APMs issued by the European Securities and Markets Authority (“ESMA”).

APMs used by the Group are set out in the glossary to these Financial Statements on pages 232 to 239 and the reconciling items between

statutory and adjusted results are listed below and described in more detail in note 6.

NOTES TO THE FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS

CONTINUED

172

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Summary of material accounting policies

continued

Adjusted profit measures exclude items which are significant in size or volatility or by nature are non-trading or non-recurring or any item released

to the Income Statement that was previously a fair value item booked on an acquisition.

On this basis, the following are the principal items included within adjusting items impacting operating profit:

•

Amortisation of intangible assets that are acquired in a business combination, excluding computer software and development costs;

•

Significant restructuring project costs and other associated costs, including losses incurred following the announcement of closure for

identified businesses, arising from significant strategy changes that are not considered by the Group to be part of the normal operating costs

of the business;

•

Acquisition and disposal related gains and losses;

•

Impairment charges that are considered to be significant in nature and/or value to the trading performance of the business;

•

Movement in derivative financial instruments not designated in hedging relationships, including revaluation of associated financial assets

and liabilities;

•

The charge for the Melrose equity-settled compensation scheme, including its associated employer’s tax charge; and

•

The net release of fair value items booked on acquisitions.

Further to the adjusting items above, adjusting items impacting profit before tax include:

•

Acceleration of unamortised debt issue costs written off as a consequence of Group refinancing;

•

Significant settlement gains and losses associated with debt instruments including interest rate swaps following acquisition or disposal related

activity or non-trading transactions, which are not considered by the Group to be part of normal financing costs;

•

Finance costs in respect of the Group’s net debt strategically allocated to a demerger group of businesses at the start of the year and

subsequently settled on demerger; and

•

The fair value changes on cross-currency swaps, entered into by GKN prior to acquisition, relating to cost of hedging which are not deferred

in equity.

In addition to the items above, adjusting items impacting profit after tax include:

•

The net effect on tax of significant restructuring from strategy changes that are not considered by the Group to be part of the normal operating

costs of the business;

•

The net effect of significant new tax legislation; and

•

The tax effects of adjustments to profit before tax.

The Board considers the adjusted results to be an important measure used to monitor how the businesses are performing as this provides a

meaningful reflection of how the businesses are managed and measured on a day-to-day basis and achieves consistency and comparability

between reporting periods, when all businesses are held for a complete reporting period.

The adjusted measures are used to partly determine the variable element of remuneration of senior management throughout the Group and are

also in alignment with performance measures used by certain external stakeholders. The adjusted measures are also taken into account when

valuing individual businesses.

Adjusted profit is not a defined term under IFRS and may not be comparable with similarly titled profit measures reported by other companies.

It is not intended to be a substitute for, or superior to, GAAP measures. All APMs relate to the current year results and comparative periods

where provided.

Basis of consolidation

The Group’s Financial Statements include the results of the parent undertaking and all of its subsidiary undertakings. In addition, the Group’s

share of the results and equity of joint ventures and associated undertakings (together “equity accounted investments”) are included. The results

of businesses acquired during the period are included from the effective date of acquisition and, for those sold during the period, to the effective

date of disposal. Where necessary, adjustments are made to the Financial Statements of subsidiaries to bring the accounting policies used into

line with those used by the Group.

All intra-Group balances and transactions, including unrealised profits arising from intra-Group transactions, have been eliminated in full.

Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein. The interest of non-controlling shareholders is

initially measured at the non-controlling interests’ proportion of the share of the fair value of the acquiree’s identifiable net assets. Subsequent to

acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests’

share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-

controlling interests having a deficit balance.

Going concern

The Consolidated Financial Statements have been prepared on a going concern basis as the Directors consider that adequate resources exist

for the Company to continue in operational existence for the foreseeable future.

The Group’s liquidity and funding arrangements are described in the Finance Director’s Review. There is significant liquidity headroom

of £1.0 billion at 31 December 2023 and sufficient headroom throughout the going concern forecast period. Forecast covenant compliance

is considered further below.

FINANCIAL STATEMENTS

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

173

Summary of material accounting policies

continued

Covenants

The Group’s banking facility has two financial covenants being a net debt to adjusted EBITDA covenant and an interest cover covenant,

both of which are tested half yearly in June and December. As a result of the demerger on 20 April 2023, the Group renegotiated its banking

arrangements. No testing of the interest cover covenant was required at 31 December 2023. The interest cover covenant will be tested from

30 June 2024. Covenant calculations are detailed in the glossary to these Consolidated Financial Statements.

The financial covenants during the period of assessment for going concern are as follows:

	31 December	30 June	31 December
	2023	2024	2024
Net debt to adjusted EBITDA	3.5x	3.5x	3.5x
Interest cover	n/a	4.0x	4.0x

Testing

The Group has modelled two scenarios in its assessment of going concern. A base case and a reasonably possible sensitised case.

The base case takes into account end markets and operational factors, including supply chain challenges, throughout the going concern period

and has been monitored against the actual results and cash generation in the year. Climate scenario analysis was used to model the impact of

climate change on the Group’s cash flow position. Climate is deemed to not have a material impact over the period of 12 months for the

assessment of going concern or 36 months for assessment of viability of the Group.

The reasonably possible sensitised case models more conservative sales assumptions for 2024 and the first half of 2025. The sensitised

assumptions are specific to each business taking into account their markets, but on average represents a c.10% reduction to the Group’s

forecast revenue in each of 2024 and the first half of 2025 respectively. The sensitised revenues have had a consequential impact on profit

and cash flow, along with a further downside sensitivity applied to increase working capital by approximately 2% of revenue. Given that there

is liquidity headroom of £1.0 billion and the Group’s leverage was 1.1x, comfortably below the covenant test at 31 December 2023, no further

sensitivity detail is provided.

Under the reasonably possible sensitised case, even with significant reductions, no covenant is breached at the forecast testing dates being

30 June 2024 and 31 December 2024, and the Group will not require any additional sources of finance. Testing at 30 June 2025 is also

favourable, assuming arrangements similar in nature with existing agreements.

Business combinations and goodwill

The acquisition of subsidiaries is accounted for using the acquisition method. The cost of acquisition is measured at the fair value of assets

transferred, the liabilities incurred or assumed at the date of exchange of control and equity instruments issued by the Group in exchange for

control of the acquiree. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity

so as to obtain benefits from its activities. Costs directly attributable to business combinations are recognised as an expense in the Income

Statement as incurred.

The acquired identifiable assets and liabilities are measured at their fair value at the date of acquisition except those where specific guidance

is provided by IFRSs. Non-current assets and directly attributable liabilities that are classified as held for sale in accordance with IFRS 5:

Non-current assets held for sale and discontinued operations, are recognised and measured at fair value less costs to sell. Also, deferred tax

assets and liabilities are recognised and measured in accordance with IAS 12: Income taxes, liabilities and assets related to employee benefit

arrangements are recognised and measured in accordance with IAS 19 (revised): Employee benefits and liabilities or equity instruments related to

the replacement by the Group of an acquiree’s share-based payments awards are measured in accordance with IFRS 2: Share-based payment.

Any excess of the cost of the acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group

reports provisional amounts where appropriate. Those provisional amounts are adjusted during the measurement period, or additional assets

or liabilities recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known,

would have affected the amounts recognised at that date.

The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and

circumstances that existed as of the acquisition date and is subject to a maximum period of one year.

Goodwill on acquisition is initially measured at cost, being the excess of the sum of the consideration transferred, the amount of any non-

controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree over the acquirer’s interest in

the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any

accumulated impairment losses. Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate

that the carrying value may be impaired.

If, after reassessment, the Group’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration

transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest in the

acquiree, the excess is recognised immediately in profit or loss as a bargain purchase gain.

As at the acquisition date, any goodwill acquired is allocated to the cash-generating units acquired. Impairment is determined by assessing

the recoverable amount of the cash-generating unit to which goodwill relates. Where the recoverable amount of the cash-generating unit is less

than the carrying amount, an impairment loss is recognised in the Income Statement and is not subsequently reversed. When there is a disposal

of a cash-generating unit, goodwill relating to the operation disposed of is taken into account in determining the gain or loss on disposal of that

operation. The amount of goodwill allocated to a partial disposal is measured on the basis of the relative values of the operation disposed of and

the operation retained.

NOTES TO THE FINANCIAL STATEMENTS

CONTINUED

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ANNUAL REPORT 2023

Summary of material accounting policies

continued

Equity accounted investments

A joint venture is an entity which is not a subsidiary undertaking but where the interest of the Group is that of a partner in a business over which

the Group exercises joint control with its partners over the financial and operating policies. In all cases voting rights are 50% or lower.

Associated undertakings are entities that are neither a subsidiary nor a joint venture, but where the Group has a significant influence. The results,

assets and liabilities of equity accounted investments are accounted for using the equity method of accounting. The Group’s share of equity

includes goodwill arising on acquisition.

When a Group entity transacts with an equity accounted investment of the Group, profits and losses resulting from the transactions with the

equity accounted investments are recognised in the Group’s Consolidated Financial Statements only to the extent of interests in equity

accounted investments that are not related to the Group.

Revenue

Revenues are recognised either at the point of transfer of control of goods and services, or recognised over time on an activity basis using

the costs incurred as the measure of the activity. Costs are recognised as they are incurred.

The nature of agreements into which the Group enters means that certain of the Group’s arrangements with its customers have multiple

elements that can include any combination of:

•

Sale of products and services;

•

Risk and revenue sharing partnerships (“RRSPs”);

•

Design and build; and

•

Construction contracts.

Contracts are reviewed to identify each performance obligation relating to a distinct good or service and the associated consideration. The Group

allocates revenue to multiple element arrangements based on the identified performance obligations within the contracts in line with the policies

below. A performance obligation is identified if the customer can benefit from the good or service on its own or together with other readily

available resources, and it can be separately identified within the contract. This review is performed by reference to the specific contract terms.

Sale of products and services

This revenue stream accounts for the majority of Group sales. Contracts in the Automotive, Powder Metallurgy and Other Industrial segments

operate almost exclusively on this basis, and it also covers a high proportion of the Aerospace segment’s revenues.

Invoices for goods are raised and revenue is recognised when control of the goods is transferred to the customer. Dependent upon contractual

terms this may be at the point of despatch, acceptance by the customer or, in Aerospace, certification by the customer. The revenue recognised

is the transaction price as it is the observable selling price per product.

Cash discounts, volume rebates and other customer incentive programmes are based on certain percentages agreed with the Group’s customers,

which are typically earned by the customer over an annual period. These are allocated to performance obligations and are recorded as a reduction

in revenue at the point of sale based on the estimated future outcome. Due to the nature of these arrangements an estimate is made based on

historical results to date, estimated future results across the contract period and the contractual provisions of the customer agreement.

Many businesses in the Powder Metallurgy and Automotive segments recognise an element of revenue via a surcharge or similar raw material cost

recovery mechanism. The surcharge is generally based on prior period movement in raw material price indices applied to current period deliveries.

Risk and revenue sharing partnerships (“RRSPs”)

This revenue stream whilst material affects a small number of businesses, exclusively in the Engines segment. Revenue is recognised under

RRSPs for both the sale of product as detailed above and sales of services, which are recognised by reference to the stage of completion based

on the performance obligations in the contract. In most RRSP contracts, there are two separate phases where the Group earns revenue; sale of

products principally to engine manufacturers and aftermarket support.

The assessment of the stage of completion is dependent on the nature of the contract and the performance obligations within it.

The value of revenue is based on the standalone selling price for each element of the contract.

Revenue is recognised at the point control passes to the customer. For products and services, this has been identified as the point of despatch,

acceptance by the customer or certification by the customer. Where the amount of revenue recognised is not yet due for collection under the

terms of the contract, it will be recognised as variable consideration within the unbilled work done contract asset (“unbilled work done”). Revenue

is not recognised where recovery is not probable due to potential significant reversals in the future. This can be affected by assessment of future

volumes including aftermarket expectations which are impacted by technology development, fuel price and competition.

Participation fees are payments made to engine manufacturers and original equipment manufacturers relating to RRSPs and long-term

agreements. They are recognised as contract assets to the extent they can be recovered from future sales. Where participation fees have been

paid under the RRSP, the amortisation is recognised as a revenue reduction under IFRS 15, as performance obligations are satisfied.

FINANCIAL STATEMENTS

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

175

Summary of material accounting policies

continued

Generally, during the design and development phase of a typical RRSP contract, the Group performs contractually agreed-upon tasks for a

customer. It is usual for the Intellectual Property Rights (“IPRs”) that underpin technology advancement or know-how to remain with the Group

such that the customer cannot benefit from the IPRs either on their own or together with other resources that are readily available to the

customer. Where IPRs are transferred to the customer the Group has determined this is not separately identifiable from other promises in the

contract due to an exclusivity clause for the supply of product. Accordingly, it has been determined that the Group’s promise to transfer goods

to its customer is a performance obligation that is separately identifiable and this uses development and know-how as an input.

Design and build

Generally, revenue is only recognised on the sale of product as detailed above, however, on occasions cash is received in advance of work

performed to compensate the Group for costs incurred in design and development activities. The Group performs an assessment of its

performance obligations to understand multiple elements. Where it is determined there is only one type of performance obligation, being the

delivery of product, any cash advance is factored into the revenue allocated across the deliveries required under the contract.

Where the performance obligation has not been satisfied amounts received are recognised as a contract liability. If there is more than one

performance obligation, revenue is allocated to each one based on a standalone selling price for each element of the contract.

Due to the nature of design and build contracts, there can be significant ‘learning curves’ while the Group optimises its production processes.

During the early phase of these contracts, all costs including any start-up losses are taken directly to the Income Statement, as they do not meet

the criteria for fulfilment costs.

Construction contracts

Where multiple performance obligations are identified, revenue is recognised as each performance obligation is met. This requires an assessment

of total revenue to identify the allocation across the performance obligations, based on the standalone selling price for each obligation.

In cases where one of the following criteria is met, revenue is recognised over time:

•

The customer simultaneously receives and consumes the benefits provided by the Group’s performance;

•

The Group’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or

•

The Group’s performance does not create an asset with an alternative use to the Group and it has an enforceable right to payment for

performance completed to date.

Due to the nature of the criteria above, only certain contracts in the Group qualify for over time recognition. On this basis revenue is recognised

using the input method, which uses costs incurred and the assessed margin across the contract. The input method is used to measure progress

as it best depicts the transfer of control to the customer. The margin and associated revenue are calculated based on the estimated transaction

price and expected total costs, with considerations made for the associated contract risks.

If any of the above criteria are not met, revenue is recognised at a point in time when control transfers to the customer which, in line with the sale

of goods and services above, is the point of delivery or customer acceptance dependent on the terms of the contract.

Unbilled work done addresses contract matters, such as price or scope amendments, which are included based on the expected value or most likely

amount. A constraint is included unless it is highly probable that the revenue will not significantly reverse in the future. This constraint is calculated

based on a cautious expectation of the life of certain RRSPs. Variations in contract work, claims and incentive payments are included in revenue from

construction contracts based on an estimate of the expected value the Group expects to receive. Variations are included when the customer has

agreed to the variation or acknowledged liability for the variation in principle. Claims are included when negotiations with the customer have reached

an advanced stage such that it is virtually certain that the customer will accept the claim.

Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and any impairment in value.

The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bring the asset into operation, and

any material borrowing costs on qualifying assets. Qualifying assets are defined as an asset or programme where the period of capitalisation is

more than 12 months. Purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to

acquire the asset.

Where assets are in the course of construction at the balance sheet date, they are classified as capital work-in-progress. Transfers are made to

other asset categories when they are available for use, at which point depreciation commences.

Right-of-use assets arise under IFRS 16 and are depreciated over the shorter of the estimated life and the lease term.

Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:

Freehold land	nil
Freehold buildings and long leasehold property	over expected economic life not exceeding 50 years
Short leasehold property	over the term of the lease
Plant and equipment	3-15 years

The estimated useful lives of property, plant and equipment are reviewed on an annual basis and, if necessary, changes in useful lives are

accounted for prospectively.

NOTES TO THE FINANCIAL STATEMENTS

CONTINUED

176

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

Summary of material accounting policies

continued

The carrying values of property, plant and equipment are reviewed annually for indicators of impairment, or if events or changes in circumstances

indicate that the carrying value may not be recoverable. If such indication exists an impairment test is performed and, where the carrying values

exceed the estimated recoverable amount, the assets are written down to their recoverable amount. The recoverable amount of property, plant

and equipment is the greater of net selling price and value in use. In assessing value in use, estimated future cash flows, considering the

implications of climate change (see note 11 for further detail), are discounted to their present value using a pre-tax discount rate that reflects

current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely

independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from

the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal

proceeds or costs and the carrying amount of the item) is included in the Income Statement in the period that the item is derecognised.

Intangible assets

Intangible assets are stated at cost less accumulated amortisation and accumulated impairment losses.

On acquisition of businesses, separately identifiable intangible assets are initially recorded at their fair value at the acquisition date.

Access to the use of brands and intellectual property are valued using a “relief from royalty” method which determines the net present value of

future additional cash flows arising from the use of the intangible asset.

Customer relationships and contracts are valued on the basis of the net present value of the future additional cash flows arising from customer

relationships with appropriate allowance for attrition of customers.

Technology assets are valued using a replacement cost approach, or a “relief from royalty” method.

Amortisation of intangible assets is recorded in administration expenses in the Income Statement and is calculated on a straight-line basis over

the estimated useful lives of the asset as follows:

Customer relationships and contracts	20 years or less
Brands and intellectual property	20 years or less
Technology	20 years or less
Computer software	5 years or less
Development costs	20 years or less

Where computer software is not integral to an item of property, plant or equipment, its costs are capitalised and categorised as intangible assets.

Computer software is initially recorded at cost. Where these assets have been acquired through a business combination, this will be the fair value

allocated in the acquisition accounting. Where these have been acquired other than through a business combination, the initial cost is the

aggregate amount paid and the fair value of any other consideration given to acquire the asset.

Intangible assets (other than computer software and development costs) are tested for impairment annually or more frequently whenever events or

changes in circumstances indicate that the carrying value may not be recoverable. Impairment losses are measured on a similar basis to property,

plant and equipment. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis.

Research and development costs

Research costs are expensed as incurred.

Costs relating to clearly defined and identifiable development projects are capitalised when there is a technical degree of exploitation, adequacy

of resources and a potential market or development possibility in the undertaking that are recognisable; and where it is the intention to produce,

market or execute the project. A correlation must also exist between the costs incurred and future benefits and those costs can be measured

reliably. Capitalised costs are expensed on a straight-line basis over their useful lives of 20 years or less. Costs not meeting such criteria are

expensed as incurred.

Inventories

Inventories are valued at the lower of cost and net realisable value and are measured using a first in, first out or weighted average cost basis.

Cost includes all direct expenditure and appropriate production overhead expenditure incurred in bringing goods to their current state under

normal operating conditions. Net realisable value is based on estimated selling price less costs expected to be incurred to completion and

disposal. Provisions are made for obsolescence or other expected losses where necessary.

Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, balances with banks and similar institutions, and short-term deposits which are readily

convertible to cash and are subject to insignificant risks of changes in value.

For the purpose of the Consolidated Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined

above, net of outstanding bank overdrafts.

FINANCIAL STATEMENTS

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

177

Summary of material accounting policies

continued

Interest-bearing loans and borrowings

All loans and borrowings are initially recognised at fair value of the consideration received net of issue costs associated with the borrowings.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate

method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement.

Gains and losses are recognised in the Income Statement when the liabilities are derecognised or impaired, as well as through the

amortisation process.

Government refundable advances

Government refundable advances are reported in “Trade and other payables” in the Balance Sheet. Refundable advances include amounts

advanced by a government, accrued interest and directly attributable costs. Refundable advances are provided to the Group to part-finance

expenditures on specific development programmes. The advances are provided on a risk sharing basis, i.e. repayment levels are determined

subject to the success of the related programme. Balances are held at amortised cost and interest is calculated using the effective interest

rate method.

Leases

Where a lease arrangement is identified, a liability to the lessor is included in the Balance Sheet as a lease obligation calculated at the present

value of minimum lease payments. A corresponding right-of-use asset is recorded in property, plant and equipment. The discount rate used to

calculate the lease liability is the Group’s incremental borrowing rate, unless there is a rate implicit in the lease. The incremental borrowing rate is

used for the majority of leases. Incremental borrowing rates are based on the term, currency, country and start date of the lease and reflect the

rate the Group would pay for a loan with similar terms and security.

Following initial recognition, the lease liability is measured at amortised cost using the effective interest rate method. Where there is a change in

future lease payments due to a rent review, change in index or rate, or a change in the Group’s assessment of whether it is reasonably certain

to exercise a purchase, extension or break option, the lease obligation is remeasured. A corresponding adjustment is made to the associated

right-of-use asset.

Right-of-use assets are depreciated over the shorter of the estimated useful life of the asset and the lease term.

Lease payments are apportioned between finance costs and a reduction in the lease obligation so as to reflect the interest on the remaining

balance of the obligation. Finance charges are recorded in the Income Statement within finance costs.

Leases with a term of 12 months or less and leases for low value are not recorded on the Balance Sheet and lease payments are recognised

as an expense in the Income Statement on a straight-line basis over the lease term. Expenses relating to variable lease payments which are not

included in the lease liability, due to being based on a variable other than an index or rate, are recognised as an expense in the

Income Statement.

Financial instruments – assets

Classification and measurement

All financial assets are classified as either those which are measured at fair value, through profit or loss or Other Comprehensive Income,

and those measured at amortised cost.

Financial assets are initially recognised at fair value. For those which are not subsequently measured at fair value through profit or loss,

this includes directly attributable transaction costs. Trade and other receivables, contract assets and amounts due from equity accounted

investments are subsequently measured at amortised cost.

Recognition and derecognition of financial assets

Financial assets are recognised in the Group’s Balance Sheet when the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the

financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

Impairment of financial assets

For trade receivables and contract assets, the simplified approach permitted under IFRS 9 is applied. The simplified approach requires that at

the point of initial recognition the expected credit loss across the life of the receivable must be recognised. As these balances do not contain a

significant financing element, the simplified approach relating to expected lifetime losses is applicable under IFRS 9. Cash and cash equivalents

and other receivables are also subject to impairment requirements.

Finance income

Finance income is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured

reliably. Finance income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take

a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are

substantially ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted

from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in the Income Statement in the period in which they

are incurred.

NOTES TO THE FINANCIAL STATEMENTS

CONTINUED

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Summary of material accounting policies

continued

Investments

The Group has investments in listed shares and unlisted shares, that are not traded in an active market, which are classified as financial assets,

measured at fair value. Fair value for listed shares is calculated by reference to quoted market price. Fair value for unlisted shares is determined

by assessment of expected future dividends discounted to net present value. Any changes in fair value are recognised in Other Comprehensive

Income and accumulated in retained earnings. Dividends from investments are recognised in the Income Statement when the Group’s right to

receive the dividend is established.

Trade and other receivables

Trade and other receivables are measured and carried at amortised cost using the effective interest method, less any impairment. For trade

receivables, the carrying amount is reduced by an allowance for expected lifetime losses. Subsequent recoveries of amounts previously

written off are credited against the allowance account and changes in the carrying amount of the allowance account are recognised in the

Income Statement.

Trade receivables that are assessed not to be impaired individually are also assessed for impairment on a collective basis. In measuring the

expected credit losses, the Group considers all reasonable and supportable information such as the Group’s past experience at collecting

receipts, any increase in the number of delayed receipts in the portfolio past the average credit period, and forward looking information such

as forecasts of future economic decisions.

Other receivables are also considered for impairment and if required the carrying amount is reduced by any loss arising which is recorded in the

Income Statement, although for the Group this is not material.

Financial instruments – liabilities

Recognition and derecognition of financial liabilities

Financial liabilities are recognised in the Group’s Balance Sheet when the Group becomes a party to the contractual provisions of the instruments

and are initially measured at fair value, net of transaction costs. The Group derecognises financial liabilities when the Group’s obligations are

discharged, significantly modified, cancelled or they expire.

Classification and measurement

Non-derivative financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense

recognised on an effective interest rate basis. The effective interest method is a method of calculating the amortised cost of a financial liability

and of allocating interest expense over the relevant periods. The effective interest rate is the rate that discounts estimated future cash payments

throughout the expected life of the financial liability, or, where appropriate, a shorter period to the gross carrying amount of the financial liability.

Derivative financial instruments and hedging

The Group uses derivative financial instruments to manage its exposure to interest rate, foreign exchange rate and commodity risks, arising from

operating and financing activities. The Group does not hold or issue derivative financial instruments for speculative trading purposes. Details of

derivative financial instruments are disclosed in note 25 of the Financial Statements.

Derivative financial instruments are recognised and stated at fair value in the Group’s Balance Sheet. Their fair value is recalculated at each

reporting date. The accounting treatment for the resulting gain or loss will depend on whether the derivative meets the criteria to qualify for

hedge accounting and are designated as such.

Where derivatives do not meet the criteria to qualify for hedge accounting, any gains or losses on the revaluation to fair value at the period end

are recognised immediately in the Income Statement. Where derivatives do meet the criteria to qualify for hedge accounting, recognition of any

resulting gain or loss on revaluation depends on the nature of the hedge relationship and the item being hedged.

Derivative financial instruments with maturity dates of less than one year from the period end date are classified as current in the Balance Sheet.

Derivatives embedded in non-derivative host contracts are recognised at their fair value in the Group’s Balance Sheet when the nature,

characteristics and risks of the derivative are not closely related to the host contract. Gains and losses arising on the remeasurement of these

embedded derivatives at each balance sheet date are recognised in the Income Statement.

Hedge accounting

In order to qualify for hedge accounting, the Group is required to document from inception the relationship between the item being hedged and

the hedging instrument, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at

the inception of the hedge and on an ongoing basis, the Group documents that the hedge will be highly effective, which is when the hedging

relationships meet all of the following hedge effectiveness requirements:

•

there is an economic relationship between the hedged item and the hedging instrument;

•

the effect of credit risk does not dominate the value changes that result from that economic relationship; and

•

the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges

and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.

The Group discontinues hedge accounting only when the hedging relationship (or a part thereof) ceases to meet the qualifying criteria (after

rebalancing, if applicable). This includes instances when the hedging instrument expires or is sold, terminated or exercised. The discontinuation

is accounted for prospectively.

The Group designates certain hedging instruments as either cash flow hedges or hedges of net investments in foreign operations.

FINANCIAL STATEMENTS

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

179

Summary of material accounting policies

continued

Cash flow hedge

Derivative financial instruments are classified as cash flow hedges when they hedge the Group’s exposure to the variability in cash flows that are

either attributable to a particular risk associated with a recognised asset or liability, or a highly probable forecasted cash flow.

The Group designates the full change in the fair value of a foreign exchange forward contract (i.e. including the forward elements) as the hedging

instrument for all of its hedging relationships involving foreign exchange forward contracts.

The effective portion of any gain or loss from revaluing the derivative financial instrument is recognised in the Statement of Comprehensive

Income and accumulated in equity. The gain or loss relating to the ineffective portion is recognised immediately in the Income Statement.

Amounts previously recognised in the Statement of Comprehensive Income and accumulated in equity are recycled to the Income Statement

in the periods when the hedged item is recognised in the Income Statement or when the forecast transaction is no longer expected to occur.

However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and

losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or

non-financial liability.

Hedges of net investments in foreign operations

Derivative financial instruments and certain loan instruments, are classified as net investment hedges when they hedge the Group’s net investment

in foreign operations. The effective element of any foreign exchange gain or loss from revaluing the hedging instruments at a reporting period end

is recognised in the Statement of Comprehensive Income. Any ineffective element is recognised immediately in the Income Statement.

The Group designates only the spot rate component of cross currency swaps in net investment hedges. The changes in the fair value of the

aligned forward and currency basis elements are recognised in other comprehensive income and accumulated in equity. If the hedged item is

time-period related, then the amount accumulated in equity is reclassified to profit or loss on an appropriate basis.

Gains and losses accumulated in equity are recognised immediately in the Income Statement when the foreign operation is disposed.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow

of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the

obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a rate

that reflects the current market assessment of the time value of money and, where appropriate, the risks specific to the liability.

Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

Contingent liabilities acquired in a business combination

Contingent liabilities acquired in a business combination are initially measured at fair value at the acquisition date. At the end of subsequent

reporting periods, such contingent liabilities are measured at the higher of the amount that would be recognised in accordance with IAS 37:

Provisions, contingent liabilities and contingent assets and the amount initially recognised less cumulative amount of revenue recognised in

accordance with the principles of IFRS 15: Revenue from contracts with customers.

Pensions and other retirement benefits

The Group operates defined benefit pension plans and defined contribution plans, some of which require contributions to be made to

administered funds separate from the Group.

For the defined benefit pension and retirement benefit plans, plan assets are measured at fair value and plan liabilities are measured on

an actuarial basis and discounted at an interest rate equivalent to the current rate of return on a high quality corporate bond of equivalent

currency and term to the plan liabilities. Any assets resulting from this calculation are limited to past service cost plus the present value of

available refunds and reductions in future contributions to the plan. The present value of the defined benefit obligation, and the related current

service cost and past service cost, are measured using the projected unit credit method.

The service cost of providing pension and other retirement benefits to employees for the period is charged to the Income Statement.

Net interest expense on net defined benefit obligations is determined by applying discount rates used to measure defined benefit obligations

at the beginning of the year to net defined benefit obligations at the beginning of the year. The net interest expense is recognised within

finance costs.

Remeasurement gains and losses comprise actuarial gains and losses, the effect of the asset ceiling (if applicable) and the return on plan assets

(excluding interest). Remeasurement gains and losses, and taxation thereon, are recognised in full in the Statement of Comprehensive Income

in the period in which they occur and are not subsequently recycled.

Actuarial gains and losses may result from differences between the actuarial assumptions underlying the plan obligations and actual experience

during the period or changes in the actuarial assumptions used in the valuation of the plan obligations.

For defined contribution plans, contributions payable are charged to the Income Statement as an operating expense when employees have

rendered services entitling them to the contributions.

Foreign currencies

The individual Financial Statements of each Group company are presented in the currency of the primary economic environment in which it

operates (its functional currency). For the purpose of the Consolidated Financial Statements, the results and financial position of each Group

company are expressed in pounds Sterling, which is the functional currency of the Company, and the presentation currency for the Consolidated

Financial Statements.

NOTES TO THE FINANCIAL STATEMENTS

CONTINUED

Summary of material accounting policies

continued

In preparing the Financial Statements of the individual companies, transactions in currencies other than the entity’s functional currency

(foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date,

monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date.

Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the

fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the Income Statement

for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the Income Statement for

the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in

equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity.

For the purpose of presenting Consolidated Financial Statements, the assets and liabilities of the Group’s foreign operations are translated at

exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period,

unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used.

Exchange differences arising, if any, are recognised in the Statement of Comprehensive Income and accumulated in equity (attributed to

non-controlling interests as appropriate). Such translation differences are recognised as income or as expenses in the period in which the related

operation is disposed of. Any exchange differences that have previously been attributed to non-controlling interests are derecognised but they

are not reclassified to the Income Statement.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and

translated at the rate prevailing at the balance sheet date.

Taxation

The tax expense is based on the taxable profits for the period and represents the sum of the tax paid or currently payable and deferred tax.

Taxable profit differs from net profit as reported in the Income Statement because it excludes items of income or expense that are taxable or

deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using

tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date.

A tax provision is recognised for those matters for which the tax determination is uncertain but it is considered probable that there will be a future

outflow of funds to a tax authority. The provisions are measured at the best estimate of the amount expected to become payable.

The assessment is based on the judgement of tax professionals within the Company supported by previous experience in respect of such

activities and in certain cases based on specialist independent advice.

Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets

and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences except:

•

where the deferred tax liability arises on the initial recognition of goodwill or an asset or liability in a transaction that is not a business

combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

•

where the timing of the reversal of the temporary differences associated with investments in subsidiaries and interests in equity accounted

investments can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the

extent that it is probable that taxable profit will be available against which the deductible temporary differences, and carry-forward of unused tax

assets and unused tax losses can be utilised except:

•

where the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that is not a business combination and,

at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

•

in respect of deductible temporary differences associated with investments in subsidiaries and interests in equity accounted investments,

deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future

and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that

sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is

settled, based on tax rates and tax laws that have been enacted or substantively enacted at the relevant balance sheet date.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and

when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a

net basis.

Tax relating to items recognised directly in other comprehensive income is recognised in the Statement of Comprehensive Income and not in the

Income Statement.

Revenues, expenses and assets are recognised net of the amount of sales tax except:

•

where the sales tax incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the sales tax is

recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

•

where receivables and payables are stated with the amount of sales tax included.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Balance Sheet.

180

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ANNUAL REPORT 2023

FINANCIAL STATEMENTS

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ANNUAL REPORT 2023

181

Summary of material accounting policies

continued

Share-based payments

The Group has applied the requirements of IFRS 2: Share-based payment. The Group issues equity-settled share-based payments to

certain employees. Equity-settled share-based payments are measured at fair value of the equity instrument excluding the effect of non-market

based vesting conditions at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is

expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest and adjusted for the

effect of non-market based vesting conditions.

Fair value is measured by use of the Black-Scholes pricing model. The expected life used in the model has been adjusted, based on the

Directors’ best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.

Non-current assets and disposal groups

Non-current assets and businesses classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell.

Non-current assets and businesses are classified as held for sale if their carrying amount will be recovered principally through a sale transaction

rather than through continuing use. This condition is regarded as having been met only when the sale is highly probable and the asset or

business is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify

for recognition as a completed sale within one year from the date of classification.

Government grants

Government grants are not recognised in the Income Statement until there is reasonable assurance that the Group will comply with the

conditions attached to them and that the grants will be received. Government grants are recognised in the Income Statement on a systematic

basis over the periods in which the Group recognises the related costs for which the grants are intended to compensate.

Specifically, government grants where the primary condition is that the Group should purchase, construct or otherwise acquire non-current

assets (including property, plant and equipment) are recognised as deferred government grants in the Balance Sheet and transferred to the

Income Statement on a systematic and rational basis over the useful lives of the related assets.

Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial

support to the Group with no future related costs are recognised in the Income Statement in the period in which they become receivable.

Climate change

In preparing the Consolidated Financial Statements, the Directors have considered the impact of climate change with specific regard to the risks

identified in the Task Force on Climate-related Financial Disclosures (“TCFD”) report on page 58 as well as the Group’s Transition Plan including

emission targets.

The Directors have considered the impact of climate change in respect to the following areas and have determined that there is no material

impact on the financial reporting judgements and estimates:

•

Group’s going concern assessment (note 2);

•

Estimated future cash flows used in impairment assessments, where applicable, of the carrying value of non-current assets (such as goodwill)

(note 11);

•

Inventory valuation with respect to climate related shift in demand (note 16);

•

Recoverability of trade receivables and contract assets related to unbilled work done on risk and revenue sharing partnerships, which consider

the future expectations of airframe and engine manufacturers as well as airline customer behaviours (note 17); and

•

Forecasts of future profitability to assess the recoverability of deferred tax assets in the UK, The Netherlands and US (note 22).

The Group’s Transition Plan sets out the actions the Directors intend to take in the transition to a net zero economy, how they plan to execute

on the interim and long-term emissions reduction targets, and how they plan to achieve Net Zero by 2050. The Transition Plan also sets out how

climate considerations are integrated into strategic thinking and future planning, such as major capital expenditure, acquisitions, and disposals.

The main short-term and medium-term objectives to meet this target are:

•

Reduce absolute Scope 1 and 2 emissions 50% by 2030 from a 2020 baseline. This will be met by sourcing at least 50% of the Group’s

electricity from renewable sources by 2025 (where renewable energy is commercially and reasonably available in the relevant jurisdiction)

through either continued investment in onsite renewable energy as well as procurement of power purchase agreements and renewable energy

certificates. The Group will also continue to invest in energy efficiency measures to reduce overall energy consumption. The estimated

investment needed to meet these scope 1 and 2 emission improvements are incorporated into current financial planning and forecasting.

•

The Group is uniquely positioned at the early stages of an aircraft life cycle to play a role in eradicating emissions for the entire sector and

ultimately unlocking its potential to positively contribute to a low carbon economy. The targets to achieve 80% of total Research and

Development (“R&D”) expenditure on climate-related R&D per year to contribute to aerospace decarbonisation by 2025 and achieve 100% of

new products which contribute to aerospace decarbonisation by 2025 demonstrate the emphasis Melrose places on developing innovative

and breakthrough technologies such as battery electric and hydrogen propulsion. During the year £48 million was spent on climate related

R&D. Future investments required to meet these targets are incorporated into our forecasts.

NOTES TO THE FINANCIAL STATEMENTS

CONTINUED

182

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ANNUAL REPORT 2023

Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group’s accounting policies, which are described in note 2, the Directors are required to make judgements, estimates

and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and

associated assumptions are based on historical experiences and other factors that are considered to be relevant. Actual results may differ

from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period

in which the estimate is revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both

current and future periods.

Critical judgements

In the course of preparing the Financial Statements, critical judgements within the scope of paragraph 122 of IAS 1: Presentation of Financial

Statements have been made during the process of applying the Group’s accounting policies.

a) Adjusting items

Judgements are required as to whether items are disclosed as adjusting, with consideration given to both quantitative and qualitative factors.

Further information about the determination of adjusting items in the year ended 31 December 2023 is included in note 2.

b) Demerger distribution

On 20 April 2023, the Group completed the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses through

the flotation of Dowlais Group plc (“Dowlais”) on the London Stock Exchange.

The demerger distribution of £1,973 million has been measured at fair value in accordance with IFRIC 17: Distributions of Non-cash Assets

to Owners and represents the number of Dowlais shares distributed to equity holders of 1,351,475,321 multiplied by the opening share price on

20 April 2023 of 146 pence. It was considered that the opening share price provided a fair representation of the value of the demerger

distribution as it was the share price closest to the time of demerger. If a different share price had been used, for example a closing price on day

one or first week of trading average, the demerger distribution value would have been impacted. For each 1p change in the share price, the

demerger distribution would have been impacted by £14 million.

There are no other critical judgements other than those involving estimates, that have had a significant effect on the amounts recognised in the

Financial Statements. Those involving estimates are set out below.

Key sources of estimation uncertainty

Assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that may have a significant risk of

causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Assumptions used to determine the carrying amount of the Group’s net retirement benefit obligations

The Group’s pension plans are significant in size. The defined benefit obligations in respect of the plans are discounted at rates set by reference

to market yields on high quality corporate bonds. Significant estimation is required when setting the criteria for bonds to be included in the

population from which the yield curve is derived. The most significant criteria considered for the selection of bonds to include are the issue size of

the corporate bonds, quality of the bonds and the identification of outliers which are excluded. In addition, assumptions are made in determining

mortality and inflation rates to be used when valuing the plan’s defined benefit obligations. At 31 December 2023, the retirement benefit

obligation was a net deficit of £99 million (31 December 2022: £488 million).

Further details of the assumptions applied and a sensitivity analysis on the principal assumptions used to determine the defined benefit liabilities

of the Group’s obligations are shown in note 24. Whilst actual movements might be different to sensitivities shown, these are a reasonably

possible change that could occur.

Estimates of future revenues and costs of long-term contractual arrangements

The Group has certain large, complex contracts where significant judgements and estimates are required in order to allocate total

associated consideration.

A key judgement is the measurement of unbilled work done, in particular relating to certain risk and revenue sharing partnerships (“RRSPs”). A

detailed review of the Group’s RRSP contracts determined where terms and conditions result in unbilled work done and this is further set out in

note 17. Distinguishing between a contractual right and the economic compulsion of partners with regard to the sale of original equipment (“OE”)

components and aftermarket activities relies on an interpretation of complex legal agreements. This specific point governs whether unbilled work

done is recognised on the sale of OE components and this can significantly impact the level of profitability from one period to the next. Further

disclosure is set out in note 4.

The forecast revenues and costs in respect of RRSP contracts are inherently imprecise and significant estimates are required to assess

the pattern of future maintenance activity, the costs to be incurred and escalation of revenue and costs. The estimates take account of

the uncertainties, constraining the expected level of revenue as appropriate. Measurement of unbilled work done is driven by forecasting

aftermarket revenue per delivered engine which is in turn contingent on overall programme success, levels of discounting that might be offered

by the engine manufacturers (the Group’s customers), engineering requirements needed for optimal performance of the engine and the allocation

of revenue to individual units. In addition, where programmes are at an early stage the wider implications of any competing engines as well as

complications outside of the Group can be difficult to assess. Any of these inputs could change in the next year as programmes evolve and due

to the size and scale of these contracts, almost any modification could result in material changes in future periods.

FINANCIAL STATEMENTS

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

183

Critical accounting judgements and key sources of estimation uncertainty

continued

The unbilled work done contract asset calculated is the best estimate of revenue allocated to completed performance obligations using input

assumptions and constraints as detailed further in note 17. As the impacted RRSP contracts mature, there are reasonably possible changes

to assumptions, such as engineering requirements to support programmes and the expected life of certain engines which could lead to the

unbilled work done contract asset on the Balance Sheet of £595 million (31 December 2022: £450 million) increasing to between £655 million

and £695 million. This would lead to recognition of additional revenue and profit in the next year of between £60 million and £100 million.

4. Revenue

An analysis of the Group’s revenue is as follows:

		Restated (1)
	Year ended	Year ended
	31 December	31 December
	2023	2022
Continuing operations	£m	£m
Revenue recognised at a point in time	2,388	2,030
Revenue recognised over time	962	924
Revenue	3,350	2,954

(1) Revenue has been restated for discontinued operations (see note 1).

As set out in the accounting policies in note 2, the Group has four primary revenue streams. There is little judgement or estimation in the revenue

recognition of three of these areas; (i) sale of products and services, (ii) design and build and (iii) construction contracts. However, in the fourth

area, as disclosed in note 3d, there is estimation involved in accounting for certain RRSP contracts. RRSP contracts generally include the sale

of products and services as well as certain aspects of design and build arrangements. Further details are set out below.

Risk and revenue sharing partnerships

The Group has approximately £16 billion (31 December 2022: £13 billion) in respect of contractual transaction prices including a constrained

estimate of unbilled work done, on five (31 December 2022: four) engine programmes, out of a wider population of such programmes, which has

been allocated to contracted performance obligations not satisfied at 31 December 2023. These performance obligations will be satisfied and

revenue will be recognised over a period of up to 30 years (2022: 30 years).

An additional programme has been included during the year as a result of a modification to a contract. This was announced on 6 November 2023

following a major new agreement with GE Aerospace. The agreement expands the Group’s participation on the GEnx RRSP programme and also

secures new technology work packages, aftermarket repair of engines structures and further production of fan cases for a range of GE engines.

Whilst the new agreement has not had a material impact on the reported results for the year ended 31 December 2023 or Balance Sheet as at

31 December 2023, the implications have been assessed under IFRS 15 and are material in future years. The key effects are:

•

The Group’s involvement on the GEnx RRSP has been extended beyond its current focus on OE to include significantly greater participation

in the aftermarket phase. The contract modification will be accounted for prospectively, with pricing implications affecting revenue from

1 January 2024. Following changes to the termination rights, to commercially protect the Group for its increased aftermarket share, the Group

now has a contractual right to aftermarket revenue.

•

The new agreement will also: 1) support GE Aerospace’s progress towards its cost and carbon emissions reduction targets with new proprietary

technology for the GEnx programme, specifically additive fabrications replacing existing processes, 2) allow the Group to join GE Aerospace’s

global aftermarket repair network on the GEnx programme with specialised repair content for complex structural components and 3) extend

existing contracts to now deliver 100% of GEnx, CF6 and GE90 fan cases, as well as 50% of GE9X fan case assembly.

The amount of revenue recognised from RRSP contracts during the year was £680 million (2022: £547 million), which included an increase

in the unbilled work done contract asset of £173 million (2022: £106 million). Within this there is revenue from the delivery of product which

is recognised at a point in time of £629 million (2022: £517 million) and revenue from provision of service which is recognised over time of

£51 million (2022: £30 million). Due to the nature of certain of these RRSP arrangements, there is an associated unbilled work done contract

asset including movements during the year which is disclosed in note 17.

The nature of products and services delivered in RRSP contracts varies depending on the individual terms. Typically, they include a design

and development phase (which has been determined not to be a distinct performance obligation and so no revenue is recognised) and two other

phases where the Group does have performance obligations and earns revenue:

Sale of structural OE engine components, such as turbine cases, principally to engine manufacturers, where revenue is recognised at a point

in time; and

ii)

Aftermarket support which can include: sale of spare parts where revenue is recognised at a point in time and stand ready services for life

of engine obligations to maintain permanent technical, and other programme related, support functions. Obligations can occur at any time

during the engine life and include: engineering and technical support for engine configuration changes and provision of aftermarket inventory

support solutions.

NOTES TO THE FINANCIAL STATEMENTS

CONTINUED

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ANNUAL REPORT 2023

4. Revenue

continued

RRSP revenue recognised over time

The nature of these RRSP contracts on long-term engine programmes means that, as a partner, the Engines segment can share revenue

earned from maintenance, repair and overhaul services which are provided by the engine manufacturers (the Group’s customers) or their

sub-contractors, but not the Group. The Group has a stand ready obligation to contribute to certain of the partnerships which typically results

in the provision of services such as technical and other programme support activities over the whole life of the engine. These services occur

over the life of the engine and due to the nature of compensation from customer arrangements, which is often flight hour based, as well as

costs which are less predictable, revenue is recognised over time using the engine manufacturer’s actual overhaul costs as an input method.

This method is considered appropriate as it best reflects the customers’ receipt and consumption of benefit from the Group’s stand ready

performance obligation.

The total contract revenue includes amounts from: expected sales of OE engine components, expected sales of spare parts and aftermarket

revenue per delivered engine for stand ready services for the life of engine obligations. The total contract revenue is allocated to all of the

performance obligations.

During the year, £30 million (2022: £nil) of revenue has been recognised relating to performance obligations satisfied by the Group in previous years

as risks have reduced and the constraint reassessed. There has been a further £27 million (2022: £19 million) of revenue recognised from changes

in assumptions which will also impact the revenue allocation between future years. Assumption changes were made following operational progress

by engine manufacturers with their customers, providing more certainty over future costs and volumes for the RRSP partners.

The Group participates on the Pratt & Whitney (“PW”) 1100G RRSP programme which produces a geared turbofan (“GTF”) engine. A specific

fleet of the GTF engines have been impacted by a rare condition in powder metal used to manufacture certain of the engine parts, which are not

supplied by the Group. GKN Aerospace has a 4% programme share on the GTF PW1100G variant impacted by this issue. According to RTX

(PW’s parent company), the full potential cash impact to Melrose of approximately £200 million will be incurred over the next three to four years,

if it is assumed that this is all a programme cost to be shared by partners in the PW1100G RRSP programme.

Melrose's financial assumptions for all of its RRSP programmes are very constrained recognising that most of the Group’s work is done on

the delivery of its parts which typically last the life of the engine, appropriately allowing for risks to arise over the full programme duration. As a

result, there is no net impact on the Group’s results for the year ended 31 December 2023 and the unbilled work done contract asset remains

appropriately constrained at 31 December 2023, in accordance with the requirements of IFRS 15. This position has been determined based on

an assessment of risk, confidence in progress on the programme during the year and future expectations.

5. Segment information

Segment information is presented in accordance with IFRS 8: Operating Segments, which requires operating segments to be identified on the

basis of internal reports about components of the Group that are regularly reported to the Group’s Chief Operating Decision Maker (“CODM”),

which has been deemed to be the Group’s Board, in order to allocate resources to the segments and assess their performance.

Following the demerger of the Automotive, Powder Metallurgy and Other Industrial segments during the year their results are classified within

discontinued operations and the comparative results for 2022 have been restated accordingly. In addition, the results of the Aerospace business

are now viewed by the CODM as separated into Engines and Structures. The incremental information is provided below with comparative results

for 2022 also re-presented accordingly.

The operating segments are as follows:

Engines

– An industry leading global tier one supplier to the aerospace engines market, including structural engineered components; parts

repair; commercial and aftermarket contracts.

Structures

– A multi-technology global tier one supplier of both civil and defence air frames, including lightweight composite and metallic

structures; electrical distribution systems and components.

In addition, there is a corporate cost centre which is also reported to the Board. The corporate cost centre contains the Melrose Group head

office costs and charges related to the divisional management long-term incentive plans.

Reportable segment results include items directly attributable to a segment as well as those which can be allocated on a reasonable basis.

Inter-segment pricing is determined on an arm’s length basis in a manner similar to transactions with third parties.

The Group’s geographical segments are determined by the location of the Group’s non-current assets and, for revenue, the location of external

customers. Inter-segment sales are not material and have not been disclosed.

The following tables present the results and certain asset and liability information regarding the Group’s operating segments and corporate cost

centre for the year ended 31 December 2023.

a) Segment revenues

The Group derives its revenue from the transfer of goods and services over time and at a point in time. The Group has assessed that the

disaggregation of revenue recognised from contracts with customers by operating segment is appropriate as this is the information regularly

reviewed by the CODM in evaluating financial performance. The Group also believes that presenting this disaggregation of revenue based on

the timing of transfer of goods or services provides useful information as to the nature and timing of revenue from contracts with customers.

FINANCIAL STATEMENTS

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

185

5. Segment information

continued

Year ended 31 December 2023
	Engines	Structures	Total
Continuing operations	£m	£m	£m
Timing of revenue recognition
A t a point in time	931	1,457	2,388
Over time	262	700	962
Revenue	1,193	2,157	3,350

Y ear ended 31 December 2022 – restated (1)
	Engines	Structures	Total
Continuing operations	£m	£m	£m
Timing of revenue recognition
A t a point in time	806	1,224	2,030
Over time	229	695	924
Revenue	1,035	1,919	2,954

(1) Revenue has been restated for discontinued operations (see note 1) and the re-presentation of the Engines and Structures segments.

Segment operating profit

Year ended 31 December 2023
	Engines	Structures	Corporate (1)	Total
Continuing operations	£m	£m	£m	£m
A djusted operating profit/(loss)	310	110	(30)	390
Items not included in adjusted operating profit (2) :
A mortisation of intangible assets acquired in business combinations	(135)	(125)	–	(260)
Restructuring costs	(26)	(111)	(12)	(149)
Melrose equity-settled compensation scheme charges	–	–	(38)	(38)
A cquisition and disposal related gains and losses	–	–	(3)	(3)
Movement in derivatives and associated financial assets and liabilities	(3)	(6)	123	114
Net release and changes in discount rates of fair value items	1	2	–	3
Operating profit/(loss)	147	(130)	40	57
Finance costs				(79)
Finance income				14
Loss before tax				(8)
Tax				9
Profit after tax for the year from continuing operations				1

Year ended 31 December 2022 – restated (3)
	Engines	Structures	Corporate (1)	Total
Continuing operations	£m	£m	£m	£m
A djusted operating profit/(loss)	162	24	(39)	147
Items not included in adjusted operating profit (2) :
A mortisation of intangible assets acquired in business combinations	(135)	(125)	–	(260)
Restructuring costs	(25)	(63)	(2)	(90)
Movement in derivatives and associated financial assets and liabilities	20	1	(100)	(79)
Melrose equity-settled compensation scheme charges	–	–	(15)	(15)
Net release and changes in discount rates of fair value items	3	9	–	12
A cquisition and disposal related gains and losses	(5)	–	20	15
Operating profit/(loss)	20	(154)	(136)	(270)
Finance costs				(83)
Finance income				25
Loss before tax				(328)
Tax				99
Loss after tax for the year from continuing operations				(229)

(1)

Corporate adjusted operating loss of £30 million (2022: £39 million), includes £1 million (2022: £3 million) of costs in respect of divisional management

long-term incentive plans.

(2)

Further details on adjusting items are discussed in note 6.

(3)

Operating profit has been restated for discontinued operations (see note 1) and the re-presentation of the Engines and Structures segments.

NOTES TO THE FINANCIAL STATEMENTS

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5. Segment information

continued

Segment total assets and liabilities

	Total assets		Total liabilities
		Restated (1)		Restated (1)
	31 December	31 December	31 December	31 December
	2023	2022	2023	2022
	£m	£m	£m	£m
Engines	3,957	3,798	1,396	1,202
Structures	2,388	2,894	1,099	1,315
Corporate	584	761	867	1,838
Continuing operations	6,929	7,453	3,362	4,355
Discontinued operations	–	6,534	–	2,464
Total	6,929	13,987	3,362	6,819

(1)

Total assets and liabilities have been restated for discontinued operations (see note 1) and the re-presentation of the Engines and Structures segments.

d) Segment capital expenditure and depreciation
			Depreciation of		Depreciation of
	Capital expenditure (1)		owned assets (1)		leased assets
		Restated (2)		Restated (2)		Restated (2)
	Year ended	Year ended	Year ended	Year ended	Year ended	Year ended
	31 December	31 December	31 December	31 December	31 December	31 December
	2023	2022	2023	2022	2023	2022
	£m	£m	£m	£m	£m	£m
Engines	55	38	43	46	7	7
Structures	63	39	74	77	17	14
Corporate	–	–	–	–	1	1
Continuing operations	118	77	117	123	25	22
Discontinued operations	51	231	43	238	6	25
Total	169	308	160	361	31	47

(1)

Including computer software and development costs. Capital expenditure excludes lease additions.

(2)

Capital expenditure and depreciation have been restated for discontinued operations (see note 1) and the re-presentation of the Engines and Structures segments.

e) Geographical information

The Group operates in various geographical areas around the world. The parent company’s country of domicile is the UK and the Group’s

revenues and non-current assets in the rest of Europe and North America are also considered to be material.

The Group’s revenue from external customers and information about its segment assets (non-current assets excluding deferred tax assets,

non-current derivative financial assets, non-current other receivables and retirement benefit surplus) by geographical location are detailed below:

	Revenue (1) from
	external customers		Segment assets
		Restated (2)
	Year ended	Year ended		Restated (2)
	31 December	31 December	31 December	31 December
	2023	2022	2023	2022
	£m	£m	£m	£m
UK	579	509	882	1,042
Rest of Europe	540	408	2,166	2,501
North America	2,138	1,971	1,179	1,038
Other	93	66	22	28
Continuing operations	3,350	2,954	4,249	4,609
Discontinued operations	1,582	4,715	–	5,333
Total	4,932	7,669	4,249	9,942

(1)

Revenue is presented by destination.

(2)

Revenue and segment assets have been restated for discontinued operations (see note 1).

FINANCIAL STATEMENTS

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

187

Reconciliation of adjusted profit measures

As described in note 2, adjusted profit measures are an alternative performance measure used by the Board to monitor the operating

performance of the Group. For the year ended 31 December 2022 the Group presented adjusted revenue as an alternative performance

measure. Following the demerger of the Dowlais businesses, as described in note 13, the Board no longer uses adjusted revenue to monitor

the ongoing performance of the Group as there are no continuing material equity accounted investments.

a) Operating profit

			Restated (1)
		Year ended	Year ended
		31 December	31 December
		2023	2022
Continuing operations	Notes	£m	£m
Operating profit/(loss)		57	(270)
A mortisation of intangible assets acquired in business combinations	a	260	260
Restructuring costs	b	149	90
Melrose equity-settled compensation scheme charges	c	38	15
A cquisition and disposal related gains and losses	d	3	(15)
Movement in derivatives and associated financial assets and liabilities	e	(114)	79
Net release and changes in discount rates of fair value items	f	(3)	(12)
Total adjustments to operating profit/(loss)		333	417
A djusted operating profit		390	147

(1)

Results have been restated for discontinued operations (see note 1).

The amortisation charge on intangible assets acquired in business combinations of £260 million (2022: £260 million) is excluded from

adjusted results due to its non-trading nature and to enable comparison with companies that grow organically. However, where intangible

assets are trading in nature, such as computer software and development costs, the amortisation is not excluded from adjusted results.

Restructuring and other associated costs in the year totalled £149 million (2022: £90 million), including £59 million (2022: £11 million) of

losses incurred in closing businesses within the Group. These are shown as adjusting items due to their size and non-trading nature and

during the year ended 31 December 2023 these included:

•

A charge of £137 million (2022: £88 million) primarily relating to the continuation of significant restructuring projects, necessary for the

business to achieve its full potential target operating margins.

There are three significant ongoing multi-year restructuring programmes, impacting multiple sites across the Engines and Structures

divisions, two of which include European footprint consolidations, and one significant multi-site restructuring programme in North America.

These programmes incurred a combined charge, excluding losses, of £62 million in the year. Since commencement, the cumulative

charges, excluding losses, on these three restructuring programmes to 31 December 2023 has been £217 million (31 December 2022:

£155 million), approximately 35% relating to the two significant European programmes and approximately 65% in North America.

As at 31 December 2023, actions to complete the European programmes, on average, are approximately 95% complete and will

complete in 2024. During the year, the North America multi-site restructuring programme has been expanded and is approximately 70%

complete and now expected to conclude in 2025. In addition to the remaining charges to be incurred on these projects, £37 million is

included in restructuring provisions at 31 December 2023 to be settled in cash over the next two years.

•

A net charge of £12 million (2022: £2 million) within the Melrose corporate cost centre that relates to changes made following the

announced change to the Group’s ongoing strategy. These include the costs of merging the Melrose corporate cost function with the

previously separate Aerospace division head office team. These restructuring actions reshape the corporate cost centre to serve as an

ongoing pureplay aerospace business.

The charge for the Melrose equity-settled Employee Share Scheme of £38 million (2022: £15 million), which includes a charge to the accrual

for employer’s tax payable of £28 million (2022: credit of £1 million), is excluded from adjusted results due to its size and volatility. The shares

that would be issued, based on the Scheme’s current value at the end of the reporting period, are included in the calculation of the adjusted

diluted earnings per share, which the Board considers to be a key measure of performance.

An acquisition and disposal related net charge of £3 million (2022: credit of £15 million) arose in the year which primarily relates to ongoing

acquisition commitments. The prior year also includes the profit on disposal of two corporate properties, a loss on disposal of a non-core

Aerospace business and the initial costs incurred in respect of the demerger. These items are excluded from adjusted results due to their

non-trading nature.

Movements in the fair value of derivative financial instruments (primarily forward foreign currency exchange contracts where hedge

accounting is not applied) entered into to mitigate the potential volatility of future cash flows, on long-term foreign currency customer

and supplier contracts, including foreign exchange movements on the associated financial assets and liabilities are shown as an adjusting

item because of volatility and size. This totalled a credit of £114 million (2022: charge of £79 million) in the year.

The net release of fair value items in the year of £3 million (2022: £12 million) where items have been resolved for more favourable amounts

than first anticipated are shown as an adjusting item, avoiding positively distorting adjusted operating profit.

NOTES TO THE FINANCIAL STATEMENTS

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ANNUAL REPORT 2023

Reconciliation of adjusted profit measures

continued

Profit before tax

			Restated (1)
		Year ended	Year ended
		31 December	31 December
		2023	2022
Continuing operations	Notes	£m	£m
Loss before tax		(8)	(328)
A djustments to operating profit/(loss) as above		333	417
Finance costs on demerger settled net debt	g	17	–
A ccelerated unamortised debt issue costs	h	2	–
Bond redemption gains	i	(13)	(24)
Fair value changes on cross-currency swaps	j	–	(3)
Total adjustments to loss before tax		339	390
A djusted profit before tax		331	62

(1)

Results have been restated for discontinued operations (see note 1).

Finance costs in respect of the proportion of the Group’s net debt strategically allocated to the demerger group of businesses at the start of

the year and subsequently settled on demerger are excluded from adjusted results to ensure the finance costs of the continuing Group are

appropriately shown alongside the trading performance of the continuing business.

Following the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses, the existing bank facilities at that

time were repaid and all unamortised bank fees were written off. This is shown as an adjusting item due to its non-trading nature.

During the year, the Group repurchased £120 million of the remaining 2032 £300 million bond, on which a gain of £13 million was realised.

During 2022, the Group also undertook a tender to buy back the same 2032 £300 million bond. There were £170 million of bonds

repurchased, on which a gain of £24 million was realised. Both items are shown as an adjusting item due to their non-trading nature.

The fair value changes on cross-currency swaps relating to cost of hedging which are not deferred in equity were shown as an adjusting item

because of the volatility and non-trading nature.

Profit after tax

			Restated (1)
		Year ended	Year ended
		31 December	31 December
		2023	2022
Continuing operations	Note	£m	£m
Profit/(loss) after tax		1	(229)
A djustments to loss before tax as above		339	390
Tax effect of adjustments to loss before tax	8	(77)	(105)
Tax effect of significant restructuring	8	–	2
Total adjustments to profit/(loss) after tax		262	287
A djusted profit after tax		263	58

(1) Results have been restated for discontinued operations (see note 1).

FINANCIAL STATEMENTS

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

189

7. Expenses

		Restated (1)
	Year ended	Year ended
	31 December	31 December
	2023	2022
Continuing operations	£m	£m
Operating profit/(loss) is stated after charging/(crediting):
Cost of inventories	2,696	2,533
A mortisation of intangible assets acquired in business combinations	260	260
Depreciation and impairment of property, plant and equipment	101	115
A mortisation and impairment of computer software and development costs	42	41
Lease expense (2)	1	1
Staff costs	1,095	1,013
Research and development costs (3)	60	51
Profit on disposal of property, plant and equipment	–	(33)
Expense of writing down inventory to net realisable value	53	43
Reversals of previous write-downs of inventory	(44)	(38)
Impairment recognised on trade receivables	8	3
Impairment reversed on trade receivables	(2)	(2)

(1)

Expenses have been restated for discontinued operations (see note 1).

(2)

Represents low value leases of £1 million (2022: £1 million).

(3)

Shown net of government and customer funding and includes staff costs totalling £27 million (2022: £25 million).

The analysis of auditor’s remuneration is as follows:

	Year ended	Year ended
	31 December	31 December
	2023	2022
	£m	£m
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts	4.6	6.8
Fees payable to the Company’s auditor and their associates for other audit services to the Group:
The audit of the Company’s subsidiaries	0.2	1.1
Non-statutory audit of certain of the Company’s businesses	0.9	1.9
Total audit fees	5.7	9.8
A udit-related assurance services:
Review of the half year interim statement	0.4	0.4
Other assurance services	0.3	0.2
Total audit-related assurance services	0.7	0.6
Total audit and audit-related assurance services	6.4	10.4
Tax services	–	–
Reporting accountant services	0.2	0.9
Total audit and non-audit fees	6.6	11.3

Details of the Company’s policy on the use of the auditors for non-audit services and how auditor’s independence and objectivity were safeguarded

are set out in the Audit Committee report on pages 122 to 123. No services were provided pursuant to contingent fee arrangements.

An analysis of staff costs and employee numbers is as follows:

		Restated (1)
	Year ended	Year ended
	31 December	31 December
	2023	2022
Continuing operations	£m	£m
Staff costs during the year (including executive Directors)
Wages and salaries (2)	891	840
Social security costs (3)	136	101
Pension costs (note 24)
– defined contribution plans	58	56
Share-based compensation expense (4)	10	16
Total staff costs	1,095	1,013

(1) Staff costs have been restated for discontinued operations (see note 1).

(2)

Wages and salaries for discontinued operations were £251 million in the period prior to disposal (2022: £924 million).

(3)

Includes an employer’s tax charge of £28 million (2022: credit of £1 million) on the change in value of the employee share plans, shown as an adjusting item

(see note 6).

(4) Shown as an adjusting item (see note 6).

NOTES TO THE FINANCIAL STATEMENTS

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7. Expenses

continued

		Restated (1)
	Year ended	Year ended
	31 December	31 December
	2023	2022
	Number	Number
A verage monthly number of persons employed (including executive Directors)
Engines	3,960	3,817
Structures	10,733	10,649
Corporate	48	49
Continuing operations	14,741	14,515
Discontinued operations	23,880	25,444
Total average number of persons employed	38,621	39,959

(1) Persons employed has been restated for discontinued operations (see note 1) and the re-presentation of the Engines and Structures segments.

An analysis of finance costs and income is as follows:

		Restated (1)
	Year ended	Year ended
	31 December	31 December
	2023	2022
Continuing operations	£m	£m
Finance costs
Interest on bank loans and overdrafts	(49)	(72)
A mortisation of costs of raising finance	(4)	(10)
Net interest cost on pensions	(1)	–
Lease interest	(5)	(3)
Unwind of discount on provisions	(1)	(1)
Finance costs on demerger settled net debt (2)	(17)	–
A ccelerated unamortised debt issue costs (2)	(2)	–
Fair value changes on cross-currency swaps (2)	–	3
Total finance costs	(79)	(83)
Finance income
Interest receivable	1	–
Net interest income on pensions	–	1
Bond redemption gains (2)	13	24
Total finance income	14	25
Total net finance costs	(65)	(58)

(1) Finance costs and income have been restated for discontinued operations (see note 1).

(2)

These are shown as adjusting items (see note 6).

FINANCIAL STATEMENTS

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

191

8. Tax

		Restated (1)
	Year ended	Year ended
	31 December	31 December
	2023	2022
Continuing operations	£m	£m
A nalysis of tax charge/(credit) in the year:
Current tax
Current year tax charge	19	16
A djustments in respect of prior years	4	(4)
Total current tax charge	23	12
Deferred tax
Origination and reversal of temporary differences	(61)	(85)
A djustments in respect of prior years	(3)	(8)
Tax on the change in value of derivative financial instruments	29	(25)
A djustments to deferred tax attributable to changes in tax rates	(1)	(1)
Non-recognition of deferred tax	4	8
Total deferred tax credit	(32)	(111)
Tax credit on continuing operations	(9)	(99)
Tax charge on discontinued operations	28	20
Total tax charge/(credit) for the year	19	(79)
A nalysis of tax credit on continuing operations in the year:	£m	£m
Tax charge in respect of adjusted profit before tax	68	4
Tax credit recognised as an adjusting item	(77)	(103)
Tax credit on continuing operations	(9)	(99)

(1) Tax has been restated for discontinued operations (see note 1).

The tax charge of £68 million (2022: £4 million) arising on adjusted profit before tax of £331 million (2022: £62 million), results in an effective tax

rate of 20.5% (2022: 6.5%).

The £77 million (2022: £103 million) tax credit recognised as an adjusting item includes a credit of £77 million (2022: £105 million) in respect of

tax credits on adjustments to loss before tax of £339 million (2022: £390 million) and a charge of £nil (2022: £2 million) in respect of internal

Group restructuring.

The tax charge/(credit) for the year for continuing and discontinued operations can be reconciled to the profit/(loss) before tax per the Income

Statement as follows:

		Restated (1)
	Year ended	Year ended
	31 December	31 December
	2023	2022
	£m	£m
Profit/(loss) before tax:
Continuing operations	(8)	(328)
Discontinued operations (note 13)	25	(38)
	17	(366)
Tax charge/(credit) on profit/(loss) before tax at 23.5% (2022: 25.0%)	4	(91)
Tax effect of:
Disallowable expenses and other permanent differences within adjusted profit	(9)	4
Disallowable items included within adjusting items	8	(2)
Temporary differences not recognised in deferred tax	5	13
Tax credits and withholding taxes	3	15
A djustments in respect of prior years	13	(29)
Tax charge classified within adjusting items – continuing operations	–	2
Tax charge classified within adjusting items – discontinued operations	–	8
Effect of changes in tax rates	(2)	1
Effect of rate differences between UK and overseas rates	(3)	–
Total tax charge/(credit) for the year	19	(79)

(1) Tax has been restated for discontinued operations (see note 1).

NOTES TO THE FINANCIAL STATEMENTS

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8. Tax

continued

The reconciliation has been performed at a tax rate of 23.5% (2022: 25.0%). The reconciliation rate usually represents the weighted average of

the tax rates applying to profits and losses in the jurisdictions in which those results arose in the year. However, for 2023 this rate was close to

zero due to offsetting profits and losses in the relevant jurisdictions and as such the UK rate has been used.

Tax (credits)/charges included in Other Comprehensive Income are as follows:

	Year ended	Year ended
	31 December	31 December
	2023	2022
	£m	£m
Deferred tax movements on retirement benefit obligations	(29)	1
Deferred tax movements on hedge relationship gains and losses	8	(5)
Total credit for the year	(21)	(4)

There is also a tax credit of £22 million (2022: £nil) recognised directly in the Statement of Changes in Equity in respect of deferred tax on

equity-settled share-based payments.

Global Minimum Tax rules and Franked Investment Income – litigation

The Group has reviewed the impact of the new Global Minimum Tax (“Pillar 2”) rules and considers they are unlikely to have a material impact

on the Group tax charge in their current form.

Since 2003, certain entities in the Group have been involved in litigation with HMRC in respect of various advance corporate tax payments and

corporate tax paid on certain foreign dividends which, in the Group’s view, were levied by HMRC in breach of the Group’s EU community law rights.

On 5 February 2024, the High Court handed down the latest decision in the case. This considered the question of time limits for valid claims.

The decision is broadly positive for the Group, however the decision can be appealed. The continuing complexity of the case and uncertainty over

the issues raised means that it is not possible to predict the final outcome of the litigation with any reasonable degree of certainty.

9. Dividends

	Year ended	Year ended
	31 December	31 December
	2023	2022
	£m	£m
Interim dividend for the year ended 31 December 2023 of 1.5p	20	–
Second interim dividend for the year ended 31 December 2022 of 1.5p (4.5p) (1)	61	–
Interim dividend for the year ended 31 December 2022 of 0.825p (2.475p) (1)	–	33
Final dividend for the year ended 31 December 2021 of 1.0p (3.0p) (1)	–	44
	81	77

(1) Adjusted to include the effects of the one for three share consolidation (see note 1).

A final dividend for the year ended 31 December 2023 of 3.5p per share totalling an expected £46 million is declared by the Board. The final

dividend of 3.5p per share was declared by the Board on 7 March 2024 and in accordance with IAS 10: Events after the reporting period, has

not been included as a liability in the Consolidated Financial Statements.

During the year, the Group commenced a £500 million share buyback programme with £93 million of cash spent, inclusive of costs of £1 million

(see note 1). In the prior year, the Group also undertook a share buyback programme, with £504 million of cash spent, inclusive of costs of £4 million.

10. Earnings per share

		Restated (1)
	Year ended	Year ended
	31 December	31 December
	2023	2022
Earnings attributable to owners of the parent	£m	£m
Earnings for basis of earnings per share	(1,019)	(308)
Less: loss from discontinued operations (note 13)	1,020	79
Earnings for basis of earnings per share from continuing operations	1	(229)

(1)

Earnings has been restated for discontinued operations (see note 1).

		Restated (1)
	Year ended	Year ended
	31 December	31 December
	2023	2022
	Number	Number
Weighted average number of ordinary shares for the purposes of basic earnings per share (million)	1,349	1,406
Further shares for the purposes of diluted earnings per share (million)	56	–
Weighted average number of ordinary shares for the purposes of diluted earnings per share (million)	1,405	1,406

(1) Adjusted to include the effects of the one for three share consolidation (see note 1).

FINANCIAL STATEMENTS

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

193

10. Earnings per share

continued

On 2 October 2023, the Group commenced a £500 million share buyback programme, with 18,761,840 shares repurchased by 31 December 2023.

These are held as treasury shares and are excluded from the number of shares for the purposes of calculating earnings per share. In the prior year,

the Group completed a £500 million share buyback programme with 318,003,512 shares repurchased and subsequently cancelled.

		Restated (1)
	Year ended	Year ended
	31 December	31 December
	2023	2022
Earnings per share	pence	pence
Basic earnings per share
From continuing and discontinued operations	(75.5)	(21.9)
From continuing operations	0.1	(16.3)
From discontinued operations	(75.6)	(5.6)
Diluted earnings per share
From continuing and discontinued operations	(75.5)	(21.9)
From continuing operations	0.1	(16.3)
From discontinued operations	(75.6)	(5.6)

(1)

Earnings per share has been restated for discontinued operations and to include the effects of the one for three share consolidation (see note 1).

		Restated (1)
	Year ended	Year ended
	31 December	31 December
	2023	2022
Adjusted earnings from continued operations	£m	£m
A djusted earnings for the basis of adjusted earnings per share	263	58

(1)

Earnings has been restated for discontinued operations (see note 1).

Adjusted earnings per share from continuing operations:

		Restated (1)
	Year ended	Year ended
	31 December	31 December
	2023	2022
	pence	pence
A djusted basic earnings per share	19.5	4.1
A djusted diluted earnings per share	18.7	4.1

(1)

Earnings per share has been restated for discontinued operations and to include the effects of the one for three share consolidation (see note 1).

NOTES TO THE FINANCIAL STATEMENTS

CONTINUED

194

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

11. Goodwill and other intangible assets

		Customer
		relationships	Brands and		Computer	Development
	Goodwill	and contracts	intellectual property	Other (1)	software	costs	Total
	£m	£m	£m	£m	£m	£m	£m
Cost
A t 1 January 2022	2,850	4,406	480	1,011	49	522	9,318
A dditions	–	–	–	–	6	21	27
A cquisition of businesses (2)	1	–	–	3	–	–	4
Disposals	–	–	–	–	(2)	(4)	(6)
Transfer to held for sale (3)	(455)	(122)	(100)	–	–	–	(677)
Exchange adjustments	189	386	13	33	3	31	655
A t 31 December 2022	2,585	4,670	393	1,047	56	570	9,321
A dditions	–	–	–	–	3	13	16
Disposals	–	–	–	–	(1)	(3)	(4)
Transfer to held for sale (3)	–	–	–	–	(1)	(1)	(2)
Disposal of businesses (4)	(1,575)	(1,749)	(184)	(401)	(33)	(100)	(4,042)
Exchange adjustments	(49)	(154)	(2)	(15)	(1)	(15)	(236)
A t 31 December 2023	961	2,767	207	631	23	464	5,053
A mortisation and impairment
A t 1 January 2022	–	(1,226)	(95)	(383)	(29)	(195)	(1,928)
Charge for the year:
Adjusted operating profit	–	–	–	–	(7)	(43)	(50)
Adjusting items	–	(338)	(24)	(104)	–	–	(466)
Impairments (5)	–	–	–	–	–	(9)	(9)
Disposals	–	–	–	–	2	4	6
Transfer to held for sale (3)	–	71	35	–	–	–	106
Exchange adjustments	–	(105)	(9)	(9)	(2)	(9)	(134)
A t 31 December 2022	–	(1,598)	(93)	(496)	(36)	(252)	(2,475)
Charge for the year:
Adjusted operating profit	–	–	–	–	(3)	(39)	(42)
Adjusting items	–	(228)	(12)	(69)	–	–	(309)
Disposals	–	–	–	–	1	3	4
Transfer to held for sale (3)	–	–	–	–	1	1	2
Disposal of businesses (4)	–	694	46	237	17	59	1,053
Exchange adjustments	–	53	–	6	1	5	65
A t 31 December 2023	–	(1,079)	(59)	(322)	(19)	(223)	(1,702)
Net book value
A t 31 December 2023	961	1,688	148	309	4	241	3,351
A t 31 December 2022	2,585	3,072	300	551	20	318	6,846

(1) Other includes technology and order backlog intangible assets recognised on acquisitions.

(2) Acquisition of businesses in 2022 related to Permanova Lasersystem AB within the Engines segment.

(3) Transfer to held for sale in 2023 relates to the contractually agreed sale of a non-core business in the Structures segment and in 2022 related to the Ergotron

business (see note 1).

(4) Disposal of businesses in 2023 relates to the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses (see note 1).

(5) Impairments in 2022 were shown as adjusting items.

The goodwill generated as a result of major acquisitions represents the premium paid in excess of the fair value of all net assets, including

intangible assets, identified at the point of acquisition. The carrying value of goodwill includes a premium, paid in order to secure shareholder

agreement to the business combination, that is less than the value that the Directors believed could be added to the acquired businesses.

The goodwill arising on bolt-on acquisitions is attributable to the anticipated profitability and cash flows arising from the businesses acquired,

synergies as a result of the complementary nature of the business with existing Melrose businesses, the assembled workforce, technical

expertise, knowhow, market share and geographical advantages afforded to the Group.

The future improvements applied to the acquired businesses, achieved through a combination of revised strategic direction, operational

improvements and investment, are expected to result in improved profitability. The combined value achieved from these improvements is

expected to be in excess of the value of goodwill acquired.

Following the Group’s demerger of GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen on 20 April 2023 the internal reporting

structure changed for the remaining GKN Aerospace business to show an Engines segment and a Structures segment (see note 5). As a

consequence, the Aerospace group of cash-generating units (“CGUs”) was reorganised into an Engines group of CGUs and a Structures group

of CGUs effective from 20 April 2023.

FINANCIAL STATEMENTS

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

195

11.

Goodwill and other intangible assets

continued

As a result of the change in the groups of CGUs structure, an allocation of goodwill to the two new groups of CGUs has been performed based

on their valuation at 20 April 2023. Subsequently, impairment testing was completed, dated 20 April 2023, based on the old structure of one

group of CGUs (Aerospace) and the new structure of two groups of CGUs (Engines and Structures). No impairment was identified in respect of

any of the groups of CGUs.

		Restated (1)
	31 December	31 December
	2023	2022
Goodwill	£m	£m
Engines	608	627
Structures	353	363
Continuing operations – Aerospace	961	990
Discontinued operations	–	1,595
Total	961	2,585

(1)

Goodwill has been restated for discontinued operations (see note 1) and to reflect the revised groups of CGUs effective from 20 April 2023 when the Aerospace

group of CGUs was re-organised into the Engines and Structures groups of CGUs.

Impairment testing

The Group tests goodwill annually or more frequently if there are indications that goodwill might be impaired. The date of the annual impairment

test is 31 October, aligned with internal forecasting and review processes. In accordance with IAS 36: Impairment of assets, the Group assesses

goodwill based on the recoverable amount, being the higher of the value in use basis and the fair value less costs to sell basis. Due to the change

in Group strategy to become a pure-play Aerospace group, the value in use methodology has been used to determine recoverable amount.

Value in use calculations have been used to determine the recoverable amount of goodwill and other relevant net assets allocated to the Engines

and Structures groups of CGUs for the year ended 31 December 2023. The calculation uses the latest approved forecasts extrapolated into

perpetuity with growth rates shown below, which do not exceed the long-term growth rate for the relevant market.

In the prior year, fair value less costs to sell calculations were used to determine the recoverable amount of goodwill and other relevant net assets

allocated to the Aerospace, Automotive and Powder Metallurgy groups of CGUs. When applying the fair value less costs to sell methodology, it

was difficult to assess a sale value using observable market inputs (level 1) or inputs based on market evidence (level 2) in the environment and

so unobservable inputs (level 3) were used. A combination of discounted cash flows and EBITDA multiple valuations were used to establish fair

values for each of the groups of CGUs. Under IAS 36, the benefits from future uncommitted restructuring plans were permitted when applying

the fair value less costs to sell basis, to the extent that similar actions would be carried out by a market participant.

Based on impairment testing completed no impairment was identified in respect of either of the groups of CGUs. No sensitivity analysis has been

provided as there is no reasonably possible change in key assumptions that could result in an impairment in either the Engines or Structures

groups of CGUs.

The basis of impairment tests and the key assumptions are set out in the tables below:

	31 December 2023
	Pre-tax	Long-term
Groups of CGUs – value in use	discount rates	growth rates	Years in forecast
Engines	12.25%	3.4%	5
Structures	12.50%	3.4%	5

	31 December 2022
	Post-tax	Long-term
Groups of CGUs – fair value less costs to sell	discount rates	growth rates	Years in forecast
A erospace	10.75%	3.0%	5
A utomotive	11.25%	3.5%	5
Powder Metallurgy	12.0%	3.9%	5

Risk adjusted discount rates

Cash flows within the Engines and Structures groups of CGUs are discounted using a pre-tax discount rate specific to each group of CGUs.

Discount rates reflect the current market assessments of the time value of money and the territories in which the group of CGUs operates.

In determining the cost of equity, the Capital Asset Pricing Model (“CAPM”) has been used. Under CAPM, the cost of equity is determined

by adding a risk premium, based on an industry adjustment (“Beta”), to the expected return of the equity market above the risk-free return.

The relative risk adjustment reflects the risk inherent in each group of CGUs relative to all other sectors and geographies on average.

The cost of debt is determined using a risk-free rate based on the cost of government bonds, and an interest rate premium equivalent

to a corporate bond with a similar credit rating to the Group.

NOTES TO THE FINANCIAL STATEMENTS

CONTINUED

196

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

11. Goodwill and other intangible assets

continued

Assumptions applied in financial forecasts

The Group prepares cash flow forecasts derived from financial budgets and medium-term forecasts. Each forecast has been prepared using a

five year cash flow period. The key assumptions used in forecasting cash flows relate to future budgeted revenue and operating margins likely

to be achieved and the expected rates of long-term growth by sector. Underlying factors in determining the values assigned to each key

assumption are shown below.

Impairment testing has considered the impact of two transitional climate scenarios used by the Group to assess climate-related risks and

opportunities. Demand for the Group’s products may be impacted by the different scenarios over the medium to long-term. Whilst recognising

these scenarios contain major assumptions, the modelling indicates no material impact on existing revenue assumptions, with any potential

reduction in Melrose's existing products being offset by the Group’s transition plan into lower-carbon products under existing financial planning.

The potential of transition risks such as, the transitioning of carbon intensive machinery to more carbon efficient or electric models also did not

indicate a material impact on the existing financial cost in the short to medium term forecasting. The impairment testing also considers the

potential costs from climate related risks under physical scenarios RCP 2.6 and 8.5. Risks such as flooding and storm events were predicted

to not have a material impact on cost within our financial forecasting horizon.

Revenue growth and operating margins:

Revenue growth assumptions in the forecast period are based on financial budgets and five-year term forecasts by management, taking into

account industry growth rates and management’s historical experience in the context of wider industry and economic conditions. Projected

sales are built up with reference to markets and product categories. They incorporate past performance, historical growth rates, projections

of developments in key markets, secured orders and orders forecast to be achieved in the short to medium-term given trends in the relevant

market sector. Revenue assumptions are made using external market data, where available.

Operating margins have been forecast based on historical levels achieved considering the likely impact of changing economic environments and

competitive landscapes on volumes and revenues and the impact of management actions on costs. Forecasts for operating costs are based on

inflation forecasts and supply and demand factors, which take account of climate change implications for affected markets. Impairment testing

includes short to medium-term planning (five years) for both of the groups of CGUs, which will address known risks from climate change and

other environmental factors impacting forecast costs as well as the opportunities in associated markets as they prepare for change e.g. hydrogen

propulsion which impacts revenues.

The key drivers for growth in revenue and operating margins are global demand for commercial and military aircraft. Consumer spending,

passenger load factors, raw material input costs, market expectations for aircraft production requirements, technological advancements,

and other macro-economic factors influence demand for these products.

Long-term growth rates:

Long-term growth rates are determined using long-term growth rate forecasts that take into account the international presence and the markets

in which each business operates.

Allocation of significant intangible assets

The allocation of significant customer relationships and contracts, brands, intellectual property and technology is as follows:

	Customer relationships and contracts				Brands, intellectual property and technology
	Remaining				Remaining
	amortisation period		Net book value		amortisation period		Net book value
				Restated (1)				Restated (1)
	31 December	31 December	31 December	31 December	31 December	31 December	31 December	31 December
	2023	2022	2023	2022	2023	2022	2023	2022
	years	years	£m	£m	years	years	£m	£m
Engines	15	16	1,355	1,555	15	16	149	166
Structures	5	6	333	410	15	16	308	368
Continuing operations			1,688	1,965			457	534
Discontinued operations			–	1,107			–	317
Total			1,688	3,072			457	851

(1) Significant intangible assets have been restated for discontinued operations (see note 1) and to reflect the revised groups of CGUs effective from 20 April 2023

when the Aerospace group of CGUs was re-organised into the Engines and Structures groups of CGUs.

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

197

12. Investments

	31 December	31 December
	2023	2022
Investments, carried at fair value	£m	£m
Shares	114	62

The Group holds a 10% equity share in HiiROC Limited, a hydrogen technology company, a 4% investment in PW1100G-JM Engine Leasing

LLC, an engine leasing business, and a 1% investment in Dowlais Group plc which was retained following the demerger on 20 April 2023 at an

initial valuation of £20 million.

There was a gain on remeasurement to fair value of £35 million (2022: loss of £34 million) and a foreign exchange translation loss of £3 million

(2022: gain of £9 million). A dividend of £5 million (2022: £4 million) was received during the year which was recorded within operating profit.

Certain of the investments are classified as a level 3 fair value under the IFRS 13 fair value hierarchy. To calculate the value at 31 December 2023,

the expected dividend flow was discounted to net present value using a discount rate of 10.5%. If the discount rate changed from 10.5% to 9.5%

the fair value would increase by £8 million.

13. Discontinued operations

On 30 March 2023, shareholders approved the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses

through the flotation of Dowlais Group plc (“Dowlais”) on the London Stock Exchange. As a consequence, the assets and liabilities of Dowlais

were reclassified as held for sale in accordance with IFRS 5: Non-current Assets Held for Sale and Discontinued Operations.

On 20 April 2023, the Group completed the demerger of Dowlais. The results of the Dowlais businesses have been classified within discontinued

operations for both years presented. In addition, discontinued operations for 2022 include the results of the Ergotron business which was

disposed of on 6 July 2022.

The demerger distribution of £1,973 million has been measured at fair value in accordance with IFRIC 17: Distributions of Non-cash Assets to Owners

(see note 3b). Total demerger costs of £64 million, of which £6 million was recognised in the year ended 31 December 2022, were incurred before

a contribution of £19 million in the form of one percent of Dowlais Group plc issued equity which has been retained by the Group. The Melrose

Automotive Share Plan has also been taken into account within the loss on disposal calculation, but its net impact was immaterial.

Financial performance of discontinued operations:

		Restated (1)
	Year ended	Year ended
	31 December	31 December
	2023	2022
	£m	£m
Revenue	1,582	4,715
Operating costs	(1,550)	(4,740)
Operating profit/(loss)	32	(25)
Net finance costs	(7)	(13)
Profit/(loss) before tax	25	(38)
Tax	(28)	(20)
Loss after tax	(3)	(58)
Loss on disposal of net assets of discontinued operations, net of recycled cumulative translation differences
but before transaction costs	(978)	(16)
Demerger transaction costs (2)	(39)	–
Loss for the year from discontinued operations	(1,020)	(74)
A ttributable to:
Owners of the parent	(1,020)	(79)
Non-controlling interests	–	5
	(1,020)	(74)

(1)

Restated for operations discontinued in the year (see note 1).

(2)

Demerger transaction costs of £39 million comprise total cash costs incurred in the year of £58 million, offset by a non-cash contribution from Dowlais of

£19 million.

Cash flow information relating to discontinued operations is shown in note 27.

FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS

CONTINUED

198

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

13. Discontinued operations

continued

Classes of assets and liabilities disposed of and amounts classified as held for sale during the year were as follows:

	Classified as	Businesses
	held for sale (1)	disposed
	£m	£m
Goodwill and other intangible assets	–	2,989
Property, plant and equipment	4	1,789
Current and deferred tax	1	127
Equity accounted investments	–	417
Inventories	4	515
Trade and other receivables	9	753
Derivative financial instruments	–	45
Cash and cash equivalents	–	320
Total assets	18	6,955
Trade and other payables	5	1,232
Interest-bearing loans and borrowings (2)	–	1,205
Lease obligations	1	158
Current and deferred tax	–	435
Retirement benefit obligations	–	439
Provisions	4	344
Total liabilities	10	3,813
Net assets	8	3,142
Demerger distribution fair value		1,973
Derecognition of non-controlling interests on demerger		39
Demerger costs incurred		(39)
Cumulative translation difference recycled on demerger		152
Loss on disposal of businesses		(1,017)

(1) Relates to the Fuel Systems business (see note 1).

(2) Prior to the demerger the interest-bearing loans and borrowings were inter-company. On demerger, these were subsequently settled.

Post Balance Sheet event

On 1 March 2024, the Group completed the disposal of its Fuel Systems business for £50 million, before costs and other deductions.

FINANCIAL STATEMENTS

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

199

14. Property, plant and equipment

	Land and	Plant and
	buildings	equipment	Total
	£m	£m	£m
Cost
A t 1 January 2022	1,143	2,722	3,865
A dditions	38	281	319
A cquisition of businesses (1)	1	–	1
Right-of-use asset reassessments	–	(1)	(1)
Disposals	(19)	(117)	(136)
Disposal of businesses (2)	(6)	–	(6)
Transfer to held for sale (3)	(49)	(20)	(69)
Exchange adjustments	61	263	324
A t 31 December 2022	1,169	3,128	4,297
A dditions	34	150	184
Right-of-use asset reassessments	2	–	2
Disposals	(3)	(37)	(40)
Disposal of businesses (2)	(641)	(2,102)	(2,743)
Transfer to held for sale (3)	(8)	(12)	(20)
Exchange adjustments	(30)	(100)	(130)
A t 31 December 2023	523	1,027	1,550
A ccumulated depreciation and impairment
A t 1 January 2022	(300)	(1,037)	(1,337)
Charge for the year	(59)	(299)	(358)
Disposals	4	108	112
Disposal of businesses (2)	6	–	6
Transfer to held for sale (3)	27	15	42
Impairments (4)	(2)	(16)	(18)
Exchange adjustments	(6)	(139)	(145)
A t 31 December 2022	(330)	(1,368)	(1,698)
Charge for the year	(38)	(111)	(149)
Disposals	2	34	36
Disposal of businesses (2)	120	834	954
Transfer to held for sale (3)	7	9	16
Impairments	(1)	–	(1)
Exchange adjustments	10	59	69
A t 31 December 2023	(230)	(543)	(773)
Net book value
A t 31 December 2023	293	484	777
A t 31 December 2022	839	1,760	2,599

(1)

Acquisition of businesses in 2022 related to Permanova Lasersystem AB within the Engines segment.

(2)

Disposal of businesses in 2023 related to the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses (see note 1). Disposal of

businesses in 2022 related to the sale of a non-core business in the Structures segment.

(3)

Transfer to held for sale in 2023 relates to the contractually agreed sale of a non-core business in the Structures segment and in 2022 related to the

Ergotron business (see note 1).

(4)

Impairments in 2022 were shown as adjusting items.

Assets under the course of construction at 31 December 2023 totalled £126 million (31 December 2022: £243 million).

NOTES TO THE FINANCIAL STATEMENTS

CONTINUED

200

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

14.

Property, plant and equipment

continued

Property, plant and equipment includes the net book value of right-of-use assets as follows:

	Land and	Plant and
	buildings	equipment	Total
Right-of-use asset	£m	£m	£m
A t 1 January 2022	265	48	313
A dditions	19	19	38
A cquisition of businesses (1)	1	–	1
Right-of-use asset reassessments	–	(1)	(1)
Depreciation	(31)	(16)	(47)
Disposals	(2)	(3)	(5)
Transfer to held for sale (2)	(1)	(5)	(6)
Exchange adjustments	14	4	18
A t 31 December 2022	265	46	311
A dditions	21	10	31
Right-of-use asset reassessments	2	–	2
Depreciation	(23)	(8)	(31)
Transfer to held for sale (2)	(1)	–	(1)
Disposal of businesses (3)	(117)	(28)	(145)
Impairments	(1)	–	(1)
Exchange adjustments	(6)	(1)	(7)
A t 31 December 2023	140	19	159

(1) Acquisition of businesses in 2022 related to Permanova Lasersystem AB within the Engines segment.

(2) Transfer to held for sale in 2023 relates to the contractually agreed sale of a non-core business in the Structures segment and in 2022 related to the Ergotron

business (see note 1).

(3) Disposal of businesses in 2023 relates to the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses (see note 1).

15. Equity accounted investments

	31 December	31 December
	2023	2022
	£m	£m
A ggregated amounts relating to equity accounted investments:
Share of current assets	4	416
Share of non-current assets	9	322
Share of current liabilities	(6)	(289)
Share of non-current liabilities	–	(14)
Interests in equity accounted investments	7	435

	Year ended	Year ended
	31 December	31 December
	2023	2022
Group share of equity accounted investments	£m	£m
A t 1 January	435	429
Share of results of equity accounted investments	4	49
A dditions	–	3
Disposals	(3)	–
Disposal of businesses (1)	(417)	–
Dividends paid to the Group	–	(59)
Exchange adjustments	(12)	13
A t 31 December	7	435

(1) Disposal of businesses in 2023 relates to the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses (see note 1).

During the year the Group demerged its one significant joint venture, held within the Automotive segment, Shanghai GKN HUAYU Driveline

Systems Co Limited (“SDS”). In addition, the Group sold its 20% investment in Business Park Aviolanda B.V. for proceeds of £3 million.

16. Inventories

	31 December	31 December
	2023	2022
	£m	£m
Raw materials	235	518
Work in progress	195	328
Finished goods	80	179
	510	1,025

FINANCIAL STATEMENTS

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

201

16. Inventories

continued

In 2023, the write down of inventories in continuing businesses to net realisable value amounted to £53 million (2022: £43 million). The reversal

of write downs in continuing businesses amounted to £44 million (2022: £38 million). Write downs and reversals in both years relate to ongoing

assessments of inventory obsolescence, excess inventory holding and inventory resale values across all of the Group’s businesses.

Climate change may impact the demand from customers for certain products, however given the speed of inventory turnover the Directors

consider that there is no material impact and inventory is appropriately valued.

The Directors consider that there is no material difference between the net book value of inventories and their replacement cost.

17.

Trade and other receivables

	31 December	31 December
	2023	2022
Current	£m	£m
Trade receivables	430	989
A llowance for expected credit loss	(10)	(20)
Other receivables	162	286
Prepayments	33	36
Contract assets	98	135
	713	1,426

Trade receivables are non interest-bearing. Credit terms offered to customers vary upon the country of operation but are generally between

30 and 90 days.

	31 December	31 December
	2023	2022
Non-current	£m	£m
Other receivables	21	23
Contract assets	768	647
	789	670

As described in note 25, certain businesses participate in receivables working capital programmes and have the ability to choose whether

to receive payment earlier than the normal due date, for specific customers on a non-recourse basis. As at 31 December 2023, eligible

receivables under these programmes have been factored and derecognised in line with the derecognition criteria of IFRS 9: Financial

Instruments. All receivables are solely payments of principal and interest and are held to collect.

An allowance has been made for expected lifetime credit losses with reference to past default experience and management’s assessment

of credit worthiness over trade receivables, an analysis of which is as follows:

			Restated (1)
			Discontinued
	Engines (1)	Structures (1)	operations	Total
	£m	£m	£m	£m
A t 1 January 2022	2	5	16	23
Income Statement charge/(credit)	2	(1)	(2)	(1)
Utilised	(2)	–	–	(2)
Transfer to held for sale (2)	–	–	(2)	(2)
Exchange adjustments	2	(1)	1	2
A t 31 December 2022	4	3	13	20
Income Statement charge	1	5	1	7
Utilised	(2)	(1)	–	(3)
Disposal of businesses (3)	–	–	(13)	(13)
Exchange adjustments	–	–	(1)	(1)
A t 31 December 2023	3	7	–	10

(1)

The allowance for expected lifetime credit losses has been restated for discontinued operations (see note 1) and the re-presentation of the Engines and Structures

segments.

(2)

Transfer to held for sale in 2022 related to the Ergotron business which was subsequently disposed of during the second half of the year (see note 1).

(3)

Disposal of businesses in 2023 relates to the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses (see note 1).

The concentration of credit risk is limited due to the large number of unrelated customers. Credit control procedures are implemented to ensure

that sales are only made to organisations that are willing and able to pay for them. Such procedures include the establishment and review of

customer credit limits and terms. The Group does not hold any collateral or any other credit enhancements over any of its trade receivables

nor does it have a legal right of offset against any amounts owed by the Group to the counterparty.

NOTES TO THE FINANCIAL STATEMENTS

CONTINUED

202

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

17. Trade and other receivables

continued

The ageing of impaired trade receivables past due is as follows:

	31 December	31 December
	2023	2022
	£m	£m
0 – 30 days	–	4
31 – 60 days	–	–
60+ days	10	16
	10	20

Included in the Group’s trade receivables balance are overdue trade receivables with a gross carrying amount of £19 million (31 December 2022:

£53 million) against which a provision of £10 million (31 December 2022: £20 million) is held.

There are no amounts provided against balances that are not overdue as these are deemed recoverable, following an assessment for impairment

in accordance with policies described in note 2.

The ageing of the balance deemed recoverable of £9 million (31 December 2022: £33 million) is as follows:

	31 December	31 December
	2023	2022
	£m	£m
0 – 30 days	9	30
31 – 60 days	–	3
60+ days	–	–
	9	33

The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.

The Group’s contract assets comprise the following:

	Participation fees	Unbilled receivables	Unbilled work done	Other	Total
	£m	£m	£m	£m	£m
A t 1 January 2022	193	61	305	52	611
A dditions	2	929	124	–	1,055
Utilised	(13)	(918)	(18)	(7)	(956)
Disposal of businesses (1)	–	(3)	–	–	(3)
Exchange adjustments	22	10	39	4	75
A t 31 December 2022	204	79	450	49	782
A dditions	8	962	193	–	1,163
Utilised	(17)	(973)	(20)	(5)	(1,015)
Disposal of businesses (1)	(9)	–	–	(10)	(19)
Transfer to held for sale (2)	–	(1)	–	–	(1)
Exchange adjustments	(10)	(4)	(28)	(2)	(44)
A t 31 December 2023	176	63	595	32	866

(1)

Disposal of businesses in 2023 relates to the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses (see note 1).

Disposal of businesses in 2022 related to the sale of a non-core business in the Structures segment.

(2)

Transfer to held for sale in 2023 relates to the contractually agreed sale of a non-core business in the Structures segment (see note 1).

An assessment for impairment of contract assets has been performed in accordance with policies described in note 2. No such impairment has

been recorded.

Climate change and the effect on customers’ ability to pay is considered in the allowance for expected credit losses. Climate change related

considerations have been taken into account in the forecasting of revenues and costs in respect of RRSP contracts in a similar manner to

those described in the impairment testing section (note 11). The Directors have concluded that climate related impacts are not material in

the recoverability of trade receivables and contract assets related to unbilled work done on risk and revenue sharing partnerships.

Participation fees

Participation fees are described in the accounting policies (note 2) and are considered to be a reduction in revenue for the related customer

contract. Amounts are capitalised and “amortised” to match to the related performance obligation.

Unbilled receivables for over time recognition

Unbilled receivables for over time recognition represent work completed with associated margins where contracts contain a legal right to

compensation for work completed, including a margin, and there is no alternative use for the customer’s asset.

Unbilled work done

Unbilled work done only has a material impact on one entity in the Group, exclusively relating to certain RRSP arrangements in the

Engines segment.

FINANCIAL STATEMENTS

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

203

17.

Trade and other receivables

continued

Where the Group has a contractual right to aftermarket revenue, IFRS 15 requires that the total contract revenue is allocated to the performance

obligations. The principal contractual term that determines the existence of unbilled work done is the absence of a termination clause that the

customer can unilaterally exercise and which results in future purchases being considered optional. Where there is such a termination clause and the

Group commercially relies on economic compulsion of the contracting parties, the two phases of activity are treated as distinct and no unbilled work

done contract asset is recognised. In the absence of such a term, there is a contractual link between the sale of OE components and aftermarket,

which results in unbilled work done, and the total contract revenue is allocated to the distinct performance obligations.

Unbilled work done is measured using a weighted average unit method, taking account of an estimate of stand-alone selling price for individual

performance obligations and is recognised when control of the OE component passes to the customer (the engine manufacturer). Due to the

long-term nature of agreements, calculation of the total programme revenues is inherently imprecise and as set out in note 3d requires significant

estimates, including an assessment of the aftermarket revenue per engine which reflects the pattern of future maintenance activity and

associated costs to be incurred. In order to address the future uncertainties, risk adjustments as well as constraints have been applied to the

expected level of revenue as appropriate. This approach best represents the value of goods and services supplied taking account of the

performance obligations, risk and overall contract revenues.

As a consequence of allocating additional revenue to the sale of OE components, an unbilled work done contract asset has been recognised

which will be satisfied through cash receipt during the aftermarket phase. The constraints applied to unbilled work done are reassessed at each

period end, and will unwind as risks reduce and when uncertainties are resolved. This is expected to lead to additional revenue recognition in

future periods in relation to items sold in the current and preceding periods. Further information is shown in note 4.

18. Cash and cash equivalents

	31 December	31 December
	2023	2022
	£m	£m
Cash and cash equivalents	58	355

Cash and cash equivalents comprises cash at bank and in hand which earns interest at floating rates based on daily bank deposit rates and short-

term deposits which are made for varying periods of between one day and one month. The carrying amount of these assets is considered to be

equal to their fair value.

19. Trade and other payables

	31 December	31 December
	2023	2022
Current	£m	£m
Trade payables	501	1,257
Other payables	110	375
Customer advances and contract liabilities	246	281
Other taxes and social security	56	73
Government refundable advances	5	7
Funded development costs	64	57
A ccruals	183	279
Deferred government grants	14	18
	1,179	2,347

As at 31 December 2023, and as described in note 25, included within trade payables were drawings on supplier finance facilities of £86 million

(31 December 2022: £200 million). Trade payables are non-interest-bearing. Normal settlement terms vary by country and the average credit

period taken for trade and other payables is 91 days (31 December 2022: 93 days).

	31 December	31 December
	2023	2022
Non-current	£m	£m
Other payables	–	19
Customer advances and contract liabilities	225	213
Other taxes and social security	1	3
Government refundable advances	44	52
Funded development costs	49	89
A ccruals	16	29
Deferred government grants	23	26
	358	431

The Directors consider that the carrying amount of trade and other payables approximates to their fair value.

Non-current amounts; other payables, other taxes and social security and accruals fall due for payment within one to two years; government

refundable advances are forecast to fall due for repayment between 2024 and 2055 and the deferred government grants will be utilised over

the next five years.

NOTES TO THE FINANCIAL STATEMENTS

CONTINUED

204

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

19. Trade and other payables

continued

Funded development costs

When the Group is awarded design and development work as part of a related serial production of components contract, management assesses

whether the two phases of work are distinct under IFRS 15: Revenue from contracts with customers.

Where it is considered there is only one performance obligation under the contract, being the delivery of manufactured product, any cash

received from customers which contributes to ‘funding’ the up-front design and development expenditure incurred, is deferred on the

Balance Sheet as an obligation and released to revenue in the Income Statement based on expectations of volumes.

Development cost funding is in the Engines segment (£1 million) and Structures segment (£112 million).

Customer advances and contract liabilities include cash receipts from customers in advance of the Group completing its performance obligations

and are generally utilised as product is delivered. Non-current amounts in respect of customer advances and contract liabilities will be utilised

as follows: one to two years £118 million, two to five years £22 million and over five years £85 million (31 December 2022: one to two years

£65 million, two to five years £50 million and over five years £98 million).

The Group’s Customer advances and contract liabilities comprise the following:

	31 December	31 December
	2023	2022
	£m	£m
Customer cash advances	62	95
Material rights given	30	34
RRSP related obligations	379	365
	471	494

Customer cash advances

There are a discrete number of contracts with customers, where commercial terms lead to customer advances relating to serial production of

components. Where cash is received in advance of performance, this usually addresses non-standard commercial impacts on the Group such

as long lead times on inventory.

Customer cash advances received before the Group delivers product is deferred on the Balance Sheet as an obligation and released to revenue

based on expectations of volumes.

Material rights given

Where the Group has agreed contracts with customers that contain any unusual pricing features, these are assessed to determine if material

rights have been transferred to the customer. A material right could occur when there is a material step down in price or if contracts are modified

with lump sum cash receipts offset by a reduction in future pricing.

If a material right has transferred to the customer, any cash received in advance of the Group performing its obligations under a contract is

deferred on the Balance Sheet and released to revenue in the Income Statement based on the terms of the contract.

RRSP related obligations

As detailed in the accounting policies (note 2), significant estimates disclosure (note 3), revenue disclosures (note 4) and contract asset disclosure

(note 17), the Group has certain RRSP arrangements, with more complex revenue recognition considerations. Whilst the Group has an unbilled

work done contract asset of £595 million (31 December 2022: £450 million), detailed in note 17, which represents the Group having completed

certain of its performance obligations in advance of cash receipt, it also has contract liabilities.

These include:

•

Cash received for a “stand ready” obligation (described in note 4) of £58 million (31 December 2022: £91 million) to contribute to aftermarket

activities of certain RRSPs, which typically results in the provision of services such as technical and other programme support activities over the

whole life of the engine. This will be recognised over time in line with the engine manufacturer’s actual maintenance, repair and overhaul costs.

•

A pricing rebate provision for estimated discounts provided by engine manufacturers on the sale of OE of £68 million (31 December 2022:

£63 million).

•

Cash received to compensate where the production cost incurred on an RRSP contract is in excess of the Group’s share of the programme,

totalling £22 million (31 December 2022: £8 million). This will be released to the Income Statement when the Group has satisfied its

performance obligations.

•

Cash received in respect of RRSP contract amendments of £59 million (31 December 2022: £61 million). This will be released over the life of

the contract in accordance with the original terms of the contract.

•

A provision for engineering and warranty commitments in respect of RRSP contracts of £30 million (31 December 2022: £27 million). This is

expected to be utilised over the warranty terms of the contracts.

•

Other contract liabilities of £142 million (31 December 2022: £115 million).

FINANCIAL STATEMENTS

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

205

20. Interest-bearing loans and borrowings

This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings. Details of the Group’s exposure

to credit, liquidity, interest rate and foreign currency risk are included in note 25.

	Current		Non-current		Total
	31 December	31 December	31 December	31 December	31 December	31 December
	2023	2022	2023	2022	2023	2022
	£m	£m	£m	£m	£m	£m
Floating rate obligations
Bank borrowings – US Dollar loan	–	–	467	759	467	759
Bank borrowings – Sterling loan	–	–	1	182	1	182
Bank borrowings – Euro loan	–	–	106	363	106	363
Other loans	53	–	–	–	53	–
Bank overdrafts	1	63	–	–	1	63
Fixed rate obligations
2032 bond	–	–	10	130	10	130
	54	63	584	1,434	638	1,497
Unamortised finance costs	–	–	(8)	(3)	(8)	(3)
Non-cash acquisition fair value adjustment	–	–	–	2	–	2
Total interest-bearing loans and borrowings	54	63	576	1,433	630	1,496

The Group’s committed bank facilities were refinanced during the year. The new facilities consist of a multi-currency term loan denominated

US$300 million and €100 million, and a US$250 million revolving credit facility, both of which mature in April 2026. In addition, the Group also

entered into multi-currency revolving credit facilities totalling US$690 million, £300 million and €300 million that initially mature in April 2026,

but with the potential to be extended for two additional one-year periods at the Company’s option.

At 31 December 2023, the term loan was fully drawn and there were drawings of US$298 million, £1 million and €22 million on the revolving

credit facilities. Applying the exchange rates at 31 December 2023, the headroom equated to £1,043 million. There are also a number of

uncommitted overdraft, guarantee and borrowing facilities made available to the Group.

During the year, £4 million of unamortised finance costs were charged to the Income Statement, and an additional £2 million was written off

relating to the old bank facility that was replaced on demerger. New unamortised finance costs of £11 million were recognised on the inception

of the new bank facility.

Throughout the year, the Group remained compliant with all covenants under the facilities disclosed above. A number of Group companies are

guarantors under the bank facilities. Further details on covenant compliance for the year ended 31 December 2023 are contained in note 25.

The bank margin on the bank facility depends on the Group leverage and were as follows:

	31 December 2023		31 December 2022
	Margin	Range	Margin	Range
Facility:
Term loan	1.30%	0.9% – 2.2%	0.75%	0.75% – 2.0%
Revolving credit facilities	1.30% – 1.55%	0.9% – 2.4%	0.75%	0.75% – 2.0%

At the start of the year the Group held capital market borrowings with an outstanding nominal value of £130 million from an original £300 million bond,

issued in May 2017 and due to mature in May 2032. In December 2023, an agreement was reached with certain remaining bondholders that resulted

in £120 million of the outstanding nominal value being bought back and cancelled for a total cost of £109 million (excluding accrued interest). This

represented a gain of £13 million after associated costs including the release of a fair value adjustment of £2 million on the bond, recognised on

acquisition of GKN. This gain has been recognised as an adjusting item within finance income in the Consolidated Income Statement.

Details of the remaining bond are in the table below:

	Notional amount	Coupon
Maturity date	£m	% p.a.
May 2032	10	4.625%

Maturity of financial liabilities (excluding currency contracts and lease obligations)

The table below shows the maturity profile of anticipated future cash flows, including interest, on an undiscounted basis in relation to the Group’s

financial liabilities (other than those associated with currency risk, which are shown in note 25, and lease obligations which are shown in note 28).

The amounts shown therefore differ from the carrying value and fair value of the Group’s financial liabilities.

NOTES TO THE FINANCIAL STATEMENTS

CONTINUED

206

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

20. Interest-bearing loans and borrowings

continued

	Interest-bearing	Interest rate
	loans and	derivative financial	Other financial	Total financial
	borrowings	liabilities	liabilities	liabilities
	£m	£m	£m	£m
Within one year	88	–	799	887
In one to two years	45	–	21	66
In two to five years	565	–	7	572
A fter five years	11	–	32	43
Effect of financing rates	(79)	–	–	(79)
31 December 2023	630	–	859	1,489
Within one year	131	3	1,918	2,052
In one to two years	1,358	–	60	1,418
In two to five years	18	–	15	33
A fter five years	160	–	25	185
Effect of financing rates	(171)	–	–	(171)
31 December 2022	1,496	3	2,018	3,517

21.

Provisions

	Loss-making	Property	Environmental and	Warranty
	contracts	related costs	litigation	related costs	Restructuring	Other	Total
	£m	£m	£m	£m	£m	£m	£m
A t 1 January 2023	108	28	119	200	83	73	611
Utilised	(26)	–	(7)	(11)	(97)	(8)	(149)
Charge to operating profit (1)	23	1	18	16	96	63	217
Release to operating profit (2)	(2)	–	(9)	(18)	(2)	–	(31)
Disposal of businesses (3)	(41)	(5)	(63)	(154)	(18)	(63)	(344)
Transfer to held for sale (4)	(1)	–	(1)	(2)	–	–	(4)
Unwind of discount (5)	–	–	–	–	–	1	1
Exchange adjustments	(3)	(1)	(3)	(4)	(3)	(1)	(15)
A t 31 December 2023	58	23	54	27	59	65	286
Current	38	5	34	15	49	47	188
Non-current	20	18	20	12	10	18	98
	58	23	54	27	59	65	286

(1) Includes £182 million of adjusting items and £35 million recognised in adjusted operating profit.

(2) Includes £8 million of adjusting items and £23 million recognised in adjusted operating profit.

(3) Disposal of businesses relates to the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses (see note 1).

(4) Transfer to held for sale relates to the contractually agreed sale of a non-core business in the Structures segment (see note 1).

(5) Includes £1 million within finance costs relating to the time value of money.

Loss-making contracts

Provisions for loss-making contracts are considered to exist where the Group has a contract under which the unavoidable costs of meeting the

obligations exceed the economic benefits expected to be received under it. This obligation has been discounted and will be utilised over the

period of the respective contracts, which is up to 15 years. At 31 December 2023, the loss-making contracts provision within Engines totalled

£14 million (31 December 2022: £17 million) and £44 million within Structures (31 December 2022: £45 million).

Calculation of loss-making contract provisions is based on contract documentation and delivery expectations, along with an estimate of directly

attributable costs and represents management’s best estimate of the unavoidable costs of fulfilling the contract.

Utilisation in continuing operations during the year of £23 million has benefited adjusted operating profit with £3 million recognised in Engines

and £20 million recognised in Structures. In addition, £21 million has been charged on a net basis (2022: £8 million released) and is shown as

an adjusting item.

Property related costs

The provision for property related costs represents dilapidation costs for ongoing leases and is expected to result in cash expenditure over the

next eight years. Calculation of dilapidation obligations are based on lease agreements with landlords and external quotes, or in the absence

of specific documentation, management’s best estimate of the costs required to fulfil obligations.

Environmental and litigation

There are environmental provisions amounting to £7 million (31 December 2022: £26 million) relating to the estimated remediation costs

of pollution, soil and groundwater contamination at certain sites and estimated future costs and settlements in relation to legal claims and

associated insurance obligations amounting to £47 million (31 December 2022: £93 million). Liabilities for environmental costs are recognised

when environmental assessments are probable and the associated costs can be reasonably estimated.

FINANCIAL STATEMENTS

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

207

21. Provisions

continued

The Group has on occasion been required to take legal or other actions to defend itself against proceedings brought by other parties. Provisions

are made for the expected costs associated with such matters, based on past experience of similar items and other known factors, considering

professional advice received. This represents management’s best estimate of the likely outcome. The timing of utilisation of these provisions is

frequently uncertain, reflecting the complexity of issues and the outcome of various court proceedings and negotiations. Contractual and other

provisions represent management’s best estimate of the cost of settling future obligations and reflect management’s assessment of the likely

settlement method, which may change over time. However, no provision is made for proceedings which have been, or might be, brought by

other parties against Group companies unless management, considering professional advice received, assess that it is more likely than not that

such proceedings may be successful.

Warranty related costs

Provisions for the expected cost of warranty obligations under local sale of goods legislation are recognised at the date of sale of the relevant

products and subsequently updated for changes in estimates as necessary. The provision for warranty related costs represents the best

estimate of the expenditure required to settle the Group’s obligations, based on past experience, recent claims and current estimates of costs

relating to specific claims. Warranty terms are, on average, between one and five years.

Restructuring

Restructuring provisions relate to committed costs in respect of restructuring programmes, as described in note 6, usually resulting in cash

spend within one to two years. A restructuring provision is recognised when the Group has developed a detailed formal plan for the restructuring

and has raised a valid expectation in those affected that it will carry out the restructuring by either starting to implement the plan or by

announcing its main features to those affected by it. The measurement of a restructuring provision includes only the direct expenditures arising

from the restructuring, which are those amounts that are necessarily entailed by the restructuring programmes.

Other

Other provisions include long-term incentive plans for divisional senior management and the employer tax on equity-settled incentive schemes

which are expected to result in cash expenditure during the next three years.

Where appropriate, provisions have been discounted using discount rates between 0% and 7% (31 December 2022: 0% and 14%) depending

on the territory in which the provision resides and the length of its expected utilisation.

22. Deferred tax

The following are the major deferred tax assets and liabilities recognised by the Group and movements thereon during the current and prior year.

	Deferred tax assets	Deferred tax liabilities
		Accelerated
	Tax losses and other	capital allowances	Deferred tax on	Total deferred	Total net
	assets	and other liabilities	intangible assets	tax liabilities	deferred tax
	£m	£m	£m	£m	£m
A t 1 January 2022	250	(127)	(487)	(614)	(364)
Credit to income	35	3	111	114	149
Credit to equity	4	–	–	–	4
Disposal of businesses (1)	(10)	–	–	–	(10)
A cquisition of businesses (2)	–	(1)	–	(1)	(1)
Transfer to held for sale (3)	(9)	–	30	30	21
Exchange adjustments	44	(18)	(71)	(89)	(45)
Movement in set off of assets and liabilities (4)	59	(7)	(52)	(59)	–
A t 31 December 2022	373	(150)	(469)	(619)	(246)
Credit/(charge) to income	55	(85)	73	(12)	43
Credit to equity	43	–	–	–	43
Disposal of businesses (1)	(189)	31	347	378	189
Transfer to held for sale (3)	(1)	–	–	–	(1)
Exchange adjustments	(18)	10	25	35	17
Movement in set off of assets and liabilities (4)	264	(18)	(246)	(264)	–
A t 31 December 2023	527	(212)	(270)	(482)	45

(1) Disposal of businesses in 2023 relates to the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses (see note 1).

Disposal of businesses in 2022 related to the sale of a non-core business.

(2)

Acquisition of businesses in 2022 related to Permanova Lasersystem AB within the Engines segment.

(3) Transfer to held for sale in 2023 relates to the contractually agreed sale of a non-core business in the Structures segment and in 2022 related to the Ergotron

business (see note 1).

(4)

Set off of deferred tax assets and liabilities in accordance with IAS 12 within territories with a right of set off.

As at 31 December 2023, the Group had gross unused corporate income tax losses of £2,039 million (31 December 2022: £2,176 million)

available for offset against future profits. A deferred tax asset of £446 million (31 December 2022: £477 million) has been recognised in respect

of £1,799 million (31 December 2022: £1,938 million) of these gross losses. The movement in deferred tax assets relating to tax losses arises

primarily through the Income Statement. There is also a credit of £nil (2022: £6 million) included within equity. No asset has been recognised

in respect of the remaining losses due to the divisional and geographic split of anticipated future profit streams. Most of these losses may be

carried forward indefinitely subject to certain continuity of business requirements. Where losses are subject to time expiry, a deferred tax asset

NOTES TO THE FINANCIAL STATEMENTS

CONTINUED

208

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

22. Deferred tax

continued

is recognised to the extent that sufficient future profits are anticipated to utilise these losses. The Group continues to recognise deferred tax

assets as it is confident that the global recovery, together with restructuring actions taken, will result in future taxable profits against which

the deferred tax assets will be realised. In addition to the corporate income tax losses included above, a deferred tax asset of £33 million

(31 December 2022: £47 million) has been recognised on tax credits (primarily US) and US state tax losses.

Using similar forecasting considerations to those in the impairment section (note 11), climate change is deemed not to have a material impact

on the future taxable profits of the Group and its ability to utilise unused tax losses and deductible temporary differences.

Deferred tax assets have also been recognised on Group retirement benefit obligations at £7 million (31 December 2022: £14 million) and on

other temporary differences at £261 million (31 December 2022: £318 million). The gross deferred tax assets therefore amount to £747 million

(31 December 2022: £856 million).

Deferred tax liabilities have been recognised on intangible assets at £479 million (31 December 2022: £923 million) and accelerated capital

allowances and other temporary differences at £223 million (31 December 2022: £179 million). The gross deferred tax liabilities therefore amount

to £702 million (31 December 2022: £1,102 million).

There are no material unrecognised deferred tax assets at 31 December 2023 (31 December 2022: £nil), other than the losses referred to above.

No deferred tax is recognised on the unremitted earnings of overseas subsidiaries except where the distribution of such profits is planned.

If these earnings were remitted in full, tax of £2 million (31 December 2022: £62 million) would be payable.

23. Share-based payments

2020 Employee Share Plan

Following the demerger of GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen (“Dowlais”, see note 1), certain adjustments were

made to the

Melrose 2020 Employee Share Plan (“the MESP”), following shareholder approval, which preserved the rights of the participants

of the plan.

Firstly, the invested capital was allocated between the continuing Melrose Group and Dowlais. Secondly, recognising that the timelines of both

the demerger and the crystallisation date of the MESP coincided, the performance of the MESP was extended by one year. Finally, to recognise

the value creation platform already prepared for Dowlais whilst under Melrose ownership, the invested capital allocated formed the basis for the

creation of a separate parallel Melrose Automotive share plan (“the MASP”), under which the creation of further value in Dowlais will be rewarded

up to 31 May 2025. The MASP is not an equity-settled share-based payment arrangement for the Group and so an adjustment was recorded

to recycle £5 million from Retained Earnings.

Further details in respect of the MESP are set out in the Directors’ Remuneration Report on page 134.

The MESP

During the year, the Group recognised a charge of £35 million (2022: £15 million) in respect of the MESP, inclusive of a £28 million charge in

respect of related national insurance (2022: credit of £1 million), recognised in adjusting items (note 6).

The estimated value of the MESP at 31 December 2023 if settled at that date was £302 million (31 December 2022: £nil). Using a Black-Scholes

option pricing model, the projected value of this plan at 31 May 2024 (being the end of the revised four year performance period) is £274 million

(31 December 2022: £22 million).

The annual IFRS 2 charge in respect of the MESP was £16 million which ceased on 31 May 2023. The inputs into the Black-Scholes valuation

model that were used to fair value the plan at the grant date were as follows:

	Valuation assumptions (1)
Weighted average share price	£1.81
Weighted average exercise price	£1.71
Expected volatility	58%
Expected life as at inception	2.4 years
Risk free interest	0.0%

(1) Valuation assumptions are not required to be updated to reflect the current capital structure of the Group.

Expected volatility was determined by calculating the historical volatility of the Company’s share price.

24. Retirement benefit obligations

Defined contribution plans

The Group operates defined contribution plans for qualifying employees across several jurisdictions. The assets of the plans are held separately

from those of the Group in funds under the control of Trustees.

The total costs charged in relation to the continuing businesses during the year of £58 million (2022: £56 million) represent contributions payable

to these plans by the Group at rates specified in the rules of the plans.

FINANCIAL STATEMENTS

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

209

24. Retirement benefit obligations

continued

Defined benefit plans

The Group sponsors defined benefit plans for qualifying employees of certain subsidiaries. The funded defined benefit plans are administered

by separate funds that are legally separated from the Group. The Trustees of the funds are required by law to act in the interest of the fund

and of all relevant stakeholders in the plans. The Trustees of the pension funds are responsible for the investment policy with regard to the

assets of the fund.

During the year, £439 million of net retirement benefit obligations were disposed with the demerger of the GKN Automotive, GKN Powder

Metallurgy and GKN Hydrogen businesses (note 1).

Also during the year, a buy-in policy was purchased for £45 million which fully insured pensioner members who were in the GKN Group Pension

Scheme Number 4. The present value of funded defined benefit obligations for GKN Group Pension Scheme Number 4 was actuarially calculated

and the plan asset was set equal. Following the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses, the

most significant defined benefit pension plans in the Group at 31 December 2023 were:

GKN Group Pension Schemes (Numbers 1 and 4)

The GKN Group Pension Schemes (Numbers 1 and 4) are funded plans closed to new members and were closed to future accrual in 2017.

The valuation of the plans was based on a full actuarial valuation as of 5 April 2022, updated to 31 December 2023 by independent actuaries.

In June 2023, the UK High Court ruled that certain historical amendments for contracted-out defined benefit schemes were invalid if they were

not accompanied by the correct actuarial confirmation. The judgement is subject to appeal. The Trustees and the Group are monitoring

developments and will consider if there are any implications for the GKN UK Group Pension Schemes, if the ruling is upheld.

GKN US Consolidated Pension Plan

The GKN US Consolidated Pension Plan is a funded plan, closed to new members and closed to future accrual. The US Pension Plan valuation

was based on a full actuarial valuation as of 1 January 2023, updated to 31 December 2023 by independent actuaries.

The cost of the Group’s defined benefit plans is determined in accordance with IAS 19 (revised): Employee benefits using the advice of

independent professionally qualified actuaries on the basis of formal actuarial valuations and using the projected unit credit method. In line with

normal practice, these valuations are undertaken triennially in the UK and annually in the US.

Contributions

The Group contributed £72 million (2022: £59 million) to defined benefit pension plans and post-employment plans, inclusive of the £45 million

purchase of a buy-in policy discussed above, in the year ended 31 December 2023. The Group expects to contribute £25 million in 2024.

Actuarial assumptions

The major assumptions used by the actuaries in calculating the Group’s pension liabilities are as set out below:

	Rate of increase		Price inflation
	of pensions in payment	Discount rate	(RPI/CPI)
	% per annum	%	%
31 December 2023
GKN Group Pension Schemes (Numbers 1 and 4)	2.6	4.5	2.9/2.5
GKN US plans	n/a	4.8	n/a
31 December 2022
GKN Group Pension Schemes (Numbers 1 – 4)	2.7	4.8	3.2/2.7
GKN US plans	n/a	5.0	n/a
GKN Europe plans	2.6	3.7	2.6/2.6

Mortality

GKN Group Pension Schemes (Numbers 1 and 4)

The GKN Group Pension Schemes (Numbers 1 and 4) use the SAPS “S3PA” base tables with scheme-specific adjustments. The base table

mortality assumption for each of the UK plans reflects best estimate results from the most recent mortality experience analyses for each scheme.

Scaling factors vary by scheme.

Future improvements for all UK plans are in line with the 2022 Continuous Mortality Investigation (“CMI”) core projection model (SK = 7.5, A = 0%,

w2022 = 25%) with a long-term rate of improvement of 1.25% p.a. for both males and females.

GKN US Consolidated Pension Plan

GKN US Pension and Medical Plans use base mortality tables in line with PRI – 2012 tables. Future improvements for all US plans are in line

with MP2021.

The following table shows the future life expectancy of individuals age 65 at the year end and the future life expectancy of individuals aged 65

in 20 years’ time.

	GKN Group	GKN US
	Pension Schemes	Consolidated
	(Numbers 1 and 4)	Pension Plan
	years	years
Male today	22.0	19.7
Female today	24.0	21.6
Male in 20 years’ time	22.8	21.2
Female in 20 years’ time	25.0	23.1

NOTES TO THE FINANCIAL STATEMENTS

CONTINUED

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24. Retirement benefit obligations

continued

Balance Sheet disclosures

The amounts recognised in the Consolidated Balance Sheet in respect of defined benefit plans were as follows:

	31 December	31 December
	2023	2022
	£m	£m
Present value of funded defined benefit obligations	(1,193)	(1,931)
Fair value of plan assets	1,118	1,941
Funded status	(75)	10
Present value of unfunded defined benefit obligations	(24)	(498)
Net liabilities	(99)	(488)
A nalysed as:
Retirement benefit surplus	–	93
Retirement benefit obligations	(99)	(581)
Net liabilities	(99)	(488)

The net retirement benefit obligations in continuing businesses is attributable to Engines: liability of £2 million (31 December 2022: £1 million)

and Structures: liability of £97 million (31 December 2022: £26 million).

The plan assets and liabilities at 31 December 2023 were as follows:

	UK	US	Other
	Plans (1)	Plans	Plans	Total
	£m	£m	£m	£m
Plan assets	1,070	47	1	1,118
Plan liabilities	(1,136)	(72)	(9)	(1,217)
Net liabilities	(66)	(25)	(8)	(99)

(1) Includes a liability in respect of the GKN post-employment medical plans of £6 million and a net deficit in respect of the GKN Group Pension Scheme

(Numbers 1 and 4) of £60 million.

The major categories and fair values of plan assets at the end of the year for each category were as follows:

	31 December	31 December
	2023	2022
	£m	£m
Equities	–	85
Government bonds	363	722
Corporate bonds	60	196
Property	9	18
Insurance contracts	439	28
Multi-strategy/Diversified growth funds	130	354
Private equity	24	80
Other (1)	93	458
Total	1,118	1,941

(1) Primarily consists of cash collateral and liability driven investments.

Excluding the insurance contracts purchased in respect of GKN Group Pension Scheme Number 4, the assets were well diversified and the

majority of plan assets had quoted prices in active markets. All government bonds were issued by reputable governments and were generally

AA rated or higher. Interest rate and inflation rate swaps were also employed to complement the role of fixed and index-linked bond holdings

for liability risk management.

The Trustees continually review whether the chosen investment strategy is appropriate with a view to providing the pension benefits and to

ensure appropriate matching of risk and return profiles. The main strategic policies included maintaining an appropriate asset mix, managing

interest rate sensitivity and maintaining an appropriate equity buffer. Investment results are regularly reviewed.

FINANCIAL STATEMENTS

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

211

24.

Retirement benefit obligations

continued

Movements in the present value of defined benefit obligations during the year:

	Year ended	Year ended
	31 December	31 December
	2023	2022
	£m	£m
A t 1 January	2,429	3,471
Current service cost	2	9
Interest cost on obligations	71	66
Remeasurement gains – demographic	–	(1)
Remeasurement losses/(gains) – financial	3	(1,072)
Remeasurement losses – experience	23	102
Benefits paid out of plan assets	(79)	(134)
Benefits paid out of Group assets for unfunded plans	(7)	(24)
Settlements (1)	–	(44)
Disposal of businesses (2)	(1,214)	–
Exchange adjustments	(11)	56
A t 31 December	1,217	2,429

(1)

During 2022, a settlement gain of £2 million was recognised in discontinued operations relating to the buy-out of certain US pension schemes and was shown

as an adjusting item.

(2)

Disposal of businesses in 2023 relates to the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses (see note 1).

The defined benefit plan liabilities were 13% (31 December 2022: 15%) in respect of active plan participants, 27% (31 December 2022: 25%)

in respect of deferred plan participants and 60% (31 December 2022: 60%) in respect of pensioners.

The weighted average duration of the defined benefit plan liabilities at 31 December 2023 was 12.7 years (31 December 2022: 12.8 years).

Movements in the fair value of plan assets during the year:

	Year ended	Year ended
	31 December	31 December
	2023	2022
	£m	£m
A t 1 January	1,941	3,010
Interest income on plan assets	66	61
Return on plan assets, excluding interest income	(93)	(1,003)
Contributions	65	35
Benefits paid out of plan assets	(79)	(134)
Plan administrative costs	(4)	(8)
Settlements (1)	–	(42)
Disposal of businesses (2)	(775)	–
Exchange adjustments	(3)	22
A t 31 December	1,118	1,941

(1) During 2022, a settlement gain of £2 million was recognised in discontinued operations relating to the buy-out of certain US pension schemes and was shown as

an adjusting item.

(2)

Disposal of businesses in 2023 relates to the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses (see note 1).

The actual return on plan assets was a loss of £27 million (2022: loss of £942 million).

Income Statement disclosures

Amounts recognised in the Consolidated Income Statement in respect of these defined benefit plans were as follows:

		Restated (1)
	Year ended	Year ended
	31 December	31 December
	2023	2022
Continuing operations	£m	£m
Included within operating profit/(loss):
– plan administrative costs	4	8
Included within net finance costs:
– interest cost on defined benefit obligations	56	35
– interest income on plan assets	(55)	(36)

NOTES TO THE FINANCIAL STATEMENTS

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24. Retirement benefit obligations

continued

		Restated (1)
	Year ended	Year ended
	31 December	31 December
	2023	2022
Discontinued operations	£m	£m
Included within operating profit/(loss):
– current service cost	2	9
– settlement gains (2)	–	(2)
Included within net finance costs:
– interest cost on defined benefit obligations	15	31
– interest income on plan assets	(11)	(25)

(1)

Restated for discontinued operations (see note 1).

(2)

During 2022, a settlement gain of £2 million was recognised in discontinued operations relating to the buy-out of certain US pension schemes and was shown

as an adjusting item.

Statement of Comprehensive Income disclosures

Amounts recognised in the Consolidated Statement of Comprehensive Income in respect of these defined benefit plans were as follows:

	Year ended	Year ended
	31 December	31 December
	2023	2022
	£m	£m
Return on plan assets, excluding interest income	(93)	(1,003)
Remeasurement gains arising from changes in demographic assumptions	–	1
Remeasurement (losses)/gains arising from changes in financial assumptions	(3)	1,072
Remeasurement losses arising from experience adjustments	(23)	(102)
Net remeasurement loss on retirement benefit obligations	(119)	(32)

Risks and sensitivities

The defined benefit plans expose the Group to actuarial risks, such as longevity risk, inflation risk, interest rate risk and market (investment) risk.

The Group is not exposed to any unusual, entity specific or plan specific risks.

A sensitivity analysis on the principal assumptions used to measure the plan liabilities at the year end was as follows:

		Decrease/(increase)	Increase/(decrease)
		to plan liabilities	to profit before tax
	Change in assumption	£m	£m
Discount rate	Increase by 0.5 ppts	71	(2)
	Decrease by 0.5 ppts	(78)	2
Inflation assumption (1)	Increase by 0.5 ppts	(42)	n/a
	Decrease by 0.5 ppts	45	n/a
A ssumed life expectancy at age 65 (rate of mortality)	Increase by 1 year	(43)	n/a
	Decrease by 1 year	44	n/a

(1) The inflation sensitivity encompasses the impact on pension increases, where applicable.

The sensitivity analysis above was determined based on reasonably possible changes to the respective assumptions, while holding all other

assumptions constant. There has been no change in the methods or assumptions used in preparing the sensitivity analysis from prior years.

Sensitivities are based on the relevant assumptions and membership profile as at 31 December 2023 and are applied to obligations at the

end of the reporting period. Whilst the analysis does not take account of the full distribution of cash flows expected, it does provide an

approximation to the sensitivity of assumptions shown. Extrapolation of these results beyond the sensitivity figures shown may not be appropriate

and the sensitivity analysis presented may not be representative of the actual change in the defined benefit obligation as it is unlikely that the

change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

FINANCIAL STATEMENTS

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

213

25.

Financial instruments and risk management

The table below sets out the Group’s accounting classification of each category of financial assets and liabilities and their carrying values at

31 December 2023 and 31 December 2022:

				Discontinued
	Engines	Structures	Corporate	operations	Total
	£m	£m	£m	£m	£m
31 December 2023
Financial assets
Classified as amortised cost:
Cash and cash equivalents	–	–	58	–	58
Net trade receivables	168	252	–	–	420
Classified as fair value:
Investments	57	–	57	–	114
Derivative financial assets
Foreign currency forward contracts	–	–	47	–	47
Interest rate derivatives	–	–	3	–	3
Embedded derivatives (1)	–	9	–	–	9
Financial liabilities
Classified as amortised cost:
Interest-bearing loans and borrowings	–	–	(630)	–	(630)
Government refundable advances	(43)	(6)	–	–	(49)
Lease obligations	(35)	(150)	(7)	–	(192)
Other financial liabilities	(345)	(419)	(46)	–	(810)
Classified as fair value:
Derivative financial liabilities
Foreign currency forward contracts	–	–	(102)	–	(102)
Embedded derivatives (1)	–	(4)	–	–	(4)
31 December 2022 (restated) (2)
Financial assets
Classified as amortised cost:
Cash and cash equivalents	–	–	355	–	355
Net trade receivables	160	298	–	511	969
Classified as fair value:
Investments	52	–	10	–	62
Derivative financial assets
Foreign currency forward contracts	–	–	61	1	62
Embedded derivatives (1)	–	12	–	–	12
Financial liabilities
Classified as amortised cost:
Interest-bearing loans and borrowings	–	–	(1,496)	–	(1,496)
Government refundable advances	(47)	(12)	–	–	(59)
Lease obligations	(44)	(155)	(8)	(159)	(366)
Other financial liabilities	(306)	(452)	(45)	(1,156)	(1,959)
Classified as fair value:
Derivative financial liabilities
Foreign currency forward contracts	–	–	(217)	(1)	(218)
Interest rate swaps	–	–	(3)	–	(3)
Embedded derivatives (1)	–	(6)	–	–	(6)

(1)

The embedded derivative is classified as a level 3 fair value under the IFRS 13 fair value hierarchy.

(2)

Financial assets and liabilities have been restated for discontinued operations (see note 1) and the re-presentation of the Engines and Structures segments.

Reconciliation of liabilities arising from financing activities

Liabilities arising from financing activities, as defined by IAS 7, totalled £1,799 million at 31 December 2022 comprising; external debt of

£1,433 million (excluding £63 million of bank overdrafts) and lease obligations of £366 million. During the year a cash outflow in those liabilities totalled

£781 million as follows: net drawdown of external debt of £462 million (note 27), net repayment of external debt of £1,205 million (note 27) following

the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses and repayment of principal on lease obligations of

£38 million (note 28). There is also a decrease to liabilities arising from financing activities relating to non-cash items totalling £197 million comprising;

a decrease in external debt of £61 million due to changes in foreign exchange rates and other non-cash movements (including costs of £11 million

(note 20) of raising debt finance) and a decrease in respect of lease obligations of £136 million. As at 31 December 2023, liabilities arising from

financing activities, as defined by IAS 7, totalled £821 million comprising; external debt of £629 million (excluding £1 million of bank overdrafts)

and lease obligations of £192 million.

NOTES TO THE FINANCIAL STATEMENTS

CONTINUED

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ANNUAL REPORT 2023

25.

Financial instruments and risk management

continued

Liabilities arising from financing activities, as defined by IAS 7, totalled £1,805 million at 31 December 2021 comprising; external debt of

£1,360 million (excluding £5 million of bank overdrafts), cross currency swaps of £69 million and lease obligations of £376 million. During the year

a cash outflow in those liabilities totalled £127 million as follows: net repayment of external debt and cross-currency swaps associated with debt

of £75 million (note 27) and repayment of principal on lease obligations of £52 million (note 28). There is also an increase to liabilities arising from

financing activities relating to non-cash items totalling £121 million comprising; an increase in external debt and cross-currency swaps associated

with debt of £79 million due to changes in foreign exchange rates and other non-cash movements and an increase in respect of lease obligations

of £42 million. As at 31 December 2022, liabilities arising from financing activities, as defined by IAS 7, totalled £1,799 million comprising; external

debt of £1,433 million (excluding £63 million of bank overdrafts), cross currency swaps of £nil and lease obligations of £366 million.

Fair values

As at 31 December 2023, the £10 million (31 December 2022: £130 million) bond maturing in 2032 had a carrying value of £10 million

(31 December 2022: £132 million) and a fair value of £9 million (31 December 2022: £110 million).

The Directors consider that the carrying amount of other financial assets and liabilities approximate to their fair values.

Credit risk

The Group’s principal financial assets were cash and cash equivalents, trade receivables and derivative financial assets which represented the

Group’s maximum exposure to credit risk in relation to financial assets.

The Group’s credit risk on cash and cash equivalents and derivative financial assets was limited because the counterparties were banks with

strong credit ratings assigned by international credit rating agencies (investment grade). Exposure is managed on the basis of risk rating and

counterparty limits. The value of credit risk in derivative assets has been modelled using publicly available inputs as part of their fair value.

The Group’s credit risk was therefore primarily attributable to its trade receivables. The amounts presented in the Consolidated Balance Sheet

were net of allowance for expected credit loss, estimated by the Group’s management based on prior experience and their assessment of the

current economic environment. Note 17 provides further details regarding the recovery of trade receivables.

The following financial assets and liabilities are subject to offsetting, enforceable master netting arrangements and similar agreements:

			Net amounts of
		Gross amounts of	financial	Related amounts of
	Gross amounts of	recognised financial	assets/(liabilities)	financial instruments
	recognised financial	assets/(liabilities) set off	presented in the	not set off in the
	assets/(liabilities)	in the Balance Sheet	Balance Sheet	Balance Sheet	Net amount
31 December 2023	£m	£m	£m	£m	£m
Cash and cash equivalents	58	–	58	(12)	46
Derivative financial assets	59	–	59	(50)	9
Financial assets subject to master
netting arrangements	117	–	117	(62)	55
Interest-bearing loans and borrowings	(630)	–	(630)	(40)	(670)
Derivative financial liabilities	(106)	–	(106)	102	(4)
Financial liabilities subject to master
netting arrangements	(736)	–	(736)	62	(674)

		Gross amounts of	Net amounts of financial	Related amounts of
	Gross amounts of	recognised financial	assets/(liabilities)	financial instruments
	recognised financial	assets/(liabilities) set off in	presented in the Balance	not set off in the
	assets/(liabilities)	the Balance Sheet	Sheet	Balance Sheet	Net amount
31 December 2022	£m	£m	£m	£m	£m
Cash and cash equivalents	355	–	355	(71)	284
Derivative financial assets	74	–	74	(62)	12
Financial assets subject to master netting
arrangements	429	–	429	(133)	296
Interest-bearing loans and borrowings	(1,496)	–	(1,496)	(81)	(1,577)
Derivative financial liabilities	(227)	–	(227)	214	(13)
Financial liabilities subject to master
netting arrangements	(1,723)	–	(1,723)	133	(1,590)

Capital risk

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern.

The capital structure of the Group as at 31 December 2023 consists of net debt, as disclosed in note 27, and equity attributable to the owners of the

parent, comprising issued share capital, reserves and retained earnings as disclosed in the Consolidated Statement of Changes in Equity.

FINANCIAL STATEMENTS

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

215

25. Financial instruments and risk management

continued

Liquidity risk management

Overview of banking facilities

The Group’s committed bank facilities were refinanced during the year. The new facilities consist of a multi-currency term loan denominated

US$300 million and €100 million, and a US$250 million revolving credit facility, both of which mature in April 2026. In addition, the Group also

entered into multi-currency revolving credit facilities totalling US$690 million, £300 million and €300 million that initially mature in April 2026,

but with the potential to be extended for two additional one-year periods at the Company’s option.

At 31 December 2023, the term loan was fully drawn and there were drawings of US$298 million, £1 million and €22 million on the revolving

credit facilities. Applying the exchange rates at 31 December 2023, the headroom equated to £1,043 million. There are also a number of

uncommitted overdraft, guarantee and borrowing facilities made available to the Group.

In addition to the headroom on the multi-currency committed revolving credit facility, cash, deposits and marketable securities, net of overdrafts,

in the Group amounted to £57 million at 31 December 2023 (31 December 2022: £292 million) and are offset to arrive at the Group net debt

position of £572 million (31 December 2022: £1,139 million). The combination of this cash and the headroom on the revolving credit facility

allows the Directors to consider that the Group has sufficient access to liquidity for its current needs. The Board takes careful consideration

of counterparty risk with banks when deciding where to place cash on deposit.

Covenants

The committed bank funding has two financial covenants, being a net debt to adjusted EBITDA covenant and an interest cover covenant, both

of which are normally tested half-yearly in June and December. As a result of the demerger, the Group renegotiated its banking arrangements.

No testing of the interest cover covenant was required at 31 December 2023. From 30 June 2024, the date of its first test, the interest cover

covenant is set at 4.0x.

The net debt to adjusted EBITDA covenant test level is 3.5x from 31 December 2023. At 31 December 2023, the Group net debt leverage

was 1.1x.

Bonds

Capital market borrowings as at 31 December 2023, inherited as part of the GKN acquisition, consist of a £10 million bond maturing May 2032

following a further repurchase of the bond during the year, see note 20 for details.

Working capital

The Group has a small number of uncommitted working capital programmes that provide favourable financing terms on eligible customer

receipts and competitive financing terms to suppliers on eligible supplier payments.

Businesses which participate in these customer related finance programmes have the ability to choose whether to receive payment earlier

than the normal due date, for specific customers on a non-recourse basis. As at 31 December 2023, the drawings on these facilities were

£268 million (31 December 2022: £325 million). At 31 December 2023, the drawings in the continuing Group within Engines were £107 million

(31 December 2022: £85 million) and £161 million in Structures (31 December 2022: £53 million). At 31 December 2022, there were drawings

of £187 million within businesses demerged during the year.

In addition, some suppliers have access to utilise the Group’s supplier finance programmes, which are provided by a small number of the

Group’s banks. There is no cost to the Group for providing these programmes to its suppliers. These arrangements do not change the date

suppliers are due to be paid by the Group, and therefore there is no additional impact on the Group’s liquidity. If the Group exited these

arrangements there could be a potential impact of up to £42 million (31 December 2022: £94 million) on the Group’s cash flow. These

programmes allow suppliers to choose whether they want to accelerate the payment of their invoices, by the financing banks, for an interest

cost which is competitive, based on the credit rating of the Group as determined by the financing banks. The amounts owed to the banks

are presented in trade payables on the Balance Sheet and the cash flows are presented in cash flows from operating activities. As at

31 December 2023, total facilities were £143 million (31 December 2022: £328 million) with drawings of £86 million (31 December 2022:

£200 million). The arrangements do not change the timing of the Group’s cash outflows. At 31 December 2023, the drawings in the continuing

Group within Engines were £43 million (31 December 2022: £39 million) and £43 million in Structures (31 December 2022: £36 million).

At 31 December 2022, there were drawings of £125 million within businesses demerged during the year.

Hedge of net investments in foreign entities using loans and derivatives

Interest-bearing loans and borrowings are designated as hedges of net investments in the Group’s subsidiaries in the USA and Europe to reduce

the exposure to the related foreign exchange risks.

The value of these were as follows:

	31 December	31 December
	2023	2022
	£m	£m
Local borrowing currency:
US Dollar	467	759
Euro	106	363

NOTES TO THE FINANCIAL STATEMENTS

CONTINUED

216

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

25. Financial instruments and risk management

continued

The foreign exchange movement on the local borrowings, which is recorded in currency translation on net investments within Other

Comprehensive Income, was a gain of £43 million (2022: loss of £60 million). As at 31 December 2023, the cumulative loss in the foreign

currency translation reserve for continuing hedges on net investments using borrowings was £25 million (31 December 2022: £87 million).

There were no cross-currency swaps outstanding at 31 December 2023 or 31 December 2022. In the prior year, there were cross currency

swaps with an opening fair value liability of £1 million, with foreign exchange movements on these cross-currency swaps, which were recorded

in derivative gains/(losses) on hedge relationships within Other Comprehensive Income, being a gain of £19 million and net cash receipts of

£18 million.

The foreign exchange movement on those GKN cross-currency swaps, which is recorded in derivative gains/(losses) on hedge relationships,

was £nil (2022: loss of £62 million).

Finance cost risk management

The bank margin on the bank facility depends on the Group leverage, see note 20 for details.

The policy of the Board is to fix up to approximately 70% of the interest rate exposure of the Group’s borrowings.

The interest rate derivatives are designated as cash flow hedges and were highly effective throughout 2023. The fair value of the contracts as

at 31 December 2023 was a net asset of £3 million (31 December 2022: liability of £3 million). The movement of £6 million for the year ended

31 December 2023 (2022: £4 million) comprised of a credit of £2 million (2022: £4 million) booked to derivatives gains/(losses) on hedge

relationships in the year within Other Comprehensive Income, and a £4 million (2022: £nil) reduction in the interest accrual. During the prior year,

a balance of £2 million retained in the cash flow hedge reserve following the cancellation of interest rate swaps in 2021 was recycled to finance

costs in the Income Statement.

During the year ended 31 December 2023, some of the critical terms of the interest rate derivatives and the hedged items were not perfectly

matched; however, this did not give rise to any ineffectiveness through the Income Statement in the year (2022: £nil).

Interest rate sensitivity analysis

Assuming the net debt, inclusive of interest rate derivatives, held as at the balance sheet date was outstanding for the whole year, a one

percentage point rise in market interest rates for all currencies would decrease profit before tax by the following amounts:

	Year ended	Year ended
	31 December	31 December
	2023	2022
	£m	£m
Sterling	–	(2)
US Dollar	(1)	(5)
Euro	(1)	(2)

On the basis of the floating-to-fixed interest rate derivatives in place at the balance sheet date, a one percentage point fall in market interest rates

for all currencies would decrease Group equity by £9 million (31 December 2022: £nil).

Exchange rate risk management

The Group trades in various countries around the world and is exposed to movements in a number of foreign currencies. Following the demerger

and subsequent update to the Group’s strategy to be a pureplay aerospace business going forward, the exposure to foreign exchange

movements related to a disposal now no longer represents a material risk for the Group.

The Group therefore carries exchange rate risk that can be categorised into two types: transaction and translation risk, as described in the

paragraphs below. The Group’s policy is designed to protect against the majority of the cash risks but not the non-cash risks.

The most common exchange rate risk is the transaction risk the Group takes when it invoices a customer or purchases from suppliers in a

different currency to the underlying functional currency of the relevant business. The Group’s policy is to review transactional foreign exchange

exposures, and place necessary hedging contracts, quarterly on a rolling basis. To the extent the cash flows associated with a transactional

foreign exchange risk are committed, the Group will hedge 100% at the time the cash flow becomes committed. For forecast and variable cash

flows, the Group hedges a proportion of the expected cash flows, with the percentage being hedged lowering as the time horizon lengthens.

The Group hedges on a sliding scale, typically hedging around 90% of foreign exchange exposures expected over the next twelve months,

with the percentage decreasing by approximately 10 percentage points for each subsequent year. This policy does not eliminate the cash risk

but does bring some certainty to it.

The translation rate risk is the effect on the Group results in the period due to the movement of exchange rates used to translate foreign

results into Sterling from one period to the next. No specific exchange instruments are used to protect against the translation risk because it

is a non-cash risk to the Group, until foreign currency is subsequently converted to Sterling. However, the Group utilises its multi-currency

banking facilities, where relevant, to maintain an appropriate mix of debt in each currency. The hedge of having debt drawn in these currencies

funding the trading units with US Dollars or Euro functional currencies protects against some of the Balance Sheet and banking covenant

translation risk.

FINANCIAL STATEMENTS

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

217

25. Financial instruments and risk management

continued

As at 31 December 2023, the Group held foreign exchange forward contracts to mitigate expected exchange rate fluctuations on future cash

flows from sales to customers and purchases from suppliers. The fair value of all foreign exchange forward contracts across the Group was a net

liability at 31 December 2023 of £55 million (31 December 2022: £156 million). There were no contracts where hedge accounting was applied as

at 31 December 2023 (31 December 2022: no contracts where hedge accounting was applied).

The change in fair value of foreign exchange forward contracts recognised in derivative gains/(losses) on hedging relationships within Other

Comprehensive Income was £nil (2022: £nil) and a credit of £nil (2022: £1 million) was reclassified to the Income Statement.

There were no cross-currency swaps in place during the year. In the prior year, certain cross-currency swaps were designated as net investment

hedges and £5 million was booked through the Income Statement in finance costs of which a credit of £3 million was treated as an adjusting

item (note 6). These cross-currency swaps were designated in a net investment hedge accounting relationship against US Dollar and Euro net

assets of certain subsidiaries. The hedged risk was the spot rate, which represented the significant component of the movement and therefore

was recorded in the foreign currency translation reserve (note 26).

The following table shows the maturity profile of undiscounted contracted gross cash outflows of derivative financial liabilities used to manage currency

risk, being both the cross-currency swaps above and foreign exchange forward contracts used to manage transaction exchange rate risk:

	0–1 year	1–2 years	2–5 years	5+ years	Total
	£m	£m	£m	£m	£m
Year ended 31 December 2023
Foreign exchange forward contracts	549	370	464	58	1,441
Year ended 31 December 2022
Foreign exchange forward contracts	855	618	834	19	2,326

Foreign currency sensitivity analysis

Currency risks are defined by IFRS 7: Financial instruments: Disclosures as the risk that the fair value or future cash flows of a financial asset

or liability will fluctuate because of changes in foreign exchange rates.

The following table details the transactional impact of hypothetical changes in foreign exchange rates on financial assets and liabilities at the

balance sheet date, illustrating the (decrease)/increase in Group operating profit caused by a 10% strengthening of the US Dollar and Euro

against Sterling compared to the year-end spot rate. The analysis assumes that all other variables, in particular other foreign currency exchange

rates, remain constant. The Group operates in a range of different currencies, and those with a notable impact are shown below:

	Year ended	Year ended
	31 December	31 December
	2023	2022
	£m	£m
US Dollar	2	(11)
Euro	(5)	(3)

The following table details the impact of hypothetical changes in foreign exchange rates on financial assets and liabilities at the balance

sheet date, illustrating the increase/(decrease) in Group equity caused by a 10% strengthening of the US Dollar and Euro against Sterling.

The analysis assumes that all other variables, in particular other foreign currency exchange rates, remain constant.

	31 December	31 December
	2023	2022
	£m	£m
US Dollar	–	(10)
Euro	(1)	(7)

In addition, the change in equity due to a 10% strengthening of the US Dollar against Sterling for the translation of net investment hedging

instruments would be a decrease of £47 million (2022: £77 million) and for the Euro, a decrease of £11 million (2022: £36 million). However,

there would be no overall effect on equity because there would be an offset in the currency translation of the foreign operation.

Fair value measurements recognised in the Balance Sheet

Foreign currency forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates

matching the maturities of the contracts.

Interest rate swap and cross-currency swap contracts are measured using yield curves derived from quoted interest and foreign exchange rates.

NOTES TO THE FINANCIAL STATEMENTS

CONTINUED

218

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

25.

Financial instruments and risk management

continued

Hedge accounted derivatives

The following table sets out details of the Group’s material hedging instruments where hedge accounting is applied at the balance sheet date:

					Fair value of assets/
	Average fixed rate		Notional principal		(liabilities)
	31 December	31 December	31 December	31 December	31 December	31 December
	2023	2022	2023	2022	2023	2022
Hedging Instruments	%	%	£m	£m	£m	£m
Pay fixed, receive floating interest rate derivatives
Within one year	3.49%	2.24%	414	260	–	(3)
In one to two years	3.49%	–	414	–	–	–
In two to five years	3.49%	–	414	–	3	–
Total					3	(3)

During the year, the Group entered into pay fixed, receive floating interest rate derivatives totalling $440 million and €80 million, which were

outstanding as at 31 December 2023. Pay fixed, receive floating derivatives, which totalled $315 million, that were outstanding at 31 December 2022

matured during the year.

Derivative and financial assets and liabilities are presented within the Balance Sheet as:

	31 December	31 December
	2023	2022
	£m	£m
Non-current assets	46	36
Current assets	13	38
Current liabilities	(42)	(86)
Non-current liabilities	(64)	(141)

The change in fair value of interest rate derivatives is discussed in the Finance Risk Management section of the Finance Director’s Review.

All hedging instruments are booked in the Balance Sheet as derivative financial assets or derivative financial liabilities.

The fair value of derivative financial instruments is derived from inputs other than quoted prices that are observable for the asset or liability, either

directly (i.e. as prices) or indirectly (i.e. derived from prices) and they are therefore categorised within Level 2 of the fair value hierarchy set out in

IFRS 13: Fair value measurement. The Group’s policy is to recognise transfers into and out of the different fair value hierarchy levels at the date

the event or change in circumstances that caused the transfer to occur. There have been no transfers between levels in the year.

The following table sets out details of the Group’s material hedged items at the balance sheet date where hedge accounting is applied:

			Balance in translation		Balance in translation
	Change in fair value for		and hedging reserve		and hedging reserve
	calculating ineffectiveness		for continuing hedges		for discontinued hedges
	31 December	31 December	31 December	31 December	31 December	31 December
	2023	2022	2023	2022	2023	2022
	£m	£m	£m	£m	£m	£m
Hedged items
Floating rate borrowings – interest risk	(2)	(4)	(2)	–	–	–
Net assets of designated investments	–	–	–	–	–	116

There is no balance held in cash flow hedge reserve from hedging relationships for which hedge accounting is no longer applied.

26. Issued share capital and reserves

	31 December	31 December
	2023	2022
Share Capital	£m	£m
A llotted, called-up and fully paid
1,351,475,321 (31 December 2022: 4,054,425,961) Ordinary Shares of 160/7 pence (31 December 2022:
160/21 pence) each	309	309
	309	309

On 19 April 2023, a share consolidation took place whereby shareholders received one new share in the Company for every three existing

shares held. In addition, a share buyback programme has commenced during the year with 18,761,840 shares repurchased and held as

treasury shares.

The rights associated with each class of share are described in the Directors’ Report.

Merger reserve and Other reserves

The Merger reserve represents the excess of fair value over nominal value of shares issued in consideration for the acquisition of subsidiaries.

Other reserves comprise accumulated adjustments in respect of Group reconstructions.

FINANCIAL STATEMENTS

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

219

26. Issued share capital and reserves

continued

Translation and hedging reserve

In order to provide useful information about the Group’s hedging arrangements, the translation reserve and hedging reserve are combined.

Including the different components of hedging in one place enables a clearer explanation of the three components of hedging. These

components are disaggregated below with movements within Other Comprehensive Income during the year shown below and further

explanation provided in note 25.

				Translation
	Cost of hedge	Cash flow hedge	Foreign currency	and hedging
	reserve	reserve	translation reserve	reserve
	£m	£m	£m	£m
A t 1 January 2022	(10)	(9)	95	76
Movements within other comprehensive income:
Retranslation of net assets	–	–	665	665
A ssociated deferred tax	–	–	6	6
Foreign exchange differences on borrowings hedging net assets	–	–	(60)	(60)
A ssociated deferred tax	–	–	–	–
Change in fair value of derivatives designated in net investment hedges	–	–	(43)	(43)
A ssociated deferred tax	–	–	–	–
Change in fair value of derivatives designated in cash flow hedges	–	4	–	4
A ssociated deferred tax	–	(1)	–	(1)
A mounts reclassified to the Income Statement	10	6	(25)	(9)
A t 31 December 2022	–	–	638	638
Movements within other comprehensive expense:
Retranslation of net assets	–	–	(250)	(250)
A ssociated deferred tax	–	–	(7 )	(7 )
Foreign exchange differences on borrowings hedging net assets	–	–	43	43
A ssociated deferred tax	–	–	–	–
Change in fair value of derivatives designated in cash flow hedges	–	2	–	2
A ssociated deferred tax	–	(1)	–	(1 )
A mounts reclassified to the Income Statement	–	–	(152)	(152)
A t 31 December 2023	–	1	272	273

The cash flow hedge reserve represents the cumulative fair value gains and losses on derivatives for which cash flow hedge accounting

has been applied. Movements and balances on derivatives designated in net investment hedges are shown as part of the foreign currency

translation reserve.

The foreign currency translation reserve contains exchange differences on the translation of subsidiaries with a functional currency other than

Sterling, together with gains and losses on the translation of liabilities and cumulative fair value gains and losses on derivatives that hedge the

Company’s net investment in foreign subsidiaries.

Amounts reclassified to the Income Statement during the year includes a credit of £152 million (2022: £11 million) following the disposal

of businesses.

NOTES TO THE FINANCIAL STATEMENTS

CONTINUED

220

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

27. Cash flow statement

			Restated (1)
		Year ended	Year ended
		31 December	31 December
		2023	2022
	Notes	£m	£m
Reconciliation of operating profit/(loss) to net cash used in operating activities generated
by continuing operations
Operating profit/(loss)		57	(270)
A djusting items	6	333	417
A djusted operating profit	6	390	147
A djustments for:
Depreciation of property, plant and equipment		100	104
A mortisation of computer software and development costs		42	41
Restructuring costs paid and movements in provisions		(160)	(60)
Defined benefit pension contributions paid (2)		(67)	(23)
Change in inventories		(10)	(88)
Change in receivables		(140)	(172)
Change in payables		4	112
Tax paid		(17)	(8)
Interest paid on loans and borrowings (3)		(79)	(76)
Interest paid on lease obligations		(5)	(6)
A cquisition and disposal costs		(65)	(10)
Net cash used in operating activities		(7)	(39)

(1)

Restated for discontinued operations (see note 1).

(2)

The year ended 31 December 2023 includes £45 million for the purchase of a buy-in policy for GKN Group Pension Scheme Number 4 (see note 24).

(3)

The year ended 31 December 2023 includes £17 million of finance costs on the proportion of the Group’s net debt strategically allocated to demerged businesses

at the start of the year and settled on demerger (see note 6).

	31 December	31 December
	2023	2022
Reconciliation of cash and cash equivalents, net of bank overdrafts	£m	£m
Cash and cash equivalents per Balance Sheet	58	355
Bank overdrafts included within current interest-bearing loans and borrowings (note 20)	(1)	(63)
Cash and cash equivalents, net of bank overdrafts per Statement of Cash Flows	57	292

Cash flow information relating to discontinued operations is as follows:

		Restated (1)
	Year ended	Year ended
	31 December	31 December
	2023	2022
Cash flow from discontinued operations	£m	£m
Net cash from discontinued operations	54	377
Defined benefit pension contributions paid	(5)	(36)
Tax paid	(8)	(81)
Interest paid on lease obligations	(3)	(6)
Interest paid on loans and borrowings	(2)	(11)
Net cash from operating activities from discontinued operations	36	243
Interest received	–	3
Dividends received from equity accounted investments	–	59
Purchase of property, plant and equipment	(62)	(203)
Proceeds from disposal of property, plant and equipment	–	21
Purchase of computer software and capitalised development costs	(5)	(20)
Net cash used in investing activities from discontinued operations	(67)	(140)
Repayment of principal under lease obligations	(6)	(23)
Net cash used in financing activities from discontinued operations	(6)	(23)

(1)

Restated for discontinued operations (see note 1).

Net debt reconciliation

Net debt consists of interest-bearing loans and borrowings (excluding any acquisition related fair value adjustments) and cash and

cash equivalents.

FINANCIAL STATEMENTS

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

221

27. Cash flow statement

continued

Net debt is considered to be an alternative performance measure as it is not defined in IFRS. The most directly comparable IFRS measure is

the aggregate of interest-bearing loans and borrowings (current and non-current) and cash and cash equivalents. A reconciliation from the most

directly comparable IFRS measure to net debt, used as a basis for banking covenant calculations, is given below:

	31 December	31 December
	2023	2022
	£m	£m
Interest-bearing loans and borrowings – due within one year	(54)	(63)
Interest-bearing loans and borrowings – due after one year	(576)	(1,433)
External debt	(630)	(1,496)
Less:
Cash and cash equivalents	58	355
	(572)	(1,141)
A djustments:
Non-cash acquisition fair value adjustments	–	2
Net debt	(572)	(1,139)

The table below shows the key components of the movement in net debt:

	At					At
	31 December		Acquisitions	Other non-cash	Effect of foreign	31 December
	2022	Cash flow	and disposals	movements	exchange	2023
	£m	£m	£m	£m	£m	£m
External debt (excluding bank overdrafts)	(1,433)	(462)	1,205	18	43	(629)
Non-cash acquisition fair value adjustments	2	–	–	(2)	–	–
	(1,431)	(462 )	1,205	16	43	(629)
Cash and cash equivalents, net of bank
overdrafts	292	169	(385)	–	(19)	57
Net debt	(1,139)	(293)	820	16	24	(572)

28.

Commitments

Amounts payable under lease obligations:

	31 December	31 December
	2023	2022
Minimum lease payments	£m	£m
A mounts payable:
Within one year	45	69
A fter one year but within five years	102	166
Over five years	75	209
Less: future finance charges	(30)	(78)
Present value of lease obligations	192	366
A nalysed as:
A mounts due for settlement within one year	40	60
A mount due for settlement after one year	152	306
Present value of lease obligations	192	366

It is the Group’s policy to lease certain of its property, plant and equipment. The average lease term is 10 years. Interest rates are fixed at the

contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.

During the year £158 million of lease obligations were disposed of with the demerger of the GKN Automotive, GKN Powder Metallurgy and

GKN Hydrogen businesses (see note 13).

The Group’s obligations under lease arrangements are secured by the lessors’ rights over the leased assets.

Certain leases within the Group contain extension or termination options to allow for flexibility within these lease agreements. Where these

options are not reasonably certain to be exercised, they are not included in the lease obligation. The value of these associated undiscounted

cash flows is £179 million (31 December 2022: £171 million).

NOTES TO THE FINANCIAL STATEMENTS

CONTINUED

222

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ANNUAL REPORT 2023

28. Commitments

continued

The table below shows the key components in the movement in lease obligations.

	Year ended	Year ended
	31 December	31 December
	2023	2022
	£m	£m
A t 1 January	366	376
A dditions	31	38
Interest charge	8	9
Reassessment of lease obligation	2	(1)
Payment of principal	(38)	(52)
Payment of interest	(8)	(12)
Disposals	–	(5)
Disposal of businesses (1)	(158)	(3)
Transfer to held for sale (2)	(1)	(7)
Exchange adjustments	(10)	23
A t 31 December	192	366

(1)

Disposal of businesses in 2023 relates to the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses (see note 1). Disposal of

businesses in 2022 related to the sale of a non-core business in the Structures segment.

(2)

Transfer to held for sale in 2023 relates to the contractually agreed sale of a non-core business in the Structures segment and in 2022 related to the Ergotron

business (see note 1).

Capital commitments

At 31 December 2023, there were commitments of £115 million (31 December 2022: £127 million) relating to the acquisition of new plant

and machinery.

29. Related parties

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

in this note. Sales to and purchases from Group companies are priced on an arm’s length basis and generally are settled on 30 day terms.

During the year ended 31 December 2023, £417 million of equity accounted investments were disposed with the demerger of the GKN

Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses (note 13) into Dowlais, who became a related party upon demerger.

During the year, the Group entered into a Transitional Services Agreement with Dowlais to provide services and support to ensure continuity

immediately following the demerger. As a result, income of £1 million (2022: £nil) has been recognised in the Income Statement for continuing

operations.

Remuneration of key management personnel

The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories

specified in IAS 24: Related party disclosures. Further information about the remuneration of individual Directors is provided in the audited part of

the Directors’ Remuneration Report on pages 131 and 141.

	Year ended	Year ended
	31 December	31 December
	2023	2022
	£m	£m
Short-term employee benefits	5	5
Share-based payments	5	10
	10	15

30. Contingent liabilities

As a result of acquisitions made by the Group, certain contingent legal and warranty liabilities have been identified as part of the fair value review

of these acquisition balance sheets. Whilst it is difficult to reasonably estimate the timing and ultimate outcome of these claims, the Directors’

best estimate has been included in the Balance Sheet where they existed at the time of acquisition and hence were recognised in accordance

with IFRS 3: Business combinations. Where a provision has been recognised, information regarding the different categories of such liabilities and

the amount and timing of outflows is included within note 21.

Given the nature of the Group’s business many of the Group’s products have a large installed base, and any reworks related to such

products could be particularly costly. The costs of product reworks are not always covered by insurance. Reworks may have a material adverse

effect on the Group’s financial condition, results of operations and cash flows.

The Group has contingent liabilities representing guarantees and contract bonds given in the ordinary course of business on behalf of

trading subsidiaries. No losses are anticipated to arise on these contingent liabilities. The Group does not have any other significant

contingent liabilities.

COMPANY BALANCE SHEET FOR MELROSE INDUSTRIES PLC

		31 December	31 December
		2023	2022
	Notes	£m	£m
Fixed assets
Investments	3	10,608	10,591
Debtors:
Amounts falling due after one year	4	549	487
Creditors:
Amounts falling due within one year	5	(4,893)	(3,443)
Net current liabilities		(4,344)	(2,956)
Total assets less current liabilities		6,264	7,635
Provisions	6	(22)	(2)
Net assets		6,242	7,633
Capital and reserves
Issued share capital	7	309	309
Share premium account		3,271	3,271
Merger reserve		109	109
Capital redemption reserve		753	753
Retained earnings		1,800	3,191
Shareholders’ funds		6,242	7,633

The Company reported a profit for the financial year ended 31 December 2023 of £737 million (2022: loss of £19 million).

The financial statements were approved by the Board of Directors on 7 March 2024 and were signed on its behalf by:

Geoffrey Martin

Peter Dilnot

Group Finance Director

Chief Executive Officer

7 March 2024

Registered number: 09800044

FINANCIAL STATEMENTS

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

223

COMPANY STATEMENT OF CHANGES IN EQUITY

	Issued	Share premium	Merger	Capital redemption	Retained	Shareholders’
	share capital	account	reserve	reserve	earnings	funds
	£m	£m	£m	£m	£m	£m
A t 1 January 2022	333	3,271	109	729	3,775	8,217
Loss for the year (note 2)	–	–	–	–	(19)	(19)
Total comprehensive loss	–	–	–	–	(19)	(19)
Purchase of own shares (1)	(24)	–	–	24	(504)	(504)
Dividends paid	–	–	–	–	(77)	(77)
Equity-settled share-based payments	–	–	–	–	16	16
A t 31 December 2022	309	3,271	109	753	3,191	7,633
Profit for the year (note 2)	–	–	–	–	737	737
Other comprehensive expense	–	–	–	–	(5)	(5)
Total comprehensive income	–	–	–	–	732	732
Purchase of own shares (1)	–	–	–	–	(93)	(93)
Dividends paid	–	–	–	–	(81)	(81)
Demerger distribution (2)	–	–	–	–	(1,973)	(1,973)
Equity-settled share-based payments	–	–	–	–	2	2
Deferred tax on equity-settled share-based
payments	–	–	–	–	22	22
A t 31 December 2023	309	3,271	109	753	1,800	6,242

(1)

Further information is set out in note 1.

(2)

Further information is set out in note 13 to the Group Consolidated Financial Statements.

Refer to the Section 172 statement in the Strategic Report on pages 37 to 42 for further details on the Company’s Distribution Policy.

224

MELROSE INDUSTRIES PLC

ANNUAL REPORT 2023

1. Material accounting policies

Basis of accounting

Melrose Industries PLC (“the Company”) is a public company limited by shares. The Company is incorporated in the United Kingdom under

the Companies Act 2006 and registered in England and Wales. The address of the registered office is given on the back cover. The nature of the

Group’s operations and its principal activities are set out in the Strategic Report on pages 1 to 97.

The Financial Statements have been prepared under the historical cost convention and in accordance with Financial Reporting Standard 102

(FRS 102) issued by the Financial Reporting Council.

The functional currency of Melrose Industries PLC is considered to be pounds Sterling because that is the currency of the primary economic

environment in which the Company operates.

On 2 October 2023, the Company commenced a £500 million share buyback programme, with 18,761,840 shares repurchased by

31 December 2023. These are held as treasury shares. In the prior year, the Company completed a £500 million share buyback programme with

318,003,512 shares repurchased and subsequently cancelled.

Melrose Industries PLC meets the definition of a qualifying entity under FRS 102 and has therefore taken advantage of the disclosure exemptions

available to it in respect of its separate Financial Statements. Melrose Industries PLC is consolidated in its Group Financial Statements.

Exemptions have been taken in these separate Company Financial Statements in relation to share-based payments, presentation of a cash flow

statement, the remuneration of key management personnel and financial instruments.

The principal accounting policies are consistent with the prior year and are summarised below.

Going concern

The Financial Statements have been prepared on a going concern basis as the Directors consider that adequate resources exist for the

Company to continue in operational existence for the foreseeable future.

The Group’s liquidity and funding arrangements are described in the Finance Director’s Review. There is significant liquidity headroom of £1.0 billion at

31 December 2023 and sufficient headroom throughout the going concern forecast period. Forecast covenant compliance is considered further below.

Covenants

The current facility has two financial covenants being a net debt to adjusted EBITDA covenant and an interest cover covenant, both of which are

tested half yearly in June and December.

The financial covenants during the period of assessment for going concern are as follows:

31 December

2023

30 June

2024

31 December

2024

Net debt to adjusted EBITDA

3.5x

Interest cover

n/a

4.0x