Melrose Industries has posted a £685m half-year loss as the FTSE 100 buyout specialist and owner of car and aircraft parts maker GKN was hit hard by the coronavirus pandemic.
Melrose, which purchased GKN in a £8bn hostile takeover in 2018, said its revenues for the six months to July fell by a little more than a quarter to £4.1bn.
The group’s business model is to buy, improve and sell underperforming manufacturing businesses, although the statutory loss of £685m mainly stemmed from asset writedowns, restructuring costs and losses on derivatives contracts. In the same period last year, Melrose lost £109m.
“Until March this year, our businesses continued their strong performance from 2019, with significant operational and financial improvement made,” chief executive Simon Peckham said. “Unfortunately this progress was then severely disrupted by the global outbreak of Covid-19.”
Melrose said its adjusted free cash flow before restructuring costs, a metric closely watched by analysts, was £213m in the first half. It said its “decision to favour cash generation over profit” helped provide extra financial headroom. It had committed bank lending facilities of “just under” £1.2bn and cash on hand of £339m.
Sales in GKN’s aerospace division fell 18 per cent and the group expects a sales fall of 25 per cent to 30 per cent for the full year after airline customers struggling with travel restrictions and lockdowns ordered fewer new engines and airframes.
GKN’s management, Melrose said, was now implementing a “substantial reduction of its cost structure”, and consulting with employees and trade unions about job cuts. “A significant reduction in the worldwide workforce is inevitable in the second half of the year,” the group said.
Melrose, which said in July it would not pay an interim dividend, having also scrapped its final payout in May, urged shareholders to be patient about cash returns during its restructuring.
“We trust that shareholders will appreciate the importance of retaining cash within the group to ensure net debt is kept under control whilst also funding the necessary restructuring of the group to position it for the future,” Melrose said.
Shares in the buyout business last traded at 100.5p, down from 247p at the end of January, when awareness that coronavirus could spread from China to the rest of the globe began to build.
“With the support of our banks, shareholders and employees, we have been successful in positioning our group to emerge well from the crisis,” Melrose said, while cautioning that GKN’s aerospace business “will continue to experience market uncertainty”. The group added that it expected more acquisition opportunities from 2021 onwards.