GKN Half Year Results

GKN plc Results Announcement for the six months ended 30 June 2010

Highlights⁽¹⁾

• Group results reflect the strong recovery in Driveline, Powder Metallurgy and Land Systems sales relative to a weak first half of 2009, a good performance in Aerospace and the on-going benefits from restructuring:
  - sales up 25% (£536 million) to £2,701 million.
  - trading profit of £202 million, up £177 million, and trading margin of 7.5%.
• Driveline sales up 47% and 6.9% trading margin.
• Powder Metallurgy sales up 65%, with 6.9% trading margin.
• Aerospace sales 5% lower, trading margin, however, increased from 10.3% to 10.9%.
• Land Systems sales up 9% and 5.3% trading margin.
• New business:
  - more than $1 billion of long term contracts for aero engine products;
  - major driveshafts capacity expansion to meet growth in demand.
• Positive free cash flow of £107 million (2009: £23 million).
• Net debt down £98 million to £202 million (31 December 2009: £300 million).
• Actions to provide certainty to pension contributions and a reduction in benefits reduces UK pension accounting deficit.
• Dividend payments restored with an interim of 1.5p per share (2009: no interim dividend).
  
  Sir Kevin Smith, Chief Executive of GKN plc, commented:
  “GKN’s recovery has moved into another gear and we are continuing to build on our global market-leading businesses. The first half trading environment has seen an improving trend for GKN’s Driveline, Powder Metallurgy and Land Systems businesses whilst the Aerospace market has continued to hold up well.
  
  The benefits of our restructuring actions have enabled us to improve our margins and the continued focus on cash generation has resulted in a significant improvement in the net debt position. As a result, and with a more positive outlook, we are pleased to be able to recommence payment of a dividend at this half year stage.
  
  Although macro-economic uncertainties continue, we remain confident that our strong market positions and sector leading technologies will enable us to take full advantage of growth opportunities as markets continue to recover.”
  
  Outlook
  GKN’s Markets
  The outlook for our major markets is mainly positive although some uncertainty remains, particularly around macro-economic conditions.
  
  In automotive, following a strong second quarter, external forecasts for global production in 2010 have increased from 68 million vehicles to around 71 million vehicles. With the ending of a number of government incentive schemes, particularly in Western Europe, and a return to normal seasonal patterns of demand, second half global production is forecast to be around 7% lower than the first half, but remaining slightly ahead of the second half of 2009.
  
  In aerospace, the US defence market is expected to remain solid, although the F-22 has started its production rundown. Civil aircraft production is likely to be stable throughout the balance of 2010, with customers increasing some production schedules in 2011. The Airbus A400M, Boeing 787 and 747-8 and the Joint Strike Fighter are all now moving into their production phase.
  
  The markets for Land Systems are improving, particularly for heavy construction and mining equipment globally and agricultural equipment in North America, although demand for agricultural equipment in Europe remains soft.
  
  GKN’s Performance
  Against this background, Driveline and Powder Metallurgy are expected to show strong growth in the third quarter when compared with last year benefiting from recent market share gains and positions in the European premium car segment. For the second half as a whole a small reduction in sales is expected for both these businesses when compared with the first half reflecting more normal seasonal demand patterns.
  
  Ongoing restructuring actions in Driveline will complete around the end of the year, providing additional benefits to operating performance.
  
  Aerospace sales are anticipated to remain similar to first half levels with increased revenue from civil aircraft programmes offsetting the continuing rundown of the F-22 military aircraft.
  
  Land Systems should continue its improving trend although sales in the second half are expected to show a small reduction when compared with the first half, as normal seasonal patterns return.
  
  With strong order books, improving markets and the conclusion of restructuring, GKN is well placed to deliver sustainable growth and improving margins.
  
  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
  (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 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 as well as currency translation on the results of overseas operations. Free cash flow is operating cash flow including interest, tax, joint venture dividends and dividends paid to non-controlling interests. Operating cash flow is cash generated from operations adjusted for capital expenditure, net of capital grants, proceeds from disposal of fixed assets and UK Government refundable advances.
  
  (2) Comparative data has been restated following the announcement to exit the Axles operations of the former OffHighway segment.
  
  Further Enquiries
  
  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
  
  There will be an analyst and investor meeting today at 10.00am at UBS, Ground Floor Presentation Suite, 1 Finsbury Avenue, London EC2M 2PP.
  
  A live audiocast of the presentation will be available at www.gkn.com. Slides will be put onto the GKN website approximately 15 minutes before the presentation is due to begin. Questions will only be taken at the event.
  
  A live dial in facility will be available by telephoning one of the following numbers:
  Standard International Dial In: +44 (0) 1452 555 566
  UK Free Dial in: 0800 694 0257
  USA Free Dial in: 1866 966 9439
  Conf ID: 90151716
  
  A replay of the conference call will be available until 16 August 2010 at the following numbers:
  Standard International Number: +44 (0) 1452 55 00 00
  UK Free Dial in: 0800 953 1533
  USA Free Dial in: 1866 247 4222
  Replay Access Number: 90151716#
  
  This announcement together with the attached financial statements and notes thereto may be downloaded below.
  
  Download Full Press Release PDF
  Download Results Presentation PDF