Search Share Prices
Melrose makes tackling 'unacceptable' GKN aerospace a priority
(WebFG News) - Melrose Industries said its priority was tackling an "unacceptable" performance from GKN's aerospace division after profit and cash generation across the group came in below market expectations in the three months leading up to the completion of its £8bn takeover last week.
Nevertheless, the FTSE 250 company said it had planned for such an underperformance and remained confident it will be able to deliver promised turnaround "over the medium term".
Melrose overcame opposition from GKN's board, trade unions and politicians to acquire the automotive and aerospace engineer. Melrose said it could revive GKN's fortunes but its opponents accused it of being a short-term opportunist.
GKN's management accounts, produced prior to the completion of the deal on 19 April, show that for the 13-week period to 31 March the group generated revenue of £2.6bn, down just 0.5% on the previous year, with operating profit falling 16% to £181.5m as operating profit margins shrank to 7.0% from 8.2%.
Net debt at the end of March had risen to £1.1bn from £889m at the end of 2017, partly reflecting £107m of deal fees. Melrose still was confident of reaching full year debt targets.
Melrose noted that while sales were flat on a reported basis, on a 'management basis' they were up 5%, though operating profit was still down 10%, which Melrose characterised as a continuation of the trend it had noted previously of GKN "achieving sales growth at the expense of operating margins".
GKN's aerospace arm's sales fell 1% and operating margin dwindled to roughly 5%, with Melrose noting that the North American business continued to struggle and was loss making for the period. "The operating performance of this business is unacceptable and addressing this is a key immediate objective."
GKN Driveline sales grew 7% but profits were flat as growth came at the expense of operating margin. Powder metallurgy grew sales 5% with operating margins around 11%.
Melrose shares momentarily fell more than 1% on Tuesday's open to below 222p but soon regained parity at 224.5p.