25th Feb 2014 18:31
LONDON (Alliance News) - GKN PLC Tuesday reported a decline in 2013 pretax profit due to a lower gain on the value of its currency hedging contracts, but excluding complicated financial items, the company's profits soared, as growth in its automotive parts unit and the full inclusion of its aircraft engine unit helped offset lower sales in its unit that makes parts for heavy machines.
The company has operations across the world and hedges against currency fluctuations. Its pretax profit fell to GBP484 million in 2013, down from GBP568 million in 2012, mainly because the gain in the valuation of those hedging contracts at a certain point in time, known as the mark-to-market, was lower than a year before.
Excluding the hedging contracts and other complicated financial items like the change in value of derivatives, the company's pretax profit rose to GBP578 million, from GBP493 million, driven by a 10% increase in sales to GBP7.59 billion, from GBP6.90 billion in 2012, and as its trading margin rose to 8.7%, from 8.0%.
Sales and margins were buoyed by the inclusion of the GKN Aerospace Engine Systems unit for the first full year. It said sales at the unit had been slightly lower than it expected, but margins, return on average invested capital and cash flow were all better than hoped. It bought the former aero engine unit of Sweden's AB Volvo for GBP633 million in July 2012.
GKN, which makes parts for cars, trucks, and commercial and military aircraft, including wings for Airbus aircraft, said strong demand from commercial aerospace customers had continued to offset declines in military and aftermarket demand in its wider aerospace unit. Sales rose to GBP2.2 billion, from GBP1.8 billion in 2012.
Its driveline unit, which makes the drivelines for cars and other light vehicles, continued to grow faster than the recovery in global automotive markets, it said, while the unit's margin improved excluding charges for restructuring of the operations. Sales rose to GBP3.4 billion, from GBP3.2 billion.
GKN Powder Metallurgy sales were boosted to GBP932 million from GBP874 million, with the division's trading margin increasing to 10.1%.
However, sales at the Land Systems unit, which makes parts for industrial and agricultural machinery and construction machinery, dropped to GBP899 million, from GBP933 million in 2012. It said it was particularly hit by the ending of two chassis contracts, which will also weigh on the unit's 2014 results.
It said it expects to make further progress in 2014, despite an expected hit from currency fluctuations. It said aerospace sales are expected to slightly rise as commercial aerospace demand continues to offset the military downturn, while its driveline and powder metallurgy units are set to grow faster than a predicted 3% rise in global light vehicle production. It said its land systems unit is expected to be flat this year excluding the impact of the two lost chassis contracts.
"Although some of our end markets were challenging, we continued to show growth and are reporting good underlying financial results, helped by our 2012 acquisition of GKN Aerospace Engine Systems, which performed strongly. We expect the group's progress to continue in 2014," Chief Executive Nigel Stein said in a contract.
It said it will pay a final dividend of 5.3 pence for 2013, bringing the total dividend for the year to 7.9p, up from 7.2p in 2012. It said the increase reflected the better trading performance in 2013 and its future prospects.
Still, GKN's shares ended down 3.3% at 401.31 pence Tuesday.
By Alice Attwood; [email protected]; @AliceAtAlliance
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