GKN surges ahead but warns of a slowdown

Westland maker looks to defence orders and joint ventures
RUSSELL HOTTEN

GKN, the Westland helicopters and motor components group, yesterday surprised the market with a 61 per cent surge in annual profits to pounds 322.4m - but simultaneously warned of a slowdown in the key European and US automotive markets.

GKN is fast expanding with a series of automotive joint ventures in developing countries which, along with a huge defence order book, would sustain the company until the world's two largest markets pick up.

Sir David Lees, chairman and chief executive, said growth in the US would be flat in 1996, while Europe could expect only 1- 2 per cent, against 3 per cent last year. In emerging markets, however, growth rates of 11-20 per cent would continue.

GKN's driveline business - transmissions and axles - has about 30 per cent of the world market and the company has been launching joint ventures throughout developing markets. Another three joint ventures will be added to the existing eleven this year.

Despite the slowdown in automotive markets, GKN's current trading was ahead in the first two months due to progress in the aerospace and special vehicle businesses, and the Chep pallets division. The shares rose 35p to 877p.

Westland's order book, at $4bn, was the best for many years and would stretch into the next century, Sir David. Possible orders in the pipeline include helicopters for Canada, New Zealand, and the UK Ministry of Defence, but a decision was still a long way off, he said.

Speculation that GKN wants to merge its defence business with Vickers refuse to go away despite repeated denials by Sir David. But he acknowledged that closer co-operation between the two companies was not out of the question. GKN has net cash of about pounds 220m, which would be invested in creating organic growth, not acquisitions, Sir David said.

Operating profits at the aerospace and special vehicles divisions more than doubled to pounds 65m in 1995, due largely to the output of Warrior tanks in the second half. Industrial services saw operating profit up to pounds 63m from pounds 57m, due to a very strong performance from the Chep pallet business, which shifted 53 million units, against 43 million last year.

Capital expenditure in the current year will amount to around pounds 150m, about pounds 100m on automotive businesses and pounds 40m on Westland.

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