GKN owner Melrose warns over impact of worsening chip shortage

The group said automotive order cancellations have risen rising from around 1% a month to as much as 25% due to the supply woes.

Holly Williams
Tuesday 05 October 2021 09:07
Turnaround specialist Melrose Industries has warned over a hit to trading from worsening chip shortages and supply chain problems (PA)
Turnaround specialist Melrose Industries has warned over a hit to trading from worsening chip shortages and supply chain problems (PA)

Turnaround specialist Melrose Industries has warned over a hit to trading from worsening chip shortages and supply chain problems.

The owner of engineering giant GKN said its automotive and powder metallurgy divisions are taking the brunt of the impact, with car production globally being hampered by a shortage of semiconductor chips.

Melrose said: “The timing and duration of these constraints is uncertain, but recently the consensus view is that they have lengthened.

“There are a number of scenarios possible, but it is likely these are below previous expectations.”

Tightened supply of semi-conductors to the automotive industry are frustrating and difficult to plan for, but whilst they affect current trading, they don't impact long-term value

Simon Peckham, Melrose chief executive

The group added that the supply chain issues and delays have seen automotive order cancellations from customers rising from around 1% a month in the first quarter to as much as 20% to 25%.

Shares in the group fell 2%.

Melrose also cautioned over rising costs, but said “all of the businesses are focused on the recovery of their costs and will take whatever actions are necessary to do so”.

It sought to assure that despite the supply chain difficulties, the automotive and powder metallurgy divisions should still see around twice the level of profit margins year-on-year.

Car manufacturers pulled back on supplies and orders for microchips after sales fell in the early stages of the pandemic.

Production has since ramped up again as demand started to grow, but chip manufacturers have been unable to keep up, causing a global shortage and causing a knock-on effect throughout the industry.

Simon Peckham, chief executive of Melrose, said: “Tightened supply of semiconductors to the automotive industry are frustrating and difficult to plan for, but whilst they affect current trading, they don’t impact long-term value, particularly as cash is well controlled and debt reduced.”

Melrose bought GKN for £8 billion in March 2018 after a bitter and protracted battle punctuated by Government interventions.

The group also owns ventilation equipment maker Nortek.

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