Dowlais reported full-year underlying revenue of £4.9bn, down 6.4% ignoring currency moves. Around 70% of this decline was driven by weakness in ePowertrain products due to “volatility” in customers’ electric vehicle production.
Underlying operating profit fell 4.2% to £324mn, largely due to the decline in revenue.
Underlying free cash flow dropped 84% lower to £15mn, due to the lower profitability as well as increased interest and restructuring costs. Net debt rose from £0.8bn to £1.0bn at year-end.
A final dividend of 2.8p per share has been announced, in line with the prior year.
In 2025, revenue is expected to range from flat to a mid-single-digit decline. The proposed merger with American Axle and Manufacturing (AAM) is still subject to shareholder and regulatory approval, and is expected to close in the final quarter of 2025.
The shares rose 3.2% in early trading.
Our view
It was a tough year for Dowlais, with revenue and profits both falling off the back of weaker demand for electric vehicle parts. With global vehicle production forecast to be broadly flat in 2025, there remains challenges to navigate in the near term.
Against the difficult trading backdrop, Dowlais’ management is recommending that shareholders accept the deal to merge with its US competitor, AAM. The two companies would likely be better positioned to navigate the auto market's ups and downs, helped by cost efficiencies as some overlapping operations are cut.
The deal’s expected to complete in the final quarter, and would see Dowlais shareholders owning a 49% stake in the new enlarged group. Until then, progress towards tying the knot will be a key driver of investor sentiment.
Dowlais’ largest division, GKN Automotive, remains the driving force behind the group's performance. It produces drivetrain components, which are a group of parts that connect a car's engine to the wheels and other parts of the car.
The group's holds market-leading positions on many of these components. It serves around 90% of global car manufacturers, with the group's parts finding their way onto around half of these manufacturers’ cars. And because of the wide variety of car manufacturers this division works with, revenues are spread across multiple geographies. This helps to diversify some risk if certain markets slow down for any reason.
The transition to electric vehicles is slowing down due to weaker-than-expected consumer demand, causing manufacturers to reduce production volumes. With so much economic uncertainty hanging over the market, not every consumer is confident enough to sign the dotted line for a new car right now, and the timing of an upturn looks far from certain.
Elsewhere, the group has made some impressive efficiency gains, but the dip in demand is putting cash flow under pressure. The dividend has been held for now but there are some question marks around the viability of the 6.3% prospective forward dividend yield.
Ultimately, Dowlais has a strong market position and, in the long run, we see the electric transition as a big tailwind for the group. However, such a big change was always likely to hit a speed bump.
The current challenges are reflected by a valuation towards the bottom of the peer group, which has attracted the attention of a suitor. The shares currently trade below the value implied by the merger, suggesting there’s still work to be done to get the deal over the line. Investors should expect a bumpy ride in the near term.
Dowlais key facts
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