NEWS RELEASE
31 July 2012
GKN plc Results Announcement for the six months ended 30 June 2012
Management basis
Sales
Operating profit
(*)
Profit before tax
(*)
Earnings per share
(*)
Interim dividend per share
(1)
As reported
2012
£m
2011
£m
Change
%
2012
£m
2011
£m
Change
%
3,459
2,988
+16
3,254
2,799
+16
293
224
+31
301
210
+43
266
200
+33
289
202
+43
14.4p
10.9p
+32
14.4p
10.4p
+38
2.4p
2.0p
+20
2.4p
2.0p
+20
(*)
2011 includes a £23 million charge and 2012 includes a net £2 million credit following a further insurance
claim recovery relating to the 2011 temporary Hoeganaes plant closure in Gallatin, USA.
Group Highlights(1)






Group results reflect the continued strong organic growth in all four Divisions and the
contribution from acquisitions:
o Sales up 16% (£471 million) to £3,459 million, +8% on an organic basis;
Excluding the 2011 effects of the Gallatin incident:
o Management trading (operating) profit up 19% to £293 million;
o Trading margin improved to 8.5%;
o Profit before tax increased 19% to £266 million;
o Earnings per share up 22% to 14.4 pence per share;
o Return on average invested capital reduced to 17.2% (2011: 18.1%), reflecting the 2011
acquisitions.
Reported profit before tax of £289 million (2011: £202 million).
Positive free cash flow of £28 million (2011: £25 million).
Net debt of £590 million (31 December 2011: £538 million).
Since 30 June 2012:
o Announcement of agreement to acquire Volvo Aero, significantly strengthening GKN
Aerospace’s engine components business.
“GKN has continued to make good progress both in terms of financial performance and
implementing our strategy to build a global market-leading business. First half trading has seen
sales increases and margin progression for each of our four Divisions and our new acquisitions,
Stromag and Getrag Driveline Products, are performing well.
As a result of the strong performance and confidence in the future, the Board has decided to
increase the interim dividend by 20% to 2.4 pence per share.
The macroeconomic environment continues to be uncertain, with increasing headwinds in
European auto markets. However, with the benefit of a good first half and the Group’s broad
exposure to global markets, our expectations for 2012 remain unchanged. We expect 2012 to be
another good year of progress for GKN and, in addition, we look forward to welcoming our new
acquisition, Volvo Aero, into GKN when the transaction completes in the next few months.”
Nigel Stein
Chief Executive, GKN plc
1
Divisional Highlights
GKN Driveline
GKN Powder Metallurgy
GKN Aerospace
GKN Land Systems
2012
1,664
465
770
512
2011
1,333
435
723
444
Organic
sales
growth
%
9
9
7
6
Group
3,459
2,988
8
Sales
(£m)
Trading margin
%
2012
7.3
10.1
11.2
10.2
( )
8.5 *
2011
7.1
9.0
11.1
8.8
( )
7.5 *
( )
* 2011 includes a £23 million charge and 2012 includes a net £2 million credit following a further insurance
claim recovery relating to the 2011 temporary Hoeganaes plant closure in Gallatin, USA.
The table does not include Other businesses (Cylinder Liners and Emitec).
GKN Driveline
 Getrag Driveline Products acquisition integrated and delivering ahead of expectations.
 Good progress made in all-wheel drive (AWD) systems, particularly with electronic
differential lockers (EDLs).
GKN Powder Metallurgy


Continued strong product development and £80 million of new business awarded.
Trading margin improved 110bps, to 10.1%.
GKN Aerospace
 New facility to open in Mexico to manufacture composite structural components for
Blackhawk helicopters.
 New work packages won on Boeing 787, 525 Bell helicopter, Bombardier business jets and
others.
GKN Land Systems
 Stromag acquisition integrated and performing well. Now leveraging its customers and
sales network to offer enhanced customer solutions from the Division’s combined
technologies.
 Trading margin improved 140bps, to 10.2%.
Outlook
Although the macroeconomic environment remains uncertain, the Group’s broad exposure to
global markets and strong customer positions mean that GKN should make good progress in 2012,
helped by the full year contribution from the acquisitions in 2011 of Getrag Driveline Products and
Stromag.
In automotive, external forecasts suggest that global light vehicle production in the second half will
be lower than the first half, but should reach approximately 81 million vehicles for the whole of
2012, an increase of nearly 5%. The strongest annual growth is expected in Japan and North
America with a decline in Europe.
Against this background, GKN Driveline is expected to show good year-on-year improvement,
although the rate of growth will slow slightly due to stronger second half 2011 comparators as the
effects of the Japanese tsunami unwind. GKN Powder Metallurgy expects sales to be lower than
the first half reflecting normal seasonality and weaker European markets.
2
In aerospace, civil aircraft production is expected to continue to grow, as both Airbus and Boeing
increase production. This should more than offset the effects of lower production of US military
aircraft.
The performance of GKN Land Systems should continue to show an improvement, benefiting from
the expected on-going strength in European and North American agricultural equipment markets
partially offset by weaker European industrial markets. Sales in the second half are expected to
show a reduction when compared with the first half, due to normal seasonal patterns.
For the year as a whole, free cash flow is expected to exceed 2011’s £147 million, before the
impact of the Volvo Aero acquisition which is expected to complete around the end of the third
quarter.
In the final quarter of 2012, Volvo Aero is expected to achieve a profit from its trading activities but
have a negative impact on the Group’s reported profit due to integration costs and acquisition
accounting adjustments. In 2013, the first full year of ownership, Volvo Aero’s contribution is
expected to be earnings enhancing.
Notes
(1) Financial information set out in this announcement, unless otherwise stated, is presented on a
management basis as set out on page 14.
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 statement should be regarded as a profit
forecast.
3
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 audiocast of the presentation will be available at
http://www.gkn.com/investorrelations/Pages/Webcasts.aspx. Slides will be put onto the GKN
website approximately 15 minutes before the presentation is due to begin, and will be available to
download from the results and presentation page on the GKN website at:
http://www.gkn.com/investorrelations/Pages/results-and-presentations.aspx?year=2012.
Questions may be asked at the event or via the webcast.
A live dial in facility will be available by telephoning:
Standard International Dial In: +44 (0) 1452 555 566
Conf ID: 11156527#
A replay of the conference call will be available until 13 August 2012 on:
Standard International Number: +44 (0) 1452 550 000
Replay Access Number: 11156527#
This announcement together with the attached financial statements and notes thereto may be
downloaded from http://www.gkn.com/media/Pages/default.aspx.
4
NEWS RELEASE
GKN plc Results Announcement for the six months ended 30 June 2012
Group Overview
Markets
The Group operates in the global automotive, aerospace and land systems markets. In the
automotive market, GKN Driveline sells to manufacturers of passenger cars and light vehicles.
Around 75% of GKN Powder Metallurgy sales are also to the automotive market, with the balance
to other industrial customers. GKN Aerospace sells to manufacturers of military and civil aircraft,
aircraft engines and equipment. GKN Land Systems sells to producers of agricultural,
construction, mining and industrial equipment and to the automotive and commercial vehicle
sectors.
These results reflect a good performance in each division and the benefit of the successful
integration of the 2011 acquisitions.
Management sales increased 16% in the six months ended 30 June 2012 to £3,459 million (2011:
£2,988 million). The effect of currency translation was £35 million negative and there was a £294
million benefit from acquisitions which was partly offset by a £15 million reduction due to disposals.
Excluding these items, the organic increase was £227 million (+8%). Within this organic figure,
Driveline increased by £120 million, Powder Metallurgy was £40 million higher, Aerospace
increased £47 million and Land Systems was up £24 million.
Management trading profit increased £69 million to £293 million (2011: £224 million). In 2011,
the temporary closure of Hoeganaes’ Gallatin facility in the US resulted in a £23 million charge in
the first half, whereas in 2012, there was a net £2 million profit following a further insurance claim
settlement. After adjusting for the adverse currency translational impact of £5 million and the profit
from acquisitions of £27 million, the organic increase was £22 million, excluding the impact of the
Gallatin incident. Within this figure, Driveline was £10 million higher, Powder Metallurgy increased
by £9 million, Aerospace was £5 million higher and Land Systems increased £7 million.
Group trading margin in the first half increased to 8.5% (2011: 8.3%, excluding the impact of
Gallatin). Return on average invested capital (ROIC), was 17.2% (2011: 17.1% or 18.1%,
excluding the impact of Gallatin), reflecting last year’s acquisitions. At 31 December 2011, ROIC
excluding Gallatin and including the pro forma impact of the 2011 acquisitions was 16.9%.
Sales (£m)
(*)
Trading profit (£m)
(*)
Trading margin (%)
(*)
Return on average invested capital (%)
First half
2012
2011
3,459
2,988
293
224
7.5%
8.5%
17.2% 17.1%
(*)
Change (%)
Headline
Organic
16
8
31
21
2011 includes a £23 million charge and 2012 includes a net £2 million credit following a further insurance
claim recovery relating to the 2011 temporary Hoeganaes plant closure in Gallatin, USA.
5
Divisional Performance
Automotive market
As shown in the table below, Japan had the strongest growth in car and light vehicle production in
the first half of 2012, recovering from the earthquake and tsunami that affected output in 2011.
Strong growth was also experienced in North America, India and China while production in Europe
and Brazil fell.
Car and light vehicle production (rounded millions of units)
Europe
H1 2012
H1 2011
Growth (%)
10.1
10.6
(5)
North America
7.9
6.5
22
Brazil
1.5
1.6
(7)
Japan
5.0
3.2
57
China
9.0
8.5
6
India
2.0
1.9
7
Others
5.9
5.7
2
41.4
38.0
9
Total – global
(#)
Source: IHS Automotive
(#) Growth is derived from unrounded production figures
Overall, global production volumes increased 9% in the first half of 2012 to 41.4 million vehicles
(2011: 38.0 million) whilst sales of cars and light vehicles increased by 6%, from 38.0 million
vehicles to 40.3 million vehicles. Global production, excluding Japan, increased 5%.
Demand for European larger (premium) vehicles remains strong outside of the region while
demand for smaller vehicles, particularly in Europe, was lower. In North America recovery
following the recession continued.
External forecasts indicate that global production in 2012 will increase by 5% to 80.7 million
vehicles. Major markets that are expected to grow fastest include Japan (+21%), North America
(+14%) and China (+6%). Production in Western Europe is forecast to contract 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 ultra lowcost car to the most sophisticated premium vehicle demanding the most complex driving dynamics.
The key financial results for the period are as follows:
Sales (£m)
Trading profit (£m)
Trading margin (%)
Return on average invested capital (%)
First half
2012
2011
1,664
1,333
121
94
7.1%
7.3%
16.1%
15.2%
Change (%)
Headline
Organic
25
9
29
11
Return on average invested capital in 2012 reflects the pro forma impact of Getrag Driveline Products acquired on 30 September 2011
Driveline’s sales increased 25% to £1,664 million (2011: £1,333 million). The adverse impact of
currency translation was £21 million and sales were £7 million lower due to the sale of GKN
Driveline’s 49% share of the Japanese driveshaft sales and distribution joint venture GKN JTEKT
Ltd, in March 2011. Getrag Driveline Products achieved strong sales of £239 million. Organic
sales increased by £120 million, or 9%, compared with an increase in global vehicle production of
9%, or 5% excluding Japan.
6
This strong growth was broad based across North America, Europe and China reflecting recent
market share gains, a stronger position in premium vehicles, demand for which continued to be
good, and GKN Driveline’s broadening product mix, particularly with all-wheel drive (AWD)
systems. In Japan, GKN Driveline was affected less than the market generally by the earthquake
in 2011 and is therefore not benefiting from the significant bounce back in production volumes.
Trading profit increased to £121 million (2011: £94 million). The adverse impact of currency
translation was £3 million and Getrag Driveline Products contributed £20 million. The organic
increase in trading profit was £10 million, held back by slower demand in Brazil and some
operating inefficiencies in India. Engineering costs increased to support new programmes and
future growth. Driveline’s trading margin was 7.3% (2011: 7.1%).
Return on average invested capital was 15.2% (2011: 16.1%), reflecting the impact of the Getrag
Driveline Products acquisition. At 31 December 2011, return on average invested capital was
14.7%, including the pro forma impact of Getrag Driveline Products.
In the first half, a good level of new business wins continued for the CVJ Systems business and
progress was made in AWD systems, particularly with electronic differential lockers (EDLs) and
eDrive, with a number of eAxle wins for hybrid vehicles. GKN Driveline expansion plans also
continue with the addition of its third precision forge in Celaya, Mexico.
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:
Sales (£m)
Trading profit (£m)
Trading margin (%)
Return on average invested capital (%)
First half
2012
2011
465
435
47
39
9.0%
10.1%
15.7%
18.2%
Change (%)
Headline
Organic
7
9
21
24
GKN Powder Metallurgy sales were £465 million (2011: £435 million), an increase of 7%. The
negative impact of currency translation was £10 million. Organic sales increased by £40 million
(+9%). Hoeganaes increased the number of tons of powder shipped by 8%. GKN Sinter Metals
increased sales in all regions, benefiting from strong automotive production in North America and
new business wins entering production. Organic sales for GKN Sinter Metals increased by 13% in
North America and 3% in Europe. Strong growth was also achieved in India, Brazil and China.
Overall, GKN Powder Metallurgy reported a trading profit of £47 million (2011: £39 million). The
negative impact of currency translation was £1 million. The divisional trading margin was 10.1%
(2011: 9.0%). Return on average invested capital was 18.2% (2011: 15.7%), reflecting the
improvement in profitability. At 31 December 2011, return on average invested capital was 16.7%.
Increasing trends in industrial and automotive markets to improve fuel efficiency and reduce
emissions continue to drive the demand for products made by powder metallurgy. During the
period, around £80 million (annualised sales) of new programme business was awarded.
7
GKN Aerospace
GKN Aerospace is a global first tier supplier of airframe and engine structures, components,
assemblies, transparencies, fuel tank and flotation systems for a wide range of aircraft and engine
prime contractors and other first tier suppliers. It operates in three main product areas:
aerostructures, engine components and special products.
The overall aerospace market remains positive in 2012 driven by a growing civil aircraft market
partly offset by a more subdued military market. The division has increased its sales for civil
aerospace to 63%, with defence representing 37%.
Civil aircraft production is expected to grow well with Airbus and Boeing continuing to project the
procurement of new single aisle and wide-bodied aircraft at between 26,900 and 33,500 by 2030.
Both companies continue to benefit from record deliveries and record order backlog. This
sustained order growth has led both Airbus and Boeing to increase production levels for single
aisle and wide bodied aircraft. The smaller business jet market is also showing some signs of
recovery.
World-wide defence spending remains under pressure, largely driven by cutbacks throughout
Europe and likely reductions in the U.S. Defense Budget. GKN’s position on key multi-year
programmes such as the UH-60 Blackhawk helicopter, F/A-18 Super Hornet, F-15 Eagle and C130J Super Hercules provide a stable production base despite potential budget pressure and delay
in the F-35 programme ramp-up.
The key financial results for the period are as follows:
Sales (£m)
Trading profit (£m)
Trading margin (%)
Return on average invested capital (%)
First half
2012
2011
770
723
86
80
11.1%
11.2%
22.5%
22.4%
Change (%)
Headline
Organic
7
7
8
6
Aerospace sales of £770 million were £47 million higher than the prior period (2011: £723 million).
The £8 million positive impact from currency on translation of sales was exactly offset by the
disposal of the Engineering Services division, which was sold in November 2011. The organic
increase in sales of £47 million represented a 7% increase. This level of increase reflects lower
production rates on military programmes, such as the C-17, F-15 and F-18, being more than offset
by higher civil sales, particularly for the Airbus A320, A330, A380 and the Boeing 787.
Trading profit increased by £6 million to £86 million (2011: £80 million). The impact from currency
on translation of results was £1 million positive. The trading margin was 11.2% (2011: 11.1%).
Return on average invested capital was 22.4% (2011: 22.5%) reflecting increased investment in
new programmes, particularly the A350. At 31 December 2011, return on average invested capital
was 22.7%.
During the first half a number of important new contracts and other milestones were achieved,
including:
 Composite Technology and Applications Limited (CTAL), a joint venture between GKN and RollsRoyce, opened a pre-production facility on the Isle of Wight, UK. The facility will develop and
demonstrate new methods for high volume production of carbon fibre aero-engine fan blade and
fan case technology to improve future aero-engine performance.
 Establishing a new composite aerostructures manufacturing facility in Mexico to
manufacture composite airframe structures, initially for the Sikorsky UH-60 Blackhawk
helicopter.
 New contracts awarded to provide key metal and composite structures and fuel systems for
the new 525 Relentless Bell helicopter.
8



A contract for the design, development and production of transparencies (cockpit and
passenger cabin windows), winglets and ailerons for the Bombardier Global 7000 and
Global 8000 business jets.
Further work packages for the Boeing 787 relating to floor sections, wing ribs and seat
tracks.
A multi-year contract extension for the UH-60 Blackhawk helicopter.
As part of the finalisation of commercial contracts relating to the Filton acquisition, it has been
agreed that GKN Aerospace would cease managing a supply chain contract on behalf of its
customer from the end of 2012. Therefore, in 2013, GKN Aerospace’s sales will reduce by around
£100 million. However, its trading profit will only reduce marginally and its trading margin will
improve, due to the relatively low margin earned on this pass-through business.
On 5 July 2012, the SEK6.9 billion (£633 million) acquisition of Volvo Aero was announced. Volvo
Aero designs, engineers and manufactures components and sub-assemblies for aircraft engine
turbines. It supplies all the major aero engine manufacturers and has positions on most major civil
aerospace platforms that are set to increase as aircraft build rates ramp up, significantly enhancing
GKN Aerospace’s engine components business.
The acquisition is expected to complete at the end of the third quarter. The combination of GKN
Aerospace and Volvo Aero creates a world leader in both aero structures and aero engine
components.
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 ahead of the prior year. This is due to the contribution from
Stromag together with 6% organic growth, which has normalised following the strong recovery
seen in the agricultural equipment, construction and mining markets in 2011 when sales increased
by more than 30%. Industrial markets have seen some volatility in certain segments, including
wind, with weakness in some geographic areas, notably Southern Europe. Automotive structures
activity declined slightly due to some expected programme cessations. The key financial results for
the period are as follows:
Sales (£m)
Trading profit (£m)
Trading margin (%)
Return on average invested capital (%)
First half
2012
2011
512
444
52
39
8.8%
10.2%
24.2%
18.7%
Change (%)
Headline
Organic
15
6
33
18
Return on average invested capital in 2012 reflects the pro forma impact of Stromag acquired on 5 September 2011
GKN Land Systems sales in the first half increased 15% to £512 million (2011: £444 million). The
negative impact of currency translation was £11 million. Excluding the £55 million of sales in
Stromag, the organic increase in sales was £24 million (+6%).
The division reported a 33% increase in trading profit to £52 million (2011: £39 million). The
negative impact of currency translation was £1 million. Excluding the £7 million of trading profit
from Stromag, the organic increase in trading profit was £7 million (+18%). Trading margin was
significantly higher at 10.2%. Return on average invested capital decreased to 18.7% (2011:
24.2%), reflecting the impact of the Stromag acquisition. At 31 December 2011, return on average
invested capital was 17.9%, including the pro forma impact of Stromag.
9
Since acquiring Stromag, good progress has been made in integrating the business, leveraging its
customer relationships and extensive sales network, including its presence in the US, Brazil, India
and China, and offering enhanced customer solutions through combined technology capabilities.
With its broader “Power Source to Power Applied” product portfolio, recent examples of GKN Land
System’s new business wins include: prototype overload clutch for Atlas Copco/Carraro in a mining
application; drivetrain for a combine header for a Claas harvester; brakes a for Mitsubishi wind
turbine.
Other Businesses
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 and a 50% share in
Emitec, which manufactures metallic substrates for catalytic converters in Germany, the US, China
and India.
Sales in the period were £48 million (2011: £53 million), reflecting the slowing sales in the
commercial vehicle market. Trading profit was £1 million (2011: £2 million).
Hoeganaes’ Gallatin plant, USA
As previously reported, on 27 May 2011, the Hoeganaes Gallatin plant in the US was temporarily
closed following a hydrogen explosion. In the first half of 2011, £23 million of costs were recorded.
In the second half of 2011 a further £11 million of costs were recorded, offset by initial recoveries
of £15 million from an insurance claim. During the first half of 2012, a further £2 million net has
been recovered from external insurance claims.
Other Financial Information
Corporate costs
Corporate costs, which comprise the costs of stewardship of the Group and operating charges and
credits associated with the Group’s legacy businesses, were £16 million (2011: £7 million), the
increase principally reflecting transaction costs, including those related to the proposed acquisition
of Volvo Aero which was announced on 5 July 2012.
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 2012
and 30 June 2012, or the date of maturity if earlier, is reflected in the income statement as a
component of operating profit and has resulted in a credit of £18 million (2011: £24 million credit).
There was a £1 million charge arising from a change in the value of embedded derivatives in the
period (2011: £2 million charge) and a credit of £1 million attributable to the translational currency
impact on intra-group funding balances (2011: £4 million charge).
Amortisation of non-operating intangibles arising on business combinations
The charge for the amortisation of non-operating intangible assets (for example, customer
contracts, technology assets and intellectual property rights) arising on business combinations was
£16 million (2011: £10 million). The increase reflects the impact of the Group’s acquisitions in
2011 of Getrag Driveline Products and Stromag.
Gains and losses on changes in Group structure
During the period the Group sold its 49% share in a joint venture company, GKN JTEKT (Thailand)
Limited for cash consideration of £1 million, realising neither a profit nor loss.
10
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 £23 million (2011: £20
million) with trading profit of £29 million (2011: £26 million). The Group’s share of post-tax earnings
on a management basis was £24 million (2011: £21 million). The Group’s share of the tax charge
amounted to £5 million (2011: £5 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 £35 million (2011: £28 million) and include the non-cash charge on
post-employment benefits of £11 million (2011: £8 million) and unwind of discounts of £2 million
(2011: £1 million). Interest payable was £27 million (2011: £21 million), whilst interest receivable
was £5 million (2011: £2 million) resulting in net interest payable of £22 million (2011: £19 million).
The £3 million increase in net interest payable is primarily as a result of the increased borrowings
following the acquisitions in 2011.
The non-cash charge on post-employment benefits arises as the expected return on scheme
assets of £72 million (2011: £77 million) was more than offset by interest on post-employment
obligations of £83 million (2011: £85 million). Details of the assumptions used in calculating postemployment costs and income are provided in note 10 to the financial statements.
Profit before tax
Management profit before tax was £266 million including a net £2 million credit following a further
insurance claim recovery relating to the temporary closure of the Hoeganaes Gallatin plant in 2011,
described above (2011: £200 million, including a £23 million charge relating to the Gallatin impact).
The profit before tax on a statutory basis was £289 million (2011: £202 million).
Taxation
The book tax rate on management profits of subsidiaries was 17% (2011:16%), arising as a £40
million tax charge on management profits of subsidiaries of £242 million.
The Group’s theoretical weighted average tax rate, which assumes that book profits/losses are tax
affected at the statutory tax rates in the countries in which they arise, is 34% (2011: 31%). The
book tax rate is significantly lower, largely because of the recognition of substantial deferred tax
assets (mainly in the UK and US) due to increased confidence in the Group’s ability to offset
brought forward tax deductions against future taxable profits in various countries.
The Group aims to access brought forward tax deductions in order to sustain a ‘cash tax’ charge
on management profits of below 20%. ‘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 14%. In the near term, the
cash tax rate is expected to continue below 20% as brought forward tax deductions are utilised.
The tax rate on statutory profits of subsidiaries was 20% (2011: 15%) arising as a £53 million tax
charge on a statutory profit of £266 million.
Non-controlling interests
The profit attributable to non-controlling interests was £12 million (2011: £14 million) including a
£10 million (2011: £11 million) impact from the pension partnership arrangement.
11
Earnings per share
Management earnings per share was 14.4 pence (2011: 10.9 pence, including the effect of the £23
million net charge relating to the Hoeganaes incident at Gallatin, US). On a statutory basis
earnings per share was 14.4 pence (2011: 10.4 pence).
Dividend
In view of the improving trading performance, the Board has decided to pay an interim dividend of
2.4 pence per share (2011: 2.0 pence). The interim dividend will be paid on 24 September 2012 to
shareholders on the register at 10 August 2012. 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 3 September 2012.
Cash flow
Operating cash flow, which is defined as cash generated from operations of £215 million (2011:
£175 million) adjusted for capital expenditure (net of proceeds from capital grants) of £149 million
(2011: £131 million) and proceeds from the disposal / realisation of fixed assets of £nil million
(2011: £2 million), was an inflow of £66 million (2011: £46 million).
Within operating cash flow there was a movement in working capital and provisions of £141 million
(2011: £102 million), including cash outflow from previous restructuring plans of £3 million (2011:
£22 million). Average working capital as a per cent of sales was 7.9% (2011: 6.9%).
Capital expenditure (net of proceeds from capital grants) on both tangible and intangible assets
totalled £149 million (2011: £131 million), including £13 million (2011: £35 million) on the A350
programme. Of this, £127 million (2011: £108 million) was on tangible fixed assets and was 1.2
times (2011: 1.2 times) the depreciation charge. Expenditure on intangible assets, mainly nonrecurring costs on Aerospace programmes, totalled £22 million (2011: £23 million).
Net interest paid totalled £25 million (2011: £14 million) as a result of the additional debt required
to fund the 2011 acquisitions and tax paid in the period was £24 million (2011: £13 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 £28 million (2011: £25 million). The year on year change
reflects an improvement in profitability partially offset by increased capital expenditure and working
capital outflow.
Net borrowings
At the end of the period, the Group had net debt of £590 million compared with £538 million at 31
December 2011.
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
current service cost is £20 million (2011: £19 million). Other net financing charges of £11 million
(2011: £8 million) have increased due to lower returns on scheme assets relative to the interest
cost on scheme liabilities.
The deficit of all schemes at 30 June 2012 was £926 million, a £58 million increase over 31
December 2011 (£868 million deficit).
12
The UK deficit of £322 million was £50 million higher than the 31 December 2011 year end figure
of £272 million. The change was mainly due to the change in discount rate used from 4.7% to
4.6%.
On 1 April 2012 the Group transferred the assets and liabilities of its defined benefit pension
scheme of the hourly paid workers at GKN Aerospace’s St. Louis facility to the International
Association of Machinists and Aerospace Workers (‘IAM’) National Pension Fund. As a result
there was a net pension scheme curtailment benefit of £35 million.
The post-employment obligations of overseas businesses, which is mostly the unfunded schemes
in Germany, was largely unchanged at £604 million (31 December 2011: £596 million) and
reflected the positive impact of exchange rates (£17 million) more than offset by a decrease of 120
bps in the European discount rate to 3.7%.
Contributions for the six months across the Group totalled £42 million (2011: £34 million). In
addition, the Group paid £30 million from the Pension partnership to the UK Pension scheme in
June 2012.
Net assets
Net assets of £1,578 million were £46 million lower than the December 2011 year end figure of
£1,624 million. The decrease includes profit attributable to equity shareholders of £224 million
offset by adverse currency movements of subsidiaries of £66 million, actuarial losses in respect of
post-employment obligations of £121 million and distributions to both equity shareholders and noncontrolling interests of £92 million.
Exchange rates
Exchange rates used for currencies most relevant to the Group’s operations are:
Average
Euro
US Dollar
H1
2012
1.22
1.57
H1
2011
1.15
1.61
Period End
June
June
2012
2011
1.24
1.11
1.57
1.61
2011 Full Year
Average
Period
End
1.15
1.20
1.60
1.55
The approximate impact on first half 2012 trading profit of subsidiaries and joint ventures of a 1%
movement in the average rate would be euro - £1 million, US dollar - £1 million.
Funding and liquidity
At 30 June 2012, UK committed bank facilities were £755 million. Within this there are committed
revolving credit facilities of £675 million. At 30 June 2012, drawings against the revolving credit
facilities were £297 million. Capital market borrowings at 30 June 2012 were the £350 million
6.75% bonds maturing in October 2019. The outstanding £176 million 7% 2012 unsecured bond
was repaid in the period. In addition to the above, adequate new banking facilities have been
arranged in relation to the proposed acquisition of Volvo Aero.
Financial resources and going concern
At 30 June 2012, the Group had gross borrowings of £802 million (31 December 2011: £694
million) and cash and deposits of £212 million (31 December 2011: £156 million) resulting in net
borrowings of £590 million (31 December 2011: £538 million).
The Directors have assessed the future funding requirements of the Group and compared them to
the level of committed available borrowing facilities. The assessment included a review of both
divisional and Group financial forecasts, for the 15 months from the balance sheet date.
13
The forecasts show that the Group will have a sufficient level of headroom in the foreseeable future
and the Directors have assessed that the likelihood of breaching covenants in this period is
remote.
Having undertaken this work, the Directors are of the opinion that the Group has sufficient
committed resources to fund its operations for the foreseeable future and so determine that it is
appropriate for the financial statements to be prepared on a going concern basis.
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 2011 annual report. Overall macro-economic
and political uncertainty, Eurozone instability, US budget priorities, and inflation in Asian and other
economies continue to influence the macro environment, and to varying degrees are manifested in
uneven growth geographically which could adversely impact Group results. Additional risks noted
in the annual report include changes in customer demand; customer concentration; highly
competitive markets; technology advancements; changes in the legal, regulatory, political and
socio-economic conditions of the countries of operation; supply chain disruption; volatile input
costs; product quality issues; inadequate safety processes; lack of technical capability and
management depth; effectiveness of acquisition integration; pension deficit volatility; foreign
exchange risk; and operating internationally in environments subject to complex tax laws. A more
detailed explanation of the principal risks and uncertainties, together with the mitigating actions in
place, can be found in pages 36 and 37 of the 2011 annual report.
Basis of Reporting
The financial statements for the period are shown on pages 17-34 and have been prepared using
accounting policies which were used in the preparation of audited accounts for the year ended 31
December 2011 and which will form the basis of the 2012 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.
14
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 2011 Annual Report
that could do so.
The Directors of GKN plc are listed in the GKN annual report for 2011; however since the
publication of the annual report Mr. R. D. Brown has retired from the Board.
Approved by the Board of GKN plc and signed on its behalf by:
Mike Turner
Chairman
30 July 2012
15
APPENDICES
Page
GKN Condensed Consolidated Financial Statements
Consolidated Income Statement for the half year ended 30 June 2012
17
Consolidated Statement of Comprehensive Income for the half year ended
30 June 2012
18
Condensed Consolidated Statement of Changes in Equity for the half year ended
30 June 2012
19
Consolidated Balance Sheet at 30 June 2012
20
Consolidated Cash Flow Statement for the half year ended 30 June 2012
21
Notes to the half year Consolidated Financial Statements
Independent Review Report
22 – 34
35
16
CONSOLIDATED INCOME STATEMENT
FOR THE HALF YEAR ENDED 30 JUNE 2012
Notes
Sales
Trading profit
Change in value of derivative and other financial instruments
Amortisation of non-operating intangible assets arising on
business combinations
Pension scheme curtailment
Gains and losses on changes in Group structure
3,254
2,799
5,746
1b
264
18
198
18
419
(31)
(16)
35
-
(10)
4
(22)
8
301
210
374
23
20
38
(27)
5
(13)
(35)
(21)
2
(9)
(28)
(47)
5
(19)
(61)
289
202
351
(53)
236
(27)
175
(45)
306
2
10
12
224
236
3
11
14
161
175
6
21
27
279
306
14.4
14.3
10.4
10.4
18.0
17.9
4
10
5
6
Interest payable
Interest receivable
Other net financing charges
Net financing costs
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 equity shareholders
Earnings per share - pence
Continuing operations - basic
Continuing operations - diluted
17
Full year
2011
£m
1a
Operating profit
Share of post-tax earnings of joint ventures
Unaudited
First half
First half
2012
2011
£m
£m
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE HALF YEAR ENDED 30 JUNE 2012
Notes
Profit after taxation for the period
Currency variations – Subsidiaries
Arising in period
Reclassified in period
Currency variations – Joint ventures
Arising in period
Reclassified in period
Derivative financial instruments – transactional hedging
Arising in period
Reclassified in period
Actuarial gains and losses on post-employment obligations
Subsidiaries
Joint ventures
Taxation
Other comprehensive income/(expense)
Total comprehensive income for the period
Total comprehensive income for the period attributable to:
Equity shareholders
Other non-controlling interests
Pension partnership
Non-controlling interests
18
10
8
Unaudited
First half First half
2012
2011
£m
£m
236
175
Full year
2011
£m
306
(64)
(2)
4
-
(31)
(4)
(1)
-
(2)
(2)
3
(2)
-
1
-
(1)
-
(121)
3
(185)
51
29
12
42
217
(277)
56
(256)
50
39
2
10
12
51
203
3
11
14
217
23
6
21
27
50
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE HALF YEAR ENDED 30 JUNE 2012
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 2012
159
298
9
760
26
1,252
344
28
1,624
Profit for the period
-
-
-
224
-
224
10
2
236
Notes
Total
equity
£m
Other comprehensive income/(expense)
-
-
-
(119)
(66)
(185)
-
-
(185)
Share-based payments
-
-
-
3
-
3
-
-
3
Share options exercised
-
-
-
2
-
2
-
-
2
for the period
Distribution from Pension partnership
10
-
-
-
-
-
-
(30)
-
(30)
Purchase of non-controlling interests
14
-
-
-
(1)
-
(1)
-
(9)
(10)
Dividends paid to equity shareholders
9
-
-
-
(62)
-
(62)
-
-
(62)
At 30 June 2012 (unaudited)
159
298
9
807
(40)
1,233
324
21
1,578
At 1 January 2011
159
298
9
788
59
1,313
346
28
1,687
Profit for the period
-
-
-
161
-
161
11
3
175
-
-
-
41
1
42
-
-
42
-
-
-
3
-
3
-
-
3
-
-
-
-
-
-
(23)
-
(23)
-
-
-
(5)
-
(5)
-
-
(5)
-
-
-
(54)
-
(54)
-
-
(54)
At 30 June 2011 (unaudited)
159
298
9
934
60
1,460
334
31
1,825
At 1 January 2011
159
298
9
788
59
1,313
346
28
1,687
Profit for the period
-
-
-
279
-
279
21
6
306
-
-
-
(223)
(33)
(256)
-
-
(256)
-
-
-
6
-
6
-
-
6
-
-
-
-
-
-
(23)
-
(23)
-
-
-
(5)
-
(5)
-
-
(5)
-
-
-
(85)
-
(85)
-
-
(85)
to UK Pension scheme
Other comprehensive income/(expense)
for the period
Share-based payments
Distribution from Pension partnership
to UK Pension scheme
10
Purchase of own shares by Employee
Share Ownership Plan Trust
Dividends paid to equity shareholders
9
Other comprehensive income/(expense)
for the period
Share-based payments
Distribution from Pension partnership to
UK Pension scheme
10
Purchase of own shares by Employee
Share Ownership Plan Trust
Dividends paid to equity shareholders
Dividends paid to non-controlling interests
At 31 December 2011
9
-
-
-
-
-
-
-
(6)
(6)
159
298
9
760
26
1,252
344
28
1,624
19
CONSOLIDATED BALANCE SHEET
AT 30 JUNE 2012
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
12
Current assets
Inventories
Trade and other receivables
Current tax assets
Derivative financial instruments
Other financial assets
Cash and cash equivalents
11
Total assets
Liabilities
Current liabilities
Borrowings
Derivative financial instruments
Trade and other payables
Current tax liabilities
Provisions
11
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
16
16
Non-controlling interests
Total equity
20
Unaudited
30 June
30 June
2012
2011
£m
£m
31 December
2011
£m
523
419
1,775
128
38
22
195
3,100
347
208
1,672
122
29
23
186
2,587
534
424
1,812
147
37
21
224
3,199
786
1,156
10
5
212
2,169
5,269
699
909
5
18
4
480
2,115
4,702
749
962
16
5
156
1,888
5,087
(72)
(27)
(1,399)
(155)
(52)
(1,705)
(223)
(11)
(1,185)
(118)
(40)
(1,577)
(228)
(30)
(1,308)
(138)
(46)
(1,750)
(730)
(59)
(70)
(121)
(80)
(926)
(1,986)
(3,691)
1,578
(435)
(49)
(62)
(114)
(66)
(574)
(1,300)
(2,877)
1,825
(466)
(72)
(96)
(120)
(91)
(868)
(1,713)
(3,463)
1,624
159
298
9
807
(40)
1,233
345
1,578
159
298
9
934
60
1,460
365
1,825
159
298
9
760
26
1,252
372
1,624
CONSOLIDATED CASH FLOW STATEMENT
FOR THE HALF YEAR ENDED 30 JUNE 2012
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
Acquisitions of subsidiaries (net of cash acquired)
Acquisition of other investments
Proceeds from sale of businesses (net of cash disposed
and fees)
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
Purchase of non-controlling interests
Proceeds from borrowing facilities
Repayment of other borrowings
Finance lease payments
Net returns from deposit
Dividends paid to shareholders
Dividends paid to non-controlling interests
Currency variations on cash and cash equivalents
Movement in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
5
10
14
11
9
11
21
First half
2012
£m
First half
2011
£m
Full year
2011
£m
215
2
(27)
(24)
41
207
175
3
(17)
(13)
34
182
500
5
(48)
(38)
35
454
(131)
4
(22)
(2)
-
(109)
1
(23)
2
(4)
(236)
1
(46)
8
(450)
(4)
(1)
1
(1)
(152)
8
(1)
(126)
5
8
(4)
(718)
(30)
(23)
(23)
2
(9)
272
(181)
(1)
(62)
(9)
(5)
84
(5)
(54)
(3)
(5)
115
(10)
4
(85)
(6)
(10)
(8)
38
145
183
3
56
421
477
(2)
(276)
421
145
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEAR ENDED 30 JUNE 2012
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; automotive, aerospace 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. Revenue
from services, inter segment trading and royalties is not significant.
a) Sales
Automotive
Powder
Driveline Metallurgy
£m
£m
FIRST HALF 2012 (unaudited)
Subsidiaries
Joint ventures
Aerospace
£m
Land
Systems
£m
1,515
149
1,664
465
465
770
770
489
23
512
1,206
127
1,333
435
435
723
723
421
23
444
2,432
246
2,678
845
845
1,481
1,481
805
42
847
5,851
117
-
-
38
155
Other businesses
Management sales
Less: Joint venture sales
Income statement – sales
FIRST HALF 2011 (unaudited)
Subsidiaries
Joint ventures
Other businesses
Management sales
Less: Joint venture sales
Income statement – sales
FULL YEAR 2011
Subsidiaries
Joint ventures
Acquisitions
Subsidiaries
Other businesses
Management sales
Less: Joint venture sales
Income statement – sales
Total
£m
3,411
48
3,459
(205)
3,254
2,935
53
2,988
(189)
2,799
106
6,112
(366)
5,746
Inter segment sales
Subsidiary segmental sales gross of inter segment sales are; Driveline £1,543 million (first half 2011:
£1,234 million, full year 2011: £2,491 million), Powder Metallurgy £465 million (first half 2011: £438
million, full year 2011: £851 million), Aerospace £770 million (first half 2011: £723 million, full year
2011: £1,481 million) and Land Systems £490 million (first half 2011: £422 million, full year 2011:
£805 million).
22
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2012
1
Segmental analysis (continued)
b)
Trading profit
Automotive
Powder
Land
Driveline Metallurgy Aerospace Systems
£m
£m
£m
£m
FIRST HALF 2012 (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
157
(62)
(2)
93
28
121
63
(16)
47
47
109
(18)
(4)
87
(1)
86
58
(8)
(1)
49
3
52
125
(52)
(2)
71
23
94
54
(15)
39
39
100
(17)
(2)
81
(1)
80
43
(7)
36
3
39
255
103
208
77
(107)
(3)
145
46
191
(31)
72
72
(34)
(5)
169
(3)
166
(13)
(1)
63
5
68
7
(3)
-
-
4
(5)
Other businesses
Gallatin temporary plant closure
Corporate and unallocated costs
Management trading profit
Less: Joint venture trading profit
Income Statement – trading profit
FIRST HALF JUNE 2011 (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
Gallatin temporary plant closure
Corporate and unallocated costs
Management trading profit
Less: Joint venture trading profit
Income Statement – trading profit
FULL YEAR 2011
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
Acquisitions
Trading profit – subsidiaries
Acquisition related charges
Other businesses
Gallatin temporary plant closure
Corporate and unallocated costs
Management trading profit
Less: Joint venture trading profit
Income Statement – trading profit
Total
£m
306
1
2
(16)
293
(29)
264
252
2
(23)
(7)
224
(26)
198
497
11
(8)
3
3
(19)
(16)
468
(49)
419
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.
Corporate and unallocated costs in the first half 2012 include £4 million of transaction costs related to the recently
announced acquisition of Volvo Aerospace (see note 16) and £2 million of transaction costs on the potential
divestment of the Wheels business. In the first half 2011, corporate and unallocated costs included a £2 million
credit for a pension scheme curtailment.
During the first half of 2012, GKN Driveline and GKN Land Systems exited their operations in Uruguay. Closure
costs incurred of £2 million are offset by previous currency variations of £2 million reclassified from other reserves.
Trading profit in the first half of 2011 included a one-off charge of £23 million in relation to the temporary plant
closure at Gallatin.
23
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2012
1 Segmental analysis (continued)
c)
Goodwill, fixed assets and working capital - subsidiaries only
Automotive
Powder
Driveline Metallurgy
£m
£m
Land
Aerospace Systems
£m
£m
Total
£m
FIRST HALF 2012 (unaudited)
Property, plant and equipment and operating intangible
assets
Working capital
Net operating assets
Goodwill and non-operating intangible assets
Net investment
950
131
1,081
310
1,391
306
111
417
28
445
499
102
601
273
874
138
98
236
186
422
1,893
442
FIRST HALF 2011 (unaudited)
Property, plant and equipment and operating intangible
assets
Working capital
Net operating assets
Goodwill and non-operating intangible assets
Net investment
881
139
1,020
82
1,102
309
109
418
28
446
455
63
518
283
801
111
76
187
54
241
1,756
387
FULL YEAR 2011
Property, plant and equipment and operating intangible
assets
Working capital
Net operating assets
Goodwill and non-operating intangible assets
Net investment
982
77
1,059
321
1,380
313
100
413
29
442
479
56
535
282
817
142
73
215
196
411
1,916
306
d)
Reconciliation of segmental property, plant and equipment and operating intangible assets to the Balance
Sheet
Unaudited
First half First half Full year
2012
2011
2011
£m
£m
£m
Segmental analysis – property, plant and equipment and operating intangible
1,893
assets
1,756
1,916
797
Segmental analysis – goodwill and non-operating intangible assets
447
828
(523)
Goodwill
(347)
(534)
19
Other businesses
18
19
8
Corporate assets
6
7
2,194
Balance Sheet – property, plant and equipment and other intangible assets
1,880
2,236
e)
Reconciliation of segmental working capital to the Balance Sheet
Segmental analysis – working capital
Other businesses
Accrued net financing costs
Restructuring provisions
Deferred and contingent consideration
Government refundable advances
Corporate items
Balance Sheet – inventories, trade and other receivables, trade and other
payables and provisions
24
Unaudited
First half First half
2012
2011
£m
£m
442
387
7
9
(18)
(24)
(7)
(21)
(29)
(28)
(43)
(41)
(28)
(54)
324
228
Full year
2011
£m
306
11
(21)
(10)
(29)
(42)
(36)
179
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2012
2
Basis of preparation
These half year condensed consolidated financial statements for the six months ended 30 June 2012 have been
prepared in accordance with the Disclosure and Transparency Rules of the Financial Services 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 2011.
These financial statements do not constitute statutory accounts. A copy of the audited consolidated statutory
accounts for the year ended 31 December 2011 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 2011.
The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet
effective. The Group has adopted relevant amendments to standards with no material impact on its results, assets
and liabilities. As outlined in the audited consolidated financial statements for the year ended 31 December 2011 the
impact of other accounting developments is being assessed.
Estimates, judgements and assumptions
The Group’s significant accounting policies are set out in audited consolidated financial statements for the year ended
31 December 2011. 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 including the valuation of the Pension partnership plan asset, derivative and other financial instruments,
taxation and impairment of non-current assets. The details of the principal estimates, judgements and assumptions
are set out in notes 24, 26, 4c, 21, 6 and 12 of the audited consolidated financial statements for the year ended 31
December 2011 as updated in notes 4 (change in value of derivative and other financial instruments), 8 (Taxation)
and 10 (Post-employment obligations) of these financial statements.
Date of approval
These financial statements were approved by the Board of Directors on Monday 30 July 2012.
25
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2012
3
Adjusted performance measures
(a) Reconciliation of reported and management performance measures
FIRST HALF 2012 (unaudited)
As
reported
£m
3,254
Sales
Exceptional
Joint
and non- Management
ventures trading items
basis
£m
£m
£m
205
3,459
264
18
29
-
(18)
293
-
(16)
35
301
29
16
(35)
(37)
293
23
(29)
1
(5)
Interest payable
Interest receivable
Other net financing charges
Net financing costs
Profit/(loss) before taxation
(27)
5
(13)
(35)
289
-
13
13
(23)
(27)
5
(22)
266
Taxation
Profit/(loss) for the period
Profit attributable to non-controlling interests
Earnings
Earnings per share - pence
(53)
236
(12)
224
14.4
-
13
(10)
10
-
(40)
226
(2)
224
14.4
Trading profit
Change in value of derivative and other financial instruments
Amortisation of non-operating intangible assets arising on
business combinations
Pension scheme curtailment
Operating profit
Share of post-tax earnings of joint ventures
FIRST HALF 2011 (unaudited)
As
reported
£m
2,799
Sales
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
Exceptional
Joint
and non- Management
ventures trading items
basis
£m
£m
£m
189
2,988
198
18
26
-
(18)
224
-
(10)
4
210
26
10
(4)
(12)
224
20
(26)
1
(5)
Interest payable
Interest receivable
Other net financing charges
Net financing costs
Profit/(loss) before taxation
(21)
2
(9)
(28)
202
-
9
9
(2)
(21)
2
(19)
200
Taxation
Profit/(loss) for the period
Profit attributable to non-controlling interests
Earnings
Earnings per share - pence
(27)
175
(14)
161
10.4
-
(1)
(3)
11
8
0.5
(28)
172
(3)
169
10.9
Share of post-tax earnings of joint ventures
FULL YEAR 2011
For the year ended 31 December 2011, management sales were £6,112 million, management trading profit was
£468 million, management profit before tax was £417 million and management earnings per share was 22.6 pence.
26
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2012
3
Adjusted performance measures (continued)
(b) Summary by segment
FIRST HALF 2012 (unaudited)
Driveline
Powder Metallurgy
Aerospace
Land Systems
Other businesses
Corporate and unallocated costs
Gallatin temporary plant closure
Sales
£m
1,664
465
770
512
48
3,459
3,459
Trading
profit
£m
121
47
86
52
1
(16)
291
2
293
Sales
£m
1,333
435
723
444
53
2,988
2,988
Trading
profit
£m
94
39
80
39
2
(7)
247
(23)
224
Sales
£m
2,678
845
1,481
847
106
117
38
6,112
6,112
Trading
profit
£m
191
72
166
68
3
4
(1)
(16)
487
(19)
468
Margin
7.3%
10.1%
11.2%
10.2%
8.4%
8.5%
FIRST HALF 2011 (unaudited)
Driveline
Powder Metallurgy
Aerospace
Land Systems
Other businesses
Corporate and unallocated costs
Gallatin temporary plant closure
Margin
7.1%
9.0%
11.1%
8.8%
8.3%
7.5%
FULL YEAR 2011
Driveline
Powder Metallurgy
Aerospace
Land Systems
Other businesses
Getrag (Driveline)
Stromag (Land Systems)
Corporate and unallocated costs
Gallatin temporary plant closure
27
Margin
7.1%
8.5%
11.2%
8.0%
8.0%
7.7%
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2012
4
Change in value of derivative and other financial instruments
Unaudited
First half
First half
2012
2011
£m
£m
18
24
(1)
(2)
17
22
Forward currency contracts (not hedge accounted)
Embedded derivatives
Commodity contracts (not hedge accounted)
Net gains and losses on intra-group funding
Arising in period
Reclassified in period
Change in value of derivative and other financial instruments
5
1
1
18
Full year
2011
£m
(29)
(3)
(1)
(33)
(4)
(4)
18
2
2
(31)
Unaudited
First half
First half
2012
2011
£m
£m
Full year
2011
£m
Gains and losses on changes in Group structure
Profits and losses on sale or closure of businesses
Business sold – GKN Aerospace Engineering Services
Profit on sale of joint venture
-
4
4
4
4
8
On 27 January 2012 the Group sold its 49% share in a joint venture company, GKN JTEKT (Thailand) Limited for
cash consideration of £1 million, realising neither a profit or loss.
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
2012
2011
£m
£m
205
189
(176)
(163)
29
26
29
26
(5)
(5)
24
(1)
23
Full year
2011
£m
366
(317)
49
(1)
48
(8)
21
(1)
20
40
(2)
38
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 2011: £nil, full year 2011: £1 million).
7
Other net financing charges
Unaudited
First half
First half
2012
2011
£m
£m
72
77
(83)
(85)
(11)
(8)
(2)
(1)
(13)
(9)
Expected return on scheme assets
Interest on post-employment obligations
Post-employment finance charges
Unwind of discounts
Other net financing charges
28
Full year
2011
£m
153
(170)
(17)
(2)
(19)
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2012
8
Taxation
The tax charge for the period is based on an estimate of the Group’s expected annual effective rate of tax for 2012
based on tax legislation substantively enacted at 30 June 2012 applied to taxable profit for the period ended 30
June 2012.
Unaudited
First half
First half
2012
2011
£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
2011
£m
Deferred tax
(47)
1
2
(14)
(58)
5
(37)
2
(1)
(8)
(44)
17
(82)
10
1
(22)
(93)
48
Total tax charge for the period
(53)
(27)
(45)
Analysed as:
Tax in respect of management profit
Current tax
Deferred tax
(58)
18
(44)
16
(97)
37
(40)
(28)
(60)
(13)
1
4
11
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
Deferred tax on post-employment obligations
Deferred tax on foreign currency gains and losses on intra-group funding
Current tax on post-employment obligations
Current tax on foreign currency gains and losses on intra-group funding
(13)
1
15
(53)
(27)
(45)
Unaudited
First half
First half
2012
2011
£m
£m
Full year
2011
£m
(9)
1
11
3
3
10
(1)
12
30
1
24
1
56
Management tax rate
The tax charge arising on management profits of subsidiaries of £242 million (first half 2011: £179 million, full year
2011: £377 million) was £40 million (first half 2011: £28 million charge, full year 2011: £60 million charge) giving an
effective tax rate of 17% (first half 2011: 16%, full year 2011: 16%).
Deferred tax asset recognition
There is a net £5 million (first half 2011: £17 million, full year 2011: £48 million) deferred tax credit to the Income
Statement in the period, primarily relating to the recognition of previously unrecognised tax losses, largely in the UK.
29
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2012
8
Taxation (continued)
Changes in UK tax rate
On 21 March 2012 the UK Government announced further reductions to the mainstream rate of UK Corporation tax
from April 2012 to 24%, falling to 22% by 2014. The reduction to 24% was substantively enacted on 26 March 2012,
with the result that the UK deferred tax asset was valued at 24% at 30 June 2012. As further reductions to reach the
anticipated 22% are enacted, there will be a corresponding reduction in the value of UK deferred tax assets since
deferred tax is measured at the prevailing tax rate. As a large part of the potential UK deferred tax asset currently
remains unrecognised, there is not expected to be a material impact on the Group’s effective tax rate.
9
Dividends
An interim dividend of 2.4 pence per share has been declared by the Directors and will be paid on 24 September 2012
to shareholders on the register at 10 August 2012. Based on the number of shares ranking for dividend at 30 June
2012, the interim dividend is expected to absorb £37 million. On 10 July 2012, an additional 70,000,000 new ordinary
shares were admitted to trading following the placing announcement of 5 July 2012. These shares will also rank for
dividend and are expected to absorb a further £2 million.
During the period £62 million (first half 2011: £54 million, full year 2011: £85 million) was paid in respect of dividends
to equity shareholders.
30
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2012
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 2012.
Movement in post-employment obligations during the period:
Unaudited
First half
First half
Full Year
2012
2011
2011
£m
£m
£m
(868)
At 1 January
(600)
(600)
Businesses acquired
(12)
(20)
Current service cost
(19)
(38)
35
Curtailments/settlements
4
4
Past service cost
1
(11)
Interest/expected return on assets
(8)
(17)
(121)
Actuarial gains and losses
29
(277)
42
Contributions/benefits paid
34
67
17
Currency variations
(14)
4
(926)
At end of period
(574)
(868)
Post-employment obligations as at the period end comprise:
Pensions
Medical
Unaudited
30 June
30 June 31 December
2012
2011
2011
£m
£m
£m
(418)
(139)
(443)
(437)
(376)
(355)
(24)
(17)
(22)
(47)
(42)
(48)
(926)
(574)
(868)
- funded
- unfunded
- funded
- unfunded
UK Americas
£m
£m
(322)
(172)
(56)
(144)
(272)
(221)
At 30 June 2012 - unaudited
At 30 June 2011 - unaudited
At 31 December 2011
Europe
£m
(410)
(353)
(352)
ROW
£m
(22)
(21)
(23)
Total
£m
(926)
(574)
(868)
Assumptions
Actuarial assessments of the major defined benefit retirement plans were carried out as at 30 June 2012. The major
assumptions used were:
At 30 June 2012 – 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 2011 – 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 2011
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
UK
%
Americas
%
Europe
%
ROW
%
4.00
3.10
4.60
3.00
3.50
4.20
2.50
2.50
1.75
3.70
1.75
n/a
1.65
n/a
6.0/5.4
8.0/5.0
n/a
n/a
4.35
2.85
5.40
3.35
3.50
2.00
5.50
2.90
2.50
1.75
5.10
1.75
n/a
1.75
0.75
6.5/6.0
9.0/5.0
n/a
n/a
4.00
3.10
4.70
3.00
3.50
2.00
4.50
2.50
2.50
1.75
4.90
1.75
n/a
1.65
n/a
6.0/5.4
8.5/5.0
n/a
n/a
The yield used to calculate the UK discount rate at 30 June 2012 was based on AA corporate bonds with duration
weighted to the UK pension scheme’s liabilities. Based on actuarial advice, this is considered to give better
consistency with the estimated term of the pension scheme’s obligations. Previously the Group used a yield on the
Corporate AA 15 years + iBoxx index.
No adjustments to mortality assumptions have been made in the period for the UK and German schemes to those
used as at 31 December 2011. The UK scheme assumption is based on S1NA (year of birth) mortality tables allowing
for medium cohort projections with a minimum improvement of 1% and in Germany RT2005-G tables were again used.
In the US, PPA 2012 tables were used as these became available in the period.
31
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2012
10 Post-employment obligations (continued)
Assumption sensitivity analysis
The impact of a one percentage point movement in the primary assumptions on the defined benefit net obligations as
at 30 June 2012 is set out below:
UK
£m
393
(453)
(400)
335
Discount rate +1%
Discount rate -1%
Rate of inflation +1%
Rate of inflation -1%
Americas
£m
37
(45)
-
Europe
£m
64
(83)
(54)
45
ROW
£m
5
(5)
-
UK deficit funding and funding arrangement with Trustee
The last scheme specific funding valuation was as at April 2010 which revealed a deficit of £49 million. Under the
2010 Recovery Plan a first potential funding payment may become payable in Q1 2014 depending on asset
performance in the 3 years to 5 April 2013. If required, the amount payable in 2014 will be capped at £14 million.
During the period the Group has paid £30 million (first half 2011: £23 million) to the UK Pension scheme through the
Pension partnership.
Pension scheme curtailment
On 1 April 2012 the Group transferred the assets and liabilities of its defined benefit pension scheme of the hourly paid
workers at GKN Aerospace’s St. Louis facility to the International Association of Machinists and Aerospace Workers
(‘IAM’) National Pension Fund. The IAM National Pension Fund has over 1,750 participating employers with over £5
billion of investment assets under management, and as at 31 December 2011 it was in a net surplus position. From
this date the members associated with this pension scheme are part of a multi-employer pension arrangement and as
the total assets are not capable of separate determination the Group will account for its future obligations as if it were
part of a defined contribution scheme.
The post-employment obligation was actuarially assessed at 31 March 2012 and the current service cost, other
pension financing charge, actuarial gains and losses and contributions were recorded to this date consistent with other
defined benefit pension schemes in the Group. At 31 March 2012, the scheme had an IAS 19 deficit of £55 million (31
December 2011: £68 million), which has subsequently been de-recognised from the balance sheet.
The Group has a remaining obligation of £20 million being the principal amount payable to the IAM National Pension
Fund over 4 years. This obligation is included in the Group’s net post-employment obligation of £926 million.
The net pension scheme curtailment of £35 million has been recognised in the Income Statement, including related
professional fees.
32
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2012
11 Cash flow notes
Unaudited
First half
2012
£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 profits 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 other 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
2011
2011
£m
£m
301
210
374
105
7
92
4
191
1
10
16
(18)
(1)
3
(57)
(56)
(216)
131
215
10
(18)
(1)
(4)
3
(19)
(58)
(141)
97
175
22
31
(1)
(3)
(8)
6
(34)
(60)
(109)
80
500
38
(91)
1
(52)
(538)
(590)
56
(79)
(23)
(151)
(174)
(276)
(109)
(2)
(387)
(151)
(538)
212
(29)
183
480
(3)
477
156
(11)
145
During the period the Group has repaid its outstanding £176 million 7% 2012 unsecured bond, along with
£5 million of other borrowings.
Restructuring cash outflow in respect of previous restructuring plans amounts to £3 million (first half 2011:
£22 million, full year 2011: £31 million) and proceeds from sale of fixed assets, which were made available
for disposal as a result of the restructuring, were £nil million (first half 2011: £1 million, full year 2011: £2
million).
33
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2012
12 Property, plant and equipment (unaudited)
During the six months ended 30 June 2012 the Group asset additions were £113 million (first half 2011:
£94 million). Additions through business combinations were £nil (first half 2011: £nil). Assets with a
carrying value of £nil million (first half 2011: £1 million) were disposed of during the six months ended 30
June 2012.
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 2012 amounted
to £109 million (30 June 2011: £107 million) and the Group's share not provided by joint ventures
amounted to £25 million (30 June 2011: £2 million).
Intangible assets with a carrying value of £nil were realised in the first half of 2012 (first half 2011: £nil).
During the period a total of 1,630,827 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 £2 million (first half 2011: less than £1 million).
On 27 January 2012 the Group purchased the non-controlling interest of 49% in GKN Driveline JTEKT
Manufacturing Limited for total consideration of £10 million, comprising cash paid of £9 million and £1
million deferred. The Group now owns 100% of the equity share capital of this company.
15 Contingent assets and liabilities (unaudited)
Since 2003 the Group has been involved in litigation with HMRC in respect of various advance corporation
tax payments made and corporate tax paid on certain foreign dividend receipts which, in its view, were
levied by HMRC in breach of the Group’s EU community law rights. The main case has been appealed
both to the UK Supreme Court (on effective remedies) and to the Court of Justice for Europe (CJEU) (for
further guidance on breach of community law). The UK Supreme Court gave its decision in June 2012
which was broadly positive for the Group’s claims in respect of the application of time limits. However, the
CJEU is not due to give its judgment until September 2012, which will then be referred back 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 2012 or 30 June 2011. At 30 June 2012 the
Group had no contingent liabilities in respect of bank and other guarantees (30 June 2011: £nil). In the
case of certain businesses, performance bonds and customer finance obligations have been entered into
in the normal course of business.
16 Post balance sheet events (unaudited)
On 5 July 2012, the Group announced its agreement to acquire Volvo Aero (the aero engine division of AB
Volvo) based in Sweden, Norway and the USA. The acquisition enterprise value is £633 million
comprising £513 million of equity value (consideration) together with an anticipated Volvo Aero pension
settlement (£50 million) and working capital refinancing (£70 million).
The Group have entered into forward foreign exchange contracts to fix the Sterling value of the foreign
currency denominated equity consideration that is expected to become payable when the transaction
completes during the third quarter of the year, subject to regulatory approvals.
The proposed acquisition will be funded by debt of £500 million and gross proceeds of £140 million from an
additional 70,000,000 new ordinary shares admitted to trading on 10 July 2012.
34
Independent review report to GKN plc
Introduction
We have been engaged by the Company to review the condensed consolidated financial statements in the
Half year report for the six months ended 30 June 2012 which comprise the Consolidated Income Statement,
Consolidated Statement of Comprehensive Income, Condensed Consolidated Statement of Changes in
Equity, Consolidated Balance Sheet, Consolidated Cash Flow Statement and related notes. 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.
Directors' responsibilities
The Half year report 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 Services Authority.
As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs
as adopted by the European Union. The condensed consolidated financial statements included in this Half
year report have been prepared in accordance with International Accounting Standard 34, "Interim Financial
Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed 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 the Disclosure and Transparency Rules of the
Financial Services Authority and for no other purpose. We do not, in producing this report, 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.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and
Ireland) 2410, ‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’
issued by the Auditing Practices Board for use in the United Kingdom. A review of half year 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.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed
consolidated financial statements in the Half year report for the six months ended 30 June 2012 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 Services
Authority.
PricewaterhouseCoopers LLP
Chartered Accountants
Birmingham
30 July 2012
35