13th Aug 2024 10:48
(Alliance News) - Things have gone from "bad to worse" at Dowlais Group PLC, an analyst commented on Tuesday, after the specialist engineering group warned revenue in 2024 would be lower than previously thought.
The London-based specialist engineering group focused on the automotive sector said pretax loss widened to GBP123 million in the half-year that ended June 30 from GBP55 million the previous year.
Revenue declined 10% to GBP2.29 billion from GBP2.55 billion, as cost of sales also fell 10% to GBP1.94 billion from GBP2.16 billion.
Dowlais maintained its interim dividend at 1.4 pence per share.
Chief Executive Officer Liam Butterworth said: "In this challenging market environment, we focused on what we can control and took several decisive actions to mitigate the impact from lower volume as well as unlock value from our portfolio.
"First, we implemented a relentless focus on cost control, limiting the impact on adjusted operating profit...Second, we initiated a comprehensive programme of commercial recovery initiatives with our customers which, together with the ongoing restructuring programmes and performance initiatives, will limit the impact from expected lower revenues in the second half of the year."
Dowlais further initiated a strategic review of its GKN Powder Metallurgy business to consider a range of options, including a potential sale. During the period, the order book for this business rose 10% with 53% of new business wins being for electric vehicles or propulsion agnostic products.
The Automotive business secured business wins totalling GBP2.4 billion of forecast lifetime revenue balanced across regions, customers, and product groups.
Dowlais revised its full-year outlook as industry forecasts no longer predict improvement in the second half with light vehicle production expected to decline 2% overall in 2024.
The company now expects a mid to high single-digit decline in adjusted revenue for 2024 compared with previous forecasts of similar revenue to GBP4.86 billion reported in 2023.
Derren Nathan, head of equity research, Hargreaves Lansdown said that it has gone from "bad to worse" during the first half of the year for Dowlais.
He explained it's been a mixed bag in the electric vehicle market. China is having a very strong year but demand in Europe is dropping. Light vehicle production now expected to fall globally by 3.6% in the second half of the year.
"This volatility has hit sales of Dowlais' ePowertrains and the 1.9% decline in sales over the first quarter has accelerated to a drop of 5% for the first six months," he observed.
Nathan felt the indefinite postponement of a contract to supply a 3-in-1 eDrive system for high performance sports utility vehicles was another disappointment.
"The group is diversifying its focus across various classes of electric vehicle in a drive for more sustainable medium-term growth but the immediate future looks challenging," he commented.
It wasn't all bad news, and Hargreaves's Nathan highlighted some "brighter spots" with the much smaller powder metallurgy unit trading in line with the same period last year.
"But the difficulties are causing management to take a hard look at the business", he noted.
Cost management has partly mitigated the margin decline and the loss-making Hydrogen business has been sold for a nominal consideration, he pointed out.
The Powder metallurgy business has also been placed under strategic review, he added.
"Dowlais is fighting hard to remain an integral part of the transition to electric vehicles, but for now it has its work cut out. Discipline and execution will be key for the group to be able to efficiently pounce on the longer-term growth opportunity when trading conditions ease," he concluded.
Analysts at Jefferies said it was "a very challenging set of results" for Dowlais.
The broker said earnings before interest, tax and amortisation guidance of GBP320 to GBP325 million from the company compared to its own GBP340 million forecast.
Jefferies expects consensus downgrades will be in the mid-single-digit to high-single-digit range.
Dowlais shares were down 1.7% to 60.35 pence each in London on Tuesday morning.
By Jeremy Cutler, Alliance News reporter
Comments and questions to [email protected]
Copyright 2024 Alliance News Ltd. All Rights Reserved.
Related Shares:
Dowlais