Melrose promised to wring hundreds of millions of pounds extra from manufacturing giant GKN on Thursday after taking a knife to bloated levels of inventory sitting idly on the shelf.
The FTSE 100 firm, which bought GKN in a bruising £8 billion takeover, pledged to “unlock” £400 million more after a crackdown on managers ordering too many raw materials and having more parts than necessary.
The money could be handed back to shareholders to be reinvested.
Lower than expected debts and steady margins also lifted the mood of investors in the latest sign that Melrose is slowly erasing the doubts of sceptics opposed to the GKN takeover. Melrose narrowly clinched the deal despite 48% of shareholders voting against.
Shares rose 6% gaining 10.65p to 196.14p.
The £400 million of extra free cash flow will come from a more co-ordinated plan to order materials based on a “build to order” process, cutting out excess stock.
Chief executive Simon Peckham said the money would be generated by “running the business properly”.
“You shine a light saying do you really need this. If you are person not under pressure you are going to go for the ultimate comfort,” he said. Peckham added that shareholders were “starting to see continued evidence of progress in terms of sorting out GKN”.
Half year pre-tax profits rose to £330 million from £180 million.
