TIDMAQ57 TIDM31OL
RNS Number : 0423F
GKN Holdings PLC
15 April 2011
GKN Holdings plc
2010 Annual Report
This announcement is made in connection with GKN Holdings plc's
6.75% Bonds due 2019 and 7% Bonds due 2012. The shares of GKN
Holdings plc are not listed; the Company is a wholly owned
subsidiary of GKN plc, the ultimate holding company of the GKN
Group
GKN Holdings plc has today published its 2010 Annual Report on
the GKN plc website. The document can be viewed at or downloaded
from www.gkn.com/investorrelations.
Copies of the 2010 Annual Report have been submitted to the
National Storage Mechanism and will shortly be available for
inspection at www.hemscott.com/nsm.do.
In compliance with DTR 6.3.5, a description of the Company's
principal risks and uncertainties and a responsibility statement
are set out below. A condensed set of financial statements are also
appended. The 2010 full year results announcement issued by GKN plc
on 1 March 2011 included an indication of important events that
occurred during the year for the Group. The announcement can be
viewed at or downloaded from www.gkn.com/investorrelations.
PRINCIPAL RISKS AND UNCERTAINTIES
The Company's risk management process includes an assessment of
the likelihood and potential impact of a range of events to
determine the overall risk level and to identify actions necessary
to mitigate their impact. As a finance, investment and holding
company within the GKN plc Group, aside from holding the Group's
external term loans, its dealings are almost exclusively with intra
Group transactions. No significant risks and uncertainties have
been identified other than those stated below. In addition, market
and customer related risk and manufacturing and operational risk
which could have a material impact on the future performance of the
Company's subsidiaries and cause the financial results of those
subsidiaries to differ materially from expected and historical
performance are given in the annual report of GKN plc for 2010.
Additional risks not currently known or which are regarded as
immaterial could also affect future performance.
Financial risk management
The Company's activities form an integral part of the Group's
strategy with regard to financial instruments. The Group's
objectives, policies and strategies with regard to financial
instruments are disclosed in the annual report and accounts of GKN
plc. However, a summary of the key matters applicable to the
Company are summarised below.
The Group co-ordinates all treasury activities through a central
function whose purpose is to manage the financial risks of the
Group as described below and to secure short and long term funding
at the minimum cost to the Group. The central treasury function
operates within a framework of clearly defined GKN plc Board
approved policies and procedures and is not permitted to make use
of financial instruments or other derivatives other than to hedge
identified exposures. Speculative use of such instruments or
derivatives is not permitted, and none has occurred during the
year.
The Group is exposed to a variety of market risks, including the
effects of changes in foreign currency exchange rates and interest
rates. In the normal course of business, the Group also faces risks
that are either non-financial or non-quantifiable, including
country and credit risk. As an investment and holding company
within the Group, the Company seeks to manage each of these risks
as follows:
Currency risk
The Group has transactional currency exposures arising from
sales or purchases by operating subsidiaries in currencies other
than the subsidiaries' functional currency, the most significant
being the US dollar and the euro. Under the Group's foreign
exchange policy, transaction exposures are hedged, once they are
known, mainly through the use of forward foreign exchange
contracts.
Credit risk
The Group is exposed to credit-related losses in the event of
non-performance by counterparties to financial instruments, which
include trade debtors. Credit risk relating to financial
institutions is mitigated by the Group's policy of only selecting
counterparties with a strong investment graded long term credit
rating, normally at least A- or equivalent, and assigning financial
limits to individual counterparties.
Interest rate and liquidity risk
The Company funds its operations through a mixture of retained
earnings and borrowing facilities and has sought to minimise its
exposure to an upward change in interest rates by using fixed rate
debt instruments.
The borrowing facilities in the main relate to capital market
borrowings which consist of GBP350 million 6.75% bonds maturing in
2019 and GBP176 million 7.0% bonds maturing in 2012.
Pension risk
GKN Holdings plc is the principal employer for the UK defined
benefit pension scheme which was in deficit by GBP71 million as at
31 December 2010. Deterioration in asset values, changes to real
long term interest rates or the strengthening of longevity
assumptions could lead to a further increase in the deficit or give
rise to additional funding requirements. The Group's pension
deficit is recorded in the consolidated financial statements of GKN
plc and no deficit is recorded in these company accounts.
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulations. Company law requires the Directors to prepare
financial statements for each financial year. Under that law, the
Directors have prepared the company financial statements in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable law).
Under company law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the company, and of the profit or
loss for that period.
In preparing these financial statements, the Directors are
required to select suitable accounting policies and then apply them
consistently, make judgements and accounting estimates that are
reasonable and prudent, state whether applicable UK Accounting
Standards have been followed, subject to any material departures
disclosed and explained in the financial statements and prepare the
financial statements on a going concern basis unless it is
inappropriate to presume that the company will continue in
business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the company's
transactions, disclose with reasonable accuracy at any time the
financial position of the company, and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
Directors:
Sir Kevin Smith (Chairman)
Ms J M Felton (Director)
Mr W C Seeger, Jr (Director)
Mr N M Stein (Director)
GKN Holdings plc condensed financial statements
Consolidated Income Statement
For the year ended 31 December 2010
------------------------------------------------------------------------------
2010 2009
Notes Restated
GBPm GBPm
-------------------------------------------------- ------ ------ ----------
Sales 1 5,084 4,223
-------------------------------------------------- ------ ------ ----------
Trading profit 368 133
Restructuring and impairment charges (39) (144)
Change in value of derivative and other
financial instruments 12 76
Amortisation of non-operating intangible
assets arising on business combinations (19) (24)
UK Pension scheme curtailment 68 -
Gains and losses on changes in Group
structure (4) (2)
--------------------------------------------- ------ ------ ----------
Operating profit 2 386 39
Share of post-tax earnings of joint ventures 7 35 21
Interest payable 3 (46) (67)
Interest receivable 3 6 3
Other net financing charges 10 (35) (50)
--------------------------------------------- ------ ------ ----------
Net financing costs (75) (114)
Profit/(loss) before taxation 346 (54)
Taxation 4 (30) 5
-------------------------------------------------- ------ ------ ----------
Profit/(loss) from continuing operations 316 (49)
Profit after taxation from discontinued
operations 5 - 5
Profit/(loss) after taxation for the year 316 (44)
-------------------------------------------------- ------ ------ ----------
Profit attributable to other non-controlling
interests 5 2
Profit attributable to the pension partnership 15 -
-------------------------------------------------- ------ ------ ----------
Profit attributable to non-controlling interests 20 2
Profit/(loss) attributable to equity shareholders 296 (46)
316 (44)
-------------------------------------------------- ------ ------ ----------
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2010
-----------------------------------------------------------------------------------------------------------------------------------------------
Notes 2010 2009
GBPm GBPm
----------------------------------------------------------------------------------------- ------------------ ---------------- --------------
Profit/(loss) after taxation for the year 316 (44)
Other comprehensive income
Currency variations
Subsidiaries
Arising in year 42 (154)
Reclassified in year (1) 8
Joint ventures
Arising in year 9 (12)
Reclassified in year - (2)
Derivative financial instruments
Transactional hedging
Arising in year 1 2
Reclassified in year - 5
Actuarial gains and losses on post-employment
obligations
Subsidiaries (24) (190)
Joint ventures - -
Taxation 4 58 17
----------------------------------------------------------------------------------------- ------------------ ---------------- --------------
85 (326)
----------------------------------------------------------------------------------------- ------------------ ---------------- --------------
Total comprehensive income/(expense) for
the year 401 (370)
----------------------------------------------------------------------------------------- ------------------ ---------------- --------------
Total comprehensive income/(expense) for
the year attributable to:
Equity shareholders 378 (372)
-------------------------------------------------------------------------------------- ------------------ ---------------- --------------
Other non-controlling interests 8 2
Pension partnership 15 -
-------------------------------------------------------------------------------------- ------------------ ---------------- --------------
Non-controlling interests 23 2
-------------------------------------------------------------------------------------- ------------------ ---------------- --------------
401 (370)
----------------------------------------------------------------------------------------- ------------------ ---------------- --------------
Consolidated Statement of Changes in Equity
For the year ended 31 December 2010
-----------------------------------------------------------------------------------------------------------------------------------------------
Non-controlling
Other reserves interests
------------------------------ -----------------------
Share Share- Pension
Share premium Retained Exchange Hedging Other holders' partner- Total
capital account earnings reserve reserve reserves equity ship Other equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- --- -------- ------------ ------------- ---------- -------- -------- -------- -------- ------------- -------
At 1 January 2010 362 301 2,412 343 (197) (95) 3,126 - 24 3,150
Total comprehensive
income/(expense)
for the year - - 332 45 1 - 378 15 8 401
Investment in Pension
partnership by
UK Pension scheme - - - - - - - 331 - 331
Purchase of
non-controlling
interests - - (2) - - - (2) - (3) (5)
Share-based payments - 3 - - - 3 - - 3
Transfers - - 38 - - (38) - - - -
Dividends paid to
equity shareholders - - (100) - - - (100) - - (100)
Dividends paid to
non-controlling
interests - - - - - - - - (1) (1)
---------------------- --- -------- ------------ ------------- ---------- -------- -------- -------- -------- ------------- -------
At 31 December 2010 362 301 2,683 388 (196) (133) 3,405 346 28 3,779
----------------------- --- -------- ------------ ------------- ---------- -------- -------- -------- -------- ------------- -------
Other reserves
-----------------------------------
Share Share- Non-
Share premium Retained Currency Hedging Other holders' controlling Total
capital account earnings reserve reserve reserves equity interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ---- ------------ ------------ ------------- --------------- -------- -------- -------- ------------- -------
At 1 January 2009 362 301 2,619 499 (204) (81) 3,496 23 3,519
Total comprehensive
income/(expense)
for the year - - (223) (156) 7 - (372) 2 (370)
Share-based payments - - 2 - - - 2 - 2
Transfers - - 14 - - (14) - - -
Dividends paid to
non-controlling
interests - - - - - - - (1) (1)
----------------------- ---- ------------ ------------ ------------- --------------- -------- -------- -------- ------------- -------
At 31 December 2009 362 301 2,412 343 (197) (95) 3,126 24 3,150
----------------------- ---- ------------ ------------ ------------- --------------- -------- -------- -------- ------------- -------
Other reserves include accumulated reserves where distribution has
been restricted due to legal or fiscal requirements and accumulated
adjustments in respect of piecemeal acquisitions.
Consolidated Balance Sheet
At 31 December 2010
------------------------------------------------------------------------
Notes 2010 2009
GBPm GBPm
-------------------------------------------- ------ -------- --------
Assets
Non-current assets
Goodwill 350 338
Other intangible assets 200 187
Property, plant and equipment 1,651 1,636
Investments in joint ventures 7 143 112
Other receivables and investments 23 24
Derivative financial instruments 19 16
Deferred tax assets 4 171 71
2,557 2,384
-------------------------------------------- ------ -------- --------
Current assets
Inventories 637 563
Trade and other non-group receivables 762 644
Amounts receivable from parent undertaking 2,100 2,188
Current tax assets 10 13
Derivative financial instruments 13 6
Other financial assets 4 20
Cash and cash equivalents 8 438 316
-------------------------------------------- ------ -------- --------
3,964 3,750
-------------------------------------------- ------ -------- --------
Total assets 6,521 6,134
-------------------------------------------- ------ -------- --------
Liabilities
Current liabilities
Borrowings 8 (61) (72)
Derivative financial instruments (13) (14)
Trade and other non-group payables (1,065) (873)
Amounts payable to parent undertaking (8) (10)
Current tax liabilities (100) (79)
Provisions (57) (84)
(1,304) (1,132)
-------------------------------------------- ------ -------- --------
Non-current liabilities
Borrowings 8 (532) (564)
Derivative financial instruments (61) (51)
Deferred tax liabilities 4 (63) (57)
Trade and other payables (108) (97)
Provisions (74) (87)
Post-employment obligations 10 (600) (996)
-------------------------------------------- ------ -------- --------
(1,438) (1,852)
-------------------------------------------- ------ -------- --------
Total liabilities (2,742) (2,984)
-------------------------------------------- ------ -------- --------
Net assets 3,779 3,150
-------------------------------------------- ------ -------- --------
Shareholders' equity
Share capital 362 362
Capital redemption reserve - -
Share premium account 301 301
Retained earnings 2,683 2,412
Other reserves 59 51
-------------------------------------------- ------ -------- --------
3,405 3,126
Non-controlling interests 374 24
-------------------------------------------- ------ -------- --------
Total equity 3,779 3,150
-------------------------------------------- ------ -------- --------
Consolidated Cash Flow Statement
For the year ended 31 December 2010
--------------------------------------------------------------------------
Notes 2010 2009
GBPm GBPm
-------------------------------------------------- ------ ------ ------
Cash flows from operating activities
Cash generated from operations 9 507 298
Special contribution to the UK Pension scheme (331) -
Interest received 7 7
Interest paid (53) (68)
Tax paid (43) (25)
Dividends received from joint ventures 23 15
-------------------------------------------------- ------ ------ ------
110 227
-------------------------------------------------- ------ ------ ------
Cash flows from investing activities
Purchase of property, plant and equipment (162) (140)
Receipt of government capital grants 3 1
Purchase of intangible assets (31) (14)
Receipt of government refundable advances 10 28
Proceeds from sale and realisation of fixed
assets 5 35
Acquisition of subsidiaries (net of cash
acquired) (6) (99)
Purchase of non-controlling interest (5) -
Proceeds from sale of businesses 5 -
Proceeds from sale of joint venture 1 1
Investments in joint ventures (10) (2)
Investment loans and capital contributions (3) (11)
(193) (201)
-------------------------------------------------- ------ ------ ------
Cash flows from financing activities
Investment in Pension partnership by UK
Pension scheme 331 -
Net proceeds from rights issue - 403
Net proceeds from other ordinary share capital
transactions - -
Proceeds from borrowing facilities 38 148
Bond buy back including buy back premium (26) (131)
Repayment of other borrowings (48) (221)
Finance lease payments (1) (1)
Amounts placed on deposit (4) (20)
Amounts returned from deposit 20 -
Dividends paid to shareholders (100) -
Dividends paid to non-controlling interests (1) (1)
209 177
-------------------------------------------------- ------ ------ ------
Currency variations on cash and cash equivalents 7 (9)
-------------------------------------------------- ------ ------ ------
Movement in cash and cash equivalents 133 194
Cash and cash equivalents at 1 January 288 94
Cash and cash equivalents at 31 December 9 421 288
-------------------------------------------------- ------ ------ ------
Notes to the Anouncement
For the year ended 31 December 2010
1 Segmental analysis
The Group's reportable segments have been determined based on reports
reviewed by the Executive Committee led by the Chief Executive. The
operating activities of the Group are largely structured according to
the markets served; automotive, aerospace and the land systems markets.
Automotive is managed according to product groups; driveline and powder
metallurgy. Reportable segments derive their sales from the manufacture
of product. Revenue from services, inter segment trading and royalties
is not significant. On 16 June 2010 the Group announced the formation
of GKN Land Systems. Land Systems brought together the operations of
GKN OffHighway (excluding Axles), GKN AutoStructures and GKN Industrial
and Distribution Services. Land Systems builds on existing strengths in
the agricultural, mining and construction equipment markets with a
strategic focus on developing these and new markets in defence
vehicles, mass transit and renewable energy. AutoStructures was
included in the former Other Automotive segment and IDS was included in
the Driveline segment. The remaining businesses in the former Other
Automotive reportable segment, Emitec and Cylinder Liners, are no
longer reportable and are included as reconciling items as Other
businesses. Comparative information has been restated. Driveline,
Aerospace and Land Systems are operating and reportable segments.
Powder Metallurgy comprises GKN Sinter Metals and Hoeganaes
Corporation.
a) Sales
-----------------------------------------------------------------------
Automotive
---------------------
Powder Land
Driveline Metallurgy Aerospace Systems Total
GBPm GBPm GBPm GBPm GBPm
--------------------- --------- ---------- --------- ------- -----
2010
Subsidiaries 2,180 759 1,451 664
Joint ventures 253 - - 35
--------------------- --------- ---------- --------- -------
2,433 759 1,451 699 5,342
--------------------- --------- ---------- --------- -------
Other businesses 87
--------------------- --------- ---------- --------- ------- -----
Management sales 5,429
Businesses sold and
closed - Axles 10
Less: Joint venture
sales (355)
--------------------- --------- ---------- --------- ------- -----
Income statement -
sales 5,084
--------------------- --------- ---------- --------- ------- -----
2009 - restated
Subsidiaries 1,628 512 1,486 569
Joint ventures 175 - - 24
--------------------- --------- ---------- --------- -------
1,803 512 1,486 593 4,394
--------------------- --------- ---------- --------- -------
Other businesses 60
--------------------- --------- ---------- --------- ------- -----
Management sales 4,454
Businesses sold and
closed - Axles 14
Less: Joint venture
sales (245)
--------------------- --------- ---------- --------- ------- -----
Income statement -
sales 4,223
--------------------- --------- ---------- --------- ------- -----
b) Trading profit
-----------------------------------------------------------------------
Automotive
---------------------
Powder Land
Driveline Metallurgy Aerospace Systems Total
GBPm GBPm GBPm GBPm GBPm
--------------------- --------- ---------- --------- ------- -----
2010
Trading profit before
depreciation,
impairment and
amortisation 238 84 209 49
Depreciation and
impairment of
property, plant and
equipment (107) (30) (39) (15)
Amortisation of
operating intangible
assets (3) - (6) (1)
--------------------- --------- ---------- --------- -------
Trading profit -
subsidiaries 128 54 164 33
Trading profit/(loss)
- joint ventures 41 - (2) 4
--------------------- --------- ---------- --------- -------
169 54 162 37 422
--------------------- --------- ---------- --------- -------
Other businesses 3
Corporate and
unallocated costs (13)
--------------------- --------- ---------- --------- ------- -----
Management trading
profit 412
Less: Joint venture
trading profit (44)
--------------------- --------- ---------- --------- ------- -----
Income Statement -
Trading profit 368
--------------------- --------- ---------- --------- ------- -----
2009 - restated
Trading profit before
depreciation,
impairment and
amortisation 95 24 217 12
Depreciation and
impairment of
property, plant and
equipment (107) (30) (41) (15)
Amortisation of
operating intangible
assets (3) (1) (6) (1)
--------------------- --------- ---------- --------- -------
Trading profit/(loss)
- subsidiaries (15) (7) 170 (4)
Trading profit/(loss)
- joint ventures 25 - (1) 1
--------------------- --------- ---------- --------- -------
10 (7) 169 (3) 169
--------------------- --------- ---------- --------- -------
Other businesses (1)
Corporate and
unallocated costs (12)
--------------------- --------- ---------- --------- ------- -----
Management trading
profit 156
Less: Joint venture
trading profit (23)
--------------------- --------- ---------- --------- ------- -----
Income Statement -
Trading profit 133
--------------------- --------- ---------- --------- ------- -----
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.
Credits included within trading profit in respect of changes to
retiree benefit arrangements, net of expenses, arose as follows:
Driveline GBP6 million and Corporate GBP2 million (2009: Driveline
GBP3 million; Powder Metallurgy GBP1 million; Aerospace GBP5 million
and Corporate GBP1 million). As a result of changed customer contract
requirements, 2009 trading profit included a GBP3 million credit
from the release of unutilised provisions established as an acquisition
in an Aerospace business.
Restructuring and impairment disclosures, including segmental
analysis, are included in note 2b.
1 Segmental analysis (continued)
(c) Goodwill, fixed assets and working capital - subsidiaries only
Automotive
Powder Land
Driveline Metallurgy Aerospace Systems Total
GBPm GBPm GBPm GBPm GBPm
------------------------------------------ -------------- -------------- ------------- ------------- -------
2010
Property, plant and equipment
and operating
intangible fixed assets 878 307 421 110 1,716
Working capital 72 89 67 58 286
----------------------------------------------- -------------- -------------- ------------- ------------- -------
Net operating assets 950 396 488 168
Goodwill and non-operating intangible
fixed assets 81 29 296 54
----------------------------------------------- -------------- -------------- ------------- -------------
Net investment 1,031 425 784 222
----------------------------------------------- -------------- -------------- ------------- -------------
2009 - restated
Property, plant and equipment
and operating
intangible fixed assets 870 313 374 120 1,677
Working capital 53 65 80 58 256
----------------------------------------------- -------------- -------------- ------------- ------------- -------
Net operating assets 923 378 454 178
Goodwill and non-operating intangible
fixed assets 78 28 294 56
----------------------------------------------- -------------- -------------- ------------- -------------
Net investment 1,001 406 748 234
----------------------------------------------- -------------- -------------- ------------- -------------
Fixed asset additions, investments in joint ventures and other
(d) non-cash items
Automotive
Powder Land Other
Driveline Metallurgy Aerospace Systems Businesses Corporate Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- --------- --------------- ------------- ---------- ------------- --------- -------
2010
Fixed asset additions
and capitalised
borrowing costs
property, plant and
- equipment 88 26 60 8 1 - 183
- intangible assets 4 - 26 1 - - 31
Investments in joint
ventures 107 - - 12 24 - 143
Other non-cash items
- share based
payment 1 - 1 - - 1 3
--------------------------- --------- --------------- ------------- ---------- ------------- --------- -------
2009 - restated
Fixed asset additions
and capitalised
borrowing costs
property, plant and
- equipment 61 9 45 7 - - 122
- intangible assets 1 - 14 - - - 15
Investments in joint
ventures 86 - - 10 16 - 112
Other non-cash items
- share based
payment 1 - - - - 1 2
--------------------------- --------- --------------- ------------- ---------- ------------- --------- -------
(e) Country analysis
United Other Total
Kingdom USA Germany countries Non-UK Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ----------- ------------- ---------- ------------- --------- -------
2010
Management sales by origin 819 1,571 858 2,181 4,610 5,429
Goodwill, other intangible
assets, property, plant and
equipment and investments
in joint ventures 355 695 354 940 1,989 2,344
------------------------------------------ ----------- ------------- ---------- ------------- --------- -------
2009
Management sales by origin
- restated 794 1,325 729 1,606 3,660 4,454
Goodwill, other intangible
assets, property, plant and
equipment and investments
in joint ventures 318 677 330 948 1,955 2,273
------------------------------------------ ----------- ------------- ---------- ------------- --------- -------
1 Segmental analysis (continued)
(f) Other sales information
Subsidiary segmental sales gross of inter segment sales are; Driveline
GBP2,234 million (2009 restated: GBP1,669 million), Powder Metallurgy
GBP765 million (2009: GBP515 million), Aerospace GBP1,451 million
(2009: GBP1,486 million) and Land Systems GBP665 million (2009
restated: GBP571 million).
In 2010 and 2009, no customer accounted for 10% or more of subsidiary
sales or management sales.
Management sales by product are: Driveline - driveshafts 76% (2009
restated: 79%), propshafts 7% (2009 restated: 7%), torque management
products 15% (2009 restated: 12%) and other goods 2% (2009 restated:
2%). Powder Metallurgy - sintered components 82% (2009: 85%) and
metal powders 18% (2009: 15%). Aerospace - aerostructures 64%
(2009: 65%), engine components and sub-systems 28% (2009: 27%)
and special products 8% (2009: 8%). Land Systems - power management
devices 27% (2009 restated: 28%), wheels and structures 36% (2009
restated: 32%) and aftermarket 37% (2009 restated: 40%).
Reconciliation of segmental property, plant and equipment and
(g) operating intangible fixed assets to the Balance Sheet
2010 2009
Restated
GBPm GBPm
------------------------------------------------------ ------ --------
Segmental analysis - Property, plant and equipment
and operating intangible fixed assets 1,716 1,677
Segmental analysis - Goodwill and non-operating
intangible fixed assets 460 456
Goodwill (350) (338)
Other businesses 19 18
Businesses sold and closed - Axles - 5
Corporate assets 6 5
------------------------------------------------------ ------ --------
Balance sheet - Property, plant and equipment and
Other intangible assets 1,851 1,823
------------------------------------------------------ ------ --------
(h) Reconciliation of segmental working capital to the Balance Sheet
2010 2009
Restated
GBPm GBPm
------------------------------------------------------ ------ --------
Segmental analysis - Working capital 286 256
Other businesses 6 5
Businesses sold and closed - Axles - 2
Corporate items (47) (44)
Short-term joint venture financing facilities - 1
Accrued net financing costs (19) (24)
Restructuring provisions (41) (59)
Deferred and contingent consideration (27) (31)
Government refundable advances (40) (28)
Investment and loan to GKN Aerospace Services
Structures Corp. - 12
------------------------------------------------------ ------ --------
Balance sheet - Inventories, Trade and other non-group
receivables, Trade and
other non-group payables and Provisions 118 90
---------------------------------------------------------- ------ --------
2 Operating profit
The analysis of the components of operating profit
is shown below:
(a) Trading profit
2010 2009
Restated
GBPm GBPm
--------------------------------------------------------------- -------- ---------
Sales by subsidiaries 5,084 4,223
Less: Businesses sold and closed - Axles (10) (14)
--------------------------------------------------------------- -------- ---------
5,074 4,209
Operating costs
Change in stocks of finished goods and work in progress 31 (82)
Raw materials and consumables (2,157) (1,747)
Staff costs (note 10) (1,346) (1,219)
Reorganisation costs (ii):
Redundancy and other employee related amounts (4) (3)
Impairment of plant and equipment - -
Depreciation of property, plant and equipment (iii) (191) (193)
Impairment of plant and equipment (2) (2)
Amortisation of intangible assets (10) (11)
Operating lease rentals payable:
Plant and equipment (13) (13)
Property (32) (29)
Impairment of trade receivables (7) (4)
Amortisation of government capital grants 1 1
Net exchange differences on foreign currency transactions 2 7
Other costs (978) (781)
-------- ---------
(4,706) (4,076)
--------------------------------------------------------------- -------- ---------
Trading profit 368 133
--------------------------------------------------------------- -------- ---------
EBITDA is subsidiary trading profit before depreciation, impairment
and amortisation charges included in trading profit. EBITDA
(i) in 2010 was GBP571 million (2009 restated - GBP339 million).
Reorganisation costs shown above reflect ongoing actions in
the ordinary course of business to reduce costs, improve productivity
(ii) and rationalise facilities in continuing operations.
Including depreciation charged on assets held under finance
(iii) leases of GBP1 million (2009: GBP1 million).
Research and development expenditure in subsidiaries was GBP92
(iv) million (2009: GBP83 million).
Other costs include less than GBP1 million in respect of directly
(v) attributable expenses on business combinations.
Auditors' remuneration
(vi) The analysis of auditors' remuneration is as follows:
2010 2009
GBPm GBPm
----------------------------------------------------- -------- ---------
Fees payable to PricewaterhouseCoopers LLP for
the Company's annual financial statements - -
Fees payable to PricewaterhouseCoopers LLP and
their associates for other services to the Group:
Audit of the Company's subsidiaries pursuant
- to legislation (3.1) (3.2)
--- ------------------------------------------------ -------- ---------
Total audit fees (3.1) (3.2)
------------------------------------------------ -------- ---------
Other services pursuant
- to legislation (0.1) (0.1)
- Tax services (0.6) (0.6)
- Corporate finance transaction services - -
- Other services (0.1) (0.1)
--- ------------------------------------------------ -------- ---------
Total non-audit fees (0.8) (0.8)
------------------------------------------------ -------- ---------
Fees payable to PricewaterhouseCoopers LLP and
their associates in respect of associated pension
schemes:
- Audit - -
- Other services - -
--- ------------------------------------------------ -------- ---------
Total fees payable to PricewaterhouseCoopers
LLP and their associates (3.9) (4.0)
----------------------------------------------------- -------- ---------
All fees payable to PricewaterhouseCoopers LLP, the Company's
auditors, include amounts in respect of expenses. All fees
payable to PricewaterhouseCoopers LLP have been charged to
the income statement except for those which relate to directly
attributable expenses on business combinations which occurred
prior to 1 January 2010 which have been capitalised.
2 Operating profit (continued)
(b) Restructuring and impairment charges - 2008 Restructuring programme
-------------------------------------------------------------------------------------------------------
The 2008 Programme restructuring actions comprise facility and
operation closures, permanent headcount reductions achieved through
redundancy programmes and the structured use of short-time working
arrangements, available through national or state legislation,
by European, Japanese and North American subsidiaries. Short-time
working arrangements concluded in the year.
2008 Restructuring programme
-------------------------------------------------------------------------------------------------------
2010 2009
GBPm GBPm
------------------------------------------------------------------------------------ ---------- -----
Goodwill impairment - (7)
Fixed asset impairments/reversals - (2)
Other asset write-downs - (3)
-------------------------------------------------------------------------------------------------- ---------- -----
Impairments - (12)
-------------------------------------------------------------------------------------------------- ---------- -----
Short-time working costs (2) (24)
Redundancy and post-employment costs (12) (86)
Other reorganisation costs (25) (22)
-------------------------------------------------------------------------------------------------- ---------- -----
Redundancy and other costs (39) (132)
-------------------------------------------------------------------------------------------------- ---------- -----
Subsidiaries (39) (144)
Impairment reversal/impairment of joint ventures - 3
Subsidiaries and joint ventures (39) (141)
-------------------------------------------------------------------------------------------------- ---------- -----
2008 Restructuring programme - analysis by segment
-------------------------------------------------------------------------------------------------------
2010 2009 - restated
------------------------------------------ ------------------------------------------
Redundancy Redundancy
Impairments Short-time and other Impairments Short-time and other
/reversals working costs Total /reversals working costs Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ----------- ---------- ---------- ----- ----------- ---------- ---------- -----
Driveline 1 (2) (28) (29) 1 (19) (61) (79)
Powder
Metallurgy - - (1) (1) - (4) (16) (20)
Aerospace - - (4) (4) (1) - (9) (10)
Land Systems (1) - (4) (5) - (1) (19) (20)
Businesses
sold and
closed
- Axles - - - - (9) - (3) (12)
Corporate - - - - - - - -
-------------- -----------
- (2) (37) (39) (9) (24) (108) (141)
-------------- ----------- ---------- ---------- ----- ----------- ---------- ---------- -----
Subsidiaries - (2) (37) (39) (12) (24) (108) (144)
Joint ventures - - - - 3 - - 3
-------------- ----------- ---------- ---------- ----- ----------- ---------- ---------- -----
In Driveline, reorganisation costs of GBP16 million have been
charged in respect of the announced UK and Japanese site rationalisation
initiatives and redundancy and reorganisation charges of GBP12
million were made regarding headcount and capacity reduction
actions in European operations. Short-time working arrangements
concluded in the year with GBP2 million charged in European and
Japanese operations. The impairment reversal arose in the UK
following completion of the sale of one site. In Powder Metallurgy,
a further GBP1 million of integration costs were charged in finalisation
of the European rationalisation. In Aerospace, actions included
the announcement of the closure of one facility in France, with
a GBP2 million charge made in respect of redundancy costs. In
Land Systems, actions initiated in the former OffHighway segment
and AutoStructures and Industrial & Distribution Services businesses
have continued, including rationalisation at a UK facility with
associated redundancy costs of GBP1 million, restructuring of
the European distribution network including redundancy charges
of GBP1 million and fixed asset impairments of GBP1 million and
reorganisation costs of GBP1 million associated with manufacturing
concentration initiatives in North America.
Restructuring cash outflow in respect of 2008 and 2004 restructuring
plans amounts to GBP55 million (2009: GBP99 million) and proceeds
from sale of fixed assets put out of use as part of the restructuring
programme of GBP2 million were recognised in the year (2009:
nil).
2 Operating profit (continued)
(c) Change in value of derivative and other financial instruments
2010 2009
GBPm GBPm
------------------------------------------------------ ------- --------
Forward currency contracts (not hedge accounted) (3) 106
Embedded derivatives 3 (29)
Commodity contracts (not hedge accounted) - 2
------------------------------------------------------ ------- --------
- 79
Net gains and losses on intra-group funding
Arising in year 12 5
Reclassified in year - (8)
-------------------------------------------------- ------- --------
12 (3)
------------------------------------------------------
12 76
------------------------------------------------------ ------- --------
IAS 39 requires derivative financial instruments to be valued
at the balance sheet date and any difference between that value
and the intrinsic value of the instrument to be reflected in the
balance sheet as an asset or liability. Any subsequent change
in value is reflected in the income statement unless hedge accounting
is achieved. Such movements do not affect cash flow or the economic
substance of the underlying transaction. In 2010 and 2009 the
Group used transactional hedge accounting in a limited number
of instances.
Amortisation of non-operating intangible assets arising on business
(d) combinations
2010 2009
GBPm GBPm
------------------------------------------------------ ------- --------
Marketing related - (1)
Customer related (16) (20)
Technology based (3) (3)
------------------------------------------------------ ------- --------
(19) (24)
------------------------------------------------------ ------- --------
(e) Gains and losses on changes in Group structure
2010 2009
Restated
GBPm GBPm
------------------------------------------------------ ------- --------
Profits and losses on sale or closure of businesses
Business sold and closed - Axles
Trading losses (2) (4)
Tangible fixed asset impairment (1) -
Other asset write downs (3) -
Recycling of cumulative translational currency
adjustments 1 -
Profit on sale of joint venture - 2
Investment write up on acquisition of GKN Aerospace
Services Structures Corp. 1 -
------------------------------------------------------ ------- --------
(4) (2)
------------------------------------------------------ ------- --------
On 1 September 2010 the Group concluded the sale of the European
agricultural axles operations of the former OffHighway Axles business
to Sviluppo Europa SpA, a subsidiary of La Leonessa SpA, with
other operations closed during the year. Sale proceeds were GBP5
million.
3 Net financing costs
2010 2009
GBPm GBPm
------------------------------------------------------ ------- --------
(a) Interest payable and fee expense
Short-term bank, other borrowings (7) (13)
Loans repayable within five years (15) (24)
Loans repayable after five years (24) (24)
Bond buy back premium (1) (7)
Government refundable advances (2) -
Borrowing costs capitalised 4 1
Finance leases (1) -
-------------------------------------------------- ------- --------
(46) (67)
------------------------------------------------------ ------- --------
Interest receivable
Short-term investments, loans and deposits 6 3
Net interest payable and receivable (40) (64)
------------------------------------------------------ ------- --------
The capitalisation rate on specific funding was 5.6% (2009: 6.4%)
and on general borrowings was 6.8% (2009: 6.1%).
2010 2009
GBPm GBPm
------------------------------------------------------ ------- --------
(b) Other net financing charges
Expected return on scheme assets 145 121
Interest on post-employment obligations (176) (170)
-------------------------------------------------- ------- --------
Post-employment finance charges (31) (49)
Unwind of discounts (4) (1)
-------------------------------------------------- ------- --------
Other net financing charges (35) (50)
------------------------------------------------------ ------- --------
4 Taxation
(a) Tax expense
2010 2009
Analysis of charge in year GBPm GBPm
------------------------------------------------------- -------- -------
Current tax (charge)/credit
Current year charge (74) (41)
Utilisation of previously unrecognised tax losses
and other assets 20 1
Net movement on provisions for uncertain tax
positions (27) 5
Adjustments in respect of prior years (2) 25
----------------------------------------------------------- -------- -------
(83) (10)
------------------------------------------------------------ -------- -------
Deferred tax (charge)/credit
Origination and reversal of temporary differences (23) 54
Tax on change in value of derivative financial
instruments (2) (3)
Other changes in unrecognised deferred tax assets 72 (41)
Changes in tax rates (2) 2
Adjustments in respect of prior years 8 3
----------------------------------------------------------- -------- -------
53 15
------------------------------------------------------------ -------- -------
Total tax (charge)/credit for the year (30) 5
------------------------------------------------------------ -------- -------
Tax rate
The Group is required to estimate the income tax due in each
of the jurisdictions in which it operates. This requires an
estimation of the current tax liability together with an assessment
of the temporary differences which arise as a consequence of
differing accounting and tax treatments. These temporary differences
result in deferred tax assets or liabilities which are measured
using substantively enacted tax rates expected to apply when
the temporary differences reverse. Recognition of deferred tax
assets, and hence credits to the income statement, is based
on forecast future taxable income and therefore involves the
exercise of management's judgement regarding the future financial
performance of particular legal entities or tax groups in which
the deferred tax assets are recognised.
The Group is subject to many different tax jurisdictions and
tax rules as a consequence of its geographic spread. It is also
subject to tax audits which, by their nature, are often complex
and can require several years to conclude. The total accrual
for income tax in any period requires the exercise of management
judgement in respect of the interpretation of country specific
tax law and the likelihood of challenge of uncertain tax positions
and their subsequent settlement. Where appropriate, estimates
of interest and penalties are included in these provisions for
uncertain tax positions. Tax benefits are not recognised unless
it is probable that the tax positions are sustainable. As amounts
set aside in any period could differ from actual tax liabilities,
adjustments may be required in subsequent periods which may
have a material impact on the Group's income statement and/or
cash tax payments. Payments in respect of tax liabilities for
an accounting period comprise payments on account and payments
on the final resolution of open items with tax authorities and,
as a result, there can be substantial differences between the
charge in the income statement and cash tax payments.
2010 2009
Tax reconciliation GBPm % GBPm%
--------------------------------------------- ---- ------- ---- -----
Profit/(loss) before tax 346 (54)
Less share of post-tax earnings of joint
ventures (35) (21)
Profit/(loss) before tax excluding joint
ventures 311 (75)
--------------------------------------------- ---- ------- ---- ------
Tax (charge)/credit calculated at 28%
standard UK corporate tax rate (87) (28) 21 28
Differences between UK and overseas corporate
tax rates 8 3 23
Non-deductible and non-taxable items and
other permanent differences (20) (6) (13) (17)
Utilisation of previously unrecognised tax
losses and other assets 20 6 11
Other changes in unrecognised deferred tax
assets 72 23 (41) (55)
Changes in tax rates (2) (1) 23
--------------------------------------------- ---- ------- ---- -----
Current year tax (charge)/credit on ordinary
activities (9) (3) (28) (37)
Net movement on provision for uncertain
tax positions (27) (9) 25 33
Other adjustments in respect of prior years 6 2 8 11
-------
Total tax (charge)/credit for the year (30) (10) 57
--------------------------------------------- ---- ------- ---- -----
4 Taxation (continued)
(b) Tax included in comprehensive income
2010 2009
GBPm GBPm
--------------------------------------------------------- ---------- -------
Deferred tax on post-employment obligations 46 14
Deferred tax on non-qualifying assets - (1)
Deferred tax on foreign currency gains and losses
on intra-group funding (3) (2)
Current tax on post-employment obligations 14 -
Current tax on foreign currency gains and losses
on intra-group funding 1 6
-------------------------------------------------------------- ---------- -------
58 17
-------------------------------------------------------------- ---------- -------
(c) Current tax
2010 2009
GBPm GBPm
--------------------------------------------------------- ---------- -------
Assets 10 13
Liabilities (100) (79)
-------------------------------------------------------------- ---------- -------
(90) (66)
-------------------------------------------------------------- ---------- -------
(d) Recognised deferred tax
2010 2009
GBPm GBPm
--------------------------------------------------------- ---------- -------
Deferred tax assets 171 71
Deferred tax liabilities (63) (57)
-------------------------------------------------------------- ---------- -------
108 14
-------------------------------------------------------------- ---------- -------
There is a net GBP53 million deferred tax credit to the income
statement in the period, primarily on account of the recognition
of previously unrecognised future tax deductions in the US.
In addition, a deferred tax credit of GBP46 million has been
recorded directly in other comprehensive income in relation
to the availability of future tax deductions for post-employment
obligations contributions in the US and UK. The recognition
of these assets has been based on management projections which
indicate the availability of taxable profits to absorb the deductions
in future years. In territories where there is more uncertainty
regarding the availability of a sufficient level of future taxable
profits, deferred tax assets have not been recognised in full.
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 period are shown below:
Assets Liabilities Total
-------------------------- ---------------
Post Tax Other Fixed Other
employment losses assets
obligations
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ----------- ------ ----- -------- ----- -------
At 1 January 2010 74 45 46 (145) (6) 14
Other movements 2 - - (2) - -
Included in the income
statement (11) 75 1 (12) - 53
Included in other
comprehensive income 46 - - - (3) 43
Businesses acquired - - - (3) - (3)
Currency variations - - - 1 - 1
----------------------------- ----------- ------ ----- -------- ----- -------
At 31 December 2010 111 120 47 (161) (9) 108
----------------------------- ----------- ------ ----- -------- ----- -------
At 1 January 2009 44 27 87 (166) (3) (11)
Other movements 32 - (32) - - -
Included in the income
statement (9) 19 (5) 10 - 15
Included in other
comprehensive income 14 - - (1) (2) 11
Businesses acquired 1 - - - - 1
Currency variations (8) (1) (4) 12 (1) (2)
----------------------------- ----------- ------ ----- -------- ----- -------
At 31 December 2009 74 45 46 (145) (6) 14
----------------------------- ----------- ------ ----- -------- ----- -------
Deferred tax assets totalling GBP39 million (2009: GBP41 million)
have been recognised relating to territories where tax losses
have been incurred in the year. It is anticipated that future
profitability arising from restructuring and other actions will
result in their realisation.
4 Taxation (continued)
(e) Unrecognised deferred tax assets
Deferred tax assets have not been recognised in relation to
certain tax losses and other temporary differences on the basis
that the Group's ability to utilise them in the future is uncertain.
The gross and tax values of these unrecognised assets together
with any expiry periods, where relevant, are shown below.
2010 2009
Tax Tax
value Gross Expiry value Gross Expiry
GBPm GBPm period GBPm GBPm period
--------------------- ------ ----- --------- ------ ----- ---------
Tax losses - with
expiry: national 215 619 2011-2030 293 846 2010-2029
Tax losses - with
expiry: local 41 480 2011-2030 41 491 2010-2029
Tax losses - without
expiry 105 384 98 323
--------------------- ------ ----- --------- ------ ----- ---------
Total tax losses 361 1,483 432 1,660
--------------------- ------ ----- --------- ------ ----- ---------
Post employment
obligations 66 245 149 518
Other temporary
differences 38 136 43 142
--------------------- ------ ----- --------- ------ ----- ---------
Total other temporary
differences 104 381 192 660
--------------------- ------ ----- --------- ------ ----- ---------
Unrecognised deferred
tax assets 465 1,864 624 2,320
--------------------- ------ ----- --------- ------ ----- ---------
No deferred tax is recognised on the unremitted earnings of
overseas subsidiaries except where the distribution of such
profits is planned. If the earnings were remitted in full tax
of GBP25 million (2009: GBP19 million) would be payable.
(f) Pension partnership
Note 10 refers to an asset-backed cash payment arrangement which
the Group has agreed with the Trustee of the UK pension scheme.
As a result of this arrangement, the Group will obtain UK tax
deductions spread over 4 years for the GBP331 million initial
cash pension contribution. Over the next 20 years, the Group
is also expected to obtain tax deductions for the remaining
GBP269 million of the total amount likely to be paid to the
UK pension scheme. Where there is insufficient tax capacity
to utilise these two types of tax deductions as they fall due,
they will be carried forward as tax losses with the potential
to be used to reduce future taxable profits in the UK.
As this arrangement has been put in place to fund a pension
deficit which arose partly as a result of actuarial losses,
the current tax benefits for the deductions will be reflected
partly in other comprehensive income and partly in the income
statement as they are utilised. Current tax benefits of GBP17
million (GBP3 million income statement; GBP14 million other
comprehensive income) have been recognised in the year in this
respect. A deferred tax asset of GBP26 million has been recognised
on the balance sheet (GBP5 million income statement; GBP21 million
other comprehensive income) in respect of the initial cash pension
contribution. Further deferred tax assets may become recognisable
in the future. Similar to the current tax credits referred to
above, the deferred tax credits for these deferred tax assets
are recognised partly in other comprehensive income and partly
in the income statement.
(g) Changes in UK tax rate
The UK Government has announced a phased reduction in the mainstream
rate of UK corporation tax from 28% to 23% over the next four
years. As at 31 December 2010, a reduction to 27%, had been
enacted, with the result that the recognised UK deferred tax
asset was valued at 27%. As further reductions to reach the
anticipated 23% rate are enacted, there will be a corresponding
reduction in the value of UK deferred tax assets since deferred
tax is measured at the prevailing tax rate. Since a large part
of the potential UK deferred tax asset currently remains unrecognised,
there is not expected to be a material impact on the tax rate.
(h) Franked investment income - litigation
Since 2003 the Group has been involved in litigation with HMRC
in respect of various Advance Corporation Tax payments made
and Corporate Tax paid on certain foreign dividend receipts
which, in its view, were levied by HMRC in breach of GKN's EU
community law rights. During 2009, GKN received a GBP4 million
payment on account from HMRC in respect of the litigation, but
following a Court of Appeal judgement issued on 23 February
2010 GBP3 million of this payment on account was repaid to HMRC.
This has had no impact on the Income Statement. A further Court
of Appeal hearing to decide whether the remaining payment on
account should be repaid will take place in early 2011. The
main case has been appealed both to the UK Supreme Court (on
effective remedies) and to the European Court of Justice (for
further guidance on breach of community law) and these judgements
are not expected until late 2011/early 2012. 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.
5 Discontinued operations
2010 2009
GBPm GBPm
-------------------------------------------------------- ------- ------
Reversal of 2008 discontinued tax charge - 5
----------------------------------------------------------- ------- ------
There were no discontinued operations in 2010.
6 Dividends
An interim dividend of GBP100 million was paid to group undertakings
on 21 December 2010 (2009: nil).
7 Investments in joint ventures
Group share of results
2010 2009
GBPm GBPm
----------------------------------------------------------- ------- -------------
Sales 355 245
Operating costs (311) (222)
--------------------------------------------------------------- ------- -------------
Trading profit 44 23
Net financing costs (1) (1)
--------------------------------------------------------------- ------- -------------
Profit before taxation 43 22
Taxation (7) (4)
--------------------------------------------------------------- ------- -------------
Share of post-tax earnings - before exceptional
and non-trading items 36 18
Amortisation of non-operating intangible assets
arising on business combinations
and Other net financing charges, including
tax of nil (1) -
Impairment reversal, including tax of nil - 3
--------------------------------------------------------------- ------- -------------
Share of post-tax earnings 35 21
--------------------------------------------------------------- ------- -------------
Group share of net book amount
2010 2009
-------------------------- -------------------------------
Group Group
share Provisions Net share Provisions Net
of for book of for book
equity impairment amount equity impairment amount
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ------ ---------- ------ ------- ------------ --------
At 1 January 113 (1) 112 129 (10) 119
Share of post-tax
earnings of
joint ventures 35 - 35 18 3 21
Utilisation of
provision (1) 1 - (1) 1 -
Actuarial gains on
post-employment
obligations,
including deferred
tax - - - - - -
Dividends paid (23) - (23) (15) - (15)
Additions 10 - 10 2 - 2
Disposals - - - (7) 4 (3)
Currency variations 9 - 9 (13) 1 (12)
---------------------- ------ ---------- ------ ------- ------------ --------
At 31 December 143 - 143 113 (1) 112
---------------------- ------ ---------- ------ ------- ------------ --------
2010 2009
GBPm GBPm
----------------------------------------------------------- ------- -------------
Non-current assets 117 86
Current assets 139 99
Current liabilities (87) (61)
Non-current liabilities (26) (12)
--------------------------------------------------------------- ------- -------------
143 112
--------------------------------------------------------------- ------- -------------
The joint ventures have no significant contingent liabilities
to which the Group is exposed and nor has the Group any significant
contingent liabilities in relation to its interest in the joint
ventures.
On 15 September, Emitec the Group's 50% joint venture with Continental
AG acquired Grundfos NoNOx Holdings A/S from Grundfos Holding
A/S.
8 Net borrowings
(a) Analysis of net borrowings
------------------------------------------------------------------------------------
Notes Current Non-current Total
------- ----------------------------
One
to Two to More
Within two five than Total
one five
year years years years
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------ ------- ----- ------ ----- ------ ------
2010
Other borrowings
GBP350 million 6[3/4]%
2019 unsecured bond i - - - (347) (347) (347)
GBP176 million 7% 2012
unsecured bond i - (176) - - (176) (176)
Other secured US$
denominated loan (1) (2) (5) - (7) (8)
Other long term borrowings (6) - - - - (6)
Finance lease obligations iv (1) (1) (1) - (2) (3)
Bank overdrafts (17) - - - - (17)
Other short term bank
borrowings (36) - - - - (36)
Borrowings (61) (179) (6) (347) (532) (593)
---------------------------- ----------- ------- ----- ------ ----- ------ ------
Bank balances and cash 158 - - - - 158
Short term bank deposits ii 280 - - - - 280
---------------------------- ----------- ------- ----- ------ ----- ------ ------
Cash and cash equivalents v 438 - - - - 438
---------------------------- ----------- ------- ----- ------ ----- ------ ------
Other financial assets
- bank deposits iii 4 - - - - 4
---------------------------- ----------- ------- ----- ------ ----- ------ ------
Net borrowings 381 (179) (6) (347) (532) (151)
---------------------------- ----------- ------- ----- ------ ----- ------ ------
2009
Other borrowings
GBP350 million 6[3/4]%
2019 unsecured bond i - - - (347) (347) (347)
GBP201 million 7% 2012
unsecured bond i - - (201) - (201) (201)
Other secured US$
denominated loan (2) (2) (5) - (7) (9)
Other long term borrowings (6) (6) - - (6) (12)
Finance lease obligations iv (1) (1) (1) (1) (3) (4)
Bank overdrafts (28) - - - - (28)
Other short term bank
borrowings (35) - - - - (35)
Borrowings (72) (9) (207) (348) (564) (636)
---------------------------- ----------- ------- ----- ------ ----- ------ ------
Bank balances and cash 132 - - - - 132
Short term bank deposits ii 184 - - - - 184
Cash and cash equivalents v 316 - - - - 316
---------------------------- ----------- ------- ----- ------ ----- ------ ------
Other financial assets
- bank deposits iii 20 - - - - 20
---------------------------- ----------- ------- ----- ------ ----- ------ ------
Net borrowings 264 (9) (207) (348) (564) (300)
---------------------------- ----------- ------- ----- ------ ----- ------ ------
Other borrowings include: Unsecured GBP350 million (2009:
GBP350 million) 6[3/4]% bond maturing in 2019 less unamortised
issue costs of GBP3 million (2009: GBP3 million); unsecured
GBP176 million (2009: GBP201 million) 7% bond maturing in
2012 less unamortised issue costs of nil (2009: nil); and
a secured term loan of GBP8 million (2009: GBP9 million) secured
by way of a fixed and floating charge on certain Aerospace
fixed assets.
Notes
Denotes borrowings at fixed rates of interest until maturity.
All other borrowings and cash and cash equivalents are at
(i) variable interest rates.
The average interest rate on short term bank deposits was
0.5% (2009: 0.5%). Deposits at 31 December 2010 had no fixed
(ii) maturity date (2009: no fixed maturity date).
The interest rate on bank deposits was 2% (2009: 0.85%);
(iii) deposits mature in 27 May 2011 (2009: 1 April 2010).
Finance lease obligations gross of finance charges fall
due as follows: GBP1 million within one year (2009: GBP1
million), GBP3 million in one to five years (2009: GBP3
million) and GBP1 million in more than five years (2009:
(iv) GBP1 million).
GBP11 million (2009: GBP9 million) of the Group's cash and
cash equivalents are held by the Group's captive insurance
company to maintain solvency requirements and as collateral
for Letters of Credit issued to the Group's principal external
insurance providers. These funds cannot be circulated within
(v) the Group on demand.
(b) Fair values
------------------------------------------------------------------------------------
2010 2009
------------- --------------
Book Fair Book Fair
value value value value
GBPm GBPm GBPm GBPm
----------------------------------------------------- ------ ----- ------ ------
Borrowings, other financial assets
and cash and cash equivalents
Other borrowings (537) (564) (569) (570)
Finance lease obligations (3) (3) (4) (4)
Bank overdrafts and other short term
bank borrowings (53) (53) (63) (63)
Bank balances and cash 158 158 132 132
Short term bank deposits and other
bank deposits 284 284 204 204
(151) (178) (300) (301)
---------------------------------------------------------- ------ ----- ------ ------
Trade and other payables
Government refundable advances (40) (40) (28) (28)
Deferred and contingent consideration (27) (27) (32) (32)
---------------------------------------------------------- ------ ----- ------ ------
(67) (67) (60) (60)
---------------------------------------------------------- ------ ----- ------ ------
The following methods and assumptions were used in estimating
fair values for financial instruments:
Unsecured bank overdrafts, other short term bank borrowings,
bank balances and cash and short term bank deposits approximate
to book value due to their short maturities. For other amounts,
the repayments which the Group is committed to make have been
discounted at the relevant interest rates applicable at 31
December 2010. Bonds included within other borrowings have
been valued using quoted closing market values.
9 Cash flow reconciliations
------------------------------------------------------- ----- -----
2010 2009
Cash generated from operations GBPm GBPm
------------------------------------------------------- ----- -----
Operating profit 386 39
Adjustments for:
Depreciation, impairment and amortisation of
fixed assets
Charged to trading profit
Depreciation 191 193
Impairment 2 2
Amortisation 10 11
Amortisation of non-operating intangible assets
arising on business combinations 19 24
Restructuring and impairment charges - 9
Changes in fair value of derivative and other
financial instruments (12) (71)
Amortisation of government capital grants (1) (1)
Net profits on sale and realisation of fixed
assets (1) (6)
Gains and losses on changes in Group structure (1) (2)
Charge for share-based payments 3 2
Movement in post-employment obligations (116) (45)
Changes in current accounts with parent undertakings 86 10
Change in inventories (63) 133
Change in receivables (117) (36)
Change in payables and provisions 121 36
507 298
------------------------------------------------------- ----- -----
Movement in net debt
Movement in cash and cash equivalents 133 194
Net movement in other borrowings and deposits (6) 93
Bond buy back 25 124
Finance leases 1 1
Currency variations (4) (4)
Businesses acquired and sold - -
Movement in year 149 408
Net debt at beginning of year (300) (708)
Net debt at end of year (151) (300)
------------------------------------------------------- ----- -----
Reconciliation of cash and cash equivalents
Cash and cash equivalents per balance sheet 438 316
Bank overdrafts included within "current liabilities
- borrowings" (17) (28)
------------------------------------------------------- -----
Cash and cash equivalents per cashflow 421 288
------------------------------------------------------- ----- -----
10 Post-employment obligations
2010 2009
Post-employment obligations as at the year end comprise: GBPm GBPm
------------------------------------------------------------------------------------------------------- ------------- ---------
Pensions - funded (176) (597)
- unfunded (363) (345)
Medical - funded (17) (13)
- unfunded (44) (41)
------------ ---------------------------------------------------------------------------------------------- ------------- ---------
(600) (996)
------------------------------------------------------------------------------------------------------------ ------------- ---------
The Group's pension arrangements comprise various defined benefit
and defined contribution schemes throughout the world. The main
externally funded defined benefit pension schemes operate in the
UK, US and Japan. In Europe, funds are retained within certain
businesses to provide defined benefit pension benefits. In addition,
in the US and UK a number of retirement plans are operated which
provide certain employees with post-employment medical benefits.
Defined benefit schemes - measurement and assumptions
Independent actuarial valuations of all major defined benefit
scheme assets and liabilities were carried out at 31 December
2010. The present value of the defined benefit obligation, the
related current service cost and the past service cost were measured
using the projected unit credit method.
(a) Key assumptions were:
UK Americas Europe ROW
% % % %
---------------------------------------------------------- ---------------- ---------------- ---------------- ---------------
2010
Rate of increase in pensionable
salaries 4.35 3.5 2.50 -
Rate of increase in payment and 2.90
deferred pensions 0 2.0 1.75 n/a
Discount rate 5.40 5.5 5.00 1.75
Inflation assumption 3.35 2.5 1.75 0.75
Rate of increases in medical costs:
Initial/long term 6.5/6.0 9.0/5.0 n/a n/a
--- ----------------------------------------------------- ---------------- ---------------- ---------------- ---------------
2009
Rate of increase in pensionable
salaries 4.25 3.5 2.50 3.5
Rate of increase in payment and
deferred pensions 3.40 2.0 1.75 n/a
Discount rate 5.70 6.0 5.40 2.0
Inflation assumption 3.25 2.5 1.75 1.0
Rate of increases in medical costs:
Initial/long term 7.0/4.5 9.0/5.0 n/a n/a
--- ----------------------------------------------------- ---------------- ---------------- ---------------- ---------------
The discount rates in the table above for the UK and Europe were
referenced against specific iBoxx indices, whilst the Citigroup
liability index was the reference point for the USA discount rate.
The reference for the UK discount rate was the yield as at 31
December on the iBoxx GBP Corporate rated AA bonds with a maturity
of 15 years plus. The reference for the European discount rate
was the yield as at 31 December on the iBoxx Euro Corporate rated
AA bonds with a maturity of 10 years plus of 4.7%, adjusted to
reflect the duration of liabilities. For the USA, the discount
rate matched the Citigroup liability index as at 31 December 2010
of 5.5%.
The underlying mortality assumptions for the major schemes are
as follows:
United Kingdom
Such is the size and profile of the UK scheme that data on the
scheme's mortality experience is collected and reviewed annually.
The key current year mortality assumptions for the scheme use
S1NA (year of birth) mortality tables allowing for medium cohort
projections with a minimum improvement of 1% and a +0.5 age rating
for male members and a +0.7 year age rating for female members.
Using these assumptions a male aged 65 lives for a further 20.6
years and a female aged 65 lives for a further 23.2 years. A male
aged 45 is expected to live a further 22.5 years from age 65 and
a female aged 45 is expected to live a further 25.1 years from
age 65. The prior period valuation used PA92 (year of birth) tables
allowing for medium cohort but without a minimum improvement.
The prior period age adjustments to PA92 (year of birth tables)
were equivalent to that of the age rating adjustment to S1NA (year
of birth) tables.
Overseas
In the USA, PPA2010 tables have been used whilst in Germany the
RT2005-G tables have again been used. In the USA the longevity
assumption for a male aged 65 is that he lives a further 19 years
(female 21 years) whilst in Germany a male aged 65 lives for a
further 18.1 years (female 22.4 years). The longevity assumption
for a USA male currently aged 45 is that he also lives for a further
19 years once attaining 65 years (females 21 years), with the
German equivalent assumption for a male being 18.2 years (female
23.6 years). These assumptions are based solely on the prescribed
tables not on actual GKN experience.
Assumption sensitivity analysis
The impact of a one percentage point movement in the primary assumptions
on the defined benefit net obligations as at 31 December 2010
is set out below:
UK Americas Europe ROW
---------------------- ------------------------ ------------------------- ------------------------
Income Income Income Income
Liabilities statement Liabilities statement Liabilities statement Liabilities statement
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ----------- --------- ------------- --------- ----------- ------------ ------------- ---------
Discount rate +1% 314 2.8 45 (0.2) 49 0.4 6 (0.3)
Discount rate -1% (391) (1.8) (56) 0.2 (58) - (6) 0.3
Rate of inflation +1% (298) (21.3) - - (33) (2.2) - -
Rate of inflation -1% 246 18.2 - - 30 2.0 - -
Rate of increase in
medical costs +1% (1) - (1) (0.2) - - - -
Rate of increase in
medical costs -1% 1 - 1 0.2 - - - -
-------------------------- ----------- --------- ------------- --------- ----------- ------------ ------------- ---------
10 Post-employment obligations (continued)
(b) Defined benefit schemes - reporting
The amounts included in operating profit are:
Trading Profit
Redundancy Restructuring UK Pension
Employee and other and scheme
benefit employment impairment curtailment
expense amounts charges Total
GBPm GBPm GBPm GBPm GBPm
------------------------ ---------- --------------- --------------- ------------- ------------
2010
Current service cost (35) - - - (35)
Past service cost 1 (1) - - -
Settlement/curtailments 9 - - 68 77
----------------------------- ---------- --------------- --------------- ------------- ------------
(25) (1) - 68 42
----------------------------- ---------- --------------- --------------- ------------- ------------
2009
Current service cost (34) - - - (34)
Past service cost 5 - (1) - 4
Settlement/curtailments 7 - - - 7
----------------------------- ---------- --------------- --------------- ------------- ------------
(22) - (1) - (23)
----------------------------- ---------- --------------- --------------- ------------- ------------
The benefits from an enhanced transfer value exercise in the
UK together with scheme design changes in Japan resulted in
a GBP9 million settlement/curtailment credit to Trading profit.
A number of scheme design changes introduced in UK pension arrangements
that included a move from final salary basis to that of career
average resulted in a curtailment credit of GBP68 million.
The amounts recognised in the balance sheet are:
2010
UK Americas Europe ROW Total 2009
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- --------- ----------- --------- ----------- ---------- --------
Present value of unfunded
obligations (13) (39) (347) (8) (407) (386)
Present value of funded
obligations (2,435) (360) (22) (36) (2,853) (2,800)
Fair value of plan assets 2,364 245 28 23 2,660 2,190
Net obligations recognised
in the balance sheet (84) (154) (341) (21) (600) (996)
---------------------------------- --------- ----------- --------- ----------- ---------- --------
The contributions expected to be paid by the Group during 2011
to the UK scheme is GBP28 million and to overseas schemes GBP38
million. Section d) of this note describes the Pension partnership
interest created on 31 March 2010 under which the first distribution
of GBP23 million is expected to be made in the second quarter
of 2011.
Cumulative actuarial gains and losses recognised in equity are
as follows:
2010 2009
GBPm GBPm
----------------------------------------------------------------------------- ---------- --------
At 1 January (334) (144)
Net actuarial losses in year (24) (190)
---------------------------------------------------------------------------------- ---------- --------
At 31 December (358) (334)
---------------------------------------------------------------------------------- ---------- --------
Post-employment obligations
Movement in schemes' obligations (funded and unfunded) during
the year
UK Americas Europe ROW Total
GBPm GBPm GBPm GBPm GBPm
-------------------------------------------- ------- --------- ----------- ---------- --------
At 1 January 2010 (2,440) (355) (352) (39) (3,186)
Businesses acquired - - - - -
Current service cost (22) (4) (6) (3) (35)
Interest (135) (22) (18) (1) (176)
Contributions by participants (4) - (1) - (5)
Actuarial gains and losses (61) (26) (20) (2) (109)
Benefits paid 129 17 17 3 166
Past service cost (1) 1 - - -
Settlements/Curtailments 86 - - 6 92
Currency variations - (10) 11 (8) (7)
At 31 December 2010 (2,448) (399) (369) (44) (3,260)
------------------------------------------------- ------- --------- ----------- ---------- --------
At 1 January 2009 (2,043) (401) (353) (46) (2,843)
Businesses acquired (20) - - - (20)
Current service cost (20) (5) (6) (3) (34)
Interest (129) (21) (19) (1) (170)
Contributions by participants (4) - - - (4)
Actuarial gains and losses (346) 5 (22) 1 (362)
Benefits paid 123 15 17 3 158
Past service cost (1) 6 (1) - 4
Settlements/Curtailments - 6 - 1 7
Currency variations - 40 32 6 78
At 31 December 2009 (2,440) (355) (352) (39) (3,186)
------------------------------------------------- ------- --------- ----------- ---------- --------
10 Post-employment obligations (continued)
(b) Defined benefit schemes - reporting (continued)
Movement in schemes' assets during
the year
UK Americas Europe ROW Total
GBPm GBPm GBPm GBPm GBPm
--------------------------------------------- ---------- ------------ -------- --------- ------------
At 1 January 2010 1,930 215 27 18 2,190
Businesses acquired - - - - -
Expected return on assets 128 16 1 - 145
Actuarial gains and losses 76 10 - (1) 85
Contributions by Group 39 16 - 2 57
Special contribution 331 - - - 331
Contributions by participants 4 - 1 - 5
Settlements/Curtailments (15) - - - (15)
Benefits paid (129) (18) (1) (1) (149)
Currency variations - 6 - 5 11
At 31 December 2010 2,364 245 28 23 2,660
--------------------------------------------- ---------- ------------ -------- --------- ------------
At 1 January 2009 1,759 202 29 19 2,009
Businesses acquired - - - - -
Expected return on assets 106 13 2 - 121
Actuarial gains and losses 152 21 (1) - 172
Contributions by Group 32 15 1 3 51
Contributions by participants 4 - - - 4
Benefits paid (123) (15) (1) (2) (141)
Currency variations - (21) (3) (2) (26)
At 31 December 2009 1,930 215 27 18 2,190
--------------------------------------------- ---------- ------------ -------- --------- ------------
The defined benefit obligation is analysed between funded and
unfunded schemes as follows:
2010
UK Americas Europe ROW Total 2009
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ----------- ---------- ------------ -------- -------------- -------
Funded (2,435) (360) (22) (36) (2,853) (2,800)
Unfunded (13) (39) (347) (8) (407) (386)
-------------------------------- ----------- ---------- ------------ -------- -------------- -------
(2,448) (399) (369) (44) (3,260) (3,186)
-------------------------------- ----------- ---------- ------------ -------- -------------- -------
The fair value of the assets in the schemes and the expected
rates of return were:
UK Americas Europe ROW
------------------ ------------------------ --------------------- -------------------
Long Long Long Long
term term term term
rate rate rate rate
of of of of
return return return return
expected Value expected Value expected Value expected Value
% GBPm % GBPm % GBPm % GBPm
---------------- -------- -------- ------------ ---------- ----------- -------- ---------- -------
At 31 December
2010
Equities (inc.
Hedge Funds) 7.8 741 8.5 171 - - 5.5 11
Bonds 5.0 1,115 3.6 69 - - 1.0 8
Property 6.6 90 - - - - - -
Cash and net current
assets 0.5 39 2.8 5 - - - -
Partnership plan
asset 6.1 346 - - - - - -
Other assets 5.5 33 - - 4.8 28 1.25 4
--------------------- -------- -------- ------------ ---------- ----------- -------- ---------- -------
2,364 245 28 23
--------------------- -------- -------- ------------ ---------- ----------- -------- ---------- -------
At 31 December
2009
Equities (inc.
Hedge Funds) 7.8 696 8.5 143 - - 5.70 8
Bonds 5.3 1,054 4.2 67 - - 1.35 7
Property 6.6 82 - - - - - -
Cash/short term
mandate 0.5 67 3.2 5 - - - 2
Other assets 5.7 31 - - 5.1 27 1.25 1
--------------------- -------- -------- ------------ ---------- ----------- -------- ---------- -------
1,930 215 27 18
--------------------- -------- -------- ------------ ---------- ----------- -------- ---------- -------
The expected return on plan assets is a blended average of projected
long term returns for the various asset classes. Equity returns
are developed based on the selection of the equity risk premium
above the risk-free rate which is measured in accordance with
the yield on government bonds. Bond returns are selected by
reference to the yields on government and corporate debt, as
appropriate to the plan's holdings of these instruments, all
other asset classes returns are determined by reference to current
experience.
The pension partnership interest has been valued on a discounted
cash flow basis. The valuation considered separately the profiles
of the originating royalty and rental income streams using the
Group's current budget and forecast data with other factors
considered being related expenses including taxation, timing
of the distributions, exchange rates, bond yields and the Group's
weighted average cost of capital.
The actual return on plan assets was GBP230 million (2009: GBP293
million).
10 Post-employment obligations (continued)
History of experience gains and losses
2010
UK Americas Europe ROW
---------------------------------- ------- -------- ------ -------
Experience adjustments arising on
scheme assets:
Amount - GBPm 77 10 - (1)
Percentage of scheme assets 3.3% 4.1% - (4.3%)
Experience gains/(losses) on
scheme liabilities:
Amount - GBPm 71 (5) (1) -
Percentage of the present value of
scheme liabilities 2.9% (1.3%) (0.3%)
Present value of scheme
liabilities - GBPm (2,448) (398) (369) (45)
Fair value of scheme assets - GBPm 2,364 245 28 23
------- -------- ------ -------
Deficit - GBPm (84) (153) (341) (22)
---------------------------------- ------- -------- ------ -------
2009
----------------------------------------------------------------------
Experience adjustments arising on
scheme assets:
Amount - GBPm 152 21 (1) -
Percentage of scheme assets 7.9% 9.8% (3.7%) -
Experience gains/(losses) on
scheme liabilities:
Amount - GBPm - 1 6 -
Percentage of the present value of
scheme liabilities - 0.3% 1.7% -
Present value of scheme
liabilities - GBPm (2,440) (355) (352) (39)
Fair value of scheme assets - GBPm 1,930 215 27 18
------- -------- ------ -------
Deficit - GBPm (510) (140) (325) (21)
---------------------------------- ------- -------- ------ -------
2008
----------------------------------------------------------------------
Experience adjustments arising on
scheme assets:
Amount - GBPm (539) (86) - (4)
Percentage of scheme assets (30.6%) (43.1%) - (21.0%)
Experience gains/(losses) on
scheme liabilities:
Amount - GBPm 7 2 (5) -
Percentage of the present value of
scheme liabilities 0.3% 0.5% (1.4%) -
Present value of scheme
liabilities - GBPm (2,043) (401) (353) (46)
Fair value of scheme assets - GBPm 1,759 202 29 19
Deficit - GBPm (284) (199) (324) (27)
---------------------------------- ------- -------- ------ -------
2007
----------------------------------------------------------------------
Experience adjustments arising on
scheme assets:
Amount - GBPm 21 - (1) (1)
Percentage of scheme assets 0.9% - (4.8%) (7.1%)
Experience gains/(losses) on
scheme liabilities:
Amount - GBPm (7) 4 (3) -
Percentage of the present value of
scheme liabilities (0.3%) 1.6% (1.4%) -
Present value of scheme
liabilities - GBPm (2,264) (270) (268) (24)
Fair value of scheme assets - GBPm 2,248 212 21 14
Deficit - GBPm (16) (58) (247) (10)
---------------------------------- ------- -------- ------ -------
2006
---------------------------------- ------- -------- ------ -------
Experience adjustments arising on
scheme assets:
Amount - GBPm 35 15 (1) -
Percentage of scheme assets 1.6% 7.6% (4.5%) -
Experience gains/(losses) on
scheme liabilities:
Amount - GBPm 15 - - (1)
Percentage of the present value of
scheme liabilities 0.6% - - (6.7%)
Present value of scheme
liabilities - GBPm (2,375) (301) (277) (23)
Fair value of scheme assets - GBPm 2,187 196 19 13
---------------------------------- ------- -------- ------ -------
Deficit - GBPm (188) (105) (258) (10)
---------------------------------- ------- -------- ------ -------
(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 GBP15 million (2009: GBP13 million).
(d) Pension partnership interest
On 31 March 2010 the Group agreed an asset-backed cash payment
arrangement with the Trustee of the UK Pension scheme to help
address the UK pension funding deficit. In connection with the
arrangement certain UK freehold properties and a non-exclusive
licence over the GKN trade marks, together with associated rental
and royalty rights, were transferred to a limited partnership
established by the Group. The partnership is controlled by and
its results are consolidated by the Group. The fair value of
the assets transferred was GBP535 million. On 31 March 2010,
the Group made a special contribution to the UK Pension scheme
of GBP331 million and on the same date the UK Pension scheme
used this contribution to acquire a nominal limited interest
in the partnership for its fair value of GBP331 million. The
UK Pension scheme's nominal partnership interest entitles it
to a distribution from the income of the partnership of GBP30
million per annum for 20 years subject to a discretion exercisable
by the Group in certain circumstances. At inception the discounted
value of the cash distributions was assessed at GBP331 million
which was recognised as a pension plan asset and as a non-controlling
interest in equity. The first distribution of GBP23 million
for the period from 31 March to 31 December 2010 is expected
to be made in the second quarter of 2011.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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Hsbc Bk.24 (LSE:AQ57)
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