Annual Report 2009 in PDF - GKN

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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%
Cash flow* from continuing operations 2005 2006 2007 2008 2009 * Cash generated from operations adjusted for capital expenditure, proceeds from disposal/realisation of fixed assets, government refundable advances, and special UK pension payments Within operating cash flow there was an inflow of working capital and provisions of £133 million (2008 – outflow of £5 million), principally as a result of reduced inventory across the Group. Capital expenditure (net of proceeds from capital grants) on both tangible and intangible assets totalled £153 million (2008 – £204 million). Of this, £139 million (2008 – £191 million) was on tangible fixed assets and was 0.7 times (2008 – 1.2 times) the depreciation charge. Aside from the Group’s A350 programme investment commitments, the ratio for 2010 is expected to remain at or below 0.7 times. Expenditure on intangible assets, mainly initial non-recurring costs on Aerospace programmes, totalled £14 million (2008 – £13 million), including £8 million on the A350 programme. Net interest paid totalled £61 million compared with £48 million in 2008, including £5 million accrued interest relating to the bond buy-back. Tax paid in the year was £15 million (2008 – £45 million). As no final dividend for 2008 or interim dividend for 2009 was paid, the cash cost excluding dividends paid to minorities was £nil (2008 – £97 million). £m 250 200 150 100 50 0 Free cash flow Free cash flow, which is operating cash flow including joint venture dividends and after interest, tax and dividends paid, was an inflow of £136 million (2008 – £38 million outflow) after £99 million (2008 – £28 million) of expenditure on the Group’s restructuring programmes. The year on year improvement reflects a strong focus on working capital, particularly inventory reduction, lower capital expenditure, lower tax payments and the absence of a current year dividend. Net borrowings At the end of the year, the Group had net debt of £300 million (2008 – £708 million). This includes £403 million net proceeds from the rights issue, which were received in July 2009, and acquisition expenditure (including investments in joint ventures and investment loans and capital contributions) of £112 million (2008 – £1 million) primarily relating to the Filton acquisition. Customer advances in the Aerospace businesses, which are shown in trade and other payables in the balance sheet, amounted to £66 million (2008 – £79 million). The Group’s share of net funds in joint ventures was £9 million (2008 – share of net borrowings £1 million). Net debt 2005 2006 2007 2008 2009 800 700 600 500 400 300 200 100 0 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 www.gkn.com trading profit in respect of current and past service costs, together with curtailments of defined benefit schemes and retiree medical arrangements, was £22 million (2008 – £25 million), whilst other net financing charges included in net financing costs were £49 million (2008 – £3 million). The decrease in the charge to trading profit mainly reflects a reduction in current service cost of £2 million in the US as a result of closing most pension plans to future accrual, together with changes to life insurance benefits. The 2009 actions in the US also resulted in a total of £12 million in past service and curtailment credits (2008 – £12 million). Further information including asset, liability and mortality assumptions used is provided in note 26 to the financial statements. UK pensions The UK defined benefit scheme is considered to be relatively mature with around 4,800 of its 52,000 members currently in service. The UK defined benefit scheme remains open to new members and 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, whilst the next triennial scheme specific valuation will be as at April 2010. The charge relating to the UK defined benefit scheme reflected in trading profit in respect of current and past service costs/ curtailments was £20 million (2008 – £21 million), whilst other net financing costs were £23 million (2008 – £13 million credit). Restructuring activities attracted a past service charge of £1 million (2008 – £1 million). The accounting deficit at 31 December 2009 of £499 million (2008 – £272 million) was significantly higher than that at the end of 2008. This was mainly as a result of increased liabilities from changes in discount rate and inflation assumptions underlying the valuation. The increase in liabilities was only partially offset by higher asset values from higher investment returns. 25
Page 1 and 2: Automotive Powder Metallurgy Aerosp
Page 3 and 4: The Group has operations in over 30
Page 5 and 6: Chairman’s Statement Roy Brown Ch
Page 7 and 8: terms. In December we were also abl
Page 9 and 10: Automotive GKN is the world’s lea
Page 11 and 12: Powder Metallurgy Powder Metallurgy
Page 13 and 14: OffHighway GKN OffHighway designs,
Page 15 and 16: trading profit improved further as
Page 17 and 18: GKN Driveline GKN Driveline is the
Page 19 and 20: Powder Metallurgy Powder Metallurgy
Page 21 and 22: Aerospace Aerospace is a global fir
Page 23 and 24: Capital expenditure on tangible ass
Page 25: Financial performance Corporate cos
Page 29 and 30: Capital structure Rights issue rais
Page 31 and 32: 2009 performance Five year record M
Page 33 and 34: Operational risks continued Risk Na
Page 35 and 36: Conducting our business with integr
Page 37 and 38: discrimination and from any form of
Page 39 and 40: economy and thereby reduce CO 2 emi
Page 41 and 42: www.gkn.com 2009 marked the 250th a
Page 43 and 44: 6 7 8 9 10 6 Richard Parry-Jones, C
Page 45 and 46: Annual General Meeting The Annual G
Page 47 and 48: Corporate Governance In accordance
Page 49 and 50: The Chairman offers major sharehold
Page 51 and 52: The Group’s systems and procedure
Page 53 and 54: The Committee receives annual confi
Page 55 and 56: Executive Directors Remuneration po
Page 57 and 58: Following shareholder approval, a n
Page 59 and 60: External appointments The Board rec
Page 61 and 62: www.gkn.com Directors’ remunerati
Page 63 and 64: ESOS www.gkn.com Options over GKN s
Page 65 and 66: Statement of Directors’ Responsib
Page 67 and 68: Independent Auditors’ Report to t
Page 69 and 70: Consolidated Statement of Comprehen
Page 71 and 72: Consolidated Balance Sheet At 31 De
Page 73 and 74: Notes to the Financial Statements F
Page 75 and 76: 1 Accounting policies and presentat
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1 Accounting policies and presentat
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1 Accounting policies and presentat
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2 Segmental analysis continued (c)
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3 Operating profit The analysis of
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3 Operating profit continued 2008 R
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4 Net financing costs www.gkn.com 2
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5 Taxation continued www.gkn.com 20
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5 Taxation continued www.gkn.com (f
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9 Dividends www.gkn.com Paid or pro
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11 Share-based payments www.gkn.com
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12 Goodwill and other intangible as
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12 Goodwill and other intangible as
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14 Investments in joint ventures ww
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17 Trade and other receivables www.
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19 Net borrowings continued (b) Fai
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20 Financial risk management contin
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20 Financial risk management contin
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22 Provisions www.gkn.com Legal and
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23 Share capital continued www.gkn.
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www.gkn.com 26 Post-employment obli
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26 Post-employment obligations cont
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26 Post-employment obligations cont
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Independent Auditors’ Report to t
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Notes to the Financial Statements o
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Group Financial Record www.gkn.com
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Aerospace Europe Composite Technolo
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Taxation www.gkn.com In July 2009,
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Contact Details GKN plc PO Box 55 I
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