NEWS RELEASE
GKN plc
Interim Management Statement
19 October 2011
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 1
July 2011.
Overview
Market conditions have been broadly as expected at the time of GKN’s Half Year Results
announcement in August, notwithstanding a worsening macroeconomic outlook. Performance has
remained strong through the seasonally weaker third quarter and order books support further
progress in the fourth quarter.
The acquisition of Stromag was completed on 5 September and the first month’s trading was in line
with our plan. The acquisition of Getrag Driveline Products was completed on 30 September.
The Hoeganaes Gallatin plant returned to normal operations in September although pre-incident
levels of output and profitability are currently planned for January 2012 as customer demand is
fully restored. Remedial plant activities and external powder supply were extended from the
original plan and the one-off charge to profits has now been finalised at £34 million, of which the
remaining £11 million was charged in the third quarter. Insurance recovery discussions are
underway.
Group Results
(1)
Management basis
Sales
Trading profit before Gallatin
Trading margin (%)
Gallatin
Trading profit
Trading margin (%)
Profit before tax before Gallatin
Profit before tax
H1
£m
2,988
247
8.3%
(23)
224
7.5%
223
200
2011
Q3 9m YTD
£m
£m
1,483
4,471
113
360
7.6%
8.1%
(11)
(34)
102
326
6.9%
7.3%
100
323
89
289
H1
£m
2,701
202
7.5%
202
7.5%
175
175
2010
Q3
£m
1,336
100
7.5%
100
7.5%
88
88
9m YTD
£m
4,037
302
7.5%
302
7.5%
263
263
Group sales in the three months ended 30 September totalled £1,483 million, an 11% increase
over the comparable period in 2010. Third quarter trading profit increased by 13% to £113 million,
before the £11 million one-off charge relating to Gallatin and the trading margin was 7.6%. The
Group’s profit before taxation (before Gallatin) was £100 million.
Net debt at 30 September 2011 was £696 million (30 June 2011: £174 million) which includes the
impact of a net outflow of £444 million attributable to the acquisitions.
Page 1 of 4
GKN Markets and Performance
Automotive
Global light vehicle production in the third quarter of around 18.3 million vehicles, was 1% lower
than the second quarter and 2% ahead of the comparable period in 2010. The largest increase
over the second quarter was the recovery in Japanese domestic production offset by small car
segment weakness in Europe.
Driveline
Sales
Trading profit
Trading margin
H1
£m
1,333
94
7.1%
2011
Q3
£m
672
45
6.7%
9m YTD
£m
2,005
139
6.9%
H1
£m
1,189
82
6.9%
2010
Q3
£m
609
40
6.6%
9m YTD
£m
1,798
122
6.8%
Driveline’s third quarter sales increased by 10% compared with last year, to £672 million (2010:
£609 million). Trading profit increased by 15% to £46 million (2010: £40 million) at a margin of
6.8% before incurring £1 million of acquisition costs associated with Getrag Driveline Products.
Demand from Japanese customers in North America returned to normal levels in September and
although demand in the Brazilian and Indian markets has softened, the European premium
segment and China have remained strong.
Powder Metallurgy (excluding Gallatin)
Sales
Trading profit
Trading margin
H1
£m
435
39
9.0%
2011
Q3
£m
210
16
7.6%
9m YTD
£m
645
55
8.5%
H1
£m
378
26
6.9%
2010
Q3
£m
191
15
7.9%
9m YTD
£m
569
41
7.2%
Powder Metallurgy’s third quarter sales increased 10% compared to last year, to £210 million
(2010: £191 million). Trading profit was £16 million (2010: £15 million), at a margin of 7.6%,
excluding £11 million of one-off charges associated with Gallatin.
Within Powder Metallurgy, Sinter Metals’ third quarter sales grew 16% compared with last year
supported by strength in all regions. Trading margin was 8.4% compared to 6.5% in the prior year.
Hoeganaes’ third quarter sales fell 9% following the Gallatin temporary plant closure and the
business made a small profit in the period.
Aerospace
Sales
Trading profit
Trading margin
H1
£m
723
80
11.1%
2011
Q3
£m
360
39
10.8%
9m YTD
£m
1,083
119
11.0%
Page 2 of 4
H1
£m
2010
Q3
£m
9m YTD
£m
734
80
10.9%
349
39
11.2%
1,083
119
11.0%
Aerospace continued to perform in line with expectations with third quarter sales increasing 3% on
last year at £360 million (2010: £349 million). Trading profit was £39 million (2010: £39 million) at
a trading margin of 10.8%. Revenue reductions on F22 and C17 programmes have now been fully
offset by increases in civil demand.
Land Systems
Sales
Trading profit
Trading margin
H1
£m
444
38
8.6%
2011
Q3
£m
213
16
7.5%
9m YTD
£m
657
54
8.2%
H1
£m
2010
Q3
£m
359
19
5.3%
165
8
4.8%
9m YTD
£m
524
27
5.2%
Land Systems markets have remained robust, with agricultural equipment demand continuing its
strong recovery. GKN Land Systems’ comparable sales were 9% lower than the second quarter
as a result of normal third quarter seasonal demand patterns, but 23% ahead of the prior year.
Trading profit increased by £8 million to £16 million (2010: £8 million) with a trading margin of 7.5%
(2010: 4.8%).
Stromag, acquired in September, added £10 million of sales with a strong margin but its profit was
mostly offset by acquisition costs during the period.
Net Debt and Financing
Net debt at 30 September 2011 was £696 million, £522 million higher than the position at 30 June
2011, principally due to the £444 million acquisition costs of Stromag Holding GmbH and Getrag
Driveline Products. The remaining third quarter cash outflow of £78 million reflects the normal
seasonal working capital outflows, the interim dividend payment (£31 million) and Hoeganaes plant
closure impact. Net debt is expected to be around £600 million at the year end. During the period
around £400 million of new committed revolving credit facilities were secured that mature in 2016.
Outlook
Macroeconomic uncertainty has increased in recent months although no significant deterioration
has been experienced in GKN’s order books.
In Automotive, Driveline and Sinter Metals are expected to continue to deliver similar levels of
underlying improvement over 2010 to that achieved in the third quarter, with trading in Hoeganaes
continuing to improve.
Land Systems sales are expected to be at similar levels to the third quarter.
Aerospace is expected to continue its growth phase in the fourth quarter as activity levels increase
on civil programmes.
The Stromag and Getrag Driveline Products acquisitions are likely to have a small positive impact
on fourth quarter profits.
On the basis of current market conditions, we therefore expect the Group to continue to perform
strongly through the fourth quarter.
Overall we continue to expect 2011 to be a year of strong progress, with the Group well positioned
for growth in 2012 and beyond.
Page 3 of 4
Final Results Announcement
The Group intends to issue its full year results announcement on 28 February 2012.
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
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.
For further information:
Guy Stainer
Director, Investor Relations and External Communications
T: +44 (0)207 463 2382
M: +44 (0)7739 778 187
E: guy.stainer@gkn.com
Andrew Lorenz
FTI Consulting
T: +44 (0)20 7269 7113
M: +44 (0)7775 641 807
Cautionary 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 statement which could cause actual results to differ
materially from those currently anticipated.
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 42,000 employees in subsidiaries
and joint ventures and had sales of £5.4 billion in the year ended 31 December 2010. GKN plc is
listed on the London Stock Exchange (LSE: GKN).
Page 4 of 4