UK aerospace and automotive engineer GKN plc (LON:GKN) said it has turned its focus to electrified drivetrains as more carmarkers shift away from traditional diesel-engine vehicles.
With a growing number of automakers, such as Volvo, BMW and Volkswagen, producing electric vehicles, GKN is investing in the technology to meet demand.
The UK government also announced in the Queen's Speech last month an Automated and Electric Vehicles Bill will be introduced to encourage the use of electric and self-driving cars.
As the trend toward electrification of passenger vehicles accelerates, the GKN Driveline business has been responding to the need for lower emission vehicles, including hybrid and pure electric.
In the first six months of the year, GKN won two major production orders with BMW and Volvo.
Volvo, which has said that from 2019 onwards every vehicle will have an electric motor, will use GKN’s multi-speed transmission, eAxle, for its XC60 and V90 models.
GKN will launch the second application of new lightweight VL3 constant velocity joint (CVJ) on the new BMW 5 series.
GKN shares drop as it reports decline in commercial aerospace sales
Boosted by the latest orders, organic sales in GKN Driveline increased 8% in the first half.
The aerospace division achieved organic sales growth of 1%, as a 15% gain in military orders mitigated a 3% fall in commercial sales.
The commercial side of aerospace was hit by a drop in wide-body aircraft and business jet deliveries, which offset an increase in single-aisle aircraft. Sales were also affected by non-recurring revenue of its discontinued 737MAX airliner contract with Boeing.
Liberum analyst Ben Bourrne said he remained "concerned the aerospace skew to widebody rather than growing narrowbody programmes and automotive faced with disruption from electric vehicles will cause trouble ahead".
Shares fell 1.60% to 322.70 in morning trading.
GKN Powder Metallurgy, the division that supplies metal powder precision components, saw organic sales climb 4%.
Total organic sales edged up 5% while headline sales were lifted by favourable foreign exchange movements, rising 15% to £5.2bn.
Pre-tax profit grew 14% to £393mln and earnings per share rose 14% to 17.7p.
The interim dividend was lifted 5% to 3.10p.
"We made progress in the first half and are on track for the full year,” said chief executive Nigel Stein.
“We are performing well against our key markets, demonstrating once again the strength of our businesses, strong market positions and leading technology.”
However, trading margins dropped 20 basis points (bps) to 8.4%.
UBS said margins were 30 bps below its expectations while the aerospace profit trading margin was 70 bps less than forecasts and Driveline missed by 30 bps. "We expect investor focus to be on the lower H1 margins," the bank said.
GKN confirms closure of defined benefit pension scheme
GKN also confirmed that it closed its defined benefit pension scheme in March to tackle its pension deficit. The company plans to pump in a lump sum of £250mln to help address its deficit in the second half of the year. GKN had £5mn higher UK pension costs during the period.
Its UK pension deficit stood at £1.06bn at the end of June, down from £1.2bn at the end of 2016.