29th Mar 2017 16:03
GKN plc 2016 annual report
GKN plc has today published its 2016 annual report and circular to shareholders incorporating the notice of the 2017 annual general meeting. Both documents can be viewed at or downloaded from http://www.gkn.com/en/investors/.
Copies of both documents, together with the form of proxy for the 2017 AGM, have been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM.
Printed copies of these documents have today been posted to shareholders who have requested hard copies.
The 2017 AGM will be held at 2.00 pm on Thursday 4 May 2017 at 195 Piccadilly, London W1J 9LN.
In compliance with DTR 6.3.5, a description of the principal risks and uncertainties, details of related party transactions and a responsibility statement prepared for and contained within GKN's 2016 annual report are set out below. A condensed set of financial statements were appended to GKN's 2016 full year results announcement issued on 28 February 2017, which included an indication of important events that occurred during the year.
Page references below refer to page numbers in GKN's 2016 annual report.
RISK MANAGEMENT
The Board is responsible for setting the Group's risk appetite and ensuring that appropriate risk management systems are in place.
The Board reviews the Group's principal risks throughout the year as part of its normal agenda, adopting an integrated approach to risk management by regularly discussing principal risks.
In addition, in the middle and at the end of each year, the Board assesses the Group's principal risks through our enterprise risk management (ERM) programme described opposite, taking the strength of the Group's control systems and our appetite for risk into account. We have a risk matrix which ensures that, between the Board and its committees, all the Group's principal risks are reviewed during the course of the year.
The Board delegates responsibility for day-to-day risk management to the Executive Committee, including the identification, evaluation and monitoring of key risks facing the Group and the implementation of Group-wide risk management processes and controls. The Executive Committee is supported in this by its Sub-Committee on Governance and Risk.
The Audit & Risk Committee keeps the effectiveness of the Group's risk management systems under review and reports to the Board on the results of its review. The occurrence of any material control issues, serious accidents or major commercial, financial or reputational issues, or the identification of new risks, are reported to the Board and/or Audit & Risk Committee as appropriate.
During 2016, we increased the level of oversight for certain principal risks while continuing to strengthen the independent assurance provided in respect of some risks. While overall we are happy with our risk management processes, our philosophy, as in all areas of the business, is one of continuous improvement.
HOW WE MANAGE RISK
The Group has four levels of defence through which it manages significant risks.
Level 1 Risk ownership and control
Our businesses are responsible for maintaining an effective risk and control environment as part of day-to-day operations under the direction of the Chief Executive and the Executive Committee. This includes implementation and regular monitoring and review by divisional management of processes and controls which are designed to ensure compliance with the Board's appetite for risk, Group policies and delegated authority levels, and the GKN Code. These front line controls are regularly updated to respond to the Group's changing risk profile.
Level 2 Monitoring and compliance
Group functions monitor adherence to the procedures set out by the Executive Committee and provide guidance to the businesses on their application. This includes ongoing reviews by our health and safety audit team, Group IT and financial control functions. Representatives of these functions report their findings to the Executive Sub-Committee on Governance and Risk or directly to the Executive Committee. The Sub-Committee reports twice a year to the Executive Committee on matters relating to the Group's governance, risk management and assurance framework, including areas of concern or proposals for improvement.
Level 3 Independent assurance
Independent assurance over the Group's risk management, control and governance processes is provided by the Group's Corporate Audit team, the Head of Risk and external assurance providers.
Level 4 Oversight
The Board, Executive Committee and Audit & Risk Committee provide oversight and direction in accordance with their respective responsibilities, more information on which is set out in the governance section of this annual report.
Our ERM programme
GKN's enterprise risk management (ERM) programme facilitates a common, Group-wide approach to the identification, analysis, and assessment of risks and the way in which they are managed, controlled and monitored.
Identify and analyse A broad spectrum of risks is considered through the ERM process. The Executive Committee and the Board review the output from ERM at both divisional and Group levels.
Manage and mitigate Management controls designed to monitor and mitigate the risks are documented. Risk owners are assigned for each risk.
Assess The ERM process provides a consistent set of definitions and a common approach to risk evaluation and assesses both risk likelihood and impact.
Respond The risk response is based on the assessment of potential risk exposure and an acceptable level of tolerance. The response reflects whether we 'accept' the risk on the basis of its assessed level of exposure and mitigating controls currently in place, or 'reduce' the risk through additional mitigation to bring it in line with required levels of tolerance.
Monitor The output from the ERM process is regularly reviewed together with the ongoing monitoring of progress against planned improvement actions.
PRINCIPAL RISKS AND UNCERTAINTIES
The nature of both our business and our strategy means that we face a number of inherent risks and uncertainties.
The Board has carefully considered the type and extent of the principal risks to the Group achieving its objectives and delivering a satisfactory return for shareholders. These are summarised below, categorised according to the strategic objective to which they relate most closely. We seek to carefully manage risk, while at the same time recognising that we need to take some risk to achieve our strategic goals including to grow above the market.
Over time, our risk profile evolves and the Board's view of the principal risks facing the Group is updated accordingly. This year, acquisition integration has been removed as a principal risk following the successful integration of Fokker Technologies. Relationships with our largest joint venture Shanghai GKN HUAYU Driveline Systems Co Limited (SDS) remain strong and continue to develop positively. Accordingly, following the year end review, the Board has decided to remove this as a principal risk. Business continuity has also been removed as a separate principal risk. The Board considers the key elements of this risk to be appropriately covered by the remaining risks of supply chain, information resilience and health and safety. Each principal risk is described on the following pages together with the corresponding mitigating actions that are in place and an overview of the risk trends during 2016.
Risk trend | |||||
Risks related to our strategic objectives | Other risks | ||||
Leading in our chosen markets | Leveraging a strong global presence | Differentiating ourselves through technology | Driving operational excellence | ||
Increasing |
· Supply chain | · Technology and innovation | |||
Stable | · Highly competitive markets · Customer concentration
| · Operating in global markets · Laws, regulations and corporate reputation | · Product quality · Contract risk · Programme management · People capability · Health and safety · Information systems resilience | · Pension funding | |
Decreasing | · Contract risk | ||||
Supply chain | |||
Description Our suppliers are key to our success. It is essential that suppliers and subcontractors continue to meet our high standards of technical competence, innovation, product quality, reliability, delivery performance, cost, financial stability, safety, ethics and social responsibility.
Our supply chain network is exposed to potentially adverse events such as physical disruptions, environmental and industrial accidents, scarcity of supply and the insolvency of a key supplier, any of which could impact our ability to deliver orders to our customers.
The cost of our products can be significantly affected by the cost of the underlying commodities and materials from which they are made. Fluctuations in these costs cannot always be passed on to our customers.
Potential impact A sustained supply chain disruption, or the delivery of defective product to us, could impact our ability to meet customer requirements, result in additional contractual liabilities and have a consequential impact on financial performance.
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Mitigation · Ongoing communication of our expectations of suppliers through our Supplier Code of Conduct. · Contract terms and conditions that require our suppliers to meet specified performance standards. · Ongoing assessment of supplier technology and dependency. · Monitoring of the financial and operational viability of key suppliers. · Ongoing monitoring of inventory levels to ensure availability in times of production volatility. · Contingency plans designed to enable us to secure alternative key material supplies at short notice, to transfer or share production between manufacturing sites and to use substitute materials where required. · Dual sourcing where appropriate to reduce dependence on single suppliers. · Supplier quality reviews and audits
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Changes in 2016 During the year, the Executive Committee and Audit & Risk Committee reviewed our supply chain management processes in each division and agreed future actions.
We continue to carefully manage and monitor our supply chains and, where appropriate, build on long-term supplier relationships.
Under the leadership of the Group Finance Director and the Supply Chain Steering Committee, which comprises senior representatives from all three divisions, we continue to deliver on our supply chain excellence strategy.
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Risk trend Ù |
Technology and innovation | |||
Description Developing innovative technologies for our customers is critical to maintaining our differentiation and competitive advantage. We may lose market share or be subject to additional market pressure if we fail to develop innovative technologies that our customers want.
Potential impact The failure to launch new products, new product applications or derivatives of existing products to meet customer requirements could have a significant impact on future profitable growth
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Mitigation · Regular assessment of market and technology trends and drivers. · Close relationships and technical partnerships with customers. · Divisional technology plans aligned to emerging and future trends and business strategy. · Technical leadership and promotion of engineering best practice by our Engineering Fellowship. · Regular review of current and future technology plans by the Group Technology Strategy Board. · Consideration of technology plans as part of the Board's annual strategy review. · Focused investment in research and development.
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Changes in 2016 We continue to invest in technology and develop internal capabilities to help meet customers' expectations for improving efficiency of aircraft, cars and other vehicles with solutions that are lighter and more fuel efficient.
We have continued to diversify into targeted areas of new technology including additive manufacturing, bionic tooling and vehicle electrification and have been recognised for a number of industry innovation awards.
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Risk trend Ù |
> Read more on how the Group continues to differentiate itself through technology in the Chief Executive's and divisional reviews on pages 19 to 35
Highly competitive markets | |||
Description GKN operates in highly competitive markets with customer decisions typically based on price, quality, technology and service. Contracts for major programmes are subject to highly competitive bidding processes and the strength of our competitors and general market conditions continue to drive pricing pressure and challenging contractual terms.
Our margins may come under pressure if competition increases or as a result of customer actions. An inability or delay in developing or maintaining sufficient or appropriate engineering and manufacturing capabilities in our markets could further increase the risk.
Customer vertical integration (including OEMs taking production in-house), the entry of new competitors, and the consolidation of existing competitors also contribute to increased competition.
Potential impact Competition risk, if not addressed, could result in reduced sales and profit margins and potentially lost growth opportunities. An inability to secure new business awards on major programmes could significantly impact future growth, cash flow and profitability.
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Mitigation · Maintaining a balanced portfolio of businesses across different end markets provides some protection against competition in particular markets. · Regular review of competition and market trends. · Targeted investment in engineering, and a commitment to Lean manufacturing, quality and customer relationships. · Flexible management of our variable and fixed cost base including outsourcing and low-cost sourcing initiatives where appropriate.
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Changes in 2016 Strong competition and customer pricing pressures have continued throughout 2016. Pressure on margins continue in Aerospace and in the high-growth electric and hybrid automotive vehicle markets. Despite these challenges, we continue to win new business and differentiate ourselves through our technology.
We have implemented a GKN-wide fixed cost optimisation programme and taken actions to progressively redirect expenditure towards productivity improvements. Previously announced restructuring activities are well progressed.
The reorganisation of GKN Driveline from three regions into two global product lines and the elimination of a divisional structure around our former Land Systems operations will provide better strategic and customer alignment and a more efficient organisation.
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Risk trend < >
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> Read more about the trends in each of our markets on pages 4 to 11
Customer concentration | |||
Description There is significant customer concentration in the automotive and aerospace industries so a large portion of the Group's revenues comes from a relatively small number of customers. Around 50% of the Group's sales is derived from its top ten customers.
Potential impact The insolvency of, damage to relations with, or significant worsening of commercial terms with, a major customer could seriously affect the Group's future results, and could result in loss of market share and future business opportunities, asset write-offs and restructuring actions.
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Mitigation · Regular review of the Group's relations with and exposure to key customers. · Extensive and regular dialogue with key customers and strong commercial and engineering relationships. · Quality, service and delivery performance are regularly reviewed based on customer KPIs. · Credit exposure is actively reviewed and managed.
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Changes in 2016 There have been no significant changes in the OEM customer landscape with the proportion of business from the Group's top ten customers remaining stable during 2016. No individual customer accounts for more than 10% of Group revenue.
We have continued to win new business in each of our key markets
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Risk trend < >
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> Read more about key customer trends on pages 4 to 11, and about credit risk in note 19 to the financial statements
Operating in global markets | |||
Description We operate globally and, as such, results could be impacted by global or regional changes in the macroeconomic or political environment, leading to changing consumer demand and preferences.
Our businesses could be affected by changing consumer preference and associated volatility in automotive demand; challenging credit conditions resulting in lack of access to finance by customers and end consumers; delay or cancellation of orders for civil aircraft and changes in the amount or timing of US military spending; volatility in agricultural and construction and mining markets; exchange rate fluctuations; and changing oil prices.
Potential impact Major or prolonged economic or financial market deterioration, including movements in exchange rates of key currencies or political uncertainty in one of our key markets, may significantly impact the Group's operational performance and financial condition. Sustained market weakness could lead to impairment of assets or site closures. It may also materially impact our customers, suppliers and other parties with whom we do business.
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Mitigation · The Group has a diversified portfolio of businesses across its markets providing some protection against individual market or country risks. · Lead market indicators are regularly reviewed so that we can respond quickly to changing trading conditions. · Our mitigation strategy includes: - planning, budgeting and forecasting processes; - flexible management of variable and fixed cost base, investment spending and working capital; - further diversification into other sectors which present new opportunities; - focused restructuring activities, where necessary, to respond to markets which have suppressed levels of economic activity; and - regular review of our financial risk management processes, including foreign currency hedging. · Alignment of our debt to the principal currencies in which our revenues and cash flows are generated through cross currency swaps. · Currency hedging within our hedging policy. · A strong balance sheet.
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Changes in 2016 Market conditions are discussed in the Chief Executive's review on pages 19 to 21 and the markets overview section on pages 4 to 11.
Political and economic uncertainty continues into 2017 following the US presidential election and other political and economic changes across our markets including in Europe, the US and Japan.
The UK's vote to leave the EU has resulted in some uncertainty in future trading arrangements between the UK and the rest of the world, and falling expectations for UK GDP in the short to medium term. GKN is a global business with around 90% of its products manufactured outside the UK; this will limit the effect of the vote on the Group. Weaker sterling following the referendum has so far had a positive effect on the Group's reported sales and earnings but a negative impact on its reported debt and liabilities.
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Risk trend < >
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Laws, regulations and corporate reputation | |||
Description The Group is subject to applicable laws and regulations in the global jurisdictions and industries in which it operates. This includes certain territories where strong ethical standards may not be well established or where parts of the markets in which we operate are highly regulated. Regulations include those related to export controls, environmental and safety requirements, product safety, tax laws, intellectual property rights, competition laws and other ethical business practices.
Potential impact Non-compliance could expose the Group to fines, penalties, damage to reputation, suspension or debarment from government contracting or suspension of export privileges.
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Mitigation · A strong culture of 'doing the right thing' which is regularly emphasised by senior management. · Group-wide governance policies and procedures, ongoing compliance training and strong oversight. · Ongoing monitoring of regulatory developments in major jurisdictions. · Ongoing monitoring of employee concerns through our independent employee disclosure hotline.
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Changes in 2016 There have been no significant new regulations impacting the Group during 2016, but our markets continue to be subject to robust enforcement activities in relation to existing regulations, particularly in relation to vehicle safety.
We continue to regularly remind our senior managers about the importance of 'doing the right thing' in all our activities. We emphasised its importance to all senior managers as part of our International Leadership Conference and as an integral part of the GKN DNA (see the Chief Executive's review on page 20 for further details). We also rolled out our GKN Governance Handbook to remind employees of our key Group policies and procedures and launched refresher training on competition law compliance.
During the year, we have aligned the risk management and governance procedures of our Fokker businesses with the rest of the Group.
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Risk trend < >
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> Read more about doing the right thing on pages 50 to 59
Product quality | |||
Description Maintaining a high level of quality and safety in our products is essential. We are exposed to warranty, product recall and liability claims in the event that our products fail to perform as expected.
In automotive, the industry in general has experienced higher levels of recalls in recent years and the OEMs often seek contributions from throughout the supply chain. This risk increases where:
• vehicle manufacturers offer longer warranty periods; • more vehicles are being built on standard platforms, so a single quality issue can affect a large number of vehicles; and • regulators and our customers are taking a more stringent approach to recalling vehicles, particularly if there is a possible safety issue.
In aerospace, customers and regulators impose very strict product safety and quality obligations on all aircraft suppliers.
Potential impact A product failure could result in serious losses, damaging GKN's financial performance and potentially our reputation. In particular, the costs associated with vehicle or aircraft recalls can be significantly higher than the cost of simply replacing defective products.
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Mitigation · Robust engineering design and validation processes from initial design and development through production and into service. · High levels of quality assurance are embedded in robust manufacturing systems. · Ongoing assessments of supply chain quality. · Regular reporting and monitoring of quality performance based upon customer KPIs. · Maintenance of critical parts lists. · External agency quality reviews and certifications. · Robust contract terms and conditions.
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Changes in 2016 Excellence in quality has continued to be a priority during the year with continuous improvement programmes ongoing in each of our businesses. We continue to monitor quality and delivery performance as viewed by our customers and strive to continuously improve product quality, safety and delivery key performance indicators.
Our cross-divisional Quality Committee led a number of initiatives during the year to share best practice, review compliance with Group/ divisional standards and coordinate Group-wide quality management projects.
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Risk trend < >
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> Read more about our continuous improvement culture on page 56
Programme management | |||
Description Many of the programmes entered into by the Group are complex and long term and are subject to various performance conditions which must be adhered to throughout the programme. The management of such programmes brings risks related to:
• delays in product development or launch schedules; • failure to meet customer specifications or predict technical problems; • inability to manufacture on time for the start of production or to required production volumes; • dependence on key or customer-nominated suppliers; • failure to manage effectively internal or customer-driven change; and • inability to forecast accurately and to manage costs.
Potential impact Ineffective programme management could result in damage to customer relationships or cancellation of a contract resulting in claims for loss and reputational damage.
Poor performance against a contract could also undermine the Group's ability to win future contracts and could result in cost overruns and significantly lower returns than expected.
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Mitigation · Embedded programme management, including investment phasing and product testing activities. · Periodic impairment reviews of capitalised development costs, including formal review at half year and year end. · Ongoing review and approval of key programmes by the Executive Committee and the · Board. · Regular review of 'lessons learned' and best practice sharing. · Periodic inspection of programmes by customers.
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Changes in 2016 New product launch issues experienced in the year at our Newton plant, which had a significant financial impact, have been addressed and key learnings shared across the Group (see page 19 for further details).
During the year, we have continued to strengthen our programme management processes, organisation and training where required. This will continue in 2017 where we plan to further strengthen our programme of independent reviews of key programme deliverables.
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Risk trend < >
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People capability | |||
Description The Group's ability to deliver its strategic objectives is dependent upon the recruitment and retention of sufficiently qualified, experienced and motivated people. It is critical for the Group to secure and maintain the relevant capabilities in specific geographical regions and disciplines in both existing markets and to support growth markets.
Potential impact The failure to recruit, or the loss of, key personnel, and the failure to plan adequately for succession or develop the potential of employees may impact the Group's ability to deliver its strategic and financial objectives.
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Mitigation · Competitive reward packages together with focused training and development programmes. · A culture that motivates individuals to perform to the best of their abilities. · Strong succession and development programmes. · Local initiatives designed to engage young people, promote science, technology, engineering and mathematics · (STEM) subjects and encourage the next generation of young engineers.
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Changes in 2016 During 2016, we reviewed our incentive plans to ensure that the targets continue to be appropriate in light of shareholder expectations and remain an effective tool for attracting, retaining and incentivising senior managers and our top executives. The resulting changes will form part of our remuneration policy proposals put to shareholders under the normal three-year cycle. The recruitment and development of young engineering talent continues to be a focus supported by our Group-wide and divisional graduate programmes and a strong apprenticeship programme. We also continued to develop and align resources and capabilities to our growth markets. We are working on improving how we set objectives and manage performance, continually improving our performance management system.
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Risk trend < >
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> Read more in our sustainability report on pages 50 to 59
Health and safety | |||
Description Safety is our number one priority. We manage safety carefully through extensive Group-wide processes, yet we recognise we can never be complacent. Therefore we continue to include this as a principal risk and an area which will always be a priority for GKN.
Potential impact A serious accident in the workplace could have a major impact on employees as well as their families, colleagues and communities. Such an incident could also result in legal claims, reputational damage and financial loss.
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Mitigation · Consistent Group-wide application of health and safety programmes. · Regular reporting and monitoring of health and safety performance. · Health and safety audits to ensure adherence to Group policies and procedures. · A focus on process and behavioural safety through a number of Group-wide risk assessment and training programmes. · Maintenance of insurance for costs associated with injury related actions or claims against the Group. · Targeted incident response and business continuity plans.
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Changes in 2016 Regrettably there were two fatalities during the year - see page 52 for further details. We have completed a thorough investigation and strengthened our controls accordingly, particularly in the areas of managing visitors and contractors while on site and workplace movement of vehicles and pedestrians.
The Group's underlying AFR and ASR again improved this year and we continued to increase our near miss reporting as a key leading indicator of our health and safety performance.
Hazard awareness and risk assessment programmes continued with a particular focus on identifying and addressing potential catastrophic hazards.
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Risk trend < >
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> Read more about health and safety on pages 52 and 53
Information systems resilience | |||
Description The Group could be impacted negatively by information technology security threats including unauthorised access to intellectual property or other controlled information. Interruptions to the Group's information systems could also adversely affect its day-to-day operations.
The inherent security threat is considered highest in GKN Aerospace where data is held in relation to civil aerospace technology and controlled military contracts.
Potential impact A major disruption to information systems could have a significant adverse impact on the Group's operations or its ability to trade. The loss of confidential information, intellectual property or controlled data could result in fines and damage to the Group's reputation, and could adversely affect its ability to win future contracts.
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Mitigation · Formal risk-based governance framework including dedicated IT security policies and related compliance processes, ongoing risk reviews, IT security awareness training and robust systems and processes to manage access, information assets, threats and vulnerabilities. · External support and benchmarking of best practice information systems security and resilience. · Ongoing development of appropriate incident detection and response plans and capabilities. · Disaster recovery contingency plans which are regularly tested including data centres where the risk is deemed to be the greatest. · Executive Committee oversight of IT security and assurance matters
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Changes in 2016 The Group has continued to strengthen its mitigating processes and controls over the security of our information systems. In particular, we completed a review of compliance with the National Institute of Standards and Technology (NIST) IT security requirements stipulated for all US Government contractors by the end of 2017 and have defined clear actions to achieve compliance.
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Risk trend < >
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Pension funding | |||
Description The Group has a number of defined benefit pension plans with aggregate net liabilities of £2,033 million at 31 December 2016. These plans are exposed to the risk of changes in asset values, discount rates, inflation and mortality assumptions.
Potential impact Increases to the pension deficit could lead to a requirement for additional cash contributions to these plans, thereby reducing the amount of cash available to meet the Group's other operating, investment and financing requirements.
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Mitigation · Close cooperation with scheme fiduciaries regarding management of pension scheme assets and liabilities, including asset selection and hedging actions. · Alternative funding and risk mitigation actions are implemented where appropriate. · Agreed recovery plans where required.
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Changes in 2016 Falling yields on long-term bonds following the UK's decision to leave the EU has resulted in an increase in the UK pension liability. In addition, weaker sterling has so far had a negative impact on the reported liability associated with our overseas pensions.
The Group continues to have a reasonable degree of visibility over the likely short- to medium-term funding cash flows and requirements of its pension schemes and builds these cash flows into its budget and strategic planning process. We will continue to monitor the impact of market volatility and seek to reduce volatility where appropriate. Discussions with the trustees of the UK pension schemes in relation to the triennial funding valuation are progressing in a constructive manner.
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Risk trend < >
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> Read more about the Group's pension arrangements in note 24 to the financial statements
Contract risk | |||
Description Across our businesses an increasing percentage of revenues are generated through contracts which are long term in nature and subject to complex terms and conditions. Contracts include commitments relating to pricing, quality and safety, and technical and customer requirements.
Both our aerospace and automotive businesses enter into design and build contracts. These are complex contracts that are often long-term, so it is important that the contracted risk is carefully managed.
Specifically within GKN Aerospace, the Group has risk and revenue sharing partnerships with key engine manufacturers. These contain formalised risk sharing arrangements relating to risks which are not always within GKN management control.
Potential impact A failure to fully understand contract risks or to anticipate technical challenges and estimate costs accurately at the outset of a contract can lead to unexpected liabilities, increased outturn costs and reduced profitability.
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Mitigation · Robust bid and contract management processes including thorough reviews of contract terms and conditions, contract-specific risk assessments and clear delegation of authority for approvals. · Continuous review of contract performance.
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Changes in 2016 During the year, we consistently followed the strengthened contract management processes introduced in each division in 2015. These processes aim to ensure effective management of risks associated with complex design and build contracts.
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Risk trend \/ |
> Read more about key examples of new business wins in 2016 in the divisional business reviews on pages 24 to 35
Related party transactions
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. Sales by subsidiaries to equity accounted investments in 2016 totalled £44 million (2015: £35 million). The amount due at the year end in respect of such sales was £11 million (2015: £12 million). Purchases by subsidiaries from equity accounted investments in 2016 totalled £10 million (2015: £7 million). The amount due at the year end in respect of such purchases was £3 million (2015: £2 million).
At 31 December 2016, a Group subsidiary had £10 million payable to equity accounted investments companies in respect of unsecured financing facilities bearing interest at one month LIBOR plus 1/ 8 % (2015: £10 million).
During the prior year, a child of a member of key management was employed by a subsidiary company. The remuneration expense during the period of employment in 2015 on an arm's-length basis amounted to £2,336.
Statement of Directors' responsibilities
Each of the Directors as at the date of the annual report, whose names and functions are set out on pages 60 and 61, confirm that to the best of their knowledge:
· the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
· the strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
· the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
Approved by the Board of GKN plc and signed on its behalf by
Mike Turner CBE
Chairman
27 February 2017
CAUTIONARY STATEMENT
This announcement contains forward looking statements which were made in good faith based on information available at 27 February 2017, being the date of approval of the 2016 annual report. 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.
GKN plc LEI: 213800QNZ22GS95OSW84
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