Register for Digital Look

Company Announcements

GKN plc results for the six months to 30 June 2017

Related Companies

By LSE RNS

RNS Number : 0813M
GKN PLC
26 July 2017
 

                                                                                                                                                              

NEWS RELEASE                                                                                                          26 July 2017

 

GKN plc Results Announcement for the six months ended 30 June 2017

 

Group Highlights(*)

·      Another period of growth delivering earnings momentum

o   Sales up 15% (organic sales up 5%) and management eps increased 14%

o   Profit before tax (management basis) up 14% to £393 million (2016: £344 million), helped by currency

o   Reported profit before tax £559 million (2016: £182 million)

o   Free cash flow of £116 million (2016: £40 million)

o   Interim dividend increased 5% to 3.1 pence per share

o   UK defined benefit pension closed to future accrual, £250 million lump sum payment planned to address the deficit and reduce future deficit recovery payments

·      Continued investment in technology

o   Strong technology pipeline; innovation recognised by customer and industry awards

o   Focus on electrified drivetrains and additive manufacturing (3D printing)

o   Industry 4.0 - expect to reduce cost and increase margin

 


Management basis(*)

As reported


2017
£m

2016
£m

Change %

2017
£m

2016
£m

Change %

Sales

5,212

4,518

+15

4,879

4,237

+15

Operating profit  

436

390

+12

591

209

+183(2)

Trading margin (%)

8.4%

8.6%

-20bps




Profit before tax  

393

344

+14

559

182

+207(2)

Earnings per share (p)

17.7p

15.5p

+14

24.8p

9.5p

+161(2)

 Interim dividend per share (p)

3.10p

2.95p

+5

3.10p

2.95p

+5

 Free cash flow

116

40





 Net debt

697

704(1)





 

(1) As at 31 December 2016                                                             

(2) Primarily higher due to mark to market valuation of FX contracts

 

 

Commenting on the results, Nigel Stein, Chief Executive of GKN said:

 

"We made progress in the first half and are on track for the full year. We are performing well against our key markets, demonstrating once again the strength of our businesses, strong market positions and leading technology. We continue to invest for growth and have made significant progress to address our UK pension deficit.

 

Our focus on innovation in key areas such as electrified drivetrains, additive manufacturing and Industry 4.0 is paying dividends and underpins our confidence in the longer term.

 

2017 is expected to be another year of growth. Our reputation for technological leadership in our key markets, our focus on driving flexibility and productivity through our manufacturing plants and our market leading position in all three divisions mean we are well placed for the future."

 

 



 

 

Divisional Highlights

 

GKN Aerospace

·      Headline sales growth of 11%, reflecting a benefit from currency translation and organic growth in line with the market

·      Organic sales growth of 1%, comprising slower commercial sales (-3%) more than offset by an increase in military (+15%)

·      Margin of 9.3% (2016: 9.9%), primarily impacted by higher UK pension costs, lower profits resulting from asset write-downs at SABCA (equity accounted investment) and programme transitions and operational challenges in North America, partly offset by a benefit from programme pricing adjustments

·      New and replacement work packages won of c.$2.3 billion over contract lives

 

GKN Driveline

·      Organic sales growth of 8%, significantly ahead of global auto production, helped by our broad geographic footprint and increased content per vehicle

·      Trading margin of 7.8% (2016: 7.9%, restated to include part of GKN Land Systems), with a good performance in Europe offset by lower margins in China, as expected, and increased costs to support the high number of launches in the Americas

·      Around £230 million of annualised new and replacement business won

 

GKN Powder Metallurgy

·      Organic sales growth of 4%, including the pass-through of higher raw material surcharges

·      Trading margin of 11.3% (2016: 12.6%), reflecting principally the higher raw material surcharge and an investment in powder capability in China

·      Strong focus on technology and £110 million of annualised new and replacement business won

 

 

Outlook

 

According to Teal forecasts, in 2017, the overall aerospace market is expected to be up 1%, with commercial deliveries 1% lower and military sales up 8%. Against that backdrop, GKN Aerospace's 2017 organic sales are expected to grow slightly above the market.

 

In automotive, external forecasts predict annual growth in global light vehicle production of around 2% with increases in China and Europe, but decreases in North America. Against this background, GKN Driveline and GKN Powder Metallurgy are expected to grow organically above the market. 

 

2017 is expected to be another year of growth, helped by the benefits of actions taken in 2016 and GKN's constant focus on continuous improvement.

 

 



 

 

Notes

(*) Financial information set out in this announcement, unless otherwise stated, is presented on a management basis as defined on pages 13 and 14. 

 

 

Cautionary Statement

 

This announcement contains forward looking statements which are made in good faith based on the information available at the time of its approval. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a number of risks and uncertainties that are inherent in any forward looking statement which could cause actual results to differ materially from those currently anticipated. Nothing in this document should be regarded as a profits forecast.

 

Further Enquiries

 

Analysts/Investors:

 

Guy Stainer, Investor Relations Director, GKN plc

T: +44 (0)207 463 2382

M: +44 (0)7739 778187

E: guy.stainer@gkn.com

 

Media:

 

Nicola Foster, Head of Group Communications, GKN plc

T: +44 (0)1527 533495

M: +44 (0)7795 618320

E: nicola.foster@gkn.com

 

Andrew Lorenz, FTI Consulting

T: +44 (0)203 727 1323

M: +44 (0)7775 641807

 

 

There will be an analyst and investor meeting today at 09.00am at UBS, 5 Broadgate, London, EC2M 2QS in their Conference Suite located on the first floor.

 

A live videocast of the presentation will be available at http://www.gkn.com/en/investors/results-centre/webcasts/ 

 

Slides will be put onto the GKN website approximately 60 minutes before the presentation is due to begin, and will be available to download from the GKN website at:

http://www.gkn.com/en/investors/results-centre/results-and-presentations/

 

Questions will only be taken at the event.

 

A live dial in facility will be available by telephoning: +44 (0) 1452 555 566, Conf ID: 53120005

 

Following the event, a replay of the conference call will be uploaded onto the GKN website and the on-demand archive webcast will be available via the link http://www.gkn.com/en/investors/results-centre/results-and-presentations/

 

 

GKN plc LEI: 213800QNZ22GS95OSW84

 



 

 

NEWS RELEASE

 

GKN plc Results Announcement for the six months ended 30 June 2017

 

 

Group Overview

 

Markets

 

The Group operates in the global aerospace and automotive markets. GKN Aerospace sells to manufacturers of commercial and military aircraft, aircraft engines and equipment. In the automotive market, GKN Driveline sells to manufacturers of passenger cars and light vehicles. Around 80% of GKN Powder Metallurgy sales are also to the automotive market, with the balance to other industrial customers.

 

Results

 

Group

 First half

Change (%)


2017 

2016 

Headline

Organic

Sales (£m)

5,212

4,518

15

5

Trading profit (£m)

436

390

12

2

Trading margin (%)

8.4%

8.6%



Return on average invested capital (%)

15.8%

16.6%(1)



(1)excludes GKN Aerospace Fokker which had not been owned for a full 12 month period

 

Organic sales increased £252 million (5%). The benefit from currency translation on management sales was £482 million and there was a £40 million net reduction from acquisitions/divestments.

 

Overall organic trading profit increased by £7 million. There was a benefit from currency translation of £47 million and an £8 million net reduction due to acquisitions/divestments.

 

Group trading margin in the first half reduced to 8.4% (2016: 8.6%). Return on average invested capital (ROIC) reduced to 15.8% (2016: 16.6%, GKN Aerospace Fokker not included as it had not been owned for a full 12 month period).

 

At 30 June 2017, the Group had net debt of £697 million (31 December 2016: £704 million) and the total deficit on post-employment obligations totalled £1,849 million (31 December 2016: £2,033 million). During the period, the group issued a new £300 million 3.375% annual unsecured bond. It is the intention to pay £250 million into the UK pension scheme in the second half of the year.

 

Divisional Performance

 

GKN Aerospace

 

GKN Aerospace is a leading global tier one supplier of airframe and engine structures, landing gear, electrical interconnection systems, transparencies and aftermarket services. Its technology influences the performance and efficiency of the world's leading commercial and military aircraft.

 

According to Teal forecasts, in 2017, overall aircraft deliveries are expected to be up 1%.  Commercial deliveries are expected to be 1% lower as the decline in wide-body and business jets more than offsets growth in single aisle aircraft. Military sales are expected to be up 8% due to the ramp up in production of the F-35 fighter and growth in rotorcraft and transport aircraft. 



 

The key financial results for the period are as follows:

 

GKN Aerospace

 First half

Change (%)


2017 

2016 

Headline

Organic

Sales (£m)

1,809

1,631

11

1

Trading profit (£m)

168

161

4

(5)

Trading margin (%)

9.3%

9.9%



Return on average invested capital (%)

14.4%

16.8%(1)



(1) excluding Fokker in the comparative period which had not been owned for a full 12 months

 

Overall, GKN Aerospace's organic sales were £20 million higher (1%) and there was a £158 million benefit from currency translation.  

 

The division's sales were weighted commercial 73%, military 27%. Organic commercial aerospace sales declined 3%, principally due to the greater exposure to the wide-body market. GKN Aerospace recorded reduced sales of the A380, Boeing 737 MAX (due to the end of a temporary development contract in 2016), business jets, CFM56 engine and Boeing 777 partly offset by stronger production of the A350 and A320. Military sales were organically 15% higher, primarily due to an increase in production of the F/A-18 Super Hornet and F-35, as well as development sales for advanced proprietary military programmes. 

 

Trading profit was £168 million (2016: £161 million), benefiting from a favourable currency translation impact of £16 million.

 

In addition to the changes in production rates across the many commercial and military platforms as set out above, trading profit in the period was impacted by: £5 million higher UK pension costs; recognising £4 million of lower profits from the SABCA equity accounted investment, principally due to asset write-downs; and programme transitions and operational challenges in North America. The engine business is performing well, helped by £13 million of programme pricing adjustments and investment continues in the PW PurePower® Geared Turbofan™ (GTF) engines across four different platforms. Fokker continues to trade in line with expectations. Across our production facilities worldwide we are driving ongoing productivity programmes to mitigate historical price downs.

 

Progress in the development and application of additive manufacturing (AM) continued in the first half. Momentum increased in both free form and powder bed with both technologies in production, new orders won and parts now flying on seven platforms across the commercial, military and space markets. This is a key area of focus for the Group.

 

During the period, new and replacement work packages totalling $2.3 billion over their contract lives have been won and a number of important milestones were achieved, including:

·     Securing new work packages and extensions of long-term agreements on key engine platforms;

·     Winning a three year contract extension worth over $175 million, covering the technical product support, maintenance and parts supply for the Gripen RM12 Engines used in Sweden, Hungary, Czech Republic and Thailand;

·     Signing a contract with Honda Aircraft Company to manufacture the complete electrical wiring and interconnection system for the market-leading HondaJet;

·     Securing a long-term agreement with Kawasaki Heavy Industries to supply Low-Pressure Compressor Vanes for the PW1100G-JM and PW1400G-JM PurePower® Geared Turbofan™ engines;

·     Delivering the first advanced 2.5m diameter Ariane 6 nozzle (SWAN) to ArianeGroup for the Vulcain 2.1 engine incorporating laser-welded technology and AM structures; resulting in 90% fewer component parts, 40% cost reduction and 30% improvement in production time; and

·     Signing research/partnership agreements with the U.S. Department of Energy's Oak Ridge National Laboratory, focused on AM in order to progress its use in the manufacture of major, structural components for aircraft.



 

Automotive market

 

In the first half of 2017, global car and light vehicle production volumes increased 2.8% to 47.3 million vehicles (2016: 46.1 million), with all major markets, except North America, enjoying increased volumes.

 

Car and light vehicle production (rounded millions of units)

First half

Growth


2017

2016

(%)(#)

Europe

11.6

11.4

   1.3

North America

  9.0

  9.1

  -0.7

Brazil

  1.2

  1.0

 23.0

Japan

  4.6

  4.3

   8.3

China

12.8

12.4

   3.1

India

  2.2

  2.0

   8.5

Others

  5.9

  5.9

        0.8

Total - global

47.3

46.1

   2.8

Source: IHS Markit; (#) Growth is derived from unrounded production figures

 

Production in Europe increased in the first half with some major markets reaching historically high levels. The Russian market remained weak, although production increased compared to the first half of 2016.

 

Production in North America was down due to a weaker US market, with lower fleet demand offsetting good retail sales. Cheap credit and the low price of fuel continued to support increased demand and production for full-size pickups and Sport Utility Vehicles (SUVs), which outpaced that of passenger cars. Production in Brazil rose strongly as the local market started to recover and exports increased.

 

Growth in China slowed as a result of an increase in the sales tax on small cars, following strong demand at the end of 2016. Production in India recovered from the weak 2016, driven by improved consumer sentiment and demand for newly launched models. Japan also grew compared to the prior year.

 

External forecasts anticipate global production for 2017 will increase 1.9% to 94.9 million vehicles.

 

 

GKN Driveline

 

GKN Driveline is the world's leading supplier of automotive driveline systems and solutions. As a global business serving the leading vehicle manufacturers, it develops, builds and supplies an extensive range of automotive driveline products and systems, for use in everything from the smallest low-cost car to the most sophisticated premium vehicles that demand complex driving dynamics.

 

The key financial results for the period are as follows:

 

GKN Driveline

 First half

Change (%)


2017 

2016(4) 

Headline

Organic

Sales (£m)

2,654

2,202

21

8

Trading profit (£m)

207

173

20

7

Trading margin (%)

7.8%

7.9%



Return on average invested capital (%)

18.0%

18.2%



(4)Restated to include Off-Highway Powertrain, previously part of GKN Land Systems

 

Organic sales increased by £206 million (8%) compared with global light vehicle production which was up 3%. The beneficial effect from currency translation was £246 million.

 

 

GKN Driveline's market outperformance was mainly in North America (reflecting strong recent all-wheel drive (AWD) programme gains slightly offset by lower light truck platform exposure) and in China due to new programme launches (particularly due to additional content from AWD sales, including to a number of domestic manufacturers). In Europe, production continued ahead of the market, benefitting from good demand for premium vehicles.

 

Trading profit increased £34 million to £207 million, including the favourable impact of currency translation of £21 million.

 

GKN Driveline's European plants continue to operate at very high capacity utilisation with a strong conversion on the additional sales. In China, margin reduced as expected, with the benefit of increased sales being offset by negative pricing pressure and the on-going investment in new programmes, engineering and technology localisation. The Americas operations were impacted by investment in programme management to support an unusually high number of launches. The AWD programmes are delivering to customer requirements, however, the necessary changes to product and process are taking longer than expected and therefore the cost impact was similar to the first half of 2016. The North American market continues to be monitored closely. The benefits of the restructuring action taken in 2016 have been realised and, as previously communicated, GKN Driveline has increased investment in eDrive and faced some raw material price increases that have not been fully passed on to customers.

 

As the trend towards electrification of passenger vehicles accelerates, GKN Driveline continues to make good progress with its eDrive products, responding to the need for lower emission vehicles in both hybrid and pure electric form. Due to its early move into electric AWD, GKN Driveline is already a market leader with around 400,000 HEV/EV drive systems delivered to our global customer base. During the period two large production orders were won, including the eAxle for the Volvo XC60/V90.

 

During the period, around £230 million of annualised sales in new and replacement business was secured and a number of important milestones achieved, including:

·     Launching the second application of the new lightweight VL3 constant velocity joint (CVJ) on the new BMW 5 series;

·     Commencing production of its latest technologies in China, through its joint venture: a complete AWD disconnect system for small to medium-sized vehicles, the new SX8 CVJ as well as production of its Disconnect four-wheel drive system;

·     Providing innovative electric drive technology to StreetScooter - an emissions free parcel delivery service in Germany, owned by Deutsche Post DHL Group;

·     Winning an Automotive News PACE Innovation Award for the integrated co-axial eAxle on the Volvo XC90 T8 twin engine;

·     Announcing that China will become a global production hub for electrified driveline in 2018, when production of the latest eDrive technologies commences, including the production of the GKN Multimode eTransmission for a domestic Chinese automaker; and

·     Opening a new winter test facility in Michigan, USA to complement the existing proving grounds for extreme cold-weather testing in Sweden and China.

 

 

GKN Powder Metallurgy

 

GKN Powder Metallurgy comprises GKN Sinter Metals and Hoeganaes. GKN Sinter Metals is the world's leading manufacturer of precision automotive sintered components as well as components for industrial and consumer applications. Hoeganaes is one of the world's leading manufacturers of metal powder, the essential raw material for powder metallurgy.

 



 

The key financial results for the period are as follows:

 

GKN Powder Metallurgy

 First half

Change (%)


2017

2016 

Headline

Organic

Sales (£m)

601 

499 

20

4

Trading profit (£m)

68 

63 

8

(3)

Trading margin (%)

11.3% 

12.6% 



Return on average invested capital (%)

19.4% 

21.3% 



 

Organic sales were £23 million higher, including £17 million pass through to customers of higher scrap steel prices and other commodities. There was a £62 million benefit from currency translation and a £17 million increase from acquisitions, mostly the purchase of a majority share of a powder manufacturer in China.  

 

Organic sales growth before raw material pass through was 1%, lower than global light vehicle production which was up 3%. Strong underlying sales growth was achieved in China, Europe and Brazil but sales in North America fell due to weaker automotive demand.

 

Trading profit increased £5 million to £68 million, benefiting from favourable currency translation of £8 million.

 

The divisional trading margin was 11.3% (2016: 12.6%), reflecting the powder investment in China, tougher market conditions in the US and a £4 million impact of higher raw material prices.

 

The European business, principally focused on small parts, grew well increasing its sales into the automotive market. Good progress continues in Asia with double digit sales growth. North America was tougher reflecting a slowdown in the automotive market. Digitisation across the shop floor is assisting with productivity gains across GKN Powder Metallurgy.

 

Commercial titanium powder production for AM started in Cinnaminson, USA as part of the venture with TLS Technik. Interest in powder continues to be strong and a number of production orders have been received from key customers for both standard and customised titanium AM powder alloys. There is also increased demand for AM parts for use in the automotive and industrial sectors.

 

During the period, around £110 million of annualised sales in new and replacement business was secured and a number of important milestones achieved, including:

·     Completing the acquisition of Turkish powder metal parts manufacturer Tozmetal Ticaret Ve Sanayi AS (Tozmetal), adding pump part capacity;

·     Making further steps towards Industry 4.0 with a new dedicated digital area for metal AM which will reduce lead times in prototype development and production;

·     Launching a new e-commerce platform, InstAMetal, a revolutionary digitized quoting and design experience for metal AM that will bring speed and simplicity of online ordering to engineering prototypes;

·     Receiving the Best Supplier Award for quality performance by Somfy for the high-class planetary gears and components that it supplies for electrical shutter motors; and

·     Receiving two prestigious Grand Prize Design Excellence Awards from the Metal Powder Industries Federation in the Automotive Transmission category (planetary carrier assembly for Ford Motor Company) and the Automotive Chassis category (copper-steel output pulley for Nidec Automotive Motor Americas).

 

 

Other Businesses and corporate costs

 

GKN's Other Businesses now comprise Wheels and Structures (previously part of GKN Land Systems) and Cylinder Liners (a 59% owned venture mainly in China, manufacturing engine liners for the truck market in the US, Europe and China). First half 2016 comparators are restated for the inclusion of Stromag and Wheels and Structures, previously part of GKN Land Systems.

 

GKN's Other Businesses reported combined sales in the period of £148 million (2016: £186 million). The change reflects a £3 million organic increase in sales due to good growth in Cylinder Liners and Wheels, a £16 million benefit from currency translation and a reduction due to the disposal of Stromag of £57 million.

 

A trading profit of £9 million was reported in the first half (2016: £4 million) reflecting a strong performance in Cylinder Liners and the absence of a restructuring charge in 2016 for GKN Hybrid Power. Trading profit was £7 million lower due to the disposal of Stromag.

 

Corporate costs, which comprise the costs of stewardship of the Group and operating charges and credits associated with the Group's legacy businesses, were £16 million (2016: £11 million), due to  £4 million of additional costs associated with closure of the UK pension scheme.

 

Other Financial Information

 

Items excluded from management trading profit

 

In order to achieve consistency and comparability of underlying results between reporting periods, certain items are presented separately from management basis results which are used in many of the Group's Key Performance Indicators. In addition, management basis results aggregate the sales and trading profit of subsidiaries with the Group's share of the sales and trading profits of equity accounted investments.

 

The Group uses management measures, which are non-GAAP measures, for certain remuneration targets and to assess operating performance on a consistent basis, as we believe this gives a fairer assessment from period to period of the underlying activity of the business. The use of management measures allows the Group to chart progress, make decisions and allocate resources based on the actions for which management is responsible or can influence, without volatility arising from significant one-time trading and portfolio change transactions or the mark to market valuation of currency hedges.

 

The items excluded from management basis results are adjusted because of their size or nature. The Group considers the following matters when assessing the nature of items to be excluded; whether the charge or income is significantly impacted by fair value movements outside of management control (change in value of derivative and other financial instruments and fair value changes on cross currency interest rate swaps), it is non-cash (interest charge on post-employment benefits and unwind of discounts) or it does not relate to trading performance but rather acquisition or divestment activity (amortisation of non-operating intangible assets arising on business combinations, gains and losses on changes in Group structure and acquisition-related restructuring charges).

 

A full reconciliation of statutory to management basis numbers is provided in note 3 to the consolidated financial statements on page 26 and further information on the items excluded from management trading profit is provided below:

 

Change in value of derivative and other financial instruments

 

The change in value of derivative and other financial instruments during the period resulted in a credit of £242 million (2016: £71 million charge).

 

When the business wins long term customer contracts that are in a foreign currency, the Group seeks to mitigate the potential volatility of future cash flows by hedging through forward foreign currency exchange contracts. At each period end, the Group is required to mark to market these contracts even though it has no intention of closing them out in advance of their maturity dates. At  30 June 2017, the net fair value of such instruments was a liability of £242 million (31 December 2016: £482 million liability) and the change in fair value during the period was a £240 million credit (2016: £52 million charge).

 

There was also a £2 million charge arising from the change in fair value of embedded derivatives in the period (2016: £3 million credit) and a net gain of £4 million attributable to the currency impact on Group funding balances (2016: £22 million net loss).

 

Amortisation of non-operating intangible assets arising on business combinations

 

The charge for amortisation of non-operating intangible assets arising on business combinations (for example, customer contracts, order backlog, technology and intellectual property rights) was £45 million (2016: £46 million).

 

Gains and losses on changes in Group structure

 

The net loss on changes in Group structure was £1 million (2016: nil) and represents further costs relating to closure of the GKN Aerospace business in Yeovil, announced in 2016.

 

Acquisition-related restructuring charges

 

There were no charges regarding acquisition-related restructuring in the period (2016: £22 million).

 

Post-tax earnings of equity accounted investments

 

On a management basis, the sales and trading profits of equity accounted investments are included pro-rata in the individual divisions to which they relate, although shown separately post-tax in the statutory income statement. 

 

The Group's share of post-tax earnings on a management basis was £35 million (2016: £34 million), with trading profit of £41 million (2016: £42 million). The Group's share of the tax and financing charges amounted to £6 million (2016: £8 million). The organic decrease in trading profit was £4 million, principally impacted by asset write-downs in SABCA (Aerospace).

 

Net financing costs

 

Net financing costs totalled £67 million (2016: £61 million) and comprise the net interest payable of £37 million (2016: £38 million), the non-cash interest charge on post-employment benefits of £24 million (2016: £27 million), a loss from fair value changes on cross currency interest rate swaps of £5 million (2016: £5 million gain) and a charge for unwind of discounts of £1 million (2016: £1 million charge). The non-cash interest charge on post-employment benefits, fair value changes on cross currency interest rate swaps and unwind of discounts are not included in management figures. Details of the assumptions used in calculating post-employment obligations are provided in note 10 to the consolidated financial statements.

 

Interest payable was £42 million (2016: £41 million), whilst interest receivable was £5 million (2016: £3 million) resulting in net interest payable of £37 million (2016: £38 million).

 

Profit before tax

 

Management profit before tax was £393 million (2016: £344 million). Profit before tax on a statutory basis was £559 million (2016: £182 million). The main differences between management and statutory figures for the first half 2017 are the change in value of derivative and other financial instruments, amortisation of non-operating intangible assets arising on business combinations and non-cash interest charge on post-employment benefits. Further details are provided in note 3 to the consolidated financial statements.



 

Taxation

 

The book tax rate on management profits of subsidiaries was 24% (2016: 25%), arising as a £86 million tax charge (2016: £76 million charge) on management profits of subsidiaries of £358 million (2016: £310 million).

 

The tax rate on statutory profits of subsidiaries was 25% (2016: 11%), arising as a £131 million tax charge (2016: £17 million charge) on statutory profits of subsidiaries of £524 million (2016: £148 million).

 

Non-controlling interests

 

The profit attributable to non-controlling interests was £3 million (2016: £2 million).

 

Earnings per share

 

Management earnings per share was 17.7 pence (2016: 15.5 pence).  On a statutory basis earnings per share was 24.8 pence (2016: 9.5 pence), impacted by a significant credit from the change in value of derivatives and other financial instruments. 

 

Dividend

 

The Board has declared an interim dividend of 3.1 pence per share (2016: 2.95 pence), an increase of 5%. The interim dividend will be paid on 18 September 2017 to shareholders on the register at 11 August 2017. Shareholders may choose to use the Dividend Reinvestment Plan (DRIP) to reinvest the interim dividend. The closing date for receipt of new DRIP mandates is 25 August 2017.

 

Cash flow

 

Operating cash flow, which is defined as cash generated from operations of £379 million (2016: £252 million) adjusted for capital expenditure (net of proceeds from government capital grants) of £254 million (2016: £227 million), repayment of principal on government refundable advances of £4 million (2016: nil) and proceeds from the disposal of fixed assets of £6 million (2016: £25 million), was an inflow of £127 million (2016: £50 million).

 

Cash generated from operations includes movements in working capital totalling a net outflow of £165 million (2016: £188 million outflow).

 

Capital expenditure (net of proceeds from government capital grants) on both tangible and intangible assets totalled £254 million (2016: £227 million). Of this, £217 million (2016: £192 million) was on tangible fixed assets and was 1.5 times (2016: 1.5 times) the depreciation charge. Expenditure on intangible assets, mainly non-recurring costs on Aerospace programmes, totalled £37 million (2016: £35 million). 

 

Net interest paid totalled £21 million (2016: £23 million). Tax paid in the period was £49 million (2016: £42 million).

 

Free cash flow

 

Free cash flow, is defined as operating cash flow, an inflow of £127 million (2016: £50 million), including dividends received from equity accounted investments of £59 million (2016: £55 million) and after net interest paid of £21 million (2016: £23 million), tax paid of £49 million (2016: £42 million) and amounts paid to non-controlling interests of nil (2016: nil) but before dividends paid to GKN shareholders, was an inflow of £116 million (2016: £40 million).



 

Net debt

 

At the end of the period, the Group had net debt of £697 million (31 December 2016: £704 million). The Group has a series of cross currency interest rate swaps, used to better align its foreign currency income receipts with its debt coupon payments. The fair value of these derivative instruments at the end of the period was a liability of £187 million (31 December 2016: a liability of £214 million) which is included in the net debt figure of £697 million.

 

Pensions and post-employment obligations

 

GKN operates a number of defined benefit pension schemes and historical retiree medical plans across the Group. 

 

At 30 June 2017, the total deficit on post-employment obligations of the Group totalled £1,849 million (31 December 2016: £2,033 million), comprising deficits on funded obligations of £1,160 million (31 December 2016: £1,322 million) and on unfunded obligations of £689 million (31 December 2016: £711 million).

 

The amount included within trading profit for the period comprises a current service cost of £31 million (2016: £25 million) and administrative costs of £2 million (2016: £2 million). The interest charge on net defined benefit plans, which is excluded from management figures, was £24 million (2016: £27 million).

 

Cash contributions to the various defined benefit pension schemes and retiree medical arrangements totalled £70 million (2016: £71 million).

 

UK pensions

 

The accounting deficit for UK schemes, which closed to future accrual with effect from 1 July 2017, decreased to £1,063 million (31 December 2016: £1,221 million) in part as a result of the latest study into mortality improvements indicating that life expectancy has not improved as quickly as previously expected (£72 million reduction). 

 

The Group's two UK defined benefit pension schemes are conducting their 2016 triennial funding valuations (GKN2 as at 5 April 2016 and GKN3 as at 31 December 2016). It is expected that a lump sum of £250 million will be paid into the GKN2 Scheme in the second half and that the current annual deficit recovery payments of £42 million are expected to reduce slightly, from 2018.

 

Defined contribution pension schemes

 

In addition to defined benefit pension schemes, the Group also operates a number of defined contribution schemes for which the income statement charge was £32 million (2016: £28 million).

 

Net assets

 

Net assets of £2,546 million were £384 million higher than the 31 December 2016 figure of £2,162 million. The increase is primarily driven by a statutory profit after tax (£428 million) and a favourable remeasurement of defined benefit plans, net of tax (£147 million), partially offset by an adverse currency retranslation from subsidiaries (including net investment hedges) and equity accounted investments, net of tax (£93 million) and dividends paid to equity shareholders (£101 million).



 

 

Exchange rates

 

Exchange rates used for currencies most relevant to the Group's operations are:

 


Average

Period End


2017

2016

2017

2016

Euro

1.16

1.28

1.14

1.20

US dollar

1.26

1.43

1.30

1.33

 

The approximate impact on 2017 trading profit of subsidiaries and equity accounted investments of a 1% movement in the average rate would be euro - £1 million, US dollar - £2 million.

 

Funding, liquidity and going concern

 

At 30 June 2017, UK committed bank facilities were £846 million (31 December 2016: £863 million). Within this amount there are committed Revolving Credit Facilities of £800 million (31 December 2016: £800 million), £32 million outstanding on an eight-year amortising facility from the European Investment Bank (31 December 2016: £48 million) and £14 million outstanding on a seven-year amortising facility from KfW (31 December 2016: £15 million). There were no drawings against the Revolving Credit Facilities.

 

At 31 December 2016 the Group had capital market borrowings comprising a £350 million 6.75% annual unsecured bond maturing in October 2019 and a £450 million 5.375% semi-annual unsecured bond maturing in September 2022. During the period, the group issued a new £300 million 3.375% annual unsecured bond maturing in May 2032.

 

All of the Group's committed credit facilities have financial covenants requiring EBITDA of subsidiaries to be at least 3.5 times net interest payable and for net debt to be no greater than 3 times EBITDA of subsidiaries. The covenants are tested every six months using the previous 12 months' results. For the 6 months to 30 June 2017 EBITDA was 14.0 times greater than net interest payable (2016:13.4 times), whilst net debt was 0.6 times EBITDA (2016:1.0 times).

 

The Directors have taken into account both divisional and Group forecasts for the 18 months from the balance sheet date to assess the future funding requirements of the Group and compared them to the level of committed available borrowing facilities, described above. Having carried out sensitivity analysis, the Directors have concluded that the Group will have a sufficient level of headroom in the foreseeable future and that the likelihood of breaching covenants in this period is remote, such that it is appropriate for the financial statements to be prepared on a going concern basis.

 

Basis of Reporting

 

The interim financial statements for the period are shown on pages 16 to 34 and have been prepared using accounting policies which were used in the preparation of audited financial statements for the year ended 31 December 2016 and which will form the basis of the 2017 Annual Report.

 

Definitions

 

Financial information set out in this announcement, unless otherwise stated, is presented on a management basis which excludes certain items. The items excluded from management trading results and the reasons for their exclusion are set out on pages 9 and 10.

 



 

Management results aggregates the sales and trading profit of subsidiaries with the Group's share of the sales and trading profit of equity accounted investments. References to trading margins are to management trading profit expressed as a percentage of management sales. Management profit or loss before tax is management trading profit less net subsidiary interest payable and receivable and the Group's share of net interest payable and receivable and taxation of equity accounted investments. 

 

Organic results are management results excluding the impact of acquisitions/divestments as well as currency translation on the results of overseas operations.

 

Operating cash flow is cash generated from operations adjusted for capital expenditure, government capital grants, repayment of principal on government refundable advances and proceeds from the disposal of fixed assets.

 

Free cash flow is operating cash flow including interest, tax, equity accounted investment dividends and amounts paid to non-controlling interests, but excluding dividends paid to GKN shareholders.

 

Return on average invested capital (ROIC) is calculated on a rolling 12 month basis comprising management trading profit as a percentage of average total net assets of continuing subsidiaries and equity accounted investments, excluding current and deferred tax, net debt, post-employment obligations and derivative financial instruments.

 

Management earnings per share (as set out in note 3(a) to the consolidated financial statements) is calculated using management earnings for the Group divided by the weighted average number of ordinary shares in issue (excluding treasury shares).

 

Working capital comprises inventories, trade and other receivables, trade and other payables and provisions.  Management working capital (as set out in note 1(f) to the consolidated financial statements) excludes; accrued interest, restructuring provisions, equity accounted investment funding, deferred and contingent consideration and government refundable advances.

 

Principal risks and uncertainties

 

The principal risks faced by the Group in the remaining six months of the year remain largely unchanged from those reported on pages 42 to 49 of the 2016 Annual Report. These risks relate to the following: highly competitive markets; supply chain; customer concentration; operating in global markets; laws, regulations and corporate reputation; technology and innovation; people capability; product quality; contract risk; programme management; health and safety; information systems resilience; and pension funding.

As noted in the 2016 Annual Report, the UK's decision to leave the EU has resulted in increased uncertainty in future trading arrangements between the UK and the rest of the world. That uncertainty remains; however, as around 90% of GKN's products are manufactured outside of the UK, the direct effect on our major markets will be limited. As outlined in the 2016 Annual Report, the effects of the vote and the accompanying reduction in interest rates and fall in bond yields increased our UK pension liability during 2016. We have subsequently taken steps to manage that liability as described below.

 

During the first half of 2017 good progress was made towards reducing both ongoing cash contributions and volatility in respect of the Group's UK defined benefit pension schemes, though the schemes remain exposed to changes in asset values, interest rates, inflation and mortality assumptions. As discussed on page 12, we have largely completed discussions with the Trustees of these schemes in relation to the 2016 funding valuations and are now working to finalise the contractual documentation.

 



 

Directors' Responsibility Statement

 

The half yearly financial report is the responsibility of the Directors who confirm that to the best of their knowledge:

 

·     the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as endorsed and adopted by the EU;

 

·     the interim management report includes a fair review of the information required by:

 

(a)        DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

 

(b)        DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the 2016 Annual Report that could do so.

 

The Directors of GKN plc are listed in the GKN annual report for 2016.

 

Approved by the Board of GKN plc and signed on its behalf by:

 

 

Mike Turner

Chairman

25 July 2017

 

 



 

 

APPENDICES

 

 


Page



GKN Condensed Consolidated Financial Statements




Consolidated Income Statement for the half year ended 30 June 2017

17







Consolidated Statement of Comprehensive Income for the half year ended 30 June 2017

18







Condensed Consolidated Statement of Changes in Equity for the half year ended 30 June 2017

19







Consolidated Balance Sheet at 30 June 2017

20







Consolidated Cash Flow Statement for the half year ended 30 June 2017

21







Notes to the Half Year Consolidated Financial Statements

22 - 33







Independent Review Report

34





 

 



 

 

CONSOLIDATED INCOME STATEMENT

FOR THE HALF YEAR ENDED 30 JUNE 2017




Unaudited



Notes

First half 

First half 

Full year 



2017 

2016 

2016 



£m 

£m 

£m 






Sales

1a

4,879 

4,237 

8,822 







Trading profit

1b

395 

348 

684 


Change in value of derivative and other financial instruments

4

242 

(71)

(154)


Amortisation of non-operating intangible assets arising on







business combinations


(45)

(46)

(103)


Gains and losses on changes in Group structure


(1)

(9)


Impairment charges


(52)


Acquisition-related restructuring charges

5

(22)

(31)






Operating profit


591 

209 

335 






Share of post-tax earnings of equity accounted






investments

6

35 

34 

73 







Interest payable


(42)

(41)

(86)


Interest receivable



Other net financing charges

7

(30)

(23)

(37)

Net financing costs


(67)

(61)

(116)






Profit before taxation 


559 

182 

292 






Taxation

8

(131)

(17)

(48)

Profit after taxation for the period


428 

165 

244 






Profit attributable to non-controlling interests


Profit attributable to owners of the parent


425 

163 

242 



428 

165 

244 

Earnings per share - pence





Continuing operations - basic


24.8 

9.5 

14.1 

Continuing operations - diluted


24.6 

9.5 

14.0 

 

 



 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE HALF YEAR ENDED 30 JUNE 2017



Unaudited



Notes

First half 

First half 

Full year 

 



2017 

2016 

2016 

 



£m 

£m 

 £m 

 

Profit after taxation for the period


428 

165 

244 

 






 

Other comprehensive income:





 






 

Items that may be reclassified to profit or loss





 

Currency variations - subsidiaries





 


Arising in period


(122)

431 

671 

 


Reclassified in period


 

Currency variations - equity accounted investments





 


Arising in period


(4)

20 

22 

 

Net investment hedge changes in fair value





 


Arising in period


32 

(108)

(177)

 

Taxation

8

(36)

(14)

 



(93)

307 

504 

 






 

Items that will not be reclassified to profit or loss





 

Remeasurement of defined benefit plans





 


Subsidiaries

10

180 

(466)

(396)

 

Taxation

8

(33)

110 

63 

 



147 

(356)

(333)

 






 

Other comprehensive income/(expense) for the period


54 

(49)

171 

 






 

Total comprehensive income for the period


482 

116 

415 

 






 

Total comprehensive income attributable to





 


non-controlling interests


 

Total comprehensive income attributable to owner of the parent


480 

112 

409 

 



482 

116 

415 

 

 

 

 



 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE HALF YEAR ENDED 30 JUNE 2017



Notes

Share 
capital 
£m 

Capital 
redemption 
reserve 
£m 

Share 
premium 
account 
£m 

Retained 
earnings 
£m 

Other 
reserves 
£m  

Equity 
attributable 
to equity 
holders 
of the 
parent 
£m 

Non-controlling

interests 
£m 

Total 
equity 
£m 

At 1 January 2017


173 

298 

330 

981 

345 

2,127 

35 

2,162 

Profit for the period


425 

425 

428 

Other comprehensive income/(expense)


147 

(92)

55 

(1)

54 

Total comprehensive income/(expense)


572 

(92)

480 

482 

Share-based payments


Dividends paid to equity shareholders

9

(101)

(101)

(101)

At 30 June 2017 (unaudited)


173 

298 

330 

1,455 

253 

2,509 

37 

2,546 











At 1 January 2016


173 

298 

330 

1,217 

(155)

1,863 

23 

1,886 

Profit for the period


163 

163 

165 

Other comprehensive income/(expense)


(356)

305 

(51)

(49)

Total comprehensive income/(expense)


(193)

305 

112 

116 

Share-based payments


Addition of non-controlling interests


Dividends paid to equity shareholders

9

(99)

(99)

(99)

At 30 June 2016 (unaudited)


173 

298 

330 

929 

150 

1,880 

36 

1,916 











At 1 January 2016


173 

298 

330 

1,217 

(155)

1,863 

23 

1,886 

Profit for the year


242 

242 

244 

Other comprehensive income/(expense)


(333)

500 

167 

171 

Total comprehensive income/(expense)


(91)

500 

409 

415 

Share-based payments


Share options exercised


Addition of non-controlling interest


Purchase of non-controlling interest


(1)

(1)

(1)

(2)

Dividends paid to equity shareholders

9

(150)

(150)

(150)

Dividends paid to non-controlling interests


(2)

(2)

At 31 December 2016


173 

298 

330 

981

345 

2,127 

35 

2,162 

 

 



 

CONSOLIDATED BALANCE SHEET

AT 30 JUNE 2017




Unaudited



Notes

30 June 

30 June 

31 December 



2017 

2016 

2016 



£m 

£m 

£m 

Assets





Non-current assets





Goodwill


577 

665 

588 

Other intangible assets


1,253 

1,341 

1,320 

Property, plant and equipment

12

2,648 

2,484 

2,670 

Equity accounted investments


204 

194 

233 

Other receivables and investments


161 

47 

49 

Derivative financial instruments

4

32 

28 

25 

Deferred tax assets


498 

509 

557 



5,373 

5,268 

5,442 

Current assets





Inventories


1,521 

1,370 

1,431 

Trade and other receivables


1,750 

1,652 

1,648 

Current tax assets


10 

Derivative financial instruments

4

22 

16 

19 

Other financial assets


Cash and cash equivalents

11

649 

227 

411 



3,957 

3,274 

3,521 

Total assets


9,330 

8,542 

8,963 






Liabilities





Current liabilities





Borrowings


(44)

(136)

(64)

Derivative financial instruments

4

(119)

(166)

(206)

Trade and other payables


(2,254)

(2,028)

(2,186)

Current tax liabilities


(151)

(151)

(142)

Provisions


(57)

(78)

(71)



(2,625)

(2,559)

(2,669)

Non-current liabilities





Borrowings


(1,121)

(849)

(842)

Derivative financial instruments

4

(353)

(430)

(521)

Deferred tax liabilities


(256)

(165)

(227)

Trade and other payables


(510)

(447)

(427)

Provisions


(70)

(75)

(82)

Post-employment obligations

10

(1,849)

(2,101)

(2,033)



(4,159)

(4,067)

(4,132)

Total liabilities


(6,784)

(6,626)

(6,801)

Net assets


2,546 

1,916 

2,162 






Shareholders' equity





Share capital


173 

173 

173 

Capital redemption reserve


298 

298 

298 

Share premium account


330 

330 

330 

Retained earnings


1,455 

929 

981 

Other reserves


253 

150 

345 

Equity attributable to equity holders of the parent


2,509 

1,880 

2,127 

Non-controlling interests


37 

36 

35 

Total equity


2,546 

1,916 

2,162 



 

CONSOLIDATED CASH FLOW STATEMENT

FOR THE HALF YEAR ENDED 30 JUNE 2017




Unaudited



Notes

First half 

First half 

Full year 



2017 

2016 

2016 



 £m 

 £m 

£m 

Cash flows from operating activities





Cash generated from operations

11

379 

252 

778 

Interest received


Interest paid


(26)

(26)

(83)

Tax paid


(49)

(42)

(93)

Dividends received from equity accounted investments


59 

55 

57 



368 

242 

666 

Cash flows from investing activities





Purchase of property, plant and equipment


(218)

(198)

(416)

Receipt of government capital grants


Purchase of intangible assets


(37)

(35)

(84)

Repayment of government refundable advances


(4)

(6)

Proceeds from sale and realisation of fixed assets


25 

37 

Payment of deferred and contingent consideration


(2)

(1)

(1)

Costs associated with disposal of subsidiaries


(1)

Acquisitions of subsidiaries (net of cash acquired)

14

(25)

(8)

(17)

Purchase of investment


(5)

Proceeds from disposal of subsidiary, net of cash


151 

Equity accounted investments loan settlement




(280)

(207)

(331)

Cash flows from financing activities





Purchase of non-controlling interests


(2)

Proceeds from exercise of share options


Proceeds from borrowing facilities


298 

102 

102 

Repayment of other borrowings


(26)

(134)

(243)

Dividends paid to equity shareholders

9

(101)

(99)

(150)

Dividends paid to non-controlling interests


(2)



171 

(131)

(294)

Movement in cash and cash equivalents


259 

(96)

41 

Cash and cash equivalents at beginning of period


385 

291 

291 

Currency variations on cash and cash equivalents


(6)

29 

53 

Cash and cash equivalents at end of period

11

638 

224 

385 



 

NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS

FOR THE HALF YEAR ENDED 30 JUNE 2017

 

1

Segmental analysis


 

The Group's reportable segments have been determined based on reports reviewed by the Executive Committee led by the Chief Executive.  The operating activities of the Group are largely structured according to the markets served; aerospace and automotive.  Automotive is managed according to product groups; driveline and powder metallurgy.  Reportable segments derive their sales from the manufacture of product and sale of service. 

 

a)

Sales






Automotive






Powder 




Aerospace 

Driveline 

Metallurgy 

Total 



£m 

£m 

£m 


FIRST HALF 2017 (unaudited)






Subsidiaries

1,770 

2,360 

601 



Equity accounted investments

39 

294 




1,809 

2,654 

601 

5,064 


Other businesses




148 


Management sales




5,212 


Less:  Equity accounted investments sales




(333)


Income statement - sales




4,879 








FIRST HALF 2016 - restated* (unaudited)






Subsidiaries

1,598 

1,964 

499 



Equity accounted investments

33 

238 




1,631 

2,202 

499 

4,332 


Other businesses





Management sales




4,518 


Less:  Equity accounted investments sales





Income statement - sales











FULL YEAR 2016 - restated*


Subsidiaries

3,352 

4,109 

1,032 



Equity accounted investments

71 

505 




3,423 

4,614 

1,032 

9,069 


Other businesses




345 


Management sales




9,414 


Less:  Equity accounted investments sales





Income statement - sales











 

 

*    As previously announced, following disposal of the Stromag business on 30 December 2016 the Group has changed its segments to remove Land Systems for reporting in 2017.  The two businesses remaining in the Group that were part of Land Systems have been reported as follows: Wheels and Structures in Other Businesses and Driveshafts and Aftermarket Services, now renamed Off-Highway Powertrain, in Driveline.  For the purpose of comparative information in 2016, Stromag has been included in Other Businesses.  There is no change to Aerospace or Powder Metallurgy segmental reporting.

 



 

NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)

FOR THE HALF YEAR ENDED 30 JUNE 2017

1

Segmental analysis (continued)

b)

Trading profit






Automotive






Powder 




Aerospace 

Driveline 

Metallurgy 

Total 



£m 

£m 

£m 

£m 


FIRST HALF 2017 (unaudited)






Trading profit before depreciation and amortisation

243 

245 

94 



Depreciation of property, plant and equipment

(43)

(74)

(25)



Amortisation of operating intangible assets

(30)

(7)

(1)



Trading profit - subsidiaries

170 

164 

68 



Trading profit/(loss) - equity accounted investments

(2)

43 




168 

207 

68 

443 


Other businesses





Corporate and unallocated costs




(16)


Management trading profit




436 


Less: Equity accounted investments trading profit




(41)


Income Statement - trading profit




395 








FIRST HALF 2016 - restated* (unaudited)






Trading profit before depreciation and amortisation

221 

197 

85 



Depreciation of property, plant and equipment

(38)

(58)

(21)



Amortisation of operating intangible assets

(24)

(5)

(1)



Trading profit - subsidiaries

159 

134 

63 



Trading profit - equity accounted investments

39 




161 

173 

63 

397 


Other businesses





Corporate and unallocated costs




(11)


Management trading profit




390 


Less: Equity accounted investments trading profit




(42)


Income Statement - trading profit




348 








FULL YEAR 2016 - restated*


Trading profit before depreciation and amortisation

464 

388 

164 



Depreciation of property, plant and equipment

(78)

(128)

(44)



Amortisation of operating intangible assets

(51)

(12)

(2)



Trading profit - subsidiaries

335 

248 

118 



Trading profit - equity accounted investments

82 




339 

330 

118 

787 


Other businesses





Corporate and unallocated costs




(21)


Management trading profit



773 


Less: Equity accounted investments trading profit




(89)


Income Statement - trading profit




684 


 

No income statement items between trading profit and profit before tax are allocated to management trading profit, which is the Group's segmental measure of profit or loss.

 

 



 

NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)

FOR THE HALF YEAR ENDED 30 JUNE 2017

 

1

Segmental analysis (continued)



c)

Goodwill, fixed assets and working capital - subsidiaries only






Automotive






Powder 




Aerospace 

Driveline 

Metallurgy 

Total 



£m 

£m 

£m 

£m 


FIRST HALF 2017 (unaudited)






Property, plant and equipment and operating intangible







assets

1,334 

1,401 

480 

3,215 


Working capital

349 

190 

150 

689 


Net operating assets

1,683 

1,591 

630 



Goodwill and non-operating intangible assets

817 

292 

51 



Net investment

2,500 

1,883 

681 









FIRST HALF 2016 - restated* (unaudited)






Property, plant and equipment and operating intangible







assets

1,285 

1,286 

436 

3,007 


Working capital

258 

186 

147 

591 


Net operating assets

1,543 

1,472 

583 



Goodwill and non-operating intangible assets

901 

302 

36 



Net investment

2,444 

1,774 

619 









FULL YEAR 2016 - restated*


Property, plant and equipment and operating intangible







assets

1,373 

1,406 

475 

3,254 


Working capital

319 

68 

131 

518 


Net operating assets

1,692 

1,474 

606 



Goodwill and non-operating intangible assets

868 

309 

39 



Net investment

2,560 

1,783 

645 




d)

Inter segment sales


Subsidiary segmental sales gross of inter segment sales are; Aerospace £1,770 million (first half 2016: £1,599 million, full year 2016: £3,352 million), Driveline £2,376 million (first half 2016 - restated*: £1,985 million, full year 2016 - restated*: £4,140 million) and Powder Metallurgy £604 million (first half 2016: £501 million, full year 2016: £1,036 million).



e)

Reconciliation of segmental property, plant and equipment and operating intangible assets to the Balance Sheet






Unaudited







First half 

First half 

Full year 






2017 

2016 

2016 







restated*

restated*






£m 

£m 

£m 


Segmental analysis - property, plant and equipment and operating intangible






assets

3,215 

3,007 

3,254 


Segmental analysis - goodwill and non-operating intangible assets

1,160 

1,239 

1,216 


Goodwill

(577)

(665)

(588)


Other businesses

95 

235 

99 


Corporate assets


Balance Sheet - property, plant and equipment and other intangible assets

3,901 

3,825 

3,990 



f)

Reconciliation of segmental working capital to the Balance Sheet







Unaudited




First half 

First half 

Full year 



2017 

2016 

2016 




restated*

restated*



£m 

£m 

£m 


Segmental analysis - working capital

689 

591 

518 


Other businesses

18 

31 

13 


Corporate items

(25)

(24)

(22)


Accrued interest

(37)

(34)

(25)


Restructuring provisions

(1)

(10)


Equity accounted investment funding

(11)

(14)

(10)


Deferred and contingent consideration

(4)

(11)

(6)


Government refundable advances

(89)

(97)

(96)


Balance Sheet - inventories, trade and other receivables, trade and other






payables and provisions

541 

441 

362 



 

NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)

FOR THE HALF YEAR ENDED 30 JUNE 2017

 

2

Basis of preparation


These half year condensed consolidated financial statements for the six months ended 30 June 2017 have been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting as adopted by the European Union and the Disclosure and Transparency Rules of the Financial Conduct Authority.  These financial statements have been prepared on a going concern basis.  These financial statements, which are unaudited but have been reviewed by the auditors, provide an update of previously reported information and should be read in conjunction with the audited consolidated financial statements for the year ended 31 December 2016, which were prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS). 

 

These financial statements do not constitute statutory accounts as defined in section 434 of the Companies Act 2006.  A copy of the audited consolidated statutory financial statements for the year ended 31 December 2016 has been delivered to the Registrar of Companies.  The auditors' report on these financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498(2) or (3) of the Companies Act 2006.

 


Accounting policies

The accounting policies and methods of presentation applied in these financial statements are the same as those applied in the audited consolidated financial statements for the year ended 31 December 2016.

 

IFRS 15

The Group will adopt IFRS 15 Revenue from Contracts with Customers for the year ending 31 December 2018 which will change the way that revenue is recognised and expand disclosure for arrangements with customers. Details on implementation of the change, potential consequences and progress were provided in the 31 December 2016 annual report.

 

Further progress has been made during the period; developing policies, benchmarking initial findings against market announcements and scoping the contract review exercise planned for the second half of the year.  Nothing has come from the incremental work that detracts from the update provided in February.  It is planned to provide further information later in 2017 once the contract review work has been concluded.

 

Estimates, judgements and assumptions

The Group's significant accounting policies are set out in the audited consolidated financial statements for the year ended 31 December 2016.  Application of the Group's accounting policies requires the use of estimates, subjective judgement and assumptions.  The Directors base these estimates, judgements and assumptions on a combination of past experience, professional expert advice and other evidence that is relevant to the particular circumstance. 

 

The accounting policies where the Directors consider the more complex estimates, judgements and assumptions have to be made are those in respect of post-employment obligations, derivative and other financial instruments, provisions and impairment of non-current assets.  Details of the principal estimates, judgements and assumptions are set out in notes 24, 4b, 20, 21 and 11 of the audited consolidated financial statements for the year ended 31 December 2016.

 

Date of approval
These financial statements were approved by the Board of Directors on Tuesday 25 July 2017.

 



 

NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)

FOR THE HALF YEAR ENDED 30 JUNE 2017


3

Adjusted performance measures



(a)

Reconciliation of reported and management performance measures

 


FIRST HALF 2017 (unaudited)




As 
reported 

Equity 
accounted 
investments

Adjusting 
and non- 
trading items

Management 
basis 



£m 

£m 

£m 

£m 


Sales

4,879

333 

5,212 








Trading profit

395 

41 

436 


Change in value of derivative and other financial instruments

242 

(242)


Amortisation of non-operating intangible assets arising on







business combinations

(45)

45 


Gains and losses on changes in Group Structure

(1)


Operating profit

591 

41 

(196)

436 








Share of post-tax earnings of equity accounted investments

35 

(41)

(6)








Interest payable

(42)

(42)


Interest receivable


Other net financing charges

(30)

30 


Net financing costs

(67)

30 

(37)


Profit before taxation

559 

(166)

393 








Taxation

(131)

45 

(86)


Profit after taxation for the period

428 

(121)

307 


Profit attributable to non-controlling interests

(3)

(3)


Profit attributable to owners of the parent

425 

(121)

304 


Earnings per share - pence

24.8 

(7.1)

17.7 








FIRST HALF 2016 (unaudited)




As 
reported 

Equity 
accounted 
investments

Adjusting 
and non- 
trading items

Management 
basis 



£m 

£m 

£m 

£m 


Sales

4,237 

281 

4,518 








Trading profit

348 

42 

390 


Change in value of derivative and other financial instruments

(71)

71 


Amortisation of non-operating intangible assets arising on







business combinations

(46)

46 


Acquisition-related restructuring charges

(22)

22 


Operating profit

209 

42 

139 

390 








Share of post-tax earnings of equity accounted investments

34 

(42)

(8)








Interest payable

(41)

(41)


Interest receivable


Other net financing charges

(23)

23 


Net financing costs

(61)

23 

(38)


Profit before taxation

182 

162 

344 








Taxation

(17)

(59)

(76)


Profit after taxation for the period

165 

103 

268 


Profit attributable to non-controlling interests

(2)

(2)


Profit attributable to owners of the parent

163 

103 

266 


Earnings per share - pence

9.5 

6.0 

15.5 








FULL YEAR 2016



For the year ended 31 December 2016, management sales were £9,414 million, management trading profit was £773 million, management profit before tax was £678 million and management earnings per share was 31.0 pence.

 

 



 

 

NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)

FOR THE HALF YEAR ENDED 30 JUNE 2017


3

Adjusted performance measures (continued)



(b)

Summary by segment

 



FIRST HALF 2017 (unaudited)






Sales 

Trading 
profit
 

Margin 



£m 

£m 



Aerospace

1,809 

168 

9.3% 


Driveline

2,654 

207 

7.8% 


Powder Metallurgy

601 

68 

11.3% 


Other businesses

148 



Corporate and unallocated costs

(16)




5,212 

436 

8.4% 







FIRST HALF 2016 - restated* (unaudited)






Sales 

Trading 
profit 

Margin 



£m 

£m 



Aerospace

1,631 

161 

9.9% 


Driveline

2,202 

173 

7.9% 


Powder Metallurgy

499 

63 

12.6% 


Other businesses

186 



Corporate and unallocated costs

(11)




4,518 

390 

8.6%





FULL YEAR 2016 - restated*




Sales 

Trading 
profit 

Margin 



£m 

£m 



Aerospace

3,423 

339 

9.9%


Driveline

4,614 

330 

7.2%


Powder Metallurgy

1,032 

118 

11.4%


Other businesses

345 



Corporate and unallocated costs

(21)




9,414 

773 

8.2%






 

*  Restated for the change in segmental information, see note 1



 

NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)

FOR THE HALF YEAR ENDED 30 JUNE 2017

 

4

Change in value of derivative and other financial instruments



Unaudited




First half 

First half 

Full year 



2017 

2016 

2016 



£m 

£m 

£m 


Forward currency contracts (not hedge accounted)

240 

(52)

(135)


Embedded derivatives

(2)



238 

(49)

(131)


Net gains and losses on intra-group funding






Arising in period

(22)

(23)


Change in value of derivative and other financial instruments

242 

(71)

(154)







Forward foreign currency contracts, cross currency interest rate swaps and embedded derivatives (all level 2) are valued using observable rates and published prices together with forecast cash flow information where applicable, consistent with the prior year.  The amount in respect of embedded derivatives represents a commercial contract denominated in US dollars between European Aerospace subsidiaries and a customer outside the USA.

 

Carrying values of derivative instruments at 30 June 2017 were; forward currency contracts liability of £242 million (31 December 2016: liability of £482 million), embedded derivatives asset of £11 million (31 December 2016: asset of £13 million) and cross currency interest rate swaps liability of £187 million (31 December 2016: liability of £214 million).






5

Acquisition-related restructuring charges



Unaudited




First half 

First half 

Full year 



2017 

2016 

2016 



£m 

£m 

 £m 


Redundancy and other employee-related amounts

(20)

(27)


Integration and other expenses

(2)

(4)


Acquisition-related restructuring charges

(22)

(31)







Restructuring charges separately identified in 2016, related to the recently acquired Fokker Technologies Group B.V. business within Aerospace.






6

Share of post-tax earnings of equity accounted investments



Unaudited




First half 

First half 

Full year 



2017 

2016 

2016 



£m 

£m 

£m 


Sales

333 

281 

592 


Operating costs

(292)

(239)

(503)


Trading profit

41 

42 

89 


Net financing costs

(1)

(1)


Profit before taxation

40 

42 

88 


Taxation

(5)

(8)

(15)


Share of post-tax earnings

35 

34 

73 



7

Other net financing charges



Unaudited




First half 

First half 

Full year 



2017 

2016 

2016 



£m 

£m 

£m 


Interest charge on net defined benefit plans

(24)

(27)

(53)


Fair value changes on cross currency interest rate swaps

(5)

18 


Unwind of discounts

(1)

(1)

(2)


Other net financing charges

(30)

(23)

(37)



 

NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)

FOR THE HALF YEAR ENDED 30 JUNE 2017

 

8

Taxation


The tax charge for the period is based on an estimate of the Group's expected annual effective rate of tax for 2017 based on tax legislation substantively enacted at 30 June 2017 applied to taxable profit for the period ended 30 June 2017.





Unaudited




First half 

First half 

Full year 



2017 

2016 

2016 



£m 

£m 

£m 


Tax included in the income statement





Analysis of tax charge in the period





Current tax (charge)/credit






Current period charge

(70)

(66)

(67)



Utilisation of previously unrecognised tax losses and other assets

1 



Adjustments in respect of prior periods

(1)



Net movement on provisions for uncertain tax positions



(69)

(63)

(48)


Deferred tax

(62)

46 


Total tax charge for the period

(131)

(17)

(48)







Analysed as:









Current tax

(72)

(63)

(40)


Deferred tax

(14)

(13)

(104)



(86)

(76)

(144)


Tax in respect of items excluded from management profit





Current tax

(8)


Deferred tax

(48)

59 

104 



(45)

59 

96 


Total tax charge for the period

(131)

(17)

(48)





Unaudited




First half 

First half 

Full year 



2017 

2016 

2016 



£m 

£m 

£m 


Tax included in other comprehensive income





Current tax on post-employment obligations

3 


Current tax on foreign currency gains and losses on intra-group funding

(50)


Deferred tax on post-employment obligations

(35)

108 

60 


Deferred tax on hedged foreign currency gains and losses

(6)

39 


Deferred tax on other foreign currency gains and losses on






intra-group funding

(36)

(3)



(32)

74 

49 



 

 

Management tax rate

 

The tax charge arising on management profits of subsidiaries of £358 million (first half 2016: £310 million, full year 2016: £605 million) was £86 million (first half 2016: £76 million charge, full year 2016: £144 million charge) giving an effective tax rate of 24% (first half 2016: 25%, full year 2016: 24%). 

 

UK tax rate reduction

 

The mainstream rate of UK corporation tax reduced to 19% from 1 April 2017.  A further reduction to 17% from 1 April 2020 has been substantively enacted.  Temporary differences are measured at the rate they are expected to reverse.

 

New legislation restricting the use of brought forward losses is expected to have effect from 1 April 2017. However, this legislation is not yet substantively enacted. It is anticipated this will not affect the ability to utilise recognised deferred tax assets but may affect the period over which the losses can be utilised.

 

NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)

FOR THE HALF YEAR ENDED 30 JUNE 2017



9

Dividends

 


An interim dividend of 3.1 pence per share (first half 2016: 2.95 pence per share, full year 2016: 8.85 pence per share) has been declared by the Directors and will be paid on 18 September 2017 to shareholders on the register at 11 August 2017.  Based on the number of shares ranking for dividend at 30 June 2017, the interim dividend is expected to absorb £53 million. 

 

During the period £101 million (first half 2016: £99 million, full year 2016: £150 million) was paid in respect of dividends to equity shareholders.

 

10

Post-employment obligations

 


Actuarial assessments of the key defined benefit pension and post-employment medical plans (representing 97% of liabilities and 97% of assets) were carried out as at 30 June 2017.




Movement in post-employment obligations during the period:



Unaudited




First half 

First half 

Full Year 



2017 

2016 

2016 



£m 

£m 

£m 


At 1 January

(2,033)

(1,558)

(1,558)


Current service cost

(31)

(25)

(48)


Settlements and curtailments


Businesses disposed

11 


Administrative costs

(2)

(2)

(3)


Interest charge on net defined benefit plans

(24)

(27)

(53)


Remeasurement of defined benefit plans

180 

(466)

(396)


Contributions/benefits paid

70 

71 

121 


Currency variations

(9)

(94)

(112)


At end of period

(1,849)

(2,101)

(2,033)




Post-employment obligations as at the period end comprise:



Unaudited




30 June 

30 June 

31 December 



2017 

2016 

2016 



£m 

£m 

£m 


Pensions

- funded

(1,124)

(1,329)

(1,285)



- unfunded

(641)

(683)

(662)


Medical

- funded

(36)

(38)

(37)



- unfunded

(48)

(51)

(49)




(1,849)

(2,101)

(2,033)










UK 

Americas 

Europe 

ROW 

Total 



£m 

£m 

£m 

£m 

£m 


At 30 June 2017 - unaudited

(1,063)

(142)

(631)

(13)

(1,849)


At 30 June 2016 - unaudited

(1,234)

(173)

(676)

(18)

(2,101)


At 31 December 2016

(1,221)

(148)

(651)

(13)

(2,033)







 

NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)

FOR THE HALF YEAR ENDED 30 JUNE 2017


10

Post-employment obligations (continued)


Assumptions




The major assumptions used were:





UK

Americas 

 Europe 

ROW 



GKN 1 

GKN 2 

GKN 3 







At 30 June 2017 - unaudited








Rate of increase in pensionable salaries

n/a 

n/a 

n/a 

n/a 

2.50 


Rate of increase in payment and









deferred pensions

n/a 

3.15 

3.10 

n/a 

1.75 

n/a 


Discount rate

n/a 

2.55 

2.40 

3.80 

1.90 

0.50 


Inflation assumption

n/a 

3.20 

3.15 

n/a 

1.75 

n/a 


Rate of increase in medical costs:









Initial/long term

5.4/5.4

6.75/5.0 

n/a 

n/a 


At 30 June 2016 - unaudited








Rate of increase in pensionable salaries

n/a 

3.80 

n/a 

n/a 

2.50 


Rate of increase in payment and









deferred pensions

2.80 

2.80 

n/a 

n/a 

1.75 

n/a 


Discount rate

2.75 

2.95 

n/a 

3.60 

1.30 

0.80 


Inflation assumption

2.80 

2.80 

n/a 

n/a 

1.75 

n/a 


Rate of increase in medical costs:









Initial/long term

5.4/5.4

7.0/5.0 

n/a 

n/a 


At 31 December 2016








Rate of increase in pensionable salaries

n/a 

4.30/4.25 

n/a 

n/a 

2.50 


Rate of increase in payment and









deferred pensions

n/a 

3.20 

3.30 

n/a 

1.75 

n/a 


Discount rate

n/a 

2.60/2.70 

2.45 

4.10 

1.60 

0.50 


Inflation assumption

n/a 

3.30/3.25 

3.35 

n/a 

1.75 

n/a 


Rate of increase in medical costs:









Initial/long term

5.4/5.4

6.75/5.0 

n/a 

n/a 




The UK discount rate at 30 June 2017 is based on AA corporate bonds with duration weighted to the UK pension schemes' liabilities, derived from the Mercer pension discount yield curve.  The methodologies used to derive the German and US discount rates were similarly consistent with those used at 31 December 2016.

 

The UK scheme mortality assumptions are based on S2PA (year of birth) mortality tables with CMI 2016 improvements and a 1.5% per annum long term improvement trend.  In Germany RT2005-G tables were used, whilst RP-2014 tables were used in the US.




Assumption sensitivity analysis

 

The impact of a one percentage point movement in the primary assumptions for the defined benefit net obligations as at 30 June 2017 is set out below:





UK 

Americas 

Europe 

ROW 



£m 

£m 

£m 

£m 


Discount rate +1%

543 

42 

102 


Discount rate -1%

(720)

(53)

(129)

(2)


Rate of inflation +1%

(565)

(1)

(106)


Rate of inflation -1%

464 

89 


Life expectancy +1 year

(129)

(9)

(22)


Life expectancy -1 year

127 

24 




UK deficit funding

 

During the period, the Company consulted with the active members of the UK's defined benefit scheme (the Scheme) over closure of the Scheme to future accrual.  From 1 July 2017 all Scheme members will accrue benefits on a defined contribution basis. 

 

The triennial statutory valuation of GKN 2 as at 5 April 2016 is nearing completion. It is expected that the Company will make a lump sum payment of £250 million, funded by the proceeds from the recent bond issue, during the second half of 2017. 

 

The effective date for the statutory valuation of GKN 3 is 31 December 2016 and discussions with the Trustee are ongoing.

 

During the period the Group paid £30 million (first half 2016: £30 million, full year 2016: £30 million) to the 2 UK pension schemes through its pension partnership arrangement.



 

NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)

FOR THE HALF YEAR ENDED 30 JUNE 2017


11

Cash flow notes





Unaudited




First half 

First half 

Full year 



2017 

2016 

2016 



£m 

£m 

£m 


Cash generated from operations





Operating profit

591 

209 

335 


Adjustments for:





Depreciation, impairment and amortisation of fixed assets






Charged to trading profit







Depreciation

147 

124 

263 




Amortisation

38 

31 

67 



Amortisation of non-operating intangible assets arising on business







combinations

45 

46 

103 



Impairment charges

52 


Change in value of derivative and other financial instruments

(242)

71 

154 


Gains and losses on changes in Group structure


Amortisation of government capital grants

(2)

(1)

(2)


Net profit on sale/realisation of fixed assets

(3)


Charge for share-based payments


Movement in post-employment obligations

(37)

(44)

(75)


Change in inventories

(122)

(63)

(78)


Change in receivables

(246)

(184)

(151)


Change in payables and provisions

203 

59 

99 



379 

252 

778 







Movement in net debt





Net movement in cash and cash equivalents

259 

(96)

41 


Net movement in borrowings and deposits

(272)

32 

141 


Movement on cross currency interest rate swaps

27 

(96)

(145)


Movement on other net investment hedges

(3)

(12)

(17)


Amortisation of debt issue costs

(1)

(1)

(2)


Currency variations

(3)

24 

47 


Movement in period

(149)

65 


Net debt at beginning of period

(704)

(769)

(769)


Net debt at end of period

(697)

(918)

(704)







Reconciliation of cash and cash equivalents





Cash and cash equivalents per balance sheet

649 

227 

411 


Bank overdrafts included within "current liabilities - borrowings"

(11)

(3)

(26)


Cash and cash equivalents per cash flow

638 

224 

385 




The fair values of most financial instruments approximate to carrying value either due to the short-term maturity of the instruments or because interest rates are reset frequently, with the exception of borrowings and government refundable advances which are carried at amortised cost.  The carrying value of borrowings at 30 June 2017 was £1,165 million (first half 2016: £985 million) with a fair value of £1,278 million (first half 2016: £1,035 million) and the carrying value of government refundable advances at 30 June 2017 was £89 million (first half 2016: £97 million) with a fair value of £107 million (first half 2016: £115 million).

 

Gross borrowings has been increased by issuance of a new £300 million unsecured bond, with an annual fixed interest rate of 3⅜% maturing in May 2032.



 

NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)

FOR THE HALF YEAR ENDED 30 JUNE 2017


12

Property, plant and equipment (unaudited)




During the period ended 30 June 2017 the Group asset additions were £177 million (first half 2016: £166 million).  Assets with a carrying value of £2 million (first half 2016: £25 million) were disposed of during the period ended 30 June 2017.

 

13

Related party transactions (unaudited)




In the ordinary course of business, sales and purchases of goods take place between subsidiaries and equity accounted investment companies priced on an 'arm's length' basis.  The Group also provides short-term financing facilities to equity accounted investment companies.  There have been no significant changes in the nature of transactions between subsidiaries and equity accounted investment companies that have materially affected the financial statements in the period.  Similarly, there has been no material impact on the financial statements arising from changes in the aggregate compensation of key management. 

 

14

Other financial information (unaudited)




Commitments relating to future capital expenditure not provided by subsidiaries at 30 June 2017 amounted to £255 million (30 June 2016: £189 million) and the Group's share not provided by equity accounted investments amounted to £8 million (30 June 2016: £23 million).

 

During the period a total of 2,941,829 ordinary shares (first half 2016: 189,505 ordinary shares) were issued in connection with the exercise/release of options/awards under the Company's share incentive schemes, all of which were transferred from treasury. 

 

On 22 June 2017, the Group repaid the third of five annual instalments of £16 million on its £80 million European Investment Bank Loan.

 

On 31 May 2017 the Group purchased the entire equity shareholding of Tozmetal Ticaret ve Sanayi Anonim Şirketi (Tozmetal), a Turkish based sintering business, to broaden the division's manufacturing footprint.  The consideration of £26 million comprised a cash payment only.  The provisional fair value of net assets acquired of £26 million has been allocated as follows: property, plant and equipment of £7 million, inventory of £2 million, receivables of £6 million, cash of £1 million payables of £4 million and provisional intangible assets and goodwill of £14 million.

 

Due to the proximity of the transaction to the reporting date, a formal valuation exercise will be concluded in the second half of the year to appropriately allocate the fair value of assets and liabilities acquired.  Tozmetal has been included in Powder Metallurgy for segmental reporting.

 

15

Contingent assets and liabilities (unaudited)




Franked investment income - litigation

Since 2003, the Group has been involved in litigation with HMRC in respect of various advance corporate tax payments and corporate tax on foreign dividends which, in its view, were levied by HMRC in breach of the Group's EU community law rights. The most recent judgement in the main case was published in November 2016. This judgement was broadly positive, but HMRC have sought leave to appeal.

 

The continuing complexity of the case and uncertainty over the remaining issues means that it is not possible to predict the final outcome with any reasonable degree of certainty. A successful outcome could result in the Group being able to recognise additional deferred tax assets in the UK and receiving cash payments from HMRC.

 

There are no other material contingent assets at 30 June 2017 or 30 June 2016.  At 30 June 2017 the Group had no contingent liabilities in respect of bank arrangements and no guarantees (30 June 2016: none).  In the case of certain businesses, performance bonds and customer finance obligations have been entered into in the normal course of business. 



 

 

Independent review report to GKN plc

 

We have been engaged by the Company to review the condensed consolidated financial statements in the half-yearly financial report for the six months ended 30 June 2017 which comprises the Consolidated income statement, the Consolidated statement of comprehensive income, the Condensed consolidated statement of changes in equity, the Consolidated balance sheet, the Consolidated cash flow statement and related notes 1 to 15.  We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of consolidated financial statements.

 

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board.  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.

 

Directors' responsibilities

 

The half-yearly financial report is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union.  The condensed set of consolidated financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

 

Our responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of consolidated financial statements in the half-yearly financial report based on our review.

 

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom.  A review of 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 Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated financial statements in the half-yearly financial report for the six months ended 30 June 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

 

 

Deloitte LLP

Statutory Auditor

London, United Kingdom

25 July 2017

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
IR ZMGZNRKKGNZM

Top of Page