Annual Report 2009 in PDF - GKN

24
GKN plc Annual Report 2009
Review of Performance
Taxation
The tax charge on management profits of
subsidiaries of £65 million (2008 – £154
million) was £11 million (2008 – £1 million
charge), representing a 16.9% tax rate (2008
– 0.6%).
Compared with the weighted average tax rate
for the Group of 31%, the 2009 tax rate has
benefited from a combination of the release
of provisions for uncertain tax positions,
the recognition of previously unrecognised
deferred tax assets and certain tax refunds.
Certain other items have tended to increase
the tax rate, including the treatment for tax
of exchange variations, the reversal of a prior
year tax credit in respect of discontinued
operations and the non-recognition of deferred
tax assets arising in the year. The reported net
tax rate was 16.9% (2008 – 0.6%).
GKN’s tax strategy continues to be aimed at
creating a sustainable ‘cash tax’ charge that
balances minimising tax payments with the
need to comply with the tax laws of each
country in which we operate. The cash tax
charge 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. In 2009 the cash
tax charge was 29% (2008 – 17%) which
exceeds the ‘20% or below’ cash tax rate
expected. This increase is primarily a result of
the unusual profit profile across our trading
markets, exaggerated by the low level of
2009 2008
Tax charge analysis % %
Weighted average tax rates of major
countries in which GKN operates
Benefits of GKN tax profile (tax losses
31 30
and other factors) (2) (13)
‘Cash tax’ rate
Tax impact of foreign exchange gains/
29 17
losses on intra-group funding
Movement in provisions for uncertain
9 (19)
tax positions
Deferred tax on subsidiaries’ underlying
(38) —
profit before tax
Tax charge as % of subsidiaries’ underlying
17 3
profit before tax 17 1
underlying profits in 2009. In the near term
we expect the cash tax rate to revert to an
average of 20% or below as we continue to
make use of prior years’ tax losses, incentives
and deductions in the various countries in
which we operate.
For 2010 and beyond, the overall reported
tax rate is likely to continue to be volatile,
primarily due to movements in provisions for
uncertain tax positions and the recognition/
derecognition of deferred tax assets.
Unrecognised, potential deferred tax assets
principally relate to brought forward tax losses
and pension liabilities in the UK and US.
The total effective tax rate of continuing
subsidiaries based on statutory profit before
tax was 20% (2008 – 7.4%) arising as a £15
million tax credit on a loss of £75 million.
Non-controlling interests
The profit attributable to non-controlling
interests was £2 million (2008 – £2 million).
Earnings per share
Earnings per share on a continuing basis
were (3.2) pence (2008 – (11.7) pence as
restated for the impact of the rights issue).
Management earnings per share were
5.5 pence (2008 – 16.0 pence restated).
The reductions are mainly due to lower
profitability of the Group, discussed above.
Average shares outstanding in 2009 were
1,271.7 million and shares outstanding at the
year end were 1,552.3 million.
2009 2008
Computation of ‘cash tax’ rate £m £m
Tax — total (15) (10)
Adjust for:
Deferred tax total 15 1
Movement in provisions for uncertain
tax positions 25 —
Tax impact of foreign exchange gains/
losses on intra-group funding (6) 29
Current tax on restructuring and
impairment charges — 6
‘Cash tax’ charge 19 26
Profit before taxation of subsidiaries
Dividend
In view of the continued difficult trading
environment, the Board has decided not
to pay a final dividend for 2009 (2008 – nil
pence per share). The total dividend for
the year is, therefore, nil pence per share
(2008 – 4.5 pence per share, 3.0 pence per
share restated). The Group intends to pay
a dividend on both 2010 interim and final
earnings. The level recommended by the
Board will be commensurate with achieved
earnings and take into account the outlook
for our end markets at that time. In the
medium term, it is the intention to resume
a progressive dividend policy based on an
underlying earning cover ratio of around 2.5
times.
Cash flow
Operating cash flow, which is defined as cash
generated from operations of £288 million
(2008 – £328 million) adjusted for capital
expenditure (net of proceeds from capital
grants) of £153 million (2008 – £204 million),
proceeds from the disposal/realisation of
fixed assets of £35 million (2008 – £7 million)
and UK Government refundable advances of
£28 million (2008 – £nil), was an inflow of
£198 million (2008 – £131 million).
(management basis) 65 154
‘Cash tax’ rate 29% 17%