Annual Report 2009 in PDF - GKN

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26 GKN plc Annual Report 2009 Review of Performance UK pension accounting deficit at 31 December 2005 2006 2007 2008 2009 500 400 300 200 100 Overseas pensions Overseas pension obligations arose mainly in the US, Germany and Japan. The charge to trading profit in respect of current and past service costs/curtailments was £6 million (2008 – £4 million), whilst other net financing charges included in net financing costs were £23 million (2008 – £13 million). Trading profit benefited from the one-time curtailment/past service credit of £7 million, largely in the Americas. The reduction of £50 million in the accounting deficit to £443 million was principally a result of currency movements as the increase in liabilities from changes in the discount rate assumptions was largely offset by increased asset returns. Retiree medical and life insurance GKN operates retiree medical and life insurance arrangements in the Americas and has a scheme, closed to new members, in the UK. The credit to trading profit in 2009 was £4 million (2008 – £nil), including a £5 million past service credit resulting from changes to life insurance arrangements in the US. Other net financing charges included in net financing costs were £3 million (2008 – £3 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 £54 million compared with £69 million at the end of 2008. 0 Summary At 31 December 2009 the funded postemployment obligations of the Group totalled £610 million (2008 – £435 million), whilst unfunded post-employment obligations of the Group totalled £386 million (2008 – £399 million), details of which can be found in note 26 to the financial statements. Net assets Net assets of £972 million were £44 million higher than the December 2008 year end figure of £928 million. The increase was mainly due to rights issue net proceeds of £403 million offset by currency movements of £160 million and actuarial changes in respect of post-employment obligations of £190 million. Shareholders’ equity Shareholders’ equity at the end of 2009 was £948 million compared with £905 million at the end of 2008. Financing The following section describes the way in which the Group manages and controls its treasury function and ensures it is financed in an appropriate and cost-effective manner. Treasury management All treasury activities are co-ordinated through a central function (Group Treasury), the purpose of which is to manage the financial risks of the Group and to secure short and long term funding at the minimum cost to the Group. It operates within a framework of clearly defined Board-approved policies and procedures, including permissible funding and hedging instruments, exposure limits and a system of authorities for the approval and execution of transactions. It operates on a cost centre basis and is not permitted to make use of financial instruments or other derivatives other than to hedge identified exposures of the Group. Speculative use of such instruments or derivatives is not permitted. Group Treasury prepares reports at least annually to the Board, and on a monthly basis to the Finance Director and other senior executives of the Group. In addition, liquidity, interest rate, currency and other financial risk exposures are monitored weekly. The overall indebtedness of the Group is reported on a weekly basis to the Chief Executive and the Finance Director. The Group Treasury function is subject to an annual internal and external review of controls. Funding and liquidity The Group funds its operations through a mixture of retained earnings and borrowing facilities, including bank and capital markets borrowings and leasing. The relative proportions of equity and borrowings are governed by specific Board-approved parameters. These are designed to preserve prudent financial ratios, including interest, dividend and cash flow cover, whilst also minimising the overall weighted average cost of capital to the Group. The Group’s borrowing facilities are arranged by Group Treasury and the funds raised are then lent to operating subsidiaries on commercial arm’s length terms. In some cases, operating subsidiaries have external borrowings, but these are supervised and controlled centrally. The Group’s objective is to maintain a balance between continuity of funding and flexibility through borrowing at a range of maturities. Wherever practicable, pooling, netting or concentration techniques are employed to minimise gross debt of the Group. At 31 December 2009 there were £13 million of drawings against the £709 million of the Group’s UK committed credit facilities. The £709 million of committed facilities include an £80 million, eight year facility from the European Investment Bank agreed in December 2009. Following the bond buy-back, capital market borrowings reduced to £551 million and include unsecured issues of £201 million 7% bonds maturing in May 2012 and £350 million 6.75% bonds maturing in October 2019. In total, the Group’s bank committed credit facilities have maturities ranging from 2010
Capital structure Rights issue raised £403 million (net) UK revolving credit facilities repaid (£228 million) 2012 bond buy-back (£124 million) to 2017. The weighted average maturity profile of the Group’s committed borrowing facilities was 4.5 years. This leaves the Group well placed in the short term to withstand sudden changes in liquidity in the financial markets, although the tightening of available credit means that it may be more expensive to refinance the Group’s borrowing facilities as they mature. All of the Group’s committed credit facilities have a single financial covenant requiring EBITDA of subsidiaries to be at least 3.5 times net interest payable. EBITDA of subsidiaries is before restructuring and impairment charges, amortisation of non-operating intangible assets and other non-cash charges arising on business combinations, profit and losses on sale or closures of businesses and the change in the value of derivative and other financial instruments. Net interest payable excludes the finance element of post-employment Current facilities Secured funding on A350 £709 million of committed UK facilities; £13 million drawn UK cash balance of £186 million costs. For the 12 months to 31 December 2009 this ratio stood at 5.2 times (5.9 times excluding the £7 million cost of the bond buy-back). Financial resources and going concern At 31 December 2009 the Group had net borrowings of £300 million. In addition, it had available, but undrawn, committed UK borrowing facilities totalling £696 million. 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. Major assumptions Short term focus www.gkn.com £350 million revolving credit facility (expiring July 2010) £201 million bonds (maturing May 2012) have been compared to external reference points such as global light vehicle volumes, build schedules from aircraft assemblers and market forecasts from major manufacturers of agricultural and construction machinery. Recognising the remaining uncertainties around our end markets, a sensitivity analysis has been performed on our forecasts to assess the impact of different scenarios on 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 financial statements to be prepared on a going concern basis. 27
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 and 26: Financial performance Corporate cos
Page 27: Cash flow* from continuing operatio
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
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Page 51 and 52: The Group’s systems and procedure
Page 53 and 54: The Committee receives annual confi
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Page 69 and 70: Consolidated Statement of Comprehen
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Page 75 and 76: 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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