13 August 2024
Dowlais Group
plc
Half Year Results
2024
Driveline, China and Powder
Metallurgy outperformed their markets, with ePowertrain
significantly impacted by BEV market volatility.
Unlocking value from
our portfolio: strategic review of Powder Metallurgy and disposal
of Hydrogen operations.
Dowlais Group plc, the specialist
engineering group focused on the automotive sector, announces its
results for the six months ended 30 June 2024.
£ millions
|
Adjusted1
|
Statutory
|
H1 2024
|
H1 2023
|
Change
|
Constant FX1
|
H1 2024
|
H1 2023
|
Change
|
Revenue
|
2,571
|
2,830
|
-9.2%
|
-5.1%
|
2,289
|
2,552
|
-10%
|
Operating profit/(loss)
|
151
|
177
|
-15%
|
-9.0%
|
(57)
|
(40)
|
-43%
|
Operating margin
|
5.9%
|
6.3%
|
-40bps
|
-30bps
|
-2.5%
|
-1.6%
|
-90bps
|
Profit/(loss) before tax
|
95
|
139
|
-32%
|
-26%
|
(123)
|
(55)
|
-124%
|
Basic EPS
|
4.9p
|
7.2p
|
-32%
|
-30%
|
(7.3)p
|
(6.1)p
|
-20%
|
Free cash flow
|
10
|
33
|
-70%
|
-
|
-
|
-
|
-
|
1. Adjusted financial measures are defined and reconciled to
statutory measures in the Alternative Performance Measures section
of this announcement, which also sets out the definition and basis
of calculation of constant currency. Unless stated otherwise, all
growth rates refer to growth at constant currency.
Highlights
Financial overview
-
|
Adjusted revenue of £2,571
million, a reduction of 5.1% on prior year, driven by weakness in
the ePowertrain product line of the Automotive business. Driveline,
China and Powder Metallurgy, totalling more than 75% of the Group's
revenues, performing above their markets.
|
-
|
Adjusted operating profit of £151
million, including £7 million of operating losses from Hydrogen
operations, a decline of 9.0% compared to prior year, driven by
lower volumes. Adjusted operating margin of 5.9%, 30bps lower than
prior period, as the impact from lower volume was partially offset
by proactive actions to manage the cost base and by pricing
recoveries.
|
-
|
Automotive adjusted revenue
decreased by 6.3% and adjusted operating profit declined by 13%,
resulting in an adjusted operating margin of 6.0%, down 50bps
versus prior period. This decrease was primarily driven by lower
revenues in the ePowertrain product line largely due to BEV
production schedules.
|
-
|
Powder Metallurgy had a good start
to the year, as adjusted revenue grew by 0.2%, ahead of the market,
while adjusted operating profit increased by 6.0%, resulting in an
adjusted operating margin expansion of 50bps, to 9.5%.
|
-
|
Adjusted basic earnings per share
of 4.9 pence, down 30% largely as a result of lower earnings and
higher finance costs. Statutory loss per share of 7.3
pence.
|
-
|
£10 million of adjusted free cash
flow, down from £33 million in H1 2023, mainly due to lower
earnings, higher interest costs and restructuring outflows. Net
debt of £915 million, up from £847 million at year end, with
leverage of 1.6x compared to a year end position of
1.4x.
|
-
|
In line with the Group's dividend
policy, the Board has declared an interim dividend of 1.4 pence per
share, same as prior year, reflecting confidence in the medium-term
outlook.
|
Business wins
-
|
Strong Automotive performance with
business wins of over £2.4 billion of forecast lifetime revenue,
well balanced across regions, customers and product
groups.
|
-
|
Powder Metallurgy order book up
10%, with 53% of new business wins being for EV or propulsion
agnostic products.
|
Unlocking value from our portfolio to better position the
Group for sustainable, profitable growth and cash
generation
-
|
Commenced a strategic review of
Powder Metallurgy, considering a range of options, including a
potential sale of the business.
|
-
|
Disposal of GKN Hydrogen
operations in July 2024, which will eliminate cash future losses
associated with the business.
|
Outlook
-
|
Industry forecasts no longer
expect the second half of the year to improve and now predict a
3.6% decline in the second half, leading to a 2% decline of light
vehicle production in 2024, with the ongoing BEV volatility
expected to continue to affect our ePowertrain business in the
second half.
|
-
|
Consequently, we expect a mid to
high single-digit adjusted revenue decline for 2024 and an adjusted
operating margin between 6.0% and 7.0% at constant currency, given
the benefits of commercial recoveries, restructuring savings and
performance initiatives
|
Liam Butterworth, Chief Executive Officer,
said:
"In the first half, our market leading Driveline business,
China joint venture, and Powder Metallurgy business,
totalling more
than 75% of Group's revenues, all outperformed their
markets, while volatility in BEV production significantly impacted
our ePowertrain business, leading to a 5.1% adjusted revenue
decline.
"In this challenging market environment, we focused on what
we can control and took several decisive actions to mitigate the
impact from lower volume as well as unlock value from our
portfolio. First, we implemented a relentless focus on cost
control, limiting the impact on adjusted operating profit and
mitigated the margin decline to 30bps. Second, we initiated a
comprehensive programme of commercial recovery initiatives with our
customers which, together with the ongoing restructuring programmes
and performance initiatives, will limit the impact from expected
lower revenues in the second half of the year. Finally, today's
announcement of a strategic review of Powder Metallurgy and the
disposal of our Hydrogen operations underscores our commitment to
unlocking value from our portfolio and delivering shareholder
returns.
"We continue to execute on our strategy to accelerate the
transition to a powertrain agnostic business model which is better
positioned to navigate market volatility and deliver sustainable,
profitable growth and cash generation in the medium
term."
Inside Information
This announcement contains inside
information as defined in Article 7 of the Market Abuse Regulation
(EU) no. 596/2014 (as it forms part of domestic law by virtue of
the European Union (Withdrawal) Act 2018). On the publication of
this announcement via a Regulatory Information Service, the inside
information is now considered to be in the public
domain.
Notes
References to changes "at constant
currency" are defined in the Alternative Performance Measures
section of this announcement. Certain other words and phrases used
in this announcement have the meaning given to them in the
Glossary.
Enquiries:
Investor Relations:
Pier Falcione
investor.relations@dowlais.com
+44(0)7855 185 420
Teneo:
Olivia Peters/Harry Cameron
dowlais@teneo.com
+44(0)7902 771 008
Results presentation
A presentation will be hosted by
Liam Butterworth (CEO) and Roberto Fioroni (CFO) on 13 August 2024
at 09.00 BST. You can register to listen to the presentation online
here:
https://sparklive.lseg.com/DOWLAISGROUP/events/c6679034-0ff3-481e-adb3-a3b2789be2d7/dowlais-h1-f24-results
About Dowlais Group plc
Dowlais is a portfolio of
market-leading, high-technology engineering businesses that advance
the world's transition to sustainable vehicles. Dowlais' businesses
comprise GKN Automotive and GKN Powder Metallurgy. With over 70
manufacturing facilities in 19 countries across the world, Dowlais
is an automotive technology leader delivering precisely engineered
products and solutions that drive transformation in our world.
Dowlais has LEI number 213800XM8WOFLY6VPC92. For more information
visit www.dowlais.com
Forward Looking Statements
These results include certain
forward-looking statements. These forward-looking statements
involve known and unknown risks and uncertainties, many of which
are beyond Dowlais' control and all of which are based on Dowlais'
current beliefs and expectations about future events.
Forward-looking statements are sometimes identified by the use of
terminology such as "believe", "expects", "may", "will", "would",
"could", "should", "shall", "risk", "intends", "expects",
"estimates", "projects", believes", "aims", "plans", "predicts",
"seeks", "goal", "continues", "assumes", "positioned",
"anticipates" or "targets" or the negative thereof, other
variations thereon or comparable terminology. These forward-looking
statements include matters that are not historical facts,
statements regarding the intentions, beliefs or current
expectations concerning, among other things, the future results of
operations, financial condition, prospects, growth, strategies,
dividend policy and industry of Dowlais and commitments, ambitions
and targets relating to ESG matters. These forward-looking
statements and other statements contained in these results
regarding matters that are not historical facts involve
predictions. No assurance can be given that such future results
will be achieved, and actual events or results may differ
materially as a result of risks and uncertainties facing Dowlais.
Such risks and uncertainties could cause actual results to vary
materially from the future results indicated, expressed or implied
in such forward-looking statements. Forward-looking statements
contained in these results speak only to the date of these results.
Dowlais and its directors expressly disclaim any obligation or
undertaking to update these forward-looking statements to reflect
any change in their expectations or any change in events,
conditions, or circumstances on which such statements are based
unless required to do so by applicable law.
Chief Executive Officer's Review
Market update
Following a strong performance in
2023, the first half of 2024 saw a reduction in light vehicle
production, with global output decreasing by 0.2% year-on-year, or
2.4% excluding China. As inventory restocking nears completion and
demand reduces, regions that experienced accelerated growth in 2023
are now slowing down. Light vehicle production declined in EMEA by
3% and production in Asia (excluding China) fell by 4%, with demand
cooling in Japan, while China saw a 5% year-on-year increase,
driven mainly by exports. However, domestic demand in China remains
uncertain and could pose a potential headwind in the second half.
Production in the Americas remained flat year-on-year, albeit with
significant variations across OEMs.
Looking ahead, S&P now
estimates 2024 production to be 88.7 million vehicles, a decline of
2% from 2023 levels. EMEA and Asia (excluding China) are both
forecast to decline by 4%. The Americas are expected to stay flat
year-on-year in 2024, as is China, despite recent strong
performance in the first half, implying a 4% year-on-year decline
in the second half of the year.
The first half of 2024 saw a
material slowdown in the rate of vehicle electrification. BEV
production in H1 2024 grew by only 2% year-on-year, in stark
contrast to H1 2023 in which production grew by 49% year-on-year.
Excluding China, BEV production declined 9%, mainly driven by
Europe and Japan. In Europe, the withdrawal of subsidies by the
German government at the end of last year has materially affected
the uptake of BEVs among consumers. Additionally, concerns around
the price of BEVs, lack of charging infrastructure, low residual
value and high insurance costs continue to be a drag on consumer
demand.
Looking ahead S&P projects
global light vehicle production to grow at a compound annual growth
rate of approximately 2.8% over the next two years and reach 93.6
million units in 2026.
Outlook
Our Driveline, China and Powder
Metallurgy businesses had a good start to the year, all
outperforming the market. However, in 2024 the Group has faced
strong headwinds in its ePowertrain product line, primarily
attributable to the high volatility of production schedules for
certain BEV platforms, which resulted in a 5.1% decline in adjusted
revenue. Industry forecasts no longer
expect the second half of the year to improve and now predict a
3.6% decline in the second half, leading to a 2% decline of light
vehicle production in 2024, with the ongoing BEV volatility
expected to continue to affect our ePowertrain business in the
second half. Consequently, we expect a mid to high single-digit
adjusted revenue decline for 2024 and an adjusted operating margin
between 6.0% and 7.0% in constant currency, as commercial
recoveries, restructuring savings and ongoing performance
initiatives limit the impact on operating profit from lower
volumes. Adjusted free cash flow will be lower than prior year due
to reduced volume and higher restructuring costs.
Strategy and unlocking value in our
portfolio
As previously communicated, the
Dowlais Board remains focused on maximising the full value of the
Company for the benefit of its shareholders by considering all
available options. Consequently, we are taking the
following actions which will better position the Group to deliver
more sustainable profitable growth and improved margins, as market
growth is expected to return from 2025 onwards:
GKN Powder Metallurgy:
The Board committed, in
January 2023, to consider the future ownership of its market
leading GKN Powder Metallurgy business within two to three years.
After 18 months of ownership during which we spent time to better
understand the business, established a new leadership team and
developed a clear strategic and commercial plan to accelerate our
portfolio transition, we have now commenced a strategic review of
the business, considering a range of options, including a potential
sale.
GKN Hydrogen: As previously communicated, in early 2024 Dowlais started a
process to identify suitable investment partners for the Hydrogen
business. The Group has now disposed of
its entire interest in its GKN Hydrogen business to Langley
Holdings plc, for a nominal consideration. This transaction will
result in an expected loss on disposal of approximately £18
million, of which £10 million was incurred in the first half, and
will eliminate future cash losses associated with the funding of
the Hydrogen operations. In the 12 months ended 31 December 2023,
Hydrogen operations contributed £5 million of revenue, £15 million
of operating losses and £23 million of cash losses.
GKN Automotive: In a volatile market environment with growing uncertainty
around the pace and scale of the BEV adoption, our goal remains
steadfast: transitioning to an increasingly powertrain-agnostic
business model that is better positioned to navigate market
volatility and deliver sustainable, profitable growth and cash
generation. Dowlais will continue to review its capital allocation
priorities across its portfolio to accelerate this
transition.
Our overall strategy remains
unchanged and focused on three pillars: Lead, Transform,
Accelerate.
Lead: Our
goal is to be at the forefront, both in our market position and
financial performance, by consistently prioritising operational
excellence. We achieve this by implementing top-tier manufacturing,
commercial, and procurement processes, and maintaining a strict
approach to managing working capital.
Transform: Continuous improvement and agility are fundamental to how we
operate. We are transforming our
operations by digitising and optimising our manufacturing
processes, refining our production footprint to enhance
competitiveness and innovating our products with advanced
technology to drive the sustainable vehicles of the
future.
Accelerate: We are positioning to deliver organic growth and at the
appropriate time, we will explore opportunities for value-accretive
M&A. Our approach will be prudent and
disciplined, pursuing opportunities that are compelling, align with
our portfolio strategy and are expected to create shareholder
value.
H1 2024 Group
performance
Our long-term financial priorities
and the metrics for measuring the success of our business remain
unchanged, focusing on margin expansion, cash generation, and
portfolio transition.
Margin expansion: In
the first half of 2024, the Group navigated a challenging market
environment that primarily impacted its ePowertrain product line
amid volatile BEV production schedules, resulting in overall
adjusted revenue of £2,571 million, down 5.1% on prior year.
Despite this, Driveline, China and Powder Metallurgy all performed
ahead of their respective markets. Due to volume weakness in
ePowertrain, the Automotive segment saw a 6.3% drop in adjusted
revenue and a 13% decrease in adjusted operating profit, resulting
in 6.0% operating margin. In light of the volume weakness, the
business took action to proactively manage its cost base,
effectively mitigating the impact on margins and limiting the
constant currency drop through margin from 30%, as per our
financial model, to 11%. Powder Metallurgy continued to perform
well with a slight adjusted revenue increase of 0.2% and a 6.0%
rise in adjusted operating profit, improving its operating margin
by 50 basis points to 9.5%. We remain focused on long-term
profitability by rigorously managing pricing, focusing on
commercial recoveries, proactively controlling costs and executing
our self-help initiatives to deliver improved margins.
Cash generation: The
Group reported an adjusted free cash flow of £10 million for the
period, down from £33 million in the prior year. This decline was
primarily due to lower earnings from volume weakness and higher
interest payments reflecting the annualisation of the post-demerger
capital structure, as previously communicated. We anticipate
working capital to decrease in the second half of the year as we
take proactive measures to align resources with lower volumes. Net
debt stood at £915 million, up from £847 million at year end, with
a leverage ratio of 1.6x, slightly above the year end position of
1.4x.
Portfolio transition: In a volatile market environment with growing uncertainty
around the pace and scale of the BEV adoption we maintain a
disciplined approach to investing in our portfolio. Our focus
remains to transition to an increasingly powertrain-agnostic
business model that is well positioned to navigate market
volatility and deliver sustainable, profitable growth and cash
generation. Significant progress has been made in securing new
business that supports this transition across the Group. The
Automotive segment achieved a strong performance in bookings, with
contracts totalling over £2.4 billion in forecast lifetime revenue,
well distributed across its portfolio and geographies. The Powder
Metallurgy order book was up by 10%, with 53% of new business wins
being for EV or propulsion agnostic products.
Operational highlights
Our businesses continued to
demonstrate positive operational performance throughout the first
half of 2024.
GKN Automotive continued its
momentum from last year in driving operational efficiencies. In the
first half, the business launched 79 new programs and had a quality
defect rate of three parts per million rejected (PPM), well within
its target range. The business further streamlined its
manufacturing footprint by announcing closure of its plant in
Roxboro, North Carolina with expected completion in Q4 2024 as part
of its focus on optimising its manufacturing footprint towards
best-cost countries, enabling margin expansion. The business had an
Accident Frequency Rate (AFR) in the period of 0.15, which is
higher than our target. Health and safety will continue to be our
highest priority and the business is implementing additional
measures to seek to reduce this rate.
GKN Powder Metallurgy also made
significant progress in the first half. Proactive management of the
cost base enabled the business to offset inflationary increases
through operational efficiencies. Restructuring activities
continued with one site closed in the US and another set to close
by the end of the year, further optimising the manufacturing
footprint. The business continued to advance its EV transition,
winning new EV-specific contracts and identifying additional growth
areas for propulsion-agnostic products.
Engineering transformation for a
sustainable world
Sustainability is a core priority
for Dowlais, and we continued to make substantial progress in the
period, understanding and addressing our sustainability related
impacts, risks and opportunities. We have already achieved
significant progress against our science-based climate targets.
GKN Automotive has recently signed
a Virtual Power Purchase Agreement (VPPA) which will facilitate the
supply of approximately 2 million megawatt-hours (MWh) of renewable
electricity to the European grid over a 10-year period. It will
cover 65% of Automotive's European electricity load and 30% of its
global load, significantly contributing to its commitment to using
50% renewable electricity globally by 2025 and 75% by 2030. This is
a significant milestone in our journey towards being net zero
across our entire business.
GKN Powder Metallurgy has secured
green electricity contracts for all its EU operations, increasing
the use of clean electricity across the business to 34%, up from
11% in 2023. Additional solar voltaic units have been installed at
its sites in Italy, Germany and China, further increasing its use
of zero carbon power. Finally, Powder Metallurgy's net-zero
targets, previously submitted to the Science Based Targets
initiative, have now been validated by them.
Across the Group, we have
completed a detailed human rights risk assessment and have
identified our salient human rights risks. Other achievements
include updating our sustainability data processes and starting our
double materiality assessment, to be ready for reporting and
compliance requirements under EU Corporate Sustainability Reporting
Directive.
Dividend
The Board has declared an interim
dividend of 1.4 pence per ordinary share. This dividend is in line
with the Group's dividend policy to target a sustainable and
progressive annual dividend of approximately 30% of adjusted profit
after tax. Although the Group's current
leverage of 1.6x is slightly above our target range, the Board
believes this is a temporary situation, primarily due to market
volatility affecting our ePowertrain product line and it expects
leverage to return to within its target range by the medium term.
The interim dividend will be paid on 4 October
2024 to shareholders on the register on 30 August
2024. A Dividend Reinvestment Plan
(DRIP) is provided by Equiniti Financial Services Limited. The DRIP
enables the Company's shareholders to elect to have their cash
dividend payments used to purchase the Company's shares. More
information can be found at www.shareview.co.uk/info/drip.
The deadline to elect to participate in the DRIP is 13 September
2024.
Share buy-back
On 21 March 2024, the Group
announced its intention to commence a share buy-back programme of
up to £50 million, to be transacted over 12 months commencing in
April 2024. On 4 April 2024, the Group announced the commencement
of its share buyback programme. As at 30 June 2024, the Company has
purchased approximately 12 million shares for a total consideration
of approximately £9 million.
Financial Review
The Group's performance in the
first half of the year was affected by reduced production on BEV
platforms which predominantly impacted the ePowertrain product
line, leading to a year-on-year decline in key metrics. However,
ongoing operational efficiency improvements and a continued focus
on cost management partially mitigated this impact.
Overview
£ millions
|
Adjusted1
|
Statutory
|
H1 2024
|
H1 2023
|
Change
|
Constant FX1
|
H1 2024
|
H1 2023
|
Change
|
Revenue
|
2,571
|
2,830
|
-9.2%
|
-5.1%
|
2,289
|
2,552
|
-10%
|
Automotive
|
2,044
|
2,283
|
-10%
|
-6.3%
|
1,780
|
2,018
|
-12%
|
Powder Metallurgy
|
527
|
545
|
-3.3%
|
0.2%
|
509
|
532
|
-4.3%
|
Hydrogen
|
-
|
2
|
-100%
|
-100%
|
-
|
2
|
-100%
|
Operating expenses
|
(243)
|
(238)
|
-2.1%
|
-5.0%
|
(432)
|
(441)
|
2.0%
|
EBITDA
|
291
|
316
|
-7.9%
|
-3.2%
|
-
|
-
|
-
|
Depreciation and
amortisation2
|
(140)
|
(139)
|
-0.7%
|
-4.3%
|
(226)
|
(228)
|
0.9%
|
Operating profit/(loss)
|
151
|
177
|
-15%
|
-9.0%
|
(57)
|
(40)
|
-43%
|
Operating margin
|
5.9%
|
6.3%
|
-40bps
|
-30bps
|
-2.5%
|
-1.6%
|
-90bps
|
Net finance costs
|
(56)
|
(38)
|
-47%
|
-53%
|
(66)
|
(15)
|
-340%
|
Profit/(loss) before
tax
|
95
|
139
|
-32%
|
-26%
|
(123)
|
(55)
|
-124%
|
Tax
|
(24)
|
(36)
|
33%
|
17%
|
25
|
(27)
|
193%
|
Profit/(loss) after tax
|
71
|
103
|
-31%
|
-29%
|
(98)
|
(82)
|
-20%
|
Non-controlling
interest
|
(3)
|
(3)
|
0%
|
0%
|
3
|
3
|
0%
|
Profit/(loss) attributable to
owners
|
68
|
100
|
-32%
|
-30%
|
(101)
|
(85)
|
-19%
|
|
|
|
|
|
|
|
|
Weighted average shares
|
1,385
|
1,392
|
-0.5%
|
-
|
1,357
|
1,364
|
-0.5%
|
Basic EPS
|
4.9p
|
7.2p
|
-32%
|
-
|
(7.3)p
|
(6.1)p
|
-20%
|
Free cash flow
|
10
|
33
|
-70%
|
-
|
-
|
-
|
-
|
Capex
|
103
|
122
|
-16%
|
-
|
103
|
122
|
-16%
|
Net debt
|
915
|
849
|
7.8%
|
-
|
-
|
-
|
-
|
Leverage
|
1.6x
|
1.4x
|
0.2x
|
-
|
-
|
-
|
-
|
1. Adjusted
financial measures are defined and reconciled to statutory measures
in the Alternative Performance Measures section of this
announcement, which also sets out the definition and basis of
calculation of constant currency.
2. Statutory
depreciation and amortisation includes amortisation of intangible
assets acquired in business combinations, as disclosed in Note 4a
of the notes to the interim statements.
Revenue
Adjusted revenue in the period was
£2,571 million, a decline of 5.1% at constant currency, primarily
driven by volatility in BEV production schedules in the ePowertrain
product line in Europe and the Americas. Translational foreign
exchange headwinds were £114 million higher compared to the prior
period, resulting in a reported adjusted revenue decline of 9.2%.
Foreign exchange headwinds were largely due to the British pound
sterling strengthening against several currencies, in particular
the US dollar, the Euro and the Chinese Renminbi.
Statutory revenue (which excludes
revenues from non-consolidated joint ventures including the Group's
major Automotive joint venture in China) in the period was £2,289
million (2023: £2,552 million) with a reported decline of
10%.
The regional breakdown of Group
adjusted revenues in the period is shown below.
Adjusted revenue share by
region
|
H1 2024
|
% Change
|
Americas
|
42%
|
0.4%
|
Europe, Middle East &
Africa
|
33%
|
-1.9%
|
China1
|
13%
|
1.5%
|
Asia (ex China)
|
12%
|
0.1%
|
1. China revenues reflect Joint
Venture shareholding percentages.
Operating profit
Adjusted operating profit for the
period decreased by 9.0% at constant currency to £151 million,
resulting in a 30bps margin decline. Foreign exchange headwinds in
the period were £10 million higher than prior year, resulting in
reported adjusted operating profit decline of 15%.
The decrease in adjusted operating
profit was primarily driven by lower revenue. This decline was
partially mitigated by recovery from customers of inflationary
costs incurred in the prior year as well as ongoing performance
initiatives, which led to lower drop through margins of 11% at
constant currency, demonstrating our commitment to effectively
manage our cost base.
The statutory operating loss in
the period was £57 million (H1 2023: £(40) million), with the
primary adjustments between adjusted and statutory operating profit
being amortisation of related intangible assets of £96
million (H1 2023: £99 million), restructuring costs of £49 million
(H1 2023: £88 million) and movements in derivatives of £35 million
(H1 2023: £(21) million). A full reconciliation between adjusted
and statutory operating profit is provided in the Glossary to the
Interim Financial Statements.
Translational foreign exchange impact
The difference in reported and
constant currency values relates to translational foreign exchange
impacts as further set out on in the Alternative Performance
Measures section of this announcement. When considering the
sensitivity of potential 2024 full year adjusted operating profit
to translational foreign exchange movements, we expect that a 10%
strengthening of certain underlying currencies against British
pound sterling would increase adjusted operating profit as follows:
US dollar approximately £20 million and Chinese Renminbi
approximately £10 million.
We are not providing specific
guidance in relation to foreign exchange for the 2024 financial
year. However, using the spot exchange rates at July 31 2024
including £1 = $1.28, £1 = €1.19 and £1 = CNY9.27 and applying them
to a representative income statement profile for the remainder of
the year, we expect a negative year-on-year adjusted revenue impact
of approximately (£200) million and a negative impact on adjusted
operating profit of approximately (£17) million. The above spot
rates and assumptions reflect a point in time and it is reasonable
to expect spot rates to fluctuate, especially for emerging markets
currencies.
Net finance costs
The Group's adjusted net finance
charges of £56 million (H1 2023: £38 million) represent £58 million
of finance costs (H1 2023: £39 million) and £2 million of finance
income (H1 2023: £1 million).
The finance costs include interest
on bank borrowings of £45 million (H1 2023: £19 million), interest
on the Group's pension schemes of £8 million (H1 2023: £9 million)
and finance lease charges of £3 million (H1 2023: £3 million). The
increase in interest charges on bank borrowings compared to the
prior period reflects a full half year's impact of the post
demerger capital structure and drawdown on the revolving credit
facility in the period. The Group's effective interest rate on bank
borrowings was 6.5%.
In the prior period, finance
income included the benefit of the one-off foreign exchange gains
of £22 million on loans with Melrose up to the date of
demerger.
Full year adjusted net finance
charges are expected to be in line with our guidance of between
£100 million and £110 million.
Tax
The results for the period show an
adjusted tax charge of £24 million (H1 2023: £36 million), arising
on an adjusted profit before tax of £95 million (H1 2023: £139
million). The Group's current adjusted effective tax rate (ETR) is
25% (H1 2023: 26%) in line with our expectations for the full
year.
Earnings per share
In accordance with the Group's
measures of performance, the Group also presents its earnings per
share (EPS) on an adjusted basis. Adjusted EPS for the period was
4.9 pence per ordinary share (H1 2023: 7.2 pence). The decline is
largely driven by lower earnings, higher foreign exchange headwinds
and finance costs, as they reflect the full year impact of the post
demerger capital structure.
Statutory basic EPS was a loss of
7.3 pence per share (H1 2023: loss of 6.1 pence) and included the
impact of adjusting items such as amortisation of
acquisition-related intangible assets, restructuring costs and the
Hydrogen impairment as shown in Note 4 of the Interim Financial
Statements.
Free cash flow
Adjusted free cash flow for the
period was £10 million, down from £33 million in H1 2023. This
decrease is largely driven by lower adjusted EBITDA, higher
interest payments and higher restructuring payments, partially
offset by lower capital expenditure and higher dividends from Equity Accounted Investments as a
result of the timing of dividend receipts from our China joint
venture. Working capital is expected to reduce in the second half
of the year as we take proactive measures to adjust our working
capital requirements to match lower volumes.
Net interest payments, totalling
£47 million, were £27 million higher than the previous period due
to the annualisation of the post demerger capital structure.
Accordingly, interest payments for the full year are expected to be
in the range of £80 million to £90 million. Capital expenditure
decreased by £19 million to £103 million, as it was adjusted to
align with lower volumes and no material expenditure was incurred
on new production facilities, primarily associated with our
footprint restructuring initiatives. Restructuring cash outflows of
£51 million, related to continued performance improvements and
footprint restructuring initiatives, were £20 million higher than
the previous period. Restructuring cash outflows in 2024 are now
expected to be in the range of £105 million to £115 million,
slightly higher than the previously communicated range of £90
million to £100 million, largely due to further restructuring
activities as a result of lower volumes.
Liquidity and leverage
The Group's primary sources of
liquidity are cash generated from operating activities and funds
available under its multicurrency term loan and revolving credit
facility. At 30 June 2024, the Group's cash and cash equivalents
balance, net of overdrafts was £289 million (31 December 2023: £313
million), while the revolving credit facility had available
headroom of £545 million (31 December 2023: £590 million),
translating to a total liquidity position of £834 million (31
December 2023: £903 million).
The Group continues to be funded
through two core banking facilities, comprised of a multicurrency
term loan and revolving credit facility, with a combined facility
limit of approximately £1.8 billion. Both facilities have an
initial maturity date of 20 April 2026, and the Group has the
option to extend the revolving credit facility for up to two
further one-year periods, at its sole discretion.
As at 30 June 2024, the Group had
fixed the interest rates of 53% (H1 2023: 40%) of the drawn debt
under its banking facilities with interest rate swaps. The maturity
dates of the interest rate swaps are aligned with those of the
underlying debt facilities.
The Group's net debt at 30 June
2024 was £915 million, an increase from £847 million on 31 December
2023, as a result of funding the operational needs of the business.
This, combined with lower EBITDA resulted in a net leverage ratio
of 1.6x adjusted EBITDA, an increase from 1.4x on 31 December 2023.
The Group's net leverage ratio is comfortably below the covenant
requirement under its debt facilities of 3.5x and is slightly above
its target range. The Group's interest cover covenant (which
measures adjusted EBITDA to net interest charge over the preceding
12 months and requires a ratio of at least 4.0x) was first tested
on 30 June 2024 and was 7.2x, reflecting comfortable headroom above
the covenant.
Retirement benefit obligations
The Group operates several defined
benefit pension schemes. The Group's assets and liabilities under
these schemes were calculated as at 30 June 2024 to reflect the
latest assumptions and are summarised below.
Position at 30 June 2024
£ millions
|
Assets
|
Liabilities
|
Accounting
Surplus/(Deficit)
|
UK plans1
|
630
|
(627)
|
3
|
European plans
|
16
|
(393)
|
(377)
|
US plans
|
75
|
(112)
|
(37)
|
Other Group pension
schemes
|
12
|
(20)
|
(8)
|
Total Group pension
schemes
|
733
|
(1,152)
|
(419)
|
1. UK plans primarily relate to
the GKN Group Pension Schemes No. 2 and No. 3 and also include a
legacy UK post-retirement medical scheme.
The Group's most significant
defined benefit pension plans are the GKN Group Pension Scheme No.
2 and the GKN Group Pension Scheme No. 3, which constitute the
majority of the UK plans. These defined benefit schemes are closed
to new entrants and to the accrual of future defined benefits for
current members. The Group continues to contribute £15 million per
annum to these UK schemes as part of its asset-backed funding
arrangements. As at 30 June 2024, these schemes had a net surplus
of £6 million (31 December 2023: deficit of £5 million), with an
additional £3 million of liabilities relating to a legacy
post-retirement medical scheme (31 December 2023: £2 million). The
UK schemes were last subject to their triennial statutory valuation
in April 2022. The next triennial valuation is due in April
2025.
The most significant of the
Group's other pension liabilities are the future payment
obligations under the German GKN pension plans, which provide
benefits dependent on final salary and service, and which are
generally unfunded and closed to new entrants. At period end, the
future obligations associated with these plans represented an
unfunded liability of £369 million (31 December 2023: £390
million).
Pension cash outflows in relation
to the defined benefit pension schemes were £13 million (H1 2023:
£11 million). The full year amount is expected to be approximately
£45 million.
Going concern
The Condensed Interim Financial
Statements have been prepared on a going concern basis as the
Directors consider that adequate resources exist for the Company to
continue in operational existence for a period of not less than 12
months from the date of this report. The Group's liquidity and
funding arrangements are described above. There is significant
financing headroom (being the total of unutilised credit facilities
and available cash) at 30 June 2024 of approximately £0.7 billion
(30 December 2023: approximately £0.6 billion) and throughout the
going concern forecast period.
The current facility has two
financial covenants being a leverage (net debt to adjusted EBITDA)
covenant of 3.5x and an interest cover covenant of 4.0x, both of
which are tested half yearly, in June and December.
The Directors have prepared a
working capital model based on the Group's latest 2024 forecast and
2025 strategic plan and considers the estimated impact of end
market and operational factors, including supply chain and
inflationary challenges throughout the going concern period.
Climate related risks have also been considered, including
estimating the expected transition from internal combustion engines
to electric vehicles and modelling potential risks to the Group's
infrastructure resulting from extreme weather or climate
events.
Throughout the period covered,
under this 'base case' model, financing headroom was forecast to be
at least £640 million, and the Group's forecast leverage and
interest covenants are expected to comfortably meet the respective
testing criteria. In concluding that the going concern basis is
appropriate, the Directors have also modelled the impact of a
'worst case scenario' to the 'base case' by including an
aggregation of three plausible but severe downside risks, being (i)
economic shock/downturn, (ii) losing a key market, product or
customer and (iii) significant contract delivery issues.
Under this 'worst case' scenario,
financing headroom was forecast to be at least £335 million
throughout the period, the Group's leverage was expected to be no
higher than 2.9x and the Group's interest cover was no lower than
4.3x, indicating that the Group would remain within covenant
limits. Finally, a reverse stress test was performed which
demonstrated that a significant reduction in H2 2024 and H1 2025
revenue and operating profit, assuming no additional reactive
mitigating actions were commenced, would be required before the
Group breached its leverage and interest covenants.
Even after applying the 'worst
case' downside risk scenarios in aggregation, no covenant is
forecast to be breached during the 12 months from the date of this
report, and the Group would not expect to require any additional
sources of finance.
Principal Risks and Uncertainties
The Group's approach to risk
management and its principal risks and uncertainties are set out on
pages 71 to 76 of the Company's 2023 Annual Report. The Board has
reviewed the principal risks and uncertainties facing the Group and
has concluded that they remain applicable for the second half of
the financial year.
Business Unit Reviews
Automotive
GKN Automotive is a global automotive technology business at
the forefront of innovation. It specialises in designing,
developing and producing market-leading driveline systems, with
eight out of ten of the world's best-selling cars using its
technology. GKN Automotive is the world leader in sideshafts,
propshafts, all-wheel-drive (AWD) systems and advanced
differentials, on which it has built its eDrive system capability,
which was launched over 20 years ago and has since been used in
over 2.5 million electrified vehicles worldwide.
Automotive overview
£ millions
|
Adjusted1
|
Statutory
|
H1 2024
|
H1 2023
|
Change
|
Constant FX1
|
H1 2024
|
H1 2023
|
Change
|
Revenue
|
2,044
|
2,283
|
-10%
|
-6.3%
|
1,780
|
2,018
|
-12%
|
Driveline
|
1,209
|
1,272
|
-5.0%
|
-1.4%
|
1,204
|
1,265
|
-4.8%
|
ePowertrain
|
538
|
714
|
-25%
|
-20%
|
538
|
714
|
-25%
|
China
|
259
|
258
|
0.3%
|
6.6%
|
-
|
-
|
-
|
Other2
|
38
|
39
|
-2.6%
|
2.9%
|
38
|
39
|
-2.6%
|
Operating profit/(loss)
|
122
|
149
|
-18%
|
-13%
|
(11)
|
(34)
|
68%
|
Operating margin
|
6.0%
|
6.5%
|
-50bps
|
-50bps
|
-0.6%
|
-1.7%
|
110bps
|
1. Adjusted
financial measures are defined and reconciled to statutory measures
in the Alternative Performance Measures section of this
announcement, which also sets out the definition and basis of
calculation of constant currency.
2. Other
revenue includes revenue from Cylinder Liners.
In Automotive, adjusted revenue
declined 6.3% to £2,044 million largely due to the impact of volume
weakness and product mix in the ePowertrain product line, which has
a significantly higher content per vehicle than the Driveline
product line. Driveline, with adjusted revenue decline of 1.4%,
outperformed a declining global light vehicle production rate of
2.4% in the first half, as it continued to demonstrate its
resilience, benefitting from customer platform and geographical
diversification. Automotive's China business continued to perform
well, gaining increased share with local OEMs as revenues grew
6.6%, outperforming the Chinese market growth. Volume weakness in
ePowertrain was driven by double digit decline in AWD systems
largely due to delays in certain platform launches in Americas,
moderate decline in ePowertrain components, driven by softening in
Asia and significant revenue decline in eDrive systems due to
volatility in BEV production volumes.
Adjusted operating profit of £122
million, declined 13%, leading to adjusted operating margins of
6.0%, a decline of 50bps at constant currency. This was largely
driven by the impact from lower volume which was only partially
offset by recovery from customers of inflationary costs incurred in
the prior year and ongoing performance initiatives, which helped to
reduce the constant currency drop through margin from 30% to
14%.
Ongoing performance initiatives
resulted in £43 million of restructuring costs during the period
(H1 2023: £86 million), with a £47 million cash outflow (H1 2023:
£24 million).
New business wins
Automotive continued to expand its
new business pipeline in the first half of the year, securing
contract awards worth more than £2.4 billion in forecast lifetime
revenue across its Driveline and ePowertrain product lines. The
awards cover a broad range of global OEMs, and Chinese OEMs,
including a 3-in-1 eDrive system for a major Chinese OEM through
Automotive's joint venture SDS. However, the high-performance SUV
vehicle programme referenced in the Group's interim results
announcement on 12 September 2023, for which Automotive had been
contracted to supply a 3-in-1 eDrive system, was indefinitely
postponed, in another sign of the continuing uncertainty in the BEV
marketplace.
Automotive's H1 business wins
broadly reflected current market forecasts of EV production volumes
in 2028, with 52% of new business wins during the period related to
EV programmes. Overall, Automotive's order book continues to be
well aligned to the evolving vehicle portfolio of its customers and
S&P's forecast for 2028. 21% of its current 2028 order book
relates to BEVs, 32% to HEVs and 47% to ICE vehicles. The business
therefore continues to closely track the pace of transition of its
customers' vehicle platforms to EVs.
Technology and product portfolio
As the global market leader in
drive systems, the business continued to expand its core sideshaft
portfolio in H1 2024, with products designed to match the changing
demands of electrified vehicle platforms, as well as traditional
combustion engines. It remains well positioned to capitalise on its
leadership in AWD systems and advanced differentials in both
internal combustion engine vehicles, and in the growing market for
torque management systems in electrified vehicles.
The business's first entirely in-house designed
and developed 3-in-1 eDrive system for a major global OEM is
expected to enter production in the second half of 2024.
Operational excellence
Automotive delivered an Accident
Frequency Rate of 0.15 (AFR) in the first half of the year, higher
than our target. As a result, the business is extending its focus
on behavioural based safety interventions, particularly related to
hand safety and slips, trips and falls. Excellent quality standards
were maintained, with a PPM defect rate of three.
Automotive successfully completed
79 new programme launches during the first half of the year, whilst
continuing to make progress on improving the competitiveness of its
global operations. In response to ongoing volume decline combined
with high levels of inflation in Europe, the business implemented a
targeted programme to improve productivity in the region. In March,
Automotive announced the streamlining of its operations in North
America, which will result in an expanded end to end manufacturing
operation in Alamance, the transfer of all North American propshaft
manufacturing to Mexico and the closure of its plant in Roxboro,
North Carolina, with expected completion of the transfer process in
Q4 2024.
Powder Metallurgy
GKN Powder Metallurgy is solving complex challenges in
automotive and industrial markets through best-in-class sustainable
and innovative powder metallurgy technology. It is a world-class
supplier of metal powder and sintered metal components. The
business comprises three focused divisions under one brand: GKN
Powders/Hoeganaes, GKN Sinter Metals, and GKN Additive, supplying
metal powders, high-precision powder metal solutions and 3D-printed
parts.
Powder Metallurgy overview
£ millions
|
Adjusted1
|
Statutory
|
H1 2024
|
H1 2023
|
Change
|
Constant FX1
|
H1 2024
|
H1 2023
|
Change
|
Revenue
|
527
|
545
|
-3.3%
|
0.2%
|
509
|
532
|
-4.3%
|
Sinter
|
400
|
417
|
-4.1%
|
-0.5%
|
400
|
417
|
-4.1%
|
Additive
|
14
|
13
|
7.7%
|
19%
|
14
|
13
|
7.7%
|
Powder
|
113
|
115
|
-1.7%
|
0.9%
|
95
|
102
|
-6.9%
|
Operating profit
|
50
|
50
|
-
|
6.0%
|
22
|
25
|
-12%
|
Operating margin
|
9.5%
|
9.2%
|
30bps
|
50bps
|
4.3%
|
4.7%
|
-40bps
|
1. Adjusted financial measures are
defined and reconciled to statutory measures in the Alternative
Performance Measures section of this announcement, which also sets
out the definition and basis of calculation of constant
currency.
Powder Metallurgy generated
adjusted revenue of £527 million, a slight increase of 0.2%
year-on-year and ahead of the market. The
slight drop in revenue in the core portfolio due to the ICE decline
was offset by growth in EV products and metal additive
manufacturing. Performance in the second
quarter was impacted by higher comparatives in the same period last
year, largely as a result of price recoveries associated with
commodity prices.
Adjusted operating profit for the
period was £50 million, flat compared to the prior period,
resulting in an adjusted operating margin of 9.5%, a 50bps
improvement from the prior period. This
was mainly driven by the successful resolution of one-time
operational challenges from the prior period and more favourable
regional mix within its powders business.
The business offset inflationary increases through operational
efficiencies.
Commercial progress and EV transition
Despite a slowdown in the
automotive market, Powder Metallurgy had a successful first half of
the year commercially. The business secured new contracts with a
peak annual revenue of £77 million, representing a 10% year-on-year
increase. Notably, 53% of these wins were from propulsion-agnostic
product groups, confirming that new products are gaining commercial
traction and that the business' portfolio transition strategy is on
track.
Powder Metallurgy continued
building momentum in EV-specific products, winning new business for
e-pumps and x-by-wire components such as e-steering and e-braking
systems where sintering offers significant performance and cost
benefits. The supply of powder for use in lithium iron phosphate
batteries (LFP) in China continued, with ongoing commercial
discussions with OEMs and stationary battery storage providers in
Europe and the Americas. The business is
on track to install a low scale production line expected to be
operational in Q1 2025. Additionally,
there has been a notable increase in requests for quotation (RFQs)
for magnets from OEMs and Tier 1 suppliers.
Restructuring activities continued
in the first half, with one site closed in the US and another set
to close by the end of the year, further optimising the
manufacturing footprint.
On 11 March 2024, Dowlais
appointed a new Chief Executive Officer, Jean-Marc Durbuis, to lead
the GKN Powder Metallurgy business with a mandate to support the EV
transition and accelerate growth. Jean-Marc Durbuis joins GKN
Powder Metallurgy from Allnex, where he was Executive Vice
President and a member of the executive committee and board of
directors of one of its divisions. Under his leadership, the
business has conducted a comprehensive portfolio review and
identified new growth areas to transition towards
propulsion-agnostic products. These new areas aim to grow the core
portfolio by entering and developing new markets for powders and
sintered components where Powder Metallurgy has a strong right to
win.
For the rest of the year, Powder
Metallurgy remains focused on order book growth and continuing the
commercial progress on its EV portfolio transition.
Hydrogen
Hydrogen overview
£ millions
|
Adjusted1
|
Statutory
|
H1 2024
|
H1 2023
|
Change
|
Constant FX1
|
H1 2024
|
H1 2023
|
Change
|
Revenue
|
0
|
2
|
-100%
|
-100%
|
0
|
2
|
-100%
|
Operating profit
|
(7)
|
(8)
|
-13%
|
-13%
|
(17)
|
(8)
|
-113%
|
Operating margin
|
n/m2
|
n/m2
|
n/m2
|
n/m2
|
n/m2
|
n/m2
|
n/m2
|
1. Adjusted financial measures are
defined and reconciled to statutory measures in the Alternative
Performance Measures section of this announcement, which also sets
out the definition and basis of calculation of constant
currency.
2. Not meaningful.
As previously communicated, in
early 2024 Dowlais started a process to identify potential
investment partners in the GKN Hydrogen business. On 29 July 2024,
we completed the disposal of the business to Langley Holdings plc
for a nominal sum. This transaction will result in an expected loss
on disposal of approximately £18 million, of which £10 million was
incurred in the first half, and will eliminate future cash losses
associated with the funding of the Hydrogen operations.
In the 12 months ended 31 December
2023, Hydrogen operations contributed £5 million of revenue, £15
million of operating losses and £23 million of cash
losses.
The decision to dispose of the
business reflects our determination that further investment was not in shareholders' interests due to
a reassessment of the longer term prospects of the business
in light of the current Hydrogen
market.
Responsibility Statement
The directors confirm that to the
best of their knowledge:
•
|
the condensed set of financial
statements has been prepared in accordance with UK-adopted IAS34
'Interim Financial Reporting'; and
|
•
|
the interim management report
includes a fair review of the information required by DTR 4.2.7
(indication of important events and their impact, and a description
of principal risks and uncertainties for the remaining six months
of the financial year) and DTR 4.2.8 (disclosure of related
parties' transactions and changes therein).
|
The directors of Dowlais Group plc
are listed on pages 82 and 83 of the 2023 Annual Report and on the
Group's website www.dowlais.com
under the page headed "Our Board".
By order of the Board
Liam Butterworth
Chief Executive Officer
|
Roberto Fioroni
Chief Financial Officer
|
12 August 2024
INDEPENDENT REVIEW REPORT TO DOWLAIS GROUP
PLC
Conclusion
We have been engaged by the
company to review the condensed set of financial statements in the
half-yearly financial report for the six months ended 30 June 2024,
which comprises the condensed consolidated income statement, the
condensed consolidated statement of comprehensive income, the
condensed consolidated statement of cash flows, the condensed
consolidated balance sheet and the condensed consolidated statement
of changes in equity and related notes 1 to 16.
Based on our review, nothing has
come to our attention that causes us to believe that the condensed
set of financial statements in the half-yearly financial report for
the six months ended 30 June 2024 is not prepared, in all material
respects, in accordance with United Kingdom adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct
Authority.
Basis for Conclusion
We conducted our review in
accordance with International Standard on Review Engagements (UK)
2410 "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council for use in the United Kingdom (ISRE (UK) 2410). A
review of interim financial information consists of making
inquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK) and consequently does not enable us to obtain assurance that
we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 2, the annual
financial statements of the group are prepared in accordance with
United Kingdom adopted international accounting standards. The
condensed set of financial statements included in this half-yearly
financial report has been prepared in accordance with United
Kingdom adopted International Accounting Standard 34, "Interim
Financial Reporting".
Conclusion Relating to Going Concern
Based on our review procedures,
which are less extensive than those performed in an audit as
described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the directors
have inappropriately adopted the going concern basis of accounting
or that the directors have identified material uncertainties
relating to going concern that are not appropriately
disclosed.
This Conclusion is based on the
review procedures performed in accordance with ISRE (UK) 2410;
however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the directors
The directors are responsible for
preparing the half-yearly financial report in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
In preparing the half-yearly
financial report, the directors are responsible for assessing the
group's ability to continue as a going concern, disclosing as
applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic
alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly
financial report, we are responsible for expressing to the company
a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our Conclusion, including our
Conclusion Relating to Going Concern, are based on procedures that
are less extensive than audit procedures, as described in the Basis
for Conclusion paragraph of this report.
Use of our report
This report is made solely to the
company in accordance with ISRE (UK) 2410. Our work has been
undertaken so that we might state to the company those matters we
are required to state to it in an independent review report and for
no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company,
for our review work, for this report, or for the conclusions we
have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
12 August 2024
Dowlais Group plc
Condensed Consolidated Income Statement
|
Notes
|
6 months ended
30 June
2024
Unaudited
£m
|
6 months
ended
30 June
2023
Unaudited
£m
|
Year ended
31 December
2023
Audited
£m
|
Revenue
|
3
|
2,289
|
2,552
|
4,864
|
Cost of sales
|
|
(1,943)
|
(2,164)
|
(4,107)
|
Gross profit
|
|
346
|
388
|
757
|
Share of results of equity
accounted investments
|
9
|
29
|
13
|
51
|
Operating expenses
|
|
(432)
|
(441)
|
(809)
|
Impairment of goodwill
|
4
|
-
|
-
|
(449)
|
Operating loss
|
3,4
|
(57)
|
(40)
|
(450)
|
Finance costs
|
5
|
(68)
|
(40)
|
(101)
|
Finance income
|
5
|
2
|
25
|
29
|
Loss before tax
|
|
(123)
|
(55)
|
(522)
|
Tax
|
6
|
25
|
(27)
|
27
|
Loss after tax for the
period
|
|
(98)
|
(82)
|
(495)
|
Attributable to:
|
|
|
|
|
Owners of the parent
|
|
(101)
|
(85)
|
(501)
|
Non-controlling
interests
|
|
3
|
3
|
6
|
|
|
(98)
|
(82)
|
(495)
|
Earnings per share
|
|
|
|
|
-
Basic
|
8
|
(7.3)p
|
(6.1)p
|
(36.0)p
|
-
Diluted
|
8
|
(7.3)p
|
(6.1)p
|
(36.0)p
|
|
|
|
|
|
Adjusted(1)
results
|
|
|
|
|
Adjusted revenue
|
3
|
2,571
|
2,830
|
5,489
|
Adjusted operating
profit
|
3,4
|
151
|
177
|
355
|
Adjusted profit before
tax
|
4
|
95
|
139
|
264
|
Adjusted profit after
tax
|
4
|
71
|
103
|
198
|
Adjusted basic earnings per
share
|
8
|
4.9p
|
7.2p
|
13.8p
|
Adjusted diluted earnings per
share
|
8
|
4.9p
|
7.2p
|
13.8p
|
1. Defined in the summary of material
accounting policies (Note 2).
Dowlais Group plc
Condensed Consolidated Statement of Comprehensive Income
|
Notes
|
6 months ended
30 June
2024
Unaudited
£m
|
6 months
ended
30 June
2023(1)
Unaudited
£m
|
Year ended
31 December
2023
Audited
£m
|
Loss after tax for the
period
|
|
(98)
|
(82)
|
(495)
|
|
|
|
|
|
Items that will not be reclassified
subsequently to the Income Statement:
|
|
|
|
|
Net remeasurement gain/(loss) on
retirement benefit obligations
|
|
31
|
(6)
|
(22)
|
Income tax (charge)/credit relating
to items that will not be reclassified
|
6
|
(8)
|
1
|
4
|
|
|
23
|
(5)
|
(18)
|
Items that may be reclassified
subsequently to the Income Statement:
|
|
|
|
|
Currency translation
|
|
(52)
|
(154)
|
(152)
|
Impact of hyperinflationary
economies
|
|
7
|
4
|
8
|
Share of other comprehensive
expense from equity accounted investments
|
|
(5)
|
(38)
|
(32)
|
Derivative and exchange gains on
hedge relationships
|
|
12
|
32
|
21
|
Income tax (charge)/credit relating
to items that may be reclassified
|
6
|
(1)
|
(5)
|
4
|
|
|
(39)
|
(161)
|
(151)
|
Other comprehensive expense for the
period
|
|
(16)
|
(166)
|
(169)
|
Total comprehensive expense for the
period
|
|
(114)
|
(248)
|
(664)
|
Attributable to:
|
|
|
|
|
Owners of the parent
|
|
(112)
|
(248)
|
(668)
|
Non-controlling
interests
|
|
(2)
|
-
|
4
|
|
|
(114)
|
(248)
|
(664)
|
1. Results for June 2023 reflect the
application of IAS 29 Financial Reporting in Hyperinflationary
Economies as set out in Note 1.3.
Dowlais Group plc
Condensed Consolidated Statement of Cash Flows
|
Notes
|
6 months ended
30 June
2024
Unaudited
£m
|
6 months
ended
30 June
2023
Unaudited
£m
|
Year ended
31 December
2023
Audited
£m
|
Net cash from operating
activities
|
13
|
35
|
82
|
239
|
Investing activities
|
|
|
|
|
Purchase of property, plant and
equipment
|
|
(100)
|
(113)
|
(279)
|
Proceeds from disposal of property,
plant and equipment
|
|
2
|
-
|
33
|
Purchase of computer software and
capitalised development costs
|
|
(3)
|
(9)
|
(16)
|
Dividends received from equity
accounted investments
|
|
70
|
33
|
63
|
Interest received
|
|
2
|
1
|
5
|
Net cash used in investing
activities
|
|
(29)
|
(88)
|
(194)
|
Financing activities
|
|
|
|
|
Cash settlements with Related
Parties(1)
|
|
-
|
(1,093)
|
(1,096)
|
Drawings on borrowing
facilities
|
|
190
|
1,233
|
1,313
|
Repayment of borrowing
facilities
|
|
(146)
|
(60)
|
(124)
|
Costs of raising debt
finance
|
|
-
|
(12)
|
(12)
|
Repayment of principal under lease
obligations
|
|
(12)
|
(12)
|
(25)
|
Purchase of own shares
|
|
(9)
|
(7)
|
(7)
|
Dividends paid to non-controlling
interests
|
|
-
|
-
|
(7)
|
Dividends paid to equity
shareholders
|
7
|
(39)
|
-
|
(19)
|
Net cash (used in)/from financing
activities
|
|
(16)
|
49
|
23
|
Net (decrease)/increase in cash and
cash equivalents, net of bank overdrafts
|
|
(10)
|
43
|
68
|
Cash and cash equivalents, net of
bank overdrafts at the beginning of the period
|
13
|
313
|
263
|
263
|
Effect of foreign exchange rate
changes
|
|
(14)
|
(13)
|
(18)
|
Cash and cash equivalents, net of
bank overdrafts at the end of the period
|
13
|
289
|
293
|
313
|
1. Related parties comprised Melrose Industries
PLC, the ultimate parent company prior to demerger on 20 April 2023
and other non-group entities controlled by Melrose Industries
PLC.
As at 30 June 2024, the Group had net debt of
£915 million (30 June 2023: £849 million; 31 December 2023: £847
million). A definition and reconciliation of the movement in net
debt is shown in Note 13.
Dowlais Group plc
Condensed Consolidated Balance Sheet
|
Notes
|
30 June
2024
Unaudited
£m
|
30 June
2023(1)(2)
Unaudited
£m
|
31 December
2023(1)
Audited
£m
|
Non-current assets
|
|
|
|
|
Goodwill and other intangible
assets
|
|
2,242
|
2,901
|
2,365
|
Property, plant and
equipment
|
|
1,707
|
1,738
|
1,751
|
Interests in equity accounted
investments
|
|
351
|
383
|
397
|
Deferred tax assets
|
|
149
|
161
|
146
|
Derivative financial
assets
|
|
20
|
22
|
8
|
Other financial assets
|
|
-
|
32
|
28
|
Retirement benefit
surplus
|
12
|
31
|
35
|
27
|
Other receivables
|
|
12
|
13
|
12
|
|
|
4,512
|
5,285
|
4,734
|
Current assets
|
|
|
|
|
Inventories
|
|
480
|
495
|
510
|
Trade and other
receivables
|
|
625
|
720
|
628
|
Derivative financial
assets
|
|
20
|
53
|
45
|
Other financial assets
|
|
19
|
-
|
-
|
Current tax assets
|
|
43
|
43
|
21
|
Cash and cash
equivalents
|
13
|
298
|
300
|
313
|
|
|
1,485
|
1,611
|
1,517
|
Total assets
|
3
|
5,997
|
6,896
|
6,251
|
Current liabilities
|
|
|
|
|
Trade and other payables
|
|
1,110
|
1,211
|
1,179
|
Interest-bearing loans and
borrowings
|
13
|
10
|
8
|
2
|
Lease obligations
|
14
|
22
|
22
|
25
|
Derivative financial
liabilities
|
|
8
|
6
|
4
|
Current tax liabilities
|
|
95
|
126
|
100
|
Provisions
|
10
|
140
|
148
|
136
|
|
|
1,385
|
1,521
|
1,446
|
Net current assets
|
|
100
|
90
|
71
|
Non-current liabilities
|
|
|
|
|
Other payables
|
|
16
|
14
|
18
|
Interest-bearing loans and
borrowings
|
13
|
1,203
|
1,141
|
1,158
|
Lease obligations
|
14
|
120
|
133
|
126
|
Derivative financial
liabilities
|
|
10
|
1
|
4
|
Deferred tax liabilities
|
|
235
|
360
|
248
|
Retirement benefit
obligations
|
12
|
450
|
488
|
486
|
Provisions
|
10
|
156
|
214
|
182
|
|
|
2,190
|
2,351
|
2,222
|
Total liabilities
|
3
|
3,575
|
3,872
|
3,668
|
Net assets
|
|
2,422
|
3,024
|
2,583
|
Equity
|
|
|
|
|
Issued share capital
|
|
14
|
14
|
14
|
Share premium account
|
|
-
|
1,070
|
-
|
Own shares
|
|
(7)
|
(7)
|
(7)
|
Translation reserve
|
|
(123)
|
(113)
|
(81)
|
Hedging reserve
|
|
9
|
24
|
1
|
Retained earnings
|
|
2,495
|
1,997
|
2,620
|
Equity attributable to owners of
the parent
|
|
2,388
|
2,985
|
2,547
|
Non-controlling
interests
|
|
34
|
39
|
36
|
Total equity
|
|
2,422
|
3,024
|
2,583
|
1. Interests in equity accounted investments
and Retained earnings at 1 January 2023 have been restated to
reflect a previously unidentified omission in the acquisition
accounting of an equity accounted investment. Further details are
set out in Note 1.4.
2. Results for June 2023 reflect the
application of IAS 29 Financial Reporting in Hyperinflationary
Economies as set out in Note 1.3.
Dowlais Group plc
Condensed Consolidated Statement of Changes in Equity
|
Issued
share
capital
£m
|
Share
premium
account
£m
|
Own
shares
£m
|
Translation
reserve
£m
|
Hedging
reserve
£m
|
Retained
earnings
£m
|
Equity
attributable
to owners
of the parent
£m
|
Non-
controlling
interests
£m
|
Total
equity
£m
|
At 1 January 2023 (as previously
reported)
|
-
|
-
|
-
|
69
|
-
|
4,885
|
4,954
|
39
|
4,993
|
Restatement of equity accounted
investments(1)
|
-
|
-
|
-
|
-
|
-
|
17
|
17
|
-
|
17
|
At 1 January 2023 (as
restated)
|
-
|
-
|
-
|
69
|
-
|
4,902
|
4,971
|
39
|
5,010
|
(Loss)/profit for the
period
|
-
|
-
|
-
|
-
|
-
|
(85)
|
(85)
|
3
|
(82)
|
Other comprehensive
(expense)/income(2)
|
-
|
-
|
-
|
(182)
|
24
|
(5)
|
(163)
|
(3)
|
(166)
|
Total comprehensive
(expense)/income
|
-
|
-
|
-
|
(182)
|
24
|
(90)
|
(248)
|
-
|
(248)
|
Dividends paid to Related
Parties(3)
|
-
|
-
|
-
|
-
|
-
|
(1,675)
|
(1,675)
|
-
|
(1,675)
|
Effect of change of ultimate
holding company(4)
|
14
|
1,070
|
-
|
-
|
-
|
(1,084)
|
-
|
-
|
-
|
Purchase of own shares by Employee
Benefit Trust(5)
|
-
|
-
|
(7)
|
-
|
-
|
-
|
(7)
|
-
|
(7)
|
Transactions with Related
Parties(3)
|
-
|
-
|
-
|
-
|
-
|
(57)
|
(57)
|
-
|
(57)
|
Equity-settled share-based
payments
|
-
|
-
|
-
|
-
|
-
|
1
|
1
|
-
|
1
|
At 30 June 2023
(unaudited)(1)
|
14
|
1,070
|
(7)
|
(113)
|
24
|
1,997
|
2,985
|
39
|
3,024
|
Loss for the
period
|
-
|
-
|
-
|
-
|
-
|
(416)
|
(416)
|
3
|
(413)
|
Other comprehensive
income/(expense)
|
-
|
-
|
-
|
32
|
(23)
|
(13)
|
(4)
|
1
|
(3)
|
Total comprehensive
income/(expense)
|
-
|
-
|
-
|
32
|
(23)
|
(429)
|
(420)
|
4
|
(416)
|
Capital reduction
|
-
|
(1,070)
|
-
|
-
|
-
|
1,070
|
-
|
-
|
-
|
Dividends paid to equity
shareholders
|
-
|
-
|
-
|
-
|
-
|
(19)
|
(19)
|
(7)
|
(26)
|
Equity-settled share-based
payments
|
-
|
-
|
-
|
-
|
-
|
1
|
1
|
-
|
1
|
At 31 December 2023
(audited)(1)
|
14
|
-
|
(7)
|
(81)
|
1
|
2,620
|
2,547
|
36
|
2,583
|
(Loss)/profit for the
period
|
-
|
-
|
-
|
-
|
-
|
(101)
|
(101)
|
3
|
(98)
|
Other comprehensive
(expense)/income
|
-
|
-
|
-
|
(42)
|
8
|
23
|
(11)
|
(5)
|
(16)
|
Total comprehensive
(expense)/income
|
-
|
-
|
-
|
(42)
|
8
|
(78)
|
(112)
|
(2)
|
(114)
|
Dividends paid to equity
shareholders
|
-
|
-
|
-
|
-
|
-
|
(39)
|
(39)
|
-
|
(39)
|
Equity-settled share-based
payments
|
-
|
-
|
-
|
-
|
-
|
1
|
1
|
-
|
1
|
Purchase of own
shares(6)
|
-
|
-
|
-
|
-
|
-
|
(9)
|
(9)
|
-
|
(9)
|
At 30 June 2024
(unaudited)
|
14
|
-
|
(7)
|
(123)
|
9
|
2,495
|
2,388
|
34
|
2,422
|
1. Interests in equity accounted investments
and Retained earnings at 1 January 2023 have been restated to
reflect a previously unidentified omission in the acquisition
accounting of an equity accounted investment. Further details are
set out in Note 1.4.
2. Results for June 2023 reflect the
application of IAS 29 Financial Reporting in Hyperinflationary
Economies as set out in Note 1.3.
3. Related Parties comprised Melrose Industries
PLC, the ultimate parent company prior to demerger on 20 April 2023
and other non-group entities controlled by Melrose Industries
PLC.
4. Following the demerger, the issued share
capital and share premium account of Dowlais Group plc were
recognised in the Consolidated Interim Financial
Statements.
5. On 31 May 2023 an Employee Benefit Trust
(EBT) established for the benefit of certain employees of the Group
purchased shares in the capital of the Company to be held for the
purpose of settling awards vesting under the Group's share
incentive schemes.
6. On 4 April 2024 the Group commenced a share
buy-back programme under which shares in the capital of the Company
totalling £9 million (2023: £nil) have been purchased. All shares
purchased under this programme have been cancelled.
NOTES TO THE CONDENSED INTERIM FINANCIAL
STATEMENTS
1. Corporate information
Dowlais Group plc comprises the GKN Automotive,
GKN Powder Metallurgy and GKN Hydrogen businesses along with
certain Corporate functions, together referred to as the "Group".
GKN Automotive is a global technology and systems engineer which
designs, develops, manufactures and integrates an extensive range
of driveline technologies, including electric vehicle components.
GKN Powder Metallurgy is a global leader in precision powder metal
parts for the automotive and industrial sectors, as well as the
production of powder metal. GKN Hydrogen, launched in 2021, offers
reliable and secure hydrogen storage solutions.
1.1 Corporate Structure
Dowlais Group plc ("the Company") is a public
company limited by shares. The Company is incorporated in the
United Kingdom under the Companies Act 2006 and is registered in
England & Wales.
On 28 February 2023, Melrose Industries PLC
("Melrose") transferred the entire shareholding of GKN Industries
Limited and GKN Powder Metallurgy Holdings Limited to Dowlais Group
plc such that all the entities within the Group became owned
directly or indirectly by the Company.
On 20 April 2023, Melrose made a distribution to
its shareholders of Dowlais Group plc shares with one Dowlais share
issued for every Melrose share held. On the same day, Dowlais Group
plc shares were admitted to the premium listing segment of the
Official List of the Financial Conduct Authority (FCA) and to
trading on the London Stock Exchange's main market for listed
securities.
Prior to 20 April 2023, the ultimate parent
company and controlling party of the Group was Melrose Industries
PLC, a public company limited by shares and incorporated in England
& Wales.
Subsidiaries of Melrose prior to the date of
the demerger which do not form part of the Dowlais Group are
considered non-group entities. Melrose Industries PLC and other
non-group entities controlled by Melrose were Related Parties of
the Group up to the date of the demerger on 20 April
2023.
1.2 Basis of Preparation
The opening comparative information and results
from 1 January 2023 up to 28 February 2023 in this set of accounts
show an aggregation of the GKN Automotive, GKN Powder Metallurgy
and GKN Hydrogen businesses along with certain Corporate functions,
which form the operating segments of the Group. The aggregation was
prepared as though the current legal structure of the Group was in
place at the beginning of the comparative period under the
principles of merger accounting.
The condensed set of interim financial
statements included in this report have been prepared in accordance
with UK-endorsed International Financial Reporting Standards
("IFRS"). These Condensed Interim Financial Statements do not
comprise statutory accounts within the meaning of section 435 of
the Companies Act 2006 and have been prepared in accordance with
IAS 34: "Interim Financial Reporting" contained in UK-endorsed
IFRS.
The information relating to the year ended 31
December 2023 is extracted from the Group's published Annual Report
for that year, which has been delivered to the Registrar of
Companies, and on which the auditor's report was unqualified and
did not contain any emphasis of matter or statements under section
498(2) or 498(3) of the UK Companies Act 2006.
1.3 IAS 29 Financial Reporting in
Hyperinflationary Economies
Following the adoption of IAS 29 Financial
Reporting in Hyperinflationary Economies in the 2023 Annual Report,
the June 2023 results also reflect the application of IAS 29 to the
Group's operations in Turkey, which became hyperinflationary in
2022. IAS 29 requires affected entities to present their financial
statements reflecting the general purchasing power of the relevant
functional currency in terms of the measuring unit current at the
end of the reporting period. Accordingly, the June 2023 financial
statements of the Group's operations in Turkey, which are based on
a historical cost approach, were adjusted to reflect the level of
the Turkey Domestic Producer Price Index (D-PPI) which was 2,321 as
at 30 June 2023. As a result, goodwill and other intangible assets
were increased by £16 million, property, plant and equipment were
increased by £7 million and a total of £23 million was recognised
in other comprehensive income as a credit to translation
reserves.
1.4 Restatement of equity accounted
investments
During the period, a previously unidentified
omission was noted with respect to the acquisition accounting for
the Group's investment in Shanghai GKN HUAYU Driveline Systems
("SDS"). SDS was acquired in 2018 and is held as an equity
accounted investment. At the time of acquisition, intangible assets
relating to customer programmes were identified and recorded as
part of the carrying value of the investment as required by IAS 28
Investments in Associates and Joint Ventures, however no
corresponding deferred tax liability was recorded.
Had the deferred tax liability been recorded at
the time of acquisition, this would have had no effect on the fair
value of the investment initially recorded on acquisition. Due to
the unwind of the underlying deferred tax liability, reflecting the
amortisation of the related intangible assets, this would have
increased the share of profits of equity accounted investments by
£3 million each year since then, with a corresponding increase to
the investment in equity accounted investments.
As the cumulative effect of this on the opening
balance sheet in 2023 is considered material, it has been restated.
As a result, interests in equity accounted investments have
increased by £17 million being the net impact of the increase to
goodwill of £36 million and the remaining deferred tax liability of
£19 million, with a corresponding credit to retained earnings. The
Income Statements for comparative periods have not been restated on
the basis the impact is not considered to be material to the
results reported for the comparative periods.
1.5 New Standards, Amendments and
Interpretations affecting amounts, presentation or disclosure
reported in the current period
The following amendments to IFRS Accounting
Standards have been applied for the first time by the Group. Their
adoption has not had any material impact on the amounts reported or
the disclosures or on the required amounts reported in these
Condensed Interim Financial Statements, except for as noted
below:
-
|
Amendments to IAS 1 Classification
of Liabilities as Current or Non-current
|
-
|
Amendments to IAS 1 Non-current
Liabilities with Covenants
|
-
|
Amendments to IAS 7 and IFRS 7
Supplier Finance Arrangements - The amendments to IAS 7 require
disclosure of information about the Group's supplier finance
arrangements that enables users of financial statements to assess
the effects of those arrangements on the entity's liabilities and
cash flows. In addition, IFRS 7 is amended to add supplier finance
arrangements as an example within the requirements to disclose
information about an entity's exposure to concentration of
liquidity risk. The Group will provide the required disclosures in
its 2024 Annual Report.
|
-
|
Amendments to IFRS 16 Lease
Liability in a Sale and Leaseback
|
1.6 New and revised IFRS Accounting Standards
in issue but not yet effective
At the date of authorisation of these interim
financial statements, the Group has not applied the following new
and revised IFRS Accounting Standards that have been issued but are
not yet effective:
-
|
Amendments to IFRS 10 and IAS 28
Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture
|
-
|
Amendments to IAS 21 Lack of
Exchangeability
|
-
|
Amendments to IFRS 9 Amendments to
the Classification and Measurement of Financial
Instruments
|
The directors do not expect that the adoption
of the Standards listed above will have a material impact on the
financial statements of the Group in future periods.
2. Summary of material accounting
policies
Material accounting policies applied in
preparing the Condensed Interim Financial Statements and
Alternative Performance Measures are consistent with those detailed
in the Group's 2023 Annual Report.
Alternative Performance Measures
The Group presents Alternative Performance
Measures ("APMs") in addition to the statutory results. These are
presented in accordance with the Guidelines on APMs issued by the
European Securities and Markets Authority ("ESMA"). APMs used by
the Group are set out in the Alternative Performance Measures
section to these Condensed Interim Financial Statements and the
reconciling items between statutory and adjusted results are listed
below and described in more detail in Note 4.
Adjusted revenue includes the Group's share of
revenue from equity accounted investments ("EAIs").
Adjusted profit measures exclude items which are
significant in size or volatility or by nature are non-trading or
non-recurring, and include adjusted profit from EAIs.
On this basis, the following are the principal
items included within adjusting items impacting operating
profit:
-
|
Amortisation of intangible assets
that are acquired in a business combination, excluding computer
software and development costs;
|
-
|
Significant restructuring project
costs and other associated costs, including losses incurred
following the announcement of closure for identified businesses,
and pre-operational losses for new operating sites, arising from
significant strategy changes that are not considered by the Group
to be part of the normal operating costs of the
business;
|
-
|
Acquisition and disposal related
gains and losses;
|
-
|
Costs relating to or resulting
from the demerger of the Group from Melrose Industries
PLC;
|
-
|
Impairment charges that are
considered to be significant in nature and/or value to the trading
performance of the business;
|
-
|
Movement in derivative financial
instruments not designated in hedging relationships, including
revaluation of associated financial assets and
liabilities;
|
-
|
Removal of adjusting items,
interest and tax on equity accounted investments to reflect
operating results; and
|
-
|
The net release of loss-making
contract provision fair value items booked on
acquisitions.
|
Further to the adjusting items above, adjusting
items impacting profit before tax include:
-
|
The fair value changes on cross-currency
swaps, relating to cost of hedging which are not deferred in
equity;
|
-
|
The movement in loans with Related Parties as
a result of changes in foreign currency exchange rates;
and
|
-
|
The fair value changes on remeasurement of
non-trading financial assets.
|
In addition to the items above, adjusting items
impacting profit after tax include:
-
|
The net effect on tax of significant
restructuring from strategy changes that are not considered by the
Group to be part of the normal operating costs of the
business;
|
-
|
The net effect of significant new tax
legislation; and
|
-
|
The tax effects of adjustments to profit
before tax, described above.
|
The policy above is consistent with that used in
the comparative year.
The Board considers the adjusted results to be
an important measure used to monitor how the businesses are
performing as this provides a meaningful reflection of how the
businesses are managed and measured on a day-to-day basis and
achieves consistency and comparability between reporting
periods.
The adjusted measures are used to partly
determine the variable element of remuneration of senior management
throughout the Group and are also in alignment with performance
measures used by certain external stakeholders.
Adjusted profit is not a defined term under IFRS
and may not be comparable with similarly titled profit measures
reported by other companies. It is not intended to be a substitute
for, or superior to, GAAP measures. All APMs relate to the current
period results and comparative periods or years where
provided.
Going concern
The Condensed Interim Financial Statements have
been prepared on a going concern basis as the Directors consider
that adequate resources exist for the Company to continue in
operational existence for a period of not less than 12 months from
the date of this report. The Group's liquidity and funding
arrangements are described in the Finance Director's Review. There
is significant financing headroom (being the total of unutilised
credit facilities and available cash) at 30 June 2024 of c. £0.7
billion (31 December 2023: c.£0.6 billion) and throughout the going
concern forecast period. Forecast covenant compliance is considered
further below.
Covenants
The current facility has two financial covenants
being a leverage (net debt to adjusted EBITDA) covenant of 3.50x
and an interest cover covenant of 4.0x, both of which are tested
half yearly, in June and December.
Testing
The Directors have prepared a working capital
model based on the Group's latest 2024 forecast and 2025 strategic
plan that considers the estimated impact of end market and
operational factors, including supply chain and inflationary
challenges throughout the going concern period. Climate related
risks have also been considered, including estimating the expected
transition from internal combustion engines to electric vehicles
and modelling potential risks to the Group's infrastructure
resulting from extreme weather or climate events.
Throughout the period covered, under this 'base
case' model, financing headroom was forecast to be at least £640
million, and the Group's forecast leverage and interest covenants
are expected to comfortably meet the respective testing
criteria.
In concluding that the going concern basis is
appropriate, the Directors have also modelled the impact of a
'worst case scenario' to the 'base case' by including an
aggregation of three plausible but severe downside risks,
being (i) economic shock/downturn, (ii) losing a key
market, product or customer and (iii) significant contract delivery
issues.
Under this 'worst case' scenario, financing
headroom was forecast to be at least £335 million throughout the
period, the Group's leverage was expected to be no higher than 2.9x
and the Group's interest cover was no lower than 4.3x, indicating
that the Group would remain within covenant limits. Finally, a
reverse stress test was performed which demonstrated that a
significant reduction in H2 2024 and H1 2025 revenue and operating
profit, assuming no additional reactive mitigating actions were
introduced, would be required before the Group breached its
leverage and interest covenants.
Even after applying the 'worst case' downside
risk scenarios in aggregation, no covenant is forecast
to be breached during the 12 months from the date of this report,
and the Group would not expect to require any additional sources of
finance.
Critical accounting judgements and key sources
of estimation uncertainty
The Group's critical accounting
judgements and key sources of estimation uncertainty remain
unchanged since the year-end and are set out on Note 3 of the
Group's 2023 Annual Report. Where relevant, updates are provided
below.
Key sources of
estimation uncertainty
Assumptions used to determine the recoverable
amount of goodwill and other assets
In accordance with IAS 36, the Group assesses
its goodwill and other assets for impairment formally each year, at
the testing date of 31 October. An impairment indicator assessment
has been performed at 30 June 2024 for both of the Group's cash
generating units ("CGUs"), being the Automotive and Powder
Metallurgy divisions.
The impairment indicator assessment did not
identify any indication of impairment with respect to the Powder
Metallurgy CGU, however following the weaker than anticipated first
half Automotive results, an indication of impairment was identified
for the Automotive CGU.
Accordingly, an impairment test was performed
for the Automotive CGU to estimate its recoverable amount which, in
accordance with IAS 36, is the higher of value in use or fair value
less costs to sell. As at 30 June 2024, the Automotive CGU's value
on a fair value less costs to sell basis was determined to be
higher than its value on a value in use basis and therefore a fair
value less costs to sell approach was adopted, supported by a
discounted cash flow model. Headroom of £425 million over the
carrying value of net assets of £2,120 million was identified (31
December 2023: headroom of £449 million over the carrying value of
£2,254 million based on a value in use approach).
The estimated recoverable amount of the
Automotive CGU is sensitive to a change in key assumptions and
estimates, and in order for a material impairment charge to be
recorded in the 12 months from 30 June 2024, the following
reasonably possible changes in key assumptions would need to
occur:
• A reasonably possible change in the post-tax
discount rate and long-term growth rate from 10.25% to 11.4% or
from 3.4% to 1.9% respectively would reduce headroom to £nil.
Further changes in discount rates and long-term growth rates to
11.7% and 1.4% respectively, would result in an impairment of £98
million and £101 million.
• Margin assumptions, supported by the success
of anticipated restructuring programmes, are key to the estimated
valuation and a reduction in the terminal operating profit of 14%
would reduce the terminal operating margin by 1.4 percentage points
reducing headroom to £nil. A total reduction in the terminal
operating profit of 17% would reduce the terminal operating margin
by 1.7 percentage points resulting in an impairment of £99
million.
Although no impairment indicator was identified
for the Powder Metallurgy CGU and therefore no impairment review
was performed, its estimated recoverable value was a key source of
estimation uncertainty at 31 December 2023 and therefore key
assumptions and sensitivities have been included below as at 31
December 2023, as previously presented in the Group's 2023 Annual
Report.
As at 31 December 2023, the carrying amount of
goodwill and other intangible assets (not including computer
software and development costs) in the Powder Metallurgy group of
CGUs was £561 million.
In order for a material impairment charge or
loss on disposal to be recorded in the 12 months from 31 December
2023, the following reasonably possible changes in key assumptions
would need to occur:
• Operating margin assumptions are a key driver
of business value and a reduction in the terminal operating profit
by 10% would reduce the operating margin by 1.0 percentage points,
resulting in an impairment charge of £80 million. A reasonably
possible 1.0% increase in discount rates from 13.4% to 14.4% would
result in an impairment charge of £81 million being incurred. A
reasonably possible 1.0% decrease in growth rates from 3.3% to 2.3%
would result in an impairment charge of £50 million being
incurred.
For all sensitivities, it is assumed that all
other variables remain unchanged.
Assumptions used to determine the carrying
amount of the Group's net retirement benefit obligations
The Group's pension plans are significant in
size. The defined benefit obligations in respect of the plans are
discounted at rates set by reference to market yields on high
quality corporate bonds. Significant estimation is required when
setting the criteria for bonds to be included in the population
from which the yield curve is derived. The most significant
criteria considered for the selection of bonds to include are the
issue size of the corporate bonds, quality of the bonds and the
identification of outliers which are excluded. In addition,
assumptions are made in determining mortality and inflation rates
to be used when valuing the plan's defined benefit obligations. At
30 June 2024, the retirement benefit obligation was a net deficit
of £419 million (30 June 2023: £453 million; 31 December 2023:
£459 million).
3. Segment information
Segment information is presented in accordance
with IFRS 8 Operating Segments which requires operating segments to
be identified on the basis of internal reports about components of
the Group that are regularly reported to the Group's Chief
Operating Decision Maker ("CODM"), which has been deemed to be the
Group's Board, in order to allocate resources to the segments and
assess their performance.
The operating segments are as
follows:
Automotive - a global
technology and systems engineer which designs, develops,
manufactures and integrates an extensive range of driveline
technologies, including electric vehicle components.
Powder Metallurgy - a
global leader in precision powder metal parts for the automotive
and industrial sectors, as well as the production of powder
metal.
Hydrogen - offering
reliable and secure hydrogen storage solutions.
In addition, central cost centres are also
reported to the Board. The central corporate cost centres contain
the Group head office costs and charges related to the divisional
management long-term incentive plans.
Reportable segment results include items
directly attributable to a segment as well as those which can be
allocated on a reasonable basis. Inter-segment pricing is
determined on an arm's length basis, in a manner similar to
transactions with third parties.
The Group's geographical segments are determined
by the location of the Group's non-current assets and, for revenue,
the location of external customers. Inter-segment sales are not
material and have not been disclosed.
a) Segment revenues
The following tables present the segment
revenues and operating profits as regularly reported to the CODM,
as well as certain asset and liability information regarding the
Group's operating segments and central cost centres.
6 months ended 30 June 2024
|
Notes
|
Automotive
£m
|
Powder
Metallurgy
£m
|
Hydrogen
£m
|
Total
£m
|
Adjusted revenue
|
|
2,044
|
527
|
-
|
2,571
|
Equity accounted
investments
|
9
|
(264)
|
(18)
|
-
|
(282)
|
Revenue
|
|
1,780
|
509
|
-
|
2,289
|
6 months ended
30 June 2023
|
Notes
|
Automotive
£m
|
Powder
Metallurgy
£m
|
Hydrogen
£m
|
Total
£m
|
Adjusted revenue
|
|
2,283
|
545
|
2
|
2,830
|
Equity accounted
investments
|
9
|
(265)
|
(13)
|
-
|
(278)
|
Revenue
|
|
2,018
|
532
|
2
|
2,552
|
Year ended 31 December 2023
|
Notes
|
Automotive
£m
|
Powder
Metallurgy
£m
|
Hydrogen
£m
|
Total
£m
|
Adjusted revenue
|
|
4,437
|
1,047
|
5
|
5,489
|
Equity accounted
investments
|
9
|
(594)
|
(31)
|
-
|
(625)
|
Revenue
|
|
3,843
|
1,016
|
5
|
4,864
|
b) Segment operating profit
6 month ended 30 June 2024
|
Automotive
£m
|
Powder
Metallurgy
£m
|
Hydrogen
£m
|
Corporate(2)
£m
|
Total
£m
|
Adjusted operating profit/(loss)
|
122
|
50
|
(7)
|
(14)
|
151
|
|
|
|
|
|
|
Items not included in adjusted
operating profit(1):
|
|
|
|
|
|
Amortisation of intangible assets
acquired in business combinations
|
(72)
|
(24)
|
-
|
-
|
(96)
|
Restructuring costs
|
(43)
|
(4)
|
-
|
(2)
|
(49)
|
Movement in derivatives and
associated financial assets and liabilities
|
(4)
|
-
|
-
|
(31)
|
(35)
|
Equity accounted investments
adjustments
|
(14)
|
-
|
-
|
-
|
(14)
|
Impairment of assets
|
-
|
-
|
(10)
|
-
|
(10)
|
Litigation costs
|
-
|
-
|
-
|
(3)
|
(3)
|
Demerger costs
|
-
|
-
|
-
|
(1)
|
(1)
|
Operating (loss)/profit
|
(11)
|
22
|
(17)
|
(51)
|
(57)
|
Finance costs
|
|
|
|
|
(68)
|
Finance income
|
|
|
|
|
2
|
Loss before tax
|
|
|
|
|
(123)
|
Tax
|
|
|
|
|
25
|
Loss after tax for the
period
|
|
|
|
|
(98)
|
1. For further details on adjusting items,
refer to Note 4.
2. Corporate adjusted operating loss of £14
million includes a credit of £2 million in respect of divisional
management long term incentive plans.
6 months ended 30 June 2023
|
Automotive
£m
|
Powder
Metallurgy
£m
|
Hydrogen
£m
|
Corporate(2)
£m
|
Total
£m
|
Adjusted operating
profit/(loss)
|
149
|
50
|
(8)
|
(14)
|
177
|
|
|
|
|
|
|
Items not included in adjusted
operating profit(1):
|
|
|
|
|
|
Amortisation of intangible assets
acquired in business combinations
|
(74)
|
(25)
|
-
|
-
|
(99)
|
Restructuring costs
|
(86)
|
(2)
|
-
|
-
|
(88)
|
Movement in derivatives and
associated financial assets and liabilities
|
(9)
|
-
|
-
|
30
|
21
|
Equity accounted investments
adjustments
|
(14)
|
-
|
-
|
-
|
(14)
|
Demerger costs
|
-
|
-
|
-
|
(39)
|
(39)
|
Net release and changes in discount
rates of certain fair value items
|
-
|
2
|
-
|
-
|
2
|
Operating (loss)/profit
|
(34)
|
25
|
(8)
|
(23)
|
(40)
|
Finance costs
|
|
|
|
|
(40)
|
Finance income
|
|
|
|
|
25
|
Loss before tax
|
|
|
|
|
(55)
|
Tax
|
|
|
|
|
(27)
|
Loss after tax for the
period
|
|
|
|
|
(82)
|
1. For further details on adjusting items,
refer to Note 4.
2. Corporate adjusted operating loss of £14
million includes a charge of £1 million in respect of divisional
management long term incentive plans.
Year ended 31 December 2023
|
Automotive
£m
|
Powder
Metallurgy
£m
|
Hydrogen
£m
|
Corporate(2)
£m
|
Total
£m
|
Adjusted operating
profit/(loss)
|
306
|
96
|
(15)
|
(32)
|
355
|
|
|
|
|
|
|
Items not included in adjusted
operating profit(1):
|
|
|
|
|
|
Impairment of goodwill
|
-
|
(449)
|
-
|
-
|
(449)
|
Amortisation of intangible assets
acquired in business combinations
|
(146)
|
(51)
|
-
|
-
|
(197)
|
Restructuring costs
|
(109)
|
(10)
|
(1)
|
-
|
(120)
|
Movement in derivatives and
associated financial assets and liabilities
|
(3)
|
-
|
-
|
19
|
16
|
Equity accounted investments
adjustments
|
(30)
|
-
|
-
|
-
|
(30)
|
Demerger costs
|
-
|
-
|
-
|
(42)
|
(42)
|
Net release and changes in discount
rates of certain fair value items
|
12
|
5
|
-
|
-
|
17
|
Operating profit/(loss)
|
30
|
(409)
|
(16)
|
(55)
|
(450)
|
Finance costs
|
|
|
|
|
(101)
|
Finance income
|
|
|
|
|
29
|
Loss before tax
|
|
|
|
|
(522)
|
Tax
|
|
|
|
|
27
|
Loss after tax for the
year
|
|
|
|
|
(495)
|
1. For further details on adjusting items,
refer to Note 4.
2. Corporate adjusted operating loss of £32
million includes a charge of £8 million in respect of divisional
management long term incentive plans.
c) Segment total assets and
liabilities
|
|
Total
assets
|
|
|
Total
liabilities
|
|
30 June
2024
£m
|
30 June
2023(1)(2)
£m
|
31 December
2023(2)
£m
|
|
30 June
2024
£m
|
30 June
2023
£m
|
31 December
2023
£m
|
Automotive
|
4,390
|
4,713
|
4,578
|
|
1,934
|
2,244
|
2,059
|
Powder Metallurgy
|
1,251
|
1,746
|
1,268
|
|
391
|
410
|
404
|
Hydrogen
|
4
|
15
|
14
|
|
4
|
6
|
6
|
Corporate
|
352
|
422
|
391
|
|
1,246
|
1,212
|
1,199
|
Total
|
5,997
|
6,896
|
6,251
|
|
3,575
|
3,872
|
3,668
|
1. Total assets as at 30 June 2023 reflect the
application of IAS 29 Financial Reporting in Hyperinflationary
Economies as set out in Note 1.3.
2. Interests in equity accounted investments at
1 January 2023 have been restated to reflect a previously
unidentified omission in the acquisition accounting of an equity
accounted investment. Further details are set out in Note
1.4.
d) Segment capital expenditure and
depreciation
|
|
Capital
expenditure(1)
|
|
Depreciation of
owned assets(1)
|
|
Depreciation of
leased assets
|
|
6 months ended
30 June
2024
£m
|
6 months ended
30 June
2023
£m
|
Year ended
31 December
2023
£m
|
6 months ended
30 June
2024
£m
|
6 months ended
30 June
2023
£m
|
Year ended
31 December
2023
£m
|
6 months
ended
30 June
2024
£m
|
6 months ended
30 June
2023
£m
|
Year ended
31 December
2023
£m
|
Automotive
|
92
|
97
|
217
|
94
|
90
|
187
|
7
|
8
|
15
|
Powder Metallurgy
|
21
|
12
|
42
|
24
|
26
|
50
|
5
|
5
|
10
|
Hydrogen
|
-
|
2
|
3
|
-
|
-
|
-
|
-
|
-
|
-
|
Total
|
113
|
111
|
262
|
118
|
116
|
237
|
12
|
13
|
25
|
|
|
|
|
|
|
|
|
|
|
| |
1. Includes computer software and development
costs. Capital expenditure excludes lease additions.
e) Geographical information
The Group operates in various geographical areas
around the world. The parent company's country of domicile is the
UK and the Group's revenues and non-current assets in the rest of
Europe and North America are also considered to be
material.
The Group's revenue from external customers and
information about specific segment assets (non-current assets
excluding deferred tax assets, non-current derivative financial
assets, other financial assets, retirement benefit surplus and
non-current other receivables) by geographical location are
detailed below:
|
|
Revenue(1)
from external customers
|
|
Segment
assets
|
|
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year ended
31 December
2023
£m
|
|
30 June
2024
£m
|
30 June
2023(2)(3)
£m
|
31 December
2023(3)
£m
|
UK
|
108
|
91
|
192
|
|
600
|
691
|
633
|
Rest of Europe
|
749
|
891
|
1,676
|
|
1,566
|
1,883
|
1,637
|
North America
|
990
|
1,084
|
2,053
|
|
1,292
|
1,443
|
1,298
|
Other
|
442
|
486
|
943
|
|
842
|
1,005
|
945
|
Total
|
2,289
|
2,552
|
4,864
|
|
4,300
|
5,022
|
4,513
|
|
|
|
|
|
|
|
|
| |
1. Revenue is presented by
destination.
2. Segmental assets as at 30 June 2023 reflect
the application of IAS 29 Financial Reporting in Hyperinflationary
Economies as set out in Note 1.3.
3. Interests in equity accounted investments at
1 January 2023 have been restated to reflect a previously
unidentified omission in the acquisition accounting of an equity
accounted investment. Further details are set out in Note
1.4.
4. Reconciliation of adjusted profit
measures
As described in Note 2, adjusted profit measures
are an alternative performance measure used by the Board to monitor
the performance of the Group.
a) Operating profit
|
Notes
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year ended
31 December
2023
£m
|
Operating loss
|
|
(57)
|
(40)
|
(450)
|
Amortisation of intangible assets
acquired in business combinations
|
a
|
96
|
99
|
197
|
Restructuring costs
|
b
|
49
|
88
|
120
|
Movement in derivatives and
associated financial assets and liabilities
|
c
|
35
|
(21)
|
(16)
|
Equity accounted investments
adjustments
|
d
|
14
|
14
|
30
|
Impairment of assets
|
e
|
10
|
-
|
-
|
Litigation costs
|
f
|
3
|
-
|
-
|
Demerger costs
|
g
|
1
|
39
|
42
|
Impairment of goodwill
|
h
|
-
|
-
|
449
|
Net release and changes in discount
rates of certain fair value items
|
i
|
-
|
(2)
|
(17)
|
Total adjustments to operating
loss
|
|
208
|
217
|
805
|
Adjusted operating
profit
|
|
151
|
177
|
355
|
a.
|
The amortisation charge on intangible assets
acquired in business combinations of £96 million (2023: £99
million), is excluded from adjusted results due to its non-trading
nature. Where intangible assets are trading in nature, such as
computer software and development costs, the related amortisation
is not excluded from adjusted results.
|
b.
|
Costs associated with restructuring projects
in the period totalling £49 million (2023: £88 million) are shown
as adjusting items due to their size and non-trading nature. During
the period these included:
|
|
-
|
A charge of £43 million (2023: £86 million)
within the Automotive division, primarily relating to significant
footprint consolidation actions as the business continues to
address its cost base and deliver transformational programmes.
Significant costs incurred include direct costs relating to the
closure of an Automotive plant in Roxboro, North Carolina and
direct costs of expansion in Mexico as new product lines are added
to the facility, and continued transfer of manufacturing from
Mosel, Germany to Miskolc, Hungary.
|
|
-
|
A charge of £4 million (2023: £2 million)
within the Powder Metallurgy division and £2 million (2023: £nil)
of Corporate costs.
|
c.
|
Movements in the fair value of derivative
financial instruments (primarily forward foreign currency exchange
contracts where hedge accounting is not applied) entered into to
mitigate the potential volatility of future cash flows, on
long-term foreign currency customer and supplier contracts,
including foreign exchange movements on the associated financial
liabilities, are shown as an adjusting item. This totalled a charge
of £35 million (2023: credit of £21 million). Movements in fair
value are treated as an adjusting item due to their volatility. Any
gains and losses on settlement are recorded in underlying results
to give a better understanding of how the gains and losses on
currency contracts relate to the trading cashflows.
|
d.
|
The Group has a number of equity accounted
investments ("EAIs") in which it does not hold full control, the
largest of which is a 50% interest in Shanghai GKN HUAYU Driveline
Systems ("SDS"), within the Automotive business. EAIs in the Group
generated £282 million (2023: £278 million) of revenue in the
period, which is not included in the statutory results but is shown
within adjusted revenue so as not to distort the operating margins
reported in the businesses when the adjusted operating profit
earned from these EAIs is included.
|
|
In addition, the profits and losses of EAIs,
which are shown after amortisation of intangible assets arising on
acquisition, interest and tax in the statutory results, are
adjusted to show the adjusted operating profit consistent with the
adjusted operating profits of the subsidiaries of the Group. The
revenue and profit of EAIs are adjusted because they are considered
to be significant in size and are important in assessing the
performance of the business.
|
e.
|
An impairment charge totalling £10 million
(2023: £nil) has been recorded against the value of inventory and
property, plant and equipment held by the Hydrogen division to
write down the net asset value of the division to £nil. This
follows the decision made in late June 2024 to close or dispose of
the business. On 29 July 2024 the Group disposed of the Hydrogen
business to Langley Holdings plc for nominal consideration. The
impairment charge has been recognised as an adjusting item due to
its non-trading nature.
|
f.
|
Litigation costs of £3 million (2023: £nil)
which relate to a legacy legal claim in respect of a prior business
disposal have been treated as an adjusting item due to their
historical and non-trading nature.
|
g.
|
One-off costs relating to the demerger of the
Group from Melrose Industries PLC of £1 million (2023: £39 million)
were incurred during the period to 30 June 2024. Costs incurred
were incremental and directly associated with the transaction.
These items have been excluded from adjusted results due to their
non-recurring nature. Minimal demerger costs are expected to be
incurred going forward.
|
h.
|
No impairment to goodwill was recorded in the
current period. In the year ended 31 December 2023,
the Group recognised an impairment charge of £449 million in
relation to goodwill held in the Powder Metallurgy
cash-generating unit
("CGU").
|
i.
|
In the prior period, a net release of £2
million relating to loss-making contract provisions which were
initially recorded as fair value items on historical acquisitions,
were resolved for more favourable amounts than first anticipated.
These items are shown as adjusting to avoid positively distorting
the adjusted results. No loss-making contract provisions were
resolved in the current period.
|
b) Profit before tax
|
Notes
|
6 months ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year ended
31 December
2023
£m
|
Loss before tax
|
|
(123)
|
(55)
|
(522)
|
Adjustments to operating loss as
above
|
|
208
|
217
|
805
|
Fair value changes on other
financial assets
|
j
|
9
|
(2)
|
1
|
Equity accounted investments -
interest
|
d
|
1
|
1
|
2
|
Net foreign exchange movements on
loans with Related Parties
|
k
|
-
|
(22)
|
(22)
|
Total adjustments to loss before
tax
|
|
218
|
194
|
786
|
Adjusted profit before
tax
|
|
95
|
139
|
264
|
j.
|
The fair value changes on other financial
assets relating to the movement in their valuation, are shown as an
adjusting item due to their volatility and non-trading
nature.
|
k.
|
In the prior period, the movement in loans
with Related Parties as a result of changes in foreign currency
exchange rates up to the date of demerger is shown as an adjusting
item due to its volatility and non-recurring nature. Related
Parties comprised Melrose Industries PLC, the ultimate parent
company prior to demerger on 20 April 2023 and other non-group
entities controlled by Melrose Industries PLC.
|
c) Profit after tax
|
Notes
|
6 months ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year ended
31 December
2023
£m
|
Loss after tax
|
|
(98)
|
(82)
|
(495)
|
Adjustments to loss before tax per
above
|
|
218
|
194
|
786
|
Tax effect of adjustments to loss
before tax
|
6
|
(42)
|
(16)
|
(87)
|
Equity accounted investments -
tax
|
d
|
(7)
|
(4)
|
(11)
|
Derecognition of deferred tax
asset
|
6
|
-
|
11
|
5
|
Total adjustments to loss after
tax
|
|
169
|
185
|
693
|
Adjusted profit after tax
|
|
71
|
103
|
198
|
5. Finance costs and Finance income
|
6 months ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year ended
31 December
2023
£m
|
Interest on bank loans and
overdrafts
|
(45)
|
(19)
|
(63)
|
Interest on loans due to Related
Parties(1)
|
-
|
(8)
|
(8)
|
Amortisation of costs of raising
finance
|
(2)
|
(1)
|
(3)
|
Net interest cost on
pensions
|
(8)
|
(9)
|
(17)
|
Lease interest
|
(3)
|
(3)
|
(6)
|
Fair value changes on other
financial assets(2)
|
(9)
|
-
|
(1)
|
Other finance costs
|
(1)
|
-
|
(3)
|
Total finance costs
|
(68)
|
(40)
|
(101)
|
Foreign exchange movements on loans
with Related Parties(1), (2)
|
-
|
22
|
22
|
Other finance income
|
2
|
1
|
7
|
Fair value changes on other
financial assets
|
-
|
2
|
-
|
Total finance income
|
2
|
25
|
29
|
Total net finance costs
|
(66)
|
(15)
|
(72)
|
1. Related Parties comprised Melrose Industries
PLC, the ultimate parent company prior to demerger on 20 April 2023
and other non-group entities controlled by Melrose Industries
PLC.
2. Foreign exchange movements on loans with
Related Parties and fair value changes on other financial assets
are shown as adjusting items (Note 4).
6. Tax
Analysis of the (credit)/charge in the
period:
|
6 months ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year ended
31 December
2023
£m
|
Current tax
|
2
|
25
|
53
|
Deferred tax
|
(27)
|
2
|
(80)
|
Total tax
(credit)/charge
|
(25)
|
27
|
(27)
|
The total tax credit for the period of £25
million (2023: charge of £27 million) comprises a tax charge on
underlying profits of £24 million (2023: £36 million) and a tax
credit on adjusting items of £49 million (2023: £9
million).
The effective tax rate in respect of adjusted
profit before tax for the period is 25% (2023: 26%). Adjusted tax
has been calculated by applying the expected tax rate to the
adjusted profit before tax of £95 million (2023: £139 million),
giving an adjusted tax charge of £24 million (2023: £36
million).
The adjusted tax charge of £24 million (2023:
£36 million) excludes a tax credit on adjustments to loss before
tax of £42 million (2023: £16 million). This represents a deferred
tax credit on intangible asset amortisation of £24 million (2023:
£24 million) and a tax credit on other adjusting items of £18
million (2023: charge of £8 million). In addition, the adjusted tax
charge includes a charge in respect of equity accounted investments
of £7 million (2023: £4 million). There were no other adjusting tax
charges in the current period (2023: £11 million).
In addition to the amounts in the Income
Statement, a charge of £9 million (2023: £4 million) has been
recognised directly in the Statement of Comprehensive Income. This
represents a tax charge of £8 million (2023: credit of £1 million)
in respect of the remeasurement of retirement benefit obligations
and a tax charge of £1 million (2023: £5 million) in respect of
movements on hedge relationships and translation
differences.
The Group's underlying effective tax rate may be
impacted, from 2024 onwards, by the UK's substantive enactment of
the Organisation for Economic Co-operation and Development's Global
Anti-Base Erosion Model Rules (Pillar Two). The impact of Pillar 2
on the Group's tax position for the period was
immaterial.
7. Dividends
|
6 months ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year ended
31 December
2023
£m
|
Interim dividend for the year ended
31 December 2023 (1.4 pence per ordinary share)
|
-
|
-
|
19
|
Final dividend for the year ended
31 December 2023 (2.8 pence per ordinary share)
|
39
|
-
|
-
|
Dividends paid to Related
Parties
|
-
|
1,675
|
1,675
|
Total dividends paid
|
39
|
1,675
|
1,694
|
An interim dividend for the year ended 31
December 2024 of 1.4 pence per ordinary share is declared by the
Board, totalling £19 million.
On 23 February 2023, prior to the demerger, GKN
Industries Limited declared a dividend of £1,675 million (72.83
pence per ordinary share) in favour of its immediate parent
undertaking GKN Enterprise Limited, a member of the Melrose
Industries PLC Group.
8. Earnings per share
Earnings attributable to owners of the
parent
|
6 months ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year ended
31 December
2023
£m
|
Net loss attributable to
shareholders
|
(101)
|
(85)
|
(501)
|
Adjustment for earnings
attributable to shares subject to recall
|
2
|
2
|
10
|
Earnings for basis of earnings per
share
|
(99)
|
(83)
|
(491)
|
|
6 months ended
30 June
2024
Number
|
6 months
ended
30 June
2023
Number
|
Year ended
31 December
2023
Number
|
Weighted average number of ordinary
shares (million)
|
1,385
|
1,392
|
1,390
|
Adjustment for shares subject to
recall (million)
|
(28)
|
(28)
|
(28)
|
Weighted average number of ordinary
shares for the purposes of basic earnings per share
(million)
|
1,357
|
1,364
|
1,362
|
Weighted average number of ordinary
shares for the purposes of diluted earnings per share
(million)
|
1,357
|
1,364
|
1,362
|
Earnings per share
|
6 months ended
30 June
2024
Pence
|
6 months
ended
30 June
2023
Pence
|
Year ended
31 December
2023
Pence
|
Basic earnings per share
|
(7.3)
|
(6.1)
|
(36.0)
|
Diluted earnings per
share
|
(7.3)
|
(6.1)
|
(36.0)
|
|
6 months ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year ended
31 December
2023
£m
|
Adjusted earnings attributable to
shareholders(1)
|
68
|
100
|
192
|
Adjustment for earnings
attributable to shares subject to recall
|
(1)
|
(2)
|
(4)
|
Adjusted earnings for the basis of
adjusted earnings per share
|
67
|
98
|
188
|
Adjusted earnings per share
|
6 months ended
30 June
2024
Pence
|
6 months
ended
30 June
2023
Pence
|
Year ended
31 December
2023
Pence
|
Adjusted basic earnings per
share
|
4.9
|
7.2
|
13.8
|
Adjusted diluted earnings per
share
|
4.9
|
7.2
|
13.8
|
1. Adjusted earnings for the period ended 30
June 2024 comprises adjusted profit after tax (see Note 4c) of £71
million (2023: £103 million), net of an allocation of profit to
non-controlling interests of £3 million (2023: £3
million).
9. Share of results of equity accounted
investments
Summary information for the Group's equity
accounted investments is as follows:
|
6 months ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year ended
31 December
2023
£m
|
Revenue
|
282
|
278
|
625
|
Operating costs
|
(239)
|
(251)
|
(544)
|
Adjusted operating
profit
|
43
|
27
|
81
|
Adjusting items
|
(10)
|
(11)
|
(21)
|
Net finance income
|
1
|
1
|
2
|
Profit before tax
|
34
|
17
|
62
|
Tax(1)
|
(5)
|
(4)
|
(11)
|
Share of results of equity
accounted investments
|
29
|
13
|
51
|
1. The tax charge for the period includes a
charge of £7 million (2023: £4 million) in respect of adjusted
operating profits and a credit of £2 million (2023: £nil) in
respect of adjusting items.
10. Provisions
|
Loss-making
contracts
£m
|
Property
related costs
£m
|
Environmental
and litigation
£m
|
Warranty
related costs
£m
|
Restructuring
£m
|
Other
£m
|
Total
£m
|
At 1 January 2024
|
17
|
5
|
46
|
141
|
78
|
31
|
318
|
Utilised
|
(3)
|
-
|
(2)
|
(5)
|
(51)
|
(6)
|
(67)
|
Charge to operating
profit(1)
|
-
|
-
|
4
|
3
|
46
|
1
|
54
|
Release to operating
profit(2)
|
-
|
-
|
-
|
(5)
|
(3)
|
(2)
|
(10)
|
Transfers
|
-
|
-
|
1
|
1
|
5
|
-
|
7
|
Exchange adjustments
|
(1)
|
-
|
(1)
|
(2)
|
(2)
|
-
|
(6)
|
At 30 June 2024
|
13
|
5
|
48
|
133
|
73
|
24
|
296
|
Current
|
4
|
1
|
25
|
70
|
30
|
10
|
140
|
Non-current
|
9
|
4
|
23
|
63
|
43
|
14
|
156
|
|
13
|
5
|
48
|
133
|
73
|
24
|
296
|
1. Includes £49 million of adjusting items and
£5 million recognised in adjusted operating profit.
2. Includes £3 million of adjusting items and
£7 million recognised in adjusted operating profit.
Provisions for loss-making contracts are
considered to exist where the Group has a contract under which the
unavoidable costs of meeting the obligations exceed the economic
benefits expected to be received under it. This obligation has been
discounted and will be utilised over the period of the respective
contracts, which is up to five years.
The provision for property related costs
represents dilapidation costs for ongoing leases and is expected to
result in cash expenditure over the next six
years.
Environmental provisions relate to the estimated
remediation costs of pollution, soil and groundwater contamination
at certain sites and at 30 June 2024 amounted to £15 million (31
December 2023: £16 million). Litigation provisions amounting to £33
million
(31 December 2023: £30 million) relate to estimated future costs
and settlements in relation to legal claims and associated
insurance obligations. Due to their nature, it is not possible to
predict precisely when these provisions will be
utilised.
Provisions for the expected cost of warranty
obligations under local sale of goods legislation are recognised at
the date of sale of the relevant products and subsequently updated
for changes in estimates as necessary. Warranty terms are, on
average, between one and five years.
Restructuring provisions relate to committed
costs in respect of restructuring programmes (as described in Note
4), usually resulting in cash spend within three years.
Other provisions include long-term incentive
plans for senior management and the employer tax on equity-settled
incentive schemes which are expected to result in cash expenditure
over the next one to five years.
11. Financial instruments and risk
management
The table below sets out the Group's accounting
classification of each category of financial assets and liabilities
and their fair values as at 30 June 2024, 30 June 2023 and 31
December 2023:
|
Current
£m
|
Non-current
£m
|
Total
£m
|
30 June 2024
|
|
|
|
Financial assets
|
|
|
|
Classified as amortised
cost:
|
|
|
|
Cash and cash
equivalents
|
298
|
-
|
298
|
Net trade receivables
|
494
|
-
|
494
|
Classified as fair
value:
|
|
|
|
Derivative over own
equity(1)
|
19
|
-
|
19
|
Derivative financial
assets:
|
|
|
|
Foreign currency forward
contracts
|
20
|
6
|
26
|
Interest rate swaps
|
-
|
14
|
14
|
Financial liabilities
|
|
|
|
Classified as amortised
cost:
|
|
|
|
Interest-bearing loans and
borrowings
|
(10)
|
(1,203)
|
(1,213)
|
Lease obligations
|
(22)
|
(120)
|
(142)
|
Other financial
liabilities
|
(1,063)
|
(12)
|
(1,075)
|
Classified as fair
value:
|
|
|
|
Derivative financial
liabilities
|
|
|
|
Foreign currency forward
contracts
|
(8)
|
(9)
|
(17)
|
Interest rate swaps
|
-
|
(1)
|
(1)
|
|
|
|
|
30
June 2023
|
|
|
|
Financial assets
|
|
|
|
Classified as amortised
cost:
|
|
|
|
Cash and cash
equivalents
|
300
|
-
|
300
|
Net trade receivables
|
583
|
-
|
583
|
Classified as fair
value:
|
|
|
|
Derivative over own
equity(1)
|
-
|
32
|
32
|
Derivative financial
assets:
|
|
|
|
Foreign currency forward
contracts
|
53
|
9
|
62
|
Interest rate swaps
|
-
|
13
|
13
|
Financial liabilities
|
|
|
|
Classified as amortised
cost:
|
|
|
|
Interest bearing loans
|
(8)
|
(1,141)
|
(1,149)
|
Lease obligations
|
(22)
|
(133)
|
(155)
|
Other financial
liabilities
|
(1,170)
|
(10)
|
(1,180)
|
Classified as fair
value:
|
|
|
|
Derivative financial
liabilities
|
|
|
|
Foreign currency forward
contracts
|
(6)
|
(1)
|
(7)
|
31 December 2023
|
|
|
|
Financial assets
|
|
|
|
Classified as amortised
cost:
|
|
|
|
Cash and cash
equivalents
|
313
|
-
|
313
|
Net trade receivables
|
460
|
-
|
460
|
Classified as fair
value:
|
|
|
|
Derivative over own
equity(1)
|
-
|
28
|
28
|
Derivative financial
assets:
|
|
|
|
Foreign currency
forward contracts
|
43
|
4
|
47
|
Interest rate
swaps
|
2
|
4
|
6
|
Financial liabilities
|
|
|
|
Classified as amortised
cost:
|
|
|
|
Interest-bearing loans and
borrowings
|
(2)
|
(1,158)
|
(1,160)
|
Lease obligations
|
(25)
|
(126)
|
(151)
|
Other financial
liabilities
|
(1,063)
|
(11)
|
(1,074)
|
Classified as fair
value:
|
|
|
|
Derivative financial
liabilities
|
|
|
|
Foreign currency
forward contracts
|
(4)
|
(1)
|
(5)
|
Interest rate
swaps
|
-
|
(3)
|
(3)
|
1. Included within other financial
assets.
The fair value of the derivative financial
instruments is derived from inputs other than quoted prices that
are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices) and they are
therefore categorised within level 2 of the fair value hierarchy
set out in IFRS 13 Fair value measurement. The Group's policy is to
recognise transfers into and out of the different fair value
hierarchy levels at the date of the event or change in
circumstances that caused the transfer to occur. There have been no
transfers between levels during the current period.
The fair value of the derivative over own equity
is derived from unobservable inputs and as such is classified as
level 3 of the fair value hierarchy set out in IFRS 13. Inputs to
the valuation include the terms of the contract under which the
asset arises, the Company's current share price and expected
volatility in the share price. The asset value is most sensitive to
movements in the Company's share price. The asset was recorded
initially directly in equity with subsequent revaluations
recognised in the Income Statement.
12. Retirement benefit obligations
The Group sponsors defined benefit plans for
qualifying employees of certain subsidiaries. The funded defined
benefit plans are administered by separate funds that are legally
separated from the Group. The Trustees of the funds are required by
law to act in the interest of the fund and of all relevant
stakeholders in the plans. The Trustees of the pension funds are
responsible for the investment policy with regard to the assets of
the fund.
The most significant defined benefit pension
plans in the Group at 30 June 2024 were:
UK: GKN Group Pension Schemes No.2 and
No.3
The GKN Group Pension Schemes No.2 and No.3 are
funded plans, closed to new members and were closed to future
accrual in 2017. The valuation of the schemes was based on a full
actuarial valuation as of 5 April 2022, updated to 30 June 2024 by
independent actuaries.
US: GKN Automotive and GKN Powder Coatings
Pension Plans
The GKN Automotive and GKN Powder Coatings
Pension Plans are funded plans, closed to new members and closed to
future accrual. The US Pension Plan valuation was based on a full
actuarial valuation as of 1 January 2024, updated to 30 June 2024
by independent actuaries.
Germany: GKN Germany Pension Plans
The GKN Germany Pension Plans provide benefits
dependent on final salary and service with the Company. The plans
are generally unfunded and closed to new members.
Other plans include a number of funded and
unfunded defined benefit arrangements and retiree medical insurance
plans, predominantly in the US and Europe.
The cost of the Group's defined benefit plans is
determined in accordance with IAS 19 (revised 2011) Employee
Benefits, using the advice of independent professionally qualified
actuaries on the basis of formal actuarial valuations and using the
projected unit credit method. In line with normal practice, these
valuations are undertaken triennially in the UK and annually in the
US and Germany.
The amount recognised in the Balance Sheet in
respect of defined benefit plans was as follows:
30 June 2024
|
UK plans
£m
|
US plans
£m
|
European plans
£m
|
Other plans
£m
|
Total
£m
|
Plan assets
|
630
|
75
|
16
|
12
|
733
|
Plan liabilities
|
(627)
|
(112)
|
(393)
|
(20)
|
(1,152)
|
Net assets/(liabilities)
|
3
|
(37)
|
(377)
|
(8)
|
(419)
|
Analysed as:
|
|
|
|
|
|
Retirement benefit
surplus(1)
|
|
|
|
|
31
|
Retirement benefit
obligations
|
|
|
|
|
(450)
|
Net liabilities
|
|
|
|
|
(419)
|
1. Includes a surplus relating to the GKN Group
Pension Scheme No.2 of £29 million and the Japan employee plan of
£2 million.
30 June 2023
|
UK plans
£m
|
US plans
£m
|
European plans
£m
|
Other plans
£m
|
Total
£m
|
Plan assets
|
631
|
72
|
18
|
21
|
742
|
Plan liabilities
|
(626)
|
(119)
|
(420)
|
(30)
|
(1,195)
|
Net assets/(liabilities)
|
5
|
(47)
|
(402)
|
(9)
|
(453)
|
Analysed as:
|
|
|
|
|
|
Retirement benefit
surplus(1)
|
|
|
|
|
35
|
Retirement benefit
obligations
|
|
|
|
|
(488)
|
Net liabilities
|
|
|
|
|
(453)
|
1. Includes a surplus relating to the GKN Group
Pension Scheme No.2 of £33 million and the Japan employee plan of
£2 million.
31 December 2023
|
UK plans
£m
|
US plans
£m
|
European plans
£m
|
Other plans
£m
|
Total
£m
|
Plan assets
|
665
|
73
|
16
|
21
|
775
|
Plan liabilities
|
(672)
|
(118)
|
(416)
|
(26)
|
(1,232)
|
Asset ceiling
|
-
|
-
|
-
|
(2)
|
(2)
|
Net liabilities
|
(7)
|
(45)
|
(400)
|
(7)
|
(459)
|
Analysed as:
|
|
|
|
|
|
Retirement benefit
surplus(1)
|
|
|
|
|
27
|
Retirement benefit
obligations
|
|
|
|
|
(486)
|
Net liabilities
|
|
|
|
|
(459)
|
1. Includes a surplus relating to the GKN Group
Pension Scheme No.2 of £25 million and the Japan employee plan of
£2 million.
Valuations of material plans have been updated
at 30 June 2024 by independent actuaries to reflect updated
assumptions regarding discount rates, inflation rates and asset
values. The major assumptions were as follows:
|
Rate of increase
of pensions in
payment
% p.a.
|
Discount rate
%
|
Price inflation
% (RPI/CPI)
|
30 June 2024
|
|
|
|
GKN UK - Group Pension Schemes
(No.2 and No.3)
|
2.5
|
5.1
|
3.1/2.7
|
GKN US plans
|
n/a
|
5.3
|
n/a
|
GKN Europe plans
|
2.2
|
3.7
|
2.2/2.2
|
|
|
|
|
30 June 2023
|
|
|
|
GKN UK - Group Pension Schemes
(No.2 and No.3)
|
2.7
|
5.2
|
3.2/2.7
|
GKN US plans
|
n/a
|
4.9
|
n/a
|
GKN Europe plans
|
2.6
|
3.7
|
2.6/2.6
|
|
|
|
|
31 December 2023
|
|
|
|
GKN UK - Group Pension Schemes
(No.2 and No.3)
|
2.5
|
4.5
|
3.0/2.6
|
GKN US plans
|
n/a
|
4.8
|
n/a
|
GKN Europe plans
|
2.1
|
3.3
|
2.1/2.1
|
In addition, the defined benefit plan assets and
liabilities have been updated to reflect the contributions made to
the defined benefit plans and the benefits earned during the period
to 30 June 2024.
The Group is aware of the 2023 ruling in the
Virgin Media vs NTL Pension Trustee case, including the 2024 court
of appeal ruling published on 25 July 2024, which ruled that
certain amendments made to the NTL Pension Plan were invalid
because they were not accompanied by the correct actuarial
confirmation. Although the appeal upheld the original ruling, there
remain significant areas of uncertainty, including the potential
for intervention by the Department for Work and Pensions. As a
result, the Group and trustees cannot at this stage be certain of
the potential implications (if any) and therefore a sufficiently
reliable estimate of any effect on the obligation cannot be
made.
13. Notes to the Cash Flow Statement
|
Notes
|
6 months ended
30 June
2024
£m
|
6 months ended
30 June
2023
£m
|
Year ended
31 December
2023
£m
|
Reconciliation of operating loss to
net cash from operating activities
|
|
|
|
|
Operating loss
|
|
(57)
|
(40)
|
(450)
|
Adjusting items
|
4
|
208
|
217
|
805
|
Adjusted operating
profit
|
4
|
151
|
177
|
355
|
Adjustments for:
|
|
|
|
|
Depreciation & impairment of
property, plant and equipment
|
|
124
|
124
|
253
|
Amortisation of computer software
and development costs
|
|
6
|
5
|
10
|
Share of adjusted operating profit
of equity accounted investments
|
9
|
(43)
|
(27)
|
(81)
|
Foreign exchange losses
|
|
2
|
-
|
-
|
Gain on disposal of non-current
assets
|
|
-
|
-
|
(10)
|
Share-based payment
expense
|
|
1
|
-
|
1
|
Restructuring costs paid and
movements in provisions
|
|
(68)
|
(47)
|
(100)
|
Demerger costs paid
|
|
(4)
|
(39)
|
(48)
|
Defined benefit pension costs
charged
|
|
4
|
4
|
9
|
Defined benefit pension
contributions paid
|
|
(13)
|
(11)
|
(39)
|
Change in inventories
|
|
15
|
(20)
|
(36)
|
Change in receivables
|
|
(37)
|
(114)
|
6
|
Change in payables
|
|
(28)
|
79
|
48
|
|
|
|
|
|
Corporation tax paid
|
|
(26)
|
(28)
|
(61)
|
Interest paid on loans and
borrowings
|
|
(46)
|
(18)
|
(62)
|
Interest paid on lease
obligations
|
|
(3)
|
(3)
|
(6)
|
Net cash from operating
activities
|
|
35
|
82
|
239
|
Reconciliation of cash and cash equivalents,
net of bank overdrafts
|
6 months ended
30 June
2024
£m
|
6 months ended
30 June
2023
£m
|
31 December
2023
£m
|
Cash and cash equivalents per
Balance Sheet
|
298
|
300
|
313
|
Bank overdrafts included within
current Interest-bearing loans and borrowings
|
(9)
|
(7)
|
-
|
Cash and cash equivalents, net of
bank overdrafts per Statement of Cash Flows
|
289
|
293
|
313
|
Net debt reconciliation
Net debt at the balance sheet date consists of
interest-bearing loans and borrowings and cash and cash
equivalents. This measure is aligned with the Group's banking
covenants. Currency denominated balances within net debt are
translated to Sterling at the balance sheet rate.
Net debt is an alternative performance measure
as it is not defined in IFRS. The most directly comparable IFRS
measure is the aggregate of interest-bearing loans and borrowings
(current and non-current) and cash and cash equivalents.
A reconciliation from the most directly
comparable IFRS measure to net debt is given below.
|
30 June
2024
£m
|
30 June
2023
£m
|
31 December
2023
£m
|
Interest-bearing loans and
borrowings - due within one year
|
(10)
|
(8)
|
(2)
|
Interest-bearing loans and
borrowings - due after one year
|
(1,203)
|
(1,141)
|
(1,158)
|
Total debt
|
(1,213)
|
(1,149)
|
(1,160)
|
Less:
|
|
|
|
Cash and cash
equivalents
|
298
|
300
|
313
|
Net debt
|
(915)
|
(849)
|
(847)
|
The table below shows the key components of the
movement in net debt:
|
At
31 December 2023
£m
|
Cash flow
£m
|
Other non-cash movements
£m
|
Effect of foreign exchange
£m
|
At
30 June 2024
£m
|
External debt (excluding bank
overdrafts)
|
(1,160)
|
(44)
|
(2)
|
2
|
(1,204)
|
Cash and cash equivalents, net of
bank overdrafts
|
313
|
(10)
|
-
|
(14)
|
289
|
Net debt
|
(847)
|
(54)
|
(2)
|
(12)
|
(915)
|
The Group's committed bank facilities include a
multi-currency denominated term loan of £100 million, US$400
million and €100 million and a multi-currency denominated revolving
credit facility of £350 million, US$660 million and €450 million.
Loans drawn under this facility are guaranteed by Dowlais Group plc
and certain of its subsidiaries. There is no security over any of
the Group's assets in respect of this facility.
At 30 June 2024, the term loan was fully drawn
and £245 million (2023: £194 million), US$340 million (2023: $325
million) and €230 million (€234 million) were drawn on the
multi-currency revolving credit facility. There are also a number
of uncommitted overdraft, guarantee and borrowing facilities made
available to the Group.
|
Current
|
|
Non-current
|
|
Total
|
30 June
2024
£m
|
30 June
2023
£m
|
31 December 2023
£m
|
|
30 June
2024
£m
|
30 June
2023
£m
|
31 December 2023
£m
|
|
30 June
2024
£m
|
30 June
2023
£m
|
31 December 2023
£m
|
Floating rate
obligations
|
|
|
|
|
|
|
|
|
|
|
|
Bank borrowings - US Dollar
loan
|
-
|
-
|
-
|
|
585
|
571
|
584
|
|
585
|
571
|
584
|
Bank borrowings - Sterling
loan
|
-
|
-
|
-
|
|
345
|
294
|
285
|
|
345
|
294
|
285
|
Bank borrowings - Euro
loan
|
-
|
-
|
-
|
|
280
|
287
|
298
|
|
280
|
287
|
298
|
Other loans and bank
overdrafts
|
10
|
8
|
2
|
|
-
|
-
|
-
|
|
10
|
8
|
2
|
Unamortised finance
costs
|
-
|
-
|
-
|
|
(7)
|
(11)
|
(9)
|
|
(7)
|
(11)
|
(9)
|
Total interest-bearing loans and
borrowings
|
10
|
8
|
2
|
|
1,203
|
1,141
|
1,158
|
|
1,213
|
1,149
|
1,160
|
|
|
|
|
|
|
|
|
|
|
|
| |
14. Lease obligations
Amounts payable under lease
obligations:
Minimum lease payments
|
30 June
2024
£m
|
30 June
2023
£m
|
31 December
2023
£m
|
Amounts payable:
|
|
|
|
Within one year
|
26
|
28
|
31
|
After one year but within five
years
|
71
|
68
|
73
|
Over five years
|
84
|
105
|
92
|
Less: future finance
charges
|
(39)
|
(46)
|
(45)
|
Present value of lease
obligations
|
142
|
155
|
151
|
Analysed as:
|
|
|
|
Amounts due for settlement within
one year
|
22
|
22
|
25
|
Amounts due for settlement after
one year
|
120
|
133
|
126
|
Present value of lease
obligations
|
142
|
155
|
151
|
It is the Group's policy to lease certain of its
property, plant and equipment. The average lease term is ten years.
Interest rates are fixed at the contract date.
15. Related Parties
Transactions and balances between the Group and
Melrose Industries PLC, the ultimate parent company prior to
demerger on
20 April 2023, and other non-Group entities controlled by Melrose
Industries PLC, were classified as related party transactions up to
the date of demerger. Transactions primarily related to royalties
paid, dividends paid and interest payable on loans with Related
Parties.
There have been no amounts recognised in the
Income Statement in respect of these related party transactions for
the period ended 30 June 2024 (2023: £8 million interest
payable).
There have been no amounts recognised in the
Statement of Changes in Equity in respect of these related party
transactions for the period ended 30 June 2024 (2023: £57 million
reorganisation in respect of non-Group entities).
The prior period reorganisation in respect of
Related Parties included the initial recognition of a derivative
over own equity of
£29 million, reorganisational steps taken as part of the demerger,
as well as other income and charges with entities in the Melrose
Industries PLC Group prior to the demerger on 20 April
2023.
Dividends of £1,675 million were paid to GKN
Enterprise Limited, a member of the Melrose Industries PLC Group on
23 February 2023 (Note 7).
16. Post balance sheet events
On 29 July 2024 the Group disposed of the
Hydrogen business to Langley Holdings plc for negligible
consideration. This transaction is expected to result in a loss on
disposal of approximately £18 million, of which £10 million related
to impairment of assets was recorded in the first half, and will
eliminate future cash losses associated with the funding of the
Hydrogen operations.
ALTERNATIVE PERFORMANCE MEASURES
("APMs")
Alternative Performance Measures
("APMs")
In accordance with the Guidelines on APMs issued
by the European Securities and Markets Authority ("ESMA"),
additional information is provided on the APMs used by the Group
below.
In the reporting of financial information, the
Group uses certain measures that are not required under IFRS. These
additional measures (commonly referred to as APMs) provide
additional information on the performance of the business and
trends to stakeholders. These measures are consistent with those
used internally, and are considered important in understanding the
financial performance and financial health of the Group. APMs are
considered to be an important measure to monitor how the businesses
are performing because this provides a meaningful comparison of how
the business is managed and measured on a day-to-day basis and
achieves consistency and comparability between reporting
periods.
These APMs may not be directly comparable with
similarly titled measures reported by other companies and they are
not intended to be a substitute for, or superior to, IFRS measures.
All Income Statement and Cash Flow measures are provided for
continuing operations.
APM
|
Closest equivalent
statutory measure
|
Reconciling
items to statutory
measure
|
Definition and purpose
|
Income Statement
Measures
|
Adjusted revenue
|
Revenue
|
Share of revenue of equity
accounted investments (Note 3)
|
Adjusted revenue includes the
Group's share of revenue of equity accounted investments
("EAIs"). This enables comparability
between reporting periods and is consistent with how management
review the Group's financial performance.
Adjusted revenue
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year ended
31 December
2023
£m
|
Revenue
|
2,289
|
2,552
|
4,864
|
Share of revenue of equity
accounted investments (Note 3)
|
282
|
278
|
625
|
Adjusted revenue
|
2,571
|
2,830
|
5,489
|
|
Adjusting items
|
None
|
Adjusting items
(Note 4)
|
Those items which the Group
excludes from its adjusted profit metrics in order to present a
further measure of the Group's performance.
These include items which are
significant in size or volatility or by nature are non-trading or
non-recurring, any onerous contract provisions released to the
Income Statement that was previously a fair value item booked on an
acquisition, and includes adjusted profit from EAIs.
This provides a meaningful
comparison of how the business is managed and measured on a
day-to-day basis, provides consistency and comparability between
reporting periods and is used to partly determine the variable
element of remuneration of senior management throughout the
Group.
|
Adjusted operating
profit
|
Operating
loss(1)
|
Adjusting items
(Note 4)
|
The Group uses adjusted profit
measures for consistency with internal reporting and to provide a
useful and more comparable measure of the ongoing performance of
the Group. Adjusted measures are reconciled to statutory measures
by removing adjusting items, the nature of which are disclosed
above and further detailed in
Note 4.
Adjusted operating profit
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year ended
31 December
2023
£m
|
Operating loss
|
(57)
|
(40)
|
(450)
|
Adjusting items to operating loss
(Note 4)
|
208
|
217
|
805
|
Adjusted operating
profit
|
151
|
177
|
355
|
|
Adjusted operating
margin
|
Operating
margin(2)
|
Share of revenue of equity
accounted investments (Note 3) and adjusting items (Note
4)
|
Adjusted operating margin
represents Adjusted operating profit as a percentage of Adjusted
revenue. The Group uses adjusted profit
measures to provide a useful and more comparable measure of the
ongoing performance of the Group to both internal and external
stakeholders.
|
APM
|
Closest
equivalent
statutory measure
|
Reconciling
items to statutory
measure
|
Definition and purpose
|
Adjusted profit before
tax
|
Loss before tax
|
Adjusting items
(Note 4)
|
Profit before the impact of
adjusting items and tax. As discussed above, adjusted profit measures are used to provide a useful and
more comparable measure of the ongoing performance of the Group to
both internal and external stakeholders. Adjusted measures are
reconciled to statutory measures by removing adjusting items, the
nature of which are disclosed above and further detailed in Note
4.
Adjusted profit before tax
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year ended
31 December
2023
£m
|
Loss before tax
|
(123)
|
(55)
|
(522)
|
Adjusting items to loss before tax
(Note 4)
|
218
|
194
|
786
|
Adjusted profit before
tax
|
95
|
139
|
264
|
|
Adjusted profit after
tax
|
Loss after tax
|
Adjusting items
(Note 4)
|
Profit after tax but before the
impact of the adjusting items. As discussed above,
adjusted profit measures are used to provide a
useful and more comparable measure of the ongoing performance of
the Group to both internal and external stakeholders. Adjusted
measures are reconciled to statutory measures by removing adjusting
items, the nature of which are disclosed above and further detailed
in Note 4.
Adjusted profit after tax
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year ended
31 December
2023
£m
|
Loss after tax
|
(98)
|
(82)
|
(495)
|
Adjusting items to loss after tax
(Note 4)
|
169
|
185
|
693
|
Adjusted profit after
tax
|
71
|
103
|
198
|
|
Constant currency
|
Income Statement, which is reported
using actual average foreign exchange rates
|
Constant currency foreign exchange
rates
|
The Group uses GBP based constant
currency models to measure performance. These are calculated by
applying fixed exchange rates to local currency reported results
for the current and prior periods. This gives a GBP denominated
Income Statement which excludes any translational variances
attributable to foreign exchange rate movements.
|
Adjusted EBITDA for covenant
purposes
|
Operating
loss(1)
|
Adjusting items (Note 4),
depreciation of property, plant and equipment and amortisation
of computer software and development costs, share of
non-controlling interests and other adjustments
required for leverage covenant purposes
|
Adjusted operating profit for 12
months prior to the reporting date, before depreciation and
impairment of property, plant and equipment and before the
amortisation and impairment of computer software and development
costs.
Adjusted EBITDA for leverage
covenant purposes is a measure used by external stakeholders to
measure performance.
Adjusted EBITDA for covenant
purposes
|
12 months ended
30 June
2024
£m
|
12 months ended
30 June
2023
£m
|
12 months ended
31 December
2023
£m
|
|
Adjusted operating
profit
|
329
|
383
|
355
|
|
Depreciation of property, plant and
equipment and amortisation of computer software and development
costs
|
264
|
261
|
263
|
|
Non-controlling
interests
|
(8)
|
(8)
|
(8)
|
|
Other adjustments required for
leverage covenant purposes(3)
|
2
|
(19)
|
(18)
|
|
Adjusted EBITDA for covenant purposes
|
587
|
617
|
592
|
|
|
|
|
|
|
APM
|
Closest
equivalent
statutory measure
|
Reconciling
items to statutory
measure
|
Definition and purpose
|
Net finance charges for interest
cover covenant purposes
|
Finance costs net of finance
income
|
Net interest cost on pensions, fair
value changes on other financial assets, amortisation of costs of
raising finance and unwind of discount on provisions
|
Net finance costs for 12 months
prior to the reporting date, excluding net interest cost on
pensions, fair value changes on other financial assets,
amortisation of costs of raising finance and unwind of discount on
provisions.
Net finance charges for interest
cover purposes is a measure used by external stakeholders to
measure performance.
Net finance charges for interest cover covenant
purposes
|
12 months ended
30 June
2024
£m
|
Total finance costs
|
(131)
|
Total finance income
|
8
|
Net finance costs
|
(123)
|
Adjusted for:
|
|
Net interest cost on
pensions
|
16
|
Fair value changes on other
financial assets
|
12
|
Amortisation of costs of raising
finance
|
3
|
Other adjustments required for
interest cover covenant purposes(4)
|
10
|
Net finance costs for interest cover covenant
purposes
|
(82)
|
|
Adjusted tax rate
|
Effective tax rate
|
Adjusting items, adjusting tax
items and the tax impact of adjusting items (Note 4 and Note
6)
|
The income tax charge for the Group
excluding adjusting tax items, and the tax impact of adjusting
items, divided by adjusted profit before tax.
This measure is a useful indicator
of the ongoing tax rate for the Group to external
stakeholders.
Adjusted tax rate
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year ended
31 December
2023
£m
|
Tax per Income Statement
|
25
|
(27)
|
27
|
Adjusted for:
|
|
|
|
Tax impact of adjusting
items
|
(42)
|
(16)
|
(87)
|
Tax impact of EAIs
|
(7)
|
(4)
|
(11)
|
Other adjusting tax
charges
|
-
|
11
|
5
|
Adjusted tax charge
|
(24)
|
(36)
|
(66)
|
Adjusted profit before
tax
|
95
|
139
|
264
|
Adjusted tax rate
|
25%
|
26%
|
25%
|
|
Adjusted basic earnings per
share
|
Basic earnings per share
|
Adjusting items (Note 4 and Note
8)
|
Profit after tax attributable to
owners of the parent and before the impact of adjusting items,
divided by the weighted average number of ordinary shares in issue
during the financial period.
This measure is useful in showing
the current performance of the Group to external
stakeholders.
|
Adjusted diluted earnings per
share
|
Diluted earnings per
share
|
Adjusting items (Note 4 and Note
8)
|
Profit after tax attributable to
owners of the parent and before the impact of adjusting items,
divided by the weighted average number of ordinary shares in issue
during the financial period adjusted for the effects of any
potentially dilutive options.
This measure is useful in showing
the current performance of the Group to external
stakeholders.
|
APM
|
Closest
equivalent
statutory measure
|
Reconciling
items to statutory
measure
|
Definition and purpose
|
Balance Sheet Measures
|
Working capital
|
Inventories, trade and other
receivables less trade and other payables
|
Not applicable
|
Working capital comprises
inventories, current trade and other receivables, non-current other
receivables, current trade and other payables and non-current other
payables.
This measure provides additional
information in respect of working capital management to external
stakeholders.
|
Net debt
|
Cash and cash equivalents,
interest-bearing loans and borrowings and finance related
derivative instruments
|
Reconciliation of net debt (Note
13)
|
Net debt comprises cash and cash
equivalents, interest-bearing loans and borrowings, and
cross-currency swaps, where applicable.
Net debt is one measure that could
be used to indicate the strength of the Group's Balance Sheet
position and is a useful measure of the indebtedness of the
Group.
|
Bank covenant definition of net
debt at average rates and leverage
|
Cash and cash equivalents less
interest-bearing loans and borrowings
|
Impact of foreign exchange and
adjustments for bank covenant purposes
|
Net debt (as above) is presented in
the Balance Sheet translated at period end exchange
rates.
For bank covenant testing purposes
net debt is converted using average exchange rates for the previous
12 months.
Leverage is calculated as the bank
covenant definition of net debt divided by adjusted EBITDA for
covenant purposes. This measure is used for bank covenant
testing.
Net debt
|
30 June
2024
£m
|
30 June
2023
£m
|
31 December 2023
£m
|
Net debt at closing rates (Note
13)
|
(915)
|
(849)
|
(847)
|
Impact of foreign
exchange
|
2
|
(19)
|
(10)
|
Bank covenant definition of net
debt at average rates
|
(913)
|
(868)
|
(857)
|
Leverage
|
1.6x
|
1.4x
|
1.4x
|
|
Bank covenant definition of
interest cover
|
None
|
Not applicable
|
Interest cover for bank covenant
testing purposes is calculated by dividing Adjusted EBITDA for
covenant purposes by net finance charges for interest cover
covenant purposes. This measure is used for bank covenant
testing.
Interest cover
|
12 months ended
30 June
2024
£m
|
Adjusted EBITDA for covenant
purposes
|
587
|
Net finance charges for interest
cover covenant purposes
|
82
|
Interest cover
|
7.2x
|
|
APM
|
Closest
equivalent
statutory measure
|
Reconciling
items to statutory
measure
|
Definition and purpose
|
Cash Flow Measures
|
Free cash flow
|
Net increase/
decrease in cash and cash
equivalents (net of bank overdrafts)
|
Net cash from/
(used in) financing activities
|
Free cash flow represents cash
generated after all trading costs including restructuring, pension
contributions, tax and interest payments but before any cash flows
associated with financing activities.
This measure is a useful metric for
monitoring cash management within the Group and is consistent with
internal reporting.
Free cash flow
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year ended
31 December
2023
£m
|
Net cash from operating
activities
|
35
|
82
|
239
|
Net cash used in investing
activities
|
(29)
|
(88)
|
(194)
|
Free cash flow
|
6
|
(6)
|
45
|
|
Adjusted free cash flow
|
Net increase/
decrease in cash and cash
equivalents (net of bank overdrafts)
|
Free cash flow, as defined above,
adjusted for demerger related exceptional cash flows
|
Adjusted free cash flow represents
free cash flow adjusted for demerger related exceptional cash
flows.
This measure is a useful metric for
monitoring cash management within the Group and is consistent with
internal reporting.
Adjusted free cash flow
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year ended
31 December
2023
£m
|
Free cash flow
|
6
|
(6)
|
45
|
Demerger LTIP
payments(5)
|
3
|
36
|
37
|
Other cash demerger exceptional
items
|
1
|
3
|
11
|
Adjusted free cash flow
|
10
|
33
|
93
|
|
Capital expenditure
(capex)
|
None
|
Not applicable
|
Calculated as the purchase of owned
property, plant and equipment and computer software and expenditure
on capitalised development costs during the period, excluding any
assets acquired as part of a business combination.
Net capital expenditure is capital
expenditure net of proceeds from disposal of property, plant and
equipment.
|
Capital expenditure to depreciation
ratio
|
None
|
Not applicable
|
Net capital expenditure divided by
depreciation of owned property, plant and equipment and
amortisation of computer software and development costs.
This measure is a useful metric for
monitoring the investment in capital expenditure within the Group
and is consistent with internal reporting.
|
1. Operating loss is not defined within IFRS
but is a widely accepted profit measure being loss before finance
costs, finance income and tax.
2. Operating margin is not defined within IFRS
but is a widely accepted profit measure being derived from
operating loss(1) divided by revenue.
3. Included within other adjustments required
for leverage covenant purposes are dividends received from equity
accounted investments, the removal of adjusted operating profit of
equity accounted investments, IFRS 2 related charges and non-cash
finance costs.
4. Other adjustments required for interest
cover covenant purposes primarily relate to the exclusion of
interest payable on non-recourse factoring arrangements.
5. Demerger LTIP payments relate to the cash
payment of the divisional long-term incentive plans which were put
in place under management of Melrose Industries PLC and
crystallised on demerger on 20 April 2023.
Glossary of Terms and Definitions
Accident Frequency
Rate or AFR
|
A safety key performance
indicator, calculated as the number of lost time accidents (whether
serious or minor) divided by the total number of hours worked
multiplied by 200,000.
|
Additive Manufacturing
|
The product line within Powder
Metallurgy which manufactures metal and polymer components and
materials using additive manufacturing processes.
|
Automotive
|
The GKN Automotive business
operated by the Group.
|
Board
|
The board of directors of the
Company.
|
bps
|
Basis points.
|
BEV
|
Battery electric
vehicles.
|
CEO
|
Chief Executive
Officer.
|
CFO
|
Chief Financial
Officer.
|
China
|
The Equity Accounted Investments
in our Chinese joint ventures with Hasco Group that operate within
the Automotive segment.
|
Company or Dowlais
|
Dowlais Group plc.
|
demerger
|
The demerger of the Company from
Melrose Industries PLC on 20 April 2023.
|
Director
|
A director of the
Company.
|
Driveline
|
The product line within Automotive
which manufactures components that transmit power from the engine
to a vehicle's driving wheels, such as side shafts and prop
shafts.
|
drop-through margin
|
The margin at which incremental
sales volumes contribute incremental operating profit.
|
DTR
|
The disclosure guidance and
transparency rules made by the FCA under Part VI of the Financial
Services and Markets Act 2000.
|
EBITDA
|
Earnings before interest, tax,
depreciation and amortisation.
|
EMEA
|
Europe, Middle East and
Africa.
|
ePowertrain
|
The product line within Automotive
which manufactures all wheel drive systems, torque management
systems, electric drive systems and components thereof.
|
EPS
|
Earnings per share.
|
ESG
|
Environmental, Social and
Governance.
|
EVs
|
BEVs and HEVs.
|
FX
|
Foreign exchange.
|
Group
|
The Company, its direct and
indirect subsidiaries and other investments.
|
GLVP
|
Global light vehicle
production.
|
H1 or H2
|
The first or second half (as
applicable) of the relevant financial year.
|
HEV
|
Hybrid electric
vehicles.
|
Hoeganaes
|
The product line within Powder
Metallurgy which manufactures metal powder.
|
Hydrogen
|
The GKN Hydrogen business
previously operated by the Group.
|
ICE
|
Internal combustion
engine.
|
IFRS
|
International Financial Reporting
Standards.
|
lifetime revenue
|
In respect of a contract, the
revenue earned over the life of that contract.
|
LFP
|
Lithium iron phosphate.
|
M&A
|
Mergers and
acquisitions.
|
market
|
Global light vehicle
market.
|
Melrose
|
Melrose Industries PLC.
|
OEM
|
Original equipment manufacturer,
typically of light vehicles.
|
Powder Metallurgy
|
The GKN Powder Metallurgy business
operated by the Group.
|
Q1, Q2, Q3 or Q4
|
The 1st,
2nd, 3rd or 4th quarter (as
applicable) of the relevant year.
|
S&P
|
S&P Global.
|
Sinter
|
The product line within Powder
Metallurgy which manufactures high precision metal components using
powder metallurgy processes.
|
SUV
|
Sport utility vehicle.
|
US
|
Unites States of
America.
|
year-on-year
|
In comparison to the immediately
preceding financial year (or relevant period thereof).
|