GKN H1 profits and revenue up but margins drop, aerospace unimpressive

Engineer GKN reported a jump in first-half profits on Wednesday as it said it has closed its UK defined pension scheme, but margins were down across the board and the performance of the aerospace division failed to impress.

In the six months to the end of June, pre-tax profit rose to £559m from £182m in the same period a year ago, as sales increased to £4.9bn fro £4.2bn. The company upped its interim dividend by 5% to 3.1p per share.

GKN also said that it has closed its UK defined pension scheme and plans to inject a lump sum of £250m to address the deficit and reduce future deficit recovery payments.

In the aerospace division, the company saw organic sales growth of 1%, as a 3% drop in commercial sales was offset by a 15% increase in military. The driveline business saw organic sales growth of 8%, helped by the group's broad geographic footprint and increased content per vehicle, while the powder metallurgy unit saw organic sales growth of 4%.

Margins were down across all three divisions. The margin in aerospace fell to 9.3% from 9.9% in 2016, partly due to higher UK pension costs, while the trading margin in the Driveline business slipped to 7.8% from 7.9%. Powder Metallurgy saw a drop to 11.3% from 12.6%, reflecting principally the higher raw material surcharge and an investment in powder capability in China.

Chief executive Nigel Stein said: "We made progress in the first half and are on track for the full year. We are performing well against our key markets, demonstrating once again the strength of our businesses, strong market positions and leading technology. We continue to invest for growth and have made significant progress to address our UK pension deficit.

"Our focus on innovation in key areas such as electrified drivetrains, additive manufacturing and Industry 4.0 is paying dividends and underpins our confidence in the longer term.

"2017 is expected to be another year of growth. Our reputation for technological leadership in our key markets, our focus on driving flexibility and productivity through our manufacturing plants and our market leading position in all three divisions mean we are well placed for the future."

At 1010 BST, the shares were down 1.3% to 322.60p, with some analysts suggesting that news of a ban on new diesel and petrol cars in the UK from 2040 could be weighing on the stock.

Hargreaves Lansdown analyst Nicholas Hyett pointed to the lower margins and the fact that the performance in the aerospace unit was "fine rather than spectacular" as possible reasons behind the move lower.

He added: "The group is alive to the dangers a shift to electric vehicles might pose and an early move into the market has given it a strong position, with 400,000 systems already delivered to the group’s global customer base.”