Overseas demand lifts GKN profits

PAST job cuts, lower redundancy costs and improved demand for car components in North America and Germany lifted GKN's half-year profits by 37 per cent to pounds 65.1m before tax.

However, Sir David Lees, the chairman, said yesterday that he was less optimistic about the state of the economy in Britain, which accounts for a third of the engineering and industrial group's sales, than he was at the annual meeting in May.

He said an improvement in UK trading profits from pounds 10m to pounds 16m during the half year was due entirely to a lower charge for redundancies.

A rise in automotive and engineered products was completely offset by a further sharp downturn in UK construction-related services, essentially the 60- per-cent-owned Kwikform scaffolding.

But Sir David did not call for devaluation of the pound. 'If we devalue we end up with even higher interest rates which is exactly what we don't want.'

He said the company did not expect the demand pattern to change much in the next few months. Any profit increase would have to come from increases in market share and rigorous attention to costs.

GKN shares had been rising strongly ahead of the results on hopes that the figures would be better than expected, which they were. The shares closed 12p lower at 383p.

GKN's best news came from the Continent and North America, where car production rose by 5 per cent. Sales of the company's driveline products rose by 8 per cent in Europe.

GKN was also helped by above-average sales of the BMW 3-series, Audi 100 and Renault Clio, and by Ford's 1 per cent rise in market share. In each case it is sole supplier of constant velocity joints. A further boost came in the second quarter as new business contracts came on stream.

Trevor Bonner, managing director of GKN Automotive Drive Line Systems, disclosed that GKN had been awarded substantial new contracts by unnamed US-based vehicle manufacturers.

The effect would be to increase its North American production of constant velocity joints from 2.1 million this year to 3 million by 1995, generating an extra dollars 100m of sales.

Trading profits from automotive and engineered products in all regions jumped from pounds 30m to pounds 53m. Apart from sales buoyancy in Germany and North America, the bulk of the improvement stemmed from productivity gains worth an estimated pounds 15m or pounds 20m to profits.

GKN has cut its workforce by 7.5 per cent in the past 18 months. Charges for redundancy and reorganisation in the first half fell from pounds 10.1m to pounds 4.4m as a further 510 staff left. GKN expects a pounds 7m to pounds 10m charge for the year, with job losses occurring mostly outside Britain.

Total sales rose by pounds 14m to pounds 1.26bn and trading profits increased by 36 per cent to pounds 66.9m. GKN's share of profits in associate companies fell from pounds 14m to pounds 10m. Earnings per share rose by 43 per cent to 10.9p.

Tight control on cash led to a reduction in debt as a percentage of shareholders' funds from 26.4 per cent to 25.4 per cent.

The interim dividend was unchanged at 8p.

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