GKN plc Results Announcement for the six months ended 30 June 2016

26-Jul-2016

Group Highlights^(*)

• Another period of growth - in line with expectations
• • Sales up 17% and management eps increased 7%
  • Continued market outperformance with organic sales up 2%
  • Fokker integration on track and performing well
• Sharpening the focus
• • Reducing fixed costs; annualised savings of £30 million from 2017 through
    a GKN wide fixed cost optimisation programme; charge of £35 million in the
    second half of 2016
  • Capital allocation to be progressively directed towards productivity
    improvement in core aerospace and automotive divisions
• Continued investment in technology
• • Strong technology pipeline; innovation recognised by customer and industry
    awards
  • Momentum of new business wins continues to support growth ahead of
    markets

	Management basis(*)			As reported
	2016	2015	Change​	2016	2015	Change
	£m	£m	%	£m	£m	%
Sales	4,518	3,853	+17	4,237	3,616	+17
Operating profit	390	346	+13	290	245	-15(2)
Trading margin (%)	8.6%	9.0%	-40bps
Profit before tax	344	307	+12	182	212	-14(2)
Earnings per share (p)	15.5p	14.5p	+7	9.5p	9.9p	-4
Interim dividend per share (p)	2.95p	2.90p	+2	2.95p	2.90p	+2
Free cash flow	40	21
Net debt	918	769(1)

⁽¹⁾ As at 31 December 2015
⁽²⁾ Primarily lower due to mark to market valuation of FX contracts

Commenting on the results, Nigel Stein, Chief Executive of GKN said:

"This is a good set of first half results with GKN continuing to make underlying progress in line with our expectations. Each division has continued to deliver against our strategy. GKN is in good shape with excellent technology and strong positions in the aerospace and automotive markets. Capital allocation will continue to be focussed on these divisions, with greater emphasis on internal productivity.

We expect 2016 to be another year of growth, helped by currency translation and Fokker. To increase momentum going into 2017, we will reduce our fixed costs by £30 million.

With our excellent technologies, global footprint and strong focus on costs we are very well placed to compete and succeed in the future."

Divisional Highlights

GKN Aerospace

• Strong headline sales growth, driven by good Fokker performance with integration on track
• Organic sales growth of 2%, comprising commercial (+8%) partially offset by a decline in military (-14%)
• Margin of 9.9% (2015: 11.4%), primarily impacted by the inclusion of Fokker and mature programmes declining
• New and replacement work packages won of c.$5 billion over contract lives

GKN Driveline

• Organic sales growth of 5%, significantly ahead of global auto production helped by our broad geographic footprint and increased content per vehicle
• Trading margin of 8.2% (2015: 8.3%), a good performance in Europe offset by excess launch costs on an US all-wheel drive (AWD) programme
• More than £400 million of annualised new and replacement business won

GKN Powder Metallurgy

• Organic sales growth in line with the market, before the pass-through of lower raw material surcharges
• Trading margin increased to 12.6% (2015: 11.8%), benefiting partly from the lower surcharges
• Strong focus on technology and £120 million annualised new and replacement business won
• Chinese powder production commenced

GKN Land Systems

• Organic sales down 6% due to challenging agricultural and construction equipment markets and the ending of chassis contracts
• Good cost control results in trading margin of 4.6% (2015: 4.0%)

Outlook

Aerospace markets generally remain in transition as some aircraft programmes run down and others ramp up. The overall market in 2016 will be broadly flat, according to external forecasts. Against that backdrop, GKN Aerospace's 2016 organic sales are expected to be slightly up on last year, and the results will benefit from the contribution of Fokker. In the medium term, our strong commercial order book supports continuing growth for GKN Aerospace.

In automotive, external forecasts predict growth in global light vehicle production of around 3% with increases in China, North America, Europe and India. Against this background, GKN Driveline and GKN Powder Metallurgy are expected to continue to grow organically above the market.

GKN Land Systems sales are expected to continue to decline due to softer agricultural and construction equipment markets, although the rate of decline is slowing.

GKN is sharpening its focus on costs and also directing capital expenditure more towards productivity. Fixed cost reductions of £30 million will benefit 2017. There will be a charge to achieve these savings of £35 million (included within management results) in the second half of 2016. This is in addition to the Fokker integration charge that was previously announced.

Despite market uncertainty following the EU Referendum, there should be little impact on GKN over the medium term and 2016 is expected to be another year of growth, helped by currency translation and Fokker.

Notes

^(*) Financial information set out in this announcement, unless otherwise stated, is presented on a management basis as defined on page 13.

Refer to full documentation in attachments box, located at the top left, below the headline.