24th Nov 2008 14:33
GKN plc Clarification of Outlook Statement 24 November 2008
As indicated in the statement issued on 14 November, GKN today provides further clarification of its outlook for the year ending 31 December 2008.
In our Interim Management Statement (IMS) issued on 27 October we indicated that, on the basis of customer schedules at that time, we expected Group profit before tax (1) for the year to 31 December 2008 to be in the region of 20% lower than 2007.
However, by 14 November we had been advised by our automotive customers of reductions in those schedules of sufficient magnitude to result in materially lower production levels for the last two months of the year. Our global production schedules for November and December are now around 20% lower than our end October expectations with very significant further deterioration in major regions important to GKN: 20% in Germany, 25% in Brazil, 22% in Japan and 25% in China.
We have intensified cost-cutting measures in all regional operations. Our workforce has been reduced by 1,400 people since early October and 61 automotive and powder metallurgy plants are now on short-time working with additional plant shut downs through the balance of the year. It will not be possible, however, to align our cost base with these much reduced levels of demand for the remainder of the year and our automotive businesses are now expected to make a trading loss in November and December.
There have been no changes in outlook for either OffHighway or Aerospace which both continue to perform well, in line with previous expectations.
In these extremely volatile automotive market conditions it is difficult to provide precise guidance for the Group's out-turn for the year. We do however expect profit before tax (1) to fall within a range of ‚£150m-‚£170m, with performance at the higher end largely dependent on no further significant reductions in automotive schedules.
Profitability at this level gives interest cover (EBITDA/net interest payable) of between 7.5 and 8.0 times. As we reported in our Interim Management Statement, the only covenant is on our committed bank facilities and is that net interest payable (2) is covered at least 3.5 times by EBITDA (1) of subsidiaries.
The Group intends to produce a trading statement in the second half of January, which will contain guidance on the restructuring costs necessary to align capacity more closely with demand in the short to medium term.
Notes:
(1) In this statement references to "profit before tax" and "EBITDA of subsidiaries" are before restructuring and impairment charges, amortisation of non-operating intangible assets and other non-cash charges arising on business combinations, profits and losses on sale or closure of businesses and changes in fair value of derivative financial instruments.
(2) Net interest comprises bank, bond and finance lease interest and excludes the finance element of post-employment costs.
Cautionary Statement
This press release contains forward looking statements which are made in good faith based on the information available to the time of its approval. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a number of risks and uncertainties that are inherent in any forward looking statement which could cause actual results to differ materially from those currently anticipated.
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