GKN graphs

GKN stakes claim for winner's medal

GKN bucks the economic gloom with strategy for continuing growth, but ‘TV wars’ hit Japanese manufacturers.

The Olympics afforded pundits an opportunity to celebrate not only high-profile British sporting stars, but also lesser-known unsung heroes. Amid the media hubbub surrounding the London Games, one relatively low-profile company released its half-year figures - and confirmed its status as an under-celebrated home-grown manufacturer.

At the end of July, GKN, the Worcestershire-based maker of vehicle driveshafts and aircraft wing components (among other things), reported that profits for the first half of 2012 grew by a third to £266m, compared with same period last year.

In the past six months the £3.4bn-turnover company has benefited from a relatively stable premium-car market in certain global regions - notably China - which has shielded it from the downturns faced by auto makers in parts of Europe and the US.

GKN’s automotive arm saw sales increase by a quarter in the first half of this year. Its biggest automotive customer is Volkswagen, maker of premium Audi Cars. “The premium end of the market is the area that is doing better, especially in China and Europe, though in south Europe small cars are still not doing so well,” commented GKN group chief executive Nigel Stein.

And so analysts seem prepared to buy Stein’s cautiously optimistic assessment that the company can continue to grow amid the economic turmoil in parts of Europe. “We sense that sentiment towards GKN is still being heavily swayed by caution about global light-vehicle production, but GKN is likely to be able to generate at worst a robust performance in the second half of 2012 and 2013, in our view,” said the analyst Jefferies.

The company’s aerospace strategy is also seen by analysts as very much on the right track: last month’s acquisition of the aircraft business of Swedish vehicle giant Volvo expanded GKN’s presence in the growing civil aviation sector, which will help to shift the balance of work from the financially hard-pressed military aviation sector.

Analyst Oriel Securities described the acquisition of Volvo Aero as “a defining moment for GKN, with aerospace now set to account for 40 per cent of earnings”.

Stein said of the purchase: “We are already a market leader in aero structures: this makes us a leader in engine components too, a large and growing segment of the aerospace industry.”

GKN’s manufacturing success does not go wholly unrecognised in Britain, of course. Business Secretary Vince Cable made a point of opening GKN Aerospace’s new £150m manufacturing centre in Bristol in April, declaring: “Manufacturing lies right at the heart of the government’s strategy for economic recovery and growth”.

Unveiling GKN’s half-year figures, Stein claimed that the company’s two main activities - aerospace and automotive - would help to boost Britain’s manufacturing exports. And he lauded the government’s recent announcement of plans for a new ‘centre of excellence’ for aerodynamics. “The UK has begun to realise that these two sectors are winners and it is feeling confident enough to back them,” Stein said.

But GKN is also doing well in its other operations. GKN Powder Metallurgy won £80m of new business in the half-year period, while GKN Land Systems “should continue to show improvement”, according to the company.

The group is backing this optimism by investing over £12m in upgrades at its Birmingham Driveline and Telford Land Systems facilities. Perhaps Vince Cable should propose a special gold medal for one British company that seems able to buck the trend of continuing economic woe. *

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