NEWS RELEASE
24 February 2015
GKN plc Results Announcement for the year ended 31 December 2014
Group Highlights(1)

Sales increased 4% organically; decline of 2% after £403 million adverse currency translation
impact

Trading margin improved to 9.2%

Profit before tax (management basis) up 4%, after £38 million of adverse currency more than
offsetting the absence of restructuring costs of £25 million charged in 2013

Reported profit before tax was £221 million (2013: £484 million), lower primarily due to the
£232 million movement on the mark to market valuation of forward foreign exchange contracts

Earnings per share up 1%, impacted by an increased tax rate to 22% (2013: 20%)

Total dividend increased 6% to 8.4 pence per share

Return on average invested capital of 17.7% (2013: 17.3%)

Free cash flow of £234 million (2013: £346 million), after £54 million repayment of a UK
Government refundable advance and increased capital expenditure to fund future growth

Net debt of £624 million, £108 million lower than last year.
Management basis
(1)
As reported
2014
£m
2013
£m
Change
%
2014
£m
2013
£m
Change
%
7,456
7,594
-2
6,982
7,136
-2
687
661
+4
289
560
-48
9.2%
8.7%
50bps
601
578
+4
221
484
-54
Earnings per share
29.0p
28.7p
+1
10.3p
24.2p
-57
Dividend per share
8.4p
7.9p
+6
8.4p
7.9p
+6
Sales
Operating profit
Trading margin (%)
Profit before tax
Commenting on the results, Nigel Stein, Chief Executive of GKN said:
“This was another good performance, particularly in our automotive businesses, with GKN
Driveline delivering 8% organic sales growth and an 8.1% trading margin while GKN Powder
Metallurgy achieved an 11.0% margin. GKN Aerospace delivered another good result. 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, particularly in Land Systems. Looking forward
we expect 2015 to be another year of growth.”
Page 1 of 33
Divisional Highlights
GKN Aerospace
 Organic growth of 4% in commercial aerospace with military broadly flat
 Commercial aircraft order book remains strong
 New work packages won exceeded $3 billion over contract lives
GKN Driveline



Growth significantly ahead of global auto production helped by our broad geographic footprint
and increasing content per vehicle
Trading margin of 8.1%, into target range of 8-10%
Successful launch of first complete integrated all-wheel drive (AWD) system with Fiat-Chrysler
GKN Powder Metallurgy



Growth ahead of global auto production and trading margin of 11.0%, at top end of target
range
Continued expansion of Chinese production; upgrade of North American capacity in progress
Strong focus on technology and £165 million annualised new and replacement business won
GKN Land Systems
 Organic sales down 10% due to challenging agricultural equipment market
 Trading margin fell to 5.7% despite strong cost control
 Continued to broaden the business through investment to support industrial sales in North
America and capability in China
 £120 million annualised new and replacement business won
Outlook
Commercial aircraft production should continue to be strong whereas military markets are forecast
to decline. GKN Aerospace’s 2015 organic sales are expected to be broadly flat, reflecting these
differing trends and the phasing of our programmes. However, a strong commercial order book
supports attractive growth for GKN Aerospace over the medium term.
In automotive, external forecasts predict growth in global light vehicle production of around 2% with
increases in China and North America, and Europe flat. Against this background, GKN Driveline
and GKN Powder Metallurgy are expected to continue to grow organically above the market.
Softer global agricultural equipment markets are likely to more than offset the slight improvement in
industrial markets. As a result, GKN Land Systems 2015 sales are expected to be lower than 2014
and an £8 million restructuring charge is planned to further reduce the fixed cost base.
Although some markets remain challenging, 2015 is expected to be a year of further growth.
Beyond 2015, we are well positioned to outperform in our large global markets.
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 14.
Quarterly Reporting
Further to the recent developments in interim reporting requirements, GKN will not issue an IMS on
its first quarter results but will give a trading update some time before the Annual General Meeting
on 7 May 2015.
Cautionary Statement
This announcement contains forward looking statements which are made in good faith based on
the information available at the time of its approval. It is believed that the expectations reflected in
these statements are reasonable but they may be affected by a number of risks and uncertainties
that are inherent in any forward looking statement which could cause actual results to differ
materially from those currently anticipated. Nothing in this document should be regarded as a
profits forecast.
Further Enquiries
Analysts/Investors:
Guy Stainer, Investor Relations Director, GKN plc
T: +44 (0)207 463 2382
M: +44 (0)7739 778187
E: guy.stainer@gkn.com
Media:
Chris Fox, Group Communications Director, GKN plc
T: +44 (0)1527 533238
M: +44 (0)7920 540051
E: chris.fox@gkn.com
Andrew Lorenz, FTI Consulting
T: +44 (0)203 727 1323
M: +44 (0)7775 641807
There will be an analyst and investor meeting today at 09.00am 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: 82403591
A replay of the conference call will be available until 24 March on:
Standard International Number: +44 (0) 1452 550 000
Replay Access Number: 82403591
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 year ended 31 December 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.
Results
Group
Sales (£m)
Trading profit (£m)
Trading margin (%)
Return on average invested capital (%)
2014
2013
7,456
687
9.2%
17.7%
7,594
661
8.7%
17.3%
Change (%)
Headline
Organic
(2)
4
4
11
Organic sales increased £303 million (4%). The adverse effect of currency translation on
management sales was £403 million (5%) and there was a £7 million benefit from acquisitions
which was more than offset by a £45 million reduction due to disposals.
Organic trading profit increased £66 million, due to the absence of restructuring costs (2013: £25
million), the strong performance of three of our divisions, lower profits from GKN Land Systems
and £6 million net benefit from commercial settlements and provision releases. Adverse currency
translation was £38 million and there was a £2 million reduction due to acquisitions and
divestments.
Group trading margin increased to 9.2% (2013: 8.7% or 9.0% excluding restructuring charges).
Return on average invested capital (ROIC) increased to 17.7% (2013: 17.3%).
Divisional Performance
GKN Aerospace
GKN Aerospace is a leading global tier one supplier of airframe and engine structures,
components, assemblies and transparencies to a wide range of aircraft and engine prime
contractors and other tier one suppliers. It operates in three main product areas: aerostructures,
engine components and sub-systems, and special products.
The overall aerospace market remained positive in 2014 driven by a growing commercial aircraft
market partly offset by a declining military market. The division’s commercial sales were 73%, with
military representing 27%.
Commercial aircraft production is still growing. Both Airbus and Boeing continue to benefit from
higher deliveries and a record order backlog, and both have announced plans to increase
production levels for single aisle aircraft in the future. There is also more demand for strong global
suppliers to support their expansion plans.
Page 4 of 33
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 year are as follows:
GKN Aerospace
2014
Sales (£m)
Trading profit (£m)
Trading margin (%)
Return on average invested capital (%)
2,226
277
12.4%
17.7%
2013
2,243
266
11.9%
17.8%
Change (%)
Headline
Organic
(1)
3
4
7
Overall, GKN Aerospace’s organic sales were £59 million higher (3%). There was an adverse £76
million (3%) impact from currency translation.
Organic commercial aerospace sales were 4% higher, driven by increased demand for the Boeing
787, A350 and engine spares, partly offset by lower A330 and A380 sales and a £17 million
reduction due to the previously announced supply chain contract taken back in-house by Airbus in
May 2013. Military sales were broadly flat as spares on programmes which ceased production
were offset by lower sales for F/A-18 Super Hornet and UH-60 Blackhawk helicopter.
The organic increase in trading profit was £18 million, the impact from currency on translation of
results was £10 million adverse (4%) and there was a £3 million benefit relating to losses from the
Composite Technology and Applications Limited (CTAL) disposal in 2013.
Each year there are commercial issues and provision movements which impact the results. This
year they amounted to a £4 million net benefit, which included a credit of £11 million as progress
was made on an onerous contract partly offset by a £7 million charge for customer claims. Trading
profit also included income of £8 million (2013: £5 million) for milestones achieved in relation to
CTAL, which is not expected to be repeated in 2015.
Other factors included improved commercial spares sales and higher volumes on new
programmes offset by lower military sales on mature programmes. Further start-up operating
losses at the new A350 facility were £8 million (2013: loss of £11 million). Trading margin was
12.4% (2013: 11.9%).
Return on average invested capital was 17.7% (2013: 17.8%), following the repayment of a
Government advance in the first half of the year.
During the year a number of important milestones were achieved including:
 a new 7% (US$2.5 billion) risk and revenue sharing partnership (RRSP) with Pratt &
Whitney covering the supply of components for the PurePower® PW1900 Geared
Turbofan™ engine for the Embraer 190 and the 195-E2 narrow body aircraft;
 a long term agreement (LTA) worth more than US$200 million with Rolls-Royce to supply
components for the latest version of the Trent 1000 engine, a capability enhancement of
the existing Trent 1000 engine for the Boeing 787;
 a contract from Boeing for the final assembly and paint of Advanced Technology (AT)
Winglets for the new 737 MAX;
 investment and work being transferred into our low cost manufacturing facilities in Mexico;
and
 leading collaborative projects backed by the UK’s Aerospace Technology Institute for
additive manufacturing and future wing research.
Page 5 of 33
Automotive market
Production in the major automotive markets of China, North America, Europe and Japan increased
relative to 2013, while Brazil and India declined. Overall, global production volumes increased
3.1% to 87.4 million vehicles (2013: 84.8 million).
Car and light vehicle production (rounded millions of
units)
Europe
North America
Brazil
Japan
China
India
Others
Total – global
Source: IHS Automotive;
(*)
2014
20.1
17.0
3.0
9.2
22.6
3.6
11.9
87.4
2013
19.5
16.2
3.5
9.1
20.9
3.7
11.9
84.8
Growth
(%)(*)
3.3
5.2
-14.1
2.1
8.1
-1.7
0.0
3.1
Growth is derived from unrounded production figures
Production in Europe increased despite a large decline in Russia due to political uncertainty.
Production of premium vehicles remained robust due to export demand while there was some
recovery in smaller low cost vehicles helped by state and OEM incentives.
Production in North America benefitted from improved consumer confidence and further
localisation of foreign manufacturers’ capacity.
Production growth in China slowed with the general economy, but still increased 8% due to strong
consumer demand. Japanese production increased 2% due to a strong first quarter to satisfy
demand prior to April’s consumption tax increase but production weakened thereafter and offshoring of production continued. 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 2015 will increase 2% to 89.5 million
vehicles. The major markets where production is expected to grow the most include China (7%),
India (6%) and North America (3%). Production in Europe is forecast to be virtually flat on 2014 as
any increase in western Europe is offset by continued problems in Russia. Brazil is forecast to
increase 2% compared with a very weak 2014 and Japan is expected to contract by 5%.
GKN Driveline
GKN Driveline is the world’s leading supplier of automotive driveline systems and solutions. As a
global business serving the leading vehicle manufacturers, it develops, builds and supplies an
extensive range of automotive driveline products and systems – for use in everything from the
smallest low-cost car to the most sophisticated premium vehicle demanding complex driving
dynamics.
The key financial results for the year are as follows:
GKN Driveline
Sales (£m)
Trading profit (£m)
Trading margin (%)
Return on average invested capital (%)
2014
2013
3,444
280
8.1%
19.3%
3,416
246
7.2%
17.0%
Page 6 of 33
Change (%)
Headline
Organic
1
8
14
23
Organic sales increased by £265 million (8%) compared with global vehicle production which was
up 3%. The adverse effect of currency translation was £226 million (7%) and the impact from
disposals was £11 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 November 2013. Constant Velocity Jointed (CVJ) Systems accounted for 60% of
sales and non-CVJ sales were 40%.
GKN Driveline’s market outperformance was broadly based across the main markets 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. GKN Driveline slightly underperformed the market in Japan due to our specific
programme mix.
The organic improvement in trading profit was £53 million, including the absence of £16 million of
restructuring charges reported in 2013. The adverse impact of currency translation on trading
profit was £18 million (8%). Each year there are commercial settlements and provision movements
which impact the results. In 2014, whilst individually larger than usual, they amounted to a £2
million net benefit. This £2 million included a commercial settlement credit of £14 million and a
credit of £5 million as progress was made on an onerous contract, partly offset by a higher than
usual £17 million charge for warranty and quality claims. GKN Driveline’s trading margin was 8.1%
(2013: 7.2%, or 7.7% excluding restructuring charges), reflecting higher organic revenue growth.
Return on average invested capital increased to 19.3% (2013: 17.0%).
During the year, over £700 million of annualised sales in new and replacement business was
secured in CVJ and AWD systems and a number of important milestones were achieved,
including:
 expanding facilities in Mexico and AWD capacity in Newton, USA;
 expanding facilities in China with new Power Transfer Unit (PTU) wins and localisation of
AWD products from Europe and North America;
 design and launch of the world’s first integrated disconnect AWD system for Fiat Chrysler’s
small SUV platform;
 eAxle new launches on advanced plug-in hybrid supercars, with the world’s first 2-speed
eTransmission on the BMW i8 and Porsche awarding GKN Driveline “Technology Partner”
status for its development of a high-performance eAxle for the 918 Spyder; and
 11 customer awards, including from Ford, GM, Mitsubishi, Nissan and Volvo.
GKN Powder Metallurgy
GKN Powder Metallurgy comprises GKN Sinter Metals and Hoeganaes. GKN Sinter Metals is the
world’s leading manufacturer of precision automotive sintered components as well as components
for industrial and consumer applications. Hoeganaes is one of the world’s leading manufacturers
of metal powder, the essential raw material for powder metallurgy.
The key financial results for the year are as follows:
GKN Powder Metallurgy
Sales (£m)
Trading profit (£m)
Trading margin (%)
Return on average invested capital (%)
2014
2013
916
101
11.0%
21.8%
932
94
10.1%
21.1%
Change (%)
Headline
Organic
(2)
5
7
15
Organic sales at GKN Powder Metallurgy were £40 million higher (5%). There was an adverse £56
million (6%) impact from currency translation. Good growth was achieved in North America, China
and Europe but sales in South America fell due to weaker automotive and industrial markets.
Page 7 of 33
The organic increase in profit was £13 million, including the absence of £5 million of restructuring
charges reported in 2013. The impact of currency translation was £6 million adverse (7%). The
divisional trading margin was 11.0% (2013: 10.1%, or 10.6% excluding restructuring charges),
reflecting the move towards higher value “design for powder metallurgy” parts.
Return on average invested capital was 21.8% (2013: 21.1%), reflecting the improvement in
profitability.
GKN Powder Metallurgy continued its strong product and development activities in engines and
transmissions, being awarded £165 million of annualised sales in new and replacement business.
It also won a number of quality awards including: Excellent Supplier Award and Zero PPM 2014
Award from GETRAG (Jiangxi) Transmission Co., Ltd.; and four Supplier Quality Excellence
awards from General Motors.
Reflecting our move into more advanced applications of powder metal technologies, GKN Powder
Metallurgy is expanding its facilities in North America with more complex and efficient tooling and
presses. It has signalled its commitment to the Chinese market with the expansion of its two
production facilities there and also announced a technology collaboration agreement with McPhy
Energy to develop solid state hydrogen storage solutions.
During the year, Hoeganaes made progress in the development and commercialisation of high
technology powders for additive manufacturing. For example, highly alloyed tool steels, nickel
based alloys and specialised stainless steel powders have been developed and the first
commercial shipments made. Early development work also progressed on titanium powders for
additive manufacturing. A new research titanium atomizer is currently being installed at the
Powder Innovation Centre in the USA and will be commissioned during the first half of 2015.
GKN Land Systems
GKN Land Systems is a leading supplier of power management products and services. It designs,
manufactures and supplies products and services for the agricultural, construction, mining and
utility vehicle markets and key industrial segments, offering integrated powertrain solutions and
complete in-service support.
Sales in GKN Land Systems were lower than the prior year primarily due to progressively
worsening agricultural equipment markets while demand for construction and industrial equipment
remained relatively stable.
The key financial results for the year are as follows:
GKN Land Systems
Sales (£m)
Trading profit (£m)
Trading margin (%)
Return on average invested capital (%)
2014
2013
776
44
5.7%
11.4%
899
75
8.3%
18.3%
Change (%)
Headline
Organic
(14)
(10)
(41)
(38)
The organic decrease in sales was £84 million (10%) and the adverse impact of currency
translation was £40 million (5%). The organic decrease in sales included £14 million due to the
previously announced cessation of two chassis contracts in the second half of 2013. The
acquisition impact of £1 million related to our wheels venture in China.
The organic decrease in trading profit was £27 million, including the absence of £3 million of
restructuring charges in 2013. The negative impact of currency translation was £4 million (6%).
Trading margin was 5.7% (2013: 8.3%, or 8.7% excluding restructuring charges). In 2015, there is
expected to be an £8 million restructuring charge reflecting actions being taken to further reduce
the fixed cost base in response to difficult market conditions.
Return on average invested capital was 11.4% (2013: 18.3%).
Page 8 of 33
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.
Other Businesses and corporate costs
GKN’s Other Businesses comprise Cylinder Liners (which is a 59% owned venture mainly in
China, manufacturing engine liners for the truck market in the US, Europe and China), our joint
venture stake in EVO Electric (a developer of axial flux motors) and the activities relating to GKN
Hybrid Power, acquired on 1 April 2014 from Williams Grand Prix Engineering Limited. Since the
acquisition, GKN Hybrid Power has secured orders to fit 750 buses with its innovative fuel-saving
solution.
GKN sold its 50% stake in Emitec for a cash consideration of £37 million on 31 July 2014.
GKN’s Other Businesses reported combined sales in the year of £94 million (2013: £104 million),
reflecting a £23 million organic increase in sales and £6 million benefit from acquisitions, more than
offset by the £34 million impact from disposals and £5 million adverse currency translation.
Trading profit was £5 million (2013: £5 million).
Corporate costs, which comprise the costs of stewardship of the Group and operating charges and
credits associated with the Group’s legacy businesses, were £20 million (2013: £25 million),
primarily due to a lower charge in relation to future incentive schemes.
Other Financial Information
Items excluded from management trading profit
In order to achieve consistency and comparability between reporting periods the following items
are excluded from management measures as they do not reflect trading activity:
Change in value of derivative and other financial instruments
The change in value of derivative and other financial instruments during the year resulted in
a loss of £209 million (2013: profit of £26 million).
When the business wins long term customer contracts that are in a foreign currency, the
Group offsets the potential volatility of the future cash flows by hedging through forward
foreign exchange contracts. At each period end, the Group is required to mark to market
these contracts even though it has no intention of closing them out in advance of their
maturity dates.
At 31 December 2014, the net fair value of such instruments was a liability of £180 million
(2013: asset of £52 million) and the change in fair value during the year was a £232 million
charge (2013: £19 million credit).
There was also a £4 million credit arising from the change in the fair value of embedded
derivatives in the year (2013: £4 million charge) and a net gain of £19 million attributable to
the currency impact on Group funding balances (2013: £11 million net gain).
Amortisation of non-operating intangible assets arising on business combinations
The charge for the amortisation of non-operating intangible assets arising on business
combinations (for example, customer contracts, order backlog, technology and intellectual
property rights) was £69 million (2013: £75 million).
Page 9 of 33
Gains and losses on changes in Group structure
The net gain on changes in Group structure was £24 million (2013: £12 million).
On 31 July 2014, the Group sold its 50% share in Emitec, a joint venture company, for a
cash consideration of £37 million. The carrying value on the date of disposal was £14
million and £1 million of previous currency variations were reclassified from other reserves
resulting in a profit on sale of £24 million.
Impairment charges
Consistent with previous years, goodwill was tested for impairment. As a result of difficult
markets and reduced sales of certain products during the year an impairment charge of £69
million (2013: nil) has been recorded in respect of three cash generating units; two in
Aerospace and one in Land Systems. Additionally, an impairment charge has been
recorded against the carrying value of an investment balance of £4 million in Other
Businesses.
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 on a management basis were £62 million (2013: £54
million), with trading profit of £75 million (2013: £64 million). The Group’s share of the tax and
interest charges amounted to £13 million (2013: £10 million). Underlying trading profit increased
£13 million, reflecting a strong trading performance by our joint venture companies, primarily in
China.
Net financing costs
Net financing costs totalled £129 million (2013: £128 million) and comprise the net interest payable
of £73 million (2013: £73 million), the non-cash charge on post-employment benefits of £50 million
(2013: £45 million), fair value changes in net investment hedges of £3 million credit (2013: nil) and
charge for unwind of discounts of £9 million (2013: £10 million). The non-cash charge on postemployment benefits, fair value changes in net investment hedges and unwind of discounts are not
included in management figures. Details of the assumptions used in calculating post-employment
costs are provided in note 14.
Interest payable was £75 million (2013: £76 million), whilst interest receivable was £2 million
(2013: £3 million) resulting in net interest payable of £73 million (2013: £73 million).
Interest charged on Government refundable advances was £7 million (2013: £6 million).
Profit before tax
Management profit before tax was £601 million (2013: £578 million). Profit before tax on a
statutory basis was £221 million (2013: £484 million). The main differences between management
and statutory figures are the change in value of derivative and other financial instruments,
amortisation of non-operating intangible assets arising on business combinations, impairment
charges and the interest charge on net defined benefit pension plans. Further details are provided
in note 3 to the financial statements.
Page 10 of 33
Taxation
The book tax rate on management profits of subsidiaries was 22% (2013: 20%), arising as a £121
million tax charge (2013: £105 million) on management profits of subsidiaries of £539 million
(2013: £524 million). The book tax rate is likely to increase at a similar rate in 2015.
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 37% (2013: 34%). The book
tax rate was significantly lower, largely because of the recognition of deferred tax assets (mainly in
the US) due to increased confidence in the Group’s ability both to access the losses and realise
future taxable profits that absorb brought forward tax deductions.
The cash tax rate was 13% (2013: 10%), primarily due to the utilisation of prior years’ tax losses.
The cash tax rate is expected to be similar to the book tax rate in 2015.
The tax rate on statutory profits of subsidiaries was 29% (2013: 18%) arising as a £47 million tax
charge (2013: £77 million charge) on statutory profits of subsidiaries of £160 million (2013: £432
million).
Non-controlling interests
The profit attributable to non-controlling interests was £5 million (2013: £12 million, including £8
million from the pension partnership arrangement).
Earnings per share
Management earnings per share was 29.0 pence (2013: 28.7 pence). Average shares outstanding
in 2014 were 1,640.6 million (2013: 1,634.7 million).
On a statutory basis earnings per share was 10.3 pence (2013: 24.2 pence), lower primarily due to
the loss on mark to market of foreign exchange hedging contracts and impairment charges.
Dividend
In view of the continued improvement in trading performance and taking into account the Group’s
future prospects, the Board has decided to recommend a final dividend of 5.6 pence per share
(2013: 5.3 pence per share). The total dividend for the year will, therefore, be 8.4 pence per share
(2013: 7.9 pence per share). The Group’s objective is to have a progressive dividend policy
reflecting growth in earnings per share and free cash flow generation. The final dividend is
payable on 18 May 2015 to shareholders on the register at 10 April 2015. Shareholders may
choose to use the Dividend Reinvestment Plan (DRIP) to reinvest the final dividend. The closing
date for receipt of new DRIP mandates is 24 April 2015.
Cash flow
Operating cash flow, which is defined as cash generated from operations of £765 million (2013:
£782 million) adjusted for capital expenditure (net of proceeds from capital grants) of £403 million
(2013: £349 million), proceeds from the disposal/realisation of fixed assets of £19 million (2013: £4
million) and repayment of the principal of a government refundable advance in the UK of £38
million (2013: nil) was an inflow of £343 million (2013: £437 million).
Within operating cash flow there was an outflow of working capital and provisions of £33 million
(2013: £47 million outflow).
Page 11 of 33
Capital expenditure (net of proceeds from capital grants) on both tangible and intangible assets
totalled £403 million (2013: £349 million). Of this, £328 million (2013: £273 million) was on tangible
fixed assets and was 1.5 times (2013: 1.2 times) the depreciation charge, higher than the previous
year due to additional investment in the Automotive businesses in North America. Expenditure on
intangible assets, mainly initial non-recurring costs on Aerospace programmes, totalled £75 million
(2013: £76 million).
The Group invested £161 million in the year (2013: £149 million) on research and development
activities not qualifying for capitalisation, net of customer and government funding.
Net interest paid totalled £83 million (2013: £65 million) including £16 million of previously accrued
interest on a government refundable advance. Tax paid in the year was £68 million (2013: £52
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 own shares purchased but before dividends paid
to GKN shareholders, was an inflow of £234 million (2013: £346 million). The year on year change
reflects increased capital expenditure of £54 million, repayment of a government refundable
advance in the UK relating to the A350 programme of £54 million (including interest) and
incremental pension funding of £12 million.
Net debt
At the end of the year, the Group had net debt of £624 million (2013: £732 million) after payment of
a government refundable advance (including accrued interest) of £54 million. In September 2014,
the Group entered into a series of cross currency interest rate swaps to better align its foreign
currency income receipts with its debt coupon payments. The fair value of these derivative
instruments at 31 December 2014 was a liability of £26 million which is included in the net debt
figure of £624 million.
Pensions and post-employment obligations
GKN operates a number of defined benefit pension schemes and historic retiree medical plans
across the Group.
At 31 December 2014, the total deficit on post-employment obligations of the Group totalled £1,711
million (2013: £1,271 million), comprising the deficits on funded obligations of £1,095 million (2013:
£763 million) and on unfunded obligations of £616 million (2013: £508 million). The total deficit
represents a £440 million increase since 31 December 2013 which is due primarily to significantly
lower discount rates in all of the major territories where GKN operates post-retirement schemes.
New US mortality assumptions have also contributed to the increase in the deficit, and these
factors have been partly offset by strong asset performance.
The amount included within trading profit for the period comprises current service cost of £49
million (2013: £51 million) and administrative costs of £3 million (2013: £3 million), offset by a
settlement credit of £9 million. The settlement credit related to a voluntary programme run in the
US which offered deferred members the opportunity to take a cash lump sum in lieu of a future
pension. Interest on net defined benefit plans, which is excluded from management figures, was
£50 million (2013: £45 million).
Cash contributions to the various defined benefit pension schemes and retiree medical
arrangements totalled £108 million (2013: £112 million).
Page 12 of 33
UK pensions
The accounting deficit for UK schemes increased to £1,005 million (2013: £714 million), due to the
application of lower discount rates.
Both UK pension schemes (GKN 1 a mature scheme and GKN 2 with a larger active and deferred
population) 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 year. The agreed
deficit recovery plan requires payments of £10 million per year and the potential for further
additional payments commencing in 2016, contingent upon asset performance. The first payment
of £10 million was made during the year. This is in addition to a £30 million (2013: £30 million)
annual payment made under the Group’s pension partnership arrangement.
Early in the year, a bulk annuity pensioner “buy-in” was completed in relation to the UK pension
scheme, GKN 1, as a result of which a proportion (c.12%) of GKN 1 liabilities are now fully insured.
The transaction involved a payment 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 year.
Defined contribution pension schemes
In addition to defined benefit pension schemes, the Group also operates a number of defined
contribution schemes for which the income statement charge was £35 million (2013: £34 million).
Net assets
Net assets of £1,501 million were £294 million lower than the December 2013 year end figure of
£1,795 million. The decrease includes management profit after tax of £480 million more than offset
by dividends paid to equity shareholders of £133 million, currency on translation of subsidiaries
and joint ventures net of tax and the change in value of derivative and other financial instruments
of £182 million and a loss on remeasurement of defined benefit plans of £485 million.
Exchange rates
Exchange rates used for currencies most relevant to the Group’s operations are:
Average
Euro
US dollar
2014
1.24
1.65
Year End
2013
1.18
1.57
2014
1.29
1.56
2013
1.20
1.66
The approximate impact on 2014 trading profit of subsidiaries and joint ventures of a 1%
movement in the average rate would be euro - £1 million, US dollar - £4 million.
Funding, liquidity and going concern
At 31 December 2014, UK committed bank facilities were £880 million. Within this amount there
are committed revolving credit facilities of £800 million (31 December 2013: £837 million) and an
£80 million eight-year amortising facility from the European Investment Bank (EIB). The revolving
credit facilities of £800 million, renegotiated during the year, mature in 2019, whilst the first of five
equal, annual £16 million EIB repayments falls due in 2015. At 31 December 2014, the £80 million
EIB facility was fully drawn (2013: £80 million fully drawn) and there were no drawings on any of
the UK revolving credit facilities (2013: no drawings).
Capital market borrowings at 31 December 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.
Page 13 of 33
As at 31 December 2014, the Group had net debt of £624 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 interest payable and for net debt to be no greater than 3
times EBITDA of subsidiaries. The covenants are tested every six months using the previous 12
months’ results. For the 12 months to 31 December 2014, EBITDA was 11.8 times greater than
net interest payable, whilst net debt was 0.7 times EBITDA.
The Group entered into a series of cross currency interest rate swaps during the year to better
align its foreign currency income receipts in USD and EUR with its debt and had the effect of
converting its Sterling bonds into US Dollars ($951 million) and Euros (€284 million). The cross
currency interest rate swaps have been designated as a net investment hedge of the Group’s USD
and EUR net assets. The fair value of the cross currency interest rate swaps at 31 December
2014 was a liability of £26 million (2013: nil).
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. 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.
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 14 of 33
APPENDICES
Page
GKN Consolidated Financial Information
Consolidated Income Statement for the year ended 31 December 2014
16
Consolidated Statement of Comprehensive Income for the year ended 31 December
2014
17
Consolidated Statement of Changes in Equity for the year ended 31 December 2014
18
Consolidated Balance Sheet at 31 December 2014
19
Consolidated Cash Flow Statement for the year ended 31 December 2014
20
Notes to the News Release
21 - 33
Page 15 of 33
Consolidated Income Statement
For the year ended 31 December 2014
Notes
2014
£m
2013
£m
Sales
2
6,982
7,136
Trading profit
Change in value of derivative and other financial instruments
Amortisation of non-operating intangible assets arising on
business combinations
Gains and losses on changes in Group structure
Impairment charges
Operating profit
2
4
612
(209)
597
26
5
6
7
(69)
24
(69)
289
(75)
12
560
61
52
(75)
2
(56)
(129)
(76)
3
(55)
(128)
221
484
(47)
174
(77)
407
5
5
169
174
4
8
12
395
407
10.3
10.2
24.2
23.8
Share of post-tax earnings of joint ventures
Interest payable
Interest receivable
Other net financing charges
Net financing costs
8
8
Profit before taxation
Taxation
Profit after taxation for the year
9
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
10
Page 16 of 33
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2014
Notes
Profit after taxation for the year
Other comprehensive income
Items that may be reclassified to profit or loss
Currency variations – subsidiaries
Arising in year
Reclassified in year
Currency variations – joint ventures
Arising in year
Reclassified in year
Net investment hedge changes in fair value
Arising in year
Reclassified in year
Taxation
Items that will not be reclassified to profit or loss
Remeasurement of defined benefit plans
Subsidiaries
Joint ventures
Taxation
Total comprehensive income for the year
Total comprehensive income for the year attributable to:
Owners of the parent
Other non-controlling interests
Pension partnership
Non-controlling interests
Page 17 of 33
9
14
9
2014
£m
174
2013
£m
407
47
-
(114)
-
2
(1)
(1)
-
(30)
9
27
1
(114)
(485)
122
(363)
(162)
60
(28)
32
325
(167)
5
5
(162)
315
2
8
10
325
Consolidated Statement of Changes in Equity
For the year ended 31 December 2014
Non-controlling
interests
Other reserves
Notes
At 1 January 2014
Profit for the year
Equity
attributable
to equity
Other
holders of
reserves the parent
£m
£m
Share
capital
£m
Capital
redemption
reserve
£m
Share
premium
account
£m
166
298
139
1,392
111
(197)
(134)
1,775
-
-
-
-
169
-
-
-
169
-
Retained Exchange
earnings
reserve
£m
£m
Hedging
reserve
£m
Pension
partnership
£m
Other
£m
Total
equity
£m
20 1,795
5
174
Other comprehensive
-
-
-
(363)
57
(30)
-
(336)
-
-
(336)
Total comprehensive income
-
-
-
(194)
57
(30)
-
(167)
-
5
(162)
Share-based payments
-
-
-
3
-
-
-
3
-
-
3
Share options exercised
-
-
-
1
-
-
-
1
-
-
1
Purchase of non-controlling interests
-
-
-
-
-
-
-
-
-
(1)
(1)
-
-
-
(133)
-
-
-
(133)
-
-
(133)
(2)
income/(expense)
Dividends paid to equity shareholders
11
Dividends paid to non-controlling
-
-
-
-
-
-
-
-
-
(2)
At 31 December 2014
166
298
139
1,069
168
(227)
(134)
1,479
-
22 1,501
At 1 January 2013
166
298
139
1,079
223
(197)
(134)
1,574
334
19 1,927
-
-
-
395
-
-
-
395
8
4
interests
Profit for the year
407
Other comprehensive
-
-
-
32
(112)
-
-
(80)
-
(2)
(82)
Total comprehensive income
income/(expense)
-
-
-
427
(112)
-
-
315
8
2
325
Share-based payments
-
-
-
14
-
-
-
14
-
-
14
Share options exercised
-
-
-
8
-
-
-
8
-
-
8
14
-
-
-
-
-
-
-
-
(10)
-
(10)
14
-
-
-
(10)
-
-
-
(10)
(332)
-
(342)
-
-
-
-
-
-
-
-
-
2
2
-
-
-
(5)
-
-
-
(5)
-
-
(5)
-
-
-
(121)
-
-
-
(121)
-
-
(121)
(3)
Distribution from Pension
partnership to UK Pension scheme
Amendment to the Pension partnership
arrangement
Addition of non-controlling interests
Purchase of own shares by Employee
Share Ownership Plan Trust
Dividends paid to equity shareholders
11
Dividends paid to non-controlling
interests
At 31 December 2013
-
-
-
-
-
-
-
-
-
(3)
166
298
139
1,392
111
(197)
(134)
1,775
-
20 1,795
Other reserves include accumulated reserves where distribution has been restricted due to legal or fiscal requirements and accumulated adjustments in
respect of piecemeal acquisitions.
Page 18 of 33
Consolidated Balance Sheet
At 31 December 2014
2014
£m
2013
£m
498
944
2,060
174
44
16
407
4,143
544
932
1,945
179
52
52
225
3,929
971
1,226
8
10
3
319
2,537
6,680
931
1,142
11
42
184
2,310
6,239
12
(43)
(76)
(1,611)
(125)
(51)
(1,906)
(27)
(11)
(1,485)
(135)
(55)
(1,713)
12
(877)
(148)
(223)
(202)
(112)
(1,711)
(3,273)
(5,179)
(889)
(37)
(178)
(237)
(119)
(1,271)
(2,731)
(4,444)
Net assets
1,501
1,795
Shareholders' equity
Share capital
Capital redemption reserve
Share premium account
Retained earnings
Other reserves
Equity attributable to equity holders of the parent
Non-controlling interests
Total equity
166
298
139
1,069
(193)
1,479
22
1,501
166
298
139
1,392
(220)
1,775
20
1,795
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
Other financial assets
Cash and cash equivalents
12
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
14
Total liabilities
Page 19 of 33
Consolidated Cash Flow Statement
For the year ended 31 December 2014
Notes
Cash flows from operating activities
Cash generated from operations
Interest received
Interest paid
Costs associated with refinancing
Tax paid
Dividends received from joint ventures
13
Cash flows from investing activities
Purchase of property, plant and equipment
Receipt of government capital grants
Purchase of intangible assets
Proceeds from sale and realisation of fixed assets
Payment of deferred and contingent consideration
Acquisition 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 venture
Investments in joint ventures
Joint venture loan settlement
Cash flows from financing activities
Distribution from Pension partnership to UK Pension scheme
Purchase of own shares by Employee Share Ownership
Plan Trust
Purchase of non-controlling interests
Proceeds from exercise of share options
Amounts placed on deposit
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 1 January
Currency variations on cash and cash equivalents
Cash and cash equivalents at 31 December
Page 20 of 33
13
6
14
11
13
2014
£m
2013
£m
765
2
(82)
(3)
(68)
44
658
782
6
(71)
(52)
44
709
(329)
1
(75)
19
(6)
(8)
(274)
1
(76)
4
(74)
-
(38)
37
8
(391)
2
3
(13)
(427)
-
(10)
(1)
1
(3)
66
(63)
(133)
(2)
(135)
132
181
4
317
(5)
8
10
(93)
(1)
(121)
(3)
(215)
67
124
(10)
181
Notes to the News Release
For the year ended 31 December 2014
1
Basis of preparation
The financial information for the year ended 31 December 2014 contained in this News Release was
approved by the Board on 23 February 2015. This announcement does not constitute statutory accounts
of the Company within the meaning of Section 435 of the Companies Act 2006, but is derived from those
accounts, which have been prepared in accordance with International Financial Reporting Standards
(IFRS) as endorsed and adopted for use by the European Union.
This information has been prepared under the historical cost method except where other measurement
bases are required to be applied under IFRS, using all standards and interpretations required for
financial periods beginning 1 January 2014. No standards or interpretations have been adopted before
the required implementation date.
Statutory accounts for the year ended 31 December 2013 have been delivered to the Registrar of
Companies. Statutory accounts for the year ended 31 December 2014 will be delivered to the Registrar
of Companies following the Company’s Annual General Meeting.
The auditors have reported on those accounts. Their reports were not qualified, did not include a
reference to any matters to which the auditors drew attention by way of emphasis without qualifying their
report, and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.
2
Segmental analysis
(a)
Sales
Aerospace
£m
2014
Subsidiaries
Joint ventures
2,226
2,226
Automotive
Powder
Driveline Metallurgy
£m
£m
3,050
394
3,444
916
916
Land
Systems
£m
Total
£m
752
24
776
7,362
94
7,456
(474)
6,982
Other businesses
Management sales
Less: Joint venture sales
Income statement – sales
2013
Subsidiaries
Joint ventures
2,243
2,243
Other businesses
Management sales
Less: Joint venture sales
Income statement – sales
3,062
354
3,416
932
932
870
29
899
7,490
104
7,594
(458)
7,136
Page 21 of 33
Notes to the News Release
For the year ended 31 December 2014
2
Segmental analysis (continued)
(b) Trading profit
Aerospace
£m
2014
Trading profit before depreciation, impairment and
amortisation
Depreciation and impairment of property, plant and
equipment
Amortisation of operating intangible assets
Trading profit – subsidiaries
Trading profit – joint ventures
Automotive
Powder
Driveline Metallurgy
£m
£m
Land
Systems
£m
356
325
137
60
(55)
(24)
277
277
(109)
(6)
210
70
280
(35)
(1)
101
101
(17)
(1)
42
2
44
Total
£m
702
5
(20)
687
(75)
612
Other businesses
Corporate and unallocated costs
Management trading profit
Less: Joint venture trading profit
Income statement – trading profit
Aerospace
£m
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
Automotive
Powder
Driveline Metallurgy
£m
£m
Land
Systems
£m
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
Total
£m
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 year ended 31 December 2014, the Group has recorded a net credit of £2 million in the trading profit of
Driveline relating to; commercial settlement of a supply agreement (credit £14 million) and other resolved items
(credit £5 million) partially offset by warranty related matters (charge £17 million). In addition the Group has
recorded a net credit of £12m in the trading profit of Aerospace relating to; achievement of specific milestones
subsequent to the 2013 sale of rights to certain of its intellectual property (credit £8 million, 2013: £5 million) and
commercial progress on an onerous contract (credit £11 million) partially offset by contractual matters with a
customer (charge £7 million).
During the year ended 31 December 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). In relation to a restructuring charge recorded in 2012 for Aerospace Engine Systems, £4 million was
released in 2013.
Page 22 of 33
Notes to the News Release
For the year ended 31 December 2014
3
Adjusted performance measures
(a)
Reconciliation of reported and management performance measures
2014
As
reported
£m
6,982
Joint
ventures
£m
474
Exceptional
and nontrading items
£m
-
Management
basis
£m
7,456
612
75
-
687
(209)
-
209
-
(69)
24
(69)
289
75
69
(24)
69
323
687
61
(75)
1
(13)
Interest payable
Interest receivable
Other net financing charges
Net financing costs
Profit before taxation
(75)
2
(56)
(129)
221
-
56
56
380
(75)
2
(73)
601
Taxation
Profit after tax for the year
Profit attributable to non-controlling interests
Profit attributable to owners of the parent
Earnings per share - pence
(47)
174
(5)
169
10.3
-
(74)
306
306
18.7
(121)
480
(5)
475
29.0
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
Impairment charges
Operating profit
Share of post-tax earnings of joint ventures
2013
As
reported
£m
7,136
Joint
ventures
£m
458
Exceptional
and nontrading items
£m
-
Management
basis
£m
7,594
597
64
-
661
26
-
(26)
-
(75)
12
560
64
75
(12)
37
661
52
(64)
2
(10)
Interest payable
Interest receivable
Other net financing charges
Net financing costs
Profit before taxation
(76)
3
(55)
(128)
484
-
55
55
94
(76)
3
(73)
578
Taxation
Profit after tax for the year
Profit attributable to non-controlling interests
Profit attributable to owners of the parent
Earnings per share - pence
(77)
407
(12)
395
24.2
-
(28)
66
8
74
4.5
(105)
473
(4)
469
28.7
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
Share of post-tax earnings of joint ventures
Basic and management earnings per share use a weighted average number of shares of 1,640.6 million (2013: 1,634.7 million).
Also see note 10.
Page 23 of 33
Notes to the News Release
For the year ended 31 December 2014
3
Adjusted performance measures (continued)
(b)
Summary of management performance measures by segment
Sales
£m
2,226
3,444
916
776
94
7,456
Aerospace
Driveline
Powder Metallurgy
Land Systems
Other businesses
Corporate and unallocated costs
4
2014
Trading
profit
£m
277
280
101
44
5
(20)
687
Margin
12.4%
8.1%
11.0%
5.7%
9.2%
Sales
£m
2,243
3,416
932
899
104
7,594
Net gains and losses on intra-group funding
Arising in year
Reclassified in year
11.9%
7.2%
10.1%
8.3%
8.7%
2014
£m
(232)
4
(228)
2013
£m
19
(4)
15
19
19
(209)
11
11
26
2014
£m
(1)
(56)
(12)
(69)
2013
£m
(56)
(19)
(75)
2014
£m
24
24
2013
£m
9
3
12
Amortisation of non-operating intangible assets arising on business combinations
Marketing related
Customer related
Technology based
6
Margin
Change in value of derivative and other financial instruments
Forward currency contracts (not hedge accounted)
Embedded derivatives
5
2013
Trading
profit
£m
266
246
94
75
5
(25)
661
Gains and losses on changes in Group structure
Business sold
Profit on sale of joint venture
On 31 July 2014, the Group sold its 50% share in Emitec, a joint venture company, for cash consideration of
£37 million. The carrying value on the date of disposal was £14 million and £1 million of previous currency
variations were reclassified from other reserves resulting in a profit on sale of £24 million.
On 7 November 2013, the Group sold its controlling interest in GKN Driveline Torque Technology (Shanghai) Co.
Ltd (TSH) to Shanghai GKN HUAYU Driveline Systems Co Limited (SDS), a joint venture company. The
transaction took the Group’s ownership in TSH from 100% to 50%. The profit on sale of £9 million, comprised the
fair value of consideration received (increased equity interest in SDS of £15 million) less the previous carrying value
of TSH of £6 million. TSH had a net overdraft of £2 million on the date of disposal.
On 24 December 2013, the Group sold its 49% share in a joint venture company, Composite Technology and
Applications Ltd for cash consideration of £3 million. The carrying value on the date of disposal was nil, resulting in
a profit on sale of £3 million.
Page 24 of 33
Notes to the News Release
For the year ended 31 December 2014
7
Impairment charges
An impairment charge of £69 million has been recorded in respect of 3 CGUs; 2 in Aerospace and 1 in Land
Systems of £65 million and the carrying value of an investment balance of £4 million in Other Businesses.
An impairment charge in Engine Products – East, North America (Aerospace) of £33 million follows a downturn in the
market and loss of business during the year. The charge only comprises goodwill.
The impairment charge in Special Products Europe (Aerospace) of £6 million follows a reduction in sales for a key
product. The charge only comprises goodwill.
The impairment charge in Wheels and Structures Europe (Land Systems) of £26 million follows a significant
downturn in the market during the year and loss of future orders. The charge comprises goodwill of £18 million and
property, plant and equipment of £8 million.
8
(a)
Net financing costs
Interest payable and fee expense
Short term bank and other borrowings
Repayable within five years
Repayable after five years
Government refundable advances
Finance leases
2013
£m
(7)
(36)
(25)
(7)
(75)
(6)
(11)
(52)
(6)
(1)
(76)
2
(73)
3
(73)
2014
£m
2013
£m
(50)
3
(9)
(56)
(45)
(10)
(55)
-
Interest receivable
Short term investments, loans and deposits
Net interest payable and receivable
(b)
2014
£m
Other net financing charges
Interest charge on net defined benefit plans
Fair value changes on net investment hedges
Unwind of discounts
Page 25 of 33
Notes to the News Release
For the year ended 31 December 2014
9
(a)
Taxation
Tax expense
Analysis of charge in year
Current tax (charge)/credit
Current year charge
Utilisation of previously unrecognised tax losses and other assets
Net movement on provisions for uncertain tax positions
Adjustments in respect of prior years
2014
£m
2013
£m
(86)
1
9
(4)
(80)
(85)
4
8
4
(69)
36
(51)
44
4
33
(47)
(65)
1
52
4
(8)
(77)
2014
£m
(77)
(44)
(121)
2013
£m
(65)
(40)
(105)
(3)
77
74
(47)
(3)
31
28
(77)
Deferred tax (charge)/credit
Origination and reversal of temporary differences
Tax on change in value of derivative financial instruments
Other changes in unrecognised deferred tax assets
Adjustments in respect of prior years
Total tax charge for the year
Analysed as:
Tax in respect of management profit
Current tax
Deferred tax
Tax in respect of items excluded from management profit
Current tax
Deferred tax
Total for tax charge for the year
Management tax rate
The tax charge arising on management profits of subsidiaries of £539 million (2013: £524 million) was £121 million
(2013: £105 million charge) giving an effective tax rate of 22% (2013: 20%).
Tax reconciliation
Profit before tax
Less share of post-tax earnings of joint ventures
Profit before tax excluding joint ventures
2014
£m
221
(61)
160
Tax charge calculated at 21.5% (2013: 23.25%) standard UK corporate tax
rate
Differences between UK and overseas corporate tax rates
Non-deductible and non-taxable items
Recognition of previously unrecognised tax losses
Utilisation of previously unrecognised tax losses and other assets
Changes in tax rates
Other changes in deferred tax assets
Tax charge on ordinary activities
Net movement on provision for uncertain tax positions
Adjustments in respect of prior years
Total tax charge for the year
(34)
(16)
(49)
43
1
(3)
2
(56)
9
(47)
Page 26 of 33
%
(21)
(10)
(31)
27
1
(2)
1
(35)
6
(29)
2013
£m
484
(52)
432
(100)
(39)
6
52
4
(11)
(5)
(93)
8
8
(77)
%
(23)
(9)
1
12
1
(3)
(1)
(22)
2
2
(18)
Notes to the News Release
For the year ended 31 December 2014
9
(b)
Taxation (continued)
Tax included in other comprehensive income
2014
£m
118
(4)
4
13
131
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
(c)
2013
£m
(49)
1
21
(27)
Recognised deferred tax
The movements in deferred tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction
as permitted by IAS 12) during the year are shown below:
At 1 January 2014
Included in the income statement
Included in other comprehensive income
Businesses acquired
Currency variations
At 31 December 2014
At 1 January 2013
Included in the income statement
Included in other comprehensive income
Currency variations
At 31 December 2013
10
Assets
Postemployment
Tax
obligations
losses
£m
£m
169
127
(32)
118
(2)
(2)
285
93
224
148
(7)
(19)
(49)
1
(2)
169
127
Liabilities
Fixed
assets
£m
(287)
15
(1)
(10)
(283)
(313)
20
6
(287)
Other
£m
63
28
4
95
55
8
63
Other
£m
(25)
22
(4)
1
(6)
(16)
(10)
1
(25)
Total
£m
47
33
114
(1)
(9)
184
98
(8)
(48)
5
47
Earnings per share
Basic
Dilutive securities
Diluted
Earnings
£m
169
169
2014
Weighted
average
number of
shares
million
1,640.6
11.5
1,652.1
Earnings per
share
pence
10.3
(0.1)
10.2
Earnings
£m
395
395
2013
Weighted
average
number of
shares
million
1,634.7
22.1
1,656.8
Earnings per
share
pence
24.2
(0.4)
23.8
Management basis earnings per share of 29.0p (2013: 28.7p) is presented in note 3 and uses the weighted
average number of shares consistent with basic earnings per share calculations.
11
Dividends
2012 final dividend paid
2013 interim dividend paid
2013 final dividend paid
2014 interim dividend paid
2014 final dividend proposed
Paid or proposed in
respect of
2014
2013
pence
pence
2.6
5.3
2.8
5.6
8.4
7.9
2015
£m
92
92
Recognised
2014
£m
87
46
133
2013
£m
78
43
121
The 2014 final proposed dividend will be paid on 18 May 2015 to shareholders who are on the register of members
at close of business on 10 April 2015.
Page 27 of 33
Notes to the News Release
For the year ended 31 December 2014
12
Net borrowings
(a)
Analysis of net borrowings
2014
Unsecured capital market borrowings
£450 million 5⅜% 2022 unsecured bond
£350 million 6¾% 2019 unsecured bond
Unsecured committed bank borrowings
European Investment Bank
2019 Committed Revolving Credit Facility
Other (net of unamortised issue costs)
Finance lease obligations
Bank overdrafts
Other short term bank borrowings
Borrowings
Bank balances and cash
Short term bank deposits
Cash and cash equivalents
Other financial assets – bank deposits
Net borrowings (excluding cross
currency interest rate swaps)
Cross currency interest rate swaps
Net debt
2013
Unsecured capital market borrowings
£450 million 5⅜% 2022 unsecured bond
£350 million 6¾% 2019 unsecured bond
Unsecured committed bank borrowings
European Investment Bank
2016 Committed Revolving Credit Facility
2017 Committed Revolving Credit Facility
Other (net of unamortised issue costs)
Finance lease obligations
Bank overdrafts
Other short term bank borrowings
Borrowings
Bank balances and cash
Short term bank deposits
Cash and cash equivalents
Net borrowings
Current
Within
one year
£m
One to two
years
£m
Non-current
Two to five More than
years five years
£m
£m
-
-
(348)
(16)
(4)
(2)
(21)
(43)
145
174
319
3
(16)
(14)
(30)
-
279
279
Total
Total
£m
£m
(445)
-
(445)
(348)
(445)
(348)
(48)
(5)
(1)
(402)
-
(445)
-
(64)
(19)
(1)
(877)
-
(80)
(23)
(1)
(2)
(21)
(920)
145
174
319
3
(30)
(30)
(402)
(402)
(445)
(26)
(471)
(877)
(26)
(903)
(598)
(26)
(624)
-
-
-
(445)
(348)
(445)
(348)
(445)
(348)
(3)
(24)
(27)
153
31
184
157
(16)
(8)
(24)
(24)
(48)
(7)
(1)
(56)
(56)
(16)
(809)
(809)
(80)
(15)
(1)
(889)
(889)
(80)
(15)
(1)
(3)
(24)
(916)
153
31
184
(732)
Unsecured capital market borrowings include: an unsecured £350 million (2013: £350 million) 6¾% bond maturing in 2019 less
unamortised issue costs of £2 million (2013: £2 million) and an unsecured £450 million (2013: £450 million) 5⅜% bond maturing
in 2022 less unamortised issue costs of £5 million (2013: £5 million).
Unsecured committed bank borrowings include £80 million (2013: £80 million) drawn under the Group’s European Investment
Bank unsecured facility. The loan is due for repayment in five equal annual instalments of £16 million, commencing in June 2015
and attracts a fixed interest rate of 4.1% per annum payable annually in arrears. There were no drawings against the Group’s
2019 Committed Revolving Credit Facilities of £800 million (2013: £837 million). Unamortised issue costs on the 2019
Committed Revolving Credit Facilities were £5 million (2013: £5 million).
Page 28 of 33
Notes to the News Release
For the year ended 31 December 2014
13
Cash flow reconciliations
Cash generated from operations
Operating profit
Adjustments for:
Depreciation, impairment and amortisation of fixed assets
Charged to trading profit
Depreciation
Impairment
Amortisation
Amortisation of non-operating intangible assets arising on business combinations
Impairment charges
Change in value of derivative and other financial instruments
Gains and losses on changes in Group structure
Amortisation of government capital grants
Net profits on sale and realisation of fixed assets
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
Movement in cash and cash equivalents
Net movement in other borrowings and deposits
Costs associated with refinancing
Finance leases
Cross currency interest rate swaps
Amortisation of debt issue costs
Currency variations
Movement in year
Net debt at beginning of year
Net debt at end of year
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 cashflow
2014
£m
289
2013
£m
560
216
4
32
69
69
209
(24)
(2)
(2)
3
(65)
(31)
(76)
74
765
235
2
32
75
(26)
(12)
(3)
(1)
14
(47)
(74)
(74)
101
782
132
3
(26)
(3)
2
108
(732)
(624)
67
83
(1)
(2)
(8)
139
(871)
(732)
319
(2)
317
184
(3)
181
Cash outflow in respect of previous restructuring plans was £2 million (2013: £2 million).
During the year the Group paid £1 million in cash to increase its investment in Lianyungang GKN Hua Ding
Wheels Company Limited from 65% to 80% of the equity share capital.
In May 2014, the Group repaid a government refundable advance in the UK, received in 2009 and 2010 relating to
the A350 programme. The principal repaid was £38 million and the associated accrued interest was £16 million.
Page 29 of 33
Notes to the News Release
For the year ended 31 December 2014
14
Post-employment obligations
2014
£m
(1,067)
(564)
(28)
(52)
(1,711)
Post-employment obligations as at the year end comprise:
Pensions
- funded
- unfunded
Medical
- funded
- unfunded
2013
£m
(742)
(462)
(21)
(46)
(1,271)
The Group’s pension arrangements comprise various defined benefit and defined contribution schemes throughout the world. In
addition, in the USA and UK various plans operate which provide members with post-retirement medical benefits. The Group’s
post-employment plans in the UK, USA and Germany together account for 98% of plan assets and 97% of plan liabilities.
Independent actuarial valuations of all major defined benefit scheme assets and liabilities were carried out at 31 December 2014.
The present value of the defined benefit obligation and the related service cost elements were measured using the projected unit
credit method.
(a)
Defined benefit schemes – significant judgements, assumptions and estimates
Key assumptions:
UK
GKN1
%
2014
Rate of increase in pensionable salaries (past/future service)
Rate of increase in payment and deferred pensions
Discount rate (past/future service)
Inflation assumption (past/future service)
Rate of increase in medical costs:
Initial/long term
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
3.05
3.25
3.05
GKN2
%
Americas
%
Europe
%
ROW
%
4.05/4.10
3.05
3.55/3.80
3.05/3.10
n/a
n/a
3.90
n/a
2.50
1.75
1.90
1.75
n/a
0.80
n/a
7.0/5.0
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
5.5/5.5
n/a
3.25
4.20
3.25
5.5/5.5
4.30
3.30
4.50
3.30
The assumptions table above specifies separate assumptions for past and future service in relation to the UK pension
scheme. This represents a change in approach, whereby a different, “future service” set of assumptions will be used to determine
the service cost for the following year. There is no impact on the 2014 reported numbers as a result of this change. This approach
reflects evolving market practice and is based on the premise that active members of the scheme are younger and have, on
average, longer remaining life expectancy than an average scheme member. Given that yield curves typically rise over time, this
longer duration implies a higher discount rate for the “active” sub-set of members which has been set at 3.80%, as at 31 December
2014.
The UK schemes each use a duration specific discount rate derived from the Mercer pension discount yield curve, which is based
on corporate bonds with two or more AA-ratings. The European discount rate was calculated with reference to Aon Hewitt’s
German discount rate yield curve. For the USA, the discount rate referenced the Citigroup intermediate pension liability index, the
Merrill Lynch US corporate AA 10+ years index and the Towers Watson Rate:LINK benchmark.
The underlying mortality assumptions for the major schemes, are as follows:
United Kingdom
The key current year mortality assumptions for both GKN1 and GKN2 use S1NA year of birth mortality tables with CMI 2013
improvements and a 1.25% p.a. long term improvement trend. These assumptions give the following expectations for each
scheme: for GKN1 a male aged 65 lives for a further 21.8 years and a female aged 65 lives for a further 23.8 years whilst a male
aged 45 is expected to live a further 23.5 years from age 65 and a female aged 45 is expected to live a further 25.7 years from age
65. For GKN2 a male aged 65 lives for a further 22.8 years and a female aged 65 lives for a further 25.1 years whilst a male aged
45 is expected to live a further 24.6 years from age 65 and a female aged 45 is expected to live a further 27.1 years from age 65.
Overseas
In the USA, RP-2014 tables have been used whilst in Germany the RT2005-G tables have been used. In the USA, the longevity
assumption for a male aged 65 is that he lives a further 21.6 years (female 23.8 years) whilst in Germany a male aged 65 lives for
a further 18.6 years (female 22.8 years). The longevity assumption for a USA male currently aged 45 is that he also lives for a
further 23.2 years once attaining 65 years (female 25.7 years), with the German equivalent assumption for a male being 21.5 years
(female 25.5 years). These assumptions are based on the prescribed tables, rather than GKN experience.
Page 30 of 33
Notes to the News Release
For the year ended 31 December 2014
14
(a)
Post-employment obligations (continued)
Defined benefit schemes – significant judgements, assumptions and estimates (continued)
Assumption sensitivity analysis
The impact of a one percentage point movement in the primary assumptions (longevity: 1 year) on the defined benefit obligations as
at 31 December 2014 is set out below:
Discount rate +1%
Discount rate -1%
Rate of inflation +1%
Rate of inflation -1%
Life expectancy +1 year
Life expectancy -1 year
Health cost trend +1%
Health cost trend -1%
UK
Americas
Europe
ROW
Liabilities
£m
Liabilities
£m
Liabilities
£m
Liabilities
£m
472
(601)
(523)
408
(110)
109
(2)
2
39
(48)
(8)
8
(2)
1
89
(115)
(75)
63
(21)
19
-
3
(2)
-
Judgements and estimates
USA Lump Sum settlements
During 2014 the Group undertook a voluntary lump sum programme in the USA, whereby deferred members of its USA pension
schemes were offered the no-obligation opportunity to exchange their future pension rights for a cash lump sum. A settlement credit
(£8 million) has been recognised in relation to this programme which is based on the differential between the actuarial valuations
used for accounting purposes (£32 million) and the cash lump sum amounts (£24 million). The £8 million has been recorded within
trading profit of Aerospace (£3 million), Driveline (£3 million) and Powder Metallurgy (£2 million).
Buy In
During the year, 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. The bulk annuity covers £110 million of pensioner liabilities valued on an IAS 19 accounting basis, as at 31
December 2014.
Pension partnership interest
On 31 March 2010, the Group entered into a pension partnership arrangement with the Trustee of the UK pension scheme, which
entitled the UK pension scheme to a distribution of £30 million per annum for 20 years, subject to discretion exercisable by the Group
in certain circumstances.
The accounting and disclosure for this arrangement changed during 2013 following amendments to the pension partnership
agreement which resulted in the income interest no longer meeting the criteria for recognition as an IAS 19 plan asset. This
increased the Group’s reported post-employment obligation deficit by an amount of £342 million and eliminated the non-controlling
interest of £332 million which was previously recognised in equity. The remaining difference of £10 million was recognised in equity
within retained earnings, as it represented a transaction with equity holders.
During the year the Group has paid £30 million (2013: combined amount of £30 million) to the two UK pension schemes through the
pension partnership and this is included within the amount of contributions/benefits paid. In 2013 £10 million was paid before the
partnership agreement was amended and was treated as a distribution from the pension partnership, whilst £20 million was treated
as a contribution/benefit paid.
Page 31 of 33
Notes to the News Release
For the year ended 31 December 2014
14
(b)
Post-employment obligations (continued)
Defined benefit schemes - reporting
The amounts included in operating profit are:
Total
£m
2014
Current service cost and administrative expenses
Settlements/curtailment
(52)
9
(43)
2013
Current service cost and administrative expenses
Settlements/curtailment
(54)
(54)
The amounts recognised in the balance sheet are:
Present value of unfunded obligations
Present value of funded obligations
Fair value of plan assets
Net obligations recognised in the balance sheet
UK
£m
(18)
(3,364)
2,377
(1,005)
Americas
£m
(43)
(288)
195
(136)
2014
Europe
£m
(553)
(40)
37
(556)
ROW
£m
(2)
(30)
18
(14)
Total
£m
(616)
(3,722)
2,627
(1,711)
2013
£m
(508)
(3,295)
2,532
(1,271)
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 had a funding valuation as at 5 April 2013 and during
the year final agreement on recovery plans with the scheme trustees was reached. The Group’s UK pension funding deficit is
lower than the equivalent UK accounting deficit.
This has resulted in additional UK deficit recovery payments of £10 million per year which commenced in 2014 and the potential
for further additional payments commencing in 2016, contingent upon asset performance. In addition the Group also agreed,
during the year, to pay £2 million per year for 4 years to UK scheme, GKN1, to cover a funding requirement arising from a £123
million bulk annuity purchase.
The combined contribution for deficit funding and future accrual expected to be paid by the Group during 2015 to the UK schemes
is £47 million. In addition, a distribution of £30 million is expected to be made from the UK pension partnership to the UK schemes
in the first half of 2015, which brings the total expected UK cash requirement for 2015 to £77 million. The expected 2015
contribution to overseas schemes is £28 million.
Cumulative remeasurement of defined benefit plan differences recognised in equity are as follows:
2014
£m
(727)
(485)
(1,212)
At 1 January
Remeasurement of defined benefit plans
At 31 December
Movement in schemes' obligations (funded and unfunded) during the year
UK Americas
£m
£m
At 1 January 2014
(2,989)
(290)
(37)
(1)
Current service cost
9
Settlements and curtailments
(2)
(1)
Administrative expenses
(130)
(14)
Interest
(367)
(54)
Remeasurement of defined benefit plans
143
39
Benefits and administrative expenses paid
(19)
Currency variations
At 31 December 2014
(3,382)
(331)
At 1 January 2013
(2,863)
(344)
Current service cost
(39)
(2)
Administrative expenses
(3)
Interest
(116)
(15)
Remeasurement of defined benefit plans
(106)
30
Benefits and administrative expenses paid
138
37
Currency variations
4
At 31 December 2013
(2,989)
(290)
Page 32 of 33
Europe
£m
(491)
(9)
(16)
(139)
22
40
(593)
(490)
(8)
(16)
17
21
(15)
(491)
ROW
£m
(33)
(2)
(1)
2
2
(32)
(40)
(2)
(1)
(1)
4
7
(33)
2013
£m
(787)
60
(727)
Total
£m
(3,803)
(49)
9
(3)
(160)
(561)
206
23
(4,338)
(3,737)
(51)
(3)
(148)
(60)
200
(4)
(3,803)
Notes to the News Release
For the year ended 31 December 2014
14
(b)
Post-employment obligations (continued)
Defined benefit schemes – reporting (continued)
Movement in schemes' assets during the year
UK
£m
2,275
99
70
75
(142)
2,377
2,522
95
86
49
(135)
(342)
2,275
At 1 January 2014
Interest
Remeasurement of defined benefit plans
Contributions by Group
Benefits paid
Currency variations
At 31 December 2014
At 1 January 2013
Interest
Remeasurement of defined benefit plans
Contributions by Group
Benefits paid
Removal of pension partnership plan asset
Currency variations
At 31 December 2013
Americas
£m
203
10
1
7
(37)
11
195
181
7
30
4
(13)
(6)
203
Europe
£m
36
1
4
1
(2)
(3)
37
36
1
(1)
36
ROW
£m
18
1
2
(2)
(1)
18
20
4
2
(4)
(4)
18
Total
£m
2,532
110
76
85
(183)
7
2,627
2,759
103
120
55
(153)
(342)
(10)
2,532
Remeasurement gains and losses in relation to schemes’ obligations are as follows
2014
Experience gains and losses
Changes in financial assumptions
Change in demographic assumptions
2013
Experience gains and losses
Changes in financial assumptions
Change in demographic assumptions
UK
£m
Americas
£m
Europe
£m
ROW
£m
Total
£m
(367)
(367)
(5)
(31)
(18)
(54)
(139)
(139)
(1)
(1)
(5)
(538)
(18)
(561)
(5)
(30)
(71)
(106)
3
28
(1)
30
(5)
22
17
(1)
(1)
(7)
19
(72)
(60)
UK
£m
Americas
£m
Europe
£m
ROW
£m
Total
£m
936
250
349
567
121
9
145
2,377
93
27
70
5
195
37
37
8
6
1
3
18
1,037
250
382
638
121
14
185
2,627
882
443
736
104
78
32
2,275
123
33
37
10
203
36
36
9
5
1
3
18
1,014
481
774
104
88
71
2,532
The fair values of the assets in the schemes were:
At 31 December 2014
Equities (inc. hedge funds)
Diversified growth funds
Bonds - government
Bonds - corporate
Property
Cash, derivatives and net current assets
Other assets
At 31 December 2013
Equities (inc. hedge funds)
Bonds - government
Bonds - corporate
Property
Cash, derivatives and net current assets
Other assets
As at 31 December 2014, the equities in the UK asset portfolio were split 26% domestic (2013: 26%); 74% foreign (2013: 74%),
whilst bond holdings were 91% domestic (2013: 89%) and 9% foreign (2013: 11%). The equivalent proportions for the USA
plans were: equities 41% / 59% (2013: 75% / 25%); bonds 91% / 9% (2013: 97% / 3%).
(c)
Defined contribution schemes
The Group operates a number of defined contribution schemes outside the United Kingdom. The charge to the income
statement in the year was £35 million (2013: £34 million).
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