Melrose Industries starts year 'modestly ahead' of expectations
Melrose Industries is trading “modestly ahead” of expectations, it said in an update on Thursday, with momentum from the second half of 2020 has continuing across the group into 2021.
The FTSE 100 company said sales in the four months ended 30 April were 8% higher year-on-year, and excluding Nortek Air Management, group sales grew 4%.
It said the operating margins it achieved in the first quarter continued to improve faster than expected, with cash generation described as “encouraging”, as Melrose was cash neutral in the first quarter in what was traditionally a period of cash outflow.
The board said it was “encouraged” by the firm’s start to the year, and expected the improvements would continue, although the growth rate would be impacted to a degree by the semiconductor supply issues in the global automotive supply chain.
Looking at the aerospace division, Melrose said that as expected, it continued the sales trends seen last year with defence growing and civil down “significantly”.
In the period, sales were down 27% compared to the same period in 2020, and 33% on 2019.
“Encouragingly, aerospace made a modest profit in the first quarter of 2021 at a demand level that was loss making last year,” the board said in its statement.
“This provides strong evidence that the numerous cost saving, and improvement projects are starting to have a positive impact.”
On 31 March, Fokker Services and Fokker Techniek were sold for a nominal sum, with those businesses having sales of about £140m in 2020, finishing the year approximately breakeven.
In automotive, sales in the period were 28% higher year-on-year, and 13% below 2019.
That was consistent with the market demand recovering, but with a deferred impact on growth rates due to the impact of the semiconductor shortage.
“The automotive margin in the first quarter was encouragingly above that achieved in the second half of last year, which is consistent with the improvement plans continuing to deliver benefits,” the board said.
Melrose said its powder metallurgy business had performed strongly, with sales to 30 April being up 35% over 2020, and also up 1% on 2019.
Margins in the first quarter were “significantly” higher than those achieved in the second half of last year, and also higher than the same period in 2019.
“Powder metallurgy is gaining market share and improving its operations, both of which are trends expected to continue.”
Finally, Melrose said Nortek Air Management continued to perform well in the first quarter, with sales up 28% over last year and 27% higher than in 2019, continuing the momentum seen in the second half of last year.
“The Melrose board is delighted to have exchanged contracts on the sale of Nortek Air Management with Madison Industries for $3.625bn, as announced on 19 April.
“The completion of the sale process is proceeding as expected, following which the details will be announced for the proposed portion of the proceeds to be returned to shareholders.”
Melrose also said that its ‘other industrial’ division also continued to trade well in the period, with sales 12% up on 2020 and 12% down on 2019.
The margin achieved in the first quarter was up on the same period in 2020.
“We are pleased with our start to the year and hopefully will see this momentum continue for the rest of the year,” said chief executive officer Simon Peckham.
“We are encouraged by the significant improvements made to the GKN businesses being reflected in their financial performance.
“We are confident that GKN will be as successful as previous acquisitions, a track record illustrated recently by the announced sale of Nortek Air Management.”
At 0814 BST, shares in Melrose Industries were up 1.1% at 165.5p.