Melrose Industries, the Solihull-headquartered manufacturing turnaround company, which controversially bought Redditch-based GKN Industries in 2018 for £8 billion, has reported a loss for the first half of 2020, but said that trading over the summer months has been at the “higher end of the Board’s expectations”.
Melrose made a statutory operating loss of £581 million, with revenues dropping by 27 per cent to £4.1 billion.
Justin Dowley, Melrose Industries Chairman, said: “These are extraordinary times which we have addressed with rigorous cash management and decisive restructuring actions; recently, and encouragingly, we have started to see trading improving in some key end markets. Crucially, we own good businesses with significant improvement opportunities and have an experienced management team with an excellent track record. We have delivered good returns in tough times before and as we continue to make the strategic changes needed to position our businesses within their changed market environments, we are confident of doing so again.”
The company said that restructuring projects are well underway that will improve the Group’s trading performance by more than £100 million next year.
A substantial reduction of the Aerospace cost structure is underway, to significantly improve the business performance in 2021 without relying on sales growth. Sales in Aerospace reduced by 18 per cent in the period; however, defence, which equates to around a third of the business, continued to grow. More cost saving projects are to come and there are substantial margin improvement opportunities across the GKN businesses, added the company.
Melrose buys good manufacturing businesses with strong fundamentals whose performance it considers can be improved. Melrose finances its acquisitions using a low level of leverage, improves the businesses by a mixture of investment and changed management focus, sells them and returns the proceeds to shareholders.
In August GKN Aerospace was praised alongside other British manufacturing companies for its work in helping the UK manufacture more than 14,000 ventilators to meet the NHS’s need during the height of the Covid-19 pandemic. The company, along with all those in the UK Ventilator Challenge consortium, won The President’s Special Award for Pandemic Service from the Royal Academy of Engineering.