NEWS RELEASE
5 July 2012
GKN acquires Volvo Aero for £633 million
GKN plc (“GKN”) or (“Group”) today announces its agreement to acquire Volvo Aero (the
aero engine division of AB Volvo).
Volvo Aero designs, engineers and manufactures components and sub-assemblies for
aircraft engine turbines. It supplies all the major aero engine manufacturers and has
positions on most major civil aerospace platforms that are set to increase as aircraft build
rates ramp up. Volvo Aero employs some 3,000 people based in Sweden, Norway and the
USA.
Nigel Stein, Chief Executive, GKN plc, said: “This is a highly attractive acquisition for GKN
creating a market leader in aero engine components. With excellent technology and strong
life-of-programme positions on most civil aero engines, Volvo Aero will significantly enhance
GKN Aerospace’s engine components business.”
The acquisition enterprise value is SEK6.9 billion (£633 million) comprising SEK5.6 billion
(£513 million) of equity value (consideration) together with an anticipated Volvo Aero
pension settlement (£50 million) and working capital refinancing (£70 million). The
acquisition is expected to complete during the third quarter, subject to regulatory approvals.
It will be funded by new debt and a £140 million placing of new ordinary shares, representing
approximately 5% of GKN’s current market capitalisation.
For the year ended 31 December 2011, AB Volvo reported audited results attributable to
Volvo Aero of sales of SEK6.5 billion (£600 million), EBITDA of SEK0.8 billion (£75 million),
EBIT of SEK0.3 billion (£30 million) and gross assets of SEK9.3 billion (£855 million). In
2012, GKN expects Volvo Aero’s sales to be around SEK7.3 billion (£670 million) with
EBITDA anticipated to be approximately SEK1.1 billion (£100 million). The acquisition
enterprise value equates to an expected 2012 sales multiple of 0.9 times and an expected
Volvo Aero 2012 EBITDA multiple of 6.3 times.
In 2013, the first full year of ownership, the transaction is expected both to be enhancing to
GKN’s earnings per share on a management basis and to generate a return on invested
capital that exceeds the Group’s pre-tax weighted average cost of capital of 12%. The Volvo
Aero operating margin is expected to meet the GKN Aerospace target range of 11-13% in
2013 due to operational process improvements and cost savings, which are expected to total
3-4% of Volvo Aero sales by 2014.
The combination of GKN Aerospace and Volvo Aero creates a world leader in both aero
structures and aero engine components. Within aero engines, GKN’s composite leadership
together with Volvo Aero’s strong metallic technology provides a unique offering to
customers who are focused on lightweight, high performance engine solutions. Volvo Aero
has strong life-of-programme positions on existing platforms and a pipeline of new
technology, offering a long-term revenue stream and opportunities for growth.
This transaction supports the growth strategy of GKN Aerospace, increasing its pro forma
2011 sales to more than £2 billion, of which two thirds would have been to the civil
aerospace market. On the same pro forma basis, GKN Aerospace would have represented
around 31% of GKN Group sales and 37% of Group trading profit.
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Nigel Stein added: “Volvo Aero has invested heavily to secure positions on new engine
programmes, offering a long-term platform for growth. Its strong standing with customers,
together with its skilled workforce and high quality engineering team, will be a valuable
addition to GKN Aerospace.
GKN Aerospace will now be a leader in the aero engine sector, complementing its leading
position in composite aero structures.”
GKN Trading update
GKN’s business performance in April and May continued in line with the first quarter of the
year.
Overall, Group sales for the five months to 31 May 2012 increased 17%, with underlying
sales up 9%. Management trading profit increased 23%, up 13% on an underlying basis.
In GKN Driveline, underlying sales growth was 10%, temporarily flattered by last year’s
Tsunami effect. Excluding the Getrag Driveline Products acquisition, which performed
ahead of expectations, GKN Driveline’s year to date margin was similar to 2011. Powder
Metallurgy achieved 9% underlying sales growth and profit and margin continue to show
good progress.
GKN Aerospace’s underlying sales grew 9%, ahead of expectations due to variation in
delivery schedules which should normalise for the year as a whole. Profit progressed in-line
with expectations. GKN Land Systems sales increased 16%, up 6% on an underlying basis,
although the rate of growth is slowing reflecting weaker European industrial markets. GKN
Land Systems’ margin at 10% continues to show improvement helped by the contribution
from Stromag.
First half free cash flow is expected to be broadly neutral reflecting normal seasonality,
increased capital investment to support growth and working capital requirements. Free cash
flow for the second half is expected to be ahead of the comparable period in 2011.
The Board continues to expect that 2012 will be another year of good progress and
anticipates increasing the interim dividend by 20% to 2.4 pence per share, when the half
year results are announced on 31 July 2012.
Exchange rate: £1 to SEK10.9 used throughout this press release.
Nothing in this announcement is intended to be a profit estimate for any period or a forecast
of future profits and statements relating to earnings accretion should not be interpreted to
mean that the earnings per GKN share for the current or future financial periods will
necessarily match or exceed its historical published earnings per share.
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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. Trading margin is 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 Stainer
Investor Relations Director
GKN plc
T: +44 (0)207 463 2382
M: +44 (0)7739 778187
E: guy.stainer@gkn.com
Media:
Chris Fox
Group Communications Director
GKN plc
T: +44 (0)1527 533238
M: +44 (0)7920 540051
E: chris.fox@gkn.com
Andrew Lorenz
FTI Consulting
T: +44 (0)207 269 7113
M: +44 (0)7775 641807
There will be an analyst and investor meeting today at 8.30am at UBS, Ground Floor
Presentation Suite, 1 Finsbury Avenue, London EC2M 2PP.
A live audiocast of the presentation will be available at
http://www.gkn.com/investorrelations/Pages/Webcasts.aspx
Slides will also be available to download from here.
A live dial in facility will be available on +44 (0) 1452 580 111, conference ID 98407781.
A replay of the call will be available until 18 July 2012, using conference ID 98407781#, on:
International dial in: +44 (0) 1452 55 00 00
UK free call: 0800 953 1533
USA free call: 1866 247 4222
This announcement together with the attached financial information thereto may be
downloaded from our website. www.gkn.com/media/Pages/default.aspx .
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Notes to Editor
Volvo Aero is an engineering business that designs and manufactures components for
aircraft engine and gas turbines including: turbine, combustor and compressor structures;
fan cases; compressor rotors; low pressure turbine cases; shafts and vanes.
GKN plc is a global engineering business serving the automotive, aerospace and land
systems markets. It has operations in more than 30 countries, around 45,000 employees in
subsidiaries and joint ventures and sales of £6.1 billion in the year to 31 December 2011.
GKN plc is listed on the London Stock Exchange (LSE: GKN).
GKN Aerospace is the aerospace operation of GKN plc, serving a global customer base
and operating in North America and Europe. With sales of £1.5 billion in 2011, the business
is focused around three major product areas - aerostructures, engine products and
transparencies, plus a number of specialist products - electro-thermal ice protection, fuel
and flotation systems, and bullet resistant glass. The business has significant participation
on most major civil and military programmes. GKN Aerospace is a major supplier of
integrated composite structures, offers one of the most comprehensive capabilities in high
performance metallics processing and is the world leading supplier of cockpit transparencies
and passenger cabin windows.
Disclaimer
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and its current goals or expectations relating to its future financial condition and performance and which involve a
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present or future events, or objectives for future operations that involve risks and uncertainties and are not
historic fact. Such forward-looking statements are subject to a number of risks and uncertainties, many of which
are beyond the Company's control and all of which are based on the Company's current beliefs and expectations
about future events. Such statements are based on current expectations and, by their nature, are subject to a
number of risks and uncertainties that could cause actual results and performance to differ materially from any
expected future results or performance, expressed or implied, by the forward-looking statement. No assurance
can be given that such forward-looking statements results will be achieved. Factors that might cause forwardlooking statements to differ materially from actual results include, among other things, the following: global
economic conditions, economic conditions in the jurisdictions in which the Company operates, the effects of
continued volatility in credit markets, exchange rate fluctuations and legislative, fiscal and regulatory
developments. The forward-looking statements contained in this Announcement speak only as of the date of this
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of them whether as a result of new information, future events or otherwise, except to the extent required by the
FSA, the London Stock Exchange or by applicable law, the Prospectus Rules, the Listing Rules and the
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acquire, or the solicitation of an offer to buy, sell, issue, or acquire any securities, nor shall there be any sale of
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amount invested on disposal of the shares. Past performance is no guide to future performance and persons
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