GKN PLC Trading Statement

 
TIDMGKN 
 
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 GBP40 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 GBP20 million, which has recently 
been agreed. 
 
Following a detailed review, GKN Aerospace North America will incur a GBP15 
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:                   [phone] 
 
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 
 
 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 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: [phone] 
 
M: [phone] 
 
E: [e-mail] 
 
Media: 
 
Andrew Lorenz, FTI Consulting 
 
T: [phone] 
 
M: [phone] 
 
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 GBP9.4 billion in the year 
to 31 December 2016. 
 
 
 
END 
 

(END) Dow Jones Newswires

October 13, 2017 02:00 ET (06:00 GMT)