GKN beats profit foreacast

Industrials group GKN beat first-half profit forecasts, driven by new products and strength in emerging markets in its automotive business, and tipped its aerspace division to improve in the coming years.

GKN, which produces auto components as well as airframes for planemakers Airbus and Boeing reported a 14 per cent rise in pretax profit to £200m on sales 11 per cent higher at £2.98bn for the six months to the end of June.

Without a £23m hit relating to the closure of a plant in Tennessee, which was impacted by a fatal explosion in May, GKN's pretax profit would have come in at £223m, ahead of analysts' consensus forecast of £210m.

GKN raised the interim dividend by a third to 2 pence per share and said the outlook for all of its markets was positive, despite uncertainty surrounding macro-economic conditions.

"From next year and beyond we expect to grow auto revenues about two to three per cent faster than global automotive production thanks to our strong position in growth markets and new products," GKN's Chief Executive Kevin Smith told reporters.

The company expects products including its new clutch and axle technology to be a hit, especially in emerging markets such as China and India.

Analysts had forecast a bounce back in 2011 auto sales but prospects for the second half are clouded with consumers hurting in a weak economy.

First-half sales at GKN's automotive business, which make up around 60 per cent of group sales, were up around 13.5 per cent, while aerospace revenues were flat.

"The result looks strong and we believe there is clear evidence of both cyclical recovery and good organic growth in most divisions," said RBS analyst Sandy Morris, who has a 'buy' recommendation on the stock.

GKN's aerospace performance contrasted starkly to British aero engineers Meggitt (MGGT.L) and Senior, who this week reported forecast beating first-half results, helped by a ramp up in production by Airbus and Boeing.

Despite a tough first-half for its aerospace unit GKN, which has agreed a joint venture with Chinese planemaker Comac to make some parts for its C919 aircraft, expects the division's revenues to grow significantly in the coming years.

"For several years beyond 2012 we see 8 to 10 per cent of revenue growth in aerospace with higher profits and margins, thanks to increased production from both Airbus and Boeing, but primarily Airbus," said Smith.

"We see growth coming from civil aviation but we don't expect to get a significant hit from the defence side because the majority of the defence projects we're on we have a solid profile for a number of years to come."

GKN said its aerospace business won around $2.8bn of contract extensions and new program wins in the last six months.