At GKN, the UK driveline business, sales were down 1% in the first half, and group margin was below most analysts' expectations.

However, the decline was mostly in the aerospace business, and automotive saw sales growth of 4.7% to £1.637 billion.

The organic growth rate of the driveline business was 6%, according to the company, and GKN is adding more business with the increase of its stake of TFS in Japan, which is involved in torque management which GKN sees as a major growth area, and the acquisition of a joint venture in Mexico for around £45 million of CVJ Unit Velcon.

Operating margins were hit by higher pension changes in the UK and a rise in raw material costs. Automotive profit margins were flat.

GKN's disposal of its Alvis and Augusta Westland non-automotive businesses is expected to assist the group in focusing on growth opportunities in the automotive sector, and the group remains well placed to benefit from OEMs' growing interest in outsourcing driveline systems and components.

KS Pierburg and Leoni show signs of recovery

In contrast, two smaller European suppliers appeared to show the first signs of emerging from a difficult period, despite slow markets.

Kolbenschmidt Pierburg, which has been in the middle of a refocusing and turnaround over the last two years as parent group Rheinmetall has consolidated its grip on the company, saw a continuation of its improvement due to growth in aluminium technology and motor service divisions.

EBIT in the first half of 2004 was €75.1 million, compared with €45.9 million in the first half of 2003.

Kolbenschmidt Pierburg was upbeat about the prospects for the second half of year, and sees a continuation of improvement in profitability.

Turnover was up only marginally by 2% at €1000.1 million for the first half of 2004, although adjusted for exchange rates, the real gain was 4.6%.

German wiring systems supplier Leoni has also seen an improvement although German demand was flatter than expected at the beginning of the year.

The company has started to benefit from high volume production of wiring systems for the new Astra. In the second quarter of 2004 the company saw a 20% increase in sales from its wiring business, compared with the same quarter in 2004.

Leoni had a capital increase in July, partly to fund further investments for new programmes for GM, DCX (A-Class), BMW (1 Series) and Land Rover (new Discovery and Range Rover).

The company is looking for recovering an operating margin of 7% in 2004, and net income of more than €30 million.

The new programmes are expected to drive further growth in 2005.

SupplierBusiness.com