Strong pound dents Q3 performance for GKN
MIDLANDS-based engineering group GKN has said its third quarter performance was strong, with a 3% increase in sales. However, the company continues to be handicapped by the high cost of sterling, which adversely impacted the overall business.
In an interim trading statement covering the period from July 1, 2014, the Redditch-based group said demand in its principal markets had been broadly consistent with expectations. The commercial aerospace market was robust and global light vehicle production was up 2%. Agricultural equipment demand fell sharply while military aerospace, construction and industrial markets were broadly flat.
“Against this backdrop and in our seasonally lower quarter, GKN continued to make good progress with sales for the three months ended September 2014 reaching £1,789m. This represented a 3% organic increase which was offset by £119m (6%) adverse currency translation, due to sterling’s strength against most major currencies. The net impact of acquisitions and divestments was a reduction in sales of £15m,” it said.
Third quarter trading profit increased to £160m, with organic trading profit increasing by £20m (14%). However, sterling’s strength once again intervened; offsetting the rise by £11m and the reduction due to acquisitions/divestments was £1m. Trading margin increased to 8.9%. Group pre-tax profit increased 6% to £139m.
In outlook, the group said it saw little change in its markets for the remainder of the year. The automotive market is forecast to remain positive with a lower rate of growth in the final quarter. Aerospace markets are robust while the agricultural equipment market looks set to continue its recent decline.
“The strength of sterling will adversely affect reported results, but the group continues to expect 2014 overall to show another year of progress,” it said.
GKN Aerospace achieved organic sales growth of 3% driven by good commercial demand as the military sector remained flat. Performance was offset by an adverse currency translation of 5%. Trading profit increased 18% to £72m, benefitting from a £14m organic increase, including income of £4m for a further milestone achieved in relation to Composite Technology and Applications Ltd, the joint venture that was disposed of in December 2013.
It said there was a positive benefit from disposals of £1m but adverse currency translation was £4m (7%). Trading margin improved to 13.3%.
In the automotive sector, global light vehicle production in Q3 of around 20.7m vehicles was 2% ahead of the comparable period in 2013 with good growth in China (+8%), North America (+8%) and India (+4%) but declines in Europe (-1%), Japan (-3%) and Brazil (-17%).
Due to stronger prior year comparators, the rate of growth is forecast to slow to 1% in the fourth quarter.
Birmingham-based GKN Driveline delivered a good Q3 result with organic sales increasing 7%, ahead of global automotive production, although this was offset by 8% adverse currency translation impact.
Trading profit was £62m with the organic increase of £9m being partly offset by £5m adverse currency translation. Trading margin was 7.5% (2013: 6.9%). The results benefited from a strong performance in China, North America and Europe although sales in Japan and Brazil were down in line with the market.
Nigel Stein, Chief Executive, GKN, added: “We have delivered a good performance in the third quarter despite adverse currency translation continuing to impact reported sterling results. Looking forward to the rest of the year, tougher prior year comparators mean that organic growth is likely to be more modest but we expect our market leading positions, advanced technology and extensive global footprint to make 2014 another year of progress.”
