21 March 2024
Dowlais Group
plc
Full Year Results
2023
Strong execution delivers
double-digit adjusted operating profit growth
Cash above expectations and
confidence in long-term outlook enabling £50 million
buy-back
Dowlais Group plc, the specialist
engineering group focused on the automotive sector, announces its
audited results for the year ended 31 December 2023.
£ millions
|
Adjusted1
|
Statutory
|
2023
|
2022
|
Change
|
Constant FX1
|
2023
|
2022
|
Change
|
Revenue
|
5,489
|
5,246
|
4.6%
|
6.3%
|
4,864
|
4,595
|
5.9%
|
Operating profit/(loss)
|
355
|
333
|
6.6%
|
10%
|
(450)
|
58
|
n/m3
|
Operating margin
|
6.5%
|
6.3%
|
20bps
|
30bps
|
-9.3%
|
1.3%
|
n/m3
|
Profit/(loss) before tax
|
264
|
297
|
-11%
|
-7.1%
|
(522)
|
(63)
|
n/m3
|
Basic EPS2
|
13.8p
|
-
|
-
|
-
|
(36.0)p
|
-
|
-
|
Free cash
flow2
|
93
|
-
|
-
|
-
|
-
|
-
|
-
|
1. Adjusted
financial measures are defined and reconciled to statutory measures
in the Alternative Performance Measures section of this
announcement, which also sets out the definition and basis of
calculation of constant currency. Unless stated otherwise, all
growth rates refer to growth at constant currency.
2. Prior year comparators are not
included as not considered meaningful or are not possible to
calculate due to the change in structure of the business. Prior
year comparators will be included from December 2024.
3. Not meaningful.
Highlights
Financial overview
-
|
Adjusted revenue of £5,489 million,
up 6.3% on prior year, driven by volume growth in Automotive and
inflation recoveries across the Group.
|
-
|
Adjusted operating profit of £355
million. Excluding incremental stand-alone plc costs, adjusted
operating profit increased 20% on prior year.
|
-
|
Adjusted operating margin expansion
of 30bps to 6.5%, driven by volume growth, operational efficiencies
and improved commercial pricing with customers, fully offsetting
inflation. Excluding incremental stand-alone plc costs, adjusted
operating profit margin improved by 90bps.
|
-
|
Automotive adjusted revenue and
adjusted operating profit grew 7.0% and 27% respectively, achieving
110bps of margin improvement to 6.9% with an H2 margin of
7.3%.
|
-
|
Powder Metallurgy adjusted revenue
grew 3.5%, with adjusted operating profit growth of 3.1%, resulting
in an adjusted margin of 9.2%.
|
-
|
A full review of the medium-term
trading prospects of Powder Metallurgy, after our first year of
ownership, has resulted in a non-cash goodwill impairment charge of
£449 million contributing to a Group statutory operating loss of
£450 million.
|
-
|
Adjusted basic earnings per share of
13.8 pence. Statutory loss per share of 36.0 pence, largely as a
result of the goodwill impairment, restructuring charges and
amortisation of acquisition-related intangible assets.
|
Cash flow and capital allocation
-
|
£93 million of adjusted free cash
flow ahead of our expectations driving reduction in net debt to
£847 million with leverage reduced to 1.4x compared to a pro forma
position of 1.5x on demerger, within our target range of 1.0x to
1.5x.
|
-
|
In line with the Group's dividend
policy, the Board has recommended a final dividend of 2.8 pence per
share, resulting in total 2023 dividends of 4.2 pence per
share.
|
-
|
The Board has also announced its
intention to commence a share buy-back programme of up to £50
million over a 12 month period commencing in April 2024.
|
Portfolio
-
|
Strong Automotive performance with
record business wins with over £6 billion of forecast lifetime
revenue won. This is well balanced across the Driveline and
ePowertrain portfolios and customers - including traditional,
Chinese and pureplay EV OEMs.
|
-
|
Powder Metallurgy continues to
transition its portfolio with 72% of new business wins being for EV
or propulsion agnostic products.
|
-
|
Hydrogen continues to make good
commercial progress resulting in encouraging revenue
growth.
|
Sustainability
-
|
Net zero targets set, with
Automotive's targets validated by the Science Based Targets
Initiative (SBTi) and Powder Metallurgy's submitted for
validation.
|
-
|
Progress in sustainability ratings,
with Powder Metallurgy achieving a Platinum medal from EcoVadis and
Automotive achieving Silver.
|
Liam Butterworth, Chief Executive Officer,
said:
"2023 was a year marked by significant progress and
transformation for Dowlais, following the Group's successfully
executed demerger and listing on the London Stock Exchange. Through
excellent execution we delivered on our commitments with a strong
financial and operational performance, demonstrating resilience,
expanding margins, generating free cash flow above our expectations
and reducing our financial leverage.
In
recognition of this performance, confidence in the long-term
outlook and focus on shareholder returns, the Board has announced
its intention to launch a share buy-back programme of up to £50
million and recommended a final dividend, which when approved, will
result in total full year dividends of 4.2 pence per
share.
During our first year of ownership, we have undertaken a full
review of the medium-term prospects of Powder Metallurgy and as a
result we have recognised a non-cash goodwill impairment. We have
also appointed a new CEO to lead the business. In the short to
medium term we expect steady performance and will continue to focus
on accelerating change to realise the long term financial potential
of this market-leading business.
As
we look forward, current industry forecasts imply a slight decline
in global light vehicle production in 2024. Based on these external
forecasts and our current order book, we anticipate Group revenues
will be similar to the prior year, at constant currency, with a
modest reduction in the first half offset by an improvement in the
second half due to the expected timing of several new programme
launches. On this basis, and with our strong continued focus on
operational efficiencies, we expect to further expand operating
margins and grow free cash flow in 2024. We remain confident of
achieving our margin target of 10%+ in Automotive over the
medium-term, largely underpinned by announced
restructuring."
Notes
Dowlais commenced trading on 20
April 2023 upon completion of its demerger from Melrose Industries
PLC and its admission to the main market of the London Stock
Exchange. However, these results are presented for the full
twelve-month period (1 January to 31 December 2023), along with
prior year comparative information. Unless otherwise expressly
stated, references to operating profit in these results include the
impact of "incremental stand-alone plc costs", principally being
the costs of the Dowlais head office operations, the Board and the
executive committee, which were £32 million in the period. Where
such incremental stand-alone plc costs are excluded from any stated
operating profit, for the purposes of making a prior period
comparison, that is expressly noted. References to changes "at
constant currency" are defined in the Alternative Performance
Measures section of this announcement. Certain other words and
phrases used in this announcement have the meaning given to them in
the Glossary.
Enquiries:
Investor Relations:
Pier Falcione
investor.relations@dowlais.com
+44(0)7855 185 420
Chris Dyett
+44(0)7974 974 690
Teneo:
Olivia Peters/Harry Cameron
dowlais@teneo.com
+44(0)7902 771 008
Results presentation
A presentation will be hosted by
Liam Butterworth (CEO) and Roberto Fioroni (CFO) on 21 March 2024
at 9.00 GMT. You can register to listen to the presentation online
here:
https://streamstudio.world-television.com/1429-2695-39086/en.
About Dowlais Group plc
Dowlais is a portfolio of
market-leading, high-technology engineering businesses that advance
the world's transition to sustainable vehicles. Dowlais' businesses
comprise GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen.
With over 70 manufacturing facilities in 19 countries across the
world, Dowlais is an automotive technology leader delivering
precisely engineered products and solutions that drive
transformation in our world. Dowlais has LEI number
213800XM8WOFLY6VPC92. For more information visit
www.dowlais.com
Forward Looking Statements
These results include certain
forward-looking statements. These forward-looking statements
involve known and unknown risks and uncertainties, many of which
are beyond Dowlais' control and all of which are based on Dowlais'
current beliefs and expectations about future events.
Forward-looking statements are sometimes identified by the use of
terminology such as "believe", "expects", "may", "will", "would",
"could", "should", "shall", "risk", "intends", "expects",
"estimates", "projects", believes", "aims", "plans", "predicts",
"seeks", "goal", "continues", "assumes", "positioned",
"anticipates" or "targets" or the negative thereof, other
variations thereon or comparable terminology. These forward-looking
statements include matters that are not historical facts,
statements regarding the intentions, beliefs or current
expectations concerning, among other things, the future results of
operations, financial condition, prospects, growth, strategies,
dividend policy and industry of Dowlais and commitments, ambitions
and targets relating to ESG matters. These forward-looking
statements and other statements contained in these results
regarding matters that are not historical facts involve
predictions. No assurance can be given that such future results
will be achieved, and actual events or results may differ
materially as a result of risks and uncertainties facing Dowlais.
Such risks and uncertainties could cause actual results to vary
materially from the future results indicated, expressed or implied
in such forward-looking statements. Forward-looking statements
contained in these results speak only to the date of these results.
Dowlais and its directors expressly disclaim any obligation or
undertaking to update these forward-looking statements to reflect
any change in their expectations or any change in events,
conditions, or circumstances on which such statements are based
unless required to do so by applicable law.
Chief Executive Officer's Review
We are pleased with the performance
of Dowlais since listing in April 2023. We have delivered on our
commitments, underpinned by a strong financial and operational
performance during the year.
Market update
Automotive markets continued their
recovery in 2023, with global light vehicle production increasing
nearly 10% on 2022, to 90.3 million vehicles. Easing of
semiconductor supply constraints, inventory restocking, resilient
consumer demand and strong export growth from China were the key
drivers. Growth was strong in EMEA (+11%), the rest of Asia (+9%)
and the Americas (+9%), despite the impact of the UAW strikes.
Following a slow start to the year, production in China recovered
and finished 10% higher than 2022 levels.
Looking at the year ahead, S&P
now estimate 2024 production to be 90 million vehicles, a marginal
decline (-0.4%) on 2023 levels. As inventory replenishment cycles
near completion and order backlogs are satisfied, regions that
drove growth in 2023 (the rest of Asia and EMEA) are each expected
to decline by 3%. Production in the Americas is forecast to be flat
and China (+2%) is forecast to see low single-digit
growth.
In the longer-term, the global
automotive market is expected to grow, with a forecast increase in
global light vehicle production of 5% cumulatively between 2023 and
2028.
Strategy
Dowlais' purpose, engineering
transformation for a sustainable world, is shaped by our ambition
to make a positive impact on the world through product innovation
and technology. Our strategy, which has been defined in service of
this purpose, is clear and focused on three pillars; Lead,
Transform, Accelerate.
Lead: Our strategy is to lead,
both in terms of our position within our product markets and in our
financial performance. Market leadership provides the scale,
production efficiencies, deep customer relationships, operational
agility and resilience necessary to succeed in our industry. We
also drive our businesses to fulfil their potential to deliver
industry-leading financial performance, both in terms of operating
margin and cash generation. This means maintaining a relentless
focus on operational excellence, adopting world-class
manufacturing, commercial and procurement processes; and applying a
rigorous approach to working capital management.
Transform: Our businesses have
a legacy of transformation. Continuous improvement and agility are
fundamental to how we operate. This includes transformation in our
operations, where we are digitising and streamlining our
manufacturing processes; in our production footprint, where we have
re-positioned ourselves to improve our competitiveness; and in our
products, where technological innovation will help drive the
sustainable vehicles of the future.
Accelerate: We are positioning
our businesses for acceleration through sustainable organic growth.
The foundation of this growth is a profitable, cash generative core
business, that supports a clear innovation strategy. We have
invested in growth segments that we expect to profitably benefit
our business as the global transition to electrified vehicles gains
momentum. Alongside this, at the appropriate time, we will explore
opportunities for value-accretive M&A. We will be prudent and
disciplined in our approach and pursue opportunities only when we
believe they are compelling, aligned to our portfolio strategy and
confident that they will create shareholder value.
2023 Group performance
In 2023 we continued to execute
strongly to make progress on our three key priorities:
Margin expansion: Group
adjusted revenue was £5.5 billion, growing 6.3% year-on-year at
constant currency. This growth was driven by increased light
vehicle production volumes and inflation-related price increases.
Our long-term focus on profitability, with a rigorous discipline on
pricing, sometimes at the expense of volume, delivered improved
margins, with adjusted operating profit of £355 million,
representing a year-on-year increase of 10% at constant currency
and an adjusted operating profit margin expansion of 30bps. This
was achieved despite ongoing inflationary headwinds, and the impact
of the UAW strike in the US. This resulted in a drop-through margin
of 29% at constant currency. Excluding the impact of incremental
stand-alone plc costs, adjusted operating profit grew year-on-year
by 20%, with adjusted operating profit margin expanding by 90bps,
in each case at constant currency.
Cash generation: The Group
reported a free cash flow of £45 million for the year and reduced
net debt to £847 million. Free cash flow was impacted by
non-recurring costs of £48 million related to the demerger.
Excluding these non-recurring costs the Group generated £93 million
of adjusted free cash, ahead of our expectations. Strong execution
and a rigorous approach to working capital management supported our
cash performance. When combined with an increase in adjusted
EBITDA, the Group's leverage ratio reduced to 1.4x from a pro forma
position of 1.5x as at the date of demerger. This has been achieved
whilst continuing to invest in organic growth, new production
facilities and executing ongoing restructuring
programmes.
Portfolio transition: Our
businesses remain well positioned to benefit from the long-term
electrification of the automotive industry. Whilst the pace of
change has accelerated in recent years, it continues to be
volatile. We will therefore continue to maintain a pragmatic
approach to investing in our portfolio to ensure we remain well
balanced and able to track the pace of transition of our customers'
vehicle platforms. Progress in securing new business which supports
our transition, was made across the Group. Automotive had a record
bookings performance with contracts totalling over £6 billion of
forecast lifetime revenue awarded, well balanced across its
Driveline and ePowertrain product groups. This represents an
outstanding achievement, with 74% of those bookings on EV
platforms. In Powder Metallurgy, work to successfully navigate the
transition progressed, with 72% of new business bookings for
propulsion source agnostic products (by forecast peak annual
revenue) and continued progress on promising new product segments
including magnets and iron powder for lithium iron phosphate (LFP)
batteries.
Operational highlights
Our businesses continued to
demonstrate positive operational performance throughout the
year.
The operational strength of our
businesses was demonstrated by their ability to successfully
navigate the impact of the UAW strike action in the US during
September and October. The impact of the strike was approximately
£30 million of revenue and £10 million of adjusted operating
profit. We are pleased with how our businesses were able to respond
to the resulting shutdown of many OEM plants, while at the same
time mitigating the impact on our people and maintaining high
standards of quality and delivery.
Automotive has continued to drive
operational efficiencies by improving the cost base of its
manufacturing operations, most notably with the announcement of the
closure of its Mosel, Germany plant, the opening of its new
manufacturing facility in Hungary in September and the major
expansion of its production facilities in Mexico, which proceeded
according to plan. Automotive also recently announced the closure
of its plant in Roxboro, North Carolina, which will be completed by
the end of 2024 and was factored into our previous cashflow
assumptions. These developments will ensure that the business
continues to have a competitive manufacturing footprint to serve
its customers in Europe and the Americas, supporting our margin
improvement targets.
Powder Metallurgy has continued to
improve its operational performance, increasing automation,
optimising its US footprint and expanding its operations in Mexico.
A change of leadership for the Powder Metallurgy business was made
subsequent to the year-end, with the appointment of Jean-Marc
Durbuis as new CEO on 11 March 2024.
GKN Hydrogen continued to make good
commercial progress, with a notable increase in revenue and 16 of
its innovative hydrogen storage systems installed in the year,
demonstrating its capability with larger capacity installations for
a range of use-cases.
Our focus on quality and delivery
saw the Group deliver low single-digit parts-per-million (PPM)
defect rates across the portfolio, and a good health and safety
performance across the Group.
Engineering transformation for a sustainable
world
During the period, we continued to
make progress with our sustainability agenda and are delighted that
alongside our Annual Report we will publish our first stand-alone
sustainability report.
Sustainability is at the heart of
Dowlais, embedded in our purpose and strategic framework. We are
delivering the technological innovation required to enable a net
zero economy, whilst embedding sustainable practices throughout our
organisation to minimise our direct impact. In 2023, the Group's
Scope 1 and Scope 2 emissions fell by 6.4% against a 2022 baseline,
while both Automotive and Powder Metallurgy submitted science-based
targets to the Science Based Targets initiative (SBTi) for
validation in the year. Both business units were also recognised
with improved EcoVadis ratings, with Automotive achieving a silver
medal and Powder Metallurgy a platinum medal, the latter being only
awarded to the top 1% of companies assessed.
Dividend
The Board has recommended a final
dividend of 2.8 pence per ordinary share. This dividend, together
with the interim dividend of 1.4 pence per ordinary share
represents 30% of adjusted profit after tax, in line with the
Group's dividend policy. Subject to approval by shareholders, the
final dividend will be paid on 30 May 2024 to shareholders on the
register on 19 April 2024. A Dividend Reinvestment Plan (DRIP) is
provided by Equiniti Financial Services Limited. The DRIP enables
the Company's shareholders to elect to have their cash dividend
payments used to purchase the Company's shares. More information
can be found at www.shareview.co.uk/info/drip.
Share buy-back
The Board has announced its
intention to commence a share buy-back programme of up to £50
million, to be transacted over 12 months commencing in April
2024. This is in line with our capital allocation policy as
we continuously evaluate the deployment of our available capital to
support investment for future growth whilst maintaining leverage at
or below 1.5x through the period and maximise value for our
shareholders. The Board believes that purchasing its own shares is
an attractive use of its capital in light of the Group's strong
long-term outlook and improving cash generation. The programme will
be executed in accordance with applicable legal requirements and a
further announcement regarding the terms of the share buy-back
programme will be made in due course.
Board matters
Now that the process to establish
Dowlais as a stand-alone plc has completed, Geoffrey Martin,
Executive Director, has informed the Board that he will not stand
for election as a Director at the 2024 Annual General Meeting and
will therefore step down from the Board with effect from the
conclusion of the meeting. In addition, Alexandra Innes,
Non-Executive Director, has also informed the Board that she will
not stand for election as a Director at the 2024 Annual General
Meeting and will therefore also step down from the Board with
effect from the conclusion of the meeting. The Board would
like to thank both Geoffrey and Alexandra for their valuable
contribution to Dowlais and its businesses, both prior to and
following its listing in April 2023. All other Directors have
confirmed they intended to stand for election at the Company's 2024
Annual General Meeting. The Board has commenced a process to
review its composition, which is being led by the Nomination
Committee.
Outlook
Group
As we look forward, current industry
forecasts imply a slight decline in global light vehicle production
in 2024. Based on these external forecasts and our current order
book, we anticipate Group revenues will be similar to the prior
year, at constant currency, with a modest year-on-year reduction in
the first half offset by an improvement in the second half due to
the expected timing of several new programme launches. On
this basis, and with our strong continued focus on operational
efficiencies, we expect to further expand operating margins and
grow free cash flow in 2024. As with revenue, we expect operating
profit to be modestly second half weighted, with cash generation
also more skewed to H2 in 2024.
Automotive
GKN Automotive's priorities remain
unchanged: continued margin expansion; technology development to
support the transition to electrification; and sustainable,
profitable growth. The 2024 revenue outlook is consistent with the
Group. Encouragingly, we expect adjusted operating margins to
expand further building on the good momentum delivered in H2 2023
and supported by prior year actions to enhance operational
efficiency.
In the medium-term and based on
current industry light vehicle production forecast growth, we
expect Automotive to achieve its adjusted operating profit target
of 10%+. Of the incremental c.300 bps operating margin expansion
required to achieve this, we expect approximately two thirds to
result from ongoing operational efficiencies, largely underpinned
by announced restructuring, and the remaining one third to come
from revenue growth.
Powder Metallurgy
Powder Metallurgy continues to focus
on transitioning its portfolio, winning new business and ensuring
higher levels of efficiency across its manufacturing operations. As
a result, we expect revenues in 2024 to be similar to the prior
year, based on new customer product launches, with performance more
closely aligned with the market. We expect this trend to continue
over the medium term. We also expect adjusted operating margins of
approximately 10%. Longer term, with a renewed focus on expanding
the range of applications for its products, we expect the business
to be able to return to growth with the potential for higher
operating margins.
Financial Review
The Group achieved impressive
year-on-year improvements in its key performance measures, driven
by a combination of global light vehicle production (GLVP) volume
increases, operational efficiencies, easing supply chain
disruptions and a continuing focus on cost management. Despite
prolonged inflationary headwinds and the UAW strike in September
and October, we have demonstrated resilience in navigating these
challenges and executed strongly by growing profits, expanding
margins and increasing cash generation.
Overview
£ millions
|
Adjusted1
|
Statutory
|
2023
|
2022
|
Change
|
Constant FX1
|
2023
|
2022
|
Change
|
Revenue
|
5,489
|
5,246
|
4.6%
|
6.3%
|
4,864
|
4,595
|
5.9%
|
Operating profit/(loss)
|
355
|
333
|
6.6%
|
10%
|
(450)
|
58
|
n/m4
|
Operating margin
|
6.5%
|
6.3%
|
20bps
|
30bps
|
-9.3%
|
1.3%
|
n/m4
|
Operating profit/(loss) excl.
stand-alone costs2
|
387
|
333
|
16%
|
20%
|
-
|
-
|
-
|
Operating margin excl. stand-alone
costs2
|
7.1%
|
6.3%
|
80bps
|
90bps
|
-
|
-
|
-
|
Basic EPS3
|
13.8p
|
-
|
-
|
-
|
(36.0)p
|
-
|
-
|
Free cash
flow3
|
93
|
-
|
-
|
-
|
-
|
-
|
-
|
Net debt3
|
847
|
-
|
-
|
-
|
-
|
-
|
-
|
1. Adjusted financial measures are
defined and reconciled to statutory measures in the Alternative
Performance Measures section of this announcement, which also sets
out the definition and basis of calculation of constant
currency.
2. Excludes £32 million of
incremental stand-alone plc costs.
3. Prior year comparators are not
included as not considered meaningful or are not possible to
calculate due to the change in structure of the business. Prior
year comparators will be included from December 2024.
4. Not meaningful.
Revenue
Adjusted revenue in the year
increased to £5,489 million (2022: £5,246 million), with growth of
6.3% at constant currency. This reflected volume growth in all our
operating regions, although we did underperform GLVP, and price
increases as the businesses recovered significant cost inflation.
Translational foreign exchange headwinds on adjusted revenues were
£90 million greater than the prior year, resulting in a reported
adjusted revenue growth of 4.6%. Statutory revenue (which excludes
revenues from non-consolidated joint ventures including the Group's
major Automotive joint venture in China) in the year was £4,864
million (2022: £4,595 million) with reported growth of
5.9%.
The regional breakdown of Group
adjusted revenues in the year is shown below.
Adjusted revenue share by
region
|
2023
|
Americas
|
40%
|
Europe, Middle East &
Africa
|
34%
|
China1
|
14%
|
Asia (ex China)
|
12%
|
1. China revenues reflect Joint
Venture shareholding percentages.
Operating profit
Adjusted operating profit for the
year increased by 10% at constant currency to £355 million, with
margin improvement of 30bps. This improvement excludes the impact
of foreign exchange headwinds due to the British pound sterling
strengthening against the US dollar and the Chinese
Renminbi.
The increase in adjusted operating
profit was driven by higher volume, and offsetting inflation
through a combination of customer price increases and operational
efficiencies. Excluding incremental stand-alone plc costs, adjusted
operating profit in the year increased by 20% to £387 million, with
margin expansion of 90bps.
The statutory operating loss in the
year was £450 million (2022: £58 million profit), primarily
reflecting a goodwill impairment charge of £449 million relating to
the Powder Metallurgy business, resulting in a carrying value of
£884 million. As part of our year-end process, we review the
carrying value of all of our assets, which has led to this non-cash
impairment. After completing a detailed business review, while we
still believe that the business has promising longer-term
prospects, current medium-term profit and cash assumptions are
lower than those previously assumed when determining its book
value. This is largely driven by a softening in the underlying
forecast of the growth assumptions in its core business. This is
discussed in more detail in Note 4(a) to the Financial Statements.
Other adjustments between adjusted and statutory operating profit
relate to the amortisation of acquisition-related intangible
assets, restructuring costs and demerger costs.
Translational foreign exchange impact
The difference in reported and
constant currency values relates to translational foreign exchange
impacts as further set out on in the Alternative Performance
Measures section of this announcement. When considering the
sensitivity of potential 2024 full-year adjusted operating profit
to translational foreign exchange movements, we expect that a 10%
strengthening of certain underlying currencies against British
pound sterling would increase adjusted operating profit as follows:
US dollar approximately £20 million; Euro approximately £5 million;
and Chinese Renminbi approximately £10 million. Based on current
spot rates we expect a full year 2024 revenue and operating profit
headwind.
Net
finance costs
The Group's net finance charges of
£72 million (2022: £121 million) represent £101 million of finance
costs (2022: £272 million) and £29 million of finance income (2022:
£151 million).
The finance costs include interest
on bank borrowings of £63 million (2022: £11 million), interest on
the Group's pension schemes of £17 million (2022: £6 million) and
finance lease charges of £6 million (2022: £6 million). The
increase in interest on bank borrowings compared to the prior year
reflects the change in capital structure to a stand-alone entity
following the demerger. The Group's effective interest rate on bank
borrowings was 6.4%.
Finance income includes the benefit
of foreign exchange gains of £22 million on loans with Melrose up
to the date of demerger. In the prior year, foreign exchange
movements on loans with Melrose resulted in a £24 million net cost,
comprising exchange gains of £143 million offset by exchange losses
of £167 million.
Adjusted net finance costs of £91
million (2022: £36 million) include £2 million of interest income
from equity accounted investments (2022: £2 million) and exclude
movements in foreign exchange movements on loans with Melrose as
well as a £1 million fair value movement on other financial assets
(2022: £59 million fair value changes on cross currency swaps).
Adjusting interest items are set out in Note 4(b) to the Financial
Statements.
The Group is actively monitoring
interest costs in light of volatile global interest rates and has
fixed the interest rates on 55% of the drawn debt under its banking
facilities with interest rate swaps, maturing in line with those
facilities.
Net finance charges are expected to
be higher in 2024, in the range of between £100 million and £110
million, due to the full-year impact of our debt structure and the
increase in global interest rates.
Tax
The results for the year show an
adjusted tax charge of £66 million (2022: £79 million), arising on
an adjusted profit before tax of £264 million (2022: £297 million).
The Group's current adjusted effective tax rate (ETR) is 25.0%
(2022: 26.6%). The Group's ETR is driven primarily by the
jurisdictional split of profits and includes the benefit of
operating in low tax regimes in certain parts of China and
Thailand. In addition, the Group has claimed the benefit of patent
box tax relief in Italy during the year. These downward drivers are
partially offset by the non-recognition for tax purposes of the
losses arising in the Hydrogen business as well as withholding tax
suffered on dividends received by the UK from overseas
businesses.
Earnings per share
In accordance with the Group's
measures of performance, the Group also presents its earnings per
share (EPS) on an adjusted basis. Adjusted EPS for the year was
13.8 pence per ordinary share.
Statutory basic EPS was a loss of
36.0 pence per share as it included the impact of the goodwill
impairment and other adjusting items such as amortisation of
acquisition-related intangible assets, restructuring costs and
demerger costs, as shown in Note 4 of the Financial
Statements.
Free cash flow
The Group reported a free cash flow
of £45 million for the year, which was impacted by non-recurring
costs of £48 million related to the demerger. These costs include
employee incentive payments under the terms of a previous Melrose
scheme that became payable at the point of the demerger and costs
associated with establishing the Group's new central functions.
Excluding these non-recurring costs, the adjusted free cash flow
was £93 million.
The growth in adjusted free cash
flow was primarily driven by an increase in adjusted EBITDA and
improvements in working capital of £18 million resulting from a
continued focus on supply chain optimisation. It also benefited
from lower tax and restructuring cash outflows, which more than
offset the higher interest payments and capital
expenditure.
Interest payments, totalling £68
million, were £56 million higher compared to the previous year due
to the new stand-alone capital structure established after the
demerger, therefore, interest payments in 2024 are expected to be
in the range of £80 million to £90 million. Capital expenditure
increased by £73 million to £295 million, reflecting investments in
business growth and footprint optimisation. Capital expenditure in
2024 is expected to be towards the lower end of 1.0x and 1.2x
depreciation, in line with our medium-term guidance. Restructuring
cash outflows of £70 million, related to manufacturing footprint
optimisation, were lower than the previous year and expectations,
largely due to phasing. As a result, restructuring cash outflows in
2024 are expected to increase to between £90 million and £100
million.
Liquidity and leverage
The Group's primary sources of
liquidity are the cash generated from operating activities and
funds available under its revolving credit facility. At year end,
the Group's cash and cash equivalents balance stood at £313
million, while the revolving credit facility had available headroom
of £590 million, translating to a total liquidity position of £903
million.
The Group is funded through two core
banking facilities, comprised of a term loan and revolving credit
facility, with a combined facility limit of approximately £1.8
billion. Both facilities have an initial maturity date of 20 April
of 2026, and the Group has the option to extend the revolving
credit facility for up to two further one-year periods, at its sole
discretion.
The Group's net debt at 31 December
2023 was £847 million, slightly less than 30 June 2023 and
approximately £30 million less than the pro forma net debt of £880
million at 31 December 2022.
The Group's net leverage ratio at 31
December 2023 was 1.4x adjusted EBITDA, comfortably below the
covenant requirement under its debt facilities of 3.5x, and aligned
with the Group's intention to maintain a strong balance sheet with
net leverage of between 1.0x and 1.5x the last 12 months' adjusted
EBITDA. A separate interest cover covenant (which measures the
adjusted EBITDA to net interest charge over the preceding 12 months
and requires a ratio of at least 4.0x) does not come into effect
until 30 June 2024. The Group expects to have comfortable headroom
above this covenant.
Retirement benefit obligations
The Group operates several defined
benefit pension schemes. The Group's assets and liabilities under
these schemes were calculated as at 31 December 2023 to reflect the
latest assumptions and are summarised below.
Position at 31 December 2023
£
millions
|
Assets
|
Liabilities
|
Accounting
Deficit
|
UK plans1
|
665
|
(672)
|
(7)
|
European plans
|
16
|
(416)
|
(400)
|
US plans
|
73
|
(118)
|
(45)
|
Other Group pension
schemes
|
21
|
(28)
|
(7)
|
Total Group pension
schemes
|
775
|
(1,234)
|
(459)
|
1. UK plans primarily relate to the
GKN Group Pension Schemes No. 2 and No. 3 and also include a legacy
UK post-retirement medical scheme.
The Group's most significant defined
benefit pension plans are the GKN Group Pension Scheme No. 2 and
the GKN Group Pension Scheme No. 3, which constitute the majority
of the UK plans. These defined benefit schemes are closed to new
entrants and to the accrual of future defined benefits for current
members. The Group continues to contribute £15 million per annum to
these UK schemes as part of its asset-backed funding arrangements.
As at 31 December 2023, these schemes had a net deficit of £5
million (2022: net surplus of £17 million), with an additional £2
million of liabilities relating to a legacy post-retirement medical
scheme. The UK schemes were last subject to their triennial
statutory valuation in April 2022, the outcome of which and the
related funding principles was agreed by the Group with the trustee
directors of the schemes. The next triennial valuation is due in
April 2025.
The most significant of the Group's
other pension liabilities are the future payment obligations under
the German GKN pension plans, which provide benefits dependent on
final salary and service and which are generally unfunded and
closed to new entrants. At year end, the future obligations
associated with these plans represented an unfunded liability of
£390 million (2022: £405 million).
Full-year pension cash outflows in
relation to the defined benefit pension schemes were £39 million
(2022: £40 million). This amount is expected to be approximately
£45 million in 2024.
Business Unit Reviews
Automotive
GKN Automotive is a global automotive technology business at
the forefront of innovation. It specialises in designing,
developing and producing market-leading drive systems, with eight
out of ten of the world's best-selling cars using its technology.
GKN Automotive is the world leader in sideshafts, propshafts,
all-wheel-drive (AWD) systems and advanced differentials, on which
it has built its eDrive system capability, which was launched over
20 years ago and has since been used in over 2.5 million
electrified vehicles worldwide.
Automotive overview
£ millions
|
Adjusted1
|
Statutory
|
2023
|
2022
|
Change
|
Constant FX1
|
2023
|
2022
|
Change
|
Revenue
|
4,437
|
4,223
|
5.1%
|
7.0%
|
3,843
|
3,598
|
6.8%
|
Operating Profit
|
306
|
250
|
22%
|
27%
|
30
|
11
|
173%
|
Operating Margin
|
6.9%
|
5.9%
|
100bps
|
110bps
|
0.8%
|
0.3%
|
50bps
|
1. Adjusted financial measures are
defined and reconciled to statutory measures in the Alternative
Performance Measures section of this announcement, which also sets
out the definition and basis of calculation of constant
currency.
GKN Automotive made strong progress
during 2023 with revenue growth, significant margin expansion,
improving cash flow generation and record new business
bookings.
Adjusted revenue grew 7.0%
year-on-year to £4,437 million, driven by increased global light
vehicle production volumes. The under-performance compared to a
GLVP growth of 9.7% is largely due to our strategic focus on
commercial discipline, prioritising profitable growth over volume
growth. The business also grew adjusted operating profit by
27%. This reflects a drop-through margin of 29% on
incremental volume at constant currency. This resulted in adjusted
operating margin expansion of 110bps to 6.9%, reflecting
incremental volumes, operational efficiencies including procurement
benefits, offsetting ongoing inflation and foreign exchange
headwinds. The second half performance was particularly pleasing,
with the business achieving an adjusted operating margin of 7.3%,
despite the impact of the UAW strike action in the US.
To optimise its manufacturing
footprint and further improve efficiency, the business incurred
£109 million in restructuring costs during the year, with a £58
million cash outflow. Key actions included the ongoing closure of
its Mosel plant in Germany and shifting production to Miskolc,
Hungary, alongside the expansion of facilities in
Mexico.
Record new business wins
GKN Automotive had an outstanding
year of new business bookings, securing strategically significant
wins and contract awards worth more than £6 billion in forecast
lifetime revenue. This is GKN Automotive's best-ever year for new
business wins, representing an 11% increase on 2022 and a
book-to-bill ratio of approximately 1.4x.
These business wins are well
balanced across the Driveline and ePowertrain product groups, with
74% related to EV platforms, and 69% for pure BEV platforms (in
each case by forecast lifetime revenue). The wins were also
balanced across the business's product portfolio, including
sideshafts tailored for EVs, ePowertrain components such as
Electronic Differential Locks (EDL), Electronic Torque Managers
(ETM) and Limited Slip Differentials (LSD), and a full eDrive
system. They were also across a broad range of end customers,
including traditional, Chinese and pureplay EV OEMs.
The business's order book remains
very well aligned to the evolving vehicle portfolio of its
customers and the S&P Global's forecast for 2027, with 33% of
its current 2027 order book now relating to battery electric
vehicles, 16% to hybrid electric vehicles and 51% to internal
combustion engine vehicles. The balanced nature of GKN Automotive's
product portfolio enables it to remain propulsion source agnostic,
and to prudently track the pace of transition of its customers'
vehicle platforms to EVs.
Notably, the business was also
awarded a contract for a full 3-in-1 eDrive system, comprising two
electric drive units (front and rear) for a high-performance
electric SUV. The forecast profitability of this award is also
fully aligned to our margin objectives. This win further
demonstrates GKN Automotive's ability to profitably leverage its
all-wheel-drive (AWD) systems engineering expertise into eDrive
systems. Separately, the business's first entirely in-house
designed and developed 3-in-1 eDrive system, to be supplied to a
major global OEM, is expected to enter series production in the
second half of 2024.
China continues to lead the world in
the transition to electric vehicles, and this key market was an
area of particular focus during the year. GKN Automotive's presence
in China is via its joint venture SDS with local partner HUAYU
Automotive Systems Co. Ltd (HASCO). SDS has continued to grow and
remains the leading supplier of driveline products to the Chinese
market, with ten manufacturing facilities located in the country.
2023 represented the 35th anniversary of the establishment of the
joint venture, reflecting GKN Automotive's early entry into the
domestic Chinese market. Following the easing of restrictions on
travel resulting from the pandemic, the GKN Automotive leadership
team has spent considerable time in China, working in close
collaboration with HASCO and the SDS team to ensure that the joint
venture continues to maintain its strong and profitable position in
the Chinese market, with progress made. Chinese OEMs continue to
become more global in their ambitions, and the business made good
progress in profitably increasing sales with this group of
customers, leveraging its strong and longstanding
relationships.
Technology and product portfolio
GKN Automotive is a drive systems
technology leader, with six global technology centres, a global
engineering organisation and dedicated vehicle testing facilities.
It has the most comprehensive drive system portfolio in the
industry, transferring the torque from a vehicle's power source to
the wheels to ensure superior performance, efficiency and
reliability.
In 2023, the business continued to
expand its core sideshaft portfolio, with products designed to
match the changing demands of EV platforms. With over 100 joint
types and sizes, world-class drivetrain expertise and over 1,400
active driveshaft patents, it is the world leader in this
market.
As the global leader in AWD systems
and advanced differentials, GKN Automotive is well positioned to
capitalise on the increasing number of vehicle architectures and
the efficiency requirements of EVs. The business designs and
manufactures a wide range of systems, sub-systems, and components,
that enable improvements in efficiency, vehicle dynamics, stability
and safety. These capabilities have contributed to its success in
the rapidly growing eDrive systems market.
In 2023 the business launched the
Advanced Research Centre (ARC), a collaborative partnership between
GKN Automotive, Newcastle University and the University of
Nottingham, delivering a series of advanced technology projects
focused on power electronics, advanced cooling methods in motors
and motor control techniques. These projects aim to enhance drive
system performance and efficiency, which are critical to the
ongoing evolution of the EV market.
Further expanding its electronic and
software capabilities, GKN Automotive achieved ASPICE Level 2
certification for a full eDrive system with a leading German
vehicle manufacturer in 2023. ASPICE (Automotive Software Process
Improvement Capability Determination) is a standard which assesses
the maturity of development processes for electronic and
software-based automotive systems. All future GKN Automotive eDrive
systems will be ASPICE Level 2 compliant.
Operational excellence
With operations in 18 countries, the
business is global in nature, and capable of meeting its customers'
needs wherever they are located.
GKN Automotive had an excellent
health and safety performance in the year, with an Accident
Frequency Rate of 0.05, an improvement from 2022, due to a range of
behaviour-based safety initiatives, including those relating to
hand safety and slips, trips and falls. The business also continued
to demonstrate excellent quality standards, achieving a PPM (parts
rejected per million manufactured) defect rate of six.
Throughout the year, GKN Automotive
continued to make significant progress in improving the
competitiveness of its manufacturing footprint, as part of its
wider industrial strategy to ensure a best-in-class cost structure
and continues to sustainably drive margin improvement.
In October 2023, GKN Automotive
commenced production at its new manufacturing facility in Miskolc,
Hungary. In addition, the business invested to expand its Mexico
facilities by a total of 28,000 sqm, to a total of 182,000 sqm,
adding further manufacturing and engineering capabilities. In
addition to these expansions, the business announced the proposed
closure of a Driveline plant in Mosel, Germany. Following
consultation and negotiation with affected employees and other
stakeholders, the final phase of the plant closure will take place
in the second half of 2025. The proposed closure of its plant in
Roxboro, North Carolina was also announced on 7 March 2024. The
cash impact of these actions is in line with our original
expectations and commentary.
GKN Automotive's ability to meet its
customers' demanding operational schedules was demonstrated by the
business successfully completing 115 new programme launches during
the year. Operational improvements were made across many plants,
with a continued focus on areas such as excellence in its global
procurement function, smart automation, cost optimisation and the
implementation of intelligent material-flow systems.
The business also fully restructured
its supply chain functions, closing its Global Freight Services
operation and transferring accountability for global freight
management activities to a streamlined internal team located within
its manufacturing plants, working directly with external logistics
providers. This project, which was implemented on time and without
operational disruption, is expected to further enhance operational
performance, reduce costs and improve working capital.
Powder Metallurgy
GKN Powder Metallurgy is solving complex challenges in
automotive and industrial markets through best-in-class sustainable
and innovative powder metallurgy technology. It is a world-class
supplier of metal powder and sintered metal components. The
business comprises three focused divisions under one brand: GKN
Powders/Hoeganaes, GKN Sinter Metals, and GKN Additive, supplying
metal powders, high-precision powder metal solutions and 3D-printed
parts.
Powder Metallurgy overview
£ millions
|
Adjusted1
|
Statutory
|
2023
|
2022
|
Change
|
Constant FX1
|
2023
|
2022
|
Change
|
Revenue
|
1,047
|
1,022
|
2.4%
|
3.5%
|
1,016
|
996
|
2.0%
|
Operating Profit
|
96
|
96
|
-
|
3.1%
|
(409)
|
36
|
n/m2
|
Operating Margin
|
9.2%
|
9.4%
|
(20)bps
|
(10)bps
|
-40.3%
|
3.6%
|
n/m2
|
1. Adjusted financial measures are
defined and reconciled to statutory measures in the Alternative
Performance Measures section of this announcement, which also sets
out the definition and basis of calculation of constant
currency.
2. Not meaningful
Powder Metallurgy's performance in
the year was in line with expectations, including good cash
generation. Adjusted revenues were £1,047 million, 3.5% ahead of
2022. This reflected the benefit of strong inflation-recovery
through pricing and flat year-on-year volumes. The market
under-performance was largely driven by the EV transition
headwinds, engine downsizing and the impact of the UAW strikes in
the US.
Adjusted operating profit for the
year was £96 million, at an adjusted operating margin of 9.2%. This
compares to an equivalent margin of 9.4% in 2022 and reflects the
dilutive effect of inflation recoveries in the year.
Powder Metallurgy has been heavily
focused on inflation recovery throughout the year, and successfully
recovered around 100% of commodity and energy inflation for the
full year, by pricing initiatives and surcharge pass-through
agreements. The business offset other inflationary increases
through operational efficiencies.
Commercial progress and EV transition
Powder Metallurgy made commercial
progress in the year, securing new business wins with a 23%
year-on-year increase in bookings when measured by forecast peak
annual revenues. The business has a broad and stable customer base,
with over 3,000 customers in automotive and other industrial
markets.
A key priority for the business is
successfully navigating the EV transition, as a significant
proportion of its sales are currently from products used in ICE
vehicles. Progress continues to be made, with approximately 72% of
the value of its new business wins in 2023 for EV or propulsion
source agnostic product groups, by forecast peak annual revenue.
This was a material step-up from the prior year and a confirmation
that the new products Powder Metallurgy has developed over recent
years are gaining commercial traction.
The business continues to identify
new areas in which its powder metallurgy expertise can be applied
to EV-specific products. This includes areas such as battery
connectors and packs; components for high-voltage cables, electric
motors and thermal management systems; e-pumps; x-by-wire
components and differential gears. Multiple business wins in
EV-specific products were secured in the year, including the single
largest contract the business has ever secured, for the supply of
sintered differential gears for a leading US vehicle manufacturer,
with production due to commence in 2025.
Powder Metallurgy's strategy to
successfully navigate the EV transition is based not only on
adapting its core sinter metals business but also on identifying
new markets for its metal powders. The business has had success
this year in selling high-quality iron powder to produce cathodes
for Lithium Iron Phosphate (LFP) batteries. LFP batteries are
becoming more widely used and are gaining share in the growing EV
battery market due to their lower cost and thermal stability. The
business is already supplying customers with this material and
working with vehicle and battery manufacturers (and their
suppliers) on several potential opportunities involving localised
supply across Europe, North America, and China.
An additional potential growth area
which the business is pursuing is the manufacture and supply of
permanent magnets for electric motors for EVs and other
applications. Progress was made during the year, including the
first commercial agreement for the manufacture of magnets for
Schaeffler. The business continues to see interest in these
products from multiple customers (both OEMs and Tier 1 suppliers),
who wish to diversify their supply chains for these critical
components. Commercial negotiations and advanced technical
qualifications have continued with several potential customers, and
the business is working on establishing a robust and sustainable
supply chain for the critical raw materials as part of its
"Mine-to-Magnet" supply chain strategy. Construction of a new
low-scale production line capable of producing up to 400 tonnes of
permanent magnets a year has commenced and is expected to be
operational in Q1 2025. Investment in the manufacturing of magnets
totalled £2 million in the year, and appropriate investment in
full-scale production facilities will be considered as and when
contractual demand reaches the required threshold and returns meet
our financial criteria.
While primarily an
automotive-focused business, Powder Metallurgy supplies a wide
range of products to other industrial markets, including: consumer
white goods; heating, ventilation and air conditioning (HVAC); and
lawn and garden products. These markets represent approximately 20%
of the business's revenue, and advancing non-automotive
opportunities, in particular into high-growth sectors such as
medical, advanced computing and renewable energy, will continue to
be a strategic target for the business. As an example, during the
year the company won a substantial order for the supply of
isostatic tubes for a renewable energy project in China.
Operations
Powder Metallurgy is a global
business, with operations in 11 countries, 27 manufacturing plants
and three technology centres.
We set demanding standards of health
and safety for our businesses. Powder Metallurgy's Accident
Frequency Rate of 2.2 was slightly higher than our internal target,
and as such this remains an area of focus for the business. Quality
performance was better than our target, with a PPM defect rate of
less than five.
Throughout the year the business
continued to make progress on improving operations, with some of
its US plants experiencing operational challenges in first half of
the year. Investments were made to drive efficiencies, mainly
through automation, helping to offset inflationary pressures.
Powder Metallurgy also continues to develop its best-cost country
strategy by expanding its operations in Mexico.
On 11 March 2024, Dowlais appointed
a new Chief Executive Officer to lead the GKN Powder Metallurgy
business. Jean-Marc Durbuis joins GKN Powder Metallurgy from
Allnex, a global supplier of resins and additives to the coating
and inks industry, where he was Executive Vice President and a
member of the executive committee and board of directors of one of
its divisions. His achievements at Allnex include driving growth,
delivering significant improvements in his division's financial and
operational performance, and executing significant M&A projects
in several geographies. Jean-Marc will bring extensive commercial,
operational and leadership experience to GKN Powder Metallurgy as
it continues its portfolio transition.
Hydrogen
A
world leader in the nascent metal hydride storage industry, well
placed to capture growth across both the hydrogen storage and
long-duration energy storage markets. GKN Hydrogen offers the most
sustainable and safe long-term hydrogen storage systems, which
store hydrogen in significant quantities, without losses, in a
compact footprint. Its systems are based on patented metal hydride
technology and can be used as a robust hydrogen storage solution or
for long-term energy storage, in new or existing infrastructure
projects. The wide range of potential applications for hydrogen
systems includes off-grid energy storage, CO2-neutral emergency
power supply for critical facilities such as hospitals and data
centres, resiliency storage in hydrogen infrastructure and
refuelling stations, clean microgrids and charging
infrastructure.
Hydrogen overview
£ millions
|
Adjusted1
|
Statutory
|
2023
|
2022
|
Change
|
Constant FX1
|
2023
|
2022
|
Change
|
Revenue
|
5
|
1
|
n/m2
|
n/m2
|
5
|
1
|
n/m2
|
Operating Profit
|
(15)
|
(14)
|
-7.1%
|
-7.1%
|
(16)
|
(14)
|
-14%
|
Operating Margin
|
n/m2
|
n/m2
|
n/m2
|
n/m2
|
n/m2
|
n/m2
|
n/m2
|
1. Adjusted financial measures are
defined and reconciled to statutory measures in the Alternative
Performance Measures section of this announcement, which also sets
out the definition and basis of calculation of constant
currency.
2. Not meaningful.
Commercial traction
GKN Hydrogen's innovative storage
technology continued to generate commercial traction throughout the
year, as its order book increased and it continued to make progress
in a variety of market segments. 2023 was the first year in which
the business generated meaningful revenues, which were £5 million
for the year, and although the business was loss‑making, the business has a clear
first‑mover
advantage.
The business installed and
commissioned 16 new systems over the year, increasing the total
number that are operational, in production or in commissioning to
27. The business also secured its first repeat customer. GKN
Hydrogen's commercial focus is on targeting scalable customers
including Engineering, Procurement and Construction businesses
(EPCs), utilities providers and relevant industrial and transit
businesses. GKN Hydrogen believes that customers in these
industries particularly value the safety and reliability of its
storage systems, and its expertise in integrating these systems
into larger and more complex energy applications.
Operational progress
Whilst remaining focused on bringing
its products to market, GKN Hydrogen continues to develop and
refine its underlying technology. During the year it launched its
new large-scale storage system, Hy2Mega, with four systems, each
with 8.3MWh of energy capacity, commissioned in the year. The
business also supplied what are believed to be the largest metal
hydride hydrogen storage solutions ever brought to market,
installing 500kg of hydrogen storage capacity for two customers,
one in the US and one in Germany. The business's flexible and
modular approach to its storage systems enables it to efficiently
adapt its products to meet customers' needs.
In April 2023, the business opened
its new hydrogen technology centre in Pfalzen, Italy, where
approximately 60 employees lead its global development and
production activities. The Hydrogen business also continues to work
closely with research institutions, universities, and industry
partners to promote local and international co-operation and
knowledge exchange.
Outlook
The Board believes that the Hydrogen
business would benefit from the involvement of a strategic
commercial partner or specialist investor, as it seeks to
accelerate the commercial adoption of its technology. As previously
communicated, a process is ongoing to identify suitable investment
partners. We expect the business to continue to make commercial
traction in this nascent market and grow revenue during the
year.
Dowlais Group plc
Condensed Consolidated Income Statement
|
Notes
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022(1)
£m
|
Revenue
|
3
|
4,864
|
4,595
|
Cost of sales
|
|
(4,107)
|
(3,937)
|
Gross profit
|
|
757
|
658
|
Share of results of equity accounted
investments
|
9
|
51
|
49
|
Operating expenses
|
|
(809)
|
(649)
|
Impairment of goodwill
|
4
|
(449)
|
-
|
Operating (loss)/profit
|
3,4
|
(450)
|
58
|
Finance costs
|
5
|
(101)
|
(272)
|
Finance income
|
5
|
29
|
151
|
Loss before tax
|
|
(522)
|
(63)
|
Tax
|
6
|
27
|
(14)
|
Loss after tax for the
year
|
|
(495)
|
(77)
|
Attributable to:
|
|
|
|
Owners of the parent
|
|
(501)
|
(82)
|
Non-controlling interests
|
|
6
|
5
|
|
|
(495)
|
(77)
|
Earnings per share
|
|
|
|
-
Basic
|
8
|
(36.0)p
|
(5.9)p
|
-
Diluted
|
8
|
(36.0)p
|
(5.9)p
|
|
|
|
|
Adjusted(2)
results
|
|
|
|
Adjusted revenue
|
3
|
5,489
|
5,246
|
Adjusted operating
profit
|
3,4
|
355
|
333
|
Adjusted profit before
tax
|
4
|
264
|
297
|
Adjusted profit after
tax
|
4
|
198
|
218
|
Adjusted basic earnings per
share
|
8
|
13.8p
|
15.3p
|
Adjusted diluted earnings per
share
|
8
|
13.8p
|
15.3p
|
1. Historical Financial Information including
the year ended 31 December 2022 was issued in the Dowlais Group plc
prospectus prior to listing on the London Stock Exchange. See Note
1.2 for further information.
2. Defined in the summary of material
accounting policies (Note 2).
Dowlais Group plc
Condensed Consolidated Statement of Comprehensive Income
|
Notes
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022(1)
£m
|
Loss after tax for the
year
|
|
(495)
|
(77)
|
|
|
|
|
Items that will not be reclassified
subsequently to the Income Statement:
|
|
|
|
Net remeasurement (loss)/gain on
retirement benefit obligations
|
|
(22)
|
72
|
Income tax credit/(charge) relating
to items that will not be reclassified
|
6
|
4
|
(27)
|
|
|
(18)
|
45
|
Items that may be reclassified
subsequently to the Income Statement:
|
|
|
|
Currency translation
|
|
(152)
|
272
|
Impact of hyperinflationary
economies
|
|
8
|
28
|
Share of other comprehensive
(expense)/income from equity accounted investments
|
|
(32)
|
12
|
Derivative and exchange gains on
hedge relationships
|
|
21
|
-
|
Income tax credit/(charge) relating
to items that may be reclassified
|
6
|
4
|
(12)
|
|
|
(151)
|
300
|
Other comprehensive (expense)/income
for the year
|
|
(169)
|
345
|
Total comprehensive (expense)/income
for the year
|
|
(664)
|
268
|
Attributable to:
|
|
|
|
Owners of the parent
|
|
(668)
|
262
|
Non-controlling interests
|
|
4
|
6
|
|
|
(664)
|
268
|
1. Historical Financial Information including
the year ended 31 December 2022 was issued in the Dowlais Group plc
prospectus prior to listing on the London Stock Exchange. See Note
1.2 for further information.
Dowlais Group plc
Condensed Consolidated Statement of Cash Flows
|
Notes
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022 (1)
£m
|
Net cash from operating
activities
|
13
|
239
|
210
|
Investing activities
|
|
|
|
Purchase of property, plant and
equipment
|
|
(279)
|
(202)
|
Proceeds from disposal of property,
plant and equipment
|
|
33
|
23
|
Purchase of computer software and
capitalised development costs
|
|
(16)
|
(20)
|
Dividends received from equity
accounted investments
|
|
63
|
59
|
Interest received
|
|
5
|
3
|
Net cash used in investing
activities
|
|
(194)
|
(137)
|
Financing activities
|
|
|
|
Cash settlements with Related
Parties(2)
|
|
(1,096)
|
(78)
|
Drawings on borrowing
facilities
|
|
1,313
|
-
|
Repayment of borrowing
facilities
|
|
(124)
|
-
|
Costs of raising debt
finance
|
|
(12)
|
-
|
Repayment of principal under lease
obligations
|
|
(25)
|
(22)
|
Purchase of own shares
|
|
(7)
|
-
|
Dividends paid to non-controlling
interests
|
|
(7)
|
-
|
Dividends paid to equity
shareholders
|
7
|
(19)
|
-
|
Net cash from/(used in) financing
activities
|
|
23
|
(100)
|
Net increase/(decrease) in cash and
cash equivalents, net of bank overdrafts
|
|
68
|
(27)
|
Cash and cash equivalents, net of
bank overdrafts at the beginning of the year
|
13
|
263
|
275
|
Effect of foreign exchange rate
changes
|
|
(18)
|
15
|
Cash and cash equivalents, net of
bank overdrafts at the end of the year
|
13
|
313
|
263
|
1. Historical Financial Information including
the year ended 31 December 2022 was issued in the Dowlais Group plc
prospectus prior to listing on the London Stock Exchange. See Note
1.2 for further information.
2. Related parties comprise Melrose Industries
PLC, the ultimate parent company prior to demerger on 20 April 2023
and other non-group entities controlled by Melrose Industries
PLC.
As at 31 December 2023, the Group had net debt
of £847 million (31 December 2022: net funds of £920 million). A
definition and reconciliation of the movement in net debt is shown
in Note 13.
Dowlais Group plc
Condensed Consolidated Balance Sheet
|
Notes
|
31 December
2023
£m
|
31 December
2022 (1)
£m
|
Non-current assets
|
|
|
|
Goodwill and other intangible
assets
|
|
2,365
|
3,095
|
Property, plant and
equipment
|
|
1,751
|
1,821
|
Interests in equity accounted
investments
|
|
380
|
424
|
Loans receivable from Related
Parties(2)
|
15
|
-
|
2,826
|
Deferred tax assets
|
|
146
|
99
|
Derivative financial
assets
|
|
8
|
9
|
Other financial assets
|
|
28
|
-
|
Retirement benefit
surplus
|
12
|
27
|
42
|
Other receivables
|
|
12
|
21
|
|
|
4,717
|
8,337
|
Current assets
|
|
|
|
Inventories
|
|
510
|
498
|
Trade and other
receivables
|
|
628
|
638
|
Derivative financial
assets
|
|
45
|
24
|
Current tax assets
|
|
21
|
20
|
Cash and cash equivalents
|
13
|
313
|
270
|
|
|
1,517
|
1,450
|
Total assets
|
3
|
6,234
|
9,787
|
Current liabilities
|
|
|
|
Trade and other payables
|
|
1,179
|
1,188
|
Interest-bearing loans and
borrowings
|
13
|
2
|
-
|
Loans payable to Related
Parties(2)
|
15
|
-
|
2,176
|
Lease obligations
|
14
|
25
|
25
|
Derivative financial
liabilities
|
|
4
|
10
|
Current tax liabilities
|
|
100
|
109
|
Provisions
|
10
|
136
|
140
|
|
|
1,446
|
3,648
|
Net current
assets/(liabilities)
|
|
71
|
(2,198)
|
Non-current liabilities
|
|
|
|
Other payables
|
|
18
|
28
|
Interest-bearing loans and
borrowings
|
13
|
1,158
|
-
|
Lease obligations
|
14
|
126
|
134
|
Derivative financial
liabilities
|
|
4
|
2
|
Deferred tax liabilities
|
|
248
|
293
|
Retirement benefit
obligations
|
12
|
486
|
503
|
Provisions
|
10
|
182
|
186
|
|
|
2,222
|
1,146
|
Total liabilities
|
3
|
3,668
|
4,794
|
Net assets
|
|
2,566
|
4,993
|
Equity
|
|
|
|
Issued share capital
|
|
14
|
-
|
Share premium account
|
|
-
|
-
|
Own shares
|
|
(7)
|
-
|
Translation reserve
|
|
(81)
|
69
|
Hedging reserve
|
|
1
|
-
|
Retained earnings
|
|
2,603
|
4,885
|
Equity attributable to owners of the
parent
|
|
2,530
|
4,954
|
Non-controlling interests
|
|
36
|
39
|
Total equity
|
|
2,566
|
4,993
|
1. Historical Financial Information including
the year ended 31 December 2022 was issued in the Dowlais Group plc
prospectus prior to listing on the London Stock Exchange. See Note
1.2 for further information.
2. Related Parties comprise Melrose Industries
PLC, the ultimate parent company prior to demerger on 20 April 2023
and other non-group entities controlled by Melrose Industries
PLC.
Dowlais Group plc
Condensed Consolidated Statement of Changes in Equity
|
Issued
share
capital
£m
|
Share
premium
account
£m
|
Own
shares
£m
|
Translation
reserve
£m
|
Hedging
reserve
£m
|
Retained
earnings
£m
|
Equity
attributable
to owners
of the parent
£m
|
Non-
controlling
interests
£m
|
Total
equity
£m
|
At 1 January 2022
|
-
|
-
|
-
|
(230)
|
-
|
5,032
|
4,802
|
33
|
4,835
|
Loss for the year
|
-
|
-
|
-
|
-
|
-
|
(82)
|
(82)
|
5
|
(77)
|
Other comprehensive
income
|
-
|
-
|
-
|
299
|
-
|
45
|
344
|
1
|
345
|
Total comprehensive
income/(expense)
|
-
|
-
|
-
|
299
|
-
|
(37)
|
262
|
6
|
268
|
Transactions with Related
Parties(1)
|
|
-
|
-
|
-
|
-
|
(110)
|
(110)
|
-
|
(110)
|
At 31 December
2022(2)
|
-
|
-
|
-
|
69
|
-
|
4,885
|
4,954
|
39
|
4,993
|
Loss for the year
|
-
|
-
|
-
|
-
|
-
|
(501)
|
(501)
|
6
|
(495)
|
Other comprehensive
(expense)/income
|
-
|
-
|
-
|
(150)
|
1
|
(18)
|
(167)
|
(2)
|
(169)
|
Total comprehensive
(expense)/income
|
-
|
-
|
-
|
(150)
|
1
|
(519)
|
(668)
|
4
|
(664)
|
Dividends paid to Related
Parties(1)
|
-
|
-
|
-
|
-
|
-
|
(1,675)
|
(1,675)
|
-
|
(1,675)
|
Transactions with Related
Parties(1)
|
-
|
-
|
-
|
-
|
-
|
(57)
|
(57)
|
-
|
(57)
|
Effect of change of ultimate holding
company(3)
|
14
|
1,070
|
-
|
-
|
-
|
(1,084)
|
-
|
-
|
-
|
Purchase of own shares by Employee
Benefit Trust(4)
|
-
|
-
|
(7)
|
-
|
-
|
-
|
(7)
|
-
|
(7)
|
Capital reduction
|
-
|
(1,070)
|
-
|
-
|
-
|
1,070
|
-
|
-
|
-
|
Dividends paid to equity
shareholders
|
-
|
-
|
-
|
-
|
-
|
(19)
|
(19)
|
(7)
|
(26)
|
Equity-settled share-based
payments
|
-
|
-
|
-
|
-
|
-
|
2
|
2
|
-
|
2
|
At 31 December 2023
|
14
|
-
|
(7)
|
(81)
|
1
|
2,603
|
2,530
|
36
|
2,566
|
1. Related Parties comprise Melrose Industries
PLC, the ultimate parent company prior to demerger on 20 April 2023
and other non-group entities controlled by Melrose Industries
PLC.
2. Historical Financial Information including
the year ended 31 December 2022 was issued in the Dowlais Group plc
prospectus prior to listing on the London Stock Exchange. See Note
1.2 for further information.
3. Following the demerger, the issued share
capital and share premium account of Dowlais Group plc were
recognised in the Consolidated Financial Statements. See Note 2 for
details of application of merger accounting.
4. On 31 May 2023 an Employee Benefit Trust
(EBT) established for the benefit of certain employees of the Group
purchased shares in the capital of the Company to be held for the
purpose of settling awards vesting under the Group's share
incentive scheme.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate information
Dowlais Group plc comprises the GKN Automotive,
GKN Powder Metallurgy and GKN Hydrogen businesses along with
certain Corporate functions, together referred to as the "Group".
GKN Automotive is a global technology and systems engineer which
designs, develops, manufactures and integrates an extensive range
of driveline technologies, including electric vehicle components.
GKN Powder Metallurgy is a global leader in precision powder metal
parts for the automotive and industrial sectors, as well as the
production of powder metal. GKN Hydrogen, launched in 2021, offers
reliable and secure hydrogen storage solutions.
1.1 Corporate Structure
Dowlais Group plc was incorporated as a public
company limited by shares in the United Kingdom on 13 January 2023
under the Companies Act 2006 and is registered in England &
Wales. On 28 February 2023, Melrose Industries PLC ("Melrose")
transferred the entire shareholding of G.K.N. Industries Limited
and GKN Powder Metallurgy Holdings Limited to Dowlais Group plc
such that all the entities within the Group became owned directly
or indirectly by Dowlais Group plc.
On 20 April 2023, Melrose made a distribution to
its shareholders of Dowlais Group plc shares with one Dowlais share
issued for every Melrose share held. On the same day, Dowlais Group
plc shares were admitted to the premium listing segment of the
Official List of the Financial Conduct Authority (FCA) and to
trading on the London Stock Exchange's main market for listed
securities.
Prior to 20 April 2023, the ultimate parent
company and controlling party of the Group was Melrose Industries
PLC, a public company limited by shares and incorporated in England
& Wales.
Subsidiaries of Melrose Industries PLC prior to
the date of the demerger which do not form part of the Dowlais
Group are considered non-group entities. Melrose Industries PLC and
other non-group entities controlled by Melrose Industries PLC are
Related Parties of the Group up to the date of the demerger on 20
April 2023.
1.2 Basis of Preparation
The comparative information and results up to 28
February 2023 in this set of accounts show an aggregation of the
GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses
along with certain Corporate functions, which form the operating
segments of the Group. The aggregation has been prepared as though
the current legal structure of the Group was in place at the
beginning of the comparative period under the principles of merger
accounting (see Note 2).
The financial information included within this
announcement does not constitute the Company's statutory Financial
Statements for the year ended 31 December 2023 within the meaning
of s435 of the Companies Act 2006, but is derived from those
Financial Statements. Statutory Financial Statements for the year
ended 31 December 2023 will be delivered to the Registrar of
Companies during May 2024. The auditor has reported on those
Financial Statements; their reports were unqualified, did not draw
attention to any matters by way of emphasis and did not contain
statements under s498(2) or (3) of the Companies Act 2006. While
the financial information included in this announcement has been
prepared in accordance with the recognition and measurement
criteria of United Kingdom adopted international accounting
standards, this announcement does not itself contain sufficient
information to comply with these standards. The Company expects to
publish full Financial Statements that comply with United Kingdom
adopted international accounting standards during May
2024.
The information for the year ended 31 December
2022 does not constitute statutory accounts as defined in section
434 of the Companies Act 2006, but has been extracted from the
Historical Financial Information of Dowlais Group plc included in
the prospectus in relation to the admission of the Dowlais Group
plc ordinary shares to the London Stock Exchange, which is
available on the Group's website at www.dowlais.com. The auditor
has reported on those accounts. Their report was unqualified, and
did not draw attention to any matters by way of emphasis. The
information for the year ended 31 December 2022 was prepared under
the basis of preparation in Note 1.1 to the Historical Financial
Information in that document and the accounting policies therein
except in relation to the application of IAS 29 Financial Reporting
in Hyperinflationary Economies as set out in Note 1.3
below.
1.3 IAS 29 Financial Reporting in
Hyperinflationary Economies
The December 2022 results reflect the
application of IAS 29 Financial Reporting in Hyperinflationary
Economies. During 2022 Turkey became hyperinflationary. IAS 29
requires affected entities to present their financial statements
reflecting the general purchasing power of the relevant functional
currency in terms of the measuring unit current at the end of the
reporting period. Following a detailed assessment performed during
the year, the December 2022 financial statements of the Group's
operations in Turkey, which are based on a historical cost
approach, were adjusted to reflect the level of the Turkey Domestic
Producer Price Index (D-PPI) which was 2,026 as at the end of the
year. As a result, goodwill and other intangible assets were
increased by £20 million, property, plant and equipment were
increased by £8 million and a total of £28 million was recognised
in other comprehensive income as a credit to translation
reserves. The impact of applying IAS 29 in the current year
was to increase goodwill and other intangible assets by £5 million
and property, plant and equipment by £3 million, with a credit of
£8 million recognised in other comprehensive income. These
adjustments reflected the change in the D-PPI to 2,915 as at 31
December 2023.
1.4 New Standards, Amendments and
Interpretations affecting amounts, presentation or disclosure
reported in the current year
The following amendments to IFRS Accounting
Standards have been applied for the first time by the Group. Their
adoption has not had any material impact on the amounts reported or
the disclosures or on the required amounts reported in these
Consolidated Financial Statements:
-
|
IFRS 17 Insurance Contracts
(including the June 2020 and December 2021 Amendments to IFRS
17)
|
-
|
Amendments to IAS 12 Income Taxes -
Deferred Tax related to Assets and Liabilities arising from a
Single Transaction
|
-
|
Amendments to IAS 12 Income Taxes -
International Tax Reform - Pillar Two Model Rules
|
-
|
Amendments to IAS 1 Presentation of
Financial Statements and IFRS Practice Statement 2 Making
Materiality Judgements - Disclosure of Accounting
Policies
|
-
|
Amendments to IAS 8 Accounting
Polices, Changes in Accounting Estimates and Errors - Definition of
Accounting Estimates
|
1.5 New and revised IFRS Accounting Standards
in issue but not yet effective
At the date of authorisation of these financial
statements, the Group has not applied the following new and revised
IFRS Accounting Standards that have been issued but are not yet
effective:
-
|
Amendments to IFRS 10 and IAS 28
Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture
|
-
|
Amendments to IAS 1 Classification
of Liabilities as Current or Non-current
|
-
|
Amendments to IAS 1 Non-current
Liabilities with Covenants
|
-
|
Amendments to IAS 7 and IFRS 7
Supplier Finance Arrangements
|
-
|
Amendments to IFRS 16 Lease
Liability in a Sale and Leaseback
|
The directors do not expect that the adoption
of the Standards listed above will have a material impact on the
financial statements of the Group in future periods.
Material accounting policies applied in
preparing the Consolidated Financial Statements and Alternative
Performance Measures are consistent with those detailed in the
carve out Historical Financial Information issued in the Dowlais
Group plc prospectus prior to listing on the London Stock Exchange,
except for the application of IAS 29 Financial Reporting in
Hyperinflationary Economies and a change in accounting policy with
respect to alternative performance measures as set out
below.
During the year, the Board of Directors approved
a change in the accounting policy with respect to alternative
performance measures. Net releases of fair value provisions other
than loss-making contracts recorded upon acquisitions are no longer
included within adjusting items, as the Directors consider that the
nature of such provisions is operational and therefore the new
presentation provides reliable and more relevant financial
information.
2. Summary of material accounting
policies
Merger accounting
As set out in Note 1.1 above, the Group was
separated from Melrose during the current year. The demerger took
place while the business was under Melrose ownership and therefore
the Directors assessed that the transaction was under common
control and outside of the scope of IFRS 3 Business
Combinations.
IFRS is not prescriptive as to the accounting
for such transactions, and under IAS 8 Accounting Polices, Changes
in Accounting Estimates and Errors, the Directors used guidance in
UK GAAP (FRS 102) to apply merger accounting. The effects of this
accounting on the Consolidated Financial Statements for the year
were as follows:
-
|
The value of the assets and
liabilities of the business were transferred to Dowlais at book
value on the date of the transaction with no adjustments required
to estimate fair value.
|
-
|
The results of the Group have been
presented for a continuous period to include both pre- and
post-demerger trading with comparatives included for prior periods
as though the new structure has always been in place.
|
-
|
As set out in the basis of
preparation for the comparative, prior year reserves are therefore
presented as a translation reserve and a single remaining balance
of shareholders' funds.
|
-
|
The comparative for Earnings Per
Share has been calculated as if the current share structure has
always existed in accordance with IAS 33.26.
|
-
|
Costs relating to the demerger are
charged to the Income Statement.
|
Alternative Performance Measures
The Group presents Alternative Performance
Measures ("APMs") in addition to the statutory results. These are
presented in accordance with the Guidelines on APMs issued by the
European Securities and Markets Authority ("ESMA"). APMs used by
the Group are set out in the Alternative Performance Measures
section to these Consolidated Financial Statements and the
reconciling items between statutory and adjusted results are listed
below and described in more detail in Note 4.
Adjusted revenue includes the Group's share of
revenue from equity accounted investments ("EAIs").
Adjusted profit measures exclude items which are
significant in size or volatility or by nature are non-trading or
non-recurring, and include adjusted profit from EAIs.
On this basis, the following are the principal
items included within adjusting items impacting operating
profit:
-
|
Amortisation of intangible assets
that are acquired in a business combination, excluding computer
software and development costs;
|
-
|
Significant restructuring project
costs and other associated costs, including losses incurred
following the announcement of closure for identified businesses,
and pre-operational losses for new operating sites, arising from
significant strategy changes that are not considered by the Group
to be part of the normal operating costs of the
business;
|
-
|
Acquisition and disposal related
gains and losses;
|
-
|
Costs relating to or resulting from
the demerger of the Group from Melrose Industries PLC;
|
-
|
Impairment charges that are
considered to be significant in nature and/or value to the trading
performance of the business;
|
-
|
Movement in derivative financial
instruments not designated in hedging relationships, including
revaluation of associated financial assets and
liabilities;
|
-
|
Removal of adjusting items, interest
and tax on equity accounted investments to reflect operating
results; and
|
-
|
The net release of loss-making
contract provision fair value items booked on
acquisitions.
|
Further to the adjusting items above, adjusting
items impacting profit before tax include:
-
|
The fair value changes on cross-currency swaps,
relating to cost of hedging which are not deferred in
equity;
|
-
|
The movement in loans with Related Parties as a
result of changes in foreign currency exchange rates;
and
|
-
|
The fair value changes on remeasurement of
non-trading financial assets.
|
In addition to the items above, adjusting items
impacting profit after tax include:
-
|
The net effect on tax of significant
restructuring from strategy changes that are not considered by the
Group to be part of the normal operating costs of the
business;
|
-
|
The net effect of significant new tax
legislation; and
|
-
|
The tax effects of adjustments to profit before
tax, described above.
|
The policy above is consistent with that used in
the comparative year, with the exception of the release of fair
value items, which from 2023 are restricted to loss-making contract
provisions, as the Directors believe this better represents the
operational nature of such items. The effect of this change is a
credit to adjusted operating profit of £24 million in the current
year and was immaterial in 2022.
The Board considers the adjusted results to be
an important measure used to monitor how the businesses are
performing as this provides a meaningful reflection of how the
businesses are managed and measured on a day-to-day basis and
achieves consistency and comparability between reporting
periods.
The adjusted measures are used to partly
determine the variable element of remuneration of senior management
throughout the Group and are also in alignment with performance
measures used by certain external stakeholders.
Adjusted profit is not a defined term under IFRS
and may not be comparable with similarly titled profit measures
reported by other companies. It is not intended to be a substitute
for, or superior to, GAAP measures. All APMs relate to the current
year results and comparative years where provided.
Going concern
The Consolidated Financial Statements have been
prepared on a going concern basis as the Directors consider that
adequate resources exist for the Company to continue in operational
existence for a period of not less than 12 months from the date of
this report. The Group's liquidity and funding arrangements are
described in the Finance Director's Review. There is significant
financing headroom at 31 December 2023 (c. £0.6 billion) and
throughout the going concern forecast period. Forecast covenant
compliance is considered further below.
Covenants
The current facility has two financial covenants
being a net debt to adjusted EBITDA covenant and an interest cover
covenant, both of which are tested half yearly, in June and
December following commencement in December 2023 and June 2024
respectively.
The financial covenants for the going concern
period are as follows:
|
31 December
2023
|
30 June
2024
|
31 December
2024
|
Net debt to adjusted
EBITDA
|
3.50x
|
3.50x
|
3.50x
|
Interest cover
|
n/a
|
4.00x
|
4.00x
|
Testing
In concluding that the going concern basis is
appropriate, the Directors have modelled the impact of a 'worst
case scenario' to the 'base case' by including an aggregation of
the same three plausible but severe downside risks also used for
the Group's viability statement.
The base case takes into account the estimated
impact of end market and operational factors, including supply
chain and inflationary challenges throughout the going concern
period. Climate related risks have also been considered, including
estimating the expected transition from internal combustion engines
to electric vehicles and modelling potential risks to the Group's
infrastructure resulting from extreme weather or climate
events.
The three downside scenarios modelled were (i)
economic shock/downturn, (ii) losing a key market, product or
customer and (iii) significant contract delivery issues.
Throughout the period covered, financing
headroom was at least £400 million and the Group's leverage was no
higher than 2.8x, indicating that the Group would comfortably
remain within covenant limits. Finally, a reverse stress test was
performed which demonstrated that a significant reduction in 2024
revenue and operating profit, still assuming no mitigating actions,
would be required before the Group breached its leverage and
interest covenants.
Even after applying significant downside risk
scenarios in aggregation, no covenant is forecast to
be breached at the relevant testing dates being 30 June 2024 and 31
December 2024, and the Group would not expect to require any
additional sources of finance. Testing at 30 June 2025 is also
expected to be favourable under the terms of existing
facilities.
Critical accounting judgements and key sources
of estimation uncertainty
In the application of the Group's accounting
policies the Directors are required to make judgements, estimates
and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical
experiences and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the
revision affects only that period, or in the period of revision and
future periods if the revision affects both current and future
periods.
Critical accounting judgements
Adjusting items
Judgements are required as to whether items are
disclosed as adjusting, with consideration given to both
quantitative and qualitative factors. Further information about the
determination of adjusting items is included in Note 2.
There are no other critical judgements other
than those involving estimates, that have had a significant effect
on the amounts recognised in the Consolidated Financial Statements.
Those involving estimates are set out below.
Key sources of
estimation uncertainty
Assumptions used to determine the recoverable
amount of goodwill and other assets
Determining whether the goodwill of groups of
cash generating units ("CGUs") is impaired requires an estimation
of its recoverable amount which is compared against the carrying
value. The recoverable amount is deemed to be the higher of the
value in use and fair value less costs to sell. For the year ended
31 December 2023, impairment testing has been performed for each
group of CGUs using the value in use method based on estimated
discounted cash flows.
The impairment tests concluded that there was
headroom of £449 million for the Automotive group of CGUs, but that
the Powder Metallurgy group of CGUs was impaired by £449 million
(2022: £nil).
The models used to calculate value in use for
each group of CGUs are particularly sensitive to key assumptions
around discount rates, long-term growth rates and underlying
assumptions underpinning forecasts including the impact of
macroeconomic conditions such as interest rates and inflation on
future sales and input prices which drive forecast operating
margins and ultimately cash flows.
For the Automotive group of CGUs, a reasonably
possible increase in the discount rate from 13.3% to 15.3%, whilst
management consider this to be unlikely, would result in an
impairment charge of c.£69 million being recognised in 2024.
Management does not believe reasonably possible changes in the
long-term growth rate of 3.3% would result in a material impairment
charge being recognised in 2024. For indication purposes, a
decrease in the long-term growth rate by 1.0% to 2.3% would result
in a reduction of headroom by £197 million.
Operating margin assumptions are a key driver of
business value and a reduction in the terminal operating profit of
18% would reduce operating profit margin by 1.6 percentage points,
resulting in an impairment charge of c.£112 million in
2024.
The value of the Powder Metallurgy group of CGUs
remains sensitive to and dependent upon the underlying forecast and
financial assumptions in the future. Operating margin assumptions
are a key driver of business value and a
reduction in the terminal operating profit by 10% would reduce the
operating margin by 1.0 percentage points, resulting in an
additional impairment charge of £80
million.
A reasonably possible 1.0% increase in discount
rates from 13.4% to 14.4% would result in an additional impairment
charge of £81 million being incurred. A reasonably possible 1.0%
decrease in growth rates from 3.3% to 2.3% would result in an
additional impairment charge of £50 million being incurred. For all
sensitivities, it is assumed that all other variables remain
unchanged.
Assumptions used to determine the carrying
amount of the Group's net retirement benefit obligations
The Group's pension plans are significant in
size. The defined benefit obligations in respect of the plans are
discounted at rates set by reference to market yields on high
quality corporate bonds. Significant estimation is required when
setting the criteria for bonds to be included in the population
from which the yield curve is derived. The most significant
criteria considered for the selection of bonds to include are the
issue size of the corporate bonds, quality of the bonds and the
identification of outliers which are excluded. In addition,
assumptions are made in determining mortality and inflation rates
to be used when valuing the plan's defined benefit obligations. At
31 December 2023, the retirement benefit obligation was a net
deficit of £459 million (2022: £461 million).
3. Segment information
Segment information is presented in accordance
with IFRS 8 Operating Segments which requires operating segments to
be identified on the basis of internal reports about components of
the Group that are regularly reported to the Group's Chief
Operating Decision Maker ("CODM"), which has been deemed to be the
Group's Board, in order to allocate resources to the segments and
assess their performance.
The operating segments are as
follows:
Automotive - a global
technology and systems engineer which designs, develops,
manufactures and integrates an extensive range of driveline
technologies, including electric vehicle components.
Powder Metallurgy - a
global leader in precision powder metal parts for the automotive
and industrial sectors, as well as the production of powder
metal.
Hydrogen - offering
reliable and secure hydrogen storage solutions.
In addition, central cost centres are also
reported to the Board. The central corporate cost centres contain
the Group head office costs and charges related to the divisional
management long-term incentive plans.
Reportable segment results include items
directly attributable to a segment as well as those which can be
allocated on a reasonable basis. Inter-segment pricing is
determined on an arm's length basis, in a manner similar to
transactions with third parties.
The Group's geographical segments are determined
by the location of the Group's non-current assets and, for revenue,
the location of external customers. Inter-segment sales are not
material and have not been disclosed.
a) Segment revenues
The following tables present the segment
revenues and operating profits as regularly reported to the CODM,
as well as certain asset and liability information regarding the
Group's operating segments and central cost centres.
Year ended 31 December 2023
|
Notes
|
Automotive
£m
|
Powder
Metallurgy
£m
|
Hydrogen
£m
|
Total
£m
|
Adjusted revenue
|
|
4,437
|
1,047
|
5
|
5,489
|
Equity accounted
investments
|
9
|
(594)
|
(31)
|
-
|
(625)
|
Revenue
|
|
3,843
|
1,016
|
5
|
4,864
|
Year ended 31 December 2022
|
Notes
|
Automotive
£m
|
Powder
Metallurgy
£m
|
Hydrogen
£m
|
Total
£m
|
Adjusted revenue
|
|
4,223
|
1,022
|
1
|
5,246
|
Equity accounted
investments
|
9
|
(625)
|
(26)
|
-
|
(651)
|
Revenue
|
|
3,598
|
996
|
1
|
4,595
|
b) Segment operating profit
Year ended 31 December 2023
|
Automotive
£m
|
Powder
Metallurgy
£m
|
Hydrogen
£m
|
Corporate(2)
£m
|
Total
£m
|
Adjusted operating
profit/(loss)
|
306
|
96
|
(15)
|
(32)
|
355
|
|
|
|
|
|
|
Items not included in adjusted
operating profit(1):
|
|
|
|
|
|
Impairment of goodwill
|
-
|
(449)
|
-
|
-
|
(449)
|
Amortisation of intangible assets
acquired in business combinations
|
(146)
|
(51)
|
-
|
-
|
(197)
|
Restructuring costs
|
(109)
|
(10)
|
(1)
|
-
|
(120)
|
Demerger costs
|
-
|
-
|
-
|
(42)
|
(42)
|
Equity accounted investments
adjustments
|
(30)
|
-
|
-
|
-
|
(30)
|
Movement in derivatives and
associated financial assets and liabilities
|
(3)
|
-
|
-
|
19
|
16
|
Net release and changes in discount
rates of certain fair value items
|
12
|
5
|
-
|
-
|
17
|
Operating profit/(loss)
|
30
|
(409)
|
(16)
|
(55)
|
(450)
|
Finance costs
|
|
|
|
|
(101)
|
Finance income
|
|
|
|
|
29
|
Loss before tax
|
|
|
|
|
(522)
|
Tax
|
|
|
|
|
27
|
Loss after tax for the
year
|
|
|
|
|
(495)
|
1. For further details on adjusting items,
refer to Note 4.
2. Corporate adjusted operating loss of £32
million, includes a charge of £8 million in respect of divisional
management long term incentive plans.
Year ended 31 December 2022
|
Automotive
£m
|
Powder
Metallurgy
£m
|
Hydrogen
£m
|
Corporate(2)
£m
|
Total
£m
|
Adjusted operating
profit/(loss)
|
250
|
96
|
(14)
|
1
|
333
|
Items not included in adjusted
operating profit(1):
|
|
|
|
|
|
Amortisation of intangible assets
acquired in business combinations
|
(147)
|
(51)
|
-
|
-
|
(198)
|
Restructuring costs
|
(37)
|
(17)
|
-
|
-
|
(54)
|
Equity accounted investments
adjustments
|
(29)
|
-
|
-
|
-
|
(29)
|
Movement in derivatives and
associated financial assets and liabilities
|
(7)
|
(1)
|
-
|
23
|
15
|
Net release and changes in discount
rates of certain fair value items
|
5
|
9
|
-
|
-
|
14
|
Impairment of assets
|
(20)
|
-
|
-
|
-
|
(20)
|
Acquisition and disposal related
(losses)/gains
|
(4)
|
-
|
-
|
1
|
(3)
|
Operating profit/(loss)
|
11
|
36
|
(14)
|
25
|
58
|
Finance costs
|
|
|
|
|
(272)
|
Finance income
|
|
|
|
|
151
|
Loss before tax
|
|
|
|
|
(63)
|
Tax
|
|
|
|
|
(14)
|
Loss after tax for the
year
|
|
|
|
|
(77)
|
1. For further details on adjusting items,
refer to Note 4.
2. Corporate adjusted operating profit of £1
million, includes a credit of £10 million in respect of divisional
management long term incentive plans and a £2 million charge
relating to costs allocated to the Group for general corporate
services which the Group would have incurred had it operated on a
standalone basis.
c) Segment total assets and
liabilities
|
Total
assets
|
|
Total
liabilities
|
|
31 December
2023
£m
|
31 December
2022
£m
|
|
31 December
2023
£m
|
31 December
2022
£m
|
Automotive
|
4,561
|
4,837
|
|
2,059
|
2,177
|
Powder Metallurgy
|
1,268
|
1,814
|
|
404
|
409
|
Hydrogen
|
14
|
7
|
|
6
|
6
|
Corporate
|
391
|
3,129
|
|
1,199
|
2,202
|
Total
|
6,234
|
9,787
|
|
3,668
|
4,794
|
d) Segment capital expenditure and
depreciation
|
Capital
expenditure(1)
|
Depreciation of
owned assets(1)
|
Depreciation of
leased assets
|
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022
£m
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022
£m
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022
£m
|
Automotive
|
217
|
187
|
187
|
184
|
15
|
14
|
Powder Metallurgy
|
42
|
44
|
50
|
53
|
10
|
10
|
Hydrogen
|
3
|
-
|
-
|
-
|
-
|
-
|
Total
|
262
|
231
|
237
|
237
|
25
|
24
|
1. Includes computer software and development
costs. Capital expenditure excludes lease additions.
e) Geographical information
The Group operates in various geographical areas
around the world. The parent company's country of domicile is the
UK and the Group's revenues and non-current assets in the rest of
Europe and North America are also considered to be
material.
The Group's revenue from external customers and
information about specific segment assets (non-current assets
excluding loans receivable from Related Parties, deferred tax
assets, non-current derivative financial assets, other financial
assets, retirement benefit surplus and non-current other
receivables) by geographical location are detailed
below:
|
Revenue(1) from
external
customers
|
|
Segment
assets
|
|
Year ended
31 December
2023
£m
|
Year ended
31 December 2022
£m
|
|
31 December
2023
£m
|
31 December 2022
£m
|
UK
|
192
|
172
|
|
633
|
723
|
Rest of Europe
|
1,676
|
1,495
|
|
1,637
|
1,980
|
North America
|
2,053
|
1,946
|
|
1,298
|
1,525
|
Other
|
943
|
982
|
|
928
|
1,112
|
Total
|
4,864
|
4,595
|
|
4,496
|
5,340
|
1. Revenue is presented by
destination.
4. Reconciliation of adjusted profit
measures
As described in Note 2, adjusted profit measures
are an alternative performance measure used by the Board to monitor
the performance of the Group.
a) Operating profit
|
Notes
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022
£m
|
Operating (loss)/profit
|
|
(450)
|
58
|
Impairment of goodwill
|
a
|
449
|
-
|
Amortisation of intangible assets
acquired in business combinations
|
b
|
197
|
198
|
Restructuring costs
|
c
|
120
|
54
|
Demerger costs
|
d
|
42
|
-
|
Equity accounted investments
adjustments
|
e
|
30
|
29
|
Movement in derivatives and
associated financial assets and liabilities
|
f
|
(16)
|
(15)
|
Net release and changes in discount
rates of certain fair value items
|
g
|
(17)
|
(14)
|
Impairment of assets
|
h
|
-
|
20
|
Acquisition and disposal related
losses
|
i
|
-
|
3
|
Total adjustments to operating
(loss)/profit
|
|
805
|
275
|
Adjusted operating profit
|
|
355
|
333
|
a.
|
An impairment charge of £449 million (2022:
£nil) has been recognised in the year in relation to goodwill held
in the Powder Metallurgy cash-generating unit
("CGU") following completion of the
Group's annual impairment testing in accordance with
IAS 36 Impairment of Assets. The Powder Metallurgy impairment test
applied a value in use approach based on five-year cash flow
forecasts derived from financial budgets and medium-term
forecasts. The key financial assumptions applied to
the Powder Metallurgy impairment test were a pre-discount rate of
13.4% (2022: post-tax rate of 12.0%) and a long-term growth rate of
3.3% (2022: 3.9%).
|
|
Whilst management believe that the business has
promising longer-term prospects, current mid-term profit and cash
assumptions are lower than those previously assumed when
determining its carrying value. This is largely driven by softening
in the underlying forecast of the growth assumptions in its core
business. This has been reflected in the budget and strategic plan
forecasts resulting in lower revenue and profit growth assumptions
over the 5-year forecast period when compared to the prior year's
forecasts.
|
|
Based on these forecasts, the discounted cash
flow exercise indicated a reduced recoverable amount, based on
value in use, of £884 million. As this is lower than the carrying
value, an impairment charge of £449 million was applied to goodwill
and recognised in the Income Statement accordingly.
|
|
The impairment test performed on the Automotive
CGU resulted in headroom of £449 million.
|
b.
|
The amortisation charge on intangible assets
acquired in business combinations of £197 million (2022: £198
million), is excluded from adjusted results due to its non-trading
nature and to enable comparison with companies that grow
organically. However, where intangible assets are trading in
nature, such as computer software and development costs, the
related amortisation is not excluded from adjusted
results.
|
c.
|
Costs associated with restructuring projects in
the year totalling £120 million (2022: £54 million) are shown as
adjusting items due to their size and non-trading nature. During
the year these included:
|
|
-
|
A charge of £109 million (2022: £37 million)
within the Automotive division, primarily relating to significant
footprint consolidation actions in Europe as the business continues
to address its cost base and deliver transformational programmes.
Significant costs incurred include severance provisions and other
direct costs relating to the closure of a Driveline plant in Mosel,
Germany; costs relating to opening a new manufacturing facility in
Miskolc, Hungary in advance of the plant becoming operational; and
direct costs of expansion in Mexico as new product lines are added
to the facility.
|
|
-
|
A charge of £11 million (2022: £17 million)
within the Powder Metallurgy and Hydrogen divisions.
|
d.
|
One off costs relating to the demerger of the
Group from Melrose Industries PLC of £42 million were incurred
during the year (2022: £nil). Costs incurred were incremental costs
directly associated with the transaction. These items have been
excluded from adjusted results due to their size and non-recurring
nature.
|
e.
|
The Group has a number of equity accounted
investments ("EAIs") in which it does not hold full control, the
largest of which is a 50% interest in Shanghai GKN HUAYU Driveline
Systems ("SDS"), within the Automotive business. EAIs in the Group
generated £625 million (2022: £651 million) of revenue in the year,
which is not included in the statutory results but is shown within
adjusted revenue so as not to distort the operating margins
reported in the businesses when the adjusted operating profit
earned from these EAIs is included.
|
|
In addition, the profits and losses of EAIs,
which are shown after amortisation of intangible assets arising on
acquisition, interest and tax in the statutory results, are
adjusted to show the adjusted operating profit consistent with the
adjusted operating profits of the subsidiaries of the Group. The
revenue and profit of EAIs are adjusted because they are considered
to be significant in size and are important in assessing the
performance of the business.
|
f.
|
Movements in the fair value of derivative
financial instruments (primarily forward foreign currency exchange
contracts where hedge accounting is not applied) entered into to
mitigate the potential volatility of future cash flows, on
long-term foreign currency customer and supplier contracts,
including foreign exchange movements on the associated financial
liabilities, are shown as an adjusting item. This totalled a credit
of £16 million (2022: £15 million). Movements in fair value are
treated as an adjusting item due to their volatility. Any gains and
losses on settlement are recorded in underlying results to give a
better understanding of how the gains and losses on currency
contracts relate to the trading cashflows.
|
g.
|
Certain items previously recorded as fair value
items on historical acquisitions, have been resolved for more
favourable amounts than first anticipated. The net release of
certain fair value items in the year of £17 million related to
loss-making contract provisions (2022: £14 million primarily
relating to loss making contracts). These items are shown as
adjusting to avoid positively distorting the adjusted
results.
|
h.
|
In the prior year a write down of £20 million
was recognised as a result of exiting any direct trading links with
Russian operations as a consequence of the invasion of Ukraine. The
asset write downs were within the Automotive division and are shown
as an adjusting item because of their non-trading nature and
size.
|
i.
|
No acquisition and disposal related gains or
losses were recorded in the year (2022: loss of £3 million). In
prior years these items have been excluded from adjusted results
due to their non-trading nature.
|
b) Profit before tax
|
Notes
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022
£m
|
Loss before tax
|
|
(522)
|
(63)
|
Adjustments to operating
(loss)/profit as above
|
|
805
|
275
|
Net foreign exchange movements on
loans with Related Parties
|
j
|
(22)
|
24
|
Fair value changes on other
financial assets
|
k
|
1
|
-
|
Equity accounted investments -
interest
|
l
|
2
|
2
|
Fair value changes on cross-currency
swaps
|
m
|
-
|
59
|
Total adjustments to loss before
tax
|
|
786
|
360
|
Adjusted profit before
tax
|
|
264
|
297
|
j.
|
The movement in loans with Related Parties as a
result of changes in foreign currency exchange rates up to the date
of demerger is shown as an adjusting item due to its volatility and
non-recurring nature. Related Parties comprise Melrose Industries
PLC, the ultimate parent company prior to demerger on 20 April 2023
and other non-group entities controlled by Melrose Industries
PLC.
|
k.
|
The fair value changes on other financial
assets relating to the movement in their valuation, are shown as an
adjusting item due to their volatility and non-trading
nature.
|
l.
|
As explained in paragraph e above, the profits
and losses of equity accounted investments are shown after interest
and tax in the statutory results. They are adjusted to show the
profit before tax and the profit after tax, consistent with the
subsidiaries of the Group.
|
m.
|
In the prior year, hedge accounting was not
applied in the Dowlais Group and therefore fair value changes on
cross-currency swaps relating to cost of hedging are shown as an
adjusting item because of their volatility and non-trading
nature.
|
c) Profit after tax
|
Notes
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022
£m
|
Loss after tax
|
|
(495)
|
(77)
|
Adjustments to loss before tax per
above
|
|
786
|
360
|
Tax effect of adjustments to loss
before tax
|
6
|
(87)
|
(62)
|
Equity accounted investments -
tax
|
l
|
(11)
|
(9)
|
Derecognition of deferred tax
asset
|
6
|
5
|
-
|
Tax effect of significant
restructuring
|
6
|
-
|
6
|
Total adjustments to loss after
tax
|
|
693
|
295
|
Adjusted profit after tax
|
|
198
|
218
|
5. Finance costs and Finance income
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022
£m
|
Interest on bank loans and
overdrafts
|
(63)
|
(11)
|
Interest on loans due to Related
Parties(1)
|
(8)
|
(22)
|
Foreign exchange movements on loans
with Related Parties(1), (2)
|
-
|
(167)
|
Amortisation of costs of raising
finance
|
(3)
|
-
|
Net interest cost on
pensions
|
(17)
|
(6)
|
Lease interest
|
(6)
|
(6)
|
Unwind of discount on
provisions
|
-
|
(1)
|
Fair value changes on cross-currency
swaps(2)
|
-
|
(59)
|
Fair value changes on other
financial assets(2)
|
(1)
|
-
|
Other finance costs
|
(3)
|
-
|
Total finance costs
|
(101)
|
(272)
|
Foreign exchange movements on loans
with Related Parties(1), (2)
|
22
|
143
|
Other finance income
|
7
|
8
|
Total finance income
|
29
|
151
|
Total net finance costs
|
(72)
|
(121)
|
1. Related Parties comprise Melrose Industries
PLC, the ultimate parent company prior to demerger on 20 April 2023
and other non-group entities controlled by Melrose Industries
PLC.
2. Fair value changes in cross-currency swaps,
foreign exchange movements on loans with Related Parties and Fair
value changes on other financial assets are all shown as adjusting
items (Note 4).
6. Tax
Analysis of the (credit)/charge in the
year:
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022
£m
|
Current tax
|
53
|
45
|
Deferred tax
|
(80)
|
(31)
|
Total tax (credit)/charge
|
(27)
|
14
|
The effective tax rate in respect of adjusted
profit before tax for the year is 25% (2022: 27%). Adjusted tax has
been calculated by applying the expected tax rate to the adjusted
profit before tax of £264 million (2022: £297 million), giving an
adjusted tax charge of £66 million (2022: £79 million).
The adjusted tax charge of £66 million (2022:
£79 million) excludes a tax credit on adjustments to loss before
tax of £93 million (2022: £65 million). This represents a deferred
tax credit on intangible asset amortisation of £46 million (2022:
£48 million) and a tax credit on other adjusting items of £41
million (2022: £14 million). In addition, the adjusted tax charge
includes a charge in respect of Equity Accounted Investments of £11
million (2022: £9 million) and other adjusting tax charges of £5
million (2022: £6 million).
In addition to the amounts in the Income
Statement, a credit of £8 million (2022: charge of £39 million) has
been recognised directly in the Statement of Comprehensive Income.
This represents a tax credit of £4 million (2022: charge of £27
million) in respect of the remeasurement of retirement benefit
obligations and a tax credit of £4 million (2022: charge of £12
million) in respect of movements on hedge relationships and
translation differences.
The Group's underlying effective tax rate may be
impacted, from 2024 onwards, by the UK's substantive enactment of
the Organisation for Economic Co-operation and Development's Global
Anti-Base Erosion Model Rules (Pillar Two). Upon a review of the
Group's results for the year ended 31 December 2023 and their
interaction with the Pillar Two rules (had they been in force in
relation to that year), the Group considers that the impact of
Pillar Two on its global tax position will be
immaterial.
7. Dividends
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022
£m
|
Dividends paid to Related
Parties
|
1,675
|
-
|
Interim dividend for the year ended
31 December 2023
|
19
|
-
|
Total dividends paid
|
1,694
|
-
|
On 23 February 2023, prior to the demerger,
G.K.N. Industries Limited declared a dividend of £1,675 million
(72.83 pence per ordinary share) in favour of its immediate parent
undertaking GKN Enterprise Limited, a member of the Melrose
Industries PLC Group.
An interim dividend of 1.4 pence per ordinary
share (2022: £nil) was declared by the Board on 12 September 2023
and paid on 27 October 2023, totalling £19 million.
A final dividend of 2.8 pence per ordinary share
(2022: £nil) is proposed by the Board, totalling £39 million.
8. Earnings per share
Earnings attributable to owners of the
parent
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022
£m
|
Net loss attributable to
shareholders
|
(501)
|
(82)
|
Adjustment for earnings attributable
to shares subject to recall
|
10
|
2
|
Earnings for basis of earnings per
share
|
(491)
|
(80)
|
|
Year ended
31 December
2023
Number
|
Year ended
31 December
2022
Number(1)
|
Weighted average number of ordinary
shares (million)
|
1,390
|
1,393
|
Adjustment for shares subject to
recall (million)
|
(28)
|
(28)
|
Weighted average number of ordinary
shares for the purposes of basic earnings per share
(million)
|
1,362
|
1,365
|
Weighted average number of ordinary
shares for the purposes of diluted earnings per share
(million)
|
1,362
|
1,365
|
Earnings per share
|
Year ended
31 December
2023
pence
|
Year ended
31 December
2022
pence
|
Basic earnings per share
|
(36.0)
|
(5.9)
|
Diluted earnings per
share
|
(36.0)
|
(5.9)
|
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022
£m
|
Adjusted earnings attributable to
shareholders(2)
|
192
|
213
|
Adjustment for earnings attributable
to shares subject to recall
|
(4)
|
(4)
|
Adjusted earnings for the basis of
adjusted earnings per share
|
188
|
209
|
Adjusted earnings per share
|
Year ended
31 December
2023
pence
|
Year ended
31 December
2022
pence
|
Adjusted basic earnings per
share
|
13.8
|
15.3
|
Adjusted diluted earnings per
share
|
13.8
|
15.3
|
1. See Note 2 for details on application of
merger accounting.
2. Adjusted earnings for the year ended 31
December 2023 comprises adjusted profit after tax (see Note 4c) of
£198 million (2022: £218 million), net of an allocation of profit
to non-controlling interests of £6 million (2022: £5
million).
9. Share of results of equity accounted
investments
Summary information for the Group's equity
accounted investments is as follows:
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022
£m
|
Revenue
|
625
|
651
|
Operating costs
|
(544)
|
(573)
|
Adjusted operating profit
|
81
|
78
|
Adjusting items
|
(21)
|
(22)
|
Net finance income
|
2
|
2
|
Profit before tax
|
62
|
58
|
Tax
|
(11)
|
(9)
|
Share of results of equity accounted
investments
|
51
|
49
|
10. Provisions
|
Loss-making
contracts
£m
|
Property
related costs
£m
|
Environmental
and litigation
£m
|
Warranty
related costs
£m
|
Restructuring
£m
|
Other
£m
|
Total
£m
|
At 1 January 2023
|
46
|
5
|
67
|
156
|
20
|
32
|
326
|
Utilised
|
(11)
|
-
|
(3)
|
(18)
|
(70)
|
(42)
|
(144)
|
Charge to operating
profit(1)
|
-
|
-
|
3
|
25
|
129
|
44
|
201
|
Release to operating
profit(2)
|
(17)
|
-
|
(18)
|
(18)
|
(2)
|
(1)
|
(56)
|
Exchange adjustments
|
(1)
|
-
|
(3)
|
(4)
|
1
|
(2)
|
(9)
|
31 December 2023
|
17
|
5
|
46
|
141
|
78
|
31
|
318
|
Current
|
6
|
1
|
21
|
61
|
31
|
16
|
136
|
Non-current
|
11
|
4
|
25
|
80
|
47
|
15
|
182
|
|
17
|
5
|
46
|
141
|
78
|
31
|
318
|
1. Includes £159 million of adjusting items and
£42 million recognised in adjusted operating profit.
2. Includes £19 million of adjusting items and
£37 million recognised in adjusted operating profit.
Provisions for loss-making contracts are
considered to exist where the Group has a contract under which the
unavoidable costs of meeting the obligations exceed the economic
benefits expected to be received under it. This obligation has been
discounted and will be utilised over the period of the respective
contracts, which is up to five years.
The provision for property related costs
represents dilapidation costs for ongoing leases and is expected to
result in cash expenditure over the next seven years.
Environmental provisions relate to the estimated
remediation costs of pollution, soil and groundwater contamination
at certain sites and amounted to £16 million (2022: £18 million).
Litigation provisions amounting to £30 million (2022: £49 million)
relate to estimated future costs and settlements in relation to
legal claims and associated insurance obligations. Due to their
nature, it is not possible to predict precisely when these
provisions will be utilised.
Provisions for the expected cost of warranty
obligations under local sale of goods legislation are recognised at
the date of sale of the relevant products and subsequently updated
for changes in estimates as necessary. Warranty terms are, on
average, between one and five years.
Restructuring provisions relate to committed
costs in respect of restructuring programmes (as described in Note
4), usually resulting in cash spend within three years.
Other provisions include long-term incentive
plans for senior management and the employer tax on equity-settled
incentive schemes which are expected to result in cash expenditure
over the next one to five years.
11. Financial instruments and risk
management
The table below sets out the Group's accounting
classification of each category of financial assets and liabilities
and their fair values as at 31 December 2023 and 31 December
2022:
|
Current
£m
|
Non-current
£m
|
Total
£m
|
31 December 2023
|
|
|
|
Financial assets
|
|
|
|
Classified as amortised
cost:
|
|
|
|
Cash and cash equivalents
|
313
|
-
|
313
|
Net trade receivables
|
460
|
-
|
460
|
Classified as fair value:
|
|
|
|
Derivative over own
equity(1)
|
-
|
28
|
28
|
Derivative financial
assets
|
|
|
|
Foreign currency forward
contracts
|
43
|
4
|
47
|
Interest rate swaps
|
2
|
4
|
6
|
Financial liabilities
|
|
|
|
Classified as amortised
cost:
|
|
|
|
Interest-bearing loans and
borrowings
|
(2)
|
(1,158)
|
(1,160)
|
Lease obligations
|
(25)
|
(126)
|
(151)
|
Other financial
liabilities
|
(1,063)
|
(11)
|
(1,074)
|
Classified as fair value:
|
|
|
|
Derivative financial
liabilities
|
|
|
|
Foreign currency forward
contracts
|
(4)
|
(1)
|
(5)
|
Interest rate swaps
|
-
|
(3)
|
(3)
|
|
|
|
|
31 December 2022
|
|
|
|
Financial assets
|
|
|
|
Classified as amortised
cost:
|
|
|
|
Cash and cash equivalents
|
270
|
-
|
270
|
Net trade receivables
|
511
|
-
|
511
|
Loans receivable from Related
Parties(2)
|
-
|
2,826
|
2,826
|
Classified as fair value:
|
|
|
|
Derivative financial
assets
|
|
|
|
Foreign currency forward
contracts
|
24
|
9
|
33
|
Financial liabilities
|
|
|
|
Classified as amortised
cost:
|
|
|
|
Loans payable to Related
Parties(2)
|
(2,176)
|
-
|
(2,176)
|
Lease obligations
|
(25)
|
(134)
|
(159)
|
Other financial
liabilities
|
(1,149)
|
(20)
|
(1,169)
|
Classified as fair value:
|
|
|
|
Derivative financial
liabilities
|
|
|
|
Foreign currency forward
contracts
|
(10)
|
(2)
|
(12)
|
1. Included within other financial
assets.
2. Related parties comprise Melrose Industries
PLC, the ultimate parent company prior to demerger on 20 April 2023
and other non-group entities controlled by Melrose Industries
PLC.
The fair value of the derivative financial
instruments is derived from inputs other than quoted prices that
are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices) and they are
therefore categorised within level 2 of the fair value hierarchy
set out in IFRS 13 Fair value measurement. The Group's policy is to
recognise transfers into and out of the different fair value
hierarchy levels at the date of the event or change in
circumstances that caused the transfer to occur. There have been no
transfers between levels during the current year.
The fair value of the derivative over own equity
is derived from unobservable inputs and as such is classified as
level 3 of the fair value hierarchy set out in IFRS 13. Inputs to
the valuation include the terms of the contract under which the
asset arises, the Company's current share price and expected
volatility in the share price. The asset value is most sensitive to
movements in the Company's share price. The asset was recorded
initially directly in equity with subsequent revaluations
recognised in the Income Statement.
12. Retirement benefit obligations
The Group sponsors defined benefit plans for
qualifying employees of certain subsidiaries. The funded defined
benefit plans are administered by separate funds that are legally
separated from the Group. The Trustees of the funds are required by
law to act in the interest of the fund and of all relevant
stakeholders in the plans. The Trustees of the pension funds are
responsible for the investment policy with regard to the assets of
the fund.
The most significant defined benefit pension
plans in the Group at 31 December 2023 were:
UK: GKN Group Pension Schemes No.2 and
No.3
The GKN Group Pension Schemes No.2 and No.3 are
funded plans, closed to new members and were closed to future
accrual in 2017. The valuation of the schemes was based on a full
actuarial valuation as of 5 April 2022, updated to 31 December 2023
by independent actuaries.
US: GKN Automotive and GKN Powder Coatings
Pension Plans
The GKN Automotive and GKN Powder Coatings
Pension Plans are funded plans, closed to new members and closed to
future accrual. The US Pension Plan valuation was based on a full
actuarial valuation as of 1 January 2023, updated to 31 December
2023 by independent actuaries.
Germany: GKN Germany Pension Plans
The GKN Germany Pension Plans provide benefits
dependent on final salary and service with the Company. The plans
are generally unfunded and closed to new members.
Other plans include a number of funded and
unfunded defined benefit arrangements and retiree medical insurance
plans, predominantly in the US and Europe.
The cost of the Group's defined benefit plans is
determined in accordance with IAS 19 (revised 2011) Employee
Benefits, using the advice of independent professionally qualified
actuaries on the basis of formal actuarial valuations and using the
projected unit credit method. In line with normal practice, these
valuations are undertaken triennially in the UK and annually in the
US and Germany.
The amount recognised in the Balance Sheet in
respect of defined benefit plans was as follows:
31 December 2023
|
UK plans
£m
|
US plans
£m
|
European plans
£m
|
Other plans
£m
|
Total
£m
|
Plan assets
|
665
|
73
|
16
|
21
|
775
|
Plan liabilities
|
(672)
|
(118)
|
(416)
|
(26)
|
(1,232)
|
Asset ceiling
|
-
|
-
|
-
|
(2)
|
(2)
|
Net liabilities
|
(7)
|
(45)
|
(400)
|
(7)
|
(459)
|
Analysed as:
|
|
|
|
|
|
Retirement benefit
surplus(1)
|
|
|
|
|
27
|
Retirement benefit
obligations
|
|
|
|
|
(486)
|
Net liabilities
|
|
|
|
|
(459)
|
1. Includes a surplus relating to the GKN Group
Pension Scheme No.2 of £25 million and the Japan employee plan of
£2 million.
31 December 2022
|
UK plans
£m
|
US plans
£m
|
European plans
£m
|
Other plans
£m
|
Total
£m
|
Plan assets
|
666
|
73
|
19
|
21
|
779
|
Plan liabilities
|
(651)
|
(127)
|
(433)
|
(29)
|
(1,240)
|
Net assets/(liabilities)
|
15
|
(54)
|
(414)
|
(8)
|
(461)
|
Analysed as:
|
|
|
|
|
|
Retirement benefit
surplus(1)
|
|
|
|
|
42
|
Retirement benefit
obligations
|
|
|
|
|
(503)
|
Net liabilities
|
|
|
|
|
(461)
|
1. Includes a surplus relating to the GKN Group
Pension Scheme No.2 of £40 million and the Japan employee plan of
£2 million.
Valuations of material plans have been updated
at 31 December 2023 by independent actuaries to reflect updated
assumptions regarding discount rates, inflation rates and asset
values. The major assumptions were as follows:
|
Rate of increase
of pensions in
payment
% p.a.
|
Discount rate
%
|
Price inflation
% (RPI/CPI)
|
31 December 2023
|
|
|
|
GKN UK - Group Pension Schemes (No.2
and No.3)
|
2.5
|
4.5
|
3.0/2.6
|
GKN US plans
|
n/a
|
4.8
|
n/a
|
GKN Europe plans
|
2.1
|
3.3
|
2.1/2.1
|
|
|
|
|
31 December 2022
|
|
|
|
GKN UK - Group Pension Schemes (No.2
and No.3)
|
2.7
|
4.8
|
3.2/2.7
|
GKN US plans
|
n/a
|
5.0
|
n/a
|
GKN Europe plans
|
2.6
|
3.7
|
2.6/2.6
|
In addition, the defined benefit plan assets and
liabilities have been updated to reflect the contributions made to
the defined benefit plans and the benefits earned during the year
to 31 December 2023.
13. Notes to the Cash Flow Statement
|
Notes
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022
£m
|
Reconciliation of operating
(loss)/profit to net cash from operating activities
|
|
|
|
Operating (loss)/profit
|
|
(450)
|
58
|
Adjusting items
|
4
|
805
|
275
|
Adjusted operating profit
|
4
|
355
|
333
|
Adjustments for:
|
|
|
|
Depreciation & impairment of
property, plant and equipment
|
|
253
|
251
|
Amortisation of computer software
and development costs
|
|
10
|
10
|
Share of adjusted operating profit
of equity accounted investments
|
9
|
(81)
|
(78)
|
Gain on disposal of non-current
assets
|
|
(10)
|
(11)
|
Share-based payment
expense
|
|
1
|
-
|
Restructuring costs paid and
movements in provisions
|
|
(100)
|
(149)
|
Demerger costs paid
|
|
(48)
|
-
|
Defined benefit pension costs
charged
|
|
9
|
13
|
Defined benefit pension
contributions paid
|
|
(39)
|
(40)
|
Change in inventories
|
|
(36)
|
(33)
|
Change in receivables
|
|
6
|
(102)
|
Change in payables
|
|
48
|
103
|
|
|
|
|
Corporation tax paid
|
|
(61)
|
(72)
|
Interest paid on loans and
borrowings
|
|
(62)
|
(6)
|
Interest paid on lease
obligations
|
|
(6)
|
(6)
|
Acquisition related costs and
associated transaction taxes
|
|
-
|
(3)
|
Net cash from operating
activities
|
|
239
|
210
|
Reconciliation of cash and cash equivalents,
net of bank overdrafts
|
31 December
2023
£m
|
31 December
2022
£m
|
Cash and cash equivalents per
Balance Sheet
|
313
|
270
|
Bank overdrafts included within
current loans payable to Related Parties
|
-
|
(7)
|
Cash and cash equivalents, net of
bank overdrafts per Statement of Cash Flows
|
313
|
263
|
Net debt reconciliation
Net debt at the balance sheet date consists of
interest-bearing loans and borrowings and cash and cash
equivalents. This measure is aligned with the Group's banking
covenants. Currency denominated balances within net debt are
translated to Sterling at the balance sheet rate. In the prior
year, net funds consisted of loans payable to and receivable from
Related Parties and cash and cash equivalents.
Net debt is an alternative performance measure
as it is not defined in IFRS. The most directly comparable IFRS
measure is the aggregate of interest-bearing loans and borrowings
(current and non-current) and cash and cash equivalents.
A reconciliation from the most directly
comparable IFRS measure to net debt is given below.
|
31 December
2023
£m
|
31 December
2022
£m
|
Interest-bearing loans and
borrowings - due within one year
|
(2)
|
-
|
Interest-bearing loans and
borrowings - due after one year
|
(1,158)
|
-
|
Loans payable to Related Parties -
due within one year
|
-
|
(2,176)
|
Loan receivable from Related Parties
- due after one year
|
-
|
2,826
|
Total (debt)/funds
|
(1,160)
|
650
|
Less:
|
|
|
Cash and cash equivalents
|
313
|
270
|
Net (debt)/funds
|
(847)
|
920
|
The table below shows the key components of the
movement in net debt:
|
At
31 December 2022
£m
|
Cash flow
£m
|
Other non-cash movements
£m
|
Effect of foreign exchange
£m
|
At
31 December 2023
£m
|
Loans with Related Parties
(excluding bank overdrafts)
|
657
|
1,096
|
(1,775)
|
22
|
-
|
External debt (excluding bank
overdrafts)
|
-
|
(1,177)
|
(3)
|
20
|
(1,160)
|
Cash and cash equivalents, net of
bank overdrafts
|
263
|
68
|
-
|
(18)
|
313
|
Net (debt)/funds
|
920
|
(13)
|
(1,778)
|
24
|
(847)
|
Following the settlement of all loans with
Related Parties on demerger from Melrose Industries PLC, the Group
drew down on new external debt facilities. The Group's committed
bank facilities include a multi-currency denominated term loan of
£100 million, US$400 million and €100 million and a multi-currency
denominated revolving credit facility of £350 million, US$660
million and €450 million. Loans drawn under this facility are
guaranteed by Dowlais Group plc and certain of its subsidiaries.
There is no security over any of the Group's assets in respect of
this facility.
At 31 December 2023, the term loan was fully
drawn and £185 million, US$345 million and €244 million were drawn
on the multi-currency revolving credit facility. No facilities were
drawn in the prior year. There are also a number of uncommitted
overdraft, guarantee and borrowing facilities made available to the
Group.
|
Current
|
|
Non-current
|
|
Total
|
31 December 2023
£m
|
31 December 2022
£m
|
|
31 December 2023
£m
|
31 December 2022
£m
|
|
31 December 2023
£m
|
31 December 2022
£m
|
Floating rate obligations
|
|
|
|
|
|
|
|
|
Bank borrowings - US Dollar
loan
|
-
|
-
|
|
584
|
-
|
|
584
|
-
|
Bank borrowings - Sterling
loan
|
-
|
-
|
|
285
|
-
|
|
285
|
-
|
Bank borrowings - Euro
loan
|
-
|
-
|
|
298
|
-
|
|
298
|
-
|
Other loans and bank
overdrafts
|
2
|
-
|
|
-
|
-
|
|
2
|
-
|
Unamortised finance costs
|
-
|
-
|
|
(9)
|
-
|
|
(9)
|
-
|
Total interest-bearing loans and
borrowings
|
2
|
-
|
|
1,158
|
-
|
|
1,160
|
-
|
14. Lease obligations
Amounts payable under lease
obligations:
Minimum lease payments
|
31 December
2023
£m
|
31 December
2022
£m
|
Amounts payable:
|
|
|
Within one year
|
31
|
32
|
After one year but within five
years
|
73
|
65
|
Over five years
|
92
|
113
|
Less: future finance
charges
|
(45)
|
(51)
|
Present value of lease
obligations
|
151
|
159
|
Analysed as:
|
|
|
Amounts due for settlement within
one year
|
25
|
25
|
Amounts due for settlement after one
year
|
126
|
134
|
Present value of lease
obligations
|
151
|
159
|
It is the Group's policy to lease certain of its
property, plant and equipment. The average lease term is ten years.
Interest rates are fixed at the contract date.
15. Related Parties
Transactions and balances between the Group and
its Related Parties, being Melrose Industries PLC, the ultimate
parent company prior to demerger on 20 April 2023, and other
non-Group entities controlled by Melrose Industries PLC, are
classified as related party transactions. Transactions primarily
relate to royalties paid, dividends paid and interest payable on
loans with Related Parties.
Amounts recognised in the Balance Sheet in
respect of these related party transactions were as
follows:
|
31 December
2023
£m
|
31 December
2022
£m
|
Amounts receivable from Related
Parties
|
-
|
2,829
|
Amounts payable to Related
Parties
|
-
|
(2,189)
|
Amounts receivable from Related Parties were
included within loans receivable from Related Parties (31 December
2022: £2,826 million) and trade and other receivables (31 December
2022: £3 million).
Amounts payable to Related Parties were included
within loans payable to Related Parties (31 December 2022: £2,176
million) and trade and other payables (31 December 2022: £13
million).
Amounts recognised in the Income Statement in
respect of these related party transactions were as
follows:
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022
£m
|
Interest payable to Related
Parties
|
(8)
|
(22)
|
Charges payable to Related
Parties
|
-
|
(9)
|
Amounts recognised in the Statement of Changes
in Equity in respect of these related party transactions were as
follows:
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022
£m
|
Charges received from non-Group
entities
|
-
|
(1)
|
Reorganisation in respect of
non-Group entities
|
(57)
|
(105)
|
Tax effect of transactions with
Related Parties
|
-
|
(4)
|
Total transactions with Related
Parties
|
(57)
|
(110)
|
Reorganisation in respect of Related Parties
includes the initial recognition of a derivative over
own equity of £29 million, reorganisational steps taken as
part of the demerger, as well as other income and charges with
entities in the Melrose Industries PLC Group prior to the demerger
on 20 April 2023.
Dividends of £1,675 million were paid to GKN
Enterprise Limited, a member of the Melrose Industries PLC Group on
23 February 2023 (Note 7).
16. Post balance sheet events
There were no material post balance sheet
events.
ALTERNATIVE PERFORMANCE MEASURES
("APMs")
Alternative Performance Measures
("APMs")
In accordance with the Guidelines on APMs issued
by the European Securities and Markets Authority ("ESMA"),
additional information is provided on the APMs used by the Group
below.
In the reporting of financial information, the
Group uses certain measures that are not required under IFRS. These
additional measures (commonly referred to as APMs) provide
additional information on the performance of the business and
trends to stakeholders. These measures are consistent with those
used internally, and are considered important in understanding the
financial performance and financial health of the Group. APMs are
considered to be an important measure to monitor how the businesses
are performing because this provides a meaningful comparison of how
the business is managed and measured on a day-to-day basis and
achieves consistency and comparability between reporting
periods.
These APMs may not be directly comparable with
similarly titled measures reported by other companies and they are
not intended to be a substitute for, or superior to, IFRS measures.
All Income Statement and Cash Flow measures are provided for
continuing operations.
APM
|
Closest equivalent
statutory measure
|
Reconciling
items to statutory
measure
|
Definition and purpose
|
Income Statement Measures
|
Adjusted revenue
|
Revenue
|
Share of revenue of equity accounted
investments (Note 3)
|
Adjusted revenue includes the
Group's share of revenue of equity accounted investments
("EAIs"). This enables comparability
between reporting periods and consistency with internal
reporting.
Adjusted revenue
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022
£m
|
Revenue
|
4,864
|
4,595
|
Share of revenue of equity accounted
investments (Note 3)
|
625
|
651
|
Adjusted revenue
|
5,489
|
5,246
|
|
Adjusting items
|
None
|
Adjusting items
(Note 4)
|
Those items which the Group excludes
from its adjusted profit metrics in order to present a further
measure of the Group's performance.
These include items which are
significant in size or volatility or by nature are non-trading or
non-recurring, any onerous contract provisions released to the
Income Statement that was previously a fair value item booked on an
acquisition, and includes adjusted profit from EAIs.
This provides a meaningful
comparison of how the business is managed and measured on a
day-to-day basis, provides consistency and comparability between
reporting periods and is used to partly determine the variable
element of remuneration of senior management throughout the
Group.
|
Adjusted operating profit
|
Operating
loss(1)
|
Adjusting items
(Note 4)
|
The Group uses adjusted profit
measures for consistency with internal reporting and to provide a
useful and more comparable measure of the ongoing performance of
the Group. Adjusted measures are reconciled to statutory measures
by removing adjusting items, the nature of which are disclosed
above and further detailed in
Note 4.
Adjusted operating profit
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022
£m
|
Operating (loss)/profit
|
(450)
|
58
|
Adjusting items to operating
(loss)/profit (Note 4)
|
805
|
275
|
Adjusted operating profit
|
355
|
333
|
|
Adjusted operating margin
|
Operating
margin(2)
|
Share of revenue of equity accounted
investments (Note 3) and adjusting items (Note 4)
|
Adjusted operating margin represents
Adjusted operating profit as a percentage of Adjusted
revenue. The Group uses adjusted profit
measures to provide a useful and more comparable measure of the
ongoing performance of the Group to both internal and external
stakeholders.
|
APM
|
Closest
equivalent
statutory measure
|
Reconciling
items to statutory
measure
|
Definition and purpose
|
Adjusted profit before
tax
|
Loss before tax
|
Adjusting items
(Note 4)
|
Profit before the impact of
adjusting items and tax. As discussed above, adjusted profit measures are used to provide a useful and more
comparable measure of the ongoing performance of the Group to both
internal and external stakeholders. Adjusted measures are
reconciled to statutory measures by removing adjusting items, the
nature of which are disclosed above and further detailed in Note
4.
Adjusted profit before tax
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022
£m
|
Loss before tax
|
(522)
|
(63)
|
Adjusting items to loss before tax
(Note 4)
|
786
|
360
|
Adjusted profit before
tax
|
264
|
297
|
|
Adjusted profit after tax
|
Loss after tax
|
Adjusting items
(Note 4)
|
Profit after tax but before the
impact of the adjusting items. As discussed above,
adjusted profit measures are used to provide a
useful and more comparable measure of the ongoing performance of
the Group to both internal and external stakeholders. Adjusted
measures are reconciled to statutory measures by removing adjusting
items, the nature of which are disclosed above and further detailed
in Note 4.
Adjusted profit after tax
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022
£m
|
Loss after tax
|
(495)
|
(77)
|
Adjusting items to loss after tax
(Note 4)
|
693
|
295
|
Adjusted profit after tax
|
198
|
218
|
|
Constant currency
|
Income Statement, which is reported
using actual average foreign exchange rates
|
Constant currency foreign exchange
rates
|
The Group uses GBP based constant
currency models to measure performance. These are calculated by
applying fixed exchange rates to local currency reported results
for the current and prior periods. This gives a GBP denominated
Income Statement which excludes any translational variances
attributable to foreign exchange rate movements.
|
Adjusted EBITDA for leverage
covenant purposes
|
Operating
loss(1)
|
Adjusting items (Note 4),
depreciation of property, plant and equipment and amortisation
of computer software and development costs, share of
non-controlling interests and other adjustments
required for leverage covenant purposes
|
Adjusted operating profit for 12
months prior to the reporting date, before depreciation and
impairment of property, plant and equipment and before the
amortisation and impairment of computer software and development
costs.
Adjusted EBITDA for leverage
covenant purposes is a measure used by external stakeholders to
measure performance.
Adjusted EBITDA for leverage covenant
purposes
|
12 months ended
31 December
2023
£m
|
Adjusted operating profit
|
355
|
Depreciation of property, plant and
equipment and amortisation of computer software and development
costs
|
263
|
Non-controlling interests
|
(8)
|
Other adjustments required for
leverage covenant purposes(3)
|
(18)
|
Adjusted EBITDA for leverage covenant
purposes
|
592
|
|
APM
|
Closest
equivalent
statutory measure
|
Reconciling
items to statutory
measure
|
Definition and purpose
|
Adjusted tax rate
|
Effective tax rate
|
Adjusting items, adjusting tax items
and the tax impact of adjusting items (Note 4 and Note
6)
|
The income tax charge for the Group
excluding adjusting tax items, and the tax impact of adjusting
items, divided by adjusted profit before tax.
This measure is a useful indicator
of the ongoing tax rate for the Group to external
stakeholders.
Adjusted tax rate
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022
£m
|
Tax per Income Statement
|
27
|
(14)
|
Adjusted for:
|
|
|
Tax impact of adjusting
items
|
(87)
|
(62)
|
Tax impact of EAIs
|
(11)
|
(9)
|
Other adjusting tax
charges
|
5
|
6
|
Adjusted tax charge
|
(66)
|
(79)
|
Adjusted profit before
tax
|
264
|
297
|
Adjusted tax rate
|
25%
|
27%
|
|
Adjusted basic earnings per
share
|
Basic earnings per share
|
Adjusting items (Note 4 and Note
8)
|
Profit after tax attributable to
owners of the parent and before the impact of adjusting items,
divided by the weighted average number of ordinary shares in issue
during the financial period.
This measure is useful in showing
the current performance of the Group to external
stakeholders.
|
Adjusted diluted earnings per
share
|
Diluted earnings per
share
|
Adjusting items (Note 4 and Note
8)
|
Profit after tax attributable to
owners of the parent and before the impact of adjusting items,
divided by the weighted average number of ordinary shares in issue
during the financial period adjusted for the effects of any
potentially dilutive options.
This measure is useful in showing
the current performance of the Group to external
stakeholders.
|
APM
|
Closest
equivalent
statutory measure
|
Reconciling
items to statutory
measure
|
Definition and purpose
|
Balance Sheet Measures
|
Working capital
|
Inventories, trade and other
receivables less trade and other payables
|
Not applicable
|
Working capital comprises
inventories, current trade and other receivables, non-current other
receivables, current trade and other payables and non-current other
payables.
This measure provides additional
information in respect of working capital management to external
stakeholders.
|
Net debt
|
Cash and cash equivalents, loans
with Related Parties(4), interest-bearing loans and
borrowings and finance related derivative instruments
|
Reconciliation of net debt (Note
13)
|
Net debt comprises cash and cash
equivalents, interest-bearing loans and borrowings, loans with
Related Parties(4) and cross-currency swaps, where
applicable.
Net debt is one measure that could
be used to indicate the strength of the Group's Balance Sheet
position and is a useful measure of the indebtedness of the
Group.
|
Bank covenant definition of net debt
at average rates and leverage
|
Cash and cash equivalents less
interest-bearing loans and borrowings
|
Impact of foreign exchange and
adjustments for bank covenant purposes
|
Net debt (as above) is presented in
the Balance Sheet translated at period end exchange
rates.
For bank covenant testing purposes
net debt is converted using average exchange rates for the previous
12 months.
Leverage is calculated as the bank
covenant definition of net debt divided by adjusted EBITDA for
leverage covenant purposes. This measure is used for bank covenant
testing.
Net debt
|
31 December
2023
£m
|
Net debt at closing rates (Note
13)
|
(847)
|
Impact of foreign
exchange
|
(10)
|
Bank covenant definition of net debt
at average rates
|
(857)
|
Leverage
|
1.4x
|
|
APM
|
Closest
equivalent
statutory measure
|
Reconciling
items to statutory
measure
|
Definition and purpose
|
Cash Flow Measures
|
Free cash flow
|
Net increase/
decrease in cash and cash
equivalents (net of bank overdrafts)
|
Net cash from/
(used in) financing activities
|
Free cash flow represents cash
generated after all trading costs including restructuring, pension
contributions, tax and interest payments but before any cash flows
associated with financing activities.
This measure is a useful metric for
monitoring cash management within the Group and is consistent with
internal reporting.
Free cash flow
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022
£m
|
Net cash from operating
activities
|
239
|
210
|
Net cash used in investing
activities
|
(194)
|
(137)
|
Free cash flow
|
45
|
73
|
|
Adjusted free cash flow
|
Net increase/
decrease in cash and cash
equivalents (net of bank overdrafts)
|
Free cash flow, as defined above,
adjusted for demerger related exceptional cash flows
|
Adjusted free cash flow represents
free cash flow adjusted for demerger related exceptional cash
flows.
This measure is a useful metric for
monitoring cash management within the Group and is consistent with
internal reporting.
Adjusted free cash flow
|
Year ended
31 December
2023
£m
|
Year ended
31 December
2022
£m
|
Free cash flow
|
45
|
73
|
Demerger LTIP
payments(5)
|
37
|
-
|
Other cash demerger exceptional
items
|
11
|
-
|
Adjusted free cash flow
|
93
|
73
|
|
Capital expenditure
(capex)
|
None
|
Not applicable
|
Calculated as the purchase of owned
property, plant and equipment and computer software and expenditure
on capitalised development costs during the period, excluding any
assets acquired as part of a business combination.
Net capital expenditure is capital
expenditure net of proceeds from disposal of property, plant and
equipment.
|
Capital expenditure to depreciation
ratio
|
None
|
Not applicable
|
Net capital expenditure divided by
depreciation of owned property, plant and equipment and
amortisation of computer software and development costs.
This measure is a useful metric for
monitoring the investment in capital expenditure within the Group
and is consistent with internal reporting.
|
1. Operating loss is not defined within IFRS
but is a widely accepted profit measure being loss before finance
costs, finance income and tax.
2. Operating margin is not defined within IFRS
but is a widely accepted profit measure being derived from
operating loss(1) divided by revenue.
3. Included within other adjustments required
for covenant purposes are dividends received from equity accounted
investments, the removal of adjusted operating profit of equity
accounted investments, IFRS 2 related charges and non-cash finance
costs.
4. Related parties comprise Melrose Industries
PLC, the ultimate parent company prior to demerger on 20 April 2023
and other non-group entities controlled by Melrose Industries
PLC.
5. Demerger LTIP payments relate to the cash
payment of the divisional long-term incentive plans which were put
in place under management of Melrose Industries PLC and
crystallised on demerger on 20 April 2023.
Glossary
Accident Frequency Rate
|
A safety key performance indicator,
calculated as the number of lost time accidents (whether serious or
minor) divided by the total number of hours worked multiplied by
200,000.
|
advanced differentials
|
Torque management components
enabling specific advanced driving features such as mechanical and
electronic limited slip differentials, locking differentials and
disconnect devices.
|
Automotive
|
The GKN Automotive business operated
by the Group.
|
AWD
|
All wheel drive.
|
AWD systems
|
Torque management components (being
a power take-off unit and rear drive unit) for AWD vehicles with an
East-West / transverse engine layout.
|
BEV
|
Battery electric vehicle, a light
vehicle without an ICE which uses a battery to store the
electricity needed to power the vehicle.
|
Board
|
The board of directors of the
Company.
|
book-to-bill ratio
|
A metric used by GKN Automotive to
describe, in respect of a period, the ratio of forecast lifetime
revenue awarded in that period to revenues earned in the same
period. It is calculated using reported FX rates and excludes
aftermarket, cylinder liners and freight services
revenues.
|
bps
|
Basis points.
|
CEO
|
Chief Executive Officer.
|
CFO
|
Chief Financial Officer.
|
Company or Dowlais
|
Dowlais Group plc.
|
constant velocity joint
|
A type of joint which allows a
driveshaft to transfer torque via a variable angle at a constant
rotational speed.
|
demerger
|
The demerger of the Company from
Melrose Industries PLC which took place on 20 April
2023.
|
Director
|
A director of the
Company.
|
drivetrain
|
The components of a light vehicle
which transfer torque from the power source to the
wheels.
|
Driveline
|
A product group of GKN Automotive
which comprises sideshafts and propshafts.
|
drive systems
|
Sideshafts, propshafts, and AWD
systems.
|
drop-through margin
|
The margin at which incremental
sales volumes contribute incremental operating profit.
|
EBITDA
|
Earnings before interest, tax,
depreciation and amortisation.
|
EMEA
|
Europe, Middle East and
Africa.
|
ePowertrain
|
A product group of GKN Automotive,
which includes AWD systems, ePowertain components and eDrive
systems.
|
EPS
|
Earnings per share.
|
ESG
|
Environmental, Social and
Governance.
|
EVs
|
Electrified light vehicles,
including BEVs, FCEVs and HEVs (but not including Mild
Hybrids).
|
FCEV
|
Fuel cell electric vehicle, a light
vehicle without an ICE which uses a fuel cell to generate the
vehicle's power
|
FX
|
Foreign exchange.
|
global OEM
|
An OEM which produces light vehicles
in more than one country and produces more than 100,000 light
vehicles each year.
|
GLVP
|
Global light vehicle
production
|
Group
|
The Company, its direct and indirect
subsidiaries and other investments.
|
H1 or H2
|
The first or second half (as
applicable) of the relevant financial year.
|
HEV
|
Hybrid electric vehicle, a light
vehicle which uses both an ICE and a high voltage electric motor to
produce torque.
|
Hydrogen
|
The GKN Hydrogen business operated
by the Group.
|
ICE
|
Internal combustion engine and an
ICE vehicle means a light vehicle powered by an ICE.
|
IFRS
|
International Financial Reporting
Standards.
|
LFP / LFMP
|
Lithium iron phosphate / Lithium
manganese iron phosphate.
|
lifetime revenue
|
In respect of a contract, the
revenue earned over the life of that contract.
|
light vehicle
|
Passenger cars and light trucks up
to 6 tonnes in weight.
|
M&A
|
Mergers and acquisitions.
|
market
|
Unless otherwise specified, means
the global light vehicle market.
|
Melrose
|
Melrose Industries PLC.
|
Mild Hybrid
|
An ICE vehicle which features a
low-voltage electric motor to provide supplementary power to the
ICE and ancillary vehicle equipment.
|
OEM
|
Original equipment manufacturer of
light vehicles.
|
PPM
|
Parts per million, a measures of
defects per component manufactured.
|
Powder Metallurgy
|
The GKN Powder Metallurgy business
operated by the Group.
|
propshaft
|
Propeller shaft, a type of
driveshaft used to transfer torque from the front of the vehicle to
the rear, or vice versa.
|
propulsion source
agnostic
|
The product is not only for use in
an EV or ICE vehicle, but can be used in both.
|
Q1, Q2, Q3 or Q4
|
The first, second, third or fourth
quarter (as applicable) of the relevant year.
|
S&P
|
S&P Global.
|
SBTi
|
Science Based Targets
initiative.
|
sideshaft
|
A type of driveshaft used to
transfer torque directly to the wheels of the vehicle and which
typically features two constant velocity joints.
|
SUV
|
Sport utility vehicle, a type of
light vehicle.
|
Tier 1, Tier 2, Tier 3
etc.
|
The tiers of supplier in the
automotive supply chain, in which Tier 1 suppliers supply the OEM
directly, Tier 2 suppliers supply Tier 1 suppliers, and so
on.
|
torque
|
Rotational force, which in a light
vehicle is generated by the engine or drive system.
|
UAW
|
International Union, United
Automobile, Aerospace and Agricultural Implement Workers of America
(UAW).
|
US
|
Unites States of America.
|
year-on-year
|
A comparison to the immediately
preceding financial year (or relevant period thereof).
|