Annual Financial Report

GKN plc 2014 Annual Report GKN plc has today published its 2014 Annual Report and circular to shareholdersincorporating the notice of the 2015 Annual General Meeting. Both documents canbe viewed at or downloaded from www.gkn.com/investorrelations. Copies of both documents, together with the form of proxy for the 2015 AGM,have been submitted to the National Storage Mechanism and will shortly beavailable for inspection at www.morningstar.co.uk/uk/NSM. Printed copies of these documents have today been posted to shareholders whohave requested hard copies. The 2015 AGM will be held at 2.00 pm on Thursday 7 May 2015 at 195 Piccadilly,London W1J 9LN. In compliance with DTR 6.3.5, a description of the principal risks anduncertainties, details of related party transactions and a responsibilitystatement prepared for and contained within GKN's 2014 Annual Report are setout below. A condensed set of financial statements were appended to GKN's 2014full year results announcement issued on 24 February 2015, which included anindication of important events that occurred during the year. Page references below refer to page numbers in GKN's 2014 Annual Report. Risks and uncertainties The Board is responsible for setting the Group's risk appetite and ensuringthat appropriate risk management systems are in place. The Board reviews the Group's principal risks throughout the year as part ofits normal agenda, adopting an integrated approach to risk management regularlydiscussing our principal risks. In addition, in the middle and at the end ofeach year, the Board assesses the Group's principal risks, taking the strengthof the Group's control systems and our appetite for risk into account. The Board delegates responsibility for day-to-day risk management to theExecutive Committee, including the identification, evaluation and monitoring ofkey risks facing the Group and the implementation of Group-wide risk managementprocesses and controls. The Executive Committee is supported in this by itsSub-Committee on Governance and Risk. The Audit Committee keeps the effectiveness of the Group's risk managementsystems under review and reports to the Board on the results of its review. Theoccurrence of any material control issues, serious accidents or majorcommercial, financial or reputational issues, or the identification of newrisks, are reported to the Board and/or Audit Committee as appropriate. Following changes to the UK Corporate Governance Code in 2014 we reviewedwhether there are any gaps in our integrated approach to risk management at aBoard level by comparing our principal risks to the topics discussed by theBoard during a typical year. As a result of this review, we will increase thelevel of oversight of certain principal risks and will strengthen theindependent assurance provided in respect of some risks. Whilst overall we arehappy with our risk management processes, our philosophy across the Group is toseek to continuously improve. Risk management is no exception. How GKN manages risk The Group has four levels of defence through which it manages significantrisks: Level 1: Risk ownership and control Our businesses are responsible for maintaining an effective risk and controlenvironment as part of day-to-day operations, under the direction of the GroupCEO and the Executive Committee. This includes implementation and regularmonitoring and review by divisional management of processes and controls whichare designed to ensure compliance with the Board's appetite for risk, Grouppolicies and the GKN Code (see page 54). These front line controls areregularly 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 ExecutiveCommittee and provide guidance to the businesses on their application. Thisincludes ongoing reviews by our health and safety audit team and Group IT andfinancial control functions. Representatives of these functions report theirfindings to the Executive Sub-Committee on Governance and Risk or directly tothe Executive Committee. The Sub-Committee reports twice a year to theExecutive Committee on matters relating to the Group's governance, riskmanagement and assurance framework including areas of concern or proposals forimprovement. Level 3: Independent assurance Independent assurance over the Group's risk management, control and governanceprocesses is provided by the Group's Corporate Audit team, the Head of Risk andexternal assurance providers. Level 4: Oversight The Board, Executive Committee and Audit Committee provide oversight anddirection in accordance with their respective responsibilities, moreinformation on which is set out in the Governance section of this annualreport. Enterprise Risk Management GKN's enterprise risk management (ERM) programme facilitates a common,Group-wide approach to the identification, analysis, and assessment of risksand the way in which they are managed, controlled and monitored. Identify and analyse: A broad spectrum of risks is considered through the ERMprocess. The Executive Committee and the Board review the output from ERM atboth a divisional and Group level. Manage and mitigate: Management controls designed to monitor and mitigate therisks are documented. Risk owners are assigned for each risk. Assess: The ERM process provides a consistent set of definitions and a commonapproach to risk evaluation with specific reference to likelihood and impact. Respond: The risk response is based upon the assessment of potential riskexposure and the level of tolerance acceptable. The response reflects whetherwe `accept' the risk on the basis of its assessed level of exposure andmitigating controls currently in place, or `reduce' the risk through additionalmitigation to bring it in line with required levels of tolerance. Monitor: The output from the ERM process is regularly reviewed together withthe live tracking of delivery of planned improvement actions. Principal risks and uncertainties The nature of both our business and our strategy means that we face a number ofinherent risks. The Board has carefully considered the type and extent of theprincipal risks to the Group achieving its objectives and delivering asatisfactory return for shareholders. These principal risks and uncertaintiesare summarised below according to the strategic objective to which they relate.They may also impact our objective to sustain above market growth. Over timeour risk profile evolves and the Board's view of the principal risks facing theGroup is updated accordingly. This year, the risk relating to integratedsystems complexity has been split into two risks relating to contract risk andproduct quality. The Board believes that this reflects more clearly the risksassociated with, respectively, revenues which are increasingly tied to longterm contracts with complex terms and the increasing cost and frequency ofproduct recalls across the automotive industry in general. Acquisitionintegration has been removed as a principal risk following the successfulintegration of the aero engine division of AB Volvo and we have added a riskrelating to the supply chain. The nature of each principal risk is furtherdescribed on pages 44 to 51 together with the corresponding mitigating actionsthat are in place and an overview of the risk trends during 2014. Risk Trend Strategic Objectives Leading in our Leveraging a Differentiating Driving Other risks chosen markets strong global ourselves operational presence through excellence technology Increasing * Highly * Joint * Contract risk competitive ventures markets * Programme management * Product quality Stable * Supply chain * Laws, * Technology * People * Business regulations and capability continuity * Customer and innovation concentration corporate * Health and * Pension reputation safety funding * Operating * Information in global system markets resilience Reducing Highly competitive markets Leading in our chosen markets Risk trend Description and potential impact Mitigation Increasing GKN operates in highly • Maintaining a balanced competitive markets with customer portfolio of businesses across decisions typically based on our markets provides some price, quality, technology and protection against competition in service. Contracts for major individual markets or countries. programmes are subject to highly competitive bidding processes and • Continual review of competition the strength of our competitors and market trends. and general market conditions continue to drive price pressure • Targeted investment in and more challenging contractual engineering, Lean manufacturing terms. resources, quality and customer relationships. In those countries where we have strong margins, these margins may Changes during 2014 come under pressure as our competitors improve, particularly Strong competition and customer if the relevant markets slow. An pricing pressures have continued throughout 2014. Pressure on inability or delay in developing margins is increasing in high or maintaining sufficient or growth markets such as China and appropriate engineering and competition is particularly manufacturing capabilities in strong in areas of new and high growth markets could further emerging technologies. Despite increase the risk. these challenges, we continue to win new business and Customer vertical integration differentiate ourselves through (including OEMs taking production our technology. in-house), the entry of new competitors or consolidation of The strategic report on page 13 existing competitors also includes more information on the contribute to increased trends in each of our markets. competition. Potential impact Competition, if not mitigated, could result in reduced sales and profit margins and potentially lost growth opportunities in high growth markets. An inability to secure new business awards on major programmes could significantly impact future growth, cash flow and profitability. Supply Chain Leading in our chosen markets Risk trend Description and potential impact Mitigation Stable Our suppliers are key to our • Contract terms and conditions success. It is essential that that require our suppliers to suppliers and subcontractors meet specified performance continue to meet our high standards. standards of technical competence, innovation, product • Ongoing assessment of supplier quality, reliability, delivery technology and dependency. performance, cost, financial stability, safety, ethics and • Monitoring of the financial and social responsibility. operational viability of key suppliers. Our supply chain network is exposed to potentially adverse • Ongoing monitoring of inventory events such as physical levels to ensure availability in disruptions, environmental and times of production volatility. industrial accidents, and scarcity of supply or bankruptcy • Contingency plans designed to of a key supplier which could enable us to secure alternative impact our ability to deliver key material supplies at short orders to our customers. notice, to transfer or share production between manufacturing The cost of our products can be sites and to use substitute significantly affected by the materials where required. cost of the underlying commodities and materials from • Dual sourcing where appropriate which they are made. Fluctuations to reduce dependence on single in these costs cannot always be suppliers. passed on to the customer through pricing. • Supplier quality reviews and audits. Potential impact Changes during 2014 A sustained supply chain disruption, or the delivery of We continue to carefully manage defective product to us, could and monitor our supply chains impact our ability to meet and, where appropriate, build customer requirements, result in upon long term supplier additional contractual relationships. In December we liabilities and have a introduced a new Supplier Code of consequential impact on financial Conduct aimed at making it easier performance. and clearer for suppliers to understand what we expect of them (see page 57 for more information). Customer concentration Leading in our chosen markets Risk trend Description and potential impact Mitigation Stable Significant customer • Regular review of the Group's concentration exists in the relations with and exposure to automotive and aerospace key customers. industries so a large portion of the Group's revenues comes from a • Extensive and regular dialogue relatively small number of with key customers and strong customers. Around 50% of the commercial and engineering Group's revenue is derived from relationships. its top 10 customers. • We monitor and review quality, Potential impact service and delivery performance based upon customer KPIs (the The insolvency of, damage to `Voice of the Customer' programme relations with, or significant is described further on page 48 worsening of commercial terms under `Product quality'). with a major customer could seriously affect the Group's • Credit exposure is actively future results, and could result reviewed and managed. in loss of market share and future business opportunities, Changes during 2014 asset write-offs and restructuring actions. There have been no significant changes in the OEM customer landscape with the proportion of business from the Group's top 10 customers remaining stable during 2014. No individual customer accounts for more than 10% of Group revenue. However, we have won significant new business with one of our automotive customers, have continued to diversify our aerospace customer base, and will continue to regularly review the degree of our customer concentration. See page 12 of the strategic report for more information on key customer trends and page 143 (note 19c) on credit risk. Joint ventures Leveraging a strong global presence Risk trend Description and potential impact Mitigation Increasing A sizeable portion of the Group's • The Group seeks to participate profits and cash flows are only in ventures in which its generated by a small number of interests are complementary to joint ventures. In these those of its partners. circumstances, there is an inherent risk that the objectives • Thorough pre-transaction due of the joint venture partners in diligence procedures on any regard to the joint venture may potential joint venture partner. diverge. • Continual focus on sustaining Potential impact strong relationships with joint venture partners. Such a misalignment of objectives may result in the Group's Changes during 2014 inability to pursue its desired strategy as a consequence of Revenues and profits generated by which the Group's business and our joint venture partners have future results may be adversely again increased this year. affected. Relationships remain strong, further enhanced by the expansion in November 2013 of GKN Driveline's long-standing joint venture in China to cover the complete range of GKN Driveline products. On 31 July 2014, the Group sold its stake in the Emitec joint venture. See page 138 (note 13) for more information on the Group's joint ventures. Laws, regulations and corporate Leveraging a strong globalreputation presence Risk trend Description and potential impact Mitigation Stable The Group is subject to • A strong culture of 'doing the applicable laws and regulations right thing' which is regularly in the global jurisdictions and emphasised by senior management. industries in which it operates. This includes certain • Group-wide governance policies territories where strong ethical and procedures, ongoing standards may not be well compliance training and strong established or where parts of oversight. the markets in which we operate are highly regulated. • Ongoing monitoring of Regulations include those regulatory developments in major related to export controls, jurisdictions. environmental and safety requirements, product safety, • Ongoing monitoring of employee tax laws, intellectual property concerns through our independent rights, competition laws and Employee Disclosure Hotline. ethical business practices. Changes during 2014 Tax in particular is a complex area where laws and their There have been no significant interpretation are changing new regulations impacting the regularly, leading to potential Group during 2014, but our uncertainty in tax exposures. markets are subject to increased enforcement activities in Potential impact relation to existing regulations, particularly in relation to Non-compliance could expose the vehicle safety. Group to fines, penalties, damage to reputation, suspension In response, we have taken steps or debarment from government to reinforce our commitment contracting or suspension of across the Group to `doing the export privileges. right thing' in all activities. This includes emphasising the importance of `doing the right thing' to all senior managers at the Group's International Leadership Conference and re-launching the GKN Code to remind employees of the standard of behaviour we expect. We continue to strengthen our risk management systems. See pages 52 to 54 for more information on 'doing the right thing' and 68 to 69 for more information on governance policies and procedures. Operating in global markets Leveraging a strong global presence Risk trend Description and potential impact Mitigation Stable We operate globally and as such • The Group has a diversified results could be impacted by portfolio of businesses across global or regional changes in our markets providing some the macroeconomic or political protection against individual environment, changing consumer market or country risks. demand and preferences, and supply chain volatility. • Lead market indicators are regularly reviewed so that we can Our businesses could be impacted respond quickly to changing by changing consumer preference trading conditions. and associated volatility in automotive demand; challenging • Our mitigation strategy also credit conditions resulting in includes: lack of access to finance by customers and end consumers; -- planning, budgeting and delay or cancellation of orders forecasting processes. for civil aircraft and changes in the amount or timing of US -- flexible management of military spending; volatility in variable and fixed cost base, agricultural, construction, investment spending and working mining and industrial markets; capital. exchange rate fluctuations; and changing oil prices. -- further diversification into other sectors which present new Potential impact opportunities. Major or prolonged economic or -- focused restructuring financial market deterioration, activities, where necessary, to including movements in exchange respond to markets which have rates of key currencies or suppressed levels of economic political uncertainty in one of activity. our key markets, may significantly impact the Group's -- regular review of our operational performance and financial risk management financial condition. Sustained processes, including foreign market weakness could lead to currency hedging. impairment of assets or site closures. It may also materially Changes during 2014 impact our customers, suppliers and other parties with whom we During the year we have aligned do business. our debt to the principal currencies in which our revenues and cash flows are generated through cross currency swaps. We have further strengthened our presence in Asia and Mexico and are working hard to continue to diversify our aerospace customer base. Further commentary on the recent trends and outlook for each of our markets is set out in the Chief Executive's review on pages 16 to 19 and the global markets section on pages 12 to 13. For further details on the Group's financial risk management processes regarding foreign currency exposures see page 142 (note 19). Technology and innovation Differentiating ourselves through technology Risk trend Description and potential impact Mitigation Stable Developing innovative • Regular assessment of market technologies for our customers is and technology trends and critical to maintaining our drivers. differentiation and competitive advantage. GKN may lose customers • Close relationships and to competitors offering new technical partnerships with technologies if we are unable to customers. adapt to or take advantage of market developments such as • Divisional technology plans changes in legislative, aligned to emerging and future regulatory or industry trends and business strategy. requirements, competitive technologies or consumer • Regular review of current and preferences. future technology plans by the Group Technology Strategy Board. Potential impact • Consideration of technology The failure to launch new plans as part of the Board's products, new product annual strategy review. applications or derivatives of existing products to meet • Focused investment in research customer requirements could have and development. a significant impact on future profitable growth. Changes during 2014 We have continued to invest in technology as we aim to meet customers' expectations for improving efficiency of aircraft, cars and other vehicles with solutions that are lighter and more fuel-efficient. We have further strengthened our Engineering Fellowship who support the Board in developing the Group's technology plan and provide engineering leadership throughout the Group. The Group continues to establish cross-divisional projects aimed at delivering innovative solutions to meet our customer needs across all our markets. Further commentary on how the Group continues to differentiate itself through technology is included in the business review section on pages 22-37. Contract risk Driving operational excellence Risk trend Description and potential impact Mitigation Increasing Across our businesses an • Robust bid and contract increasing percentage of revenues management processes including are generated through contracts thorough reviews of contract which are long term in nature and terms and conditions, subject to complex terms and contract-specific risk conditions. Contracts include assessments and clear delegation commitments relating to pricing, of authority for approvals. quality and safety, and technical and customer requirements. • Continuous review of contract performance. Specifically within the Aerospace business, the Group has risk and Changes during 2014 revenue sharing partnerships (RRSP) with key engine As the Group focuses on providing manufacturers. These contain solutions to its customers, often formalised risk sharing including a design element, the arrangements relating to risks risks associated with complex that are not always within GKN contracts increases. The Group management control. regularly reviews ways to further strengthen its contract Both our aerospace and automotive management processes and this businesses enter into design and will continue as an area of focus build contracts. These are during 2015. complex contracts that are often long term, so it is important See pages 20 to 37 of the that the contracted risk is strategic report for more carefully managed. information. 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. Programme management Driving operational excellence Risk trend Description and potential impact Mitigation Increasing Many of the programmes entered • Embedded programme management, into by the Group are complex and including investment phasing and long term, and are subject to product testing activities. various performance conditions which must be adhered to • Periodic impairment reviews of throughout the programme. The capitalised development costs, management of such programmes including formal review at half brings risks related to: year and year end. • delays in product development • Ongoing review and approval of or launch schedules; key programmes by the Executive Committee and the Board. • failure to meet customer specifications or predict Changes during 2014 technical problems; Programme management risk has • inability to manufacture on continued to increase in line time for the start of production with the move towards common or to required production global platforms in automotive volumes; and the launch of new aircraft in aerospace, together with the • dependence on key or customer application of new technologies. nominated suppliers; In response, the Group has continued to strengthen its risk • failure to manage effectively management systems in this area, internal or customer-driven and this will continue as an area change; of focus during 2015. • inability to forecast See pages 22 to 37 of the accurately and to manage costs. business review for more information on major new Potential impact programme wins. 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. Product quality Driving operational excellence Risk trend Description and potential impact Mitigation Increasing The quality and safety of our • High levels of quality products is essential. We are assurance are embedded in robust exposed to warranty, product manufacturing systems. recall and liability claims in the event that our products fail • Regular reporting and to perform as expected. monitoring of quality performance based upon customer KPIs. In automotive, the industry in general has experienced higher • Maintenance of critical parts levels of recalls in recent years lists. and the OEMs often seek contribution from throughout the • External agency quality supply reviews. chain. This risk increases where: • Robust contract terms and conditions. • vehicle manufacturers offer longer warranty periods; Changes during 2014 • more vehicles are being built Excellence in quality has on standard platforms, so a continued to be a priority during single quality issue can affect a the year with continuous large number of vehicles; improvement programmes ongoing in each of our businesses. A central • regulators and our customers part of this year's focus on are taking a more stringent quality has been approach to recalling vehicles particularly if there is a our 'Voice of the Customer' possible safety issue. initiative. In addition to our internal quality KPIs we now view In aerospace customers and quality through the eyes of our regulators impose very strict customers by collecting the product safety and quality quality reports issued by our obligations on all aircraft customers, analysing these and by suppliers. working to continuously improve quality and delivery as measured Potential impact by our customers. A product failure could result in See page 18 of the Chief serious losses, damaging GKN's Executive's review and page 57 of financial performance and the sustainability report for potentially our reputation. In more information. particular, the costs associated with vehicle or aircraft recalls can be significantly higher than the cost of simply replacing defective products. People capability Driving operational excellence Risk trend Description and potential impact Mitigation Stable The Group's ability to deliver • Competitive reward packages its strategic objectives is together with focused training dependent upon the recruitment and development programmes. and retention of sufficiently qualified, experienced and • A culture that motivates motivated people. individuals to perform to the best of their abilities. It is critical for the Group to secure and maintain the relevant • Strong succession and capabilities in specific development programmes. geographical regions and disciplines in both existing • Local initiatives designed to markets and to support growth engage young people, promote markets. science, technology, engineering and mathematics (STEM) subjects Potential impact and encourage the next generation of young engineers. The failure to recruit or the loss of key personnel, and the Changes during 2014 failure to plan adequately for succession or develop the The recruitment and development potential of employees may impact of young engineering talent has the Group's ability to deliver continued to be a priority during its strategic and financial 2014 together with resources and objectives. capabilities aligned to our growth markets. More information is available in the sustainability report on pages 55 and 56. Health and safety Driving operational excellence Risk trend Description and potential impact Mitigation Stable Safety is our number one • Consistent Group-wide priority. We manage safety application of health and safety carefully through extensive programmes. Group-wide processes, yet we recognise we can never be • Health and safety audits to complacent. Therefore we continue ensure adherence to Group to include this as a principal policies and procedures. risk and an area which will always be a priority for GKN. • A focus on process and behavioural safety through a Potential impact number of Group-wide risk assessment and training A serious accident in the programmes. workplace could have a major impact on employees as well as • Maintenance of insurance for their families, colleagues and costs associated with related communities. Such an incident actions or claims against the could also result in legal Group. claims, reputational damage and financial loss. Changes during 2014 Against a target of zero preventable accidents, our accident frequency rate (AFR) continued to improve during 2014, whereas our accident severity rate (ASR) saw a minor increase. Our core thinkSAFE! and `don't WALK BY' programmes continued together with the introduction of thinkHEALTH! (occupational health awareness), all aimed at encouraging employees to identify and resolve safety concerns. Focused hazard awareness and risk assessment programmes continued to be embedded throughout our manufacturing sites to support proactive risk identification and corrective actions. See page 54 of the sustainability report for more information on the Group's health and safety performance. Information system resilience Driving operational excellence Risk trend Description and potential impact Mitigation Stable The Group could be impacted • Formal risk-based governance negatively by information framework including dedicated IT technology security threats security policies and related including unauthorised access to compliance processes, ongoing intellectual property or other controlled information. risk reviews, IT security Interruptions to the Group's awareness training and robust information systems could also systems and processes to manage adversely affect its day-to-day access, information assets, operations. threats and vulnerabilities. The inherent security threat is • External support and considered highest in GKN benchmarking of best practice Aerospace where data is held in information systems security and relation to civil aerospace resilience. technology and controlled military contracts. • Ongoing development of appropriate incident detection Potential impact and response plans and capabilities. A major disruption to information systems could have a significant • Disaster recovery contingency adverse impact on the Group's plans which are regularly tested operations or its ability to including data centres where the trade. The loss of confidential risk is deemed to be the information, intellectual greatest. property or controlled data could result in fines, damage to the • Executive Committee oversight Group's reputation, and could of IT security and assurance adversely affect its ability to matters. win future contracts. Changes during 2014 The Group has continued to strengthen its mitigating processes and controls in this area and to monitor the nature and volume of information security threats impacting both our business and our industries more generally. See page 69 of the corporate governance report for more information on the Group's IT governance. Business continuity Other risks Risk trend Description and potential impact Mitigation Stable A major disruption to internal • Ongoing maintenance and facilities or the external supply replacement programmes for key chain could be caused by natural assets and facilities. disaster or damage, or destruction of a key facility or • Flexible sourcing arrangements asset. for key supplies. The Group has a small number of • Effective supply chain facilities and assets which are management to ensure appropriate key to maintaining production inventory levels are maintained. levels for major customers and internal service levels. • Targeted incident response and business continuity plans. In addition, certain of the Group's businesses are exposed to Changes during 2014 a higher inherent risk of natural disasters because of their There has been no significant geographical locations. change in the inherent risk profile during 2014. All Potential impact divisions continue to focus on risk mitigation, including the A sustained disruption to production, refinement and internal facilities or production testing of business continuity could result in major operational and disaster recovery plans, and disruption, a significant adverse ongoing reviews of critical impact on our ability to meet assets and prioritisation of customer requirements, additional capital investment. contractual liabilities and have a consequential impact on financial performance. Pension funding Other risks Risk trend Description and potential impact Mitigation Stable The Group operates a number of ￡ Close co-operation with scheme defined benefit pension fiduciaries regarding management post-retirement medical plans of pension scheme assets and with aggregate net liabilities of liabilities, including asset •1,711 million at 31 December selection and hedging actions. 2014. These plans are exposed to the risk of changes in asset • Alternative funding and risk values, discount rates, inflation mitigation actions are and mortality assumptions. implemented where appropriate. Potential impact Changes during 2014 Increases to the pension deficit During the year, against an could lead to a requirement for economic backdrop which has seen additional cash contributions to pension liabilities remain at a these plans, thereby reducing the high level versus historical amount of cash available to meet norms, driven by the the Group's other operating, exceptionally low yields on long investment and financing term bonds, we have continued to requirements. undertake pension risk reduction initiatives, including a partial buy-in transaction in the UK and an increase in hedging ratios. In addition, in the UK we commenced a `pension increase exchange' exercise to further mitigate inflation risk, which will conclude in early 2015, and undertook a 'voluntary lump sums programme' in the US, whereby deferred members of the US pension plan were offered a cash lump sum in lieu of future pension rights. The Group continues to have a reasonable degree of visibility over the range of short to medium term funding cash flows. See pages 40 to 41 and 150 to 155 for more information on the Group's pension arrangements. RELATED PARTY TRANSACTIONS In the ordinary course of business, sales and purchases of goods take placebetween subsidiaries and joint venture companies priced on an arm's lengthbasis. Sales by subsidiaries to joint ventures in 2014 totalled ￡45 million(2013: ￡44 million). The amount due at the year end in respect of such saleswas ￡12 million (2013: ￡11 million). Purchases by subsidiaries from jointventures in 2014 totalled ￡5 million (2013: ￡2 million). The amount due at theyear end in respect of such purchases was ￡1 million (2013: nil). At 31 December 2014, a Group subsidiary had ￡7 million payable to joint venturecompanies in respect of unsecured financing facilities bearing interest at 1month LIBOR plus ⅛% (2013: ￡8 million). There was no loan receivable from a joint venture at 31 December 2014 (2013: ￡8million interest bearing at 4.5%). During the year, a child of a member of key management was employed by asubsidiary company. The remuneration expense during the period of employment onan arm's length basis amounted to ￡6,815. STATEMENT OF DIRECTORS' RESPONSIBILITIES Each of the Directors as at the date of the annual report, whose names andfunctions are set out on pages 60 and 61, confirm that to the best of theirknowledge: * the Group financial statements, prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and * the 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. In addition, the Directors consider that the annual report and accounts, takenas a whole, is fair, balanced and understandable and provides the informationnecessary for shareholders to assess the Company's performance, business modeland strategy. Approved by the Board of GKN plc and signed on its behalf by Mike Turner CBE Chairman 23 February 2015 CAUTIONARY STATEMENT This announcement contains forward looking statements which were made in goodfaith based on information available at 23 February 2015, being the date ofapproval of the 2014 Annual Report. It is believed that the expectationsreflected in these statements are reasonable but they may be affected by anumber of risks and uncertainties that are inherent in any forward lookingstatement which could cause actual results to differ materially from thosecurrently anticipated. Nothing in this document should be regarded as a profitsforecast.