GKN HOLDINGS PLC
Registered Number: 66549
GKN Holdings plc Results Announcement for the six months ended 30 June 2015
This announcement is made in connection with GKN Holdings plc’s 6.75% Bonds due 2019 and
5.375% Bonds due 2022. The shares of GKN Holdings plc are not listed; the Company is a wholly
owned subsidiary of GKN plc, the ultimate holding company of the GKN Group.
This announcement can be viewed at or downloaded from www.gkn.com/investorrelations.
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.
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 and to the automotive and commercial vehicle
sectors.
Results
Sales (£m)
Trading profit (£m)
Trading margin (%)
Return on average invested capital (%)
First half
2015
2014
3,853 3,828
346
340
8.9%
9.0%
17.5% 16.9%
Change (%)
Headline
Organic
1
1
2
1
Organic sales increased £50 million (1%). The effect of currency translation on management sales
was a £20 million benefit and there was a £2 million benefit from acquisitions which was more than
offset by a £47 million reduction due to disposals.
Organic trading profit increased £3 million (1%) with improvements in GKN Aerospace, GKN
Driveline and GKN Powder Metallurgy whilst GKN Land Systems declined. There was a
favourable currency translational impact of £9 million and a negative net effect of acquisitions and
disposals of £6 million. Corporate costs were lower due to the recognition of a £7 million UK
pension past service credit partly offset by £3 million of acquisition related costs.
Group trading margin in the first half was 9.0% (2014: 8.9%). Return on average invested capital
(ROIC) was 17.5% (2014: 16.9%).
Post Balance Sheet Events
The Group has agreed to acquire Fokker Technologies Group B.V. headquartered in the
Netherlands. The acquisition enterprise value of approximately £499 million (€706 million) includes
equity consideration of £353 million (€500 million) together with debt and debt like items of £146
million (€206 million). Completion is expected in the fourth quarter of the year, subject to antitrust
and regulatory approvals.
Page 1 of 31
GKN HOLDINGS PLC
Registered Number: 66549
The proposed acquisition will be funded from the gross proceeds of a £200 million (approximately)
equity share placing by GKN plc and utilisation of existing debt facilities.
Divisional Performance
GKN Aerospace
GKN Aerospace is a leading global tier one supplier of airframe and engine structures,
components, assemblies and transparencies to a wide range of aircraft and engine prime
contractors and other tier one suppliers. It operates in three main product areas: aerostructures,
engine components and sub-systems, and special products.
The overall aerospace market remains positive in 2015 driven by a growing commercial aircraft
market partly offset by a declining military market. The division’s commercial sales were 74%, with
military representing 26%.
In commercial, both Airbus and Boeing continue 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. There is also more demand for strong global suppliers to support their expansion
plans.
Military spending remains under pressure, largely driven by cutbacks throughout the USA and
Europe, with the ramp-up of new programmes being delayed and overseas military operations
reduced.
The key financial results for the period are as follows:
GKN Aerospace
Sales (£m)
Trading profit (£m)
Trading margin (%)
Return on average invested capital (%)
First half
2015
2014
1,171
1,100
133
121
11.4%
11.0%
17.7%
16.8%
Change (%)
Headline
Organic
6
1
10
3
Organic sales were £7 million (1%) higher. Commercial organic sales were 2% higher, benefiting
from stronger orders for business jets and A350 partly offset by a reduction in A330 production.
Military organic sales were 4% lower primarily due to the ending of the C-17 programme in the
second half of 2014. There was a £64 million (5%) benefit from currency translation.
The organic increase in trading profit was £4 million. There was a favourable currency translation
impact of £8 million.
Each year there are commercial issues and provision movements which are included within the
results. During the last six months, progress has been made on an engine contract which resulted
in a release of £10 million and a warranty matter has been resolved with a £5 million credit (2014:
£4 million for milestones achieved in relation to the divestment of Composite Technology and
Applications Limited (CTAL)).
Trading margin was 11.4% (2014: 11.0%). Return on average invested capital was 17.7% (2014:
16.8%). During the period a number of important milestones were achieved including:
 The acquisition of Sheets Manufacturing Inc. on 8 June 2015, a technology leader in the
manufacture of aircraft engine inlet lip skins with legacy program positions on the Boeing
747-8 and KC-46 tanker. This acquisition will support GKN Aerospace on the recently
awarded contract for engine inlet lip skins for the Boeing 737Max and Boeing 777X, and
work to assemble the Section 47 floor grid for the Boeing 787;
 Winning a contract to supply wing skins to Gulfstream for their G500 and G600 ultra long
range business jets;
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GKN HOLDINGS PLC



Registered Number: 66549
Agreeing a new (US$650 million) risk and revenue sharing partnership (RRSP) with Pratt &
Whitney covering the supply of components for the PurePower® PW1400-JM Geared
Turbofan™ engine for the Irkut MC-21 mid-range, single aisle aircraft;
Filton facility being awarded ‘Accredited Member’ status by Airbus, the highest level of
recognition by the Airbus supply chain and quality improvement programme (SQIP); and
Entering into a strategic partnership with Arcam AB to develop and industrialise one of the
most promising new additive manufacturing processes to meet the needs of the expanding
future aerospace market.
Automotive market
The major automotive markets of China, India, North America and Europe experienced increased
production in the first half of the year compared to 2014, while Brazil and Japan declined. Overall,
global production volumes increased by 0.9% to 44.8 million vehicles (2014: 44.4 million).
Car and light vehicle production (rounded millions of units)
First half
Growth
2014
10.8
10.6
2.2
North America
8.8
8.6
2.0
Brazil
1.2
1.5
-16.7
Europe
(%)
(#)
2015
Japan
4.4
4.8
-9.1
China
11.7
11.2
5.0
India
1.9
1.8
6.0
6.0
44.8
5.9
44.4
0.5
0.9
Others
Total – global
(#)
Source: IHS Automotive; Growth is derived from unrounded production figures
Production in Europe showed an improvement compared with the first half of 2014 due to recovery
in demand in Western Europe being offset by the decline in Russia.
Production in North America benefitted from improved consumer confidence and localisation of
foreign manufacturers’ capacity. The deteriorating economy in Brazil caused vehicle
manufacturers to cut back production in line with the significant fall in vehicle sales.
Weak production in Japan resulted from the long term trend in production moving offshore and the
comparison with a strong first half of 2014, boosted by demand from consumer purchases to beat
April 2014’s rise in consumption tax. Production growth in China slowed to 5%, as the economy
slowed whereas the rate of growth in Indian output increased to 6% due to stronger economic
activity, improved consumer confidence and lower fuel prices.
External forecasts anticipate global production in 2015 will increase 2% to 88.9 million
vehicles. The recovery in India will lead growth (6%) with China (5%) and North America (3%) in
support. Production in Europe is forecast to increase 2% with the 4% rise in West Europe offset by
continued problems in Russia. Production in Japan is expected to decline by 6% while that of
Brazil is forecast to fall 16%.
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.
Page 3 of 31
GKN HOLDINGS PLC
Registered Number: 66549
The key financial results for the period are as follows:
GKN Driveline
Sales (£m)
Trading profit (£m)
Trading margin (%)
Return on average invested capital (%)
First half
2015
2014
1,814
1,765
150
142
8.0%
8.3%
17.9%
19.6%
Change (%)
Headline
Organic
3
4
6
4
Organic sales increased by £68 million (4%) compared with global vehicle production which was
up 1%. The adverse effect of currency translation was £19 million (1%).
GKN Driveline’s market outperformance was mainly in Europe reflecting recent market share
gains, a stronger position in premium vehicles, demand for which continued to be positive, and
GKN Driveline’s broadening product mix, particularly with all-wheel drive (AWD) systems. GKN
Driveline performed broadly in line with the markets in North America (reflecting its lower content
on truck-based platforms) and China (recognising the strong comparator period in 2014 and its
greater exposure to global brands, which performed less strongly than domestic producers).
Growth in China is expected to be above the market in the second half due to the strong order
book and new programme launches.
The organic improvement in trading profit was £6 million reflecting higher volumes in Europe.
Profit conversion was limited by lower profitability in Japan and Brazil. The positive impact of
currency translation on trading profit was £2 million. GKN Driveline’s trading margin was 8.3%
(2014: 8.0%). Return on average invested capital was 19.6% (2014: 17.9%).
During the period, around £460 million of annualised sales in new and replacement business was
secured in CVJ and AWD systems and a number of important milestones achieved, including:
 Winning an Automotive News PACE award for its two-speed eAxle technology, showcased
on the class-redefining BMW i8 plug-in hybrid supercar. GKN Driveline was also a finalist
in the 'Product' category for its AWD disconnect technology featured on JLR’s Active
Driveline Range Rover Evoque, Fiat 500X and Jeep Renegade;
 Being selected by Volvo Cars to be their development partner on the front-wheel drive, allwheel drive (AWD) and hybrid drivelines of the all-new Volvo XC90;
 Becoming the first global Tier One supplier to design, develop and manufacture a complete
all-wheel drive (AWD) system in China. GKN Driveline supplies the complete AWD to SAIC
Motors’ new MG GS compact SUV, as well as the front wheel-drive system;
 Expanding production facilities in Mexico, Turkey, Poland, Thailand and Chongqing, China
and opening a state-of-the-art engineering facility at MIRA Technology Park, UK to test and
develop the driveline technologies of the future; and
 GKN Driveline Brazil being awarded Toyota’s prestigious South America Supplier Quality
Excellence Award for the second 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
Sales (£m)
Trading profit (£m)
Trading margin (%)
Return on average invested capital (%)
First half
2015
2014
474
471
56
53
11.3%
11.8%
21.0%
22.0%
Page 4 of 31
Change (%)
Headline
Organic
1
1
6
4
GKN HOLDINGS PLC
Registered Number: 66549
Organic sales at GKN Powder Metallurgy were £6 million higher (1%), after the £8 million pass
through to customers of lower scrap steel prices. There was no impact from currency translation
and there was a £3 million decline as a result of a disposal. Good growth was achieved in North
America, China and Europe but sales in Brazil fell due to weaker automotive and industrial
markets.
The organic increase in profit was £2 million and there was a £1 million gain on currency
translation. The divisional trading margin was 11.8% (2014: 11.3%) 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 22.0%
(2014: 21.0%), reflecting the improvement in profitability.
During the period, GKN Powder Metallurgy continued to achieve a number of important milestones,
included:
 continuing strong product and development activities in engines and transmissions;
 award of £90 million of annualised sales in new and replacement business;
 its position in China being further enhanced by agreeing to file for approval to form a new
joint venture to produce metal powders; and
 development of new technically enhanced powders continuing with a new research titanium
atomizer being commissioned at the Powder Innovation Centre, in the USA.
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 year primarily due to progressively
worsening agricultural equipment markets while demand for construction and industrial equipment
remained relatively stable.
The key financial results for the period are as follows:
GKN Land Systems
Sales (£m)
Trading profit (£m)
Trading margin (%)
Return on average invested capital (%)
First half
2015
2014
371
426
15
31
7.3%
4.0%
14.6%
7.6%
Change (%)
Headline
Organic
(13)
(8)
(52)
(48)
The organic decrease in sales was £32 million (8%) and the adverse impact of currency translation
was £23 million (5%).
The organic decrease in trading profit was £14 million, including £5 million of restructuring charges
in the first half of 2015. The negative impact of currency translation was £2 million. There is
expected to be a further restructuring charge of £3 million in the second half. Trading margin was
4.0%, or 5.4% before restructuring charges (2014: 7.3%). Return on average invested capital was
7.6% (2014: 14.6%).
The first half of 2015 has been a period of tough trading and restructuring to right size the business
for the future. At the same time good progress has been made in further developing capabilities in
China and continuing to bring new technology leading products to customers.
Page 5 of 31
GKN HOLDINGS PLC
Registered Number: 66549
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 mechanical flywheel energy
storage and hybrid system manufacturer), acquired on 1 April 2014 from Williams Grand Prix
Engineering Limited.
GKN’s Other Businesses reported combined sales in the period of £23 million (2014: £66 million),
reflecting a £1 million organic increase in sales and £2 million benefit from acquisitions, more than
offset by the £44 million impact from the disposal of Emitec on 31 July 2014 and £2 million adverse
currency translation. A trading loss of £2 million was reported in the first half (2014: £5 million
profit) reflecting the disposal of Emitec and the start-up costs of GKN Hybrid Power.
Corporate costs, which comprise the costs of stewardship of the Group and operating charges and
credits associated with the Group’s legacy businesses, were £6 million (2014: £12 million),
primarily due to a £7 million past service credit following completion of a Pension Increase
Exchange exercise in the UK partly offset by £3 million of acquisition related costs.
Other Financial Information
All comparative information provided below relates to the first half of 2014, 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 £20 million (2014: loss of £7 million).
When the business wins long term customer contracts that are in a foreign currency, the
Group mitigates the potential volatility of the future cash flows by hedging through forward
foreign 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 2015, the net fair value of such instruments was a liability of
£211 million (31 December 2014: liability of £180 million) and the change in fair value
during the year was a £31 million charge (2014: £11 million charge).
There was no change in the fair value of embedded derivatives in the period (2014: £1
million charge) and a net gain of £11 million attributable to the currency impact on Group
funding balances (2014: £5 million net gain).
Amortisation of non-operating intangible assets arising on business combinations
The charge for the amortisation of non-operating intangible assets arising on business
combinations (for example, customer contracts, order backlog, technology and intellectual
property rights) was £36 million (2014: £35 million).
Gains and losses on changes in Group structure
The loss on changes in Group structure was £5 million (2014: nil).
On 30 January 2015, the Group sold GKN Sinter Metals Argentina SA for cash
consideration of £1 million before cash disposed and fees. The carrying value on the date
of disposal was £2 million and £4 million of previous currency variations were reclassified
from other reserves resulting in a loss on sale of £5 million.
Page 6 of 31
GKN HOLDINGS PLC
Registered Number: 66549
Post-tax earnings of joint ventures
On a management basis, the sales and trading profits of joint ventures 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 of joint ventures in the period was £34 million (2014: £31
million) with trading profit of £40 million (2014: £39 million). The Group’s share of post-tax
earnings on a management basis was £34 million (2014: £32 million). The Group’s share of the
tax charge amounted to £6 million (2014: £7 million) with no net financing costs in either period.
The organic increase in trading profit was £2 million.
Net financing costs
Net financing costs totalled £67 million (2014: £66 million) and comprise the net interest payable of
£33 million (2014: £37 million), a non-cash charge on post-employment benefits of £25 million
(2014: £25 million), a £6 million charge for changes in fair value on net investment hedges (2014:
nil) and unwind of discounts of £3 million (2014: £4 million). The non-cash charge on postemployment benefits, changes in fair value on net investment hedges and unwind of discounts are
not included in management figures. Details of the assumptions used in calculating postemployment costs and income are provided in note 10 of the financial statements.
Profit before tax
Management profit before tax was £307 million (2014: £296 million). Profit before tax on a
statutory basis was £212 million (2014: £224 million). The main differences in the first half of 2015
between management and statutory figures are the change in value of derivative and other
financial instruments, amortisation of non-operating intangible assets and the interest charge on
net defined benefit pension plans. Further details are provided in note 3 to the financial
statements.
Taxation
The Group’s theoretical weighted average tax rate, which assumes that book profits/losses are
taxed at the statutory tax rates in the countries in which they arise, is 33% (2014: 33%). The book
tax rate is significantly lower, largely because of the utilisation of deferred tax assets, movements
in tax risk provisions as outstanding issues are settled and tax on items excluded from
management profit.
The tax charge on statutory profits of subsidiaries was £49 million (2014: £42 million charge).
Non-controlling interests
The profit attributable to non-controlling interests was £3 million (2014: £2 million).
Cash flow
Operating cash flow, which is defined as cash generated from operations of £155 million (2014:
£145 million) adjusted for capital expenditure (net of proceeds from capital grants) of £198 million
(2014: £161 million), proceeds from disposal of fixed assets £2 million (2014: £7 million), was an
outflow of £41 million (2014: £9 million outflow). 2014 operating cash flow included repayment of
the principal of a UK government refundable advance of £38 million.
Capital expenditure (net of proceeds from capital grants) on both tangible and intangible assets
totalled £198 million (2014: £161 million). Of this, £166 million (2014: £132 million) was on tangible
fixed assets and was 1.6 times (2014: 1.2 times) the depreciation charge. Expenditure on
intangible assets, mainly non-recurring costs on Aerospace programmes, totalled £32 million
(2014: £29 million).
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GKN HOLDINGS PLC
Registered Number: 66549
Interest paid was £22 million (2014: £39 million), whilst interest received was £1 million (2014: £1
million) resulting in net interest paid of £21 million (2014: £38 million, including £16 million interest
paid on repayment of a Government refundable advance).
Net debt
At the end of the period, the Group had net debt of £708 million (2014: £813 million). In
September 2014, the Group entered into a series of cross currency interest rate swaps to better
align its foreign currency income receipts with its debt coupon payments. The fair value of these
derivative instruments at 30 June 2015 was a liability of £10 million (31 December 2014: £26
million liability) which is included in the net debt figure of £708 million.
Pensions and post-employment obligations
GKN operates a number of defined benefit and defined contribution pension schemes together with
retiree medical arrangements across the Group.
The amount included within trading profit for the period comprises current service cost of £27
million (2014: £23 million) and administrative costs of £1 million (2014: £1 million). Interest on net
defined benefit plans, which is excluded from management figures, was £25 million (2014: £25
million).
The deficit across all schemes at 30 June 2015 was £1,533 million, a £178 million decrease over
the 31 December 2014 deficit (£1,711 million). This decrease is caused by favourable changes in
the discount rates used, further deficit contributions and beneficial currency movements.
Both UK pension schemes underwent funding valuations as at 5 April 2013. The agreed deficit
recovery plan requires payments of £10 million per year to the pension schemes combined.
A “pension increase exchange” (PIE) exercise was completed in the UK legacy scheme, GKN1,
during the period. This involved pensioners being offered the no-obligation opportunity to
exchange future inflationary increases to their pensions for a one-off payment with no future
increases. Around 54% of members eligible for the offer accepted it. Due to differences in the
inflation assumption used to determine the pension increases and those used for accounting
purposes, the PIE exercise has led to a £7 million income statement credit which has been
recognised in trading profit.
Group-wide contributions totalled £71 million (2014: £71 million), including a £30 million payment
from the pension partnership to the UK pension schemes and £12 million from the deficit recovery
plan and a bulk annuity “buy-in” funding.
Defined contribution pension schemes
In addition to the defined benefit pension schemes, the Group also operates a number of defined
contribution pension schemes for which the income statement charge was £20 million (2014: £16
million).
Net assets
Net assets of £3,724 million were £166 million higher than the December 2014 year end figure of
£3,558 million. The increase includes statutory profit after tax of £163 million and a gain on remeasurement of defined benefit plans net of tax of £78 million partially offset by adverse currency
on translation of subsidiaries and joint ventures net of tax of £98 million.
Page 8 of 31
GKN HOLDINGS PLC
Registered Number: 66549
Exchange rates
Exchange rates used for currencies most relevant to the Group’s operations are:
Average
Euro
US Dollar
H1
2015
1.37
1.53
H1
2014
1.22
1.67
Period End
June
June
2015
2014
1.41
1.25
1.57
1.71
2014 Full Year
Average
Period
End
1.24
1.29
1.65
1.56
The approximate impact on first half 2015 trading profit of subsidiaries and joint ventures of a 1%
movement in the average rate would be euro - £1 million, US dollar - £2 million.
Funding, liquidity and going concern
At 30 June 2015, UK committed bank facilities were £879 million. Within this amount were
committed Revolving Credit Facilities of £800 million, £64 million outstanding on an eight-year
amortising facility from the European Investment Bank (EIB) and a new euro denominated £15
million seven-year amortising facility from KfW, which was fully drawn at inception. There were
drawings of £56 million against the Revolving Credit Facilities.
As at 30 June 2015, the next major maturities of the Revolving Credit Facilities were for £800
million in 2019.
Capital market borrowings at 30 June 2015 comprised a £350 million 6.75% annual unsecured
bond maturing in October 2019 and a £450 million 5.375% semi-annual unsecured bond maturing
in September 2022. As at 30 June 2015, the Group had net debt of £708 million (31 December
2014: £624 million).
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 12 months to 30 June 2015, EBITDA was 12.6 times greater than net
interest, whilst net debt was 0.8 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.
Page 9 of 31
GKN HOLDINGS PLC
Registered Number: 66549
Principal risks and uncertainties
As a finance, investment and holding company within the GKN Group, aside from holding the
Group’s external term loans and the sponsorship of the UK pension schemes, the Company’s
dealings are almost exclusively intra Group transactions. In this context the Company’s significant
risks and uncertainties remain largely unchanged from those reported on pages 3 and 4 of the
Company’s 2014 annual report. These risks relate to the following: pension deficit volatility,
business continuity, currency translation and risks which could have a material impact on the
Group’s strategic objectives as listed on page 13 of GKN plc’s 2015 Half Year Report
Announcement.
The acquisition of Fokker comes with transaction related risks, such as potential integration issues,
difficulty achieving planned synergies, or unexpected compliance or litigation related costs. The
Board of GKN plc has carefully reviewed these risks and considers them to be mitigated
appropriately. The Group has considerable experience managing integration processes and
integration plans will be regularly reviewed by divisional management, the Executive Committee
and the Board of GKN plc.
Basis of Reporting
The financial statements for the period are shown on pages 13 to 31 and have been prepared
using accounting policies which were used in the preparation of audited accounts for the year
ended 31 December 2014 and which will form the basis of the 2015 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
joint ventures. 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 joint ventures. 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, joint venture dividends,
own shares purchased 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 joint ventures excluding
current and deferred tax, net debt, post-employment obligations and derivative financial
instruments.
Page 10 of 31
GKN HOLDINGS PLC
Registered Number: 66549
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 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.
The Directors of GKN Holdings plc are listed in the Company’s annual report for 2014.
Approved by the Board of GKN Holdings plc and signed on its behalf by:
Adam Walker
Director
26 August 2015
Page 11 of 31
GKN HOLDINGS PLC
Registered Number: 66549
APPENDICES
Page
GKN Holdings plc Condensed Consolidated Financial Statements
Consolidated Income Statement for the half year ended 30 June 2015
13
Consolidated Statement of Comprehensive Income for the half year ended 30 June
2015
14
Condensed Consolidated Statement of Changes in Equity for the half year ended 30
June 2015
15
Consolidated Balance Sheet at 30 June 2015
16
Consolidated Cash Flow Statement for the half year ended 30 June 2015
17
Notes to the Half Year Consolidated Financial Statements
Page 12 of 31
18 - 31
GKN HOLDINGS PLC
Registered Number: 66549
CONSOLIDATED INCOME STATEMENT
FOR THE HALF YEAR ENDED 30 JUNE 2015
Notes
Sales
1a
Trading profit
Change in value of derivative and other financial instruments
Amortisation of non-operating intangible assets arising on
business combinations
Gains and losses on changes in Group structure
Impairment charges
1b
4
5
Operating profit
Share of post-tax earnings of joint ventures
Interest payable
Interest receivable
Other net financing charges
Net financing costs
6
7
Profit before taxation
Taxation
Profit after taxation for the period
8
Profit attributable to non-controlling interests
Profit attributable to owners of the parent
Page 13 of 31
Unaudited
First half
First half
2015
2014
£m
£m
Full year
2014
£m
3,616
3,565
6,982
306
(20)
301
(7)
612
(209)
(36)
(5)
-
(35)
-
(69)
24
(69)
245
259
289
34
31
61
(34)
1
(34)
(67)
(38)
1
(29)
(66)
(75)
2
(56)
(129)
212
224
221
(49)
163
(42)
182
(53)
168
3
160
163
2
180
182
5
163
168
GKN HOLDINGS PLC
Registered Number: 66549
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE HALF YEAR ENDED 30 JUNE 2015
Notes
Profit after taxation for the period
Unaudited
First half First half
2015
2014
£m
£m
163
182
Full year
2014
£m
168
Other comprehensive income:
Items that may be reclassified to profit or loss
Currency variations – subsidiaries
Arising in period
Reclassified in period
Currency variations – joint ventures
Arising in period
Reclassified in period
Net investment hedge changes in fair value
Arising in period
Reclassified in period
Taxation
Items that will not be reclassified to profit or loss
Remeasurement of defined benefit plans
Subsidiaries
Joint ventures
Taxation
Other comprehensive income/(expense) for the period
Total comprehensive income/(expense) for the period
Total comprehensive income for the period attributable to:
Owners of the parent
Non-controlling interests
Page 14 of 31
5
8
9
8
(102)
4
(80)
-
47
-
(2)
-
(8)
-
2
(1)
23
2
(75)
2
(86)
(30)
9
27
106
(28)
78
(136)
31
(105)
(485)
122
(363)
3
(191)
(336)
166
(9)
(168)
164
2
166
(11)
2
(9)
(173)
5
(168)
GKN HOLDINGS PLC
Registered Number: 66549
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE HALF YEAR ENDED 30 JUNE 2015
Share
capital
£m
Share
premium
account
£m
Retained
earnings
£m
Other
reserves
£m
Equity
attributable
to equity
holders
of the
parent
£m
At 1 January 2015
362
301
3,066
(193)
3,536
22
3,558
Profit for the period
-
-
160
-
160
3
163
Other comprehensive income/(expense)
-
-
78
(74)
4
(1)
3
Total comprehensive income/(expense)
-
-
238
(74)
164
2
166
Share-based payments
-
-
1
-
1
-
1
Dividends paid to non-controlling interests
-
-
-
-
-
(1)
(1)
At 30 June 2015 (unaudited)
362
301
3,305
(267)
3,701
23
3,724
At 1 January 2014
362
301
3,563
(220)
4,006
20
4,026
Profit for the period
-
-
180
-
180
2
182
Other comprehensive income/(expense)
-
-
(105)
(86)
(191)
-
(191)
Total comprehensive income/(expense)
-
-
75
(86)
(11)
2
(9)
Share-based payments
-
-
4
-
4
-
4
Dividends paid to non-controlling interests
-
-
-
-
-
(1)
(1)
At 30 June 2014 (unaudited)
362
301
3,642
(306)
3,999
21
4,020
At 1 January 2014
4,026
Noncontrolling
interests
£m
Total
equity
£m
362
301
3,563
(220)
4,006
20
Profit for the year
-
-
163
-
163
5
168
Other comprehensive income/(expense)
-
-
(363)
27
(336)
-
(336)
Total comprehensive income/(expense)
-
-
(200)
27
(173)
5
(168)
Share-based payments
-
-
3
-
3
-
3
Purchase of non-controlling interests
-
-
-
-
-
(1)
(1)
Dividend paid to Parent undertaking
-
-
(300)
-
(300)
-
(300)
Dividends paid to non-controlling interests
-
-
-
-
-
(2)
(2)
362
301
3,066
(193)
3,536
22
3,558
At 31 December 2014
Page 15 of 31
GKN HOLDINGS PLC
Registered Number: 66549
CONSOLIDATED BALANCE SHEET
AT 30 JUNE 2015
Notes
Assets
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investments in joint ventures
Other receivables and investments
Derivative financial instruments
Deferred tax assets
11
Current assets
Inventories
Trade and other receivables
Amounts receivable from Parent undertaking
Current tax assets
Derivative financial instruments
Other financial assets
Cash and cash equivalents
10
Total assets
Liabilities
Current liabilities
Borrowings
Derivative financial instruments
Trade and other payables
Amounts due to Parent undertaking
Current tax liabilities
Provisions
Non-current liabilities
Borrowings
Derivative financial instruments
Deferred tax liabilities
Trade and other payables
Provisions
Post-employment obligations
9
Total liabilities
Net assets
Shareholders' equity
Share capital
Share premium account
Retained earnings
Other reserves
Equity attributable to equity holders of the parent
Non-controlling interests
Total equity
Page 16 of 31
Unaudited
30 June
30 June
2015
2014
£m
£m
31 December
2014
£m
491
911
2,014
151
35
18
314
3,934
528
897
1,894
158
43
45
250
3,815
498
944
2,060
174
44
16
407
4,143
1,000
1,259
2,154
7
8
3
273
4,704
8,638
939
1,288
2,325
11
29
181
4,773
8,588
971
1,226
2,064
8
10
3
319
4,601
8,744
(103)
(87)
(1,561)
(10)
(120)
(51)
(1,932)
(117)
(10)
(1,495)
(11)
(166)
(51)
(1,850)
(43)
(76)
(1,611)
(7)
(125)
(51)
(1,913)
(871)
(152)
(145)
(199)
(82)
(1,533)
(2,982)
(4,914)
3,724
(877)
(30)
(149)
(185)
(114)
(1,363)
(2,718)
(4,568)
4,020
(877)
(148)
(223)
(202)
(112)
(1,711)
(3,273)
(5,186)
3,558
362
301
3,305
(267)
3,701
23
3,724
362
301
3,642
(306)
3,999
21
4,020
362
301
3,066
(193)
3,536
22
3,558
GKN HOLDINGS PLC
Registered Number: 66549
CONSOLIDATED CASH FLOW STATEMENT
FOR THE HALF YEAR ENDED 30 JUNE 2015
Unaudited
Notes
Cash flows from operating activities
Cash generated from operations
Interest received
Interest paid
Costs associated with refinancing
Tax paid
Dividends received from joint ventures
10
Cash flows from investing activities
Purchase of property, plant and equipment
Receipts of government capital grants
Purchase of intangible assets
Proceeds from sale and realisation of fixed assets
Payment of deferred and contingent consideration
Acquisitions of subsidiaries (net of cash acquired)
Repayment of government refundable advance
Proceeds from sale of joint ventures
Joint venture loan settlement
Investment in joint ventures
13
Cash flows from financing activities
Purchase of non-controlling interests
Amounts placed on deposit
Proceeds from borrowing facilities
Repayment of other borrowings
Dividends paid to Parent undertaking
Dividends paid to non-controlling interests
Movement in cash and cash equivalents
Cash and cash equivalents at beginning of period
Currency variations on cash and cash equivalents
Cash and cash equivalents at end of period
Page 17 of 31
10
First half
2015
£m
First half
2014
£m
Full year
2014
£m
155
1
(22)
(61)
55
128
145
1
(39)
(25)
44
126
939
2
(82)
(3)
(74)
44
826
(167)
1
(32)
2
(1)
(8)
(2)
(207)
(133)
1
(29)
7
(8)
(38)
(200)
(329)
1
(75)
19
(6)
(8)
(38)
37
8
(391)
75
(24)
(1)
50
(29)
317
(19)
269
60
(10)
(1)
(3)
66
(63)
(300)
(2)
(303)
132
181
4
317
(1)
49
(25)
181
(6)
150
GKN HOLDINGS PLC
Registered Number: 66549
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEAR ENDED 30 JUNE 2015
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
Aerospace
£m
FIRST HALF 2015 (unaudited)
Subsidiaries
Joint ventures
Automotive
Powder
Driveline Metallurgy
£m
£m
Land
Systems
£m
1,171
1,171
1,590
224
1,814
474
474
358
13
371
1,100
1,100
1,561
204
1,765
471
471
415
11
426
2,226
2,226
3,050
394
3,444
916
916
752
24
776
Other businesses
Management sales
Less: Joint venture sales
Income statement – sales
FIRST HALF 2014 (unaudited)
Subsidiaries
Joint ventures
Other businesses
Management sales
Less: Joint venture sales
Income statement – sales
FULL YEAR 2014
Subsidiaries
Joint ventures
Other businesses
Management sales
Less: Joint venture sales
Income statement – sales
Page 18 of 31
Total
£m
3,830
23
3,853
(237)
3,616
3,762
66
3,828
(263)
3,565
7,362
94
7,456
(474)
6,982
GKN HOLDINGS PLC
Registered Number: 66549
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2015
1
Segmental analysis (continued)
b)
Trading profit
Aerospace
£m
FIRST HALF 2015 (unaudited)
Trading profit before depreciation and amortisation
Depreciation of property, plant and equipment
Amortisation of operating intangible assets
Trading profit – subsidiaries
Trading profit – joint ventures
Automotive
Powder
Land
Driveline Metallurgy Systems
£m
£m
£m
176
(28)
(15)
133
133
164
(50)
(3)
111
39
150
75
(19)
56
56
22
(8)
14
1
15
160
(28)
(11)
121
121
164
(54)
(3)
107
35
142
70
(17)
53
53
39
(8)
(1)
30
1
31
356
325
137
60
(55)
(24)
277
277
(109)
(6)
210
70
280
(35)
(1)
101
101
(17)
(1)
42
2
44
Other businesses
Corporate and unallocated costs
Management trading profit
Less: Joint venture trading profit
Income Statement – trading profit
FIRST HALF 2014 (unaudited)
Trading profit before depreciation and amortisation
Depreciation of property, plant and equipment
Amortisation of operating intangible assets
Trading profit – subsidiaries
Trading profit – joint ventures
Other businesses
Corporate and unallocated costs
Management trading profit
Less: Joint venture trading profit
Income Statement – trading profit
FULL YEAR 2014
Trading profit before depreciation, impairment and
amortisation
Depreciation and impairment of property, plant and
equipment
Amortisation of operating intangible assets
Trading profit – subsidiaries
Trading profit – joint ventures
Other businesses
Corporate and unallocated costs
Management trading profit
Less: Joint venture trading profit
Income Statement – trading profit
Total
£m
354
(2)
(6)
346
(40)
306
347
5
(12)
340
(39)
301
702
5
(20)
687
(75)
612
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.
During the first half of 2015, the Group recorded; a net credit of £3 million (first half 2014: net charge of £5 million) in
trading profit of Driveline relating to warranty and commercial matters (£5 million charge) and resolution of an
onerous contract (£8 million credit) and a net credit of £15 million (first half 2014: £4 million credit) in trading profit of
Aerospace relating to settlement of a warranty matter (£5 million credit) and progress on an onerous contract (£10
million credit). In addition the Group has charged £5 million of restructuring costs in trading profit of Land Systems.
Corporate and unallocated costs in the first half 2015 include a £7 million credit following completion of a pension
increase exchange exercise in the UK (see note 9 for further details) and £3 million of transaction costs related to the
announced acquisition of Fokker Technologies Group B.V. (see note 15).
Page 19 of 31
GKN HOLDINGS PLC
Registered Number: 66549
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2015
1
Segmental analysis (continued)
c)
Goodwill, fixed assets and working capital - subsidiaries only
Aerospace
£m
Automotive
Powder
Land
Driveline Metallurgy Systems
£m
£m
£m
Total
£m
FIRST HALF 2015 (unaudited)
Property, plant and equipment and operating intangible
assets
Working capital
Net operating assets
Goodwill and non-operating intangible assets
Net investment
1,050
208
1,258
487
1,745
949
116
1,065
253
1,318
357
100
457
27
484
121
76
197
131
328
2,477
500
FIRST HALF 2014 (unaudited)
Property, plant and equipment and operating intangible
assets
Working capital
Net operating assets
Goodwill and non-operating intangible assets
Net investment
927
171
1,098
525
1,623
906
144
1,050
265
1,315
330
107
437
25
462
135
94
229
170
399
2,298
516
FULL YEAR 2014
Property, plant and equipment and operating intangible
assets
Working capital
Net operating assets
Goodwill and non-operating intangible assets
Net investment
1,024
148
1,172
507
1,679
995
47
1,042
268
1,310
363
89
452
27
479
132
75
207
146
353
2,514
359
d)
Inter segment sales
Subsidiary segmental sales gross of inter segment sales are; Aerospace £1,171 million (first half 2014:
£1,100 million, full year 2014: £2,226 million), Driveline £1,617 million (first half 2014: £1,591 million, full year 2014:
£3,106 million), Powder Metallurgy £475 million (first half 2014: £472 million, full year 2014: £919 million) and Land
Systems £360 million (first half 2014: £416 million, full year 2014: £754 million).
e)
Reconciliation of segmental property, plant and equipment and operating intangible assets to the Balance
Sheet
Unaudited
First half First half Full year
2015
2014
2014
£m
£m
£m
Segmental analysis – property, plant and equipment and operating intangible
2,477
assets
2,298
2,514
898
Segmental analysis – goodwill and non-operating intangible assets
985
948
(491)
Goodwill
(528)
(498)
32
Other businesses
28
31
9
Corporate assets
8
9
2,925
Balance Sheet – property, plant and equipment and other intangible assets
2,791
3,004
f)
Reconciliation of segmental working capital to the Balance Sheet
Segmental analysis – working capital
Other businesses
Corporate items
Accrued interest
Restructuring provisions
Deferred and contingent consideration
Government refundable advances
Loan to joint venture
Joint venture funding
Investment
Balance Sheet – inventories, trade and other receivables, trade and other
payables and provisions
Page 20 of 31
Unaudited
First half First half
2015
2014
£m
£m
500
516
15
12
(24)
(30)
(26)
(25)
(2)
(3)
(12)
(15)
(46)
(42)
8
(4)
4
401
425
Full year
2014
£m
359
11
(31)
(17)
(2)
(9)
(46)
265
GKN HOLDINGS PLC
Registered Number: 66549
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2015
2
Basis of preparation
These half year condensed consolidated financial statements for the six months ended 30 June 2015 have been
prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and
International Financial Reporting Standards, as adopted by the European Union, in accordance with IAS 34 'Interim
Financial Reporting'. These financial statements have been prepared on a going concern basis. These financial
statements, which are unaudited, 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 2014.
These financial statements do not constitute statutory accounts. A copy of the audited consolidated statutory
accounts for the year ended 31 December 2014 has been delivered to the Registrar of Companies. The auditors’
report on these accounts 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 2014.
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 2014. Application of the Group’s accounting policies requires the use of estimates, subjective
judgement and assumptions. The Directors base these estimates, judgements and assumptions on a combination of
past experience, professional expert advice and other evidence that is relevant to the particular circumstance.
The accounting policies where the Directors consider the more complex estimates, judgements and assumptions
have to be made are those in respect of post-employment obligations, derivative and other financial instruments,
taxation, provisions and impairment of non-current assets. Details of the principal estimates, judgements and
assumptions are set out in notes 22, 4b, 18, 6, 19 and 9 of the audited consolidated financial statements for the year
ended 31 December 2014 as updated in notes 9 (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 Wednesday 26 August 2015.
Page 21 of 31
GKN HOLDINGS PLC
Registered Number: 66549
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2015
3
Adjusted performance measures
(a) Reconciliation of reported and management performance measures
FIRST HALF 2015 (unaudited)
As
reported
£m
3,616
Sales
Exceptional
Joint
and non- Management
ventures trading items
basis
£m
£m
£m
237
3,853
306
(20)
40
-
20
346
-
(36)
(5)
245
40
36
5
61
346
34
(40)
-
(6)
Interest payable
Interest receivable
Other net financing charges
Net financing costs
Profit before taxation
(34)
1
(34)
(67)
212
-
34
34
95
(34)
1
(33)
307
Taxation
Profit after taxation for the period
Profit attributable to non-controlling interests
Profit attributable to owners of the parent
(49)
163
(3)
160
-
(20)
75
75
(69)
238
(3)
235
Trading profit
Change in value of derivative and other financial instruments
Amortisation of non-operating intangible assets arising on
business combinations
Gains and losses on changes in Group structure
Operating profit
Share of post-tax earnings of joint ventures
FIRST HALF 2014 (unaudited)
As
reported
£m
3,565
Sales
Trading profit
Change in value of derivative and other financial instruments
Amortisation of non-operating intangible assets arising on
business combinations
Operating profit
Exceptional
Joint
and non- Management
ventures trading items
basis
£m
£m
£m
263
3,828
301
(7)
39
-
7
340
-
(35)
259
39
35
42
340
31
(39)
1
(7)
Interest payable
Interest receivable
Other net financing charges
Net financing costs
Profit before taxation
(38)
1
(29)
(66)
224
-
29
29
72
(38)
1
(37)
296
Taxation
Profit after taxation for the period
Profit attributable to non-controlling interests
Profit attributable to owners of the parent
(49)
182
(2)
180
-
(19)
53
(61)
235
(2)
233
Share of post-tax earnings of joint ventures
-
-
-
53
FULL YEAR 2014
For the year ended 31 December 2014, management sales were £7,456 million, management trading profit was
£687 million and management profit before tax was £601 million,
Page 22 of 31
GKN HOLDINGS PLC
Registered Number: 66549
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2015
3
Adjusted performance measures (continued)
(b) Summary by segment
FIRST HALF 2015 (unaudited)
Aerospace
Driveline
Powder Metallurgy
Land Systems
Other businesses
Corporate and unallocated costs
Sales
£m
1,171
1,814
474
371
23
3,853
Trading
profit
£m
133
150
56
15
(2)
(6)
346
Sales
£m
1,100
1,765
471
426
66
3,828
Trading
profit
£m
121
142
53
31
5
(12)
340
Sales
£m
2,226
3,444
916
776
94
7,456
Trading
profit
£m
277
280
101
44
5
(20)
687
Margin
11.4%
8.3%
11.8%
4.0%
9.0%
FIRST HALF 2014 (unaudited)
Aerospace
Driveline
Powder Metallurgy
Land Systems
Other businesses
Corporate and unallocated costs
Margin
11.0%
8.0%
11.3%
7.3%
8.9%
FULL YEAR 2014
Aerospace
Driveline
Powder Metallurgy
Land Systems
Other businesses
Corporate and unallocated costs
Page 23 of 31
Margin
12.4%
8.1%
11.0%
5.7%
9.2%
GKN HOLDINGS PLC
Registered Number: 66549
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2015
4
Change in value of derivative and other financial instruments
Forward currency contracts (not hedge accounted)
Embedded derivatives
Net gains and losses on intra-group funding
Arising in period
Change in value of derivative and other financial instruments
Unaudited
First half
First half
2015
2014
£m
£m
(31)
(11)
(1)
(31)
(12)
11
(20)
5
(7)
Full year
2014
£m
(232)
4
(228)
19
(209)
Forward foreign currency contracts (level 2) and embedded derivatives (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.
5
Gains and losses on changes in Group structure
Unaudited
First half
First half
2015
2014
£m
£m
Profits and losses on sale or closure of businesses
Business sold
Profit on sale of joint venture
Gains and losses on changes in Group structure
(5)
(5)
Full year
2014
£m
-
24
24
On 30 January 2015, the Group sold GKN Sinter Metals Argentina SA for cash consideration of £1 million before
professional fees. The loss on sale of £5 million comprises a £1 million loss on disposal of net assets and £4 million
loss on reclassification of previous currency variations from other reserves.
6
Share of post-tax earnings of joint ventures
Sales
Operating costs
Trading profit
Net financing costs
Profit before taxation
Taxation
Share of post-tax earnings - before exceptional and non-trading
items
Exceptional and non-trading items
Share of post-tax earnings
Unaudited
First half
First half
2015
2014
£m
£m
237
263
(197)
(224)
40
39
40
39
(6)
(7)
34
34
Full year
2014
£m
474
(399)
75
(1)
74
(12)
32
(1)
31
62
(1)
61
Exceptional and non-trading items represent amortisation of non-operating intangible assets arising on business
combinations and other net financing charges.
7
Other net financing charges
Unaudited
First half
First half
2015
2014
£m
£m
(25)
(25)
(6)
(3)
(4)
(34)
(29)
Interest charge on net defined benefit plans
Fair value changes on net investment hedges
Unwind of discounts
Other net financing charges
Page 24 of 31
Full year
2014
£m
(50)
3
(9)
(56)
GKN HOLDINGS PLC
Registered Number: 66549
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2015
8
Taxation
The tax charge for the period is based on an estimate of the Group’s expected annual effective rate of tax for 2015
based on tax legislation substantively enacted at 30 June 2015 applied to taxable profit for the period ended 30
June 2015.
Unaudited
First half
First half
Full year
2015
2014
2014
£m
£m
£m
Tax included in the income statement
Analysis of tax charge in the period
Current tax (charge)/credit
(77)
Current period charge
(69)
(93)
1
Utilisation of previously unrecognised tax losses and other assets
8
Adjustments in respect of prior periods
(2)
(3)
3
Net movement on provisions for uncertain tax positions
10
9
(66)
(61)
(86)
17
Deferred tax
19
33
Total tax charge for the period
(49)
(42)
(53)
Analysed as:
Tax in respect of management profit
Current tax
Deferred tax
(66)
(3)
(61)
-
(83)
(44)
(69)
(61)
(127)
20
19
(3)
77
Tax in respect of items excluded from management profit
Current tax
Deferred tax
Total tax charge for the period
Tax included in other comprehensive income
Current tax on post-employment obligations
Current tax on foreign currency gains and losses on intra-group funding
Deferred tax on post-employment obligations
Deferred tax on foreign currency gains and losses on intra-group funding
20
19
74
(49)
(42)
(53)
Unaudited
First half
First half
2015
2014
£m
£m
Full year
2014
£m
2
(30)
2
(26)
2
2
29
33
4
13
118
(4)
131
Deferred tax asset recognition
There was no significant deferred tax asset recognition in the period (first half 2014: £19 million credit, full year
2014: £33 million credit).
UK tax rate reduction
On 8 July 2015 the UK government announced reductions to the mainstream rate of UK corporation tax from April
2017 to 19%, falling to 18% from April 2020. These changes have not been substantively enacted. As reductions
are substantively enacted there will be a corresponding reduction in the value of recognised deferred tax assets in
the UK.
Page 25 of 31
GKN HOLDINGS PLC
Registered Number: 66549
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2015
9
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 2015.
Movement in post-employment obligations during the period:
Unaudited
First half
First half
2015
2014
£m
£m
(1,711)
(1,271)
(27)
(23)
6
(1)
(1)
(25)
(25)
106
(136)
71
71
48
22
(1,533)
(1,363)
At 1 January
Current service cost
Past service
Settlements and curtailments
Administrative costs
Interest on net defined benefit plans
Remeasurement of defined benefit plans
Contributions/benefits paid
Currency variations
At end of period
Full Year
2014
£m
(1,271)
(49)
9
(3)
(50)
(485)
108
30
(1,711)
Post-employment obligations as at the period end comprise:
Unaudited
30 June
30 June 31 December
2015
2014
2014
£m
£m
£m
(967)
(805)
(1,067)
(489)
(492)
(564)
(27)
(20)
(28)
(50)
(46)
(52)
(1,533)
(1,363)
(1,711)
Pensions - funded
- unfunded
Medical
- funded
- unfunded
At 30 June 2015 - unaudited
At 30 June 2014 - unaudited
At 31 December 2014
UK Americas
£m
£m
(920)
(117)
(769)
(94)
(1,005)
(136)
Page 26 of 31
Europe
£m
(483)
(486)
(556)
ROW
£m
(13)
(14)
(14)
Total
£m
(1,533)
(1,363)
(1,711)
GKN HOLDINGS PLC
Registered Number: 66549
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2015
9
Post-employment obligations (continued)
Assumptions
The major assumptions used were:
Americas
Europe
ROW
GKN1
%
UK
GKN2
%
%
%
%
n/a
4.20
n/a
2.50
-
3.20
3.50
3.20
3.20
3.75
3.20
n/a
4.40
n/a
1.75
2.20
1.75
n/a
0.80
n/a
7.0/5.0
n/a
n/a
At 30 June 2015 – unaudited
Rate of increase in pensionable salaries
Rate of increase in payment and deferred
pensions
Discount rate
Inflation assumption
Rate of increase in medical costs:
Initial/long term
At 30 June 2014 – unaudited
Rate of increase in pensionable salaries
Rate of increase in payment and deferred
pensions
Discount rate
Inflation assumption
Rate of increase in medical costs:
Initial/long term
At 31 December 2014
Rate of increase in pensionable salaries
Rate of increase in payment and deferred
pensions
Discount rate
Inflation assumption
Rate of increase in medical costs:
Initial/long term
5.5/5.5
n/a
4.20
n/a
2.50
-
3.20
4.00
3.20
3.20
4.20
3.20
n/a
4.30
n/a
1.75
2.80
1.75
n/a
1.25
n/a
7.5/5.0
n/a
n/a
5.5 /5.5
n/a
4.05/4.10
n/a
2.50
-
3.05
3.25
3.05
3.05
3.55/3.80
3.05/3.10
n/a
3.90
n/a
1.75
1.90
1.75
n/a
0.80
n/a
7.0/5.0
n/a
n/a
5.5/5.5
Consistent with the prior period and year end, the UK discount rate at 30 June 2015 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 2014.
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 2015 is set out below:
UK Americas
£m
£m
516
37
(670)
(46)
(509)
412
(114)
(7)
113
8
Discount rate +1%
Discount rate -1%
Rate of inflation +1%
Rate of inflation -1%
Life expectancy +1 year
Life expectancy -1 year
Page 27 of 31
Europe
£m
75
(96)
(76)
64
(18)
16
ROW
£m
3
(2)
-
GKN HOLDINGS PLC
Registered Number: 66549
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2015
9
Post-employment obligations (continued)
UK deficit funding
During the period, a pension increase exchange agreement was entered into with a number of members
from the GKN 1 scheme. The arrangement involved offering a one off immediate uplift in pension
payments to those members who accepted the offer in exchange for any future inflationary increases in
their pension payments. This has resulted in a past service credit of £7 million which is partially offset by
a past service cost of £1 million on the GKN 2 scheme in respect of early retirement funding for a small
number of members. Also see note 1b.
Following the most recent triennial valuation in the UK, additional deficit funding payments of £10 million
per year have continued and there is potential for further payments commencing in 2016, contingent upon
asset performance. In addition the Group agreed, during 2014, to pay £2 million per year for 4 years to
the UK scheme, GKN 1, to cover a funding requirement arising from a £123 million bulk annuity purchase.
During the period the Group paid £30 million (first half 2014: £30 million, full year 2014: £30 million) to the
2 UK pension schemes through its pension partnership arrangement.
10
Cash flow notes
Unaudited
First half
2015
£m
Cash generated from operations
Operating profit
Adjustments for:
Depreciation, impairment and amortisation of fixed assets
Charged to trading profit
Depreciation
Impairment
Amortisation
Amortisation of non-operating intangible assets arising on business
Combinations
Impairment charges
Change in value of derivative and other financial instruments
Amortisation of government capital grants
Net loss/(profit) on sale/realisation of fixed assets
Gains and losses on changes in Group structure
Charge for share-based payments
Movement in post-employment obligations
Change in amounts due from Parent undertaking
Change in amounts due to Parent undertaking
Change in inventories
Change in receivables
Change in payables and provisions
Page 28 of 31
First half Full year
2014
2014
£m
£m
245
259
289
106
20
109
15
216
4
32
36
20
(1)
1
5
1
(49)
(90)
3
(61)
(71)
(10)
155
35
7
(1)
(2)
4
(48)
(86)
4
(36)
(163)
48
145
69
69
209
(2)
(2)
(24)
3
(65)
175
(1)
(31)
(76)
74
939
GKN HOLDINGS PLC
Registered Number: 66549
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2015
10 Cash flow notes (continued)
Unaudited
First half
2015
£m
Movement in net debt
Net movement in cash and cash equivalents
Net movement in borrowings and deposits
Costs associated with refinancing
Amortisation of debt issue costs
Cross currency interest rate swaps
Currency variations
Movement in period
Net debt at beginning of period
Net debt at end of period
Reconciliation of cash and cash equivalents
Cash and cash equivalents per balance sheet
Bank overdrafts included within “current liabilities – borrowings”
Cash and cash equivalents per cash flow
First half Full year
2014
2014
£m
£m
(29)
(51)
(1)
16
(19)
(84)
(624)
(708)
(25)
(50)
(1)
(5)
(81)
(732)
(813)
132
3
(3)
(26)
2
108
(732)
(624)
273
(4)
269
181
(31)
150
319
(2)
317
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 other
borrowings and government refundable advances which are carried at amortised cost. The carrying value
of other borrowings at 30 June 2015 was £952 million (first half 2014: £944 million) with a fair value of
£1,054 million (first half 2014: £1,034 million) and the carrying value of government refundable advances
at 30 June 2015 was £46 million (first half 2014: £42 million) with a fair value of £45 million (first half 2014:
£50 million).
11
Property, plant and equipment (unaudited)
During the period ended 30 June 2015 the Group asset additions were £138 million (first half 2014:
£114 million). Assets with a carrying value of £3 million (first half 2014: £5 million) were disposed of
during the period ended 30 June 2015.
12
Related party transactions (unaudited)
In the ordinary course of business, sales and purchases of goods take place between subsidiaries and
joint venture companies priced on an ‘arm’s length’ basis. The Group also provides short-term financing
facilities to joint venture companies. There have been no significant changes in the nature of
transactions between subsidiaries and joint ventures 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.
Page 29 of 31
GKN HOLDINGS PLC
Registered Number: 66549
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2015
13
Other financial information (unaudited)
Commitments relating to future capital expenditure not provided by subsidiaries at 30 June 2015
amounted to £134 million (30 June 2014: £122 million) and the Group's share not provided by joint
ventures amounted to £8 million (30 June 2014: £27 million).
On 22 June 2015, the Group repaid the first of five annual instalments of £16 million on its £80 million
European Investment Bank Loan.
On 8 June 2015 the Group acquired 100% of the equity share capital of Sheets Manufacturing Inc (SMI).
SMI specialises in metallic spin forming and is a technology leader in the manufacture of aircraft engine
inlet lip skins.
The fair value of consideration was £9 million and comprises an initial cash payment of £6 million plus
contingent consideration estimated at £3 million. The range of the contingent consideration, based on
achievement of specific technology milestones is between nil and £3 million. The fair value of net assets
acquired of £9 million comprises; property, plant and equipment of £1 million and provisional goodwill of
£8 million. 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, due to the proximity of the transaction to the
reporting date. SMI has been included in Aerospace for segmental reporting.
14
Contingent assets and liabilities (unaudited)
Since 2003, the Group has been involved in litigation with HMRC in respect of various advance
corporate tax payments made 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. Although the judgement was broadly positive, it
is anticipated that HMRC will appeal at least some of the technical points decided.
GKN have historically received payments from HMRC in respect of the case, which have been
recognised as received. The continuing complexity of the 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 and, as a result, no contingent
asset has been recognised.
There are no other material contingent assets at 30 June 2015 or 30 June 2014. At 30 June 2015 the
Group had no contingent liabilities in respect of bank arrangements and no guarantees (30 June 2014:
one). In the case of certain businesses, performance bonds and customer finance obligations have
been entered into in the normal course of business.
Page 30 of 31
GKN HOLDINGS PLC
Registered Number: 66549
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2015
15
Post balance sheet event (unaudited)
The Group has agreed to acquire Fokker Technologies Group B.V. headquartered in the Netherlands.
The acquisition enterprise value of approximately £499 million (€706 million) includes equity
consideration of £353 million (€500 million) together with debt and debt like items of £146 million (€206
million). Completion is expected in the fourth quarter of the year, subject to antitrust and regulatory
approvals.
The proposed acquisition will be funded from the gross proceeds of a £200 million (approximately)
equity share placing and utilisation of existing debt facilities.
Page 31 of 31