21st Oct 2014 09:47
LONDON (Alliance News) - Engineering group GKN PLC Tuesday reported higher pretax profit for the third quarter, as higher trading margins in its aerospace and driveline businesses offset a decline in sales that was caused by the strength of sterling and weak agricultural sales.
In a statement, the company reported a pretax profit of GBP139 million for the three months to end-September, up from GBP131 million a year earlier, even though revenue declined to GBP1.79 billion, from GBP1.87 billion, due to the strength of sterling. Its overall trading margin improved to 8.9%, from 8.2%.
It said the revenue figure represented a 3% organic increase, offset by a GBP119 million or 6% hit due to sterling's strength against most major currencies. Divestments also knocked GBP15 million off sales.
"We see little change in our markets for the remainder of the year. The automotive market is forecast to remain positive with a lower rate of growth in the final quarter. Aerospace markets are robust whilst the agricultural equipment market looks set to continue its recent decline," GKN said.
"Looking forward to the rest of the year, tougher prior year comparators mean that organic growth is likely to be more modest but we expect our market leading positions, advanced technology and extensive global footprint to make 2014 another year of progress," Chief Executive Nigel Stein said.
Sales in the first nine months of the year were GBP5.62 billion, down from GBP5.73 billion for the first nine months of 2013, but pretax profit has improved to GBP435 million, from GBP409 million.
In the third quarter, its aerospace business saw sales fall to GBP542 million, from GBP555 million, but trading profit rose to GBP72 million, from GBP61 million, as the trading margin recovered to 13.3%, from 11.0%.
"GKN Aerospace achieved organic sales growth of 3% driven by good commercial demand, military remaining flat, and offset by adverse currency translation of 5%. Trading profit increased 18% to GBP72 million, benefitting from a GBP14 million organic increase, including income of GBP4 million for a further milestone achieved in relation to Composite Technology and Applications Limited, the joint venture that was disposed of in December 2013," the company said.
Its driveline business, which serves the growing global automotive market, similarly reported lower sales but higher profits as margins rose. Trading rose to GBP62 million, from GBP58 million, despite a GBP5 million currency hit. It said the unit performed well in China, North America and Europe, although sales fell in line with the market in Japan and Brazil.
Its weakest division was its land systems business, which was hit by worsening demand for agricultural equipment. Demand was broadly flat for construction and industrial equipment. Sales fell 15% to GBP176 million, including a 10% organic decline, and trading profit halved to GBP8 million as its trading margin dropped to 4.5%, from 7.7%.
Liberum Capital retained a Buy recommendation on the stock with a price target of 440 pence, but trimmed its earnings estimates for the company due to the weakness in the land systems business and increased macro-economic uncertainty. It cut its 2014 earnings per share forecast by 3% and its 2015 forecast by 5%.
It is keeping a Buy recommendation because it thinks the fall in the stock year-to-date of about 18%, and the company's strong balance sheet, means it still looks attractive
GKN said net debt stood at GBP857 million at the end of September, up slightly from GBP813 million at the end of June.
Investec said GKN's third quarter trading profit of GBP160 million beat its forecast of GBP150 million, but it is leaving its full-year estimates unchanged. Its is also maintaining its 2015 forecasts as it had already adjusted for a weak backdrop for Land Systems. Investec is also keeping a Buy recommendation on the stock, with a 330 pence price target.
GKN shares were up 2.5% at 309.42 pence Tuesday morning, one of the best-performing stocks on the FTSE 100.
By Steve McGrath; [email protected]; @stevemcgrath1
Copyright 2014 Alliance News Limited. All Rights Reserved.
Related Shares:
GKN PLC