NEWS RELEASE
30 July 2013
GKN plc Results Announcement for the six months ended 30 June 2013
Management basis
Sales
Operating profit
Trading margin (%)
Profit before tax
Earnings per share
Interim dividend per share
(1)
As reported
2013
£m
2012*
£m
Change
%
2013
£m
2012*
£m
Change
%
3,869
3,459
+12
3,647
3,254
+12
320
291
+10
170
299
-43
8.3%
8.4%
-10bps
278
264
+5
134
279
-52
13.8p
14.3p
-3
5.8p
13.9p
-58
2.6p
2.4p
+8
2.6p
2.4p
+8
*2012 figures restated for the impact of IAS 19 revised. Within Management figures, this had the impact of increasing
corporate costs by £2 million. Further details can be found in note 2.
Group Highlights(1)
•
•
•
•
•
•
•
•
•
•
Group results reflect GKN’s continued outperformance of its end markets and the contribution
from GKN Aerospace Engine Systems (formerly Volvo Aero)
Sales increased 12%, up 2% on an organic basis
Management trading (operating) profit up 10%
Trading margin of 8.3%, after incurring £25 million of previously announced restructuring
charges
Profit before tax up 5%
Reported profit before tax of £134 million (2012: £279 million) lower, primarily due to foreign
exchange rate changes impacting the mark to market value of foreign exchange contracts
Earnings per share 3% lower due to the higher tax rate of 20%, as previously guided, and the
additional shares issued to finance the acquisition of GKN Aerospace Engine Systems
Return on average invested capital reduced to 16.6% (2012: 17.2%), excluding GKN
Aerospace Engine Systems
Positive free cash flow of £77 million (2012: £28 million)
Net debt of £928 million (31 December 2012: £871 million)
“GKN has continued to make good progress against our strategy to grow a market-leading global
engineering business. Although some of our end markets remained challenging, we continued to
outperform and are reporting good underlying financial results with further benefit from last year’s
acquisition, GKN Aerospace Engine Systems (formerly Volvo Aero), which is performing well. The
first half met our expectations and, with planned restructuring costs now behind us, we expect a
stronger second half performance and to deliver good progress in 2013.”
Nigel Stein
Chief Executive, GKN plc
Page 1 of 35
Divisional Highlights
GKN Aerospace
GKN Driveline
GKN Powder Metallurgy
GKN Land Systems
2013
1,123
1,728
480
487
2012
770
1,664
465
512
Organic
sales
growth
%
3
4
2
(7)
Group
3,869
3,459
2
Sales
(£m)
Trading margin
%
2013
10.5
6.8
10.0
9.2
2012
11.2
7.3
10.1
10.2
8.3
8.4
(2)
The table does not include Other Businesses.
GKN Aerospace
• Integration of GKN Aerospace Engine Systems proceeding well
• Continuing growth in commercial aerospace offsets military decline
GKN Driveline
• Continued growth ahead of the market
• Underlying trading margin improved
GKN Powder Metallurgy
• Growth ahead of market
• Trading margin of 10.0%, including restructuring charges
GKN Land Systems
• Organic sales down 7% due to challenging end markets
• Operational discipline maintained, trading margin of 9.2%, including restructuring charges
Outlook
In aerospace, commercial aircraft production is expected to continue to grow, as both Airbus and
Boeing increase production, whereas military demand is expected to decline. Excluding Engine
Systems, GKN Aerospace’s 2013 sales are expected to be similar to the prior year, reflecting
increased commercial aircraft sales, lower military sales and the impact of the previously
announced transfer of the supply chain contract to Airbus. For the division as a whole, second half
profit is expected to benefit from both the ramp up of new programmes and the synergy benefits
from GKN Aerospace Engine Systems.
In automotive, external forecasts suggest that global light vehicle production in the second half will
be lower than the first half, but ahead of the equivalent period last year, reaching approximately 83
million vehicles for the whole of 2013, an increase of 2%. Against this background, GKN Driveline
and GKN Powder Metallurgy are expected to show good year-on-year sales improvement,
although reflecting normal seasonality. Second half profit in both Divisions will also benefit from
the absence of restructuring charges.
Due to weaker than anticipated industrial and construction markets and the planned cessation of
certain chassis programmes, GKN Land Systems is now expecting slightly lower sales in 2013
compared with 2012. Sales in the second half are expected to show a reduction when compared
with the first half, due to normal seasonal patterns.
Overall, with a stronger second half profit performance anticipated, GKN expects 2013 to be a year
of good progress for the Group, helped by the contribution from GKN Aerospace Engine Systems.
Page 2 of 35
Notes
(1)
Financial information set out in this announcement, unless otherwise stated, is presented on a
management basis as defined on page 13.
(2)
2012 figures restated for the impact of IAS 19 revised. This had the impact of increasing corporate costs
by £2 million and thus reducing profit and earnings measures by the same amount. Further details can be
found in note 2 of the financial statements on page 24.
Cautionary Statement
This announcement contains forward looking statements which are made in good faith based on
the information available to the time of its approval. It is believed that the expectations reflected in
these statements are reasonable but they may be affected by a number of risks and uncertainties
that are inherent in any forward looking statement which could cause actual results to differ
materially from those currently anticipated. Nothing in this document should be regarded as a
profits forecast.
Further Enquiries
Analysts/Investors:
Guy Stainer
Investor Relations Director
GKN plc
T: +44 (0)207 463 2382
M: +44 (0)7739 778187
E: guy.stainer@gkn.com
Media:
Chris Fox
Group Communications Director
GKN plc
T: +44 (0)1527 533238
M: +44 (0)7920 540051
E: chris.fox@gkn.com
Andrew Lorenz
FTI Consulting
T: +44 (0)207 269 7113
M: +44 (0)7775 641807
There will be an analyst and investor meeting today at 10:00am 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 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=2013.
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: 14589606#
A replay of the conference call will be available until 30 August 2013 on:
Standard International Number: +44 (0) 1452 550 000
Replay Access Number: 14589606#
This announcement together with the attached financial information thereto may be downloaded
from: www.gkn.com/media/Pages/default.aspx.
Page 3 of 35
NEWS RELEASE
GKN plc Results Announcement for the six months ended 30 June 2013
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, construction, mining and industrial equipment and to the automotive and commercial
vehicle sectors.
These results reflect a good performance in each division relative to their respective markets and
the benefit of the successful integration of GKN Aerospace Engine Systems.
Management sales increased 12% in the six months ended 30 June 2013 to £3,869 million (2012:
£3,459 million). The effect of currency translation was £20 million positive and there was a £328
million benefit from acquisitions which was partly offset by a £3 million reduction due to disposals.
Excluding these items, the organic increase was £65 million, or 2%. Within this organic figure,
Aerospace was up £20 million, Driveline increased by £68 million, Powder Metallurgy was
£9 million higher, Land Systems was £34 million lower and Other Businesses was £2 million
higher.
Management trading profit increased £29 million to £320 million (2012: £291 million, restated
from £293 million due to IAS19 revised). After adjusting for the positive currency translational
impact of £4 million and the initial profit contribution from GKN Aerospace Engine Systems of £37
million, the organic decrease was £12 million, after including £25 million of restructuring charges
(2012: £nil). Within the total, Aerospace organic trading profit was down £6 million, Driveline was
£5 million lower, Powder Metallurgy was unchanged, Land Systems reduced £8 million, Other
Businesses was £1 million higher and Corporate Costs were £6 million lower.
Group trading margin in the first half was 8.3% (2012: 8.4%). Return on average invested capital
(ROIC) was 16.6% (2012: 17.2%), excluding GKN Aerospace Engine Systems.
Sales (£m)
Trading profit (£m)
Trading margin (%)
Return on average invested capital (%)
First half
2013
2012*
3,869
3,459
320
291
8.4%
8.3%
16.6% 17.2%
Change (%)
Headline
Organic
12
2
10
(5)
*2012 management figures restated for the impact of IAS 19 revised which increased corporate costs by £2 million
Divisional Performance
GKN Aerospace
GKN Aerospace is a global first tier supplier of airframe and engine structures, components,
assemblies, transparencies, ice protection systems and fuel and flotation systems for a wide range
of aircraft and engine prime contractors and other first tier suppliers. It operates in three main
product areas: aerostructures, engine systems and specialist products.
Page 4 of 35
The overall aerospace market remains positive in 2013 driven by a growing commercial aircraft
market partly offset by a more subdued military market. The division has increased its share of
sales to commercial aerospace to 71%, with military representing 29%.
Commercial aircraft production is expected to grow strongly with Airbus and Boeing continuing to
project the procurement of new single aisle and wide-bodied aircraft at between 28,000 and 34,000
by 2030. Both companies continue to benefit from increasing 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 business jet market is also showing some signs of recovery.
Military 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 C-130J Super Hercules is
providing support despite potential budget pressure and delay in the F-35 programme ramp-up.
The key financial results for the period are as follows:
GKN Aerospace
Sales (£m)
Trading profit (£m)
Trading margin (%)
Return on average invested capital (%)*
First half
2013
2012
1,123
770
118
86
10.5%
11.2%
20.1%
22.4%
Change (%)
Headline
Organic
46
3
37
(7)
*Excluding GKN Aerospace Engine systems
GKN Aerospace sales of £1,123 million were £353 million higher than the prior period (2012: £770
million). The impact from currency on translation of sales was £6 million positive. The contribution
of GKN Aerospace Engine Systems, acquired on 1 October 2012, was £327 million, which was
slightly lower than expected due to softer spares demand. The organic increase in sales of £20
million represented a 3% increase. This level of increase reflects 6% lower production rates on
military programmes, such as the C-130J and C-17, being more than offset by 8% higher
commercial sales, particularly for the Boeing 787, Airbus A320, A330 and A380. Furthermore, the
previously announced £100 million per annum supply chain contract that was being managed for
Airbus at Filton, which was expected to cease at the end of 2012, was not taken back in-house as
quickly as expected and therefore the reduction in sales was around £20 million in the first half.
Trading profit in the period increased by £32 million to £118 million (2012: £86 million). The impact
from currency on translation of results was £1 million positive. Organic decline in trading profit of
£6 million was due to lower military spares sales on mature programmes, lower volumes on certain
new programmes and the absence of one-off positive pricing adjustments in the prior year. GKN
Aerospace Engine Systems generated a trading profit of £37 million and trading margin of 11.3%.
The trading margin of GKN Aerospace overall was 10.5% (2012: 11.2%), or 10.2% (2012: 11.2%)
excluding GKN Aerospace Engine Systems.
Return on average invested capital was 20.1% (2012: 22.4%) reflecting increased investment in
new programmes and lower profitability in the period. This excludes GKN Aerospace Engine
Systems which has not been owned for a full 12 months.
During the period a number of important new contracts worth around $480 million were won and
other milestones were achieved, including, opening a new facility in Phoenix, USA to carry out
engine podding work for Honeywell, and inaugurating a new engineering facility in Bangalore.
Page 5 of 35
Automotive market
As shown in the table below, strong growth in car and light vehicle production in China in the first
half of 2013, provided the majority of the overall market growth. Demand in Japan fell in
comparison to a strong first half in 2012 and Europe and India continued to be affected by
economic issues.
Car and light vehicle production (rounded millions of units)
H1 2013
H1 2012
Growth (%)
Europe
9.9
10.3
North America
8.2
8.0
3.5
Brazil
1.7
1.5
17.2
Japan
4.4
5.0
-13.2
China
10.1
9.0
12.6
India
1.9
2.0
-6.2
6.1
42.3
5.9
1.7
41.7
1.4
Others
Total – global
Source: IHS Automotive;
(#)
(#)
-3.8
Growth is derived from unrounded production figures
Overall, global production volumes increased 1.4% in the first half of 2013 to 42.3 million vehicles
(2012: 41.7 million).
Production in Europe fell due to weak economies, particularly in Southern Europe, and slowing
demand in Russia. Production of smaller vehicles remained low while premium vehicles remained
robust due to export demand in North America and China helping to offset weaker demand in
Europe.
Production in North America continued its gradual recovery, benefiting from improved consumer
confidence and the release of pent-up demand.
Japanese production fell relative to the high production levels experienced in 2012, which
benefitted from a strong recovery in production following the earthquake and tsunami in 2011 and
government incentives to boost domestic demand.
China recovered from a slight reduction in the fourth quarter of 2012 with a 12.6% increase, but the
economic slowdown in India resulted in a production decline of 6.2%.
External forecasters expect global production in the second half of 2013 to grow more than in the
first half to give full year production of 83.1 million vehicles, an increase of 2.0% on 2012. The
major markets where production for the year is expected to grow fastest include China (10%),
Brazil (6%) and North America (5%). Production in Europe is expected to contract by 3% and in
Japan to decline by 7%.
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:
GKN Driveline
Sales (£m)
Trading profit (£m)
Trading margin (%)
Return on average invested capital (%)
First half
2013
2012
1,728
1,664
117
121
7.3%
6.8%
15.2%
15.0%
Page 6 of 35
Change (%)
Headline
Organic
4
4
(3)
(4)
Driveline’s sales increased 4% to £1,728 million (2012: £1,664 million). The adverse impact of
currency translation was £4 million. Organic sales increased by £68 million, or 4%, compared with
an increase in global vehicle production of 1%.
Strong growth was achieved in North America, China and Brazil while sales in Europe, Japan and
India were lower, broadly in-line with their respective markets.
Trading profit was £117 million (2012: £121 million). The positive impact of currency translation
was £1 million. The organic decline in trading profit was £5 million, which included £16 million of
restructuring charges in Europe and Japan. Driveline’s trading margin was 6.8% (2012: 7.3%), or
7.7% excluding restructuring. Return on average invested capital was 15.0% (2012: 15.2%).
During the period, GKN Driveline extended its footprint in China by extending (subject to regulatory
approval) its joint venture agreement to include the full driveline product range and opened an
extension to the Wuhan forge. New business wins also continued across GKN Driveline’s product
groups, including significant customer wins in AWD systems, notably the final drive unit (FDU) for
the BMW X series which will start to be produced from August, in the US.
GKN Powder Metallurgy
GKN Powder Metallurgy is the world’s largest manufacturer of sintered components. GKN Powder
Metallurgy comprises GKN Sinter Metals and Hoeganaes. Hoeganaes produces the metal powder
that GKN Sinter Metals and other customers use to manufacture precision automotive components
for engines, transmissions and body and chassis applications. GKN Sinter Metals also produces a
range of components for industrial and consumer applications.
The key financial results for the period are as follows:
GKN Powder Metallurgy
Sales (£m)
Trading profit (£m)
Trading margin (%)
Return on average invested capital (%)
First half
2013
2012
480
465
48
47
10.1%
10.0%
18.2%
19.2%
Change (%)
Headline
Organic
3
2
2
-
GKN Powder Metallurgy sales were £480 million (2012: £465 million), an increase of 3%. The
positive impact of currency translation was £6 million. Organic sales increased by £9 million, or
2%. Sales in Hoeganaes were lower than the prior year due to fewer tons of powder shipped and
the pass through of lower raw material costs. GKN Sinter Metals increased sales in China, North
America and Europe while India was broadly flat.
Overall, GKN Powder Metallurgy reported a trading profit of £48 million (2012: £47 million). The
positive impact of currency translation was £1 million and there was a £5 million restructuring
charge. The divisional trading margin was 10.0% (2012: 10.1%), or 11.0% excluding restructuring.
Return on average invested capital was 19.2% (2012: 18.2%).
During the period, GKN Powder Metallurgy continued its strong product and operational
development, being awarded £65 million of annualised sales in new business and announcing an
extension to its Ohio plant to support the launch of production of differential gear components
using a unique process (Forged Powdered Metal) that increases strength and geometry.
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.
Page 7 of 35
Sales in GKN Land Systems were lower than the prior year due to weaker construction, mining,
European aftermarket and industrial markets while the agricultural equipment market remained
stable. Automotive structures activity declined slightly due to a planned programme cessation that
took effect in May 2013 and required some restructuring activity. Over the next 15 months, some
£45 million of annualised sales will be phased out of this business.
The key financial results for the period are as follows:
GKN Land Systems
Sales (£m)
Trading profit (£m)
Trading margin (%)
Return on average invested capital (%)
First half
2013
2012
487
512
45
52
10.2%
9.2%
18.7%
18.7%
Change (%)
Headline
Organic
(5)
(7)
(13)
(15)
GKN Land Systems sales in the first half reduced 5% to £487 million (2012: £512 million). The
positive impact of currency translation was £11 million, the establishment of the new wheels joint
venture in China had sales of £1 million and the disposal of an aftermarket branch in the fourth
quarter of 2012 reduced sales by £3 million. The organic decrease in sales was £34 million, a fall
of 7%.
The division reported a trading profit of £45 million (2011: £52 million), which included £3 million of
restructuring charges. The positive impact of currency translation was £1 million, resulting in an
overall organic decrease in trading profit of £8 million. Trading margin was 9.2% (2012: 10.2%), or
9.9% excluding restructuring. Return on average invested capital was stable at 18.7% (2012:
18.7%).
Good progress was made towards winning new business and implementing the GKN Land
Systems strategy through broadening its product offering and geographic footprint. Building on the
benefits that Stromag brought, marketing and customer account management have been
reorganised to enable cross-selling of the full Land Systems power management product range
and the first integrated customer technology days have been held. A new joint venture was also
established in Donghai, China to manufacture agricultural wheels.
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 £51 million (2012: £48 million), reflecting a slight improvement in the
commercial vehicle market. Trading profit was £2 million (2012: £1 million), after £1 million of
restructuring charges.
Other Financial Information
All comparative information provided below relates to the first half of 2012, unless otherwise stated.
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 £10 million (2012: £16 million). The
2012 comparative included £4 million of transaction costs related to the acquisition of GKN
Aerospace Engine Systems.
Page 8 of 35
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 2013
and 30 June 2013, or the date of maturity if earlier, is reflected in the income statement as a
component of operating profit and has resulted in a charge of £98 million (2012: £18 million credit),
primarily due to the strength of the US dollar and Euro relative to sterling. There was a £3 million
credit arising from a change in the value of embedded derivatives in the period (2012: £1 million
charge) and a credit of £4 million attributable to the translational currency impact on intra-group
funding balances (2012: £1 million credit).
Amortisation of non-operating intangibles arising on business combinations
The charge for amortisation of non-operating intangible assets (for example, customer contracts,
technology assets and intellectual property rights) arising on business combinations was £28
million (2012: £16 million). The increase reflects the Group’s acquisition in 2012 of GKN
Aerospace Engine Systems.
Gains and losses on changes in Group structure
There have been no changes in the Group structure during the period (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 nor loss).
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 £24 million (2012: £23
million) with trading profit of £31 million (2012: £29 million). The Group’s share of post-tax earnings
on a management basis was £25 million (2012: £24 million). The Group’s share of the tax charge
amounted to £6 million (2012: £5 million) with no net financing costs in either period. The organic
increase in trading profit was £1 million.
Net financing costs
Net financing costs totalled £60 million (2012: £43 million, restated for the impact of IAS 19
revised), the increase due primarily to the additional borrowings following the acquisition of GKN
Aerospace Engine Systems in the second half of 2012.
Interest payable
Interest receivable
Net interest payable
Pension financing charge
Unwind of discounts
Net financing costs
2013
£m
(38)
2
(36)
(19)
(5)
(60)
2012 (restated)
£m
(27)
5
(22)
(19)
(2)
(43)
Details of the assumptions used in calculating post-employment obligations are provided in note 10
to the financial statements.
Page 9 of 35
Profit before tax
Management profit before tax was £278 million (2012: £264 million, restated for the impact of IAS
19 revised). Profit before tax on a statutory basis was £134 million (2012: £279 million, restated for
the impact of IAS 19 revised). The main differences in the first half of 2013 between management
and statutory figures are the change in value of derivative and other financial instruments,
amortisation of non-operating intangible assets and the pension financing charge. Further details
are provided in note 3 to the financial statements.
Taxation
The book tax rate on management profits of subsidiaries was 20% (2012: 17%), arising as a £51
million tax charge (2012: £40 million charge) on management profits of subsidiaries of £253 million
(2012: £240 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 31% (2012: 34%). The
book tax rate is significantly lower, largely because of the recognition of substantial deferred tax
assets (mainly in Canada, Spain and the US) due to increased confidence in the Group’s ability to
offset brought forward tax deductions against future taxable profits in various countries and a
reduction in tax risk provisions.
‘Cash tax’ provides a proxy for the cash cost of taxation of management profits, plus the cash
effect of prior year items, and so excludes elements of the book tax charge which do not have a
cash effect. The cash tax rate was 12% (2012: 14%). In the near term, the cash tax rate is
expected to continue below 15% as brought forward tax deductions are utilised.
The tax rate on statutory profits of subsidiaries was 27% (2012: 20%) arising as a £30 million tax
charge (2012: £52 million charge) on a statutory profit of £110 million (2012: £256 million, restated
for the impact of IAS 19 revised).
Non-controlling interests
The profit attributable to non-controlling interests was £10 million (2012: £12 million) including an
£8 million (2012: £10 million) impact from the pension partnership arrangement. See postemployment obligations section below.
Earnings per share
Management earnings per share was 13.8 pence (2012: 14.3 pence). On a statutory basis
earnings per share was 5.8 pence (2012: 13.9 pence).
Dividend
In view of the improving trading performance, the Board has decided to pay an interim dividend of
2.6 pence per share (2012: 2.4 pence), an increase of 8%. The interim dividend will be paid on 23
September 2013 to shareholders on the register at 16 August 2013. 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 2 September 2013.
Cash flow
Operating cash flow, which is defined as cash generated from operations of £267 million (2012:
£215 million) adjusted for capital expenditure (net of proceeds from capital grants) of £158 million
(2012: £149 million) was an inflow of £109 million (2012: £66 million).
Within operating cash there was an outflow in working capital and provisions of £131 million (2012:
£141 million). Average working capital as a per cent of sales was 8.7% (2012: 7.9%).
Page 10 of 35
Capital expenditure (net of proceeds from capital grants) on both tangible and intangible assets
totalled £158 million (2012: £149 million), including £11 million (2012: £13 million) on the A350
programme. Of this, £133 million (2012: £127 million) was on tangible fixed assets and was 1.2
times (2012: 1.2 times) the depreciation charge. Expenditure on intangible assets, mainly nonrecurring costs on Aerospace programmes, totalled £25 million (2012: £22 million).
Net interest paid totalled £21 million (2012: £25 million) as a result of the phasing of bond coupon
payments and tax paid in the period was £24 million (2012: £24 million).
Free cash flow
Free cash flow, which is operating cash flow including joint venture dividends and after interest,
tax, amounts paid to non-controlling interests and shares purchased but before dividends paid to
GKN shareholders, was an inflow of £77 million (2012: £28 million). The year on year change
reflects increased profitability.
Net borrowings
After making a £43 million initial deferred consideration payment for GKN Aerospace Engine
Systems and the 2012 final dividend, at the end of the period, the Group had net debt of £928
million compared with £871 million at 31 December 2012.
Post-employment obligations
GKN operates a number of defined benefit and defined contribution pension schemes together with
retiree medical arrangements across the Group. In 2013, the new requirements of IAS 19 have
been introduced, requiring also a restatement of prior period comparative amounts. The
restatement principally affects the other net financing charge and the presentation of administrative
expenses.
The amount included within trading profit for the period comprises current service costs of £26
million (2012: £20 million) and administrative costs of £2 million (2012: £2 million). Interest on net
defined benefit plans was £19 million (2012: £19 million).
The deficit of all schemes at 30 June 2013 was £1,240 million, a £262 million increase over 31
December 2012 (£978 million deficit). This increase results from the previously announced
amendment to the UK pension partnership arrangement (detailed further below and in note 10 to
the financial statements). Excluding this change, the reported deficit would have fallen to £917
million, primarily due to positive asset performance and the benefit of higher discount rates.
During the period the Group entered into discussions with the Trustees of the two UK pension
schemes which resulted in changes to the pension partnership agreement, specifically with regard
to placing restrictions on the ability of each UK pension scheme to sell or otherwise transfer its
respective income interest. The result of this amendment is that the respective income interests no
longer meet the criteria for recognition as an IAS 19 plan asset and, consequently, have been
removed from the Group balance sheet with an effective date of 31 May 2013.
The UK deficit of £621 million, which includes the effect of the amendment to the UK pension
partnership, was £280 million higher than 31 December 2012 (£341 million). Excluding the effect
of the pension partnership amendment, the UK deficit would have fallen, as increases in inflation
expectations were more than offset by an increase in the discount rate and asset outperformance.
The UK defined benefit scheme was closed to new entrants during the period.
The post-employment obligations of overseas businesses, which relate principally to unfunded
schemes in Germany and a mix of funded and unfunded US schemes, were slightly reduced at
£619 million (31 December 2012: £637 million). This reflected the positive impact of higher
discount rates and US asset performance, partially offset by adverse exchange rate movements of
£33 million.
Page 11 of 35
Group-wide contributions totalled £54 million (2012: £42 million), including a £20 million payment
from the pension partnership to the UK pension schemes made after the effective date of the
pension partnership amendment. In addition, the Group paid £10 million from the pension
partnership, prior to the amendment.
Defined contribution pension schemes
In addition to the defined benefit pension schemes, the Group also operates a number of defined
contribution pension schemes for which the income statement charge was £17 million (2012: £8
million).
Net assets
Net assets of £1,835 million were £92 million lower than 31 December 2012 (£1,927 million). The
movement includes profit attributable to equity shareholders of £94 million, a favourable currency
movement from the translation of subsidiaries assets of £119 million and a gain on remeasurement of defined benefit pension plans of £106 million, offset by distributions to both equity
shareholders and non-controlling interests of £88 million and the £342 million impact of a change
to the pension partnership arrangement.
Exchange rates
Exchange rates used for currencies most relevant to the Group’s operations are:
Average
Euro
US Dollar
H1
2013
1.18
1.55
H1
2012
1.22
1.57
Period End
June
June
2013
2012
1.17
1.24
1.52
1.57
2012 Full Year
Average
Period
End
1.23
1.23
1.58
1.63
The approximate impact on first half 2013 trading profit of subsidiaries and joint ventures of a 1%
movement in the average rate would be euro - £1 million, US dollar - £2 million.
Funding, liquidity and going concern
At 30 June 2013, UK committed bank facilities were £941 million. Within this amount there are
committed revolving credit facilities of £861 million, £20 million of which expired in July 2013, and
an £80 million eight-year amortising facility from the European Investment Bank (EIB). The next
major maturities of the revolving credit facilities are £598 million in 2016. At 30 June 2013,
drawings against the UK committed bank facilities were £289 million, including the £80 million fully
drawn EIB facility. Additionally there were drawings of £20 million on uncommitted facilities.
Capital market borrowings at 30 June 2013 comprised a £350 million 6.75% unsecured bond
maturing in October 2019 and a £450 million 5.375% unsecured bond maturing in September
2022. As at 30 June 2013, the Group had net borrowings of £928 million (31 December 2012:
£871 million).
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.
Page 12 of 35
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 2012 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; supply chain disruption; volatile input costs; new
product introductions; product quality issues; inadequate health, safety and environmental
processes; lack of people capability in specific geographic regions and disciplines; effectiveness of
acquisition integration; compliance with complex laws and regulations across global jurisdictions;
information systems resilience; 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 2012 annual report.
Basis of Reporting
The financial statements for the period are shown on pages 16 to 34 and have been prepared
using accounting policies which were used in the preparation of audited accounts for the year
ended 31 December 2012 and which will form the basis of the 2013 Annual Report, with the
exception of the adoption of IAS 19 revised which has impacted the comparative numbers above
as detailed in note 2 to the financial statements.
Definitions
Financial information set out in this announcement, unless otherwise stated, is presented on a
management basis which aggregates the sales and trading profit of subsidiaries (excluding certain
subsidiary businesses sold and closed) with the Group’s share of the sales and trading profit of
joint ventures. References to trading margins are to trading profit expressed as a percentage of
sales. Management profit or loss before tax is management trading profit less net subsidiary
interest payable and receivable and the Group’s share of net interest payable and receivable and
taxation of joint ventures. These figures better reflect performance of continuing businesses.
Where appropriate, reference is made to organic results which exclude the impact of
acquisitions/divestments as well as currency translation on the results of overseas operations.
Operating cash flow is cash generated from operations adjusted for capital expenditure,
government capital grants, proceeds from disposal of fixed assets and government refundable
advances. Free cash flow is operating cash flow including interest, tax, joint venture dividends, own
shares purchased and amounts paid to non-controlling interests, but excluding dividends paid to
GKN shareholders. Return on average invested capital (ROIC) is management trading profit as a
percentage of average total net assets of continuing subsidiaries and joint ventures excluding
current and deferred tax, net debt, post-employment obligations and derivative financial
instruments.
Page 13 of 35
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 2012 Annual Report
that could do so.
The Directors of GKN plc are listed in the GKN annual report for 2012; however since the
publication of the annual report Mr. J. N. Sheldrick has retired from the Board.
Approved by the Board of GKN plc and signed on its behalf by:
Mike Turner
Chairman
29 July 2013
Page 14 of 35
APPENDICES
Page
GKN Condensed Consolidated Financial Statements
Consolidated Income Statement for the half year ended 30 June 2013
16
Consolidated Statement of Comprehensive Income for the half year ended 30 June
2013
17
Condensed Consolidated Statement of Changes in Equity for the half year ended 30
June 2013
18
Consolidated Balance Sheet at 30 June 2013
19
Consolidated Cash Flow Statement for the half year ended 30 June 2013
20
Notes to the half year Consolidated Financial Statements
Independent Review Report
21 – 34
35
Page 15 of 35
CONSOLIDATED INCOME STATEMENT
FOR THE HALF YEAR ENDED 30 JUNE 2013
Notes
Sales
3,254
6,510
4
289
(91)
262
18
504
126
5
(28)
-
(16)
-
(37)
5
-
35
(37)
63
170
299
624
24
23
38
(38)
2
(24)
(60)
(27)
5
(21)
(43)
(60)
8
(42)
(94)
134
279
568
(30)
104
(52)
227
(80)
488
2
8
10
94
104
2
10
12
215
227
3
20
23
465
488
5.8
5.7
13.9
13.7
29.3
29.0
1b
Operating profit
Share of post-tax earnings of joint ventures
Interest payable
Interest receivable
Other net financing charges
Net financing costs
6
7
Profit before taxation
Taxation
Profit after taxation for the period
8
Profit attributable to other non-controlling interests
Profit attributable to the Pension partnership
Profit attributable to non-controlling interests
Profit attributable to equity shareholders
Earnings per share - pence
Continuing operations - basic
Continuing operations - diluted
* restated for the impact of IAS 19 (revised), see note 2.
Page 16 of 35
Full year
2012*
£m
3,647
1a
Trading profit
Change in value of derivative and other financial instruments
Amortisation of non-operating intangible assets arising on
business combinations
Gains and losses on changes in Group structure
Reversal of inventory fair value adjustment arising on
business combinations
Pension scheme curtailments
Unaudited
First half
First half
2013
2012*
£m
£m
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE HALF YEAR ENDED 30 JUNE 2013
Notes
Profit after taxation for the period
Other comprehensive income
Items that may be reclassified to profit or loss
Currency variations – subsidiaries
Arising in period
Reclassified in period
Currency variations – joint ventures
Arising in period
Reclassified in period
Derivative financial instruments – transactional hedging
Arising in period
Reclassified in period
Taxation
Items that will not be reclassified to profit or loss
Remeasurement of defined benefit plans
Subsidiaries
Joint ventures
Taxation
Total comprehensive income for the period
Total comprehensive income for the period attributable to:
Equity shareholders
Other non-controlling interests
Pension partnership
Non-controlling interests
* restated for the impact of IAS 19 (revised), see note 2.
Page 17 of 35
8
10
8
Unaudited
First half First half
2013
2012*
£m
£m
104
227
Full year
2012*
£m
488
119
-
(64)
(2)
(134)
(4)
9
-
(1)
-
(3)
-
1
129
1
(66)
13
(13)
7
(134)
106
(9)
97
226
330
(111)
1
(110)
(176)
51
(152)
(2)
96
(58)
(192)
296
320
2
8
10
330
39
2
10
12
51
274
2
20
22
296
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE HALF YEAR ENDED 30 JUNE 2013
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 2013
166
298
139
1,079
(108)
1,574
334
19
1,927
Profit for the period
-
-
-
94
-
94
8
2
104
-
-
-
97
129
226
-
-
226
-
-
-
5
-
5
-
-
5
14
-
-
-
5
-
5
-
-
5
10
-
-
-
-
-
-
(10)
-
(10)
10
-
-
-
(10)
-
(10)
(332)
-
(342)
(4)
Notes
Total
equity
£m
Other comprehensive income/(expense)
for the period
Share-based payments
Share options exercised
Distribution from Pension partnership
to UK Pension scheme
Amendment to the Pension partnership
arrangements
Purchase of own shares by Employee
Share Ownership Plan Trust
14
-
-
-
(4)
-
(4)
-
-
Addition of non-controlling interests
14
-
-
-
-
-
-
-
2
2
Dividends paid to equity shareholders
9
-
-
-
(78)
-
(78)
-
-
(78)
At 30 June 2013 (unaudited)
166
298
139
1,188
21
1,812
-
23
1,835
At 1 January 2012
159
298
9
760
26
1,252
344
28
1,624
-
-
-
215
-
215
10
2
227
-
-
-
(110)
(66)
(176)
-
-
(176)
-
-
-
3
-
3
-
-
3
14
-
-
-
2
-
2
-
-
2
10
-
-
-
-
-
-
(30)
-
(30)
-
-
-
(1)
-
(1)
-
(9)
(10)
-
-
-
(62)
-
(62)
-
-
(62)
At 30 June 2012 (unaudited)
159
298
9
807
(40)
1,233
324
21
1,578
At 1 January 2012
159
298
9
760
26
1,252
344
28
1,624
-
-
-
465
-
465
20
3
488
(192)
Profit for the period*
Other comprehensive income/(expense)
for the period*
Share-based payments
Share options exercised
Distribution from Pension partnership
to UK Pension scheme
Purchase of non-controlling interests
Dividends paid to equity shareholders
9
Profit for the year*
Other comprehensive income/(expense)
-
-
-
(58)
(133)
(191)
-
(1)
Share-based payments
for the year*
-
-
-
6
-
6
-
-
6
Share options exercised
-
-
-
10
-
10
-
-
10
(30)
Distribution from Pension partnership to
-
-
-
-
-
-
(30)
-
Purchase of non-controlling interests
UK Pension scheme
-
-
-
(1)
-
(1)
-
(9)
(10)
Proceeds from share issues
7
-
130
-
-
137
-
-
137
Transfers
-
-
-
1
(1)
-
-
-
-
-
-
-
(3)
-
(3)
-
-
(3)
-
-
-
(101)
-
(101)
-
-
(101)
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 2012
9
-
-
-
-
-
-
-
(2)
(2)
166
298
139
1,079
(108)
1,574
334
19
1,927
* restated for the impact of IAS 19 (revised), see note 2.
Page 18 of 35
CONSOLIDATED BALANCE SHEET
AT 30 JUNE 2013
Notes
Assets
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investments in joint ventures
Other receivables and investments
Derivative financial instruments
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Current tax assets
Derivative financial instruments
Cash and cash equivalents
12
11
Total assets
Liabilities
Current liabilities
Borrowings
Derivative financial instruments
Trade and other payables
Current tax liabilities
Provisions
Non-current liabilities
Borrowings
Derivative financial instruments
Deferred tax liabilities
Trade and other payables
Provisions
Post-employment obligations
10
Total liabilities
Net assets
Shareholders' equity
Share capital
Capital redemption reserve
Share premium account
Retained earnings
Other reserves
Non-controlling interests
Total equity
1
Unaudited
1
30 June
30 June 31 December
2013
2012
2012
£m
£m
£m
584
1,019
2,037
162
38
42
277
4,159
523
419
1,775
128
38
22
195
3,100
552
992
1,960
153
38
54
302
4,051
987
1,333
10
21
233
2,584
6,743
786
1,156
10
5
212
2,169
5,269
885
1,102
24
27
181
2,219
6,270
(87)
(27)
(1,569)
(151)
(51)
(1,885)
(72)
(27)
(1,399)
(155)
(52)
(1,705)
(115)
(11)
(1,392)
(157)
(47)
(1,722)
(1,074)
(100)
(192)
(277)
(140)
(1,240)
(3,023)
(4,908)
1,835
(730)
(59)
(70)
(121)
(80)
(926)
(1,986)
(3,691)
1,578
(937)
(39)
(204)
(328)
(135)
(978)
(2,621)
(4,343)
1,927
166
298
139
1,188
21
1,812
23
1,835
159
298
9
807
(40)
1,233
345
1,578
166
298
139
1,079
(108)
1,574
353
1,927
restated for the impact of changes to the acquisition balance sheet related to the purchase of Volvo Aerospace on
1 October 2012, see note 2.
Page 19 of 35
CONSOLIDATED CASH FLOW STATEMENT
FOR THE HALF YEAR ENDED 30 JUNE 2013
Unaudited
Notes
Cash flows from operating activities
Cash generated from operations
Interest received
Interest paid
Costs associated with refinancing
Tax paid
Dividends received from joint ventures
11
Cash flows from investing activities
Purchase of property, plant and equipment
Receipts of government capital grants
Purchase of intangible assets
Proceeds from sale and realisation of fixed assets
Payment of deferred and contingent consideration
Acquisitions of subsidiaries (net of cash acquired)
Proceeds from sale of businesses (net of cash disposed
and fees)
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
Purchase of non-controlling interests
Proceeds from exercise of share options
Gross proceeds from issuance of ordinary shares
Costs associated with issuance of ordinary shares
Proceeds from borrowing facilities
Repayment of other borrowings
Finance lease payments
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
Page 20 of 35
10
9
11
First half
2013
£m
First half
2012
£m
Full year
2012
£m
267
5
(26)
(24)
27
249
215
2
(27)
(24)
41
207
538
3
(62)
(9)
(62)
41
449
(134)
1
(25)
(49)
-
(131)
4
(22)
(2)
(278)
7
(63)
6
(2)
(446)
(11)
(218)
(1)
1
(1)
(152)
2
1
(5)
(778)
(10)
(30)
(30)
(4)
5
145
(8)
(78)
50
(9)
2
272
(181)
(1)
(62)
(9)
(3)
(10)
10
140
(3)
508
(185)
(1)
(101)
(2)
323
5
86
124
210
(8)
38
145
183
(15)
(21)
145
124
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEAR ENDED 30 JUNE 2013
1
Segmental analysis
The Group's reportable segments have been determined based on reports reviewed by the Executive
Committee led by the Chief Executive. The operating activities of the Group are largely structured
according to the markets served; aerospace, automotive, and the land systems agricultural, construction
and mining equipment markets. Automotive is managed according to product groups; driveline and
powder metallurgy. Reportable segments derive their sales from the manufacture of product and sale of
service. Revenue from inter segment trading and royalties is not significant. There have been no
changes to segments in the period.
a) Sales
Aerospace
£m
FIRST HALF 2013 (unaudited)
Subsidiaries
Joint ventures
Automotive
Powder
Driveline Metallurgy
£m
£m
Land
Systems
£m
1,123
1,123
1,560
168
1,728
480
480
469
18
487
770
770
1,515
149
1,664
465
465
489
23
512
1,584
1,584
2,945
291
3,236
874
874
889
44
933
6,627
191
-
-
-
191
Other businesses
Management sales
Less: Joint venture sales
Income statement – sales
FIRST HALF 2012 (unaudited)
Subsidiaries
Joint ventures
Other businesses
Management sales
Less: Joint venture sales
Income statement – sales
FULL YEAR 2012
Subsidiaries
Joint ventures
Acquisitions
Subsidiaries
Total
£m
Other businesses
Management sales
Less: Joint venture sales
Income statement – sales
3,818
51
3,869
(222)
3,647
3,411
48
3,459
(205)
3,254
86
6,904
(394)
6,510
Page 21 of 35
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2013
1
Segmental analysis (continued)
b)
Trading profit
Aerospace
£m
FIRST HALF 2013 (unaudited)
Trading profit before depreciation and amortisation
Depreciation of property, plant and equipment
Amortisation of operating intangible assets
Trading profit – subsidiaries
Trading profit/(loss) – joint ventures
Automotive
Powder
Land
Driveline Metallurgy Systems
£m
£m
£m
160
(30)
(10)
120
(2)
118
149
(61)
(2)
86
31
117
65
(17)
48
48
53
(9)
(1)
43
2
45
109
(18)
(4)
87
(1)
86
157
(62)
(2)
93
28
121
63
(16)
47
47
58
(8)
(1)
49
3
52
232
310
119
101
(41)
(11)
180
(3)
177
(124)
(4)
182
53
235
(32)
87
87
(17)
(1)
83
5
88
15
(3)
(19)
-
-
-
Other businesses
Corporate and unallocated costs
Management trading profit
Less: Joint venture trading profit
Income Statement – trading profit
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
Other businesses
Acquisition charges – Engine Systems (Aerospace)
Corporate and unallocated costs
Management trading profit
Less: Joint venture trading profit
Income Statement – trading profit
FULL YEAR 2012*
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
Restructuring charge
Other businesses
Corporate and unallocated costs
Management trading profit
Less: Joint venture trading profit
Income Statement – trading profit
Total
£m
328
2
(10)
320
(31)
289
306
1
(4)
(12)
291
(29)
262
587
15
(3)
(19)
(7)
(4)
(23)
553
(49)
504
* restated for the impact of IAS 19 (revised), see note 2.
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 £2 million of transaction costs related to the previously
considered divestment of the Wheels business and a £2 million receipt of insurance proceeds relating to the Gallatin
incident in 2011.
During the period the Group has 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 the full year
2012 a £19 million restructuring charge was recorded in Aerospace Engine Systems (first half 2012: £nil).
Page 22 of 35
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2013
1
Segmental analysis (continued)
c)
Goodwill, fixed assets and working capital - subsidiaries only
Aerospace
£m
Automotive
Powder
Land
Driveline Metallurgy Systems
£m
£m
£m
Total
£m
FIRST HALF 2013 (unaudited)
Property, plant and equipment and operating intangible
assets
Working capital
Net operating assets
Goodwill and non-operating intangible assets
Net investment
968
150
1,118
646
1,764
984
139
1,123
308
1,431
340
112
452
29
481
147
91
238
191
429
2,439
492
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
499
102
601
273
874
950
131
1,081
310
1,391
306
111
417
28
445
138
98
236
186
422
1,893
442
933
82
1,015
631
1,646
950
93
1,043
298
1,341
319
95
414
27
441
137
74
211
185
396
2,339
344
1
FULL YEAR 2012
Property, plant and equipment and operating intangible
Assets
Working capital
Net operating assets
Goodwill and non-operating intangible assets
Net investment
1
restated for the impact of changes to the acquisition balance sheet related to the purchase of Volvo Aerospace on 1 October
2012, see note 2.
d)
Inter segment sales
Subsidiary segmental sales gross of inter segment sales are; Aerospace £1,123 million (first half 2012: £770 million,
full year 2012: £1,775 million), Driveline £1,589 million (first half 2012: £1,543 million, full year 2012: £2,999 million),
Powder Metallurgy £480 million (first half 2012: £465 million, full year 2012: £875 million) and Land Systems
£469 million (first half 2012: £490 million, full year 2012: £890 million).
e)
Reconciliation of segmental property, plant and equipment and operating intangible assets to the Balance
Sheet
Unaudited
First half First half Full year1
2013
2012
2012
£m
£m
£m
Segmental analysis – property, plant and equipment and operating intangible
2,439
Assets
1,893
2,339
1,174
Segmental analysis – goodwill and non-operating intangible assets
797
1,141
(584)
Goodwill
(523)
(552)
19
Other businesses
19
19
8
Corporate assets
8
5
3,056
Balance Sheet – property, plant and equipment and other intangible assets
2,194
2,952
1
f)
restated for the impact of changes to the acquisition balance sheet related to the purchase of Volvo Aerospace on 1 October
2012, see note 2.
Reconciliation of segmental working capital to the Balance Sheet
Segmental analysis – working capital
Other businesses
Corporate items
Accrued net financing costs
Restructuring provisions
Deferred and contingent consideration
Government refundable advances
Balance Sheet – inventories, trade and other receivables, trade and other
payables and provisions
Page 23 of 35
Unaudited
First half First half
2013
2012
£m
£m
492
442
20
7
(33)
(28)
(27)
(18)
(4)
(7)
(36)
(29)
(95)
(43)
317
324
Full year
2012
£m
344
10
(39)
(17)
(6)
(85)
(88)
119
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2013
2
Basis of preparation
These half year condensed consolidated financial statements for the six months ended 30 June 2013 have been
prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and
International Financial Reporting Standards, as adopted by the European Union, in accordance with IAS 34 'Interim
Financial Reporting'. These financial statements have been prepared on a going concern basis. These financial
statements, which are unaudited but have been reviewed by the auditors, provide an update of previously reported
information and should be read in conjunction with the audited consolidated financial statements for the year ended
31 December 2012.
These financial statements do not constitute statutory accounts. A copy of the audited consolidated statutory
accounts for the year ended 31 December 2012 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 2012, with the exception of
changes following adoption of the following standards/amendments:
Amendments to IAS 19 “Employee Benefits”
The Group adopted IAS 19 (revised) ‘Employee Benefits’ on 1 January 2013 consistent with the standard’s effective
date. The Group has applied the standard retrospectively in accordance with the transition provisions. The impact on
the Group has been in the following areas;
- The new standard requires post-employment scheme administrative costs to be recognised either in other
comprehensive income, where specific to the management of plan assets, or in operating profit for all other
costs. This has resulted in a reclassification of administrative costs from “interest charge on defined benefit plans”
within net financing costs to “trading profit” for the full year 2012 of £4 million (first half 2012: £2 million). As a
consequence, operating profit for the full year 2012 has reduced by £4 million (first half 2012: £2 million) but there
is no impact on profit before or after taxation and basic or diluted earnings per share. The Group’s management
measures (trading profit, management profit before tax and management earnings per share) have been impacted
for the full year 2012 by the £4 million (first half 2012: £2 million) reclassification, with amounts restated
accordingly.
- The new standard replaces the interest cost on post-employment obligations and the expected return on postemployment scheme assets with a net interest cost based on the net post-employment obligation and the discount
rate, measured at the beginning of the year. There is no change to determining the discount rate; this continues to
reflect the yield on high-quality corporate bonds. This has increased the “interest charge on defined benefit plans”
in the income statement as the discount rate applied to assets is lower than the expected return on assets. This
has no effect on total comprehensive income as the increased charge in the income statement is offset by a credit
in “remeasurement of defined benefit plans” in the consolidated statement of comprehensive income. The effect
has been that the income statement charge for the full year 2012 has increased by £20 million (first half 2012: £10
million).
There has been no impact of the change in accounting policy on the consolidated balance sheet or consolidated cash
flow statement as a result of reflecting the above changes. The net impact of the changes is a charge to “trading
profit” for the full year 2012 of £4 million (first half 2012: charge of £2 million) and a charge to “other net financing
charges” for the full year 2012 of £16 million (first half 2012: charge of £8 million) in the income statement and a credit
to “remeasurement of defined benefit plans” for the full year 2012 of £20 million (first half 2012: credit of £10 million) in
other comprehensive income. The statutory tax charge in the income statement for the full year 2012 has decreased
from £85 million, previously reported, to £80 million (first half 2012: decreased from £53 million, previously reported,
to £52 million) with corresponding changes to tax reported in other comprehensive income. Basic, diluted and
management earnings per share have been impacted by the changes and restated accordingly.
IFRS 13 “Fair Value Measurement”
The Group adopted IFRS 13 ‘Fair Value Measurement’ on 1 January 2013 consistent with the standard’s effective
date and has applied it prospectively in accordance with transition provisions. The objective of the standard is to
define the term “fair value” and to establish guidance and disclosure requirements for fair value measurement that
should be applied across standards. In the new standard, fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between independent market participants at the
measurement date. For non-financial assets, the fair value is determined based on the highest and best use of the
asset as determined by a market participant. There has been no material impact on the consolidated accounts of
applying IFRS 13.
Page 24 of 35
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2013
2
Basis of preparation (continued)
Amendments to IAS 1, “Presentation of Financial Statements”
The Group adopted the amendments to IAS 1, “Presentation of Financial Statements” (“IAS 1”), consistent with the
standard’s effective date. The changes require that individual components of other comprehensive income shall be
presented according to whether they will be recycled into the income statement at a later date or not. There has been
no measurement impact on the consolidated accounts of applying the amendments to IAS 1.
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 other 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
2012 the impact of further accounting developments is being assessed.
2012 acquisition
Following the acquisition of Volvo Aerospace (renamed GKN Engine Systems) on 1 October 2012, the Group
determined a provisional fair value opening balance sheet which was presented in the annual accounts for
2012. During the period further work has been completed on the assumptions used to establish provisional fair value
amounts. As a result of this work the opening balance sheet has changed as follows: property, plant and equipment
is reduced by £4 million, other intangible assets is increased by £3 million and goodwill is increased by £1 million.
As a result of the above changes there has been no material impact on the consolidated income statement,
consolidated statement of comprehensive income or consolidated cash flow statement for the full year 2012.
The balance sheet at 31 December 2012 has been restated for the changes; reducing property, plant and equipment
by £4 million to £1,960 million, increasing other intangible assets by £3 million to £992 million and increasing goodwill
by £1 million to £552 million. Within the £3 million increase to other intangible assets; development costs are reduced
by £4 million, the customer related asset arising on business combinations is reduced by £32 million and the
technology based asset arising on business combinations is increased by £39 million.
Subsequent to the balance sheet date the final instalment of deferred consideration of £19 million has been agreed.
This has been reflected in the balance sheet at 30 June 2013, with no further impact on goodwill reported.
Estimates, judgements and assumptions
The Group’s significant accounting policies are set out in the audited consolidated financial statements for the year
ended 31 December 2012. The application of the Group’s accounting policies requires the use of estimates,
subjective judgement and assumptions. The Directors base these estimates, judgements and assumptions on a
combination of past experience, professional expert advice and other evidence that is relevant to the particular
circumstance.
The accounting policies where the Directors consider the more complex estimates, judgements and assumptions
have to be made are those in respect of acquired assets and liabilities – business combinations, post-employment
obligations, derivative and other financial instruments, taxation and impairment of non-current assets. The details of
the principal estimates, judgements and assumptions are set out in notes 23, 25, 4b, 20, 6 and 11 of the audited
consolidated financial statements for the year ended 31 December 2012 as updated in notes 10 (Post-employment
obligations), 4 (change in value of derivative and other financial instruments), 8 (Taxation) and 14 (Other financial
information) of these financial statements.
Date of approval
These financial statements were approved by the Board of Directors on Monday 29 July 2013.
Page 25 of 35
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2013
3
Adjusted performance measures
(a) Reconciliation of reported and management performance measures
FIRST HALF 2013 (unaudited)
As
reported
£m
3,647
Sales
Exceptional
Joint
and non- Management
ventures trading items
basis
£m
£m
£m
222
3,869
289
(91)
31
-
91
320
-
(28)
170
31
28
119
320
24
(31)
1
(6)
Interest payable
Interest receivable
Other net financing charges
Net financing costs
Profit before taxation
(38)
2
(24)
(60)
134
-
24
24
144
(38)
2
(36)
278
Taxation
Profit for the period
Profit attributable to non-controlling interests
Earnings
Earnings per share - pence
(30)
104
(10)
94
5.8
-
(21)
123
8
131
8.0
(51)
227
(2)
225
13.8
Trading profit
Change in value of derivative and other financial instruments
Amortisation of non-operating intangible assets arising on
business combinations
Operating profit
Share of post-tax earnings of joint ventures
FIRST HALF 2012* (unaudited)
As
reported
£m
3,254
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
Operating profit
Exceptional
Joint
and non- Management
ventures trading items
basis
£m
£m
£m
205
3,459
262
18
29
-
(18)
291
-
(16)
35
299
29
16
(35)
(37)
291
23
(29)
1
(5)
Interest payable
Interest receivable
Other net financing charges
Net financing costs
Profit/(loss) before taxation
(27)
5
(21)
(43)
279
-
21
21
(15)
(27)
5
(22)
264
Taxation
Profit/(loss) for the period
Profit attributable to non-controlling interests
Earnings
Earnings per share - pence
(52)
227
(12)
215
13.9
-
12
(3)
10
7
0.4
(40)
224
(2)
222
14.3
Share of post-tax earnings of joint ventures
FULL YEAR 2012*
For the year ended 31 December 2012, management sales were £6,904 million, management trading profit was
£553 million, management profit before tax was £493 million and management earnings per share was 26.3 pence.
* restated for the impact of IAS 19 (revised), see note 2.
Page 26 of 35
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2013
3
Adjusted performance measures (continued)
(b) Summary by segment
FIRST HALF 2013 (unaudited)
Aerospace
Driveline
Powder Metallurgy
Land Systems
Other businesses
Corporate and unallocated costs
Sales
£m
1,123
1,728
480
487
51
3,869
Trading
profit
£m
118
117
48
45
2
(10)
320
Sales
£m
770
1,664
465
512
48
3,459
Trading
profit
£m
86
121
47
52
1
(4)
(12)
291
Sales
£m
1,584
3,236
874
933
86
191
6,904
Trading
profit
£m
177
235
87
88
(4)
(7)
(23)
553
Margin
10.5%
6.8%
10.0%
9.2%
8.3%
FIRST HALF 2012* (unaudited)
Aerospace
Driveline
Powder Metallurgy
Land Systems
Other businesses
Acquisition charges – Engine Systems (Aerospace)
Corporate and unallocated costs
Margin
11.2%
7.3%
10.1%
10.2%
8.4%
FULL YEAR 2012*
Aerospace
Driveline
Powder Metallurgy
Land Systems
Other businesses
Engine Systems (Aerospace)
Corporate and unallocated costs
* restated for the impact of IAS 19 (revised), see note 2.
Page 27 of 35
Margin
11.2%
7.3%
10.0%
9.4%
8.0%
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2013
4
Change in value of derivative and other financial instruments
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
Unaudited
First half
First half
2013
2012
£m
£m
(98)
18
3
(1)
(95)
17
4
4
(91)
Full year
2012
£m
117
(1)
1
117
1
1
18
9
9
126
Forward foreign currency contracts (level 2), commodity contracts (level 2) and embedded derivatives (level 2) are
valued using observable rates and published prices together with forecast cash flow information where applicable,
consistent with the prior year. The amounts in respect of embedded derivatives represent commercial contracts
denominated in US dollars between European Aerospace subsidiaries and customers outside the USA.
5
Gains and losses on changes in Group structure
Unaudited
First half
First half
2013
2012
£m
£m
Profits and losses on sale or closure of businesses
Business sold
Gain on contingent consideration
6
-
Full year
2012
£m
-
1
4
5
Unaudited
First half
First half
2013
2012
£m
£m
222
205
(191)
(176)
31
29
31
29
(6)
(5)
Full year
2012
£m
394
(345)
49
(1)
48
(7)
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
25
(1)
24
24
(1)
23
41
(3)
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 2012: £nil, full year 2012: £nil).
There has been no change in the fair value of a guarantee contract (level 3), signed with the external bankers of
Emitec (a 50% joint venture company). The guarantee contract has been valued at £10 million based on future cash
forecasts and an estimate of the probability of default if the guarantee were not in place.
7
Other net financing charges
Unaudited
First half
First half
2013
2012*
£m
£m
(19)
(19)
(5)
(2)
(24)
(21)
Interest charge on net defined benefit plans
Unwind of discounts
Other net financing charges
* restated for the impact of IAS 19 (revised), see note 2.
Page 28 of 35
Full year
2012*
£m
(36)
(6)
(42)
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2013
8
Taxation
The tax charge for the period is based on an estimate of the Group’s expected annual effective rate of tax for 2013
based on tax legislation substantively enacted at 30 June 2013 applied to taxable profit for the period ended 30
June 2013.
Unaudited
First half
First half
2013
2012*
£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
2012*
£m
Deferred tax
(43)
2
6
(35)
5
(47)
1
2
(14)
(58)
6
(77)
8
(6)
(30)
(105)
25
Total tax charge for the period
(30)
(52)
(80)
Analysed as:
Tax in respect of management profit
Current tax
Deferred tax
(35)
(16)
(58)
18
(109)
36
(51)
(40)
(73)
21
(12)
4
(11)
21
(12)
(7)
(30)
(52)
(80)
Unaudited
First half
First half
2013
2012*
£m
£m
Full year
2012*
£m
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
(19)
1
10
(8)
(10)
1
11
2
74
1
22
6
103
* restated for the impact of IAS 19 (revised), see note 2.
Management tax rate
The tax charge arising on management profits of subsidiaries of £253 million (first half 2012: £240 million, full year
2012: £452 million) was £51 million (first half 2012: £40 million charge, full year 2012: £73 million charge) giving an
effective tax rate of 20% (first half 2012: 17%, full year 2012: 16%).
Deferred tax asset recognition
There is a net £5 million (first half 2012: £6 million, full year 2012: £25 million) deferred tax credit to the Income
Statement in the period, primarily relating to the recognition of previously unrecognised tax losses in the US,
Canada and Spain.
Page 29 of 35
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2013
8
Taxation (continued)
Changes in UK tax rate
On 1 April 2013 a reduction to the mainstream UK corporation tax rate to 23% took effect.
On 2 July 2013, further reductions to the main rate were substantively enacted to reduce the rate by 2% to 21% on
1 April 2014 and a further 1% on 1 April 2015. As at 30 June 2013 the reduced rates had not been substantively
enacted so the UK deferred tax asset is measured at 23%. The reduction in rate will reduce the value of the UK
deferred tax asset and will have an impact on the Group effective tax rate at the full year.
9
Dividends
An interim dividend of 2.6 pence per share (first half 2012: 2.4 pence per share) has been declared by the Directors
and will be paid on 23 September 2013 to shareholders on the register at 16 August 2013. Based on the number of
shares ranking for dividend at 30 June 2013, the interim dividend is expected to absorb £43 million.
During the period £78 million (first half 2012: £62 million, full year 2012: £101 million) was paid in respect of
dividends to equity shareholders.
10
Post-employment obligations
Actuarial assessments of the key defined benefit pension and post-employment medical plans (representing 97% of
liabilities and 98% of assets) were carried out as at 30 June 2013.
Movement in post-employment obligations during the period:
Unaudited
First half
First half
2013
2012*
£m
£m
(978)
(868)
(26)
(20)
(2)
(2)
35
(19)
(19)
106
(111)
54
42
(342)
(33)
17
(1,240)
(926)
At 1 January
Businesses acquired
Current service cost
Administrative costs
Curtailments/settlements
Past service
Interest on net defined benefit plans
Remeasurement of defined benefit plans
Contributions/benefits paid
Removal of pension partnership plan asset
Currency variations
At end of period
Full Year
2012*
£m
(868)
(67)
(44)
(4)
54
1
(36)
(152)
114
24
(978)
* restated for the impact of IAS 19 (revised), see note 2.
Post-employment obligations as at the period end comprise:
Unaudited
30 June
30 June 31 December
2013
2012
2012
£m
£m
£m
(679)
(418)
(422)
(485)
(437)
(481)
(24)
(24)
(24)
(52)
(47)
(51)
(1,240)
(926)
(978)
Pensions - funded
- unfunded
Medical - funded
- unfunded
UK Americas
£m
£m
(621)
(137)
(322)
(172)
(341)
(163)
At 30 June 2013 - unaudited
At 30 June 2012 - unaudited
At 31 December 2012
Page 30 of 35
Europe
£m
(463)
(410)
(454)
ROW
£m
(19)
(22)
(20)
Total
£m
(1,240)
(926)
(978)
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2013
10
Post-employment obligations (continued)
Assumptions
The major assumptions used were:
UK
GKN1
GKN2
%
%
At 30 June 2013 – unaudited
Rate of increase in pensionable salaries
Rate of increase in payment and deferred pensions
Discount rate
Inflation assumption
Rate of increase in medical costs:
Initial/long term
At 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 31 December 2012
Rate of increase in pensionable salaries
Rate of increase in payment and deferred pensions
Discount rate
Inflation assumption
Rate of increase in medical costs:
Initial/long term
n/a
3.20
4.20
3.10
4.30
3.30
4.60
3.30
6.1/6.1
4.00
3.10
4.60
3.00
6.0/5.4
n/a
3.00
3.80
2.80
6.1/6.1
3.90
3.00
4.30
2.90
Americas
Europe
ROW
%
%
%
3.50
4.80
2.50
2.50
1.75
3.50
1.75
n/a
1.45
n/a
8.0/5.0
n/a
n/a
3.50
4.20
2.50
2.50
1.75
3.70
1.75
n/a
1.65
n/a
8.0/5.0
n/a
n/a
3.50
2.00
4.10
2.50
2.50
1.75
3.20
1.75
n/a
1.45
n/a
8.0/5.0
n/a
n/a
Consistent with the prior period and year end, the yield used to calculate the UK discount rate at 30 June 2013 was
based on AA corporate bonds with duration weighted to the UK pension schemes’ liabilities.
No adjustments to mortality assumptions have been made in the period compared to those used as at 31 December
2012. The UK scheme assumptions are based on S1NA (year of birth) mortality tables allowing for medium cohort
projections with a minimum improvement of 1%. In Germany RT2005-G tables were used, whilst PPA 2012 tables
were used in the US.
Page 31 of 35
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2013
10 Post-employment obligations (continued)
Assumption sensitivity analysis
The impact of a one percentage point movement in the primary assumptions for the defined benefit net obligations as
at 30 June 2013 is set out below:
UK
£m
370
(462)
(393)
320
Discount rate +1%
Discount rate -1%
Rate of inflation +1%
Rate of inflation -1%
Americas
£m
40
(49)
-
Europe
£m
65
(86)
(57)
47
ROW
£m
3
(4)
-
UK deficit funding
GKN’s two UK defined benefit pension schemes are currently undergoing triennial funding valuations as at 5 April
2013. Once the valuation process is complete, the 5 April 2013 funding deficit in each scheme will be confirmed and
any incremental deficit contributions payable by the Group will be established. It is likely that some additional Group
funding will be required, but given the early stage of negotiations with the scheme Trustees and the many variables
involved in both establishing the valuation and agreeing any resulting recovery plan, the final outcome cannot currently
be predicted with any reasonable degree of certainty.
Pension partnership arrangement
On 31 March 2010, the Group agreed an asset-backed cash payment arrangement with the Trustee of the UK pension
scheme via a pension partnership arrangement, 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. When the UK
pension scheme was split into two separate schemes during 2012, the interest in partnership income was also split
accordingly. The income interest has previously been recognised as an IAS 19 plan asset, having been valued on a
discounted cash-flow basis, with a corresponding non-controlling interest in equity. During the period, the Group
entered into discussions with the Trustees of the two UK pension schemes which resulted in changes to the pension
partnership agreement, restricting the ability of each UK pension scheme to sell or otherwise transfer its respective
income interest without GKN consent. The result of this change is that the respective income interests no longer meet
the criteria for recognition as an IAS 19 plan asset and consequently the plan asset has been removed from the
Group’s balance sheet with an effective date of 31 May 2013. This increases the Group’s reported post-employment
obligation deficit by an amount of £342 million being the fair value at 31 May 2013, and eliminates the non-controlling
interest of £332 million which was previously recognised in equity in relation to the schemes’ income interests. The
remaining difference of £10 million has been recognised in equity within retained earnings, as it represents a
transaction with equity holders.
During the period the Group has paid a combined amount of £30 million (first half 2012: £30 million) to the two UK
pension schemes through the pension partnership. £20 million of this amount was paid following the removal of the
pension partnership plan asset, so is included within the amount of contributions/benefits paid in the table above, and
£10 million was paid as a distribution from the pension partnership to the UK Pension scheme, before the effective
date of the new agreement.
For comparison purposes only, if the partnership amendment had an effective date of 1 January 2012 (the beginning
of the comparative period), rather than the actual date of 31 May 2013, the pro forma net amounts for “Post
employment obligations” reported at previous balance sheet dates would have been: 30 June 2012: £1,253 million; 31
December 2012: £1,320 million. Amounts actually reported were: 30 June 2012: £926 million; 31 December 2012:
£978 million. Similarly, the pro forma balance sheet value of “Non-controlling interests” would have been: 30 June
2012: £21 million; 31 December 2012: £19 million, compared to amounts actually reported of: 30 June 2012: £345
million; 31 December 2012: £353 million. In the income statement, pro forma “Other net financing charges” would
have increased by £6 million from £24 million to £30 million for the 6 months to 30 June 2013 (first half 2012: increase
of £8 million, full year 2012 increase of £16 million).
Page 32 of 35
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2013
11 Cash flow notes
Unaudited
First half
2013
£m
Cash generated from operations
Operating profit
Adjustments for:
Depreciation, impairment and amortisation of fixed assets
Charged to trading profit
Depreciation
Impairment
Amortisation
Amortisation of non-operating intangible assets arising on business
combinations
Change in value of derivative and other financial instruments
Amortisation of government capital grants
Net profit on sale/realisation of fixed assets
Gains and losses on changes in Group structure
Charge for share-based payments
Pension scheme curtailments and related cash
Movement in post-employment obligations
Change in inventories
Change in receivables
Change in payables and provisions
Movement in net debt
Net movement in cash and cash equivalents
Net movement in borrowings and deposits
Costs associated with refinancing
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
2012*
2012*
£m
£m
170
299
624
119
13
105
7
214
4
17
28
91
(2)
5
(26)
(64)
(180)
113
267
16
(18)
(1)
3
(55)
(56)
(216)
131
215
37
(126)
(3)
(3)
(5)
6
(99)
(24)
73
(70)
(107)
538
86
(137)
(6)
(57)
(871)
(928)
38
(91)
1
(52)
(538)
(590)
(21)
(323)
9
(1)
3
(333)
(538)
(871)
233
(23)
210
212
(29)
183
181
(57)
124
* restated for the impact of IAS 19 (revised), see note 2.
The fair values of most financial instruments approximate to carrying value either due to the short-term
maturity of the instruments or because interest rates are reset frequently, with the exception of other
borrowings and government refundable advances which are carried at amortised cost. The carrying value
of other borrowings at 30 June 2013 was £1,095 million with a fair value of £1,122 million and the carrying
value of government refundable advances at 30 June 2013 was £94 million with a fair value of
£102 million.
Page 33 of 35
NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2013
12 Property, plant and equipment (unaudited)
During the six months ended 30 June 2013 the Group asset additions were £121 million (first half 2012:
£113 million). Assets with a carrying value of £nil (first half 2012: £nil) were disposed of during the six
months ended 30 June 2013.
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 2013 amounted
to £98 million (30 June 2012: £109 million) and the Group's share not provided by joint ventures amounted
to £17 million (30 June 2012: £25 million).
During the period a total of 4,506,727 ordinary shares were issued in connection with the exercise of
options under the Company’s share option schemes, all of which were transferred from treasury. This
generated a cash inflow of £5 million (first half 2012: £2 million).
During the period a total of 1,723,040 shares were purchased by the GKN Employee Share Ownership
Plan Trust in the open market for cash consideration of £4 million (first half 2012: nil).
On 28 February 2013 the Group established a Chinese subsidiary Lianyungang GKN Hua Ding Wheels
Company Limited (the Company) in partnership with Lianyungang Huading Wheel Company Limited. As
part of the agreement the partner contributed £2 million of fixed assets to the Company in return for 35% of
the share capital of the Company. On consolidation, the fixed asset value contributed on establishment of
the Company is matched by a corresponding non-controlling interest.
15 Contingent assets and liabilities (unaudited)
Since 2003, the Group has been involved in litigation with HMRC in respect of various advance corporate
tax payments made and corporate tax paid on certain foreign dividends which, in its view, were levied by
HMRC in breach of the Group’s EU community law rights. A High Court judgment regarding payments on
account was handed down in January 2013 confirming HMRC should repay payments on account to GKN.
The European Court of Justice published its decision on 13 November 2012 and the case will return 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 2013 or 30 June 2012. At 30 June 2013 the
Group had no contingent liabilities in respect of bank arrangements but one guarantee in respect of a joint
venture’s funding, consistent with 2012 year end (30 June 2012: none). In the case of certain businesses,
performance bonds and customer finance obligations have been entered into in the normal course of
business.
Page 34 of 35
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 2013 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 Conduct Authority.
As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs
as adopted by the European Union. The condensed 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 Conduct 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 2013 are not
prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct
Authority.
PricewaterhouseCoopers LLP
Chartered Accountants
Birmingham
29 July 2013
Page 35 of 35