TIDMAQ57 TIDM31OL
RNS Number : 4309B
GKN Holdings PLC
16 April 2012
GKN Holdings plc
2011 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 2011 Annual Report on
the GKN plc website. The document can be viewed at or downloaded
from www.gkn.com/investorrelations.
A copy of the 2011 Annual Report has 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 2011 full year results announcement issued by GKN plc
on 28 February 2012 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 2011.
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 GBP259 million as at
31 December 2011. 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
Directors:
Mrs J M Felton
Mr W C Seeger
Mr N M Stein
Each of the Directors as at the date of this report, whose names
are set out above, confirm that to the best of their knowledge:
-- the Group financial statements, prepared in accordance with
IFRSs as adopted by the EU, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Company and the undertakings included in the consolidation taken as
a whole; and
-- the Directors' report includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face.
GKN Holdings plc condensed financial statements
Consolidated Income Statement
For the year ended 31 December 2011
------------------------------------------------------------------------
Notes 2011 2010
GBPm GBPm
------------------------------------------------ ------ ------ ------
Sales 2 5,746 5,084
------------------------------------------------ ------ ------ ------
Trading profit 419 368
Restructuring and impairment charges - (39)
Change in value of derivative
and other financial instruments (31) 12
Amortisation of non-operating
intangible assets arising on
business combinations (22) (19)
UK Pension scheme curtailment - 68
Gains and losses on changes in
Group structure 8 (4)
----------------------------------------------- ------ ------ ------
Operating profit 3 374 386
Share of post-tax earnings of joint
ventures 13 38 35
Interest payable (47) (46)
Interest receivable 5 6
Other net financing charges (19) (35)
----------------------------------------------- ------ ------ ------
Net financing costs 5 (61) (75)
Profit before taxation 351 346
Taxation 6 (55) (30)
------------------------------------------------ ------ ------ ------
Profit after taxation for the year 296 316
------------------------------------------------ ------ ------ ------
Profit attributable to other non-controlling
interests 6 5
Profit attributable to the Pension
partnership 21 15
------------------------------------------------ ------ ------ ------
Profit attributable to non-controlling
interests 27 20
Profit attributable to equity shareholders 269 296
296 316
------------------------------------------------ ------ ------ ------
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2011
--------------------------------------------------------------------------------------------------------------------------
Notes 2011 2010
GBPm GBPm
----------------------------------------------------------------- ----------------- -------- --------------------------
Profit after taxation for the
year 296 316
Other comprehensive income
Currency variations
Subsidiaries
Arising in year (31) 42
Reclassified in year 4 (4) (1)
Joint ventures
Arising in year 13 3 9
Reclassified in year 4 (2) -
Derivative financial instruments
Transactional hedging 20
Arising in year (1) 1
Reclassified in year - -
Actuarial gains and losses on
post-employment obligations
Subsidiaries 25 (277) (24)
Joint ventures 13 - -
Taxation 6 56 58
----------------------------------------------------------------- ----------------- -------- --------------------------
(256) 85
----------------------------------------------------------------- ----------------- -------- --------------------------
Total comprehensive income for
the year 40 401
----------------------------------------------------------------- ----------------- -------- --------------------------
Total comprehensive income for
the year attributable to:
Equity shareholders 13 378
--------------------------------------------------------------- ----------------- -------- --------------------------
Other non-controlling interests 6 8
Pension partnership 21 15
--------------------------------------------------------------- ----------------- -------- --------------------------
Non-controlling interests 27 23
--------------------------------------------------------------- ----------------- -------- --------------------------
40 401
----------------------------------------------------------------- ----------------- -------- --------------------------
Consolidated Statement of Changes in Equity
For the year ended 31 December 2011
--------------------------------------------------------------------------------------------------------------------------
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
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ----- ------- ------- -------- -------- ------- -------- -------- --------- ------ -------
At 1 January 2011 362 301 2,683 388 (196) (133) 3,405 346 28 3,779
Total comprehensive
income/(expense) - - 46 (32) (1) - 13 21 6 40
Share-based payments 10 - - 6 - - - 6 - - 6
Distribution from
Pension
partnership to
UK Pension scheme 25 - - - - - - - (23) - (23)
Purchase of shares
in parent
undertaking
by
Employee Share
Ownership Plan
Trust - - (5) - - - (5) - - (5)
Dividends paid
to equity
shareholders 8 - - - - - - - - - -
Dividends paid
to non-controlling
interests - - - - - - - - (6) (6)
At 31 December
2011 362 301 2,730 356 (197) (133) 3,419 344 28 3,791
-------------------- ----- ------- ------- -------- -------- ------- -------- -------- --------- ------ -------
At 1 January 2010 362 301 2,412 343 (197) (95) 3,126 - 24 3,150
Total comprehensive
income/(expense) - - 332 45 1 - 378 15 8 401
Investment in
Pension partnership
by
UK Pension scheme 25 - - - - - - - 331 - 331
Purchase of
non-controlling
interests - - (2) - - - (2) - (3) (5)
Share-based payments 10 - - 3 - - - 3 - - 3
Transfers - - 38 - - (38) - - - -
Dividends paid
to equity
shareholders 8 - - (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 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 2011
------------------------------------------------------------------
Notes 2011 2010
GBPm GBPm
-------------------------------------- ------ -------- --------
Assets
Non-current assets
Goodwill 11 534 350
Other intangible assets 11 424 200
Property, plant and equipment 12 1,812 1,651
Investments in joint ventures 13 147 143
Other receivables and investments 14 37 23
Derivative financial instruments 20 21 19
Deferred tax assets 6 224 171
3,199 2,557
-------------------------------------- ------ -------- --------
Current assets
Inventories 15 749 637
Trade and other receivables 16 962 762
Amount receivable from parent
undertaking 2,176 2,100
Current tax assets 6 16 10
Derivative financial instruments 20 5 13
Other financial assets 18 - 4
Cash and cash equivalents 18 156 438
-------------------------------------- ------ -------- --------
4,064 3,964
-------------------------------------- ------ -------- --------
Total assets 7,263 6,521
-------------------------------------- ------ -------- --------
Liabilities
Current liabilities
Borrowings 18 (228) (61)
Derivative financial instruments 20 (30) (13)
Trade and other payables 17 (1,308) (1,065)
Amount payable to parent undertaking (9) (8)
Current tax liabilities 6 (138) (100)
Provisions 21 (46) (57)
(1,759) (1,304)
-------------------------------------- ------ -------- --------
Non-current liabilities
Borrowings 18 (466) (532)
Derivative financial instruments 20 (72) (61)
Deferred tax liabilities 6 (96) (63)
Trade and other payables 17 (120) (108)
Provisions 21 (91) (74)
Post-employment obligations 25 (868) (600)
-------------------------------------- ------ -------- --------
(1,713) (1,438)
-------------------------------------- ------ -------- --------
Total liabilities (3,472) (2,742)
-------------------------------------- ------ -------- --------
Net assets 3,791 3,779
-------------------------------------- ------ -------- --------
Shareholders' equity
Share capital 22 362 362
Share premium account 301 301
Retained earnings 2,730 2,683
Other reserves 26 59
-------------------------------------- ------ -------- --------
3,419 3,405
Non-controlling interests 372 374
-------------------------------------- ------ -------- --------
Total equity 3,791 3,779
-------------------------------------- ------ -------- --------
Consolidated Cash Flow Statement
For the year ended 31 December 2011
---------------------------------------------------------------------
Notes 2011 2010
GBPm GBPm
--------------------------------------------- ------ ------ ------
Cash flows from operating activities
Cash generated from operations 24 425 507
Special contribution to the UK
Pension scheme 25 - (331)
Interest received 5 7
Interest paid (48) (53)
Tax paid (48) (43)
Dividends received from joint
ventures 13 35 23
--------------------------------------------- ------ ------ ------
369 110
--------------------------------------------- ------ ------ ------
Cash flows from investing activities
Purchase of property, plant and
equipment (236) (162)
Receipt of government capital
grants 1 3
Purchase of intangible assets (46) (31)
Receipt of government refundable
advances - 10
Proceeds from sale and realisation
of fixed assets 8 5
Acquisition of subsidiaries (net
of cash acquired) (450) (6)
Acquisition of other investments 14 (4) -
Purchase of non-controlling interests - (5)
Proceeds from sale of businesses
(net of cash disposed) 4 5 5
Proceeds from sale of joint venture 4 8 1
Investments in joint ventures 13 (4) (10)
Investment loans and capital contributions - (3)
(718) (193)
--------------------------------------------- ------ ------ ------
Cash flows from financing activities
Investment in Pension partnership
by UK Pension scheme 25 - 331
Distribution from Pension partnership
to UK Pension scheme 25 (23) -
Purchase of shares in parent undertaking
by Employee Share
Ownership Plan Trust (5) -
Proceeds from borrowing facilities 115 38
Bond buy back including buy back
premium - (26)
Repayment of other borrowings (10) (48)
Finance lease payments - (1)
Amounts placed on deposit - (4)
Amounts returned from deposit 4 20
Dividends paid to shareholders 8 - (100)
Dividends paid to non-controlling
interests (6) (1)
75 209
--------------------------------------------- ------ ------ ------
Currency variations on cash and
cash equivalents (2) 7
--------------------------------------------- ------ ------ ------
Movement in cash and cash equivalents (276) 133
Cash and cash equivalents at 1
January 421 288
Cash and cash equivalents at 31
December 24 145 421
--------------------------------------------- ------ ------ ------
Notes to the Announcement
For the year ended 31 December 2011
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.
(a) Sales
---------------------------------------------------------------------------------------
Automotive
Powder Land
Driveline Metallurgy Aerospace Systems Total
GBPm GBPm GBPm GBPm GBPm
----------------------------- ---------- ---------- --------- ---------- ---------
2011
Subsidiaries 2,432 845 1,481 805
Joint ventures 246 - - 42
-------------------------------- ---------- ---------- --------- ----------
2,678 845 1,481 847 5,851
-------------------------------- ---------- ---------- --------- ----------
Acquisitions
Subsidiaries 117 - - 38 155
Other businesses 106
-------------------------------- ---------- ---------- --------- ---------- ---------
Management sales 6,112
Less: Joint venture
sales (366)
-------------------------------- ---------- ---------- --------- ---------- ---------
Income statement - sales 5,746
-------------------------------- ---------- ---------- --------- ---------- ---------
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
-------------------------------- ---------- ---------- --------- ---------- ---------
(b) Trading profit
---------------------------------------------------------------------------------------
Automotive
Powder Land
Driveline Metallurgy Aerospace Systems Total
GBPm GBPm GBPm GBPm GBPm
----------------------------- ---------- ---------- --------- ---------- ---------
2011
Trading profit before
depreciation, impairment
and
amortisation 255 103 208 77
Depreciation and impairment
of property, plant and
equipment (107) (31) (34) (13)
Amortisation of operating
intangible assets (3) - (5) (1)
-------------------------------- ---------- ---------- --------- ----------
Trading profit - subsidiaries 145 72 169 63
Trading profit/(loss)
- joint ventures 46 - (3) 5
-------------------------------- ---------- ---------- --------- ----------
191 72 166 68 497
-------------------------------- ---------- ---------- --------- ----------
Acquisitions
Trading profit - subsidiaries 7 - - 4 11
Acquisition related
charges (3) - - (5) (8)
-------------------------------- ---------- ---------- --------- ---------- ---------
3
Other businesses 3
Gallatin temporary plant
closure (19)
Corporate and unallocated
costs (16)
-------------------------------- ---------- ---------- --------- ---------- ---------
Management trading profit 468
Less: Joint venture
trading profit (49)
-------------------------------- ---------- ---------- --------- ---------- ---------
Income statement - trading
profit 419
-------------------------------- ---------- ---------- --------- ---------- ---------
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
-------------------------------- ---------- ---------- --------- ---------- ---------
1 Segmental analysis (continued)
(b) Trading profit (continued)
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.
There is a net credit in Corporate of GBP2 million
(2010: GBP8 million; Driveline GBP6 million and
Corporate GBP2 million) within trading profit
in respect of changes to retiree benefit arrangements.
Gallatin temporary plant closure
As a consequence of the Gallatin temporary plant
closure, a Hoeganaes facility within Powder Metallurgy,
following an incident on 27 May 2011, the Group
has incurred a significant amount of incremental,
one-off costs. The information presented in this
note should be read in conjunction with page 32
of the GKN plc business review.
The Group income statement for the year ended
31 December 2011 includes a net pre-tax charge
of GBP19 million in relation to the Gallatin temporary
plant closure. The GBP19 million, which has been
charged to trading profit, represents a gross
cost of GBP34 million offset by recoveries from
the Group's external insurer of GBP15 million.
The GBP34 million covers the cost of responding
to customer obligations, GBP20 million, including
premium freight and powder supply charges, rectification
and corrections to the plant configuration, GBP8
million, fixed employment costs that were unabsorbed
in June and July as a result of no productive
activity, GBP4 million, and professional fees
and other costs amounting to GBP2 million.
The net GBP19 million charge attracts taxation
relief of GBP4 million.
The impact on cash flows from operating activities
was a net outflow of GBP19 million.
(c) Goodwill, fixed assets and working capital - subsidiaries
only
Automotive
Powder Land
Driveline Metallurgy Aerospace Systems Total
GBPm GBPm GBPm GBPm GBPm
------------------------------ ---------- ---------- --------- ---------- ------------------
2011
Property, plant and equipment
and operating
intangible assets 982 313 479 142 1,916
Working capital 77 100 56 73 306
-------------------------------------- ---------- ---------- --------- ---------- ------------------
Net operating assets 1,059 413 535 215
Goodwill and non-operating
intangible assets 321 29 282 196
-------------------------------------- ---------- ---------- --------- ----------
Net investment 1,380 442 817 411
-------------------------------------- ---------- ---------- --------- ----------
2010
Property, plant and equipment
and operating
intangible 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 assets 81 29 296 54
-------------------------------------- ---------- ---------- --------- ----------
Net investment 1,031 425 784 222
-------------------------------------- ---------- ---------- --------- ----------
(d) Fixed asset additions, investments in joint ventures
and other non-cash items
Automotive
Powder Land Other
Driveline Metallurgy Aerospace Systems Businesses Corporate Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- --------- ---------- ---------- --------- ---------- --------- -------
2011
Fixed asset
additions
and capitalised
borrowing
costs
property,
plant
and
- equipment 136 44 58 18 1 - 257
intangible
- assets 9 - 39 1 - - 49
Investments in
associate and
Joint
ventures 118 - - 11 22 - 151
Other non-cash
items - share-based
payments 2 1 1 - - 2 6
----- ------------ --------- ---------- ---------- --------- ---------- --------- -------
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
payments 1 - 1 - - 1 3
----- ------------ --------- ---------- ---------- --------- ---------- --------- -------
1 Segmental analysis (continued)
(e) Country analysis
United Other Total
Kingdom USA Germany countries non-UK Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ---------- ---------- --------- ---------- --------- -------
2011
Management sales by
origin 930 1,720 1,017 2,445 5,182 6,112
Goodwill, other intangible
assets, property, plant
and
equipment and
investments
in associate and joint
ventures
2,921
joint ventures 411 908 498 1,104 2,510 2,921
----- -------------------------- ---------- ---------- --------- ---------- --------- -------
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
----- ------------------------------- ---------- ---------- --------- ---------- --------- -------
(f) Other sales information
Subsidiary segmental sales gross of inter segment
sales are; Driveline GBP2,491 million (2010: GBP2,234
million), Powder Metallurgy GBP851 million (2010:
GBP765 million), Aerospace GBP1,481 million (2010:
GBP1,451 million) and Land Systems GBP805 million
(2010: GBP665 million). Inter segment transactions
take place on an arms length basis using normal
terms of business.
In 2011 and 2010, no customer accounted for 10%
or more of subsidiary sales or management sales.
Management sales by product are: Driveline - CVJ
systems 70% (2010: 77%), all-wheel drive systems
23% (2010: 18%), transaxle solutions 5% (2010:
5%) and other goods 2% (2010: nil). Powder Metallurgy
- sintered components 83% (2010: 82%) and metal
powders 17% (2010: 18%). Aerospace - aerostructures
64% (2010: 64%), engine components and sub-systems
28% (2010: 28%) and special products 8% (2010:
8%). Land Systems - power management devices 36%
(2010: 27%), wheels and structures 37% (2010: 36%)
and aftermarket 27% (2010: 37%).
During the year, Driveline's product groups were
reassessed to better reflect the mix of business.
Amounts shown above, together with 2010 comparatives
reflect the current product groups.
(g) Reconciliation of segmental property, plant and
equipment and operating intangible fixed assets
to the balance sheet
2011 2010
GBPm GBPm
--------------------------------------------------------------------------- --------- -------
Segmental analysis - property, plant
and equipment and operating intangible
assets 1,916 1,716
Segmental analysis - goodwill and non-operating
intangible assets 828 460
Goodwill (534) (350)
Other businesses 19 19
Corporate assets 7 6
------------------------------------------------------------------------------ --------- -------
Balance sheet - property, plant and equipment
and other intangible assets 2,236 1,851
------------------------------------------------------------------------------ --------- -------
Reconciliation of segmental working capital to
(h) the balance sheet
2011 2010
GBPm GBPm
--------------------------------------------------------------------------- --------- -------
Segmental analysis - working capital 306 286
Other businesses 11 6
Corporate items (36) (47)
Accrued net financing costs (21) (19)
Restructuring provisions (10) (41)
Deferred and contingent consideration (29) (27)
Government refundable advances (42) (40)
Balance sheet - inventories, trade and
other receivables, trade and other payables
and
provisions 179 118
---- ------------------------------------------------------------------------ --------- -------
2 Operating profit
The analysis of the components of operating
profit is shown below:
(a) Trading profit
2011 2010
GBPm GBPm
-------------------------------------------------------------- -------- --------
Sales by subsidiaries 5,746 5,084
Less: Businesses sold and closed - (2010:
Axles) - (10)
-------------------------------------------------------------- -------- --------
5,746 5,074
Operating costs
Change in stocks of finished goods and
work in progress 32 31
Raw materials and consumables (2,636) (2,157)
Staff costs (note 10) (1,457) (1,346)
Reorganisation costs (ii):
Redundancy and other employee related
amounts - (4)
Impairment of plant and equipment - -
Depreciation of property, plant and
equipment (iii) (191) (191)
Impairment of plant and equipment (1) (2)
Amortisation of intangible assets (10) (10)
Operating lease rentals payable:
Plant and equipment (14) (13)
Property (29) (32)
Impairment of trade receivables (8) (7)
Amortisation of government capital grants 1 1
Net exchange differences on foreign
currency transactions (1) 2
Acquisition related charges (8) -
Other costs (1,005) (978)
-------- --------
(5,327) (4,706)
-------------------------------------------------------------- -------- --------
Trading profit 419 368
-------------------------------------------------------------- -------- --------
(i) EBITDA is subsidiary trading profit before depreciation,
impairment and amortisation charges included
in trading profit. EBITDA in 2011 was GBP621
million (2010: GBP571 million).
(ii) Reorganisation costs in 2010 reflect actions
in the ordinary course of business to reduce
costs, improve productivity and rationalise
facilities in continuing operations.
(iii) Including depreciation charged on assets held
under finance leases of less than GBP1 million
(2010: GBP1 million).
(iv) Research and development expenditure in subsidiaries
was GBP103 million (2010: GBP92 million).
(v) Auditors' remuneration
The analysis of auditors' remuneration is as
follows:
2011 2010
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 (3.4) (3.1)
---- ------------------------------------------------- -------- --------
Total audit fees (3.4) (3.1)
------------------------------------------------- -------- --------
Other services pursuant
- to legislation (0.1) (0.1)
- Tax services (0.7) (0.6)
- Corporate finance transaction services (0.2) -
- Other services (0.1) (0.1)
---- ------------------------------------------------- -------- --------
Total non-audit fees (1.1) (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 (4.5) (3.9)
------------------------------------------------- -------- --------
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.
2 Operating profit (continued)
(b) Restructuring and impairment charges in 2010
The prior year restructuring actions comprised
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.
There have been no further restructuring charges
during 2011.
In the comparative year to 31 December 2010 the
Group incurred charges of GBP12 million for redundancy
and post-employment costs, GBP2 million for short-term
working costs, wholly wages and salaries and GBP25
million for other reorganisation costs. All of
these costs were incurred in subsidiaries.
The segmental allocation of restructuring costs
in the comparative year to 31 December 2010 was:
Driveline GBP29 million, Powder Metallurgy GBP1
million, Aerospace GBP4 million and Land Systems
GBP5 million.
Cash outflow in respect of previous restructuring
plans was GBP31 million (2010: GBP55 million).
Proceeds from sale of fixed assets, put out of
use as part of previous restructuring programmes,
of GBP2 million were recognised in the year (2010:
GBP2 million).
Change in value of derivative and other financial
(c) instruments
2011 2010
GBPm GBPm
----------------------------------------------------- ----- ----
Forward currency contracts (not hedge
accounted) (29) (3)
Embedded derivatives (3) 3
Commodity contracts (not hedge accounted) (1) -
----------------------------------------------------- ----- ----
(33) -
Net gains and losses on intra-group
funding
Arising in year 2 12
Reclassified in year - -
---------------------------------------------------- ----- ----
2 12
-----------------------------------------------------
(31) 12
----------------------------------------------------- ----- ----
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 2011 and 2010
the Group used transactional hedge accounting
in a limited number of instances.
Amortisation of non-operating intangible assets
(d) arising on business combinations
2011 2010
GBPm GBPm
----------------------------------------------------- ----- ----
Marketing related - -
Customer related (17) (16)
Technology based (5) (3)
----------------------------------------------------- ----- ----
(22) (19)
----------------------------------------------------- ----- ----
(e) Gains and losses on changes in Group structure
2011 2010
GBPm GBPm
----------------------------------------------------- ----- ----
Profits and losses on sale or closure
of businesses
Business sold - GKN Aerospace Engineering
Services 4 -
Business sold and closed - (2010:
Axles) - (5)
Profit on sale of joint venture 4 -
Investment write up on acquisition
of GKN Aerospace Services Structures
Corp. - 1
----------------------------------------------------- ----- ----
8 (4)
----------------------------------------------------- ----- ----
On 31 March 2011 the Group sold its 49% share
in a joint venture company, GKN JTEKT Limited,
for cash consideration of GBP8 million. A profit
on sale of GBP4 million was realised which includes
GBP2 million of previous currency variations reclassified
from other reserves.
On 30 November 2011 the Group sold its Engineering
Services division of GKN Aerospace for net cash
consideration of GBP5 million. A profit on sale
of GBP4 million was realised which represents
previous currency variations reclassified from
other reserves.
On 1 September 2010 the Group concluded the sale
of its European agricultural axles operations
with other operations closed during the year.
Sale proceeds were GBP5 million and a net loss
of GBP5 million was realised representing trading
losses of GBP2 million, tangible fixed asset impairment
of GBP1 million, other asset write downs of GBP3
million and reclassified currency variations from
other reserves of GBP1 million.
3 Net financing costs
2011 2010
GBPm GBPm
------------------------------------------- ----- -----
(a) Interest payable and fee expense
Short term bank and other borrowings (10) (7)
Loans repayable within five years (14) (15)
Loans repayable after five years (26) (24)
Bond buy back premium - (1)
Government refundable advances (2) (2)
Borrowing costs capitalised 6 4
Finance leases (1) (1)
------------------------------------------ ----- -----
(47) (46)
------------------------------------------- ----- -----
Interest receivable
Short term investments, loans and
deposits 5 6
Net interest payable and receivable (42) (40)
------------------------------------------- ----- -----
The capitalisation rate on specific funding was
5.6% (2010: 5.6%) and on general borrowings was
6.1% (2010: 6.8%).
2011 2010
GBPm GBPm
------------------------------------------- ----- -----
(b) Other net financing charges
Expected return on scheme assets 153 145
Interest on post-employment obligations (170) (176)
------------------------------------------ ----- -----
Post-employment finance charges (17) (31)
Unwind of discounts (2) (4)
------------------------------------------ ----- -----
(19) (35)
------------------------------------------- ----- -----
4 Taxation
(a) Tax expense
2011 2010
Analysis of charge in year GBPm GBPm
------------------------------------------- ----- -----
Current tax (charge)/credit
Current year charge (92) (74)
Utilisation of previously unrecognised
tax losses and other assets 10 20
Net movement on provisions for uncertain
tax positions (22) (27)
Adjustments in respect of prior
years 1 (2)
---------------------------------------------- ----- -----
(103) (83)
------------------------------------------- ----- -----
Deferred tax (charge)/credit
Origination and reversal of temporary
differences (26) (23)
Tax on change in value of derivative
financial instruments 7 (2)
Other changes in unrecognised deferred
tax assets 58 72
Changes in tax rates - (2)
Adjustments in respect of prior
years 9 8
---------------------------------------------- ----- -----
48 53
------------------------------------------- ----- -----
Total tax charge for the year (55) (30)
------------------------------------------- ----- -----
Management tax rate
The Group operates in many jurisdictions and is
subject to tax audits which are often complex
and can take several years to conclude. Therefore,
the accrual for current tax includes provisions
for uncertain tax positions which require estimates
for each matter and the exercise of judgement
in respect of the interpretation of tax laws and
the likelihood of challenge to historic tax positions.
Where appropriate, estimates of interest and penalties
are included in these provisions. As amounts provided
for in any year could differ from eventual tax
liabilities, subsequent adjustments which have
a material impact on the Group's tax rate and/or
cash tax payments may arise. Tax payments comprise
payments on account and payments on the final
resolution of open items and, as a result, there
can be substantial differences between the charge
in the income statement and cash tax payments.
With regard to deferred tax, judgement is required
for the recognition of deferred tax assets, which
is based on expectations for future financial
performance in particular legal entities or tax
groups.
2011 2010
Tax reconciliation GBPm % GBPm %
-------------------------------------------- ---- ----- ---- ----
Profit before tax 351 346
Less share of post-tax earnings
of joint ventures (38) (35)
Profit before tax excluding joint
ventures 313 311
------------------------------------------------- ---- ----- ---- ----
Tax charge calculated at 26.5%
(2010: 28%) standard UK corporate
tax rate (83) (26) (87) (28)
Differences between UK and overseas
corporate tax rates (26) (8) 8 3
Non-deductible and non-taxable
items (2) (1) (20) (6)
Utilisation of previously unrecognised
tax losses and other assets 10 3 20 6
Other changes in unrecognised
deferred tax assets 58 19 72 23
Changes in tax rates - - (2) (1)
------------------------------------------------- ---- ----- ---- ----
4 Taxation (continued)
(a) Tax expense (continued)
Tax charge on ordinary activities (43) (13) (9) (3)
Net movement on provision for
uncertain tax positions (22) (7) (27) (8)
Other adjustments in respect of
prior years 10 3 6 2
-----
Total tax charge for the year (55) (17) (30) (10)
------------------------------------------------- ---- ----- ---- ----
(b) Tax included in comprehensive income
2011 2010
GBPm GBPm
-------------------------------------------------- ----- ----------
Deferred tax on post-employment obligations 30 46
Deferred tax on foreign currency gains
and losses on intra-group funding 1 (3)
Current tax on post-employment obligations 24 14
Current tax on foreign currency gains
and losses on intra-group funding 1 1
------------------------------------------------------- ----- ----------
56 58
------------------------------------------------------- ----- ----------
(c) Current tax
2011 2010
GBPm GBPm
-------------------------------------------------- ----- ----------
Assets 16 10
Liabilities (138) (100)
------------------------------------------------------- ----- ----------
(122) (90)
------------------------------------------------------- ----- ----------
(d) Recognised deferred tax
2011 2010
GBPm GBPm
-------------------------------------------------- ----- ----------
Deferred tax assets 224 171
Deferred tax liabilities (96) (63)
------------------------------------------------------- ----- ----------
128 108
------------------------------------------------------- ----- ----------
There is a net GBP48 million deferred tax credit
to the income statement in the year (2010: GBP53
million) and a further deferred tax credit of
GBP31 million has been recorded directly in other
comprehensive income (2010: GBP46 million). Primarily
these credits relate to the recognition of previous
unrecognised future tax deductions in the US,
the UK and Japan, based on management projections
which indicate the future availability of taxable
profits to absorb the deductions.
The movements in deferred tax assets and liabilities
(prior to the offsetting of balances within the
same jurisdiction as permitted by IAS 12) during
the year are shown below:
Assets Liabilities
-------------------------- -------------
Post-
employment Tax Fixed
obligations losses Other assets Other Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ----------- ------ ----- ------ ----- -----
At 1 January 2011 111 120 47 (161) (9) 108
Included in the income
statement - 23 12 11 2 48
Included in other
comprehensive income 30 - - - 1 31
Businesses acquired - - (8) (60) - (68)
Currency variations 1 4 - 4 - 9
---------------------------- ----------- ------ ----- ------ ----- -----
At 31 December 2011 142 147 51 (206) (6) 128
---------------------------- ----------- ------ ----- ------ ----- -----
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
---------------------------- ----------- ------ ----- ------ ----- -----
Deferred tax assets totalling GBP41 million (2010:
GBP39 million) have been recognised in territories
where tax losses have been incurred in the year
as future profitability is expected which will
result in their realisation.
(e) Unrecognised deferred tax assets
Certain deferred tax assets have not been recognised
on the basis that the Group's ability to utilise
them is uncertain as shown below.
4 Taxation (continued)
(e) Unrecognised deferred tax assets (continued)
2011 2010
------------------------ ------------------------
Tax Tax
value Gross Expiry value Gross Expiry
GBPm GBPm period GBPm GBPm period
---------------------- ------ ----- --------- ------ ----- ---------
Tax losses - with
expiry: national 142 401 2012-2031 215 619 2011-2030
Tax losses - with
expiry: local 20 487 2012-2031 41 480 2011-2030
Tax losses - without
expiry 116 448 105 384
--------------------------- ------ ----- --------- ------ ----- ---------
Total tax losses 278 1,336 361 1,483
--------------------------- ------ ----- --------- ------ ----- ---------
Post-employment
obligations 70 298 66 245
Other temporary
differences 41 161 38 136
--------------------------- ------ ----- --------- ------ ----- ---------
Total other temporary
differences 111 459 104 381
--------------------------- ------ ----- --------- ------ ----- ---------
Unrecognised deferred
tax assets 389 1,795 465 1,864
--------------------------- ------ ----- --------- ------ ----- ---------
No deferred tax is recognised on the unremitted
earnings of overseas subsidiaries except where
the distribution of such profits is planned. If
these earnings were remitted in full, tax of GBP13
million (2010: GBP25 million) would be payable.
(f) Changes in UK tax rate
A reduction in the mainstream rate of UK corporation
tax to 26% took effect from April 2011 which gives
rise to an effective UK tax rate of 26.5% for
the year. Further reductions to 22% by 2014 are
expected and at the balance sheet date a reduction
to 25% had been substantively enacted, so UK deferred
tax is measured at 25%. Further reductions will
cause a corresponding reduction in the value of
UK deferred tax assets but as substantial UK deferred
tax assets are currently unrecognised, no material
impact on the Group effective tax rate is expected.
(g) Franked investment income - litigation
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 Court of Appeal hearing regarding
payments on account took place in November 2011
and the initial judgment is favourable toward
GKN retaining existing payments on accounts received,
although HMRC still has a right to appeal against
this decision. The main case has been appealed
to the UK Supreme Court and to the European Court
of Justice (for further guidance on breach of
community law). The Judgements for either Court
are not expected until late Summer/early Autumn
2012. The continuing complexity of the case 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
There were no discontinued operations in 2011
or 2010.
6 Dividends
Dividends paid to parent undertaking in the year
are nil (2010: GBP100 million)
7 Investments in joint ventures
Group share of results
2011 2010
GBPm GBPm
------------------------------------------ ----- -----
Sales 366 355
Operating costs (317) (311)
------------------------------------------ ----- -----
Trading profit 49 44
Net financing costs (1) (1)
------------------------------------------ ----- -----
Profit before taxation 48 43
Taxation (8) (7)
------------------------------------------ ----- -----
Share of post-tax earnings - before
exceptional and non-trading items 40 36
Amortisation of non-operating intangible
assets arising on business combinations
and other net financing charges,
including tax of GBP1 million (2010:
nil) (2) (1)
Share of post-tax earnings 38 35
------------------------------------------ ----- -----
7 Investments in joint ventures (continued)
Group share of net book amount
2011 2010
-------------------------- ----- ----------------------------------
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 143 - 143 113 (1) 112
Share of post-tax
earnings of
joint ventures 38 - 38 35 - 35
Utilisation of
provision - - - (1) 1 -
Actuarial gains
on
post-employment
obligations,
including
deferred tax - - - - - -
Dividends paid (35) - (35) (23) - (23)
Additions 4 - 4 10 - 10
Disposals (6) - (6) - - -
Currency
variations 3 - 3 9 - 9
----------------- ------ ---------- ------ ----- ------ ----------------- -------
At 31 December 147 - 147 143 - 143
----------------- ------ ---------- ------ ----- ------ ----------------- -------
2011 2010
GBPm GBPm
---------------------------------------------------- ------ --------------------------
Non-current assets 124 117
Current assets 127 139
Current liabilities (79) (87)
Non-current liabilities (25) (26)
---------------------------------------------------- ------ --------------------------
147 143
---------------------------------------------------- ------ --------------------------
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. The share of capital commitments
of the joint ventures are shown in note 28.
8 Net borrowings
(a) Analysis of net borrowings
--------------------------------------------------------------------------------
Notes Current Non-current Total
---------- ----------------------------
One Two
to to More
Within two five than Total
one five
year years years years
GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ------ ---------- ------ ----- ------ ----- ----------
2011
Other borrowings
GBP350 million
6[3/4]%
2019 unsecured
bond i - - - (347) (347) (347)
GBP176 million
7%
2012 unsecured
bond i (176) - - - - (176)
Other secured
US$
denominated
loan (2) (3) (1) - (4) (6)
Other long term
borrowings - - (65) (48) (113) (113)
Finance lease
obligations iv (1) (1) (1) - (2) (3)
Bank overdrafts (11) - - - - (11)
Other short term
bank borrowings (38) - - - - (38)
Borrowings (228) (4) (67) (395) (466) (694)
------------------ ------ ---------- ------ ----- ------ ----- ----------
Bank balances and
cash 150 - - - - 150
Short term bank
deposits ii 6 - - - - 6
------------------ ------ ---------- ------ ----- ------ ----- ----------
Cash and cash
equivalents v 156 - - - - 156
------------------ ------ ---------- ------ ----- ------ ----- ----------
Other financial
assets - bank
deposits - - - - - -
------------------ ------ ---------- ------ ----- ------ ----- ----------
Net borrowings (72) (4) (67) (395) (466) (538)
------------------ ------ ---------- ------ ----- ------ ----- ----------
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)
------------------ ------ ---------- ------ ----- ------ ----- ----------
8 Net borrowings (continued)
(a) Analysis of net borrowings (continued)
Other borrowings include: unsecured GBP350 million
(2010: GBP350 million) 6[3/4]% bond maturing
in 2019 less unamortised issue costs of GBP3
million (2010: GBP3 million); unsecured GBP176
million (2010: GBP176 million) 7% bond maturing
in 2012 less unamortised issue costs of nil
(2010: nil); and a secured term loan of GBP6
million (2010: GBP8 million) secured by way
of a fixed and floating charge on certain Aerospace
fixed assets.
Other long term borrowings include GBP80 million
drawn under the Group's European Investment
Bank unsecured facility. The loan is due for
repayment in five equal annual instalments of
GBP16 million, commencing in June 2015 and attracts
a fixed interest rate of 4.1% per annum payable
annually in arrears. Also included is GBP33
million drawn from the Group's new 2016 Revolving
Credit Facility of GBP445 million. The term
of the facility is 5 years and attracts a variable
interest rate.
Notes
(i) Denotes borrowings at fixed rates of interest
until maturity. All other borrowings and cash
and cash equivalents are at variable interest
rates unless otherwise stated.
(ii) The average interest rate on short term bank
deposits was 0.7% (2010: 0.5%). Deposits at
both 31 December 2011 and 31 December 2010
had a maturity date of less than one month.
(iii) The interest rate on bank deposits in 2010
was 2% and they matured on 27 May 2011.
(iv) Finance lease obligations gross of finance
charges fall due as follows: GBP1 million
within one year (2010: GBP1 million), GBP3
million in one to five years (2010: GBP3 million)
and nil in more than five years (2010: GBP1
million).
(v) GBP24 million (2010: GBP11 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 the Group
on demand.
(b) Fair values
-------------------------------------------------------------------------------------------------
2011 2010
---------------------------- --------------------------
Book Fair Book Fair
value value value value
GBPm GBPm GBPm GBPm
--------------------------------------- ------------- ------------- ------------ ------------
Borrowings, other financial
assets and cash and cash equivalents
Other borrowings (642) (659) (537) (564)
Finance lease obligations (3) (3) (3) (3)
Bank overdrafts and other
short term bank borrowings (49) (49) (53) (53)
Bank balances and cash 150 150 158 158
Short term bank deposits and
other bank deposits 6 6 284 284
(538) (555) (151) (178)
--------------------------------------- ------------- ------------- ------------ ------------
Trade and other payables
Government refundable advances (42) (39) (40) (40)
Deferred and contingent consideration (29) (29) (27) (27)
--------------------------------------- ------------- ------------- ------------ ------------
(71) (68) (67) (67)
--------------------------------------- ------------- ------------- ------------ ------------
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 2011.
Bonds included within other borrowings have
been valued using quoted closing market values.
9 Business combinations
Acquisition of Getrag
GKN Driveline acquired the all-wheel-drive (AWD)
components businesses from Getrag KG on 30 September
2011. The Group acquired 100% of the equity of:
1) Getrag Corporation, formerly a joint venture
with Dana Corporation, based in the United States;
and
2) Getrag All Wheel Drive AB, formerly a joint
venture with Dana Holding Corporation and Volvo
Car Corporation, based in Sweden.
The entities acquired are together referred to
as "Getrag Driveline Products".
The core business of Getrag Driveline Products
is the Tier 1 supply of geared driveline products,
namely Power Transfer Units and Rear Drive Units
for AWD vehicles, along with Final Drive Units
for high performance rear wheel drive vehicles.
It is an excellent fit with GKN's existing range
of products and technology. The operations have
a product, manufacturing and customer footprint
which is complementary to GKN's own geared product
business, which is predominantly based in Asia.
As part of the overall transaction, GKN is also
acquiring an exclusive licence, principally for
Europe and the Americas, to Getrag's electric drivetrain
technology for use in electric and certain hybrid
vehicles.
The identifiable assets acquired and liabilities
assumed below are provisional as the review of
certain liabilities and provisions is on-going.
9 Business combinations (continued)
Acquisition of Getrag (continued) GBPm
-------------------------------------------------------- ------
Intangible fixed assets
- customer related 75
- technology based 53
- marketing related 2
Property, plant and equipment 94
Other non-current assets 1
Cash 23
Inventories 36
Trade and other receivables 84
Trade and other payables (96)
Post-employment obligations (1)
Provisions (33)
Deferred tax (38)
Provisional goodwill 115
-------------------------------------------------------- ------
315
-------------------------------------------------------- ------
Satisfied by:
Cash 287
Repayment of loan 22
-------------------------------------------------------- ------
Total cash and cash equivalents 309
Contingent consideration 6
-------------------------------------------------------- ------
Fair value of consideration 315
-------------------------------------------------------- ------
The Group has agreed to pay the selling shareholders
additional consideration of up to GBP6 million
depending on Getrag Driveline Products' success
in achieving future business awards in the post-acquisition
period. The range of the total contingent consideration
payment, based on individual contracts is nil to
GBP8 million, however, there is a maximum cap of
GBP6 million. The fair value of the contingent
consideration at the acquisition date was GBP6
million, calculated using a discount rate equal
to the incremental short term borrowing rate of
2%. There was no change in the contingent consideration
balance at 31 December 2011.
From the date of acquisition to the balance sheet
date, Getrag Driveline Products contributed GBP117
million to sales and GBP7 million to trading profit.
If the acquisition had been completed on 1 January
2011 the Group's statutory sales and trading profit
for the year ended 31 December 2011 are estimated
at GBP6,082 million and GBP438 million respectively.
Acquisition related fees of GBP2 million incurred
have all been charged to the income statement within
trading profit.
Goodwill (which is not tax deductible) is attributable
to the value of the assembled workforce, intangible
assets that do not qualify for separate recognition
and expected future synergies from combination
with the Group's existing Driveline business.
Acquisition of Stromag
GKN Land Systems acquired the entire share capital
of Stromag Holding GmbH (Stromag) from former shareholders
which included Equita GmbH & Co. Holding KGaA and
a large number of other organisations and individuals,
including management on 5 September 2011.
Stromag is a market leading engineer of industrial
power management components with a strong technology
base and focus on providing tailored solutions
for its customers. Its core products include hydraulic
clutches, electro-magnetic brakes and flexible
couplings serving end-markets including agricultural
equipment, construction and mining machinery, renewable
energy and the metal processing industry with a
recognised brand. The business is headquartered
in Germany and has operations in Germany, France,
USA, Brazil, India and China.
The identifiable assets acquired and liabilities
assumed below are provisional as the review of
certain liabilities and provisions remains on-going.
9 Business combinations (continued)
Acquisition of Stromag (continued)
GBPm
Intangible fixed assets
- customer related 51
- technology based 23
- marketing related 5
Property, plant and equipment 31
Indemnity asset 12
Cash 12
Inventories 26
Trade and other receivables 20
Trade and other payables (24)
Provisions (18)
Post-employment obligations (11)
Deferred tax (30)
Provisional goodwill 73
-------------------------------------------------------- -----
170
-------------------------------------------------------- -----
Satisfied by:
Cash 143
Repayment of loan 27
-------------------------------------------------------- -----
Fair value of total consideration, all
cash and cash equivalents 170
-------------------------------------------------------- -----
From the date of acquisition to the balance sheet
date, Stromag contributed GBP38 million to sales
and GBP4 million to trading profit. If the acquisition
had been completed on 1 January 2011 the Group's
statutory sales and trading profit for the year
ended 31 December 2011 are estimated at GBP5,827
million and GBP428 million respectively.
Acquisition related fees of GBP2 million incurred
have all been charged to the income statement within
trading profit.
Goodwill (which is not tax deductible) is attributable
to the value of the assembled workforce, intangible
assets that do not qualify for separate recognition
and expected future synergies from combination
with the Group's existing Land Systems business.
The Group was indemnified for certain legal, environmental
and warranty issues under the sale and purchase
agreement. Provisions have been established under
IAS 37 and a corresponding indemnity asset of GBP12
million was recorded. The indemnity asset is recorded
in other receivables; non current GBP9 million,
current GBP3 million. The range of outcomes for
the indemnity receipt is nil to GBP12 million with
payment based on contractual events.
9 Business combinations (continued)
Judgements and estimates
Valuation of non-operating intangibles-methodology
The fair value exercise was carried out in conjunction
with third party experts and considered the existence
of the intangible assets relevant and attributable
to the businesses.
The intangible assets inherent in both Stromag
and Getrag Driveline Products' customer relationships/contracts
were valued using an excess earnings method. This
methodology places a value on the asset as a function
of (a) management's estimate of the attrition rates
on the expected cash flows arising from the contracts
and forecast cash flows likely to accrue from the
customer base; (b) expected cash flows arising
from the asset; (c) discount rates reflective of
the risks inherent in the cash flows; and (d) an
asset charge attributable to operating assets needed
to generate the cash flows. The cash flows attributable
to customer relationships include an annual attrition
rate of between 5% and 10% to reflect expected
decay in future revenues. An after tax discount
rate of 13.0% to 14.0% was applied to the forecast
cash flows.
The proprietary technology and know-how has been
valued using a relief from royalty methodology.
The cash flow forecasts supporting this valuation
reflect the future sales to be generated in conjunction
with the technology. The fair value attributed
to proprietary technology represents the theoretical
costs avoided by both Stromag and Getrag Driveline
Products from not having to pay a licence fee for
the technology. The royalty rate used in the valuations
was between 2.5% and 3%, based on a review of licence
agreements for comparable technologies in similar
industrial segments. An after tax discount rate
of between 13% and 14.5% was applied to the forecast
cash flows, a rate that reflects the higher inherent
risk within cash flows compared to the weighted
average cost of capital for the acquisitions.
As part of the Getrag Driveline Products transaction
the vendor signed a non-compete agreement and in
respect of relevant individuals was to keep confidential
all information about technology, operations, or
customers obtained of the business acquired for
a period of five years. Although the vendor still
operates in the automotive business it has retained
no activities of a similar nature to those it disposed
of. The costs of recreating the specific technology
and processes it disposed of would be significant.
A fair value of GBP2 million was identified for
the covenant not to compete.
The tradename of Stromag was deemed to have measurable
value as it is well recognised in its industry.
It has been valued using a Relief from Royalty
methodology based on projected cashflows attributable
to the tradename and an assumed royalty rate (0.5%)
that would be charged if the name were subject
to licence within a comparable trade situation
and an appropriate discount rate (15.5%) reflecting
inherent risk in the project cashflows. A fair
value of GBP5 million has been recognised.
The valuation of all intangible assets reflects
the tax benefit of amortisation, which in the context
of Getrag Driveline Products has meant a benefit
assessed with reference to US and Swedish tax laws
and in the context of Stromag has meant a benefit
assessed with reference to German tax laws. According
to US and German tax law an intangible asset may
be rateably amortised over 15 years regardless
of its actual useful life and in Sweden the amortisation
period is 5 years. As such, there is a tax benefit
to an acquirer and hence values attributable to
the intangible assets have been recognised. This
value amounts to GBP12 million across all the intangibles
recognised.
Valuation of other assets and liabilities -methodology
Fair value adjustments on tangible fixed assets
represent a net uplift on property, plant and equipment
to fair values following external third party appraisal.
The uplift primarily represents the restoration
of asset values fully depreciated and the current
market conditions.
Inventories acquired were assessed for scrap and
obsolete items before being fair valued. Inventories
acquired have been valued at current replacement
cost for raw materials and selling price, adjusted
for costs of disposal and a selling margin, for
finished goods and work-in-progress. The value
of the inventory uplift was GBP4 million with an
adjustment for scrap and obsolete items of GBP1
million.
Liabilities include an amount in respect of an
onerous contract and a refundable advance.
At acquisition there were forecast unavoidable
costs of meeting the obligations under long term
agreements which exceed the contractual economic
inflow they will generate. Accordingly an onerous
contract liability of GBP20 million has been recognised
using a risk adjusted discount rate of 12.5%. Unavoidable
costs include direct labour, material and specific
engineering costs in addition to the net cost of
purchasing fixed assets dedicated to the contract.
A liability of GBP19 million is included on the
acquisition balance sheet for a contractual requirement
to repay refundable advances provided. The liability
has been valued based on forecast cash flow, with
the effect of discounting assessed as immaterial.
10 Cash flow reconciliations
---------------------------------------------- ----- -----
2011 2010
Cash generated from operations GBPm GBPm
---------------------------------------------- ----- -----
Operating profit 374 386
Adjustments for:
Depreciation, impairment and amortisation
of fixed assets
Charged to trading profit
Depreciation 191 191
Impairment 1 2
Amortisation 10 10
Amortisation of non-operating intangible
assets arising on business combinations 22 19
Restructuring and impairment charges - -
Change in fair value of derivative
and other financial instruments 31 (12)
Amortisation of government capital
grants (1) (1)
Net profits on sale and realisation
of fixed assets (3) (1)
Gains and losses on changes in Group
structure (8) (1)
Charge for share-based payments 6 3
Movement in post-employment obligations (34) (116)
Changes in amounts due from parent
undertaking (75) 86
Change in inventories (60) (63)
Change in receivables (109) (117)
Change in payables and provisions 80 121
425 507
---------------------------------------------- ----- -----
Movement in net debt
Movement in cash and cash equivalents (276) 133
Net movement in other borrowings and
deposits (109) (6)
Bond buy back - 25
Finance leases - 1
Currency variations (2) (4)
Movement in year (387) 149
Net debt at beginning of year (151) (300)
Net debt at end of year (538) (151)
---------------------------------------------- ----- -----
Reconciliation of cash and cash equivalents
Cash and cash equivalents per balance
sheet 156 438
Bank overdrafts included within "current
liabilities - borrowings" (11) (17)
---------------------------------------------- -----
Cash and cash equivalents per cashflow 145 421
---------------------------------------------- ----- -----
11 Post-employment obligations
2011 2010
Post-employment obligations as at the
year end comprise: GBPm GBPm
------------------------------------------------------------------------- ---------------------- ---------
Pensions - funded (443) (176)
- unfunded (355) (363)
Medical - funded (22) (17)
- unfunded (48) (44)
----------- ----------------------------------------------------------------- ---------------------- ---------
(868) (600)
------------------------------------------------------------------------------ ---------------------- ---------
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.
(a) Defined benefit schemes - measurement and assumptions
Independent actuarial valuations of all major
defined benefit scheme assets and liabilities
were carried out at 31 December 2011. 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.
Key assumptions were:
UK Americas Europe ROW
% % % %
------------------------------------ ----------- ---------------------- --------- ----------------------
2011
Rate of increase in pensionable
salaries 4.00 3.50 2.50 -
Rate of increase in payment
and deferred pensions 3.10 2.00 1.75 n/a
Discount rate 4.70 4.50 4.90 1.65
Inflation assumption 3.00 2.50 1.75 n/a
Rate of increases in medical
costs:
Initial/long term 6.0/5.4 8.5/5.0 n/a n/a
----------------------------------- ----------- ---------------------- --------- ----------------------
2010
Rate of increase in pensionable
salaries 4.35 3.50 2.50 -
2.90
Rate of increase in payment
and deferred pensions 0 2.00 1.75 n/a
Discount rate 5.40 5.50 5.00 1.75
Inflation assumption 3.35 2.50 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
----------------------------------- ----------- ---------------------- --------- ----------------------
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
referenced both the Citigroup liability index
and the Merrill Lynch US corporate AA 15+ years
as at 31 December 2011 of 4.4 and 4.55, respectively.
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 age rating for female members consistent
with the prior year. Using these assumptions a
male aged 65 lives for a further 20.7 years and
a female aged 65 lives for a further 23.3 years.
A male aged 45 is expected to live a further 22.4
years from age 65 and a female aged 45 is expected
to live a further 25.1 years from age 65.
Overseas
In the USA, PPA2011 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 19.1
years (female 21.0 years) whilst in Germany a
male aged 65 lives for a further 18.4 years (female
22.5 years). The longevity assumption for a USA
male currently aged 45 is that he also lives for
a further 19.1 years once attaining 65 years (female
21.0 years), with the German equivalent assumption
for a male being 21.1 years (female 25.1 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 2011 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% 366 1.8 56 (0.5) 44 - 5 (0.2)
Discount
rate
-1% (433) 0.8 (70) 0.5 (54) (0.1) (5) 0.2
Rate of
inflation
+1% (342) (22.1) - - (37) (2.3) - -
Rate of
inflation
-1% 291 20.3 - - 31 2.0 - -
Rate of
increase
in medical
costs
+1% (1) (0.1) (2) (0.2) - - - -
Rate of
increase
in medical
costs
-1% 1 0.1 1 0.2 - - - -
------------ ----------- --------- ----------- --------- ----------- --------- ----------- ---------
11 Post-employment obligations (continued)
(b) Defined benefit schemes - reporting
The amounts included in operating profit are:
Trading Profit
Redundancy UK Pension
Employee and other scheme
benefit employment curtailment
expense amounts Total
GBPm GBPm GBPm GBPm
------------------------------------ ------------------ ---------- ----------- -----------------
2011
Current service cost (38) - - (38)
Past service 1 - - 1
Settlement/curtailments 4 - - 4
----------------------------------------- ------------------ ---------- ----------- -----------------
(33) - - (33)
----------------------------------------- ------------------ ---------- ----------- -----------------
2010
Current service cost (35) - - (35)
Past service 1 (1) - -
Settlement/curtailments 9 - 68 77
----------------------------------------- ------------------ ---------- ----------- -----------------
(25) (1) 68 42
----------------------------------------- ------------------ ---------- ----------- -----------------
The amounts recognised in the balance sheet are:
2011
UK Americas Europe ROW Total 2010
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ -------- -------- ---------- ----------- ------- --------
Present value of
unfunded obligations (13) (39) (351) - (403) (407)
Present value of
funded obligations (2,650) (430) (32) (46) (3,158) (2,853)
Fair value of plan
assets 2,391 248 31 23 2,693 2,660
Net obligations recognised
in the balance sheet (272) (221) (352) (23) (868) (600)
----------------------------------------- -------- -------- ---------- ----------- ------- --------
The contribution expected to be paid by the Group
during 2012 to the UK scheme is GBP29 million
and to overseas schemes GBP45 million. Section
(d) of this note describes the Pension partnership
interest created on 31 March 2010 under which
the second distribution of GBP30 million is expected
to be made in the first half of 2012.
Cumulative actuarial gains and losses recognised
in equity are as follows:
2011 2010
GBPm GBPm
--------------------------------------------------------------------------------- ------- --------
At 1 January (358) (334)
Net actuarial losses in year (277) (24)
-------------------------------------------------------------------------------------- ------- --------
At 31 December (635) (358)
-------------------------------------------------------------------------------------- ------- --------
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 2011 (2,448) (399) (369) (44) (3,260)
Businesses acquired - (1) (13) - (14)
Current service cost (24) (4) (6) (4) (38)
Interest (129) (21) (19) (1) (170)
Contributions by participants (4) - - - (4)
Actuarial gains and losses (201) (55) (2) 2 (256)
Benefits paid 127 17 16 3 163
Past service cost - 1 - - 1
Settlements/curtailments 16 - - 1 17
Currency variations - (7) 10 (3) -
At 31 December 2011 (2,663) (469) (383) (46) (3,561)
--------------------------------------------------- -------- ---------- ----------- ------- --------
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)
--------------------------------------------------- -------- ---------- ----------- ------- --------
11 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 2011 2,364 245 28 23 2,660
Businesses acquired - - 2 - 2
Expected return on assets 134 17 1 1 153
Actuarial gains and losses - (19) - (2) (21)
Contributions by Group 23 19 - 3 45
Contributions by participants 4 - - - 4
Settlements/curtailments (13) - - - (13)
Benefits paid (121) (17) - (3) (141)
Currency variations - 3 - 1 4
At 31 December 2011 2,391 248 31 23 2,693
------------------------------------ -------- -------- -------- ------- --------------------
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
------------------------------------ -------- -------- -------- ------- --------------------
The defined benefit obligation is analysed between
funded and unfunded schemes as follows:
2011
UK Americas Europe ROW Total 2010
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ------- -------- -------- -------- ----------------- ----------
Funded (2,650) (430) (32) (46) (3,158) (2,853)
Unfunded (13) (39) (351) - (403) (407)
--------------------------- ------- -------- -------- -------- ----------------- ----------
(2,663) (469) (383) (46) (3,561) (3,260)
--------------------------- ------- -------- -------- -------- ----------------- ----------
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
2011
Equities (inc.
Hedge Funds) 7.8 696 8.9 166 - - 5.8 8
Bonds 3.9 1,182 3.0 75 - - 0.9 9
Property 6.6 97 - - - - - -
Cash and net
current assets 0.5 39 2.3 7 - - - -
Partnership
plan asset 6.1 344 - - - - - -
Other assets 4.7 33 - - 4.8 31 0.9 6
------------------ ------------ ------- -------- -------- -------- ------- -------- ----------
2,391 248 31 23
------------------ ------------ ------- -------- -------- -------- ------- -------- ----------
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 1.3 4
------------------ ------------ ------- -------- -------- -------- ------- -------- ----------
2,364 245 28 23
------------------ ------------ ------- -------- -------- -------- ------- -------- ----------
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 GBP132 million
(2010: GBP230 million).
11 Post-employment obligations (continued)
History of experience gains and losses
UK Americas Europe ROW
------------------------------------- ------- -------- ------- -------
2011
Experience adjustments arising
on scheme assets:
Amount - GBPm - (19) - (2)
Percentage of scheme assets - (7.7)% - (8.7)%
Experience gains/(losses) on
scheme liabilities:
Amount - GBPm (34) 1 4 1
Percentage of the present value
of scheme liabilities (1.3)% 0.2% 1.0% 2.2%
Present value of scheme liabilities
- GBPm (2,663) (469) (383) (46)
Fair value of scheme assets
- GBPm 2,391 248 31 23
------- -------- ------- -------
Deficit - GBPm (272) (221) (352) (23)
------------------------------------- ------- -------- ------- -------
2010
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)
------------------------------------- ------- -------- ------- -------
(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 (2010: GBP15 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 was made in the second quarter
of 2011.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EASLKFESAEFF
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