7th May 2009 07:00
GKN plc Interim Management Statement
7 May 2009
GKN plc, the global engineering business that serves the automotive, industrial, offhighway and aerospace markets, today issues the following Interim Management Statement covering the period since 1 January 2009 and holds its Annual General Meeting.
Overview
In extremely challenging automotive and offhighway markets and with a strong contribution from Aerospace, GKN has continued to make good progress in re-adjusting its operations to the current market environment.
Group sales (including subsidiaries and joint ventures) in the three months ended 31 March 2009 (the "quarter") totalled £1,085 million, an 8% decrease on the first quarter of 2008. Currency translation and the Filton acquisition provided a benefit of £389 million. Excluding Filton, Group sales at constant currency reduced by 33%.
In the quarter, the Group incurred a trading loss of £13 million and a loss before tax(*) of £29 million. The Group returned to profitability(*) in March after a particularly difficult first two months in the automotive sector. In Aerospace, the Filton acquisition was completed in January and its integration and performance to date has met expectations. Strong management of working capital across the Group helped significantly to curtail the normal seasonal cash outflow and, together with the achievement of planned reductions in capital investment, resulted in net debt below £900 million at 31 March 2009.
The restructuring plan announced in February was accelerated with around 1,800 people leaving the Group during the quarter.
GKN Markets and Performance
Global light vehicle production has been severely depressed in the first quarter, with volumes down around 35% compared with 2008, and all OEMs have implemented a strong drive to reduce inventory of vehicles and components. Global light vehicle sales were down around 20% in the same period. Government incentives to encourage vehicle sales have been implemented in a number of countries, mainly directed at the small car segment and most notably in Western Europe and China.
GKN's Automotive sales at constant currency (including Powder Metallurgy) were down 49% in the first two months of the year and 36% in March.
In Europe, GKN's driveshaft market share for small cars is not as strong as for other segments and in China, much of the increased demand is for unsophisticated vehicles, many with rigid axles rather than independent rear suspension which uses constant velocity joints. GKN Driveline has, therefore, seen only a small benefit from the short-term impact of Government incentive programmes. In Japan, GKN's major customers are Mitsubishi and Nissan both of whom have reduced production by over 60% in the quarter and GKN's Driveline Japanese revenues were down by a comparable amount. Elsewhere, GKN's Automotive sales have been broadly in line with the market.
Sales to Chrysler and General Motors in North America amounted to some £ 8 million in March and GKN has applied to join the supplier payment guarantee scheme with both companies.
The Automotive businesses incurred a trading loss of £47 million in the quarter, £42 million of which occurred in January and February.
OffHighway markets declined rapidly during February and March and GKN's sales at constant currency were down over 20% in the quarter. OffHighway produced a small trading profit in the quarter.
Aerospace markets performed in line with expectations and GKN's Aerospace business continued to make good progress. The Filton acquisition has performed well, contributing around £90 million to revenues, operating margin within the 5 to 7% guidance range and strong positive cash flow. Aerospace organic sales at constant currency grew by 4%, with US defence revenues continuing to show good growth. GKN Aerospace delivered £34 million of trading profit in the quarter.
Funding and Liquidity
Net borrowings at 31 March 2009 were £889 million. The Group had drawn £277 million from its available UK bank facilities, leaving headroom of £348 million.
Outlook
Considerable uncertainty remains in GKN's end markets.
Global light vehicle production is likely to increase during the second quarter as sales and production start to re-align. We expect Offhighway markets to remain weak, with agricultural, mining and construction equipment demand down between 30 and 40% until at least the half year. Aerospace production rates should remain stable in the second quarter.
Against this background and with the increasing benefits of restructuring, Driveline and Powder Metallurgy are expected to continue to make progress in the second quarter and Aerospace will continue to perform strongly.
Results Announcement
GKN's first half results announcement is on 4 August 2009.
* Note: In this statement references to profit or loss before tax are before pension financing charges, 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, changes in the value of derivative and other financial instruments and other net financing charges.
There will be an analyst and investor call at 0930 today on the following numbers:
Standard International Dial In: +44 (0) 203 300 0097
UK Freecall Dial In: 0800 4961091
A replay of the conference call will be available for 14 days at the following numbers:
UK Freecall Dial In: 0800 4961091 reservation # 21424474
USA Access Number: +1 402 977 9140 reservation # 21424474
For further information:
Guy Stainer
Director, Investor Relations and External Communications
T: +44 (0)207 463 2382M: +44 (0)7739 778 187E: [email protected] LorenzFinancial DynamicsT: +44 (0)20 7269 7113M: +44 (0)7775 641 807Cautionary 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.
Notes to Editors:
GKN plc is a global engineering business serving mainly the automotive, industrial, off-highway and aerospace markets. It has operations in more than 30 countries, nearly 40,000 employees in subsidiaries and joint ventures and had sales of £4.4 billion in the year ended 31 December 2008. GKN plc is listed on the London Stock Exchange .
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