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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 : 1857F
GKN PLC
26 July 2016
NEWS RELEASE 26 July 2016
GKN plc Results Announcement for the six months ended 30 June 2016
Group Highlights(*)
-- Another period of growth - in line with expectations
o Sales up 17% and management eps increased 7%
o Continued market outperformance with organic sales up 2%
o Fokker integration on track and performing well
-- Sharpening the focus
o Reducing fixed costs; annualised savings of GBP30 million from 2017 through a GKN wide fixed cost optimisation programme; charge of GBP35 million in the second half of 2016
o Capital allocation to be progressively directed towards productivity improvement in core aerospace and automotive divisions
-- Continued investment in technology
o Strong technology pipeline; innovation recognised by customer and industry awards
o Momentum of new business wins continues to support growth ahead of markets
Hot Features
Premium
Management basis(*) As reported
------------------------ -----------------------
2016 2015 Change 2016 2015 Change
GBPm GBPm % GBPm GBPm %
-------------------- ------ ------- ------- ------ ------ -------
Sales 4,518 3,853 +17 4,237 3,616 +17
Operating profit 390 346 +13 209 245 -15(2)
Trading margin (%) 8.6% 9.0% -40bps
Profit before tax 344 307 +12 182 212 -14(2)
Earnings per share
(p) 15.5p 14.5p +7 9.5p 9.9p -4
Interim dividend
per share (p) 2.95p 2.90p +2 2.95p 2.90p +2
Free cash flow 40 21
Net debt 918 769(1)
-------------------- ------ ------- ------- ------ ------ -------
(1) As at 31 December 2015
(2) Primarily lower due to mark to market valuation of FX contracts
Commenting on the results, Nigel Stein, Chief Executive of GKN said:
"This is a good set of first half results with GKN continuing to make underlying progress in line with our expectations. Each division has continued to deliver against our strategy. GKN is in good shape with excellent technology and strong positions in the aerospace and automotive markets. Capital allocation will continue to be focussed on these divisions, with greater emphasis on internal productivity.
We expect 2016 to be another year of growth, helped by currency translation and Fokker. To increase momentum going into 2017, we will reduce our fixed costs by GBP30 million.
With our excellent technologies, global footprint and strong focus on costs we are very well placed to compete and succeed in the future."
Divisional Highlights
GKN Aerospace
-- Strong headline sales growth, driven by good Fokker performance with integration on track
-- Organic sales growth of 2%, comprising commercial (+8%) partially offset by a decline in military (-14%)
-- Margin of 9.9% (2015: 11.4%), primarily impacted by the inclusion of Fokker and mature programmes declining
-- New and replacement work packages won of c.$5 billion over contract lives
GKN Driveline
-- Organic sales growth of 5%, significantly ahead of global auto production helped by our broad geographic footprint and increased content per vehicle
-- Trading margin of 8.2% (2015: 8.3%), a good performance in Europe offset by excess launch costs on an US all-wheel drive (AWD) programme
-- More than GBP400 million of annualised new and replacement business won
GKN Powder Metallurgy
-- Organic sales growth in line with the market, before the pass-through of lower raw material surcharges
-- Trading margin increased to 12.6% (2015: 11.8%), benefiting partly from the lower surcharges
-- Strong focus on technology and GBP120 million annualised new and replacement business won -- Chinese powder production commenced
GKN Land Systems
-- Organic sales down 6% due to challenging agricultural and construction equipment markets and the ending of chassis contracts
-- Good cost control results in trading margin of 4.6% (2015: 4.0%)
Outlook
Aerospace markets generally remain in transition as some aircraft programmes run down and others ramp up. The overall market in 2016 will be broadly flat, according to external forecasts. Against that backdrop, GKN Aerospace's 2016 organic sales are expected to be slightly up on last year, and the results will benefit from the contribution of Fokker. In the medium term, our strong commercial order book supports continuing growth for GKN Aerospace.
In automotive, external forecasts predict growth in global light vehicle production of around 3% with increases in China, North America, Europe and India. Against this background, GKN Driveline and GKN Powder Metallurgy are expected to continue to grow organically above the market.
GKN Land Systems sales are expected to continue to decline due to softer agricultural and construction equipment markets, although the rate of decline is slowing.
GKN is sharpening its focus on costs and also directing capital expenditure more towards productivity. Fixed cost reductions of GBP30 million will benefit 2017. There will be a charge to achieve these savings of GBP35 million (included within management results) in the second half of 2016. This is in addition to the Fokker integration charge that was previously announced.
Despite market uncertainty following the EU Referendum, there should be little impact on GKN over the medium term and 2016 is expected to be another year of growth, helped by currency translation and Fokker.
Notes
(*) Financial information set out in this announcement, unless otherwise stated, is presented on a management basis as defined on page 13.
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:
Chris Fox, Group Communications Director, GKN plc
T: +44 (0)1527 533238
M: +44 (0)7920 540051
E: chris.fox@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 08.30am at UBS, Ground Floor Presentation Suite, 1 Finsbury Avenue, London EC2M 2PP.
A live videocast of the presentation will be available at http://www.gkn.com/investorrelations/Pages/Webcasts.aspx.
Slides will be put onto the GKN website approximately 45 minutes before the presentation is due to begin, and will be available to download from the GKN website at: http://www.gkn.com/investorrelations/Pages/results-and-presentations.aspx?year=2016.
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: 46551273
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/investorrelations/Pages/Webcasts.aspx.
NEWS RELEASE
GKN plc Results Announcement for the six months ended 30 June 2016
Group Overview
Markets
The Group operates in the global aerospace, automotive and land systems 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. GKN Land Systems sells to producers of agricultural, industrial and construction equipment.
Results
Group First half First Change (%)
2016 half
2015
GKN base Fokker Total Headline Organic
Sales (GBPm) 4,149 369 4,518 3,853 17 2
Trading profit (GBPm) 362 28 390 346 13 (3)
Trading margin (%) 8.7% 7.6% 8.6% 9.0%
Return on average invested
capital (%) 16.6% 17.5%
---------------------------- --------- ------- ------ ------ --------- --------
Organic sales increased GBP92 million (2%). The effect of currency translation on management sales was a GBP202 million benefit and there was a GBP371 million benefit from acquisitions.
Overall organic trading profit reduced by GBP10 million (3%). There was a benefit from currency translation of GBP22 million and a GBP32 million increase due to acquisitions (including the absence of GBP3 million acquisition costs in the first half of 2015).
Group trading margin in the first half was 8.6% (2015: 9.0%). Return on average invested capital (ROIC) was 16.6% (2015: 17.5%), excluding Fokker which has not been owned for a full 12 month period.
At 30 June 2016, the Group had net debt of GBP918 million (31 December 2015: GBP769 million) and the total deficit on post-employment obligations totalled GBP2,101 million (31 December 2015: GBP1,558 million).
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. It supplies products and services to a wide range of commercial and military aircraft and engine prime contractors and other tier one suppliers.
According to external forecasts, the overall aerospace market is expected to be slightly down in 2016. In commercial, both Airbus and Boeing continued to benefit from higher deliveries and a record order backlog, and both have announced plans to increase production levels for single aisle aircraft in the future. The short term outlook for wide-body aircraft has been mixed with A330 and Boeing 777 rate reductions in advance of their next generation successors and plans for a reduction in A380 deliveries, while the A350 continues to ramp-up to full rate production. Sales of business jets and commercial rotorcraft are both expected to fall. Military sales are higher and will benefit from the ramp up in the production rate of the F-35.
The key financial results for the period are as follows:
GKN Aerospace First half 2016 First Change (%)
half
2015
GKN base Fokker Total Headline Organic
Sales (GBPm) 1,262 369 1,631 1,171 39 2
Trading profit (GBPm) 133 28 161 133 21 (6)
Trading margin (%) 10.5% 7.6% 9.9% 11.4%
Return on average invested
capital (%) 16.8% 17.7%
---------------------------- --------- ------- ------ ------ --------- --------
Overall, GKN Aerospace's organic sales were GBP30 million higher (2%). There was a GBP59 million (5%) benefit from currency translation and sales from acquisitions amounted to GBP371 million.
The organic reduction in trading profit was GBP9 million, due to the transition from more profitable mature military and commercial programmes, partly offset by good growth and catch-up payments in engine spares and the benefit from the ramping up of structures production on new programmes. There was a favourable currency translation impact of GBP8 million and the profit contribution from acquisitions was GBP29 million.
Trading margin was 9.9% (2015: 11.4%). Return on average invested capital, excluding Fokker which has not been owned for a full 12 month period, was 16.8% (2015: 17.7%).
The division's commercial sales were 76%, with military 24%. Organic commercial aerospace sales were 8% higher, benefiting from stronger orders for the A350, A320 and Boeing 737 partly offset by a reduction in A330 production. Military organic sales were 14% lower, primarily due to lower sales for F/A-18 Super Hornet, F-15 Eagle and rotorcraft.
The integration of Fokker Technologies, acquired on 28 October 2015, is proceeding well. It added sales of GBP369 million and a profit of GBP28 million. Restructuring costs, which are excluded from Management profits, were GBP22 million during the first half and are expected to total around EUR50 million (GBP39 million) in the year, as previously announced. During the period, the outstanding pre-acquisition fine that was agreed with the Department of Justice was settled.
During the period, new and replacement work packages totalling $5 billion over their contract lives have been won and a number of important milestones were achieved, including:
-- An agreement to extend to the risk and revenue sharing partnership (RRSP) with Rolls-Royce on the Trent XWB engine. The agreement covers the design and supply of a lower weight, higher performance intermediate compressor case for the enhanced performance Trent XWB-84 engine;
-- Signing a long term agreement with Mitsubishi Heavy Industries Ltd. to manufacture aero-engine casings for Rolls-Royce Trent engines which will power Airbus A330neo and Boeing 787 aircraft;
-- Partnering with Rolls-Royce on the UltraFan(TM) large engine programme, with responsibility for the intercase;
-- Being named by the US Air Force as one of seven major contractors who will join Northrop Grumman in building the next-generation B-21 bomber;
-- Signing a four-year contract extension with FMV (Swedish Defence Material Administration) to provide comprehensive support for the GKN Aerospace RM12 engine, which powers the JAS 39 Gripen C/D fighter; and
-- Extending an agreement with Boeing for a further three years to continue manufacturing electrical wiring systems and junction boxes for the 777 and 737 aircraft programmes and signing a memorandum of agreement with UTC Aerospace Systems to develop electrical integrated systems for the More Electric Aircraft initiative.
Automotive market
The major automotive markets of China, India, Europe, and North America experienced increased production in the first half of the year compared to 2015, while Brazil and Japan declined. Overall, global production volumes increased 2.4% to 45.9 million vehicles (2015: 44.9 million).
Car and light vehicle production (rounded First half Growth
millions of units)
2016 2015 (%)(#)
Europe 11.4 10.9 4.5
North America 9.1 8.8 3.3
Brazil 1.0 1.2 -22.2
Japan 4.3 4.4 -2.7
China 12.4 11.7 5.9
India 2.0 1.9 6.4
Others 5.7 6.0 -5.0
------------------------------------------- ------ ----- -------
Total - global 45.9 44.9 2.4
------------------------------------------- ------ ----- -------
Source: IHS Automotive; (#) Growth is derived from unrounded production figures
Production in Europe increased in the first half of 2016 as demand in Western Europe continued to recover, partly offset by the decline in Russia.
Production in North America benefitted from continuing consumer confidence and localisation of foreign manufacturers' capacity. Cheap credit and the low price of fuel supported increased demand and production for full-size pickups and Sport Utility Vehicles (SUVs), which outpaced that of passenger cars. The recession in the Brazilian vehicle market deepened, resulting in a further decline in output.
Production growth in China resulted from the positive impact of the reduction in sales tax on small cars. Production in India increased due to improved economic conditions and higher demand for newly launched models. Japanese production, however, was adversely affected by the earthquakes in southern Japan and output stoppages at some manufacturers due to fuel economy irregularities.
External forecasts anticipate global production for full year 2016 will increase 2.9% to 91.3 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 vehicle demanding complex driving dynamics.
The key financial results for the period are as follows:
GKN Driveline First half Change (%)
2016 2015 Headline Organic
Sales (GBPm) 2,002 1,814 10 5
Trading profit (GBPm) 164 150 9 3
Trading margin (%) 8.2% 8.3%
Return on average invested
capital (%) 18.5% 19.6%
---------------------------- ------ ------ --------- --------
Organic sales increased by GBP95 million (5%) compared with global light vehicle production which was up 2%. The beneficial effect of currency translation was GBP93 million (5%). Constant Velocity Jointed (CVJ) Systems accounted for 60% of sales and non-CVJ sales were 40%.
The organic improvement in trading profit was GBP5 million and the positive impact of currency translation was GBP9 million. GKN Driveline's trading margin was 8.2% (2015: 8.3%). Return on average invested capital was 18.5% (2015: 19.6%).
GKN Driveline's market outperformance was mainly in Europe reflecting recent market share gains and new customer programme launches, for example, with Daimler and Volvo. It also benefited from a stronger position in premium vehicles, demand for which continued to be positive, and a broadening product mix, particularly with AWD systems. GKN Driveline performed broadly in line with the market in the Americas (reflecting its lower content on truck-based platforms) and slightly below the market in China (recognising its greater exposure to global brands, which performed less strongly than domestic producers). Growth in North America and China is expected to be above the market in the second half due to the strong order book and new programme launches.
In terms of profitability, European plants were running at very high capacity utilisation with a strong conversion on the additional sales. In China, production was relatively stable following the tax incentives available for small cars, but margin was slightly lower, due to negative pricing, in-line with expectations. The Americas operations were impacted by short term production issues at AWD facilities as customers struggled to obtain parts following the Japanese earthquake and sizeable additional launch costs on a new global AWD programme. These launch problems have now been addressed with production reaching target levels, however, some further launch costs will be incurred in the second half. The technology developed provides an excellent platform for continued success in AWD.
To provide better strategic and customer alignment, GKN Driveline is reorganising in the second half of the year from three regions into two global product lines (CVJ and AWD/eDrive) which will provide a more efficient, leaner organisation.
During the period, more than GBP400 million of annualised sales in new and replacement business was secured and a number of important milestones achieved, including:
-- Being selected by BMW to supply its eAxle on the BMW 2 Series Active Tourer;
-- Winning an Automotive News PACE award for VL3 sideshaft technology, which debuted on the BMW 7 Series, whilst also picking up an innovation partnership award for work on the Ford Focus RS; and
-- GKN Driveline Brazil being awarded Toyota's prestigious South America Supplier Quality Excellence Performance Award for the third year in a row.
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 (%)
2016 2015 Headline Organic
Sales (GBPm) 499 474 5 (1)
Trading profit (GBPm) 63 56 13 5
Trading margin (%) 12.6% 11.8%
Return on average invested
capital (%) 21.3% 22.0%
---------------------------- ------ ------ --------- --------
Organic sales were GBP3 million lower, after the GBP14 million pass through to customers of lower steel prices and other surcharges. There was a GBP28 million (6%) benefit from currency translation.
Underlying growth (before raw material pass through) was 2%, in line with global light vehicle production. Underlying sales growth was achieved in all regions with the strongest performance being in Asia.
The organic increase in trading profit was GBP3 million and there was a GBP4 million gain on currency translation. The divisional trading margin was 12.6% (2015: 11.8%) reflecting the move towards higher value "design for powder metallurgy" parts and a small margin benefit from lower raw material prices passed through to customers. Return on average invested capital was 21.3% (2015: 22.0%).
During the period, GKN Powder Metallurgy achieved a number of important milestones, which included:
-- Winning, in just six months, around GBP120 million of annualised sales in new and replacement business;
-- The commencement of production of high quality automotive grade powders in China for the Asian market; and
-- Receiving three prestigious design awards from the Metal Powder Industries Federation (MPIF) at the annual technical conference POWDERMET2016.
GKN Land Systems
GKN Land Systems is a leading supplier of power management products and services. It designs, manufactures and supplies products and services for the agricultural and construction markets and key industrial segments, offering integrated powertrain solutions and complete in-service support.
Sales in GKN Land Systems were lower than the prior period primarily due to a significant decline in North American agricultural equipment markets and the ending of a chassis contract. Demand for construction equipment was also weaker while industrial sales remained relatively stable.
The key financial results for the period are as follows:
GKN Land Systems First half Change (%)
2016 2015 Headline Organic
Sales (GBPm) 368 371 (1) (6)
Trading profit (GBPm) 17 15 13 6
Trading margin (%) 4.6% 4.0%
Return on average invested
capital (%) 7.4% 7.6%
---------------------------- ------ ------ --------- --------
The organic decrease in sales was GBP24 million (6%) and the beneficial impact of currency translation was GBP21 million (5%). The first of two chassis contracts ending in 2016 reduced sales by GBP5 million in the first half. The second contract ends during the third quarter of 2016.
Trading profit was GBP1 million higher on an organic basis and there was a GBP1 million benefit from currency translation. Trading margin was 4.6% (2015: 4.0%). Return on average invested capital was 7.4% (2015: 7.6%).
End markets remain tough, particularly in North American agricultural equipment. Nevertheless, progress has been made with many mid-tier customers and important new business won in the industrial, shaft and wheels operations, whilst continuing to invest in technology.
Other Businesses and corporate costs
GKN's Other Businesses comprise Cylinder Liners (which is a 59% owned venture mainly in China, manufacturing engine liners for the truck market in the US, Europe and China), EVO eDrive Systems (a developer of axial flux motors) and GKN Hybrid Power (a flywheel energy storage and hybrid system manufacturer).
GKN's Other Businesses reported combined sales in the period of GBP18 million (2015: GBP23 million). The change reflects a GBP6 million organic decrease in sales and GBP1 million benefit from currency translation. A trading loss of GBP4 million was reported in the first half (2015: GBP2 million loss) reflecting a restructuring charge at GKN Hybrid Power. Following changes in the commercial landscape of the UK bus market, it has been decided to scale back this operation back and combine it with GKN Driveline's hybrid and electric engineering resource.
Corporate costs, which comprise the costs of stewardship of the Group and operating charges and credits associated with the Group's legacy businesses, were GBP11 million (2015: GBP6 million, including a GBP7 million past service credit following completion of a Pension Increase Exchange exercise in the UK and GBP3 million of costs in relation to the Fokker acquisition).
Other Financial Information
All comparative information provided below relates to the first half of 2015, unless otherwise stated.
Items excluded from management trading profit
In order to achieve consistency and comparability between reporting periods the following items are excluded from management measures as they do not reflect trading activity:
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 loss of GBP71 million (2015: GBP20 million loss).
When the business wins long term customer contracts that are in a foreign currency, the Group offsets 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 2016, the net fair value of such instruments was a liability of GBP399 million (31 December 2015: liability of GBP351 million) and the change in fair value during the period was a GBP52 million charge (2015: GBP31 million charge).
There was also a GBP3 million credit arising from the change in fair value of embedded derivatives in the period (2015: nil) and a net loss of GBP22 million attributable to the currency impact on Group funding balances (2015: GBP11 million net gain).
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 GBP46 million (2015: GBP36 million).
Gains and losses on changes in Group structure
There was no change in Group structure during the period (2015: GBP5 million loss).
Restructuring charges
During the period there has been a charge of GBP22 million in relation to redundancy and integration costs relating to the Group's acquisition of Fokker in 2015.
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 GBP34 million (2015: GBP34 million), with trading profit of GBP42 million (2015: GBP40 million). The Group's share of the tax charge amounted to GBP8 million (2015: GBP6 million) with no net financing costs in either period. The organic decrease in trading profit was GBP1 million.
Net financing costs
Net financing costs totalled GBP61 million (2015: GBP67 million) and comprise the net interest payable of GBP38 million (2015: GBP33 million), the non-cash charge on post-employment benefits of GBP27 million (2015: GBP25 million), a gain from fair value changes on cross currency interest rate swaps of GBP5 million (2015: GBP6 million charge) and charge for unwind of discounts of GBP1 million (2015: GBP3 million). The non-cash 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 costs are provided in note 10.
Profit before tax
Management profit before tax was GBP344 million (2015: GBP307 million). Profit before tax on a statutory basis was GBP182 million (2015: GBP212 million). The main differences between management and statutory figures for 2016 are the change in value of derivative and other financial instruments, amortisation of non-operating intangible assets arising on business combinations, restructuring charges and non-cash charge on post-employment benefits. Further details are provided in note 3 to the interim financial statements.
Taxation
The book tax rate on management profits of subsidiaries was 25% (2015: 24%), arising as a GBP76 million tax charge (2015: GBP66 million charge) on management profits of subsidiaries of GBP310 million (2015: GBP273 million).
The tax rate on statutory profits of subsidiaries was 11% (2015: 26%), arising as a GBP17 million tax charge (2015: GBP46 million charge) on statutory profits of subsidiaries of GBP148 million (2015: GBP178 million). The decrease is largely as a result of certain foreign exchange gains which are not taxable.
Non-controlling interests
The profit attributable to non-controlling interests was GBP2 million (2015: GBP3 million).
Earnings per share
Management earnings per share was 15.5 pence (2015: 14.5 pence). On a statutory basis earnings per share was 9.5 pence (2015: 9.9 pence), impacted by an increased charge on the change in value of derivatives and other financial instruments and restructuring charges.
Dividend
The Board has declared an interim dividend of 2.95 pence per share (2015: 2.9 pence), an increase of 2%. The interim dividend will be paid on 19 September 2016 to shareholders on the register at 12 August 2016. 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 26 August 2016.
Cash flow
Operating cash flow, which is defined as cash generated from operations of GBP252 million (2015: GBP242 million) adjusted for capital expenditure (net of proceeds from capital grants) of GBP227 million (2015: GBP198 million), proceeds from the disposal/realisation of fixed assets of GBP25 million (2015: GBP2 million), was an inflow of GBP50 million (2015: GBP46 million).
Cash generated from operations includes movements in working capital and provisions totalling a net outflow of GBP188 million (2015: GBP142 million outflow), driven by a VAT payment following the substantial one-off customer advance received at the end of 2015.
Capital expenditure (net of proceeds from capital grants) on both tangible and intangible assets totalled GBP227 million (2015: GBP198 million). Of this, GBP192 million (2015: GBP166 million) was on tangible fixed assets and was 1.5 times (2015: 1.6 times) the depreciation charge. Expenditure on intangible assets, mainly non-recurring costs on Aerospace programmes, totalled GBP35 million (2015: GBP32 million).
Net interest paid totalled GBP23 million (2015: GBP21 million). Tax paid in the period was GBP42 million (2015: GBP58 million).
Free cash flow
Free cash flow, which is operating cash flow including equity accounted investment dividends and after interest, tax, amounts paid to non-controlling interests but before dividends paid to GKN shareholders, was an inflow of GBP40 million (2015: GBP21 million).
Net debt
At the end of the period, the Group had net debt of GBP918 million (31 December 2015: GBP769 million). At 30 June 2016 the fair value of cross currency interest rate swaps, taken out to better align foreign currency income receipts with debt coupon payments, was a liability of GBP165 million (31 December 2015: liability of GBP69 million) which is included in net debt.
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 2016, the total deficit on post-employment obligations of the Group totalled GBP2,101 million (31 December 2015: GBP1,558 million), comprising deficits on funded obligations of GBP1,367 million (31 December 2015: GBP1,007 million) and on unfunded obligations of GBP734 million (31 December 2015: GBP551 million). In total, the deficit increased GBP543 million from 31 December 2015, primarily due to changes in the discount rates used and adverse currency movements.
The amount included within trading profit for the period comprises current service cost of GBP25 million (2015: GBP27 million) and administrative costs of GBP2 million (2015: GBP1 million). There was no past service credit in the period (2015: settlement credit of GBP6 million). The interest charge on net defined benefit plans, which is excluded from management figures, was GBP27 million (2015: GBP25 million).
Cash contributions to the various defined benefit pension schemes and retiree medical arrangements totalled GBP71 million (2015: GBP71 million).
UK pensions
The Group's two UK defined benefit pension schemes are currently undergoing triennial funding valuations as at 5 April 2016. Once the valuation process is complete, the 5 April 2016 funding deficit in each scheme will be confirmed and any incremental deficit contributions payable by the Group will be established. It is likely that some additional Group funding will be required, but given the early stage of negotiations with the scheme Trustees and the many variables involved in both establishing the valuation and agreeing any resulting recovery plan, the final outcome cannot currently be predicted with any reasonable degree of certainty. The current deficit funding payment is GBP42 million per year.
The accounting deficit for UK schemes increased to GBP1,234 million (31 December 2015: GBP912 million), following a decrease in discount rates.
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 GBP28 million (2015: GBP20 million).
Net assets
Net assets of GBP1,916 million were GBP30 million higher than the 31 December 2015 figure of GBP1,886 million. The increase is primarily driven by management profit after tax of GBP266 million and currency retranslation from subsidiaries of GBP431 million, partially offset by a loss on remeasurement of defined benefit plans of GBP466 million and dividends paid to equity shareholders of GBP99 million.
Exchange rates
Exchange rates used for currencies most relevant to the Group's operations are:
Average Period End
------------ -------------
2016 2015 2016 2015
Euro 1.28 1.37 1.20 1.41
US dollar 1.43 1.53 1.33 1.57
----------- ----- ----- ------ -----
The approximate impact on 2016 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 2016, UK committed bank facilities were GBP865 million. Within this amount were committed Revolving Credit Facilities of GBP801 million, GBP48 million outstanding on an eight-year amortising facility from the European Investment Bank (EIB) and GBP16 million outstanding on a seven-year GBP16 million amortising facility from KfW. There were drawings of GBP67 million against the Revolving Credit Facilities. There were also drawings of GBP31 million against uncommitted bank facilities.
Capital market borrowings at 30 June 2016 comprised 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. At 30 June 2016, the Group had net debt of GBP918 million (31 December 2015: GBP769 million), including the fair value of the cross currency interest rate swaps, a liability of GBP165 million (31 December 2015: GBP69 million liability).
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 2016, EBITDA was 13.4 times greater than net interest payable, whilst net debt was 1.0 times EBITDA.
Following an assessment of the Group's principal risks and consideration of current financial forecasts the Directors consider it appropriate to adopt the going concern basis of accounting in preparing the interim financial statements.
Basis of Reporting
The interim financial statements for the period are shown on pages 16 to 32 and have been prepared using accounting policies which were used in the preparation of audited financial statements for the year ended 31 December 2015 and which will form the basis of the 2016 Annual Report.
Definitions
Financial information set out in this announcement, unless otherwise stated, is presented on a management basis which aggregates the sales and trading profit of subsidiaries (excluding certain subsidiary businesses sold and closed) with the Group's share of the sales and trading profit of equity accounted investments. References to trading margins are to trading profit expressed as a percentage of sales. 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. These figures better reflect performance of continuing businesses. Where appropriate, reference is made to organic results which exclude the impact of acquisitions/divestments as well as currency translation on the results of overseas operations. Operating cash flow is cash generated from operations adjusted for capital expenditure, government capital grants, proceeds from disposal of fixed assets and government refundable advances. 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 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.
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 38 to 47 of the 2015 Annual Report. These risks relate to the following: highly competitive markets; supply chain; customer concentration; operating in global markets; joint ventures; laws, regulations and corporate reputation; technology and innovation; acquisition integration; people capability; product quality; contract risk; programme management; health and safety; information systems resilience; business continuity and pension funding.
On Thursday 23 June 2016 the UK voted to leave the EU, resulting in uncertain future trading arrangements between the UK and the rest of the world, and falling expectations for UK GDP in the short to medium term. GKN is a global business with over 90% of its products manufactured outside the UK; this will limit the effect of the vote on the Group. Weaker sterling following the referendum has so far had a positive effect on the Group's reported earnings but a negative impact on its reported debt and pension liabilities. Pension liabilities have also increased as a result of falling yields on long term bonds. Discussions with the trustees of the UK pension schemes in relation to the April 2016 funding valuation are progressing in a constructive manner.
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 2015 Annual Report that could do so.
The Directors of GKN plc are listed in the GKN annual report for 2015, with the exception of Anne Stevens who was appointed as a non-executive Director on 1 July 2016.
Approved by the Board of GKN plc and signed on its behalf by:
Mike Turner
Chairman
25 July 2016
APPICES
Page
GKN Condensed Consolidated Financial Statements
Consolidated Income Statement for the half year ended 30
June 2016 16
Consolidated Statement of Comprehensive Income for the half
year ended 30 June 2016 17
Condensed Consolidated Statement of Changes in Equity for
the half year ended 30 June 2016 18
Consolidated Balance Sheet at 30 June 2016 19
Consolidated Cash Flow Statement for the half year ended
30 June 2016 20
21 -
Notes to the Half Year Consolidated Financial Statements 32
Independent Review Report 33
CONSOLIDATED INCOME STATEMENT
FOR THE HALF YEARED 30 JUNE 2016
Unaudited
------------
First First
Notes half half Full year
2016 2015 2015
GBPm GBPm GBPm
---------------------------------------------- ----- ----- ----- ---------
Sales 1a 4,237 3,616 7,231
---------------------------------------------- ----- ----- ----- ---------
Trading profit 1b 348 306 609
Change in value of derivative and other
financial instruments 4 (71) (20) (122)
Amortisation of non-operating intangible
assets arising on
business combinations (46) (36) (80)
Gains and losses on changes in Group
structure - (5) (1)
Impairment charges - - (71)
Reversal of inventory fair value adjustment
arising on
business combinations - - (12)
Restructuring charges 5 (22) - -
Operating profit 209 245 323
Share of post-tax earnings of equity
accounted
investments 6 34 34 59
Interest payable (41) (34) (72)
Interest receivable 3 1 7
Other net financing charges 7 (23) (34) (72)
--------------------------------------------- ----- ----- ----- ---------
Net financing costs (61) (67) (137)
Profit before taxation 182 212 245
Taxation 8 (17) (46) (43)
Profit after taxation for the period 165 166 202
---------------------------------------------- ----- ----- ----- ---------
Profit attributable to non-controlling
interests 2 3 5
Profit attributable to owners of the
parent 163 163 197
---------------------------------------------- ----- ----- ----- ---------
165 166 202
---------------------------------------------- ----- ----- ----- ---------
Earnings per share - pence
Continuing operations - basic 9.5 9.9 11.8
Continuing operations - diluted 9.5 9.8 11.7
---------------------------------------------- ----- ----- ----- ---------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE HALF YEARED 30 JUNE 2016
Unaudited
------------
First First
Notes half half Full year
2016 2015 2015
GBPm GBPm GBPm
------------------------------------------------------ ----- ----- ----- ---------
Profit after taxation for the period 165 166 202
Other comprehensive income:
Items that may be reclassified to profit
or loss
Currency variations - subsidiaries
Arising in period 431 (102) 74
Reclassified in period - 4 4
Currency variations - equity accounted
investments
Arising in period 20 (2) 1
Reclassified in period - - -
Derivative financial instruments - transactional
hedging
Arising in period - - 5
Reclassified in period - - (5)
Net investment hedge changes in fair value
Arising in period (108) 23 (37)
Reclassified in period - - -
Taxation 8 (36) 2 (5)
----- ----- ---------
307 (75) 37
------------------------------------------------------ ----- ----- ----- ---------
Items that will not be reclassified to
profit or loss
Remeasurement of defined benefit plans
Subsidiaries 10 (466) 106 139
Taxation 8 110 (28) (42)
----- ----- ---------
(356) 78 97
------------------------------------------------------ ----- ----- ----- ---------
Other comprehensive income/(expense) for
the period (49) 3 134
Total comprehensive income for the period 116 169 336
------------------------------------------------------ ----- ----- ----- ---------
Total comprehensive income for the period
attributable to:
Non-controlling interests 4 2 4
Owners of the parent 112 167 332
116 169 336
------------------------------------------------------ ----- ----- ----- ---------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE HALF YEARED 30 JUNE 2016
Equity
attributable
to equity
Capital Share holders
Share redemption premium Retained Other of the Non-controlling Total
capital reserve account earnings reserves parent interests equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ----- -------- ----------- -------- --------- --------- ------------ --------------- -------
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 14 - - - - - - 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 2015 166 298 139 1,069 (193) 1,479 22 1,501
Profit for the
period - - - 163 - 163 3 166
Other
comprehensive
income/(expense) - - - 78 (74) 4 (1) 3
Total
comprehensive
income/(expense) - - - 241 (74) 167 2 169
Share-based
payments - - - 1 - 1 - 1
Share options
exercised 14 - - - 2 - 2 - 2
Dividends paid to
equity
shareholders 9 - - - (92) - (92) - (92)
Dividends paid to
non-controlling
interests - - - - - - (1) (1)
At 30 June 2015
(unaudited) 166 298 139 1,221 (267) 1,557 23 1,580
------------------ ----- -------- ----------- -------- --------- --------- ------------ --------------- -------
At 1 January 2015 166 298 139 1,069 (193) 1,479 22 1,501
Profit for the
year - - - 197 - 197 5 202
Other
comprehensive
income/(expense) - - - 97 38 135 (1) 134
------------------ ----- -------- ----------- -------- --------- --------- ------------ --------------- -------
Total
comprehensive
income/(expense) - - - 294 38 332 4 336
Share-based
payments - - - 1 - 1 - 1
Share options
exercised - - - 2 - 2 - 2
Proceeds from
share
issue 7 - 191 - - 198 - 198
Purchase of own
shares
by Employee
Share Ownership
Plan Trust - - - (7) - (7) - (7)
Dividends paid to
equity
shareholders 9 - - - (142) - (142) - (142)
Dividends paid to
non-controlling
interests - - - - - - (3) (3)
------------------ ----- -------- ----------- -------- --------- --------- ------------ --------------- -------
At 31 December
2015 173 298 330 1,217 (155) 1,863 23 1,886
------------------ ----- -------- ----------- -------- --------- --------- ------------ --------------- -------
CONSOLIDATED BALANCE SHEET
AT 30 JUNE 2016
Unaudited
----------------
Notes 30 June 30 June 31 December
2016 2015 2015
GBPm GBPm GBPm
-------------------------------------- ----- ------- ------- -----------
Assets
Non-current assets
Goodwill 665 491 591
Other intangible assets 1,341 911 1,265
Property, plant and equipment 12 2,484 2,014 2,200
Equity accounted investments 194 151 195
Other receivables and investments 47 35 42
Derivative financial instruments 28 18 21
Deferred tax assets 509 314 388
5,268 3,934 4,702
-------------------------------------- ----- ------- ------- -----------
Current assets
Inventories 1,370 1,000 1,170
Trade and other receivables 1,652 1,259 1,311
Current tax assets 4 7 9
Derivative financial instruments 16 8 13
Other financial assets 5 3 5
Cash and cash equivalents 11 227 273 299
3,274 2,550 2,807
-------------------------------------- ----- ------- ------- -----------
Total assets 8,542 6,484 7,509
-------------------------------------- ----- ------- ------- -----------
Liabilities
Current liabilities
Borrowings (136) (103) (137)
Derivative financial instruments (166) (87) (151)
Trade and other payables (2,028) (1,561) (1,757)
Current tax liabilities (151) (120) (121)
Provisions (78) (51) (78)
-------------------------------------- ------- ------- -----------
(2,559) (1,922) (2,244)
-------------------------------------- ----- ------- ------- -----------
Non-current liabilities
Borrowings (849) (871) (867)
Derivative financial instruments (430) (152) (294)
Deferred tax liabilities (165) (145) (157)
Trade and other payables (447) (199) (425)
Provisions (75) (82) (78)
Post-employment obligations 10 (2,101) (1,533) (1,558)
(4,067) (2,982) (3,379)
-------------------------------------- ----- ------- ------- -----------
Total liabilities (6,626) (4,904) (5,623)
-------------------------------------- ----- ------- ------- -----------
Net assets 1,916 1,580 1,886
-------------------------------------- ----- ------- ------- -----------
Shareholders' equity
Share capital 173 166 173
Capital redemption reserve 298 298 298
Share premium account 330 139 330
Retained earnings 929 1,221 1,217
Other reserves 150 (267) (155)
-------------------------------------- ----- ------- ------- -----------
Equity attributable to equity holders
of the parent 1,880 1,557 1,863
Non-controlling interests 36 23 23
-------------------------------------- ----- ------- ------- -----------
Total equity 1,916 1,580 1,886
-------------------------------------- ----- ------- ------- -----------
CONSOLIDATED CASH FLOW STATEMENT
FOR THE HALF YEARED 30 JUNE 2016
Unaudited
------------
First First
Notes half half Full year
2016 2015 2015
GBPm GBPm GBPm
-------------------------------------------------- ----- ----- ----- ---------
Cash flows from operating activities
Cash generated from operations 11 252 242 885
Interest received 3 1 15
Interest paid (26) (22) (69)
Tax paid (42) (58) (111)
Dividends received from equity accounted
investments 55 55 55
242 218 775
-------------------------------------------------- ----- ----- ----- ---------
Cash flows from investing activities
Purchase of property, plant and equipment (198) (167) (332)
Receipt of government capital grants 6 1 2
Purchase of intangible assets (35) (32) (81)
Proceeds from sale and realisation of
fixed assets 25 2 9
Payment of deferred and contingent consideration (1) (1) (7)
Acquisitions of subsidiaries (net of
cash acquired) 14 (8) (8) (117)
Repayment of debt acquired in business
combinations - - (371)
Equity accounted investments loan settlement 4 - 3
Investment in equity accounted investments - (2) -
(207) (207) (894)
-------------------------------------------------- ----- ----- ----- ---------
Cash flows from financing activities
Purchase of own shares by Employee Share
Ownership
Plan Trust - - (7)
Proceeds from exercise of share options 14 - 2 2
Gross proceeds from issuance of ordinary
shares - - 200
Costs associated with issuance of ordinary
shares - - (2)
Amounts placed on deposit - - (2)
Proceeds from borrowing facilities 102 75 485
Repayment of other borrowings (134) (24) (423)
Dividends paid to equity shareholders 9 (99) (92) (142)
Dividends paid to non-controlling interests - (1) (3)
(131) (40) 108
-------------------------------------------------- ----- ----- ----- ---------
Movement in cash and cash equivalents (96) (29) (11)
Cash and cash equivalents at beginning
of period 291 317 317
Currency variations on cash and cash
equivalents 29 (19) (15)
-------------------------------------------------- ----- ----- ----- ---------
Cash and cash equivalents at end of
period 11 224 269 291
-------------------------------------------------- ----- ----- ----- ---------
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEARED 30 JUNE 2016
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, automotive, and the land systems
agricultural, construction and industrial markets. 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. Revenue from inter segment trading
and royalties is not significant. There have been no changes to
segments in the period.
a) Sales
Automotive
---------------------
Powder Land
Aerospace Driveline Metallurgy Systems Total
GBPm GBPm GBPm GBPm GBPm
----------------------------------- --------- --------- ---------- ------- -----
FIRST HALF 2016 (unaudited)
----------------------------------- --------- --------- ---------- ------- -----
Subsidiaries 1,598 1,768 499 354
Equity accounted investments 33 234 - 14
--------------------------------------- --------- --------- ---------- -------
1,631 2,002 499 368 4,500
--------------------------------------- --------- --------- ---------- -------
Other businesses 18
--------------------------------------- --------- --------- ---------- ------- -----
Management sales 4,518
Less: Equity accounted investments
sales (281)
--------------------------------------- --------- --------- ---------- ------- -----
Income statement - sales 4,237
--------------------------------------- --------- --------- ---------- ------- -----
FIRST HALF 2015 (unaudited)
----------------------------------- --------- --------- ---------- ------- -----
Subsidiaries 1,171 1,590 474 358
Equity accounted investments - 224 - 13
--------------------------------------- --------- --------- ---------- -------
1,171 1,814 474 371 3,830
--------------------------------------- --------- --------- ---------- -------
Other businesses 23
--------------------------------------- --------- --------- ---------- ------- -----
Management sales 3,853
Less: Equity accounted investments
sales (237)
--------------------------------------- --------- --------- ---------- ------- -----
Income statement - sales 3,616
--------------------------------------- --------- --------- ---------- ------- -----
FULL YEAR 2015
-------------------------------------------------------------------------------------
Subsidiaries 2,387 3,124 906 670
Equity accounted investments - 424 - 23
--------------------------------------- --------- --------- ---------- -------
2,387 3,548 906 693 7,534
--------------------------------------- --------- --------- ---------- -------
Acquisitions
----------------------------------- --------- --------- ---------- -------
Subsidiaries 102 - - -
Equity accounted investments 11 - - -
--------------------------------------- --------- --------- ---------- -------
113 - - - 113
--------------------------------------- --------- --------- ---------- -------
Other businesses 42
--------------------------------------- --------- --------- ---------- ------- -----
Management sales 7,689
Less: Equity accounted investments
sales (458)
--------------------------------------- --------- --------- ---------- ------- -----
Income statement - sales 7,231
--------------------------------------- --------- --------- ---------- ------- -----
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEARED 30 JUNE 2016
1 Segmental analysis (continued)
b) Trading profit
Automotive
---------------------
Powder Land
Aerospace Driveline Metallurgy Systems Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------- --------- --------- ---------- ------- -----
FIRST HALF 2016 (unaudited)
------------------------------------- --------- --------- ---------- ------- -----
Trading profit before depreciation
and amortisation 221 185 85 23
Depreciation of property, plant
and equipment (38) (55) (21) (7)
Amortisation of operating intangible
assets (24) (5) (1) -
----------------------------------------- --------- --------- ---------- -------
Trading profit - subsidiaries 159 125 63 16
Trading profit - equity accounted
investments 2 39 - 1
----------------------------------------- --------- --------- ---------- -------
161 164 63 17 405
----------------------------------------- --------- --------- ---------- -------
Other businesses (4)
Corporate and unallocated costs (11)
----------------------------------------- --------- --------- ---------- ------- -----
Management trading profit 390
Less: Equity accounted investments
trading profit (42)
----------------------------------------- --------- --------- ---------- ------- -----
Income Statement - trading profit 348
----------------------------------------- --------- --------- ---------- ------- -----
FIRST HALF 2015 (unaudited)
------------------------------------- --------- --------- ---------- ------- -----
Trading profit before depreciation
and amortisation 176 164 75 22
Depreciation of property, plant
and equipment (28) (50) (19) (8)
Amortisation of operating intangible
assets (15) (3) - -
----------------------------------------- --------- --------- ---------- -------
Trading profit - subsidiaries 133 111 56 14
Trading profit - equity accounted
investments - 39 - 1
----------------------------------------- --------- --------- ---------- -------
133 150 56 15 354
----------------------------------------- --------- --------- ---------- -------
Other businesses (2)
Acquisition charges - Fokker (3)
Corporate and unallocated costs (3)
----------------------------------------- --------- --------- ---------- ------- -----
Management trading profit 346
Less: Equity accounted investments
trading profit (40)
----------------------------------------- --------- --------- ---------- ------- -----
Income Statement - trading profit 306
----------------------------------------- --------- --------- ---------- ------- -----
FULL YEAR 2015
---------------------------------------------------------------------------------------
Trading profit before depreciation
and amortisation 383 329 148 39
Depreciation of property, plant
and equipment (59) (101) (38) (15)
Amortisation of operating intangible
assets (33) (7) (1) (1)
----------------------------------------- --------- --------- ---------- -------
Trading profit - subsidiaries 291 221 109 23
Trading profit - equity accounted
investments - 69 - 1
----------------------------------------- --------- --------- ---------- -------
291 290 109 24 714
----------------------------------------- --------- --------- ---------- -------
Acquisitions
------------------------------------- --------- --------- ---------- -------
Subsidiaries (5) - - -
Acquisition related charges (13) - - -
----------------------------------------- --------- --------- ---------- -------
(18) - - - (18)
Other businesses 1
Corporate and unallocated costs (18)
Management trading profit 679
Less: Equity accounted investments
trading profit (70)
----------------------------------------- --------- --------- ---------- ------- -----
Income Statement - trading profit 609
----------------------------------------- --------- --------- ---------- ------- -----
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 2016
1 Segmental analysis (continued)
c) Goodwill, fixed assets and working capital - subsidiaries only
Automotive
----------------------
Powder Land
Aerospace Driveline Metallurgy Systems Total
GBPm GBPm GBPm GBPm GBPm
------------------------- ------------------ ---------- ---------- ------- -------------------
FIRST HALF 2016
(unaudited)
------------------------- ------------------ ---------- ---------- ------- -------------------
Property, plant and
equipment
and operating intangible
assets 1,285 1,229 436 139 3,089
Working capital 258 115 147 91 611
------------------------- ------------------ ---------- ---------- ------- -------------------
Net operating assets 1,543 1,344 583 230
Goodwill and
non-operating intangible
assets 901 282 36 147
------------------------- ------------------ ---------- ---------- -------
Net investment 2,444 1,626 619 377
------------------------- ------------------ ---------- ---------- -------
FIRST HALF 2015
(unaudited)
------------------------- ------------------ ---------- ---------- ------- -------------------
Property, plant and
equipment
and operating intangible
assets 1,050 949 357 121 2,477
Working capital 208 116 100 76 500
------------------------- ------------------ ---------- ---------- ------- -------------------
Net operating assets 1,258 1,065 457 197
Goodwill and
non-operating intangible
assets 487 253 27 131
------------------------- ------------------ ---------- ---------- -------
Net investment 1,745 1,318 484 328
------------------------- ------------------ ---------- ---------- -------
FULL YEAR 2015
---------------------------------------------------------------------------------------------------
Property, plant and
equipment
and operating intangible
assets 1,208 1,049 375 128 2,760
Working capital 159 22 97 64 342
------------------------- ------------------ ---------- ---------- ------- -------------------
Net operating assets 1,367 1,071 472 192
Goodwill and
non-operating intangible
assets 841 258 29 134
------------------------- ------------------ ---------- ---------- -------
Net investment 2,208 1,329 501 326
------------------------- ------------------ ---------- ---------- -------
d) Inter segment sales
Subsidiary segmental sales gross of inter segment sales are; Aerospace
GBP1,599 million (first half 2015: GBP1,171 million, full year
2015: GBP2,489 million), Driveline GBP1,796 million (first half
2015: GBP1,617 million, full year 2015: GBP3,176 million), Powder
Metallurgy GBP501 million (first half 2015: GBP475 million, full
year 2015: GBP908 million) and Land Systems GBP355 million (first
half 2015: GBP360 million, full year 2015: GBP672 million).
e) Reconciliation of segmental property, plant and equipment and
operating intangible assets to the Balance Sheet
---------------------------------------------------------------------------------------------------
Unaudited
----------------------
First First Full
half half year
2016 2015 2015
GBPm GBPm GBPm
--- -------------------- ------------------ ---------- ---------- ----------------------------
Segmental analysis - property, plant and
equipment
and operating intangible
assets 3,089 2,477 2,760
Segmental analysis - goodwill and non-operating
intangible assets 1,366 898 1,262
Goodwill (665) (491) (591)
Other businesses 26 32 25
Corporate assets 9 9 9
-------------------------------------------------------- ---------- ---------- ----------------------------
Balance Sheet - property, plant and equipment
and other intangible assets 3,825 2,925 3,465
-------------------------------------------------------- ---------- ---------- ----------------------------
Reconciliation of segmental working capital
f) to the Balance Sheet
--------------------------------------------- ---------- ---------- ----------------------------
Unaudited
----------------------
First First Full
half half year
2016 2015 2015
GBPm GBPm GBPm
--------------------------------------------- ---------- ---------- ----------------------------
Segmental analysis - working capital 611 500 342
Other businesses 11 15 13
Corporate items (24) (24) (45)
Accrued interest (34) (26) (25)
Restructuring provisions (1) (2) (1)
Equity accounted investment funding (14) (4) (10)
Deferred and contingent consideration (11) (12) (3)
Government refundable advances (97) (46) (86)
Balance Sheet - inventories, trade and other
receivables, trade and other
payables and provisions 441 401 185
------------------------------------------------------- ---------- ---------- ----------------------------
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEARED 30 JUNE 2016
2 Basis of preparation
These half year condensed consolidated financial statements for
the six months ended 30 June 2016 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
2015, 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 2015 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 2015.
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 2015. 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 business combinations, post-employment
obligations, derivative and other financial instruments, taxation,
provisions and impairment of non-current assets. Details of the
principal estimates, judgements and assumptions are set out in
notes 30, 24, 4b, 20, 6, 21 and 11 of the audited consolidated
financial statements for the year ended 31 December 2015 as updated
in notes 14 (Business combinations), 10 (Post-employment obligations),
4 (Change in value of derivative and other financial instruments)
and 8 (Taxation) of these financial statements.
Date of approval
These financial statements were approved by the Board of Directors
on Monday 25 July 2016.
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEARED 30 JUNE 2016
3 Adjusted performance measures
(a) Reconciliation of reported and management performance measures
FIRST HALF 2016 (unaudited)
------------------------------------------ -----------------------------------------------
Adjusting
Equity and 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 -
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
------------------------------------------ ---------- ------------ --------- ----------
FIRST HALF 2015 (unaudited)
------------------------------------------ -----------------------------------------------
Adjusting
Equity and non-
As accounted trading Management
reported investments items basis
GBPm GBPm GBPm GBPm
------------------------------------------ ---------- ------------ --------- ----------
Sales 3,616 237 - 3,853
------------------------------------------ ---------- ------------ --------- ----------
Trading profit 306 40 - 346
Change in value of derivative and
other financial instruments (20) - 20 -
Amortisation of non-operating intangible
assets arising on
business combinations (36) - 36 -
Gains and losses on changes in Group
structure (5) - 5 -
Operating profit 245 40 61 346
Share of post-tax earnings of equity
accounted investments 34 (40) - (6)
Interest payable (34) - - (34)
Interest receivable 1 - - 1
Other net financing charges (34) - 34 -
------------------------------------------ ---------- ------------ --------- ----------
Net financing costs (67) - 34 (33)
------------------------------------------ ---------- ------------ --------- ----------
Profit before taxation 212 - 95 307
Taxation (46) - (20) (66)
------------------------------------------ ---------- ------------ --------- ----------
Profit after taxation for the period 166 - 75 241
Profit attributable to non-controlling
interests (3) - - (3)
------------------------------------------ ---------- ------------ --------- ----------
Profit attributable to owners of
the parent 163 - 75 238
------------------------------------------ ---------- ------------ --------- ----------
Earnings per share - pence 9.9 - 4.6 14.5
------------------------------------------ ---------- ------------ --------- ----------
FULL YEAR 2015
------------------------------------------ -----------------------------------------------
For the year ended 31 December 2015, management sales were GBP7,689
million, management trading profit was GBP679 million, management
profit before tax was GBP603 million and management earnings per
share was 27.8 pence.
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEARED 30 JUNE 2016
3 Adjusted performance measures (continued)
(b) Summary by segment
FIRST HALF 2016 (unaudited)
------------------------------------------- ------- -------- -------
Trading
Sales profit Margin
GBPm GBPm
------------------------------------------- ------- -------- -------
Aerospace 1,631 161 9.9%
Driveline 2,002 164 8.2%
Powder Metallurgy 499 63 12.6%
Land Systems 368 17 4.6%
Other businesses 18 (4)
Corporate and unallocated costs - (11)
------------------------------------------------- ------- -------- -------
4,518 390 8.6%
FIRST HALF 2015 (unaudited)
------------------------------------------- ------- -------- -------
Trading
Sales profit Margin
GBPm GBPm
------------------------------------------- ------- -------- -------
Aerospace 1,171 133 11.4%
Driveline 1,814 150 8.3%
Powder Metallurgy 474 56 11.8%
Land Systems 371 15 4.0%
Other businesses 23 (2)
Corporate and unallocated costs - (6)
------------------------------------------------- ------- -------- -------
3,853 346 9.0%
FULL YEAR 2015
------------------------------------------- --------------------------
Trading
Sales profit Margin
GBPm GBPm
------------------------------------------- ------- -------- -------
Aerospace 2,387 291 12.2%
Driveline 3,548 290 8.2%
Powder Metallurgy 906 109 12.0%
Land Systems 693 24 3.5%
Other businesses 42 1
Acquisition - Fokker (Aerospace) 113 (18)
Corporate and unallocated costs - (18)
------------------------------------------------- ------- -------- -------
7,689 679 8.8%
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEARED 30 JUNE 2016
4 Change in value of derivative and other financial instruments
--------------------------------------------------------------------------------------------
Unaudited
----------------
First First
half half Full year
2016 2015 2015
GBPm GBPm GBPm
-------------------------------------------------- --------- ----- ----------------------
Forward currency contracts (not hedge accounted) (52) (31) (103)
Embedded derivatives 3 - 1
-------------------------------------------------- --------- ----- ----------------------
(49) (31) (102)
Net gains and losses on intra-group funding
Arising in period (22) 11 (20)
------------------------------------------------------ --------- ----- ----------------------
Change in value of derivative and other
financial instruments (71) (20) (122)
-------------------------------------------------- --------- ----- ----------------------
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 2016 were;
forward currency contracts liability of GBP399 million (31 December
2015: liability of GBP351 million), embedded derivatives asset
of GBP12 million (31 December 2015: asset of GBP9 million) and
cross currency interest rate swaps liability of GBP165 million
(31 December 2015: liability of GBP69 million).
5 Restructuring charges
--------------------------------------------------------------------------------------------
Unaudited
----------------
First First
half half Full year
2016 2015 2015
GBPm GBPm GBPm
-------------------------------------------------- --------- ----- ----------------------
Redundancy and integration costs (22) - -
Restructuring charges (22) - -
------------------------------------------------------- --------- ----- ----------------------
Restructuring charges of GBP22 million, separately identified,
relate to the recently acquired Fokker Technologies Group B.V.
business within Aerospace.
6 Share of post-tax earnings of equity accounted investments
--------------------------------------------------------------------------------------------
Unaudited
----------------
First First
half half Full year
2016 2015 2015
GBPm GBPm GBPm
-------------------------------------------------- --------- ----- ----------------------
Sales 281 237 458
Operating costs (239) (197) (388)
------------------------------------------------------- --------- ----- ----------------------
Trading profit 42 40 70
Net financing costs - - (1)
------------------------------------------------------- ----------------------
Profit before taxation 42 40 69
Taxation (8) (6) (10)
------------------------------------------------------- ----------------------
Share of post-tax earnings - before adjusting
and non-trading items 34 34 59
Adjusting and non-trading items - - -
Share of post-tax earnings 34 34 59
------------------------------------------------------- --------- ----- ----------------------
7 Other net financing charges
--------------------------------------------------------------------------------------------
Unaudited
----------------
First First
half half Full year
2016 2015 2015
GBPm GBPm GBPm
-------------------------------------------------- --------- ----- ----------------------
Interest charge on net defined benefit plans (27) (25) (49)
Fair value changes on cross currency interest
rate swaps 5 (6) (17)
Unwind of discounts (1) (3) (6)
Other net financing charges (23) (34) (72)
------------------------------------------------------- --------- ----- ----------------------
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEARED 30 JUNE 2016
8 Taxation
The tax charge for the period is based on an estimate of the
Group's expected annual effective rate of tax for 2016 based
on tax legislation substantively enacted at 30 June 2016 applied
to taxable profit for the period ended 30 June 2016.
Unaudited
------------
First First
half half Full year
2016 2015 2015
GBPm GBPm GBPm
-------------------------------------------------- ----- ----- ----------
Tax included in the income statement
Analysis of tax charge in the period
Current tax (charge)/credit
Current period charge (66) (74) (121)
Utilisation of previously unrecognised
tax losses and other assets - - 38
Adjustments in respect of prior periods 3 8 -
Net movement on provisions for uncertain
tax positions - 3 (23)
----------------------------------------------------- ----- ----- ----------
(63) (63) (106)
Deferred tax 46 17 63
-------------------------------------------------- ----- ----- ----------
Total tax charge for the period (17) (46) (43)
-------------------------------------------------- ----- ----- ----------
Analysed as:
-------------------------------------------------- ----- ----- ----------
Tax in respect of management profit
Current tax (63) (63) (107)
Deferred tax (13) (3) (26)
-------------------------------------------------- ----- ----- ----------
(76) (66) (133)
-------------------------------------------------- ----- ----- ----------
Tax in respect of items excluded from management
profit
Current tax - - 1
Deferred tax 59 20 89
-------------------------------------------------- ----- ----- ----------
59 20 90
-------------------------------------------------- ----- ----- ----------
Total tax charge for the period (17) (46) (43)
-------------------------------------------------- ----- ----- ----------
Unaudited
------------
First First
half half Full year
2016 2015 2015
GBPm GBPm GBPm
-------------------------------------------------- ----- ----- ----------
Tax included in other comprehensive income
Current tax on post-employment obligations 2 2 4
Current tax on foreign currency gains and
losses on intra-group funding - - (6)
Deferred tax on post-employment obligations 108 (30) (46)
Deferred tax on foreign currency gains and
losses on intra-group funding (36) 2 1
-------------------------------------------------- ----- ----- ----------
74 (26) (47)
-------------------------------------------------- ----- ----- ----------
Management tax rate
The tax charge arising on management profits of subsidiaries
of GBP310 million (first half 2015: GBP273 million, full year
2015: GBP544 million) was GBP76 million (first half 2015: GBP66
million charge, full year 2015: GBP133 million charge) giving
an effective tax rate of 25% (first half 2015: 24%, full year
2015: 24%).
UK tax rate reduction
A reduction in the mainstream rate of UK corporation tax from
20% to 19% from 1 April 2017 and to 18% from 1 April 2020 have
been substantively enacted. UK temporary differences are measured
at the rate they are expected to reverse.
The Finance Bill 2016 provides for a further rate reduction to
17% which is expected to be substantively enacted in the Autumn
2016. The most significant impact of this reduction will be on
deferred tax assets related to post-employment obligations which
have been recognised through equity.
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEARED 30 JUNE 2016
9 Dividends
An interim dividend of 2.95 pence per share (first half 2015:
2.9 pence per share, full year 2015: 8.7 pence per share) has
been declared by the Directors and will be paid on 19 September
2016 to shareholders on the register at 12 August 2016. Based
on the number of shares ranking for dividend at 30 June 2016,
the interim dividend is expected to absorb GBP51 million.
During the period GBP99 million (first half 2015: GBP92 million,
full year 2015: GBP142 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 98% of assets) were carried out as at 30 June 2016.
Movement in post-employment obligations during the period:
----------------------------------------------------------------------------------------------------
Unaudited
----------------------------
First half First half Full Year
2016 2015 2015
GBPm GBPm GBPm
--------------------------------------------- ---------- ---------------- -----------------------
At 1 January (1,558) (1,711) (1,711)
Current service cost (25) (27) (50)
Past service - 6 4
Businesses acquired - - (7)
Administrative costs (2) (1) (3)
Interest on net defined benefit plans (27) (25) (49)
Remeasurement of defined benefit plans (466) 106 139
Contributions/benefits paid 71 71 100
Currency variations (94) 48 19
At end of period (2,101) (1,533) (1,558)
---------------------------------------------------- ---------- ---------------- -----------------------
Post-employment obligations as at the period end comprise:
----------------------------------------------------------------------------------------------------
Unaudited
----------------------------
30 June 30 June 31 December
2016 2015 2015
GBPm GBPm GBPm
--------------------------------------------- ---------- ---------------- -----------------------
Pensions - funded (1,329) (967) (977)
- unfunded (683) (489) (505)
Medical - funded (38) (27) (30)
- unfunded (51) (50) (46)
--------------------------------------------------- ---------- ---------------- -----------------------
(2,101) (1,533) (1,558)
--------------------------------------------------- ---------- ---------------- -----------------------
UK Americas Europe ROW Total
GBPm GBPm GBPm GBPm GBPm
----------------------------- -------------- ---------- ------ -------- -----------------------
At 30 June 2016 - unaudited (1,234) (173) (676) (18) (2,101)
At 30 June 2015 - unaudited (920) (117) (483) (13) (1,533)
At 31 December 2015 (912) (133) (498) (15) (1,558)
----------------------------- -------------- ---------- ------ -------- -----------------------
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEARED 30 JUNE 2016
10 Post-employment obligations (continued)
Assumptions
The major assumptions used were:
UK Americas Europe ROW
-----------------------
GKN1 GKN2
% % % % %
--------------------------------- --------- ------------ --------- -------- ------------
At 30 June 2016 - unaudited
Rate of increase in pensionable
salaries n/a 3.80 n/a 2.50 -
Rate of increase in payment
and deferred pensions 2.80 2.80 n/a 1.75 n/a
Discount rate 2.75 2.95 3.60 1.30 0.80
Inflation assumption 2.80 2.80 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 30 June 2015 - unaudited
Rate of increase in pensionable
salaries n/a 4.20 n/a 2.50 -
Rate of increase in payment
and deferred pensions 3.20 3.20 n/a 1.75 n/a
Discount rate 3.50 3.75 4.40 2.20 0.80
Inflation assumption 3.20 3.20 n/a 1.75 n/a
Rate of increase in medical
costs:
Initial/long term 5.5/5.5 7.0/5.0 n/a n/a
--------------------------------
At 31 December 2015
Rate of increase in pensionable
salaries n/a 4.10/4.15 n/a 2.50 -
Rate of increase in payment
and deferred pensions 3.05 3.10 n/a 1.75 n/a
Discount rate 3.55 3.85/4.05 4.30 2.40 0.80
Inflation assumption 3.05 3.10/3.15 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
-------------------------------- ----------------------- --------- -------- ------------
The table above at 31 December 2015 specifies separate assumptions
for past and future service in relation to the UK schemes.
Consistent with the prior period and year end, the UK discount
rate at 30 June 2016 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 2015.
The UK scheme mortality assumptions are based on S1NA (year of
birth) mortality tables with CMI 2013 improvements and a 1.25%
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 2016 is set out below:
UK Americas Europe ROW
GBPm GBPm GBPm GBPm
-------------------------------------------- ------------ --------- -------- ------------
Discount rate +1% 509 44 101 4
Discount rate -1% (663) (55) (126) (2)
Rate of inflation +1% (583) (1) (105) -
Rate of inflation -1% 427 - 89 -
Life expectancy +1 year (110) (9) (24) -
Life expectancy -1 year 109 9 21 -
------------------------------------------------- ------------ --------- -------- ------------
UK deficit funding
The Group's two UK defined benefit pension schemes are currently
undergoing triennial funding valuations as at 5 April 2016. Once
the valuation process is complete, the 5 April 2016 funding deficit
in each scheme will be confirmed and any incremental deficit
contributions payable by the Group will be established. It is
likely that some additional Group funding will be required, but
given the early stage of negotiations with the scheme Trustees
and the many variables involved in both establishing the valuation
and agreeing any resulting recovery plan, the final outcome cannot
currently be predicted with any reasonable degree of certainty.
Following the previous triennial valuation in the UK, additional
deficit funding payments of GBP10 million per year have continued
and there is potential for further payments commencing in 2017,
contingent upon asset performance. In addition the Group agreed,
during 2014, to pay GBP2 million per year for 4 years to the
UK scheme, GKN 1, to cover a funding requirement arising from
a GBP123 million bulk annuity purchase.
During the period the Group paid GBP30 million (first half 2015:
GBP30 million, full year 2015: 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 2016
11 Cash flow notes
Unaudited
-------------------------
First First Full
half half year
2016 2015 2015
GBPm GBPm GBPm
------------------------------------------------------- ------------ ----------- -----------
Cash generated from operations
Operating profit 209 245 323
Adjustments for:
Depreciation, impairment and amortisation
of fixed assets
Charged to trading profit
Depreciation 124 106 218
Amortisation 31 20 43
Amortisation of non-operating intangible
assets arising on business
combinations 46 36 80
Impairment charges - - 71
Change in value of derivative and other financial
instruments 71 20 122
Gains and losses on changes in Group structure - 5 1
Amortisation of government capital grants (1) (1) (2)
Net loss/(profit) on sale/realisation of fixed
assets - 1 (3)
Charge for share-based payments 4 1 1
Movement in post-employment obligations (44) (49) (51)
Change in inventories (63) (61) (33)
Change in receivables (184) (71) 110
Change in payables and provisions 59 (10) 5
252 242 885
------------------------------------------------------- ------------ ----------- -----------
Movement in net debt
------------------------------------------------------- ------------ ----------- -----------
Net movement in cash and cash equivalents (96) (29) (11)
Net movement in borrowings and deposits 32 (51) (60)
Movement on finance leases - - (2)
Movement on cross currency interest rate swaps (96) 16 (43)
Movement on other net investment hedges (12) - (11)
Amortisation of debt issue costs (1) (1) (2)
Currency variations 24 (19) (16)
------------ ----------- -----------
Movement in period (149) (84) (145)
Net debt at beginning of period (769) (624) (624)
------------------------------------------------------- ------------ ----------- -----------
Net debt at end of period (918) (708) (769)
------------------------------------------------------- ------------ ----------- -----------
Reconciliation of cash and cash equivalents
------------------------------------------------------- ------------ ----------- -----------
Cash and cash equivalents per balance sheet 227 273 299
Bank overdrafts included within "current liabilities
- borrowings" (3) (4) (8)
Cash and cash equivalents per cash flow 224 269 291
------------------------------------------------------- ------------ ----------- -----------
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
2016 was GBP930 million (first half 2015: GBP952 million) with
a fair value of GBP1,035 million (first half 2015: GBP1,054 million)
and the carrying value of government refundable advances at 30
June 2016 was GBP97 million (first half 2015: GBP46 million) with
a fair value of GBP115 million (first half 2015: GBP45 million).
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2016
12 Property, plant and equipment (unaudited)
During the period ended 30 June 2016 the Group asset additions
were GBP166 million (first half 2015: GBP138 million). Assets with
a carrying value of GBP25 million (first half 2015: GBP3 million)
were disposed of during the period ended 30 June 2016.
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 2016 amounted to GBP189 million (30
June 2015: GBP134 million) and the Group's share not provided by
equity accounted investments amounted to GBP23 million (30 June
2015: GBP8 million).
During the period a total of 189,505 ordinary shares (first half
2015: 5,362,689 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.
This generated a cash inflow of nil (first half 2015: GBP2 million).
On 22 June 2016, the Group repaid the second of five annual instalments
of GBP16 million on its GBP80 million European Investment Bank
Loan.
On 30 June 2016 the Group took control, through a 60% equity shareholding,
of a newly formed company; GKN (Bazhou) Metal Powder Company Limited
(Bazhou). Bazhou specialises in metal powder production in China.
The fair value of consideration for the 60% shareholding is GBP17
million and comprises an initial cash payment of GBP8 million and
deferred consideration of GBP9 million. The fair value of net assets
acquired, before non-controlling interests, of GBP26 million comprises;
property, plant and equipment of GBP15 million, inventory of GBP3
million, receivables of GBP4 million and provisional goodwill of
GBP4 million. Due to the proximity of the transaction to the reporting
date, a formal valuation exercise will be performed in the second
half of the year to appropriately allocate the fair value of assets
and liabilities acquired. Bazhou has been included in Powder Metallurgy
for segmental reporting.
15 Contingent assets and liabilities (unaudited)
Since 2003, the Group has been involved in litigation with HMRC
in respect of various advance corporate tax payments and corporate
tax paid on certain foreign dividends which, in its view, were
levied by HMRC in breach of the Group's EU community law rights.
The most recent High Court judgment in the case was published in
December 2014. This judgement was broadly positive but HMRC appealed
the decision and a hearing took place in June 2016 in the Court
of Appeal. A judgement is expected towards the end of 2016. There
has been a recent judgement in the Prudential case from the Court
of Appeal considering similar issues which was also broadly favourable,
however, HMRC appealed this judgement to the Supreme Court.
The continuing complexity of the remaining case and uncertainty
over the issues raised (and in particular which points HMRC may
seek to appeal) means that it is not possible to predict the final
outcome of the litigation with any reasonable degree of certainty.
There are no other material contingent assets at 30 June 2016 or
30 June 2015. At 30 June 2016 the Group had no contingent liabilities
in respect of bank arrangements and no guarantees (30 June 2015:
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 2016 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 2016 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
Chartered Accountants and Statutory Auditor
London, United Kingdom
25 July 2016
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR PGURAMUPQGRA
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July 26, 2016 02:01 ET (06:01 GMT)
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