Melrose plans big job cuts at GKN Aerospace

Melrose Industries said it planned big job cuts at its GKN Aerospace business as the industrial turnaround company reported a first-half loss of £560m.

The FTSE 100 company's pretax loss for the six months to the end of June widened from £131m a year earlier as revenue dropped to £4.1bn from £5.6bn. Adjusted operating profit dropped to £56m from £541m.

As announced in July the company will pay no interim dividend to conserve cash during the Covid-19 crisis. The company generated £213m of adjusted free cash flow in the first half and net debt fell by £93m, it said.

Melrose said there were encouraging signs of recovery over the summer at its automotive and powder metallurgy businesses but that it expected GKN Aerospace to suffer from further market uncertainty.

The company's shares rose 11.5% to 112p at 09:16 BST and were the biggest gainers in the FTSE 100 index. The shares have more than halved in value in 2020.

The company said GKN's sales were expected to fall by up to 30% in 2020 and that it would make a "significant reduction" to the division's global workforce in the second half. GKN employs 17,000 people in 14 countries, according to its website. Melrose did not give details about the planned cuts.

The job reductions could prove controversial after Melrose bought GKN in a hostile takeover in 2018 and gave assurances to the UK government about its intention to invest in the business. The entire aviation industry has been hit by a crisis caused by the Covid-18 pandemic with doubts that the industry will ever get back to 2019 levels of activity.

Simon Peckham, Melrose's chief executive, said: "GKN Aerospace … is now undertaking a substantial reduction of its cost structure. Consultations are already well underway with employees and unions worldwide and regrettably a significant reduction in the worldwide workforce is inevitable in the second half of the year."

The company said trading over the summer months was at the higher end of board expectations, particularly at the automotive and the Nortek Air Management businesses. Aerospace's defence operations continued to grow, it said.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “That coronavirus has hit Melrose hard is no surprise – its automotive and aviation markets have always been very cyclical and many factories shut down altogether at the peak of the pandemic. However, managing industrial businesses through difficult market conditions is what the Melrose team pride themselves on, and despite the shocking fall in profits there’s actually a fair bit of good news."