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GKN Holdings PLC - Annual Financial Report

GKN Holdings PLC - Annual Financial Report

PR Newswire

GKN Holdings plc

2017 Annual Report

GKN Holdings plc LEI: 213800WS7P9FYSAIJ240

This announcement is made in connection with GKN Holdings plc's 6.75% Bonds due 2019, 5.375% Bonds due 2022 and 3.375% Bonds due 2032. The shares of GKN Holdings plc (the 'Company') are not listed.

The Company has today published its 2017 Annual Report on the GKN plc website. The document can be viewed at or downloaded from http://www.gkn.com/en/investors/results-centre/annual-reports/annual-reports-archive/.

A copy of the 2017 Annual Report has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM.

In compliance with DTR 6.3.5, a description of the Company's principal risks and uncertainties and a responsibility statement are set out below. A condensed set of financial statements are also appended, which have been extracted from the full set of financial statements that have been prepared on a going concern basis in accordance with International Financial Reporting Standards (IFRS) as endorsed and adopted for use by the European Union. These condensed financial statements should be read in conjunction with the full audited financial statements of GKN Holdings plc for the year ended 31 December 2017, which include the accounting policies and information regarding estimations, judgements and assumptions relevant to these condensed financial statements. The 2017 full year results announcement issued by GKN plc on 27 February 2018 included an indication of important events that occurred during the year for the Group. The announcement can be viewed at or downloaded from http://www.gkn.com/en/investors/regulatory-news/.

Principal Risks and Uncertainties

The Company's risk management process includes an assessment of the likelihood and potential impact of a range of events to determine the overall risk level and to identify actions necessary to mitigate their impact. As a finance, investment and holding company within the GKN Holdings Group, aside from holding the Group's external term loans and sponsorship of the GKN UK pension schemes, the Company's dealings are almost exclusively intra Group transactions. In this context, the Company's significant risks and uncertainties are identified below. In addition, risks which could have a material impact on the Group's strategic objectives are given in the annual report of GKN plc for 2017 which does not form part of this report.

Additional risks not currently known or which are regarded as immaterial could also affect future performance.

Pension deficit volatility

The Group has a number of defined benefit pension plans with aggregate net liabilities of £1,504 million at 31 December 2017. These plans are exposed to the risk of changes in asset values, discount rates, inflation and mortality assumptions. Increases to the pension deficit could lead to a requirement for additional cash contributions to these plans, thereby reducing the amount of cash available to meet the Group's other operating, investment and financing requirements.

This risk is managed through close cooperation with scheme fiduciaries regarding management of pension scheme assets and liabilities, including asset selection and hedging actions. Alternative funding and risk mitigation actions are implemented where appropriate along with agreed recovery plans where required.


Following the conclusion of the 2016 valuation exercise, the Group reduced the volatility of future deficit recovery payments as it closed the UK defined benefit pension to future accrual and made a £250 million lump sum payment to the scheme in October 2017.

The uncertainty following the UK's decision to leave the EU continues to have a potential impact on the yields on long term bonds and, thereby, on the UK pension liability, as will any wider issues in global financial markets. We will continue to monitor the impact of future market volatility, and seek to reduce volatility where appropriate.

Currency translation

Movements in exchange rates of key currencies may significantly impact the Group's financial results. Our mitigation strategy includes foreign currency hedging and using cross currency swaps to align our debt to the principal currencies in which our revenues and cash flows are generated.

During the year, the Group designated Swedish SEK loans as part of a net investment hedge of

SEK net assets.

All divisions continue to focus on risk mitigation, including the production, refinement and testing of business continuity and disaster recovery plans, and ongoing reviews of critical assets and prioritisation of capital investment.

DIRECTORS' RESPONSIBILITY STATEMENT

Directors: Mr N M Stein (resigned 14 March 2018)

Mr A C Walker (resigned 10 November 2017)

Mr M J Sclater (resigned 19 April 2018)

Mr S A Peckham (appointed 19 April 2018)

Mr J C F Crawford (appointed 19 April 2018)

Mr A W Curral (appointed 13 November 2017)

Each of the Directors as at the date of this report, whose names are set out above, confirm that to the best of their knowledge:

  • the Group financial statements, prepared in accordance with IFRSs as adopted by the EU,give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

  • the strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

GKN Holdings plc condensed financial statements

Consolidated Income Statement
For the year ended 31 December 2017
Notes2017 2016
£m £m
Sales19,671 8,822
Trading profit1568 684
Change in value of derivative and other financial instruments2364 (154)
Amortisation of non-operating intangible assets arising on
business combinations2(100)(103)
Gains and losses on changes in Group structure2(2)(9)
Acquisition-related restructuring charges2- (31)
Impairment charges2(131)(52)
Operating profit699 335
Share of post-tax earnings of equity accounted investments580 73
Interest payable(86)(86)
Interest receivable10 7
Other net financing charges(45)(37)
Net financing costs3(121)(116)
Profit before taxation658 292
Taxation4(143)(54)
Profit after taxation for the year515 238
Profit attributable to non-controlling interests6 2
Profit attributable to owners of the parent509 236
515 238

Consolidated Statement of Comprehensive Income
For the year ended 31 December 2017
Notes2017 2016
£m £m
Profit after taxation for the year515 238
Other comprehensive (loss)/ income
Items that may be reclassified to profit or loss
Currency variations - subsidiaries
Arising in year(214)671
Reclassified in year(3)2
Currency variations - equity accounted investments
Arising in year5(4)22
Net investment hedge changes in fair value
Arising in year55 (177)
Taxation43 (14)
(163)504
Items that will not be reclassified to profit or loss
Remeasurement of defined benefit plans
Subsidiaries8291 (396)
Taxation4(64)63
227 (333)
Other comprehensive income for the year64 171
Total comprehensive income for the year579 409
Total comprehensive income attributable to non-controlling interests4 6
Total comprehensive income attributable to owners of the parent575 403
579 409

Consolidated Statement of Changes in Equity
For the year ended 31 December 2017
Other reserves
NotesShare
capital
£m
Share
premium
account
£m
Retained
earnings
£m
Exchange
reserve
£m
Hedging
reserve
£m
Other
reserves
£m
Equity
attributable
to equity
holders of
the parent
£m
Non-
controlling
interests
£m
Total
equity
£m
At 1 January 2017362 301 3,255 881 (402)(134)4,263 35 4,298
Profit for the year- - 509 - - - 509 6 515
Other comprehensive (loss)/ income:
Remeasurement of defined benefit
plans and related tax- - 227 - - - 227 - 227
Currency variations and related tax- - - (204)- - (204)(2)(206)
Net investment hedge changes in
fair value and related tax- - - - 43 - 43 - 43
- - 227 (204)43 - 66 (2)64
Total comprehensive (loss)/ income- - 736 (204)43 - 575 4 579
Share-based payments- - 4 - - - 4 - 4
Dividend paid to parent undertaking- - (877)- - - (877)- (877)
At 31 December 2017362 301 3,118 677 (359)(134)3,965 39 4,004
At 1 January 2016362 301 3,358 243 (264)(134)3,866 23 3,889
Profit for the year- - 236 - - - 236 2 238
Other comprehensive (loss)/ income:
Remeasurement of defined benefit
plans and related tax- - (333)- - - (333)- (333)
Currency variations and related tax- - - 638 - - 638 4 642
Net investment hedge changes in
fair value and related tax- - - - (138)- (138)- (138)
- - (333)638 (138)- 167 4 171
Total comprehensive (loss)/ income- - (97)638 (138)- 403 6 409
Share-based payments- - 5 - - - 5 - 5
Shares received from Employee Share Ownership
Plan Trust
- - (10)- - - (10)- (10)
Addition of non-controlling interest- - - - - - - 9 9
Purchase of non-controlling interest- - (1)- - - (1)(1)(2)
Dividends paid to non-controlling
interests- - - - - - - (2)(2)
At 31 December 2016362 301 3,255 881 (402)(134)4,263 35 4,298

Other reserves include accumulated reserves where distribution has been restricted due to legal or fiscal requirements and accumulated adjustments in respect of piecemeal acquisitions.

Consolidated Balance Sheet
At 31 December 2017
Notes2017 2016
£m £m
Assets
Non-current assets
Goodwill492 588
Other intangible assets1,179 1,320
Property, plant and equipment2,677 2,670
Equity accounted investments5249 233
Other receivables and investments153 49
Derivative financial instruments37 25
Deferred tax assets4374 557
5,161 5,442
Current assets
Inventories1,431 1,431
Trade and other receivables1,748 1,648
Amounts receivable from parent undertaking1,431 2,148
Current tax assets468 7
Derivative financial instruments28 19
Other financial assets65 5
Cash and cash equivalents6421 411
5,132 5,669
Total assets10,293 11,111
Liabilities
Current liabilities
Borrowings6(38)(64)
Derivative financial instruments(78)(206)
Trade and other payables(2,333)(2,186)
Amounts payable to parent undertaking(7)(12)
Current tax liabilities4(132)(142)
Provisions(80)(71)
(2,668)(2,681)
Non-current liabilities
Borrowings6(1,126)(842)
Derivative financial instruments(248)(521)
Deferred tax liabilities4(184)(227)
Trade and other payables(485)(427)
Provisions(74)(82)
Post-employment obligations8(1,504)(2,033)
(3,621)(4,132)
Total liabilities(6,289)(6,813)
Net assets4,004 4,298
Shareholders' equity
Share capital362 362
Share premium account301 301
Retained earnings3,118 3,255
Other reserves184 345
Equity attributable to equity holders of the parent3,965 4,263
Non-controlling interests39 35
Total equity4,004 4,298

Consolidated Cash Flow Statement
For the year ended 31 December 2017
Notes2017 2016
£m £m
Cash flows from operating activities
Cash generated from operations7562 645
Interest received8 7
Interest paid(79)(83)
Tax paid(107)(99)
Dividends received from equity accounted investments560 57
1,194 527
Cash flows from investing activities
Purchase of property, plant and equipment(442)(416)
Receipt of government capital grants2 6
Purchase of intangible assets(79)(84)
Repayment of government refundable advance(8)(6)
Proceeds from sale and realisation of fixed assets8 37
Payment of deferred and contingent consideration(2)(1)
Acquisition of subsidiaries (net of cash acquired)9(25)(17)
Costs associated with disposal of subsidiaries(2)-
Purchase of investment- (5)
Proceeds from disposal of subsidiary, net of cash26 151
Equity accounted investments loan settlement- 4
(542)(331)
Cash flows from financing activities
Shares received from Employee Share Ownership
Plan Trust- (10)
Purchase of non-controlling interests9- (2)
Proceeds from borrowing facilities302 102
Repayment of other borrowings(37)(243)
Dividends paid to parent undertaking(127)-
Dividends paid to non-controlling interests- (2)
138 (155)
Movement in cash and cash equivalents40 41
Cash and cash equivalents at 1 January385 291
Currency variations on cash and cash equivalents(13)53
Cash and cash equivalents at 31 December7412 385

Notes to the Consolidated Financial Statements
1Segmental analysis
The Group's reportable segments in 2017 have been determined based on reports reviewed by the Executive Committee led by the Chief Executive. The operating activities of the Group are largely structured according to the markets served; aerospace and automotive markets. Automotive is managed according to product groups; driveline and powder metallurgy. Reportable segments derive their sales from the manufacture of products and sale of service. Revenue from royalties is not significant.
(a)Sales
Automotive
Powder
Aerospace Driveline Metallurgy Total
£m £m £m £m
2017
Subsidiaries3,556 4,652 1,174
Equity accounted investments82 656 -
3,638 5,308 1,174 10,120
Other businesses289
Management sales10,409
Less: equity accounted investments sales(738)
Income statement - sales9,671
2016 - restated*
Subsidiaries3,352 4,109 1,032
Equity accounted investments71 505 -
3,423 4,614 1,032 9,069
Other businesses345
Management sales9,414
Less: equity accounted investments sales(592)
Income statement - sales8,822
Subsidiary sales comprise £9,016 million (2016: £8,281 million) from the manufacture of product and £655 million (2016: £541 million) from the sale of services.
* As previously announced, following disposal of its Stromag business on 30 December 2016 the Group changed its segments to remove Land Systems for reporting in 2017. The two businesses remaining in the Group that were part of Land Systems have been reported as follows: Wheels and Structures in Other Businesses and Driveshafts and Aftermarket Services, now renamed Off-Highway Powertrain, in Driveline. For the purpose of comparative information in 2016, Stromag has been included in Other Businesses. There is no change to Aerospace or Powder Metallurgy segmental reporting.
(b)Trading profit
Automotive
Powder
Aerospace Driveline Metallurgy Total
£m £m £m £m
2017
Trading profit before depreciation and amortisation330 445 176
Depreciation of property, plant and equipment(92)(151)(49)
Amortisation of operating intangible assets(61)(13)(2)
Trading profit - subsidiaries177 281 125
Trading (loss)/profit - equity accounted investments(2)96 -
175 377 125 677
Other businesses16
Corporate and unallocated costs(31)
Management trading profit662
Less: equity accounted investments trading profit(94)
Income statement - trading profit568
During the year, the Group has recorded net charges in the trading profit of Aerospace amounting to £119 million which are set out below.

The results of the overall North American Aerospace balance sheet review (£108 million) and the initial inventory and other asset write-downs at the Alabama plant (£15 million) total £123 million. This combined charge contains inventory write-downs of £79 million, charges for onerous contracts of £18 million, re-assessment of customer recoveries and claims of £19 million and corrections to fixed asset carrying values of £7 million.

Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2017
1Segmental analysis (continued)
(b)Trading profit (continued)

Additionally, the Aerospace trading profit has absorbed the impact of costs of £28 million associated with performance-related claims arising from a risk and revenue sharing partnership within the Engine Systems business. In the year credits amounting to £32 million arose from programme pricing adjustments; £19 million in the North American Aerostructures business and £13 million in the Engine Systems business.

As highlighted in our Trading Update in November 2017, the Driveline trading profit has borne estimated product warranty charges amounting to £10 million.

Professional fees associated with the North American Aerospace balance sheet review, £4 million, are charged in corporate and unallocated costs.
Automotive
Powder
Aerospace Driveline Metallurgy Total
£m £m £m £m
2016 - restated*
Trading profit before depreciation and amortisation464 388 164
Depreciation of property, plant and equipment(78)(128)(44)
Amortisation of operating intangible assets(51)(12)(2)
Trading profit - subsidiaries335 248 118
Trading profit - equity accounted investments4 82 -
339 330 118 787
Other businesses7
Corporate and unallocated costs(21)
Management trading profit773
Less: equity accounted investments trading profit(89)
Income Statement - trading profit684
During the year ended 31 December 2016, the Group recorded a charge of £39 million in trading profit in respect of a Group-wide restructuring programme. The charge arose in: Aerospace £10 million, Driveline £22 million, Powder Metallurgy £3 million, Other Businesses £2 million and Corporate costs £2 million.

Notes to the Consolidated Financial Statements (continued)
2Operating profit
The analysis of the additional components of operating profit is shown below:
(a)Trading profit
2017 2016
£m £m
Sales by subsidiaries9,671 8,822
Operating costs
Change in stocks of finished goods and work in progress33 68
Raw materials and consumables(4,398)(3,850)
Inventories recognised as an expense(4,365)(3,782)
Staff costs (note 7)(2,457)(2,309)
Redundancy and other employee-related amounts(1)(43)
Depreciation of property, plant and equipment(302)(263)
Amortisation of operating intangible assets(78)(67)
Operating lease rentals payable(75)(68)
Impairment of trade receivables(6)(5)
Amortisation of government capital grants2 2
Net exchange differences on foreign currency transactions(50)(25)
Other costs(1,771)(1,578)
(9,103)(8,138)
Trading profit568 684
(i)EBITDA is subsidiary trading profit before depreciation and amortisation charges included in trading profit. EBITDA was £948 million (2016: £1,014 million).
(ii)Research and development expenditure in subsidiaries was £201 million (2016: £186 million), net of customer and grant funding of £61 million (2016: £59 million).
Auditors' remuneration
The analysis of auditors' remuneration is as follows:
2017 2016
£m £m
Fees payable to the Group's auditors for the audit of the parent company(0.1)(0.1)
Fees payable to the Group's auditors and their associates for other
services to the Group:
-Audit of the financial statements of subsidiaries(6.8)(4.4)
Total audit fees payable to the Group's auditors(6.9)(4.5)
-Audit-related assurance services(0.8)(0.2)
Total fees for other services(0.8)(0.2)
Total fees payable to the Group's auditors and their associates(7.7)(4.7)
All fees payable to the Group's auditors include amounts in respect of expenses. All fees payable to the Group's auditors have been charged to the income statement.

Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2017
2Operating profit (continued)
(b)Change in value of derivative and other financial instruments
2017 2016
£m £m
Forward currency contracts (not hedge accounted)364 (135)
Embedded derivatives(6)4
358 (131)
Net gains and losses on intra-group funding
Arising in year6 (23)
364 (154)
IAS 39 requires derivative financial instruments to be valued at the balance sheet date and reflected in the balance sheet as an asset or liability. Any subsequent change in value is reflected in the income statement unless hedge accounting is achieved. Such movements do not affect cash flow or the economic substance of the underlying transaction.
(c)Amortisation of non-operating intangible assets arising on business combinations
2017 2016
£m £m
Marketing-related(3)(4)
Customer-related(71)(67)
Technology-based(26)(32)
(100)(103)
(d)Gains and losses on changes in Group structure
2017 2016
£m £m
Business disposed2 9
Business closures(4)(18)
(2)(9)
On 29 December 2017, the Group sold its GKN Applied Composites AB business for a cash consideration of £7 million before professional fees. The profit on sale of £3 million comprises profit on disposal of net assets including £2 million cash, with no impact from reclassification of previous currency variations from other reserves.

On 14 August 2017, the Group sold its GKN Aerospace Bandy Machining, Inc. business for a cash consideration of £1 million before professional fees. The loss on sale of £1 million comprises £5 million loss on disposal of net assets and £3 million gain from reclassification of previous currency from other reserves.

On 30 December 2016, the Group sold its Stromag business (part of the Land Systems division) to Altra Industrial Motion Corp. for cash consideration of £159 million excluding an overdraft disposed of £7 million and before professional and completion fees (£1 million). The profit on sale of £9 million comprises an £11 million profit on disposal of net assets and £2 million loss from reclassification of previous currency variations from other reserves.

On 17 November 2016, the Group confirmed the closure of its Aerospace business in Yeovil. The company previously had a contract to make airframes for the Royal Navy AW159 Wild Cat helicopters but its main customer which assembles the helicopters, announced that it was taking this contract in-house. The site closure has resulted in a further charge in 2017 of £4 million comprising: transition costs of £2 million and other associated costs of £2 million. In 2016, a reorganisation charge of £12 million was recorded, comprising: redundancy of £4 million; impairment of property, plant and equipment of £4 million; write down of inventories of £2 million; and other associated costs of £2 million. Cash flows in 2017 amounted to £7 million. There was a further decision in 2016 to curtail operations of a Driveline business with an associated reorganisation charge of £6 million comprising redundancy of £4 million and impairment of goodwill of £2 million. Redundancy cash flows in 2017 amounted to £4 million.
(e)Acquisition-related restructuring charges
2017 2016
£m £m
Redundancy and other employee-related amounts- (27)
Integration and other expenses- (4)
Restructuring charges- (31)
In 2016, restructuring charges, separately identified, relate to the acquisition of Fokker Technologies Group B.V. business within Aerospace in 2015. The cash flows related to this totalled £13 million in 2017.

Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2017
2Operating profit (continued)
(f)Impairment charges
2017 2016
£m £m
Goodwill(72)(38)
Other intangible assets(2)-
Property, plant and equipment(57)(14)
(131)(52)

Notes to the Consolidated Financial Statements (continued)
3Net financing costs
2017 2016
£m £m
(a)Interest payable and fee expense
Short-term bank and other borrowings(13)(12)
Interest on debt repayable within five years(61)(41)
Interest on debt repayable after five years(6)(27)
Government refundable advances(6)(6)
(86)(86)
Interest receivable
Short-term investments, loans and deposits4 7
Tax case interest recoveries6 -
10 7
Net interest payable and receivable(76)(79)
Short-term bank and other borrowings includes a finance cost of £7 million (2016: £5 million) for factoring and customer supply chain finance programmes.
2017 2016
£m £m
(b)Other net financing charges
Interest charge on net defined benefit plans(47)(53)
Fair value changes on cross currency interest rate swaps4 18
Unwind of discounts(2)(2)
(45)(37)
4Taxation
(a)Tax expense
2017 2016
Analysis of charge in year£m £m
Current tax (charge)/credit
Current year charge(107)(73)
Utilisation of previously unrecognised tax losses and other assets- 1
Net movement on provisions for uncertain tax positions30 9
Adjustments in respect of prior years- 9
(77)(54)
Deferred tax (charge)/credit
Origination and reversal of temporary differences52 -
Tax on change in value of derivative financial instruments(79)14
Other changes in unrecognised deferred tax assets(51)(3)
Adjustments in respect of prior years12 (11)
(66)-
Total tax charge for the year(143)(54)
Analysed as:
2017 2016
Tax in respect of management profit£m £m
Current tax(72)(46)
Deferred tax(38)(104)
(110)(150)
Tax in respect of items excluded from management profit
Current tax(5)(8)
Deferred tax(28)104
(33)96
Total for tax charge for the year(143)(54)

Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2017
4Taxation (continued)
(a)Tax expense (continued)
Judgements and estimates

The Group operates in many jurisdictions and is subject to tax audits which are often complex and can take several years to conclude. Therefore, the accrual for current tax includes provisions for uncertain tax positions of £121 million which require estimates for each matter and the exercise of judgement in respect of the interpretation of tax laws and the likelihood of challenge to historical tax positions. Management uses in-house tax experts, professional advisers and previous experience when assessing tax risks. Where appropriate, estimates of interest and penalties are included in these provisions. As amounts provided for in any year could differ from eventual tax liabilities, subsequent adjustments which have a material impact on the Group's tax rate and/or cash tax payments may arise. Tax payments comprise payments on account and payments on the final resolution of open items and, as a result, there can be substantial differences between the charge in the income statement and cash tax payments. Where companies utilise brought forward tax losses such that little or no tax is paid, this also results in differences between the tax charge and cash tax payments. With regard to deferred tax, judgement is required for the recognition of deferred tax assets, which is based on expectations of future financial performance in particular legal entities or tax groups.
20172016
Tax reconciliation£m % £m %
Profit before taxation658 292
Less share of post-tax earnings of equity accounted investments(80)(73)
Profit before taxation excluding equity accounted investments578 219
Tax charge calculated at 19.25% (2016: 20%) standard UK corporate
tax rate(111)(19)(44)(20)
Differences between UK and overseas corporate tax rates(16)(3)(30)(14)
Non-deductible and non-taxable items(10)(2)30 14
Recognition of previously unrecognised tax losses- - - -
Utilisation of previously unrecognised tax losses and other assets1 - 1 -
Changes in tax rates6 1 (17)(8)
Other changes in deferred tax assets(55)(9)(1)-
Tax charge before prior year and adjustment and movement in uncertain
tax positions(185)(32)(61)(28)
Net movement on provision for uncertain tax positions30 5 9 4
Adjustments in respect of prior years12 2 (2)(1)
Total tax charge for the year(143)(25)(54)(25)
Non-deductible and non-taxable items include foreign exchange movements that are not deductible (£14 million charge), impairment of assets which are not deductible for tax purposes (£33 million), partially offset by the benefit of tax incentives in a number of jurisdictions (£25 million). Other changes in deferred tax assets relate to an increase in unrecognised tax losses where it is not considered probable the losses will expire before they are utilised. The rate change primarily relates to the change of rate in the US discussed below.
(b)Tax included in other comprehensive income
2017 2016
Analysis of (charge)/credit in year£m £m
Deferred tax on post-employment obligations(89)60
Deferred tax on hedged foreign currency gains and losses(12)39
Deferred tax on other foreign currency gains and losses on intra-group funding- (3)
Current tax on post-employment obligations25 3
Current tax on foreign currency gains and losses on intra-group funding15 (50)
(61)49
(c)Current tax
2017 2016
£m £m
Assets68 7
Liabilities(132)(142)
(64)(135)

Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2017
4Taxation (continued)
(d)Recognised deferred tax
2017 2016
£m £m
Assets374 557
Liabilities(184)(227)
190 330
The movements in deferred tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction as permitted by IAS 12) during the year are shown below:
AssetsLiabilities
Post-
employment Tax Fixed
obligations losses Other assets Other Total
£m £m £m £m £m £m
At 1 January 2017325 177 229 (391)(10)330
Businesses disposed- - - - - -
Included in the income statement1 (60)(75)63 5 (66)
Included in other comprehensive income(89)- (12)- - (101)
Currency variations3 7 (6)23 - 27
At 31 December 2017240 124 136 (305)(5)190
At 1 January 2016245 176 157 (339)(8)231
Businesses disposed(1)1 (1)15 - 14
Included in the income statement(2)(19)18 5 (2)-
Included in other comprehensive income60 - 36 - - 96
Currency variations23 19 19 (72)- (11)
At 31 December 2016325 177 229 (391)(10)330
The primary territories which have tax losses and other temporary differences are the UK and the Netherlands. These territories have both recognised and unrecognised deferred tax assets. Deferred tax assets are recognised where, based on management projections, the future availability of taxable profits to absorb the deductions before any applicable time limits expire is probable. Deferred tax assets (including tax losses) are not recognised where the Group's ability to utilise them is not probable, for example where management projections indicate there will be insufficient future profits before losses expire, or in cases where the quantum of losses is uncertain (i.e. subject to cases such as the FII GLO).

'Other' deferred tax arises mainly in relation to items that are taxable or tax deductible in a different period than the income or expense is accrued in the financial statements. Other deferred tax assets include £46 million relating to derivatives (2016: £139 million).

Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2017
Notes to the Consolidated Financial Statements (continued)
5Equity accounted investments

Group share of results
2017 2016
£m £m
Sales738 592
Operating costs(644)(503)
Trading profit94 89
Net financing costs2 (1)
Profit before taxation96 88
Taxation(16)(15)
Share of post-tax earnings80 73
Group share of net book amount
2017 2016
£m £m
At 1 January233 195
Share of post-tax earnings80 73
Dividends paid to the Group(60)(57)
Currency variations(4)22
At 31 December249 233
2017 2016
£m £m
Non-current assets166 171
Current assets376 326
Current liabilities(283)(259)
Non-current liabilities(10)(5)
249 233

Equity accounted investments have no significant contingent liabilities to which the Group is exposed, nor has the Group any significant contingent liabilities in relation to its interest in the equity accounted investments.

The Group has one significant joint venture within Driveline, Shanghai GKN HUAYU Driveline Systems Co Limited (SDS), with 100% of sales of £1,159 million (2016: £870 million), trading profit of £181 million (2016: £153 million), an interest charge of £1 million (2016: £1 million) and a tax charge of £29 million (2016: £26 million) leaving retained profit of £153 million (2016: £126 million). Net assets of £348 million (2016: £341 million) comprise non-current assets of £224 million (2016: £236 million), current assets of £445 million (2016: £384 million), current liabilities of £321 million (2016: £279 million) and non-current liabilities of nil (2016: nil). During 2017, SDS paid a dividend to the Group of £59 million (2016: £54 million). Further information about SDS can be found in note 5 to the GKN plc company financial statements.

Notes to the Consolidated Financial Statements (continued)
6Net borrowings
(a)Analysis of net borrowings
Notes Current Non-currentTotal
Within One to two Two to five More than Total
one year years years five years
£m £m £m £m £m £m
2017
Unsecured capital market borrowings
£450 million 5?% 2022 unsecured bond- - (447)- (447)(447)
£350 million 6¾% 2019 unsecured bond - (349)- - (349)(349)
£300 million 3?% 2032 unsecured bond - - - (296)(296)(296)
Unsecured committed bank borrowings
European Investment Bank(16)(16)- - (16)(32)
2019 Committed Revolving Credit Facility- - - - - -
Other (net of unamortised issue costs)(2)(2)(6)(2)(10)(12)
Finance lease obligations(1)(1)(3)(4)(8)(9)
Bank overdrafts(9)- - - - (9)
Other short-term bank borrowings(10)- - - - (10)
Borrowings(38)(368)(456)(302)(1,126)(1,164)
Bank balances and cash257 - - - - 257
Short-term bank deposits164 - - - - 164
Cash and cash equivalents421 - - - - 421
Other financial assets - bank deposits5 - - - - 5
Net borrowings (excluding cross
currency interest rate swaps)388 (368)(456)(302)(1,126)(738)
Cross currency interest rate swaps- (76)(75)- (151)(151)
Net debt388 (444)(531)(302)(1,277)(889)
2016
Unsecured capital market borrowings
£450 million 5?% 2022 unsecured bond- - - (446)(446)(446)
£350 million 6¾% 2019 unsecured bond - - (349)- (349)(349)
Unsecured committed bank borrowings
European Investment Bank(16)(16)(16)- (32)(48)
2019 Committed Revolving Credit Facility- - - - - -
Other (net of unamortised issue costs)- (2)(7)(4)(13)(13)
Finance lease obligations(1)- - (2)(2)(3)
Bank overdrafts(26)- - - - (26)
Other short-term bank borrowings(21)- - - - (21)
Borrowings(64)(18)(372)(452)(842)(906)
Bank balances and cash236 - - - - 236
Short-term bank deposits175 - - - - 175
Cash and cash equivalents411 - - - - 411
Other financial assets - bank deposits5 - - - - 5
Net borrowings (excluding cross
currency interest rate swaps)352 (18)(372)(452)(842)(490)
Cross currency interest rate swaps- - (122)(92)(214)(214)
Net debt352 (18)(494)(544)(1,056)(704)
Unsecured capital market borrowings include: an unsecured £350 million (2016: £350 million) 6¾% bond maturing in 2019 less unamortised issue costs of £1 million (2016: £1 million) and an unsecured £450 million (2016: £450 million) 5?% bond maturing in 2022 less unamortised issue costs of £3 million (2016: £4 million) and a new unsecured £300 million 3?% bond maturing in 2032 less unamortised issue costs of £4 million.

Unsecured committed bank borrowings include £32 million (2016: £48 million) drawn under the Group's European Investment Bank (EIB) unsecured facility which attracts a fixed interest rate of 4.1% per annum payable annually in arrears and a borrowing of £12 million (2016: £15 million) drawn against a KfW amortising unsecured facility which attracts a fixed interest rate of 1.65%. On 22 June 2017, the Group repaid the third of five annual instalments of £16 million on the EIB facility. There were no drawings (2016: nil) at the year end against the Group's 2019 Committed Revolving Credit Facilities of £800 million (2016: £800 million). Unamortised issue costs on the 2019 Committed Revolving Credit Facilities were £2 million (2016: £3 million).

Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2017
7Cash flow reconciliations
2016 2015
Cash generated from operations£m £m
Operating profit335 324
Adjustments for:
Depreciation, impairment and amortisation of fixed assets
Charged to trading profit
Depreciation263 218
Amortisation67 43
Amortisation of non-operating intangible assets arising on business combinations103 80
Impairment charges52 71
Change in value of derivative and other financial instruments154 122
Gains and losses on changes in Group structure9 1
Amortisation of government capital grants(2)(2)
Net profits on sale and realisation of fixed assets(3)(3)
Charge for share-based payments5 1
Movement in post-employment obligations(75)(51)
Change in amounts due from parent undertaking(139)55
Change in amounts due to parent undertaking6 (1)
Change in inventories(78)(33)
Change in receivables(151)110
Change in payables and provisions99 5
645 940
Movement in net debt
Movement in cash and cash equivalents41 (11)
Net movement in other borrowings and deposits141 (60)
Movement on finance leases- (2)
Movement on cross-currency interest rate swaps(145)(43)
Movement on other net investment hedges(17)(11)
Amortisation of debt issue costs(2)(2)
Currency variations47 (16)
Movement in year65 (145)
Net debt at beginning of year(769)(624)
Net debt at end of year(704)(769)
Reconciliation of cash and cash equivalents
Cash and cash equivalents per balance sheet411 299
Bank overdrafts included within 'current liabilities - borrowings'(26)(8)
Cash and cash equivalents per cash flow385 291

Notes to the Consolidated Financial Statements (continued)
8Post-employment obligations
2017 2016
Post-employment obligations as at the year end comprise:£m £m
Pensions- funded(743)(1,285)
- unfunded(675)(662)
Medical- funded(39)(37)
- unfunded(47)(49)
(1,504)(2,033)
The Group's pension arrangements comprise various defined benefit and defined contribution schemes throughout the world. In addition, in the US and UK various plans operate which provide members with post-retirement medical benefits. The Group's post-employment plans in the UK, US and Germany together account for 98% of plan assets and 98% of plan liabilities.

The Group's post-employment plans include both funded and unfunded arrangements. The UK pension schemes are funded, albeit in deficit in common with many other UK pension schemes, with the scheme assets held in trustee-administered funds. The German and other European plans are generally unfunded, with pension payments made from company funds as they fall due, rather than from scheme assets. The US schemes include a combination of funded and unfunded pension and medical plans, while Japan also operates a funded pension plan.

The Group's defined benefit pension arrangements provide benefits to members in the form of an assured level of pension payable for life. The level of benefits provided typically depends on length of service and salary levels in the years leading up to retirement. In the UK and Germany, pensions in payment are generally updated in line with inflation, whereas in the US pensions generally do not receive inflationary increases once in payment. The UK and German schemes are closed to new entrants, while the US schemes are closed to future accrual.

Independent actuarial valuations of all major defined benefit scheme assets and liabilities were carried out at 31 December 2017. The present value of the defined benefit obligation and the related service cost elements were measured using the projected unit credit method.
(a) Defined benefit schemes- assumptions and estimates

Estimating the post-employment obligation involves a number of significant assumptions, which are detailed below.

Key assumptions and estimates:
UK
GKN2GKN3AmericasEuropeROW
%% % % %
2017
Rate of increase in pensionable salaries (past service)n/an/an/a2.50-
Rate of increase in payment and deferred pensions3.003.00n/a1.75n/a
Discount rate (past service)2.602.403.601.700.50
Inflation assumption (past service)3.203.15n/a1.75n/a
Rate of increase in medical costs:
Initial/long-term5.4/5.46.5/5.0n/an/a
2016
Rate of increase in pensionable salaries (past/future service)4.30/4.25n/an/a2.50-
Rate of increase in payment and deferred pensions3.203.30n/a1.75n/a
Discount rate (past/future service)2.60/2.702.454.101.600.50
Inflation assumption (past/future service)3.30/3.253.35n/a1.75n/a
Rate of increase in medical costs:
Initial/long-term5.4/5.46.75/5.0n/an/a

In prior years, there were separate assumptions for past and future service in relation to the UK pension scheme. However, following the closure of GKN2 to future accrual from 1 July 2017, this is no longer relevant.

The UK schemes each use a duration-specific discount rate derived from the LCP Treasury Model, which is based on corporate bonds with two or more AA-ratings. The European discount rate was calculated with reference to Aon Hewitt's German discount rate yield curve. For the US, the discount rate referenced the Citigroup intermediate pension liability index, the Merrill Lynch US corporate AA 10+ years index and the Towers Watson Rate:LINK benchmark. The approach taken in Europe and the US is consistent with the prior year.

During the year, the Group has taken the decision to change the model used in deriving the discount rates used in post-employment obligation valuations. Previously, gilt yields were used to extrapolate AA rated corporate bond yields to durations where no deep market in corporate bonds existed.

The current year approach looks at a number of different factors to set discount rates and is intended to remove the distortions inherent in the gilt yield curve resulting from high demand from institutional investors. This change increased the discount rate by 0.1% and remains consistent with the requirements of IAS 19.

Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2017
8Post-employment obligations (continued)
(a) Defined benefit schemes- assumptions and estimates (continued)
The underlying mortality assumptions for the major schemes, are as follows:

UK
The key current year mortality assumptions for both GKN2 and GKN3 use S2PA year of birth mortality tables (adjusted for GKN experience) with CMI 2016 improvements and a 1.25% per annum long-term improvement trend. These assumptions give the following expectations for each scheme: for GKN3 a male aged 65 lives for a further 22.0 years and a female aged 65 lives for a further 24.6 years, while a male aged 40 is expected to live a further 24.8 years from age 65 and a female aged 40 is expected to live a further 26.5 years from age 65. For GKN2 a male aged 65 lives for a further 22.3 years and a female aged 65 lives for a further 25.1 years, while a male aged 40 is expected to live a further 24.2 years from age 65 and a female aged 40 is expected to live a further 27.0 years from age 65.
Overseas
In the US, RP-2014 tables have been used, while in Germany the RT2005-G tables have been used. In the US, the longevity assumption for a male aged 65 is that he lives a further 20.7 years (female 22.7 years), while in Germany a male aged 65 lives for a further 19.1 years (female 23.2 years). The longevity assumption for a US male currently aged 45 is that he also lives for a further 22.3 years once attaining 65 years (female 24.2 years), with the German equivalent assumption for a male being 21.8 years (female 25.7 years). These assumptions are based on the prescribed tables, rather than GKN experience.
Assumption sensitivity analysis
The impact of a one percentage point movement in the primary assumptions (longevity: 1 year) on the defined benefit obligations as at 31 December 2017 is set out below:
UK Americas Europe ROW
Liabilities
£m
Liabilities
£m
Liabilities
£m
Liabilities
£m
Discount rate +1%478 39 102 2
Discount rate -1%(622)(48)(132)(1)
Rate of inflation +1%(525)(1)(89)-
Rate of inflation -1%407 - 74 -
Life expectancy +1 year(122)(10)(25)-
Life expectancy -1 year124 10 23 -
Health cost trend +1%(2)(2)- -
Health cost trend -1%2 1 - -
The above sensitivity analyses are based on isolated changes in each assumption, while holding all other assumptions constant. In practice, this is unlikely to occur, and there is likely to be some level of correlation between movements in different assumptions. In addition, these sensitivities relate only to potential movement in the defined benefit obligations. The assets, including derivatives held by the schemes, have been designed to mitigate the impact of these movements to some extent, such that the movements in the defined benefit obligations shown above would, in practice, be partly offset by movements in asset valuations. However, the above sensitivities are shown to illustrate at a high level the scale of sensitivity of the defined benefit obligations to key actuarial assumptions.

The same actuarial methods have been used to calculate these sensitivities as are used to calculate the relevant balance sheet values, and have not changed compared to the previous period.
Key estimates
It has been determined that the key estimates within the calculation of the defined benefit plans are discount rates, the rates of inflation and life expectancies. It is reasonably probable that a change in these could occur within the next year that could materially change the value of the defined benefit plans. Sensitivity analysis has been undertaken in the above table to illustrate the impact of a 1% or one-year increase and decrease in these metrics.
Pension partnership interest
During the year, the Group has paid £30 million (2016: £30 million) to the UK pension schemes through its pension partnership arrangement and this is included within the amount of contributions/benefits paid.
Funding update and closure of GKN2 to future accrual
During the year, the Group's two UK defined benefit pension schemes completed their triennial funding valuations as at 5 April 2016 for GKN2 and 31 December 2016 for GKN3.

The outcome of these discussions resulted in a lump sum contribution of £250 million paid in October 2017 to GKN2, and annual contributions of £6 million until 2022 to GKN3. These contributions along with investment outperformance is expected to close the deficits on the Trustee's funding basis by April 2022 for GKN3 and June 2031 for GKN2.

During the year, a decision was also taken to close GKN2 to future accrual and following a consultation process with the scheme members, the closure took place effective 30 June 2017. UK pension benefits are now provided on a defined contribution basis.

Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2017
8Post-employment obligations (continued)
(b)Defined benefit schemes - reporting
The amounts included in operating profit are:
2017 2016
£m £m
Current service cost and administrative expenses(43)(51)
Settlements/curtailments- 5
(43)(46)
The amounts recognised in the balance sheet are:
2017
UK Americas Europe ROW Total 2016
£m £m £m £m £m £m
Present value of unfunded obligations(16)(40)(662)(4)(722)(711)
Present value of funded obligations(3,293)(321)(38)(31)(3,683)(3,902)
Fair value of plan assets2,618 224 34 25 2,901 2,580
Net obligations recognised in the balance sheet(691)(137)(666)(10)(1,504)(2,033)
The triennial funding valuations for the UK defined benefit pension schemes were completed during the year. Following the completion of these valuations, in order to fund the deficits, the Company agreed to make a lump sum contribution of £250 million to GKN2 and annual contributions of £6 million to GKN3 until 2022 in addition to the distributions from the UK pension partnership.

The contribution for deficit funding expected to be paid by the Group during 2018 to the UK schemes is £6 million. In addition, a distribution of £30 million is expected to be made from the UK pension partnership to GKN2 in the first half of 2018, which brings the total expected UK cash requirement for 2018 to £36 million. The expected 2018 contribution to overseas schemes is £35 million.
Cumulative remeasurement of defined benefit plan differences recognised in equity are as follows:
2017 2016
£m £m
At 1 January(1,469)(1,073)
Remeasurement of defined benefit plans291 (396)
At 31 December(1,178)(1,469)
Movement in schemes' obligations (funded and unfunded) during the year
UK Americas Europe ROW Total
£m £m £m £m £m
At 1 January 2017(3,514)(375)(688)(36)(4,613)
Current service cost(24)(1)(11)(2)(38)
Employee contributions- (1)- - (1)
Administrative expenses(4)(1)- - (5)
Interest(89)(15)(11)- (115)
Remeasurement of defined benefit plans174 (22)13 - 165
Benefits and administrative expenses paid148 21 27 2 198
Currency variations- 33 (30)1 4
At 31 December 2017(3,309)(361)(700)(35)(4,405)
At 1 January 2016(3,234)(319)(531)(34)(4,118)
Current service cost(35)(1)(9)(3)(48)
Businesses disposed- - 12 - 12
Settlements and curtailments268 - 2 - 270
Administrative expenses(3)- - - (3)
Interest(119)(15)(13)- (147)
Remeasurement of defined benefit plans(540)5 (82)5 (612)
Benefits and administrative expenses paid149 17 22 3 191
Currency variations- (62)(89)(7)(158)
At 31 December 2016(3,514)(375)(688)(36)(4,613)

Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2017
8Post-employment obligations (continued)
(b)Defined benefit schemes - reporting (continued)
Movementin schemes' assets during the year
UK Americas Europe ROW Total
£m £m £m £m £m
At 1 January 20172,293 227 37 23 2,580
Interest58 9 1 - 68
Employee contributions- 1 - - 1
Remeasurement of defined benefit plans102 21 - 3 126
Contributions by Group308 7 - 2 317
Benefits paid(143)(21)(5)(2)(171)
Currency variations- (20)1 (1)(20)
At 31 December 20172,618 224 34 25 2,901
At 1 January 20162,322 186 33 19 2,560
Interest85 8 1 - 94
Settlements and curtailments(263)- (2)- (265)
Businesses disposed- - (1)- (1)
Remeasurement of defined benefit plans207 7 2 - 216
Contributions by Group87 6 1 2 96
Benefits paid(145)(17)(2)(2)(166)
Currency variations- 37 5 4 46
At 31 December 20162,293 227 37 23 2,580
Remeasurement gains and losses in relation to schemes' obligations are as follows
UK Americas Europe ROW Total
£m £m £m £m £m
2017
Experience gains and losses10 (3)4 - 11
Changes in financial assumptions64 (20)9 - 53
Change in demographic assumptions100 1 - - 101
174 (22)13 - 165
2016
Experience gains and losses210 6 1 - 217
Changes in financial assumptions(715)(8)(83)5 (801)
Change in demographic assumptions(35)7 - - (28)
(540)5 (82)5 (612)
The fair values of the assets in the schemes were:
UK Americas Europe ROW Total
£m £m £m £m £m
At 31 December 2017
Equities (including hedge funds)507 106 - 14 627
Diversified growth funds824 - - - 824
Bonds - government464 50 - - 514
Bonds - corporate315 62 - 8 385
Property127 - - - 127
Cash, derivatives and net current assets214 6 - - 220
Other assets167 - 34 3 204
2,618 224 34 25 2,901
At 31 December 2016
Equities (including hedge funds)607 107 - 12 726
Diversified growth funds558 - - - 558
Bonds - government540 53 - 9 602
Bonds - corporate245 63 - - 308
Property138 - - - 138
Cash, derivatives and net current assets23 4 - - 27
Other assets182 - 37 2 221
2,293 227 37 23 2,580
As at 31 December 2017, the equities in the UK asset portfolio were split 26% domestic (2016: 27%); 74% foreign (2016: 73%), while bond holdings were 100% domestic (2016: 97%) and 0% foreign (2016: 3%). The equivalent proportions for the US plans were: equities 40%/60% (2016: 41%/59%); bonds 87%/13% (2016: 89%/11%).

Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2017
8Post-employment obligations (continued)
(c)Defined benefit scheme - risk factors
Through its various post-employment pension and medical plans, the Group is exposed to a number of risks, the most significant of which are detailed below. The Group's focus is on managing the cash demands which the various pension plans place on the Group, rather than balance sheet volatility in its own right. For funded schemes, cash requirements are generally determined by funding valuations which are performed on a different basis from accounting valuations.

Asset volatility: plan liabilities are calculated using discount rates set with reference to bond yields (although the discount rate methodology differs for accounting and funding purposes). If plan assets deliver a return which is lower than the discount rate, this will create or increase a plan deficit. GKN's various pension plans hold a significant proportion of equities and similar 'growth assets', which are expected to out-perform bonds in the long term, albeit at the risk of short-term volatility.

As the plans mature, with a shorter time horizon to cope with volatility, the Group will gradually reduce holdings of growth assets in favour of increased matching assets (bonds and similar). In the meantime, the Group considers that equities and similar assets are an appropriate means of managing pension funding requirements, given the long-term nature of the liabilities and the strength of the Group to withstand volatility.

Changes in bond yields: a decrease in bond yields will typically increase plan liabilities (and vice versa), although this will be offset partially by an increase in the value of bonds held in the asset portfolios of the various plans. The effect of changes in bond yields is more pronounced in unfunded schemes where there is no potential for an offsetting movement in asset values.

Inflation risk: as UK and some European pension obligations are linked to inflation, higher inflation expectations will lead to higher liabilities, although caps are in place to protect against unusually high levels of inflation. The UK asset portfolio includes some inflation-linked bonds to provide an element of protection against this risk, while additional protection is provided by inflation derivatives.

Member longevity: as the Group's post-employment obligations are generally to provide benefits for the life of the member, increases in life expectancy will generally result in an increase in plan liabilities (and vice versa).
(d)Defined benefit schemes - demographic factors
Weighted average duration is a measurement technique designed to represent the estimated average time to payment of all cash flows arising as a result of defined benefit obligations (i.e. pension payments and similar). The weighted average duration (years) of the defined benefit obligations in the UK, US and Germany are as follows:
2017
years
2016
years
UKGKN219 19
GKN311 11
US12 12
Germany17 18

Defined benefit obligations are classified into those representing 'active' members of a scheme or plan (i.e. those who are currently employed by the Group), 'deferred' members (i.e. those who have accrued benefit entitlements, but who are no longer employed by the Group and are not yet drawing a pension) and 'pensioner' members (i.e. those who are currently in receipt of a pension). Additional information regarding the average age, number of members and value of the defined benefit obligation in each of these categories for the UK, US and Germany are given below:
ActiveDeferredPensioner
Age Number Value
£m
Age Number Value
£m
Age Number Value
£m
UKGKN2- - - 53 10,070 1,583 72 7,843 1,161
GKN3- - - 56 2,913 58 80 9,490 490
US54 2,367 111 57 1,216 43 75 4,413 206
Germany55 2,386 293 57 843 53 72 3,068 280
Within the UK, there are two pension schemes referred to as GKN2 and GKN3. GKN3 is a mature scheme, comprised primarily of pensioner members, which is already at peak annual cash outflow (benefit payments); while GKN2 is less mature, with a larger deferred population. Benefit payments from GKN2 are forecast to continue to rise until the mid 2030s, when they will peak, before beginning to decline.
(e)Defined contribution schemes
The Group operates a number of defined contribution schemes. The charge to the income statement in the year was £84 million (2016: £62 million).

Notes to the Consolidated Financial Statements (continued)
9Business combinations
On 31 May 2017, the Group purchased the entire equity shareholding of Tozmetal Ticaret ve Sanayi Anonim ?irketi (Tozmetal), a Turkey-based sintering business, to broaden the division's manufacturing footprint. The acquired company has since been renamed GKN Sinter Istanbul Metal Sanayi Ve Ticaret Anonim Sirketi. The consideration of £26 million comprised a cash payment only. The fair value of net assets acquired comprised: property, plant and equipment of £7 million, inventory of £2 million, receivables of £6 million, cash of £1 million, payables of £4 million, intangible assets of £9 million and goodwill of £5 million. This has been included in Powder Metallurgy for segmental reporting.

On 30 June 2016, the Group took control, through a 60% equity shareholding, of a newly formed company; GKN (Bazhou) Metal Powder Company Limited (Bazhou). Bazhou specialises in metal powder production in China.

The fair value of consideration for the 60% shareholding is £17 million and comprises an initial cash payment of £8 million and deferred consideration subsequently paid of £9 million. The fair value of net assets acquired, before non-controlling interests (£9 million), of £26 million comprises: property, plant and equipment of £15 million, inventory of £3 million, receivables of £4 million and goodwill of £4 million. Bazhou is included in Powder Metallurgy for segmental reporting.

During 2016, the Group also paid £2 million to purchase a non-controlling interest from the other investor in Lianyungang GKN Hua Ding Wheels Co Ltd. The Group now owns 100% of the share capital in this company.

10Post balance sheet events
On 29 March 2018 GKN plc shareholders voted in favour of a proposed takeover bid by Melrose Industries plc. It is not possible to estimate the financial effect on the Company as a result of this change in ultimate parent ownership.
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