GKN plc: Powder Metallurgy sales up 15%, Group sales reach £2.9 billion

August 3, 2011

GKN plc has announced Group sales of £2.9 billion for the first six months of 2011, ended 30 June. The results reflect the continued strong growth in Driveline, Powder Metallurgy and Land Systems and a good performance in Aerospace.

Sales were up 11% (£287 million) to £2,988 million, with a trading profit of £247 million, up £45 million, before a £23 million one-off charge relating to the temporary plant closure at the Hoeganaes plant in Gallatin, USA.

Powder Metallurgy sales up 15%, with 9.0% trading margin.

Driveline sales were up 12% with 7.1% trading margin, after a £12 million profit impact from the Japanese earthquake. Aerospace underlying sales were reported as broadly flat; the trading margin, however, increased from 10.9% to 11.1%.

Sir Kevin Smith, Chief Executive of GKN plc, commented, “GKN has continued to make strong progress both in terms of financial performance and in building the future of our global market-leading businesses. The first half trading environment has seen strong market outperformance for GKN’s Driveline, Powder Metallurgy and Land Systems businesses. The aerospace market has remained subdued although civil aerospace is now moving into a strong growth phase with volume increases on existing platforms and new aircraft moving into production.”

“We are also pleased to further strengthen our Driveline and Land Systems businesses with two highly complementary acquisitions in Stromag and Getrag Driveline Products. As a result of the strong performance and outlook, the Board has decided to pay an interim dividend of 2.0 pence per share. GKN’s excellent global market positions, strong order books and leading technology leave us extremely well positioned for sustainable growth and further margin expansion.”

Outlook

GKN states that the outlook for its major markets is positive although some uncertainty remains, particularly around macro-economic conditions. In automotive, external forecasts suggest that global light vehicle production should reach almost 78 million vehicles in 2011, an increase of 4%, with the strongest growth in India, continuing improvement in North America and Europe and slower growth in China. Vehicle production in Japan is expected to recover strongly in the second half.

In aerospace, US military aircraft market demand is expected to show a small reduction as a result of the rundown of the F-22 and the decrease on the C-17 programmes. Civil aircraft demand is expected to continue to grow in 2011 as both Airbus and Boeing increase production schedules. The markets for Land Systems should continue to improve.

Against this background, Driveline is expected to show a small increase in sales in the second half compared to the first half, as Japanese producers recover in the US and growth in China offsets the normal seasonal decline in Europe. Sales in Japan are expected to be broadly flat as Driveline has already benefited from strong customer recovery in the first half.

Powder Metallurgy has a limited exposure to Japanese OEMs and therefore its sales are expected to be lower than the first half, in the seasonally weaker second half.

Aerospace sales are expected to show a small increase in the second half with increased sales from civil aircraft being partially offset by seasonality factors in Europe. Aerospace should return to its strong growth trend in 2012.

Land Systems should continue its improving trend although sales in the second half are expected to show a reduction when compared with the first half, as normal seasonal patterns return.

Completion of the recently announced acquisitions of Stromag and Getrag Driveline Products businesses are expected in September. These acquisitions should have a small positive impact on Group management results in the remainder of 2011. Both acquisitions are expected to be earnings enhancing and cash generative in the first full year.

Summary

In summary, GKN expects second half Group sales to show a small seasonal reduction when compared to the first half, excluding any impact from acquisitions and 2011 as a whole to be another year of strong progress for the Company.

www.gkn.com

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