NEWS RELEASE
29 July 2014
GKN plc Results Announcement for the six months ended 30 June 2014
Management basis
Sales
Operating profit
Trading margin (%)
Profit before tax
Earnings per share
Interim dividend per share
(1)
As reported
2014
£m
2013
£m
Change
%
2014
£m
2013
£m
Change
%
3,828
3,869
-1
3,565
3,647
-2
259
163
(*)
+59
224
127
(*)
+76
(*)
+104
2.6p
+8
340
320
+6
8.9%
8.3%
+60bps
296
278
+6
14.4p
13.8p
+4
11.2p
2.8p
2.6p
+8
2.8p
5.5p
(*) restated for a hindsight fair value adjustment, see note 2 of the financial statements
Financial Highlights(1)









Sales increased 6% organically, but 1% lower after £247 million currency translation impact
Trading margin improved 60bps to 8.9%
Profit before tax (management basis) up 6%, with £24 million of adverse currency this half
offsetting restructuring costs of £25 million in the first half of 2013
Reported profit before tax was £224 million (2013(*): £127 million)
Earnings per share up 4% to 14.4p
Interim dividend increased 8% to 2.8 pence per share (up 6% on a normally weighted basis)
Return on average invested capital of 16.9% (2013: 16.6% excluding GKN Aerospace Engine
Systems)
Free cash flow of £19 million (2013: £77 million), after £54 million repayment of a UK
Government refundable advance
Net debt of £813 million (31 December 2013: £732 million), reflecting normal seasonality
“This is another good performance, particularly in GKN Driveline which delivered 11% organic
sales growth. We have continued to outperform our key markets and report good underlying
financial results in spite of sterling’s strength and some end market weakness - we expect these
trends to be maintained in the second half. GKN is continuing to make encouraging progress
against its strategy.”
Nigel Stein
Chief Executive, GKN plc
Page 1 of 33
Divisional Highlights
Organic
sales
growth %
Sales
(£m)
Trading margin
%
GKN Aerospace
GKN Driveline
GKN Powder Metallurgy
GKN Land Systems
2014
1,100
1,765
471
426
2013
1,123
1,728
480
487
3
11
6
-9
2014
11.0
8.0
11.3
7.3
2013
10.5
6.8
10.0
9.2
Group
3,828
3,869
6
8.9
8.3
The Group figures include Other Businesses (Emitec, Cylinder Liners, GKN Hybrid Power and Evo Electric).
GKN Aerospace



Organic growth in commercial aerospace (+5%) offsets decline in military (-2%)
Strong commercial order book with a trend towards global suppliers
Integration of North American engine components into GKN Aerospace Engine Systems
GKN Driveline
 Growth significantly ahead of global auto production helped by increasing content per vehicle
 Trading margin improved to 8.0%
GKN Powder Metallurgy
 Continued growth ahead of global auto production and trading margin increased to 11.3%
 Upgrade of North American capacity underway
GKN Land Systems
 Organic sales down 9% due to challenging markets and chassis contracts ending in 2013
 Strong cost control results in trading margin of 7.3%
 Investing to support industrial product sales in North America and capability in China, including
enhanced position in Huading Wheels venture
Outlook
Commercial aircraft production should continue to be strong whereas military markets are forecast
to decline. GKN Aerospace’s 2014 organic sales are expected to show modest growth, reflecting
these conflicting trends.
In automotive, external forecasts suggest that global light vehicle production should grow around
3% in the second half as comparators get tougher. Increases are expected in China, North
America and India, while Europe is forecast to be flat and Japan and Brazil decreasing. Against
this background, GKN Driveline and GKN Powder Metallurgy are expected to continue to grow
organically above the market.
Softer agricultural equipment markets in Europe and North America are likely to more than offset
the slight improvement in European industrial and construction markets. As a result, GKN Land
Systems 2014 sales are expected to be lower than 2013.
The strength in sterling will adversely affect reported results. However the Group’s underlying
progress is expected to continue due to the benefits of its diverse exposure to global markets,
strong customer positions and healthy order books.
Page 2 of 33
Notes
(1)
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 to 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)207 269 7113
M: +44 (0)7775 641807
There will be an analyst and investor meeting today at 09.30am 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=2014.
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: 75444300
A replay of the conference call will be available until 28 August 2014 on:
Standard International Number: +44 (0) 1452 550 000
Replay Access Number: 75444300
This announcement together with the attached financial information thereto may be downloaded
from: www.gkn.com/media/Pages/default.aspx.
Page 3 of 33
NEWS RELEASE
GKN plc Results Announcement for the six months ended 30 June 2014
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, construction and mining equipment and to the automotive and commercial
vehicle sectors.
These results reflect a strong performance in GKN Driveline and GKN Powder Metallurgy, relative
to their respective markets, solid results from GKN Aerospace, the weaker markets in GKN Land
Systems and significant adverse currency translation impact.
Results
Sales (£m)
Trading profit (£m)
Trading margin (%)
Return on average invested capital (%)
First half
2014
2013
3,828 3,869
340
320
8.3%
8.9%
16.9% 16.6%
Change (%)
Headline
Organic
(1)
6
6
14
Organic sales increased £210 million (6%). The effect of currency translation on management
sales was £247 million adverse and there was a £3 million benefit from acquisitions which was
more than offset by a £7 million reduction due to disposals.
The organic increase in trading profit was £43 million (14%), including no repeat of £25 million of
restructuring charges reported in the first half of 2013. There was an adverse currency
translational impact of £24 million and the net positive effect of acquisitions and disposals of £1
million.
Group trading margin in the first half was 8.9% (2013: 8.3%, or 8.9% excluding £25 million of
restructuring). Return on average invested capital (ROIC) was 16.9% (2013: 16.6%).
Divisional Performance
GKN Aerospace
GKN Aerospace is a global tier one supplier of airframe and engine structures, components,
assemblies, transparencies, ice protection systems and fuel and flotation systems for 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 2014 driven by a growing commercial aircraft
market partly offset by a declining military market. The division has increased its proportion of
sales to commercial aerospace to 74%, with military representing 26%.
Page 4 of 33
Commercial aircraft production continues to grow strongly. Both Airbus and Boeing continue to
benefit from increasing 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 increasing 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
2014
2013
1,100
1,123
121
118
11.0%
10.5%
16.8%
20.1%
Change (%)
Headline
Organic
(2)
3
3
6
Organic sales were £32 million higher (3%), including 5% higher commercial sales (particularly for
the Boeing 787 and spares), 2% lower production rates on military programmes (such as F-18,
Blackhawk and spares) and a £17 million reduction due to the previously announced supply chain
contract at Filton being taken back in-house by Airbus in May 2013. There was a £55 million (5%)
impact from adverse currency translation.
The organic increase in trading profit of £7 million included income of £4 million from Rolls-Royce
for milestones achieved in relation to Composite Technology and Applications Limited (CTAL).
Other factors included improved commercial spares sales and higher volumes on new
programmes offset by lower military sales on mature programmes. The impact from currency on
translation of results was £6 million adverse and there was a £2 million benefit from the absence of
costs following the disposal of GKN Aerospace’s stake in the CTAL joint venture.
Trading margin was 11.0% (2013: 10.5%). Return on average invested capital was 16.8% (2013:
20.1% excluding GKN Aerospace Engine Systems).
During the period a number of important milestones were achieved including the further integration
of the North American engine components businesses into GKN Aerospace Engine Systems. This
will allow a strong range of products to be offered to customers on a global basis including utilising
low cost manufacturing facilities in Mexico.
Further achievements included:
 delivering the first engine to Honeywell from the new facility in Phoenix, USA;
 winning a multi-million pound contract to design, develop and supply the composite
integrated rudder and elevator for the new Bombardier Global 7000 and Global 8000;
 being selected by AirAsia to supply the complete suite of cockpit transparencies for the
airline’s new A320 fleet;
 the Filton site being named as best performing supplier by Airbus; and
 leading a consortium of UK companies in a £13 million programme backed by the UK’s
Aerospace Technology Institute (ATI) called Horizon (AM) that builds on GKN Aerospace’s
extensive and fast-developing additive manufacturing capability.
Page 5 of 33
Automotive market
The major automotive markets of China, Japan, Europe and North America experienced increased
production in the first half of the year compared to 2013, while Brazil and India declined. Overall,
global production volumes increased by 3.9% to 44.1 million vehicles (2013: 42.5 million).
Car and light vehicle production (rounded millions of units)
First half
2014
Growth
2013
(%)
(#)
Europe
10.5
10.0
North America
8.6
8.3
4.2
Brazil
1.5
1.7
-14.6
Japan
4.7
4.4
8.2
China
11.1
10.1
9.9
India
1.8
1.9
-5.7
Others
5.9
44.1
6.1
42.5
-3.4
3.9
Total – global
Source: IHS Automotive;
(#)
5.0
Growth is derived from unrounded production figures
Overall production in Europe showed a solid improvement compared with the first half of 2013 due
to a recovery in demand in Western Europe, partly offset by weaker production in Russia.
Production in North America benefitted from improved consumer confidence, further localisation of
foreign manufacturers’ capacity and an increased level of exports.
Strong production in Japan was due to a weak prior year comparator and the pull forward of sales
into the first quarter of 2014 ahead of April’s consumption tax rise. Production in China continued
to grow strongly in line with increasing consumer demand for passenger vehicles. The markets of
Brazil and India were down as a result of weak economic conditions and low consumer confidence.
External forecasts anticipate global production in 2014 will increase by 4% to 87.8m vehicles.
China will continue to lead the growth (+9%) with support from North America (+5%) and Europe
(+2%). Market recovery in India is expected to result in an increase in full-year production of 1%,
Japan is forecast to be flat and Brazil is expected to experience output down by 8%.
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 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
Sales (£m)
Trading profit (£m)
Trading margin (%)
Return on average invested capital (%)
First half
2014
2013
1,765
1,728
142
117
6.8%
8.0%
15.0%
17.9%
Change (%)
Headline
Organic
2
11
21
35
Organic sales increased by £179 million (11%) compared with global vehicle production which was
up 4%. The adverse effect of currency translation was £135 million (8%) and the impact from
disposals was £7 million, being the proportionate loss of sales from a wholly owned business in
China which was transferred into our Shanghai GKN HUAYU Driveline Systems Co Limited (SDS)
joint venture in that country in November 2013. Constant Velocity Jointed (CVJ) Systems
accounted for 60% of sales and non-CVJ sales were 40%.
Page 6 of 33
Strong growth was achieved in North America, China, Japan and Europe while sales in Brazil fell
sharply. The overall market outperformance reflected market share gains, strong demand for
premium vehicles and GKN Driveline’s broadening product mix, particularly within all-wheel drive
(AWD) systems.
The organic improvement in trading profit was £37 million, including the absence of £16 million of
restructuring charges reported in 2013. Other factors included higher engineering costs to support
the large number of new programme start-ups and higher warranty and quality claims partly offset
by a provision release as commercial progress was made on an onerous contract. The impact of
currency translation on trading profit was £11 million adverse. GKN Driveline’s trading margin was
8.0% (2013: 6.8%, or 7.7% excluding restructuring charges). Return on average invested capital
was 17.9% (2013: 15.0%).
During the period, around £300 million of new business was secured and a number of important
milestones achieved, including:
 expanding facilities in Mexico and AWD capacity in Newton, USA;
 expanding AWD facility in China with new PTU wins and localisation of AWD products from
Europe and North America;
 CVJ systems wins with Ford, GM, VW, BMW, Renault Nissan, Mazda, Hyundai;
 AWD systems wins with Ford, GM, VW, Fiat, JLR, BMW, Toyota, Renault Nissan; and
 BMW launching i8 with GKN 2-speed eAxle.
GKN Powder Metallurgy
GKN Powder Metallurgy is the world’s largest manufacturer of sintered components. GKN Powder
Metallurgy comprises GKN Sinter Metals and Hoeganaes. Hoeganaes produces the metal powder
that GKN Sinter Metals and other customers use to manufacture precision automotive components
for engines, transmissions and body and chassis applications. GKN Sinter Metals also produces a
range of components for industrial and consumer applications.
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
2014
2013
471
480
53
48
10.0%
11.3%
19.2%
21.0%
Change (%)
Headline
Organic
(2)
6
10
20
The strong organic sales increase of £26 million (6%) was more than offset by the £35 million (8%)
adverse impact of currency translation. Strong growth was achieved in North America and China
whereas growth in Europe was more in line with vehicle production. Sales in South America fell
due to weaker automotive markets.
The organic increase in profit was £9 million, including £5 million of restructuring charges reported
in 2013, which was partially offset by the £4 million negative impact of currency translation. The
divisional trading margin was 11.3% (2013: 10.0%, or 11.0% excluding restructuring charges).
Return on average invested capital was 21.0% (2013: 19.2%).
GKN Powder Metallurgy continued its strong product and operational development in engines and
transmissions, being awarded more than £75 million of annualised sales in new business. It also
won a number of quality awards including Paccar’s “Quality Achievement Award 2013”,
Schaeffler’s “Best Technical Cooperation” and Nexteer’s “Perfect Quality 2013” award.
Reflecting our move into more advanced applications of powder technologies, GKN Powder
Metallurgy is expanding its facilities in North America with more complex and efficient tooling and
presses and also announced a technology collaboration agreement with McPhy Energy to develop
solid state hydrogen storage solutions.
Page 7 of 33
GKN Land Systems
GKN Land Systems is a global leading supplier of technology differentiated power management
components and services. It designs, manufactures and supplies products and services for the
agricultural, construction, mining, and industrial machinery markets. In addition, it provides global
aftermarket distribution and through-life support.
Sales in GKN Land Systems were lower than the prior year due to weaker agricultural equipment
markets in Europe and North America while construction and industrial markets 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
2014
2013
426
487
31
45
9.2%
7.3%
18.7%
14.6%
Change (%)
Headline
Organic
(13)
(9)
(31)
(26)
The organic decrease in sales was £43 million (9%) and the adverse impact of currency translation
was £19 million (4%). The organic decrease in sales included £14 million due to the previously
announced cessation of two chassis contracts in 2013. The establishment of the new wheels
venture in China had sales of £1 million.
The organic decrease in trading profit was £11 million, despite the absence of £3 million of
restructuring charges in 2013. The negative impact of currency translation was £3 million. Trading
margin was 7.3% (2013: 9.2%, or 9.9% excluding restructuring charges). Return on average
invested capital was 14.6% (2013: 18.7%).
Good progress was made towards winning new business and implementing the GKN Land
Systems strategy through broadening its product offering and geographic footprint, particularly
investing to support industrial product sales in North America and enhancing capacity in China,
including increasing our stake in the Huading Wheels venture.
Other Businesses and corporate costs
GKN’s Other Businesses comprise Cylinder Liners (which is mainly a 59% owned venture in
China, manufacturing engine liners for the truck market in the US, Europe and China), a 50%
share in Emitec (which manufactures metallic substrates for catalytic converters in Germany, the
US, China and India) and our joint venture stake in EVO Electric (a developer of axial flux motors).
On 30 April 2014 GKN announced its agreement to sell its stake in Emitec for a cash consideration
of €46 million (£36 million). The sale is expected to complete shortly.
The activities relating to GKN Hybrid Power, acquired on 1 April 2014 from Williams Grand Prix
Engineering Limited, are also included in Other Businesses. Since the acquisition, GKN Hybrid
Power has secured an order to retro-fit 500 buses with its innovative fuel-saving solution.
GKN’s Other Businesses reported combined sales in the period of £66 million (2013: £51 million),
reflecting an improvement in the commercial vehicle market, and trading profit of £5 million (2013:
£2 million, after £1 million of restructuring charges).
Corporate costs, which comprise the costs of stewardship of the Group and operating charges and
credits associated with the Group’s legacy businesses, were £12 million (2013: £10 million).
Page 8 of 33
Other Financial Information
All comparative information provided below relates to the first half of 2013, 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 Group enters into foreign exchange contracts to hedge much of its transactional
exposure. Where hedge accounting has not been applied, the change in fair value between 1
January 2014 and 30 June 2014, or the date of maturity if earlier, is reflected in the income
statement as a component of operating profit and has resulted in a charge of £11 million
(2013: £98 million charge), primarily due to changes in rate for the US Dollar:Swedish Krona,
US Dollar:Euro and US Dollar:UK Sterling. There was a £1 million charge arising from a
change in the value of embedded derivatives in the period (2013: £3 million credit) and a credit
of £5 million attributable to the translational currency impact on intra-group funding balances
(2013: £4 million credit).
Amortisation of non-operating intangible assets arising on business combinations
The charge for amortisation of non-operating intangible assets (for example, customer
contracts, technology assets and intellectual property rights) arising on business combinations
was £35 million (2013: £35 million restated for a hindsight fair value adjustment).
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 £31 million (2013: £24
million) with trading profit of £39 million (2013: £31 million). The Group’s share of post-tax earnings
on a management basis was £32 million (2013: £25 million). The Group’s share of the tax charge
amounted to £7 million (2013: £6 million) with no net financing costs in either period. The organic
increase in trading profit was £7 million.
Net financing costs
Net financing costs totalled £66 million (2013: £60 million) and comprise the net interest payable of
£37 million (2013: £36 million), the non-cash charge on post-employment benefits of £25 million
(2013: £19 million) and unwind of discounts of £4 million (2013: £5 million). The non-cash charge
on post-employment benefits and unwind of discounts are not included in management figures.
Details of the assumptions used in calculating post-employment costs and income are provided in
note 10 of the financial statements.
Interest payable was £38 million (2013: £38 million), whilst interest receivable was £1 million
(2013: £2 million) resulting in net interest payable of £37 million (2013: £36 million).
Profit before tax
Management profit before tax was £296 million (2013: £278 million). Profit before tax on a
statutory basis was £224 million (2013: £127 million, restated for a hindsight fair value adjustment).
The main differences in the first half of 2014 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.
Page 9 of 33
Taxation
The book tax rate on management profits of subsidiaries was 22% (2013: 20%), arising as a £58
million tax charge (2013: £51 million charge) on management profits of subsidiaries of £264 million
(2013: £253 million).
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% (2013: 31%). The book
tax rate is significantly lower, largely because of the recognition of substantial deferred tax assets
(mainly in the US) due to increased confidence in the Group’s ability to offset brought forward tax
deductions against future taxable profits in various countries.
‘Cash tax’ provides a proxy for the cash cost of taxation of management profits, plus the cash
effect of prior year items, and so excludes elements of the book tax charge which do not have a
cash effect. The cash tax rate was 12% (2013: 12%) primarily due to the utilisation of prior years’
tax losses. Both the book tax and the cash tax rates are expected to increase in future years.
The tax rate on statutory profits of subsidiaries was 20% (2013: 27%) arising as a £39 million tax
charge (2013: £28 million charge, restated for a hindsight fair value adjustment) on a statutory
profit of £193 million (2013: £103 million, restated for a hindsight fair value adjustment).
Non-controlling interests
The profit attributable to non-controlling interests was £2 million (2013: £10 million, including £8
million in relation to the Pension partnership arrangement).
Earnings per share
Management earnings per share was 14.4 pence (2013: 13.8 pence). On a statutory basis
earnings per share was 11.2 pence (2013: 5.5 pence, restated for a hindsight fair value
adjustment).
Dividend
In view of the Group’s continued progress, the Board has decided to pay an interim dividend of 2.8
pence per share (2013: 2.6 pence), an increase of 8%. If the prior year’s total dividend of 7.9
pence per share had been paid in the usual one-third interim and two-thirds final proportion, then
the 2014 interim dividend would represent an increase of 6% on a normally weighted basis. The
interim dividend will be paid on 22 September 2014 to shareholders on the register at 15 August
2014. 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 1 September 2014.
Cash flow
Operating cash flow, which is defined as cash generated from operations of £227 million (2013:
£267 million) adjusted for capital expenditure (net of proceeds from capital grants) of £161 million
(2013: £158 million), proceeds from disposal of fixed assets £7 million (2013: nil) and repayment of
the principal of a government refundable advance in the UK of £38 million (2013: nil), was an inflow
of £35 million (2013: £109 million).
Within operating cash there was an outflow in working capital and provisions of £151 million (2013:
£131 million). Average working capital as a percentage of sales was 7.9% (2013: 8.7%).
Capital expenditure (net of proceeds from capital grants) on both tangible and intangible assets
totalled £161 million (2013: £158 million). Of this, £132 million (2013: £133 million) was on tangible
fixed assets and was 1.2 times (2013: 1.2 times) the depreciation charge. Expenditure on
intangible assets, mainly non-recurring costs on Aerospace programmes, totalled £29 million
(2013: £25 million).
Page 10 of 33
Net interest paid totalled £38 million (2013: £21 million) including £16 million of previously accrued
interest on a government refundable advance, and tax paid in the period was £21 million (2013:
£24 million).
Free cash flow
Free cash flow, which is operating cash flow including joint venture dividends and after interest,
tax, amounts paid to non-controlling interests and shares purchased but before dividends paid to
GKN shareholders, was an inflow of £19 million (2013: £77 million). The year on year change
reflects increased profitability, offset by repayment of a government refundable advance in the UK
relating to the A350 programme of £54 million (including interest), incremental pension funding of
£12 million and an adverse movement in working capital.
Net borrowings
At the end of the period, the Group had net borrowings of £813 million (31 December 2013: £732
million) after payment of the 2013 final dividend of £87 million and a gross government refundable
advance of £54 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 £23
million (2013: £26 million) and administrative costs of £1 million (2013: £2 million). Interest on net
defined benefit plans, which is excluded from management figures, was £25 million (2013: £19
million), and the removal of the UK pension partnership plan asset and related interest credit in the
first half of 2013 is the primary reason for this period-on-period increase.
The deficit across all schemes at 30 June 2014 was £1,363 million, a £92 million increase over the
31 December 2013 deficit (£1,271 million). This increase is caused by lower discount rates which
have fallen during the period due to the marked decrease in corporate bond yields from which they
are derived.
Both UK pension schemes underwent funding valuations as at 5 April 2013 and final agreement
was reached on the valuation and resulting deficit recovery plan for each scheme during the
period. The agreed deficit recovery plan requires payments of £10 million per year to the pension
schemes combined and the potential for further additional payments commencing in 2015,
contingent upon asset performance. The first payment of £10 million was made during the period.
During the period, a bulk annuity pensioner “buy-in” was completed in relation to the UK pension
scheme, GKN 1, as a result of which a proportion of GKN 1 liabilities are now fully insured. The
transaction involved a payment to Rothesay Life of £123 million, made from GKN 1’s assets. This
gave rise to an additional scheme funding requirement of £8 million which the Group will pay to
GKN 1 over a 4 year period. The first payment of £2 million was made during the period.
Group-wide contributions totalled £71 million (2013: £54 million), including a £30 million payment
from the pension partnership to the UK pension schemes and £12 million from the above
mentioned deficit recovery plan and “buy-in” funding.
The Group is currently in consultation with its UK work-force regarding prospective changes to
pension benefit provision.
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 £16 million (2013: £17
million).
Page 11 of 33
Net assets
Net assets of £1,706 million were £89 million lower than the December 2013 year end figure of
£1,795 million, restated for a hindsight fair value adjustment. The decrease includes management
profit after tax of £236 million more than offset by dividends paid to equity shareholders of £87
million, adverse currency on translation of subsidiaries and joint ventures net of tax of £86 million
and a loss on remeasurement of defined benefit plans net of tax of £105 million.
Exchange rates
Exchange rates used for currencies most relevant to the Group’s operations are:
Average
Euro
US Dollar
H1
2014
1.22
1.67
H1
2013
1.18
1.55
Period End
June
June
2014
2013
1.25
1.17
1.71
1.52
2013 Full Year
Average
Period
End
1.18
1.20
1.57
1.66
The approximate impact on first half 2014 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 2014, UK committed bank facilities were £910 million. Within this amount there were
committed revolving credit facilities of £830 million and an £80 million eight-year amortising facility
from the European Investment Bank (EIB). The £80 million EIB facility was fully drawn and there
were drawings of £53 million against the revolving credit facilities.
As at 30 June 2014, the next major maturities of the revolving credit facilities were for £590 million
in 2016 followed by further maturities of £240 million in 2017. However, during July, the Group
completed a refinancing exercise in relation to all of its revolving credit facilities, which delivered
the benefit of lower borrowing costs on total facilities of £800 million and an extension of their
maturities to 2019. The first of five equal, annual £16 million EIB repayments falls due in 2015.
Capital market borrowings at 30 June 2014 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 2014, the Group had net borrowings of £813 million (31
December 2013: £732 million).
All of the Group’s committed credit facilities have financial covenants requiring EBITDA of
subsidiaries to be at least 3.5 times net financing costs 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 2014, EBITDA was 11.8 times greater than net
interest, whilst net debt was 0.9 times EBITDA.
The Directors have taken into account both divisional and Group forecasts for the 18 months from
the balance sheet date to assess the future funding requirements of the Group and compared them
to the level of committed available borrowing facilities, described above. Having carried out
sensitivity analysis, the Directors have concluded that the Group will have a sufficient level of
headroom in the foreseeable future and that the likelihood of breaching covenants in this period is
remote, such that it is appropriate for the financial statements to be prepared on a going concern
basis.
Page 12 of 33
Principal risks and uncertainties
The principal risks and uncertainties faced by the Group in the remaining six months of the year
remain largely unchanged from those reported in the 2013 annual report.
The macro-economic and political environment contains risk: challenging credit conditions; US
budget priorities; volatile automotive, agricultural, construction, mining and industrial markets;
exchange rate fluctuations; supply chain volatility; and inflation in Asian and other economies.
Additional risks include: customer concentration; highly competitive markets; misalignment of
objectives with joint venture partners; failure to innovate; integrated systems complexity; product
quality issues and recall costs; business continuity (including disruption to facilities or supply
chain); health, safety and environmental incidents; lack of people capability; programme
management weaknesses; poor acquisition integration or post-acquisition performance;
compliance with laws and regulations across global jurisdictions; information systems resilience;
pension funding; foreign exchange risk; and operating internationally in environments subject to
complex tax rules. A more detailed explanation of the principal risks and uncertainties, together
with the mitigating actions in place, can be found in pages 42 to 51 of the 2013 annual report.
Basis of Reporting
The financial statements for the period are shown on pages 15 to 32 and have been prepared
using accounting policies which were used in the preparation of audited accounts for the year
ended 31 December 2013 and which will form the basis of the 2014 Annual Report, with the
exception of the adoption of IFRS 10 and 11 which has not impacted the comparative numbers.
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 13 of 33
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 2013 Annual Report
that could do so.
The Directors of GKN plc are listed in the GKN annual report for 2013; however since the
publication of the annual report Mr. W. C. Seeger has retired from the Board.
Approved by the Board of GKN plc and signed on its behalf by:
Mike Turner
Chairman
28 July 2014
Page 14 of 33
APPENDICES
Page
GKN Condensed Consolidated Financial Statements
Consolidated Income Statement for the half year ended 30 June 2014
16
Consolidated Statement of Comprehensive Income for the half year ended 30 June
2014
17
Condensed Consolidated Statement of Changes in Equity for the half year ended 30
June 2014
18
Consolidated Balance Sheet at 30 June 2014
19
Consolidated Cash Flow Statement for the half year ended 30 June 2014
20
Notes to the Half Year Consolidated Financial Statements
Independent Review Report
21 – 32
33
Page 15 of 33
CONSOLIDATED INCOME STATEMENT
FOR THE HALF YEAR ENDED 30 JUNE 2014
Notes
Sales
3,647
7,136
4
301
(7)
289
(91)
597
26
5
(35)
-
(35)
-
(75)
12
259
163
560
31
24
52
(38)
1
(29)
(66)
(38)
2
(24)
(60)
(76)
3
(55)
(128)
224
127
484
(39)
185
(28)
99
(77)
407
2
2
183
185
2
8
10
89
99
4
8
12
395
407
11.2
11.0
5.5
5.4
24.2
23.8
1b
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 other non-controlling interests
Profit attributable to the Pension partnership
Profit attributable to non-controlling interests
Profit attributable to owners of the parent
Earnings per share - pence
Continuing operations - basic
Continuing operations - diluted
*
Full year
2013
£m
3,565
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
Unaudited
First half
First half
2014
2013*
£m
£m
restated for the impact of a hindsight fair value adjustment relating to the purchase of Volvo Aerospace in
2012, see note 2.
Page 16 of 33
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE HALF YEAR ENDED 30 JUNE 2014
Notes
Profit after taxation for the period
Unaudited
First half First half
2014
2013*
£m
£m
185
99
Full year
2013
£m
407
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
Taxation
Items that will not be reclassified to profit or loss
Remeasurement of defined benefit plans
Subsidiaries
Joint ventures
Taxation
Total comprehensive income/(expense) for the period
Total comprehensive income for the period attributable to:
Owners of the parent
Other non-controlling interests
Pension partnership
Non-controlling interests
*
8
10
8
(80)
-
119
-
(114)
-
(8)
2
(86)
9
1
129
(1)
1
(114)
(136)
31
(105)
(191)
(6)
106
(9)
97
226
325
60
(28)
32
(82)
325
(8)
2
2
(6)
315
2
8
10
325
315
2
8
10
325
restated for the impact of a hindsight fair value adjustment relating to the purchase of Volvo Aerospace in
2012, see note 2.
Page 17 of 33
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE HALF YEAR ENDED 30 JUNE 2014
Non-controlling
interests
Pension
partnership
Other
£m
£m
Share
capital
£m
Capital
redemption
reserve
£m
Share
premium
account
£m
Retained
earnings
£m
Other
reserves
£m
Shareholders’
equity
£m
At 1 January 2014
166
298
139
1,392
(220)
1,775
-
20
1,795
Profit for the period
-
-
-
183
-
183
-
2
185
-
-
-
(105)
(86)
(191)
-
-
(191)
-
-
-
4
-
4
-
-
4
Notes
Total
equity
£m
Other comprehensive income/(expense)
for the period
Share-based payments
Share options exercised
14
-
-
-
1
-
1
-
-
1
Dividends paid to equity shareholders
9
-
-
-
(87)
-
(87)
-
-
(87)
-
-
-
-
-
-
-
(1)
(1)
At 30 June 2014 (unaudited)
166
298
139
1,388
(306)
1,685
-
21
1,706
At 1 January 2013
166
298
139
1,079
(108)
1,574
334
19
1,927
-
-
-
89
-
89
8
2
99
-
-
-
97
129
226
-
-
226
-
-
-
5
-
5
-
-
5
-
-
-
5
-
5
-
-
5
-
-
-
-
-
-
(10)
-
(10)
-
-
-
(10)
-
(10)
(332)
-
(342)
-
-
-
-
-
-
-
2
2
14
-
-
-
(4)
-
(4)
-
-
(4)
9
-
-
-
(78)
-
(78)
-
-
(78)
At 30 June 2013 (unaudited)*
166
298
139
1,183
21
1,807
-
23
1,830
At 1 January 2013
166
298
139
1,079
(108)
1,574
334
19
1,927
-
-
-
395
-
395
8
4
407
Dividends paid to non-controlling interests
Profit for the period*
Other comprehensive income/(expense)
for the period
Share-based payments
Share options exercised
14
Distribution from Pension partnership
to UK Pension scheme
Amendment to the Pension partnership
arrangement
10
Addition of non-controlling interests
Purchase of own shares by Employee
Share Ownership Plan Trust
Dividends paid to equity shareholders
Profit for the year
Other comprehensive income/(expense)
-
-
-
32
(112)
(80)
-
(2)
(82)
Share-based payments
for the year
-
-
-
14
-
14
-
-
14
Share options exercised
-
-
-
8
-
8
-
-
8
-
-
-
-
-
-
(10)
-
(10)
-
-
-
(10)
-
(10)
(332)
-
(342)
-
-
-
-
-
-
-
2
2
-
-
-
(5)
-
(5)
-
-
(5)
-
-
-
(121)
-
(121)
-
-
(121)
Distribution from Pension partnership to
UK Pension scheme
Amendment to the Pension partnership
arrangement
10
Addition of non-controlling interests
Purchase of own shares by Employee
Share Ownership Plan Trust
Dividends paid to equity shareholders
Dividends paid to non-controlling interests
At 31 December 2013
*
9
-
-
-
-
-
-
-
(3)
(3)
166
298
139
1,392
(220)
1,775
-
20
1,795
restated for the impact of a hindsight fair value adjustment relating to the purchase of Volvo Aerospace in
2012, see note 2.
Page 18 of 33
CONSOLIDATED BALANCE SHEET
AT 30 JUNE 2014
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
Current assets
Inventories
Trade and other receivables
Current tax assets
Derivative financial instruments
Cash and cash equivalents
12
6
11
Total assets
Liabilities
Current liabilities
Borrowings
Derivative financial instruments
Trade and other payables
Current tax liabilities
Provisions
Non-current liabilities
Borrowings
Derivative financial instruments
Deferred tax liabilities
Trade and other payables
Provisions
Post-employment obligations
10
Total liabilities
Net assets
Shareholders' equity
Share capital
Capital redemption reserve
Share premium account
Retained earnings
Other reserves
Non-controlling interests
Total equity
*
Unaudited
30 June
30 June
2014
2013*
£m
£m
31 December
2013
£m
528
897
1,894
158
43
45
250
3,815
584
1,012
2,037
162
38
42
277
4,152
544
932
1,945
179
52
52
225
3,929
939
1,288
11
29
181
2,448
6,263
987
1,333
10
21
233
2,584
6,736
931
1,142
11
42
184
2,310
6,239
(117)
(10)
(1,495)
(166)
(51)
(1,839)
(87)
(27)
(1,569)
(151)
(51)
(1,885)
(27)
(11)
(1,485)
(135)
(55)
(1,713)
(877)
(30)
(149)
(185)
(114)
(1,363)
(2,718)
(4,557)
1,706
(1,074)
(100)
(190)
(277)
(140)
(1,240)
(3,021)
(4,906)
1,830
(889)
(37)
(178)
(237)
(119)
(1,271)
(2,731)
(4,444)
1,795
166
298
139
1,388
(306)
1,685
21
1,706
166
298
139
1,183
21
1,807
23
1,830
166
298
139
1,392
(220)
1,775
20
1,795
restated for the impact of a hindsight fair value adjustment relating to the purchase of Volvo Aerospace in
2012, see note 2.
Page 19 of 33
CONSOLIDATED CASH FLOW STATEMENT
FOR THE HALF YEAR ENDED 30 JUNE 2014
Unaudited
Notes
Cash flows from operating activities
Cash generated from operations
Interest received
Interest paid
Tax paid
Dividends received from joint ventures
11
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)
Proceeds from sale of businesses (net of cash disposed
and fees)
Repayment of government refundable advance
Proceeds from sale of joint ventures
Investment in joint ventures
Cash flows from financing activities
Distribution from Pension partnership to UK Pension scheme
Purchase of own shares by Employee Share Ownership
Plan Trust
Proceeds from exercise of share options
Proceeds from borrowing facilities
Repayment of other borrowings
Finance lease payments
Dividends paid to shareholders
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 20 of 33
14
9
11
First half
2014
£m
First half
2013
£m
Full year
2013
£m
227
1
(39)
(21)
44
212
267
5
(26)
(24)
27
249
782
6
(71)
(52)
44
709
(133)
1
(29)
7
(8)
(134)
1
(25)
(49)
-
(274)
1
(76)
4
(74)
-
(38)
(200)
(11)
(218)
2
3
(13)
(427)
-
(10)
(10)
1
60
(10)
(87)
(1)
(37)
(25)
181
(6)
150
(4)
5
145
(8)
(78)
50
81
124
5
210
(5)
8
10
(93)
(1)
(121)
(3)
(215)
67
124
(10)
181
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEAR ENDED 30 JUNE 2014
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 mining equipment 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 2014 (unaudited)
Subsidiaries
Joint ventures
Automotive
Powder
Driveline Metallurgy
£m
£m
Land
Systems
£m
1,100
1,100
1,561
204
1,765
471
471
415
11
426
1,123
1,123
1,560
168
1,728
480
480
469
18
487
2,243
2,243
3,062
354
3,416
932
932
870
29
899
Other businesses
Management sales
Less: Joint venture sales
Income statement – sales
FIRST HALF 2013 (unaudited)
Subsidiaries
Joint ventures
Other businesses
Management sales
Less: Joint venture sales
Income statement – sales
FULL YEAR 2013
Subsidiaries
Joint ventures
Other businesses
Management sales
Less: Joint venture sales
Income statement – sales
Page 21 of 33
Total
£m
3,762
66
3,828
(263)
3,565
3,818
51
3,869
(222)
3,647
7,490
104
7,594
(458)
7,136
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2014
1
Segmental analysis (continued)
b)
Trading profit
Aerospace
£m
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
Automotive
Powder
Land
Driveline Metallurgy Systems
£m
£m
£m
160
(28)
(11)
121
121
164
(54)
(3)
107
35
142
70
(17)
53
53
39
(8)
(1)
30
1
31
160
(30)
(10)
120
(2)
118
149
(61)
(2)
86
31
117
65
(17)
48
48
53
(9)
(1)
43
2
45
355
309
129
92
(60)
(26)
269
(3)
266
(122)
(5)
182
64
246
(35)
94
94
(18)
(1)
73
2
75
Other businesses
Corporate and unallocated costs
Management trading profit
Less: Joint venture trading profit
Income Statement – trading profit
FIRST HALF 2013 (unaudited)
Trading profit before depreciation and amortisation
Depreciation of property, plant and equipment
Amortisation of operating intangible assets
Trading profit – subsidiaries
Trading profit/(loss) – joint ventures
Other businesses
Corporate and unallocated costs
Management trading profit
Less: Joint venture trading profit
Income Statement – trading profit
FULL YEAR 2013
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/(loss) – joint ventures
Other businesses
Corporate and unallocated costs
Management trading profit
Less: Joint venture trading profit
Income Statement – trading profit
Total
£m
347
5
(12)
340
(39)
301
328
2
(10)
320
(31)
289
681
5
(25)
661
(64)
597
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 period, the Group has recorded a net charge of £5 million in relation to a warranty matter and specific
commercial resolution related to an onerous contract provision. This net charge is recorded in the trading profit of
Driveline.
In the year ended 31 December 2013, the Group sold rights to certain of its intellectual property (which had not
previously met the intangible asset recognition criteria under IAS 38) realising a profit on sale of £5 million. Further
income of £4 million has been recognised in the period ended 30 June 2014. These amounts have been recorded in
the trading profit of Aerospace.
During the first half 2013, the Group charged £25 million of restructuring costs in trading profit relating to; Driveline
(£16 million), Powder Metallurgy (£5 million), Land Systems (£3 million) and Other businesses (£1 million).
Incrementally, in the full year 2013 a £4 million restructuring credit was recorded in Aerospace Engine Systems.
Page 22 of 33
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2014
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 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
FIRST HALF 2013 (unaudited)
Property, plant and equipment and operating intangible
assets
Working capital
Net operating assets
Goodwill and non-operating intangible assets*
Net investment
968
150
1,118
639
1,757
984
139
1,123
308
1,431
340
112
452
29
481
147
91
238
191
429
2,439
492
FULL YEAR 2013
Property, plant and equipment and operating intangible
assets
Working capital
Net operating assets
Goodwill and non-operating intangible assets
Net investment
934
113
1,047
566
1,613
932
76
1,008
280
1,288
335
90
425
26
451
142
85
227
181
408
2,343
364
*
restated for the impact of a hindsight fair value adjustment relating to the purchase of Volvo Aerospace in 2012, see note 2.
d)
Inter segment sales
Subsidiary segmental sales gross of inter segment sales are; Aerospace £1,100 million (first half 2013:
£1,123 million, full year 2013: £2,243 million), Driveline £1,591 million (first half 2013: £1,589 million, full year 2013:
£3,124 million), Powder Metallurgy £472 million (first half 2013: £480 million, full year 2013: £934 million) and Land
Systems £416 million (first half 2013: £469 million, full year 2013: £872 million).
e)
Reconciliation of segmental property, plant and equipment and operating intangible assets to the Balance
Sheet
Unaudited
First half First half Full year
2014
2013*
2013
£m
£m
£m
Segmental analysis – property, plant and equipment and operating intangible
2,298
assets
2,439
2,343
985
Segmental analysis – goodwill and non-operating intangible assets
1,167
1,053
(528)
Goodwill
(584)
(544)
28
Other businesses
19
17
8
Corporate assets
8
8
2,791
Balance Sheet – property, plant and equipment and other intangible assets
3,049
2,877
*
f)
restated for the impact of a hindsight fair value adjustment relating to the purchase of Volvo Aerospace in 2012, see note 2.
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
Investment
Balance Sheet – inventories, trade and other receivables, trade and other
payables and provisions
Page 23 of 33
Unaudited
First half First half
2014
2013
£m
£m
516
492
12
12
(30)
(33)
(25)
(27)
(3)
(4)
(15)
(36)
(42)
(95)
8
8
4
4
425
321
Full year
2013
£m
364
11
(34)
(15)
(4)
(12)
(93)
8
4
229
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2014
2
Basis of preparation
These half year condensed consolidated financial statements for the six months ended 30 June 2014 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 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 2013.
These financial statements do not constitute statutory accounts. A copy of the audited consolidated statutory
accounts for the year ended 31 December 2013 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 2013, with the exception of
adoption of IFRS 10 ‘Consolidated Financial Statements’, IFRS 11 ‘Joint Arrangements’ and IFRS 12 ‘Disclosure of
Interests in Other Entities’. These new standards, which have been applied from 1 January 2014 have not had any
material impact on the Group’s results, assets or liabilities.
Restatement
During the hindsight period related to the acquisition of Volvo Aerospace, subsequent to interim reporting in 2013, the
useful economic life of one contract related intangible asset was amended, as referenced in the 2013 financial
statements. The amendment from 25 years to 6 years was to reflect better the consumption of value. The impact on
“amortisation of non-operating intangible assets arising on business combinations” for the first half of 2013 is an
incremental charge of £7 million.
This adjustment takes the previously reported amortisation charge of £28 million to a charge of £35 million with a
corresponding impact on operating profit and profit before tax. The associated tax, is adjusted by an incremental
credit of £2 million. This adjustment takes the previously reported tax charge of £30 million to a charge of £28 million.
For the first half 2013 basic earnings per share has been reduced from 5.8 pence to 5.5 pence and diluted earnings
per share has been reduced from 5.7 pence to 5.4 pence. There has been no impact on management basis numbers
as a result of this change.
In the balance sheet at 30 June 2013; “other intangible assets” have been reduced by the £7 million from
£1,019 million to £1,012 million and “deferred tax liabilities” have reduced by the £2 million from £192 million to
£190 million.
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 2013. The 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 acquired assets and liabilities – business combinations, post-employment
obligations, derivative and other financial instruments, taxation, provisions and impairment of non-current assets. The
details of the principal estimates, judgements and assumptions are set out in notes 1, 24, 4b, 20, 6, 21 and 11 of the
audited consolidated financial statements for the year ended 31 December 2013 as updated in notes 10 (Postemployment obligations), 4 (Change in value of derivative and other financial instruments), 8 (Taxation) and 14 (Other
financial information) of these financial statements.
Date of approval
These financial statements were approved by the Board of Directors on Monday 28 July 2014.
Page 24 of 33
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2014
3
Adjusted performance measures
(a) Reconciliation of reported and management performance measures
FIRST HALF 2014 (unaudited)
As
reported
£m
3,565
Sales
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
Earnings per share - pence
(39)
185
(2)
183
11.2
-
(19)
53
(58)
238
(2)
236
14.4
Trading profit
Change in value of derivative and other financial instruments
Amortisation of non-operating intangible assets arising on
business combinations
Operating profit
Share of post-tax earnings of joint ventures
-
-
-
53
3.2
-
FIRST HALF 2013* (unaudited)
As
reported
£m
3,647
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
222
3,869
289
(91)
31
-
91
320
-
(35)
163
31
35
126
320
24
(31)
1
(6)
Interest payable
Interest receivable
Other net financing charges
Net financing costs
Profit before taxation
(38)
2
(24)
(60)
127
-
24
24
151
(38)
2
(36)
278
Taxation
Profit after taxation for the period
Profit attributable to non-controlling interests
Profit attributable to owners of the parent
Earnings per share - pence
(28)
99
(10)
89
5.5
-
(23)
128
8
136
8.3
(51)
227
(2)
225
13.8
Share of post-tax earnings of joint ventures
*
restated for the impact of a hindsight fair value adjustment relating to the purchase of Volvo Aerospace in 2012, see note 2.
FULL YEAR 2013
For the year ended 31 December 2013, management sales were £7,594 million, management trading profit was
£661 million, management profit before tax was £578 million and management earnings per share was 28.7 pence.
Page 25 of 33
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2014
3
Adjusted performance measures (continued)
(b) Summary by segment
FIRST HALF 2014 (unaudited)
Aerospace
Driveline
Powder Metallurgy
Land Systems
Other businesses
Corporate and unallocated costs
Sales
£m
1,100
1,765
471
426
66
3,828
Trading
profit
£m
121
142
53
31
5
(12)
340
Sales
£m
1,123
1,728
480
487
51
3,869
Trading
profit
£m
118
117
48
45
2
(10)
320
Sales
£m
2,243
3,416
932
899
104
7,594
Trading
profit
£m
266
246
94
75
5
(25)
661
Margin
11.0%
8.0%
11.3%
7.3%
8.9%
FIRST HALF 2013 (unaudited)
Aerospace
Driveline
Powder Metallurgy
Land Systems
Other businesses
Corporate and unallocated costs
Margin
10.5%
6.8%
10.0%
9.2%
8.3%
FULL YEAR 2013
Aerospace
Driveline
Powder Metallurgy
Land Systems
Other businesses
Corporate and unallocated costs
Page 26 of 33
Margin
11.9%
7.2%
10.1%
8.3%
8.7%
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2014
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
Reclassified in period
Change in value of derivative and other financial instruments
Unaudited
First half
First half
2014
2013
£m
£m
(11)
(98)
(1)
3
(12)
(95)
5
5
(7)
Full year
2013
£m
19
(4)
15
4
4
(91)
11
11
26
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 amounts 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
2014
2013
£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
6
-
Full year
2013
£m
-
9
3
12
Unaudited
First half
First half
2014
2013
£m
£m
263
222
(224)
(191)
39
31
39
31
(7)
(6)
Full year
2013
£m
458
(394)
64
(1)
63
(9)
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
32
(1)
31
25
(1)
24
54
(2)
52
Exceptional and non-trading items represent amortisation of non-operating intangible assets arising on business
combinations and other net financing charges including tax of £nil (first half 2013: £nil, full year 2013: £nil).
There has been no change in the fair value of a guarantee contract (level 3), signed with the external bankers of
Emitec (a 50% joint venture company). The guarantee contract has been valued at £10 million based on future cash
forecasts and an estimate of the probability of default if the guarantee were not in place.
On 30 April 2014, the Group agreed to sell its 50% shareholding in Emitec for cash consideration of approximately
£36 million (€46 million) subject to regulatory approvals. At 30 June 2014, the transaction had not completed. The
net carrying value of Emitec at 30 June 2014 was £14 million, reported in the balance sheet within ‘investments in
joint ventures’ (£24 million) and ‘derivative financial instruments – non current liabilities’ (£10 million).
7
Other net financing charges
Unaudited
First half
First half
2014
2013
£m
£m
(25)
(19)
(4)
(5)
(29)
(24)
Interest charge on net defined benefit plans
Unwind of discounts
Other net financing charges
Page 27 of 33
Full year
2013
£m
(45)
(10)
(55)
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2014
8
Taxation
The tax charge for the period is based on an estimate of the Group’s expected annual effective rate of tax for 2014
based on tax legislation substantively enacted at 30 June 2014 applied to taxable profit for the period ended 30
June 2014.
Unaudited
First half
First half
2014
2013*
£m
£m
Tax included in the income statement
Analysis of tax charge in the period
Current tax (charge)/credit
Current period charge
Utilisation of previously unrecognised tax losses and other assets
Adjustments in respect of prior periods
Net movement on provisions for uncertain tax positions
Full year
2013
£m
Deferred tax
(66)
(2)
10
(58)
19
(43)
2
6
(35)
7
(85)
4
4
8
(69)
(8)
Total tax charge for the period
(39)
(28)
(77)
Analysed as:
Tax in respect of management profit
Current tax
Deferred tax
(58)
-
(35)
(16)
(65)
(40)
(58)
(51)
(105)
19
23
(3)
31
19
23
28
(39)
(28)
(77)
Tax in respect of items excluded from management profit
Current tax
Deferred tax
Total tax charge for the period
*
restated for the impact of a hindsight fair value adjustment relating to the purchase of Volvo Aerospace in 2012, see note 2.
Unaudited
First half
First half
2014
2013
£m
£m
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
2
2
29
33
10
(19)
1
(8)
Full year
2013
£m
21
(49)
1
(27)
Management tax rate
The tax charge arising on management profits of subsidiaries of £264 million (first half 2013: £253 million, full year
2013: £524 million) was £58 million (first half 2013: £51 million charge, full year 2013: £105 million charge) giving an
effective tax rate of 22% (first half 2013: 20%, full year 2013: 20%).
Deferred tax asset recognition
There is a net £19 million deferred tax credit (first half 2013: £7 million credit, full year 2013: £8 million charge) in the
Income Statement, primarily relating to the recognition of previously unrecognised tax losses in the US due to
increased confidence in the Group’s ability to offset these against future taxable profits.
Page 28 of 33
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2014
9
Dividends
An interim dividend of 2.8 pence per share (first half 2013: 2.6 pence per share, full year 2013: 7.9 pence per share)
has been declared by the Directors and will be paid on 22 September 2014 to shareholders on the register at
15 August 2014. Based on the number of shares ranking for dividend at 30 June 2014, the interim dividend is
expected to absorb £46 million.
During the period £87 million (first half 2013: £78 million, full year 2013: £121 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 2014.
Movement in post-employment obligations during the period:
Unaudited
First half
First half
2014
2013
£m
£m
(1,271)
(978)
(23)
(26)
(1)
(2)
(25)
(19)
(136)
106
71
54
(342)
22
(33)
(1,363)
(1,240)
At 1 January
Current service cost
Administrative costs
Interest on net defined benefit plans
Remeasurement of defined benefit plans
Contributions/benefits paid
Removal of pension partnership plan asset
Currency variations
At end of period
Full Year
2013
£m
(978)
(51)
(3)
(45)
60
102
(342)
(14)
(1,271)
Post-employment obligations as at the period end comprise:
Unaudited
30 June
30 June 31 December
2014
2013
2013
£m
£m
£m
(805)
(679)
(742)
(492)
(485)
(462)
(20)
(24)
(21)
(46)
(52)
(46)
(1,363)
(1,240)
(1,271)
Pensions - funded
- unfunded
Medical - funded
- unfunded
UK Americas
£m
£m
(769)
(94)
(621)
(137)
(714)
(87)
At 30 June 2014 - unaudited
At 30 June 2013 - unaudited
At 31 December 2013
Page 29 of 33
Europe
£m
(486)
(463)
(455)
ROW
£m
(14)
(19)
(15)
Total
£m
(1,363)
(1,240)
(1,271)
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2014
10
Post-employment obligations (continued)
Assumptions
The major assumptions used were:
UK
GKN1
GKN2
%
%
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 30 June 2013 – 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 2013
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
n/a
3.20
4.00
3.20
4.20
3.20
4.20
3.20
5.5 /5.5
n/a
3.20
4.20
3.10
4.30
3.30
4.60
3.30
6.1/6.1
n/a
3.25
4.20
3.25
4.30
3.30
4.50
3.30
5.5/5.5
Americas
Europe
ROW
%
%
%
n/a
n/a
4.30
n/a
2.50
1.75
2.80
1.75
n/a
1.25
n/a
7.5/5.0
n/a
n/a
n/a
n/a
4.80
n/a
2.50
1.75
3.50
1.75
n/a
1.45
n/a
8.0/5.0
n/a
n/a
n/a
n/a
4.80
n/a
2.50
1.75
3.50
1.75
n/a
1.25
n/a
7.5/5.0
n/a
n/a
Consistent with the prior period and year end, the UK discount rate at 30 June 2014 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 2013.
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 PPA
2013 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 2014 is set out below:
UK
£m
410
(516)
(446)
355
(97)
93
Discount rate +1%
Discount rate -1%
Rate of inflation +1%
Rate of inflation -1%
Life expectancy +1 year
Life expectancy -1 year
Americas
£m
33
(41)
(8)
8
Europe
£m
71
(91)
(59)
50
(16)
15
ROW
£m
3
(3)
-
UK deficit funding
During the period, a bulk annuity pensioner “buy-in” was transacted in relation to the UK pension scheme, GKN 1,
as a result of which a proportion of GKN 1 liabilities are now fully insured. The transaction involved a payment to
Rothesay Life of £123 million, made from GKN 1’s assets. This gave rise to an additional scheme funding
requirement of £8 million which the Group will pay to GKN 1 over a 4 year period. The first payment of £2 million
was made during the period. The bulk annuity covers £107 million of pensioner liabilities valued on an IAS19
accounting basis, as at 30 June 2014.
In the UK, the Group is required to complete a statutory valuation of its pension schemes at least every three years
and to agree a recovery plan to eliminate any resulting deficit. Both UK pension schemes underwent funding
valuations as at 5 April 2013 and during the period final agreement was reached with the Trustees on the valuation
and resulting deficit recovery plan for each scheme. The agreed deficit recovery plan requires payments of £10
million per year to the pension schemes combined and the potential for further additional payments commencing in
2015, contingent upon asset performance. The first payment of £10 million was made during the period.
Page 30 of 33
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2014
11 Cash flow notes
Unaudited
First half
2014
£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*
Change in value of derivative and other financial instruments
Amortisation of government capital grants
Net 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 inventories
Change in receivables
Change in payables and provisions
Movement in net debt
Net movement in cash and cash equivalents
Net movement in borrowings and deposits
Finance leases
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
2013
2013
£m
£m
259
163
560
109
15
119
13
235
2
32
35
7
(1)
(2)
4
(48)
(36)
(163)
48
227
35
91
(2)
5
(26)
(64)
(180)
113
267
75
(26)
(3)
(1)
(12)
14
(47)
(74)
(74)
101
782
(25)
(50)
(6)
(81)
(732)
(813)
81
(137)
(1)
(57)
(871)
(928)
67
83
(1)
(10)
139
(871)
(732)
181
(31)
150
233
(23)
210
184
(3)
181
restated for the impact of a hindsight fair value adjustment relating to the purchase of Volvo Aerospace in 2012, see note 2.
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 2014 was £944 million (first half 2013: £1,095 million) with a fair value of
£1,034 million (first half 2013: £1,122 million) and the carrying value of government refundable advances at
30 June 2014 was £42 million (first half 2013: £94 million) with a fair value of £50 million (first half 2013:
£102 million).
Page 31 of 33
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2014
12 Property, plant and equipment (unaudited)
During the six months ended 30 June 2014 the Group asset additions were £114 million (first half 2013:
£121 million). Assets with a carrying value of £5 million (first half 2013: £nil) were disposed of during the
six months ended 30 June 2014.
13 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.
14 Other financial information (unaudited)
Commitments relating to future capital expenditure not provided by subsidiaries at 30 June 2014 amounted
to £122 million (30 June 2013: £98 million) and the Group's share not provided by joint ventures amounted
to £27 million (30 June 2013: £17 million).
During the period a total of 527,459 ordinary shares (first half 2013: 4,506,727 ordinary shares) were
issued in connection with the exercise of options under the Company’s share option schemes, all of which
were transferred from treasury. This generated a cash inflow of £1 million (first half 2013: £5 million).
During the period no shares were purchased by the GKN Employee Share Ownership Plan Trust (first half
2013: 1,723,040 shares were purchased in the open market for cash consideration of £4 million).
On 1 April 2014 the Group acquired 100% of the equity share capital of Williams Hybrid Power Limited,
now renamed GKN Hybrid Power Limited, from Williams Grand Prix Engineering Limited. The fair value
consideration of £11 million comprises an initial cash investment of £8 million, plus contingent
consideration estimated at £3 million. The range of the contingent consideration payment, based on
specific sales from GKN Hybrid Power Limited at a contractual royalty rate is unlimited. The fair value of
net assets acquired of £11 million, comprises; property, plant and equipment of £1 million, a technology
based non-operating intangible asset of £7 million, a marketing related non-operating intangible asset of
£2 million, a deferred tax liability of £1 million and provisional goodwill of £2 million. Amounts remain
provisional until work is finalised later in 2014. GKN Hybrid Power Limited has been included in Other
businesses for segmental reporting.
In May 2014, the Group repaid a government refundable advance in the UK, received in 2009 and 2010
relating to the A350 programme. The principle repaid was £38 million and the associated accrued interest
was £16 million.
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 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. A High Court judgment regarding payments on
account was handed down in January 2013 confirming HMRC should repay payments on account to GKN.
The European Court of Justice published its decision on 13 November 2012 and the case has returned to
the UK Courts.
The continuing complexity of the case and uncertainty over the issues raised 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 2014 or 30 June 2013. At 30 June 2014 the
Group had no contingent liabilities in respect of bank arrangements but one guarantee in respect of a joint
venture’s funding, consistent with 2013 year end (30 June 2013: one). In the case of certain businesses,
performance bonds and customer finance obligations have been entered into in the normal course of
business.
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Independent review report to GKN plc
Report on the condensed consolidated financial information
Our conclusion
We have reviewed the condensed consolidated financial statements defined below, in the Half year report of
GKN plc for the six months ended 30 June 2014. Based on our review, nothing has come to our attention
that causes us to believe that the condensed consolidated financial statements are 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.
This conclusion is to be read in the context of what we say in the remainder of this report.
What we have reviewed
The condensed consolidated financial statements, which are prepared by GKN plc comprise:





the consolidated balance sheet as at 30 June 2014;
the consolidated income statement and statement of comprehensive income for the period then ended;
the consolidated cash flow statement for the period then ended;
the condensed consolidated statement of changes in equity for the period then ended; and
the explanatory notes to the half year consolidated financial statements.
As disclosed in note 2, the financial reporting framework that has been applied in the preparation of the full
annual financial statements of the group is applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
The condensed consolidated financial statements included in the Half year report have been prepared in
accordance with International Accounting Standard 34, ‘Interim Financial Reporting’, as adopted by the
European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct
Authority.
What a review of condensed consolidated financial statements involves
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 enquiries, 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.
We have read the other information contained in the Half year report and considered whether it contains any
apparent misstatements or material inconsistencies with the information in the condensed consolidated
financial statements.
Responsibilities for the condensed consolidated financial statements and the review
Our responsibilities and those of the directors
The Half year report, including the condensed consolidated financial statements, is the responsibility of, and
has been approved by, the directors. The directors are responsible for preparing the Half year report in
accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Our responsibility is to express to the company a conclusion on the condensed consolidated financial
statements in the Half year report based on our review. This report, including the conclusion, has been
prepared for and only for the company for the purpose of complying with the Disclosure and Transparency
Rules of the Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion,
accept or assume responsibility for any other purpose or to any other person to whom this report is shown or
into whose hands it may come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
28 July 2014
Birmingham
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