Engineering firm GKN has warned that profits will only be ‘slightly above’ 2016 with two external claims expected to set things back to the tune of £40 million.
Chief executive Nigel Stein, who steps down at the end of the year, said a failure to improve productivity around the North American aerospace business had further damaged progress.
Following the news of the hit, shares dipped by more than 9 per cent on Friday morning, wiping half a billion pounds off the company’s market value.
Engineering firm GKN has warned that profits will only be ‘slightly above’ 2016 with two external claims expected to set things back to the tune of £40 million
Commenting on the chain of events, Stein said: ‘Frankly this feels like walking down the street and being mugged. We’ve taken a blow to the head, but we’ll pick ourselves up and carry on.’
GKN has disclosed a £40 million hit linked to unspecified legal claims and a £15 million writedown. One claim relates to GKN Aerospace and the other GKN Driveline, but the firm did not reveal any further details.
GKN has disclosed a £40 million hit linked to unspecified legal claims and a £15 million writedown
Stein said they were informed of the claims in a 24-hour period earlier this week. He said they were not litigation and did not expect them to be recurring.
In addition, GKN Aerospace North America will book a £15 million non-cash charge at its Alabama facility, relating to ‘revised assumptions’ on programme inventory and receivables balances.
GKN, which dates back to 1759 and employs 58,000 people across 30 countries, now expects its full-year pretax profit to only just top the £678 million recorded last year. Analysts on average had forecast profit to rise to £735 million, Thomson Reuters data showed.
The warning comes as GKN embarks on a round of management changes, with Stein to be replaced by Kevin Cummings, currently head of the aerospace division. Finance director Adam Walker is due to leave in November.
Stein said it would take a couple of years before margins improved in its North American aerospace business, adding that recent performance had been below his expectations.
‘Trading in the third quarter has been disappointing with a significant reduction in margin caused by on-going pricing pressure, continuing operational challenges and the impact of programme transitions,’ GKN said of its aerospace operations.
It said the headwinds would not ease in the final quarter.
‘In addition, it is disappointing that we expect to have to provide for two unexpected claims which will slow our steady growth in profits,’ Stein said.
Stein said while changes to pricing in aerospace had not been dramatic, the company had not adapted properly.
The company said Driveline was continuing to outperform a global market growing at around 2 per cent, but it was having to bear additional costs for raw materials and investment in systems for electric vehicles.
Ian Forrest, investment research analyst at The Share Centre commented: ‘This is clearly disappointing news, more so the operational challenges and drop in profit margin at the aerospace business. The shares have responded with a 6 per cent drop in early trading although they remain well above their year low. While sales on the automotive side remain good the issues at the aerospace business are a concern. As a result, we are putting our current ‘buy’ recommendation under review.’
‘The shame of the profit ‘warning’ is that organic sales growth in the third quarter appears to have been satisfactory,’ Jefferies analysts said in a note.
‘Ultimately, we cannot help but wonder whether this disappointment today will drive more significant change in due course.’
The British group has often faced speculation that it could be broken up into automotive and aerospace units.