GKN profit warning after legal claims blow

ENGINEERING group GKN has suffered “a blow to the head” after being hit with problems in its North American aerospace business and two legal claims that could cost it £40m, its chief executive Nigel Stein has said.

The FTSE 100 company, which has a large aerospace division and automotive arm, brought forward a scheduled trading update to warn investors that “management pre-tax profit” – its preferred measure of earnings – would be only “slightly” above last year’s £678m. Analysts had been expecting GKN to post profits of £765m this year.

The profit warning sent GKN shares down 9.9pc to 318p yesterday. Mr Stein, who will step down at the end of the year and be replaced by Kevin Cummings, current head of the aerospace division, said that trading in the North American arm in the third quarter had been “disappointing”.

He admitted that efforts to boost productivity in the division had failed to pay off and said the firm would “redouble” its efforts.

“Frankly, this feels like walking down the street and being mugged,” Mr Stein said. “We’ve taken a blow to the head, but we’ll pick ourselves up and carry on.”

GKN, which was founded in 1759, said it faced two “non-recurring” legal claims, one relating to aerospace and one to its automotive Driveline business, but gave no further details as they were “commercially sensitive”.

The engineer employs around 58,000 people and counts General Electric and Airbus among its customers. It is thought to supply parts to every other new car produced and an even bigger proportion in the airliner business.

Nicholas Hyett, an analyst at Hargreaves Lansdown, said that the claims were equal to 5pc of last year’s operating profits, but added that they should not “drag on the group’s long-term prospects”.