GKN rides out downturn in European car industry: Interim dividend maintained at 8p after marginal fall in profits

DESPITE a 36 per cent fall in profits from Continental Europe on the back of a severe slump in car production, GKN, the automotive and industrial distribution group, reported a marginal decline in pre-tax profits, from pounds 60.9m to pounds 60m, for the first half of 1993. The interim dividend is maintained at 8p.

Sir David Lees, the chairman, who is recovering after a recent car accident, said in a statement with the results that the second half would be another tough trading period. It was too early to detect any sign of an improvement in Continental automotive markets, although conditions in Britain and North America were brighter.

GKN is hoping to hear shortly that negotiations between the the Government and Kuwait over a pounds 500m contract to supply 200 Piranha armed personnel carriers and 100 Warrior combat vehicles have proved successful. Alec Daly, managing director for defence products, said the order would give its plant at Telford, Shropshire, which employs 500, work for four or five years.

Separately, GKN announced that Chep, its jointly owned pallet distribution business, is to launch an automotive crate pooling operation for component deliveries for General Motors Europe in 10 of the 12 EC countries. This will be the first automotive use for crates in Europe.

The downturn on the Continent, where car production fell 17.5 per cent in the first half, has accelerated GKN's redundancy programmes. About 1,000 jobs were axed, including 600 in the UK and 350 in Europe, leading to a jump in redundancy and reorganisation charges from pounds 4.4m to pounds 10.5m, compared with pounds 12.9m for the whole of 1992. The rise offset a pounds 6.4m net currency translation benefit from the devaluation of sterling. Losses on discontinued operations fell from pounds 4.7m to pounds 400,000, flattering reported profits, but GKN has resumed contributions to its pension fund with a pounds 2m payment.

Sales by GKN subsidiaries increased by pounds 98m to pounds 1,089m entirely because of exchange rate movements. Profits from these operations fell from pounds 77.5m to pounds 73.8m after redundancy costs.

Automotive profits fell by 9 per cent to pounds 48m, which was not fully offset by a 14 per cent rise in industrial service and distribution profits to pounds 16m. UK profits rose by 19 per cent and American profits by 8 per cent, but the improvement was swamped by the 36 per cent drop in Continental European profits to pounds 27m.

GKN's gearing was 33 per cent at the end of June compared with 25 per cent a year earlier.

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