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GKN plc Annual Report and Accounts for the year ended 31 December 2009
 

Review of Performance

Our results for the year ended 31 December 2009 reflect the significant deterioration in automotive and off-highway markets compared to the prior year, continued strong performance in Aerospace, and include the impact of major restructuring to align the Group’s operations with its markets. They also contain a strong contribution from the Aerospace acquisition of the Airbus wing component and sub-assembly operation in Filton, UK, completed on 5 January 2009. The extent of currency movements had a significant effect on the Group’s reported financial performance in 2009.

Measurement and reporting of performance

In this review, financial information, Group and divisional, unless otherwise stated, is presented on a management basis which aggregates the sales and trading profit, as applicable, of subsidiaries and the Group’s proportionate share of joint ventures. References to trading margin are to trading profit expressed as a percentage of sales.

Management trading profit or loss and management profit or loss before tax exclude the impact of:

  • strategic restructuring and impairment charges of subsidiaries and joint ventures;
  • amortisation of non-operating intangible assets arising on business combinations;
  • profits and losses on the sale or closures of businesses;
  • change in the value of derivative and other financial instruments;
  • other net financing charges; and
  • profits and losses, after tax, arising on discontinued operations.

We believe that these management figures better reflect performance of continuing businesses. Where appropriate, reference is made to underlying results which exclude the impact of acquisitions as well as currency translation on the results of overseas operations.

Relative exchange rates used for currencies most important to the Group’s operations are:

  Average Year End
  2009 2008 2009 2008
Euro 1.12 1.26 1.13 1.03
US dollar 1.56 1.85 1.61 1.44

The approximate impact on 2009 trading profit of subsidiaries and joint ventures of a 1% movement in the average rate would be euro — £0.2 million, US dollar — £0.7 million.

Group performance

Management sales

Management sales decreased by 3% in the year ended 31 December 2009 to £4,468 million (2008 – £4,617 million) including the benefit from currency translation and acquisitions which added £655 million and £330 million, respectively. Underlying sales decreased by £1,134 million (22%).

Management trading profit

Management trading profit reduced by 31% to £152 million (2008 – £221 million), with a strong performance in Aerospace and a small trading profit in GKN Driveline outweighing trading losses in Other Automotive, Powder Metallurgy and OffHighway. The currency translational benefit was £37 million, while 2009 acquisitions contributed £40 million. Excluding these items, the underlying decrease was £146 million (57%). After an extraordinarily difficult start to the year with Automotive sales down around 40% in the first quarter, the Group made steady progress through 2009 as the table below demonstrates.

In the first quarter, the Group reported a trading loss of £13 million particularly related to the sharp decline in the automotive market. In the second quarter, production schedules stabilised, the benefits of the Group’s restructuring plan increased and the ongoing strong performance of the Aerospace business all contributed to bring the Group back into profitability. The third quarter trading profit improved further as automotive production schedules increased in response to higher automotive sales and restocking by vehicle manufacturers. With the exception of OffHighway, all divisions were profitable in the fourth quarter.

Overall Group trading margin for 2009 fell to 3.4% (2008 – 4.8%), although by the fourth quarter this had risen to 6.5%.

  Quarter 1 Quarter 2 Quarter 3 Quarter 4
Sales (£m) 1,079 1,095 1,103 1,191
Trading profit/(loss) (£m) (13) 36 51 78
Trading margin (%) (1.2) 3.3 4.6 6.5

Restructuring

During the year, around 3,500 employees left the Group and 11 facilities ceased operations, with a further three closures announced. Restructuring costs in the year amounted to £141 million, including net impairment charges (£9 million), short-time working (£24 million) and £108 million redundancy and reorganisation charges. The benefit of the actions to address the permanent cost base was estimated to be £80 million in 2009. Cash spend in 2009 on the 2008 restructuring programme amounted to £93 million.

Final site rationalisation actions, including a further plant closure to be announced before the end of the first quarter, headcount reductions and the reduction of short-time working in the first half of 2010 will result in 2010 restructuring charges of around £37 million with 2010 cash spend estimated at £67 million. 2010 incremental benefits of £60 million are expected to accrue.

The benefit to annualised operating costs resulting from the total restructuring programme is expected to be £161 million.

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