Dowlais holds guidance as GKN posts strong first half

GKN Automotive owner Dowlais Group held annual guidance after posting better-than-expected maiden interim profits, driven by strong margins and the growing push for electric vehicles.

The auto parts supplier, which was demerged from Melrose Industries in April, said adjusted operating profit rose 39% to £177m in the first half of 2023. Adjusted revenue rose 10% to £2.83bn on a constant-currency basis.

"We have also secured record new business bookings, the majority of which are related to EVs, at attractive margins," chief executive Liam Butterworth said.

GKN Automotive, the largest revenue generator, supplies drive system technologies to major automakers such as Ford and Volkswagen. Its revenues jumped 14% to £2.3bn in the first half.

Melrose bought GKN in 2018 through an £8bn hostile bid and last year announced plans to break it up by spinning off GKN's automotive, hydrogen and powder metallurgy businesses into Dowlais, while retaining GKN Aerospace.

"Serving around 90% of global car manufacturers highlights the group’s market-leading position in car components, and is helping to drive overall group performance forward," said Aarin Chiekrie, equity analyst at Hargreaves Lansdown.

"With the transition to electric vehicles looking inevitable, Dowlais is set to benefit with 78% of its new orders based around electric vehicles."

However, he noted that progress in the powder metallurgy business" appears to have ground to a halt". Adjusted revenues were £545m, 2% ahead of 2022 on a constant currency basis, reflecting lower year-on-year volumes, which were impacted by the accelerating EV transition, operational issues in the US, exiting poor margin business and the closure of a facility in 2022.

"This division specialises in turning powdered metals into high-precision components. This should complement the electric vehicle transition but performance across the first half has been underwhelming, with margins and profits heading in the wrong direction. Despite this, a strong Automotive performance has helped to keep full-year guidance on track.”

Reporting by Frank Prenesti for Sharecast.com