26th Feb 2009 07:00
26 February 2009
For immediate release
GKN plc 2008 Full Year Results Announcement
|
Business performance - See notes (1) and (2) below |
As reported (note 1) |
||||||
|
2008 |
2007 |
Change |
2008 |
2007 |
Change |
||
|
£m |
£m |
% |
£m |
£m |
£m |
||
|
Sales - including share of joint ventures |
4,617 |
4,122 |
12 |
||||
|
Less share of joint ventures |
(241) |
(253) |
(5) |
||||
|
Sales - subsidiaries |
4,376 |
3,869 |
13 |
4,376 |
3,869 |
507 |
|
|
Trading profit - subsidiaries |
201 |
277 |
(27) |
201 |
277 |
(76) |
|
|
Operating profit / (loss) |
201 |
277 |
(27) |
(86) |
221 |
(307) |
|
|
Share of joint ventures (post-tax) |
16 |
24 |
(33) |
6 |
24 |
(18) |
|
|
Net financing costs |
(50) |
(46) |
(9) |
(50) |
(46) |
(4) |
|
|
Profit / (loss) before tax |
167 |
255 |
(35) |
(130) |
199 |
(329) |
|
|
Profit / (loss) after tax |
170 |
249 |
(32) |
(120) |
198 |
(318) |
|
|
Discontinued operations |
- |
- |
13 |
- |
|||
|
Earnings per share - p |
23.8 |
35.1 |
(32) |
(17.3) |
27.9 |
(45.2)p |
|
|
Full year dividend per share -p |
4.5 |
13.5 |
(67) |
||||
Business performance(2)
Sir Kevin Smith, Chief Executive of GKN plc, commented:
"We entered 2008 with good order books across all divisions and expectations of continued growth for the Group. In Aerospace we have had an excellent year with double digit growth in both sales and profits and our OffHighway business achieved record results. Automotive sales, however, deteriorated rapidly in the fourth quarter as a result of the global financial crisis. We have taken swift action to reposition the business with 3,450 jobs cut during the year, 2,800 of which occurred in the fourth quarter. Further restructuring is already underway in 2009.
We are delighted to have completed the Filton Aerospace acquisition on 5 January 2009 which will provide excellent growth opportunities for the Group. This year our focus will continue to be on providing exceptional customer service, further reducing our cost base and preserving cash. The Board has accordingly decided not to pay a final dividend. The quality of the Group's businesses and the management action being implemented will position us strongly to benefit when markets recover."
2009 Outlook
Markets and environments
The outlook for our major markets is both challenging and uncertain as the global economic recession continues to severely impact demand in most of our end markets.
The outlook for Automotive production is extremely uncertain. Forecasters expect weakness across virtually all regions with global light vehicle output to fall within a range of 55 to 59 million vehicles - a decline of between 12 and 20%.
OffHighway markets have weakened over the last few months and forecasters now expect a substantial decline in demand for heavy construction, mining and agricultural equipment.
Aerospace markets are mixed. Military aircraft demand is expected to remain solid through the year. In the civil sector, regional and business jet demand has fallen sharply and some reduction in production rates for large civil aircraft is expected in the second half.
Restructuring
In the final quarter of 2008 the Group launched a major restructuring and cost reduction plan across all divisions to align operations more closely with expected demand. This resulted in 2,800 job losses.
In 2009, global headcount will be reduced further by around 2,400 people, of which around 300 had already left the Group by the end of January. A number of manufacturing sites will be closed and short-time working and plant shutdowns implemented widely.
The programme will be completed by July 2010 and cash costs of approximately £140 million and non cash asset impairments of approximately £150 million will be incurred. The plan is expected to reduce full year operating costs by approximately £190 million.
GKN's businesses
Production volumes in the Group's Automotive and Powder Metallurgy businesses have been particularly soft in the first quarter as vehicle manufacturers reduce inventories and realign output with consumer demand. Some recovery is expected from the second quarter onward and the Group will increasingly benefit from its cost reduction programme.
OffHighway sales are expected to fall as demand declines rapidly through the second quarter.
Aerospace sales are expected to continue to grow strongly as the Filton acquisition is consolidated into the division.
If Sterling were to remain at current levels against major international currencies, there would be a translational benefit to Group results.
Financing
The Group entered 2009 with net debt of £708 million. This was largely funded in the UK through £675 million of bonds and committed bank facilities totalling £445 million, £43 million of which was utilised, leaving headroom of £402 million. A further £180 million of facilities were secured on completion of the acquisition of Filton for which the initial payment was £96 million. EBITDA/net interest cover was 8 times, well ahead of the 3.5 times banking covenant.
The Group expects a significant increase in the non-cash IAS19 pension financing charge to around £50 million (2008 - £3 million).
Outlook
Although the Group expects 2009 to be a very challenging year, GKN's financial position is sound and actions taken to reduce costs and improve cashflow should position us to benefit strongly when markets recover.
Notes
Further Enquiries
Guy Stainer
Director, Investor Relations and External Communications
T: +44 (0)207 463 2382
M: +44 (0)7739 778 187
Andrew Lorenz
Financial Dynamics
T: +44 (0)20 7269 7113
M: +44 (0)7775 641 807
There will be an analyst and investor meeting at 0930 at UBS, Ground Floor Presentation Suite,
1 Finsbury Avenue, London EC2M 2PP.
A live audiocast of the presentation will be available at www.gkn.com. Slides will be put onto the GKN website approximately 15 minutes before the presentation is due to begin.
A live dial in facility will be available by telephoning one of the following numbers:
Standard International Dial In: +44 (0) 1452 555 566
UK Freecall Dial In: 0800 694 0257
Conf ID: 84733274#
A replay of the conference call will be available for 14 days at the following numbers:
Standard International Number: +44 (0) 1452 55 00 00
UK Freecall Dial In: 0800 953 1533
Replay Access Number: 84733274#
The full text of this announcement together with the attached financial statements and notes thereto may be downloaded from www.gkn.com.
Measurement and reporting of performance
In this announcement, in addition to statutory measures of profit and loss, we have made reference to profits and earnings excluding the impact of:
We believe results excluding the above items show more clearly the underlying trend in business performance.
Trading profit is defined as operating profit or loss before any of the above. In 2007 the Group closed its UK cylinder liner business, GKN Sheepbridge Stokes Ltd. 2007 sales include £22 million in respect of this business, whilst its 2007 trading performance, a loss of £7 million, is reported in 'profits and losses on sale or closures of businesses'.
In August 2008, negotiations in respect of the deferred consideration held in escrow on the AgustaWestland joint venture divestment were concluded. As a result the Group received a further £18 million in consideration, the after tax impact of which has been disclosed as a profit on discontinued operations, a treatment consistent with the original divestment.
Where appropriate, reference is also made to results excluding the impact of 2007 acquisitions as well as the impact of currency translation on the results of overseas operations.
Exchange rates used for currencies most important to the Group's operations are:
|
Average |
Year End |
|||
|
2008 |
2007 |
2008 |
2007 |
|
|
Euro |
1.26 |
1.46 |
1.03 |
1.36 |
|
US dollar |
1.85 |
2.00 |
1.44 |
1.99 |
The approximate impact on 2008 trading profit of subsidiaries and joint ventures of a 1% movement in the average rate would be euro - £1.2 million, US dollar - £0.8 million.
In our internal performance reporting we aggregate our share of sales and trading profits of joint ventures with those of subsidiaries. This is particularly important in assessing sales and profit performance in our Driveline and Other Automotive businesses where significant activity takes place in joint ventures. Reference to these combined figures is made, where appropriate, as 'management sales' and 'management trading profits'.
Group activities
GKN is a global engineering business serving mainly the automotive, industrial, off-highway and aerospace markets. The bulk of our sales are made to vehicle and aircraft manufacturers as well as, in Aerospace, to other major tier one suppliers. We operate in four different business areas:
Automotive activities comprise GKN Driveline and Other Automotive companies which supply driveshafts, geared components, torque management devices, structural and engine components and substrates for catalytic converters, largely to vehicle manufacturers in the global car and light vehicle markets.
Powder Metallurgy produces powdered metal and sintered components for automotive and other industrial customers.
OffHighway mainly designs and manufactures steel wheels and driveline products for the agricultural, construction and mining, and industrial machinery markets.
Aerospace activities are concentrated on the production of airframe and engine structures, components and assemblies for both military and civil aerospace markets.
The Group has operations in over 30 countries with 36,500 employees in subsidiary companies and a further 3,500 in joint ventures.
Changes in the composition of the Group
Results for the year contain a full 12 month contribution from the Aerospace acquisition of the Teleflex Aerospace Manufacturing Group, completed on 29 June 2007.
Group performance
Management sales (subsidiaries and joint ventures) £4,617 million (2007 - £4,122 million)
Combined sales of subsidiaries and share of joint ventures totalled £4,617 million compared with £4,122 million in 2007. Excluding the positive impacts of currency translation (£469 million) and of acquisitions (£46 million), there was a net underlying decrease of £20 million, with the benefit from continued strong OffHighway and Aerospace markets offsetting the overall declines experienced in all our businesses operating in automotive markets.
Sales of subsidiaries £4,376 million (2007 - £3,869 million)
Sales of subsidiaries were £4,376 million compared with £3,869 million in 2007, an increase of £507 million (13%). Excluding the impact of currency translation, acquisitions, and the prior year sales of the UK cylinder liner business, there was an increase of £49 million (1%).
In Automotive businesses, subsidiaries' sales of £2,207 million compared with £2,031 million a year earlier. Currency translation was £263 million favourable and, excluding this and the £22 million negative impact of the UK cylinder liner closure, the underlying decrease was £65 million (3%). On a management basis, including our share of joint ventures and excluding the UK cylinder liner business, sales were £2,444 million (2007 - £2,259 million) and the underlying decline was £112 million (4%). The sales decline was most notable in the final quarter, with underlying sales down 25% on 2007 levels.
Powder Metallurgy sales were £618 million compared with £602 million in 2007. Currency translation was £68 million favourable, so that the underlying decrease was £52 million (8%) as the first half impact of weak sales to General Motors and the American Axle strike, and the significant deterioration in volumes in all regions in the final quarter of the year adversely impacted sales.
In OffHighway, subsidiaries' sales improved to £549 million from £416 million in 2007. The favourable impact of currency translation was £53 million, with underlying sales ahead by £80 million (17%) as good market conditions, in both Europe and North America, for agricultural and heavy construction equipment continued throughout the year.
Aerospace sales increased to £1,002 million from £820 million in 2007. The impact of the 2007 Teleflex acquisition was £46 million and, with currency translation being £50 million favourable, the underlying sales improvement was £86 million (10%), reflecting strong demand in both civil and military markets and volumes on programme wins in recent years.
Management trading profit (subsidiaries and joint ventures) £221 million (2007 - £309 million)
The aggregated trading profit of subsidiaries and our share of joint ventures was £221 million, a decrease of £88 million (28%). The net positive impact of currency translation and acquisitions was £57 million and, excluding these factors, the underlying decrease was £145 million (40%). Whilst OffHighway and Aerospace both delivered strong profit performances, with underlying increases of 18% and 13% respectively, the Automotive and Powder Metallurgy businesses' full year results reflect the severe operating conditions in the second half.
Overall margins fell to 4.8% (2007 - 7.5%) being adversely affected by the sharp deterioration in automotive markets.
Trading profit of subsidiaries £201 million (2007 - £277 million)
Group trading profit was £201 million compared with £277 million in 2007, a decrease of £76 million (27%). The currency impact on the translation of overseas profits was £47 million favourable and there was a net benefit of £6 million from 2007 acquisitions. Excluding these factors, the decrease was £129 million (40%).
Automotive subsidiaries' trading profit totalled £69 million compared with £146 million in 2007. There was a favourable currency impact of £29 million after which profits decreased by £106 million (61%).
Second half performance was severely impacted by the rapid fall in global automotive demand, particularly in the final quarter.
For Automotive as a whole, subsidiaries' margin of trading profit to sales was 3.1% (2007 - 7.2%). On a management basis, including our share of joint ventures, trading profit was £90 million (2007 - £178 million) with an underlying decrease of £121 million. Return on sales was 3.7% (2007 - 7.8%).
Powder Metallurgy reported a loss of £2 million in 2008, compared with a £29 million profit in 2007. The underlying reduction was £37 million, largely as a consequence of lower volumes in North America and Europe. Return on sales was (0.3)% (2007 - 4.8%).
OffHighway profit improved to £40 million from £29 million in 2007 with the underlying increase being £6 million. The benefit from higher underlying sales in both the wheels and driveline products businesses was the primary driver of the profit improvement, with increased raw material costs being fully recovered in the year. Margin was 7.3% compared with 7.0% in 2007.
Aerospace profit rose to £106 million from £83 million in 2007. Currency translation was £5 million favourable while there was a £6 million benefit from 2007 acquisitions, leaving an underlying improvement of £12 million (14%). Margin improved from 10.1% in 2007 to 10.6%.
Corporate and unallocated costs of £12 million (2007 - £10 million) represent stewardship, legacy, governance and compliance costs relating to activities undertaken on behalf of the whole Group.
The overall margin of subsidiaries was 4.6% compared with 7.2% in 2007.
Restructuring and impairment costs £153 million (2007 - £31 million)
Net charges in the year relate to
the final charges (£4 million) on the 2004 strategic restructuring programme, as reported at the half year; and
the initial charges, including impairments, in respect of the Group's current restructuring initiatives to respond to severe volume downturns affecting most of the Group's end markets and businesses.
The net £4 million charge in relation to the 2004 programme was entirely attributable to Driveline, and encompassed reorganisation costs on business transfers (£3 million) and asset write-downs (£1 million).
The restructuring and impairment of subsidiaries charge for the 2008 initiative totalled £149 million and includes impairment charges amounting to £129 million.
The impairment charge (£129 million) includes a write-down of Powder Metallurgy's North American fixed assets (£92 million), £15 million for Driveline structural capacity changes and the charges attributable to restructuring actions within Aerospace (£3 million). An £11 million impairment charge was also taken on the UK automotive structural component business assets. Cash based restructuring charges amounted to £20 million in the period and included the cost of short-time working, redundancies and other reorganisation costs.
Amortisation of non-operating intangible assets arising on business combinations £10 million (2007 - £8 million)
In accordance with IFRS 3, the Group recognises intangible assets arising on business acquisitions. The amortisation of non-operating intangible assets (e.g. customer contracts and relationships, trademarks, non-compete agreements and intellectual property rights) increased during the year as a result of the full year impact of the acquisition of Teleflex in June 2007.
Profits and losses on sale or closures of businesses £nil (2007 - £7 million charge)
The prior year loss on closure of businesses of £7 million arose at the UK cylinder liner business (Sheepbridge) which ceased trading in September 2007.
Change in the value of derivative and other financial instruments £124 million charge (2007 - £10 million charge)
The Group enters into foreign exchange contracts to hedge much of its transactional exposure. At 1 January 2008 the net fair value of such instruments was an asset of £18 million and at the end of 2008 the figure was a liability of £166 million.
Transactional hedge accounting has been applied to a small proportion of these transactions. Where transactional hedging has not been applied, the difference of £175 million has been charged (2007 - £9 million charged) separately as a component of operating profit. In addition, there was a £1 million charge in respect of commodity hedges in Powder Metallurgy (2007 - £1 million charge), a credit of £43 million arising on the change in the value of embedded derivatives (2007 - no charge), and a credit attributable to the translational currency impact on Group funding balances, leaving a net charge of £124 million (2007 - £10 million charge).
Operating loss £86 million (2007 - profit £221 million)
The operating loss of £86 million compared with a profit of £221 million in 2007, reflecting the movements discussed above.
Post-tax earnings of joint ventures £6 million (2007 - £24 million)
There was a decrease of £18 million in the Group's share of post-tax earnings of joint ventures. Within this figure, trading profit fell to £20 million from £32 million in 2007, a decline of 38%. The impact of currency was favourable at £4 million, leaving underlying trading profit adverse by £16 million (44%), this being attributable to falling volumes in all businesses, curtailment of diesel particulate retrofit demand in Emitec and a one-time commercial settlement in AutoStructures in 2007.
The post-tax earnings in 2008 include impairment charges of £10 million in respect of the planned winding up of two joint ventures as part of the Group's recently announced restructuring activities.
Net financing costs £50 million (2007 - £46 million)
Interest payable totalled £66 million (2007 - £62 million) and arose mainly on the £675 million of bonds, £30 million debenture in issue and bank borrowings. This was partially offset by interest receivable of £19 million (2007 - £19 million) which arose on short term deposits, together with the benefits of lower borrowing costs on foreign currency synthetic debt instruments used to hedge the Group's overseas investments and £3 million interest received on the AgustaWestland deferred consideration released from escrow. The year on year movement also reflects the full year effect of acquisitions made in 2007.
Other net financing costs were £3 million (2007 - £3 million) and related to post-employment obligations. This charge has remained level with 2007 as adverse currency of £2 million offset a net underlying credit. The overall charge arises as the expected return on scheme assets of £163 million (2007 - £146 million) was more than offset by interest on post-employment obligations of £166 million (2007 - £149 million). Details of the assumptions used in calculating post-employment costs and income are provided in note 12.
Profit/Loss before tax
On a management basis Group profit before tax was £167 million, £88 million lower than 2007. The post-tax share of joint ventures contributed £16 million (2007 - £24 million) and subsidiaries £151 million (2007 - £231 million). On a statutory basis, including restructuring and impairment charges, amortisation of non-operating intangible assets arising on business combinations, profits and losses on the sale or closures of businesses and changes in the value of derivative and other financial instruments, a loss of £130 million was recorded (2007 profit of £199 million).
Taxation
The tax credit on management profits of subsidiaries of £151 million (2007 - £231 million) was £3 million (2007 - £6 million charge), representing a negative 2.0% tax rate (2007 - 2.6% positive).
This £3 million tax credit arises due to the recognition of a tax credit relating to the use of previously unrecognised tax losses against certain taxable foreign exchange gains. There is a tax charge in relation to these gains shown in equity.
Adjusting for the above item, there is an increase in the effective rate from 2.6% in 2007 to 17.2%. This is predominantly attributable to the use of previously recognised deferred tax assets (tax losses and other temporary differences) against taxable profits in 2008. The charge arising from the use of these assets has been partially offset by tax credits in relation to the recognition of previously unrecognised deferred tax assets (principally in the UK) and the utilisation of other previously unrecognised deferred tax assets (principally in the UK and Germany). The recognition of previously unrecognised deferred tax assets has been based upon management projections of future taxable profits in the relevant territories.
GKN's tax strategy is aimed at creating a sustainable 'cash tax' charge (which excludes deferred taxes, movements in provisions for uncertain tax positions and tax relating to those non-trading elements of operating profit identified separately in the income statement) that balances the shareholders' interest of minimising tax payments with the need to comply with the tax laws of each country in which we operate. In 2008 the cash tax charge was 15% (2007 - 17%) and we expect cash tax to average 20% or less for the near term as we continue to make use of prior years' tax losses, incentives and deductions in the various countries in which we operate.
For 2009 and beyond, the overall reported tax rate is likely to continue to be volatile, being influenced by the possible further recognition of currently unrecognised deferred tax assets and the settlement of prior year tax disputes. These unrecognised, potential deferred tax assets principally relate to brought forward tax losses in the UK and US which, due to the structure of the Group and the geographic mix of profitability, have so far not been seen as realisable for tax purposes.
The total effective tax rate of subsidiaries was 7.4% (2007 - 0.6%) arising as a £10 million tax credit on losses of £136 million.
Discontinued operations
As previously noted, negotiations over the AgustaWestland deferred consideration held in escrow were finalised in August 2008, resulting in a net of tax profit of £13 million. There were no discontinued operations in the prior period.
Minority interests
The share of profit relating to minority interests was £2 million (2007 - £2 million).
Earnings per share
Earnings per share were (17.3)p (2007 - 27.9p). Before restructuring and impairment charges, amortisation of non-operating intangible assets arising on business combinations, profits and losses on the sale or closures of businesses, changes in the value of derivative and other financial instruments and discontinued operations, the figure was 23.8p (2007 - 35.1p), a decrease of 32%.
Cash flow
Operating cash flow, which is defined as cash generated from operations (£328 million; 2007 - £299 million) adjusted for capital expenditure (£205 million; 2007 - £192 million), proceeds from the disposal of fixed assets (£7 million; 2007 - £21 million), proceeds from capital grants (£1 million; 2007 - £nil) and joint venture dividends (£24 million; 2007 - £13 million), was an inflow of £155 million compared with a £141 million inflow in 2007.
The outflow on working capital and provisions totalled £4 million (2007 - £49 million) largely reflecting favourable working capital movements. The figure also included a £3 million outflow in respect of legacy environmental obligations (2007 - £9 million) where a further £7 million is expected to be spent in 2009.
Capital expenditure (on tangible and intangible assets) totalled £204 million (2007 - £192 million). Of this, £192 million (2007 - £172 million) was on tangible assets representing property, plant and equipment and was 1.2 times (2007 - 1.2 times) the charge for depreciation. The ratio of capital expenditure to depreciation is expected to reduce significantly in 2009, recognising the level of prior years' investments and the need to fund the current restructuring programme.
Expenditure on intangible assets totalled £13 million (2007 - £20 million) and mainly reflected initial non-recurring costs on Aerospace programmes.
Net interest paid totalled £47 million compared with £44 million in 2007. The increase was largely due to higher net UK borrowings during the year, with the impact of prior year acquisitions being offset by the interest on the AgustaWestland deferred consideration released from escrow.
Tax paid in the year was £45 million (2007 - £28 million), the most significant increase being in respect of German taxes as cumulative prior year liabilities were settled.
Dividends received from joint ventures totalled £24 million (2007 - £13 million) including the Group's first dividend of £5 million from its UK Chassis Systems joint venture.
Free cash flow
Free cash flow, which is cash flow excluding acquisitions and currency translation but including capital expenditure and dividends paid, is a key performance indicator of the Group. Free cash flow for the year was an outflow of £38 million (2007 - £23 million) after £28 million (2007 - £40 million) of expenditure on the Group's restructuring programmes. The year on year increase reflects investment in tangible fixed assets, net of property proceeds.
Acquisitions and divestments
The net expenditure on acquisitions and divestments in the year was £1 million (2007 - £71 million) being the final payments in respect of prior year acquisitions.
Net borrowings
At the end of the year the Group had net debt of £708 million (2007 - £506 million). This includes the negative impact of closing out Group balance sheet hedges in the final quarter (net cost £221 million) and the benefit of £79 million (2007 - £42 million) from customer advances in the Aerospace businesses which are shown in creditors in the balance sheet. The Group's share of net borrowings in joint ventures was £1 million (2007 - net funds £14 million).
Pensions and post-employment obligations
GKN operates a number of defined benefit and defined contribution pension schemes together with retiree medical arrangements across the Group. The total charge to trading profit in respect of current and past service costs, together with curtailments of defined benefit schemes and retiree medical arrangements was £25 million (2007 - £19 million), whilst other net financing charges included in net financing costs were £3 million (2007 - £3 million).
The increase in the charge to trading profit mainly reflects an increased UK current service cost, £4 million higher than in 2007. Changes to US pension benefit arrangements in Driveline, Sinter Metals and Hoeganaes in 2008, have resulted in a £12 million curtailment credit, broadly equivalent to the US past service credit recognised in 2007 on retiree medical changes. The ongoing annual benefit of the 2008 changes is £2 million to trading profit. Further information including asset, liability and mortality assumptions used is provided in note 12.
UK pensions
The UK defined benefit scheme is considered to be relatively mature with just over 4,000 of its 52,000 members currently in service. As a UK defined benefit scheme, it is run on a funded basis with funds set aside in trust to cover future liabilities to members. The scheme specific funding valuation and schedule of contributions as at April 2007 remains in force. The current schedule of contributions does not require any deficit funding during 2009.
With the acquisition of the Airbus wing component and sub-assembly business at Filton in January 2009, the UK scheme membership increased by 1,200. These members joined the GKN pension scheme for future service benefits. There is a relatively small increase in past service liabilities of £22 million which was recognised in the purchase amount paid to Airbus, and which will be paid as a further contribution into the scheme.
The charge relating to the UK defined benefit scheme reflected in trading profit in respect of current and past service costs/curtailments was £21 million (2007 - £17 million), whilst other net financing credits included in net financing costs were £14 million (2007 - £13 million). Restructuring activities in the UK in the final quarter of the year attracted a past service charge of £1 million.
The accounting deficit at 31 December 2008 of £272 million (2007 - £3 million) was significantly higher than that at the end of 2007. This was as a result of the adverse impact of the actual asset returns compared with expected return more than offsetting both the benefit of the change in yields on long dated corporate bonds used to determine future liability values and the impact from a lower inflation assumption.
The next scheduled actuarial funding review of the scheme is due in 2010.
Overseas pensions
The principal countries involved in overseas pensions are the US, Germany and Japan.
The net charge to trading profit in respect of current and past service costs/curtailments was £4 million (2007 - £13 million), whilst other net financing charges included in net financing costs were £14 million (2007 - £12 million). The trading profit charge benefited from the one-time US curtailments of £12 million.
The increase in the deficit of £213 million to £494 million (2007 - £281 million) was largely a result of currency movements which increased this deficit by £125 million, and the net impact of actual asset returns experienced and discount rate changes which increased the deficit by a further £79 million.
Retiree medical
GKN operates retiree medical arrangements in the Americas and has a scheme, closed to new members, in the UK.
The charge to trading profit in 2008 was £nil (2007 - £11 million credit). The 2007 credit arose from changes in retiree medical arrangements in the US. Other net financing charges included in net financing costs were £3 million (2007 - £4 million).
As a result of these changes, the impact of currency translation and changes in the discount rates used to value the liabilities, the obligation in respect of all schemes at the end of the year was £68 million compared with £47 million at the end of 2007.
Summary
At 31 December 2008 the post-employment obligations of the Group totalled £834 million (2007 - £331 million), details of which can be found in note 12.
Shareholders' equity
Shareholders' equity at the end of 2008 was £905 million compared with £1,177 million at the end of 2007.
Dividend
The Board has reviewed the full year dividend and has decided not to pay a final dividend for 2008. This decision was made due to the severe operating environment for GKN's businesses and the consequent need to adopt a more prudent liquidity policy for the Group. The Board's commitment to a progressive long term dividend policy continues.
The total dividend for the year is, therefore, the interim dividend of 4.5p. The dividend is covered 5.3 times (2007 - 2.6 times) by management earnings (i.e. before the impact of restructuring and impairment charges, amortisation of non-operating intangible assets arising on business combinations, profits and losses on the sale or closures of businesses, changes in the value of derivative and other financial instruments and discontinued operations). Using the cash tax rate for the year of 15%, the dividend was covered 4.6 times by earnings (2007 on the same basis - 2.3 times).
Financial resources and going concern
At 31 December 2008 the Group had net borrowings of £708 million. In addition, it had available, but undrawn, committed borrowing facilities totalling £402 million. On 5 January 2009, GKN completed the acquisition of the Airbus UK wing component and sub-assembly facility at Filton. New revolving credit facilities totalling £180 million became available to the Group on completion of this acquisition. Of the Group's total committed borrowing facilities £350 million is due to expire in July 2010.
The Directors have assessed the future funding requirements of the Group and the Company and compared them to the level of committed available borrowing facilities. The assessment included a review of both divisional and Group financial forecasts, financial instruments and hedging arrangements for the 15 months from the balance sheet date. Recognising that a number of industries and especially the automotive sector continue to be affected by the sharp global decline in demand, the Directors considered a range of potential scenarios within the key markets the Group serves and how these might impact on the Group's cash flow, facility headroom and banking covenants. The Directors also considered what mitigating actions the Group could take to limit any adverse consequences.
Having undertaken this work, the Directors are of the opinion that the Group has adequate committed resources to fund its operations for the foreseeable future and so determine that it is appropriate for the 2008 Group financial statements to be prepared on a going concern basis.
OPERATING REVIEW BY BUSINESS
AUTOMOTIVE
Markets
Approximately 58% of GKN's combined sales of subsidiaries and joint ventures are to the world's passenger car and light vehicle original equipment markets. Production levels in these markets are a key driver of Group performance and, in particular, of our Automotive and Powder Metallurgy operations. Historically the compound annual growth rate in global production has been around 3% with expectations that this rate would continue, albeit with significant regional variations.
In the first half of 2008 this pattern was repeated with stable markets in Western Europe and Japan and solid increases in the emerging markets, including the 'BRIC' countries of Brazil, Russia, India and China. However, demand in North America was weaker than expected, with a 12% decline in the annualised production rate to June 2008.
In the second half of the year, the effects of the global 'credit crunch' began to be felt and in the fourth quarter automotive volumes fell sharply in every region. No significant recovery is expected in overall global demand in the short term, with annual volumes for 2009 now forecast to fall within a range of 55 to 59 million vehicles (12-20% lower than the 68 million in 2008), again with regional variations (based on projections, including those of Global Insight).
Longer term, although the type and mix of vehicles may be different, global growth in vehicle production is expected to resume, trending roughly in line with overall growth in GDP.
Western Europe
In Western Europe (where sales to vehicle manufacturers accounted for approximately 30% of Group sales in the year (2007 - 32%)) overall production in 2008 was 14.7 million vehicles compared with 16.2 million in 2007, a decrease of approximately 9%. Falls were seen in the major Western European markets of Germany (3%), France (12%), Italy (20%), Spain (13%) and the UK (6%).
North America
In North America (where sales to vehicle manufacturers accounted for approximately 14% of Group sales in the year (2007 - 15%)) production in 2008 was 12.7 million vehicles, a reduction of 16% from the 15 million in 2007. Within the overall figure there was again a significant change in market share with Chrysler, Ford and General Motors continuing to lose volume to foreign manufacturers. Consumer preference also continued to move from light trucks and sports utility vehicles (SUVs) to crossover and passenger vehicles.
Emerging markets
Asia Pacific production (excluding Japan where the year on year production decreased by 1% to 11.1 million vehicles) grew by 2.9% in 2008. In China, production of 8.5 million vehicles was 5% above 2007, while production in India rose by 5% to 2.0 million. In Brazil, production increased by 7.4% to 2.9 million vehicles.
Sales in Asia Pacific and Brazil accounted for 13% and 3% respectively of Group revenues in the year.
GKN Driveline
GKN Driveline is the world's leading supplier of automotive driveline components and systems. As a global tier one supplier serving the world's major vehicle manufacturers, GKN Driveline's market leadership is based on strong engineering capabilities to achieve optimum driveline solutions - from the smallest ultra low-cost car to the most sophisticated premium vehicle demanding complex drivetrain dynamics. GKN Driveline has the broadest range of constant velocity jointed (CVJ) sideshafts, propshafts, mechanically and electronically controlled torque management and associated geared components.
2008 Highlights
On a management basis, GKN Driveline sales were £2,268 million (2007 - £2,052 million). Excluding the positive impact of currency (£284 million), the underlying decrease was £68 million (3%).
Within this, subsidiaries' sales in the year totalled £2,123 million compared with £1,922 million in 2007. The positive impact of currency translation was £262 million so that the underlying decrease was £62 million (3%). This decrease arose entirely in the second half, with sales in the first half 7% ahead on a constant currency basis. Second half sales on the same basis were £137 million lower than the comparable period last year. Demand fell across all regions and customers, with North America and Japan being particularly affected. Total GKN Driveline sales in the fourth quarter on a constant currency basis were 16% below the equivalent level in 2007.
The share of joint venture sales (which are not consolidated in the Group income statement but are set out in note 9 to this announcement) grew to £145 million from £130 million in 2007. On a constant currency basis, sales fell £7 million (5%) with the final quarter slowdown in China being the major contributor.
Trading profit of subsidiaries fell by £76 million from £149 million to £73 million. There was an overall benefit from currency translation of £29 million. Excluding this, the decrease was £105 million (59%) and the operating margin at constant currency reduced to 3.4% from 8.2%. Return on invested capital was 7.9% (2007 - 18.5%).
GKN Driveline's profits in the first half were held back by the rapid increase in material costs, particularly steel, which impacted profits by some £12 million in that period. Second half performance was severely impacted by the sharp global downturn in demand with profits in the half reduced to £2 million.
The Group's share of trading profit of joint ventures decreased from £17 million to £15 million with the underlying decrease, excluding currency impacts, being £5 million (25%). The decrease arose almost entirely in China, mainly as a consequence of lower sales.
As reported in the half year results, the strategic restructuring programme announced in 2004 was completed and charges in the year totalled £4 million (2007 - £19 million).
Further restructuring was launched in the last quarter of 2008, to enable the business to adjust to the severe market and economic downturn. Action was taken to downsize the workforce through redundancies and reductions in temporary and agency staff. In addition, short-time working and unscheduled plant shutdowns were introduced across all plants. In total around 1,700 people left Driveline in the final quarter. Further restructuring will be carried out in 2009 recognising continuing weak automotive markets.
Charges recognised in 2008 in relation to this restructuring, amounted to £33 million of which impairments were £25 million, redundancy and short-time working was £6 million, and other reorganisation costs were £2 million.
Capital expenditure on tangible assets in the year totalled £108 million (2007 - £94 million), representing 1.2 times (2007 - 1.3 times) depreciation.
During 2008 sideshaft production started at a new state-of-the-art facility at Oragadam, India. Expansion continued in China with ground breaking at a new sideshaft facility at Wuhan, the start of production for transmission differentials in Pudong and the opening of a new forge at Shenjiang (both in Shanghai). In addition a new sideshaft facility in Eskiesehir, Turkey was completed.
GKN Driveline invested £63 million in the year on research and development focused on advanced driveline products including ultra low cost driveshafts and active torque management devices. Amortisation of capitalised Electronic Torque Vectoring (ETV) development costs commenced in early 2008, as the programme went into production.
Sustaining its position as a global technology leader, GKN Driveline launched the first production ETV product for BMW, providing exceptional levels of agility and driving dynamics, and a high performance lightweight final drive units (FDU) and 4WD torque control for the new Nissan GT-R. Work continues with three customers on developing active front Super Limited Slip Differential (LSDs) and FDUs for hybrid vehicles.
During the year, the division won some 77% of all available CVJ driveshaft business, further enhancing future market share.
Other Automotive Businesses
Products
Our Other Automotive subsidiary businesses, which are predominantly UK based, but with small facilities in the US and China, manufacture structural components, chassis and engine cylinder liners for the passenger car, SUV and light vehicle and truck markets in Western Europe, the US and China. Customers include vehicle manufacturers and engine makers. We also have a 50% share in Chassis Systems Ltd (CSL) which manufactures structural chassis components for Jaguar Land Rover in the UK, and in Emitec which manufactures metallic substrates for catalytic converters in Germany, the US, China and India.
2008 Highlights
Sales on a management basis totalled £176 million compared with £229 million in 2007. Excluding the UK cylinder liner manufacturing operation, which was closed during 2007, the combined sales of continuing subsidiaries and joint ventures were £176 million compared with £207 million in 2007, with an underlying decrease of £44 million (20%).
Sales of subsidiaries in the year were £84 million compared with £109 million in 2007. Excluding the UK cylinder liner manufacturing operation, sales of £84 million were £3 million (3%) below 2007.
The share of sales of joint ventures decreased from £120 million to £92 million with a severe curtailment in activity levels, most notably in the second half, both in the structural chassis business and Emitec, which was particularly hard hit by declines in the particulate filter retrofit market.
Trading profit of continuing businesses on a management basis declined to £2 million from £12 million in 2007. Within this figure, there was a loss at subsidiaries of £4 million (2007 - £3 million loss). Joint venture profits reduced by £9 million impacted by volume losses in all businesses. The Chinese cylinder liner business was profitable in the year having reached breakeven in 2007.
Other Automotive businesses were significantly impacted by the market downturns, particularly in the UK and, as a result, an £11 million impairment charge has been taken against the carrying value of fixed assets. £2 million in redundancy costs were also incurred in the year and further restructuring actions will be implemented in 2009.
POWDER METALLURGY
Products
GKN's Powder Metallurgy business consists of two elements: GKN Sinter Metals producing sintered components and Hoeganaes producing metal powders, the raw material for component production. This combination provides a number of advantages, including technology development. Powder is largely iron based, although growth is also being seen in the use of aluminium and alloys.
GKN Sinter Metals
GKN Sinter Metals utilises powdered metals to manufacture precision automotive components for engines, transmissions and body and chassis applications as well as a range of components for other industrial and consumer applications.
Hoeganaes
Hoeganaes produces principally ferrous based metal powder, the raw material for ferrous based sintered components.
Markets
Approximately 80% of divisional sales are to automotive markets (which are discussed in detail on page 13), with around 29%, either directly or indirectly, to the North American operations of Chrysler, Ford and General Motors. The balance of 20% is to a range of other industries, including office equipment, white goods and home and garden. All of these markets weakened during 2008 with expectations for a continuing decline in 2009.
2008 Highlights
Sales in the year were £618 million compared with £602 million in 2007. The underlying sales decline, after the currency translation benefit of £68 million, was £52 million (8%).
The North American Powder Metallurgy business experienced difficult trading conditions throughout the year, with the impact of weak sales to General Motors and the prolonged American Axle strike in the first half being followed by the steep decline in overall US automotive builds in the second half.
The European Powder Metallurgy business achieved good growth in the first half of the year with sales 5% ahead of 2007, but experienced a steep decline in the second half such that full year sales were 16% below 2007 at constant exchange rates.
Hoeganaes' external customer sales were ahead of 2007, as a result of market share gains in Europe and Asia Pacific and increased surcharge revenues. Total tons shipped however were down 8% compared with 2007, the revenue impact of which was offset by higher customer surcharges.
GKN Sinter Metals businesses in the emerging markets of South America and Asia experienced growth of 12% in the first half of the year, but second half sales were broadly level with the comparative period in 2007 and sales in the final quarter of 2008 were down compared with 2007.
Despite a £6 million positive impact from currency translation, GKN Powder Metallurgy reported a full year loss of £2 million in 2008, compared with a trading profit of £29 million in 2007. The underlying profit decline, which arose predominantly in the second half of the year, was driven by the reduction in volumes, the impact of the American Axle strike and raw material cost volatility.
The divisional operating margin in 2008 was (0.3)% (2007 - 4.8%). Return on invested capital was (0.5)% (2007 - 6.9%).
The main raw material in the Powder Metallurgy business is scrap steel, prices for which were highly volatile in 2008, peaking in September at approximately $900 per ton, three times higher than the 2007 average. Powder alloying materials including nickel, copper and molybdenum remained at historically high levels for most of the year, before declining sharply in the final quarter. The management of input costs to remove volatility, recover costs and eliminate recovery lag from customers was a key focus for the year. Significant changes were made to achieve this with Hoeganaes moving to a monthly customer surcharge for all input materials. In addition, the Sinter Metals business now has surcharging mechanisms in place on around 80% of its business.
Actions implemented to respond to significant declines in sales volume included a total headcount reduction in the year of 1,200, coupled with short-time working in all plants during the fourth quarter. Additional actions to reduce the fixed cost base are also in place for 2009.
Net restructuring costs and asset impairments in 2008 totalled £106 million (2007 - £14 million). Of these, £81 million related to the impairment of assets in GKN Sinter Metals North America and an impairment of £11 million arising from the rationalisation of manufacturing activity across Hoeganaes' North American plants. Restructuring costs of £6 million were charged in the year and were in relation to redundancies, short-time working and other reorganisation costs.
Capital expenditure on tangible fixed assets in the period totalled £33 million (2007 - £38 million) with depreciation of £32 million (2007 - £28 million). The ratio of capital expenditure to depreciation was 1.0 times (2007 - 1.4 times).
New business wins related to emerging technology trends continued with a particular focus on applications to improve fuel efficiency and reduce emissions, such as variable valve timing in engines and high performance gear sets in automatic transmissions. Other business wins included manual transmission gears where the potential of 'design for Powder Metal' continues to enable performance differentiation over competing technologies.
OFFHIGHWAY
Products
GKN OffHighway designs, manufactures and distributes, on a global basis, a portfolio of products for offhighway vehicles primarily in the agricultural, construction, mining and other specialty vehicle markets. It consists of three primary business streams - driveline products, wheels and systems solutions which includes advanced power transmissions, axles and trailer equipment. The division is a global market leader in its wheels and driveline products businesses.
A service and distribution business supplies GKN's and other manufacturers' products to aftermarket wholesalers and distributors, principally within Europe.
Markets
During 2008, 68% of divisional sales were to the agricultural market, 20% to the construction and mining equipment market and the balance to the industrial machinery market. The wheels and driveline products businesses account for close to 80% of divisional sales, with the systems solutions business providing the balance. The wheels business has market shares in North America and Europe of 32% and 44% respectively. The driveline business enjoys shares of 27% and 51%, respectively, in the same regions.
The division's other businesses serve the original equipment market and aftermarket with a range of gearboxes, tractor attachments and axles.
Overall in 2008, the division showed solid year on year growth and achieved record sales. However, all end markets showed increasing weakness late in 2008 and are expected to decline further in 2009.
Agriculture
In Europe the overall agricultural machinery market continued a positive trend in 2008 compared with 2007. Record high crop prices in the first half of the year together with high demand and structural changes in the market, such as the rapid development of bio-fuels, drove demand for agricultural equipment.
In the second half, crop prices weakened and overall demand reduced in Europe and North America, but remained ahead of prior year levels.
Construction and mining
The construction and mining machinery markets had a mixed year with light construction heavily impacted by much reduced housing starts in Europe and North America, partially offset by heavy construction which remained strong until late in the year.
Mining equipment sales were strong for the majority of the year, with commodity prices at record highs and demand out-stripping capacity in certain areas. As commodity prices weakened in the latter part of the year, equipment order books showed signs of weakening and in 2009 demand is expected to reduce significantly in all product segments.
Industrial machinery
The industrial machinery sector includes products for material handling and a range of other industries. Demand in this sector in 2008 weakened in the latter half of the year, with a further weakening expected in 2009.
2008 Highlights
Sales of subsidiaries in the year were £549 million compared with £416 million in 2007, including a £53 million increase from currency translation effects. The underlying increase of £80 million (17%) mainly reflected strong market conditions in most markets for the first nine months of the year when the underlying sales increase was 20%, and the impact of price increases to cover significant material cost increases.
Trading profit of subsidiaries of £40 million was £11 million above 2007. Within this, the wheels business performed strongly as good sales growth and an improved operational performance, particularly in the Danish and US operations, contributed to improved profits. The driveline business enjoyed strong demand for its core products with sales of £189 million, an underlying increase of 22%. The return on sales for the division increased to 7.3% from 7.0% in 2007. Return on invested capital was 19.2% (2007 - 17.0%).
Around half of GKN OffHighway's cost structure is externally sourced materials ranging from steel coil to multiple components. In 2008, the business was successful in recovering rapidly increasing input costs from its customers.
In anticipation of market downturns, restructuring initiatives commenced in the fourth quarter of 2008 and resulted in charges of £3 million.
Capital expenditure on tangible fixed assets of £18 million (2007 - £11 million) was 1.5 times (2007 - 1.1 times) depreciation with the higher investment attributable to increased capacity for driveline gearboxes, manufacturing and information technology systems and improvement in relation to newly acquired plants.
During the year, the division was successful in attracting a high level of orders, increasing market share in Europe, North America and Asia. Specific areas of success included two major new customers for the new wheels plant in China, a long term global supply agreement with John Deere, new customers for GKN Rockford's mechanics driveshaft in Japan and Europe and significant growth for the gearbox business in Eastern Europe.
AEROSPACE
Products
GKN Aerospace is a global first tier provider of airframe and engine structures, components, assemblies, transparencies and engineering services to a wide range of aircraft and engine prime contractors and other first tier suppliers. It operates in three main product areas: aerostructures, propulsion systems and special products.
In 2008 approximately 52% of the division's revenues were aerostructures (2007 - 53%), 36% propulsion systems (2007 - 33%) and 12% special products (2007 - 14%). The aftermarket business spans all three sectors and continues to account for approximately 15% of total Aerospace revenues.
Markets
The overall aerospace market was strong in 2008 with significant growth in both the civil and defence sectors. During 2008, Airbus delivered 483 aircraft, an increase of 30 on the prior year, and Boeing delivered 375 aircraft, a reduction of 66 on the prior year primarily due to industrial action in the fourth quarter. Despite programme delays on new platforms, such as the Boeing 787 and Airbus A380 and A400M, airline order books remain strong for these products.
The civil market however started to soften in the final quarter of 2008, with business jet volumes weakening, together with cancellations in orders for some larger aircraft. Looking forward, the industry is facing a number of headwinds in the form of shortage of financing for new aircraft, together with significant reductions in both passenger and freight traffic. Further aircraft cancellations and softening of demand are expected during 2009 and 2010.
US defence programmes maintained or increased demand for both current and future requirements. Funding and commitment for new programmes, such as the Joint Strike Fighter (JSF) and CH-53K, remain strong and was supplemented with further multi-year contracts on existing platforms such as F-18, C-130J and V22 Osprey. Demand in the defence sector is expected to remain robust throughout 2009.
Whilst the price of oil has reduced from its peak of $147 per barrel in July 2008, there is increasing pressure within the aerospace industry to invest and develop lightweight innovative design solutions to improve not only fuel efficiency but the environmental impact of aviation. GKN Aerospace is well positioned to meet these challenges.
2008 Highlights
GKN Aerospace sales increased 22% in 2008 to £1,002 million (2007 - £820 million) including a £50 million translational currency benefit and £46 million from a full year of trading from the Teleflex acquisition, completed in June 2007.
The underlying sales growth in the first half was 12% which reduced in the second half to 8% primarily as a result of the Boeing strike, giving a full year organic growth rate of 10% (£86 million). The rotorcraft market was particularly strong with increased activity on both development and production programmes, including the Black Hawk, CH-53K, Chinook VH71 and Future Lynx.
Trading profit rose to £106 million from £83 million in 2007. Currency translation was £5 million favourable while there was a £6 million benefit from 2007 acquisitions, leaving an underlying improvement of £12 million (14%). The divisional operating margin improved in 2008 by 0.5% to 10.6% (2007 - 10.1%). Return on invested capital was 17.5% (2007 - 15.3%).
Capital expenditure on tangible assets in 2008 amounted to £31 million (2007 - £28 million) which represents 1.2 times depreciation (2007 - 1.2 times).
GKN investment in non-recurring programme costs was £9 million (2007 - £16 million) including those associated with the Airbus A350 XWB and the Boeing 767 winglet.
In 2008, GKN Aerospace secured a number of new programmes and achieved a number of significant milestones including:
selection to supply the integrated nacelle system for the Embraer MST and MLJ programme. This nacelle system is the third derivative application of the Honeywell HTF7000 engine that is already in service with Bombardier and in development for a future Gulfstream platform;
conclusion of a 60 aircraft multi-year supply contract for the Lockheed Martin C-130J nacelle system;
commencing delivery of Boeing 767 winglet sets to Aviation Partners; and
establishing the composite fan blade joint venture agreement with Rolls-Royce. Research and applied development operations have commenced with activities focused on the development of an advance composite fan blade for application in next generation single aisle (NGSA) engines.
Following EU regulatory approval, the transfer of ownership and operational control of the former Airbus UK Filton wing component and sub-assembly plant took place on 5 January 2009. The facility has lifetime agreements for A320 derivatives, A330, A340, A380 and A400M wing trailing and leading edges and wing system components. In addition, Airbus awarded GKN a life of programme contract on the A350 XWB including rear spar and wing trailing edge assembly, which is expected to generate revenues of $2 billion.
As a result of the softening in the civil aviation market in the fourth quarter of 2008, GKN Aerospace initiated the first elements of its restructuring activities in December. Restructuring charges were taken amounting to £3 million which was predominantly impairment of assets. Further restructuring will be carried out in 2009.
Cautionary Statement
This announcement contains forward looking statements which are made in good faith based on the information available at the time of its approval. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a number of risks and uncertainties that are inherent in any forward looking statement which could cause actual results to differ materially from those currently anticipated.
APPENDICES
These appendices do not form the statutory accounts of the Group. The statutory accounts for the year ended 31 December 2007 have been filed with the Registrar of Companies and contained an unqualified audit report. The audited results for 2008 were approved by the Board on 25 February 2009 and have been agreed with the auditors.
|
Page number |
|
|
GKN Consolidated financial information |
|
|
Consolidated Income Statement for the year ended 31 December 2008 |
23 |
|
Consolidated Statement of Recognised Income and Expense |
24 |
|
Consolidated Balance Sheet at 31 December 2008 |
25 |
|
Consolidated Cash Flow Statement for the year ended 31 December 2008 |
26 |
|
Note 1 - Segmental analysis |
27-28 |
|
Notes 2 - 13 |
29-39 |
|
Consolidated Income Statement |
|||||
|
For the year ended 31 December 2008 |
|
|
|
||
|
Notes |
2008 |
2007 |
|||
|
|
|
|
£m |
£m |
|
|
|
|||||
|
Sales |
1 |
4,376 |
3,869 |
||
|
|
|||||
|
|
Trading profit |
|
201 |
277 |
|
|
|
Restructuring and impairment charges |
(153) |
(31) |
||
|
|
Amortisation of non-operating intangible assets arising on business combinations |
(10) |
(8) |
||
|
|
Profits and losses on sale or closures of businesses |
- |
(7) |
||
|
|
Change in value of derivative and other financial instruments |
|
(124) |
(10) |
|
|
Operating profit/(loss) |
1 |
(86) |
221 |
||
|
|
|||||
|
Share of post-tax earnings of joint ventures |
9 |
6 |
24 |
||
|
|
|||||
|
|
Interest payable |
|
(66) |
(62) |
|
|
|
Interest receivable |
19 |
19 |
||
|
|
Other net financing charges |
|
(3) |
(3) |
|
|
Net financing costs |
4 |
(50) |
(46) |
||
|
|
|
|
|
|
|
|
Profit/(loss) before taxation |
(130) |
199 |
|||
|
|
|||||
|
Taxation |
5 |
10 |
(1) |
||
|
Profit/(loss) from continuing operations |
(120) |
198 |
|||
|
Profit after taxation from discontinued operations |
6 |
13 |
- |
||
|
|
|||||
|
Profit/(loss) after taxation for the year |
|
(107) |
198 |
||
|
|
|||||
|
Profit attributable to minority interests |
2 |
2 |
|||
|
Profit/(loss) attributable to equity shareholders |
(109) |
196 |
|||
|
|
|
|
(107) |
198 |
|
|
|
|||||
|
Earnings per share - p |
7 |
|
|||
|
Continuing operations - basic |
(17.3) |
27.9 |
|||
|
Continuing operations - diluted |
|
(17.3) |
27.8 |
||
|
Dividends per share - p |
8 |
|
|||
|
Interim dividend per share |
4.5 |
4.3 |
|||
|
Final dividend per share |
|
- |
9.2 |
||
|
Consolidated Statement of Recognised Income and Expense |
|||
|
For the year ended 31 December 2008 |
|
|
|
|
2008 |
2007 |
||
|
|
|
£m |
£m |
|
Currency variations |
565 |
66 |
|
|
Derivative financial instruments: |
|
||
|
Net transactional hedging |
(8) |
- |
|
|
Translational hedging |
(213) |
(28) |
|
|
Actuarial gains and losses on post-employment obligations: |
|
||
|
Subsidiaries |
(386) |
224 |
|
|
Joint ventures |
- |
1 |
|
|
Tax on items taken directly to equity |
(23) |
(92) |
|
|
Net profits/(losses) not recognised in the Income Statement |
(65) |
171 |
|
|
Profit/(loss) for the year |
(107) |
198 |
|
|
Total recognised income and expense for the year |
(172) |
369 |
|
|
|
|||
|
Total recognised income and expense for the year attributable to: |
|
||
|
Equity shareholders |
(178) |
365 |
|
|
|
Minority interests |
6 |
4 |
|
|
|
(172) |
369 |
|
Consolidated Balance Sheet |
|||
|
At 31 December 2008 |
|
|
|
|
Notes |
2008 |
2007 |
|
|
|
£m |
£m |
|
|
Assets |
|
||
|
Non-current assets |
|
||
|
Goodwill |
367 |
280 |
|
|
Other intangible assets |
153 |
136 |
|
|
Property, plant and equipment |
1,797 |
1,462 |
|
|
Investments in joint ventures |
9 |
119 |
100 |
|
Other receivables and investments |
23 |
22 |
|
|
Deferred tax assets |
5 |
52 |
56 |
|
|
2,511 |
2,056 |
|
|
Current assets |
|
||
|
Inventories |
718 |
552 |
|
|
Trade and other receivables |
645 |
571 |
|
|
Current tax assets |
17 |
2 |
|
|
Derivative financial instruments |
62 |
25 |
|
|
Cash and cash equivalents |
10 |
114 |
282 |
|
1,556 |
1,432 |
||
|
Total assets |
4,067 |
3,488 |
|
|
|
|||
|
Liabilities |
|
||
|
Current liabilities |
|
||
|
Borrowings |
10 |
(97) |
(92) |
|
Derivative financial instruments |
(190) |
(30) |
|
|
Trade and other payables |
(972) |
(837) |
|
|
Current tax liabilities |
(115) |
(104) |
|
|
Provisions |
(49) |
(45) |
|
|
|
(1,423) |
(1,108) |
|
|
Non-current liabilities |
|
||
|
Borrowings |
10 |
(725) |
(696) |
|
Derivative financial instruments |
(2) |
- |
|
|
Deferred tax liabilities |
5 |
(63) |
(75) |
|
Trade and other payables |
(38) |
(31) |
|
|
Provisions |
(54) |
(51) |
|
|
Post-employment obligations |
12 |
(834) |
(331) |
|
|
(1,716) |
(1,184) |
|
|
Total liabilities |
|
(3,139) |
(2,292) |
|
|
|
|
|
|
Net assets |
928 |
1,196 |
|
|
|
|||
|
Shareholders' equity |
|
||
|
Ordinary share capital |
372 |
372 |
|
|
Share premium account |
29 |
29 |
|
|
Retained earnings |
290 |
834 |
|
|
Other reserves |
214 |
(58) |
|
|
905 |
1,177 |
||
|
Minority interests - equity |
23 |
19 |
|
|
Total equity |
|
928 |
1,196 |
|
Consolidated Cash Flow Statement |
|||
|
For the year ended 31 December 2008 |
|
|
|
|
Notes |
2008 |
2007 |
|
|
|
|
£m |
£m |
|
Cash flows from operating activities |
|
||
|
Cash generated from operations |
11 |
328 |
299 |
|
Interest received |
18 |
16 |
|
|
Interest paid |
(66) |
(60) |
|
|
Tax paid |
(45) |
(28) |
|
|
Dividends received from joint ventures |
|
24 |
13 |
|
|
|
259 |
240 |
|
Cash flows from investing activities |
|
||
|
Purchase of property, plant and equipment |
(192) |
(172) |
|
|
Purchase of intangible assets |
(13) |
(20) |
|
|
Receipts of government capital grants |
1 |
- |
|
|
Proceeds from sale of fixed assets |
7 |
21 |
|
|
Acquisition of subsidiaries (net of cash acquired) |
(1) |
(71) |
|
|
Proceeds from sale of joint venture - discontinued |
6 |
18 |
- |
|
Investment in joint ventures |
(1) |
- |
|
|
Investment loans and capital contributions |
1 |
7 |
|
|
|
|
(180) |
(235) |
|
Cash flows from financing activities |
|
||
|
Net proceeds from ordinary share capital transactions |
1 |
5 |
|
|
Net proceeds from borrowing facilities |
112 |
14 |
|
|
Finance lease payments |
(9) |
(1) |
|
|
Repayment of borrowings |
(33) |
(6) |
|
|
Settlement of forward foreign currency contracts for net investment hedging |
(230) |
(12) |
|
|
Dividends paid to shareholders |
8 |
(97) |
(91) |
|
Dividends paid to minority interests |
(3) |
(1) |
|
|
|
|
(259) |
(92) |
|
|
|
|
|
|
Currency variations on cash and cash equivalents |
|
24 |
9 |
|
Movement in cash and cash equivalents |
(156) |
(78) |
|
|
Cash and cash equivalents at 1 January |
250 |
328 |
|
|
Cash and cash equivalents at 31 December |
11 |
94 |
250 |
|
Notes to the Announcement |
||||||||||
|
For the year ended 31 December 2008 |
||||||||||
|
1 |
Segmental analysis |
|||||||||
|
The Group is managed by type of business. Segmental information is provided having regard to the nature of the goods and services provided and the markets served. |
||||||||||
|
Primary reporting format - business segments |
||||||||||
|
Automotive |
||||||||||
|
Other |
Powder |
Corporate & |
||||||||
|
2008 |
Driveline |
Automotive |
Metallurgy |
OffHighway |
Aerospace |
Unallocated |
Total |
|||
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
||||
|
Sales |
2,123 |
84 |
618 |
549 |
1,002 |
- |
4,376 |
|||
|
|
|
|
|
|
|
|
||||
|
EBITDA |
168 |
- |
31 |
53 |
136 |
(11) |
377 |
|||
|
Depreciation and impairment charges |
(92) |
(4) |
(32) |
(12) |
(25) |
(1) |
(166) |
|||
|
Amortisation of intangible assets |
(3) |
- |
(1) |
(1) |
(5) |
- |
(10) |
|||
|
Trading profit/(loss) |
73 |
(4) |
(2) |
40 |
106 |
(12) |
201 |
|||
|
Restructuring |
- 2008 plan |
(23) |
(13) |
(106) |
(3) |
(3) |
(1) |
(149) |
||
|
- 2004 plan |
(4) |
- |
- |
- |
- |
- |
(4) |
|||
|
Other impairments |
- |
- |
- |
- |
- |
- |
- |
|||
|
Amortisation of business combination non-operating intangibles |
(2) |
- |
- |
(2) |
(6) |
- |
(10) |
|||
|
Profits and losses on sale or closures of businesses |
- |
- |
- |
- |
- |
- |
- |
|||
|
Change in value of derivative and other financial instruments |
(35) |
1 |
(4) |
(2) |
(93) |
9 |
(124) |
|||
|
Operating profit/(loss) |
9 |
(16) |
(112) |
33 |
4 |
(4) |
(86) |
|||
|
|
|
|
|
|
|
|
||||
|
Share of post-tax earnings of joint ventures before impairment |
13 |
4 |
- |
- |
(1) |
- |
16 |
|||
|
Impairment - post-tax |
(10) |
- |
- |
- |
- |
- |
(10) |
|||
|
Share of post-tax earnings of joint ventures |
3 |
4 |
- |
- |
(1) |
- |
6 |
|||
|
|
|
|
|
|
|
|
||||
|
Segment assets |
|
|
|
|
|
|
|
|||
|
Goodwill |
79 |
- |
32 |
51 |
205 |
- |
367 |
|||
|
Investments in joint ventures |
90 |
27 |
- |
2 |
- |
- |
119 |
|||
|
Derivative financial instruments |
1 |
- |
- |
1 |
60 |
- |
62 |
|||
|
Operating assets |
1,579 |
50 |
543 |
342 |
816 |
6 |
3,336 |
|||
|
Other unallocated assets: |
|
|
|
|
|
|
|
|||
|
- Cash and cash equivalents |
- |
- |
- |
- |
- |
114 |
114 |
|||
|
- Current tax assets |
- |
- |
- |
- |
- |
17 |
17 |
|||
|
- Deferred tax assets |
- |
- |
- |
- |
- |
52 |
52 |
|||
|
Total assets |
1,749 |
77 |
575 |
396 |
1,081 |
189 |
4,067 |
|||
|
|
|
|
|
|
|
|
||||
|
Segment liabilities |
|
|
|
|
|
|
|
|||
|
Derivative financial instruments |
(31) |
- |
(5) |
(4) |
(152) |
- |
(192) |
|||
|
Operating liabilities: |
|
|
|
|
|
|
|
|||
|
- Post-employment obligations |
(308) |
- |
(47) |
(77) |
(111) |
(291) |
(834) |
|||
|
- Other |
(474) |
(18) |
(114) |
(150) |
(305) |
(52) |
(1,113) |
|||
|
Other unallocated liabilities: |
|
|
|
|
|
|
|
|||
|
- Borrowings |
- |
- |
- |
- |
- |
(822) |
(822) |
|||
|
- Current tax liabilities |
- |
- |
- |
- |
- |
(115) |
(115) |
|||
|
- Deferred tax liabilities |
- |
- |
- |
- |
- |
(63) |
(63) |
|||
|
Total liabilities |
(813) |
(18) |
(166) |
(231) |
(568) |
(1,343) |
(3,139) |
|||
|
|
|
|
|
|
|
|
||||
|
Other segment items |
|
|
|
|
|
|
|
|||
|
Capital expenditure |
|
|
|
|
|
|
|
|||
|
- Property, plant and equipment |
108 |
1 |
33 |
18 |
31 |
1 |
192 |
|||
|
- Intangible assets |
3 |
- |
- |
1 |
9 |
- |
13 |
|||
|
Other non-cash expenses (share-based payments) |
1 |
- |
- |
- |
- |
1 |
2 |
|||
|
All business segments shown above are continuing. EBITDA is earnings before interest, tax, depreciation and amortisation. Amounts in respect of discontinued operations in the period, £13 million post-tax, were attributable to the final proceeds on the disposal of the Group's Aerospace joint venture investment in AgustaWestland. |
||||||||||
|
1 |
Segmental analysis (continued) |
||||||||||||||
|
Primary reporting format - business segments |
|||||||||||||||
|
Automotive |
|||||||||||||||
|
Other |
Powder |
Corporate & |
|||||||||||||
|
2007 |
Driveline |
Automotive |
Metallurgy |
OffHighway |
Aerospace |
Unallocated |
Total |
||||||||
|
£m |
£m |
£m |
£m |
£m |
£m |
£m |
|||||||||
|
Sales |
1,922 |
109 |
602 |
416 |
820 |
- |
3,869 |
||||||||
|
EBITDA |
227 |
2 |
58 |
39 |
112 |
(10) |
428 |
||||||||
|
Depreciation and impairment charges |
(75) |
(5) |
(28) |
(10) |
(24) |
- |
(142) |
||||||||
|
Amortisation of intangible assets |
(3) |
- |
(1) |
- |
(5) |
- |
(9) |
||||||||
|
Trading profit/(loss) |
149 |
(3) |
29 |
29 |
83 |
(10) |
277 |
||||||||
|
Restructuring - 2004 plan |
(19) |
- |
(14) |
- |
- |
- |
(33) |
||||||||
|
Other impairments |
- |
2 |
- |
- |
- |
- |
2 |
||||||||
|
Amortisation of business combination non-operating intangibles |
(1) |
- |
- |
(2) |
(5) |
- |
(8) |
||||||||
|
Profits and losses on sale or closures of businesses |
- |
(7) |
- |
- |
- |
- |
(7) |
||||||||
|
Change in value of derivative and other financial instruments |
(1) |
(1) |
(1) |
(2) |
(5) |
- |
(10) |
||||||||
|
Operating profit/(loss) |
128 |
(9) |
14 |
25 |
73 |
(10) |
221 |
||||||||
|
Share of post-tax earnings of joint ventures |
14 |
10 |
- |
- |
- |
- |
24 |
||||||||
|
Segment assets |
|||||||||||||||
|
Goodwill |
65 |
- |
24 |
38 |
153 |
- |
280 |
||||||||
|
Investments in joint ventures |
71 |
28 |
- |
1 |
- |
- |
100 |
||||||||
|
Derivative financial instruments |
6 |
- |
- |
- |
19 |
- |
25 |
||||||||
|
Operating assets |
1,280 |
56 |
531 |
251 |
620 |
5 |
2,743 |
||||||||
|
Other unallocated assets: |
|||||||||||||||
|
- Cash and cash equivalents |
- |
- |
- |
- |
- |
282 |
282 |
||||||||
|
- Current tax assets |
- |
- |
- |
- |
- |
2 |
2 |
||||||||
|
- Deferred tax assets |
- |
- |
- |
- |
- |
56 |
56 |
||||||||
|
Total assets |
1,422 |
84 |
555 |
290 |
792 |
345 |
3,488 |
||||||||
|
Segment liabilities |
|||||||||||||||
|
Derivative financial instruments |
(1) |
(1) |
(1) |
(1) |
(9) |
(17) |
(30) |
||||||||
|
Operating liabilities: |
|||||||||||||||
|
- Post-employment obligations |
(208) |
(7) |
(23) |
(45) |
(32) |
(16) |
(331) |
||||||||
|
- Other |
(446) |
(21) |
(122) |
(115) |
(209) |
(51) |
(964) |
||||||||
|
Other unallocated liabilities: |
|||||||||||||||
|
- Borrowings |
- |
- |
- |
- |
- |
(788) |
(788) |
||||||||
|
- Current tax liabilities |
- |
- |
- |
- |
- |
(104) |
(104) |
||||||||
|
- Deferred tax liabilities |
- |
- |
- |
- |
- |
(75) |
(75) |
||||||||
|
Total liabilities |
(655) |
(29) |
(146) |
(161) |
(250) |
(1,051) |
(2,292) |
||||||||
|
Other segment items |
|||||||||||||||
|
Capital expenditure |
|||||||||||||||
|
- Property, plant and equipment |
94 |
2 |
38 |
11 |
28 |
1 |
174 |
||||||||
|
- Intangible assets |
3 |
- |
- |
1 |
16 |
- |
20 |
||||||||
|
Other non-cash expenses (share-based payments) |
2 |
- |
1 |
- |
1 |
2 |
6 |
||||||||
|
All business segments shown above are continuing. |
|||||||||||||||
|
Intra-group sales between segments and regions are not significant. The analyses of operating profit by business includes an allocation, based on their nature, of costs incurred centrally in the United Kingdom, United States of America, China and Germany. Unallocated costs represent corporate expenses. Segment assets and liabilities comprise all non-current and current items as per the balance sheet but exclude taxation, borrowings and cash and cash equivalents. Cash and cash equivalents and borrowings are not allocated to specific segments as these resources are managed centrally and no business in any segment has sufficient autonomy to manage these resources. Segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be used for more than one year. |
|||||||||||||||
|
Secondary reporting format - by geographical region |
|||||||||||||||
|
Sales by destination |
Segment assets |
Capital expenditure |
|||||||||||||
|
2008 |
2007 |
2008 |
2007 |
2008 |
2007 |
||||||||||
|
£m |
£m |
£m |
£m |
£m |
£m |
||||||||||
|
Continuing operations |
|
|
|
||||||||||||
|
Europe |
2,018 |
1,773 |
1,709 |
1,411 |
96 |
87 |
|||||||||
|
Americas |
1,748 |
1,595 |
1,623 |
1,315 |
78 |
75 |
|||||||||
|
Rest of the World |
610 |
501 |
546 |
417 |
31 |
32 |
|||||||||
|
Corporate and Unallocated |
- |
- |
189 |
345 |
- |
- |
|||||||||
|
|
4,376 |
3,869 |
4,067 |
3,488 |
205 |
194 |
|||||||||
|
2 |
Restructuring and impairment charges |
||||||||||||||||
|
2008 |
2007 |
||||||||||||||||
|
Restructuring programmes |
Restructuring |
Other |
|||||||||||||||
|
2008 plan |
2004 plan |
Total |
2004 plan |
Impairments |
Total |
||||||||||||
|
|
£m |
£m |
£m |
£m |
£m |
£m |
|||||||||||
|
Restructuring and impairment charges |
|
|
|
||||||||||||||
|
Goodwill impairment |
- |
- |
- |
- |
- |
- |
|||||||||||
|
Tangible fixed asset impairments/reversals |
(125) |
(2) |
(127) |
7 |
2 |
9 |
|||||||||||
|
Other asset write-downs |
(4) |
- |
(4) |
(1) |
- |
(1) |
|||||||||||
|
(129) |
(2) |
(131) |
6 |
2 |
8 |
||||||||||||
|
Redundancy and employee related costs including post-employment curtailments |
(16) |
- |
(16) |
(16) |
- |
(16) |
|||||||||||
|
Other reorganisation costs including property surplus |
(4) |
(2) |
(6) |
(23) |
- |
(23) |
|||||||||||
|
Subsidiaries |
(149) |
(4) |
(153) |
(33) |
2 |
(31) |
|||||||||||
|
Impairment of joint ventures |
(10) |
- |
(10) |
- |
- |
- |
|||||||||||
|
Subsidiaries and joint ventures |
(159) |
(4) |
(163) |
(33) |
2 |
(31) |
|||||||||||
|
|
|
||||||||||||||||
|
Restructuring |
|||||||||||||||||
|
The Group's 2004 restructuring programme concluded in the first half of 2008, with the costs charged relating mainly to reorganisation costs (including incremental costs borne by the Group as a consequence of dedicated restructuring and transition teams) equipment relocation costs attributable to the transfer of equipment between closing facilities and continuing operations, incremental premium freight and product homologation costs. These costs were incurred in Driveline operations in North America and Europe and were charged in the first half of 2008. In response to the severe economic downturn in our automotive markets and in anticipation of activity reductions in both offhighway and aerospace markets, the Group commenced further restructuring in the final quarter of 2008. As a result of this planned restructuring, charges amounting to £149 million in subsidiaries and an impairment in respect of joint venture investments, £10 million, have been recognised. Cash based charges amount to £20 million. An analysis by segment and description of the 2008 restructuring plan charges is set out below. |
|||||||||||||||||
|
2008 Plan |
|||||||||||||||||
|
Impairments |
Redundancy |
Reorganisation |
Total |
||||||||||||||
|
£m |
£m |
£m |
£m |
||||||||||||||
|
Driveline |
(25) |
(6) |
(2) |
(33) |
|||||||||||||
|
Other Automotive |
(11) |
(2) |
- |
(13) |
|||||||||||||
|
Powder Metallurgy |
(100) |
(4) |
(2) |
(106) |
|||||||||||||
|
OffHighway |
- |
(3) |
- |
(3) |
|||||||||||||
|
Aerospace |
(3) |
- |
- |
(3) |
|||||||||||||
|
Corporate |
- |
(1) |
- |
(1) |
|||||||||||||
|
|
(139) |
(16) |
(4) |
(159) |
|||||||||||||
|
Subsidiaries |
(129) |
(16) |
(4) |
(149) |
|||||||||||||
|
Joint ventures |
(10) |
- |
- |
(10) |
|||||||||||||
|
The £139 million impairments reflect either planned changes and commercial actions to the structure of how our businesses satisfy customer demand or write-downs as a result of significant curtailment in the future volume expectations of certain businesses. In Powder Metallurgy impairments of £100 million include the impact on the Sinter Metals North American fixed asset base on the back of significant reductions in automotive volume projections (£81 million) and reductions to estimated realisable values of the fixed assets and inventories (£11 million) in Hoeganaes attributable to two businesses that are being exited. In Driveline impairments are attributable to the rationalisation of UK manufacturing capacity (£10 million) and write-offs of dedicated customer programme specific fixed assets arising on programme cancellation or volume reductions (£5 million). In Aerospace the reduction of engine component production capacity in Europe as a result of transfers to the US, in agreement with specific customers, has resulted in fixed asset write-downs of £3 million. As a consequence of intractable losses, severe volume reductions and forecast cash outflows into the foreseeable future in our UK Other Automotive subsidiary business the entire production fixed asset base has been impaired (£11 million). Impairments recognised in respect of joint ventures reflect a change in how Driveline will satisfy customer supply in selected geographical territories. Consequently joint venture arrangements are being unwound and the carrying value of the Group's investment therein, has been fully impaired. Non-asset related 2008 plan charges are predominantly employee related and include short-time working costs of £2 million, redundancy charges of £14 million including £1 million attributable pension past service costs and other reorganisation costs of £4 million. Other reorganisation costs include £2 million of charges in respect of an onerous consumables supply lease that arose as a consequence of the curtailment of activity in a Powder Metallurgy site. Redundancy costs provided represent charges for contractual severance, other employee related exit costs and post-employment augmentation charges where applicable. These charges have only been recognised where formal communication with the employees or relevant employee bodies had taken place before 31 December 2008. Short-time working represents payments made to employees in the period when they are away from the workplace and not engaged in any productive or non-productive activities in the plants affected, and therefore are not contributing to the business operations. The 2007 restructuring charges of £33 million relate to the Group's 2004 restructuring programme to facilitate geographical migration of Driveline production capacity, support recovery actions in Powder Metallurgy and the realignment and reduction of production capacity, overhead and infrastructure cost across the Group. Pension past service charges included therein amounted to £4 million in the year. Other reorganisation charges are net of a £2 million property surplus in a Powder Metallurgy business sold post restructuring closure. Cash outflow in respect of 2008, 2004 and earlier periods' strategic restructuring actions amounted to £28 million (2007: £40 million including £4 million property disposal proceeds). Other impairments The £2 million impairment reversal recognised in 2007 arose in relation to the Group's UK cylinder liner manufacturing operation. The business disposed of land and buildings and plant and machinery at a value greater than the theoretical net book value of the assets had they not been impaired, consequently a proportion of the previously recognised impairment has been reversed. |
|||||||||||||||||
|
3 |
Amortisation of non-operating intangible assets arising on business combinations |
|||
|
2008 |
2007 |
|||
|
£m |
£m |
|||
|
Marketing related |
- |
- |
||
|
Customer related |
(7) |
(5) |
||
|
Technology based |
(3) |
(3) |
||
|
(10) |
(8) |
|||
|
Profits and losses on sale or closures of businesses |
||||
|
2008 |
2007 |
|||
|
£m |
£m |
|||
|
Profits and losses on closure of businesses |
|
|||
|
Trading losses of the UK cylinder liner manufacturing operation |
- |
(7) |
||
|
Change in value of derivative and other financial instruments |
||||
|
2008 |
2007 |
|||
|
£m |
£m |
|||
|
Embedded derivatives |
43 |
- |
||
|
Forward exchange contracts (not hedge accounted) |
(175) |
(9) |
||
|
Commodity contracts (not hedge accounted) |
(1) |
(1) |
||
|
Net gains and losses on intra-group funding |
9 |
- |
||
|
(124) |
(10) |
|||
|
IAS 39 requires derivative financial instruments to be valued at the balance sheet date and any difference between that value and the intrinsic value of the instrument to be reflected in the balance sheet as an asset or liability. Any subsequent change in value is reflected in the income statement unless hedge accounting is achieved. Such movements do not affect cash flow or the economic substance of the underlying transaction. In 2008 and 2007 the Group used transactional hedge accounting in a limited number of instances. As a consequence, and to assist year on year comparison, the change in value continues to be identified as a separate element of operating profit. |
||||
|
4 |
Net financing costs |
|||
|
2008 |
2007 |
|||
|
£m |
£m |
|||
|
Interest payable and fee expense |
|
|||
|
Short-term bank and other borrowings |
(11) |
(7) |
||
|
Loans repayable within five years |
(29) |
(29) |
||
|
Loans repayable after five years |
(26) |
(25) |
||
|
Finance leases |
- |
(1) |
||
|
(66) |
(62) |
|||
|
Interest receivable |
|
|||
|
Short-term investments, loans and deposits |
7 |
9 |
||
|
Net investment hedges |
9 |
10 |
||
|
AgustaWestland escrow receipt |
3 |
- |
||
|
19 |
19 |
|||
|
Net interest payable and receivable |
(47) |
(43) |
||
|
Other net financing charges |
||||
|
Expected return on pension scheme assets |
163 |
146 |
||
|
Interest on post-employment obligations |
(166) |
(149) |
||
|
(3) |
(3) |
|||
|
Net financing costs |
(50) |
(46) |
||
|
5 |
Taxation |
|||||||||
|
2008 |
2007 |
|||||||||
|
Analysis of charge in year |
£m |
£m |
||||||||
|
Current tax charge/(credit) |
|
|||||||||
|
Current year |
33 |
38 |
||||||||
|
Utilisation of previously unrecognised tax losses and other assets |
(44) |
(9) |
||||||||
|
Adjustments in respect of prior years |
1 |
3 |
||||||||
|
|
Net movement on provisions for uncertain tax positions |
- |
4 |
|||||||
|
|
|
(10) |
36 |
|||||||
|
Deferred tax charge/(credit) |
|
|||||||||
|
Origination and reversal of temporary differences (excluding post-employment obligations) |
(69) |
12 |
||||||||
|
Tax in respect of post-employment obligations |
(5) |
(3) |
||||||||
|
Tax on change in value of derivative financial instruments |
(2) |
- |
||||||||
|
Utilisation of previously unrecognised tax losses and other assets |
- |
(7) |
||||||||
|
Other changes in unrecognised deferred tax assets |
80 |
(28) |
||||||||
|
Changes in tax rates |
(2) |
(8) |
||||||||
|
|
Adjustments in respect of prior years |
(2) |
(1) |
|||||||
|
- |
(35) |
|||||||||
|
Total tax charge/(credit) for the year |
(10) |
1 |
||||||||
|
|
|
|
|
|||||||
|
Tax in respect of restructuring, impairments and derivative financial instruments included above |
||||||||||
|
Current tax (credit)/charge |
(3) |
(7) |
||||||||
|
|
Deferred tax (credit)/charge |
(4) |
2 |
|||||||
|
|
|
(7) |
(5) |
|||||||
|
Tax in respect of utilisation of previously unrecognised losses against foreign exchange gains and losses on intra-group funding included above |
||||||||||
|
|
Current tax (credit)/charge |
(29) |
- |
|||||||
|
Details of the effective tax rate for the Group and the underlying events and transactions affecting this are given on pages 9 and 10. |
||||||||||
|
2008 |
2007 |
|||||||||
|
Tax reconciliation |
£m |
% |
£m |
% |
||||||
|
Profit/(loss) before tax |
(130) |
|
199 |
|||||||
|
Less share of post-tax earnings of joint ventures |
(6) |
|
(24) |
|||||||
|
Profit/(loss) before tax excluding joint ventures |
(136) |
|
175 |
|
||||||
|
|
|
|||||||||
|
Tax (credit)/charge calculated at 28.5% (2007: 30.0%) standard UK corporate tax rate |
(39) |
29% |
53 |
30% |
||||||
|
Differences between UK and overseas corporate tax rates |
(10) |
7% |
5 |
2% |
||||||
|
Non-deductible and non-taxable items |
11 |
(8%) |
(8) |
(4%) |
||||||
|
Utilisation of previously unrecognised tax losses and other assets |
(44) |
32% |
(16) |
(9%) |
||||||
|
Other changes in unrecognised deferred tax assets |
80 |
(59%) |
(28) |
(16%) |
||||||
|
Changes in tax rates |
(2) |
1% |
(8) |
(4%) |
||||||
|
Deferred tax (credit)/charge in respect of post-employment obligations |
(5) |
4% |
(3) |
(1%) |
||||||
|
Current year tax charge/(credit) on ordinary activities |
(9) |
6% |
(5) |
(2%) |
||||||
|
Net movement on provision for uncertain tax positions |
- |
- |
4 |
2% |
||||||
|
Adjustments in respect of prior years |
(1) |
1% |
2 |
1% |
||||||
|
Total tax charge/(credit) for the year |
(10) |
7% |
1 |
1% |
||||||
|
2008 |
2007 |
|||||||||
|
Tax on items included in equity (credit)/charge |
|
|
£m |
£m |
||||||
|
Deferred tax on post-employment obligations |
- |
84 |
||||||||
|
Deferred tax on non-qualifying assets |
(3) |
6 |
||||||||
|
Deferred tax on foreign exchange gains and losses on intra-group funding |
(3) |
2 |
||||||||
|
Current tax on foreign exchange gains and losses on intra-group funding |
29 |
- |
||||||||
|
|
|
|
|
23 |
92 |
|||||
|
5 |
Taxation (continued) |
|||||||||||||
|
Recognised deferred tax |
||||||||||||||
|
Deferred tax is calculated in full on temporary differences under the liability method. |
||||||||||||||
|
2008 |
2007 |
|||||||||||||
|
£m |
£m |
|||||||||||||
|
Deferred tax assets |
52 |
56 |
||||||||||||
|
Deferred tax liabilities |
(63) |
(75) |
||||||||||||
|
(11) |
(19) |
|||||||||||||
|
The movements in deferred tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction as permitted by IAS 12) during the period are shown below: |
||||||||||||||
|
Assets |
Liabilities |
Total |
||||||||||||
|
Pensions |
Tax losses |
Other |
Fixed assets |
Other |
||||||||||
|
£m |
£m |
£m |
|
£m |
£m |
£m |
||||||||
|
At 31 December 2007 |
21 |
47 |
69 |
|
(140) |
(16) |
(19) |
|||||||
|
Other movements |
11 |
(11) |
- |
- |
- |
- |
||||||||
|
Included in the Income Statement |
5 |
(29) |
(19) |
|
34 |
9 |
- |
|||||||
|
Included in equity |
- |
- |
- |
|
3 |
3 |
6 |
|||||||
|
Currency variations |
7 |
20 |
37 |
|
(63) |
1 |
2 |
|||||||
|
At 31 December 2008 |
44 |
27 |
87 |
|
(166) |
(3) |
(11) |
|||||||
|
Deferred tax assets totalling £14 million (2007: £35 million) have been recognised relating to territories where tax losses have been incurred in the year. It is anticipated that future profitability arising from restructuring and other actions will result in their realisation. |
||||||||||||||
|
Unrecognised deferred tax assets |
||||||||||||||
|
Deferred tax assets have not been recognised in relation to certain taxable losses and other temporary differences on the basis that their future economic benefit is uncertain. The gross and tax values of these unrecognised assets together with any expiry dates where relevant are shown below. The tax value of the assets has been calculated using tax rates enacted or substantively enacted at the balance sheet date. |
||||||||||||||
|
2008 |
2007 |
|||||||||||||
|
Tax value |
Gross |
Expiry |
Tax value |
Gross |
Expiry |
|||||||||
|
£m |
£m |
period |
|
£m |
£m |
period |
||||||||
|
Tax losses - with expiry: national |
300 |
867 |
2019-2028 |
186 |
532 |
2019-2027 |
||||||||
|
Tax losses - with expiry: local |
44 |
532 |
2009-2028 |
40 |
813 |
2008-2027 |
||||||||
|
Tax losses - without expiry |
66 |
202 |
|
118 |
402 |
|||||||||
|
Other temporary differences |
71 |
215 |
|
32 |
113 |
|||||||||
|
Unrecognised deferred tax assets |
481 |
1,816 |
|
|
376 |
1,860 |
|
|||||||
|
Included above are tax losses of £756 million with a tax value of £187 million (2007: £677 million with a tax value of £109 million) that are severely restricted for future use and management, based on the Group's current profile, believes they are unlikely to be utilised in the foreseeable future. No deferred tax is recognised on the unremitted earnings of overseas subsidiaries except where the distribution of such profits is planned. If the earnings were remitted in full tax of £28 million (2007: £25 million) would be payable. |
||||||||||||||
|
6 |
Discontinued Operations |
||||||||||||
|
In August 2008, the Group reached agreement with Finmeccanica regarding the £35 million deferred consideration placed into escrow in November 2004, the date of disposal of the Group's 50% share of AgustaWestland. Under the agreement the £35 million, together with accrued interest, was shared equally. As a result, £21 million was received, of which £3 million was recognised as interest and £18 million recognised as profit on sale of discontinued operations. The interest represents the cumulative interest on the escrow monies earnt during the period from initial disposal to final agreement. Tax of £5 million was charged against the profit on sale. |
|||||||||||||
|
7 |
Earnings per share |
||||||||||||
|
2008 |
2007 |
||||||||||||
|
Earnings |
Weighted average number of shares |
Earnings per share |
Earnings |
Weighted average number of shares |
Earnings per share |
||||||||
|
£m |
m |
pence |
£m |
m |
pence |
||||||||
|
Continuing operations |
|
|
|
||||||||||
|
Basic eps |
(122) |
704.7 |
(17.3) |
196 |
703.4 |
27.9 |
|||||||
|
Dilutive securities |
- |
1.1 |
- |
- |
2.9 |
(0.1) |
|||||||
|
Diluted eps |
(122) |
705.8 |
(17.3) |
196 |
706.3 |
27.8 |
|||||||
|
Discontinued operations |
|
|
|
||||||||||
|
Basic eps |
13 |
704.7 |
1.8 |
- |
- |
- |
|||||||
|
Dilutive securities |
- |
1.1 |
- |
- |
- |
- |
|||||||
|
Diluted eps |
13 |
705.8 |
1.8 |
- |
- |
- |
|||||||
|
Adjusted earnings per share - continuing operations |
|||||||||||||
|
2008 |
2007 |
||||||||||||
|
£m |
pence |
£m |
pence |
||||||||||
|
Adjusted earnings and adjusted basic earnings per share |
|
|
|||||||||||
|
Profit attributable to equity shareholders - continuing operations |
(122) |
(17.3) |
196 |
27.9 |
|||||||||
|
Adjustments for: |
|
|
|||||||||||
|
Restructuring and impairment charges |
153 |
21.7 |
31 |
4.4 |
|||||||||
|
Amortisation of non-operating intangibles on business combinations |
10 |
1.4 |
8 |
1.1 |
|||||||||
|
Profits and losses on sale or closures of businesses |
- |
- |
7 |
1.0 |
|||||||||
|
Change in value of derivative and other financial instruments |
124 |
17.6 |
10 |
1.4 |
|||||||||
|
Impairment of joint ventures |
10 |
1.4 |
- |
- |
|||||||||
|
Taxation on adjustments |
(7) |
(1.0) |
(5) |
(0.7) |
|||||||||
|
Adjusted earnings attributable to equity shareholders - continuing operations |
168 |
23.8 |
247 |
35.1 |
|||||||||
|
The Directors consider adjusted earnings per share, as calculated above, gives a useful additional indicator of underlying performance. |
|||||||||||||
|
8 |
Dividends |
||||||||||||
|
Paid or proposed in respect of: |
Recognised in: |
||||||||||||
|
2008 pence |
2007 pence |
2008 £m |
2007 £m |
||||||||||
|
2006 final year dividend paid (8.7 pence per share) |
- |
- |
- |
61 |
|||||||||
|
2007 interim dividend paid |
- |
4.3 |
- |
30 |
|||||||||
|
2007 final year dividend paid |
- |
9.2 |
65 |
- |
|||||||||
|
2008 interim dividend paid |
4.5 |
- |
32 |
- |
|||||||||
|
2008 final year dividend proposed |
- |
- |
- |
- |
|||||||||
|
4.5 |
13.5 |
97 |
91 |
||||||||||
|
9 |
Joint ventures |
||||||||
|
2008 |
2007 |
||||||||
|
Group share of results of joint ventures |
£m |
£m |
|||||||
|
Sales |
241 |
253 |
|||||||
|
Operating costs and other income |
(221) |
(221) |
|||||||
|
Trading profit |
20 |
32 |
|||||||
|
Net financing costs |
- |
- |
|||||||
|
Profit before taxation |
20 |
32 |
|||||||
|
Taxation |
(4) |
(8) |
|||||||
|
Share of post-tax earnings - before impairments |
16 |
24 |
|||||||
|
Impairment, including tax on impairment of nil |
(10) |
- |
|||||||
|
Share of post-tax earnings |
6 |
24 |
|||||||
|
The impairment charge attributable to a provision for diminution in value, which arises entirely in Driveline, arises as customer supply logistics are addressed in selected geographical territories and joint venture relationships are unwound. The segmental analysis of the Group's share of joint venture sales and trading profit is set out below: |
|||||||||
|
2008 |
2007 |
||||||||
|
Trading |
Trading |
||||||||
|
Sales |
Profit |
Sales |
Profit |
||||||
|
|
£m |
£m |
£m |
£m |
|||||
|
Driveline |
145 |
15 |
130 |
17 |
|||||
|
Other Automotive |
92 |
6 |
120 |
15 |
|||||
|
OffHighway |
4 |
- |
3 |
- |
|||||
|
Aerospace |
- |
(1) |
- |
- |
|||||
|
241 |
20 |
253 |
32 |
||||||
|
2008 |
2007 |
||||||||
|
Group share of net assets |
£m |
£m |
|||||||
|
At 1 January |
100 |
83 |
|||||||
|
Share of post-tax earnings of joint ventures |
16 |
24 |
|||||||
|
Dividends paid |
(24) |
(13) |
|||||||
|
Actuarial gain on post-employment obligations, including deferred tax |
- |
1 |
|||||||
|
Additions |
1 |
- |
|||||||
|
Currency variations |
36 |
5 |
|||||||
|
At 31 December |
129 |
100 |
|||||||
|
Accumulated impairment |
|
|
|||||||
|
Charge for the year |
10 |
- |
|||||||
|
At 31 December |
10 |
- |
|||||||
|
Net book amount at 31 December |
119 |
100 |
|||||||
|
|
|||||||||
|
Group share of net book amount at 31 December |
|
||||||||
|
Non-current assets |
97 |
70 |
|||||||
|
Current assets |
89 |
91 |
|||||||
|
Current liabilities |
(54) |
(50) |
|||||||
|
Non-current liabilities |
(13) |
(11) |
|||||||
|
119 |
100 |
||||||||
|
The joint ventures have no significant contingent liabilities to which the Group is exposed and nor has the group any significant contingent liabilities in relation to its interest in the joint ventures other than bank guarantees. |
|||||||||
|
10 |
Net Borrowings |
||||||||||||||
|
Current |
Non-current |
Total |
|||||||||||||
|
Within |
One to two |
Two to five |
More than |
Total |
|||||||||||
|
one year |
years |
years |
five years |
||||||||||||
|
2008 |
£m |
£m |
£m |
£m |
£m |
£m |
|||||||||
|
Other borrowings |
|
|
|
|
|
|
|||||||||
|
£350 million 6¾% 2019 unsecured bond |
- |
- |
- |
(346) |
(346) |
(346) |
|||||||||
|
£325 million 7% 2012 unsecured bond |
- |
- |
(325) |
- |
(325) |
(325) |
|||||||||
|
Other secured US$ denominated loan |
(2) |
(1) |
(4) |
(5) |
(10) |
(12) |
|||||||||
|
Other long term borrowings |
(7) |
(37) |
(3) |
- |
(40) |
(47) |
|||||||||
|
Finance lease obligations |
(1) |
(1) |
(2) |
(1) |
(4) |
(5) |
|||||||||
|
Bank overdrafts |
(20) |
- |
- |
- |
- |
(20) |
|||||||||
|
Other short -term bank borrowings |
(67) |
- |
- |
- |
- |
(67) |
|||||||||
|
Borrowings |
(97) |
(39) |
(334) |
(352) |
(725) |
(822) |
|||||||||
|
Bank balances and cash |
102 |
- |
- |
- |
- |
102 |
|||||||||
|
Short-term bank deposits |
12 |
- |
- |
- |
- |
12 |
|||||||||
|
Cash and cash equivalents |
114 |
- |
- |
- |
- |
114 |
|||||||||
|
Net borrowings at 31 December 2008 |
17 |
(39) |
(334) |
(352) |
(725) |
(708) |
|||||||||
|
Net borrowings at 31 December 2007 |
190 |
(6) |
(335) |
(355) |
(696) |
(506) |
|||||||||
|
The analysis of net borrowings by currency is set out below: |
|||||||||||||||
|
2008 |
2007 |
||||||||||||||
|
Borrowings |
Cash and cash equivalents |
Total |
Borrowings |
Cash and cash equivalents |
Total |
||||||||||
|
|
£m |
£m |
£m |
£m |
£m |
£m |
|||||||||
|
Sterling |
(726) |
24 |
(702) |
(702) |
152 |
(550) |
|||||||||
|
US dollar |
(27) |
15 |
(12) |
(36) |
10 |
(26) |
|||||||||
|
Euro |
(10) |
35 |
25 |
(12) |
41 |
29 |
|||||||||
|
Others |
(59) |
40 |
(19) |
(38) |
79 |
41 |
|||||||||
|
|
(822) |
114 |
(708) |
(788) |
282 |
(506) |
|||||||||
|
11 |
Cash flow reconciliations |
||||
|
2008 |
2007 |
||||
|
Cash generated from operations |
£m |
£m |
|||
|
Operating profit/(loss) |
(86) |
221 |
|||
|
Adjustments for: |
|||||
|
Depreciation, impairment and amortisation of fixed assets |
|||||
|
Charged to trading profit |
|||||
|
Depreciation |
165 |
141 |
|||
|
Impairment |
1 |
1 |
|||
|
Amortisation |
10 |
9 |
|||
|
Amortisation of non-operating intangible assets arising on business combinations |
10 |
8 |
|||
|
Restructuring and impairment charges |
127 |
(9) |
|||
|
Changes in fair value of derivative financial instruments |
133 |
10 |
|||
|
Amortisation of capital grants |
(2) |
(2) |
|||
|
Net profits on sale of fixed assets |
(1) |
(8) |
|||
|
Charge for share-based payments |
2 |
6 |
|||
|
Movement in post-employment obligations |
(26) |
(29) |
|||
|
Change in inventories |
7 |
(51) |
|||
|
Change in receivables |
93 |
(14) |
|||
|
Change in payables and provisions |
(105) |
16 |
|||
|
328 |
299 |
||||
|
Movement in net debt |
|||||
|
Net movement in cash and cash equivalents |
(156) |
(78) |
|||
|
Net movement in borrowings |
(79) |
(8) |
|||
|
Currency variations |
24 |
5 |
|||
|
Finance leases |
9 |
1 |
|||
|
Subsidiaries acquired and sold |
- |
- |
|||
|
Movement in year |
(202) |
(80) |
|||
|
Net debt at beginning of year |
(506) |
(426) |
|||
|
Net debt at end of year |
(708) |
(506) |
|||
|
Reconciliation of cash and cash equivalents |
|||||
|
Cash and cash equivalents per balance sheet |
114 |
282 |
|||
|
Bank overdrafts included within "current liabilities - borrowings" |
(20) |
(32) |
|||
|
Cash and cash equivalents per cashflow |
94 |
250 |
|||
|
12 |
Post-employment obligations |
||||||||||||||
|
2008 |
2007 |
||||||||||||||
|
Post-employment obligations as at the year end comprise: |
£m |
£m |
|||||||||||||
|
Pensions |
- funded |
(417) |
(24) |
||||||||||||
|
- unfunded |
(348) |
(260) |
|||||||||||||
|
Medical |
- funded |
(18) |
(9) |
||||||||||||
|
- unfunded |
(51) |
(38) |
|||||||||||||
|
(834) |
(331) |
||||||||||||||
|
Pensions and medical - funded |
|||||||||||||||
|
The Group's pension arrangements comprise various defined benefit and defined contribution schemes throughout the world. A number of retirement plans are operated which provide certain employees with post-employment medical benefits.Pensions In the UK, pension arrangements are made through an externally funded defined benefit scheme. In the USA and the Rest of the World there are a number of externally funded defined benefit schemes while in certain companies in Europe funds are retained within the business to provide for post-employment obligations. |
|||||||||||||||
|
Defined benefit schemes - measurement and assumptions Independent actuarial valuations of all major defined benefit scheme assets and liabilities were carried out at 31 December 2008. The present value of the defined benefit obligation, the related current service cost and the past service cost were measured using the projected unit credit method. Key assumptions were: |
|||||||||||||||
|
UK |
Americas |
Europe |
ROW |
||||||||||||
|
% |
% |
% |
% |
||||||||||||
|
2008 |
|
|
|
|
|||||||||||
|
Rate of increase in pensionable salaries |
3.9 |
3.5 |
2.50 |
3.5 |
|||||||||||
|
Rate of increase in payment and deferred pensions |
3.0 |
2.0 |
1.75 |
n/a |
|||||||||||
|
Discount rate |
6.5 |
5.8 |
6.00 |
2.0 |
|||||||||||
|
Inflation assumption |
2.9 |
2.5 |
1.75 |
1.0 |
|||||||||||
|
Rate of increases in medical costs: |
|
|
|
|
|||||||||||
|
initial/long term |
6.6/4.5 |
9.0/5.0 |
n/a |
n/a |
|||||||||||
|
2007 |
|||||||||||||||
|
Rate of increase in pensionable salaries |
4.3 |
3.5 |
2.50 |
2.0 |
|||||||||||
|
Rate of increase in payment and deferred pensions |
3.4 |
2.0 |
1.75 |
n/a |
|||||||||||
|
Discount rate |
5.9 |
6.4 |
5.60 |
2.3 |
|||||||||||
|
Inflation assumption |
3.3 |
2.5 |
1.75 |
1.0 |
|||||||||||
|
Rate of increases in medical costs: |
|||||||||||||||
|
initial/long term |
8.0/4.5 |
9.0/5.0 |
n/a |
n/a |
|||||||||||
|
The discount rates in the table above for the UK and Europe were referenced against specific iBoxx indices, whilst the Citigroup Liability index was the reference point for the USA discount rate. The reference for the UK discount rate was the yield as at 31st December on the iBoxx Corporate rated AA bonds with a maturity of 15 years plus, which was 6.7%. Allowing for movements in the rate immediately after the end of the year a discount rate of 6.5% was selected. The equivalent reference rate for Europe is the iBoxx Corporate rated AA bonds with a maturity of 10 years plus. The constituents of this index also changed on 2 January and the selected 6% discount rate reflects a 30 bps reduction in the yield from the reported 31 December, 2008 yield. For the USA, the discount rate matched the Citigroup liability index as at 31 December 2008 of 5.8%. The underlying mortality assumptions for the major schemes are as follows: |
|||||||||||||||
|
United Kingdom Such is the size and profile of the UK scheme that data on the scheme's mortality experience is collected and reviewed annually. The key current year mortality assumptions for the scheme use PA92 (Year of Birth) tables with a plus 2.5 year age adjustment to reflect actual mortality experience for the scheme together with medium cohort projected improvement in longevity. Using these assumptions a male aged 65 lives for a further 19.8 years, whilst a male aged 40 is expected to live a further 21 years after retiring at 65. The prior period valuations used the same mortality assumptions. |
|||||||||||||||
|
Overseas In the USA, CL2007 tables which were first adopted in 2007 have been used whilst in Germany the RT2005-G tables have again been used. In the USA the longevity assumption for a male aged 65 is that he lives a further 18.8 years whilst in Germany for a further 17.7 years. The longevity assumption for a USA male currently aged 40 is that he also lives for a further 18.8 years once attaining 65 years, with the German equivalent assumption being 17.7 years. These assumptions are based solely on the prescribed tables not on actual GKN experience. |
|||||||||||||||
|
Assumption sensitivity analysis The impact of a one percentage point movement in the primary assumptions on the defined benefit net obligations as at 31 December 2008 is set out below: |
|||||||||||||||
|
UK |
Americas |
Europe |
ROW |
||||||||||||
|
|
Liabilities £m |
Income Statement £m |
Liabilities £m |
Income Statement £m |
Liabilities £m |
Income Statement £m |
Liabilities £m |
Income Statement £m |
|||||||
|
Discount rate +1% |
230 |
- |
44 |
1 |
45 |
1 |
6 |
- |
|||||||
|
Discount rate -1% |
(279) |
- |
(55) |
(1) |
(48) |
(1) |
(6) |
- |
|||||||
|
Rate of inflation +1% |
(233) |
- |
- |
- |
(29) |
- |
- |
- |
|||||||
|
Rate of inflation -1% |
195 |
- |
- |
- |
32 |
- |
- |
- |
|||||||
|
Rate of increase in medical costs +1% |
- |
- |
(1) |
- |
- |
- |
- |
- |
|||||||
|
Rate of increase in medical costs -1% |
- |
- |
1 |
- |
- |
- |
- |
- |
|||||||
|
12 |
Post-employment obligations (continued) |
|||||||||||||||||||||
|
Defined benefit schemes - reporting |
||||||||||||||||||||||
|
The amounts recognised in the income statement are: |
||||||||||||||||||||||
|
2008 |
2007 |
|||||||||||||||||||||
|
Trading Profit |
||||||||||||||||||||||
|
Redundancy |
Restructuring |
|||||||||||||||||||||
|
Employee |
and other |
and |
||||||||||||||||||||
|
benefit |
employment |
impairment |
||||||||||||||||||||
|
expense |
amounts |
charges |
Total |
Total |
||||||||||||||||||
|
Included within operating profit |
£m |
£m |
£m |
£m |
£m |
|||||||||||||||||
|
Current service cost |
(35) |
- |
- |
(35) |
(32) |
|||||||||||||||||
|
Past service cost |
(1) |
(1) |
(1) |
(3) |
7 |
|||||||||||||||||
|
Settlement/curtailments |
12 |
- |
- |
12 |
2 |
|||||||||||||||||
|
(24) |
(1) |
(1) |
(26) |
(23) |
||||||||||||||||||
|
Included within net financing costs |
|
|||||||||||||||||||||
|
Expected return on pension scheme assets |
163 |
146 |
||||||||||||||||||||
|
Interest on post-employment obligations |
(166) |
(149) |
||||||||||||||||||||
|
|
|
|
(3) |
(3) |
||||||||||||||||||
|
The 2008 past service cost charge relates to augmentations arising in the UK on redundancy programmes and additional charges in respect of a Continental European subsidiary. The 2007 past service credit of £7 million included a £12 million credit from the impact of changes to retiree medical benefits in the USA, partly offset by a past service charge of £5 million, £4 million of which is within Restructuring and impairment charges primarily from further downsizing of a UK business in the Automotive portfolio. The 2008 settlement/curtailment credit arises from changes to freeze pension benefit entitlements in Driveline and Powder Metallurgy businesses in the USA. The 2007 settlement/curtailments credit arises from changes in pension regulations in Italy. |
||||||||||||||||||||||
|
The amounts recognised in respect of funded obligations in the balance sheet are: |
||||||||||||||||||||||
|
2008 |
||||||||||||||||||||||
|
UK |
Americas |
Europe |
ROW |
Total |
2007 |
|||||||||||||||||
|
£m |
£m |
£m |
£m |
£m |
£m |
|||||||||||||||||
|
Present value of funded obligations |
(2,031) |
(354) |
(20) |
(39) |
(2,444) |
(2,528) |
||||||||||||||||
|
Fair value of plan assets |
1,759 |
202 |
29 |
19 |
2,009 |
2,495 |
||||||||||||||||
|
Net obligation recognised in the balance sheet |
(272) |
(152) |
9 |
(20) |
(435) |
(33) |
||||||||||||||||
|
The contributions expected to be paid by the Group during 2009 to the UK schemes is £29 million and to overseas schemes £30 million. |
||||||||||||||||||||||
|
Cumulative actuarial gains and losses recognised in equity are as follows: |
||||||||||||||||||||||
|
2008 |
2007 |
|||||||||||||||||||||
|
£m |
£m |
|||||||||||||||||||||
|
At 1 January |
242 |
17 |
||||||||||||||||||||
|
Net actuarial gains/(losses) in year |
(386) |
225 |
||||||||||||||||||||
|
At 31 December |
(144) |
242 |
||||||||||||||||||||
|
The defined benefit obligation is analysed between funded and unfunded schemes as follows: |
||||||||||||||||||||||
|
UK |
Americas |
Europe |
ROW |
2008 |
2007 |
|||||||||||||||||
|
|
£m |
£m |
£m |
£m |
£m |
£m |
||||||||||||||||
|
Funded |
(2,031) |
(354) |
(20) |
(39) |
(2,444) |
(2,528) |
||||||||||||||||
|
Unfunded |
(12) |
(47) |
(333) |
(7) |
(399) |
(298) |
||||||||||||||||
|
(2,043) |
(401) |
(353) |
(46) |
(2,843) |
(2,826) |
|||||||||||||||||
|
12 |
Post-employment obligations (continued) |
||||||||||||||||||
|
The fair value of the assets in the schemes and the expected rates of return were: |
|||||||||||||||||||
|
|
UK |
Americas |
Europe |
ROW |
|||||||||||||||
|
Long-term |
Long-term |
Long-term |
Long-term |
||||||||||||||||
|
rate of |
rate of |
rate of |
rate of |
||||||||||||||||
|
return |
return |
return |
return |
||||||||||||||||
|
expected |
Value |
expected |
Value |
expected |
Value |
expected |
Value |
||||||||||||
|
|
% |
£m |
% |
£m |
% |
£m |
% |
£m |
|||||||||||
|
At 31 December 2008 |
|
|
|
|
|
|
|
|
|||||||||||
|
Equities (inc. Hedge Funds) |
8.0 |
667 |
8.5 |
125 |
- |
- |
5.6 |
7 |
|||||||||||
|
Bonds |
5.3 |
912 |
5.5 |
70 |
- |
- |
1.6 |
8 |
|||||||||||
|
Property |
6.8 |
80 |
- |
- |
- |
- |
- |
- |
|||||||||||
|
Cash/short-term mandate |
2.0 |
74 |
4.4 |
7 |
- |
- |
1.1 |
2 |
|||||||||||
|
Other assets |
6.5 |
26 |
- |
- |
5.6 |
29 |
0.9 |
2 |
|||||||||||
|
1,759 |
|
202 |
|
29 |
|
19 |
|||||||||||||
|
At 31 December 2007 |
|||||||||||||||||||
|
Equities (inc. Hedge Funds) |
8.0 |
1,114 |
8.5 |
142 |
- |
- |
6.2 |
8 |
|||||||||||
|
Bonds |
5.1 |
810 |
5.5 |
57 |
- |
- |
1.3 |
4 |
|||||||||||
|
Property |
6.7 |
102 |
- |
- |
- |
- |
- |
- |
|||||||||||
|
Cash/short-term mandate |
5.7 |
190 |
4.7 |
13 |
- |
- |
1.0 |
1 |
|||||||||||
|
Other assets |
5.8 |
32 |
- |
- |
5.1 |
21 |
0.9 |
1 |
|||||||||||
|
2,248 |
|
212 |
|
21 |
|
14 |
|||||||||||||
|
The expected return on plan assets is a blended average of projected long-term returns for the various asset classes. Equity returns are developed based on the selection of the equity risk premium above the risk-free rate which is measured in accordance with the yield on government bonds. Bond returns are selected by reference to the yields on government and corporate debt, as appropriate to the plan's holdings of these instruments, all other asset classes returns are determined by reference to current experience. The actual return on plan assets was negative £467 million (2007: £165 million positive). |
|||||||||||||||||||
|
Defined contribution schemes The Group operates a number of defined contribution schemes outside the United Kingdom. The charge to the income statement in the year was £14 million (2007: £10 million). |
|||||||||||||||||||
|
13 |
Post balance sheet event |
|
On 5 January 2009, the Group acquired the wing component manufacturing and assembly operation of Airbus UK which is located on the Airbus Filton site in the UK. The acquisition of the Filton facility delivers considerable benefits as the Group becomes a leading global player in critical wing structures and composites and establishes a strategic supplier relationship with Airbus. The contractual consideration of £176 million after allowing for pension funding and other employee related matters will result in an aggregate cash payment of up to £136 million to Airbus. This amount comprises an initial cash payment of £96 million paid on completion with a subsequent amount payable following finalisation of acquisition date inventory adjustments and £36 million payable in annual instalments over the six years 2010-2015 contingent on revenue metrics. Professional fees and other costs directly attributed to the acquisition are expected to amount to £6 million. The cash spend in 2008 on this acquisition was £1 million. The fair value exercise is at an early stage and due to its proximity to the year end it is impracticable to determine appropriate fair values. Provisional book and fair values will be disclosed in the Group's 2009 Half Year Report. Initial unaudited book values at the date of acquisition recorded in 2009 management accounts reflect fixed assets of £48 million and inventory of £41 million. As included in previous announcements it is expected that the Filton operation will generate sales in 2009 of approximately £375 million and will be earnings accretive and cash generative. 2009 trading margin is estimated at circa 6% before the impact of fair value adjustments, particularly to inventory and property, plant and equipment, which will be determined during the fair value exercise. On completion of this acquisition the Group secured additional borrowing facilities amounting to £180 million. |
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