Melrose reports challenging 2019 for GKN Powder Metallurgy

March 9, 2020

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More than 13,000,000 parts are produced and delivered to GKN’s customers every day (Courtesy GKN Powder Metallurgy)

Melrose Industries PLC, UK, has announced its financial results for the year ended December 31, 2019, reporting that the group was comfortably ahead of the board’s expectations for both profit and cash generation. Adjusted diluted earnings per share (EPS) were 14.3 pence, up 13% on last year and adjusted free cash flow was £591 million, up 72% on an annualised like-for-like basis.

However, it was reported that in 2019 GKN Powder Metallurgy experienced its most challenging market conditions for some years, most notably in the automotive sector. Whilst the business largely outperformed the market in Europe, China and Brazil, in its largest market of North America the combination of a weaker domestic automotive market, the impact of industrial action at certain customers such as the General Motors strike, and reduced exports to China proved challenging.

As a result, GKN Powder Metallurgy sales were down by 10% and its adjusted operating margins down to 10.5%. Although sales performance was impacted by macro events, the business was largely able to protect margins through investment and efficiency programmes that are said to be part of a wider renewed strategic plan for the business.

Further automation initiatives were reportedly deployed throughout the GKN Powder Metallurgy production footprint during 2019, supported by increased shop floor digitisation. The harnessing of additional activity data points has enabled more detailed and targeted mapping of future improvement initiatives in process efficiency, quality control and supply chain management, with a view to further bolstering GKN Powder Metallurgy’s technological and operational leadership.

In the groups GKN Automotive division, sales were reported to have declined by 6% over the year, due to the global downturn in the automotive sector continuing into 2019. However, the business was able to improve its adjusted operating margins in the second half to just under 8%, and adjusted operating profit for the same period rose by 14% compared with the prior year.

The GKN Aerospace division was reported to benefit from a strong sector, seeing sales grow by 7% in 2019, with adjusted operating margin rising to 10.6%. Continuing efficiency and productivity programmes also saw a return to profitability for the division’s previously troubled North American sites.

Melrose states that the effects of the Covid-19 outbreak are not fully known at present, but expects some impact. Approximately 10% of the group’s sales are manufactured in China, of which only 5% are sold in China.

Justin Dowley, Chairman of Melrose Industries PLC, commented, “We are delighted with the Melrose performance in 2019 and the substantial value that is being unlocked. Notwithstanding any implications of the Covid-19 outbreak, the bedrock has now been built for the GKN businesses to attain results which were not previously achievable, and, in addition, the shareholder value built up in our longer held assets is closer to being realised. This shows, once more, that the Melrose model thrives by investing properly in businesses and giving management the entrepreneurial freedom to succeed. This is just the start of what is possible for GKN.”

www.melroseplc.net

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