Business highlights
- A year of significant transition
- Disposal of 50% shareholding in AgustaWestland transforms balance sheet
- Control of TFS secures leading torque technology position
- Driveline deployment to low cost, high growth regions begins
- Group profit before tax, goodwill amortisation and exceptional items down 10% in line with expectations
- Impact of global raw material and energy cost increases
- Negative currency and pension impact. Positive depreciation change.
- Continuing operations operating profit was level with 2003 before increase in charge for UK pension deficit.
- Increased Automotive revenues despite flat major markets
- Good second half Aerospace recovery and margin improvement
- Technology-led wins on new US and European aerospace programmes
Kevin Smith, Chief Executive of GKN plc, commented:
"The strategic development of GKN gathered pace in 2004.
"The most significant event of the year was the disposal of our shareholding in AgustaWestland at the end of November which generated cash consideration in
the year of £1,028.5 million and a profit on the sale of £652 million. The transaction has transformed the Group's balance sheet and enhanced our ability to
pursue the strategic growth and development of GKN in automotive and aerospace.
"Taking control of Tochigi Fuji Sangyo of Japan, a specialist torque management supplier, was a further step in our move into higher value automotive systems.
A number of new vehicles launched during 2004 were equipped with complete driveline systems from GKN underpinning our strategic ambitions for torque technology.
"In Aerospace, a parallel focus on the technology of composite aircraft structures and their production processes secured positions on the world's major new
civil and military aircraft programmes. We are also deeply involved in the development of greater use of composites within jet engines.
"We initiated the restructuring measures in Automotive announced in March 2004 and, although costs in the year were somewhat lower than originally estimated,
the programme to transition more of our automotive driveline production assets to high growth, low cost economies remains on track to deliver the benefits
originally identified.
"Our Automotive revenues in the year increased in mainly flat markets and we saw a strong, second half improvement in Aerospace margins.
"Raw material prices, particularly steel, provided a major challenge in 2004 and while this will continue to be a difficult issue we have actions in place
which make it manageable. As anticipated, the charge for the UK pension deficit was £15 million higher than in 2003 and the strength of sterling also
affected reported profits. There was some offset from an £11 million benefit as a result of a modification to our treatment of depreciation.
"In these circumstances, the 10% reduction in profit before tax, goodwill and exceptional items to £221 million was a sound performance.
"At the year end we had net funds of £65 million compared with net borrowings of £793 million at the end of 2003 and are well positioned for future
development."
2005 Outlook
In Automotive the major European and North American markets are forecast to remain relatively static in 2005.
Growth in the developing markets is expected to continue, although at a slightly lower level than 2004. Overall, global automotive demand is
anticipated to maintain its steady 2-3% annual growth.
In Aerospace prospects are improving, with rising civil aircraft production and a robust US military market.
Our OffHighway markets overall look set to show modest growth with steady US demand and a slight increase in Europe.
Against this background we expect our Automotive businesses to improve underlying sales and operating performance although high worldwide raw
material prices, particularly for steel, present a challenge to 2005 Automotive profitability. Renegotiated annual supply contracts will add
some £30m to costs in 2005. In addition we are exposed to fluctuations in the scrap steel price which is surcharged in the industry. In the
first quarter this surcharge will have some impact on costs, although if scrap were to stay at the current somewhat reduced price levels, little
further impact would be felt in the rest of the year.
We continue to negotiate for recovery of this cost increase with our customers and are having some success, although the full quantum of
recovery will not be known for several months. Our focus on productivity improvement will continue.
In Aerospace trading is expected to continue to improve in 2005 and OffHighway's performance should also show progress.
The benefits of our leading technology, new products and strong presence in emerging markets, combined with the benefits of the
restructuring activities underway, leave the Group's Continuing businesses well positioned for growth.
In addition, the transformation of the Group which started in 2004 will continue in 2005. The £1 billion sale proceeds from
AgustaWestland have significantly strengthened the balance sheet and provide a solid platform for accelerated growth in profits
and earnings from their new, re-based levels. The Group is well placed to take advantage of opportunities in all its markets
and looks to the future with confidence.
Further enquiries:
GKN Corporate Communications
Tel: 020 7463 2354
The full text of the Operating and Financial Review which will appear in the Annual Report & Accounts together with Financial Statements
and selected notes extracted from the audited accounts are attached to this news story.
Download Financial Review PDF
Download Preliminary Results Appendix PDF
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