Melrose estimates 20% drop in sales, announces gradual return to productivity
May 11, 2020
Melrose Industries PLC, UK, has released a trading update for the four months from January 1, 2020, to April 30, 2020, and reports an estimated 20% sales decrease in this period due to the impacts of the coronavirus (COVID-19).
The group stated that it had traded in line with expectations from January 1, 2020, until mid-March 2020, at which point the global impact from COVID-19 caused significant disruption, resulting in many factories being shut or remaining only partially open. As a result of these effects, the group’s sales for this period were down approximately 20% compared to the same period last year.
The group’s Automotive and Powder Metallurgy business has reportedly seen similar trading patterns to each other with their factories in Europe and North America largely being shut since mid- March. Factories closed in whole or part during this period represented approximately 88% of the 2019 sales. All the group’s factories in China have now been open for several weeks and are seeing encouraging signs of a recovery in demand. There is also a steady process of factories being reopened in Europe and North America, albeit a gradual return with productivity affected by social distancing measures.
The group explains that management has taken significant actions to reduce the cost base of these businesses, and plans are being drawn up to position for the future. In both cases these businesses enjoy large market shares and strong customer relationships and the Board believes significant opportunity exists to improve their performance. The net result of the above trading conditions in the period was that these two divisions combined had a sales decline of 31% compared to the same period last year.
Simon Peckham, CEO of Melrose Industries PLC, commented, “Our divisional management teams and head office employees have responded brilliantly to these unparalleled circumstances, which are likely to remain challenging for a while. During the next few months we will put in place plans to position our businesses to achieve their future potential in different market conditions. Melrose has a track record of managing its businesses successfully in all market environments and crucially our recent cash generation performance shows we have been able to maintain the strength of the balance sheet to position the group’s businesses in the best way for the future.”
Melrose previously stated in March 2020, that, due to the impact of COVID-19, the group is not in a position to give any trading guidance for the year as conditions remain too unpredictable to forecast. It explains that robust cash management remains the top commercial priority of the group this year with comprehensive cash preservation actions being successfully implemented in each business, including a focus on reducing working capital to match reduced sales, cutting or delaying both capital expenditure and longer-term restructuring projects and also reducing costs. Capital expenditure and trade working capital actions alone are forecast to deliver approximately £200 million of cash savings in the second quarter.