22nd Jul 2020 09:56
(Alliance News) - Shares in Melrose Industries PLC fell on Wednesday after the industrial turnaround specialist predicted a 27% year-on-year drop in revenue for the first half 2020 and said that it is likely to make a "small" adjusted operating profit for the period, mainly due to a focus cash and reduction in working capital.
Shares in the FTSE 100-listed company were down 15% at 102.05 pence each in London.
Melrose - which is highly exposed to the battered aerospace and automotive sectors - said an "extraordinary" trading period saw factories of its Automotive and Powder Metallurgy businesses temporarily shut in Europe and the Americas due to Covid-19.
Melrose said trading was in line with expectations until mid-March and then fell steeply in the second-quarter due to Covid-19. After cost cuts, however, Melrose said it generated GBP200 million in free cash flow before restructuring costs and the January acquisition of Forecast 3D, reducing net debt by GBP90 million in the half-year.
The company was loss-making in the second-quarter ended June 30, Melrose said, but rebounded to be breakeven at the adjusted operating profit level in the month of June as recovery started to take place. This means Melrose is likely to make a small adjusted operating profit in the first half.
The company's Aerospace unit saw sales plummet 18% year-on-year in the first half of 2020 and are not expected to recover in the second half of 2020. Overall the unit is anticipated to record a 25% to 30% year-on-year decline in 2020 sales and for the business to broadly breakeven.
As a result, Melorose has commenced a programme to substantially reduce the cost structure of its Aerospace business.
"This will significantly improve this business's performance in 2021 without relying on sales growth from the level anticipated this year," the company explained.
The Automotive and Powder Metallurgy businesses also saw very similar trends with a sharp decline in the second-quarter due to many of its factories being shut and sales in the first half fell by 36%.
However, these businesses are also now seeing recovery, Melrose said.
Trading in China is ahead of last year, trading in the US is forecast over the summer to be within 10% of last year and there are some signs of improving European demand, it added.
The company's Nortek Air Management unit performed well in the first half, and as a result, sales in the period were only down 7%. Other Industrial businesses were impacted by Covid-19 to variable extents.
Chief Executive Officer Simon Peckham said: "For this year the focus is on cost control and cash generation, but we have protected investment in innovation for the future. Whilst timetables will have been affected, we remain confident that our businesses will adapt and produce good returns for our shareholders."
By Tapan Panchal; [email protected]
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