October 13, 2017 / 6:58 AM / a year ago

UPDATE 3-Profit warning "mugging" to spoil GKN CEO's retirement

* Departing CEO says warning felt like “being mugged”

* Company faces two surprise claims from customers

* Has failed to improve aerospace productivity fast enough

* Says full-year profit will be “slightly above” 2016

* Shares fall 10 pct (Updates shares, adds details on Alabama plant)

By Paul Sandle

LONDON, Oct 13 (Reuters) - GKN warned its annual profit would fall short of expectations, blaming disappointing aerospace trading and two external claims that were expected to cost the British engineering company $53 million.

GKN shares fell around 10 percent after a setback that will mean a muted send off for Chief Executive Nigel Stein, who steps down at the end of the year.

“Frankly this feels like walking down the street and being mugged,” Stein said. “We’ve taken a blow to the head, but we’ll pick ourselves up and carry on.”

Stein said GKN had struggled to improve productivity at its U.S. Alabama plant, which makes composite structures and complex machine parts for aircraft such as the Black Hawk helicopter.

The plant had diversified into commercial aerospace as long-standing U.S. military programmes wound down, but growing new programmes had not been easy, he added.

GKN said it would take a 15-million-pound non-cash charge at the facility related to inventory and receivables balances.

GKN, which dates back to 1759 and employs 58,000 people across 30 countries in aerospace and automotive engineering, now expects its full-year pretax profit to be “slightly above” the 678 million pounds recorded in 2016.

Analysts on average had forecast profit to rise to 735 million pounds, Thomson Reuters data showed.

The warning comes as GKN embarks on a round of management changes, with Stein to be replaced by Kevin Cummings, currently head of the aerospace division. Stein has been in the top job since the start of 2012, having joined GKN in 1994.

Finance Director Adam Walker is due to leave in November.


Stein said it would take a couple of years before margins improved in its North American aerospace business, adding that recent performance had been below his expectations.

“Trading in the third quarter has been disappointing with a significant reduction in margin caused by on-going pricing pressure, continuing operational challenges and the impact of programme transitions,” GKN said of its aerospace operations.

The headwinds would not ease in the final quarter, he said.

“In addition, it is disappointing that we expect to have to provide for two unexpected claims which will slow our steady growth in profits,” he said.

GKN did not disclose details about the claims, one of which is in aerospace and one in its Driveline automotive power transmission business, saying they were commercially sensitive.

Stein said they were informed of the claims in a 24-hour period earlier this week. He said they were not litigation and did not expect them to be recurring.

The company said Driveline was continuing to outperform a global market growing at around 2 percent, but it was having to bear additional costs for raw materials and investment in systems for electric vehicles.

The British group has often faced speculation that it could be broken up into separate automotive and aerospace units.

“Maybe the real issue is the old chestnut of whether automotive and aerospace are good bed-fellows,” Jefferies analysts said.

“In principle, we cannot see why not. In practice, we increasingly lean towards probably not.” ($1 = 0.7535 pounds) (Editing by Jason Neely and Keith Weir)

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