GKN Boosted by Driveline Unit

LONDON--U.K. engineer GKN PLC (GKN.LN) Tuesday reported an increase in first-half profit as it sold more auto parts, pushing shares higher even as sales took a hit from the strength of the pound.

GKN, which makes driveline systems for cars and components for jet aircraft, posted a 76% increase in pretax profit to 224 million pounds ($380.2 million) for the six months to June 30. Revenue fell 2% to GBP3.57 billion as sterling's gains reduced sales by GBP247 million. After the announcement GKN shares rose the most in the FTSE 100 index.

"We have continued to outperform our key markets and report good underlying financial results in spite of sterling's strength and some end market weakness--we expect these trends to be maintained in the second half," Chief Executive Officer Nigel Stein said.

Growth was led by the driveline business which reported an 11% increase in organic revenue--which strips out currency impacts--as weak demand for new cars in Brazil and India was cancelled out by gains elsewhere. The division's profit margin improved by 1.2 percentage points to 8%.

At 1035 GMT, shares were up 24 pence or almost 7% at 367 pence, regaining some of the ground they had lost in recent months and giving Worcestershire-based GKN a market value of 5.63 billion pounds.

Before Tuesday's results, shares had dropped by 18% since February. As well as the stronger pound, the stock has been weighed by flagging sales at the land systems division, which makes industrial engine parts. First-half sales at the unit declined by 9% on an organic basis.

"Recent weakness has largely been driven by the FX offset rather than consideration of the strong underlying growth that will continue in both Automotive and Aerospace," wrote Cantor Fitzgerald analyst Andy Chambers, noting that the results were "broadly in-line with consensus expectations."

GKN's aerospace arm, which earlier this month won a contract to develop flight-control systems for Bombardier Inc.'s (BBD.A.T) new range of long-range business jets, reported 5% organic growth in commercial orders, offsetting a 2% dip in military sales.

Net profit doubled to GBP183 million from GBP89 million a year earlier. GKN raised its first-half dividend to 2.8 pence from 2.6 pence.

In a separate announcement, U.K. public transport operator Go-Ahead Group PLC (GOG.LN) said GKN will provide electric flywheels for 500 London buses, boosting the vehicles' energy efficiency. The equipment will use technology developed by Formula 1 racing team Williams Grand Prix Holdings PLC (WGF1.FR), which sold its hybrid power business to GKN earlier this year.

By Ed Ballard at [e-mail]

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