GKN brings trading update forward to warn on profits due to two 'probably significant' claims

 
Caitlin Morrison
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GKN has warned of two potentially significant claims that will hit the balance sheet (Source: GKN)

Engineering group GKN has brought forward a trading update to report two "probably significant external claims" that will impact the balance sheet.

Shares in the group dropped by more than nine per cent in early trading.

The company said it "has been made aware of two probable claims which are expected to result in a charge of around £40m in the fourth quarter of 2017". One relates to GKN Aerospace and the other GKN Driveline, the firm said, adding: "Both claims are commercially sensitive with no additional information disclosable at this time."

As a result, the company now expects management profit before tax for 2017 to be only slightly above 2016 levels.

Trading in the third quarter has been "disappointing", GKN said, due to a significant reduction in margin caused by on-going pricing pressure and continuing operational challenges.

The group also announced a £15m writedown relating to its GKN Aerospace North America facility in Alabama. The charge is linked to revised assumptions on programme inventory and receivables balances

"GKN continues to grow well against its end markets although recent margin performance has not met our expectations. In addition, it is disappointing that we expect to have to provide for two unexpected claims which will slow our steady growth in profits," said chief executive Nigel Stein, who announced his retirement plans last month.

"In light of the trading performance in North American Aerospace, we are redoubling our efforts to improve our operational performance in that business, as well as developing actions to accelerate margin improvement plans across the group.

"With our excellent market positions and leading-edge technologies, I am confident that the group is in a strong position and has a bright future."

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