McKechnie Aerospace was acquired in May 2005. At acquisition Melrose could see the benefit of the strong upturn in the aerospace cycle. In addition we:

• Invested heavily in the business to improve their performance
• Supported the senior management to improve the depth and quality of management
• Renegotiated key customer agreements
• Improved relationships and trading terms with a consolidated supplier base
• Improved aftermarket sales by better marketing, customer service and increasing stock levels
• Where appropriate raised prices to reflect product development and customer service.

Operational management were incentivised to produce this performance by annual bonuses and bonuses payable on disposal. During our ownership Ebitda increased by a Compound Annual Growth Rate of approximately 23% and sales increased by a CAGR of approximately 12%.

Within two years of acquisition on 11 May 2007 we completed the sale of McKechnie Aerospace for $855 million in cash. We estimate that this transaction resulted in a profit (including cash generation during ownership) of approximately £250 million and the return upon the equity invested by Melrose was an IRR of 65%. In total we estimate that the disposal crystallised a value increase of nearly 2.5x.

Melrose believes that McKechnie Aerospace provides a good example of how it can acquire high quality businesses, improve their performance and realise value for its investors.