GKN profits hit by disappointing aerospace trading and claims

The US aerospace division saw a'significant reduction in profit margins in the third quarter

Shares in FTSE 100-listed engineering company GKN PLC fell Friday, after it warned charges will hit its profit for the full year, and it reported a disappointing third quarter of 2017, with operational challenges and an underperformance in the United States leading to lower trading margins.

The FTSE 100 company also said it was aware of two external claims, one in aerospace and one in driveline, that were expected to result in a £40m charge in the fourth quarter.

"Frankly this feels like walking down the street and being mugged", he said.

Shares in the group dropped by more than nine per cent in early trading.

As a result, the company now expects management profit before tax for 2017 to be only slightly above 2016 levels.

Finance Director Adam Walker is due to leave in November.

Engineering group GKN has brought forward a trading update to report two "probably significant external claims" that will impact the balance sheet.

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.

It said the headwinds would not ease in the final quarter.

In the third quarter of the year, GKN reported good sales growth, with its Driveline segment outperforming its market and Aerospace ending up higher in sales than the year before, despite operational challenges for the division in North America, which is expected to incur a GBP15.0 million charge. It declined to give further details on the claims.

Stein said the company is "redoubling our efforts to improve our operational performance" at the U.S. aerospace business as it taking action to improve margins across the group. He said they were not litigation and did not expect them to be recurring.

In its automotive division, third quarter sales were well ahead of global industry production rates, which rose 2%.

GKN has been the subject of perennial talk that it could be broken up between its dominant automotive and aerospace units.

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