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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 : 0813M
GKN PLC
26 July 2017
NEWS RELEASE 26 July 2017
GKN plc Results Announcement for the six months ended 30 June 2017
Group Highlights(*)
-- Another period of growth delivering earnings momentum o Sales up 15% (organic sales up 5%) and management eps increased 14%
o Profit before tax (management basis) up 14% to GBP393 million (2016: GBP344 million), helped by currency
o Reported profit before tax GBP559 million (2016: GBP182 million) o Free cash flow of GBP116 million (2016: GBP40 million) o Interim dividend increased 5% to 3.1 pence per share
o UK defined benefit pension closed to future accrual, GBP250 million lump sum payment planned to address the deficit and reduce future deficit recovery payments
Hot Features
Premium
-- Continued investment in technology
o Strong technology pipeline; innovation recognised by customer and industry awards
o Focus on electrified drivetrains and additive manufacturing (3D printing)
o Industry 4.0 - expect to reduce cost and increase margin
Management basis(*) As reported
------------------------ ------------------------
2017 2016 Change 2017 2016 Change
GBPm GBPm % GBPm GBPm %
------------------ ------ ------- ------- ------ ------ --------
Sales 5,212 4,518 +15 4,879 4,237 +15
Operating profit 436 390 +12 591 209 +183(2)
Trading margin
(%) 8.4% 8.6% -20bps
Profit before
tax 393 344 +14 559 182 +207(2)
Earnings per
share (p) 17.7p 15.5p +14 24.8p 9.5p +161(2)
Interim dividend
per share (p) 3.10p 2.95p +5 3.10p 2.95p +5
Free cash flow 116 40
Net debt 697 704(1)
------------------ ------ ------- ------- ------ ------ --------
(1) As at 31 December 2016
(2) Primarily higher due to mark to market valuation of FX contracts
Commenting on the results, Nigel Stein, Chief Executive of GKN said:
"We made progress in the first half and are on track for the full year. We are performing well against our key markets, demonstrating once again the strength of our businesses, strong market positions and leading technology. We continue to invest for growth and have made significant progress to address our UK pension deficit.
Our focus on innovation in key areas such as electrified drivetrains, additive manufacturing and Industry 4.0 is paying dividends and underpins our confidence in the longer term.
2017 is expected to be another year of growth. Our reputation for technological leadership in our key markets, our focus on driving flexibility and productivity through our manufacturing plants and our market leading position in all three divisions mean we are well placed for the future."
Divisional Highlights
GKN Aerospace
-- Headline sales growth of 11%, reflecting a benefit from currency translation and organic growth in line with the market
-- Organic sales growth of 1%, comprising slower commercial sales (-3%) more than offset by an increase in military (+15%)
-- Margin of 9.3% (2016: 9.9%), primarily impacted by higher UK pension costs, lower profits resulting from asset write-downs at SABCA (equity accounted investment) and programme transitions and operational challenges in North America, partly offset by a benefit from programme pricing adjustments
-- New and replacement work packages won of c.$2.3 billion over contract lives
GKN Driveline
-- Organic sales growth of 8%, significantly ahead of global auto production, helped by our broad geographic footprint and increased content per vehicle
-- Trading margin of 7.8% (2016: 7.9%, restated to include part of GKN Land Systems), with a good performance in Europe offset by lower margins in China, as expected, and increased costs to support the high number of launches in the Americas
-- Around GBP230 million of annualised new and replacement business won
GKN Powder Metallurgy
-- Organic sales growth of 4%, including the pass-through of higher raw material surcharges
-- Trading margin of 11.3% (2016: 12.6%), reflecting principally the higher raw material surcharge and an investment in powder capability in China
-- Strong focus on technology and GBP110 million of annualised new and replacement business won
Outlook
According to Teal forecasts, in 2017, the overall aerospace market is expected to be up 1%, with commercial deliveries 1% lower and military sales up 8%. Against that backdrop, GKN Aerospace's 2017 organic sales are expected to grow slightly above the market.
In automotive, external forecasts predict annual growth in global light vehicle production of around 2% with increases in China and Europe, but decreases in North America. Against this background, GKN Driveline and GKN Powder Metallurgy are expected to grow organically above the market.
2017 is expected to be another year of growth, helped by the benefits of actions taken in 2016 and GKN's constant focus on continuous improvement.
Notes
(*) Financial information set out in this announcement, unless otherwise stated, is presented on a management basis as defined on pages 13 and 14.
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.
Further Enquiries
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:
Nicola Foster, Head of Group Communications, GKN plc
T: +44 (0)1527 533495
M: +44 (0)7795 618320
E: nicola.foster@gkn.com
Andrew Lorenz, FTI Consulting
T: +44 (0)203 727 1323
M: +44 (0)7775 641807
There will be an analyst and investor meeting today at 09.00am at UBS, 5 Broadgate, London, EC2M 2QS in their Conference Suite located on the first floor.
A live videocast of the presentation will be available at http://www.gkn.com/en/investors/results-centre/webcasts/
Slides will be put onto the GKN website approximately 60 minutes before the presentation is due to begin, and will be available to download from the GKN website at:
http://www.gkn.com/en/investors/results-centre/results-and-presentations/
Questions will only be taken at the event.
A live dial in facility will be available by telephoning: +44 (0) 1452 555 566, Conf ID: 53120005
Following the event, a replay of the conference call will be uploaded onto the GKN website and the on-demand archive webcast will be available via the link http://www.gkn.com/en/investors/results-centre/results-and-presentations/
GKN plc LEI: 213800QNZ22GS95OSW84
NEWS RELEASE
GKN plc Results Announcement for the six months ended 30 June 2017
Group Overview
Markets
The Group operates in the global aerospace and automotive markets. GKN Aerospace sells to manufacturers of commercial and military aircraft, aircraft engines and equipment. In the automotive market, GKN Driveline sells to manufacturers of passenger cars and light vehicles. Around 80% of GKN Powder Metallurgy sales are also to the automotive market, with the balance to other industrial customers.
Results
Group First half Change (%)
2017 2016 Headline Organic
Sales (GBPm) 5,212 4,518 15 5
Trading profit (GBPm) 436 390 12 2
Trading margin (%) 8.4% 8.6%
Return on average
invested capital
(%) 15.8% 16.6%(1)
----------------------- ------ --------- --------- --------
(1) excludes GKN Aerospace Fokker which had not been owned for a full 12 month period
Organic sales increased GBP252 million (5%). The benefit from currency translation on management sales was GBP482 million and there was a GBP40 million net reduction from acquisitions/divestments.
Overall organic trading profit increased by GBP7 million. There was a benefit from currency translation of GBP47 million and an GBP8 million net reduction due to acquisitions/divestments.
Group trading margin in the first half reduced to 8.4% (2016: 8.6%). Return on average invested capital (ROIC) reduced to 15.8% (2016: 16.6%, GKN Aerospace Fokker not included as it had not been owned for a full 12 month period).
At 30 June 2017, the Group had net debt of GBP697 million (31 December 2016: GBP704 million) and the total deficit on post-employment obligations totalled GBP1,849 million (31 December 2016: GBP2,033 million). During the period, the group issued a new GBP300 million 3.375% annual unsecured bond. It is the intention to pay GBP250 million into the UK pension scheme in the second half of the year.
Divisional Performance
GKN Aerospace
GKN Aerospace is a leading global tier one supplier of airframe and engine structures, landing gear, electrical interconnection systems, transparencies and aftermarket services. Its technology influences the performance and efficiency of the world's leading commercial and military aircraft.
According to Teal forecasts, in 2017, overall aircraft deliveries are expected to be up 1%. Commercial deliveries are expected to be 1% lower as the decline in wide-body and business jets more than offsets growth in single aisle aircraft. Military sales are expected to be up 8% due to the ramp up in production of the F-35 fighter and growth in rotorcraft and transport aircraft.
The key financial results for the period are as follows:
GKN Aerospace First half Change (%)
2017 2016 Headline Organic
Sales (GBPm) 1,809 1,631 11 1
Trading profit (GBPm) 168 161 4 (5)
Trading margin (%) 9.3% 9.9%
Return on average
invested capital
(%) 14.4% 16.8%(1)
----------------------- ------ --------- --------- --------
(1) excluding Fokker in the comparative period which had not been owned for a full 12 months
Overall, GKN Aerospace's organic sales were GBP20 million higher (1%) and there was a GBP158 million benefit from currency translation.
The division's sales were weighted commercial 73%, military 27%. Organic commercial aerospace sales declined 3%, principally due to the greater exposure to the wide-body market. GKN Aerospace recorded reduced sales of the A380, Boeing 737 MAX (due to the end of a temporary development contract in 2016), business jets, CFM56 engine and Boeing 777 partly offset by stronger production of the A350 and A320. Military sales were organically 15% higher, primarily due to an increase in production of the F/A-18 Super Hornet and F-35, as well as development sales for advanced proprietary military programmes.
Trading profit was GBP168 million (2016: GBP161 million), benefiting from a favourable currency translation impact of GBP16 million.
In addition to the changes in production rates across the many commercial and military platforms as set out above, trading profit in the period was impacted by: GBP5 million higher UK pension costs; recognising GBP4 million of lower profits from the SABCA equity accounted investment, principally due to asset write-downs; and programme transitions and operational challenges in North America. The engine business is performing well, helped by GBP13 million of programme pricing adjustments and investment continues in the PW PurePower(R) Geared Turbofan(TM) (GTF) engines across four different platforms. Fokker continues to trade in line with expectations. Across our production facilities worldwide we are driving ongoing productivity programmes to mitigate historical price downs.
Progress in the development and application of additive manufacturing (AM) continued in the first half. Momentum increased in both free form and powder bed with both technologies in production, new orders won and parts now flying on seven platforms across the commercial, military and space markets. This is a key area of focus for the Group.
During the period, new and replacement work packages totalling $2.3 billion over their contract lives have been won and a number of important milestones were achieved, including:
-- Securing new work packages and extensions of long-term agreements on key engine platforms;
-- Winning a three year contract extension worth over $175 million, covering the technical product support, maintenance and parts supply for the Gripen RM12 Engines used in Sweden, Hungary, Czech Republic and Thailand;
-- Signing a contract with Honda Aircraft Company to manufacture the complete electrical wiring and interconnection system for the market-leading HondaJet;
-- Securing a long-term agreement with Kawasaki Heavy Industries to supply Low-Pressure Compressor Vanes for the PW1100G-JM and PW1400G-JM PurePower(R) Geared Turbofan(TM) engines;
-- Delivering the first advanced 2.5m diameter Ariane 6 nozzle (SWAN) to ArianeGroup for the Vulcain 2.1 engine incorporating laser-welded technology and AM structures; resulting in 90% fewer component parts, 40% cost reduction and 30% improvement in production time; and
-- Signing research/partnership agreements with the U.S. Department of Energy's Oak Ridge National Laboratory, focused on AM in order to progress its use in the manufacture of major, structural components for aircraft.
Automotive market
In the first half of 2017, global car and light vehicle production volumes increased 2.8% to 47.3 million vehicles (2016: 46.1 million), with all major markets, except North America, enjoying increased volumes.
Car and light vehicle production First half Growth
(rounded millions of units)
2017 2016 (%)(#)
Europe 11.6 11.4 1.3
North America 9.0 9.1 -0.7
Brazil 1.2 1.0 23.0
Japan 4.6 4.3 8.3
China 12.8 12.4 3.1
India 2.2 2.0 8.5
Others 5.9 5.9 0.8
---------------------------------- ------ ----- ---------
Total - global 47.3 46.1 2.8
---------------------------------- ------ ----- ---------
Source: IHS Markit; (#) Growth is derived from unrounded production figures
Production in Europe increased in the first half with some major markets reaching historically high levels. The Russian market remained weak, although production increased compared to the first half of 2016.
Production in North America was down due to a weaker US market, with lower fleet demand offsetting good retail sales. Cheap credit and the low price of fuel continued to support increased demand and production for full-size pickups and Sport Utility Vehicles (SUVs), which outpaced that of passenger cars. Production in Brazil rose strongly as the local market started to recover and exports increased.
Growth in China slowed as a result of an increase in the sales tax on small cars, following strong demand at the end of 2016. Production in India recovered from the weak 2016, driven by improved consumer sentiment and demand for newly launched models. Japan also grew compared to the prior year.
External forecasts anticipate global production for 2017 will increase 1.9% to 94.9 million vehicles.
GKN Driveline
GKN Driveline is the world's leading supplier of automotive driveline systems and solutions. As a global business serving the leading vehicle manufacturers, it develops, builds and supplies an extensive range of automotive driveline products and systems, for use in everything from the smallest low-cost car to the most sophisticated premium vehicles that demand complex driving dynamics.
The key financial results for the period are as follows:
GKN Driveline First half Change (%)
2017 2016(4) Headline Organic
Sales (GBPm) 2,654 2,202 21 8
Trading profit (GBPm) 207 173 20 7
Trading margin (%) 7.8% 7.9%
Return on average
invested capital
(%) 18.0% 18.2%
----------------------- ------ -------- --------- --------
(4) Restated to include Off-Highway Powertrain, previously part of GKN Land Systems
Organic sales increased by GBP206 million (8%) compared with global light vehicle production which was up 3%. The beneficial effect from currency translation was GBP246 million.
GKN Driveline's market outperformance was mainly in North America (reflecting strong recent all-wheel drive (AWD) programme gains slightly offset by lower light truck platform exposure) and in China due to new programme launches (particularly due to additional content from AWD sales, including to a number of domestic manufacturers). In Europe, production continued ahead of the market, benefitting from good demand for premium vehicles.
Trading profit increased GBP34 million to GBP207 million, including the favourable impact of currency translation of GBP21 million.
GKN Driveline's European plants continue to operate at very high capacity utilisation with a strong conversion on the additional sales. In China, margin reduced as expected, with the benefit of increased sales being offset by negative pricing pressure and the on-going investment in new programmes, engineering and technology localisation. The Americas operations were impacted by investment in programme management to support an unusually high number of launches. The AWD programmes are delivering to customer requirements, however, the necessary changes to product and process are taking longer than expected and therefore the cost impact was similar to the first half of 2016. The North American market continues to be monitored closely. The benefits of the restructuring action taken in 2016 have been realised and, as previously communicated, GKN Driveline has increased investment in eDrive and faced some raw material price increases that have not been fully passed on to customers.
As the trend towards electrification of passenger vehicles accelerates, GKN Driveline continues to make good progress with its eDrive products, responding to the need for lower emission vehicles in both hybrid and pure electric form. Due to its early move into electric AWD, GKN Driveline is already a market leader with around 400,000 HEV/EV drive systems delivered to our global customer base. During the period two large production orders were won, including the eAxle for the Volvo XC60/V90.
During the period, around GBP230 million of annualised sales in new and replacement business was secured and a number of important milestones achieved, including:
-- Launching the second application of the new lightweight VL3 constant velocity joint (CVJ) on the new BMW 5 series;
-- Commencing production of its latest technologies in China, through its joint venture: a complete AWD disconnect system for small to medium-sized vehicles, the new SX8 CVJ as well as production of its Disconnect four-wheel drive system;
-- Providing innovative electric drive technology to StreetScooter - an emissions free parcel delivery service in Germany, owned by Deutsche Post DHL Group;
-- Winning an Automotive News PACE Innovation Award for the integrated co-axial eAxle on the Volvo XC90 T8 twin engine;
-- Announcing that China will become a global production hub for electrified driveline in 2018, when production of the latest eDrive technologies commences, including the production of the GKN Multimode eTransmission for a domestic Chinese automaker; and
-- Opening a new winter test facility in Michigan, USA to complement the existing proving grounds for extreme cold-weather testing in Sweden and China.
GKN Powder Metallurgy
GKN Powder Metallurgy comprises GKN Sinter Metals and Hoeganaes. GKN Sinter Metals is the world's leading manufacturer of precision automotive sintered components as well as components for industrial and consumer applications. Hoeganaes is one of the world's leading manufacturers of metal powder, the essential raw material for powder metallurgy.
The key financial results for the period are as follows:
GKN Powder Metallurgy First half Change (%)
2017 2016 Headline Organic
Sales (GBPm) 601 499 20 4
Trading profit (GBPm) 68 63 8 (3)
Trading margin (%) 11.3% 12.6%
Return on average
invested capital
(%) 19.4% 21.3%
----------------------- ------ ------ --------- --------
Organic sales were GBP23 million higher, including GBP17 million pass through to customers of higher scrap steel prices and other commodities. There was a GBP62 million benefit from currency translation and a GBP17 million increase from acquisitions, mostly the purchase of a majority share of a powder manufacturer in China.
Organic sales growth before raw material pass through was 1%, lower than global light vehicle production which was up 3%. Strong underlying sales growth was achieved in China, Europe and Brazil but sales in North America fell due to weaker automotive demand.
Trading profit increased GBP5 million to GBP68 million, benefiting from favourable currency translation of GBP8 million.
The divisional trading margin was 11.3% (2016: 12.6%), reflecting the powder investment in China, tougher market conditions in the US and a GBP4 million impact of higher raw material prices.
The European business, principally focused on small parts, grew well increasing its sales into the automotive market. Good progress continues in Asia with double digit sales growth. North America was tougher reflecting a slowdown in the automotive market. Digitisation across the shop floor is assisting with productivity gains across GKN Powder Metallurgy.
Commercial titanium powder production for AM started in Cinnaminson, USA as part of the venture with TLS Technik. Interest in powder continues to be strong and a number of production orders have been received from key customers for both standard and customised titanium AM powder alloys. There is also increased demand for AM parts for use in the automotive and industrial sectors.
During the period, around GBP110 million of annualised sales in new and replacement business was secured and a number of important milestones achieved, including:
-- Completing the acquisition of Turkish powder metal parts manufacturer Tozmetal Ticaret Ve Sanayi AS (Tozmetal), adding pump part capacity;
-- Making further steps towards Industry 4.0 with a new dedicated digital area for metal AM which will reduce lead times in prototype development and production;
-- Launching a new e-commerce platform, InstAMetal, a revolutionary digitized quoting and design experience for metal AM that will bring speed and simplicity of online ordering to engineering prototypes;
-- Receiving the Best Supplier Award for quality performance by Somfy for the high-class planetary gears and components that it supplies for electrical shutter motors; and
-- Receiving two prestigious Grand Prize Design Excellence Awards from the Metal Powder Industries Federation in the Automotive Transmission category (planetary carrier assembly for Ford Motor Company) and the Automotive Chassis category (copper-steel output pulley for Nidec Automotive Motor Americas).
Other Businesses and corporate costs
GKN's Other Businesses now comprise Wheels and Structures (previously part of GKN Land Systems) and Cylinder Liners (a 59% owned venture mainly in China, manufacturing engine liners for the truck market in the US, Europe and China). First half 2016 comparators are restated for the inclusion of Stromag and Wheels and Structures, previously part of GKN Land Systems.
GKN's Other Businesses reported combined sales in the period of GBP148 million (2016: GBP186 million). The change reflects a GBP3 million organic increase in sales due to good growth in Cylinder Liners and Wheels, a GBP16 million benefit from currency translation and a reduction due to the disposal of Stromag of GBP57 million.
A trading profit of GBP9 million was reported in the first half (2016: GBP4 million) reflecting a strong performance in Cylinder Liners and the absence of a restructuring charge in 2016 for GKN Hybrid Power. Trading profit was GBP7 million lower due to the disposal of Stromag.
Corporate costs, which comprise the costs of stewardship of the Group and operating charges and credits associated with the Group's legacy businesses, were GBP16 million (2016: GBP11 million), due to GBP4 million of additional costs associated with closure of the UK pension scheme.
Other Financial Information
Items excluded from management trading profit
In order to achieve consistency and comparability of underlying results between reporting periods, certain items are presented separately from management basis results which are used in many of the Group's Key Performance Indicators. In addition, management basis results aggregate the sales and trading profit of subsidiaries with the Group's share of the sales and trading profits of equity accounted investments.
The Group uses management measures, which are non-GAAP measures, for certain remuneration targets and to assess operating performance on a consistent basis, as we believe this gives a fairer assessment from period to period of the underlying activity of the business. The use of management measures allows the Group to chart progress, make decisions and allocate resources based on the actions for which management is responsible or can influence, without volatility arising from significant one-time trading and portfolio change transactions or the mark to market valuation of currency hedges.
The items excluded from management basis results are adjusted because of their size or nature. The Group considers the following matters when assessing the nature of items to be excluded; whether the charge or income is significantly impacted by fair value movements outside of management control (change in value of derivative and other financial instruments and fair value changes on cross currency interest rate swaps), it is non-cash (interest charge on post-employment benefits and unwind of discounts) or it does not relate to trading performance but rather acquisition or divestment activity (amortisation of non-operating intangible assets arising on business combinations, gains and losses on changes in Group structure and acquisition-related restructuring charges).
A full reconciliation of statutory to management basis numbers is provided in note 3 to the consolidated financial statements on page 26 and further information on the items excluded from management trading profit is provided below:
Change in value of derivative and other financial instruments
The change in value of derivative and other financial instruments during the period resulted in a credit of GBP242 million (2016: GBP71 million charge).
When the business wins long term customer contracts that are in a foreign currency, the Group seeks to mitigate the potential volatility of future cash flows by hedging through forward foreign currency exchange contracts. At each period end, the Group is required to mark to market these contracts even though it has no intention of closing them out in advance of their maturity dates. At 30 June 2017, the net fair value of such instruments was a liability of GBP242 million (31 December 2016: GBP482 million liability) and the change in fair value during the period was a GBP240 million credit (2016: GBP52 million charge).
There was also a GBP2 million charge arising from the change in fair value of embedded derivatives in the period (2016: GBP3 million credit) and a net gain of GBP4 million attributable to the currency impact on Group funding balances (2016: GBP22 million net loss).
Amortisation of non-operating intangible assets arising on business combinations
The charge for amortisation of non-operating intangible assets arising on business combinations (for example, customer contracts, order backlog, technology and intellectual property rights) was GBP45 million (2016: GBP46 million).
Gains and losses on changes in Group structure
The net loss on changes in Group structure was GBP1 million (2016: nil) and represents further costs relating to closure of the GKN Aerospace business in Yeovil, announced in 2016.
Acquisition-related restructuring charges
There were no charges regarding acquisition-related restructuring in the period (2016: GBP22 million).
Post-tax earnings of equity accounted investments
On a management basis, the sales and trading profits of equity accounted investments are included pro-rata in the individual divisions to which they relate, although shown separately post-tax in the statutory income statement.
The Group's share of post-tax earnings on a management basis was GBP35 million (2016: GBP34 million), with trading profit of GBP41 million (2016: GBP42 million). The Group's share of the tax and financing charges amounted to GBP6 million (2016: GBP8 million). The organic decrease in trading profit was GBP4 million, principally impacted by asset write-downs in SABCA (Aerospace).
Net financing costs
Net financing costs totalled GBP67 million (2016: GBP61 million) and comprise the net interest payable of GBP37 million (2016: GBP38 million), the non-cash interest charge on post-employment benefits of GBP24 million (2016: GBP27 million), a loss from fair value changes on cross currency interest rate swaps of GBP5 million (2016: GBP5 million gain) and a charge for unwind of discounts of GBP1 million (2016: GBP1 million charge). The non-cash interest charge on post-employment benefits, fair value changes on cross currency interest rate swaps and unwind of discounts are not included in management figures. Details of the assumptions used in calculating post-employment obligations are provided in note 10 to the consolidated financial statements.
Interest payable was GBP42 million (2016: GBP41 million), whilst interest receivable was GBP5 million (2016: GBP3 million) resulting in net interest payable of GBP37 million (2016: GBP38 million).
Profit before tax
Management profit before tax was GBP393 million (2016: GBP344 million). Profit before tax on a statutory basis was GBP559 million (2016: GBP182 million). The main differences between management and statutory figures for the first half 2017 are the change in value of derivative and other financial instruments, amortisation of non-operating intangible assets arising on business combinations and non-cash interest charge on post-employment benefits. Further details are provided in note 3 to the consolidated financial statements.
Taxation
The book tax rate on management profits of subsidiaries was 24% (2016: 25%), arising as a GBP86 million tax charge (2016: GBP76 million charge) on management profits of subsidiaries of GBP358 million (2016: GBP310 million).
The tax rate on statutory profits of subsidiaries was 25% (2016: 11%), arising as a GBP131 million tax charge (2016: GBP17 million charge) on statutory profits of subsidiaries of GBP524 million (2016: GBP148 million).
Non-controlling interests
The profit attributable to non-controlling interests was GBP3 million (2016: GBP2 million).
Earnings per share
Management earnings per share was 17.7 pence (2016: 15.5 pence). On a statutory basis earnings per share was 24.8 pence (2016: 9.5 pence), impacted by a significant credit from the change in value of derivatives and other financial instruments.
Dividend
The Board has declared an interim dividend of 3.1 pence per share (2016: 2.95 pence), an increase of 5%. The interim dividend will be paid on 18 September 2017 to shareholders on the register at 11 August 2017. Shareholders may choose to use the Dividend Reinvestment Plan (DRIP) to reinvest the interim dividend. The closing date for receipt of new DRIP mandates is 25 August 2017.
Cash flow
Operating cash flow, which is defined as cash generated from operations of GBP379 million (2016: GBP252 million) adjusted for capital expenditure (net of proceeds from government capital grants) of GBP254 million (2016: GBP227 million), repayment of principal on government refundable advances of GBP4 million (2016: nil) and proceeds from the disposal of fixed assets of GBP6 million (2016: GBP25 million), was an inflow of GBP127 million (2016: GBP50 million).
Cash generated from operations includes movements in working capital totalling a net outflow of GBP165 million (2016: GBP188 million outflow).
Capital expenditure (net of proceeds from government capital grants) on both tangible and intangible assets totalled GBP254 million (2016: GBP227 million). Of this, GBP217 million (2016: GBP192 million) was on tangible fixed assets and was 1.5 times (2016: 1.5 times) the depreciation charge. Expenditure on intangible assets, mainly non-recurring costs on Aerospace programmes, totalled GBP37 million (2016: GBP35 million).
Net interest paid totalled GBP21 million (2016: GBP23 million). Tax paid in the period was GBP49 million (2016: GBP42 million).
Free cash flow
Free cash flow, is defined as operating cash flow, an inflow of GBP127 million (2016: GBP50 million), including dividends received from equity accounted investments of GBP59 million (2016: GBP55 million) and after net interest paid of GBP21 million (2016: GBP23 million), tax paid of GBP49 million (2016: GBP42 million) and amounts paid to non-controlling interests of nil (2016: nil) but before dividends paid to GKN shareholders, was an inflow of GBP116 million (2016: GBP40 million).
Net debt
At the end of the period, the Group had net debt of GBP697 million (31 December 2016: GBP704 million). The Group has a series of cross currency interest rate swaps, used to better align its foreign currency income receipts with its debt coupon payments. The fair value of these derivative instruments at the end of the period was a liability of GBP187 million (31 December 2016: a liability of GBP214 million) which is included in the net debt figure of GBP697 million.
Pensions and post-employment obligations
GKN operates a number of defined benefit pension schemes and historical retiree medical plans across the Group.
At 30 June 2017, the total deficit on post-employment obligations of the Group totalled GBP1,849 million (31 December 2016: GBP2,033 million), comprising deficits on funded obligations of GBP1,160 million (31 December 2016: GBP1,322 million) and on unfunded obligations of GBP689 million (31 December 2016: GBP711 million).
The amount included within trading profit for the period comprises a current service cost of GBP31 million (2016: GBP25 million) and administrative costs of GBP2 million (2016: GBP2 million). The interest charge on net defined benefit plans, which is excluded from management figures, was GBP24 million (2016: GBP27 million).
Cash contributions to the various defined benefit pension schemes and retiree medical arrangements totalled GBP70 million (2016: GBP71 million).
UK pensions
The accounting deficit for UK schemes, which closed to future accrual with effect from 1 July 2017, decreased to GBP1,063 million (31 December 2016: GBP1,221 million) in part as a result of the latest study into mortality improvements indicating that life expectancy has not improved as quickly as previously expected (GBP72 million reduction).
The Group's two UK defined benefit pension schemes are conducting their 2016 triennial funding valuations (GKN2 as at 5 April 2016 and GKN3 as at 31 December 2016). It is expected that a lump sum of GBP250 million will be paid into the GKN2 Scheme in the second half and that the current annual deficit recovery payments of GBP42 million are expected to reduce slightly, from 2018.
Defined contribution pension schemes
In addition to defined benefit pension schemes, the Group also operates a number of defined contribution schemes for which the income statement charge was GBP32 million (2016: GBP28 million).
Net assets
Net assets of GBP2,546 million were GBP384 million higher than the 31 December 2016 figure of GBP2,162 million. The increase is primarily driven by a statutory profit after tax (GBP428 million) and a favourable remeasurement of defined benefit plans, net of tax (GBP147 million), partially offset by an adverse currency retranslation from subsidiaries (including net investment hedges) and equity accounted investments, net of tax (GBP93 million) and dividends paid to equity shareholders (GBP101 million).
Exchange rates
Exchange rates used for currencies most relevant to the Group's operations are:
Average Period End
------------ -------------
2017 2016 2017 2016
Euro 1.16 1.28 1.14 1.20
US dollar 1.26 1.43 1.30 1.33
----------- ----- ----- ------ -----
The approximate impact on 2017 trading profit of subsidiaries and equity accounted investments of a 1% movement in the average rate would be euro - GBP1 million, US dollar - GBP2 million.
Funding, liquidity and going concern
At 30 June 2017, UK committed bank facilities were GBP846 million (31 December 2016: GBP863 million). Within this amount there are committed Revolving Credit Facilities of GBP800 million (31 December 2016: GBP800 million), GBP32 million outstanding on an eight-year amortising facility from the European Investment Bank (31 December 2016: GBP48 million) and GBP14 million outstanding on a seven-year amortising facility from KfW (31 December 2016: GBP15 million). There were no drawings against the Revolving Credit Facilities.
At 31 December 2016 the Group had capital market borrowings comprising a GBP350 million 6.75% annual unsecured bond maturing in October 2019 and a GBP450 million 5.375% semi-annual unsecured bond maturing in September 2022. During the period, the group issued a new GBP300 million 3.375% annual unsecured bond maturing in May 2032.
All of the Group's committed credit facilities have financial covenants requiring EBITDA of subsidiaries to be at least 3.5 times net interest payable and for net debt to be no greater than 3 times EBITDA of subsidiaries. The covenants are tested every six months using the previous 12 months' results. For the 6 months to 30 June 2017 EBITDA was 14.0 times greater than net interest payable (2016:13.4 times), whilst net debt was 0.6 times EBITDA (2016:1.0 times).
The Directors have taken into account both divisional and Group forecasts for the 18 months from the balance sheet date to assess the future funding requirements of the Group and compared them to the level of committed available borrowing facilities, described above. Having carried out sensitivity analysis, the Directors have concluded that the Group will have a sufficient level of headroom in the foreseeable future and that the likelihood of breaching covenants in this period is remote, such that it is appropriate for the financial statements to be prepared on a going concern basis.
Basis of Reporting
The interim financial statements for the period are shown on pages 16 to 34 and have been prepared using accounting policies which were used in the preparation of audited financial statements for the year ended 31 December 2016 and which will form the basis of the 2017 Annual Report.
Definitions
Financial information set out in this announcement, unless otherwise stated, is presented on a management basis which excludes certain items. The items excluded from management trading results and the reasons for their exclusion are set out on pages 9 and 10.
Management results 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 management trading profit expressed as a percentage of management sales. Management profit or loss before tax is management trading profit less net subsidiary interest payable and receivable and the Group's share of net interest payable and receivable and taxation of equity accounted investments.
Organic results are management results excluding the impact of acquisitions/divestments as well as currency translation on the results of overseas operations.
Operating cash flow is cash generated from operations adjusted for capital expenditure, government capital grants, repayment of principal on government refundable advances and proceeds from the disposal of fixed assets.
Free cash flow is operating cash flow including interest, tax, equity accounted investment dividends and amounts paid to non-controlling interests, but excluding dividends paid to GKN shareholders.
Return on average invested capital (ROIC) is calculated on a rolling 12 month basis comprising management trading profit as a percentage of average total net assets of continuing subsidiaries and equity accounted investments, excluding current and deferred tax, net debt, post-employment obligations and derivative financial instruments.
Management earnings per share (as set out in note 3(a) to the consolidated financial statements) is calculated using management earnings for the Group divided by the weighted average number of ordinary shares in issue (excluding treasury shares).
Working capital comprises inventories, trade and other receivables, trade and other payables and provisions. Management working capital (as set out in note 1(f) to the consolidated financial statements) excludes; accrued interest, restructuring provisions, equity accounted investment funding, deferred and contingent consideration and government refundable advances.
Principal risks and uncertainties
The principal risks faced by the Group in the remaining six months of the year remain largely unchanged from those reported on pages 42 to 49 of the 2016 Annual Report. These risks relate to the following: highly competitive markets; supply chain; customer concentration; operating in global markets; laws, regulations and corporate reputation; technology and innovation; people capability; product quality; contract risk; programme management; health and safety; information systems resilience; and pension funding.
As noted in the 2016 Annual Report, the UK's decision to leave the EU has resulted in increased uncertainty in future trading arrangements between the UK and the rest of the world. That uncertainty remains; however, as around 90% of GKN's products are manufactured outside of the UK, the direct effect on our major markets will be limited. As outlined in the 2016 Annual Report, the effects of the vote and the accompanying reduction in interest rates and fall in bond yields increased our UK pension liability during 2016. We have subsequently taken steps to manage that liability as described below.
During the first half of 2017 good progress was made towards reducing both ongoing cash contributions and volatility in respect of the Group's UK defined benefit pension schemes, though the schemes remain exposed to changes in asset values, interest rates, inflation and mortality assumptions. As discussed on page 12, we have largely completed discussions with the Trustees of these schemes in relation to the 2016 funding valuations and are now working to finalise the contractual documentation.
Directors' Responsibility Statement
The half yearly financial report is the responsibility of the Directors who confirm that to the best of their knowledge:
-- the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as endorsed and adopted by the EU;
-- the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the 2016 Annual Report that could do so.
The Directors of GKN plc are listed in the GKN annual report for 2016.
Approved by the Board of GKN plc and signed on its behalf by:
Mike Turner
Chairman
25 July 2017
APPICES
Page
GKN Condensed Consolidated Financial Statements
Consolidated Income Statement for the half
year ended 30 June 2017 17
Consolidated Statement of Comprehensive Income
for the half year ended 30 June 2017 18
Condensed Consolidated Statement of Changes
in Equity for the half year ended 30 June
2017 19
Consolidated Balance Sheet at 30 June 2017 20
Consolidated Cash Flow Statement for the half
year ended 30 June 2017 21
Notes to the Half Year Consolidated Financial 22
Statements - 33
Independent Review Report 34
CONSOLIDATED INCOME STATEMENT
FOR THE HALF YEARED 30 JUNE 2017
Unaudited
------------
First First Full
Notes half half year
2017 2016 2016
GBPm GBPm GBPm
----------------------------------------- ----- ----- ----- -----
Sales 1a 4,879 4,237 8,822
----------------------------------------- ----- ----- ----- -----
Trading profit 1b 395 348 684
Change in value of derivative
and other financial instruments 4 242 (71) (154)
Amortisation of non-operating
intangible assets arising on
business combinations (45) (46) (103)
Gains and losses on changes
in Group structure (1) - (9)
Impairment charges - - (52)
Acquisition-related restructuring
charges 5 - (22) (31)
Operating profit 591 209 335
Share of post-tax earnings of
equity accounted
investments 6 35 34 73
Interest payable (42) (41) (86)
Interest receivable 5 3 7
Other net financing charges 7 (30) (23) (37)
---------------------------------------- ----- ----- ----- -----
Net financing costs (67) (61) (116)
Profit before taxation 559 182 292
Taxation 8 (131) (17) (48)
Profit after taxation for the
period 428 165 244
----------------------------------------- ----- ----- ----- -----
Profit attributable to non-controlling
interests 3 2 2
Profit attributable to owners
of the parent 425 163 242
----------------------------------------- ----- ----- ----- -----
428 165 244
----------------------------------------- ----- ----- ----- -----
Earnings per share - pence
Continuing operations - basic 24.8 9.5 14.1
Continuing operations - diluted 24.6 9.5 14.0
----------------------------------------- ----- ----- ----- -----
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE HALF YEARED 30 JUNE 2017
Unaudited
------------
First First Full
Notes half half year
2017 2016 2016
GBPm GBPm GBPm
----------------------------------------- ----- ----- ----- -----
Profit after taxation for the
period 428 165 244
Other comprehensive income:
Items that may be reclassified
to profit or loss
Currency variations - subsidiaries
Arising in period (122) 431 671
Reclassified in period - - 2
Currency variations - equity
accounted investments
Arising in period (4) 20 22
Net investment hedge changes
in fair value
Arising in period 32 (108) (177)
Taxation 8 1 (36) (14)
----- ----- -----
(93) 307 504
----------------------------------------- ----- ----- ----- -----
Items that will not be reclassified
to profit or loss
Remeasurement of defined benefit
plans
Subsidiaries 10 180 (466) (396)
Taxation 8 (33) 110 63
----- ----- -----
147 (356) (333)
----------------------------------------- ----- ----- ----- -----
Other comprehensive income/(expense)
for the period 54 (49) 171
Total comprehensive income for
the period 482 116 415
----------------------------------------- ----- ----- ----- -----
Total comprehensive income attributable
to
non-controlling interests 2 4 6
Total comprehensive income attributable
to owner of the parent 480 112 409
482 116 415
----------------------------------------- ----- ----- ----- -----
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE HALF YEARED 30 JUNE 2017
Equity
attributable
to
equity
holders
Capital Share of
Share redemption premium Retained Other the Non-controlling Total
capital reserve account earnings reserves parent interests equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ----- -------- ---------- -------- --------- --------- ------------ --------------- -------
At 1 January
2017 173 298 330 981 345 2,127 35 2,162
Profit for the
period - - - 425 - 425 3 428
Other
comprehensive
income/(expense) - - - 147 (92) 55 (1) 54
Total
comprehensive
income/(expense) - - - 572 (92) 480 2 482
Share-based
payments - - - 3 - 3 - 3
Dividends paid
to equity
shareholders 9 - - - (101) - (101) - (101)
At 30 June 2017
(unaudited) 173 298 330 1,455 253 2,509 37 2,546
----------------- ----- -------- ---------- -------- --------- --------- ------------ --------------- -------
At 1 January
2016 173 298 330 1,217 (155) 1,863 23 1,886
Profit for the
period - - - 163 - 163 2 165
Other
comprehensive
income/(expense) - - - (356) 305 (51) 2 (49)
Total
comprehensive
income/(expense) - - - (193) 305 112 4 116
Share-based
payments - - - 4 - 4 - 4
Addition of
non-controlling
interests - - - - - - 9 9
Dividends paid
to equity
shareholders 9 - - - (99) - (99) - (99)
At 30 June 2016
(unaudited) 173 298 330 929 150 1,880 36 1,916
----------------- ----- -------- ---------- -------- --------- --------- ------------ --------------- -------
At 1 January
2016 173 298 330 1,217 (155) 1,863 23 1,886
Profit for the
year - - - 242 - 242 2 244
Other
comprehensive
income/(expense) - - - (333) 500 167 4 171
----------------- ----- -------- ---------- -------- --------- --------- ------------ --------------- -------
Total
comprehensive
income/(expense) - - - (91) 500 409 6 415
Share-based
payments - - - 5 - 5 - 5
Share options
exercised - - - 1 - 1 - 1
Addition of
non-controlling
interest - - - - - - 9 9
Purchase of
non-controlling
interest - - - (1) - (1) (1) (2)
Dividends paid
to equity
shareholders 9 - - - (150) - (150) - (150)
Dividends paid
to
non-controlling
interests - - - - - - (2) (2)
----------------- ----- -------- ---------- -------- --------- --------- ------------ --------------- -------
At 31 December
2016 173 298 330 981 345 2,127 35 2,162
----------------- ----- -------- ---------- -------- --------- --------- ------------ --------------- -------
CONSOLIDATED BALANCE SHEET
AT 30 JUNE 2017
Unaudited
----------------
Notes 30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
---------------------------------- ----- ------- ------- -----------
Assets
Non-current assets
Goodwill 577 665 588
Other intangible assets 1,253 1,341 1,320
Property, plant and equipment 12 2,648 2,484 2,670
Equity accounted investments 204 194 233
Other receivables and investments 161 47 49
Derivative financial instruments 4 32 28 25
Deferred tax assets 498 509 557
5,373 5,268 5,442
---------------------------------- ----- ------- ------- -----------
Current assets
Inventories 1,521 1,370 1,431
Trade and other receivables 1,750 1,652 1,648
Current tax assets 10 4 7
Derivative financial instruments 4 22 16 19
Other financial assets 5 5 5
Cash and cash equivalents 11 649 227 411
3,957 3,274 3,521
---------------------------------- ----- ------- ------- -----------
Total assets 9,330 8,542 8,963
---------------------------------- ----- ------- ------- -----------
Liabilities
Current liabilities
Borrowings (44) (136) (64)
Derivative financial instruments 4 (119) (166) (206)
Trade and other payables (2,254) (2,028) (2,186)
Current tax liabilities (151) (151) (142)
Provisions (57) (78) (71)
---------------------------------- ------- ------- -----------
(2,625) (2,559) (2,669)
---------------------------------- ----- ------- ------- -----------
Non-current liabilities
Borrowings (1,121) (849) (842)
Derivative financial instruments 4 (353) (430) (521)
Deferred tax liabilities (256) (165) (227)
Trade and other payables (510) (447) (427)
Provisions (70) (75) (82)
Post-employment obligations 10 (1,849) (2,101) (2,033)
(4,159) (4,067) (4,132)
---------------------------------- ----- ------- ------- -----------
Total liabilities (6,784) (6,626) (6,801)
---------------------------------- ----- ------- ------- -----------
Net assets 2,546 1,916 2,162
---------------------------------- ----- ------- ------- -----------
Shareholders' equity
Share capital 173 173 173
Capital redemption reserve 298 298 298
Share premium account 330 330 330
Retained earnings 1,455 929 981
Other reserves 253 150 345
---------------------------------- ----- ------- ------- -----------
Equity attributable to equity
holders of the parent 2,509 1,880 2,127
Non-controlling interests 37 36 35
---------------------------------- ----- ------- ------- -----------
Total equity 2,546 1,916 2,162
---------------------------------- ----- ------- ------- -----------
CONSOLIDATED CASH FLOW STATEMENT
FOR THE HALF YEARED 30 JUNE 2017
Unaudited
------------
First First Full
Notes half half year
2017 2016 2016
GBPm GBPm GBPm
-------------------------------------- ----- ----- ----- -----
Cash flows from operating activities
Cash generated from operations 11 379 252 778
Interest received 5 3 7
Interest paid (26) (26) (83)
Tax paid (49) (42) (93)
Dividends received from equity
accounted investments 59 55 57
368 242 666
-------------------------------------- ----- ----- ----- -----
Cash flows from investing activities
Purchase of property, plant
and equipment (218) (198) (416)
Receipt of government capital
grants 1 6 6
Purchase of intangible assets (37) (35) (84)
Repayment of government refundable
advances (4) - (6)
Proceeds from sale and realisation
of fixed assets 6 25 37
Payment of deferred and contingent
consideration (2) (1) (1)
Costs associated with disposal
of subsidiaries (1) - -
Acquisitions of subsidiaries
(net of cash acquired) 14 (25) (8) (17)
Purchase of investment - - (5)
Proceeds from disposal of subsidiary,
net of cash - - 151
Equity accounted investments
loan settlement - 4 4
(280) (207) (331)
-------------------------------------- ----- ----- ----- -----
Cash flows from financing activities
Purchase of non-controlling
interests - - (2)
Proceeds from exercise of share
options - - 1
Proceeds from borrowing facilities 298 102 102
Repayment of other borrowings (26) (134) (243)
Dividends paid to equity shareholders 9 (101) (99) (150)
Dividends paid to non-controlling
interests - - (2)
171 (131) (294)
-------------------------------------- ----- ----- ----- -----
Movement in cash and cash equivalents 259 (96) 41
Cash and cash equivalents at
beginning of period 385 291 291
Currency variations on cash
and cash equivalents (6) 29 53
-------------------------------------- ----- ----- ----- -----
Cash and cash equivalents at
end of period 11 638 224 385
-------------------------------------- ----- ----- ----- -----
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEARED 30 JUNE 2017
1 Segmental analysis
The Group's reportable segments have been determined
based on reports reviewed by the Executive Committee
led by the Chief Executive. The operating activities
of the Group are largely structured according
to the markets served; aerospace and automotive.
Automotive is managed according to product groups;
driveline and powder metallurgy. Reportable segments
derive their sales from the manufacture of product
and sale of service.
a) Sales
Automotive
----------------------
Powder
Aerospace Driveline Metallurgy Total
GBPm GBPm GBPm GBPm
----------------------------------- --------- ---------- ---------- -----
FIRST HALF 2017 (unaudited)
----------------------------------- --------- ---------- ---------- -----
Subsidiaries 1,770 2,360 601
Equity accounted investments 39 294 -
--------------------------------------- --------- ---------- ----------
1,809 2,654 601 5,064
--------------------------------------- --------- ---------- ----------
Other businesses 148
--------------------------------------- --------- ---------- ---------- -----
Management sales 5,212
Less: Equity accounted investments
sales (333)
--------------------------------------- --------- ---------- ---------- -----
Income statement - sales 4,879
--------------------------------------- --------- ---------- ---------- -----
FIRST HALF 2016 - restated*
(unaudited)
----------------------------------- --------- ---------- ---------- -----
Subsidiaries 1,598 1,964 499
Equity accounted investments 33 238 -
--------------------------------------- --------- ---------- ----------
1,631 2,202 499 4,332
--------------------------------------- --------- ---------- ----------
Other businesses 186
--------------------------------------- --------- ---------- ---------- -----
Management sales 4,518
Less: Equity accounted investments
sales (281)
--------------------------------------- --------- ---------- ---------- -----
Income statement - sales 4,237
--------------------------------------- --------- ---------- ---------- -----
FULL YEAR 2016 - restated*
-----------------------------------------------------------------------------
Subsidiaries 3,352 4,109 1,032
Equity accounted investments 71 505 -
--------------------------------------- --------- ---------- ----------
3,423 4,614 1,032 9,069
--------------------------------------- --------- ---------- ----------
Other businesses 345
--------------------------------------- --------- ---------- ---------- -----
Management sales 9,414
Less: Equity accounted investments
sales (592)
--------------------------------------- --------- ---------- ---------- -----
Income statement - sales 8,822
--------------------------------------- --------- ---------- ---------- -----
* As previously announced, following disposal of the Stromag business on 30 December 2016 the Group has changed its segments to remove Land Systems for reporting in 2017. The two businesses remaining in the Group that were part of Land Systems have been reported as follows: Wheels and Structures in Other Businesses and Driveshafts and Aftermarket Services, now renamed Off-Highway Powertrain, in Driveline. For the purpose of comparative information in 2016, Stromag has been included in Other Businesses. There is no change to Aerospace or Powder Metallurgy segmental reporting.
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS
(continued)
FOR THE HALF YEARED 30 JUNE 2017
1 Segmental analysis (continued)
b) Trading profit
Automotive
---------------------
Powder
Aerospace Driveline Metallurgy Total
GBPm GBPm GBPm GBPm
----------------------------------- --------- --------- ---------- -----
FIRST HALF 2017 (unaudited)
----------------------------------- --------- --------- ---------- -----
Trading profit before depreciation
and amortisation 243 245 94
Depreciation of property,
plant and equipment (43) (74) (25)
Amortisation of operating
intangible assets (30) (7) (1)
--------------------------------------- --------- --------- ----------
Trading profit - subsidiaries 170 164 68
Trading profit/(loss) -
equity accounted investments (2) 43 -
--------------------------------------- --------- --------- ----------
168 207 68 443
--------------------------------------- --------- --------- ----------
Other businesses 9
Corporate and unallocated
costs (16)
--------------------------------------- --------- --------- ---------- -----
Management trading profit 436
Less: Equity accounted investments
trading profit (41)
--------------------------------------- --------- --------- ---------- -----
Income Statement - trading
profit 395
--------------------------------------- --------- --------- ---------- -----
FIRST HALF 2016 - restated*
(unaudited)
----------------------------------- --------- --------- ---------- -----
Trading profit before depreciation
and amortisation 221 197 85
Depreciation of property,
plant and equipment (38) (58) (21)
Amortisation of operating
intangible assets (24) (5) (1)
--------------------------------------- --------- --------- ----------
Trading profit - subsidiaries 159 134 63
Trading profit - equity
accounted investments 2 39 -
--------------------------------------- --------- --------- ----------
161 173 63 397
--------------------------------------- --------- --------- ----------
Other businesses 4
Corporate and unallocated
costs (11)
--------------------------------------- --------- --------- ---------- -----
Management trading profit 390
Less: Equity accounted investments
trading profit (42)
--------------------------------------- --------- --------- ---------- -----
Income Statement - trading
profit 348
--------------------------------------- --------- --------- ---------- -----
FULL YEAR 2016 - restated*
----------------------------------------------------------------------------
Trading profit before depreciation
and amortisation 464 388 164
Depreciation of property,
plant and equipment (78) (128) (44)
Amortisation of operating
intangible assets (51) (12) (2)
--------------------------------------- --------- --------- ----------
Trading profit - subsidiaries 335 248 118
Trading profit - equity
accounted investments 4 82 -
--------------------------------------- --------- --------- ----------
339 330 118 787
--------------------------------------- --------- --------- ----------
Other businesses 7
Corporate and unallocated
costs (21)
Management trading profit 773
Less: Equity accounted investments
trading profit (89)
--------------------------------------- --------- --------- ---------- -----
Income Statement - trading
profit 684
--------------------------------------- --------- --------- ---------- -----
No income statement items between trading profit
and profit before tax are allocated to management
trading profit, which is the Group's segmental
measure of profit or loss.
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS
(continued)
FOR THE HALF YEARED 30 JUNE 2017
1 Segmental analysis (continued)
Goodwill, fixed assets and working capital - subsidiaries
c) only
Automotive
----------------------
Powder
Aerospace Driveline Metallurgy Total
GBPm GBPm GBPm GBPm
---------------------------- --------- ---------- ---------- -----------------------
FIRST HALF 2017 (unaudited)
---------------------------- --------- ---------- ---------- -----------------------
Property, plant and
equipment
and operating intangible
assets 1,334 1,401 480 3,215
Working capital 349 190 150 689
---------------------------- --------- ---------- ---------- -----------------------
Net operating assets 1,683 1,591 630
Goodwill and non-operating
intangible assets 817 292 51
---------------------------- --------- ---------- ----------
Net investment 2,500 1,883 681
---------------------------- --------- ---------- ----------
FIRST HALF 2016 - restated*
(unaudited)
---------------------------- --------- ---------- ---------- -----------------------
Property, plant and
equipment
and operating intangible
assets 1,285 1,286 436 3,007
Working capital 258 186 147 591
---------------------------- --------- ---------- ---------- -----------------------
Net operating assets 1,543 1,472 583
Goodwill and non-operating
intangible assets 901 302 36
---------------------------- --------- ---------- ----------
Net investment 2,444 1,774 619
---------------------------- --------- ---------- ----------
FULL YEAR 2016 - restated*
----------------------------------------------------------------------------------------
Property, plant and
equipment
and operating intangible
assets 1,373 1,406 475 3,254
Working capital 319 68 131 518
---------------------------- --------- ---------- ---------- -----------------------
Net operating assets 1,692 1,474 606
Goodwill and non-operating
intangible assets 868 309 39
---------------------------- --------- ---------- ----------
Net investment 2,560 1,783 645
---------------------------- --------- ---------- ----------
d) Inter segment sales
Subsidiary segmental sales gross of inter segment
sales are; Aerospace GBP1,770 million (first half
2016: GBP1,599 million, full year 2016: GBP3,352
million), Driveline GBP2,376 million (first half
2016 - restated*: GBP1,985 million, full year
2016 - restated*: GBP4,140 million) and Powder
Metallurgy GBP604 million (first half 2016: GBP501
million, full year 2016: GBP1,036 million).
e) Reconciliation of segmental property, plant and
equipment and operating intangible assets to the
Balance Sheet
----------------------------------------------------------------------------------------
Unaudited
----------------------
First First Full
half half year
2017 2016 2016
restated* restated*
GBPm GBPm GBPm
------------------------- --------- ---------- ---------- -----------------------
Segmental analysis - property, plant
and equipment and operating intangible
assets 3,215 3,007 3,254
Segmental analysis - goodwill and
non-operating intangible assets 1,160 1,239 1,216
Goodwill (577) (665) (588)
Other businesses 95 235 99
Corporate assets 8 9 9
---------------------------------------------------- ---------- ---------- -----------------------
Balance Sheet - property, plant
and equipment and other intangible
assets 3,901 3,825 3,990
---------------------------------------------------- ---------- ---------- -----------------------
Reconciliation of segmental
working capital to the
Balance
f) Sheet
---------------------------- --------- ---------- ---------- -----------------------
Unaudited
----------------------
First First Full
half half year
2017 2016 2016
restated* restated*
GBPm GBPm GBPm
--------------------------------------- ---------- ---------- -----------------------
Segmental analysis - working capital 689 591 518
Other businesses 18 31 13
Corporate items (25) (24) (22)
Accrued interest (37) (34) (25)
Restructuring provisions - (1) (10)
Equity accounted investment funding (11) (14) (10)
Deferred and contingent consideration (4) (11) (6)
Government refundable advances (89) (97) (96)
Balance Sheet - inventories, trade
and other receivables, trade and
other
payables and provisions 541 441 362
--------------------------------------------------- ---------- ---------- -----------------------
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS
(continued)
FOR THE HALF YEARED 30 JUNE 2017
2 Basis of preparation
These half year condensed consolidated financial
statements for the six months ended 30 June 2017
have been prepared in accordance with International
Accounting Standard (IAS) 34 Interim Financial
Reporting as adopted by the European Union and
the Disclosure and Transparency Rules of the Financial
Conduct Authority. These financial statements
have been prepared on a going concern basis. These
financial statements, which are unaudited but
have been reviewed by the auditors, provide an
update of previously reported information and
should be read in conjunction with the audited
consolidated financial statements for the year
ended 31 December 2016, which were prepared in
accordance with International Financial Reporting
Standards as adopted by the European Union (IFRS).
These financial statements do not constitute statutory
accounts as defined in section 434 of the Companies
Act 2006. A copy of the audited consolidated statutory
financial statements for the year ended 31 December
2016 has been delivered to the Registrar of Companies.
The auditors' report on these financial statements
was unqualified, did not contain an emphasis of
matter paragraph and did not contain any statement
under section 498(2) or (3) of the Companies Act
2006.
Accounting policies
The accounting policies and methods of presentation
applied in these financial statements are the
same as those applied in the audited consolidated
financial statements for the year ended 31 December
2016.
IFRS 15
The Group will adopt IFRS 15 Revenue from Contracts
with Customers for the year ending 31 December
2018 which will change the way that revenue is
recognised and expand disclosure for arrangements
with customers. Details on implementation of the
change, potential consequences and progress were
provided in the 31 December 2016 annual report.
Further progress has been made during the period;
developing policies, benchmarking initial findings
against market announcements and scoping the contract
review exercise planned for the second half of
the year. Nothing has come from the incremental
work that detracts from the update provided in
February. It is planned to provide further information
later in 2017 once the contract review work has
been concluded.
Estimates, judgements and assumptions
The Group's significant accounting policies are
set out in the audited consolidated financial
statements for the year ended 31 December 2016.
Application of the Group's accounting policies
requires the use of estimates, subjective judgement
and assumptions. The Directors base these estimates,
judgements and assumptions on a combination of
past experience, professional expert advice and
other evidence that is relevant to the particular
circumstance.
The accounting policies where the Directors consider
the more complex estimates, judgements and assumptions
have to be made are those in respect of post-employment
obligations, derivative and other financial instruments,
provisions and impairment of non-current assets.
Details of the principal estimates, judgements
and assumptions are set out in notes 24, 4b, 20,
21 and 11 of the audited consolidated financial
statements for the year ended 31 December 2016.
Date of approval
These financial statements were approved by the
Board of Directors on Tuesday 25 July 2017.
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS
(continued)
FOR THE HALF YEARED 30 JUNE 2017
3 Adjusted performance measures
(a) Reconciliation of reported and management performance
measures
FIRST HALF 2017 (unaudited)
---------------------------------------- ----------------------------------------------
Adjusting
and
Equity non-
As accounted trading Management
reported investments items basis
GBPm GBPm GBPm GBPm
---------------------------------------- --------- ------------ --------- ----------
Sales 4,879 333 - 5,212
---------------------------------------- --------- ------------ --------- ----------
Trading profit 395 41 - 436
Change in value of derivative
and other financial instruments 242 - (242) -
Amortisation of non-operating
intangible assets arising
on
business combinations (45) - 45 -
Gains and losses on changes
in Group Structure (1) - 1 -
Operating profit 591 41 (196) 436
Share of post-tax earnings
of equity accounted investments 35 (41) - (6)
Interest payable (42) - - (42)
Interest receivable 5 - - 5
Other net financing charges (30) - 30 -
---------------------------------------- --------- ------------ --------- ----------
Net financing costs (67) - 30 (37)
---------------------------------------- --------- ------------ --------- ----------
Profit before taxation 559 - (166) 393
Taxation (131) - 45 (86)
---------------------------------------- --------- ------------ --------- ----------
Profit after taxation for
the period 428 - (121) 307
Profit attributable to non-controlling
interests (3) - - (3)
---------------------------------------- --------- ------------ --------- ----------
Profit attributable to owners
of the parent 425 - (121) 304
---------------------------------------- --------- ------------ --------- ----------
Earnings per share - pence 24.8 - (7.1) 17.7
---------------------------------------- --------- ------------ --------- ----------
FIRST HALF 2016 (unaudited)
---------------------------------------- ----------------------------------------------
Adjusting
and
Equity non-
As accounted trading Management
reported investments items basis
GBPm GBPm GBPm GBPm
---------------------------------------- --------- ------------ --------- ----------
Sales 4,237 281 - 4,518
---------------------------------------- --------- ------------ --------- ----------
Trading profit 348 42 - 390
Change in value of derivative
and other financial instruments (71) - 71 -
Amortisation of non-operating
intangible assets arising
on
business combinations (46) - 46 -
Acquisition-related restructuring
charges (22) - 22 -
Operating profit 209 42 139 390
Share of post-tax earnings
of equity accounted investments 34 (42) - (8)
Interest payable (41) - - (41)
Interest receivable 3 - - 3
Other net financing charges (23) - 23 -
---------------------------------------- --------- ------------ --------- ----------
Net financing costs (61) - 23 (38)
---------------------------------------- --------- ------------ --------- ----------
Profit before taxation 182 - 162 344
Taxation (17) - (59) (76)
---------------------------------------- --------- ------------ --------- ----------
Profit after taxation for
the period 165 - 103 268
Profit attributable to non-controlling
interests (2) - - (2)
---------------------------------------- --------- ------------ --------- ----------
Profit attributable to owners
of the parent 163 - 103 266
---------------------------------------- --------- ------------ --------- ----------
Earnings per share - pence 9.5 - 6.0 15.5
---------------------------------------- --------- ------------ --------- ----------
FULL YEAR 2016
---------------------------------------- ----------------------------------------------
For the year ended 31 December 2016, management
sales were GBP9,414 million, management trading
profit was GBP773 million, management profit before
tax was GBP678 million and management earnings
per share was 31.0 pence.
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS
(continued)
FOR THE HALF YEARED 30 JUNE 2017
3 Adjusted performance measures (continued)
(b) Summary by segment
FIRST HALF 2017 (unaudited)
---------------------------------------- ----- ------- ------
Trading
Sales profit Margin
GBPm GBPm
---------------------------------------- ----- ------- ------
Aerospace 1,809 168 9.3%
Driveline 2,654 207 7.8%
Powder Metallurgy 601 68 11.3%
Other businesses 148 9
Corporate and unallocated costs - (16)
--------------------------------------------- ----- ------- ------
5,212 436 8.4%
FIRST HALF 2016 - restated* (unaudited)
---------------------------------------- ----- ------- ------
Trading
Sales profit Margin
GBPm GBPm
---------------------------------------- ----- ------- ------
Aerospace 1,631 161 9.9%
Driveline 2,202 173 7.9%
Powder Metallurgy 499 63 12.6%
Other businesses 186 4
Corporate and unallocated costs - (11)
--------------------------------------------- ----- ------- ------
4,518 390 8.6%
--------------------------------------------- ----- ------- ------
FULL YEAR 2016 - restated*
---------------------------------------- ----------------------
Trading
Sales profit Margin
GBPm GBPm
---------------------------------------- ----- ------- ------
Aerospace 3,423 339 9.9%
Driveline 4,614 330 7.2%
Powder Metallurgy 1,032 118 11.4%
Other businesses 345 7
Corporate and unallocated costs - (21)
--------------------------------------------- ----- ------- ------
9,414 773 8.2%
* Restated for the change in segmental information, see note 1
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS
(continued)
FOR THE HALF YEARED 30 JUNE 2017
Change in value of derivative and other financial
4 instruments
-------------------------------------------------------------------------------
Unaudited
----------------
First First Full
half half year
2017 2016 2016
GBPm GBPm GBPm
----------------------------------------------- --------- ----- ------------
Forward currency contracts (not
hedge accounted) 240 (52) (135)
Embedded derivatives (2) 3 4
----------------------------------------------- --------- ----- ------------
238 (49) (131)
Net gains and losses on intra-group
funding
Arising in period 4 (22) (23)
--------------------------------------------------- --------- ----- ------------
Change in value of derivative
and other financial instruments 242 (71) (154)
----------------------------------------------- --------- ----- ------------
Forward foreign currency contracts, cross currency
interest rate swaps and embedded derivatives (all
level 2) are valued using observable rates and
published prices together with forecast cash flow
information where applicable, consistent with
the prior year. The amount in respect of embedded
derivatives represents a commercial contract denominated
in US dollars between European Aerospace subsidiaries
and a customer outside the USA.
Carrying values of derivative instruments at 30
June 2017 were; forward currency contracts liability
of GBP242 million (31 December 2016: liability
of GBP482 million), embedded derivatives asset
of GBP11 million (31 December 2016: asset of GBP13
million) and cross currency interest rate swaps
liability of GBP187 million (31 December 2016:
liability of GBP214 million).
5 Acquisition-related restructuring charges
-------------------------------------------------------------------------------
Unaudited
----------------
First First Full
half half year
2017 2016 2016
GBPm GBPm GBPm
----------------------------------------------- --------- ----- ------------
Redundancy and other employee-related
amounts - (20) (27)
Integration and other expenses - (2) (4)
Acquisition-related restructuring
charges - (22) (31)
---------------------------------------------------- --------- ----- ------------
Restructuring charges separately identified in
2016, related to the recently acquired Fokker
Technologies Group B.V. business within Aerospace.
Share of post-tax earnings of equity accounted
6 investments
-------------------------------------------------------------------------------
Unaudited
----------------
First First Full
half half year
2017 2016 2016
GBPm GBPm GBPm
----------------------------------------------- --------- ----- ------------
Sales 333 281 592
Operating costs (292) (239) (503)
---------------------------------------------------- --------- ----- ------------
Trading profit 41 42 89
Net financing costs (1) - (1)
---------------------------------------------------- ------------
Profit before taxation 40 42 88
Taxation (5) (8) (15)
---------------------------------------------------- --------- ----- ------------
Share of post-tax earnings 35 34 73
---------------------------------------------------- --------- ----- ------------
7 Other net financing charges
-------------------------------------------------------------------------------
Unaudited
----------------
First First Full
half half year
2017 2016 2016
GBPm GBPm GBPm
----------------------------------------------- --------- ----- ------------
Interest charge on net defined
benefit plans (24) (27) (53)
Fair value changes on cross currency
interest rate swaps (5) 5 18
Unwind of discounts (1) (1) (2)
Other net financing charges (30) (23) (37)
---------------------------------------------------- --------- ----- ------------
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS
(continued)
FOR THE HALF YEARED 30 JUNE 2017
8 Taxation
The tax charge for the period is based on an estimate
of the Group's expected annual effective rate
of tax for 2017 based on tax legislation substantively
enacted at 30 June 2017 applied to taxable profit
for the period ended 30 June 2017.
Unaudited
------------
First First Full
half half year
2017 2016 2016
GBPm GBPm GBPm
------------------------------------------ ----- ----- -----
Tax included in the income statement
Analysis of tax charge in the
period
Current tax (charge)/credit
Current period charge (70) (66) (67)
Utilisation of previously unrecognised
tax losses and other assets - - 1
Adjustments in respect of prior
periods (1) 3 9
Net movement on provisions for
uncertain tax positions 2 - 9
--------------------------------------------- ----- ----- -----
(69) (63) (48)
Deferred tax (62) 46 -
------------------------------------------ ----- ----- -----
Total tax charge for the period (131) (17) (48)
------------------------------------------ ----- ----- -----
Analysed as:
------------------------------------------ ----- ----- -----
Tax in respect of management profit
Current tax (72) (63) (40)
Deferred tax (14) (13) (104)
------------------------------------------ ----- ----- -----
(86) (76) (144)
------------------------------------------ ----- ----- -----
Tax in respect of items excluded
from management profit
Current tax 3 - (8)
Deferred tax (48) 59 104
------------------------------------------ ----- ----- -----
(45) 59 96
------------------------------------------ ----- ----- -----
Total tax charge for the period (131) (17) (48)
------------------------------------------ ----- ----- -----
Unaudited
------------
First First Full
half half year
2017 2016 2016
GBPm GBPm GBPm
------------------------------------------ ----- ----- -----
Tax included in other comprehensive
income
Current tax on post-employment
obligations 2 2 3
Current tax on foreign currency
gains and losses on intra-group
funding 7 - (50)
Deferred tax on post-employment
obligations (35) 108 60
Deferred tax on hedged foreign
currency gains and losses (6) - 39
Deferred tax on other foreign
currency gains and losses on
intra-group funding - (36) (3)
--------------------------------------------- ----- ----- -----
(32) 74 49
------------------------------------------ ----- ----- -----
Management tax rate
The tax charge arising on management profits of
subsidiaries of GBP358 million (first half 2016:
GBP310 million, full year 2016: GBP605 million)
was GBP86 million (first half 2016: GBP76 million
charge, full year 2016: GBP144 million charge)
giving an effective tax rate of 24% (first half
2016: 25%, full year 2016: 24%).
UK tax rate reduction
The mainstream rate of UK corporation tax reduced
to 19% from 1 April 2017. A further reduction
to 17% from 1 April 2020 has been substantively
enacted. Temporary differences are measured at
the rate they are expected to reverse.
New legislation restricting the use of brought
forward losses is expected to have effect from
1 April 2017. However, this legislation is not
yet substantively enacted. It is anticipated this
will not affect the ability to utilise recognised
deferred tax assets but may affect the period
over which the losses can be utilised.
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS
(continued)
FOR THE HALF YEARED 30 JUNE 2017
9 Dividends
An interim dividend of 3.1 pence per share (first
half 2016: 2.95 pence per share, full year 2016:
8.85 pence per share) has been declared by the
Directors and will be paid on 18 September 2017
to shareholders on the register at 11 August 2017.
Based on the number of shares ranking for dividend
at 30 June 2017, the interim dividend is expected
to absorb GBP53 million.
During the period GBP101 million (first half 2016:
GBP99 million, full year 2016: GBP150 million)
was paid in respect of dividends to equity shareholders.
10 Post-employment obligations
Actuarial assessments of the key defined benefit
pension and post-employment medical plans (representing
97% of liabilities and 97% of assets) were carried
out as at 30 June 2017.
Movement in post-employment obligations during
the period:
-------------------------------------------------------------------------------------------
Unaudited
-------------------------
First First Full
half half Year
2017 2016 2016
GBPm GBPm GBPm
------------------------------------------- -------- --------------- -------------------
At 1 January (2,033) (1,558) (1,558)
Current service cost (31) (25) (48)
Settlements and curtailments - - 5
Businesses disposed - - 11
Administrative costs (2) (2) (3)
Interest charge on net defined
benefit plans (24) (27) (53)
Remeasurement of defined benefit
plans 180 (466) (396)
Contributions/benefits paid 70 71 121
Currency variations (9) (94) (112)
At end of period (1,849) (2,101) (2,033)
------------------------------------------------- -------- --------------- -------------------
Post-employment obligations as at the period end
comprise:
-------------------------------------------------------------------------------------------
Unaudited
-------------------------
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
------------------------------------------- -------- --------------- -------------------
Pensions - funded (1,124) (1,329) (1,285)
- unfunded (641) (683) (662)
Medical - funded (36) (38) (37)
- unfunded (48) (51) (49)
------------------------------------------------ -------- --------------- -------------------
(1,849) (2,101) (2,033)
------------------------------------------------ -------- --------------- -------------------
UK Americas Europe ROW Total
GBPm GBPm GBPm GBPm GBPm
----------------------------- ------------ -------- ------ ------- -------------------
At 30 June 2017 - unaudited (1,063) (142) (631) (13) (1,849)
At 30 June 2016 - unaudited (1,234) (173) (676) (18) (2,101)
At 31 December 2016 (1,221) (148) (651) (13) (2,033)
----------------------------- ------------ -------- ------ ------- -------------------
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS
(continued)
FOR THE HALF YEARED 30 JUNE 2017
10 Post-employment obligations (continued)
Assumptions
The major assumptions used were:
UK Americas Europe ROW
--------------------------------
GKN GKN GKN
1 2 3
% % % % % %
----------------------------- ------- -------------- ------- -------- ------- -----
At 30 June 2017 -
unaudited
Rate of increase
in pensionable salaries n/a n/a n/a n/a 2.50 -
Rate of increase
in payment and
deferred pensions n/a 3.15 3.10 n/a 1.75 n/a
Discount rate n/a 2.55 2.40 3.80 1.90 0.50
Inflation assumption n/a 3.20 3.15 n/a 1.75 n/a
Rate of increase
in medical costs:
Initial/long term 5.4/5.4 6.75/5.0 n/a n/a
----------------------------
At 30 June 2016 -
unaudited
Rate of increase
in pensionable salaries n/a 3.80 n/a n/a 2.50 -
Rate of increase
in payment and
deferred pensions 2.80 2.80 n/a n/a 1.75 n/a
Discount rate 2.75 2.95 n/a 3.60 1.30 0.80
Inflation assumption 2.80 2.80 n/a n/a 1.75 n/a
Rate of increase
in medical costs:
Initial/long term 5.4/5.4 7.0/5.0 n/a n/a
----------------------------
At 31 December 2016
Rate of increase
in pensionable salaries n/a 4.30/4.25 n/a n/a 2.50 -
Rate of increase
in payment and
deferred pensions n/a 3.20 3.30 n/a 1.75 n/a
Discount rate n/a 2.60/2.70 2.45 4.10 1.60 0.50
Inflation assumption n/a 3.30/3.25 3.35 n/a 1.75 n/a
Rate of increase
in medical costs:
Initial/long term 5.4/5.4 6.75/5.0 n/a n/a
---------------------------- -------------------------------- -------- ------- -----
The UK discount rate at 30 June 2017 is based
on AA corporate bonds with duration weighted to
the UK pension schemes' liabilities, derived from
the Mercer pension discount yield curve. The methodologies
used to derive the German and US discount rates
were similarly consistent with those used at 31
December 2016.
The UK scheme mortality assumptions are based
on S2PA (year of birth) mortality tables with
CMI 2016 improvements and a 1.5% per annum long
term improvement trend. In Germany RT2005-G tables
were used, whilst RP-2014 tables were used in
the US.
Assumption sensitivity analysis
The impact of a one percentage point movement
in the primary assumptions for the defined benefit
net obligations as at 30 June 2017 is set out
below:
UK Americas Europe ROW
GBPm GBPm GBPm GBPm
------------------------------------------------------ ------- -------- ------- -----
Discount rate +1% 543 42 102 3
Discount rate -1% (720) (53) (129) (2)
Rate of inflation +1% (565) (1) (106) -
Rate of inflation -1% 464 - 89 -
Life expectancy +1 year (129) (9) (22) -
Life expectancy -1 year 127 9 24 -
----------------------------------------------------------- ------- -------- ------- -----
UK deficit funding
During the period, the Company consulted with
the active members of the UK's defined benefit
scheme (the Scheme) over closure of the Scheme
to future accrual. From 1 July 2017 all Scheme
members will accrue benefits on a defined contribution
basis.
The triennial statutory valuation of GKN 2 as
at 5 April 2016 is nearing completion. It is expected
that the Company will make a lump sum payment
of GBP250 million, funded by the proceeds from
the recent bond issue, during the second half
of 2017.
The effective date for the statutory valuation
of GKN 3 is 31 December 2016 and discussions with
the Trustee are ongoing.
During the period the Group paid GBP30 million
(first half 2016: GBP30 million, full year 2016:
GBP30 million) to the 2 UK pension schemes through
its pension partnership arrangement.
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS
(continued)
FOR THE HALF YEARED 30 JUNE 2017
11 Cash flow notes
Unaudited
---------------------
First First Full
half half year
2017 2016 2016
GBPm GBPm GBPm
-------------------------------------------- ---------- --------- ---------
Cash generated from operations
Operating profit 591 209 335
Adjustments for:
Depreciation, impairment and amortisation
of fixed assets
Charged to trading profit
Depreciation 147 124 263
Amortisation 38 31 67
Amortisation of non-operating
intangible assets arising on business
combinations 45 46 103
Impairment charges - - 52
Change in value of derivative and
other financial instruments (242) 71 154
Gains and losses on changes in
Group structure 1 - 9
Amortisation of government capital
grants (2) (1) (2)
Net profit on sale/realisation
of fixed assets - - (3)
Charge for share-based payments 3 4 5
Movement in post-employment obligations (37) (44) (75)
Change in inventories (122) (63) (78)
Change in receivables (246) (184) (151)
Change in payables and provisions 203 59 99
379 252 778
-------------------------------------------- ---------- --------- ---------
Movement in net debt
-------------------------------------------- ---------- --------- ---------
Net movement in cash and cash equivalents 259 (96) 41
Net movement in borrowings and
deposits (272) 32 141
Movement on cross currency interest
rate swaps 27 (96) (145)
Movement on other net investment
hedges (3) (12) (17)
Amortisation of debt issue costs (1) (1) (2)
Currency variations (3) 24 47
---------- --------- ---------
Movement in period 7 (149) 65
Net debt at beginning of period (704) (769) (769)
-------------------------------------------- ---------- --------- ---------
Net debt at end of period (697) (918) (704)
-------------------------------------------- ---------- --------- ---------
Reconciliation of cash and cash
equivalents
-------------------------------------------- ---------- --------- ---------
Cash and cash equivalents per balance
sheet 649 227 411
Bank overdrafts included within
"current liabilities - borrowings" (11) (3) (26)
Cash and cash equivalents per cash
flow 638 224 385
-------------------------------------------- ---------- --------- ---------
The fair values of most financial instruments approximate
to carrying value either due to the short-term
maturity of the instruments or because interest
rates are reset frequently, with the exception
of borrowings and government refundable advances
which are carried at amortised cost. The carrying
value of borrowings at 30 June 2017 was GBP1,165
million (first half 2016: GBP985 million) with
a fair value of GBP1,278 million (first half 2016:
GBP1,035 million) and the carrying value of government
refundable advances at 30 June 2017 was GBP89 million
(first half 2016: GBP97 million) with a fair value
of GBP107 million (first half 2016: GBP115 million).
Gross borrowings has been increased by issuance
of a new GBP300 million unsecured bond, with an
annual fixed interest rate of 33/8% maturing in
May 2032.
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS
(continued)
FOR THE HALF YEARED 30 JUNE 2017
12 Property, plant and equipment (unaudited)
During the period ended 30 June 2017 the Group
asset additions were GBP177 million (first half
2016: GBP166 million). Assets with a carrying value
of GBP2 million (first half 2016: GBP25 million)
were disposed of during the period ended 30 June
2017.
13 Related party transactions (unaudited)
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. The Group also provides short-term
financing facilities to equity accounted investment
companies. There have been no significant changes
in the nature of transactions between subsidiaries
and equity accounted investment companies that
have materially affected the financial statements
in the period. Similarly, there has been no material
impact on the financial statements arising from
changes in the aggregate compensation of key management.
14 Other financial information (unaudited)
Commitments relating to future capital expenditure
not provided by subsidiaries at 30 June 2017 amounted
to GBP255 million (30 June 2016: GBP189 million)
and the Group's share not provided by equity accounted
investments amounted to GBP8 million (30 June 2016:
GBP23 million).
During the period a total of 2,941,829 ordinary
shares (first half 2016: 189,505 ordinary shares)
were issued in connection with the exercise/release
of options/awards under the Company's share incentive
schemes, all of which were transferred from treasury.
On 22 June 2017, the Group repaid the third of
five annual instalments of GBP16 million on its
GBP80 million European Investment Bank Loan.
On 31 May 2017 the Group purchased the entire equity
shareholding of Tozmetal Ticaret ve Sanayi Anonim
irketi (Tozmetal), a Turkish based sintering business,
to broaden the division's manufacturing footprint.
The consideration of GBP26 million comprised a
cash payment only. The provisional fair value of
net assets acquired of GBP26 million has been allocated
as follows: property, plant and equipment of GBP7
million, inventory of GBP2 million, receivables
of GBP6 million, cash of GBP1 million payables
of GBP4 million and provisional intangible assets
and goodwill of GBP14 million.
Due to the proximity of the transaction to the
reporting date, a formal valuation exercise will
be concluded in the second half of the year to
appropriately allocate the fair value of assets
and liabilities acquired. Tozmetal has been included
in Powder Metallurgy for segmental reporting.
15 Contingent assets and liabilities (unaudited)
Franked investment income - litigation
Since 2003, the Group has been involved in litigation
with HMRC in respect of various advance corporate
tax payments and corporate tax on foreign dividends
which, in its view, were levied by HMRC in breach
of the Group's EU community law rights. The most
recent judgement in the main case was published
in November 2016. This judgement was broadly positive,
but HMRC have sought leave to appeal.
The continuing complexity of the case and uncertainty
over the remaining issues means that it is not
possible to predict the final outcome with any
reasonable degree of certainty. A successful outcome
could result in the Group being able to recognise
additional deferred tax assets in the UK and receiving
cash payments from HMRC.
There are no other material contingent assets at
30 June 2017 or 30 June 2016. At 30 June 2017 the
Group had no contingent liabilities in respect
of bank arrangements and no guarantees (30 June
2016: none). In the case of certain businesses,
performance bonds and customer finance obligations
have been entered into in the normal course of
business.
Independent review report to GKN plc
We have been engaged by the Company to review the condensed consolidated financial statements in the half-yearly financial report for the six months ended 30 June 2017 which comprises the Consolidated income statement, the Consolidated statement of comprehensive income, the Condensed consolidated statement of changes in equity, the Consolidated balance sheet, the Consolidated cash flow statement and related notes 1 to 15. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of consolidated financial statements.
This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of consolidated financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of consolidated financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated financial statements in the half-yearly financial report for the six months ended 30 June 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, United Kingdom
25 July 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR ZMGZNRKKGNZM
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