30th Mar 2011 17:14
GKN plc 2010 Annual Report
GKN plc has today published its 2010 Annual Report and circular to shareholders incorporating the notice of 2011 Annual General Meeting. Both documents can be viewed at or downloaded from www.gkn.com/investorrelations.
Copies of both documents, together with the form of proxy for the 2011 AGM, have been submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do.
Printed copies of these documents have today been posted to shareholders who have requested hard copies.
The 2011 AGM will be held at 2.00 pm on Thursday, 5 May 2011 at the Cavendish Conference Centre, 22 Duchess Mews, London W1G 9DT.
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 2010 Annual Report are set out below. A condensed set of financial statements were appended to GKN's 2010 full year results announcement issued on 1 March 2011, which included an indication of important events that occurred during the year.
Page references below refer to page numbers in GKN's 2010 Annual Report.
RISKS AND UNCERTAINTIES
GKN has an extensive risk management framework designed to identify and assess the likelihood and consequences of risk and to manage the actions necessary to mitigate their impact. A detailed description of this framework is given on page 44.
Set out below are the principal risks and uncertainties which could have a material impact on the Group and the corresponding mitigating actions that are in place. Additional risks not currently known or which are currently regarded as immaterial could also adversely affect future performance.
Market risks
Risk Nature of risk and potential impact Mitigation Market cycles Changes in macro-economic conditions, * Diverse business
consumer demand and preferences. portfolio serving GKN's financial performance could be different markets impacted by volatility in automotive demand and changing consumer * Effective management of preferences; rescheduling or the cost base cancellation of orders for civil aircraft and changes in amount or * Efficient cash timing of defence spending; management including volatility in agricultural, focus on working construction, mining and industrial capital and investment markets. spending * Ongoing review of market indicators Customers Significant customer concentration in * GKN is not dependent on automotive and aerospace industries. contractual or other Some 67% of Group sales are from 25 arrangements with any major customers, although no customer individual customer represented more than 10% of Group sales at 31 December 2010.The * Active management of insolvency of, damage to relations, customer relations and or significant worsening of credit exposure commercial terms with a major customer could result in the loss of * Strong commercial and future business opportunities, asset engineering focus at write-offs and restructuring actions. the customer level * Effective programme management Competition Highly competitive markets with * Continual review of customer decisions based typically on competition and market price, quality, technology and trends service. Customer vertical integration (including OEMs taking * Investment in production in-house), the entry of engineering and lean new competitors or consolidation of manufacturing existing competitors could restrict capabilities GKN's ability to grow its business. * Strong customer relationships * New product technology Technology Inability to launch new products, new * Regular assessment of product applications or derivations market and technology of existing products to meet trends and drivers customers' needs. GKN may lose customers to competitors offering new * Divisional technology technologies in the event of an plans aligned to inability to adapt to market emerging and future developments. Changes in legislative, trends regulatory or industry requirements, competitive technologies or consumer * Focused investment in preferences may render GKN's products research and obsolete or less attractive. development * Effective programme delivery
Geo-political Legal, regulatory, political and * Ongoing review of
socio-economic conditions in market environment countries of operation. Given the including political, global footprint of the Group, its fiscal and regulatory operations could be adversely developments impacted by changes in the political, economic and regulatory environments * Group-wide governance in countries in which it does framework supported by business. a strong control environment Operational risksRisk Nature of risk and potential impact Mitigation Supply chain Lack of availability of equipment, * Ongoing assessment of components, services and raw supplier technology and materials that meet specifications. dependency Volatility in production and the need to maintain appropriate inventory * Dual sourcing to reduce levels requires effective supply dependence on single chain management. Supply chain supplier disruption could impact GKN's sales to and relationships with its * Monitoring of financial customers and result in additional viability of key unrecoverable costs. suppliers Input costs Rising cost of raw materials, labour * Contract negotiations and energy. The cost of raw materials to ensure the ability for the Group's products and other to pass on charges to key inputs may fluctuate and could customers adversely affect the Group's earnings if it were unable to pass increases * Secure long term on to its customers. contracts for key inputs with stable pricing * Forward purchasing of energy requirements where appropriate * Maintaining good labour relations Product Potential liabilities for defects in * High levels of quality quality products, warranty claims or product assurance recalls. Product quality issues could adversely affect profits and damage * Robust manufacturing GKN's reputation. systems People Inability to attract and retain * Annual talent qualified personnel, particularly management and engineering professionals. The performance development absence of adequate talent and a lack process of continuity in management and leadership could result in an * Competitive reward inability to execute the strategic packages and Group-wide plan and deliver improving financial training and performance. development programmes * A high performance culture and motivating environment Acquisitions Inability to realise expected * Focused reviews to benefits of acquisitions. A lack of ensure strategic suitable acquisition targets aligned alignment of with the planned growth strategy, a acquisitions failure to integrate acquired businesses successfully, or an * Extensive inability to capture value from them pre-acquisition due could impact operations and prevent diligence successful delivery of GKN's strategic objectives. * Careful management of integration plans by experienced on-site management * Post acquisition reviews Financial risksRisk Nature of risk and potential impact Mitigation Pensions Pension deficit levels are affected * Active management of by changes in asset values, discount pension scheme assets rates, inflation and mortality and long term view of assumptions. Accounting valuations of liability assumptions pension obligations can cause volatility in financial results. * Continuing review of Additional Company pension the level of benefits contributions may restrict investment provided in businesses. * Alternative funding and deficit reduction plans implemented where appropriate Exchange Currency risks: Transactional * Hedging of transaction rates (subsidiary sales or purchases in exposures through currencies other than their forward foreign functional currency) and exchange contracts translational (exchange rate movements in investments in overseas * Balance sheet operations). The Group's financial translational hedging statements may fluctuate as a result policy (currently of movements in exchange rates. suspended due to continuing volatility of foreign currencies against sterling) * Borrowings in local currency including access to overseas debt capital markets Taxation GKN is subject to complex tax laws * Ongoing monitoring of and audit procedures. Actual tax tax developments in liabilities could differ from major jurisdictions accruals which are based on management judgements. * Group-wide tax compliance programme
The Group insures against the impact of a range of unpredictable losses associated with both its business assets and liabilities. GKN's risk financing strategy is based on a significant level of capped self-insured retention at the Group level (within GKN's own captive insurance company, Ipsley Insurance Ltd, which does not insure the risks of any other entity) and a much lower retention at subsidiary level through deductibles. Catastrophe insurance is then purchased in the commercial market over and above these levels of retention. Ipsley's current participation in GKN's principal insurance programme is £10 million per incident capped at £20 million in any one year. Due to the nature of the risk, the Group's aviation products liability insurance is placed solely in the commercial market.
RELATED PARTY TRANSACTIONS
In the ordinary course of business, sales and purchases of goods take place between subsidiaries and joint venture companies priced on an `arm's length' basis. Sales by subsidiaries to joint ventures in 2010 totalled £89 million (2009: £62 million). The amount due at the year end in respect of such sales was £17 million (2009: £14 million). Purchases by subsidiaries from joint ventures in 2010 totalled £2 million (2009: £4 million). The amount due at the year end in respect of such purchases was nil (2009: nil).
At 31 December 2009 a Group subsidiary had £1 million receivable from a joint venture in respect of an unsecured financing facility bearing interest at six month LIBOR plus 1%. The facility was repaid in 2010.
The Group obtained control of GKN Aerospace Services Structures Corp. (GASS) on 1 April 2010. The Group provided services to GASS during the first quarter of 2010 amounting to less than £1 million (2009 full year: £1 million). No goods were supplied to the Group by GASS during the first quarter of 2010 (2009 full year: £1 million). Transactions between the Group and GASS were priced on an `arm's length' basis. At 31 December 2009 a Group subsidiary had £11 million receivable from GASS in respect of a loan bearing interest at US Prime Rate minus 2%.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors as at the date of the annual report, whose names and functions are set out on pages 38 and 39, confirm that to the best of their knowledge:
* the Group financial statements, prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and * the Directors' report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
Approved by the Board of GKN plc and signed on its behalf by
Roy BrownChairman28 February 2011CAUTIONARY STATEMENT
This announcement contains forward looking statements which were made in good faith based on information available at 28 February 2011, being the date of approval of the 2010 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.
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