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Monday 23 September 2019

Engineering giant GKN sees profits more than double

The aerospace-to-automotive group saw annual pre-tax profits soar to £658 million.

GKN employs around 58,200 staff (Andrew Matthews/PA)
GKN employs around 58,200 staff (Andrew Matthews/PA)

By Ben Woods, Press Association Chief City Correspondent

Profits at takeover target GKN have more than doubled as the engineering group updated on plans to fend off a hostile bid from Melrose Industries.

The aerospace-to-automotive group saw pre-tax profits soar to £658 million in 2017, up from £292 million for the same period the year before.

GKN firmed up the timings on “Project Boost” – its plan to persuade investors not to back Melrose’s £7.4 billion bid – saying a proposal to separate GKN Aerospace and GKN Driveline into two listed companies would be set for mid-2019.

The move aims to help shift £2.5 billion back to shareholders over three years, while generating £340 million of cash per year until 2020.

Updating on its annual performance, sales broke through the £10 billion mark for the first time in the company’s history, rising 6% organically to £10.4 billion.

(Anne Stevens') turnaround plan is comprehensive, and flesh is being added to the bones on a weekly basis, but it still might not be enough to convince investors Nicholas Hyett, Hargreaves Lansdown equity analyst

However, underlying pre-tax profits made for grimmer reading, tumbling 16% to £572 million.

Chief executive Anne Stevens said: “GKN has fantastic businesses which have grown organically above our key markets, demonstrating once again our strong positions and leading technology.

“However, as I set out two weeks ago, we now need to change our emphasis and ensure that those orders deliver world-class financial performance with a renewed focus on strong margins and cash generation.

“With Project Boost, I have laid out how we plan to achieve this, through detailed product segment strategies and an emphasis on manufacturing and functional excellence.”

GKN, which employs around 58,200 staff, saw annual sales at GKN Aerospace rise 2% on an organic basis to £3.6 billion, but its trading margin eased by 2.1% to 7.8%.

Margins marginally slipped at GKN driveline, but the unit secured a 9% organic rise in sales to £5.3 billion.

The outlook for group revenues were unchanged.

Shares edged lower in morning trading on the London Stock Exchange despite the firm boosting the final dividend by 5p to 9.3p.

Nicholas Hyett, Hargreaves Lansdown equity analyst, questioned whether Ms Stevens’ plan will be enough to win over investors.

He said: “Significant write-downs in the US aerospace business have hit profits and margins. Even excluding those, margins are heading in the wrong direction.

“It’s these problems, and scope for improvement, that attracted serial acquirer Melrose in the first place.

“Revenues are actually climbing quite nicely, and ahead of the wider market. If margins can be got back in line profits should get a double boost.

“(Ms Stevens’) turnaround plan is comprehensive, and flesh is being added to the bones on a weekly basis, but it still might not be enough to convince investors.”

The results come after Melrose was handed a double boost on Monday when its swoop for GKN won regulatory backing in the US and Canada.

Melrose has honed in on GKN after profit warnings in October and November following problems at its US aerospace division sent shares tumbling.

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