GKN : Half Year Results for the 6 months to 30 June 2014

NEWS RELEASE29 July 2014

GKN plc Results Announcement for the six months ended 30 June 2014

(*) restated for a hindsight fair value adjustment, see note 2 of the financial statements

Financial Highlights (1)

·      Sales increased 6% organically, but 1% lower after £247 million currency translation impact

·      Trading margin improved 60bps to 8.9%

·      Profit before tax (management basis) up 6%, with £24 million of adverse currency this half offsetting restructuring costs of £25 million in the first half of 2013  

·      Reported profit before tax was £224 million (2013(*): £127 million)

·      Earnings per share up 4% to 14.4p

·      Interim dividend increased 8% to 2.8 pence per share (up 6% on a normally weighted basis)  

·      Return on average invested capital of 16.9% (2013: 16.6% excluding GKN Aerospace Engine Systems)

·      Free cash flow of £19 million (2013: £77 million), after £54 million repayment of a UK Government refundable advance

·      Net debt of £813 million (31 December 2013: £732 million), reflecting normal seasonality

"This is another good performance, particularly in GKN Driveline which delivered 11% organic sales growth.  We have continued to outperform our key markets and report good underlying financial results in spite of sterling's strength and some end market weakness - we expect these trends to be maintained in the second half.  GKN is continuing to make encouraging progress against its strategy."

Nigel Stein

Chief Executive, GKN plc

Divisional Highlights

The Group figures include Other Businesses (Emitec, Cylinder Liners, GKN Hybrid Power and Evo Electric ). 

GKN Aerospace

·      Organic growth in commercial aerospace (+5%) offsets decline in military (-2%)

·      Strong commercial order book with a trend towards global suppliers

·      Integration of North American engine components into GKN Aerospace Engine Systems

GKN Driveline

·      Growth significantly ahead of global auto production helped by increasing content per vehicle

·      Trading margin improved to 8.0%

GKN Powder Metallurgy

·      Continued growth ahead of global auto production and t rading margin increased to 11.3% 

·      Upgrade of North American capacity underway

GKN Land Systems

·      Organic sales down 9% due to challenging markets and chassis contracts ending in 2013

·      Strong cost control results in trading margin of 7.3 %

·      Investing to support industrial product sales in North America and capability in China, including enhanced position in Huading Wheels venture

Outlook

Commercial aircraft production should continue to be strong whereas military markets are forecast to decline.  GKN Aerospace's 2014 organic sales are expected to show modest growth, reflecting these conflicting trends.

In automotive, external forecasts suggest that global light vehicle production should grow around 3% in the second half as comparators get tougher.  Increases are expected in China, North America and India, while Europe is forecast to be flat and Japan and Brazil decreasing.  Against this background, GKN Driveline and GKN Powder Metallurgy are expected to continue to grow organically above the market. 

Softer agricultural equipment markets in Europe and North America are likely to more than offset the slight improvement in European industrial and construction markets.  As a result, GKN Land Systems 2014 sales are expected to be lower than 2013.   

The strength in sterling will adversely affect reported results.  However the Group's underlying progress is expected to continue due to the benefits of its diverse exposure to global markets, strong customer positions and healthy order books.

Notes

(1) Financial information set out in this announcement, unless otherwise stated, is presented on a management basis as defined on page 13. 

Cautionary Statement

This announcement contains forward looking statements which are made in good faith based on the information available to 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.  Nothing in this document should be regarded as a profits forecast.

Further Enquiries

Analysts/Investors:

Guy Stainer

Investor Relations Director

GKN plc

T: +44 (0)207 463 2382

M: +44 (0)7739 778187

E: guy.stainer@gkn.com

Media:

Chris Fox

Group Communications Director

GKN plc

T: +44 (0)1527 533238

M: +44 (0)7920 540051

E: chris.fox@gkn.com

Andrew Lorenz

FTI Consulting

T: +44 (0)207 269 7113

M: +44 (0)7775 641807

There will be an analyst and investor meeting today at 09.30am at UBS, Ground Floor Presentation Suite, 1 Finsbury Avenue, London EC2M 2PP.

A live videocast of the presentation will be available athttp://www.gkn.com/investorrelations/Pages/Webcasts.aspx. 

Slides will be put onto the GKN website approximately 45 minutes before the presentation is due to begin, and will be available to download from the GKN website at:http://www.gkn.com/investorrelations/Pages/results-and-presentations.aspx?year=2014.

Questions will only be taken at the event.

A live dial in facility will be available by telephoning: +44 (0) 1452 555 566, Conf ID: 75444300 

A replay of the conference call will be available until 28 August 2014 on:

Standard International Number: +44 (0) 1452 550 000

Replay Access Number: 75444300

This announcement together with the attached financial information thereto may be downloaded from: www.gkn.com/media/Pages/default.aspx. 

NEWS RELEASE

GKN plc Results Announcement for the six months ended 30 June 2014

Group Overview

Markets

The Group operates in the global aerospace, automotive and land systems markets.  GKN Aerospace sells to manufacturers of commercial and military aircraft, aircraft engines and equipment.  In the automotive market, GKN Driveline sells to manufacturers of passenger cars and light vehicles.  Around 80% of GKN Powder Metallurgy sales are also to the automotive market, with the balance to other industrial customers.  GKN Land Systems sells to producers of agricultural, industrial, construction and mining equipment and to the automotive and commercial vehicle sectors.

These results reflect a strong performance in GKN Driveline and GKN Powder Metallurgy, relative to their respective markets, solid results from GKN Aerospace, the weaker markets in GKN Land Systems and significant adverse currency translation impact. 

Results

Organic sales increased £210 million (6%).  The effect of currency translation on management sales was £247 million adverse and there was a £3 million benefit from acquisitions which was more than offset by a £7 million reduction due to disposals. 

The organic increase in trading profit was £43 million (14%), including no repeat of £25 million of restructuring charges reported in the first half of 2013.  There was an adverse currency translational impact of £24 million and the net positive effect of acquisitions and disposals of £1 million. 

Group trading margin in the first half was 8.9% (2013: 8.3%, or 8.9% excluding £25 million of restructuring).  Return on average invested capital (ROIC) was 16.9% (2013: 16.6%). 

Divisional Performance

GKN Aerospace

GKN Aerospace is a global tier one supplier of airframe and engine structures, components, assemblies, transparencies, ice protection systems and fuel and flotation systems for a wide range of aircraft and engine prime contractors and other tier one suppliers.  It operates in three main product areas: aerostructures, engine components and sub-systems and special products.

The overall aerospace market remains positive in 2014 driven by a growing commercial aircraft market partly offset by a declining military market.  The division has increased its proportion of sales to commercial aerospace to 74%, with military representing 26%.

Commercial aircraft production continues to grow strongly.  Both Airbus and Boeing continue to benefit from increasing deliveries and a record order backlog, and both have announced plans to increase production levels for single aisle aircraft in the future.  There is also increasing demand for strong global suppliers to support their expansion plans.

Military spending remains under pressure, largely driven by cutbacks throughout the USA and Europe, with the ramp-up of new programmes being delayed and overseas military operations reduced. 

The key financial results for the period are as follows:

O rganic sales were £32 million higher (3%), including 5% higher commercial sales (particularly for the Boeing 787 and spares), 2% lower production rates on military programmes (such as F-18, Blackhawk and spares) and a £17 million reduction due to the previously announced supply chain contract at Filton being taken back in-house by Airbus in May 2013 .  There was a £55 million (5%) impact from adverse currency translation .  

The organic increase in trading profit of £7 million included income of £4 million from Rolls-Royce for milestones achieved in relation to Composite Technology and Applications Limited (CTAL).  Other factors included improved commercial spares sales and higher volumes on new programmes offset by lower military sales on mature programmes.  The impact from currency on translation of results was £6 million adverse and there was a £2 million benefit from the absence of costs following the disposal of GKN Aerospace's stake in the CTAL joint venture. 

Trading margin was 11.0% (2013: 10.5%).  Return on average invested capital was 16.8% (2013: 20.1% excluding GKN Aerospace Engine Systems).  

During the period a number of important milestones were achieved including the further integration of the North American engine components businesses into GKN Aerospace Engine Systems.  This will allow a strong range of products to be offered to customers on a global basis including utilising low cost manufacturing facilities in Mexico.

Further achievements included:

·     delivering the first engine to Honeywell from the new facility in Phoenix, USA;

·     winning a multi-million pound contract to design, develop and supply the composite integrated rudder and elevator for the new Bombardier Global 7000 and Global 8000;

·     being selected by AirAsia to supply the complete suite of cockpit transparencies for the airline's new A320 fleet;

·      the Filton site being named as best performing supplier by Airbus; and

·     leading a consortium of UK companies in a £13 million programme backed by the UK's Aerospace Technology Institute (ATI) called Horizon (AM) that builds on GKN Aerospace's extensive and fast-developing additive manufacturing capability.

Automotive market

The major automotive markets of China, Japan, Europe and North America experienced increased production in the first half of the year compared to 2013, while Brazil and India declined.  Overall, global production volumes increased by 3.9% to 44.1 million vehicles (2013: 42.5 million).

Source: IHS Automotive; (#) Growth is derived from unrounded production figures

Overall production in Europe showed a solid improvement compared with the first half of 2013 due to a recovery in demand in Western Europe, partly offset by weaker production in Russia.

Production in North America benefitted from improved consumer confidence, further localisation of foreign manufacturers' capacity and an increased level of exports. 

Strong production in Japan was due to a weak prior year comparator and the pull forward of sales into the first quarter of 2014 ahead of April's consumption tax rise.  Production in China continued to grow strongly in line with increasing consumer demand for passenger vehicles.  The markets of Brazil and India were down as a result of weak economic conditions and low consumer confidence. 

External forecasts anticipate global production in 2014 will increase by 4% to 87.8m vehicles.  China will continue to lead the growth (+9%) with support from North America (+5%) and Europe (+2%).  Market recovery in India is expected to result in an increase in full-year production of 1%, Japan is forecast to be flat and Brazil is expected to experience output down by 8%.   

GKN Driveline

GKN Driveline is the world's leading supplier of automotive driveline systems and solutions.  As a global business serving the leading vehicle manufacturers, it develops, builds and supplies an extensive range of automotive driveline products and systems - for use in the smallest low-cost car to the most sophisticated premium vehicle demanding complex driving dynamics.

The key financial results for the period are as follows:

Organic sales increased by £179 million (11%) compared with global vehicle production which was up 4%.  T he adverse effect of currency translation was £135 million (8%) and the impact from disposals was £7 million, being the proportionate loss of sales from a wholly owned business in China which was transferred into our Shanghai GKN HUAYU Driveline Systems Co Limited (SDS) joint venture in that country in November 2013.  Constant Velocity Jointed ( CVJ) Systems accounted for 60% of sales and non-CVJ sales were 40%.

Strong growth was achieved in North America, China, Japan and Europe while sales in Brazil fell sharply .  The overall market outperformance reflected market share gains, strong demand for premium vehicles and GKN Driveline's broadening product mix, particularly within all-wheel drive (AWD) systems.

The organic improvement in trading profit was £37 million, including the absence of £16 million of restructuring charges reported in 2013.  Other factors included higher engineering costs to support the large number of new programme start-ups and higher warranty and quality claims partly offset by a provision release as commercial progress was made on an onerous contract. The impact of currency translation on trading profit was £11 million adverse.  GKN Driveline's trading margin was 8.0% (2013: 6.8%, or 7.7% excluding restructuring charges).  Return on average invested capital was 17.9% (2013: 15.0%). 

During the period, around £300 million of new business was secured and a number of important milestones achieved, including:

·     expanding facilities in Mexico and AWD capacity in Newton, USA;   

·     expanding AWD facility in China with new PTU wins and localisation of AWD products from Europe and North America;

·     CVJ systems wins with Ford, GM, VW, BMW, Renault Nissan, Mazda, Hyundai;

·     AWD systems wins with Ford, GM, VW, Fiat, JLR, BMW, Toyota, Renault Nissan; and

·     BMW launching i8 with GKN 2-speed eAxle.

GKN Powder Metallurgy

GKN Powder Metallurgy is the world's largest manufacturer of sintered components.  GKN Powder Metallurgy comprises GKN Sinter Metals and Hoeganaes.  Hoeganaes produces the metal powder that GKN Sinter Metals and other customers use to manufacture precision automotive components for engines, transmissions and body and chassis applications.  GKN Sinter Metals also produces a range of components for industrial and consumer applications.

The key financial results for the period are as follows:

The strong organic sales increase of £26 million (6%) was more than offset by the £35 million (8%) adverse impact of currency translation.  S trong growth was achieved in North America and China whereas growth in Europe was more in line with vehicle production.  Sales in South America fell due to weaker automotive markets.

The organic increase in profit was £9 million, including £5 million of restructuring charges reported in 2013, which was partially offset by the £4 million negative impact of currency translation. The divisional trading margin was 11.3% (2013: 10.0%, or 11.0% excluding restructuring charges).  Return on average invested capital was 21.0% (2013: 19.2%). 

GKN Powder Metallurgy continued its strong product and operational development in engines and transmissions, being awarded more than £75 million of annualised sales in new business.  It also won a number of quality awards including Paccar's "Quality Achievement Award 2013", Schaeffler's "Best Technical Cooperation" and Nexteer's "Perfect Quality 2013" award.  

Reflecting our move into more advanced applications of powder technologies, GKN Powder Metallurgy is expanding its facilities in North America with more complex and efficient tooling and presses and also announced a technology collaboration agreement with McPhy Energy to develop solid state hydrogen storage solutions. 

GKN Land Systems

GKN Land Systems is a global leading supplier of technology differentiated power management components and services.  It designs, manufactures and supplies products and services for the agricultural, construction, mining, and industrial machinery markets.  In addition, it provides global aftermarket distribution and through-life support.

Sales in GKN Land Systems were lower than the prior year due to weaker agricultural equipment markets in Europe and North America while construction and industrial markets remained relatively stable. 

The key financial results for the period are as follows:

T he organic decrease in sales was £43 million (9%) and t he adverse impact of currency translation was £19 million (4%).  T he organic decrease in sales included £14 million due to the previously announced cessation of two chassis contracts in 2013.  T he establishment of the new wheels venture in China had sales of £1 million.  

The organic decrease in trading profit was £11 million, despite the absence of £3 million of restructuring charges in 2013.  T he negative impact of currency translation was £3 million .  Trading margin was 7.3% (2013: 9.2%, or 9.9% excluding restructuring charges).  Return on average invested capital was 14.6% (2013: 18.7%). 

Good progress was made towards winning new business and implementing the GKN Land Systems strategy through broadening its product offering and geographic footprint, particularly investing to support industrial product sales in North America and enhancing capacity in China, including increasing our stake in the Huading Wheels venture.

Other Businesses and corporate costs

GKN's Other Businesses comprise Cylinder Liners (which is mainly a 59% owned venture in China, manufacturing engine liners for the truck market in the US, Europe and China), a 50% share in Emitec (which manufactures metallic substrates for catalytic converters in Germany, the US, China and India) and our joint venture stake in EVO Electric (a developer of axial flux motors).  On 30 April 2014 GKN announced its agreement to sell its stake in Emitec for a cash consideration of €46 million (£36 million).  The sale is expected to complete shortly.

The activities relating to GKN Hybrid Power, acquired on 1 April 2014 from Williams Grand Prix Engineering Limited, are also included in Other Businesses. Since the acquisition, GKN Hybrid Power has secured an order to retro-fit 500 buses with its innovative fuel-saving solution.

GKN's Other Businesses reported combined sales in the period of £66 million (2013: £51 million), reflecting an improvement in the commercial vehicle market, and trading profit of £5 million (2013: £2 million, after £1 million of restructuring charges).

Corporate costs, which comprise the costs of stewardship of the Group and operating charges and credits associated with the Group's legacy businesses, were £12 million (2013: £10 million).  

Other Financial Information

All comparative information provided below relates to the first half of 2013, unless otherwise stated.

Items excluded from management trading profit

In order to achieve consistency and comparability between reporting periods the following items are excluded from management measures as they do not reflect trading activity:   

Change in value of derivative and other financial instruments

The Group enters into foreign exchange contracts to hedge much of its transactional exposure.  Where hedge accounting has not been applied, the change in fair value between 1 January 2014 and 30 June 2014, or the date of maturity if earlier, is reflected in the income statement as a component of operating profit and has resulted in a charge of £11 million (2013: £98 million charge), primarily due to changes in rate for the US Dollar:Swedish Krona, US Dollar:Euro and US Dollar:UK Sterling.  There was a £1 million charge arising from a change in the value of embedded derivatives in the period (2013: £3 million credit) and a credit of £5 million attributable to the translational currency impact on intra-group funding balances (2013: £4 million credit).

Amortisation of non-operating intangible assets arising on business combinations

The charge for amortisation of non-operating intangible assets (for example, customer contracts, technology assets and intellectual property rights) arising on business combinations was £35 million (2013: £35 million restated for a hindsight fair value adjustment).

Post-tax earnings of joint ventures

On a management basis, the sales and trading profits of joint ventures are included pro-rata in the individual divisions to which they relate, although shown separately post-tax in the statutory income statement.

The Group's share of post-tax earnings of joint ventures in the period was £31 million (2013: £24 million) with trading profit of £39 million (2013: £31 million). The Group's share of post-tax earnings on a management basis was £32 million (2013: £25 million).  The Group's share of the tax charge amounted to £7 million (2013: £6 million) with no net financing costs in either period.  The organic increase in trading profit was £7 million.

Net financing costs

Net financing costs totalled £66 million (2013: £60 million) and comprise the net interest payable of £37 million (2013: £36 million), the non-cash charge on post-employment benefits of £25 million (2013: £19 million) and unwind of discounts of £4 million (2013: £5 million).  The non-cash charge on post-employment benefits and unwind of discounts are not included in management figures.  Details of the assumptions used in calculating post-employment costs and income are provided in note 10 of the financial statements.

Interest payable was £38 million (2013: £38 million), whilst interest receivable was £1 million (2013: £2 million) resulting in net interest payable of £37 million (2013: £36 million).

Profit before tax

Management profit before tax was £296 million (2013: £278 million).  Profit before tax on a statutory basis was £224 million (2013: £127 million, restated for a hindsight fair value adjustment).  The main differences in the first half of 2014 between management and statutory figures are the change in value of derivative and other financial instruments, amortisation of non-operating intangible assets and the interest charge on net defined benefit pension plans.  Further details are provided in note 3 to the financial statements.

Taxation

The book tax rate on management profits of subsidiaries was 22% (2013: 20%), arising as a £58 million tax charge (2013: £51 million charge) on management profits of subsidiaries of £264 million (2013: £253 million).

The Group's theoretical weighted average tax rate, which assumes that book profits/losses are taxed at the statutory tax rates in the countries in which they arise, is 33% (2013: 31%).  The book tax rate is significantly lower, largely because of the recognition of substantial deferred tax assets (mainly in the US) due to increased confidence in the Group's ability to offset brought forward tax deductions against future taxable profits in various countries.

'Cash tax' provides a proxy for the cash cost of taxation of management profits, plus the cash effect of prior year items, and so excludes elements of the book tax charge which do not have a cash effect.  The cash tax rate was 12% (2013: 12%) primarily due to the utilisation of prior years' tax losses.  Both the book tax and the cash tax rates are expected to increase in future years.

The tax rate on statutory profits of subsidiaries was 20% (2013: 27%) arising as a £39 million tax charge (2013: £28 million charge, restated for a hindsight fair value adjustment) on a statutory profit of £193 million (2013: £103 million, restated for a hindsight fair value adjustment).

Non-controlling interests

The profit attributable to non-controlling interests was £2 million (2013: £10 million, including £8 million in relation to the Pension partnership arrangement).

Earnings per share

Management earnings per share was 14.4 pence (2013: 13.8 pence).  On a statutory basis earnings per share was 11.2 pence (2013: 5.5 pence, restated for a hindsight fair value adjustment).

Dividend

In view of the Group's continued progress, the Board has decided to pay an interim dividend of 2.8 pence per share (2013: 2.6 pence), an increase of 8%.  If the prior year's total dividend of 7.9 pence per share had been paid in the usual one-third interim and two-thirds final proportion, then the 2014 interim dividend would represent an increase of 6% on a normally weighted basis.  The interim dividend will be paid on 22 September 2014 to shareholders on the register at 15 August 2014.  Shareholders may choose to use the Dividend Reinvestment Plan (DRIP) to reinvest the interim dividend.  The closing date for receipt of new DRIP mandates is 1 September 2014.

Cash flow

Operating cash flow, which is defined as cash generated from operations of £227 million (2013: £267 million) adjusted for capital expenditure (net of proceeds from capital grants) of £161 million (2013: £158 million), proceeds from disposal of fixed assets £7 million (2013: nil) and repayment of the principal of a government refundable advance in the UK of £38 million (2013: nil), was an inflow of £35 million (2013: £109 million).

Within operating cash there was an outflow in working capital and provisions of £151 million (2013: £131 million).  Average working capital as a percentage of sales was 7.9% (2013: 8.7%).

Capital expenditure (net of proceeds from capital grants) on both tangible and intangible assets totalled £161 million (2013: £158 million).  Of this, £132 million (2013: £133 million) was on tangible fixed assets and was 1.2 times (2013: 1.2 times) the depreciation charge.  Expenditure on intangible assets, mainly non-recurring costs on Aerospace programmes, totalled £29 million (2013: £25 million).

Net interest paid totalled £38 million (2013: £21 million) including £16 million of previously accrued interest on a government refundable advance, and tax paid in the period was £21 million (2013: £24 million).

Free cash flow

Free cash flow, which is operating cash flow including joint venture dividends and after interest, tax, amounts paid to non-controlling interests and shares purchased but before dividends paid to GKN shareholders, was an inflow of £19 million (2013: £77 million).  The year on year change reflects increased profitability, offset by repayment of a government refundable advance in the UK relating to the A350 programme of £54 million (including interest), incremental pension funding of £12 million and an adverse movement in working capital.

Net borrowings

At the end of the period, the Group had net borrowings of £813 million (31 December 2013: £732 million) after payment of the 2013 final dividend of £87 million and a gross government refundable advance of £54 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 amount included within trading profit for the period comprises current service cost of £23 million (2013: £26 million) and administrative costs of £1 million (2013: £2 million).  Interest on net defined benefit plans, which is excluded from management figures, was £25 million (2013: £19 million), and the removal of the UK pension partnership plan asset and related interest credit in the first half of 2013 is the primary reason for this period-on-period increase.

The deficit across all schemes at 30 June 2014 was £1,363 million, a £92 million increase over the 31 December 2013 deficit (£1,271 million).  This increase is caused by lower discount rates which have fallen during the period due to the marked decrease in corporate bond yields from which they are derived.

Both UK pension schemes underwent funding valuations as at 5 April 2013 and final agreement was reached on the valuation and resulting deficit recovery plan for each scheme during the period.  The agreed deficit recovery plan requires payments of £10 million per year to the pension schemes combined and the potential for further additional payments commencing in 2015, contingent upon asset performance.  The first payment of £10 million was made during the period.

During the period, a bulk annuity pensioner "buy-in" was completed in relation to the UK pension scheme, GKN 1, as a result of which a proportion of GKN 1 liabilities are now fully insured.  The transaction involved a payment to Rothesay Life of £123 million, made from GKN 1's assets. This gave rise to an additional scheme funding requirement of £8 million which the Group will pay to GKN 1 over a 4 year period. The first payment of £2 million was made during the period.

Group-wide contributions totalled £71 million (2013: £54 million), including a £30 million payment from the pension partnership to the UK pension schemes and £12 million from the above mentioned deficit recovery plan and "buy-in" funding.

The Group is currently in consultation with its UK work-force regarding prospective changes to pension benefit provision.

Defined contribution pension schemes

In addition to the defined benefit pension schemes, the Group also operates a number of defined contribution pension schemes for which the income statement charge was £16 million (2013: £17 million).

Net assets

Net assets of £1,706 million were £89 million lower than the December 2013 year end figure of £1,795 million, restated for a hindsight fair value adjustment.  The decrease includes management profit after tax of £236 million more than offset by dividends paid to equity shareholders of £87 million, adverse currency on translation of subsidiaries and joint ventures net of tax of £86 million and a loss on remeasurement of defined benefit plans net of tax of £105 million.

Exchange rates

Exchange rates used for currencies most relevant to the Group's operations are:

The approximate impact on first half 2014 trading profit of subsidiaries and joint ventures of a 1% movement in the average rate would be euro - £1 million, US dollar - £2 million.

Funding, liquidity and going concern

At 30 June 2014, UK committed bank facilities were £910 million. Within this amount there were committed revolving credit facilities of £830 million and an £80 million eight-year amortising facility from the European Investment Bank (EIB). The £80 million EIB facility was fully drawn and there were drawings of £53 million against the revolving credit facilities.

As at 30 June 2014, the next major maturities of the revolving credit facilities were for £590 million in 2016 followed by further maturities of £240 million in 2017.  However, during July, the Group completed a refinancing exercise in relation to all of its revolving credit facilities, which delivered the benefit of lower borrowing costs on total facilities of £800 million and an extension of their maturities to 2019.  The first of five equal, annual £16 million EIB repayments falls due in 2015.

Capital market borrowings at 30 June 2014 comprised a £350 million 6.75% annual unsecured bond maturing in October 2019 and a £450 million 5.375% semi-annual unsecured bond maturing in September 2022. As at 30 June 2014, the Group had net borrowings of £813 million (31 December 2013: £732 million).

All of the Group's committed credit facilities have financial covenants requiring EBITDA of subsidiaries to be at least 3.5 times net financing costs and for net debt to be no greater than 3 times EBITDA of subsidiaries. The covenants are tested every six months using the previous 12 months' results. For the 12 months to 30 June 2014, EBITDA was 11.8 times greater than net interest, whilst net debt was 0.9 times EBITDA.

The Directors have taken into account both divisional and Group forecasts for the 18 months from the balance sheet date to assess the future funding requirements of the Group and compared them to the level of committed available borrowing facilities, described above.  Having carried out sensitivity analysis, the Directors have concluded that the Group will have a sufficient level of headroom in the foreseeable future and that the likelihood of breaching covenants in this period is remote, such that it is appropriate for the financial statements to be prepared on a going concern basis.

Principal risks and uncertainties

The principal risks and uncertainties faced by the Group in the remaining six months of the year remain largely unchanged from those reported in the 2013 annual report.

The macro-economic and political environment contains risk: challenging credit conditions; US budget priorities; volatile automotive, agricultural, construction, mining and industrial markets; exchange rate fluctuations; supply chain volatility; and inflation in Asian and other economies.

Additional risks include: customer concentration; highly competitive markets; misalignment of objectives with joint venture partners; failure to innovate; integrated systems complexity; product quality issues and recall costs; business continuity (including disruption to facilities or supply chain); health, safety and environmental incidents; lack of people capability; programme management weaknesses; poor acquisition integration or post-acquisition performance; compliance with laws and regulations across global jurisdictions; information systems resilience; pension funding; foreign exchange risk; and operating internationally in environments subject to complex tax rules.  A more detailed explanation of the principal risks and uncertainties, together with the mitigating actions in place, can be found in pages 42 to 51 of the 2013 annual report.

Basis of Reporting

The financial statements for the period are shown on pages 15 to 32 and have been prepared using accounting policies which were used in the preparation of audited accounts for the year ended 31 December 2013 and which will form the basis of the 2014 Annual Report, with the exception of the adoption of IFRS 10 and 11 which has not impacted the comparative numbers.

Definitions

Financial information set out in this announcement, unless otherwise stated, is presented on a management basis which aggregates the sales and trading profit of subsidiaries (excluding certain subsidiary businesses sold and closed) with the Group's share of the sales and trading profit of joint ventures.  References to trading margins are to trading profit expressed as a percentage of sales.  Management profit or loss before tax is management trading profit less net subsidiary interest payable and receivable and the Group's share of net interest payable and receivable and taxation of joint ventures.  These figures better reflect performance of continuing businesses.  Where appropriate, reference is made to organic results which exclude the impact of acquisitions/divestments as well as currency translation on the results of overseas operations.  Operating cash flow is cash generated from operations adjusted for capital expenditure, government capital grants, proceeds from disposal of fixed assets and government refundable advances.  Free cash flow is operating cash flow including interest, tax, joint venture dividends, own shares purchased and amounts paid to non-controlling interests, but excluding dividends paid to GKN shareholders.  Return on average invested capital (ROIC) is management trading profit as a percentage of average total net assets of continuing subsidiaries and joint ventures excluding current and deferred tax, net debt, post-employment obligations and derivative financial instruments.

Directors' Responsibility Statement

The half yearly financial report is the responsibility of the Directors who confirm that to the best of their knowledge:

Ÿ the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as endorsed and adopted by the EU;

Ÿ the interim management report includes a fair review of the information required by:

(a)   DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b)   DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the 2013 Annual Report that could do so.

The Directors of GKN plc are listed in the GKN annual report for 2013; however since the publication of the annual report Mr. W. C. Seeger has retired from the Board.

Approved by the Board of GKN plc and signed on its behalf by:

Mike Turner

Chairman

28 July 2014

APPENDICES

*    restated for the impact of a hindsight fair value adjustment relating to the purchase of Volvo Aerospace in 2012, see note 2.

*    restated for the impact of a hindsight fair value adjustment relating to the purchase of Volvo Aerospace in 2012, see note 2.

*    restated for the impact of a hindsight fair value adjustment relating to the purchase of Volvo Aerospace in 2012, see note 2.

*    restated for the impact of a hindsight fair value adjustment relating to the purchase of Volvo Aerospace in 2012, see note 2.

*     restated for the impact of a hindsight fair value adjustment relating to the purchase of Volvo Aerospace in 2012, see note 2.