GKN benefits from strong demand in China and US as Europe weakens
STRONG demand across the Chinese and US automotive sectors has helped to offset weak industrial demand in Europe during the last quarter, Midland-based engineering giant GKN has said.
The Redditch business said the period since July had seen an 8% increase in sales despite what it terms a “challenging” European automotive sector.
The group said its performance also continued to be boosted by continued growth in the civil aerospace sector.
In a statement covering the period since its half-year results in July, the company said demand during the period had remained broadly in line with expectations.
Group sales in the three months to September 30, totalled £1,608m, an 8% increase over the comparable period in 2011, half of which was organic growth. Third quarter trading profit increased slightly to £114m (2011: £113m) although trading margin reduced to 7.1%, largely as a result of lower profitability in its Birmingham-based Driveline division. This arose due to the expected seasonality in the Getrag all-wheel drive business and costs associated with fluctuations in demand. In September, group margin returned to a level comparable to the first half.
It said that in outlook, macroeconomic conditions had deteriorated in recent weeks and some softening in order books was now evident, particularly in regard to European automotive and industrial markets.
However, it said other automotive markets and the civil aerospace market were expected to remain solid. The fourth quarter is anticipated to show the usual seasonal improvement, although the softening markets are expected to have some impact on performance.
Nigel Stein, Chief Executive, GKN, said: “In the third quarter, the group’s global footprint with its exposure to the strong markets of North America and China, as well as civil aerospace, allowed us to offset weaker European markets. Profit was affected by expected seasonal factors and operational issues in Driveline.
“Looking forward, European markets seem to be softening further. We continue to focus on driving performance, keeping close control of our cost base.”
In automotive, global light vehicle production in the third quarter was around 19.3m vehicles – 2% ahead of the comparable period in 2011 although with declines in Europe (-8%) and India (-5%). However, these were offset by increases in North America (+12%), China (+8%) and Japan (+5%).
GKN Driveline’s third quarter sales increased by 15% to £773m (2011: £ 672m), due to the inclusion of the Getrag Driveline Products acquisition. Organic sales were up 4% although this was offset by adverse currency translation.
Trading profit in the division was lower at £42m (2011: £46m) and trading margin was 5.4% (2011: 6.8%). Around half of the decline in margin was due to the expected summer seasonal pattern in the acquired Getrag business. The remainder arose through costs associated with demand fluctuations in India, Europe and Japan. In September, GKN Driveline’s margin returned to more than 7%.
GKN Aerospace continued to perform in line with expectations with strong growth in civil programmes more than offsetting the decline in military sales. Sales in the third quarter increased 9% to £392m (2011: £360m). Trading profit was £42m (2011: £39m) and the trading margin was 10.7%.
