Aviation flat as automotive motors

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Sales of £5.2bn in the first half represent growth of 15%. This was driven by favourable currency movements, with underlying growth of 5%. Underlying profits before tax rose 14% to £393m, while free cash flow surged to £116m (2016: £40m).

The shares were broadly flat following the announcement

First half results

Currency supported headline sales growth of 11% at GKN Aerospace (trading profit £168m). However, while organic growth was slower at 1%, -3% commercial and +15% military, it remains in line with market trends. Margins in the division fell 0.6 percentage points to 9.3%, with new and replacement work worth c. $2.3bn won.

A broad geographic footprint and increased content per vehicle helped Driveline (trading profit £207m) deliver organic sales growth of 8%, significantly ahead of the global market. Trading margins were broadly flat at 7.8% and the division won c. £230m of annualised new and replacement business.

Powder Metallurgy (trading profit £68m) saw organic sales rise 4% in the half. However, trading margin deteriorated to 11.3% (2016: 12.6%) as a result of a higher raw materials surcharge and investment in powder capability in China.

Sales growth in 2017 is expected to be ahead of the market in both aerospace (up 1%) and automotive (up 2%).

Net debt at 30 June 2017 was £697m (Dec 2016: £704m), with a total pension deficit of £1,849m (Dec 2016: £2,033m). GKN has now closed its UK defined benefit pension scheme to further accrual, and expects to make a £250m payment to address the deficit and reduce future deficit recovery payments (currently £42m a year).

All yield figures are variable and not guaranteed. The information in this article is not intended to be advice or a recommendation to buy, sell or hold any investment mentioned, nor is it a research recommendation. No view is given as to the present or future value or price of any investment, and investors should form their own view in relation to any proposed investment.

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