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October 19, 2011 9:23 pm
One of Britain’s top industrialists has repeated calls for the government to adopt a “cohesive plan” for boosting the stuttering manufacturing sector.
Presenting his last set of figures at GKN before he retires as chief executive at the turn of the year, Sir Kevin Smith called for “more clarity on the long-term industrial policy and strategy” of the UK.
“It’s really about having a more cohesive view,” he said. “If you look at all our competitors internationally, all of them have a plan and a strategy in terms of how they want to develop the manufacturing industry.”
His comments came as shares in GKN fell as much as 6 per cent after a third-quarter trading statement showed the FTSE 100 engineer’s margin improvements had failed to keep up with stronger sales.
Margins at Driveline – the biggest division, which makes car parts such as driveshafts, axles and transmissions – improved 0.1 per cent from a year earlier to 6.7 per cent, slightly weaker than expected.
Otherwise, GKN, which also makes parts for planes, broadly met expectations. Sales at Driveline rose by a 10th year on year, helping the group lift total revenues 11 per cent.
Pre-tax profits were little changed at £89m ($140m), although the company said this was a 14 per cent improvement excluding £11m in costs incurred by an explosion at a plant in Tennessee.
Sir Kevin said the group had benefited from relatively resilient demand for high-end vehicles, particularly from China, where the car market is “slowing ... but the mix is very much in our favour”.
Overall, Sir Kevin said: “We remain very positive, but still cautious. There’s still a lot of uncertainty around.”
Shares in GKN closed down 9.2p, or 4.7 per cent, to 185.9p.
● FT Comment
For a set of numbers that were broadly in line, the market reaction looks harsh. True, net debt has swelled by £522m during the quarter to £696m as a result of acquisitions, including the £280m purchase of Getrag, a privately owned German business that supplies all-wheel-drive transmission systems. Still, the group’s cash generation makes that level look manageable. After rallying from 2009 lows of 38p, the shares have been volatile in recent months. Since touching a high of 245p in July, they have underperformed the FTSE 100 by 11 per cent, which leaves them trading on less than nine times prospective earnings per share of 21p and yielding 3.6 per cent. Comparing GKN with listed peers can be cumbersome, but the discount to general industrials (on nine times) and industrial engineering stocks (on more than 12) looks unwarranted.
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