Ben Mar­low Turn­around wiz­ards now have to show their magic

The Daily Telegraph - Business - - Business Comment -

Turn­arounds don’t come easy, not even for the self-pro­fessed masters, when the world has gone to hell in a hand­cart. At Melrose In­dus­tries, the re­sults aren’t even or­di­nary, or just quite bad, they’re pos­i­tively dire. True, it spe­cialises in old­fash­ioned in­dus­trial busi­nesses that are heav­ily ex­posed to the os­cil­la­tions of the world econ­omy but you are what you eat.

In­deed, it would be hard to in­vent a com­pany more vul­ner­a­ble to the global pan­demic than GKN, its largest in­vest­ment by a long shot, and a sup­plier of parts to the aero­space and car-man­u­fac­tur­ing in­dus­tries. Melrose then, can con­sider it­self un­for­tu­nate but you could also say that it has been in­cred­i­bly short-sighted.

One of the car­di­nal rules of engi­neer­ing is to avoid sin­gle points of fail­ure. That means there shouldn’t be any one thing that can go wrong and break the sys­tem.

You would think an engi­neer­ing spe­cial­ist would know this but Melrose looks to have bro­ken the mantra em­phat­i­cally by bet­ting the farm, or the best part of it, on one huge deal, just as we headed into the most se­vere down­turn in a cen­tury.

The bulk of Melrose com­prises three for­mer GKN busi­nesses, ac­quired for £8bn af­ter one of the most con­tro­ver­sial takeover bat­tles in re­cent mem­ory, a tus­sle that trig­gered a par­lia­men­tary in­quiry and led to Melrose be­ing re­peat­edly dis­missed as as­set-strip­pers.

It is also the main rea­son why Melrose has sunk much deeper into the red, post­ing pre-tax losses of £685m in the first six months of the year alone, com­pared to £109m for the same pe­riod last year.

The com­pany will point to a £56m profit at the op­er­at­ing level but how about this for a jumbo jet full of one-off charges: £263m of amor­ti­sa­tion costs; a £179m write­down, largely on GKN’s aero­space arm; £99m of re­struc­tur­ing fees, again at GKN; and an £89m cur­rency hit at, you guessed it, GKN.

Turnover across the group plunged by more than a quar­ter to £4.1bn with sales ex­pected to crater by a third at GKN’s aero­space arm by the end of the year, hav­ing al­ready fallen by that much at its au­to­mo­tive and ma­te­ri­als units.

Justin Dow­ley, the chair­man, isn’t wrong when he says “these are ex­tra­or­di­nary times” but shouldn’t an out­fit that comes with a planet-sized rep­u­ta­tion for steer­ing busi­nesses through tough times be able to nav­i­gate through this too?

Melrose makes the point that its lofty “Buy, Im­prove, Sell” strat­egy worked dur­ing the last global crash. True but that was a fi­nan­cial cri­sis. This is a cri­sis of ev­ery­thing – al­most ev­ery sec­tor of the econ­omy is ex­pe­ri­enc­ing the deep­est down­turn ever.

It would cer­tainly be the per­fect op­por­tu­nity to jus­tify the eye-wa­ter­ing bonuses lav­ished on the firm’s top four bosses in 2018 – £170m between the top four.

There’s the odd scrap of com­fort – trad­ing in the car in­dus­try and at air-con­di­tion­ing maker Nortek has been at the higher end of ex­pec­ta­tions in re­cent weeks and R&D spend­ing has been kept at £100m a year.

Still, that won’t be much con­so­la­tion for the thousands of peo­ple that are ex­pected to lose their jobs at GKN’s aero­space arm.

Ap­par­ently Melrose is “ex­cited about the op­por­tu­nity” to show that its model “will once again de­liver”, maybe not in the usual three to five-year time-frame but still in “five to seven years” pre­dicts boss Si­mon Peck­ham.

There will cer­tainly be no short­age of chances.

Sorry state of af­fairs

When is an apol­ogy not an apol­ogy? When it’s com­ing from en­ergy gi­ant SSE.

The com­pany has re­ceived a sec­ond reg­u­la­tory fine in the space of a fort­night, this time for fail­ing to dis­close a deal that boosted the UK elec­tric­ity’s sup­ply by 3pc.

The folk at SSE didn’t think the agree­ment was mar­ket sen­si­tive de­spite the im­pact that it would have on whole­sale prices.

SSE said that it “sub­se­quently un­der­stood” that disclosure was re­quired “at an ear­lier stage”. It went on to say that it would be “press­ing reg­u­la­tory au­thor­i­ties for ad­di­tional guid­ance go­ing for­ward”.

Es­sen­tially then, the real cul­prit wasn’t SSE for not un­der­stand­ing the rules, but the watch­dog for not ex­plain­ing things prop­erly. That’s quite the in­ter­pre­ta­tion from an out­fit that has re­ceived more than £3m of penal­ties in just two weeks.

Prime mover

Af­ter Tesco an­nounced it was hir­ing an­other 16,000 peo­ple to cope with a leap in on­line or­ders, Ama­zon is cre­at­ing an­other 7,000 jobs, on top of 3,000 new po­si­tions un­veiled ear­lier in the year.

The naysay­ers will carp at the prospect of the Sil­i­con val­ley gi­ant adding to its ranks. Ama­zon has rightly been crit­i­cised for the con­di­tions in its cav­ernous ware­houses but surely any jobs are bet­ter than no jobs right now?

‘It would be hard to in­vent a com­pany more vul­ner­a­ble than GKN’

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