Worcestershire, UK, 25-Oct-2016 — /EuropaWire/ — GKN plc, the global engineering business that serves the aerospace and automotive markets, today issues a trading update for the nine months ended 30 September 2016; management sales increased 21%, including organic sales growth of 2%, in line with expectations.
The Group’s principal markets performed in line with the expectations set out in our July results announcement. Management sales for the nine months ended 30 September 2016 were £6,895 million (2015: £5,683 million). This 21% increase comprised £151 million (2%) organic growth, acquisitions of £587 million and beneficial currency translation of £474 million.
Sales in the Automotive businesses continue to perform well against the market and the Aerospace division grew in line with our expectations. Land Systems’ markets remain tough.
As expected, the Group trading margin was lower than the equivalent period last year. This was due to the commencement of the Group-wide £35 million restructuring programme, launch related costs in GKN Driveline, the absence of last year’s one-off benefits in GKN Aerospace and the inclusion of Fokker Technologies (“GKN Aerospace Fokker”).
Operating cash flow was similar to the equivalent period last year.
GKN Aerospace sales in the nine months were £2,496 million (2015: £1,756 million), up 2% on an organic basis and beneficial currency translation of £126 million. Commercial sales were helped by the ramp-up in production of the A350, A320 and Boeing 737 which more than offset lower A330, A380 and Boeing 777 sales. Military sales were lower than the prior year, reflecting the continuing decline of mature programmes, mainly the F/A-18 Super Hornet and UH-60 Black Hawk helicopter.
GKN Aerospace Fokker, acquired on 28 October 2015, added £580 million of sales in the nine months. The integration plans are progressing well and GKN Aerospace Fokker performed in line with expectations.
For GKN Aerospace overall, the mix of new and mature programmes, together with slower than expected customer ramp-ups, restricted our ability to offset last year’s one-off benefits. This and the inclusion of Fokker, led to lower margins than the same period last year.
GKN Driveline sales in the nine months were £3,075 million (2015: £2,665 million). Organic sales increased 6%, against global industry production rates that were up 4%, and beneficial currency translation of £238 million. External forecasts continue to expect full year global auto production to increase by 3%.
Strong organic growth above the market continued in Europe due to new programme launches and the strength of premium vehicles. GKN Driveline performed above the Americas market, helped by new programme launches in North America. Within Asia, sales growth in China was above the market as new programmes and customer mix more than offset GKN Driveline’s lower exposure to domestic brands and smaller vehicles.
GKN Driveline’s margin was below last year’s equivalent period due to significant launch costs on a US all-wheel drive programme, as previously reported. These additional costs are now on a downward trend, although the second half is likely to see a similar impact to the first half.
GKN Powder Metallurgy
GKN Powder Metallurgy sales in the nine months were £762 million (2015: £694 million). Beneficial currency translation was £64 million. Organic sales were flat, reflecting slower demand in North America, offset by improved sales in Europe and Asia. There was also a negative impact on powder sales from the direct pass through of lower raw material prices and this helped GKN Powder Metallurgy report slightly higher margins than the comparable period last year.
GKN Land Systems
GKN Land Systems sales in the period were £534 million (2015: £535 million). Organic sales declined 8%, principally due to demand weakness for agricultural equipment and the ending of two chassis contracts, offset by a £44 million benefit from currency translation.
On 21 October 2016, the Group announced that it had agreed to sell the Stromag business for an enterprise value of €198million (£177 million), with completion expected in the first quarter of 2017. From 1 January 2017, GKN Land Systems will no longer operate as a division, with Shafts and Services being reported within GKN Driveline and Wheels and Structures moving to Other businesses.
Sales for GKN’s Other businesses fell to £28 million (2015: £33 million) reflecting the scale back of GKN Hybrid Power, which caused this segment overall to report a small loss in the period.
Nigel Stein, Chief Executive, GKN plc, commented:
“GKN has continued to make progress. Organic growth was 2%, whilst we also benefitted significantly from the successful acquisition and integration of GKN Aerospace Fokker as well as from favourable currency translation due to the weakness of sterling. As expected, our organic profit performance was down primarily due to one-off items, including the costs of the restructuring, which will position us better for the years ahead.
In line with the global economic outlook, we see growth rates easing in our major markets. The automotive market is now forecast to see a 1% increase in light vehicle production in the final quarter. New commercial aerospace programmes continue to ramp-up, although at a slower rate than expected. Our military aerospace programmes and agricultural equipment markets look set to continue their decline. Despite the slightly tougher macro-economic environment, the Group continues to expect 2016 to be another year of growth.”
Final Results Announcement
The Group will issue its 2016 full year results announcement on 28 February 2017.
Trading update call
There will be a call for analysts and investors at 08:30am today (25 October). Dial in details are:
Direct dial: +44 (0) 203 139 4830
UK toll-free: 0808 237 0030
Conference ID: 11947180#
Participants joining the call from outside the UK can find a local number in the following file:
Conference ID as above.
A replay of the conference call will be available on the Group’s website:
(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 certain subsidiary businesses sold and closed) 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.
(2) Divisional profitability comments are before any share of the £35 million Group-wide restructuring programme announced in July, which will be included in Management trading profit.
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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 business serving the aerospace, automotive and land systems markets. It has operations in more than 30 countries, around 56,000 employees in subsidiaries and equity accounted investments and had sales of £7.7 billion in the year ended 31 December 2015. GKN plc is listed on the London Stock Exchange (LSE: GKN).
SOURCE: GKN plc