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GKN Targets Debt Reduction After Aerospace Becomes Profit Driver

GKN Targets Debt Reduction After Aerospace Becomes Profit Driver
GKN said previously it would consider further acquisitions to expand in making plane parts. Photographer: Chris Ratcliffe/Bloomberg

July 30 (Bloomberg) -- GKN Plc, a supplier of parts to Boeing Co. Dreamliners and Airbus SAS A350 long-range jets, is working to cut debt that increased following the acquisition of a jet-engine business that helped boost first-half sales.

Reducing debt, which reached 928 million pounds ($1.4 billion) after an additional 43 million-pound payment for Volvo AB’s aerospace unit, is of high importance, Chief Financial Officer Bill Seeger said today after GKN reported earnings.

GKN has been looking to grow its aerospace activities to benefit from large order books at Boeing and Airbus, as the two planemakers are on track for combined delivery of more than 1,200 airliners this year. GKN said previously it would consider further acquisitions to expand in making plane parts.

“We look at a lot of things that come across our desk in a year,” Chief Executive Officer Nigel Stein said on a call. “Some we do and many, perhaps most, we don’t do.” Stein would not address reports GKN is considering a bid for Spirit Aerosystems Holdings Inc. or some of its activities.

Transactions will be influenced in part by assuring GKN’s balance sheet remains strong, Stein said. He added that the current debt level leaves the company “well positioned.”

Stein said full-year performance is expected to exceed results for the first six months. First half revenue reached 3.9 billion pounds, the Redditch, England-based GKN said today in a statement. Three analyst surveyed by Bloomberg estimated 3.7 billion pounds. Pretax profit advanced 5 percent to 278 million pounds.

Rising Stock

GKN surged as much as 22.3 pence, or 6.8 percent, to 349.4 pence in London, and traded at 346.1 pence as of 10:12 a.m. The stock has advanced 51 percent this year, valuing GKN at 5.6 billion pounds.

Sales at the aerospace business grew 46 percent to 1.1 billion pounds, bolstered by Volvo Aero, which contributed 327 million pounds. Commercial aerospace activities now represent 71 percent of unit revenue.

Aerospace was the largest profit contributor at GKN for the first time, Stein said. Profitability should increase in the second half, after margins slipped in the first six months, he said.

GKN said slow sales in industrial and construction markets will lead revenue for the business line to come in below the first half’s 487 million pounds and below 2012 levels.

The automotive unit benefitted from a slight gain in vehicle production that helped lift sales at the Driveline division by 4 percent to 1.7 billion pounds.

To contact the reporter on this story: Robert Wall in London at rwall6@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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