The Auto Channel: North America | Europe
GKN plc 2001 Interim Results Announcement
GKN plc 2001 Interim Results Announcement
LONDON, Aug. 9 First First
GKN Consolidated half half %
2001 2000 change
Sales GBP 2798m GBP 2481m +13 %
Results before goodwill amortisation and
exceptional items
Operating profit GBP 247m GBP 286m (14)%
Profit before tax GBP 198m GBP 259m (24)%
Earnings per share 20.2p 26.2p (23)%
Interim dividend per share 7.6p 6.9p +10 %
Net borrowings GBP 920m GBP 424m
First First
GKN Continuing Businesses half half %
2001 2000 change
Sales GBP 2260m GBP 2031m +11 %
Results before goodwill amortisation and
exceptional items
Operating profit GBP 175m GBP 208m (16)%
Profit before tax GBP 143m GBP 193m (26)%
Earnings per share 14.5p 19.1p (24)%
Interim dividend per share 7.6p 6.9p +10 %
Net borrowings GBP 920m GBP 424m
Unless otherwise stated, profit figures in this statement are before
goodwill amortisation and exceptional items.
Business highlights
* De-merger of Industrial Services businesses successfully completed
* Sales of continuing businesses increased by 11%
* Automotive operating profits affected by North American slowdown
* Acquisition of Boeing St. Louis plant strengthens Aerospace business
* AgustaWestland joint venture off to a good start
* Strong operating cash flow of GBP 222 million from continuing
businesses
* Interim dividend increased by 10%
Marcus Beresford, Chief Executive of GKN plc, commenting on the results,
said:
"The demerger of the Industrial Services businesses has been successfully
completed.
"In line with our statement at the AGM and largely due to the downturn in
the North American automotive market, profit before tax, amortisation and
exceptional items declined 24% from last year. Earnings per share declined
23%.
"Despite the difficult North American market our results for the first
half of 2001 demonstrate the underlying strength of our automotive and
aerospace businesses.
"Sales increased significantly in these businesses. Operating cash flow
at GBP 222 million was strong and more than double the equivalent level for
the same period last year contributing to our already strong balance sheet.
"The dividend, as previously indicated, will be increased by 10% to 7.6p
per share from 6.9p per share last year."
"It is some time since the short term prospects for the major economies
have been so uncertain and this has a direct impact in particular on the
outlook for our global automotive business."
"Looking further ahead our strong balance sheet, competitive technology
and market leadership positions leave GKN well placed to take full advantage
of improved market conditions when these occur."
Chairman and Chief Executive's Statement
The demerger of our Industrial Services businesses and their subsequent
merger into a dual listed company with Brambles Industries Limited of
Australia was successfully completed on 7 August 2001. The reported results
for the half year to 30 June 2001 include the contribution from the demerged
businesses which are shown separately as discontinued businesses. There were
no other discontinued businesses in the first half of this year.
Pro forma half year results for GKN as it is today, following the
demerger, namely a focused global automotive and aerospace business, are also
shown separately on pages 23 to 26 and are the principal focus of this
statement.
Consolidated Results before Demerger
As we advised in May, the results for the first six months of 2001 have
been significantly affected by the severe downturn in car and light vehicle
production in North America and by the continued reduction in demand in the
OffHighway equipment markets, both of which adversely impacted results in the
Automotive businesses. In Aerospace good progress was made as a result of the
acquisition of Boeing's St. Louis plant and as benefits of the restructuring
programme began to show through. The AgustaWestland joint venture had a
successful first half year. Industrial Services results were lower than in
the same period last year, reflecting the investments that are being made in
CHEP and also the sudden and severe downturn in demand in the US storage
racking market which significantly reduced profits in our Interlake Material
Handling business.
Sales in total, including the Industrial Services activities since
demerged, increased by 13% to GBP 2.8 billion. Profit before tax, goodwill
amortisation and exceptional items fell by 24% to GBP 198 million. Earnings
per share, on the same basis, fell by 23 % to 20.2p.
The favourable impact of exchange rates on translation of overseas sales
and operating profits was GBP 73 million and GBP 9 million respectively. The
net favourable impact of 2000 and 2001 acquisitions and divestments was
GBP 242 million on sales and GBP 18 million on operating profit. Excluding
these factors, on a like for like basis, sales improved by GBP 2 million and
operating profit fell by GBP 66 million (22%).
A principal factor behind this divergence has been the impact of reduced
North American Automotive volumes on existing business which is masked in the
segmental analysis by the impact of currency and the introduction of new
programmes. These reduced volumes had an adverse effect on margins in both
North American operations and particularly so in the Powder Metallurgy
business because of its high operational gearing. This has been exacerbated
in the first half of 2001 by substantial increases in energy costs.
Comparison of sales and operating profits between the two years in
Aerospace needs to take into account the formation of the AgustaWestland joint
venture. It is also adversely influenced by the favourable effect on last
year of finalising outstanding fighting vehicle contracts.
Additionally, sales in the Discontinued Businesses in the first half of
this year increased substantially, but for the reasons stated on page 11
operating profits were lower.
Earnings per share before goodwill amortisation and exceptional items at
20.2p were 23% lower than the equivalent period last year.
Operating cash flow, at GBP 237 million, was ahead of last year. The
balance sheet remains strong with pro forma net debt after demerger of
GBP 920 million and negligible debt in the remaining joint ventures.
As previously indicated the Board has decided to increase the interim
dividend by 10% to 7.6p. This will be paid on 28 September 2001 to
shareholders on the register on 17 August 2001. Shareholders may choose to
reinvest the interim dividend under the GKN Dividend Reinvestment Plan (DRIP).
The closing date for receipt of new DRIP mandates is 14 September 2001.
Pro Forma Results after Demerger
GKN Continuing Businesses
Pro forma information for the continuing businesses of GKN (set out on
pages 23 to 26) show that sales in the continuing businesses increased by 11%
to GBP 2.3 billion. However profit before tax, goodwill amortisation and
exceptional items fell by 26% to GBP 143 million for the reasons previously
outlined in this document. Earnings per share on the same basis fell by 24%
to 14.5p.
The favourable impact of exchange rates on the translation of overseas
sales and operating profit was GBP 55 million and GBP 7 million respectively.
The net favourable impact of both 2000 and 2001 acquisitions and divestments
was GBP 190 million on sales and GBP 14 million on operating profit.
Excluding these factors, on a like for like basis, sales were broadly flat and
operating profit fell by GBP 54 million (25%).
Interest payable, including that of joint ventures, was GBP 32 million
compared with GBP 15 million for the same period last year. The increase is
attributable to the higher level of net debt resulting from the cost of
acquisitions, the transfer of funds into the AgustaWestland joint venture,
cash costs of the Aerospace re-organisation, part payment of demerger expenses
and higher working capital levels at the commencement of the year.
There was an exceptional gain of GBP 7 million arising from the disposal
of the Sitec Aerospace business in May 2001. The tax charge of GBP 40 million
includes GBP 3 million in respect of the gain on that disposal. The
underlying tax rate before exceptional charges was 26%. This reflects an
allocation of the overall tax charge for the consolidated entity but is
consistent with the likely underlying 2001 tax charge for the business after
demerger.
Operating cash flow was GBP 222 million compared with GBP 110 million in
the first half of 2000, largely due to an improvement in working capital
levels.
Capital expenditure totalled GBP 138 million compared with GBP 132 million
in the same period last year. This represented 1.6 times depreciation, which
was the same level as last year.
Net borrowings were GBP 920 million at the end of June compared with
GBP 601 million at the end of December 2000. The St. Louis and Presmet
acquisitions in 2001, together with the transfer of funds into the
AgustaWestland joint venture are the major factors accounting for the
difference.
Automotive
Automotive markets have had a difficult six months.
North American car and light vehicle output in the six months to June fell
by 13% from the first six months of last year, with the domestic manufacturers
Ford, GM and DaimlerChrysler down by more than the average. First quarter
demand was particularly depressed as inventory levels were adjusted downwards;
Ford also cut back on Explorer production to deal with its tyre recall
campaign. In Europe and the rest of the world overall automotive production
volumes remained relatively steady, in spite of fluctuating monthly sales
levels in individual countries.
Against that background, performance in our automotive businesses is
encouraging with worldwide sales at GBP 1.5 billion, GBP 132 million (10%)
ahead of the same period last year. The first time inclusions of acquisitions
contributed GBP 102 million and the favourable impact of currency was
GBP 49 million. Underlying sales were therefore broadly in line with last
year reflecting the continuing underlying strength of our businesses.
Operating profits fell by 25% to GBP 121 million, heavily influenced by
the effects of the North American slowdown particularly on our Powder Metals
businesses.
Within the overall automotive portfolio fortunes were mixed. The
Automotive Driveline (ADD) business is less exposed to North American domestic
customers and also launched a substantial number of new product programmes.
This and growth in developing markets resulted in sales of GBP 930 million
being some 3% higher than 2000 on a like for like basis, with an additional
GBP 71 million of sales coming from the Kaiserslautern and Tochigi outsourcing
acquisitions.
These two outsourcings are integrating well into the division but, as
expected, generate lower than average margins in their early years. Their
additional contribution and other gains were however enough to offset the
effects of the North American downturn. As a result ADD's overall operating
profits were similar to last year.
In contrast, the Powder Metals businesses had a difficult first half with
sales of GBP 321 million, 4% below last year (14% on a like for like basis),
and operating profits substantially lower. This resulted from a high exposure
to the domestic automotive manufacturers in North America. Excluding currency
and acquisitions, sales in North America in the first half were down 18% from
the previous year's level and although major new orders continue to be won,
including some major bearing cap programmes, these will not commence
production before 2002 at the earliest. With Hoeganaes supplying nearly all
of the GKN Sinter Metals powder requirements in North America, operational
gearing is relatively high. Unexpectedly large increases in natural gas and
other energy costs were also an adverse factor. The decline in profits was
particularly pronounced in the first quarter and the cost reduction steps
implemented in early 2001, including a headcount reduction since late last
year of around 500 people, should ensure a lower cost base in the second half.
The costs of this headcount reduction were absorbed in the first half
operating profit.
In January the Presmet powdered metal business was acquired which adds to
GKN Sinter Metals' position as market leader in this growing industry.
The OffHighway market is experiencing a major downturn in Europe as a
result of concerns over BSE in continental Europe and foot and mouth disease
in the UK. The North American market is also showing little signs of
recovering from the depressed levels of the last two years. Against that very
difficult backdrop on a like for like basis the sales of the OffHighway and
other Automotive businesses fell by 1% to GBP 243 million with operating
profit significantly lower.
Aerospace
Aerospace sales increased by 14% to GBP 766 million of which
GBP 416 million came from our 50% share of the AgustaWestland joint venture.
A major advance for the Aerospace Services division was the acquisition of
Boeing's St. Louis fabrication plant which was successfully completed in
January 2001. Integration has proceeded well and the business contributed
GBP 88 million of sales, albeit as expected, at modest levels of operating
profit, but with considerable potential for the future. In addition to a
welcome increase in business with Boeing, the acquisition also increased the
level of business in the strategic US defence sector which has traditionally
had a more stable order pattern than the civil aircraft market.
Another major focus of activity was the Aerospace restructuring project
announced last year. Progress has been good with operations being transferred
to the seven focused manufacturing facilities now in place. Two facilities
have been closed and the Sitec business in Germany was successfully divested
in May 2001.
In the first half the margin benefits of the restructuring were modest, as
expected, but will continue to improve in the second half.
Opportunities for new business remain good with the Airbus A380 offering a
major opportunity for composite structures.
The newly created AgustaWestland joint venture had a successful first
half. Good progress was made against delivery targets and the synergy
potential originally identified has been confirmed. The market opportunities
for the company's wider product range continue to be positive and the recent
announcement of the GBP 100 million Bowman training contract is a valuable
addition to the order book.
GKN Discontinued Businesses
Industrial Services
Sales for the first six months of 2001 were GBP 538 million (2000 -
GBP 450 million) and Operating Profit was GBP 72 million (2000 -
GBP 78 million).
In the joint ventures, CHEP continued to grow sales strongly by 22% (17%
at constant exchange rates) to GBP 245 million in the six months to June. The
growth was particularly buoyant in the Americas where sales grew by 37% (26%
at constant exchange rates). The roll out of CHEP's service to the suppliers
of Wal*Mart and The Home Depot is making good progress and the launch of the
returnable transit packaging (RTP) pool in the US added further to revenue
growth. In Europe sales were up by 9%. While the UK is making good progress,
the rate of growth in continental Europe was held back somewhat by the
slowness of the development of the pallet pooling business in Germany and
Italy.
Operating profit in the CHEP joint ventures at GBP 44 million was slightly
lower than last year. One of the factors impacting profits was the additional
expenditure in Europe associated with the roll out of the global IT programme
for CHEP. This new IT system will allow CHEP to develop into a global
supplier of multiple services across national boundaries. Other factors
include start-up losses in the pooling initiative in RTP in North America.
These had been expected since every new CHEP pool incurs operating losses at
the outset. In the case of RTP, the initiative is currently making a gross
loss which is expected to be eliminated in the second half of 2001 as the
volumes grow and the business moves towards operating profitability. Finally,
implementation of the depot consolidation programme in the US is causing some
temporary operational inefficiencies.
The Cleanaway business performed satisfactorily with sales and profits of
GBP 194 million and GBP 18 million respectively both ahead of last year. In
the UK Serviceteam has been integrated successfully with Cleanaway's
collection business, which combined now comprise about 40% of Cleanaway's UK
revenues. Growth in Germany was held back somewhat due to the significant
fall in recycled paper prices.
In the wholly owned businesses, CHEP South Africa is having a strong year
and Meineke is continuing to perform well. Interlake Material Handling,
however, has had a difficult half-year, with sales down by GBP 14 million (16%
or 23% at constant exchange rates) and profits down by GBP 6 million. This is
due entirely to the economic slowdown in the US and its impact on the
construction of new distribution and retail facilities.
The interest charge in the Industrial Services sector was GBP 5 million
higher than last year with the largest element of the increase being in CHEP.
This occurred principally in the US where there was a further investment in
pallets in support of the Wal*Mart and The Home Depot initiatives. This was
in advance of the pallets becoming revenue-earning pending their use by
suppliers to these major retail chains. Cleanaway interest also increased
somewhat following the acquisitions of Waste Management Deutschland and
ServiceTeam.
People
The last six months has been a period of intensive work for many of our
employees in difficult trading conditions and particularly in the
implementation of the major changes to the Group structure. It is a tribute
to their skills and dedication that this complex task has been accomplished so
successfully.
Demerger Costs
Fees associated with the demerger of the Industrial Services businesses
have already been announced at GBP 17 million, but with the transaction now
complete and with AgustaWestland operating as a standalone joint venture, it
is now clear that some restructuring of the central overheads and systems is
necessary, together with the likely withdrawal from some investments which are
no longer appropriate for the new Group. A review is underway.
These additional costs, the greater part of which relate to investments
and systems, together with the GBP 17 million referred to above are expected
to result in a total exceptional charge for the demerger in the order of
GBP 40 million, to be charged in the second half.
Outlook
It is some time since the short term prospects for the major economies
have been so uncertain and this has a direct impact in particular on the
outlook for our global automotive business.
While there are signs that North American vehicle production levels may be
stabilising the picture is less clear in Europe. In comparison to last year,
we anticipate vehicle production in both markets to be somewhat lower in the
second half. The OffHighway market continues to be very depressed and no
short-term recovery is anticipated.
In Aerospace, Helicopter sales in the second half should be comparable to
those in the first half and in Aerospace Services we expect a continuing
improvement as the restructuring programme nears completion.
The post demerger review referred to above and the actions we are taking
within the operating companies will position us better to withstand the short
term impact of any possible further economic downturn. Looking further ahead
our strong balance sheet, competitive technology and market leadership
positions leave GKN well placed to take full advantage of improved market
conditions when these occur.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the half year ended 30 June 2001
First
Full Continuing Indus- Half First
Year GKN trial 2001 Half
2000 Businesses Svcs * Total 2000
GBP m GBP m GBP m GBP m GBP m
Notes
Sales
-- Subsidiaries - acquisitions 99 -- 99 --
4,124 - other 1,619 100 1,719 2,022
4,124 1,718 100 1,818 2,022
-- Share of joint ventures
- acquisitions -- 42 42 --
910 - other 507 396 903 427
910 507 438 945 427
62 Share of associates 35 -- 35 32
5,096 1/2 2,260 538 2,798 2,481
Operating profit
Subsidiaries
Before goodwill
amortisation and
exceptional items
-- acquisitions 5 -- 5 --
421 other 110 10 120 208
(30) Goodwill amortisation (17) (1) (18) (12)
(45) Exceptional items -- -- -- --
346 98 9 107 196
Share of joint ventures
Before goodwill amortisation
-- Acquisitions -- 1 1 --
168 Other 58 61 119 76
(5) Goodwill amortisation (1) (3) (4) (2)
163 57 59 116 74
4 Share of associates 2 -- 2 2
513 Total operating profit 1/2 157 68 225 272
Exceptional items
27 Profits less losses 7 -- 7 63
on sale or closure
of businesses
6 Share of associate's -- -- -- --
exceptional items
546 Profit before interest 164 68 232 335
and taxation
Interest (payable)/receivable
(31) Subsidiaries (31) 2 (29) (13)
(34) Share of joint ventures (1) (19) (20) (14)
and associates
481 Profit on ordinary activities 132 51 183 308
before taxation
(157) Taxation (40) (14) (54) (94)
324 Profit on ordinary activities 92 37 129 214
after taxation
(5) Minority interests - equity (2) -- (2) (4)
319 Earnings of the period 90 37 127 210
(143) Dividends (55) (50)
176 Transfer to reserves 72 160
44.6 Earnings per share - p 3 17.7 29.4
44.0 Diluted earnings per share - p 17.5 28.9
Results before goodwill
amortisation and exceptional items
593 Operating profit - GBP m 175 72 247 286
528 Profit before tax - GBP m 143 55 198 259
54.5 Earnings per share - p (note 3) 20.2 26.2
* Industrial Services businesses are shown separately as they
are discontinued.
CONSOLIDATED BALANCE SHEET
At 30 June 2001
31 Dec 30 June 1 July
2000 2001 2000
GBP m GBP m GBP m
Fixed assets
579 Intangible assets 612 473
1,391 Tangible assets 1,448 1,298
1,970 2,060 1,771
Investments
Joint ventures
1,392 Share of gross assets 2,191 1,270
(1,053) Share of gross liabilities (1,753) (966)
339 438 304
16 Associates 16 16
82 Other investments 76 84
437 530 404
2,407 2,590 2,175
Current assets
602 Stocks 570 602
755 Debtors 703 750
143 Cash at bank and in hand 185 196
1,500 1,458 1,548
Creditors: amounts falling due within one year
(116) Short-term borrowings (249) (91)
(789) Creditors (749) (817)
(315) Customer advances -- (312)
(297) Taxation and dividend payable (259) (235)
(1,517) (1,257) (1,455)
(17) Net current assets/(liabilities) 201 93
2,390 Total assets less current liabilities 2,791 2,268
Creditors: amounts falling due beyond one year
(623) Term loans and obligations under finance leases (852) (529)
(291) Provisions for liabilities and charges (307) (249)
1,476 Net assets 1,632 1,490
Capital and reserves
361 Equity share capital 361 360
-- Non-equity share capital -- 13
1,096 Reserves - equity 1,250 1,085
1,457 Shareholders' funds 1,611 1,458
19 Minority interests - equity 21 32
1,476 1,632 1,490
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the half year ended 30 June 2001
Full First First
Year Half Half
2000 2001 2000
GBP m GBP m GBP m
Earnings of the period
218 Subsidiaries 60 157
92 Joint ventures 65 45
9 Associates 2 8
319 127 210
3 Currency variations 58 16
(5) Other reserve movements -- --
317 Total recognised gains and losses of the period 185 226
(10) Prior year adjustment -- (10)
307 Total gains and losses recognised 185 216
since last annual report
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
For the half year ended 30 June 2001
Full First First
Year Half Half
2000 2001 2000
GBP m GBP m GBP m
317 Total recognised gains and losses of the period 185 226
(143) Dividends (55) (50)
10 Issue of ordinary shares net of costs 2 4
(84) Redemption of 'B' shares -- (71)
13 Goodwill on businesses sold or closed 22 5
113 Total increase 154 114
1,344 Shareholders' funds at beginning of period 1,457 1,344
1,457 Shareholders' funds at end of period 1,611 1,458
MOVEMENT IN NET FUNDS
For the half year ended 30 June 2001
Full First First
Year Half Half
2000 2001 2000
GBP m GBP m GBP m
Cash outflow before use of
(147) liquid resources and financing (183) (62)
(72) Currency variations 3 1
12 Net proceeds of ordinary share issues 2 4
(84) Redemption of 'B' shares -- (71)
(5) New finance leases -- --
(24) Subsidiaries acquired and sold (141) (15)
(320) Total outflow (319) (143)
(281) Net borrowings at beginning of period (601) (281)
(601) Net borrowings at end of period (920) (424)
CONSOLIDATED CASH FLOW STATEMENT
For the half year ended 30 June 2001
Full First First
Year Half Half
2000 2001 2000
GBP m GBP m GBP m
365 Net cash inflow from operating activities 237 121
(see below)
48 Dividends from joint ventures and associates 24 24
Returns on investments and servicing of finance
(29 Net interest paid (29) (16)
(3) Dividends paid to minority interests (1) (2)
(32) (30) (18)
(65) Taxation (15) (34)
Capital expenditure and financial investment
(261) Purchase of tangible fixed assets (146) (136)
(39) Other (35) (29)
(300) (181) (165)
Acquisitions and disposals
(226) Purchase of subsidiaries and joint ventures (135) (90)
113 Sale of subsidiaries and joint ventures 10 100
(113) (125) 10
(50) Equity dividends paid (93) --
(147) Cash outflow before use of liquid resources (183) (62)
and financing
CASH INFLOW FROM OPERATING ACTIVITIES
For the half year ended 30 June 2001
Full First First
Year Half Half
2000 2001 2000
GBP m GBP m GBP m
346 Operating profit from subsidiary operations 107 196
193 Depreciation and goodwill amortisation 105 97
(139) Decrease/(increase) in working capital 33 (139)
(1) Decrease in provisions (13) (5)
(27) Decrease in customer advances -- (30)
(7) Other 5 2
365 Net cash inflow from operating activities 237 121
SEGMENTAL ANALYSIS
Sales Operating Profit
First First Full First First Full
Half Half Year Half Half Year
2001 2000 2000 2001 2000 2000
GBP m GBP m GBP m GBP m GBP m GBP m
By business
Automotive
Subsidiaries 1,414 1,284 2,530 107 148 281
Joint ventures 80 78 153 14 14 27
1,494 1,362 2,683 121 162 308
Aerospace
Subsidiaries 304 627 1,362 8 44 108
Joint ventures 427 10 27 44 -- 4
Associates 35 32 62 2 2 4
766 669 1,451 54 46 116
Continuing
operations 2,260 2,031 4,134 175 208 424
Industrial Services
Subsidiaries 100 111 232 10 16 32
Joint ventures 438 339 730 62 62 137
Discontinued
operations 538 450 962 72 78 169
2,798 2,481 5,096 247 286 593
Goodwill amortisation -- -- -- (22) (14) (35)
Exceptional items -- -- -- -- -- (45)
Total 2,798 2,481 5,096 225 272 513
By region of origin
Europe
Subsidiaries 902 1,256 2,570 82 134 274
Joint ventures 762 284 598 93 50 111
Associates 35 32 62 2 2 4
1,699 1,572 3,230 177 186 389
Americas
Subsidiaries 771 670 1,337 31 68 129
Joint ventures 160 122 270 23 22 49
931 792 1,607 54 90 178
Rest of the world
Subsidiaries 145 96 217 12 6 18
Joint ventures 23 21 42 4 4 8
168 117 259 16 10 26
Total 2,798 2,481 5,096 247 286 593
NOTES
1(a) On 7 August 2001, following approval of a scheme of arrangement
by Shareholders and the Court, GKN demerged its Industrial Services
businesses into a separately quoted company, Brambles Industries
plc.
The results for those businesses for the first half of 2001 have
been shown as discontinued in the profit and loss account on page
16. There are no other discontinued operations during the period.
Pro forma financial information on the GKN Continuing Businesses has
been prepared (pages 23 to 26) to show the effect of the demerger of
the Industrial Services businesses as if it had occurred at
1 January 2000 for the profit and loss account and cash flow
statement and 31 December 2000 for the balance sheet. In addition,
the pro forma balance sheet at 31 December 2000 illustrates the
impact of the creation of the 50% owned AgustaWestland joint venture
as though it had occurred at that date.
1(b) On 9 February 2001 GKN and Finmeccanica SpA (Finmeccanica) each
contributed the net assets of their Helicopter businesses to a new
joint venture company AgustaWestland, the shares in which are held
equally by GKN and Finmeccanica. On the basis of a provisional
assessment of fair value the impact of this transaction was to
increase shareholders' funds by GBP 20 million and borrowings by
GBP 143 million.
2 The results of overseas subsidiaries, joint ventures and associates
are translated to sterling at average period rates; balance sheets
are translated at period end rates.
The exchange rates used for the currencies most important to the
Group's operations are:
GBP 1: euro GBP 1: US$
First half average - 2001 1.61 1.44
- 2000 1.63 1.57
Period end - 2001 1.66 1.41
- 2000 1.58 1.51
3 Earnings per share have been calculated on the average number of
shares in issue and ranking for dividend in the period of
718.2 million (first half 2000 - 713.5 million, full year 2000 -
715.4 million). Earnings per share before goodwill amortisation and
exceptional items are calculated on the earnings of the period,
adjusted as follows:
Earnings Earnings per share
First First Full First First Full
Half Half Year Half Half Year
2001 2000 2000 2001 2000 2000
GBP m GBP m GBP m GBP m GBP m GBP m
Earnings of
the period 127 210 319 17.7 29.4 44.6
Included in
operating profit:
Goodwill amortisation 22 14 35 3.1 2.0 4.9
Exceptional items -- -- 45 -- -- 6.3
Non-operating
exceptional items (7) (63) (33) (1.0) (8.8) (4.6)
Taxation attributable
to exceptional items 3 26 24 0.4 3.6 3.3
Earnings before goodwill
amortisation and
exceptional items 145 187 390 20.2 26.2 54.5
4 The figures for the full year 2000 have been extracted from accounts
which have been filed with the Registrar of Companies and contain an
unqualified audit report. The half year figures have not been
audited but have been reviewed and reported on by
PricewaterhouseCoopers (see page 22).
Independent review report to GKN plc
Introduction
We have been instructed by the Company to review the financial information
on pages 16 to 21 which comprises the profit and loss account, balance sheet
and cashflow statements and the related notes. We have read the other
information contained in the interim report and considered whether it contains
any apparent misstatements or material inconsistencies with the financial
information.
Directors' responsibilities
The interim report, including the financial information contained therein,
is the responsibility of, and has been approved by the Directors. The
Directors are responsible for preparing the interim report in accordance with
the Listing Rules of the Financial Services Authority which require that the
accounting policies and presentation applied to the interim figures should be
consistent with those applied in preparing the preceding annual accounts
except where any changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom.
A review consists principally of making enquiries of Group management and
applying analytical procedures to the financial information and underlying
financial data and, based thereon, assessing whether the accounting policies
and presentation have been consistently applied unless otherwise disclosed. A
review excludes audit procedures such as tests of controls and verification of
assets, liabilities and transactions. It is substantially less in scope than
an audit performed in accordance with United Kingdom Auditing Standards and
therefore provides a lower level of assurance than an audit. Accordingly we do
not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications
that should be made to the financial information as presented for the
six months ended 30 June 2001.
PricewaterhouseCoopers
Chartered Accountants
Birmingham
8 August 2001
GKN CONTINUING BUSINESSES PRO FORMA CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the half year ended 30 June 2001
First First Second Full
Half Half Half Year
2001 2000 2000 2000
Notes GBP m GBP m GBP m GBP m
Sales
Subsidiaries - acquisitions 99 -- -- --
- other 1,619 1,911 1,981 3,892
1,718 1,911 1,981 3,892
Share of joint ventures 507 88 92 180
Share of associates 35 32 30 62
1/2 2,260 2,031 2,103 4,134
Operating profit
Subsidiaries
Before goodwill amortisation and
exceptional items
acquisitions 5 -- -- --
other 110 192 197 389
Goodwill amortisation (17) (11) (17) (28)
Exceptional items -- -- (45) (45)
98 181 135 316
Share of joint ventures
Before goodwill amortisation 58 14 17 31
Goodwill amortisation (1) -- -- --
57 14 17 31
Share of associates 2 2 2 4
Total operating profit 1/2 157 197 154 351
Exceptional items
Profits less losses on sale or
closure of businesses 7 57 (30) 27
Share of associate's exceptional items -- 6 -- 6
Profit before interest and taxation 164 260 124 384
Interest (payable)/receivable
Subsidiaries (31) (14) (20) (34)
Share of joint ventures and associates (1) (1) (3) (4)
Profit on ordinary activities
before taxation 132 245 101 346
Taxation (40) (79) (46) (125)
Profit on ordinary activities
after taxation 92 166 55 221
Minority interests - equity (2) (4) (1) (5)
Earnings of the period 90 162 54 216
Earnings per share - p 3 12.5 22.7 7.5 30.2
Results before goodwill amortisation
and exceptional items
Operating profit - GBP m 175 208 216 424
Profit before tax - GBP m 143 193 193 386
Earnings per share - p (note 3) 14.5 19.1 20.0 39.1
GKN CONTINUING BUSINESSES PRO FORMA
STATEMENT OF NET ASSETS
At 30 June 2001
30 June 31 December
2001 2000
GBP m GBP m
Fixed assets
Intangible assets 567 535
Tangible assets 1,393 1,277
1,960 1,812
Investments
Joint ventures
Share of gross assets 1,233 1,036
Share of gross liabilities (1,092) (937)
141 99
Associates 16 16
Other investments 31 26
188 141
Total fixed assets 2,148 1,953
Current assets
Stocks 553 473
Debtors 675 581
Cash at bank and in hand 185 137
1,413 1,191
Creditors: amounts falling due within one year
Short-term borrowings (249) (259)
Creditors (722) (608)
Taxation and dividend payable (248) (275)
(1,219) (1,142)
Net current assets 194 49
Total assets less current liabilities 2,342 2,002
Creditors: amounts falling due beyond one year
Term loans and obligations under finance leases (852) (623)
Provisions for liabilities and charges (306) (288)
Net assets 1,184 1,091
Note: The balance sheet at the end of December 2000 has been adjusted
to reflect the creation of the AgustaWestland joint venture as
though it had occurred at that date.
GKN CONTINUING BUSINESSES PRO FORMA CASH INFLOW FROM OPERATING ACTIVITIES
For the half year ended 30 June 2001
Full First First
Year Half Half
2000 2001 2000
GBP m GBP m GBP m
316 Operating profit from continuing operations 98 182
185 Depreciation and goodwill amortisation 100 92
(132) Decrease/(increase) in working capital 32 (131)
(1) Decrease in provisions (13) (5)
(27) Decrease in customer advances -- (30)
(6) Other 5 2
335 Net cash inflow from operating activities 222 110
GKN CONTINUING BUSINESSES PRO FORMA CASH FLOW STATEMENT
For the half year ended 30 June 2001
Full First First
Year Half Half
2000 2001 2000
GBP m GBP m GBP m
335 Net cash inflow from operating activities 222 110
(see above)
14 Dividends from joint ventures and associates 1 8
Returns on investments and servicing of finance
(29) Net interest paid (31) (17)
(3) Dividends paid to minority interests (1) (2)
(32) (32) (19)
(58) Taxation (14) (32)
Capital expenditure and financial investment
(246) Purchase of tangible fixed assets (138) (132)
1 Other (8) (4)
(245) (146) (136)
Acquisitions and disposals
(223) Purchase of subsidiaries and joint ventures (134) (87)
114 Sale of subsidiaries and joint ventures 10 100
(109) (124) 13
(95) Cash outflow from continuing businesses (93) (56)
GKN CONTINUING BUSINESSES MOVEMENT IN NET FUNDS
For the half year ended 30 June 2001
Full First First
Year Half Half
2000 2001 2000
GBP m GBP m GBP m
(95) Cash outflow from continuing businesses (93) (56)
(134) Dividends/redemption of 'B' shares (93) (71)
(24) Subsidiaries acquired and sold (141) (15)
(72) Currency variations 3 1
12 Proceeds of share issues 2 4
(5) New finance leases -- --
(318) Continuing businesses total outflow (322) (137)
(2) Cash inflow/(outflow) from discontinued businesses 3 (6)
(281) Net borrowings at beginning of period (601) (281)
(601) Net borrowings at end of period (920) (424)
GKN CONTINUING BUSINESSES PRO FORMA SEGMENTAL ANALYSIS
Sales Operating Profit
First First Full First First Full
Half Half Year Half Half Year
2001 2000 2000 2001 2000 2000
GBP m GBP m GBP m GBP m GBP m GBP m
By business
Automotive
Subsidiaries 1,414 1,284 2,530 107 148 281
Joint ventures 80 78 153 14 14 27
1,494 1,362 2,683 121 162 308
Aerospace
Subsidiaries 304 627 1,362 8 44 108
Joint ventures 427 10 27 44 -- 4
Associates 35 32 62 2 2 4
766 669 1,451 54 46 116
2,260 2,031 4,134 175 208 424
Goodwill amortisation -- -- -- (18) (11) (28)
Exceptional items -- -- -- -- -- (45)
Total 2,260 2,031 4,134 157 197 351
By region of origin
Europe
Subsidiaries 902 1,256 2,570 82 134 274
Joint ventures 452 40 79 49 5 13
Associates 35 32 62 2 2 4
1,389 1,328 2,711 133 141 291
Americas
Subsidiaries 684 572 1,131 26 56 106
Joint ventures 32 28 60 5 4 10
716 600 1,191 31 60 116
Rest of the world
Subsidiaries 132 83 191 7 2 9
Joint ventures 23 20 41 4 5 8
155 103 232 11 7 17
Total 2,260 2,031 4,134 175 208 424
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