GKN issues profit warning over mystery charges

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GKN workersImage source, GKN

One of the UK's biggest engineering firms, GKN, has warned that full-year profits will only be slightly above the level reached last year.

GKN blamed "operational challenges" in its North American aerospace business and a £40m charge resulting from "two significant external claims".

It said the claims were "commercially sensitive" and gave little more detail.

In July, GKN said it expected sales growth to beat the overall market, but did not give a profit forecast.

GKN said one of the legal claims concerned its aerospace business and another relates to its business that makes parts for the car industry.

In a conference call with analysts chief executive Nigel Stein said the claims and slowdown felt like "walking down street and being mugged".

The company is a key supplier to the car industry, being the biggest maker of drivetrains, which transfer power from the engine to the wheels.

It is also an important player in the airline industry, where it supplies parts for Boeing and Airbus.

GKN said that trading at its aerospace business had been "disappointing". It blamed lower profit margins and what it described as "operational challenges".

In particular, GKN is taking a £15m charge to cover problems at its plant in Alabama.

Ben Bourne, aerospace analyst at Liberum Capital, said he has been "concerned" about trading conditions for GKN since January.

In particular, he said that profit margins at GKN's aerospace business have been under pressure as "customers have become increasingly focused on price".

Mr Stein said: "In light of the trading performance in North American Aerospace, we are redoubling our efforts to improve our operational performance in that business, as well as developing actions to accelerate margin improvement plans across the group."

Shares in GKN fell more than 7% in early trading.