UPDATE: GKN Sets GBP423 Million Rts Issue To Shore Up Balance Sheet
18 Juni 2009 - 11:01AM
Dow Jones News
GKN PLC (GKN.LN) said Thursday it will raise GBP423 million
through a rights issue to shore up its balance sheet as the
automotive slump continued to hammer sales.
The U.K. automotive and aerospace components manufacturer hopes
to boost its recently lowered credit rating and reduce its reliance
on debt financing through the fully underwritten rights issue at a
ratio of six new ordinary shares for every five existing ordinary
shares.
At 0809 GMT, GKN shares had recovered from earlier falls of more
than 15% to trade down 5 pence, or 4.6%, to 114 pence while the
FTSE 250 index traded down 0.7%.
Around GBP300 million of the proceeds of the rights issue will
be used to pay off the company's revolving credit facility and the
remainder for working capital, finance director Bill Seeger told
reporters Thursday.
The company's net debt rose over GBP200 million to GBP928
million in the five months to May 31, following the group's
acquisition of former Airbus wing components company Filton, and
its credit rating was cut to junk in early 2009 making financing
much more expensive.
The company is hoping to return to an investment grade rating by
the end of 2010.
The rights issue comes amid dire trading conditions for GKN,
which has been hit hard by the slump in automotive demand across
the world.
GKN said in a trading update that sales in the five months to
May 31 fell 10% year-on-year to GBP1.79 billion, but this included
GBP584 million in gains from foreign exchange rate movements and
the acquisition last year of Filton.
Excluding these benefits, sales slumped 33%.
The company said its pretax loss in the same period, excluding
restructuring and impairment charges, was GBP25 million. Still,
after a particularly difficult first two months of the year, the
group delivered a pretax profit of GBP8 million between March 1 and
May 31.
Despite sharply lower sales, GKN's trading profit points to an
improving trend, helped by swingeing cost cutting across the group
since last year.
Chief Executive Kevin Smith said he was reasonably optimistic
that there would be some improvement in production in the second
half, even though it was still unclear what would happen to
top-line sales.
GKN will cut a further 900 jobs in 2009, on top of the 2,400
already earmarked earlier this year, all from outside the U.K. The
company employs about 36,000 workers worldwide.
The majority of these further job losses will come from GKN's
off-highway business, which makes machinery parts for the
agricultural, construction and mining sectors.
Sales at this division fell 20% in the first quarter on a
constant currency basis, but slumped 45% in April and May compared
with last year.
The accelerated restructuring and job losses will increase GKN's
GBP190 million cost savings targets by about GBP5 million to GBP10
million, Smith said, while the GBP140 million cost of the program
will rise by a similar amount.
The group's automotive business, which has already seen
large-scale restructuring and job losses to counteract sharply
lower demand, was also hit by the scale-back of production at
General Motors Corp. (GMGMQ) and Chrysler LLC.
While May production elsewhere in the world is expected to be
similar to April, North America will be hit by the two car giants
shutting plants and reducing production, the company said.
Automotive sales were down 43% in the five months to May 31 to
GBP963 million on a constant currency basis, although the trend
improved slightly in May.
CEO Smith said: "The rights issue that we have announced today
will strengthen our capital structure and give us the flexibility
to take advantage of new opportunities for development and
growth."
The rights issue is fully underwritten by J.P. Morgan
Securities, UBS Investment Bank, HSBC Bank and RBS Hoare
Govett.
Company Web site: www.gknplc.com
-By Kathy Sandler, Dow Jones Newswires; 44-207-842-9293;
kathy.sandler@dowjones.com