GKN delivers profit rise despite Japan hit
Car parts giant GKN said its business remains on track despite disruption to Japan's auto industry and knock-on supply chain shortages outside the country.
Supply chain: GKN makes driveshafts for almost half of new cars
Market conditions are 'broadly as expected' although the tragic earthquake in Japan has had some impact, it revealed.
The Redditch-based company said sales were up 14% to £1.5bn and trading profit was 42% higher at £119m in the first quarter of 2011.
Its shares rose 4.5p to 206.9p in trading today.
GKN said its Driveline business, which makes driveshafts for almost half of new cars, saw profits increase by 35% to £50m despite the disruption in Japan costing it £3m.
The company also said it had sold its share of a joint-venture driveshaft sales and distribution business in Japan for £8m, which would hit sales by about £30m in the short term.
However, it claimed there would only be a small impact on profits and the deal will allow Driveline to build its business as an independent operator in the country in the future.
The group's powder metal technology arm, which provides components for manufacturers, saw sales increase by 21% to £217m, while its land systems arm, which supplies products to heavy industry and agriculture, saw sales rise 27% to £220m.
But sales at its aerospace arm, which makes fuselage, fan blades and cockpit windshields from sites including Yeovil, Luton, Derby, Portsmouth and the Isle of Wight, were flat.
However, this represents an improving trend on 2010 when sales at the division declined by 2%.
The group has stripped out costs with a major redundancy programme since November 2008, which saw 15 factory closures and 7,000 of its 42,000 staff go, including 560 in the UK - although employee numbers have since climbed to 40,000.
GKN, which also operates sites at Sutton Coldfield, Telford and Edgware in Middlesex as well as in 30 other countries, added to its UK personnel in 2008 after buying Airbus's Filton site and now has 6,000 UK employees.
Sir Kevin Smith, chief executive, said he expected the business's recovery to continue because it is developing new stronger, lighter components that will help its customers build more fuel-efficient machines.
View from the City
'This is a very punchy interim management statement and considerably ahead of our rather tentative estimates,' said Harry Philips, analyst at broker Evolution Securities. 'Powder Met and Land Systems have led the way and the momentum in the top line at +14% is strong.'
He noted that the stock has been held back by doubts about its ability to recover rising raw material costs and the Japanese impact on the auto OEMs [part resellers] and supply chain.
'These numbers give a strong riposte to the former and the latter will have an impact but one which can be carried in current forecasts,' he commented.
He has not revised forecasts but regards GKN as a 'cheap stock'.
However, Jeremy Batstone-Carr of broker Charles Stanley Securities said: 'Investors should note that automotive market conditions remain tough in our view and comparatives are likely to get tougher as 2011 progresses. Raw material price increases also represent a significant headwind for the company.
'We recommend investors use share price strength to reduce exposure.'
Andrew Gollan, an analyst at broker Investec Securities, said the performance of the Driveline business was impressive given the disruption following the earthquake.
Most watched Money videos
- 'Now even better': Nissan Qashqai gets a facelift for 2024 version
- A look inside the new Ineos Quartermaster off-road pickup truck
- Mini celebrates the release of brand new all-electric car Mini Aceman
- Mini Cooper SE: The British icon gets an all-electric makeover
- Leapmotor T03 is set to become Britain's cheapest EV from 2025
- Porsche 'refreshed' 911 is the first to feature hybrid power
- Mercedes has finally unveiled its new electric G-Class
- Top Gear takes Jamiroquai's lead singer's Lamborghini for a spin
- Introducing Britain's new sports car: The electric buggy Callum Skye
- Tesla unveils new Model 3 Performance - it's the fastest ever!
- Incredibly rare MG Metro 6R4 rally car sells for a record £425,500
- Footage of the Peugeot fastback all-electric e-3008 range
- What does it take to win the Premium Bonds - and is it...
- CITY WHISPERS: De Beers hangs on to the artworks in Anglo...
- Capita to announce new tie-up with Amazon Web Services to...
- Stock Exchange's boss JULIA HOGGETT admits she is privileged
- New hope on three continents after leaders elected in...
- HAMISH MCRAE: Never mind the Election - cut interest rates!
- Scrap share tax, says Abrdn boss: Investors DO back UK...
- British Fashion Council warns Shein's planned £50bn float...
- Stop the £40bn bank interest racket: Calls from across...
- ALLIANCE TRUST: The 'dividend hero' that's poised to...
- MIDAS SHARE TIPS UPDATE: Our private equity stock tip is...
- MIDAS SHARE TIPS: Silver is making its mark as global...
- Our father died seven years ago, why are we still waiting...
- JEFF PRESTRIDGE: Cash in on the super ATMs of the future
- MARKET REPORT: Hangover for cider seller as boss makes...
- ALEX BRUMMER: Vision for the UK's future missing during...
- Shares in night-vision goggle maker Exosens soar on its...
- Influential City group calls on next government to review...