5th Oct 2021 08:26
(Alliance News) - Melrose Industries PLC on Tuesday forewarned that supply constraints in the automotive industry is hurting trading, as the problem of semiconductor chip shortages rumbles on.
The FTSE 100 firm's Automotive and Powder Metallurgy divisions were particularly badly hit by supply issues; however they will both still be able to deliver a full year margin of around twice that achieved last year, Melrose said.
While underlying demand is strong, the global semiconductor shortage has led to 'in month cancellations' from customers rising from a normal rate of around 1% to a current rate of 20% to 25%. The duration of supply constraints is uncertain, Melrose noted, but recent consensus is that the timeline of problems has lengthened with possible scenarios likely to be below previous expectations.
Melrose added it was confident that the impact on profitability from any revenue change was in line with previous guidance, highlighting the progress being made with the restructuring of the Automotive and Powder Metallurgy divisions.
The industrial buy-improve-and-sell specialist said it is seeing improvement in its Aerospace end-markets, with revenue in the period up 16% on a year ago. Its performance is expected to improve further as the business continues restructuring.
Shares in Melrose Industries were down 1.4% shortly after the open in London on Tuesday to 168.55 pence, having initially traded below 162p.
Looking ahead, Chief Executive Simon Peckham commented: "Tightened supply of semi-conductors to the automotive industry are frustrating and difficult to plan for, but whilst they affect current trading, they don't impact long-term value, particularly as cash is well controlled and debt reduced.
"We have made our businesses better, more flexible and resilient to deal with near term headwinds, and all our businesses are on track to achieve their margin targets assuming partial end-market recoveries."
By Will Paige; [email protected]
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