Takeover specialist Melrose Industries this morning predicted the downturn in the global automotive industry will persist until at least the end of the year, but enjoyed a jump in shares as it allayed investor concerns about the effect the industry’s struggles were having on its own business.
Melrose’s market value rose five per cent this morning as it reported fast-narrowing losses and more than doubled its revenue for the first half of the year.
Melrose pre-tax loss was £128m for the first six months of 2019, a significant reduction on the £372m reported this time last year. Revenue rose 100.2 per cent to £5.7bn, on a year-on-year basis.
Adjusted operating profit rose 89.8 per cent to £539m, while the firm hiked its dividend to shareholders 10 per cent to 1.7p per share.
Net debt was £3.45bn, slightly down on the £3.48bn reported at the end of last year.
Why it’s interesting
Melrose’s losses narrowed year-on-year because it has taken on the finances of British industrial stalwart GKN, a major supplier to the global automotive and aerospace manufacturing industries which it controversially bought last year.
Melrose this morning warned of a “challenging” backdrop in the automotive industry, in which the global sector downturn would “continue into the second half”.
However, despite a seven per cent fall in sales at GKN’s automotive business, it held its margins flat by making “cost base reductions,” according to its corporate broker JP Morgan.
Melrose boss Simon Peckham said there could be job cuts in the automotive division as it made further cost reductions. “As with every other automotive business in the world right now we are reducing overheads and people where necessary.”
He told City A.M: “I don’t know where the auto cycle is going. We’ll do what we need to do in that context.”
Peckham raised the possibility of job losses days after GKN’s aerospace business said it will cut 1,000 white-collar jobs across its global aerospace operations earlier this week, as it looks to simplify the business into one cohesive unit.
Peckham said the aerospace job cuts are “not really the point for us”.
“The point for us is actually we’re going to make an improvement in this business and run it better.”
GKN said the cuts predated Melrose’s ill-tempered £8bn takeover of the firm, which was approved by the government on the condition the buyer poured money into the industrial giant.
What Melrose said
Peckham said: “These results show the initial fruits of the ‘improve’ stage of Melrose’s ownership of GKN and, with the overall GKN margin increasing positively, we are excited about what is possible.
“The performance is in line with expectations and leverage is better than expected.”
Main image: Getty