Engineer Melrose warns chip shortage could slow its growth
Engineering firm Melrose warned that the global shortfall in semiconductors would have an impact on its growth in 2021.
The FTSE 100 company said that sales over the first four months of 2021 were 8.0 per cent higher than last year, with operating margins having recovered quicker than expected.
But, the GKN owner cautioned that although it expected the improvement to continue, it warned that the chip shortage would impact it “to a degree”.
Shares in the firm rose 2.1 per cent this morning.
Its aerospace division continued to feel the chill of Covid-19 travel restrictions, with sales down 27 per cent on last year, a trading update said.
However, despite this, Melrose said the division made a small profit despite operating at similar demand to last year, which it said showed the strength of its cost savings programme.
In its automotive division, sales were up 28 per cent on last year, and just 13 per cent down on 2019, the blue chip said.
“This is consistent with the market demand recovering, but with a deferred impact on growth rates due to the impact of the semi-conductor shortage in the global automotive industry”, it said.
Nortek Air Management, which Melrose is selling off for $3.6bn, saw sales rise 28 per cent on last year.
Simon Peckham, chief executive of Melrose, said: “We are pleased with our start to the year and hopefully will see this momentum continue for the rest of the year.
“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.”
Laura Hoy, equity analyst at Hargreaves Lansdown, said: “The hits just keep coming for Melrose, whose Aerospace division is still feeling the pain from pandemic-related travel restrictions. But with the global semiconductor shortage expected to ding growth in the group’s Automotive arm this year, Melrose simply can’t catch a break.
“The silver lining for Melrose has been the group’s focus on cost-saving, which improved margins throughout the business. That has helped MRO keep its head above water to weather this storm and should stand it in good stead as conditions improve.”