Overview(1)
- Group results reflect the decline in Automotive, Powder Metallurgy and OffHighway sales, a strong performance in Aerospace and the benefits from restructuring
- Sales down 3%, underlying sales down 22% (£1,134 million).
- Trading profit of £152 million, down £69 million. Trading margin recovered to 6.5% in the fourth quarter.
- Automotive (including Powder Metallurgy) reported £7 million trading profit, despite underlying sales down 25%.
- Sales up 48% in Aerospace with trading profit up 61% to £169 million
- Strong first year contribution from Filton.
- Underlying sales up 2%.
- OffHighway underlying sales down 43%, £12 million trading loss.
- Restructuring programme continued with around 3,500 people leaving the Group in 2009.
- New business wins
- Electric rear axle for PSA HYbrid 4 and strong interest for hybrid/electronic drive products.
- Composite and titanium structures business on Airbus A350 and Joint Strike fighter.
- Positive free cash flow of £136 million (2008: £38 million outflow).
- Net debt of £300 million at 31 December 2009, benefits from rights issue net proceeds of £403 million and strong operating cash flow.
- No final dividend to be paid in respect of 2009, but the Group intends to pay an interim dividend in 2010.
Sir Kevin Smith, Chief Executive of GKN plc, commented:
“GKN has made significant progress in realigning its operations to weaker markets and preserving cash. In response to the global recession we restructured the Group to reduce the break-even points in Automotive, Powder Metallurgy and OffHighway by around 20% and re-positioned our Aerospace business for lower aircraft production volumes in 2009. As the year progressed, automotive production improved and the benefits of the Group’s restructuring plan increased. As a result, all divisions were profitable in the fourth quarter, with the exception of OffHighway, and the Group reported a trading margin of 6.5%.
Our focus on cash enabled us to end the year with net debt of £300 million, well below our target. Capital investment has been maintained at 0.7 times depreciation and inventory levels reduced by £130 million. With strong operating cash flow and the successfully concluded £403 million rights issue in July, we were able to repay our revolving credit facilities and buy back £124 million of our outstanding bonds. This significantly strengthens our capital base and reduces our interest cost going forward.
Our financial strength and strong market positions mean that we are well positioned to take full advantage as markets continue to recover. We expect to recommence dividend payments with the 2010 interim.”
Restructuring
The original restructuring plan included reducing global headcount by around 5,260 people by July 2010, with 13 manufacturing sites to be closed. It was anticipated that the cash charges in 2009/10 would be approximately £125 million to £130 million, with a similar reduction in annualised operating costs once the restructuring is complete. In addition, short-time working costs were estimated to be £24 million.
As markets weakened during the year, restructuring activities were extended, such that around 3,500 employees left the Group in 2009 and 13 facilities were affected by closure actions. Restructuring costs in the year amounted to £141 million, including (net) impairment charges (£9 million), short-time working (£24 million) and redundancy and reorganisation charges (£108 million). The benefits of the actions to address the permanent cost base, estimated at £80 million in 2009, contributed to the margin recovery in the fourth quarter as volumes recovered. Cash spend on this restructuring programme amounted to £93 million. Final site rationalisation actions and short-time working charges are expected to amount to around £37 million with cash spend estimated at £67 million in 2010 and £25 million in 2011. Incremental 2010 benefits are estimated at £60 million.
Outlook
GKN’s Markets
The outlook for our major markets is mainly positive although some uncertainty remains, particularly around second half demand.
In automotive, forecasters expect a good improvement in global production. The impact of the conclusion of a number of government incentive schemes, particularly in Western Europe, is expected to be more than offset by good growth in North America, India, Japan and Eastern Europe. Automotive vehicle inventories remain in balance, supporting a much closer correlation between sales and production. Production mix is also expected to return to more normal trends, with underlying demand for medium and larger vehicles increasing and small car demand softening in some markets as vehicle incentive schemes are concluded.
In aerospace, the US defence market is expected to remain solid, although the F-22 will start its production rundown this year. Civil aircraft customers are forecasting to maintain their published production schedules although, with airline profitability remaining weak, there remains some risk of further schedule cuts in the second half. Recent successful first flights on the Airbus A400M, Boeing 787 and Boeing 747-8 are, however, encouraging.
Off-highway markets are showing some signs of improvement, particularly for heavy construction and mining equipment. Expectations are for a steady, although modest, recovery in demand through the year.
GKN’s Performance
Against this background we expect GKN’s Automotive and Powder Metallurgy businesses to make strong progress in 2010, with the improvement in end market demand, healthy order books and improving mix underpinning sales growth. Further incremental benefits from restructuring are expected to support steadily improving trading margins from 2009 second half levels.
Aerospace sales are expected to be broadly flat, assuming there are no further reductions in production schedules in the second half. Although Airbus will receive price downs from Filton in 2010, we expect double digit trading margins to be maintained in Aerospace.
In OffHighway, we expect some increase in sales and a good improvement in trading profits as the modest recovery in demand is converted to trading profit from a much reduced fixed cost base.
Group restructuring actions will complete this year, as described above.
The Group intends to pay an interim and final dividend on 2010 earnings. The level recommended by the Board will be commensurate with achieved earnings and take into account the outlook for our end markets at that time. In the medium term, it is the intention to resume a progressive dividend policy based on an underlying earnings cover ratio of around 2.5 times.
Against a background of expected improvements in global economies, we expect the Group to make significant progress in 2010. Our balance sheet strength and excellent market positions give the Board confidence in a strong and sustained GKN recovery.
Notes
| (1) | (1) Financial information, Group and Divisional, set out in this announcement, unless otherwise stated, is presented on a management basis which aggregates the sales and trading profit, as applicable, of subsidiaries and the Group’s proportionate share of joint ventures. References to trading margin are to trading profit expressed as a percentage of sales. Management profit or loss before tax is Group profit or loss before tax adjusted to exclude restructuring and impairment charges, profits and losses on sale or closures of businesses, amortisation of non-operating intangible assets arising on business combinations, change in value of derivative and other financial instruments and other net financing charges. 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. |
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.
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 0930 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
Conf ID: 55742249
A replay of the conference call will be available for 14 days at the following numbers:
Standard International Number: +44 (0) 1452 55 00 00
Replay Access Number: 55742249#
The full text of this announcement together with the attached financial statements and notes thereto may be downloaded below.
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