GKN shares hit five-year high on bullish outlook

Shares in GKN, the car components to aerospace group, surged to a five-year high yesterday after the group delivered a bullish outlook for its main markets and said it was accelerating the transfer of production to low-cost factories in India and China.

The shares, which have under-performed the engineering sector by almost a fifth over the past 12 months, rose 9.5 per cent to 351p - their highest level since early in 2002.

Kevin Smith, the chief executive, said GKN was reaping the benefits of a three-year cost-cutting programme in its automotive division, which has resulted in more than 2,000 job losses and will produce annual savings of £73m.

Despite the continued uncertainty surrounding the US car market, which accounts for 20 per cent of group sales, Mr Smith said he expected GKN's driveline business to recover much of the ground lost in 2006 and increase sales of its driveshaft components in 2008 after securing three-quarters of all new business placed by the world's car makers. He also said GKN expected good sales growth in its powder metallurgy and aerospace divisions while raw material costs, though volatile, would not have a major impact this year compared with 2006.

Mr Smith forecast good growth in China, where GKN is opening four new factories, and India, where two further production plants are being added.

Underlying pre-tax profits rose 8 per cent last year to £221m, bearing market expectations, while earnings per share were up by 29 per cent on the same basis. The strongest performance came from GKN's aerospace business, which increased profits by 30 per cent on an 11 per cent rise in sales.

Mr Smith said GKN had the firepower to spend £300m to £400m on "bolt-on acquisitions" without having to go to shareholders for new funds.