GKN slides on warning of US automotive slowdown

Shares in the car components to helicopters group GKN fell by almost nine per cent yesterday after the company warned that the downturn in the US automotive market would have a significant impact on profits in the first half of the year.

Shares in the car components to helicopters group GKN fell by almost nine per cent yesterday after the company warned that the downturn in the US automotive market would have a significant impact on profits in the first half of the year.

The "big three" of the American motor industry - General Motors, Ford and Chrysler - account for a fifth of GKN's £5bn turnover, and their output is down by around 30 per cent. Overall US car production is forecast to fall to around 15.4 million cars.

GKN shares ended the day 70p lower at 740p as analysts estimated that profits from the group's US automotive operations would be £25m-£30m lower in the first half.

GKN also warned of slower sales in its US materials handling business Interlake and its European off-highway automotive operations. The total reduction in GKN profits, including charges for restructuring its US automotive businesses, is expected to be around £30m-£35m.

Sir CK Chow, GKN's chief executive, said the outlook for the first half would be heavily influenced by the US car market. "If vehicle production continues at its present level, which is some 20 per cent lower than the same period last year, the impact on our automotive business in North America will be significant."

He added that the off-highway business, which makes wheels, cabs and drivelines for the agricultural and construction industries had been hit by the outbreaks of BSE and foot-and-mouth in Europe.

Meanwhile Interlake, which generates a fifth of its sales by supplying equipment to internet retail distribution centres, has been affected by the slowdown at companies such as eToys.

Sir CK said that its Chep pallets business had not been affected by the slowdown in the US, where it controls around 30 per cent of the market and services giant retailers such as Wal-Mart. "People still need to shop and eat regardless of the economy," he added.

GKN said it was making progress on the merger of its industrial services division, which includes Chep and the waste disposal business Cleanaway, with Brambles Industries of Australia. The new company, which will have a market capitalisation of around £7bn, will be run by Sir CK who intends to quit GKN and return to the Far East. However, GKN cautioned that a "number of complex legal, taxation and regulatory" issues still needed to be resolved.

Pre-tax profits last year rose 3 per cent to £528m and the dividend was raised 10 per cent to 19.8p. Operating profits in automotive rose 13 per cent to £308m, while industrial services contributed £169m. The aerospace division reported a 16 per cent drop in operating profits to £116m.