GKN plc
Trading update – brought forward by two
probable significant external claims
13 October
2017
GKN plc, the global engineering business that serves the
aerospace and automotive markets, today issues a trading update for
the period since the half year results announcement on 26 July 2017, brought forward as a result of two
significant external claims. As a result of these, together with
continuing operational challenges in GKN Aerospace North America,
the Group now expects management profit before tax(1)
for 2017 to be slightly above 2016.
Significant External Claims
GKN has been made aware of two probable claims which are
expected to result in a charge of around £40 million in the fourth
quarter of 2017. One relates to GKN Aerospace and the other GKN
Driveline. Both claims are commercially sensitive with no
additional information disclosable at this time.
Group Results
Overall in the third quarter, the Group achieved good organic
sales growth, with GKN Driveline continuing to outperform the
market and GKN Aerospace delivering sales slightly up on the prior
year.
Group trading margin in the third quarter was lower than the
comparable period in the prior year, mainly due to programme
transitions and on-going operational challenges in GKN Aerospace
North America.
Divisional Performance
GKN Aerospace
In commercial aerospace, third quarter sales were marginally
down whilst military sales were up compared to the prior year.
Current trading in the third quarter has been disappointing with
a significant reduction in margin caused by on-going pricing
pressure, continuing operational challenges and the impact of
programme transitions. These headwinds are expected to continue
throughout the fourth quarter, although, as planned and included in
previous forecasts, the quarter should benefit from a positive
one-off retrospective pricing adjustment of £20 million, which has
recently been agreed.
Following a detailed review, GKN Aerospace North America will
incur a £15 million non-cash charge at its Alabama, USA facility relating to revised
assumptions on programme inventory and receivables balances.
Given the issues above, the review of the carrying value of
goodwill and other assets at the year-end is expected to produce a
significant non-cash impairment charge, relating to the North
American business, which will be disclosed outside management
profit before tax.
GKN Driveline
GKN Driveline continued to deliver good third quarter sales well
ahead of global industry production rates that were up 2%. External
forecasts continue to expect full year global auto production to
increase by 2%, with North America
and China down in the fourth
quarter, and Europe continuing to
experience robust demand. GKN Driveline expects to significantly
outperform the market for the full year.
As previously advised, GKN Driveline’s trading profit continues
to bear the additional costs of raw materials and eDrive
investments. The North American all-wheel drive business is running
well but its margin remains below the divisional average.
Including the impact of the claim, GKN Driveline’s trading
margin for 2017 is expected to be similar to the prior year.
GKN Powder Metallurgy
GKN Powder Metallurgy’s organic sales growth continued in the
third quarter in spite of a decline in US automotive production
rates. It continued to benefit from currency translation and
acquisitions in China and
Turkey. The growth included the
direct pass through of higher raw material prices which also had
the effect of reducing reported margins slightly.
Summary
Nigel Stein, Chief Executive, GKN
plc, commented:
"GKN continues to grow well against its end markets although
recent margin performance has not met our expectations. In
addition, it is disappointing that we expect to have to provide for
two unexpected claims which will slow our steady growth in
profits.
In light of the trading performance in North American Aerospace,
we are redoubling our efforts to improve our operational
performance in that business, as well as developing actions to
accelerate margin improvement plans across the Group, including
through the broader adoption of Industry 4.0.
With our excellent market positions and leading-edge
technologies, I am confident that the Group is in a strong position
and has a bright future.”
Full year results announcement
The full year results will be announced on 27 February 2018.
Trading update call
There will be a call for analysts and investors at 08:00 today
(13 October). Dial in details are:
Direct dial:
+44 (0) 203 139 4830
Conference ID:
26422862#
Participants joining the call from outside the UK can find a
local number in the following file:
http://events.arkadin.com/ev/docs/NE_FEL_Events_International_Access_List.pdf
Conference ID as above.
A replay of the conference call will be available on the Group’s
website:
http://www.gkn.com/investorrelations/Pages/results-and-presentations.aspx
GKN plc LEI: 213800QNZ22GS95OSW84
The information contained within this
announcement is deemed by the Group to constitute inside
information as stipulated under the Market Abuse Regulations (EU)
No. 596/2014 ("MAR"). Upon the publication of this
announcement via a Regulatory Information Service ("RIS"), this
inside information is now considered to be in the public
domain.
Note
-
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 with the
Group’s share of the sales and trading profit of equity accounted
investments. References to trading margins are to trading profit
expressed as a percentage of sales. Where appropriate, reference is
made to organic 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:
Andrew Lorenz, FTI Consulting
T: +44 (0)203 727 1323
M: +44 (0)7775 641807
Cautionary
Statement
This announcement contains forward looking statements which
are made in good faith based on the information available at 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.
Nothing in this document should be regarded as a profits
forecast.
Notes to Editors
GKN plc is a global engineering group. It has three divisions;
GKN Aerospace, GKN Driveline and GKN Powder Metallurgy, which
operate in the aerospace and automotive markets. Over 58,000 people
work in GKN companies and equity accounted investments in more than
30 countries. GKN plc is listed on the London Stock Exchange (LSE:
GKN) and recorded sales of £9.4 billion in the year to 31 December 2016.