Annual Report 2008 in PDF - GKN

88
Notes to the Financial Statements
continued
3 Operating profit continued
GKN plc Annual Report 2008
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 (£81 million) on the back of significant
reductions in automotive volume projections 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 the 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).
The Sinter North America and UK Other Automotive impairment, £81 million and £11 million respectively, were determined on a value in use
basis where the pre-tax discount rates used were 10% and 12%.
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
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 were 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.