Sir Kevin Smith, Chief Executive of GKN plc, commented: “GKN has continued to make strong progress both in terms of financial performance and in building the future of our global market-leading businesses. The first half trading environment has seen strong market outperformance for GKN’s Driveline, Powder Metallurgy and Land Systems businesses. The aerospace market has remained subdued although civil aerospace is now moving into a strong growth phase with volume increases on existing platforms and new aircraft moving into production.
We are also pleased to further strengthen our Driveline and Land Systems businesses with two highly complementary acquisitions in Stromag and Getrag Driveline Products.
As a result of the strong performance and outlook, the Board has decided to pay an interim dividend of 2.0 pence per share.
GKN’s excellent global market positions, strong order books and leading technology leave us extremely well positioned for sustainable growth and further margin expansion.”
Outlook
GKN’s Markets
The outlook for our major markets is positive although some uncertainty remains, particularly around macro-economic conditions.
In automotive, external forecasts suggest that global light vehicle production should reach almost 78 million vehicles in 2011, an increase of 4%, with the strongest growth in India, continuing improvement in North America and Europe and slower growth in China. Vehicle production in Japan is expected to recover strongly in the second half.
In aerospace, US military aircraft market demand is expected to show a small reduction as a result of the rundown of the F-22 and the decrease on the C-17 programmes. Civil aircraft demand is expected to continue to grow in 2011 as both Airbus and Boeing increase production schedules.
The markets for Land Systems should continue to improve.
GKN’s Performance
Against this background, Driveline is expected to show a small increase in sales in the second half compared to the first half, as Japanese producers recover in the US and growth in China offsets the normal seasonal decline in Europe. Sales in Japan are expected to be broadly flat as Driveline has already benefited from strong customer recovery in the first half.
Powder Metallurgy has a limited exposure to Japanese OEMs and therefore its sales are expected to be lower than the first half, in the seasonally weaker second half.
Aerospace sales are expected to show a small increase in the second half with increased sales from civil aircraft being partially offset by seasonality factors in Europe. Aerospace should return to its strong growth trend in 2012.
Land Systems should continue its improving trend although sales in the second half are expected to show a reduction when compared with the first half, as normal seasonal patterns return.
Completion of the recently announced acquisitions of Stromag and Getrag Driveline Products businesses are expected in September. These acquisitions should have a small positive impact on Group management results in the remainder of 2011. Both acquisitions are expected to be earnings enhancing and cash generative in the first full year.
Free cash flow is again expected to be positive, although net debt will increase due to the completion of the previously announced acquisitions.
Summary
In summary, GKN expects second half Group sales to show a small seasonal reduction when compared to the first half, excluding any impact from acquisitions and 2011 as a whole to be another year of strong progress for the Company. GKN is growing strongly and developing rapidly and as end markets continue to improve, the strength of our market positions and order books leaves the Group well placed for sustainable growth, margin expansion and strong free cash flow generation.
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
- 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. Operating cash flow is cash generated from operations adjusted for capital expenditure, government capital grants, proceeds from disposal of fixed assets and government refundable advances. Free cash flow is operating cash flow including interest, tax, joint venture dividends, own shares purchased and dividends paid to non-controlling interests, but excluding dividends paid to GKN shareholders. Return on average invested capital is management trading profit as a percentage of average total net assets of continuing subsidiaries and joint ventures deducting current and deferred tax, net debt, post-employment obligations and derivative financial instruments.
- Restatement of comparative data. Following the Group’s assumption of control over GKN Aerospace Services Structures Corp. (“GASS”) on 1 April 2010 the fair value exercise was not finalised until 31 December 2010. In accordance with IFRS 3 Business Combinations the 30 June 2010 comparatives included in this release have been restated to reflect the fair value changes. Note 2 to the financial statements has more details.
Further Enquiries
Guy StainerDirector, Investor Relations and External Communications
GKN plc
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 09.30am at UBS, Ground Floor Presentation Suite, 1 Finsbury Avenue, London EC2M 2PP.
A live audiocast of the presentation will be available on the Webcast page of this site.
Slides will be put onto the GKN website approximately 15 minutes before the presentation is due to begin, and will be available to download from the
results and presentation section of this site.
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
Conf ID: 82273540
A replay of the conference call will be available until 16 August 2011 at the following numbers:
Standard International Number: +44 (0) 1452 550 000
Replay Access Number: 82273540#