Melrose sees positive signs of recovery following 27% drop in half-year revenue
July 22, 2020
Melrose Industries PLC, UK, has released a trading update for the half-year period ending June 30, 2020, reporting that revenue declined by 27%. The group, which includes GKN Powder Metallurgy, GKN Aerospace and GKN Automotive, was said to have been trading in line with expectations until mid-March 2020, followed by a steep decline in the second quarter.
Despite being loss-making in the second quarter, the group explains that it rebounded to be at breakeven at the adjusted operating profit level in the month of June, as recovery started to take place following the impact of the coronavirus (COVID-19).
The GKN Automotive and GKN Powder Metallurgy businesses saw similar trends to each other, with a sharp decline in the second quarter due to many of the group’s factories being shut and sales being down 36%. However, these businesses are now said to be seeing recovery.
Melrose explains that with COVID-19 cases currently rising in parts of the world, and an unknown effect of customer restocking, it cannot be certain these trends will continue at their current strength, but at present trading in China is ahead of last year (and has been for a couple of months), trading in the US is forecast over the summer to be within 10% of last year and there are some signs of improving European demand.
All of this currently gives hope for a faster recovery, though it is too early to be certain of this, states the group. Existing travel restrictions mean that the Automotive Investor Day in New York, USA, scheduled for October 2020, will now be rescheduled.
According to Melrose, while the COVID-19 pandemic has been challenging for all of its businesses, the group has sought to protect investment in R&D and continue to develop world leading technologies. Thus, Automotive pressed ahead with its investment in e-Drive auto systems and recently produced its millionth e-Drive unit. Powder Metallurgy has continued to develop its Additive Manufacturing capability including the acquisition of Forecast 3D.
Simon Peckham, CEO of Melrose Industries PLC, commented, “This has been an extraordinary period which has needed our management teams and employees to carry out difficult actions with speed and determination. As a result we have generated £200 million of free cash flow and started to adapt our world leading businesses to take advantage of the market and acquisition opportunities the future will bring.”
He added, “For this year the focus is on cost control and cash generation, but we have protected investment in innovation for the future. Whilst timetables will have been affected, we remain confident that our businesses will adapt and produce good returns for our shareholders.”
