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GKN stuns City with 67% increase

Shares jump 51p as half-year profits beat forecasts and top pounds 162m
GKN, the car components to helicopters group, stunned the City yesterday with half-year profits far above expectations. Analysts hastily raised their forecasts for the full year after the company reported a 67 per cent rise in pre-tax profit to pounds 162.6m.

GKN's shares jumped 51p to 783p as the chairman, Sir David Lees, predicted that the remainder of the year would see further financial progress.

"These were good figures everywhere," said Harry Philips, an analyst at Panmure Gordon, who pencilled in full-year profits of pounds 305m to pounds 310m, up from pounds 274m.

GKN's automotive and agritechnical operations contributed pounds 106m of profit, up 68 per cent. Industrial services saw a 17 per cent rise to pounds 27m, while the special-vehicles division made pounds 23m, up 15 per cent.

The company saw recovery in its European and North American markets, though it warned of a slight downturn in the automotive businesses. It expects car production in mainland Europe to fall 2 to 2.5 per cent in the second half of 1995, reversing the first half's increase. "In continental Europe production was up about 9 per cent in the first half, and we don't see that continuing in the second," finance director David Turner, said.

Analysts said the downturn would not significantly hinder performance, and would probably be offset by growth in other businesses.

GKN, which has consolidated its Westland helicopters operation from the start of this year, said it saw profitability rising in aerospace and military vehicles. And at Chep, the pallets business where it has a share in a joint venture, it forecasts strong US growth, which will help its shift away from the cyclical automotive industry.

Sir David said the group's defence and business-services arms would grow faster than automotive this year and for several to come. "The approximate proportions as of the end of this year will be about 60 per cent for automotive and about 20 per cent for the other two," he said. "Their growth potential is such that the group will change to nearer 50:25:25."

Analysts were impressed by margin growth achieved in the automotive businesses. "Not only did automotive margins perform better than the 1994 first half, they even outperformed second half 1994, and that was really good," said Charles Armitage of Lehman Brothers.

Another analyst said: "In the short term, production cost improvements and growing volumes are the factors pushing margins up, and GKN will only be exposed when one or both fall away. I think that will be some way off."

GKN lifted its interim dividend to 8.75p, compared with 8p previously. Estimates had ranged from 8p to 8.8p, and analysts said the modest rise was because GKN was building up dividend cover.

Mr Philips said: "It is now quite clear that the base profit of the company is substantial - from which they can sustain a decent dividend policy."