16th Oct 2012 07:00
NEWS RELEASEGKN plcInterim Management Statement16 October 2012
GKN plc, the global engineering business that serves the automotive, aerospace and land systems markets, today issues the following Interim Management Statement covering the period since
1st July 2012.
Markets
Since GKN's Half Year Results announcement in July, demand has remained broadly in line with expectations with more challenging European automotive and industrial markets being offset by strong automotive demand in the US and China and continued growth in civil aerospace.
Group Results
Group sales in the three months ended 30 September totalled £1,608 million, an8% increase over the comparable period in 2011, half of which was organicgrowth. Third quarter trading profit increased slightly to £114 million (2011:£113 million) although trading margin reduced to 7.1%, largely as a result oflower profitability in Driveline. This arose due to the expected seasonality inthe Getrag all-wheel drive business and costs associated with fluctuations indemand. In September, the Group's margin returned to a level comparable to thefirst half. 2012 2011 Management basis(1) Q3 9m YTD Q3 9m YTD £m £m £m £m Sales 1,608 5,067 1,483 4,471 Trading profit* 114 407 113 360 Trading margin* (%) 7.1% 8.0% 7.6% 8.1% Profit before tax* 99 365 100 323
*Excluding Gallatin cost impact of £34m in 2011 (£11m of which was in Q3)
Outlook
Macroeconomic conditions have deteriorated in recent weeks and some softening in order books is now evident, particularly regarding European automotive and industrial markets. Other automotive markets and the civil aerospace market are expected to remain solid. The fourth quarter is anticipated to show the usual seasonal improvement, although the softening markets are expected to have some impact on performance.
Summary
Nigel Stein, Chief Executive, GKN plc, commented:
"In the third quarter, the Group's global footprint with its exposure to the strong markets of North America and China, as well as civil aerospace, allowed us to offset weaker European markets. Profit was affected by expected seasonal factors and operational issues in Driveline. Looking forward, European markets seem to be softening further. We continue to focus on driving performance, keeping close control of our cost base."
DivisionalMarkets and Performance
Automotive
Global light vehicle production in the third quarter of around 19.3 million vehicles, was around 2% ahead of the comparable period in 2011 with declines in Europe (-8%) and India (-5%) being offset by increases in North America (+12%), China (+8%) and Japan (+5%).
GKN Driveline 2012 2011 Q3 9m YTD Q3 9m YTD £m £m £m £m Sales 773 2,437 672 2,005 Trading profit 42 163 46 140 Trading margin 5.4% 6.7% 6.8% 7.0%GKN Driveline's third quarter sales increased by 15% to £773 million (2011: £672 million), due to the inclusion of the Getrag Driveline Productsacquisition. Organic sales were up 4% although this was offset by adversecurrency translation. Trading profit was lower at £42 million (2011: £46million) and trading margin was 5.4% (2011: 6.8%). Around half of the declinein margin was due to the expected summer seasonal pattern in the acquiredGetrag business. The remainder arose through costs associated with demandfluctuations in India, Europe and Japan. In September, GKN Driveline's marginreturned to more than 7%.GKN Powder Metallurgy 2012 2011 Q3 9m YTD Q3 9m YTD £m £m £m £m Sales 208 673 210 645 Trading profit 20 67 16 55 Trading margin 9.6% 10.0% 7.6% 8.5%
GKN Powder Metallurgy's third quarter sales reduced 1% to £208 million (2011: £ 210 million), due to adverse currency translation more than offsetting organic sales growth of 4%. Trading profit increased 25% to £20 million (2011: £16 million) at a margin of 9.6% (2011: 7.6%).
GKN Aerospace 2012 2011 Q3 9m YTD Q3 9m YTD £m £m £m £m Sales 392 1,162 360 1,083 Trading profit 42 128 39 119 Trading margin 10.7% 11.0% 10.8% 11.0%
GKN Aerospace continued to perform in line with expectations with strong growth in civil programmes more than offsetting the decline in military sales. Sales in the third quarter increased 9% to £392 million (2011: £360 million). Trading profit was £42 million (2011: £39 million) and the trading margin was 10.7%.
GKN Land Systems 2012 2011 Q3 9m YTD Q3 9m YTD £m £m £m £m Sales 216 728 213 657 Trading profit 18 70 17 56 Trading margin 8.3% 9.6% 8.0% 8.5%
GKN Land Systems' performance was affected by weaker European industrial demand and automotive aftermarket, although the agricultural sector remained strong. Sales were up 1% at £216 million, with 2% organic decline and adverse currency translation being more than offset by the year on year impact of the Stromag acquisition. Trading profit was £18 million and the trading margin was 8.3%, reflecting normal seasonality.
Other businesses
Sales in the quarter for GKN's other businesses fell more than 30% to £19 million (2011: £28 million) due to a fall in sales from Emitec, a 50% joint venture, which was adversely impacted by a decline in sales to the commercial vehicle market. Other businesses reported a quarter trading loss of £2 million (2011: trading profit of £1 million).
Volvo Aerospace
The acquisition of Volvo Aerospace completed on 1 October 2012. As previously described, Volvo Aerospace is expected to generate sales of around £170 million in the fourth quarter with a trading profit of around £15 million. Including restructuring, transaction and interest costs, the Group expects to report a loss before taxation for Volvo Aerospace of around £15 million, before fair value accounting and pension adjustments, which have yet to be fully determined.
Net Debtand Financing
During the period a 10 year £450 million bond with a coupon of 5.375% was issued as part of the Volvo Aerospace acquisition funding. Net debt at 30 September 2012 was £478 million (30 June 2012: £590 million), reflecting the net proceeds from the £140 million equity placing that took place in July to part fund the £633 million Volvo Aerospace acquisition which completed after the quarter end, and £25 million normal seasonal outflow.
Final Results Announcement
The Group intends to issue its 2012 full year results announcement on 26 February 2013.
Notes
1. Financial information set out in this announcement, unless otherwise
stated, is presented on a management basis which aggregates the sales and trading profit of subsidiaries (excluding certain subsidiary businesses sold and closed) with the Group's share of the sales and trading profit of joint ventures. References to trading margins are to trading profit expressed as a percentage of sales. Management profit or loss before tax is management trading profit less net subsidiary interest payable and receivable and the Group's share of net interest payable and receivable and taxation of joint ventures. These figures better reflect performance of continuing businesses. Where appropriate, reference is made to underlying results which exclude the impact of acquisitions/divestments as well as currency translation on the results of overseas operations. Further information:Analysts/Investors:Guy StainerInvestor Relations DirectorGKN plcT: +44 (0)207 463 2382M: +44 (0)7739 778187E: [email protected]:Chris FoxGroup Communications DirectorGKN plcT: +44 (0)1527 533238M: +44 (0)7920 540051E: [email protected] Statement
This announcement contains forward looking statements which are made in good faith based on the information available at 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. Nothing in this document should be regarded as a profits forecast.
Notes to Editors
GKN plc is a global engineering business serving the automotive, aerospace and land systems markets. It has operations in more than 30 countries, around 50,000 employees in subsidiaries and joint ventures and had sales of £6.1 billion in the year ended 31 December 2011. GKN plc is listed on the London Stock Exchange .
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