27th Apr 2010 07:00
GKN plc Interim Management Statement
27 April 2010
GKN plc, the global engineering business that serves the automotive, aerospace, industrial and off-highway markets, today issues the following Interim Management Statement covering the period since 1 January 2010, together with changes to its UK pension scheme.
Introduction
Market conditions in the first quarter of 2010 have been encouraging and all GKN's major businesses have continued to make good progress.
Group sales (including subsidiaries and joint ventures) totalled £1,306 million, an increase of 22% (2009: £1,074 million (restated)). Adverse currency translation reduced sales by £35 million and therefore sales at constant currency increased by 26%.
First quarter reported Group trading profit was £84 million (2009: trading loss (restated) of £12 million) and profit before tax was £71 million (2009: loss before tax (restated) of £28 million).
Group net debt at 31 March 2010 was £293 million (31 December 2009: £300 million).
GKN Markets and PerformanceAutomotive
Global light vehicle production increased by 50% compared with a particularly weak 2009 first quarter, with all major markets showing improvement. Production was at a similar level to the fourth quarter of 2009.
GKN's first quarter Automotive (including Powder Metallurgy) sales increased by 50% to £852 million (2009: £568 million) and trading profit was £51 million (2009: trading loss £47 million). Underlying sales increased by 54%. Overall Automotive margins improved to 6%.
Aerospace
Aerospace markets performed in line with expectations. GKN's aerospace sales were down 7% at £353 million (2009: £381 million), with over half of this fall due to adverse currency translation and the balance due to further softening in production schedules for wide body aircraft. Trading profit was £32 million (2009: £34 million including a £5 million one-off benefit from the realisation of programme development costs) and the trading margin was above 9%.
OffHighway
Off-highway markets, whilst still being weaker than the first quarter of 2009, have continued on their improving trend which started at the end of last year, mainly driven by strong demand for mining and heavy construction equipment.
GKN's OffHighway sales were down 19% at £101 million (2009: £125 million (restated)) with trading profit of £4 million (2009: £3 million (restated)) and a margin of 4%.
Outlook
The outlook for GKN's major markets is mainly positive.
In Automotive, external forecasts for global production have increased from 65 million vehicles at the beginning of the year, to around 68 million vehicles. Output in the second quarter is expected to be down on the first quarter and second half global production is forecast to be around 5% lower than in the first half.
Raw material costs, particularly scrap steel, have increased significantly in recent months and although increases will be largely recovered from customers, there will be some mismatch in timing.
GKN's second quarter Automotive (including Powder Metallurgy) sales are expected to be similar to the first quarter. Visibility of customer schedules and intentions beyond the half year remain somewhat limited, although we do expect some reductions in second half sales from first half levels.
In Aerospace, the US defence market should remain solid and recent commercial aircraft customer schedule increases have removed uncertainty around second half demand. GKN Aerospace is expected to deliver another strong performance, with margins improving steadily from the first quarter and reaching double digits for the year as a whole.
Off-highway markets should continue on an improving trend and GKN's OffHighway businesses are expected to make further good progress in the second quarter. Currently, there is little visibility beyond the half year.
Changes to UK Pensions
The Company has implemented a number of actions to improve the funding position of its UK Pension Scheme prior to the commencement of the triennial valuation review on 5 April 2010.
In consultation with trustees and scheme members, a number of benefit changes have been implemented. The impact of these changes is to reduce future scheme funding liabilities by an estimated £80 million.
In addition, the Company has agreed with the trustees an asset-backed cash payment scheme which will provide £30 million per annum to the fund for a period of 20 years. The present value of this additional funding stream is now fully recognised as an asset of the scheme which will be included in the triennial funding valuation at a value of £331 million. Should the scheme have a funding surplus in the future, these cash payments will be applied to annual ongoing scheme service costs.
Although the outcome of the triennial review will not be finalised until around the end of the year, the combination of these actions will significantly strengthen the funding position of the scheme.
A further update on pensions will be provided at GKN's Interim Results announcement on 3 August 2010.
Note
Financial information, Group and Divisional, set out in this announcement, unless otherwise stated, is presented on a management basis which aggregates the sales and trading profit, as applicable, of subsidiaries and the Group's proportionate share of joint ventures. References to trading margin are to trading profit expressed as a percentage of sales. Management profit or loss before tax is Group profit or loss before tax adjusted to exclude restructuring and impairment charges, profits and losses on sale or closures of businesses, amortisation of non-operating intangible assets arising on business combinations, change in value of derivative and other financial instruments and other net financing charges. These figures better reflect performance of continuing businesses. Where appropriate, reference is made to underlying results which exclude the impact of acquisitions as well as currency translation on the results of overseas operations.
Prior year quarterly sales and trading profit or loss for the Group and OffHighway has been restated to reflect the separate reporting of GKN's axles business which is in the process of being exited. The impact of this restatement is to reduce Group and OffHighway first quarter 2009 sales by £5 million and improve profit by £1 million with an equivalent change in loss before tax.
There will be an analyst and investor call at 0900 today on the following number:
International Dial In: +44 (0) 20 7906 8557
A replay of the conference call will be available for 30 days at the following numbers:
International Dial In: +44 (0) 20 3364 5943
UK Freecall Dial In: 0808 238 9699
USA Freecall Dial in: +1 866 286 6997
Conference number: 265065# 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 announcement 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 statementwhich 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, aerospace, industrial and off-highway markets. It has operations in more than 30 countries, around 38,500 employees in subsidiaries and joint ventures and had sales of £4.5 billion and trading profit of £152 million in the year ended 31 December 2009. GKN plc is listed on the London Stock Exchange .
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