GKN has issued its second profits warning in four weeks, a further sign, if one were needed, of how quickly the outlook for the auto industry is worsening.
In late October the automotive supplier warned that the prospect of a further deterioration in demand in its auto markets would see its full year group profit before tax to be in the region of 20% lower than 2007.
However as it then indicated in a statement mid-November it had been advised by its automotive customers of reductions in those schedules of sufficient magnitude to result in materially lower production levels for the last two months of the year.
The result is that the company is now warning that full year profits could fall by as much as 40% this year.
“Our global production schedules for November and December are now around 20% lower than our end October expectations with very significant further deterioration in major regions important to GKN,” the company said. It added that it was seeing falls in production schedules of 20% in Germany, 25% in Brazil, 22% in Japan and 25% in China.
The company said that it had intensified cost-cutting measures in all regional operations and reduced its workforce by 1,400 people since early October. Over 60 automotive and powder metallurgy plants are now on short-time working with additional plant shut downs through the balance of the year.
However, GKN warned: “It will not be possible, however, to align our cost base with these much reduced levels of demand for the remainder of the year and our automotive businesses are now expected to make a trading loss in November and December.”
GKN said there have been no changes in outlook for either its OffHighway or Aerospace divisions, which both continue to perform well, in line with previous expectations.
“In these extremely volatile automotive market conditions it is difficult to provide precise guidance for the group’s out-turn for the year. We do however expect profit before tax to fall within a range of £150m-£170m, with performance at the higher end largely dependent on no further significant reductions in automotive schedules,” the company said.
Profitability at this level gives interest cover (EBITDA/net interest payable) of between 7.5 and 8.0 times.
The group said it intends to produce a trading statement in the second half of January, which will contain guidance on the restructuring costs necessary to align capacity more closely with demand in the short to medium term.