GKN warns current growth may not be sustainable for full year

GKN had a good first quarter with organic sales growth, but the engineer warned that its growth rate may not be sustained for the full year due to tough comparisons with last year.

During the quarter, the FTSE 100 company achieved “good” organic sales growth as it benefited from currency translation, while the automotive market performed better than expected although growth in aerospace was “slightly” slower than it planned.

Chief executive Nigel Stein said: "GKN delivered a good performance in the first quarter. The encouraging growth rate achieved to date may not be sustained as the year progresses and comparators get tougher, nevertheless we expect 2017 to be another year of growth."

The company said that its trading margin has moved ahead of last year largely due to an increase in the driveline division, although it and the powder metallurgy division are seeing an impact from higher raw material costs.

Driveline delivered “good” first quarter sales ahead of global industry production rates that were up 6% and the constant velocity joints business has made a strong start to the year across all geographies.

Powder metallurgy’s organic sales growth was in line with global auto production rates and it also benefited from the weak pound and the acquisition of a powder manufacturer in China in 2016.

The division is to buy Tozmetal Ticaret Ve Sanayi AS, a Turkish sinter metal component manufacturer, subject to regulatory approval. Tozmetal which generated sales of €24m in 2016.

The aerospace division is trading in-line with expectations and operating cash flow was similar to the equivalent last year. Its sales in the first quarter increased “modestly” on an organic basis.

As the company expected in commercial aerospace, the production ramp-up of new aircraft is slightly more than offsetting cuts in the A380, Boeing 777/747 and business jets, while military sales were up compared to last year, due to the ramp-up of the F-35 Lightning II and stable production levels in older programmes.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said that despite the glamour of building parts for the F-35 fighter jet, "it remains a Mondeo rather than a Ferrari" as its performance has been reliable of late, but tends to be more or less in line with end markets.

"Having said that, Driveline has been an area of strength, since the popularity of SUVs has increased demand for its pricier all-wheel drive product, while Aerospace has increased substantially in scale following acquisitions of Volvo and Fokker. Both look set to continue delivering steady performances in the medium term – although the automotive market is notoriously volatile," he said.

Shares in GKN fell 2.24% to 357.90p at 0848 BST.