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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| GKN | LSE:GKN | London | Ordinary Share | GB0030646508 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 482.40 | 481.00 | 481.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMGKN
RNS Number : 9308A
GKN PLC
29 March 2017
GKN plc 2016 annual report
GKN plc has today published its 2016 annual report and circular to shareholders incorporating the notice of the 2017 annual general meeting. Both documents can be viewed at or downloaded from http://www.gkn.com/en/investors/.
Copies of both documents, together with the form of proxy for the 2017 AGM, have been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM.
Printed copies of these documents have today been posted to shareholders who have requested hard copies.
The 2017 AGM will be held at 2.00 pm on Thursday 4 May 2017 at 195 Piccadilly, London W1J 9LN.
In compliance with DTR 6.3.5, a description of the principal risks and uncertainties, details of related party transactions and a responsibility statement prepared for and contained within GKN's 2016 annual report are set out below. A condensed set of financial statements were appended to GKN's 2016 full year results announcement issued on 28 February 2017, which included an indication of important events that occurred during the year.
Page references below refer to page numbers in GKN's 2016 annual report.
RISK MANAGEMENT
The Board is responsible for setting the Group's risk appetite and ensuring that appropriate risk management systems are in place.
The Board reviews the Group's principal risks throughout the year as part of its normal agenda, adopting an integrated approach to risk management by regularly discussing principal risks.
In addition, in the middle and at the end of each year, the Board assesses the Group's principal risks through our enterprise risk management (ERM) programme described opposite, taking the strength of the Group's control systems and our appetite for risk into account. We have a risk matrix which ensures that, between the Board and its committees, all the Group's principal risks are reviewed during the course of the year.
The Board delegates responsibility for day-to-day risk management to the Executive Committee, including the identification, evaluation and monitoring of key risks facing the Group and the implementation of Group-wide risk management processes and controls. The Executive Committee is supported in this by its Sub-Committee on Governance and Risk.
The Audit & Risk Committee keeps the effectiveness of the Group's risk management systems under review and reports to the Board on the results of its review. The occurrence of any material control issues, serious accidents or major commercial, financial or reputational issues, or the identification of new risks, are reported to the Board and/or Audit & Risk Committee as appropriate.
During 2016, we increased the level of oversight for certain principal risks while continuing to strengthen the independent assurance provided in respect of some risks. While overall we are happy with our risk management processes, our philosophy, as in all areas of the business, is one of continuous improvement.
HOW WE MANAGE RISK
The Group has four levels of defence through which it manages significant risks.
Level 1 Risk ownership and control
Our businesses are responsible for maintaining an effective risk and control environment as part of day-to-day operations under the direction of the Chief Executive and the Executive Committee. This includes implementation and regular monitoring and review by divisional management of processes and controls which are designed to ensure compliance with the Board's appetite for risk, Group policies and delegated authority levels, and the GKN Code. These front line controls are regularly updated to respond to the Group's changing risk profile.
Level 2 Monitoring and compliance
Group functions monitor adherence to the procedures set out by the Executive Committee and provide guidance to the businesses on their application. This includes ongoing reviews by our health and safety audit team, Group IT and financial control functions. Representatives of these functions report their findings to the Executive Sub-Committee on Governance and Risk or directly to the Executive Committee. The Sub-Committee reports twice a year to the Executive Committee on matters relating to the Group's governance, risk management and assurance framework, including areas of concern or proposals for improvement.
Level 3 Independent assurance
Independent assurance over the Group's risk management, control and governance processes is provided by the Group's Corporate Audit team, the Head of Risk and external assurance providers.
Level 4 Oversight
The Board, Executive Committee and Audit & Risk Committee provide oversight and direction in accordance with their respective responsibilities, more information on which is set out in the governance section of this annual report.
Our ERM programme
GKN's enterprise risk management (ERM) programme facilitates a common, Group-wide approach to the identification, analysis, and assessment of risks and the way in which they are managed, controlled and monitored.
Identify and analyse A broad spectrum of risks is considered through the ERM process. The Executive Committee and the Board review the output from ERM at both divisional and Group levels.
Manage and mitigate Management controls designed to monitor and mitigate the risks are documented. Risk owners are assigned for each risk.
Assess The ERM process provides a consistent set of definitions and a common approach to risk evaluation and assesses both risk likelihood and impact.
Respond The risk response is based on the assessment of potential risk exposure and an acceptable level of tolerance. The response reflects whether we 'accept' the risk on the basis of its assessed level of exposure and mitigating controls currently in place, or 'reduce' the risk through additional mitigation to bring it in line with required levels of tolerance.
Monitor The output from the ERM process is regularly reviewed together with the ongoing monitoring of progress against planned improvement actions.
PRINCIPAL RISKS AND UNCERTAINTIES
The nature of both our business and our strategy means that we face a number of inherent risks and uncertainties.
The Board has carefully considered the type and extent of the principal risks to the Group achieving its objectives and delivering a satisfactory return for shareholders. These are summarised below, categorised according to the strategic objective to which they relate most closely. We seek to carefully manage risk, while at the same time recognising that we need to take some risk to achieve our strategic goals including to grow above the market.
Over time, our risk profile evolves and the Board's view of the principal risks facing the Group is updated accordingly. This year, acquisition integration has been removed as a principal risk following the successful integration of Fokker Technologies. Relationships with our largest joint venture Shanghai GKN HUAYU Driveline Systems Co Limited (SDS) remain strong and continue to develop positively. Accordingly, following the year end review, the Board has decided to remove this as a principal risk. Business continuity has also been removed as a separate principal risk. The Board considers the key elements of this risk to be appropriately covered by the remaining risks of supply chain, information resilience and health and safety. Each principal risk is described on the following pages together with the corresponding mitigating actions that are in place and an overview of the risk trends during 2016.
Hot Features
Premium
Risk trend
------------------------------------------------------------------------------------------------------------------------------------------------------------------ -----------------------
Risks related to our strategic objectives Other risks
----------- ----------------------------------------------------------------------------------------------------------------------------------------------------- -----------------------
Leading Leveraging Differentiating Driving operational
in our a strong ourselves excellence
chosen global presence through technology
markets
----------- ---------------------------------- ------------------------------------- --------------------------------- --------------------------------------- -----------------------
Increasing * Supply chain * Technology and innovation
----------- ---------------------------------- ------------------------------------- --------------------------------- --------------------------------------- -----------------------
Stable
* Highly competitive markets * Operating in global markets * Product quality * Pension funding
* Customer concentration * Laws, regulations and corporate * Contract risk
reputation
* Programme management
* People capability
* Health and safety
* Information systems resilience
----------- ---------------------------------- ------------------------------------- --------------------------------- --------------------------------------- -----------------------
Decreasing * Contract risk
----------- ---------------------------------- ------------------------------------- --------------------------------- --------------------------------------- -----------------------
Supply chain
----------------------------------------------------------------------------------------------------------------------
Risk trend
Ù
------------------- ------------------------------------------------------------ --------------------
Description
Our suppliers are
key to our
success.
It is essential
that suppliers
and subcontractors
continue to meet
our high standards
of technical
competence,
innovation,
product
quality,
reliability,
delivery
performance,
cost, financial
stability, safety,
ethics and social
responsibility.
Our supply chain
network is exposed
to potentially
adverse events
such as physical
disruptions,
environmental
and industrial
accidents, Changes in
scarcity 2016
of supply and the During the
insolvency of a year, the
key supplier, any Executive
of which could Committee
impact our ability and Audit
to deliver orders & Risk Committee
to our customers. reviewed
our supply
The cost of our chain management
products can be processes
significantly in each division
affected Mitigation and agreed
by the cost of * Ongoing communication of our expectations of future actions.
the underlying suppliers through our Supplier Code of Conduct.
commodities and We continue
materials from to carefully
which they are * Contract terms and conditions that require our manage and
made. Fluctuations suppliers to meet specified performance standards. monitor our
in these costs supply chains
cannot always be and, where
passed on to our * Ongoing assessment of supplier technology and appropriate,
customers. dependency. build on
long-term
Potential impact supplier
A sustained supply * Monitoring of the financial and operational viability relationships.
chain disruption, of key suppliers.
or the delivery Under the
of defective leadership
product * Ongoing monitoring of inventory levels to ensure of the Group
to us, could availability in times of production volatility. Finance Director
impact and the Supply
our ability to Chain Steering
meet customer * Contingency plans designed to enable us to secure Committee,
requirements, alternative key material supplies at short notice, to which comprises
result in transfer or share production between manufacturing senior
additional sites and to use substitute materials where required. representatives
contractual from all
liabilities three divisions,
and have a * Dual sourcing where appropriate to reduce dependence we continue
consequential on single suppliers. to deliver
impact on on our supply
financial chain excellence
performance. * Supplier quality reviews and audits strategy.
------------------- ------------------------------------------------------------ -------------------- -------------
Technology and innovation
----------------------------------------------------------------------------------------------------------------------
Description Mitigation Changes in Risk trend
Developing * Regular assessment of market and technology trends 2016 Ù
innovative and drivers. We continue
technologies for to invest
our customers is in technology
critical to * Close relationships and technical partnerships with and develop
maintaining customers. internal
our capabilities
differentiation to help meet
and competitive * Divisional technology plans aligned to emerging and customers'
advantage. We may future trends and business strategy. expectations
lose market share for improving
or be subject to efficiency
additional market * Technical leadership and promotion of engineering of aircraft,
pressure if we best practice by our Engineering Fellowship. cars and
fail to develop other vehicles
innovative with solutions
technologies * Regular review of current and future technology plans that are
that our by the Group Technology Strategy Board. lighter and
customers more fuel
want. efficient.
* Consideration of technology plans as part of the
Potential impact Board's annual strategy review. We have continued
The failure to to diversify
launch new into targeted
products, new * Focused investment in research and development. areas of
product new technology
applications or including
derivatives of additive
existing products manufacturing,
to meet customer bionic tooling
requirements and vehicle
could have a electrification
significant and have
impact on future been recognised
profitable growth for a number
of industry
innovation
awards.
------------------- ------------------------------------------------------------- ------------------- -------------
> Read more on how the Group continues to differentiate itself through technology in the Chief Executive's and divisional reviews on pages 19 to 35
Highly competitive markets
----------------------------------------------------------------------------------------------------------------------
Risk trend
< >
------------------- ------------------------------------------------------------ --------------------
Description
GKN operates in
highly competitive
markets with
customer
decisions
typically
based on price,
quality,
technology
and service.
Contracts
for major
programmes
are subject to
highly competitive
bidding processes
and the strength
of our competitors
and general market Changes in
conditions 2016
continue Strong competition
to drive pricing and customer
pressure and pricing pressures
challenging have continued
contractual terms. throughout
2016. Pressure
Our margins may on margins
come under continue in
pressure Aerospace
if competition and in the
increases or as high-growth
a result of electric and
customer hybrid automotive
actions. vehicle markets.
An inability or Despite these
delay in challenges,
developing we continue
or maintaining to win new
sufficient or business and
appropriate differentiate
engineering and ourselves
manufacturing through our
capabilities technology.
in our markets
could further We have implemented
increase a GKN-wide
the risk. fixed cost
optimisation
Customer vertical programme
integration and taken
(including actions to
OEMs taking progressively
production redirect
in-house), the expenditure
entry of new towards
competitors, productivity
and the improvements.
consolidation Previously
of existing announced
competitors restructuring
also contribute activities
to increased are well
competition. progressed.
Potential impact The reorganisation
Competition risk, of GKN Driveline
if not addressed, Mitigation from three
could result in * Maintaining a balanced portfolio of businesses across regions into
reduced sales and different end markets provides some protection two global
profit margins against competition in particular markets. product lines
and potentially and the elimination
lost growth of a divisional
opportunities. * Regular review of competition and market trends. structure
An inability around our
to secure new former Land
business * Targeted investment in engineering, and a commitment Systems operations
awards on major to Lean manufacturing, quality and customer will provide
programmes could relationships. better strategic
significantly and customer
impact alignment
future growth, * Flexible management of our variable and fixed cost and a more
cash flow and base including outsourcing and low-cost sourcing efficient
profitability. initiatives where appropriate. organisation.
------------------- ------------------------------------------------------------ -------------------- -------------
> Read more about the trends in each of our markets on pages 4 to 11
Customer concentration
----------------------------------------------------------------------------------------------------------------------
Description Mitigation Changes in Risk trend
There is * Regular review of the Group's relations with and 2016 < >
significant exposure to key customers. There have
customer been no
concentration significant
in the automotive * Extensive and regular dialogue with key customers and changes in
and aerospace strong commercial and engineering relationships. the OEM customer
industries landscape
so a large with the
portion * Quality, service and delivery performance are proportion
of the Group's regularly reviewed based on customer KPIs. of business
revenues comes from the Group's
from a relatively top ten customers
small number of * Credit exposure is actively reviewed and managed. remaining
customers. stable during
Around 50% of the 2016. No
Group's sales is individual
derived from its customer accounts
top ten for more than
customers. 10% of Group
revenue.
Potential impact
The insolvency We have continued
of, damage to to win new
relations with, business in
or significant each of our
worsening of key commercial markets terms with, a major customer could seriously affect the Group's future results, and could result in loss of market share and future business opportunities, asset write-offs and restructuring actions. ------------------- ------------------------------------------------------------- ------------------- -------------
> Read more about key customer trends on pages 4 to 11, and about credit risk in note 19 to the financial statements
Operating in global markets
----------------------------------------------------------------------------------------------------------------------
Risk trend
< >
----------------- ----------------------------------------------------------------- -----------------
Description
We operate
globally
and, as such,
results
could be
impacted
by global or
regional
changes in the
macroeconomic or
political
environment,
leading to
changing
consumer demand
and preferences.
Our businesses
could be
affected
by changing Changes in
consumer 2016
preference Market
and associated conditions
volatility in are discussed
automotive in the Chief
demand; Executive's
challenging review on
credit pages 19 to
conditions 21 and the
resulting in markets overview
lack section on
of access to pages 4 to
finance 11.
by customers
and end Political
consumers; and economic
delay or uncertainty
cancellation of continues
orders for civil into 2017
aircraft and following
changes the
in the amount or US presidential
timing of US election and
military other political
spending; and economic
volatility changes across
in agricultural Mitigation our markets
and construction * The Group has a diversified portfolio of businesses including
and mining across its markets providing some protection against in Europe,
markets; individual market or country risks. the US and
exchange rate Japan.
fluctuations;
and changing oil * Lead market indicators are regularly reviewed so that The UK's vote
prices. we can respond quickly to changing trading to leave the
conditions. EU has resulted
Potential impact in some
Major or uncertainty
prolonged * Our mitigation strategy includes: in future
economic or trading
financial arrangements
market * planning, budgeting and forecasting processes; between the
deterioration, UK and the
including rest of the
movements * flexible management of variable and fixed cost base, world, and
in exchange investment spending and working capital; falling
rates expectations
of key for UK GDP
currencies * further diversification into in the short
or political to medium
uncertainty term. GKN
in one of our other sectors which is a global
key present new opportunities; business with
markets, may * focused restructuring around 90%
significantly of its products
impact the manufactured
Group's activities, where outside the
operational necessary, to respond UK; this will
performance to markets which limit the
and financial have suppressed effect of
condition. levels of the vote on
Sustained market economic activity; the Group.
weakness could and Weaker sterling
lead to * regular review of our financial risk management following
impairment processes, including foreign currency hedging. the referendum
of assets or has so far
site had a positive
closures. It may * Alignment of our debt to the principal currencies in effect on
also materially which our revenues and cash flows are generated the Group's
impact our through cross currency swaps. reported sales
customers, and earnings
suppliers and but a negative
other * Currency hedging within our hedging policy. impact on
parties with its reported
whom debt and
we do business. * A strong balance sheet. liabilities.
----------------- ----------------------------------------------------------------- ----------------- -------------
Laws, regulations and corporate reputation
----------------------------------------------------------------------------------------------------------------------
Risk trend
< >
-------------------- ----------------------------------------------------------- --------------------
Changes in
2016
There have
been no significant
new regulations
impacting
the Group
during 2016,
but our markets
continue to
be subject
to robust
enforcement
activities
in relation
to existing
regulations,
particularly
in relation
to vehicle
safety.
We continue
to regularly
Description remind our
The Group is senior managers
subject about the
to applicable laws importance
and regulations of 'doing
in the global the right
jurisdictions thing' in
and industries all our activities.
in which it We emphasised
operates. its importance
This includes to all
certain senior managers
territories where as part of
strong ethical our International
standards may not Leadership
be well established Conference
or where parts and as an
of the markets integral part
in which we operate of the GKN
are highly DNA (see the
regulated. Chief Executive's
Regulations include review on
those related to page 20 for
export controls, further details).
environmental and We also rolled
safety out our GKN
requirements, Governance
product safety, Handbook to
tax laws, remind employees
intellectual of our key
property rights, Group policies
competition laws and procedures
and other ethical and launched
business practices. Mitigation refresher
* A strong culture of 'doing the right thing' which is training on
Potential impact regularly emphasised by senior management. competition
Non-compliance law compliance.
could expose the
Group to fines, * Group-wide governance policies and procedures, During the
penalties, damage ongoing compliance training and strong oversight. year, we have
to reputation, aligned
suspension or the risk management
debarment * Ongoing monitoring of regulatory developments in and governance
from government major jurisdictions. procedures
contracting or of our
suspension of Fokker businesses
export * Ongoing monitoring of employee concerns through our with the rest
privileges. independent employee disclosure hotline. of the Group.
-------------------- ----------------------------------------------------------- -------------------- -------------
> Read more about doing the right thing on pages 50 to 59
Product quality
----------------------------------------------------------------------------------------------------------------------------------------------------
Description Mitigation Changes in Risk
Maintaining a high * Robust engineering design and validation processes 2016 trend
level of quality from initial design and development through Excellence < >
and safety in our production and into service. in quality
products is essential. has continued
We are exposed to be a priority
to warranty, product * High levels of quality assurance are embedded in during the
recall and liability robust manufacturing systems. year with
claims in the event continuous
that our products improvement
fail to perform * Ongoing assessments of supply chain quality. programmes
as expected. ongoing in
each of our
In automotive, * Regular reporting and monitoring of quality businesses.
the industry in performance based upon customer KPIs. We continue
general has experienced to monitor
higher levels of quality and
recalls in recent * Maintenance of critical parts lists. delivery
years and the OEMs performance
often seek contributions as viewed
from throughout * External agency quality reviews and certifications by our customers
the supply chain. . and strive
This risk increases to continuously
where: improve product
* Robust contract terms and conditions. quality, safety
-- vehicle manufacturers and delivery
offer key performance
longer warranty indicators.
periods;
-- more vehicles Our
are being built cross-divisional
on standard platforms, Quality
so a Committee
single quality led a number
issue can affect of initiatives
a large number during the
of vehicles; and year to share
* regulators and our customers are taking a more best practice,
stringent approach to recalling vehicles, review
particularly if there is a possible safety issue. compliance
with Group/
divisional
standards
In aerospace, customers and coordinate
and regulators Group-wide
impose very strict quality
product safety management
and quality obligations projects.
on all aircraft
suppliers.
Potential impact
A product failure
could result in
serious losses,
damaging GKN's
financial performance
and potentially
our reputation.
In particular,
the costs associated
with vehicle or
aircraft recalls
can be significantly
higher than the
cost of simply
replacing defective
products.
---------------------------------------------------------- ---------------------------------------------------------- ------------------ --------
> Read more about our continuous improvement culture on page 56
Programme management
---------------------------------------------------------------------------------------------------------------------------------------------------------
Description Mitigation Changes in Risk
Many of the programmes * Embedded programme management, including investment 2016 trend
entered into by phasing and product testing activities. New product < >
the Group are complex launch
and long term and issues
are subject to * Periodic impairment reviews of capitalised experienced
various performance development costs, including formal review at half in the year
conditions which year and year end. at our
must be adhered Newton
to throughout the plant, which
programme. The * Ongoing review and approval of key programmes by the had a
management of such Executive Committee and the significant
programmes brings financial
risks related to: impact, have
* Board. been
* delays in product development or launch schedules; addressed
and key
* Regular review of 'lessons learned' and best practice learnings
* failure to meet customer specifications or predict sharing. shared
technical problems; across
the Group
* Periodic inspection of programmes by customers. (see page
* inability to manufacture on time for the start of 19 for
production or to required production volumes; further
details).
* dependence on key or customer-nominated suppliers; During the
year, we
have
* failure to manage effectively continued
to
strengthen
internal or customer-driven our
change; and programme
* inability to forecast accurately and to manage costs. management
processes,
organisation
and training
Potential impact where
Ineffective programme required.
management could This will
result in damage continue in
to customer relationships 2017 where
or cancellation we plan to
of a contract resulting further
in claims for loss strengthen
and reputational our
damage. programme
of
Poor performance independent
against a contract reviews of
could also undermine key
the programme
Group's ability deliverables
to win future contracts .
and could result
in cost overruns
and significantly
lower returns than
expected.
------------------------------------------------------------- ------------------------------------------------------------- -------------- -----------
People capability
----------------------------------------------------------------------------------------------------------------------
Risk trend
< >
-------------------- ----------------------------------------------------------- --------------------
Changes in
2016
During 2016,
we reviewed
our incentive
plans to ensure
that the targets
continue to
be appropriate
in light of
shareholder
expectations
and remain
an effective
tool for
attracting,
retaining
and incentivising
Description senior managers
The Group's ability and our top
to deliver its executives.
strategic The resulting
objectives changes will
is dependent upon form part
the recruitment of our remuneration
and retention of policy proposals
sufficiently put to shareholders
qualified, under the
experienced and normal three-year
motivated people. cycle.
It is critical The recruitment
for the Group to and development
secure and maintain of young
the relevant engineering
capabilities talent continues
in specific to be a focus
geographical supported
regions and by our Group-wide
disciplines and divisional
in both existing graduate programmes
markets and to and a strong
support growth apprenticeship
markets. Mitigation programme.
* Competitive reward packages together with focused We also continued
Potential impact training and development programmes. to develop
The failure to and align
recruit, or the resources
loss of, key * A culture that motivates individuals to perform to and capabilities
personnel, the best of their abilities. to our growth
and the failure markets. We
to plan adequately are working
for succession * Strong succession and development programmes. on improving
or develop the how we set
potential of objectives
employees * Local initiatives designed to engage young people, and manage
may impact the promote science, technology, engineering and performance,
Group's ability mathematics continually
to deliver its improving
strategic and our performance
financial * (STEM) subjects and encourage the next generation of management
objectives. young engineers. system.
-------------------- ----------------------------------------------------------- -------------------- -------------
> Read more in our sustainability report on pages 50 to 59
Health and safety
----------------------------------------------------------------------------------------------------------------------
Description Mitigation Changes in Risk trend
Safety is our * Consistent Group-wide application of health and 2016 < >
number safety programmes. Regrettably
one priority. We there were
manage safety two fatalities
carefully * Regular reporting and monitoring of health and safety during the
through extensive performance. year - see
Group-wide page 52 for
processes, further details.
yet we recognise * Health and safety audits to ensure adherence to Group We have completed
we can never be policies and procedures. a thorough
complacent. investigation
Therefore and strengthened
we continue to * A focus on process and behavioural safety through a our controls
include this as number of Group-wide risk assessment and training accordingly,
a principal risk programmes. particularly
and an area which in the areas
will always be of managing
a priority for * Maintenance of insurance for costs associated with visitors and
GKN. injury related actions or claims against the Group. contractors
while on site
Potential impact and workplace
A serious * Targeted incident response and business continuity movement of
accident plans. vehicles and
in the workplace pedestrians.
could have a
major The Group's
impact on underlying
employees AFR and
as well as their ASR again
families, improved this
colleagues year and we
and communities. continued
Such an incident to increase
could also result our near miss
in legal claims, reporting
reputational as a key leading
damage indicator
and financial of our health
loss. and safety
performance.
Hazard awareness
and risk
assessment
programmes
continued
with a particular
focus on
identifying
and addressing
potential
catastrophic
hazards.
------------------- ------------------------------------------------------------- ------------------- -------------
> Read more about health and safety on pages 52 and 53
Information systems resilience
----------------------------------------------------------------------------------------------------------------------
Description Mitigation Changes in Risk trend
The Group could * Formal risk-based governance framework including 2016 < >
be impacted dedicated IT security policies and related compliance The Group
negatively processes, ongoing risk reviews, IT security has continued
by information awareness training and robust systems and processes to strengthen
technology to manage access, information assets, threats and its mitigating
security vulnerabilities. processes
threats including and controls
unauthorised over the security
access * External support and benchmarking of best practice of our
to intellectual information systems security and resilience. information
property or other systems. In
controlled particular,
information. * Ongoing development of appropriate incident detection we completed
Interruptions to and response plans and capabilities. a review
the Group's of compliance
information with the National
systems could * Disaster recovery contingency plans which are Institute
also regularly tested including data centres where the of Standards
adversely affect risk is deemed to be the greatest. and
its day-to-day Technology
operations. (NIST) IT
* Executive Committee oversight of IT security and security
The inherent assurance matters requirements
security stipulated
threat is for all US
considered Government
highest in GKN contractors
Aerospace where by the end
data is held in of 2017 and
relation to civil have defined
aerospace clear actions
technology to achieve
and controlled compliance.
military
contracts.
Potential impact
A major
disruption
to information
systems could
have
a significant
adverse
impact on the
Group's
operations or its
ability to trade.
The loss of
confidential
information,
intellectual
property or
controlled
data could result
in fines and
damage
to the Group's
reputation, and
could adversely
affect its
ability
to win future
contracts.
------------------- ------------------------------------------------------------- ------------------- -------------
Pension funding
----------------------------------------------------------------------------------------------------------------------
Risk trend
< >
--------------------- ---------------------------------------------------------- --------------------
Changes in
2016
Falling yields
on long-term
bonds following
the UK's decision
to leave the
EU has resulted
in an increase
in the UK
pension liability.
In addition,
weaker sterling
has so far
had a negative
impact on
the reported
liability
associated
with our overseas
pensions.
The Group
continues
to have a
reasonable
Description degree of
The Group has a visibility
number of defined over the likely
benefit pension short- to
plans with aggregate medium-term
net liabilities funding cash
of GBP2,033 million flows and
at 31 December requirements
2016. These plans of its pension
are exposed to schemes and
the risk of changes builds these
in asset values, cash flows
discount rates, into its budget
inflation and and strategic
mortality planning process.
assumptions. We will continue
to monitor
Potential impact the impact
Increases to the of market
pension deficit volatility
could lead to a and seek to
requirement for Mitigation reduce volatility
additional cash * Close cooperation with scheme fiduciaries regarding where appropriate.
contributions to management of pension scheme assets and liabilities Discussions
these plans, thereby , with the trustees
reducing the including asset selection and hedging actions. of the UK
amount of cash pension schemes
available to meet in relation
the Group's other * Alternative funding and risk mitigation actions are to the triennial
operating, implemented where appropriate. funding valuation
investment are progressing
and financing in a constructive
requirements. * Agreed recovery plans where required. manner.
--------------------- ---------------------------------------------------------- -------------------- -------------
> Read more about the Group's pension arrangements in note 24 to the financial statements
Contract risk
----------------------------------------------------------------------------------------------------------------------
Description Mitigation Changes in Risk trend
Across our * Robust bid and contract management processes 2016 /
businesses including thorough reviews of contract terms and During the
an increasing conditions, contract-specific risk assessments a year, we
percentage nd consistently
of revenues are clear delegation of authority for approvals. followed the
generated through strengthened
contracts which contract management
are long term in * Continuous review of contract performance. processes
nature and subject introduced
to complex terms in each division
and conditions. in
Contracts include 2015. These
commitments processes
relating aim to ensure
to pricing, quality effective
and safety, and management
technical and of risks associated
customer with complex
requirements. design and
build contracts.
Both our aerospace
and automotive
businesses enter
into design and
build contracts.
These are complex
contracts that
are often
long-term,
so it is important
that the contracted
risk is carefully
managed.
Specifically within
GKN Aerospace,
the Group has risk
and revenue sharing
partnerships with
key engine
manufacturers.
These contain
formalised
risk sharing
arrangements
relating to
risks which are
not always within
GKN management
control.
Potential impact
A failure to fully
understand contract
risks or to
anticipate
technical
challenges
and estimate costs
accurately at the
outset of a
contract
can lead to
unexpected
liabilities,
increased
outturn costs and
reduced
profitability.
--------------------- -------------------------------------------------------- ---------------------- -------------
> Read more about key examples of new business wins in 2016 in the divisional business reviews on pages 24 to 35
Related party transactions
In the ordinary course of business, sales and purchases of goods take place between subsidiaries and equity accounted investment companies priced on an arm's-length basis. Sales by subsidiaries to equity accounted investments in 2016 totalled GBP44 million (2015: GBP35 million). The amount due at the year end in respect of such sales was GBP11 million (2015: GBP12 million). Purchases by subsidiaries from equity accounted investments in 2016 totalled GBP10 million (2015: GBP7 million). The amount due at the year end in respect of such purchases was GBP3 million (2015: GBP2 million).
At 31 December 2016, a Group subsidiary had GBP10 million payable to equity accounted investments companies in respect of unsecured financing facilities bearing interest at one month LIBOR plus 1/ 8 % (2015: GBP10 million).
During the prior year, a child of a member of key management was employed by a subsidiary company. The remuneration expense during the period of employment in 2015 on an arm's-length basis amounted to GBP2,336.
Statement of Directors' responsibilities
Each of the Directors as at the date of the annual report, whose names and functions are set out on pages 60 and 61, confirm that to the best of their knowledge:
-- the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
-- the strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
-- the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
Approved by the Board of GKN plc and signed on its behalf by
Mike Turner CBE
Chairman
27 February 2017
CAUTIONARY STATEMENT
This announcement contains forward looking statements which were made in good faith based on information available at 27 February 2017, being the date of approval of the 2016 annual report. 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.
GKN plc LEI: 213800QNZ22GS95OSW84
This information is provided by RNS
The company news service from the London Stock Exchange
END
ACSJLMITMBATBLR
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