Melrose sees signs of recovery, but warns aerospace restructure could mean job losses

Melrose Industries GKN

The turnaround specialist which bought Redditch-based aerospace and automotive manufacturing company GKN in 2019, has reported Group revenue down by 27 per cent during the first half of the year, according to a trading update released today. Birmingham-based Melrose Industries, managed to break even in June as it saw signs of recovery, and could even make a small profit in the period, but it has warned of job cuts as it seeks a substantial reduction of its aerospace cost structure.

The company said sales in Aerospace for the half year reduced by approximately 18 per cent and are not expected to recover in the second half of the year. It anticipates that sales for the year are likely to reduce by approximately 25-30 per cent year-on-year and for the business to broadly breakeven.

Melrose’s automotive and powder metallurgy businesses also saw a sharp decline in the second quarter, due to many of their factories being shut and sales down 36 per cent.  However, these businesses are also now seeing recovery – although with COVID-19 cases currently rising in parts of the world it can’t be sure that the trends will continue. 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 per cent of last year and there are some signs of improving European demand.

The company says that all of this currently gives hope for a faster recovery than was sometimes feared would be the case though it is too early to be certain of this.

While the COVID-19 crisis has been challenging for all its businesses, the Group has sought to protect investment in R&D. Aerospace is investing in ground-breaking technologies for electric and hydrogen powered aircraft and its automotive division pressed ahead with its investment in e-Drive auto systems and recently produced its millionth e-Drive unit.

Simon Peckham, CEO of Melrose Industries PLC said: “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. For this year the focus is on cost control and cash generation, but we have protected investment in innovation for the future.”