Takeover-target GKN’s annual statutory pre-tax profits increased by 125 per cent to £658million last year, it said today.
But, underlying pre-tax profits made for grimmer reading, falling 16 per cent to £572million, partly due to a £112million hit from its North American operations.
FTSE 100 listed GKN, which currently employs 6,000 staff in the UK across its aerospace and automotive divisions, is embroiled in a £7.4billion hostile takeover tussle with investment group Melrose Industries.
Fighting: GKN’s boss Anne Stevens is battling against a takeover bid by Melrose
The Redditch-based engineering group has announced it will separate its aerospace and automotive divisions by the middle of next year.
The two divisions, known as GKN Aerospace and GKN Driveline, will become two separate companies via a demerger, with the aim of creating ‘two strong companies with investment grade balance sheets that can support their share of the group’s pension liabilities.’
In the last year, GKN has reduced its UK pension deficit by 44 per cent to £675million, adding that its deficit recovery payments had fallen to £36million a year from 2018.
The group’s sales broke through the £10billion mark for the first time, rising 6 per cent to £10.4billion.
GKN’s net debt grew to £889million, up from £704million a year earlier.
Adding more detail to a previous announcement, GKN said its turnaround plan, Project Boost, would deliver recurring annual cash benefits of £340million from the end of 2020 and £2.5billion in returns to shareholders over the next three years. The group is urging its investors to back Project Boost in a bid to fend of Melrose’s proposal.
Prime Minister Theresa May has come under increasing pressure to block Melrose’s takeover bid. Former business secretary Vince Cable has written to Secretary of State for Business, Energy and Industrial Strategy Greg Clark, urging him to intervene.
Mr Cable said in the letter: ‘It is totally unsuitable to have a short-term turnaround company operating one of Britain’s major strategic engineering companies that has a 20-year horizon.
GKN, which can trace its origins back to the Industrial Revolution, employs 6,000 staff in the UK in its aerospace and automotive divisions
‘There is a national security interest intervention or the government could take a golden share. I would strongly urge them to do that.’
Anne Stevens, GKN’s chief executive, said: ‘GKN has fantastic businesses which have grown organically above our key markets, demonstrating once again our strong positions and leading technology.
‘However as I set out two weeks ago, we now need to change our emphasis and ensure that those orders deliver world class financial performance with a renewed focus on strong margins and cash generation.
‘With Project Boost, I have laid out how we plan to achieve this, through detailed product segment strategies and an emphasis on manufacturing and functional excellence. We are excited about delivering these plans.’
Nicholas Hyett, an equity analyst at Hargreaves Lansdown, questioned whether Ms Stevens’ plan will be sufficient to win over investors.
He said: ‘Significant write-downs in the US aerospace business have hit profits and margins. Even excluding those, margins are heading in the wrong direction.
‘It’s these problems, and scope for improvement, that attracted serial acquirer Melrose in the first place.
‘Revenues are actually climbing quite nicely, and ahead of the wider market. If margins can be got back in line profits should get a double boost.
‘(Ms Stevens’) turnaround plan is comprehensive, and flesh is being added to the bones on a weekly basis, but it still might not be enough to convince investors.’
In response to GKN’s results, Melrose chairman, Christopher Miller, said: ‘Today’s statements are full of long-term promises and more short-term actual misses.
‘They include a rushed plan to demerge Aerospace and Automotive, which begs the question whether the priority of Project Boost has been superseded by the dismemberment of GKN in the next 15 months.
‘At the heart of this is a plea for the incumbent team to embark on an unproven and risky plan which we believe is wrong for all GKN stakeholders and UK plc as a whole. GKN deserves better than this: we believe Melrose is the only team with the ability to unlock its true potential.’
GKN’s share price is down 0.42 per cent to 428.20p. In its results, the group announced its dividend for the year will be 9.3p per share, an increase of 5 per cent from the 8.85p per share figure seen a year earlier.
GKN has a 259-year history and can trace its roots back to the Industrial Revolution.