REG-GKN PLC: Trading Update
Released : 28/01/2009
GKN plc
Trading Update
28 January 2009
GKN today provides an update on its performance for the year ended 31 December
2008 and its restructuring plan to reposition the Company for 2009 and beyond.
GKN’s Markets and Performance
Group revenues for the year ended 31 December 2008 (including subsidiaries and
joint ventures), are expected to be up by around 12%, including translational
currency benefits. Profit before tax(1) is expected to be towards the higher
end of the range of £150 million to £170 million indicated on 24 November 2008.
Conditions in global automotive markets have continued to deteriorate since
our update in November. Activity levels for the last two months of the year
in our Automotive business, including Powder Metallurgy, were down
approximately 30% compared with the prior year. Our Automotive business was
loss making in both November and December.
Aerospace markets remained strong, although there were signs of softening in
some segments in the final quarter. GKN’s Aerospace business has continued to
perform strongly with year on year sales and profits showing excellent growth.
OffHighway markets have continued to trend in line with expectations.
Construction and industrial markets have softened considerably, whilst
agricultural equipment demand has remained robust. GKN OffHighway delivered a
strong 2008 performance with sales and profits for the year showing good
growth.
Reorganisation and Restructuring
In the final quarter of 2008 the Group’s Automotive businesses were severely
impacted by the sharp global decline in automotive demand. The management
response has been swift and wide-ranging.
Since October 2008, the Company has released around 2,800 people from its
workforce globally, including temporary, agency and permanent employees.
Short-time working arrangements have been negotiated and implemented worldwide.
All GKN’s Automotive plants were working short time and implementing
additional shut-down periods throughout the last two months of the year. Our
2008 results will include exceptional non-cash asset impairments of around
£150 million and around £10 million cash based restructuring charges.
In addition, further restructuring actions are being implemented during 2009.
This programme of actions, which remains in part under review as the market
outlook is still uncertain, will comprise significant short-time working/plant
shutdowns, selected headcount reduction programmes and further structural
rationalisation of elements of our manufacturing footprint and invested
capacity.
We expect to incur an estimated £120 million of cash-based charges in 2009,
predominantly redundancy and time-bound short-time working. The programme is
anticipated to generate cost savings of around £120 million in 2009.
Funding and Liquidity
In the 27 October 2008 Interim Management Statement, the Group announced that
net borrowings as at 30 September 2008 totalled £693 million. Since that time,
our contracted balance sheet hedges, which were in place to manage the Group’s
net investment translational currency exposures, reached maturity. This
coincided with a further fall in the value of Sterling against our major
trading currencies. The impact of these settlements added around £220 million
to net borrowings. This was mostly offset by strong operating cash generation
in the Group despite the challenging operating environment. Net borrowings at
31 December 2008 were around £710 million. The Group had drawn around £60
1
million from its available bank facilities, leaving headroom of more than £380
million available.
On 5 January 2009 we were delighted to complete the acquisition of the Filton
Aerostructures facility from Airbus. Not only does this acquisition
strengthen significantly the market position of GKN’s Aerospace business, but
it is also cash generative and rebalances the Group’s end market positioning
towards Aerospace. The Group’s end market diversity is proving invaluable
during these difficult times.
On completion of Filton, GKN was able to draw on an additional £180 million of
revolving credit facilities which, after paying the initial consideration to
Airbus, provides further headroom to the Group.
Summary
GKN is expecting to deliver 2008 PBT(1) towards the higher end of the range
that was forecast in November, despite worsening market conditions.
Profitability at this level gives interest cover (EBITDA of subsidiaries(1)/net
interest(2) payable) of around 7.5 times which remains significantly above the
3.5 times required by the Company’s only external banking covenant.
Our restructuring actions will continue in 2009 and deliver significant cost
savings which will help reinforce the Group’s resilience, in the face of the
global economic downturn.
Results Announcement
GKN’s preliminary results announcement is on 26 February 2009 when we intend
to provide more detail on 2008 performance and our plans for 2009.
Notes:
(1)In this statement references to “profit before tax” and “EBITDA of
subsidiaries” are before 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 and the
currency impact of changes in the fair value of derivative and other financial
instruments.
(2)Net interest comprises bank, bond and finance lease interest and excludes
the finance element of post-employment costs.
Cautionary 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.
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
Financial Dynamics
T: +44 (0)20 7269 7113
M: +44 (0)7775 641 807
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