GKN plc

    Trading update - brought forward by two probable significant external claims  

    13 October 2017                                    

    GKN plc, the global engineering business that serves the aerospace and
    automotive markets, today issues a trading update for the period since the half
    year results announcement on 26 July 2017, brought forward as a result of two
    significant external claims. As a result of these, together with continuing
    operational challenges in GKN Aerospace North America, the Group now expects
    management profit before tax(1) for 2017 to be slightly above 2016.

    Significant External Claims

    GKN has been made aware of two probable claims which are expected to result in
    a charge of around £40 million in the fourth quarter of 2017. One relates to
    GKN Aerospace and the other GKN Driveline. Both claims are commercially
    sensitive with no additional information disclosable at this time.

    Group Results

    Overall in the third quarter, the Group achieved good organic sales growth,
    with GKN Driveline continuing to outperform the market and GKN Aerospace
    delivering sales slightly up on the prior year.  

    Group trading margin in the third quarter was lower than the comparable period
    in the prior year, mainly due to programme transitions and on-going operational
    challenges in GKN Aerospace North America.

    Divisional Performance

    GKN Aerospace

    In commercial aerospace, third quarter sales were marginally down whilst
    military sales were up compared to the prior year.

    Current trading in the third quarter has been disappointing with a significant
    reduction in margin caused by on-going pricing pressure, continuing operational
    challenges and the impact of programme transitions. These headwinds are
    expected to continue throughout the fourth quarter, although, as planned and
    included in previous forecasts, the quarter should benefit from a positive
    one-off retrospective pricing adjustment of £20 million, which has recently
    been agreed.

    Following a detailed review, GKN Aerospace North America will incur a £15
    million non-cash charge at its Alabama, USA facility relating to revised
    assumptions on programme inventory and receivables balances.

    Given the issues above, the review of the carrying value of goodwill and other
    assets at the year-end is expected to produce a significant non-cash impairment
    charge, relating to the North American business, which will be disclosed
    outside management profit before tax.

    GKN Driveline

    GKN Driveline continued to deliver good third quarter sales well ahead of
    global industry production rates that were up 2%. External forecasts continue
    to expect full year global auto production to increase by 2%, with North
    America and China down in the fourth quarter, and Europe continuing to
    experience robust demand. GKN Driveline expects to significantly outperform the
    market for the full year.

    As previously advised, GKN Driveline's trading profit continues to bear the
    additional costs of raw materials and eDrive investments. The North American
    all-wheel drive business is running well but its margin remains below the
    divisional average.

    Including the impact of the claim, GKN Driveline's trading margin for 2017 is
    expected to be similar to the prior year.  

    GKN Powder Metallurgy

    GKN Powder Metallurgy's organic sales growth continued in the third quarter in
    spite of a decline in US automotive production rates. It continued to benefit
    from currency translation and acquisitions in China and Turkey. The growth
    included the direct pass through of higher raw material prices which also had
    the effect of reducing reported margins slightly.

    Summary

    Nigel Stein, Chief Executive, GKN plc, commented:

    "GKN continues to grow well against its end markets although recent margin
    performance has not met our expectations. In addition, it is disappointing that
    we expect to have to provide for two unexpected claims which will slow our
    steady growth in profits.

    In light of the trading performance in North American Aerospace, we are
    redoubling our efforts to improve our operational performance in that business,
    as well as developing actions to accelerate margin improvement plans across the
    Group, including through the broader adoption of Industry 4.0.

    With our excellent market positions and leading-edge technologies, I am
    confident that the Group is in a strong position and has a bright future."

    Full year results announcement

    The full year results will be announced on 27 February 2018.

    Trading update call

    There will be a call for analysts and investors at 08:00 today (13 October). 
    Dial in details are:

    Direct dial:                   +44 (0) 203 139 4830

    Conference ID:           26422862#    

    Participants joining the call from outside the UK can find a local number in
    the following file:

    http://events.arkadin.com/ev/docs/NE_FEL_Events_International_Access_List.pdf

    Conference ID as above.

    A replay of the conference call will be available on the Group's website:

    http://www.gkn.com/investorrelations/Pages/results-and-presentations.aspx

    GKN plc LEI: 213800QNZ22GS95OSW84

    The information contained within this announcement is deemed by the Group to
    constitute inside information as stipulated under the Market Abuse Regulations
    (EU) No. 596/2014 ("MAR").  Upon the publication of this announcement via a
    Regulatory Information Service ("RIS"), this inside information is now
    considered to be in the public domain.

    Note

     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 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.
       
    Further information:

    Analysts/Investors:

    Guy Stainer

    Investor Relations Director

    GKN plc

    T: +44 (0)207 463 2382

    M: +44 (0)7739 778187

    E: guy.stainer@gkn.com

    Media:

    Andrew Lorenz, FTI Consulting

    T: +44 (0)203 727 1323

    M: +44 (0)7775 641807

    Cautionary Statement

    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 group. It has three divisions; GKN Aerospace,
    GKN Driveline and GKN Powder Metallurgy, which operate in the aerospace and
    automotive markets. Over 58,000 people work in GKN companies and equity
    accounted investments in more than 30 countries. GKN plc is listed on the
    London Stock Exchange (LSE: GKN) and recorded sales of £9.4 billion in the year
    to 31 December 2016.