GKN returns to profit
AUTOMOTIVE and aerospace supplier GKN has made a dramatic return to profit during the first quarter helped by a recovery in its core markets.
The Redditch-based firm said market conditions in Q1 had been “encouraging” and all its major businesses had continued to make good progress.
Group sales totalled £1,306m, an increase of 22% on last year, while pre-tax profit rose to £71m, which compares to a £28m in the same period in 2009.
Net debt at March 31 was £293m, which compared to £300m at the end of December.
Its automotive business was boosted by increasing car sales globally.
Sales in the division increased by 50% to £852m, compared to £568m last year and trading profit was £51m, which compared to a loss of £47m this time last year.
Aerospace markets, where the company produces airframes, engine structures and components for the likes of Airbus and Boeing, performed in line with expectations.
Sales were down 7% at £353m, compared to £381m last year with over half of the fall due to adverse currency translation and a softening of demand for wide-body aircraft.
Nevertheless, trading profit was £32m, although this was down from £34m last year.
Off-highway markets, while still weaker than Q1 last year, continued to improve, driven by strong demand for mining and heavy construction equipment.
Sales in the division were down 19% at £101m, compared with £125m last year, with trading profit at £4m, up from £3m last year.
The group said it remained positive for the future with the outlook for its main markets remaining good.
In Automotive, it said external production forecasts had risen to 68 million vehicles. However, it added output for Q2 was expected to be down on the first three months, while second half production was expected to be 5% lower than the first.
Cost factors to take into account are likely to be rising raw materials prices, especially steel. These would inevitably have to be passed on to customers, it said.
Q2 automotive sales are expected to be similar to Q1 as buyers continue to be cautious in the recovering economy.
The key aerospace sector looks more positive. GKN said the US defence market was expected to remain solid, while uncertainty in the commercial sector was easing.
In a statement to the London Stock Exchange, the group said: “GKN Aerospace is expected to deliver another strong performance, with margins improving steadily from the first quarter and reaching double
digits for the year as a whole.”
Off-highway markets are expected to continue improving with businesses in that sector likely to make further good progress.
Away from operations, the company said it had implemented a number of measures to improve the funding position of its UK Pension Scheme.
“In consultation with trustees and scheme members, a number of benefit changes have been implemented,” said the statement.
“The impact of these changes is to reduce future scheme funding liabilities by an estimated £80m.
“In addition, the company has agreed with the trustees an asset-backed cash payment scheme which will provide £30m per annum to the fund for a period of 20 years. The present value of this additional funding stream is now fully recognised as an asset of the scheme which will be included in the
triennial funding valuation at a value of £331m.”
The company said the measures would “significantly strengthen” the funding position of the scheme.
A further update on pensions will be given when GKN publishes its interim results on August 3.
