26th Mar 2010 18:00
GKN plc 2009 ANNUAL REPORT
In compliance with Listing Rule 9.6.1, GKN plc has today submitted to the UK Listing Authority two copies of each of the following documents:
(a) 2009 Annual Report;
(b) Circular to shareholders incorporating the Notice of the 2010 Annual General Meeting (which will be held at 2.00 pm on Thursday, 6 May 2010 at the Cavendish Conference Centre, 22 Duchess Mews, London W1G 9DT); and
(c) Proxy form for the 2010 Annual General Meeting.
Copies of the above documents will be available for inspection at the UK Listing Authority's Document Viewing Facility which is situated at:
Financial Services Authority25 The North ColonnadeCanary WharfLondonE14 5HS
The documents are being posted/made available to shareholders today. The 2009 Annual Report and 2010 AGM Circular are also available on GKN's website at www.gkn.com.
The Notice of the 2010 AGM includes a resolution to adopt new articles of association. A summary of the principal changes proposed to the existing articles of association is given in the explanatory notes to the 2010 AGM Circular. The full text of the new articles has been forwarded to the Financial Services Authority in accordance with Disclosure and Transparency Rule (DTR) 6.1.2 and can be inspected at the addresses set out on page 12 of the 2010 AGM Circular.
In compliance with DTR 6.3.5, a description of the principal risks and uncertainties, details of related party transactions and a responsibility statement are set out below. A condensed set of financial statements were appended to GKN's 2009 full year results announcement issued on 25 February 2010, which included an indication of important events that occurred during the year.
Page references below refer to page numbers in the 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 pages 48 and 49.
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 Changes in macro-economic conditions, * Diverse business cycles consumer demand and preferences and portfolio serving availability of credit. GKN's financial different markets performance could be impacted by continued overcapacity in automotive production and * Extensive actions changed consumer preferences for smaller, to reduce cost base less sophisticated vehicles; rescheduling or cancellation of orders for civil * Effective cash aircraft and changes in value or timing of management defence spending; lower agricultural and including focus on mining commodity prices and reduced levels working capital and of construction. investment spending * Ongoing review of market indicators Customers Significant customer concentration in * GKN is not automotive and aerospace industries - some dependent on 65% of Group sales are from 25 major contractual or customers (although no single customer other arrangements represented more than 10% of Group sales with any individual at 31 December 2009). customer The insolvency of, damage to relations or * Active management significant worsening of commercial terms of customer with a major customer could result in the relations and loss of future business opportunities, credit exposure asset write-offs and additional restructuring actions. * Strong commercial and engineering focus at customer level, ensuring effective programme delivery
Competition Highly competitive markets with customer * Continual review of
decisions based typically on price, competition and quality, technology and service. Customer market trends vertical integration (including OEMs taking production in-house), the entry of * Investment in new competitors or consolidation of engineering and existing competitors could restrict GKN's lean manufacturing ability to grow its business. capabilities * Strong customer relationships
Technology Inability to launch new products, new * Regular assessment
product applications or derivations of of market and existing products in a timely manner to technology trends meet customers' needs. GKN may lose and drivers customers to competitors offering new technologies in the event of an inability * Divisional to adapt to market developments. Changes technology plans in legislative, regulatory or industry aligned to emerging requirements, competitive technologies or and future trends consumer preferences may render GKN's products obsolete or less attractive. * Focused investment in research and development Operational risks Risk Nature of risk and potential impact Mitigation
Supply chain Lack of availability of equipment, * Monitoring of
components, services and raw materials financial viability that meet specifications. Volatility in of key suppliers production and the need to maintain appropriate inventory levels requires * Ongoing assessment of effective supply chain management. supplier technology Supply chain disruption could impact and dependency GKN's sales to and relationships with its customers and result in additional * Dual sourcing to unrecoverable costs. reduce dependence on single supplier Product Potential liabilities for defects in * High levels of quality products, warranty claims or product quality assurance and recalls. Product quality issues could manufacturing systems adversely affect profits and damage GKN's reputation. * Product liability insurance (although GKN does not generally insure against product warranty or recall) People Inability to attract and retain * Annual succession qualified personnel, particularly planning and engineering professionals. The absence performance of adequate talent and a lack of development process continuity in management and leadership could result in an inability to execute * Competitive reward the strategic plan and deliver financial packages and performance. Group-wide training and development programmes
Acquisitions Inability to realise expected benefits * Focused reviews to
of acquisitions. A lack of suitable ensure strategic acquisition targets aligned with planned alignment of strategy, a failure to integrate acquisitions acquired businesses successfully, or an inability to capture value from them * Extensive could impact operations and prevent pre-acquisition due successful delivery of GKN's strategic diligence objectives. * Careful management of the integration plans by experienced on-site management Financial risks Risk 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 longevity and long term view of assumptions. Accounting valuations of liability assumptions post-employment obligations can cause volatility in financial reporting. * Continuing review of the Additional Company pension level of benefits contributions could restrict provided investment 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 exchange functional currency) and contracts translational (exchange rate movements in investments in overseas * Balance sheet operations in GKN's balance sheet). translational hedging The Group's financial statements will policy (currently fluctuate as a result of movements in suspended due to exchange rates. continuing volatility of foreign currencies against sterling) 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 * Actions taken to utilise tax losses
The Group insures against the impact of a range of unpredicted 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 2009 totalled £62 million (2008 - £74 million). The amount due at the year end in respect of such sales was £14 million (2008 - £11 million). Purchases by subsidiaries from joint ventures in 2009 totalled £4 million (2008 - £11 million). The amount due at the year end in respect of such purchases was nil (2008 - £3 million).
At 31 December 2009 a Group subsidiary had £1 million receivable (2008 - nil) from a joint venture in respect of a loan facility bearing interest at six month LIBOR plus 1%.
GKN Aerospace Services Structures Corp. ('GASS') which is an entity in which the Group has, since 2003, had a 100% share in the equity operates under a Proxy Agreement with the United States Department of Defense developing high technology, classified products for the United States Airforce. The Proxy Agreement currently places significant restrictions on the Group's management and control of the business so that, in accordance with IAS 27, it is excluded from the consolidation and treated as an investment. The Group provided services to GASS during 2009 amounting to less than £1 million (2008 - nil). GASS supplied goods to the Group during 2009 amounting to less than £1 million (2008 - £1 million). Transactions between the Group and GASS are priced on an 'arm's length' basis. At 31 December 2009 a Group subsidiary had £11 million receivable (2008 - nil) 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 40 and 41, confirm that to the best of their knowledge:
* the Group financial statements, prepared in accordance with International Financial Reporting Standards 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 management report (which comprises the Directors' report, including the business review) 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 BrownChairman24 February 2010CAUTIONARY STATEMENT
This announcement contains forward looking statements which were made in good faith based on information available at 24 February 2010, being the date of approval of the 2009 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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