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EX-99.G — Gkn Plc Report & Accounts 1996
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EXHIBIT (g)
[LOGO]
GKN plc REPORT & ACCOUNTS 1996
A GLOBAL BUSINESS COMMITTED TO EXCELLENCE
[LOGO]
CONTENTS
Corporate Profile 2
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Chairman's Statement 4
Directors 8
Review of Operations 15
People and the Community 40
Financial Review 47
Financial Statements 54
Directors' Report 77
Remuneration Committee Report 80
Notice of Meeting 87
Subject Index 92
- 1 - GKN REPORT & ACCOUNTS 1996
CORPORATE PROFILE
GKN is a strategically focused group of companies committed to
excellence. With annual sales exceeding(pound)3 billion it has
operations in some 40 countries. The Group employs 30,000 people in its
subsidiaries and a further 11,500 in associated companies. GKN is a
world leader in many of its operations. These include designing,
developing and manufacturing automotive and agritechnical components;
aerospace and defence products; and the provision of industrial
services.
FINANCIAL HIGHLIGHTS
[Download Table]
1996 1995
(pound)m (pound)m
Sales 3337.0 3304.7
Profit before tax 92.8 322.4
Profit before tax and exceptional items 363.1 328.0
(Loss)/earnings per share (12.0)p 53.9p
Earnings per share before exceptional items 65.2p 57.3p
Dividend per share 26.5p 24.0p
Net cash resources 528.3 464.3
GKN REPORT & ACCOUNTS 1996 - 2 -
AUTOMOTIVE AND AGRITECHNICAL PRODUCTS
AEROSPACE AND SPECIAL VEHICLES
INDUSTRIAL SERVICES
CHAIRMAN'S STATEMENT
Introduction 1996 was another record year for GKN in both pre-tax
................. profits and earnings per share before exceptional
items. The net cash of [pound sterling] 528 million
at the end of the year provides a sound platform
for further growth.
Strategy Our ongoing strategy is to reduce the cyclical
................. imbalance of the Group by concentrating on core
businesses that are influenced by different business
cycles and to balance the cash consuming businesses
with those that generate cash. Underlying this
strategy is the drive for growth and our strong
financial position will be used to grow our existing
businesses organically and to add to them through
acquisitions where there is a good strategic fit.
Operations Detailed comments on Operations in 1996 are contained
................. in the Review of Operations on pages 13 to 39. Some
of the more important features are summarised below.
...Automotive GKN is the world market leader in constant velocity
................. joints. This position is sustained by substantial
expenditure on product and process development which,
on driveline products, was [pound sterling] 61
million in 1996.
The new automotive driveline plant near Florence, in
which [pound sterling] 50 million has been invested,
was officially opened in July and is now operating at
planned production levels. Our capability to produce
driveline products throughout the world continues to
grow and production in subsidiary and associated
companies now takes place in 18 countries with the
prospect of adding at least a further two in 1997. In
a number of countries, GKN has multiple production
facilities.
Growth in 1996 was not restricted to the core
driveline business and good performances were
achieved in the businesses producing powder
metallurgy components, wheels and automotive
structural parts. Emitec, which produces metal
substrates for catalytic converters, also performed
well and its new production facility in North America
will be fully operational in the middle of 1997.
...Aerospace At the end of 1996 the order book exceeded [pound
and Special Vehicles sterling] 4.2 billion with deliveries planned through
................. to the year 2003. We are extremely active in export
markets across our product range, and successes in
1996 included a four year contract for the support of
Warrior in Kuwait, an order for the supply of 40
Piranha armoured vehicles for the State of Qatar, and
an order from the German government for seven Super
Lynx helicopters. A number of important contracts
have been won for the supply of aircraft structures
and environmental systems and looking forward these
are business areas in which we wish to expand.
GKN REPORT & ACCOUNTS 1996 - 4 -
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[LOGO]
[PHOTO]
4
Sir David Lees (right) with C K Chow, Chief Executive
...Industrial The growth of the Chep pallet and container pooling
Services operations continued in 1996 and by the end of the
................. year Chep businesses in which GKN has a 50% or
greater interest controlled 62 million pallets in 16
countries. This compares with 53 million in 1995 and
44 million in 1994. Product development plays an
important part in the Chep business and work
continues on the development of specialised
containers for reusable secondary packaging and a low
cost full specification plastic pallet. The business
for automotive containers continues to grow.
Cleanaway, in which GKN has a 50% interest, made good
progress in 1996 and expanded in continental Europe
with further investment in Holland and also through
the acquisition of Mabeg, a waste management company
based in northern Germany.
- 5 - CHAIRMAN'S STATEMENT
Meineke The litigation involving Meineke Discount Muffler
litigation Shops Inc, a wholly owned subsidiary of GKN, is
................. referred to in the notes to the accounts on page 72.
On 6th March 1997, judgement was entered by a US
District Court in North Carolina against Meineke and
one of its subsidiaries, its immediate parent, GKN
Parts Industries Corporation, and its ultimate
parent, GKN plc, awarding damages to the plaintiffs
of $591 million plus interest of $10 million accruing
since the jury verdict issued on 18th December 1996.
This will be reduced by not less than 34% being the
value of the releases given by certain franchisees.
The judgement will be the subject of further legal
submissions which will take a month or so to resolve.
Thereafter, we shall be free to file an appeal with
the US Court of Appeals, which it is expected will
take about 18 months to be determined.
We are advised that our grounds for appeal are very
strong and cover both substantive and procedural
issues. As we are in the middle of a legal process,
it would be inappropriate to comment further on the
case at this time. As a matter of prudence, we have
made a provision in the 1996 accounts of [pound
sterling] 270 million, based on the judgement
referred to above and which includes the legal costs
of appeal and interest accruing until the end of
1998. This provision should not be interpreted as
our view of the likely outcome of an appeal.
Results The results for 1996 are described in detail in the
................. Financial Review on pages 47 to 52.
Profit before tax and exceptional items at [pound
sterling] 363 million was more than 10% higher than
in 1995. The strengthening of sterling in the latter
months of the year had an adverse effect on the
translation of overseas profits.
Further progress was again made in 1996 in margin
improvement and this was reflected in each of the
three business segments. For the Group as a whole,
the pre-exceptional operating profit margin to sales
increased from 9-7% in 1995 to 10-5%. Additional
information is contained in the segmental analysis on
page 74.
The generation of cash is an essential precursor to
the delivery of the Group's growth objectives and
another strong cash flow performance was achieved in
1996. At the end of the year net cash amounted to
[pound sterling] 528 million or [pound sterling] 334
million after deduction of advance payments from
customers. This latter figure is [pound sterling] 111
million higher than at the end of the preceding year.
Dividend Earnings per share before exceptional items increased
................. by 13.8%. The total dividend for 1996 is increased by
10.4% from 24.0p to 26.5p. The cover for the
increased dividend before exceptional items is 2.5
times.
Employees There are 30,000 people working in our subsidiary
................. companies and a further 11,500 in our joint venture
and associated companies. Our success is due, more
than anything else, to their efforts which are
gratefully acknowledged.
GKN REPORT & ACCOUNTS 1996 - 6 -
The Board Over the last 15 months or so shareholders have been
................. kept informed about our succession plans in
anticipation of my reaching normal retirement age at
the end of 1996. We announced last April that Mr C K
Chow would be joining the Board as Chief Executive
designate on 1st July 1996, having completed almost
20 years with The BOC Group, the last two of which as
a Main Board Director with responsibility for the
Gases Division.
On 1st January this year, Mr Chow became Chief
Executive of the Group and I became Chairman in a
non-executive capacity. Many companies have now split
the role of Chairman and Chief Executive reflecting
what today is considered to be good corporate
governance practice. For the division of
responsibility to be fully effective, it is essential
that the respective roles of the Chairman and the
Chief Executive are unambiguous and that there is
mutual respect and understanding between the two
individuals. In this regard, 1997 has started well.
At the end of 1996, Sir Peter Cazalet retired as a
non-executive Director and Deputy Chairman, having
joined the Board in that capacity in 1989. His
contributions to the Board and to the Remuneration
and Audit Committees, of which he was Chairman, have
been considerable and, on a personal note, his
support and advice have been greatly appreciated.
We were pleased to announce in November the
appointment of The Baroness Hogg as a non-executive
Director. Sarah Hogg is Chairman of London Economics
and has a wide experience in policy, economics and
business journalism.
The role of the non-executive Director is not only
about corporate governance, important and time
consuming though that is. It is also about working
with the executive Directors to grow and develop the
company. That is best done if the Board operates as a
single and effective unit which is what we both aim
for and are achieving.
Outlook In 1997 our automotive businesses should improve
................. although markets are forecast to be fairly flat in
Europe and North America. Chep should again have a
strong year and further advances are expected in
Aerospace and Special Vehicles.
Although the recent strength of sterling will not
have a significant transaction impact, it will affect
the translation of overseas profits. Nevertheless, we
expect 1997 to be another year of progress for GKN.
/s/ DAVID LEES
10th March 1997
- 7 - CHAIRMAN'S STATEMENT
DIRECTORS
[PHOTOS]
5
GKN REPORT & ACCOUNTS 1996 - 8 -
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[LOGO]
[PHOTOS]
The GKN Board at the new GKN Componenti Firenza plant in Campi Bisenzio near
Florence, Italy.
Foreground (left to right):
C K Chow
Trevor Bonner
Sir David Lees
Dr John Parker
David Turner
The Baroness Hogg
Sir Bryan Nicholson
Background (left to right):
Marcus Beresford
Dr Klaus Murmann
David Wright
Sir Peter Cazalet
Brian Insch
Grey Denham (Secretary)
Roy Brown
- 9 - GKN REPORT & ACCOUNTS 1996
DIRECTORS' BIOGRAPHIES
Sir David Lees Age 60. Joined GKN in 1970. Appointed Chairman and
CHAIRMAN Chief Executive in 1988. On reaching normal retiring
age, became non-executive Chairman on 1st January
1997. Non-executive Chairman of Courtaulds plc and a
non-executive Director of the Bank of England.
C K Chow Age 46. Joined GKN in July 1996 as Chief Executive
CHIEF EXECUTIVE designate and became Chief Executive on 1st January
1997. Formerly a Director of The BOC Group plc and
Chief Executive of BOC Gases worldwide. A
non-executive Director of Standard Chartered plc.
Marcus Beresford Age 54. Joined GKN as an executive Director in 1992
MANAGING DIRECTOR and in the same year was appointed Managing Director
GKN INDUSTRIAL SERVICES GKN Industrial Services. A non-executive Director of
CAMAS plc and a member of the Advisory Committee on
Business and the Environment.
Trevor C Bonner, CBE Age 53. Joined GKN in 1968. Appointed a Director in
MANAGING DIRECTOR 1985, a Managing Director in 1987 and became Managing
GKN AUTOMOTIVE AND Director GKN Automotive and Agritechnical Products in
AGRITECHNICAL PRODUCTS 1994. A non-executive Director of Avon Rubber plc and
a Vice-President of the Society of Motor
Manufacturers and Traders.
David J Wright Age 56. Joined GKN in 1989. Appointed to the Board as
MANAGING DIRECTOR Managing Director GKN Aerospace and Special Vehicles
GKN AEROSPACE AND in 1995. Chairman of the Defence Manufacturers'
SPECIAL VEHICLES Association and a Director of The Society of British
Aerospace Companies Ltd. A non-executive Director of
Legal & General Recovery Investment Trust plc.
Brian D Insch Age 55. Joined GKN in 1963. Appointed a Director in
HUMAN RESOURCES DIRECTOR 1986 and became Human Resources Director in 1987.
David J Turner Age 52. Joined GKN in 1993 on appointment to the
FINANCE DIRECTOR Board as Finance Director. A non-executive Director
of Iron Trades Insurance Company Ltd.
Roy D Brown Age 50. Appointed a non-executive Director in January
NON-EXECUTIVE DIRECTOR 1996. A Director of Unilever plc and Unilever NV.
Sarah Hogg Age 50. Appointed a non-executive Director in
NON-EXECUTIVE DIRECTOR November 1996. Chairman of London Economics Ltd and a
non-executive Director of National Provident
Institution and The Energy Group plc.
Dr Klaus H Murmann Age 65. Appointed a non-executive Director in 1995.
NON-EXECUTIVE DIRECTOR Chairman and Chief Executive Officer of
Sauer-Sundstrand Group. Other appointments include
Vice-Chairman of Gothaer Versicherungsbank and a
non-executive Director of Bankgesellschaft Berlin AG,
Fried Krupp AG Hoesch-Krupp and Preussen Elektra AG.
Sir Bryan Nicholson Age 64. Appointed a non-executive Director in 1991.
NON-EXECUTIVE DIRECTOR Chairman of British United Provident Association
(BUPA). Other appointments include non-executive
Director of LucasVarity plc and Equitas Holdings Ltd.
Dr T John Parker Age 54. Appointed a non-executive Director in 1993.
NON-EXECUTIVE DIRECTOR Chairman of Babcock International Group plc and a
non-executive Director of BG plc.
COMPANY SECRETARY Age 48. A barrister, joined GKN in 1980 and appointed
Grey Denham Company Secretary in May 1996.
GKN REPORT & ACCOUNTS 1996 - 10 -
ORGANISATIONAL STRUCTURE
[Enlarge/Download Table]
CHAIRMAN
Sir David Lees
NON-EXECUTIVE
DIRECTORS
R D Brown
The Baroness Hogg
Dr K H Murmann
Sir Bryan Nicholson
Dr T J Parker
CHIEF EXECUTIVE
C K Chow
GKN Automotive Driveline Division
MANAGING DIRECTOR GKN Agritechnical Products Division
FINANCE DIRECTOR GKN AUTOMOTIVE AND GKN Sankey Division
D J Turner AGRITECHNICAL PRODUCTS GKN Powder Metallurgy Division
T C Bonner, CBE GKN Service Division
GKN Sheepbridge Stokes
MANAGING DIRECTOR GKN Westland Aerospace Division
HUMAN RESOURCES GKN AEROSPACE AND GKN Westland Helicopters Division
DIRECTOR SPECIAL VEHICLES GKN Westland Technologies Division
B D Insch D J Wright GKN Defence Division
Chep South Africa
COMPANY SECRETARY MANAGING DIRECTOR Meineke
G Denham GKN INDUSTRIAL SERVICES Chep in Europe
M Beresford Chep USA
Cleanaway
- 11 - GKN REPORT & ACCOUNTS 1996
THE BOARD AND ITS COMMITTEES
The Board of Directors is primarily responsible for
Group strategy and budgets, acquisition and
divestment policy, and the approval of major capital
expenditure and financing arrangements. It normally
meets monthly. Specific responsibilities have been
delegated to the following standing committees:
COMMITTEE MEMBERS COMMITTEES
EXECUTIVE COMMITTEE
The executive The Executive Committee meets monthly. It oversees
Directors under the the activities of the Group and approves major human
chairmanship of the resource policy issues including management
Chief Executive development and training.
CHAIRMAN'S COMMITTEE
The non-executive The Chairman's Committee normally meets before Board
Directors and the meetings and is a forum for the Chairman and the
Chief Executive under Chief Executive to brief the non-executive Directors.
the chairmanship of It also reviews proposals for major changes in Group
the Chairman structure and Board responsibilities, and reviews and
recommends new appointments of executive and
non-executive Directors for consideration by the
Board.
AUDIT COMMITTEE
The non-executive The Audit Committee meets at least twice a year and
Directors (except more frequently if required. It examines the process
Dr K H Murmann) of internal control and financial reporting and
under the reviews changes in Group accounting policies. It also
chairmanship of reviews the scope of the audit with the external
Dr T J Parker auditors and the results of the work of the internal
audit department.
REMUNERATION COMMITTEE
The non-executive The Remuneration Committee meets periodically as
Directors under the required. It determines the policy on executive
chairmanship of Directors' remuneration and is responsible for
Sir Bryan Nicholson approving the terms of service and setting the
remuneration of the executive Directors and the
Company Secretary. The Committee's report on
Directors' remuneration is given on pages 80 to 86.
Until 31st December 1996 Sir David Lees was chairman
of the Executive Committee and Sir Peter Cazalet was
chairman of the Audit and Remuneration Committees.
GKN REPORT & ACCOUNTS 1996 - 12 -
REVIEW OF OPERATIONS
[LOGO]
- 13 -
Segmental Analysis of Sales
1996 sales of continuing operations ((pound)3326 million)
including GKN's share of associated companies
By business
.................
[Download Table]
Automotive and
Agritechnical
Products [pound sterling]2002m (60%)
[PIE CHART]
Aerospace and
Special Vehicles [pound sterling] 961m (29%)
Industrial Services [pound sterling] 363m (11%)
By region
of origin
.................
[Download Table]
Continental
Europe [pound sterling]1206m (36%)
Rest of the world [pound sterling] 162m (5%)
[PIE CHART]
United Kingdom [pound sterling]1440m (43%)
America [pound sterling] 518m (16%)
GKN REPORT & ACCOUNTS 1996 - 14 -
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[FRAME]
Audi
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[LOGO]
The GKN components which appear on this illuminated chassis frame of the Audi A8
Quattro include constant velocity driveshafts, propeller shaft, viscous
couplings, catalytic converter and chassis components.
- 15 - REVIEW OF OPERATIONS
AUTOMOTIVE AND AGRITECHNICAL PRODUCTS
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REVIEW OF OPERATIONS
GKN is one of the world's leading independent suppliers of automotive and
agritechnical components and systems. Driveline products and systems is the
primary activity and the Group is the world's largest producer of constant
velocity joints and driveshafts, with which most modern cars and many light
commercial vehicles are fitted. The driveline product range also includes
universal joints, propeller shafts and enhanced traction devices. Other
important automotive products are metal substrates for catalytic converters,
chassis assemblies and sub-assemblies, sintered metal components and engine
cylinder liners.
The global expansion of the Group's automotive activities continued vigorously
throughout 1996 and major developments took place in Poland, South Korea and
China. These developments, some of which are in the form of joint ventures,
reflect GKN's strategic commitment to establishing a leading presence in all the
emerging or developing markets. Such investments enable the Group to contribute
to, and to benefit from, the economic and industrial progress of these markets.
GKN is also the world's leading manufacturer of power take-off shafts and
produces a range of gearboxes, tractor attachment systems, wheels and cabs for
agricultural and other off-road uses.
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AUTOMOTIVE AND AGRITECHNICAL PRODUCTS
Continuing operations -- 1996
[Download Table]
SALES BY BY
ORIGIN MARKET
[pound sterling]m [pound sterling]m
United Kingdom 366 329
Continental Europe 1096 1045
America 407 444
Rest of the world 133 184
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2002 2002
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Sales*
[pound sterling]1851m [PIE CHART]
[pound sterling] 151m
Operating profit*
[pound sterling] 161m [PIE CHART]
[pound sterling] 27m
/ / Subsidiaries
/ / Share of associated
companies
*proportion of Group total
GKN REPORT & ACCOUNTS 1996 - 16 -
[LOGO]
[PHOTO]
7
TGV
GKN Glaenzer Cardan in France supplies propeller shafts for use in the latest
TGV trains including the Thalys and Eurostar (above).
[PHOTO]
8
Trevor Bonner
MANAGING DIRECTOR
- 17 - REVIEW OF OPERATIONS
AUTOMOTIVE AND AGRITECHNICAL PRODUCTS
Automotive and agritechnical products sales in 1996 rose to
[pound sterling] 2,002 million -- an increase of 2-5% over
1995.
Growth potential The core automotive driveline business continues to see
.............. significant development prospects. There is a clear strategy
in place to invest in developing markets, to take advantage of
outsourcing opportunities, to maintain technological
excellence, and to continue to improve operational
performance. In this context it is pleasing to report that
Lohr & Bromkamp is the first German company to receive the
Japanese Institute for Plant Maintenance award for excellence.
Substantial new business is expected for GKN Sankey's
Engineering Products division, arising from new customer
models and the anticipated medium-term growth in UK vehicle
output. The potential for sintered metal components and
catalytic converter substrates is considerable.
In agritechnical products, good growth prospects are being
generated by the ability to offer a GKN-sourced systems
solution, covering the entire driveline, which is widely
accepted by many major manufacturers. Strong efforts are being
made in developing countries such as India and in the low cost
segments of the market.
Car and light Worldwide production of cars and light commercial vehicles in
vehicle 1996 is estimated to have grown by some 3.7% to around 50
production million units. This increase was mainly outside the major
.............. traditional producing areas.
PRODUCTION OF CARS AND LIGHT COMMERCIAL VEHICLES
(not exceeding 6 tonnes gvw)
[Download Table]
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Source: DRI MILLION UNITS
1996 1995 1994 1993 1992
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United Kingdom 1.88 1.74 1.67 1.56 1.51
Western Europe 13.39 12.95 12.39 10.89 13.26
North America 13.85 14.01 14.21 12.81 11.43
Japan 9.82 9.61 9.98 10.64 11.85
Rest of the world 12.46 11.28 10.60 10.08 8.84
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World 51.40 49.59 48.85 45.98 46.89
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Double counting content 1.81 1.76 1.73 1.44 1.49
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Net production 49.59 47.83 47.12 44.54 45.40
Continental Continental European car demand recovered from the 1995
European slowdown and new car registrations rose by some 7% although
car markets production increased by only 2%. The increase in registrations
.............. was higher than expected and owed much to government and
vehicle manufacturers' incentive schemes.
GKN REPORT & ACCOUNTS 1996 - 18 -
[PHOTO]
9
INVEL
[LOGO]
GKN Invel Transmissions has three constant velocity joint production plants in
India, two near Delhi, at Faridabad (above) and at Dharuhera, and one at
Chennie. Invel has the capacity to manufacture in excess of 400,000 vehicle sets
per year for customers including Maruti, Ford, Peugeot and Fiat.
- 19 - REVIEW OF OPERATIONS
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AUTOMOTIVE AND AGRITECHNICAL PRODUCTS
UK car market Car production in the UK grew by 10% to 1.7 million vehicles.
............. The increase was well ahead of the growth in UK sales which
broke through the two million barrier and finished the year 4%
up on 1995. Private registrations for the year were 0.9
million, an increase of 3.4%, while fleet and business
registrations were up 4.7% at 1.1 million. 62% of the UK
market was accounted for by imported vehicles, compared with
59% in 1995.
North American Production of cars and light trucks was marginally below the
market 1995 level while registrations rose by some 2.7%. Car and
............. light truck sales were 9.2 million and 7.1 million units
respectively.
World market Worldwide demand for constant velocity joints grew by some 4%
for CVJs in 1996. Constant velocity joints are now produced by GKN in
............. France, Germany, India, Italy, Poland, Slovenia, Spain, UK,
USA and by associated companies in Argentina, Australia,
Brazil, China, Colombia, Malaysia, Mexico, South Africa and
Taiwan. In South Korea, assembly will start in late 1997 and
component manufacture will follow one year later.
Europe Sales of constant velocity joints and driveshafts from GKN's
............. European operations were broadly at the same level as 1995.
The new GKN Componenti Firenze plant in Campi Bisenzio near
Florence was opened officially in July and reached planned
production levels in the last quarter of the year.
In June, the outstanding minority interests in the Spanish
driveline subsidiaries were acquired and new investments in
precision forming were made in Germany and Spain.
North America GKN Automotive Inc's sales of constant velocity joints and
............. driveshafts were at a similar level to the previous year,
reflecting the trend in car and light vehicle production. The
company's operational performance improved, and profitability
increased somewhat. Further significant progress is targeted
for 1997.
Outsourcing Building on the success of the outsourcing agreement reached
............. with Fiat in Italy in 1994, a similar agreement was reached
during the year to establish constant velocity joint and
driveshaft manufacturing in Poland. GKN Automotive Polska
acquired the driveshaft business of Fiat Auto Poland in August
and will build a new facility to supply Fiat and, it is hoped,
other vehicle manufacturers established in Poland.
Developing Further progress was made in both expanding and deepening the
markets Group's involvement in developing markets, in many cases
............. building on existing joint venture arrangements.
China is a rapidly developing centre for car production in
which it is GKN's strategy to build a significant presence.
GKN first invested in China in 1988, taking a 25% share in the
newly formed Shanghai GKN Drive Shaft Company. This holding
was increased to 40% during 1996.
GKN REPORT & ACCOUNTS 1996 - 20 -
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[PICTURE]
10
Sankey
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[LOGO]
An engine member for a Nissan vehicle undergoing high-load
fatigue testing in the new engineering centre at
GKN Sankey Engineering Products in Telford, England.
A second Chinese joint venture was formed during the year.
Jilin GKN Norinco Drive Shaft Company, in which GKN holds 50%
of the equity, will supply the automotive industry in northern
China.
In South Korea, GKN now has a 49% holding in Hanwha GKN
Driveshafts. This joint venture with Hanwha Machinery Ltd will
manufacture and assemble constant velocity joints and
driveshafts. Assembly is scheduled to start in late 1997,
supplying initially the new Samsung car factory near Pusan.
In Slovenia, GKN has increased its holding in Unior-Atras
since the end of 1996 from 46.5% to 74%. The company is the
only manufacturer of constant velocity joints and driveshafts
in the country.
Research and Research and development is vital to maintain GKN's position
development at the forefront of the design, development and manufacture of
............. driveline products and systems. In 1996, some [pound
sterling] 61 million was invested by the product development
centres in Germany, the UK and the USA, the Viscodrive
engineering centre in Japan, and
- 21 - REVIEW OF OPERATIONS
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[PICTURE]
11
Emitec South Carolina
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[PICTURE]
12
Emitec - Catalytic converters
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[LOGO]
Emitec, a joint venture between GKN and Siemens formed in 1986, produced its ten
millionth catalytic converter substrate in 1996. In April 1997 it will
officially open its first factory in the USA in South Carolina (top).
GKN REPORT & ACCOUNTS 1996 - 22 -
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AUTOMOTIVE AND AGRITECHNICAL PRODUCTS
by the automotive driveline companies. The development
objectives are to predict and provide for future market needs
and analyse and solve engineering problems.
Priorities include weight and cost reduction combined with
improvements in comfort and performance, particularly with
respect to NVH (noise, vibration and harshness). These, and
additional requirements for increased durability, higher
efficiency and down-sizing, have been met with the GKN new
generation driveshafts launched in 1995. The continuing need
for further improvement in these areas is the driving force
behind major development programmes in new and improved
materials, more efficient lubrication, advanced analysis and
simulation methods, and more capable and effective
manufacturing processes. In many cases key suppliers are also
heavily involved in developments.
Further Viscodrive manufactures viscous couplings and differentials
progress for and is the world leader in this field. The technology is based
Viscodrive on utilising a viscous fluid which responds smoothly but
............. firmly to small differences in speed. The main market is Japan
where Viscodrive Japan supplies all the vehicle manufacturers.
New opportunities have been identified there and in North
America. Total Viscodrive sales worldwide, at constant
exchange rates, increased by 8% to [pound sterling] 67.4
million.
Emitec growth Emitec is a joint venture between GKN and Siemens of Germany.
continues The company produces metal substrates for catalytic
............. converters, which have significant advantages over the
traditional ceramic materials. They are being adopted
increasingly by vehicle manufacturers and this trend will
continue as environmental legislation and the manufacturers'
and public concern for the environment leads to demand for the
most efficient systems. The new production facility in South
Carolina, USA, will be fully operational by mid-1997 and is
the first major investment for Emitec outside Europe.
Commercial The market for medium and heavy commercial vehicles in Western
vehicle market Europe deteriorated in 1996. Output of commercial vehicles
............. over 6 tonnes gross vehicle weight was down by some 9.6% at
328,000 units. The resulting reduction in demand for universal
joints and propeller shafts was compounded by the loss of some
business to in-house production at Mercedes-Benz.
At the end of the year, GKN acquired an 80% shareholding in
Italcardano Universal Giunti, an Italian manufacturer of
propeller shafts, propeller shaft components and double
universal joints for the commercial, off-highway and military
vehicle markets.
Agritechnical The recovery in the European agritechnical markets in 1994 and
markets 1995 continued partially in 1996 and the combine harvester and
............. tractor market was up by 8%. By contrast, sales to driveshaft
driven agricultural implement markets in Europe fell by 6%.
- 23 - REVIEW OF OPERATIONS
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AUTOMOTIVE AND AGRITECHNICAL PRODUCTS
In North America, demand for agricultural tractors and
implements remained flat and is likely to continue near 1996
levels in the current year. The Freedom to Farm Act passed in
April 1996 will accelerate the long process of structural
change within the farming community towards fewer but bigger
farms.
Further improvements were made in manufacturing performance
throughout GKN Agritechnical Products Division. Production
segmentation was largely completed at Lohmar in Germany and
productivity increases were achieved at the North American
production and assembly sites at Rodney in Canada and Burr
Ridge in the USA. At the GKN Walterscheid Getriebe gearbox
factory at Kirschau the major reorganisation project, started
in 1995, continued to progress with improvements being
achieved in manufacturing, quality and logistics performance.
The ability to offer systems solutions is a major advantage in
this market.
Wheels' strong GKN Wheels turned in another strong performance. Total volumes
performance increased with over one million wheels shipped, reflecting
............. strong demand worldwide from the agricultural tractor and
construction equipment industries. Additional investment in
manufacturing capacity took place during the year to keep pace
with market demand.
Powder Worldwide demand for sintered metal components is growing
Metallurgy strongly and GKN Powder Metallurgy Division supplies a broad
growth spectrum of customers. These include vehicle manufacturers,
continues automotive component suppliers, power tool producers and the
............. makers of household appliances.
Progress in 1996 was constrained by lack of capacity. However,
further capacity at the Bruneck plant in South Tyrol, Italy,
will be operational in 1997. Although profits in Italy were
reduced by exchange rate movements, overall 1996 was another
good year for the division.
Sankey Sales up by 8% and increased profits represented a further
Engineering good year for GKN Sankey Engineering Products, building on its
Products: position as a leading producer of automotive structural parts.
another Overall, service was improved further by the new engineering
good year centre at Telford which became fully operational during the
............. year, providing customers with an integrated design, prototype
and test facility in addition to manufacture and assembly of
parts.
Cylinder The steady growth in the cylinder liner business of GKN
liners' good Sheepbridge Stokes continued throughout 1996. The company is a
progress market leader in Europe, supplying cylinder liners for
............. automotive, marine and industrial engines. Major customers
include Ford, Rover, Cummins and Perkins.
GKN REPORT & ACCOUNTS 1996 - 24 -
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[PHOTO]
13
Powder Met.
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[LOGO]
Quality is an important aspect of all GKN's work. The picture above shows the
teeth of an oil pump gear being checked against a master profile at GKN Bound
Brook Italy.
- 25 - REVIEW OF OPERATIONS
Aerospace and Special Vehicles
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REVIEW OF OPERATIONS
The GKN Aerospace and Special Vehicles portfolio is one of the UK's largest
defence businesses. It has four divisions: GKN Westland Helicopters and GKN
Defence operate internationally as prime contractors to government defence
organisations; and GKN Westland Aerospace and GKN Westland Technologies operate
as first tier suppliers.
GKN Defence is the UK's leading designer and manufacturer of light and medium
armoured vehicles for military, security and peacekeeping roles, and has built
over 60% of the British Army fleet of light armoured vehicles.
GKN Westland Helicopters is the UK's only helicopter design authority,
manufacturer and systems integrator. More than 1,000 Westland helicopters are in
service in 19 countries, achieving between them over six million flying hours.
GKN Westland Aerospace is a world leader in the design and manufacture of flight
critical structures and transmissions for civil and military aircraft.
GKN Westland Technologies designs, develops and manufactures high technology
life-support and environmental control systems and components for the aerospace,
defence, engineering and railway industries.
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AEROSPACE AND SPECIAL VEHICLES
Continuing operations - 1996
[Download Table]
SALES BY BY
ORIGIN MARKET
[pound sterling]m [pound sterling]m
United Kingdom 938 408
Continental Europe 5 81
America 12 110
Rest of the world 6 362
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961 961
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Sales*
[pound sterling]961m [PIE CHART]
/ / Subsidiaries
Operating profit*
[pound sterling]85m [PIE CHART]
*proportion of Group total
GKN REPORT & ACCOUNTS 1996 - 26 -
[LOGO]
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[PHOTO]
15
Piranha
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GKN Defence won an order for the supply of 40 Piranha 8x8 wheeled armoured
vehicles to the State of Qatar.
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[PHOTO]
14
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David Wright
MANAGING DIRECTOR
- 27 - REVIEW OF OPERATIONS
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AEROSPACE AND SPECIAL VEHICLES
Record GKN Aerospace and Special Vehicles generated sales of
order book [pound sterling]961 million in 1996, an increase of 28%. At
............. the year-end, the order book was some [pound sterling]4.2
billion with deliveries scheduled through to the year 2003.
The split between military and civil products is
approximately 80:20.
Warriors to Deliveries of Desert Warriors to Kuwait, started in June 1995,
Kuwait were made through 1996 at the rate of ten per month and will
............. continue to completion of the contract in the second half of
1997. A team of some 60 GKN specialists is stationed in Kuwait
to support the Warrior training, and to commission and
maintain the vehicles. A four-year maintenance support
contract was secured in December 1996.
Piranhas The Sultanate of Oman ordered 80 Piranha 8x8 wheeled armoured
to Oman... vehicles in a range of variants in 1994. Deliveries were made
............. in 1995 and 1996 and will continue in 1997. These are backed
by a 25-year support contract.
...and Qatar The State of Qatar ordered 40 Piranha vehicles in November.
............. Deliveries will start in the second half of 1997.
Simbas to the Deliveries continued of the Simba armoured personnel carrier,
Philippines assembled at Subic Bay by Asian Armoured Vehicle Technologies
............. Corporation in which GKN Defence is a minority shareholder. By
the end of the year 146 had been delivered.
Multi-role In April, GKN Defence signed a Memorandum of Understanding
armoured with the German consortium of Krauss Maffei, Mak/Rheinmetall
vehicle and Wegmann. The team will tender for the development and
............. production of a new wheeled armoured vehicle for Germany, the
UK and France. In the UK, this is known as the multi-role
armoured vehicle (MRAV).
EH101... GKN Westland's newest helicopter is the EH101, developed in
............. partnership with Agusta of Italy. It is designed in a range of
variants to fulfil naval, utility and civil roles and
represents a major breakthrough in helicopter design.
...for the The first EH101 Merlin for the Royal Navy was delivered on
Royal Navy schedule in 1996 and will be followed by four more in 1997.
............. Over the following four years a further 39 will be delivered.
...for the RAF Development of the RAF's EH101 medium-lift support helicopter
............. variant is progressing well. Deliveries under this order for
22 EH101 Utility, with a sales value of some [pound sterling]
500 million, will start in 1999 and continue through to 2001.
GKN REPORT & ACCOUNTS 1996 - 28 -
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[PICTURE]
15
EH101-
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[LOGO]
RN02, the first fully mission-equipped EH101 Merlin, on its maiden
flight from GKN Westland in January 1997. The aircraft
is one of 44 ordered for the Royal Navy.
- 29- REVIEW OF OPERATIONS
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[PICTURE]
16
Inlet duct
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[LOGO]
GKN Westland Aerospace designs and manufactures advanced structures and
transmissions for civil and defence aircraft. A typical product is the
composite nacelle component shown above, the largest of its type.
GKN REPORT & ACCOUNTS 1996 - 30 -
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AEROSPACE AND SPECIAL VEHICLES
GKN Westland The contract to supply 67 GKN Westland Apache attack
Apache helicopters to the British Army was signed in March 1996. The
............. value of the contract is [pound sterling]2.2 billion. GKN
Westland, as prime contractor, and its US partner companies
McDonnell Douglas and Lockheed Martin are committed to an
industrial participation programme equal to the value of the
contract. 50% of this is to be on direct UK Apache work, and
to date in excess of [pound sterling]900 million of contracts
have been placed involving over 150 UK companies. Deliveries
to the British Army will start in 2000 and continue to 2003.
Lynx The first three Super Lynx were delivered to the Brazilian
............. navy in the second half of the year and a further six will be
completed during 1997. The same contract includes upgrading
five existing Lynx to Super Lynx standard, the first of which
has been delivered with the balance for completion during
1997.
In September, it was announced that the German government had
approved the purchase of seven Super Lynx in a contract valued
at some [pound sterling]100 million. These aircraft will
strengthen Germany's existing fleet of 17 MK88 Sea Lynx.
Production will start in 1997 with first deliveries two
years later.
Sea King Two MK3A search and rescue Sea Kings for the RAF were
............. delivered during 1996, completing a six aircraft contract
awarded in 1993. A further two search and rescue Sea Kings for
the Royal Norwegian Air Force were also handed over.
GKN Westland The year saw good progress on all fronts. In the largest area
Aerospace of activity, the design and manufacture of aircraft
............. structures, work was won on jet programmes including the
Boeing 747-400, the Boeing 737-600/700/800, the Bombardier
Global Express, the McDonnell Douglas MD90 and the Airbus
A340. Other highlights included a contract from British
Aerospace Airbus for the single-source supply of design
services, a design and manufacture contract from de Havilland
on the Dash 8-400 nacelle and confirmation of orders from the
US Department of Defense for the C130J for which GKN Westland
Aerospace is the sole source supplier of nacelles. In flexible
structures, contracts were won for the design and supply of
flotation systems for the Sikorsky S92 and S70 Black Hawk.
The second key business of GKN Westland Aerospace is the
design and supply of aircraft transmissions. The main
successes of the year were the award of a contract from BMW
Rolls Royce to design and supply the internal gearbox on the
BR715 engine, contracts from Hindustan Aeronautics on the
Advanced Light Helicopter transmission and a contract from GKN
Westland Helicopters for the Apache transmission.
- 31 - REVIEW OF OPERATIONS
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AEROSPACE AND SPECIAL VEHICLES
GKN Westland This division, a world leader in aircraft air conditioning and
Technologies oxygen systems, had a successful year and there was an 18%
............. increase in the order book. Normalair-Garrett's pioneering,
environmentally friendly air conditioning system for trains
was selected for Germany's new generation of high speed
passenger trains. In one of the largest development contracts
it has won, the company was chosen to supply environmental
controls and other systems for the Nimrod 2000, the new
maritime patrol aircraft for the RAF.
In addition to the business the division already has on the
Eurofighter, Normalair-Garrett secured a new contract during
the year for the supply of aircrew services. With production
go-ahead expected in 1997, the Eurofighter programme will
provide solid long-term business for the company.
GKN REPORT & ACCOUNTS 1996 - 32 -
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[PICTURE]
17
ICE train
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GKN Westland Technologies has created a state-of-the-art air conditioning system
which will be fitted to the German railways' new generation of ICE 2.2 high
speed passenger trains. The system uses compressed air as a refrigerant
rather than ozone damaging chemicals such as CFCs.
- 33 - REVIEW OF OPERATIONS
INDUSTRIAL SERVICES
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REVIEW OF OPERATIONS
GKN's Industrial Services portfolio covers the Group's three
non-manufacturing businesses. These provide pallet and
container pooling, waste management and specialist automotive
services.
The Chep pallet and container pool in Southern Africa and the
Meineke exhaust franchise in the USA are wholly owned GKN
subsidiaries. Chep in Europe and America and the Cleanaway
waste management businesses are 50/50 joint ventures with
Brambles Industries of Australia.
CHEP
A management Chep provides a management service for the supply, rental and
service... control of the standard pallets and containers which underpin
............. the distribution of fast moving consumer goods. By the end of
1996, Chep operations had grown to control some 62 million
pallets in 16 countries, excluding Australia where the
business is wholly owned by Brambles. During the year, market
development started in South East Asia, and as part of the
Global Agreement with Brambles, 50% of the Chep businesses in
Malaysia and Singapore were acquired at the turn of the year.
...based on During 1996, Chep in Europe installed a new pan-European data
information network and established a new central data processing facility
technology designed to help provide a seamless service to its 150,000
............. approved delivery points.
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INDUSTRIAL SERVICES
Continuing operations -- 1996
[Download Table]
SALES BY BY
ORIGIN MARKET
[pound sterling]m [pound sterling]m
United Kingdom 136 136
Overseas 227 227
------------------------------------------
363 363
Sales*
[pound sterling]50m
[PIE CHART]
[pound sterling]313m
/ / Subsidiaries
/ / Share of associated
companies
Operating profit*
[pound sterling]15m
[PIE CHART]
[pound sterling]63m
*proportion of Group total
GKN REPORT & ACCOUNTS 1996 - 34 -
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[LOGO]
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[PICTURE]
19
Plastic Food Pallets
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Chep is expanding rapidly into new product areas. These RTP (returnable
transit packaging) trays are loaded with packaged goods and despatched
to major retailers. The trays are then collected by Chep, washed and
returned to the packaging company.
---------------------
[PHOTO OF MARCUS BERESFORD]
20
---------------------
Marcus Beresford
MANAGING DIRECTOR
- 35 - REVIEW OF OPERATIONS
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INDUSTRIAL SERVICES
...dependent Chep's success as a service business depends on its people. To
on people maintain its position at the leading edge of supply chain
............. management, the business continues to invest strongly in
education, development and training at all levels.
...bringing Pooling ensures that damaged wooden pallets are repaired,
environmental extending their working life and preventing disposal in
benefits landfill sites. Chep plastic pallets and containers at the end
............. of their life are re-ground and recycled. The development of
specialist containers for reusable secondary packaging, on
which trials are taking place in the UK, France and Spain,
will make a further important contribution to industrial
efficiency and to the environment.
Product The development of new products is ongoing. Recent innovations
development include a long-life plastic layer pad for glass container
............. distribution and a new plastic pallet which is undergoing
trials to meet the hygiene requirements of the food
ingredients sector. The use of transponders to track and
locate pallets is being investigated and Chep continues to
work on the development of low-maintenance plastic pallets
which will be able to replicate economically the load-carrying
capacity of wooden pallets.
Chep in Europe Chep in Europe again grew strongly, especially in France and
............. Spain, and the pallet pool reached 42 million pallets. In
December, Chep acquired a small French pallet pooling
business, Logistique Systeme Management (LSM), which will
assist the further penetration of the French market.
Development of the German market was boosted by Procter &
Gamble's decision in April to hire full-size pallets for all
its German operations. During 1996, the service was extended
into Austria and plans are in hand to expand into Scandinavia
in 1997.
Chep in For the fourth consecutive year, the American business grew
America strongly, confirming confidence in the region's prospects. The
............. pallet pool increased to 17.5 million pallets and, while
grocery dry goods remains the largest customer sector,
substantial advances were made in other markets, for example
produce and food service. Progress in Canada and Mexico was
steady and usage of Chep's NAFTA service increased as a number
of major US brands standardised on Chep. During the latter
part of the year the planned launch of a fresh produce
reusable crate pool was announced.
Chep in This wholly owned GKN subsidiary continued to make progress,
South Africa and bulk bins, used by the agricultural sector for the
............. harvesting of fruit and vegetables, showed excellent growth.
Chep expanded into Zimbabwe which, with the established
Namibian business and planned expansion into Botswana in 1997,
will provide a comprehensive Southern African service.
Automotive The European automotive container pool continued to grow. The
containers introduction of over 100,000 new large folding plastic
trading well containers progressed well at Ford. Small plastic container
............. movements for General Motors again exceeded 50,000 daily
GKN REPORT & ACCOUNTS 1996 - 36 -
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[PICTURE]
21
Coca Cola
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[LOGO]
Chep's major market is fast moving consumer goods. Chep UK has provided a
management service for the supply, rental and control of pallets for Hall and
Woodhouse, the producers of the soft drink `Rio', since 1984.
- 37 - REVIEW OF OPERATIONS
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[PICTURE]
22
Recycling
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[LOGO]
The Leto waste management business in Holland offers an industrial catalyst
recovery service which involves hydrolysis, phased separation and extraction of
high value precious metals. With a capacity of 250 tonnes per year, Leto
currently provides this service to a number of large chemical industries in
Europe.
GKN REPORT & ACCOUNTS 1996 - 38 -
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INDUSTRIAL SERVICES
deliveries in 14 European countries, and early in the year
Chep took on the management of all its standard large
containers in the same territories. The European service
attracted attention in North America where a trial is in
progress with a US automotive manufacturer.
CLEANAWAY
A year of Cleanaway increased its market penetration in the UK, extended
growth its range of services and made significant progress in its
............. European ambitions.
Cleanaway is a leading waste management company in the UK. The
market remained highly competitive, but overall profits showed
strong growth. The solid waste collection business continued
to grow, aided by a number of small acquisitions. Cleanaway's
UK facilities include landfill sites, transfer stations, a
high temperature incinerator, chemical treatment facilities, a
solvent recovery plant and waste management centres.
New contracts Two more municipal waste collection and recycling contracts
............. were won, and a five-year composting contract was negotiated
with Essex County Council. Demand for recovery and recycling
services increased, fuelled by growing environmental awareness
and the introduction of the landfill tax in October.
The River Transport of waste by river was converted to a fully
Thames containerised service, requiring extensive work both on the
............. company's fleet of barges and on shore.
Chemical waste The chemical waste business progressed well with the
............. introduction of specialised waste handling systems at the high
temperature incinerator providing the opportunity to offer new
services to customers.
Mainland The Leto operations in the Netherlands were enhanced by the
Europe acquisition of a 70% shareholding in Mirec of Eindhoven. Both
expansion Leto and Mirec performed well. These companies' services
............. include the treatment of paint wastes, recovering and
recycling catalysts and recycling electronic scrap. In
December, Cleanaway entered the German market with the
addition to its portfolio of Mabeg, acquired jointly by GKN
and Brambles. Based in northern Germany, Mabeg's activities
are focused on collection and recycling. It will provide a
sound base for further expansion and development in this
important market.
MEINEKE
Meineke Discount Muffler Shops is the second largest
specialist exhaust franchise in the USA with over 850 stores
throughout the country. The company performed well
notwithstanding the uncertainty and legal costs generated by
the ongoing class action litigation to which reference is made
in the Chairman's Statement (page 6) and the Accounts (page
72).
- 39 - REVIEW OF OPERATIONS
PEOPLE AND THE COMMUNITY
--------------------------------------------------------------
The need for an effective and adaptable workforce is common to
all of GKN's businesses and the competition for skilled people
globally and at all levels is increasingly intense. The Group
seeks to attract the best candidates for each job and provide
opportunities for individual learning and development.
Having completed a period of consolidation and focus, GKN is
seeking growth. Additional skills will need to be deployed
over a wider span of businesses and over wider geographical
areas as the Group expands.
[Download Table]
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Employees At end 1996 SUBSIDIARIES ASSOCIATED
............. COMPANIES
--------------------------------------------------------------
United Kingdom 14,100 3,450
Continental Europe 12,300 2,300
The Americas 2,250 2,550
Rest of the world 1,350 3,200
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Total 30,000 11,500
--------------------------------------------------------------
Within subsidiaries, there were 1,100 fewer employees than at
the end of 1995, due mainly to the disposal of Parts Inc in
the USA. Numbers employed in ongoing businesses rose during
the year by 590.
The increase of 1,300 in numbers employed by associated
companies was largely accounted for by the acquisition of
Mabeg and growth elsewhere in Cleanaway and Chep.
Equal Throughout the world GKN supports the principle of equal
opportunities opportunity irrespective of sex, race, colour or creed, and
............. full and fair consideration is given to employment
applications from people with disabilities.
HEALTH AND SAFETY
Improvement The GKN Board receives an annual report on the performance of
targets Group companies as monitored against the corporate Health,
............. Safety and Environment Policy. The Group pays particular
attention to the achievement of continuous improvement across
all operations and has set improvement targets for each
business.
In 1996, GKN introduced half-year reporting on health and
safety, with key performance measures for each operation being
reviewed at executive Director level. Companies are also
required to benchmark performance against external
comparators. Internal review and audit systems at plant level
are supplemented by independent audit arrangements.
Safety awards In April, GKN Defence in Telford received a gold award from
............. the Royal Society for the Prevention of Accidents (RoSPA) in
recognition of its improved safety performance. GKN Hardy
Spicer's Birfield plant received a Safe Working award from the
Engineering Employers' Federation for a 25% reduction in
accidents over the previous year.
GKN REPORT & ACCOUNTS 1996 - 40 -
[LOGO]
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[PHOTO]
23
India
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GKN places a high emphasis on training. At GKN Invel Transmissions in India each
employee receives training both on the job and in dedicated training facilities.
-------------------------
[PHOTO]
24
-------------------------
Brian Insch
HUMAN RESOURCES DIRECTOR
- 41 - REVIEW OF OPERATIONS
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PEOPLE AND THE COMMUNITY
ENVIRONMENT
GKN seeks to minimise the adverse environmental impact of its
activities, both in its operations and throughout the
life-cycle of its products.
Environmental Companies continued to demonstrate improvements in
audits environmental management systems. Seventeen companies in six
............. countries were audited by internal teams in 1996 and all
operational sites will have been audited by the end of 1997.
Examples of the Group's environmental activities are given
below:
Process In Italy, the new GKN Componenti Firenze plant near Florence
improvements has installed a sophisticated treatment plant for waste water.
............. Not only is the high quality treated water used for irrigating
the landscaped area surrounding the factory, but the company
has also significantly reduced its annual water bill.
GKN Bound Brook's plant at Bruneck in northern Italy has
introduced several programmes to reduce energy consumption.
Heat recovery from sintering furnaces has halved the
consumption of heating oil since 1990. Current projects
include a closed-loop water cooling unit which will reduce the
water required for cooling by 90%.
In the UK, GKN Westland Helicopters in Yeovil has joined a
consortium of local businesses headed by the Environment
Agency and local authorities to examine opportunities for
waste recycling and to exchange ideas on best practice for
waste elimination. Achievements so far include a 30% reduction
in chlorinated solvent emissions and a 10% saving in energy
cost.
In 1996, GKN Sankey in Telford introduced a `3R' programme --
reduce, re-use and recycle -- which has resulted in 2,000
cubic metres (equivalent to 20 double decker buses) of waste
packaging materials being recycled rather than disposed to
landfill.
Product GKN Technology in Wolverhampton is conducting life-cycle
development analysis on one of GKN's core products, the constant velocity
............. joint, to ensure that environmental impact is minimised at
every stage from initial concept, through production and use,
to recycling or disposal.
Environmental Perhaps the single most significant environmental breakthrough
breakthrough of the year was the adaptation by Normalair-Garrett of its air
............. conditioning systems for trains for which it won the
prestigious 1996 Environment Award for Engineers. The system
was originally developed for civil and military aircraft and
uses compressed air as a refrigerant rather than ozone
damaging chemicals such as CFCs. The first customer is
Deutsche Bahn, the national rail operator in Germany, which
has specified the system for its new generation of high speed
passenger trains.
EMPLOYEE TRAINING AND DEVELOPMENT
Investing GKN places a high priority on development of its workforce,
in people demonstrated by the fact that all principal UK businesses have
............. made formal commitments to achieving Investor in People status
and twelve are already accredited.
GKN REPORT & ACCOUNTS 1996 - 42 -
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[PHOTO]
43
Investors award
--------------------------------------------------------------------------------
The Right Hon Gillian Shephard, Secretary of State for Education and Employment,
presents David Clarkson, General Manager of GKN Bound Brook's Lichfield plant,
with the Investor in People award achieved in August 1996.
Training GKN Automotive Driveline Division opened a new training centre
initiatives for its UK operations to provide off-the-job training for
............. first year apprentices using the modern apprenticeship
standard. The first intake started its training in September.
The UK operations' approach to implementation of the National
Vocational Qualification has been commended by the Engineering
Training Authority as a model of best practice.
Training activities may target immediate job needs, or
development of the individual for future opportunities, or
both. Richard Thornley, an engineer from GKN Westland
Helicopters, is in Japan on a scheme partly sponsored by the
European Commission; the programme comprises 12 months'
language and cultural awareness training and six months in
industry.
Teamworking Teamwork is encouraged across all GKN's operations.
............. Self-contained teams at GKN Westland in Yeovil are building
the new EH101 helicopter. Over 30,000 man hours of training
have been dedicated to this project, much of it focused on
preparing for the new manufacturing process.
- 43 - REVIEW OF OPERATIONS
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PEOPLE AND THE COMMUNITY
Staff at GKN's headquarters operations in Redditch and London
have undertaken an in-house course in `Quality Through
Teamwork'.
GKN European In March, the first meeting of the GKN European Forum was
Forum attended by 29 delegates. This is an information and
............. consultation body which meets the requirements of the European
Union Directive on works councils.
SAYE share The take up of share options under the Save As You Earn scheme
option scheme continued to rise; approximately 55% of eligible UK employees
............. now hold options over shares in GKN.
COMMUNITY INVOLVEMENT
Focus on The main emphasis of GKN's wider community involvement
education continues to be on education.
.............
In the UK, GKN continued its core support of both the
Technology Tree and Young Enterprise schemes for primary and
secondary schools respectively. The Group also contributed
towards the refurbishment of a travelling engineering
laboratory for Women in Science and Engineering (WISE).
GKN's assembly plant at Roxboro, North Carolina, supports the
education theme with three programmes: School-to-Work
transition, Adopt-a-School and a Teacher Intern scheme.
Activities range from GKN employees teaching team-building in
high schools to teachers working on company training
procedures during the summer break.
In France, GKN's main manufacturing plant at Arnage near Le
Mans takes in more than 100 trainees each year. Each trainee
has a mentor and spends between two weeks and three months
with the company.
Chep South Africa focuses on supporting the next generation
from disadvantaged communities. The company provides 20
bursaries annually for employees' children to attend secondary
or high school, and in 1996 provided nine tertiary
scholarships. A further four scholarships for non-employees
will be extended to six in 1997.
Company In 1996, donations for charitable purposes made by the Group
donations amounted to [pound sterling]437,000 of which [pound
............. sterling]353,000 was paid in the UK. In addition a further
[pound sterling]431,000 was contributed to community
activities in the UK and [pound sterling]139,000 overseas.
GKN REPORT & ACCOUNTS 1996 - 44 -
FINANCIAL REVIEW
AND STATEMENTS
[LOGO]
- 45 -
FINANCIAL CALENDAR
Preliminary announcement of results for 1996 6th March 1997
Annual General Meeting (Royal Lancaster Hotel, London) 15th May 1997
Second interim dividend on ordinary shares to be paid 16th May 1997
Half year results to be announced August 1997
Interim dividend on ordinary shares to be paid October 1997
Preliminary announcement of results for 1997 March 1998
Interest on GKN loan notes is payable on 30th June and 31st December.
Loan notes may be redeemed at par on any interest payment date before
31st December 1999 by giving not less than 30 days' notice in writing to the
Registrar (see inside back cover). Any outstanding loan notes will be redeemed
at par on 31st December 1999.
GKN REPORT & ACCOUNTS 1996 - 46 -
FINANCIAL REVIEW
--------------------------------------------------------------------------------
PRESENTATION
OF RESULTS
.......... An exceptional provision of [pound sterling] 270 million has been
made in respect of litigation involving the US subsidiary, Meineke
Discount Muffler Shops Inc. In order to identify the effect of
this provision and to enable the results of normal trading to be
clearly seen, the format of the profit and loss account has been
changed from earlier years and contains a column showing the
impact of exceptional items.
Further, in order to show the results of associated companies on
the same basis as subsidiaries, the operating profit and net
interest of associates are now analysed separately on the face of
the profit and loss account. Comparative figures have been
re-stated accordingly.
EXCHANGE
RATES
.......... The Group is exposed to fluctuations in exchange rates on both
cross-border trading and the translation of the results of non-UK
companies into sterling in the consolidated accounts.
The risk on trading transactions is hedged by entering into
appropriate forward cover to ensure that commercial risk is
minimised. This applies to both our Automotive business and
Aerospace contracts. The former tends to be short term in nature
but for the latter, where significant elements of contract
exposure is in US dollars, cover is taken out for the entire
contract period.
The translation of the profit and loss account and cash flow
statement for overseas companies is at average exchange rates and
the year-on-year effect of changes is explained on a number of
occasions in this review. In 1996, movements in average rates have
not been material but the strengthening of sterling towards the
end of the year, if maintained, will have a significant impact on
1997 results.
The balance sheet is translated at year-end exchange rates but our
non-sterling investments are hedged in line with specific Board
approved levels so as to reduce the volatility in shareholders'
funds. As a matter of policy such assets are not completely hedged
and there are some currencies where hedging is either not possible
or only available at excessive cost. Thus there is inevitably some
exposure and the impact on shareholders' funds in 1996 was a
reduction of some [pound sterling] 38 million.
[PICTURE OF DAVID TURNER FINANCE DIRECTOR]
27
GKN REPORT & ACCOUNTS 1996
-47-
--------------------------------------------------------------------------------
CHANGES
IN THE
COMPOSITION
OF THE GROUP
.......... During the year the process of continuing to focus on core
businesses was augmented.
In June, the Group acquired the 34% shareholding not already owned
in its Spanish automotive operations. This has had the effect of
significantly reducing the profit attributable to minority
interests. In August, the newly established Polish subsidiary
acquired the driveshaft business of Fiat Auto Poland and, during
the course of the year, there was new investment in automotive
driveline joint ventures in South Korea and China. Although there
were start-up costs involved in all the new ventures they did not
materially affect the Group profit.
At the end of the year an 80% interest was acquired in the Italian
propeller shaft manufacturer, Italcardano Universal Giunti, and
Cleanaway entered the German market with the addition to its
portfolio of Mabeg, a German waste management company. Also in
December, Chep in Europe, in which the Group has a 50% stake,
acquired the French pallet pool business of LSM. As most of these
acquisitions were made in the latter part of the year there was no
profit or loss impact but all are included in the closing balance
sheet.
The sale of Parts Inc was completed in January 1996.
SALES
.......... Sales by continuing subsidiaries of [pound sterling] 2,862.6
million were [pound sterling] 259.8 million (10%) higher than
1995. After adjusting for changes in exchange rates, the
underlying improvement was somewhat higher at 11.3%. Most of the
increase arose in Aerospace and Special Vehicles where sales
improved by [pound sterling] 212 million (28.3%) to [pound
sterling] 961 million, reflecting a full years' production of
Kuwait Warrior and an increase in helicopter deliveries. At
constant exchange rates, Automotive and Agritechnical Products
improved by 4% to [pound sterling] 1,851 million in generally flat
markets for cars and agritechnical products and reduced demand for
commercial vehicles.
SALES BY CONTINUING SUBSIDIARIES
[BAR GRAPH]
1992-1994 restated to exclude Chep UK and include
Westland as subsidiary
Sales by associated companies of [pound sterling] 464.0 million
were [pound sterling] 52.9 million (12.9%) above 1995 but
excluding the impact of exchange rates the increase was 14.4%. The
major improvement was within Industrial Services where the total
increase at constant rates was 19.9%. All companies experienced
volume growth, particularly Chep USA as the development programme
continued to unfold.
GKN REPORT & ACCOUNTS 1996
-48-
--------------------------------------------------------------------------------
SALES BY CONTINUING ASSOCIATED COMPANIES
[BAR GRAPH]
1992-1994 restated to exclude Westland and include
Chep UK as 50% associate
OPERATING
PROFIT BEFORE
EXCEPTIONAL ITEMS
.......... Operating profit before exceptional items of continuing
subsidiaries of [pound sterling] 260.6 million was [pound
sterling] 23.8 million (10.1%) above 1995 which included an
[pound sterling] 8 million benefit in respect of a claim by GKN
Westland against the Canadian government for compensation on a
contract cancellation. After adjusting for this and an adverse
currency translation impact of [pound sterling] 4.2 million, the
increase was [pound sterling] 36 million or 16%.
At constant exchange rates, Automotive and Agritechnical Products
subsidiaries improved by [pound sterling] 11 million (7%) to
[pound sterling] 161 million as, in addition to the profit effect
of the sales increase, the operational performance in the USA and
at GKN Componenti Firenze continued to improve. In Aerospace and
Special Vehicles, profits increased by [pound sterling] 20 million
(31%), much in line with the sales growth, while in Industrial
Services the [pound sterling] 3 million reduction at constant
rates arose at Meineke through a combination of lower margins and
the costs of litigation. Redundancy and reorganisation costs were
[pound sterling] 8.6 million compared with [pound sterling] 4.9
million in 1995.
The Group share of associated company profits rose to [pound
sterling] 90.4 million from [pound sterling] 72.3 million in 1995,
an increase of 25%. After adjusting for the effect of exchange
rates, the increase was [pound sterling] 19.1 million or 26.8%,
virtually all of which arose in Industrial Services where profits
increased by [pound sterling] 19 million (43%) with gains in all
companies.
GROUP PROFIT AND NET INTEREST OF SUBSIDIARIES
[BAR GRAPH]
[ ] Profit before exceptional [ ] Interest [ ] Interest
items and taxation payable receivable
FINANCIAL REVIEW
-49-
--------------------------------------------------------------------------------
EXCEPTIONAL
ITEMS
.......... The major element of exceptional items is the [pound sterling]
270 million provision in respect of the Meineke litigation. This
comprises the amount of the judgement delivered on 6th March 1997
together with the legal costs of appeal and interest accruing
until the end of 1998. An appeal will be entered, the result of
which is unlikely to be known until late in 1998.
The other element of exceptional costs of [pound sterling] 0.3
million (1995 -- [pound sterling] 5.6 million) reflects net costs
relating to the divestment of Parts Inc in January 1996 and prior
year divestments.
INTEREST
.......... Interest receivable by subsidiaries was [pound sterling] 24.6
million compared with [pound sterling] 18.2 million in 1995 and
reflected an average cash balance of some [pound sterling] 459
million compared with [pound sterling] 334 million in the previous
year.
The Group share of interest payable by associated companies was
[pound sterling] 11.8 million compared with [pound sterling] 11.1
million a year earlier.
PROFIT
BEFORE TAX
.......... Profit before tax and exceptional items was [pound sterling]
363.1 million, an increase of [pound sterling] 35.1 million
(10.7%) over 1995. The post-exceptional figure of [pound sterling]
92.8 million compared with [pound sterling] 322.4 million last
year.
TAXATION
.......... The tax rate as a percentage of pre-exceptional profit before tax
fell to 33.8% from 34.8% a year earlier. This was largely due to a
further increase in the proportion of total profits earned in the
UK which allowed the absorption of [pound sterling] 21.0 million
of Advance Corporation Tax (ACT) written off in prior years. At
the end of 1996, ACT already written off and available for carry
forward for use against future corporation tax liabilities was
[pound sterling] 74.1 million.
The small tax charge on exceptional items arises primarily as the
result of capital gains tax on UK divestments. In view of the
uncertainties surrounding both the quantum and incidence of the
final Meineke judgement, no tax relief thereon has been assumed.
EARNINGS
AND DIVIDEND
.......... Earnings per share before exceptional items calculated on the
weighted average number of shares in issue during the year were
65.2p, an increase of 7.9p (13.8%) from 1995.
Including the second interim (in lieu of a final) dividend of
16.9p, the total dividend for the year of 26.5p represents a 2.5p
(10.4%) increase over 1995 and is covered 2.5 times by
pre-exceptional earnings.
EARNINGS AND DIVIDENDS PER SHARE
[BAR GRAPH]
[ ] Earnings per share before [ ] Dividend
exceptional items per share
GKN REPORT & ACCOUNTS 1996
-50-
CASH FLOW
Cash flow from operations generated by subsidiaries was [pound sterling] 353
million (1995 --[pound sterling] 272 million) and was after a [pound sterling]
47 million reduction in the level of customer advances.
Cash spent on tangible fixed assets excluding hire stock was [pound sterling]
130 million compared with [pound sterling] 112 million in 1995. Total capital
expenditure, including accruals, was [pound sterling] 135 million or 155% of
depreciation and reflected major expansion and capacity replacement programmes
in the Group's driveline and other automotive operations and at GKN Westland for
systems development and tooling for the EH101 helicopter in advance of
production.
A total of [pound sterling] 96 million was spent on the acquisition of the
Spanish automotive minorities, Italcardano Universal Giunti, Mabeg and on
further investment in associates. GKN shares for subsequent allocation under the
newly introduced Long Term Incentive Plan were acquired at a cost of [pound
sterling] 8 million.
[pound sterling] 54 million was received from the sale of subsidiaries, [pound
sterling] 46 million of which related to Parts Inc with the balance deferred
consideration from prior year divestments.
Net cash inflow in the year was [pound sterling] 33 million (1995 - [pound
sterling] 151 million).
SUBSIDIARIES' CASHFLOW FROM
OPERATIONS AND OPERATING PROFIT
[BAR GRAPH]
[] Cashflow from operations [] Operating profit before
before advances exceptional item
TREASURY POLICY AND FUNDING
Appropriate policies are in place to ensure that the Group has sufficient
liquidity, is able to make investments or acquisitions without funding
constraint and can obtain funding at the lowest after-tax cost practicable.
These policies are designed to protect the Group from fluctuations in interest
rates and maintain the value of cash flows and net assets denominated in foreign
currencies.
At the end of the year there were net cash resources of [pound sterling] 528
million of which [pound sterling] 195 million related to cash received from
customers in advance of work carried out. The net figure is struck after a
number of borrowings, the largest of which are redeemable preference shares
issued under the Foreign Income Dividend legislation. These represent a useful
and most cost effective after-tax medium term source of finance for the Group.
FINANCIAL REVIEW
51
The net cash position at the year-end is summarised below. Surplus cash is
invested with counterparties which have high quality credit rating.
[Download Table]
[pound sterling]m
Cash at bank and in hand:
customer advances 195
other 663
---
858
Borrowings (330)
----
Total net cash 528
SHAREHOLDERS' EQUITY
There was a reduction in shareholders' equity to [pound sterling] 725 million at
the end of 1996 from [pound sterling] 926 million a year earlier with the major
factors being the pre-exceptional profit of the year offset by the creation of
the Meineke provision, the impact of goodwill on acquisitions and the adverse
effect of balance sheet currency translation.
EQUITY AND CASH
[BAR GRAPH]
[] Equity [] Borrowings [] Net cash
resources
GOING CONCERN
In view of the strength of the year-end balance sheet and in the light of future
funding requirements, the Directors are of the opinion that it is appropriate
for the financial statements to be prepared on a going concern basis. The
auditors have reported on this on page 76.
ACCOUNTING STANDARDS AND PRESENTATION
In October the Accounting Standards Board (ASB) published a revision to FRS 1 --
Cash Flow Statements and, as encouraged by the ASB, this has been adopted for
this year's accounts. The other new accounting requirements affecting the Group
in 1996 are FRS 8 -- Related Party Disclosures and UITF Abstract 13 --
Accounting for ESOP Trusts and reference is made to these, where appropriate, in
the financial statements.
GKN REPORT & ACCOUNTS 1996
52
[GKN LOGO]
DIRECTORS' RESPONSIBILITY
FOR THE ACCOUNTS
At the end of each financial year the Directors are required by the Companies
Act 1985 to prepare accounts which give a true and fair view of the state of
affairs of the Company and of the Group and of the profit or loss of the Group
for that year. In preparing the accounts for the year ended 31st December 1996,
appropriate accounting policies, supported by reasonable and prudent judgements
and estimates, have been consistently used and UK applicable accounting
standards have been followed.
The Directors are responsible for ensuring that the Group keeps proper
accounting records which disclose with reasonable accuracy at any time the
financial position of the Group and which enable them to ensure that the
accounts comply with the Companies Act 1985. In addition, the Directors are
responsible for ensuring that an appropriate system of internal control is in
operation to provide them with reasonable assurance that the assets of the Group
are properly safeguarded and to ensure that reasonable steps are taken to
prevent or detect fraud and other irregularities.
On behalf of the Board
G DENHAM
Secretary 10th March 1997
REPORT OF THE AUDITORS
TO THE MEMBERS OF GKN PLC
We have audited the accounts on pages 54 to 74.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described above the Company's Directors are responsible for the preparation
of the accounts. It is our responsibility to form an independent opinion, based
on our audit, on those accounts and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the accounts. It also
includes an assessment of the significant estimates and judgements made by the
Directors in the preparation of the accounts, and of whether the accounting
policies are appropriate to the Company's circumstances, consistently applied
and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the accounts are free from
material misstatement, whether caused by fraud or other irregularity or error.
In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the accounts.
OPINION
In our opinion the accounts give a true and fair view of the state of affairs of
the Company and the Group at 31st December 1996 and of the result, total
recognised gains and losses and cash flows of the Group for the year then ended
and have been properly prepared in accordance with the Companies Act 1985.
COOPERS & LYBRAND
Chartered Accountants and Registered Auditors
Birmingham 10th March 1997
GKN REPORT & ACCOUNTS 1996
53
[GKN LOGO]
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31ST DECEMBER 1996
[Enlarge/Download Table]
BEFORE
EXCEPTIONAL EXCEPTIONAL 1996 1995
ITEMS ITEMS TOTAL TOTAL
Notes [pound sterling]m [pound sterling]m
SALES
Subsidiaries:
continuing operations 2862.6 -- 2862.6 2602.8
discontinued operations 10.4 -- 10.4 290.8
----------------------------------------------------------------------
2 2873.0 -- 2873.0 2893.6
Share of associated companies:
continuing operations 2 464.0 -- 464.0 411.1
----------------------------------------------------------------------
3337.0 -- 3337.0 3304.7
----------------------------------------------------------------------
OPERATING PROFIT
Continuing operations:
subsidiaries 3 260.6 (270.0) (9.4) 236.8
share of associated companies 90.4 -- 90.4 72.3
----------------------------------------------------------------------
351.0 (270.0) 81.0 309.1
Discontinued operations:
subsidiaries 3 (0.7) -- (0.7) 11.8
----------------------------------------------------------------------
TOTAL OPERATING PROFIT 350.3 (270.0) 80.3 320.9
EXCEPTIONAL ITEMS
Profits less losses on sale or
closure of subsidiaries 4 -- (0.3) (0.3) (5.6)
----------------------------------------------------------------------
PROFIT BEFORE INTEREST AND TAXATION 350.3 (270.3) 80.0 315.3
Interest receivable/(payable):
subsidiaries 5 24.6 -- 24.6 18.2
share of associated companies 5 (11.8) -- (11.8) (11.1)
----------------------------------------------------------------------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 363.1 (270.3) 92.8 322.4
Taxation 6 (122.7) (0.4) (123.1) (120.4)
----------------------------------------------------------------------
(Loss)/profit on ordinary activities after taxation 240.4 (270.7) (30.3) 202.0
Minority interests -- equity (11.7) -- (11.7) (14.6)
----------------------------------------------------------------------
(LOSS)/EARNINGS OF THE YEAR 228.7 (270.7) (42.0) 187.4
=============================
DIVIDENDS 7 (93.4) (83.7)
------------------------------
TRANSFER (FROM)/TO RESERVES 23 (135.4) 103.7
==============================
(LOSS)/EARNINGS PER SHARE 8 (12.0)p 53.9p
==============================
PROFIT BEFORE TAX AND EXCEPTIONAL ITEMS [pound sterling]363.1m [pound sterling]328.0m
==============================
EARNINGS PER SHARE BEFORE EXCEPTIONAL ITEMS 8 65. 2p 57. 3p
==============================
The Group's share of profit before tax of associated companies amounted to
[pound sterling] 78.6 million (1995 -- [pound sterling]61.2 million).
GKN REPORT & ACCOUNTS 1996
54
[GKN LOGO]
CONSOLIDATED BALANCE SHEET
[Enlarge/Download Table]
AT 31ST DECEMBER 1996
1996 1995
Notes [pound sterling]m [pound sterling]m
FIXED ASSETS
Tangible assets 10 699.2 707.1
Investments 11 187.2 179.0
--------------------------------------
886.4 886.1
--------------------------------------
CURRENT ASSETS
Stocks 12 328.3 405.2
Debtors 13 429.0 454.0
Investment in liquid resources 14 -- 100.0
Cash at bank and in hand 15 858.1 605.2
--------------------------------------
1615.4 1564.4
--------------------------------------
CREDITORS: amounts falling due within one year
Short term borrowings 16 (21.6) (24.0)
Creditors 17 (835.0) (900.0)
Taxation payable 18 (69.2) (74.8)
Dividend payable (59.6) (53.2)
--------------------------------------
(985.4) (1052.0)
--------------------------------------
NET CURRENT ASSETS 630.0 512.4
--------------------------------------
TOTAL ASSETS LESS CURRENT LIABILITIES 1516.4 1398.5
CREDITORS: amounts falling due beyond one year
Term loans 19 (267.9) (171.6)
Obligations under finance leases 20 (32.9) (38.4)
PROVISIONS FOR LIABILITIES AND CHARGES 21 (450.1) (190.7)
--------------------------------------
NET ASSETS 765.5 997.8
======================================
CAPITAL AND RESERVES
Called up share capital 22 352.6 349.0
Share premium account 23 279.5 273.8
Revaluation reserve 23 61.2 56.9
Other reserves 23 (248.7) (212.0)
Profit and loss account 23 280.6 458.5
--------------------------------------
372.6 577.2
--------------------------------------
EQUITY INTEREST 725.2 926.2
Minority interests - equity 40.3 71.6
765.5 997.8
======================================
The accounts were approved by the Board of Directors on 10th March 1997 and were
signed by:
DAVID LEES
DAVID J TURNER
Directors
GKN REPORT & ACCOUNTS 1996
55
[GKN LOGO]
STATEMENT OF TOTAL RECOGNISED
GAINS AND LOSSES
[Download Table]
FOR THE YEAR ENDED 31ST DECEMBER 1996 1996 1995
Notes [Pound Sterling]m
(LOSS)/EARNINGS OF THE YEAR (42.0) 187.4
Currency variations 1 (38.2) 5.8
Property revaluation 4.0 --
Other gains and losses (1.4) (0.3)
------------------
TOTAL RECOGNISED GAINS AND LOSSES OF THE YEAR (77.6) 192.9
==================
(Loss)/earnings of the year on an historical cost basis are not materially
different from those reported above.
RECONCILIATION OF MOVEMENTS IN
SHAREHOLDERS' EQUITY
[Download Table]
FOR THE YEAR ENDED 31ST DECEMBER 1996 1996 1995
[Pound Sterling]m
TOTAL RECOGNISED GAINS AND LOSSES OF THE YEAR (77.6) 192.9
Dividends (93.4) (83.7)
Issue of ordinary shares net of costs 18.5 10.0
Purchased goodwill written off (48.5) (18.8)
Goodwill on businesses sold or closed -- 26.0
------------------
TOTAL (DECREASE)/INCREASE (201.0) 126.4
Shareholders' equity at 1st January 1996 926.2 799.8
------------------
SHAREHOLDERS' EQUITY AT 31ST DECEMBER 1996 725.2 926.2
==================
MOVEMENT IN NET FUNDS
[Download Table]
FOR THE YEAR ENDED 31ST DECEMBER 1996 1996 1995
[Pound Sterling]m
Increase in cash 21.2 57.6
Increase in liquid resources and financing 11.4 93.1
------------------
CASH INFLOW BEFORE USE OF LIQUID RESOURCES AND FINANCING 32.6 150.7
Currency variations 26.5 (16.2)
Net proceeds of ordinary share issues 9.3 4.7
Subsidiaries acquired and sold (4.0) 9.2
Net movement on finance leases (0.4) (0.3)
------------------
TOTAL INCREASE 64.0 148.1
Net funds at 1st January 1996 464.3 316.2
------------------
NET FUNDS AT 31ST DECEMBER 1996 528.3 464.3
==================
GKN REPORT & ACCOUNTS 1996
56
[GKN LOGO]
CONSOLIDATED CASH FLOW STATEMENT
[Enlarge/Download Table]
FOR THE YEAR ENDED 31ST DECEMBER 1996 1996 1995
Notes [Pound sterling]m [pound sterling]m
NET CASH INFLOW FROM OPERATING ACTIVITIES
Subsidiaries 353.4 271.8
Dividends received from associated companies 33.7 34.2
------- -------
A 387.1 306.0
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 56.8 40.5
Interest paid (29.3) (23.9)
Dividends paid to minority interests (8.6) (7.9)
------- -------
18.9 8.7
TAXATION
United Kingdom (46.7) (35.2)
Overseas (70.3) (76.1)
------- -------
(117.0) (111.3)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets (132.9) (125.5)
Sale of tangible fixed assets 7.3 6.9
Investment loans to associated companies (4.3) (1.5)
Other financial investments (8.1) --
------- -------
(138.0) (120.1)
ACQUISITIONS AND DISPOSALS
Purchase of subsidiaries B (71.9) (17.1)
Purchase of associated companies (23.7) (32.0)
Sale of subsidiaries B 53.8 89.6
Sale of associated companies 1.2 98.9
------- -------
(40.6) 139.4
EQUITY DIVIDENDS PAID (77.8) (72.0)
------- -------
CASH INFLOW BEFORE USE OF LIQUID RESOURCES
AND FINANCING 32.6 150.7
MANAGEMENT OF LIQUID RESOURCES
Sale/(purchase) of bank loan note investment 100.0 (100.0)
Increases in short term loans and deposits (279.0) (23.3)
Decreases in short term loans and deposits 70.5 42.0
------- -------
C (108.5) (81.3)
FINANCING
Net proceeds of ordinary share issues 9.3 4.7
Issue of FID redeemable preference shares 300.0 --
Redemption of FID redeemable preference shares (200.0) --
Proceeds of other term borrowings 0.5 0.3
Repayment of other term borrowings (5.8) (9.4)
Finance leases (6.9) (7.4)
------- -------
C 97.1 (11.8)
------- -------
INCREASE IN CASH C 21.2 57.6
======= =======
The 1995 comparative figures have been restated to reflect the requirements of
FRS 1 (Revised 1996).
GKN REPORT & ACCOUNTS 1996
57
[GKN LOGO]
NOTES ON THE CASH FLOW STATEMENT
[Enlarge/Download Table]
A NET CASH INFLOW FROM OPERATING ACTIVITIES 1996 1995
[pound sterling]m
Operating profit from continuing operations 81.0 309.1
Share of associated company operating profit ([pound sterling]90.4m, 1995 --
[pound sterling]72.3m) net of dividends received ([pound sterling]33.7m, 1995 --
[pound sterling]34.2m) (56.7) (38.1)
Depreciation 86.8 80.5
Profit on sale of tangible fixed assets (1.5) (0.4)
Decrease/(increase) in stocks 8.0 (64.6)
Decrease in debtors 1.4 2.3
Increase in creditors 39.1 65.6
Increase in provisions 281.4 11.4
Decrease in customer advances (46.7) (63.4)
--------------------------
Cash inflow from continuing operations 392.8 302.4
Cash (outflow)/inflow from discontinued operations (5.7) 3.6
--------------------------
NET CASH INFLOW FROM OPERATING ACTIVITIES 387.1 306.0
==========================
[Enlarge/Download Table]
B PURCHASE AND SALE OF SUBSIDIARIES ACQUISITIONS SALES
1996 1995 1996 1995
[pound sterling]m [pound sterling]m
Fixed assets (12.2) (6.4) 3.0 57.3
Working capital and provisions (5.5) (1.8) 42.8 21.7
Taxation payable 1.0 0.1 -- (1.5)
Cash 1.7 (3.5) 0.5 3.6
Loans and finance leases 4.0 3.4 -- (12.6)
Minority interests (31.8) (6.5) -- --
------ ------ ------ ------
(42.8) (14.7) 46.3 68.5
Change from associated company status -- 2.0 -- --
Surplus on sales -- -- 2.8 6.4
Goodwill (28.4) (4.8) -- 26.0
------ ------ ------ ------
Total consideration (71.2) (17.5) 49.1 100.9
Deferred consideration 1.0 (3.1) 5.2 (7.7)
------ ------ ------ ------
Consideration (paid)/received (70.2) (20.6) 54.3 93.2
Less: cash (1.7) 3.5 (0.5) (3.6)
------ ------ ------ ------
NET CASH (OUTFLOW)/INFLOW (71.9) (17.1) 53.8 89.6
====== ====== ====== ======
[Enlarge/Download Table]
CHANGE IN 1996
C ANALYSIS OF MOVEMENTS NET FUNDS AT END OF YEAR -----------------------------------------------
IN NET FUNDS LIQUID
1996 1995 CASH RESOURCES FINANCING
[pound sterling]m [pound sterling]m
Bank loan note investment -- 100.0 -- (100.0) --
Bank balances and cash 168.8 114.2 54.6 -- --
Short term loans and deposits 689.3 491.0 -- 198.3 --
Bank overdrafts (18.2) (17.6) (0.6) -- --
Other short term borrowings (3.4) (6.4) -- -- 3.0
Term loans (267.9) (171.6) -- -- (96.3)
Finance leases -- due in more
than one year (32.9) (38.4) -- -- 5.5
-- due within one year (7.4) (6.9) -- -- (0.5)
------- ------- ------- ------- -------
528.3 464.3 54.0 98.3 (88.3)
======= =======
Net proceeds of ordinary share issues -- -- (9.3)
Subsidiaries acquired and sold
(excluding cash) -- -- 4.0
Non-cash movements -- finance leased
capital expenditure -- -- 0.4
-- currency variations (32.8) 10.2 (3.9)
------- ------- -------
NET CASH INFLOW/(OUTFLOW) 21.2 108.5 (97.1)
======= ======= =======
Cash consists of cash in hand and bank balances and overdrafts repayable on
demand as defined by FRS 1. Liquid resources consist of short term investments,
loans and deposits excluding cash.
58
NOTES ON THE ACCOUNTS
1 BASIS OF CONSOLIDATION
ACCOUNTING POLICIES
These accounts are prepared under the historical cost convention, as
modified by the revaluation of land and buildings, and comply with UK
applicable accounting standards including FRS 1 (Revised 1996) "Cash
Flow Statements" and FRS 8 "Related Party Disclosures" which are
adopted for the first time.
The Group's accounting policies are shown in the notes on pages 59 to
72. Local legislation prevents certain overseas subsidiaries from
conforming with the accounting policies adopted by the Group. Where
appropriate, adjustments are made on consolidation so that the group
accounts are presented on a uniform basis.
In order to bring the presentation of the Group's share of the profit
before tax of associated companies into line with that of subsidiaries,
the operating profit and net interest payable of associated companies
has been shown separately in the profit and loss account. Comparative
figures have been reanalysed accordingly.
COMPOSITION OF THE GROUP ACCOUNTS
The group accounts consolidate the accounts for the year to 31st
December 1996 of the Company and its subsidiaries.
SUBSIDIARIES ACQUIRED AND SOLD
The results of subsidiaries acquired or sold during the year are
included in the consolidated profit and loss account from the date of
acquisition or to the date of disposal. In the case of acquisitions
during the year the acquisition method of accounting has been used.
DISCONTINUED OPERATIONS
Profits or losses are analysed as discontinued operations where
businesses are sold or closed by the date on which the accounts are
approved. Where businesses are treated as sold or closed in the current
year, the prior year's analyses are restated to reflect those
businesses as discontinued.
FOREIGN CURRENCIES
The results and cash flows of overseas subsidiaries and associated
companies are translated to sterling at average exchange rates. Where
practicable, transactions involving foreign currencies are protected by
forward contracts. Assets and liabilities in foreign currencies are
translated at the appropriate forward contract rate or, if not covered,
at the exchange rate ruling at the balance sheet date. Differences on
revenue transactions are dealt with through the profit and loss
account.
Where practicable, the Group's overseas equity investments are hedged
by borrowings in the currencies in which those assets are denominated.
Differences arising on translation of overseas net assets less exchange
differences on borrowings which finance those net assets are dealt with
through reserves. The accounts of operations in countries where
hyper-inflationary conditions have existed, are prepared using a stable
currency before translation into sterling. The exchange rates used for
the currencies most important to the Group's operations are:
[Enlarge/Download Table]
[pound sterling]1 = DM [pound sterling]1 = FF [pound sterling]1 = US$
1996 average 2.36 8.02 1.57
1995 average 2.26 7.87 1.58
1996 year end 2.64 8.90 1.71
1995 year end 2.22 7.59 1.55
GOODWILL
Goodwill arising on consolidation, which consists of the excess of the
purchase price over the fair value of the net assets of subsidiaries
and associated companies at the date of acquisition, is deducted from
reserves.
GKN REPORT & ACCOUNTS 1996
59
NOTES ON THE ACCOUNTS
2 SALES
Sales shown in the profit and loss account exclude value added taxes
and, except in the case of long-term contracts, represent the invoiced
value of goods and services charged to external customers. On long-term
contracts, sales are based either on deliveries made or, in the case of
development and similar contracts, on the estimated sales value of work
done. The geographical markets supplied by subsidiaries and associated
companies are as follows:
[Enlarge/Download Table]
GEOGRAPHICAL MARKETS SUPPLIED
-----------------------------------------------------
UNITED CONTINENTAL REST OF
KINGDOM EUROPE AMERICA THE WORLD TOTAL
[pound sterling]m [pound sterling]m
SALES BY SUBSIDIARIES
By business
Automotive and
Agritechnical Products 319 1030 362 140 1851
Aerospace and Special Vehicles 408 81 110 362 961
Industrial Services 4 - 34 23 61
---- ---- ---- ---- ----
Total 1996 731 1111 506 525 2873
==== ==== ==== ==== ====
By region of origin
United Kingdom 692 145 107 360 1304
Continental Europe 39 966 33 38 1076
America - - 360 15 375
Rest of the world - - 6 112 118
---- ---- ---- ---- ----
Total 1996 731 1111 506 525 2873
==== ==== ==== ==== ====
Total 1995 742 1123 601 428 2894
==== ==== ==== ==== ====
SALES BY ASSOCIATED COMPANIES
Group share 1996 142 120 158 44 464
==== ==== ==== ==== ====
Group share 1995 133 100 125 53 411
==== ==== ==== ==== ====
Analyses of sales, operating profit and net operating assets of
subsidiaries and associated companies by business and by region of
origin are shown on page 74.
In the ordinary course of business, sales and purchases of goods and
services take place between subsidiary and associated companies priced
on an `arms-length basis'. These transactions are not significant
except for amounts charged by GKN Westland Helicopters Ltd to EH
Industries Ltd (jointly owned by the Group and Agusta SpA) of
[pound sterling]91.3 million (1995 - [pound sterling]86.0 million)
and, conversely, charges made by EH Industries Ltd to GKN Westland
Helicopters Ltd of [pound sterling]31.9 million (1995 - [pound
sterling]13.6 million) under the terms of contracts in connection with
the manufacture and sale of EH101 helicopters. To avoid duplication,
the Group's share of EH Industries Ltd sales is excluded from
associated company sales. There are no other related party transactions
requiring disclosure under FRS 8 (Related Party Disclosures).
60
NOTES ON THE ACCOUNTS
3 OPERATING PROFIT
[Enlarge/Download Table]
1996 1995
CONTINUING DISCONTINUED CONTINUING DISCONTINUED
OPERATIONS OPERATIONS OPERATIONS OPERATIONS
[pound sterling]m [pound sterling]m
Sales by subsidiaries 2862.6 10.4 2602.8 290.8
==================================================
Change in stocks of finished goods
and work in progress 34.8 -- 25.5 1.2
Raw materials and consumables (1048.7) (7.2) (931.7) (150.7)
Staff costs (note 9) (823.0) (1.5) (793.7) (69.7)
Redundancy and reorganisation costs (8.6) -- (4.6) (0.3)
Depreciation written off fixed assets
(including [pound sterling]7.8 million in
respect of assets under finance leases,
1995 -- [pound sterling]10.5 million) (86.8) (0.1) (80.5) (6.8)
Other external charges (939.7) (2.3) (581.0) (52.7)
----------------------------------------------------
(2872.0) (11.1) (2366.0) (279.0)
----------------------------------------------------
Operating (loss)/profit (9.4) (0.7) 236.8 11.8
====================================================
Other external charges include a provision of [pound sterling]270.0
million (1995 -- nil) in respect of Meineke litigation (see note 27),
rental for hire of equipment [pound sterling]16.8 million (1995 --
[pound sterling]20.5 million) and rental for leased property [pound
sterling]13.3 million (1995 -- [pound sterling]15.7 million). Auditors'
remuneration was [pound sterling]1.7 million (1995 -- [pound
sterling]1.7 million) and non-audit fees payable to Coopers & Lybrand
in the United Kingdom amounted to [pound sterling]0.3 million (1995 --
[pound sterling]0.7 million).
The results of businesses acquired during the year are not significant
and are shown within continuing operations.
Depreciation is not provided on freehold land. In the case of buildings
and computers, depreciation is provided on valuation or original cost.
For all other categories of asset, depreciation is provided on the
written down value at the beginning of the financial year. Except in
special cases, depreciation is not charged on fixed assets capitalised
during the year and available for use but a full year's depreciation is
charged on fixed assets sold or scrapped during the year.
Depreciation is applied to specific classes of asset by reference to
their useful lives. The range of main rates of depreciation used is:
[Download Table]
STRAIGHT REDUCING
LINE BALANCE
% %
Freehold buildings 2 --
General plant, machinery, fixtures, fittings and equipment -- 10 to 35
Computers and major software 20 to 33 1/3 --
Commercial vehicles and cars -- 40 to 45
Leasehold properties are amortised by equal annual instalments over the
period of the lease or 50 years whichever is the shorter.
Operating lease rentals are charged to the profit and loss account as
incurred over the lease term.
Costs of reorganisation and redundancy which are not part of a
fundamental restructuring are charged against operating profit in the
period when the announcement is made.
Revenue expenditure on research and development and the cost of
acquiring patents and know-how are written off as incurred. Research
and development costs totalled [pound sterling]226 million (1995 --
[pound sterling]192 million) after including [pound sterling]132
million of expenditure refunded by customers and other parties for
development work carried out on their behalf and capital expenditure of
[pound sterling]4 million.
GKN REPORT & ACCOUNTS 1996
61
NOTES ON THE ACCOUNTS
4 EXCEPTIONAL ITEMS
[Enlarge/Download Table]
1996 1995
CONTINUING DISCONTINUED CONTINUING DISCONTINUED
OPERATIONS OPERATIONS OPERATIONS OPERATIONS
[pound sterling]m [pound sterling]m
Profits ([pound sterling]4.2 million)
less losses ([pound sterling] 4.5 million)
on sale or closure of subsidiaries:
Sale of Axles businesses -- 0.7 -- 8.4
Sale of Parts Inc -- (1.1) -- (12.4)
Other 0.6 (0.5) (1.7) 0.1
--------------------------------------------------
0.6 (0.9) (1.7) (3.9)
==================================================
Exceptional items of subsidiaries include goodwill on businesses sold
or closed of [pound sterling] nil (1995 -- [pound sterling]26.0
million). Losses on sale or closure of subsidiary businesses include
closure costs of [pound sterling]3.2 million (1995 -- [pound
sterling]0.9 million).
Details of companies acquired and sold are given in the Review of
Operations on pages 13 to 39.
5 INTEREST RECEIVABLE/(PAYABLE)
[Download Table]
1996 1995
[pound sterling]m
Subsidiaries
Loans to associated companies 4.3 2.9
Short term investments, loans and deposits 51.3 38.1
---------------
55.6 41.0
Short term borrowings (5.7) (5.5)
(including bank interest[pound sterling]1.2 million,
1995 -- [pound sterling]0.3 million)
Loans repayable within five years (17.9) (9.3)
(including bank interest [pound sterling]0.7 million,
1995 -- [pound sterling]1.2 million)
Loans repayable after five years (4.4) (5.0)
Finance leases (3.0) (3.0)
---------------
24.6 18.2
===============
Share of associated companies
Interest receivable 1.5 1.4
Interest payable (13.3) (12.5)
---------------
(11.8) (11.1)
===============
6 TAXATION
[Download Table]
United Kingdom corporation tax at 33% after crediting
double taxation relief[pound sterling]28.1 million
(1995 -- [pound sterling]17.7 million) 55.3 54.6
Overseas taxation 70.2 70.4
Advance corporation tax (21.0) (23.4)
Deferred taxation 4.7 2.9
---------------
109.2 104.5
Adjustment to taxation of earlier years (6.8) (2.9)
---------------
102.4 101.6
Associated companies 20.7 18.8
---------------
123.1 120.4
===============
GKN REPORT & ACCOUNTS 1996
62
NOTES ON THE ACCOUNTS
7 DIVIDENDS
[Download Table]
1996 1995
[pound sterling]m
Interim (paid 18th October 1996) 9.6p per
[pound sterling]1 share on 351.8 million shares 33.8 30.5
(1995 -- 8.75p per [pound sterling]1 share on
348.3 million shares)
Second interim (payable 16th May 1997) 16.9p per
[pound sterling]1 share on 352.6 million shares 59.6 --
Final 1995 -- 15.25p per [pound sterling]1 share on
349.0 million shares -- 53.2
------------------
93.4 83.7
==================
8 EARNINGS PER SHARE
Earnings per share for 1996 are based on the loss of the year of [pound
sterling]42.0 million (1995 -- earnings [pound sterling]187.4 million)
and calculated on the weighted average number of 350.9 million shares
in issue and ranking for dividend (1995 -- 347.7 million). Earnings per
share before exceptional items, which the directors consider gives a
useful additional indication of underlying performance, are calculated
on the earnings of the year adjusted as follows:
[Enlarge/Download Table]
EARNINGS EARNINGS PER SHARE
1996 1995 1996 1995
[pound sterling]m [pound sterling]m
(Loss)/earnings of the year (42.0) 187.4 (12.0) 53.9
Meineke litigation charges included
in operating profit 270.0 -- 77.0 --
Profits less losses on sale or closure
of subsidiaries 0.3 5.6 0.1 1.6
Taxation attributable to exceptional items 0.4 6.2 0.1 1.8
----------------------------------------
Earnings before exceptional items 228.7 199.2 65.2 57.3
========================================
9 STAFF COSTS AND DIRECTORS' REMUNERATION
[Download Table]
1996 1995
[pound sterling]m
Wages and salaries 673.9 712.4
Social security costs 102.4 104.3
Other pension costs 48.2 46.7
-----------------
824.5 863.4
=================
The average numbers employed during the year were:
United Kingdom 14,010 15,824
Continental Europe 11,845 12,038
America 2,350 4,164
Rest of the world 1,310 835
-----------------
29,515 32,861
=================
An analysis of the number of employees at 31st December 1996 is shown
on page 40. The disclosures required by the Companies Act 1985 and the
London Stock Exchange in respect of directors' remuneration and their
share interests are contained in the Remuneration Committee Report on
pages 80 to 86.
GKN REPORT & ACCOUNTS 1996
63
NOTES ON THE ACCOUNTS
[Enlarge/Download Table]
10 TANGIBLE ASSETS OTHER CAPITAL
LAND AND TANGIBLE WORK IN
BUILDINGS FIXED ASSETS PROGRESS TOTAL
[pound sterling]m [pound sterling]m
COST OR VALUATION
At 1st January 1996 338.2 1157.9 21.4 1517.5
Currency variations (27.4) (111.9) (3.8) (143.1)
Subsidiaries acquired and sold 1.5 (0.4) 2.5 3.6
Capital expenditure 8.3 73.7 53.1 135.1
Transfers 1.0 22.9 (23.9) --
Disposals (0.7) (30.1) -- (30.8)
Property revaluation (25.2) -- -- (25.2)
-----------------------------------------------------------
At 31st December 1996 295.7 1112.1 49.3 1457.1
-----------------------------------------------------------
ACCUMULATED DEPRECIATION
At 1st January 1996 38.2 772.2 -- 810.4
Currency variations (3.6) (76.0) -- (79.6)
Subsidiaries acquired and sold (2.9) (2.7) -- (5.6)
Disposals (0.6) (24.4) -- (25.0)
Charge for the year 10.3 76.6 -- 86.9
Property revaluation (29.2) -- -- (29.2)
-----------------------------------------------------------
At 31st December 1996 12.2 745.7 -- 757.9
-----------------------------------------------------------
NET BOOK VALUE 283.5 366.4 49.3 699.2
===== ===== ==== =====
Owned assets 276.8 338.3 49.3 664.4
Assets under finance leases 6.7 28.1 -- 34.8
-----------------------------------------------------------
283.5 366.4 49.3 699.2
===========================================================
[Enlarge/Download Table]
COST OR ACCUMULATED
VALUATION DEPRECIATION NET BOOK VALUE
--------- ------------ ------------------------
1996 1995
[pound sterling]m [pound sterling]m
Analysis of land and buildings:
Freehold land 73.9 -- 73.9 67.8
Freehold buildings 202.7 (7.0) 195.7 215.6
Long leases 4.0 -- 4.0 3.8
Short leases (expiring on or
before 31st December 2046) 15.1 (5.2) 9.9 12.8
-----------------------------------------------------------
295.7 (12.2) 283.5 300.0
===========================================================
[Enlarge/Download Table]
Cost or valuation of land and buildings at 31st December 1996 includes: [pound sterling]m
1996 valuation 227.4
Earlier years' valuations 8.1
At cost or fair value on acquisition 60.2
-----
295.7
=====
Major freehold and long leasehold properties in the UK, USA, Germany
and France were valued at 31st December 1996 by DTZ Debenham Thorpe and
King Sturge & Co, chartered surveyors. Properties were valued, in
accordance with the Appraisal and Valuation Manual of the Royal
Institution of Chartered Surveyors, on the basis of open market value
and existing use value except for specialised properties which were
valued on a depreciated replacement cost basis.
The surplus arising on revaluation of [pound sterling]4.0 million has
been transferred to revaluation reserve. The original cost of land and
buildings at 31st December 1996 was [pound sterling]278.3 million; the
notional net book value on that basis would have been [pound
sterling]216.0 million.
Capital work in progress is expenditure on fixed assets in the course
of construction. Transfers are made to other fixed asset categories
when assets are available for use.
Where fixed assets are financed by leasing agreements which give rights
approximating to ownership, the assets are treated as if they have been
purchased and the capital element of the leasing commitments is shown
as obligations under finance leases. The rentals payable are
apportioned between interest, which is charged to the profit and loss
account, and capital which reduces the outstanding obligation.
GKN REPORT & ACCOUNTS 1996 64
NOTES ON THE ACCOUNTS
11 INVESTMENTS
[Download Table]
1996 1995
[pound sterling]m
Associated companies 162.5 163.9
Other investments at cost 0.2 0.2
Interest in own shares 5.4 --
Loans to associated companies 19.1 14.9
---------------------
187.2 179.0
=====================
The movement in the book value of investments is as follows:
At 1st January 1996 179.0 252.7
Profit retained by associated companies 9.9 3.7
Currency variations (14.4) 2.7
Additions 16.7 18.6
Disposals (1.3) (97.6)
Other movements (2.7) (1.1)
---------------------
At 31st December 1996 187.2 179.0
=====================
Associated companies, although not subsidiaries, are those in which the
Group has a long term interest and is able to exercise significant
influence through its representation on the board of directors.
Associated companies except for Chep USA are stated at the Group's
share of net tangible assets. The launch costs of Chep USA were
capitalised up to a total of US$85 million. These costs are being
amortised over ten years from September 1993. The Group's share of
unamortised costs at 31st December 1996 amounted to [pound
sterling]16.6 million (1995 -- [pound sterling]21.0 million). The
Group's 50% investment in Chep USA is held by a subsidiary which is
liable, with its partner, for the obligations of Chep USA.
The principal associated companies with the country of incorporation
and operation and Group percentage ownership at 31st December 1996, are
shown below.
[Enlarge/Download Table]
TOTAL ISSUED SHARES CAPITAL
EQUITY
MILLION HOLDING
%
ATH-Albarus Transmissoes Homocineticas Ltda Brazil R$20.3 49.0
Chep Europ BV Netherlands Fl19.7 50.0
Chep UK Ltd England [pound sterling]7.9 50.0
Chep USA (partnership capital) USA US$155.8 50.0
Cleanaway Holdings Ltd England [pound sterling]17.6 50.0
EH Industries Ltd England [pound sterling]0.5 50.0
Emitec Gesellschaft fur Emissionstechnologie mbH Germany DM20.0 49.1
Mabeg Holding GmbH Germany DM4.1 50.0
Mahindra Sintered Products Ltd India Rs22.6 49.0
Shanghai GKN Drive Shaft Company Ltd China [Yen]160.3 39.3
Transejes Transmisiones Homocineticas
de Colombia SA Colombia Ps13127.4 49.0
Transmisiones Homocineticas Argentinas SA Argentina -- 49.0
Unidrive Pty Ltd Australia A$5.0 30.0
Velcon S.A. de C.V. Mexico N$0.7 39.0
The Group also owns 50% of the total issued loan capital of Cleanaway
Holdings Ltd of [pound sterling]9.3 million.
Interest in own shares represents the cost, less amounts written off,
of 0.7 million shares acquired by the GKN Employee Benefit Trust in the
open market in connection with the GKN long-term incentive plans. At
31st December 1996 the shares, on which dividend and voting rights have
been waived, had a market value of [pound sterling]7.3 million.
65 GKN REPORT & ACCOUNTS 1996
NOTES ON THE ACCOUNTS
[Download Table]
12 STOCKS 1996 1995
[pound sterling]m
Raw materials and consumables 106.0 116.5
Work in progress 82.3 92.2
Long-term work in progress 66.1 55.6
Finished goods and goods for resale 73.9 140.9
-------------------
328.3 405.2
====================
Stocks, other than long-term work in progress, are valued at the lower
of cost and estimated net realisable value, due allowance being made
for obsolete or slow moving items. Cost includes the relevant
proportion of works overheads assuming normal levels of activity.
Long-term work in progress consists of net costs, after deducting
foreseeable losses, of [pound sterling]266.5 million (1995 -- [pound
sterling]287.6 million) less payments on account of [pound
sterling]200.4 million (1995 -- [pound sterling]232.0 million).
Payments received from customers are deducted from stock and work in
progress to the extent of the cost of the work carried out and any
excess is shown as customer advances. Profit on long-term contracts is
taken when sales are recognised based on estimated overall
profitability. On aerospace contracts where volumes are not
contractually fixed, net non-recurring initial costs consisting of
design, development and tooling, are amortised on a straight line basis
over five years from the date on which they are incurred subject to the
programme remaining in existence.
The replacement cost of stocks is not materially different from the
historical cost value.
[Download Table]
13 DEBTORS 1996 1995
[pound sterling]m
Due within one year:
Trade debtors 306.4 348.4
Amounts recoverable on contracts 8.1 8.4
Amounts owed by associated companies 29.4 16.9
Other debtors 17.6 26.3
Prepayments and accrued income 17.3 18.3
--------------------
378.8 418.3
Due in more than one year:
Advance corporation tax recoverable 15.9 --
Other debtors 34.3 35.7
--------------------
429.0 454.0
====================
14 INVESTMENT IN LIQUID RESOURCES
Bank loan notes maturing within one year
(unlisted) -- 100.0
====================
15 CASH AT BANK AND IN HAND
Bank balances and cash 168.8 114.2
Short term loans and deposits 689.3 491.0
--------------------
858.1 605.2
====================
As the result of the adoption of FRS 1 (Revised 1996), bank balances
and cash now includes bank deposits repayable on demand which were
previously included within short term loans and deposits.
GKN REPORT & ACCOUNTS 1996 66
NOTES ON THE ACCOUNTS
[Enlarge/Download Table]
16 SHORT TERM BORROWINGS 1996 1995
[pound sterling]m [pound sterling]m
Bank overdrafts 18.2 17.6
Short term loans 3.4 6.4
------------------------------
21.6 24.0
==============================
17 CREDITORS
Trade creditors 335.6 338.2
Bills payable 17.5 17.0
Customer advances 194.6 241.3
Amounts owed to associated companies 5.1 3.8
Indirect and payroll taxes 28.6 34.3
Obligations under finance leases (note 20) 7.4 6.9
Other creditors 134.2 145.7
Accruals 112.0 112.8
------------------------------
835.0 900.0
==============================
18 TAXATION PAYABLE
United Kingdom taxation:
advance corporation tax 18.7 16.6
other 28.3 30.1
Overseas taxation 22.2 28.1
------------------------------
69.2 74.8
==============================
19 TERM LOANS
Repayable in:
one to two years 15.3 2.9
two to three years 201.9 14.2
three to four years 16.3 101.7
four to five years 0.6 19.0
after five years 33.8 33.8
------------------------------
267.9 171.6
==============================
[Enlarge/Download Table]
FIXED VARIABLE 1996 FIXED VARIABLE 1995
RATE RATE TOTAL RATE RATE TOTAL
[POUND [POUND [POUND [POUND [POUND [POUND
STERLING]M STERLING]M STERLING]M STERLING]M STERLING]M STERLING]M
Sterling 6.5 242.5 249.0 6.7 143.6 150.3
Deutsche marks -- 15.2 15.2 0.5 18.0 18.5
US dollars 0.6 -- 0.6 0.8 -- 0.8
Other currencies 1.6 1.5 3.1 1.4 0.6 2.0
------------------------------------------------------------------------------
8.7 259.2 267.9 9.4 162.2 171.6
==============================================================================
Loans repayable within twelve months have been classified as short term
borrowings. In accordance with FRS 4, term loans include redeemable
preference shares issued by subsidiaries of [pound sterling]213.0
million (1995 -- [pound sterling]113.5 million) including [pound
sterling]200 million (1995 -- [pound sterling]100 million) issued
under the Foreign Income Dividend (FID) legislation.
The weighted average interest rate at 31st December 1996 on fixed rate
loans was 11.2% (1995 -- 10.1%) and on variable rate loans 6.4%
(1995 -- 6.1%).
Secured term loans of [pound sterling]33.5 million (1995 -- [pound
sterling]32.5 million) include [pound sterling]30 million debenture
stocks of Westland Group plc which are secured by a floating charge on
the undertaking and assets of that company and certain of its
subsidiaries and guaranteed by GKN plc.
67 GKN REPORT & ACCOUNTS 1996
NOTES ON THE ACCOUNTS
20 OBLIGATIONS UNDER FINANCE LEASES
The capital element of the future minimum lease payments to which the
Group is committed under finance leases is as follows:
[Download Table]
1996 1995
[pound [pound
sterling]m sterling]m
within one year 7.4 6.9
one to two years 7.8 7.2
two to five years 20.2 21.7
after five years 4.9 9.5
---------------------
40.3 45.3
Obligations payable within one year (7.4) (6.9)
---------------------
Obligations payable after one year 32.9 38.4
=====================
21 PROVISIONS FOR LIABILITIES AND CHARGES
Deferred taxation 7.0 2.6
Meineke litigation (see note 27) 270.0 --
Post-retirement and other provisions 173.1 188.1
---------------------
450.1 190.7
=====================
[Download Table]
POST-
RETIREMENT
DEFERRED MEINEKE AND OTHER
TAXATION LITIGATION PROVISIONS
[pound [pound [pound
sterling]m sterling]m sterling]m
At 1st January 1996 2.6 -- 188.1
Charge for the year 4.7 270.0 21.6
Currency variations (0.7) -- (26.7)
Subsidiaries acquired and sold 0.4 -- 1.3
Paid during the year -- -- (11.2)
----------------------------------
At 31st December 1996 7.0 270.0 173.1
==================================
Provision is made for deferred taxation to the extent that there is a
reasonable probability that such tax will become payable in the
foreseeable future. For United Kingdom subsidiaries the provision is
calculated at 33% less losses available for set-off against profits and
advance corporation tax recoverable.
The potential full deferred taxation liability arising on fixed asset
and other timing differences was [pound sterling]57.1 million (1995 --
[pound sterling]70.0 million). No provision is made for any additional
taxation which might arise on remittance of retained profits of
overseas subsidiaries and associated companies except where
distributions of such profits are planned. The 1996 credit to profits
for deferred taxation on a full liability basis would have been [pound
sterling]6.8 million (1995 -- charge [pound sterling]15.9 million).
The tax value of losses available for set-off against future profits
amounted to [pound sterling]7.0 million (1995 -- [pound sterling]2.9
million). In addition, advance corporation tax carried forward amounted
to [pound sterling]74.1 million (1995 -- [pound sterling]99.9
million).
Post-retirement and other provisions include provisions relating to
pension benefits of [pound sterling]152.2 million (1995 -- [pound
sterling]165.4 million) and provisions for other post-retirement
benefits of [pound sterling]16.5 million (1995 -- [pound sterling]17.3
million).
GKN REPORT & ACCOUNTS 1996 68
NOTES ON THE ACCOUNTS
[Download Table]
22 SHARE CAPITAL 1996 1995
[POUND [POUND
STERLING]M STERLING]M
Ordinary shares of [pound sterling]1 each
Authorised 450.0 450.0
====================
Allotted, called up and fully paid
At 1st January 1996 349.0 346.7
Scrip issues in lieu of dividends 1.0 0.8
Employee share option schemes 2.6 1.5
--------------------
At 31st December 1996 352.6 349.0
====================
The options held by Group employees over GKN plc shares as follows:
[Download Table]
UK AND OVERSEAS
SAYE SCHEME EXECUTIVE SCHEMES
At 1st January 1996 8,011,305 4,545,659
Granted 1,912,495 52,186
Exercised (886,648) (1,770,696)
Lapsed (681,793) (78,200)
------------------------------
At 31st December 1996 8,355,359 2,748,949
==============================
Option price per share 206p - 820p 211p - 968p
Exercisable at dates extending to 2004 2006
The options granted in 1996 under the GKN SAYE scheme are at 820p per
share exercisable between 1999 and 2004. Under the GKN executive
schemes options were granted over 52,186 shares at 968p per share
exercisable between 2001 and 2006.
The consideration received on the exercise of options in 1996 was
[pound sterling]9,443,950.
[Enlarge/Download Table]
23 RESERVES SHARE PROFIT
PREMIUM REVALUATION OTHER AND LOSS
ACCOUNT RESERVE RESERVES ACCOUNT TOTAL
[POUND [POUND [POUND [POUND [POUND
GROUP STERLING]M STERLING]M STERLING]M STERLING]M STERLING]M
At 1st January 1996 273.8 56.9 (212.0) 458.5 577.2
Transfer (to)/from profit and loss account -- -- -- (135.4) (135.4)
Currency variations:
overseas net assets -- (3.3) 10.2 (79.5) (72.6)
foreign currency borrowings -- -- -- 34.4 34.4
Net premium on share issues 5.7 -- -- 9.2 14.9
Subsidiaries and associated companies
acquired and sold -- -- (48.5) -- (48.5)
Property revaluation -- 4.0 -- -- 4.0
Transfers between reserves -- 3.6 1.6 (5.2) --
Other movements -- -- -- (1.4) (1.4)
---------------------------------------------------------------------
At 31st December 1996 279.5 61.2 (248.7) 280.6 372.6
=====================================================================
Parent company and subsidiaries 279.5 61.2 230.5 247.6 818.8
Associated companies -- -- 12.5 33.0 45.5
Goodwill arising on consolidation -- -- (491.7) -- (491.7)
---------------------------------------------------------------------
279.5 61.2 (248.7) 280.6 372.6
=====================================================================
PARENT COMPANY
At 1st January 1996 273.8 -- 203.4 95.9 573.1
Transfer from profit and loss account -- -- -- 140.9 140.9
Net premium on share issues 5.7 -- -- 9.2 14.9
---------------------------------------------------------------------
At 31st December 1996 279.5 -- 203.4 246.0 728.9
=====================================================================
69 GKN REPORT & ACCOUNTS 1996
NOTES ON THE ACCOUNTS
24 ACQUISITIONS
The acquisitions made by the Group during the year were as
follows:
[Enlarge/Download Table]
ADDITIONAL GROUP
DIRECT SHAREHOLDING AT
DATE SHAREHOLDING 31ST DECEMBER 1996
% %
SUBSIDIARIES
Italcardano Universal Giunti SpA (Italy) December 80 80*
GKN Automotive Polska Sp. z o.o. (Poland) August 100 100
GKN Ayra Durex, SA (Spain) June 34 99.4
GKN Transmisiones Espana, SA (Spain) June 34 100
ASSOCIATED COMPANIES
Mabeg Holding GmbH (Germany) December 50 50
Chep (Malaysia) Sdn Bhd (Malaysia) December 50 50
Chep (Singapore) Pte Ltd (Singapore) December 50 50
Shanghai GKN Drive Shaft Company Ltd (China) November 15 40*
Jilin GKN Norinco Drive Shaft Company Ltd (China) August 50 50
Hanwha GKN Driveshafts Ltd (South Korea) July 49 49
*held through GKN Automotive AG in which the Group has a 98.2%
interest.
The total consideration payable for subsidiary acquisitions was
[pound sterling]71.2 million and the book and fair value of net
assets acquired, which are analysed in note B to the cash flow
statement, was [pound sterling]42.8 million. Goodwill on
subsidiary acquisitions totalled [pound sterling]28.4 million.
The consideration payable for associated company investments of
[pound sterling]23.7 million compares with the fair value of net
assets acquired of [pound sterling]3.6 million giving rise to
goodwill of [pound sterling]20.1 million. The fair value of net
assets was calculated after applying a reduction to book values
of [pound sterling]2.1 million to align the accounting policies
of companies acquired with those of the Group.
25 POST-RETIREMENT BENEFITS
The Group's pension arrangements comprise various defined benefit
and defined contribution schemes throughout the world.
In the UK, pension arrangements are made through externally
funded defined benefit schemes. Independent actuarial valuations
of all schemes have been carried out using the projected unit
method. The Westland staff scheme was valued as at April 1994;
all other schemes were valued as at April 1996.
The main assumptions were that the long term yield on scheme
assets was 8.5% -- 9% and that this would exceed the annual rate
of increases in pensionable salaries by 1.75% -- 2.5%, in UK
equity dividends by 4.25% -- 4.5% and in pensions by 4.5% --
4.75%. The aggregate market value of the assets at the valuation
dates was [pound sterling]1,439 million and the aggregate funding
level on an on-going basis was 102%. For those schemes not in
surplus, the aggregate current funding level deficiency was
[pound sterling]33 million. Company contributions in the year
totalled [pound sterling]27.2 million (1995 -- [pound
sterling]38.0 million) compared with the regular cost in
accordance with the application of SSAP 24 of [pound
sterling]24.6 million (1995 -- [pound sterling]23.7 million). The
total charge to operating profit was [pound sterling]26.2 million
(1995 -- [pound sterling]24.9 million). A cumulative prepayment
of [pound sterling]31.5 million is included in other debtors
(1995 -- [pound sterling]30.5 million).
GKN REPORT & ACCOUNTS 1996 -70-
NOTES ON THE ACCOUNTS
note 25 continued
As stated in note 21, in certain overseas companies funds are
retained within the business to provide for retirement
obligations. The annual charge to provide for these obligations,
which is determined in accordance with actuarial advice or local
statutory requirements, amounted to [pound sterling]19.8 million
(1995 -- [pound sterling]19.2 million).
The Group operates a number of retirement plans which provide
certain employees with post-retirement healthcare benefits. The
liability for providing these benefits is recognised on an
actuarial basis and included in post-retirement and other
provisions disclosed in note 21. The principal actuarial
assumptions for the main plan as at December 1994, the date of
the last review, were that the discount rate would be 9% per
annum and that medical costs would initially increase by 9% per
annum falling to 6% over 10 years.
26 COMMITMENTS AND CONTINGENT LIABILITIES
CAPITAL EXPENDITURE
Contracts placed against capital expenditure sanctioned at 31st
December 1996 so far as not provided for in these accounts
amounted to [pound sterling]56.6 million (1995 -- [pound
sterling]31.9 million).
CONTINGENT LIABILITIES
At 31st December 1996 the Group had contingent liabilities in
respect of bank and other guarantees amounting to [pound
sterling]0.3 million (1995 -- [pound sterling]0.7 million). In
the case of certain companies engaged in long-term contracts,
performance bonds and customer financing obligations have also
been entered into in the normal course of business.
OPERATING LEASES
The minimum payments which the Group is committed to make in 1997
under operating leases are as follows:
[Enlarge/Download Table]
1996 1995
LAND AND LAND AND
BUILDINGS EQUIPMENT BUILDINGS EQUIPMENT
Leases which expire: [pound sterling]M [pound sterling]M [pound sterling]m [pound sterling]m
----------------- ----------------- ----------------- -----------------
within one year 1.2 3.1 2.0 3.0
two to five years 4.8 7.1 6.0 11.1
after five years 6.4 0.4 10.8 0.4
--------------------------------------------------------------------------
12.4 10.6 18.8 14.5
==========================================================================
-71- GKN REPORT & ACCOUNTS 1996
NOTES ON THE ACCOUNTS
27 POST BALANCE SHEET EVENT
On 6th March 1997 the US District Court, Charlotte, North
Carolina issued judgement in the class action brought by certain
of its franchisees against Meineke Discount Muffler Shops Inc
(`Meineke') together with its subsidiary New Horizons Inc, its
immediate parent company GKN Parts Industries Corporation and GKN
plc alleging breach of contract and fiduciary duty in relation to
an advertising fund operated by Meineke. The value of the
judgement was US$591 million plus interest of US$10 million
accruing since the jury verdict issued on 18th December 1996.
This will be reduced by not less than 34% being the value of
releases of their claims given by certain members of the
plaintiff class, the validity of which has been confirmed by the
court.
As part of the post judgement procedures further submissions will
be made on legal issues which are expected to be resolved by the
end of April 1997. At that point the way will be clear to take
the case to the US Court of Appeals. Given that GKN is advised
that it has very strong substantive and procedural grounds for
doing so, it will appeal as soon as possible. It is expected that
the appeal will take about 18 months to resolve.
Notwithstanding the intention to appeal, in the interests of
prudence, a provision of [pound sterling]270 million, based on
the judgement less the effect of the releases, has been made as
an exceptional charge within operating profit in the 1996
accounts. This figure includes interest and legal costs likely to
accrue pending the outcome of the appeal but, at this stage, no
tax relief has been assumed.
Having made this provision, the Directors are of the opinion that
the outcome of the case will not have a material adverse impact
on the Group.
GKN REPORT & ACCOUNTS 1996 -72-
--------------------------------------------------------------------------------
[LOGO]
BALANCE SHEET OF GKN PLC
--------------------------------------------------------------------------------
[Enlarge/Download Table]
AT 31ST DECEMBER 1996 1996 1995
Notes [POUND STERLING]M [POUND STERLING]M [pound sterling]m [pound sterling]m
FIXED ASSETS
Investments in subsidiaries at cost
or valuation less amounts written off* 375.4 868.1
--------------------------------------------------------------------------
CURRENT ASSETS
Amounts owed by subsidiaries 766.2 304.2
Debtors -- advance corporation tax recoverable 14.9 -
Debtors -- other - 0.1
Cash at bank and in hand 6.4 1.7
-------------------------------------------------------------------------
787.5 306.0
-------------------------------------------------------------------------
CREDITORS: amounts falling due within one year
Bank loans and overdrafts (0.8) (3.3)
Amounts owed to subsidiaries - (177.2)
Creditors and accruals (1.4) (1.4)
Taxation -- advance corporation tax (18.9) (15.9)
Dividend payable (59.6) (53.2)
-------------------------------------------------------------------------
(80.7) (251.0)
-------------------------------------------------------------------------
NET CURRENT ASSETS 706.8 55.0
-------------------------------------------------------------------------
TOTAL ASSETS LESS CURRENT LIABILITIES 1082.2 923.1
CREDITORS: amounts falling due beyond one year
Term loans -- unsecured loan stock 1999 (0.7) (1.0)
-------------------------------------------------------------------------
NET ASSETS 1081.5 922.1
=========================================================================
CAPITAL AND RESERVES
Called up share capital 22 352.6 349.0
Share premium account 23 279.5 273.8
Other reserves 23 203.4 203.4
Profit and loss account 23 246.0 95.9
-------------------------------------------------------------------------
EQUITY INTEREST 1081.5 922.1
=========================================================================
*The decrease in investments in subsidiaries in 1996 represents the transfer of
the Group shareholding in Westland Group plc to GKN (United Kingdom) plc.
The balance sheet was approved by the Board of Directors on 10th March 1997 and
was signed by:
DAVID LEES
DAVID J TURNER
Directors
As permitted by the Companies Act 1985 a separate profit and loss account for
the parent company has not been presented.
Information on the principal divisions, subsidiaries and associated companies is
shown on pages 90 and 91.
-73- GKN REPORT & ACCOUNTS 1996
--------------------------------------------------------------------------------
[LOGO]
SEGMENTAL ANALYSIS
--------------------------------------------------------------------------------
[Enlarge/Download Table]
OPERATING NET OPERATING
SALES PROFIT ASSETS
1996 1995 1996 1995 1996 1995
[pound sterling]m [pound sterling]m [pound sterling]m
-------- -------- -------- -------- -------- --------
SUBSIDIARIES AND ASSOCIATED COMPANIES
BY BUSINESS
Automotive and Agritechnical Products 2002 1953 188 181 750 743
Aerospace and Special Vehicles 961 749 85 65 (42) (46)
Industrial Services 363 312 78 63 293 260
---------------------------------------------------------------
Continuing operations 3326 3014 351 309 1001 957
Exceptional litigation provision -- -- (270) -- -- --
Discontinued operations 11 291 (1) 12 -- 45
---------------------------------------------------------------
Group total 3337 3305 80 321 1001 1002
===============================================================
Subsidiaries 2873 2894 (10) 249 613 673
Associated companies 464 411 90 72 388 329
---------------------------------------------------------------
Group total 3337 3305 80 321 1001 1002
===============================================================
BY REGION OF ORIGIN
United Kingdom 1440 1201 130 100 197 150
Continental Europe 1206 1177 153 146 523 521
America 518 467 45 40 206 220
Rest of the world 162 169 23 23 75 66
---------------------------------------------------------------
Continuing operations 3326 3014 351 309 1001 957
===============================================================
ASSOCIATED COMPANIES
BY BUSINESS
Automotive and Agritechnical Products 151 148 27 28 110 85
Industrial Services 313 263 63 44 278 244
---------------------------------------------------------------
Continuing operations 464 411 90 72 388 329
===============================================================
BY REGION OF ORIGIN
United Kingdom 136 125 30 24 113 101
Overseas 328 286 60 48 275 228
---------------------------------------------------------------
Continuing operations 464 411 90 72 388 329
===============================================================
Notes:
(1) The analyses of operating profit by business and region of
origin include an allocation of costs incurred in the United
Kingdom.
(2) Intra-group sales between businesses and regions are not
significant.
(3) Net operating assets represent tangible fixed assets, stocks and
debtors (excluding ACT recoverable) less creditors (excluding
leases), taxation and dividends payable. Net operating assets of
associated companies comprise the Group's share and exclude net
borrowings and net non-operating liabilities amounting to [pound
sterling]225.2 million (1995 -- [pound sterling]165.1 million).
GKN REPORT & ACCOUNTS 1996 74
--------------------------------------------------------------------------------
[LOGO]
GROUP FIVE YEAR FINANCIAL RECORD
--------------------------------------------------------------------------------
[Enlarge/Download Table]
1996 1995 1994 1993 1992
[pound sterling]m [pound sterling]m
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
Subsidiaries 2873 2894 2470 2022 1994
Share of associated companies 464 411 620 617 532
-----------------------------------------------------------
SALES 3337 3305 3090 2639 2526
===========================================================
Subsidiaries 260 249 183 107 126
Share of associated companies 90 72 55 36 32
-----------------------------------------------------------
OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS 350 321 238 143 158
Interest receivable/(payable):
subsidiaries 25 18 (9) (25) (23)
associated companies (12) (11) (7) (9) (8)
-----------------------------------------------------------
PROFIT BEFORE EXCEPTIONAL ITEMS AND TAXATION 363 328 222 109 127
Exceptional profits/(losses):
subsidiaries* (270) (6) (25) (1) (4)
associated companies -- -- 3 (10) (1)
-----------------------------------------------------------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 93 322 200 98 122
Taxation (123) (120) (87) (4) (57)
Minority interests (12) (15) (21) (18) (17)
-----------------------------------------------------------
(LOSS)/EARNINGS OF THE YEAR (42) 187 92 39 48
Dividends (93) (83) (74) (52) (50)
-----------------------------------------------------------
Transfer (from)/to reserves (135) 104 18 (13) (2)
===========================================================
(LOSS)/EARNINGS PER SHARE (12.0)p 53.9p 28.3p 14.3p 18.1p
EARNINGS PER SHARE BEFORE EXCEPTIONAL ITEMS 65.2p 57.3p 37.4p 18.2p 20.1p
DIVIDEND PER SHARE 26.5p 24.0p 21.5p 20.5p 20.5p
[Enlarge/Download Table]
1996 1995 1994 1993 1992
[pound sterling]m [pound sterling]m
CONSOLIDATED BALANCE SHEETS
Tangible fixed assets 699 707 692 676 698
Stocks 328 405 348 265 307
Debtors less creditors (excluding leases) (414) (439) (434) (227) (98)
-----------------------------------------------------------
NET OPERATING ASSETS 613 673 606 714 907
Net funds/(borrowings) 528 464 316 (16) (163)
Fixed asset investments 187 179 253 321 305
Taxation and dividend payable (113) (128) (126) (59) (76)
Provisions for liabilities and charges* (450) (190) (174) (149) (148)
-----------------------------------------------------------
NET ASSETS EMPLOYED 765 998 875 811 825
===========================================================
Equity interest 725 926 800 654 665
Minority interests 40 72 75 157 160
-----------------------------------------------------------
765 998 875 811 825
============================================================
*Includes a provision in 1996 of [pound sterling]270.0 million in respect of
Meineke litigation.
75 GKN REPORT & ACCOUNTS 1996
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[LOGO]
REPORT BY THE AUDITORS TO GKN PLC
ON CORPORATE GOVERNANCE MATTERS
--------------------------------------------------------------------------------
In addition to our audit of the accounts, we have reviewed the Directors'
statements on pages 78 and 52 concerning the Company's compliance with the
paragraphs of the Cadbury Code of Best Practice specified for our review by the
London Stock Exchange and their adoption of the going concern basis in preparing
the accounts. The objective of our review is to draw attention to non-compliance
with Listing Rules 12.43(j) and 12.43(v).
BASIS OF OPINION
We carried out our review in accordance with guidance issued by the Auditing
Practices Board. That guidance does not require us to perform the additional
work necessary to, and we do not, express any opinion on the effectiveness of
either the Group's system of internal financial control or its corporate
governance procedures. The Directors asked us to carry out additional work,
beyond our normal audit work, on their statement on going concern to enable us
to issue the opinion below.
OPINION
With respect to the Directors' statements on internal financial control on page
79 (other than their opinion on effectiveness which is outside the scope of our
report) and going concern on page 52, in our opinion the Directors have provided
the disclosures required by the Listing Rules referred to above and such
statements are not inconsistent with the information of which we are aware from
our audit work on the accounts. In addition, it is our opinion that the
Directors' statement on going concern has been made with due care.
Based on enquiry of certain Directors and officers of the Company, and
examination of relevant documents, in our opinion the Directors' statement on
page 78 appropriately reflects the Company's compliance with the other aspects
of the Code specified for our review by Listing Rule 12.43(j).
COOPERS & LYBRAND
Chartered Accountants
Birmingham 10th March 1997
GKN REPORT & ACCOUNTS 1996 76
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[LOGO]
DIRECTORS' REPORT
--------------------------------------------------------------------------------
BUSINESS The principal businesses of the Group are described in the Review
REVIEW of Operations on pages 13 to 39. A review of the development of
those businesses in 1996 in both operational and financial terms is
given on pages 13 to 39 and in the Financial Review on pages 47 to
52. Events affecting the Group since 31st December 1996 are referred
to in the Chairman's Statement on pages 4 to 7 and in the Review of
Operations and Financial Review. Likely future developments in the
Group's businesses are referred to in the Chairman's Statement.
AGM The notice of the annual general meeting, to be held on 15th May
1997, is on pages 87 and 88.
DIVIDEND The Directors have declared a second interim dividend, in lieu of a
final dividend, of 16.9p per [pound sterling]1 ordinary share for
the year ended 31st December 1996 payable on 16th May 1997 to
shareholders on the register at the close of business on 21st March
1997. This, together with the interim dividend of 9.6p paid in
October 1996, brings the total dividend for the year to 26.5p (1995
-- 24.0p) per share.
SCRIP The Directors intend to offer a scrip dividend alternative for the
DIVIDEND second interim dividend for the year ended 31st December 1996.
Details of the proposed arrangements will be posted to shareholders
on 11th April 1997.
SHARE During 1996, the issued ordinary share capital of the Company was
CAPITAL increased by the issue of 977,502 shares in lieu of cash dividends
and 2,657,344 shares on the exercise of options under save as you
earn and executive share option schemes. The issued ordinary share
capital at the end of the year was 352,632,724 shares of [pound
sterling]1 each.
ALLOTMENT The Directors consider it advisable that they continue to have the
OF SHARES power for a maximum period of fifteen months:
(a) to make appropriate arrangements for the allotment of equity
securities in respect of fractional entitlements arising on the
issue of such securities pro rata to existing shareholders, and to
deal suitably with allotments in cases where it is impracticable or
impossible to make pro rata allotment to holders of shares with
registered addresses outside the UK; and
(b) to make allotments of equity securities for cash otherwise than
to existing shareholders in proportion to their existing holdings up
to a maximum aggregate nominal value not exceeding [pound
sterling]17,631,636, being 5% of the issued share capital of the
Company at 31st December 1996 and approximately the same percentage
at 10th March 1997;
and for this purpose a resolution will be proposed at the annual
general meeting as set out in item 8 of the notice of meeting.
Notwithstanding the power sought in (b) above, it is not the
Directors' intention, without prior consultation with the Investment
Protection Committees, to exceed the limits set down in the
pre-emption guidelines issued by the London Stock Exchange. These
currently limit the aggregate nominal value of non pre-emptive share
issues for cash to 7.5% of the issued share capital in any
three-year rolling period.
77 GKN REPORT & ACCOUNTS 1996
PURCHASE OF At the annual general meeting in May 1996 the Company was
OWN SHARES authorized, in accordance with the articles of association and
within institutional shareholder guidelines, to purchase its own
shares. No such purchases have been made. The authority expires
at the conclusion of the forthcoming annual general meeting and
the Directors consider it advisable that it be renewed for a
further year. Accordingly, the resolution set out in item 9 of
the notice of meeting will be proposed at the annual general
meeting. It seeks authority to make market purchases of up to
35,263,272 GKN ordinary shares (being 10% of the issued share
capital at 31st December 1996) and specifies the maximum and
minimum prices for the shares. The Directors have no present
intention to exercise such authority and would do so only after
taking account of the overall financial position of the Company,
and in circumstances where so doing would not only be in the best
interests of shareholders but would also result in an increase in
earnings per share.
DIRECTORS The constitution of the Board, including biographical notes on
the Directors, is shown on page 10, and of the Board Committees
on page 12.
Sir David Lees, Chairman, Mr B D Insch, Human Resources Director,
and Sir Bryan Nicholson, non-executive Director, retire from the
Board by rotation at the annual general meeting and, being
eligible, offer themselves for re-election (items 2, 3 and 4
respectively of the notice of meeting).
Mr C K Chow was appointed to the Board as Chief Executive
designate on 1st July 1996. He succeeded Sir David Lees as Chief
Executive on 1st January 1997. The Baroness Hogg joined the Board
as a non-executive Director on 4th November 1996. In accordance
with the articles of association, Mr Chow and The Baroness Hogg
retire from the Board at the annual general meeting and, being
eligible, offer themselves for re-election (items 5 and 6
respectively of the notice of meeting).
Details of the executive Directors' service agreements are given
on page 86. Sir David Lees, Sir Bryan Nicholson and The Baroness
Hogg do not have service agreements.
Sir Peter Cazalet retired from the Board as non-executive Deputy
Chairman on 31st December 1996. The Directors wish to record
their appreciation of the substantial contribution that Sir Peter
made to GKN during his eight years as Deputy Chairman.
The Directors record their great pleasure at the award of the
Officer's Cross of the Order of Merit of the Federal Republic of
Germany to Sir David Lees, and at the award of the CBE to Mr T C
Bonner in the 1996 Queen's Birthday Honours.
The death in July 1996 of Sir David Nicolson, a non-executive
Director from 1984 to 1989, is sadly recorded.
Directors' interests in the shares of the Company are shown on
pages 84 to 86.
LIFE Lord Brookes, who was Chairman of the Company from 1965 until
PRESIDENT 1974, is Life President.
HONOURS Mr R I Case, GKN Westland Helicopters, was awarded the Cavalier
dell'Ordine al Merito della Repubblica Italiana by the President
of the Republic of Italy. Mr R J Gladwell, GKN Westland Inc, was
awarded the OBE in the 1997 New Year Honours.
CORPORATE GKN has complied throughout 1996, and remains in compliance, with
GOVERNANCE the Code of Best Practice published by the Cadbury Committee on
the Financial Aspects of Corporate Governance. The Directors'
statement that the Company is a going concern appears in the
Financial Review on page 52. The auditors' report on the
Company's compliance with the Code is on page 76.
GKN REPORT & ACCOUNTS 1996 78
Internal GKN's statement of Aims and Values includes a commitment to
financial manage the Group with integrity. As part of this commitment, the
control Directors acknowledge overall responsibility for and place a high
........... degree of importance on the Group's system of internal financial
control. The Board has reviewed the Group's system of internal
financial control during the period covered by this report and
believes that it is effective. Any system, however, can only
provide reasonable and not absolute assurance against material
misstatement or loss.
The Group has clear lines of delegated management authority and
accountability.
The Board considers the Group's strategic plan annually and,
within the framework of the plan, approves an annual budget and
medium term projections. Statements of actual operational
performance compared with budget are reviewed monthly and
forecasts for the current year are updated regularly.
There are clearly defined levels of authority for the approval of
capital expenditure, major contracts, acquisitions, investments
and divestments, with an established framework for their
appraisal and review.
The Board has approved operating policies and controls for the
Group's treasury activities and receives regular reports thereon.
The Group has a programme for identifying material business risks
against which its internal financial control system is reviewed.
In addition its insurance and risk management programmes are
reviewed annually by the Board.
The Group has an internal audit department whose head reports to
the Chief Executive of the Company. It has an annually agreed
programme which is approved by the Audit Committee. The Audit
Committee receives regular reports on the progress and results of
the work of the internal audit department. The Committee also has
independent access to the external auditors.
PAYMENTS TO Operating businesses are responsible for agreeing the terms and
SUPPLIERS conditions under which business transactions with their suppliers
are conducted when they enter into binding purchase contracts. It
is Group policy to abide by the payment terms agreed with
suppliers, provided that the supplier has performed its
obligations under the contract. Given the nature and diversity of
the Group's purchasing arrangements, it is not Group policy to
follow any code or standard in relation to payment practice.
OTHER In addition to the donations made for charitable purposes (see
INFORMATION page 44), donations of [pound sterling]25,200 were made to the
Conservative Party in 1996.
At 10th March 1997 the Company had been notified that Scottish
Widows Fund and Life Assurance Society held a 4.4% interest in
the issued voting capital of the Company.
The Company is not, and has not been, a close company within the
meaning of the Income and Corporation Taxes Act 1988.
AUDITORS A resolution to re-appoint Coopers & Lybrand as Auditors of the
Company and to authorize the Directors to fix their remuneration
will be proposed at the annual general meeting (item 7 of the
notice of meeting).
On behalf of the Board
G DENHAM
Secretary 10th March 1997
79 DIRECTORS REPORT
-----------------------------------------------------------------
[GKN LOGO]
REMUNERATION COMMITTEE REPORT ON
DIRECTORS' REMUNERATION
-----------------------------------------------------------------
The remuneration of the executive Directors is set by the
Remuneration Committee of the Board which consists solely of the
non-executive Directors of the Company whose biographical details
are given on page 10. Sir Peter Cazalet, who retired from the
Board as Deputy Chairman on 31st December 1996, chaired the
Committee throughout 1996. He has been succeeded by Sir Bryan
Nicholson.
The Committee determines the detailed terms of service of the
executive Directors, including basic salary, incentives and
benefits, and the terms upon which their service is terminated.
It receives advice from a leading independent firm of
compensation and benefit consultants.
The Committee supports the principles of the Code of Best
Practice published by the Study Group on Directors' Remuneration
chaired by Sir Richard Greenbury. The Listing Rules of the London
Stock Exchange have applied these principles to listed companies.
With regard to the relevant best practice provisions annexed to
the Listing Rules, the Committee confirms that GKN complies with
the provisions in relation to remuneration committees and that it
has given full consideration to the provisions in framing the
remuneration policy for executive Directors.
GENERAL GKN's remuneration policy for executive Directors is designed to
POLICY attract, retain and motivate executives of the high calibre
required to ensure that the Group is managed successfully to the
benefit of shareholders. To achieve this the Company must provide
an internationally competitive package of incentives and rewards
linked to performance. In setting remuneration levels the
Remuneration Committee takes into consideration the remuneration
practices found in other international companies of similar size
and scope. The Remuneration Committee also ensures that the
remuneration arrangements for executive Directors are compatible
with those for employees throughout the GKN Group.
EXECUTIVE The remuneration of the executive Directors comprises basic
DIRECTORS' salary, annual performance-related bonus and benefits in kind,
REMUNERATION together with longer-term rewards including pension benefits and
long-term incentives. These are discussed in more detail in the
following paragraphs. Should the maximum level of performance
under GKN's incentive schemes be achieved, the remuneration
policy provides for an executive Director to receive
approximately one-half of total earnings through basic salary
with the remainder by way of performance-related awards (the
latter payable broadly one-third under the annual bonus scheme
and two-thirds through long-term incentive arrangements).
Basic salary This is based on a number of factors including market rates
........... together with the individual Director's experience,
responsibilities and performance. Individual salaries of
Directors are reviewed annually by the Remuneration Committee and
adjusted in accordance with the principles set out above.
GKN REPORT & ACCOUNTS 1996 80
Performance- The Remuneration Committee considers that properly designed and
related bonus controlled annual bonus schemes are effective and relevant to
............ GKN's future success. Bonus payments to executive Directors are
dependent upon achievement of defined financial targets relating
to the performance of the Group over the year and, from 1997,
will also include an element contingent on the achievement of
personal targets related to growth. The targets are set by the
Remuneration Committee at the beginning of the year. The
Committee has absolute discretion to alter the targets to reflect
changed circumstances such as material changes in accounting
standards or changes in the structure of the Group. Bonus
payments are based upon a percentage of year-end basic salary and
do not form part of pensionable earnings under any of the
Directors' pension arrangements currently in place.
In 1996 the annual bonus scheme had two elements. The first was
related to the achievement of cash targets as at the end of June,
September and December and a maximum of 10% of salary was payable
on achievement of all three cash targets. The second element was
based on the level of profit before tax and exceptional items
achieved relative to that set in the 1996 Group budget.
Achievement of the 1996 Group budget would have yielded a bonus
of 15% of salary, rising on a sliding scale to a maximum of 35%
if profit before tax and exceptional items reached a
predetermined level. The total amount payable under both elements
is capped at 35% of salary.
The table below shows the bonus, as a percentage of salary,
payable to the Directors. The bonus is divided between the profit
and cash target related elements.
[Download Table]
1996 1995
% %
Bonus payable (% of salary)
- profit related 24.0 32.0
- cash target related 10.0 10.0
-----------------
Total payable before operation of cap 34.0 42.0
-----------------
Total payable (capped at 35%) 34.0 35.0
-----------------
Benefits These comprise principally car benefits and membership of the
in kind Group's healthcare insurance scheme. The level of benefits
........... provided to executive Directors is consistent with that provided
by other major companies. These benefits do not form part of
pensionable earnings under GKN's executive pension scheme.
NON-EXECUTIVE The remuneration received by each of the non-executive Directors
DIRECTORS' is determined by the Board of Directors as a whole. The fees paid
REMUNERATION to each non-executive Director are set at a level which will
attract individuals with the necessary experience and ability to
make a substantial contribution to the Company's affairs. For
1996 this was [pound sterling] 20,000 per annum. The remuneration
of Sir Peter Cazalet in respect of his additional
responsibilities for acting as non-executive Deputy Chairman was
set on a similar basis.
The non-executive Directors do not participate in the Group's
annual bonus scheme, pension schemes or long-term incentive
arrangements nor do they receive benefits in kind. Their
appointment letter envisages their serving as Directors for an
initial fixed period of five years with the possibility of one
extension for up to a further three years.
81 REMUNERATION COMMITTEE REPORT
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TOTAL The remuneration of the Directors for 1996, excluding pension
REMUNERATION benefits and long-term incentives, was as follows:
[Enlarge/Download Table]
SALARY/ BONUS BENEFITS TOTAL TOTAL
FEES 1996 1995
[pound sterling] [pound sterling] [pound sterling] [pound sterling] [pound sterling]
000 000 000 000 000
Executive Directors
Sir David Lees 350 119 15 484 520
C K Chow(a) 215 150(b) 209(c) 574(d) --
M Beresford 197 70 13 280(d) 273
T C Bonner 270 95 15 380 361
D J Wright(e) 197 70 12 279(d) 215
B D Insch 172 59 9 240 231
D J Turner 231 81 8 320(d) 306
A W Jones(f) -- -- -- -- 64
Non-executive Directors
Sir Peter Cazalet 60(g) -- -- 60 60
R D Brown(h) 20 -- -- 20 --
The Baroness Hogg(i) 3 -- -- 3 --
Dr K H Murmann(j) 20 -- -- 20 13
Sir Bryan Nicholson 20 -- -- 20 20
Dr T J Parker 20 -- -- 20 20
H J Davies(k) -- -- -- -- 15
-------------------------------------------------------------------------------
1,775 644 281 2,700 2,098
-------------------------------------------------------------------------------
NOTES (a) From 1st July 1996.
(b) Represents the bonus for 1996 agreed with Mr Chow upon his
accepting the position of Chief Executive designate.
(c) Includes a one-off payment of [pound sterling]200,000 made to
Mr Chow upon his accepting the position of Chief Executive
designate to augment his existing pension arrangements.
(d) Payments of supplementary allowances to certain executive
Directors in 1996, to assist them in securing retirement benefits
comparable to those that would have been available to them under
the Group's executive pension scheme had it not been for the
earnings cap, are included in the money purchase contributions
and allowances paid in lieu of pension disclosed below under
`Pensions'. The allowances paid to Mr Beresford -- [pound
sterling]15,000 (1995 -- [pound sterling]14,000), Mr Chow --
[pound sterling]75,000 (1995 -- nil), Mr Turner -- [pound
sterling]24,000 (1995 -- [pound sterling]24,000) and Mr Wright --
[pound sterling]13,000 (1995 -- [pound sterling]8,000) have
therefore been excluded from the total remuneration shown in the
table above. However, these allowances are part of the Directors'
total emoluments for the purpose of disclosure under the
Companies Act 1985.
(e) From 1st April 1995.
(f) To 31st March 1995.
(g) Includes [pound sterling]40,000 remuneration received in
respect of additional responsibilities for acting as Deputy
Chairman.
(h) From 1st January 1996.
(i) From 4th November 1996.
(j) From 1st May 1995.
(k) To 31st August 1995.
GKN REPORT & ACCOUNTS 1996 82
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Mr A Daly ceased to be a Director on 31st December 1994. He
remained an employee of the Company, however, on secondment to
the CBI as Chairman of the National Manufacturing Council until
he reached his normal retirement date on 31st December 1996.
Throughout 1996 he continued to be a member of the Group's
executive pension scheme and received a salary of [pound
sterling]225,000.
PENSIONS Executive Directors are eligible to join the GKN Group Executive
and Senior Staff Pension Scheme (the `Executive Scheme'). Sir
David Lees, Mr T C Bonner, Mr D J Wright and Mr B D Insch are
members of the Executive Scheme with the benefit for Mr Wright
being restricted by the earnings cap introduced by the Finance
Act 1989. Sir David Lees retired on pension at the end of 1996.
In accordance with the rules in force when these Directors joined
the Executive Scheme, no member contributions are required. Mr C
K Chow, Mr M Beresford and Mr D J Turner are subject to the
restrictions of the Finance Act 1989 and are members of the
Executive Scheme for death in service benefits only. In their
case, and for part of the benefit for Mr Wright, retirement
provision is secured by the Company by a combination of amounts
paid to individual `money-purchase' schemes and supplementary
allowances paid to each Director in order to assist them in
securing overall benefits comparable to those that would have
been available under the Executive Scheme had it not been for the
operation of the earnings cap.
The Executive Scheme provides Directors with a pension of up to
two-thirds of basic annual salary on retirement at age 60 after
20 or more years' service and proportionately less for shorter
service or for retirement before pension age. On early retirement
with company agreement within 5 years of pension age the current
discretionary practice in the case of all members, and subject to
the consent of the Remuneration Committee in the case of
Directors, is to pay a pension equal to the proportion of the
prospective pension accrued for service completed. The Executive
Scheme provides for a surviving spouse's pension of two-thirds of
the member's pension and for increases in pensions and deferred
pensions equal to price inflation up to 5% per annum. Any
additional pension increases are at the discretion of the Board.
No allowance is made for discretionary benefits when calculating
individual transfer values available to members who leave the
Executive Scheme.
The table below (left) shows, for those Directors whose pension
arrangements are either wholly or partly covered by the Executive
Scheme, the increase during the year in the accrued pension to
which each Director would have been entitled on leaving service,
over and above any general increase in the previous year's
accrued pension to compensate for inflation to which early
leavers were entitled. For those Directors for whom benefit
payments are made into money purchase schemes, the table below
(right) shows the amount paid as contributions and allowances to
help secure benefits comparable to those that would have been
available under the Executive Scheme.
[Download Table]
INCREASE IN
ANNUAL PENSION
1996 1995
[pound sterling]0000 [pound sterling]000
Sir David Lees 10 20
T C Bonner 10 13
D J Wright 3 2
B D Insch 5 5
[Download Table]
MONEY PURCHASE CONTRIBUTIONS
AND ALLOWANCES IN LIEU
OF PENSION
1996 1995
[pound sterling]000 [pound sterling]000
C K Chow 90 -
M Beresford 75 70
D J Wright 44 32
D J Turner 106 101
For the purpose of disclosure under the Companies Act 1985,
pension contributions made on behalf of the executive Directors
in 1996 amounted to [pound sterling]539,000 (1995 -- [pound
sterling]507,000) including [pound sterling]142,000 (1995 --
[pound sterling]138,000) in respect of the Chairman. Pension
payments in connection with former Directors amounted to [pound
sterling]4,000 (1995 -- [pound sterling]4,000).
83 REMUNERATION COMMITTEE REPORT
-----------------------------------------------------------------
LONG-TERM The Remuneration Committee considers that long-term incentives
INCENTIVE which closely link executive rewards to the return to
ARRANGEMENTS shareholders on their investment are an important component in
the overall executive remuneration arrangements. In 1996,
following shareholders' approval, long-term incentive plans were
introduced in the UK and in other countries to replace the
existing executive share option schemes. Senior executives in the
UK, including the executive Directors, participate in The GKN
Long Term Incentive Plan (`the Plan').
In summary, under the Plan each executive Director may be awarded
annually a conditional right to acquire a number of shares equal
in value to a maximum of 75% of his annual basic salary and
calculated by reference to the average of the daily closing
prices of GKN shares during the preceding year. The number of
these shares that he will ultimately receive will depend on the
Group's performance during the following three years. This will
be measured by comparing the Total Shareholder Return (growth in
share value assuming reinvestment of gross dividends) from GKN
shares with the return from shares in the other companies
constituting the FTSE 100 Index at the start of the measurement
period. If GKN ranks 25th or above in this comparator group the
executive Director will receive all of the shares conditionally
awarded to him. If the ranking is below 65th he will receive no
shares. For intermediate positions, he will receive a
proportionate number of shares which will reduce (from 100%) by
two percentage points with each position below 25th. Irrespective
of GKN's Total Shareholder Return, before any shares become
eligible for release the Remuneration Committee must be satisfied
that this is justified by the underlying financial performance of
the Group over the measurement period. The appropriate number of
shares, which will be determined after three years, will not be
released to the Director for at least a further two years other
than in the specific circumstances set out in the rules of the
Plan.
The following awards of conditional rights to shares were made to
the executive Directors under the Plan during 1996 (the
measurement period for which commenced on 1st January 1996) and
were held by them at 31st December 1996:
[Download Table]
NO. OF SHARES
C K Chow 46,600
M Beresford 20,600
T C Bonner 28,200
D J Wright 20,600
B D Insch 18,200
D J Turner 24,400
Share options Executive share option schemes: The only grants made under these
........... schemes during 1996 were to Mr D J Wright and Mr D J Turner in
respect of entitlements agreed with each of them at the time they
joined the GKN Board. Following the introduction of the long-term
incentive plans, no further grants will be made under these
schemes. The schemes provided for annual grants of options to
senior executives, including executive Directors, throughout the
Group of up to a maximum of four times an individual's
emoluments. Executives received their grants over a two to four
year period after becoming eligible, and further grants were only
made to reflect promotion and/or salary progression. Options are
normally exerciseable between the third and tenth anniversary of
the date of grant (between the fifth and tenth anniversary for
options granted in 1995 and 1996). The exercise price was fixed
at the market price of GKN's shares at the time the option was
granted. The outstanding options held by Directors are
exerciseable by the year 2006 at prices between 383.4p and 968p
per share.
Save as you earn (SAYE) schemes: Outstanding options held by
Directors under these schemes, which are open to all UK employees
with six months' service or more, are exerciseable by the year
2002 at prices between 260.5p and 820p per share. Participants
save a regular monthly sum of up to [pound sterling]250 for three
or five years and can use these savings and any bonus payable
GKN REPORT & ACCOUNTS 1996 84
under the scheme to exercise the options. As permitted by the Finance Act 1989
the exercise price is normally set at 20% below the market price before the
start of the savings period.
Options over GKN plc shares held by executive Directors under the executive and
SAYE share option schemes at 31st December 1995 and 31st December 1996 were as
follows:
[Download Table]
1995 GRANTED EXERCISED 1996 WEIGHTED
------------------ ----------------- AVERAGE
EXECUTIVE SAYE EXECUTIVE SAYE PRICE (a)
Sir David Lees 238,491 -- -- 157,858 -- 80,633 421.5p
C K Chow -- -- -- -- -- -- --
M Beresford 137,114 -- -- 51,247 -- 85,867 592.1p
T C Bonner 219,658 -- -- 152,668 -- 66,990 588.2p
D J Wright 110,717 18,483 2,103 51,251 -- 80,052 656.8p
B D Insch 136,149 -- 925 82,003 -- 55,071 576.1p
D J Turner 98,422 33,703 -- -- -- 132,125 694.2p
(a) Weighted average exercise price per share of options held at 31st December
1996. The closing mid-market price of GKN shares on the London Stock Exchange on
31st December 1996 was 1001p and the price range during the year was 780p to
1172.5p.
Options were granted during the year under the UK Executive Share Option Scheme
at an exercise price of 968p per share and under the SAYE share option scheme at
820p per share. No options lapsed during the year.
Options exercised under the executive and SAYE share option schemes during 1996
were as follows:
[Download Table]
EXERCISE PRICE ON SHARES
NO. OF DATE OF PRICE DATE OF RETAINED
SHARES GRANT PER SHARE EXERCISE (a) ON EXERCISE
Sir David Lees 103,532 17.8.88 315.1p 910p 25,000
54,326 6.4.92 331.7p 910p
M Beresford 51,247 7.4.93 444.9p 971p 10,000
T C Bonner 33,764 24.8.87 372.7p 979p
53,303 17.8.88 315.1p 979p 12,500
32,801 4.4.90 383.4p 979p
32,800 6.4.92 331.7p 979p
D J Wright 51,251 6.4.92 331.7p 910p 32,786
B D Insch 46,128 17.8.88 315.1p 910p
12,300 4.4.90 383.4p 910p 5,000
23,575 6.4.92 331.7p 910p
(a) The closing mid-market price per share on day of exercise.
SHARE INTERESTS
The beneficial interests of the Directors, including family interests, in the
shares of GKN plc at the relevant dates were as follows:
[Download Table]
GKN ORDINARY SHARES GKN ORDINARY SHARES
1996 1995 1996 1995
Sir David Lees 73,912 47,053 Sir Peter Cazalet 2,505 2,505
C K Chow 2,000 -- R D Brown 1,009 --
M Beresford 11,363 1,239 The Baroness Hogg -- --
T C Bonner 31,772 25,633 Dr K H Murmann 5,032 --
D J Wright 24,488 9,131 Sir Bryan Nicholson 2,169 2,116
B D Insch 25,975 25,721 Dr T J Parker 1,324 1,291
D J Turner 1,000 1,000
REMUNERATION COMMITTEE REPORT
85
The executive Directors (other than Sir David Lees), as potential beneficiaries,
are deemed to have an interest in the ordinary shares of GKN plc held by the
discretionary trust established to facilitate the operation of The GKN Long Term
Incentive Plan. At 31st December 1996 the trust held 728,150 shares (1995 --
nil).
There were no changes in the Directors' interests in shares or options between
31st December 1996 and 10th March 1997.
The Company's Register of Directors' Interests, which contains full details of
the Directors' shareholdings and options to subscribe for shares in GKN plc, is
available for inspection by shareholders upon request.
SERVICE AGREEMENTS
From 1st October 1996 the period of notice required to be given by the Company
to terminate the service agreements of the executive Directors (other than Mr C
K Chow) has been two years. Mr Chow's service agreement is initially for a
period of three years but may be terminated upon two years' notice to expire at
any time on or after 30th June 1999. All the agreements terminate in any event
at the end of the year in which the Director attains the age of 60. The
non-executive Directors do not have service agreements with the Company.
The Remuneration Committee has given careful consideration to the Greenbury Code
which suggests that notice periods should not generally exceed one year. Notice
periods need to reflect market practice not only for executives at Board level
but also for those executives immediately below. GKN has a large number of
senior executives below Board level whose service agreements entitle them to one
or more years' notice of termination.
Having reduced the period of notice in the executive Directors' service
agreements from three years to two, the Committee considers that a further
reduction to one year at this time would not be in the interests of
shareholders. The issue will continue to be kept under review as practice
develops.
EXTERNAL APPOINTMENTS
The Remuneration Committee recognises the benefit which GKN can obtain if
executive Directors of GKN serve as non-executive Directors of other companies.
Subject to review in each case, the Remuneration Committee's general policy is
that each executive Director may accept one non-executive directorship with
another company from which the Director may retain the fees.
SIR BRYAN NICHOLSON
Chairman of the Remuneration Committee 10th March 1997
GKN REPORT & ACCOUNTS 1996
86
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[LOGO]
NOTICE OF MEETING
--------------------------------------------------------------------------------
Notice is hereby given that the annual general meeting of GKN plc will be held
in the Westbourne Suite, Lower Ground Floor of the Royal Lancaster Hotel,
Lancaster Terrace, London W2 on Thursday the 15th day of May 1997 at 11.30 a.m.
for the purpose of dealing with the following business of which item 9 is
special business:
1 To approve and adopt the report of the Directors and the audited statement
of accounts for the year ended 31st December 1996.
2 To re-elect as a Director Sir David Lees.
3 To re-elect as a Director Mr B D Insch.
4 To re-elect as a Director Sir Bryan Nicholson.
5 To re-elect as a Director Mr C K Chow.
6 To re-elect as a Director The Baroness Hogg.
7 To re-appoint Coopers & Lybrand as Auditors and to authorise the Directors
to fix their remuneration.
8 To consider and, if thought fit, pass the following resolution as a Special
Resolution:
That, in substitution for any existing authority conferred upon them, where
the Directors of the Company are generally and unconditionally authorised
for the purposes of Section 80 of the Companies Act 1985 (the `Act') to
allot relevant securities (within the meaning of Section 80(2) of the Act)
they be and are hereby authorised to allot equity securities (within the
meaning of Section 94 of the Act) as if Section 89(1) of the Act did not
apply to any such allotment provided that this authority shall be limited
to:
(i) the allotment of equity securities where such securities have been or are
to be offered (whether by way of rights issue, open offer or otherwise) to
holders of equity securities in proportion (as nearly as practicable) to
the respective numbers of equity securities held by them but subject to
such exclusions or other arrangements as the Directors of the Company may
consider appropriate, necessary or expedient to deal with legal, practical
or regulatory problems in respect of overseas shareholders, fractional
entitlements or otherwise; and
(ii) the allotment (otherwise than pursuant to sub-paragraph (i) of this
Resolution) of equity securities having an aggregate nominal value of up to
[pound sterling]17,631,636;
and shall expire fifteen months from the date of the passing of this
Resolution (unless previously renewed, varied or revoked by the Company in
general meeting) save that the Directors of the Company may before such
expiry make any offer, agreement or other arrangement which would or might
require equity securities to be allotted after such expiry and the
Directors of the Company may allot equity securities pursuant to any such
offer, agreement or other arrangement as if the authority conferred hereby
had not expired.
GKN REPORT & ACCOUNTS 1996
87
9 To consider and, if thought fit, pass the following resolution as a
Special Resolution:
That, subject to and in accordance with the provisions of Article 6(b) of
the Company's Articles of Association and the Companies Act 1985 (the
`Act'), the Company is hereby generally and unconditionally authorised to
make market purchases (within the meaning of Section 163(3) of the Act) of
ordinary shares of [pound sterling]1 each in the capital of the Company
(`ordinary shares') provided that:
(i) the maximum aggregate number of ordinary shares hereby authorised to be
purchased is 35,263,272;
(ii) the maximum price which may be paid for an ordinary share purchased
pursuant to this authority is an amount equal to 105% of the average of
the middle market quotations of the Company's ordinary shares as derived
from the London Stock Exchange Daily Official List for the five business
days immediately preceding the day on which that share is purchased and
the minimum price which may be paid is [pound sterling]1 per ordinary
share (in each case exclusive of expenses and advance corporation tax (if
any) payable by the Company); and
(iii) the authority hereby conferred shall (unless renewed prior to such date)
expire at the conclusion of the next annual general meeting of the Company
or on 15th May 1998, whichever is earlier, provided that the Company may
make a purchase of any ordinary shares after the expiry of this authority
if the contract for purchase was entered into before such expiry.
By order of the Board
G DENHAM
Secretary 27th March 1997
Notes
An explanation of the business of the meeting is given in the Directors'
Report on pages 77 to 79.
A shareholder entitled to attend and vote at the meeting may appoint one
or more proxies to attend and, on a poll, to vote in his place. A proxy
need not be a shareholder. Shareholders will receive with this annual
report a form of proxy containing notes on completion and use. To be
effective the form of proxy must reach the Company's Registrar not less
than 48 hours before the time of the meeting.
Registered Office: PO Box 55, Ipsley House, Ipsley Church Lane, Redditch,
Worcestershire B98 0TL
Registered in England No. 66549
GKN REPORT & ACCOUNTS 1996
88
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[GKN LOGO]
SHAREHOLDER INFORMATION
--------------------------------------------------------------------------------
SHAREHOLDERS
Analysis of holdings of ordinary shares at 31st December 1996
[Download Table]
SHAREHOLDERS SHARES
HOLDINGS NUMBER % NUMBER (000) %
1-500 20,830 47.7 5,473 1.6
501-1,000 11,437 26.2 8,305 2.4
1,001-5,000 9,802 22.4 18,310 5.2
5,001-50,000 1,066 2.4 16,958 4.8
50,001-100,000 163 0.4 11,690 3.3
100,001-500,000 269 0.7 62,129 17.6
500,001-1,000,000 66 0.1 46,850 13.3
Above 1,000,000 67 0.1 182,918 51.8
-------------------------------------------
43,700 100.0 352,633 100.0
===========================================
LOW COST SHARE DEALING SERVICE
A service designed to enable investors to buy and sell GKN shares, by
post, at competitive dealing rates is provided by Cazenove & Co. Dealing
forms containing detailed terms and conditions can be obtained from GKN's
Group Headquarters (see inside back cover).
PROSHARE NOMINEE CODE
GKN supports the principles of the ProShare Nominee Code which is designed
to reassure investors about the safety of their shares held in nominee
accounts and to enable such investors to receive company information if
they so wish. ProShare can be contacted at Library Chambers, 13-14
Basinghall Street, London EC2V 5BQ (telephone 0171 600 0984).
SHARE PRICE INFORMATION
The latest GKN share price is available on the Financial Times Cityline
Service: telephone 0891 432696 (calls charged at 50p per minute).
Taxation: For capital gains tax purposes the market values of GKN shares
at 6th April 1965 and 31st March 1982, adjusted to take account of
subsequent rights and capitalisation issues, are 232.35p and 209.74p
respectively.
UNSOLICITED MAIL
GKN is obliged by law to make its share register publicly available and as
a consequence some shareholders may have received unsolicited mail. If you
wish to limit the amount of such mail you should write to the Mailing
Preference Service, FREEPOST 22, London W1E 7EZ.
GKN REPORT & ACCOUNTS 1996
89
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PRINCIPAL DIVISIONS, SUBSIDIARIES
AND ASSOCIATED COMPANIES
At 31st December 1996 the principal divisions, subsidiaries and
associated companies were as follows:
-----------------------------------------------------------------
AUTOMOTIVE AND AGRITECHNICAL PRODUCTS
[Enlarge/Download Table]
Automotive Driveline Division GKN Automotive Ltd
GKN Automotive International GmbH Germany
GKN Automotive AG (98.2%) Germany
Constant velocity products GKN Hardy Spicer Ltd
GKN Automotive Umformtechnik GmbH Germany
Lohr & Bromkamp GmbH (94.5%) Germany*
GKN Gelenkwellenwerk Kiel GmbH Germany*
GKN Gelenkwellenwerk Mosel GmbH Germany*
GKN Walterscheid Presswerk GmbH Germany*
GKN Glaenzer Spicer SA France*
GKN Ayra Durex, SA Spain+
GKN Indugasa, SA Spain
GKN Transmisiones Espana, SA Spain
GKN Forjas de Precision de Legazpia, SA Spain+
GKN Birfickl SpA Italy*
GKN Componenti Firenze SpA Italy*
GKN Automotive Polska Sp. z o.o. Poland
GKN Automotive, Inc USA
GKN Invel Transmissions Ltd (51%) India*
Propeller shafts GKN Driveshafts Ltd
GKN Gelenkwellenbau GmbH Germany*
GKN Glaenzer Cardan SA France*
GKN Ayra Cardan, SA Spain+
GKN Nordiska Kardan AB Sweden*
Italcardano Universal Giunti SpA (80%) Italy*
Viscous control units GKN Viscodrive GmbH Germany*
Viscodrive Japan KK (51%) Japan*
Associated companies ATH-Albarus Transmissoes Homocineticas Ltda (49%) Brazil
Asian Driveshaft Sendirian Berhad (42.1%) Malaysia*
Hanwha GKN Driveshafts Ltd (49%) South Korea
Jilin GKN Norinco Drive Shaft Company Ltd (50%) China
Shanghai GKN Drive Shaft Company Ltd (40%) China*
Taiway Ltd (20%) Taiwan
Transejes Transmisiones Homocineticas de Colombia SA (49%) Colombia
Transmisiones Homocineticas Argentinas SA (49%) Argentina
Unidrive Pty Ltd (30%) Australia
Unior-Atras d.o.o. (46.5%) Slovenia*
Univel Transmissions (Pty) Ltd (40%) South Africa
Velcon S.A. de C.V. (39%) Mexico
Emitec Gesellschaft fur Emissionstechnologie mbH (50%) Germany*
Emitec Inc (50%) USA*
Hindustan Hardy Spicer Ltd (26%) India*
Other companies GKN Technology Ltd and product and
process development centres in Germany and USA
GKN Japan Ltd Japan
Export and representation companies in UK and Brazil
Service Division Companies in UK, Continental Europe and USA
Agritechnical Products GKN Walterscheid GmbH Germany*
Division GKN Walterscheid Getriebe GmbH Germany*
Walterscheid Rohrverbindungstechnik GmbH Germany*
GKN Walterscheid France SARL France*
GKN Walterscheid, Inc USA*
GKN Walterscheid Canada Inc Canada*
Matsui-Walterscheid Ltd (40%) Japan*
Sankey Division Engineering Products
Industrial Products
GKN Wheels
GKN Wheels Nagbol A/S Denmark
GKN REPORT & ACCOUNTS 1996
90
[Enlarge/Download Table]
Cylinder Liners GKN Sheepbridge Stokes Ltd
Powder Metallurgy GKN Bound Brook Ltd
Division GKN Bound Brook SpA Italy
Mahindra Sintered Products Ltd (49%) India
AEROSPACE AND SPECIAL VEHICLES
Westland Helicopters GKN Westland Helicopters Ltd
Division GKN Westland Industrial Products Ltd
GKN Westland do Brasil Comercio E Representacoes Ltda Brazil
EH Industries Ltd (50%)
Aerosystems International Ltd (50%)
Westland Aerospace GKN Westland Aerospace Ltd
Division GKN Westland Design Services Ltd
GKN Westland Engineering Ltd
FPT Industries Ltd
Marex Technology Ltd
Westland System Assessment Ltd
Westland Technologies GKN Westland Technologies Ltd
Division Hermetic Aircraft International Corp USA
Normalair-Garrett Ltd (52%)
Normalair-Garrett Pty Ltd (52%) Australia
Normalair-Garrett Manufacturing Pty Ltd (52%) Australia
Westland-SITEC GmbH Germany
Defence Division GKN Defence Ltd
Glover Webb Ltd
Asian Armoured Vehicle Technologies Corporation (20%) Philippines
Other companies GKN Westland Ltd
GKN Westland, Inc USA
INDUSTRIAL SERVICES
GKN-Brambles Joint Ventures Chep UK Ltd (50%)
Chep Europ BV (50%) Netherlands and operations in Austria,
Belgium, France, Germany, Spain, Portugal and Italy
Chep USA (50%) USA
Chep Canada Inc (50%) Canada
Chep Mexico S.A. de C.V. (50%) Mexico
Chep (Malaysia) Sdn Bhd (50%) Malaysia
Chep (Singapore) Pte Ltd (50%) Singapore
Cleanaway Holdings Ltd (50%)
Leto Holding BV (50%) Netherlands
Mabeg Holding GmbH (50%) Germany
Chep South Africa GKN Chep SA (Pty) Ltd South Africa and operations in Namibia and Zimbabwe
Meineke Meineke Discount Muffler Shops, Inc USA
CORPORATE GKN (United Kingdom) plc
GKN Industries Ltd
Ipsley Insurance Ltd Isle of Man
--------------------------------------------------------------------------------
The issued share capitals of the 118 companies
which at 31st December 1996 comprised the GKN
Group are held indirectly by GKN plc through
intermediate holding companies which are
registered or incorporated in England,
Netherlands, USA and Germany. Certain
intermediate holding companies do not prepare
consolidated accounts.
The percentage of the share capital held by GKN
is indicated where companies are not wholly
owned. All of the Group's shares in those
companies suffixed `*' are owned, directly or
indirectly, by GKN Automotive AG in which the
Group's shareholding is 98.2%. Certain of the
Group's Spanish subsidiaries, suffixed `+', are
partially owned by GKN Automotive AG giving an
effective Group ownership of 99.4% in each of
those companies.
The country of incorporation or registration
and the principal country in which each company
operates is England unless otherwise shown.
Intra-group sales are priced on an
`arms-length' basis.
Of the Group subsidiary sales of [pound
sterling]2,873 million, 66% related to
subsidiaries whose accounts are audited by
Coopers & Lybrand, auditors of the parent
company.
GKN REPORT & ACCOUNTS 1996
91
SUBJECT INDEX
Accounting policies 59
Acquisitions 20, 21, 23, 36, 39, 48, 70
Aerospace 26, 31
Agritechnical products 18, 23-24
Annual general meeting 87-88
Associated companies 48-49, 65, 90-91
Auditors
-- remuneration 61, 79
-- Report on corporate governance 76
-- Report on financial statements 53
Automotive driveline 16, 18-21, 23
Balance sheets 55, 73
Board and its Committees 12
Capital expenditure 51, 71
Cash flow 51, 57-58
Chairman's statement 4-7
Chep 34-37, 39
Cleanaway 39
Commitments and
contingent liabilities 71
Community involvement 44
Corporate governance 78-79
Corporate profile 2
Creditors 67
Debtors 66
Directors 8-10
-- biographies 10
-- changes to the Board 7, 78
-- interests 84-86
-- remuneration 80-86
-- Report 77-79
-- responsibility for the accounts 53
-- service agreements 86
Dividend 6, 50, 63, 77
-- scrip alternative 77
Earnings per share 50, 63
Employees 6, 40, 63
Engineering products 24
Environment 42
Exceptional items 47, 50, 62
Exchange rates 47
Financial
-- calendar 46
-- five year record 75
-- highlights 2
-- Review 47-52
Foreign currencies 59
Going concern 52
Health and safety 40
Helicopters 26, 28, 31
Interest receivable/payable 50, 62
Internal financial control 79
Investments 65
Loan notes 46
Long-term incentive plans 84
Markets
-- agritechnical 23-24
-- car and light vehicle 18, 20
-- commercial vehicle 23
Meineke 6, 39, 47, 50, 72
Operating profit 49, 61
Organisational structure 11
People and the community 40-44
Pensions and other post-retirement
benefits 70-71, 83
Post balance sheet event 72
Powder metallurgy 24
Principal divisions, subsidiaries and associated companies 90-91
Profit and loss account 54
Provisions for liabilities and charges 68
Recognised gains and losses 56
Remuneration Committee Report 80-86
Reserves 69
Review of operations 13-39
-- Automotive and
agritechnical products 16-25
-- Aerospace and special vehicles 26-33
-- Industrial services 34-39
Sales 14, 48-49, 60
Segmental analysis 14, 74
Shareholder analysis 89
Shareholders' equity 52, 56
Share option schemes 44, 69, 84-85
Shares
-- allotment 77
-- dealing service 89
-- issued capital 69, 77
-- price information 89
-- purchase by the Company 78
Special vehicles 26-28
Stocks 66
Subsidiary companies 90-91
Tangible assets 64
Taxation 50, 62, 67
Term loans 67
Training and development 42-44
Treasury policy and funding 51
GKN REPORT & ACCOUNTS 1996
92
The flags appearing on the cover of this annual report represent some of the
many countries around the world in which GKN has an operational presence. The
countries are (from top left to right):
United Kingdom
Argentina
Australia
Austria
Belgium
Brazil
Canada
Chile
China (People's Republic of)
Colombia
Denmark
Finland
France
Germany
India
Ireland
Italy
Japan
Kuwait
Malaysia
Mexico
Namibia
Netherlands
Norway
Oman
Philippines
Poland
Portugal
Slovenia
South Africa
South Korea
Spain
Sweden
Switzerland
Thailand
United States of America
GKN plc
GROUP HEADQUARTERS
PO Box 55
Redditch
Worcestershire B98 0TL
Telephone 01527 517715
Fax 01527 517700
LONDON OFFICE
7 Cleveland Row
London
SW1A 1DB
Telephone 0171 930 2424
Fax 0171 930 3255
REGISTRAR
LLOYDS BANK REGISTRARS
The Causeway
Worthing
West Sussex BN99 6DA
Telephone 01903 502541
Fax 01903 833012
The woodpulps used to make the paper and cover board for this annual report are
all sourced from managed forests and bleached using processes which are either
elemental or totally chlorine free.
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