TIDMDWL
RNS Number : 0779M
Dowlais Group PLC
12 September 2023
12 September 2023
Dowlais Group plc
Half-Year Results 2023
First half trading ahead. Strong margin expansion, positive free
cash flow and accelerated EV transition. Full year expectations
unchanged.
Dowlais Group plc, the specialist engineering group focused on
the automotive sector, announces its results for the six-month
period ended 30 June 2023.
GBP millions Adjusted (1) Statutory
------------------------- ----------------------------
H1 2023 H1 2022 Change Constant H1 2023 H1 2022 Change
FX (2)
------------------------- -------- -------- ------- --------- -------- -------- --------
Revenue 2,830 2,518 12% 10% 2,552 2,236 14%
Operating profit/(loss) 177 127 39% 40% (40) (27) -48%
Operating margin 6.3% 5.0% 130bps 140bps -1.6% -1.2% (40)bps
Profit/(loss)
before tax 139 109 28% 29% (55) (130) 58%
Basic EPS (3) 7.2p - - - (6.1)p - -
Free Cash Flow 33 - - - - - -
(3 4)
Net Debt (3) 849 - - - - - -
------------------------- -------- -------- ------- --------- -------- -------- --------
1. All Adjusted Financial measures are defined in the Glossary
to the Interim Financial Statements.
2. Represents change at constant translational FX, as defined in
the Glossary to the Interim Financial Statements.
3. Prior period EPS comparator included in Note 6, but not here.
Other prior period comparators are not included as not considered
meaningful due to material impact of incremental central costs or
are not possible to calculate due to the change in structure of the
business. Prior period comparators will be included from June
2024.
4. As defined in the Glossary to the Interim Financial
Statements, Adjusted Free Cash flow represents free cash flow
adjusted for demerger related exceptional cash flows.
Highlights
Strong margin expansion
-- Adjusted revenue of GBP2,830 million, up 10% on prior
year on a constant currency basis.
-- Adjusted operating profit of GBP177 million, an increase
of 40% and 140bps margin improvement, in each case on
a constant currency basis .
-- Margin improvement driven by volume increases, operational
efficiencies and improved commercial terms with customers,
fully offsetting the impact of inflation. Incremental
revenues at a drop-through operating profit margin(1)
of 35%, excluding incremental stand-alone plc costs. Remain
on-track to our margin target.
-- Automotive adjusted revenues grew 12% and adjusted operating
profit grew 92%, with margin increasing by 270bps, in
all cases on a constant currency basis.
-- Powder Metallurgy revenue grew 2% on a constant currency
basis. Operating profit markedly improved in H1 in comparison
to H2 2022.
-- Adjusted basic earnings per share of 7.2 pence and a statutory
loss per share of 6.1 pence.
Positive free cash flow
-- GBP33 million of adjusted free cash flow, better than
our expectation despite significant investment in capital
expenditure and restructuring to support future growth
and productivity.
-- Net debt(1) of GBP849 million, better than our expectation
with a reduction in leverage to 1.4x from a pro forma
position of 1.5x as at the date of demerger.
-- Inaugural interim dividend of 1.4 pence per ordinary share.
Targeting a sustainable and progressive annual dividend
of approximately 30% of adjusted underlying profit after
tax.
Accelerated EV transition
-- Strong new business bookings across the Group, with 2023
bookings at target margins.
-- Record bookings for the Automotive business, with a forecast
lifetime revenue of over GBP3 billion, the vast majority
of which is EV related, including a contract to supply
a 3-in-1 eDrive system for a high-performance SUV.
-- Powder Metallurgy expanded its EV portfolio, notably reaching
a commercial agreement for the supply of magnets for the
EV market after the period end.
Outlook
-- First half trading ahead of our expectations.
-- Full year expectations unchanged, with potential UAW strike
action being monitored closely.
1 As defined in the Glossary to the Interim Financial Statements.
Liam Butterworth, Chief Executive Officer, said:
"Dowlais had a strong first half of the year, trading ahead of
our expectations, with double digit revenue growth, significant
margin expansion in a period of high inflation, and better than
expected free cash flow generation. We have also secured record new
business bookings, the majority of which are related to EVs, at
attractive margins. We remain fully on track as we progress towards
our margin target and are excited by the Group's future."
Notes
Dowlais commenced trading on 20 April 2023, however these
results are presented for the full six-month period (1 January to
30 June 2023), along with prior year comparative information. The
term "adjusted" when used in these results has the meaning given in
the glossary to the Condensed Interim Financial Statements. Unless
otherwise expressly stated, references to operating profit in these
results include the impact of " incremental stand-alone plc costs
", principally being the costs of the Dowlais head office
operations, the Board and the executive committee, which were GBP15
million in the period. Where such incremental stand-alone plc costs
are excluded from any stated operating profit, for the purposes of
making a prior period comparison, that is expressly noted. Certain
other words and phrases used in this announcement have the meaning
given to them in the glossary to the Condensed Interim Financial
Statements.
Enquiries:
Investor Relations:
Chris Dyett
investor.relations@dowlais.com
+44 (0) 7974 974690
Teneo:
Olivia Peters/Harry Cameron
dowlais@teneo.com
+44 (0) 7902 771008
Results Presentation
A presentation will be hosted by Liam Butterworth (CEO) and
Roberto Fioroni (CFO) on 12 September 2023 at 9.00 am. You can
register to listen to the presentation online here:
https://streamstudio.world-television.com/1429-2695-38046/en .
Investor Site Visit
Dowlais will be hosting an investor site visit in Spain in late
October 2023, showcasing our leading Automotive technology and
operational footprint, and a presentation on Powder Metallurgy
highlighting key growth drivers.
About Dowlais Group plc
Dowlais is a portfolio of market-leading, high-technology
engineering businesses that advance the world's transition to
sustainable vehicles. Dowlais' businesses comprise GKN Automotive,
GKN Powder Metallurgy and GKN Hydrogen. With over 70 manufacturing
facilities in more than 20 countries across the world, Dowlais is
an automotive technology leader delivering precisely engineered
products and solutions that drive transformation in our world.
Dowlais has LEI number 213800XM8WOFLY6VPC92.
Forward Looking Statements
These results include certain forward-looking statements. These
forward-looking statements involve known and unknown risks and
uncertainties, many of which are beyond Dowlais' control and all of
which are based on Dowlais' current beliefs and expectations about
future events. Forward-looking statements are sometimes identified
by the use of terminology such as "believe", "expects", "may",
"will", "would", "could", "should", "shall", "risk", "intends",
"expects", "estimates", "projects", believes", "aims", "plans",
"predicts", "seeks", "goal", "continues", "assumes", "positioned",
"anticipates" or "targets" or the negative thereof, other
variations thereon or comparable terminology. These forward-looking
statements include matters that are not historical facts,
statements regarding the intentions, beliefs or current
expectations concerning, among other things, the future results of
operations, financial condition, prospects, growth, strategies,
dividend policy and industry of Dowlais and commitments, ambitions
and targets relating to ESG matters. These forward-looking
statements and other statements contained in these results
regarding matters that are not historical facts involve
predictions. No assurance can be given that such future results
will be achieved, and actual events or results may differ
materially as a result of risks and uncertainties facing Dowlais.
Such risks and uncertainties could cause actual results to vary
materially from the future results indicated, expressed or implied
in such forward-looking statements. Forward-looking statements
contained in these results speak only to the date of these results.
Dowlais and its directors expressly disclaim any obligation or
undertaking to update these forward-looking statements to reflect
any change in their expectations or any change in events,
conditions, or circumstances on which such statements are based
unless required to do so by applicable law.
Results Overview
Introduction
Dowlais has delivered a strong first half performance, making
significant strategic and financial progress.
During the first half of the year, adjusted revenue was GBP 2,
830 million, representing year-on-year growth of 10% on a constant
currency basis. Group adjusted operating profit was GBP177 million,
including incremental stand-alone plc costs of GBP15 million, at a
margin of 6.3 %. This represents a year-on-year adjusted operating
profit increase of 40% and a margin expansion of 1 40bps, in each
case on a constant currency basis. Excluding the incremental
stand-alone plc costs, adjusted operating profit grew 52%
year-on-year and margins increased by 190bps, at constant
currency.
This strong performance represents a drop-through operating
profit margin of 35% (excluding incremental stand-alone plc costs)
and is the result of increased vehicle production volumes, improved
operational efficiencies and the benefits of restructuring
programmes commenced in prior periods. This drop-through rate was
higher than our medium-term expectation of 30%, due to softer prior
period comparables. As such and in line with our plans, we expect
drop-through margins to be lower in the second half of the year.
Both Automotive and Powder Metallurgy also continued to show great
resilience to inflationary pressures, fully offsetting these
headwinds through recoveries and productivity improvements.
Dowlais generated GBP33 million of adjusted free cash flow
during the first half. Ahead of our expectations, net debt reduced
to GBP849 million, and when combined with an increase in EBITDA,
the Group's leverage ratio reduced to 1.4x from a pro-forma
position of 1.5x as at the date of demerger.
Automotive had a strong start to the year with 12% adjusted
revenue growth on a constant currency basis to GBP2,283 million,
driven by increased volumes from the market recovery, new business
wins, and improved pricing including inflation recovery.
Powder Metallurgy's adjusted revenue growth of 2% on a constant
currency basis was driven by higher pricing to recover inflation,
with volumes impacted by the accelerating EV transition,
operational issues in the US, exiting poor margin business and the
closure of a facility in 2022.
For both businesses, revenue growth was supported by global
light vehicle production volume recovery, enabled by the easing of
semiconductor supply constraints, vehicle inventory restocking and
resilient customer demand in most major markets. The Group has been
well positioned to benefit from the wider market recovery, due to
its market leading positions, global presence and operational
agility, which have allowed us to effectively respond to increases
in customer demand.
We have continued to make progress toward achieving our Group
margin target, with significant margin expansion in the period
despite inflationary headwinds. The Automotive business improved
its operating profit margin by 270bps on a constant currency basis
to 6.5%, although this was in comparison to a corresponding period
in H1 2022 in which inflation recovery was lagging behind current
levels. Powder Metallurgy adjusted operating profit margins were
9.2%, 110bps down in comparison to the prior year on a constant
currency basis, reflecting some operational challenges in the US
which have been remedied. Powder Metallurgy margins increased
substantially in the second quarter and from H2 2022.
As markets continue to recover and we execute ongoing
restructuring programmes, we remain confident of increasing
adjusted operating profit, driving margin expansion and achieving
our margin target.
New business bookings have been very strong in the period for
both Automotive and Powder Metallurgy, with the majority of the
Group's new bookings being on EV platforms. This continues to
demonstrate the successful transition of our portfolio and our
ability to capture profitable and sustainable growth from the
industry shift to electrification. Notably, new bookings for both
businesses are at a profitability level which supports our margin
objectives. Automotive achieved contract nominations for more than
GBP3 billion of forecast lifetime revenue in the period, a 1.3x
book-to-bill ratio, with 78% of new business bookings on EV
platforms and 73% on pure BEV platforms (in each case by forecast
lifetime revenue). Powder Metallurgy has seen a 36% year-on-year
increase in booking values, with 75% of new business bookings for
propulsion-agnostic product portfolios (by forecast peak annual
revenue).
Strategy Recap and Execution
Our strategy is clear and focused. We are a portfolio of market
leading, high-technology engineering businesses that advance the
world's transition to sustainable vehicles. We have a three-pillar
approach to delivering our strategy and creating attractive
shareholder returns. We plan to:
-- Lead . Build market leading businesses, with a relentless
focus on operational excellence, delivering industry leading
financial performance.
-- Transform . Invest in innovation to ensure our businesses
remain at the forefront of technological advancements,
delivering high-tech products and world-class performance.
-- Accelerate . Drive organic growth and enhance the Group's
portfolio through disciplined M&A.
We continued to execute well against all three pillars in the
period, expanding margins, generating cash, transforming our
product portfolio and securing new business that will enable
profitable organic growth.
The improvement in operating margins reflects the impact of the
transformation plans implemented in prior periods, in which both
Automotive and Powder Metallurgy undertook significant
restructuring activities and made substantial investments,
overhauled their commercial strategies, reduced costs and
rigorously managed cash. Dowlais remains on track to achieve our
margin targets as the market recovers.
Our ability to transform our businesses alongside the industry
shift to electrification was demonstrated by the accelerated
transition of our product portfolios. In the period, 78% of
Automotive's new business wins (by forecast lifetime revenue) were
on EV platforms, including winning business in side-shafts, eDrive
systems and torque-management components. Powder Metallurgy has
developed several new products specifically for the EV market, such
as differential gears, iron powder for LFP batteries and magnets
for electric motors, for which it secured its first commercial
agreement with a tier 1 customer in the period.
Demerger
Dowlais began trading as an independent listed company on 20
April 2023, with completion of the demerger from Melrose and
admission of the ordinary shares of Dowlais to the main market of
the London Stock Exchange.
Prior to admission, steps were taken to enable Dowlais to
successfully operate as an independent company, including the
establishment of the Board, Executive Committee, and the group
central functions necessary to replace the activities previously
carried out by Melrose. A lean corporate organisation has been
established (at a total cost of GBP15 million in H1 and expected
full year cost of approximately GBP30 million) to oversee and
support the businesses, each of which are led by their own
fully-empowered business unit CEO.
An experienced Board with a broad and relevant range of skills
has been assembled, chaired by Simon Mackenzie Smith, with four
executive directors including CEO Liam Butterworth and CFO Roberto
Fioroni, and five independent non-executive directors, with
extensive experience in industrial businesses.
Market Overview
Automotive markets have continued to improve in the period, with
year-on-year global light vehicle production growth of 12%.
H1 Light Vehicle Production
--------------------------------------------------
Production (million units)
--------------- ---------------------------------
H1 2023 H1 2022 Year-on-year
growth
China 12.7 11.7 8%
EMEA 10.3 9.0 14%
North America 8.0 7.1 12%
Japan/Korea 6.3 5.2 21%
South Asia 4.8 4.6 5%
South America 1.4 1.3 10%
Global 43.5 38.9 12%
--------------- -------- -------- -------------
Source: S&P Global light vehicle production forecast, August
2023
Production rates have varied between regions, with Japan/Korea,
EMEA and North America driving global growth. This global volume
recovery has been tempered by slower production growth in China,
mainly due to weakened consumer demand and a general slowdown in
economic growth in that region.
Many of the supply-limiting challenges of prior years, including
the impact of Covid-19, semiconductor shortages and other supply
chain disruptions, have to a certain extent abated in 2023. At the
same time, consumer spending has been robust in most major markets
and many vehicle OEMs are going through a period of re-stocking
depleted inventories and satisfying order backlogs that has led to
market growth in H1.
In the second half of the year, the global market is expected to
be flat in comparison to the prior year. However, these production
forecasts remain uncertain in nature, in particular due to the
potential for strike action by UAW members in the US, in connection
with their ongoing negotiations with Stellantis, Ford and General
Motors. The Group has a good track record of responding to demand
fluctuations and we are monitoring the potential strike action
closely and planning for all possible outcomes.
Sustainability
At Dowlais, our purpose is engineering transformation for a
sustainable world, positively impacting people and communities.
Sustainability represents a fundamental part of our strategy.
During the period, we continued to make progress with our
sustainability agenda. We aim to be at the forefront of the global
shift to electric vehicles by developing products that enable our
customers to drive reductions in carbon emissions. In addition to
supporting the industry transition, it is also vitally important
that our own operations are aligned with the goal set by the Paris
Agreement to limit global temperature increases to 1.5deg C above
pre-industrial levels.
During the period we defined sustainability commitments for the
year, and we have made progress against each of these.
Strategy . We determined that we would clearly define Dowlais'
ESG strategy based on double materiality and that we would set
suitable targets aligned to UN SDGs, including an SBTi commitment.
We are progressing with our strategy definition and have maintained
our businesses' commitment to achieving net zero by 2045. We are on
track for both Automotive and Powder Metallurgy to have submitted
science-based targets for validation by the end of the year.
Governance . We are committed to high standards of corporate
governance and to complying with the UK Corporate Governance Code.
We will report on this in more detail in our first annual report
when it is published in 2024. We have also established a Group
Sustainability Management Committee, chaired by the CEO, to oversee
the Group's sustainability activities.
Reporting & disclosures . We are on track to publish our
first consolidated sustainability report alongside our 2023 annual
report and accounts and will engage with ESG ratings agencies
during the next 12 months.
Actions Taken . We have seen progress in the period and continue
to be proud of the great work our businesses undertake on
sustainability. Automotive launched its sustainability strategy in
2021, introducing a new framework to coordinate existing
sustainability activities under four strategic pillars: Our People,
Climate Action, Responsible Sourcing and Our Impact. Underpinning
this is a strong focus on ethics, safety and security, and
compliance. Automotive continued to make progress against its
business-specific sustainability strategy during the first half of
the year. An inaugural sustainability report was published in June
2023, which included an update on progress against all key targets,
and confirmed Automotive's net zero target of 2045, which has been
submitted to the SBTi for validation this year. To achieve this,
the business will focus on improving energy efficiency across its
global plants, increasing its sourcing of on-site and off-site
renewable electricity, engaging with suppliers on sustainability
and investing in technologies that contribute to the
decarbonisation of the industry. To this end, Automotive is
currently evaluating Power Purchase Agreements for renewable
electricity for its European operations.
Powder Metallurgy also continued to make substantial progress in
the period. It improved its consumption monitoring infrastructure
to enable digitally available readings and optimised its part-level
digital CO2 footprint calculation tool. It received an innovation
award from a key customer for this application, which will be
further deployed this year. Progress continues to be made on energy
efficiency improvement projects, as well as a significant increase
in sourcing on-site and off-site renewable electricity. An EcoVadis
silver rating was confirmed in the period, which places Powder
Metallurgy within the top 25% of assessed businesses for the second
year in a row. An SBTi commitment letter was signed and SBTi
targets will be submitted later this year for validation.
Outlook
The positive first half trading, ahead of our expectations,
would ordinarily have led to an increase in full year outlook.
Second half demand is uncertain due to the proposed strike action
by UAW members in the US. We are monitoring this situation closely
and our full year expectations remain unchanged. Irrespective of
the potential UAW action, the Board is excited by the future
prospects for the Group, as it remains on track to achieve its
margin target as the market recovers and continues to be at the
forefront of the industry transition to electrification.
Business Unit Review
Automotive
GKN Automotive is a world-leading global automotive technology
business at the forefront of innovation. It is the trusted partner
for most of the world's automotive companies, specialising in
developing, building, and supplying market-leading drive systems
and advanced ePowertrain technologies. It is the global leader in
sideshafts, with eight out of ten of the world's best-selling cars
using its technology. GKN Automotive's first eDrive system was
fitted to a production car over 20 years ago. Today, over two
million electrified vehicles worldwide are powered by this
technology.
Automotive Overview
-------------------------------------------------------------------------------------
GBP millions Adjusted (1) Statutory
---------------- -------------------------------------- ---------------------------
H1 2023 H1 2022 Change Constant H1 2023 H1 2022 Change
FX (2)
---------------- -------- -------- ------- --------- -------- -------- -------
Revenue 2,283 2,003 14% 12% 2,018 1,733 16%
Operating
Profit/(loss) 149 78 91% 92% (34) (50) 32%
Operating
Margin 6.5% 3.9% 260bps 270bps -1.7% -2.9% 120bps
---------------- -------- -------- ------- --------- -------- -------- -------
1. All Adjusted Financial measures are defined in the Glossary
to the Interim Financial Statements.
2. Represents change at constant translational FX, as defined in
the Glossary to the Interim Financial Statements.
The Automotive business has made significant progress in the
first half of 2023, with strong growth, significant margin
expansion and record new business bookings, the majority of which
are for EV platforms.
Adjusted revenue grew 12% year-on-year on a constant currency
basis, with total adjusted revenue of GBP2,283 million for the
half. Notably, revenue growth in the Americas region was above
market, where both its Mexico plants and its US eDrive component
plants achieved record production levels. Statutory revenue grew to
GBP2,018 million, an increase of 16% year-on-year.
The business continues to expand margins, with adjusted
operating margin increasing significantly in the period by 270bps
(on a constant currency basis) to 6 .5%. This represents a
year-on-year increase of 92% on a constant currency basis, and a
drop-through margin of 39%, albeit from a softer comparable period
due to a lag on inflation recovery, and as such we expect future
drop-through margins to be closer to 30%. This performance has been
achieved despite ongoing inflationary headwinds. The business fully
offset the impact of inflation through multiple levers, with 75%
offset by purchasing efficiencies and price recoveries and the
balance by plant productivity and other initiatives.
Automotive has continued to make significant progress in
improving the competitiveness of its manufacturing footprint in the
period. In January 2023, it announced the proposed closure of a
driveline plant in Mosel, Germany. Following consultation and
negotiation with affected employees and other stakeholders, the
final phase of the plant closure will take place in H2 2025.
Relocation of production to other facilities has commenced. In
January 2023, Automotive also announced the investment in a new
manufacturing facility in Miskolc, Hungary. This is intended to be
a state-of-the-art, sustainably constructed facility of 29,000
square metres in its first phase, which is expected to commence
operation this month. Finally, in the period Automotive also
invested in expanding its Mexico facilities by a total of 28,000
square metres, adding additional manufacturing and engineering
capabilities. The operational changes made in this period are part
of a wider industrial strategy to ensure Automotive remains
competitive and able to sustainably drive margin improvement, as a
result of which Automotive expects that in the medium-term
approximately 60% of its workforce will be located in what it
considers to be 'best cost countries', up from 40% in 2019.
Automotive has made significant progress in securing new
business in the period, with contracts worth more than GBP3 billion
of forecast lifetime revenue awarded. This represents a 10%
increase in business wins for the equivalent period in the prior
year and represents a book-to-bill ratio of approximately 1.3x.
Notably, 78% of these new business awards have been related to
EV platforms, with 73% for pure BEV platforms (in each case by
forecast lifetime revenue). This includes not only sideshafts
tailored for EVs and torque management components, but also a
contract for a full 3-in-1 eDrive system. The award is for two
electric drive units (front and rear) for use in a high-performance
electric SUV and includes sophisticated torque management
components and software. This application will feature its
next-generation inverter, designed in-house, which delivers
enhanced performance and sustainability, including a 20% power
output increase and 50% power density increase over the previous
generation. This win demonstrates the strength of its eDrive system
capabilities and customer confidence in its technology, quality and
systems engineering expertise. Most importantly, the forecast
profitability of this award helps support our margin
objectives.
Looking ahead, Automotive's priorities remain unchanged:
continued margin expansion; technology development to support the
transition to electrification; and sustainable, profitable growth.
We expect Automotive's revenue growth in line with market to
continue into the second half of 2023 and for the business to
continue to successfully expand its order book on EV platforms. The
positive margin trajectory is also expected to continue, as the
business maintains inflation recovery momentum and benefits from
the optimisation of its manufacturing cost base. The business
remains on track to deliver its double-digit margin target in the
medium term.
Powder Metallurgy
GKN Powder Metallurgy is solving complex challenges in
automotive and industrial markets through best-in-class sustainable
and innovative powder metallurgy technology. It is a world-class
supplier for powder metal materials and sintered metal components,
with 27 manufacturing facilities globally. The business comprises
three focused divisions under one brand, consisting of GKN
Powders/Hoeganaes, GKN Sinter Metals, and GKN Additive, to provide
material development, high-precision powder metal solutions and 3D
printed parts.
Powder Metallurgy Overview
-------------------------------------------------------------------------------------
GBP millions Adjusted (1) Statutory
--------------- --------------------------------------- ---------------------------
H1 2023 H1 2022 Change Constant H1 2023 H1 2022 Change
FX (2)
--------------- -------- -------- -------- --------- -------- -------- -------
Revenue 545 515 6% 2% 532 503 6%
Operating
Profit 50 54 -7% -8% 25 20 25%
Operating
Margin 9.2% 10.5% -130bps -110bps 4.7% 4.0% 70bps
--------------- -------- -------- -------- --------- -------- -------- -------
1. All Adjusted Financial measures are defined in the Glossary
to the Interim Financial Statements.
2. Represents change at constant translational FX, as defined in
the Glossary to the Interim Financial Statements.
Powder Metallurgy had a satisfactory first half of 2023 , with
improving trends through the period . Adjusted revenues were GBP545
million, 2% ahead of 2022 on a constant currency basis. This
reflected 1% lower year-on-year volumes, which were impacted by the
accelerating EV transition, operational issues in the US, exiting
poor margin business and the closure of a facility in 2022, which
were more than offset by price increases to recover inflation.
Adjusted operating profit in the period was GBP50 million, at a
margin of 9.2%. This compares to a margin of 10.5% for the same
period in 2022. The decline in margin is attributable to three
factors: a positive one-off receipt during the same period in 2022,
lower volumes in Q1 and a one-off cost related to equipment
downtime in a US plant which has been remedied. Encouragingly,
margins increased substantially from Q1 to Q2 by 180bps, and from
H2 2022 by 80 bps, in each case on a constant currency basis, as
volumes increased and operational performance improved.
As with the Automotive business, Powder Metallurgy has been
heavily focused on inflation recovery in the first half of the
year. The business is currently forecasting to recover
approximately 95% of commodity and energy inflation for the full
year through pricing initiatives and surcharge pass-through
agreements. In the period, all inflation-related impacts were
offset by either recoveries or operational efficiencies .
Powder Metallurgy also had a successful first half of the year
from a commercial perspective, securing new business wins with a
36% year-on-year increase in forecast peak annual revenues (which
we consider to be the most suitable metric for Powder Metallurgy).
Approximately 75% of the value of these wins were from
propulsion-agnostic product groups by forecast peak annual revenue,
a material step-up from the prior year, and a confirmation that the
new products it has developed over recent years are gaining
commercial traction.
The business has also made significant progress on its EV
portfolio transition and has now secured contracts for the supply
of several EV-specific products, including iron powder for use in
LFP batteries and sintered metal gears for differentials used in
EVs. The differential gears award represents the single largest
order ever won by Powder Metallurgy, with production due to
commence in 2025.
Powder Metallurgy's momentum with the development of permanent
magnets for electric motors increased during 2023. The business
achieved a very notable milestone in the period, as they reached
their first commercial agreement for the manufacture of magnets
with a global tier 1 automotive customer. Growth in magnets is a
key component of Powder Metallurgy's strategy to successfully
manage the EV transition, and the business continues to see
significant interest in these products from multiple customers
(both OEMs and tier 1 suppliers), who wish to de-risk their supply
chains for these critical components. Commercial negotiations and
advanced technical qualifications are underway with several
additional potential customers. The business has also accelerated
technical development and is well-positioned to gain a meaningful
foothold in this rapidly growing market, with this agreement
validating its approach. Innovation centres for permanent magnets
have been established in both Europe and North America, with both
facilities currently producing sample quantities of magnets for
customers. In addition, a low scale production line capable of
producing up to 400 tons of permanent magnets per year is under
construction and intended to be operational in Q1 2025, and
appropriate investment in full-scale production facilities will be
considered when demand reaches the required threshold. The business
is also establishing its supply chains for the raw material and
industrial equipment required for this new segment. We will
continue to assess this opportunity, mindful of our required
financial returns as we consider any potential investment, but the
Board's view is that the longer-term outlook and potential
shareholder returns are exciting.
Powder Metallurgy remains on track to fully offset inflation
this year, as it did in 2022, whilst achieving significant order
book growth and making important commercial progress on its EV
portfolio transition. As inflationary pressures ease and energy and
commodity prices normalise, surcharge revenue will adjust
accordingly in the second half of the year. The business is highly
focused on continuing its stronger recent operational performance
and accelerating its EV transition strategy, and has a clear
pathway to long term growth and margin expansion.
Hydrogen
GKN Hydrogen is pioneering green, safe, emission-free storage
solutions for hydrogen that will support the world to achieve net
zero. Its compact hydrogen storage solutions are based on patented
metal hydride technology which is suitable for existing or new
infrastructure projects and provides the long-term storage of
excess energy. Applications include off-grid energy supply in
residential areas and purpose-built structures, charging
infrastructure for EVs and CO2-neutral emergency power supply for
critical infrastructure. Its systems can also be used to store
excess gas created as a bi-product of energy-intensive
manufacturing processes, thereby reducing CO2 emissions.
Hydrogen Overview
-----------------------------------------------------------------------------------
GBP millions Adjusted (1) Statutory
-------------- -------------------------------------- ---------------------------
H1 2023 H1 2022 Change Constant H1 2023 H1 2022 Change
FX (2)
-------------- -------- -------- ------- --------- -------- -------- -------
Revenue 2 0 n/a n/a 2 0 n/a
Operating
loss (8) (6) -33% -33% (8) (6) -33%
-------------- -------- -------- ------- --------- -------- -------- -------
1. All Adjusted Financial measures are defined in the Glossary
to the Interim Financial Statements.
2. Represents change at constant translational FX, as defined in
the Glossary to the Interim Financial Statements.
Hydrogen's innovative storage technology continued to generate
commercial traction in the period, its order book increased and it
reached an agreement with its Swiss partner eRevo, to build a
grid-parallel energy system solution. It also installed and
commissioned eight new systems in the US and Europe, increasing the
total number of systems which are operational, or in production or
commissioning to 19. In the first half of the year, the business
generated GBP2 million of revenue (more than double 2022 full year
revenue) at an operating loss of GBP8 million.
Whilst remaining focused on bringing its products to market,
Hydrogen continues to develop and refine its underlying technology.
A new large-scale storage system, Hy2Mega, is undergoing final
testing, with four systems, each with 8.3MWh capacity, to be
commissioned in the second half of the year.
2023 has seen an increase in global legislative support for
hydrogen storage technologies, including the US Inflation Reduction
Act which includes significant funding for hydrogen energy
infrastructure, and positive legislative trends in Europe and
Japan.
In April 2023, the business opened its new hydrogen technology
centre in Pfalzen, Italy. Approximately 60 employees will lead
global development and production activities. It intends to
continue to work closely with research institutions, universities,
and industry partners to promote local and international
cooperation and knowledge exchange.
In the second half of the year, Hydrogen will continue to focus
on expanding its order book, targeting scalable customers such as
Engineering, Procurement and Construction businesses (EPCs),
utilities providers and relevant industrial businesses.
We believe that the Hydrogen business would benefit from the
involvement of a strategic commercial partner as it seeks to
accelerate the commercial adoption of its technology, and we have
initiated a process to identify potential partnership options.
Financial Review
A combination of positive commercial and market momentum and
focus on managing our cost base, enabled the Group to deliver
encouraging year-on-year improvements on its key performance
measures in the period. Persistent inflation (mainly labour and
energy) continues to be a headwind, but our businesses are now well
rehearsed at managing these challenges and continue to fully
off-set inflation.
Results Overview
GBP millions Adjusted (1) Statutory
------------------------- ----------------------------
H1 2023 H1 2022 Change Constant H1 2023 H1 2022 Change
FX (2)
------------------------- -------- -------- ------- --------- -------- -------- --------
Revenue 2,830 2,518 12% 10% 2,552 2,236 14%
Operating Profit/(loss) 177 127 39% 40% (40) (27) -48%
Operating Margin 6.3% 5.0% 130bps 140bps -1.6% -1.2% (40)bps
Operating Profit/(loss)
Excl. Stand-Alone
Costs (3) 192 127 51% 52% - - -
Operating Margin
Excl. Stand-Alone
Costs (3) 6.8% 5.0% 180bps 190bps - - -
Profit/(loss)
before tax 139 109 28% 29% (55) (130) 58%
Basic EPS (4) 7.2p - - - (6.1p) - -
Free Cash Flow 33 - - - - - -
(4)
Net Debt (4) 849 - - - - - -
------------------------- -------- -------- ------- --------- -------- -------- --------
1. All Adjusted Financial measures are defined in the Glossary
to the Interim Financial Statements.
2. Represents change at constant translational FX, as defined in
the Glossary to the Interim Financial Statements.
3. Excludes GBP15 million of incremental stand-alone plc costs
from H1 2023, as defined on page 2.
4. Prior period EPS comparator included in Note 6, but not here.
Other prior period comparators are not included as not considered
meaningful due to material impact of incremental central costs or
are not possible to calculate due to the change in structure of the
business. Prior period comparators will be included from June
2024.
Revenue
Adjusted revenue in the period increased by 12% to GBP2,830
million (H1 2022: GBP2,518 million), with constant currency growth
of 10%. This reflected volume growth of GBP183 million and pricing
increases of GBP62 million, as the businesses recovered significant
input cost inflation. Statutory revenue in the period was GBP2,552
million (H1 2022: GBP2,236 million) with reported growth of 14%.
Statutory and adjusted revenue also benefitted from a foreign
exchange tailwind of approximately GBP60 million. The regional
breakdown of Group Revenues in the period is below.
H1 Revenue Share by Region
------------------------------------
Americas 42%
Europe, Middle East & Africa 35%
China (1) 12%
Asia (Ex China) 11%
------------------------------ ----
1. China revenues at JV share.
Profit
Adjusted operating profit in the period increased by 40% to
GBP177 million (H1 2022: GBP127 million), with margin improvement
of 140bps, in each case on a constant currency basis. This increase
was a result of increased volume, operational improvements and
offsetting inflation through a combination of customer price
increases and strong operational performance. Excluding incremental
stand-alone plc costs, adjusted operating profit in the period
increased to GBP192 million, an increase of 52% on a constant
currency basis. The outcome was that incremental revenues
contributed to operating profit at a drop-through operating profit
margin of 35% (GBP183 million of year-on-year volume increases
resulting in GBP65 million adjusted profit growth compared to the
prior year, excluding incremental stand-alone plc costs ). This
strong drop-through percentage is expected to be somewhat lower in
the second half of the year, due to tougher prior year
comparators.
Year-on-Year Adjusted Operating GBPmillions
Profit Bridge
----------------------------------- ------------
H1 2022 Adjusted Operating Profit 127
----------------------------------- ------------
Volume 53
Pricing net of inflation (4)
Performance 17
Incremental stand-alone plc costs (15)
FX/Other (1)
H1 2023 Adjusted Operating Profit 177
----------------------------------- ------------
The statutory operating loss in the period was GBP40 million (H1
2022: GBP27 million loss), with the primary adjustments between
Adjusted and Statutory Operating Profit being amortisation of
intangible assets ( GBP99 million), which is excluded from adjusted
results due to its non-trading nature and to enable comparison with
companies that grow organically , restructuring costs ( GBP88
million) which are adjusting items due to their size and
non-trading nature, and demerger costs (GBP39 million). A full
reconciliation between Adjusted and Statutory Operating Profit is
provided in the Glossary to the Interim Financial Statements.
Translational Foreign Exchange Impact
The difference in reported and constant currency values relates
to translational foreign exchange impacts as further set out on in
the Glossary to the Interim Financial Statements . When considering
the sensitivity of full year adjusted operating profit to
translational foreign exchange movements, we expect that a 10%
strengthening of certain underlying currencies against Sterling
would increase adjusted operating profit as follows: USD
approximately GBP18 million; EUR approximately GBP6 million; and
CNY approximately GBP8 million.
Finance Income and Charges
The Group's net finance charges of GBP15 million (H1 2022:
GBP103 million) represent GBP40 million of finance costs (H1 2022:
GBP185 million) and GBP25 million of finance income (H1 2022 GBP82
million). The GBP40 million of finance costs include interest on
bank borrowings of GBP19 million (H1 2022: GBP2 million), finance
lease charges of GBP3 million (H1 2022: GBP3 million) and interest
on the Group's pension schemes of GBP9 million (H1 2022: GBP4
million). The increase in interest compared to the prior year
reflects the change in capital structure to a standalone entity
following the demerger. Finance income is primarily foreign
exchange movements on loans with related parties of GBP22 million
(H1 2022: GBP80 million).
As at 30 June 2023, the Group had fixed the interest rates of
40% of the drawn debt under its banking facilities with interest
rate swaps, maturing in line with the debt facilities. In the
period following 30 June 2023 a further 15% of drawn debt was
similarly fixed. The Group is actively monitoring interest costs in
light of increasing global interest rates.
Additional finance income and charges were incurred up to the
date of demerger from Melrose including an interest charge on loans
from Melrose totalling GBP8 million (H1 2022: GBP12 million) and
foreign exchange movements on loans with Melrose, being a net
income of GBP22 million (H1 2022: net expense of GBP50 million). We
expect full year net finance charges to be approximately GBP70
million.
Cash Flow
Free cash flow in the period was negative at GBP6 million,
although this reflects costs of GBP39 million relating to the
demerger which are non-recurring in nature , including incentive
payments under the terms of a prior Melrose scheme which became
payable at the point of the demerger and costs relating to the
establishment of the Group's new head office. Excluding these
non-recurring costs, adjusted free cash flow was positive at GBP33
million.
Adjusted Free Cash Flow (1)
------------------------------------------------------ -------------
GBP millions 30 June 2023 30 June 2022
Net cash from operating activities 82 5
Net cash used in investing activities (88) (34)
Free Cash Flow (1) (6) (29)
Demerger Related Costs 39 -
--------------------------------------- ------------- -------------
Adjusted Free Cash Flow (1) 33 (29)
--------------------------------------- ------------- -------------
1. All Adjusted Financial measures are defined in the Glossary
to the Interim Financial Statements.
Net cash from operating activities was GBP82 million, an
increase from GBP5 million in H1 2022. This was primarily the
result of the increase in EBITDA of GBP47 million and improved
working capital management, which accounted for an improvement of
GBP28 million year-on-year. The Group also benefited from reduced
restructuring cash costs. Tax paid in the period was less than in
H1 2022 due to timing of payments, offset by interest payments on
external debt, which is an incremental cash outflow reflecting the
Group's new funding structure.
Investing activities resulted in a net cash outflow of GBP88
million, a GBP54 million increase compared to H1 2022 (GBP34
million outflow in H1 2022). An increased level of net capital
expenditure of GBP122 million (H1 2022: GBP63 million) was the
primary reason, due to an increase in capital expenditure to
support new business wins and continued investment in the Group's
manufacturing operations, including the construction of the new
Automotive manufacturing facility in Hungary. This was partly
offset by an increase in dividends received from investments in
joint ventures to GBP33 million (H1 2022: GBP29 million). We expect
full year restructuring cash outflows of approximately GBP100
million.
Financing
The Group is funded through two new core banking facilities put
in place as part of the demerger process, comprised of a
multicurrency term loan and revolving credit facility, with a
combined facility limit of GBP1.8 billion, at 30 June 2023 exchange
rates. Both facilities have an initial maturity date of 20 April of
2026, and the Group has the option to extend the revolving credit
facility for up to two further one-year periods, at its sole
discretion.
The Group's net debt at 30 June 2023 was GBP849 million, better
than our expectation.
Net Debt
--------------------------- -------------
GBP millions 30 June 2023
External debt (1,149)
Cash and cash equivalents 300
Net debt (849)
--------------------------- -------------
The Group's net leverage ratio at 30 June 2023 was 1.4 times
adjusted EBITDA, comfortably below the covenant requirement under
its debt facilities of 3.5 times, and aligned with the Group's
intention to maintain a strong balance sheet with net leverage of
between 1-1.5 times last-twelve-months adjusted EBITDA. The
leverage covenant will be first tested at December 2023 and a
separate interest cover covenant (which measures the adjusted
EBITDA to net interest charge over the preceding 12 months and
requires a ratio of at least 4.0 times) does not come into effect
until June 2024, but we expect to have comfortable headroom above
this target.
Retirement Benefit Obligations
The Group operates several defined benefit pension schemes. The
Group's assets and liabilities under these schemes were calculated
at 30 June 2023 to reflect the latest assumptions and are
summarised below.
Position at 30 June 2023
------------------------------------------------------------------------------ ------------
Accounting
Assets Liabilities Surplus /
(Deficit)
GBPm GBPm GBPm
---------- --------- ------------ ---------- ------ ------- ------------ ------------
GKN UK Group pension schemes (No.
2 and No. 3) 631 (624) 7
Other Group pension
schemes 111 (571) (460)
Total Group pension schemes 742 (1,195) (453)
----------------------------------------------- ------ ------- ------------ ------------
The Group's most significant defined benefit pension plans are
the defined benefit sections of the UK pension schemes, the GKN
Group Pension Plan No. 2 and the GKN Group Pension Plan No. 3.
These defined benefit sections are closed to new members and to the
accrual of future defined benefits for current members. The Group
continues to contribute GBP15 million per annum to these UK schemes
as part of its asset backed funding arrangements. As at 30 June
2023, the schemes had aggregate gross assets of GBP631 million (31
December 2022: GBP666 million) and gross liabilities of GBP624
million (31 December 2022: GBP649 million), resulting in a net
surplus of GBP7 million (31 December 2022: GBP17 million). In April
2022, the UK schemes were subject to their triennial statutory
valuation, the outcome of which and the related funding principles
were agreed by the Group with the trustee directors of the schemes.
The valuation has not resulted in any need to increase the level of
financial contributions made by the Group to the schemes. The Group
looks forward to continuing to build on the good working
relationship it has established with the trustee directors and to
continuing to take steps to ensure that the UK schemes remain
well-funded, for the benefit of all stakeholders.
The most significant of the Group's other pension liabilities
are the future payment obligations under the German GKN pension
plans, which provide benefits dependent on final salary and service
and which are generally unfunded and closed to new members. At 30
June 2023, the future obligations associated with these plans
represented an unfunded liability of GBP393 million (31 December
2022: GBP405 million). Other pension liabilities outside the UK
include those relating to schemes in the US (GBP47 million), Mexico
(GBP9 million), Italy (GBP4 million) and France (GBP2 million). We
expect full year pension cash outflows of approximately GBP40
million.
Tax
The results for the period show an adjusted tax charge of GBP36
million (H1 2022: GBP21 million), arising on an adjusted profit
before tax of GBP139 million (H1 2022: GBP109 million). The Group's
current underlying adjusted effective tax rate is approximately 26%
(H1 2022: 19%). The H1 2022 rate was lower than usual and the H1
2023 rate is more in line with our expectations for the full year,
for which we expect a similar tax rate between 25% and 26%.
Earnings Per Share
In accordance with the Group's measurement of performance, the
Group also presents its earnings per share (EPS) on an adjusted
basis. Adjusted EPS for the period was 7.2 pence per ordinary
share. The table below reconciles this basis to the statutory
earnings per share. The adjusting items between statutory and
Adjusted Earnings per share are amortisation of intangible assets,
restructuring costs and demerger costs, as shown in Notes 4 and 6
of the Interim Financial Statements.
Earnings Per Share (statutory v adjusted)
-------------------------------------------- -------
Statutory basic earnings per ordinary
share (6.1)p
Adjustments for:
Amortisation of acquired intangible assets
net of tax 5.3p
Other adjusting items net of tax 8.0p
Adjusted (1) basic earnings per ordinary
share 7.2p
-------------------------------------------- -------
1. Described in the Glossary to the Interim Financial
Statements
Dividend
The Board recognises the value to shareholders of a dividend. In
the context of the Group's continued focus on a careful and
balanced capital allocation policy, the Board has adopted a
dividend policy in which Dowlais will target a sustainable and
progressive annual dividend of approximately 30% of adjusted
underlying profit after tax. The Board believes that this dividend
policy will represent an attractive return for investors as part of
Dowlais overall equity case and can be supported by the Group's
future cashflows.
The Board has declared an interim dividend of 1.4 pence per
ordinary share. The interim dividend will be paid on 27 October
2023 to shareholders on the register on 22 September 2023. The
deadline to elect to participate in the Dividend Reinvestment Plan
(DRIP) is 6 October 2023.
Principal Risks & Uncertainties
The principal risks and uncertainties affecting the Group at the
time of the demerger were set out under "Risk Factors" on pages 7
to 21 of Dowlais' prospectus published on 3 March 2023. The risks
and uncertainties faced by Dowlais remain substantially unchanged
since that date and those risks that the Board consider to be our
principal risks are summarised below. They are not listed in order
of significance.
Product Quality and Safety: Product quality and safety is key to
Dowlais' business and Dowlais may be exposed to warranty, product
recall and liability claims in the event that our products fail to
perform as required or are unsafe.
Operational Delivery: Dowlais has global manufacturing
operations in a significant number of countries and our operations
and processes are complex and our customers' delivery expectations
demanding. This creates a risk of material disruption in the event
of any failure of key equipment, systems or other disruption at a
site or production line.
Supply Chain: Dowlais could be adversely affected we are unable
to recover increases in input and operating costs from our
customers or reduce or eliminate those costs. These input costs,
such as commodity, energy, labour and transportation costs, can be
impacted by a variety of factors outside the Group's control.
Disruptions in supply chains may negatively impact the Group,
particularly as automotive industry supply chains generally operate
on the basis of a "just in time" model.
People: Dowlais is dependent on management, employees and other
skilled and qualified personnel and may not be able to attract and
retain sufficiently qualified, experienced and motivated
people.
Economic and Political: Dowlais operates in numerous countries
and is therefore potentially affected by global economic and
political conditions and events in those countries. The potential
strike action in the US referenced above is an example of this
risk.
Competition and Market: Dowlais operates in highly competitive
markets and faces the risk of loss of business to its competitors.
In addition, Dowlais revenues can be significantly affected by
global light vehicle demand and production levels, both of which
are beyond Dowlais' control.
Legal and Ethical: Dowlais is subject to applicable laws and
regulations in the jurisdictions and industries in which it
operates globally. Dowlais' geographic breadth, scale and
complexity presents a risk that it may fail to fully comply with
all applicable laws and regulations.
Information and Cyber: Information security and cyber threats
are an increasing risk across all industries, including the
automotive sector. Dowlais faces the risk of cyber-attacks and
other information security risks, including the risk of loss of the
confidentiality, integrity and availability of Dowlais' information
through malicious or accidental means, and the risk of fraud and
ransomware attacks.
Technology and Industry Evolution: Dowlais has market-leading
technologies in the sectors in which it operates and successfully
navigating the electric vehicle transition is at the heart of the
Group's strategy. However, there is nevertheless a risk that the
Group may be unable to maintain sufficient technological
differentiation, or successfully adapt to technological change in
its key markets.
Financial: Dowlais requires a level of debt to fund its
operations and the ability to raise debt or to refinance existing
borrowings in the banking or capital markets is dependent on market
conditions and the proper functioning of financial markets. In
addition, Dowlais has a number of legacy defined benefit pension
schemes, and changes in discount rates, inflation, asset values or
mortality assumptions could require the Group to contribute
additional funding. Finally, due to the global nature of its
operations and customers, Dowlais is exposed to currency exchange
rate risk, including transaction risk and translation risk.
Mergers and Acquisitions: Dowlais' strategy includes the
potential to pursue selective mergers and acquisitions. This
strategy brings with it the usual risks inherent in M&A,
including identifying available and suitable targets, successfully
negotiating and transacting the acquisition and where necessary
integrating the acquired business into Dowlais' existing
operations.
Going Concern
As part of their consideration of going concern, the Board has
reviewed the Group's future cash forecasts and profit projections,
which are based on market and internal data and recent past
experience.
The Group has also modelled a reasonably possible downside
scenario against future cash forecasts and for this reasonably
possible downside scenario, the Group has sufficient headroom to
avoid breaching any of its financial covenants and would not
require any additional sources of financing throughout the forecast
period of 12 months from the date of this announcement.
The macroeconomic environment remains uncertain and volatile and
the impacts of events outside the Group's control on trading
conditions and supply chain constraints could be more prolonged or
severe than that which the Board has considered in this reasonably
possible downside scenario.
However, the Group's current committed bank facility headroom,
its access to liquidity, and the bank covenants in place with the
Group's lending banks, allow the Board to consider that the Group
can manage its business risks successfully and adopt a going
concern basis in preparing these Condensed Interim Financial
Statements.
Responsibility Statement
The directors confirm that to the best of their knowledge:
-- the condensed set of financial statements has been prepared
in accordance with UK-adopted IAS34 'Interim Financial
Reporting'; and
-- the interim management report includes a fair review
of the information required by DTR 4.2.7 (indication
of important events and their impact, and a description
of principal risks and uncertainties for the remaining
six months of the financial year) and DTR 4.2.8 (disclosure
of related parties' transactions and changes therein).
The directors of Dowlais Group plc are listed on page 51 of
Dowlais' prospectus published on 3(rd) March 2023 and on the
Group's website www.dowlais.com under the page headed "Our
Board".
By order of the Board
Liam Butterworth Roberto Fioroni
Chief Executive Officer Chief Financial Officer
12 September 2023
Independent Review Report to Dowlais Group plc
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30th June 2023 which comprises the condensed
consolidated income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated statement of
cash flows, the condensed consolidated balance sheet, the condensed
consolidated statement of changes in equity and related notes 1 to
15.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30th
June 2023 is not prepared, in all material respects, in accordance
with United Kingdom adopted International Accounting Standard 34
and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council for use in the
United Kingdom (ISRE (UK) 2410). A review of interim financial
information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with
International Standards on Auditing (UK) and consequently does not
enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion.
As disclosed in note 2, the annual financial statements of the
group are prepared in accordance with United Kingdom adopted
international accounting standards. The condensed set of financial
statements included in this half-yearly financial report has been
prepared in accordance with United Kingdom adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This Conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410, however future events or conditions
may cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the group's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly financial report, we are
responsible for expressing to the company a conclusion on the
condensed set of financial statements in the half-yearly financial
report. Our Conclusion, including our Conclusion Relating to Going
Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with
ISRE (UK) 2410. Our work has been undertaken so that we might state
to the company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company, for our review work, for this
report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
11th September 2023
Dowlais Group plc
Condensed Consolidated Income Statement
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
Unaudited Unaudited Audited(1)
Notes GBPm GBPm GBPm
------------------------------------- ------- ---------- ----------- -----------------
Revenue 3 2,552 2,236 4,595
Cost of sales (2,164) (1,930) (3,937)
------------------------------------- ------- ---------- ----------- -----------------
Gross profit 388 306 658
Share of results of equity accounted
investments 8 13 10 49
Net operating expenses (441) (343) (649)
------------------------------------- ------- ---------- ----------- -----------------
Operating (loss)/profit 3,4 (40) (27) 58
Finance costs (40) (185) (272)
Finance income 25 82 151
Loss before tax (55) (130) (63)
Tax 5 (27) 29 (14)
------------------------------------- ------- ---------- ----------- -----------------
Loss after tax for the period (82) (101) (77)
---------------------------------------------- ---------- ----------- -----------------
Attributable to:
Owners of the parent (85) (103) (82)
Non-controlling interests 3 2 5
------------------------------------- ------- ---------- ----------- -----------------
(82) (101) (77)
Earnings per share
- Basic 6 (6.1)p (7.4)p (5.9)p
- Diluted 6 (6.1)p (7.4)p (5.9)p
Adjusted(2) results
Adjusted revenue 3 2,830 2,518 5,246
Adjusted operating profit 3,4 177 127 333
Adjusted profit before tax 4 139 109 297
Adjusted profit after tax 4 103 88 218
Adjusted basic earnings per share 6 7.2p 6.2 p 15.3p
Adjusted diluted earnings per
share 6 7.2p 6.2 p 15.3p
------------------------------------- ------- ---------- ----------- -----------------
(1) Audited as part of the carve out Historical Financial
Information issued in the Dowlais Group plc prospectus prior to
listing on the London Stock Exchange. See note 1.2 for further
information.
(2) Defined in the summary of significant accounting policies
(see note 2).
Dowlais Group plc
Condensed Consolidated Statement of Comprehensive Income
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
Unaudited Unaudited Audited(1)
Notes GBPm GBPm GBPm
---------------------------------------- ------- ------------------ ----------- -------------
Loss after tax for the period (82) (101) (77)
----------------------------------------
Items that will not be reclassified
subsequently to the
Income Statement:
Net remeasurement (loss)/gain
on retirement benefit obligations (6) 180 72
Income tax credit/(charge) relating
to items that will not be reclassified 5 1 (55) (27)
----------------------------------------
(5) 125 45
Items that may be reclassified
subsequently to the
Income Statement:
Currency translation (145) 207 272
Share of other comprehensive
(expense)/income from equity
accounted investments (38) 22 12
Derivative gains on hedge relationships 32 - -
Income tax charge relating to
items that may be reclassified 5 (5) (2) (12)
(156) 227 272
Other comprehensive (expense)/income
for the period (161) 352 317
Total comprehensive (expense)/income
for the period (243) 251 240
Attributable to:
Owners of the parent (243) 247 234
Non-controlling interests - 4 6
---------------------------------------- ------- ------------------ ----------- -------------
(243) 251 240
(1) Audited as part of the carve out Historical Financial
Information issued in the Dowlais Group plc prospectus prior to
listing on the London Stock Exchange. See note 1.2 for further
information.
Dowlais Group plc
Condensed Consolidated Statement of Cash Flows
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
Unaudited Unaudited Audited(1)
Notes GBPm GBPm GBPm
------------------------------------------ ------- ---------- ----------- ------------
Net cash from operating activities 12 82 5 210
Investing activities
Purchase of property, plant and equipment (113) (75) (202)
Proceeds from disposal of property,
plant and equipment - 19 23
Purchase of computer software and
capitalised development costs (9) (7) (20)
Dividends received from equity accounted
investments 33 29 59
Interest received 1 - 3
Net cash used in investing activities (88) (34) (137)
Financing activities
Movement in loans with Related Parties(2) 582 (35) (78)
Drawings on borrowing facilities 1,233 - -
Repayment of borrowing facilities (60) - -
Costs of raising debt finance (12) - -
Repayment of principal under lease
obligations (12) (11) (22)
Purchase of own shares (7) - -
Dividends paid to Related Parties(2) 7 (1,675) - -
------------
Net cash from/(used in) financing activities 49 (46) (100)
Net increase/(decrease) in cash and
cash equivalents, net of bank overdrafts 43 (75) (27)
Cash and cash equivalents, net of
bank overdrafts at the beginning of
the period 12 263 275 275
Effect of foreign exchange rate changes (13) 18 15
------------------------------------------ -------
Cash and cash equivalents, net of
bank overdrafts at the end of the
period 12 293 218 263
(1) Audited as part of the carve out Historical Financial
Information issued in the Dowlais Group plc prospectus prior to
listing on the London Stock Exchange. See note 1.2 for further
information.
(2) Related parties comprise Melrose Industries PLC, the
ultimate parent company prior to demerger on 20 April 2023 and
other non-group entities controlled by Melrose Industries PLC.
As at 30 June 2023, the Group had net debt of GBP849 million (31
December 2022: net funds of GBP920 million). A definition and
reconciliation of the movement in net debt is shown in note 12.
Dowlais Group plc
Condensed Consolidated Balance Sheet
30 June 30 June 31 December
2023 2022 2022
Unaudited Unaudited Audited(1)
Notes GBPm GBPm GBPm
-------------------------------------- ------- ---------- ----------- -----------
Non-current assets
Goodwill and other intangible
assets 2,885 3,135 3,075
Property, plant and equipment 1,731 1,774 1,813
Interests in equity accounted
investments 366 424 424
Loans receivable from Related
Parties(2) 14 - 3,026 2,826
Deferred tax assets 161 102 99
Derivative financial assets 22 5 9
Other financial assets 32 - -
Retirement benefit surplus 11 35 114 42
Other receivables 13 14 21
-------------------------------------- -------
5,245 8,594 8,309
Current assets
Inventories 495 497 498
Trade and other receivables 720 686 638
Derivative financial assets 53 16 24
Current tax assets 43 13 20
Cash and cash equivalents 300 218 270
1,611 1,430 1,450
Total assets 3 6,856 10,024 9,759
Current liabilities
Trade and other payables 1,211 1,174 1,188
Interest-bearing loans and borrowings 12 8 - -
Loans payable to Related Parties(2) 14 - 2,176 2,176
Lease obligations 13 22 20 25
Derivative financial liabilities 6 115 10
Current tax liabilities 126 88 109
Provisions 9 148 151 140
1,521 3,724 3,648
Net current assets/(liabilities) 90 (2,294) (2,198)
Non-current liabilities
Other payables 14 28 28
Interest-bearing loans and borrowings 12 1,141 - -
Lease obligations 13 133 139 134
Derivative financial liabilities 1 3 2
Deferred tax liabilities 360 305 293
Retirement benefit obligations 11 488 479 503
Provisions 9 214 217 186
-------------------------------------- ------- ---------- -----------
2,351 1,171 1,146
Total liabilities 3 3,872 4,895 4,794
Net assets 2,984 5,129 4,965
Equity
Issued share capital 14 - -
Share premium account 1,070 - -
Own shares (7) - -
Translation reserve (136) (5) 41
Hedging reserve 24 - -
Retained earnings 1,980 5,097 4,885
Equity attributable to owners of
the parent 2,945 5,092 4,926
Non-controlling interests 39 37 39
Total equity 2,984 5,129 4,965
(1) Audited as part of the carve out Historical Financial
Information issued in the Dowlais Group plc prospectus prior to
listing on the London Stock Exchange. See note 1.2 for further
information.
(2) Related Parties comprise Melrose Industries PLC, the
ultimate parent company prior to demerger on 20 April 2023 and
other non-group entities controlled by Melrose Industries PLC.
Dowlais Group plc
Condensed Consolidated Statement of Changes in Equity
Equity
attributable
Issued Share to owners Non-
share premium Own Translation Hedging Retained of the controlling Total
capital account shares reserve reserve earnings parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------- -------- ------- ------------ -------- ---------
At 1 January 2022 - - - (230) - 5,032 4,802 33 4,835
(Loss)/profit for
the period - - - - - (103) (103) 2 (101)
Other
comprehensive
income - - - 225 - 125 350 2 352
----------------- ------- -------- ------- ------------ -------- --------- ------------ ------------ --------
Total
comprehensive
income - - - 225 - 22 247 4 251
Transactions with
Related
Parties(1) - - - - - 43 43 - 43
----------------- ------- -------- ------- ------------ -------- --------- ------------ ------------ --------
At 30 June 2022
(unaudited) - - - (5) - 5,097 5,092 37 5,129
Profit for the
period - - - - - 21 21 3 24
Other
comprehensive
income/(expense) - - - 46 - (80) (34) (1) (35)
----------------- ------- -------- ------- ------------ -------- --------- ------------ ------------ --------
Total
comprehensive
income/(expense) - - - 46 - (59) (13) 2 (11)
Transactions with
Related
Parties(1) - - - - - (153) (153) - (153)
----------------- ------- -------- ------- ------------ -------- --------- ------------ ------------ --------
At 31 December
2022
(audited)(2) - - - 41 - 4,885 4,926 39 4,965
(Loss)/profit for
the period - - - - - (85) (85) 3 (82)
Other
comprehensive
(expense)/income - - - (177) 24 (5) (158) (3) (161)
----------------- ------- -------- ------- ------------ -------- --------- ------------ ------------ --------
Total
comprehensive
(expense)/
income - - - (177) 24 (90) (243) - (243)
Dividends paid to
Related
Parties(1)
(note 7) - - - - - (1,675) (1,675) - (1,675)
Effect of change
of ultimate
holding
company(3) 14 1,070 - - (1,084) - - -
Purchase of own
shares
by Employee
Benefit
Trust(4) - - (7) - - - (7) - (7)
Transactions with
Related
Parties(1) - - - - - (57) (57) - (57)
Equity-settled
share-based
payments - - - - - 1 1 - 1
At 30 June 2023
(unaudited) 14 1,070 (7) (136) 24 1,980 2,945 39 2,984
(1) Related Parties comprise Melrose Industries PLC, the
ultimate parent company prior to demerger on 20 April 2023 and
other non-group entities controlled by Melrose Industries PLC.
(2) Audited as part of the carve out Historical Financial
Information issued in the Dowlais Group plc prospectus prior to
listing on the London Stock Exchange. See note 1.2 for further
information.
(3) Following the demerger, the Issued share capital and Share
premium account of Dowlais Group plc were recognised in the
Condensed Interim Financial Statements. See note 2 for details of
application of merger accounting.
(4) On 31 May 2023 an Employee Benefit Trust established for the
benefit of certain employees of the Group purchased shares in the
capital of the Company to be held for the purpose of settling
awards vesting under the Group's Share Incentive Scheme.
Notes to the Condensed Interim Financial Statements
1. Corporate information
Dowlais Group plc comprises the GKN Automotive, GKN Powder
Metallurgy and GKN Hydrogen businesses along with certain Head
Office functions, together referred to as the "Group". GKN
Automotive is a global technology and systems engineer which
designs, develops, manufactures and integrates an extensive range
of driveline technologies, including electric vehicle components.
GKN Powder Metallurgy is a global leader in precision powder metal
parts for the automotive and industrial sectors, as well as the
production of powder metal. GKN Hydrogen, launched in 2021, offers
reliable and secure hydrogen storage solutions.
1.1 Corporate Structure
Dowlais Group plc was incorporated as a public company limited
by shares in England & Wales on 13 January 2023. On 28 February
2023, Melrose Industries PLC ("Melrose") transferred the entire
shareholding of G.K.N. Industries Limited and GKN Powder Metallurgy
Holdings Limited to Dowlais Group plc such that all the entities
within the Group became owned directly or indirectly by Dowlais
Group plc.
On 20 April 2023, Melrose made a distribution to its
shareholders of Dowlais Group plc shares with one Dowlais share
issued for every Melrose share held. On the same day, Dowlais Group
plc shares were admitted to the premium listing segment of the
Official List of the Financial Conduct Authority (FCA) and to
trading on the London Stock Exchange's main market for listed
securities.
Prior to 20 April 2023, the ultimate parent company and
controlling party of the Group was Melrose Industries PLC, a public
company limited by shares and incorporated in England &
Wales.
Subsidiaries of Melrose Industries PLC prior to the date of the
demerger which do not form part of the Dowlais Group are considered
non-group entities. Melrose Industries PLC and other non-group
entities controlled by Melrose Industries PLC are Related Parties
of the Group up to the date of the demerger on 20 April 2023.
1.2 Basis of Preparation
The comparative information and results up to 28 February 2023
in this set of accounts shows an aggregation of the GKN Automotive,
GKN Powder Metallurgy and GKN Hydrogen businesses along with
certain Corporate functions, which form the operating segments of
the Group. The aggregation has been prepared as though the current
legal structure of the Group was in place at the beginning of the
comparative period under the principles of merger accounting (see
note 2).
The condensed set of financial statements included in this
report have been prepared in accordance with UK-endorsed
International Financial Reporting Standards ("IFRS"). These
Condensed Interim Financial Statements do not comprise statutory
accounts within the meaning of section 435 of the Companies Act
2006 and have been prepared in accordance with IAS 34: "Interim
Financial Reporting" contained in UK-endorsed IFRS.
The information for the year ended 31 December 2022 does not
constitute statutory accounts as defined in section 434 of the
Companies Act 2006, but has been extracted from the Historical
Financial Information of Dowlais Group plc included in the
prospectus in relation to the admission of the Dowlais Group plc
ordinary shares, which is available on the Group's website at
www.dowlais.com. The auditor has reported on those accounts. Their
report was unqualified, and did not draw attention to any matters
by way of emphasis. The information for the year ended 31 December
2022 was prepared under the basis of preparation in note 1.1 to
that document and the accounting policies therein.
1.3 New Standards, Amendments and Interpretations affecting
amounts, presentation or disclosure reported in the current
period
The following amendments to IFRS Accounting Standards have been
applied for the first time by the Group. Their adoption has not had
any material impact on the amounts reported or the disclosures or
on the required amounts reported in these Condensed Interim
Financial Statements:
-- IFRS 17 Insurance Contracts (including the June 2020 and
December 2021 Amendments to IFRS 17)
-- Amendments to IAS 12 Income Taxes - Deferred Tax related to
Assets and Liabilities arising from a Single Transaction
-- Amendments to IAS 1 Presentation of Financial Statements and
IFRS Practice Statement 2 Making Materiality Judgements -
Disclosure of Accounting Policies
-- Amendments to IAS 8 Accounting Polices, Changes in Accounting
Estimates and Errors - Definition of Accounting Estimates
2. Summary of significant accounting policies
Significant accounting policies applied in preparing the Interim
Financial Statements and Alternative Performance Measures are
consistent with those detailed in the carve out Historical
Financial Information issued in the Dowlais Group plc prospectus
prior to listing on the London Stock Exchange, except for the
change in accounting policy as set out below.
During the period, the Board of Directors approved a change in
the accounting policy with respect to alternative performance
measures. Net releases of fair value provisions other than
loss-making contracts recorded upon acquisitions are no longer
included within adjusting items, as the Directors consider that the
nature of such provisions is operational and therefore the new
presentation provides reliable and more relevant financial
information.
Merger accounting
As set out in note 1.1 above, the Group was separated from
Melrose during the current period. The demerger took place while
the business was under Melrose ownership and therefore the
Directors assessed that the transaction was under common control
and outside of the scope of IFRS 3 Business Combinations.
IFRS is not prescriptive as to the accounting for such
transactions, and under IAS 8 the Directors used guidance in UK
GAAP (FRS 102) to apply merger accounting. The effects of this
accounting on the financial statements for the period were as
follows:
-- The value of the assets and liabilities of the business
were transferred to Dowlais at book value on the date of
the transaction with no adjustments required to estimate
fair value;
-- The results of the Group have been presented for a continuous
period to include both pre- and post-demerger trading with
comparatives included for prior periods as though the new
structure has always been in place.
-- As set out in the basis of preparation for the comparative,
prior year reserves are therefore presented as a translation
reserve and a single remaining balance of shareholders'
funds.
-- The comparative for Earnings Per Share has been calculated
as if the current share structure has always existed in
accordance with IAS 33.26.
-- Costs relating to the demerger are charged to the Income
Statement.
Alternative performance measures
The Group presents Alternative Performance Measures ("APMs") in
addition to the statutory results. These are presented in
accordance with the Guidelines on APMs issued by the European
Securities and Markets Authority ("ESMA"). APMs used by the Group
are set out in the glossary to these Condensed Interim Financial
Statements and the reconciling items between statutory and adjusted
results are listed below and described in more detail in note
4.
Adjusted revenue includes the Group's share of revenue from
equity accounted investments ("EAIs").
Adjusted profit measures exclude items which are significant in
size or volatility or by nature are non-trading or non-recurring,
and include adjusted profit from EAIs.
On this basis, the following are the principal items included
within adjusting items impacting operating profit:
-- Amortisation of intangible assets that are acquired in a
business combination, excluding computer software and development
costs;
-- Significant restructuring project costs and other associated
costs, including losses incurred following the announcement
of closure for identified businesses, arising from significant
strategy changes that are not considered by the Group to
be part of the normal operating costs of the business;
-- Acquisition and disposal related gains and losses;
-- Costs relating to the demerger of the Group from Melrose
Industries PLC;
-- Impairment charges that are considered to be significant
in nature and/or value to the trading performance of the
business;
-- Movement in derivative financial instruments not designated
in hedging relationships, including revaluation of associated
financial assets and liabilities;
-- Removal of adjusting items, interest and tax on equity accounted
investments to reflect operating results; and
-- The net release of loss-making contract provision fair value
items booked on acquisitions.
Further to the adjusting items above, adjusting items impacting
profit before tax include:
-- The fair value changes on cross-currency swaps, relating
to cost of hedging which are not deferred in equity;
-- The movement in loans with Related Parties as a result of
changes in foreign currency exchange rates; and
-- The fair value changes on remeasurement of non-trading financial
assets.
In addition to the items above, adjusting items impacting profit
after tax include:
-- The net effect on tax of significant restructuring from
strategy changes that are not considered by the Group to
be part of the normal operating costs of the business;
-- The net effect of significant new tax legislation; and
-- The tax effects of adjustments to profit before tax, described
above
The policy above is consistent with that used in the comparative
period, with the exception of the release of fair value items,
which from 2023 will be restricted to loss-making contract
provisions, as the Directors believe this better represents the
trading nature of such items. The effect of this change is
immaterial in 2022 and the current period.
The Board considers the adjusted results to be an important
measure used to monitor how the businesses are performing as this
provides a meaningful reflection of how the businesses are managed
and measured on a day-to-day basis and achieves consistency and
comparability between reporting periods, when all businesses are
held for a complete reporting period.
The adjusted measures are used to partly determine the variable
element of remuneration of senior management throughout the Group
and are also in alignment with performance measures used by certain
external stakeholders.
2. Summary of significant accounting policies (continued)
Alternative performance measures (continued)
Adjusted profit is not a defined term under IFRS and may not be
comparable with similarly titled profit measures reported by other
companies. It is not intended to be a substitute for, or superior
to, GAAP measures. All APMs relate to the current period results
and comparative periods where provided.
Going concern
The Condensed Interim Financial Statements have been prepared on
a going concern basis as the Directors consider that adequate
resources exist for the Company to continue in operational
existence for a period of not less than 12 months from the date of
this report. The Group's liquidity and funding arrangements are
described in the Finance Director's Review. There is significant
liquidity/financing headroom at 30 June 2023 (c. GBP0.6 billion)
and throughout the going concern forecast period. Forecast covenant
compliance is considered further below.
Covenants
The current facility has two financial covenants being a net
debt to adjusted EBITDA covenant and an interest cover covenant,
both of which are tested half yearly, in June and December
following commencement in December 2023 and June 2024
respectively.
The financial covenants for the going concern period are as
follows:
30 June 31 December 30 June
2023 2023 2024
----------------------------- --------- ------------ --------
Net debt to adjusted EBITDA N/A 3.50x 3.50x
----------------------------- --------- ------------ --------
Interest cover N/A N/A 4.00x
----------------------------- --------- ------------ --------
Testing
The Group has modelled two scenarios in its assessment of going
concern, a base case and a reasonably possible sensitised case. The
base case takes into account the estimated impact of a continued
recovery as well as other end market and operational factors,
including supply chain and inflationary challenges, throughout the
going concern period and has been monitored against the actual
results and cash generation in the period. The reasonably possible
sensitised case models more conservative sales assumptions for the
remainder of 2023 and 2024. The sensitised assumptions are specific
to each business taking into account their markets, but on average
represents a c. 11% and c. 15% reduction to the Group's forecast
revenue in each of the remainder of 2023 and 2024 respectively. The
sensitised revenues have had a consequential impact on profit and
cash flow, along with a further downside sensitivity applied to
increase working capital by approximately 2% of revenue. Given that
there is liquidity headroom of at least GBP275 million and the
Group's leverage was 2.6x at its highest point, no further
sensitivity detail is provided.
Under the reasonably possible sensitised case, even with
significant reductions, no covenant is breached at the forecast
testing dates being 31 December 2023 and 30 June 2024 and the Group
will not require any additional sources of finance.
Business combinations and goodwill
The acquisition of subsidiaries is accounted for using the
acquisition method. The cost of acquisition is measured at the fair
value of assets transferred, the liabilities incurred or assumed at
the date of exchange of control and equity instruments issued by
the Group in exchange for control of the acquiree. Control is
achieved where the Group has the power to govern the financial and
operating policies of an investee entity so as to obtain benefits
from its activities. Costs directly attributable to business
combinations are recognised as an expense in the Income Statement
as incurred.
The acquired identifiable assets and liabilities are measured at
their fair value at the date of acquisition except those where
specific guidance is provided by IFRSs. Non-current assets and
directly attributable liabilities that are classified as held for
sale in accordance with IFRS 5: Non-current assets held for sale
and discontinued operations, are recognised and measured at fair
value less costs to sell. Also, deferred tax assets and liabilities
are recognised and measured in accordance with IAS 12: Income
taxes, liabilities and assets related to employee benefit
arrangements are recognised and measured in accordance with IAS 19
(revised): Employee benefits and liabilities or equity instruments
related to the replacement by the Group of an acquiree's
share-based payments awards are measured in accordance with IFRS 2:
Share-based payment.
Any excess of the cost of the acquisition over the fair values
of the identifiable net assets acquired is recognised as goodwill.
If the initial accounting for a business combination is incomplete
by the end of the reporting period in which the combination occurs,
the Group reports provisional amounts where appropriate. Those
provisional amounts are adjusted during the measurement period, or
additional assets or liabilities recognised, to reflect new
information obtained about facts and circumstances that existed as
of the acquisition date that, if known, would have affected the
amounts recognised at that date.
The measurement period is the period from the date of
acquisition to the date the Group obtains complete information
about facts and circumstances that existed as of the acquisition
date and is subject to a maximum period of one year.
Goodwill on acquisition is initially measured at cost, being the
excess of the sum of the consideration transferred, the amount of
any non-controlling interest in the acquiree and the fair value of
the acquirer's previously held equity interest in the acquiree over
the acquirer's interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities. Following initial
recognition, goodwill is measured at cost less any accumulated
impairment losses. Goodwill is reviewed for impairment annually or
more frequently if events or changes in circumstances indicate that
the carrying value may be impaired.
If, after reassessment, the Group's interest in the fair value
of the acquiree's identifiable net assets exceeds the sum of the
consideration transferred, the amount of any non-controlling
interest in the acquiree and the fair value of the acquirer's
previously held equity interest in the acquiree, the excess is
recognised immediately in profit or loss as a bargain purchase
gain.
2. Summary of significant accounting policies (continued)
Business combinations and goodwill (continued)
As at the acquisition date, any goodwill acquired is allocated
to the cash generating units acquired. Impairment is determined by
assessing the recoverable amount of the cash generating unit to
which goodwill relates. Where the recoverable amount of the
cash-generating unit is less than the carrying amount, an
impairment loss is recognised in the Income Statement and is not
subsequently reversed. When there is a disposal of a cash
generating unit, goodwill relating to the operation disposed of is
taken into account in determining the gain or loss on disposal of
that operation. The amount of goodwill allocated to a partial
disposal is measured on the basis of the relative values of the
operation disposed of and the operation retained.
Equity accounted investments
A joint venture is an entity which is not a subsidiary
undertaking but where the interest of the Group is that of a
partner in a business over which the Group exercises joint control
with its partners over the financial and operating policies. In all
cases voting rights are 50% or lower.
Associated undertakings are entities that are neither a
subsidiary nor a joint venture, but where the Group has a
significant influence.
The results, assets and liabilities of equity accounted
investments are accounted for using the equity method of
accounting. The Group's share of equity includes goodwill arising
on acquisition.
When a Group entity transacts with an equity accounted
investment of the Group, profits and losses resulting from the
transactions with the equity accounted investments are recognised
in the Income Statement only to the extent of interests in equity
accounted investments that are not related to the Group.
Revenue
Revenues are recognised at the point of transfer of control of
goods, as no revenue qualifies to be recognised over time. Costs
are recognised as they are incurred.
The nature of agreements into which the Group enters means that
certain of the Group's arrangements with its customers have
multiple elements that can include a combination of:
-- Sale of products; and
-- Design and build.
Contracts are reviewed to identify each performance obligation
relating to distinct goods and the associated consideration. The
Group allocates revenue to multiple element arrangements based on
the identified performance obligations within the contracts in line
with the policies below. A performance obligation is identified if
the customer can benefit from the goods on their own or together
with other readily available resources, and it can be separately
identified within the contract. This review is performed by
reference to the specific contract terms.
Sale of products
This revenue stream accounts for the majority of Group
sales.
Invoices for goods are raised and revenue is recognised when
control of the goods is transferred to the customer. Dependent upon
contractual terms this may be at the point of despatch or
acceptance by the customer. Revenue recognised is the transaction
price as it is the observable selling price per product.
Cash discounts, volume rebates and other customer incentive
programmes are based on certain percentages agreed with the Group's
customers, which are typically earned by the customer over an
annual period. These are allocated to performance obligations and
are recorded as a reduction in revenue at the point of sale based
on the estimated future outcome. Due to the nature of these
arrangements an estimate is made based on historical results to
date, estimated future results across the contract period and the
contractual provisions of the customer agreement.
Many businesses in the Automotive and Powder Metallurgy segments
recognise an element of revenue via a surcharge or similar raw
material cost recovery mechanism. The surcharge is generally based
on prior period movement in raw material price indices applied to
current period deliveries.
Participation fees are payments made to original equipment
manufacturers relating to long-term agreements. They are recognised
as contract assets to the extent that they can be recovered from
future sales over the programme life, generally up to seven
years.
Design and build
This revenue stream affects a discrete number of businesses in
the Automotive segment. Generally, revenue is only recognised on
the sale of product as detailed above, however, on occasions cash
is received in advance of work performed to compensate the Group
for costs incurred in design and development activities. The Group
performs an assessment of its performance obligations to understand
multiple elements. As there is generally only one performance
obligation, any cash received in advance is deferred on the Balance
Sheet and allocated across the deliveries required under the
contract.
2. Summary of significant accounting policies (continued)
Finance income
Finance income is recognised when it is probable that the
economic benefits will flow to the Group and the amount of income
can be measured reliably. Finance income is accrued on a time
basis, by reference to the principal outstanding and the effective
interest rate applicable.
Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets, which are assets
that necessarily take a substantial period of time to get ready for
their intended use or sale, are added to the cost of those assets,
until such time as the assets are substantially ready for their
intended use or sale. Investment income earned on the temporary
investment of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs eligible for
capitalisation.
All other borrowing costs are recognised in the Income Statement
in the period in which they are incurred.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation and any impairment in value.
The initial cost of an asset comprises its purchase price or
construction cost, any costs directly attributable to bring the
asset into operation, and any material borrowing costs on
qualifying assets. Qualifying assets are defined as an asset or
programme where the period of capitalisation is more than 12
months. Purchase price or construction cost is the aggregate amount
paid and the fair value of any other consideration given to acquire
the asset.
Where assets are in the course of construction at the balance
sheet date, they are classified as capital work-in-progress.
Transfers are made to other asset categories when they are
available for use, at which point depreciation commences.
Right-of-use assets arise under IFRS 16 and are depreciated over
the shorter of the estimated life and the lease term.
Depreciation is calculated on a straight-line basis over the
estimated useful life of the asset as follows:
Freehold land nil
Freehold buildings and leasehold property over expected economic
life not exceeding 50 years
Short leasehold property over the term of the lease
Plant and equipment 3-15 years
The estimated useful lives of property, plant and equipment are
reviewed on an annual basis and, if necessary, changes in useful
lives are accounted for prospectively.
The carrying values of property, plant and equipment are
reviewed annually for indicators of impairment, or if events or
changes in circumstances indicate that the carrying value may not
be recoverable. If such indication exists an impairment test is
performed and, where the carrying values exceed the estimated
recoverable amount, the assets are written down to their
recoverable amount. The recoverable amount of property, plant and
equipment is the greater of net selling price and value in use. In
assessing value in use, estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks
specific to the asset. For an asset that does not generate largely
independent cash inflows, the recoverable amount is determined for
the cash-generating unit to which the asset belongs.
An item of property, plant and equipment is derecognised upon
disposal or when no future economic benefits are expected to arise
from the continued use of the asset. Any gain or loss arising on
derecognition of the asset (calculated as the difference between
the net disposal proceeds or costs and the carrying amount of the
item) is included in the Income Statement in the period that the
item is derecognised.
Intangible assets
Intangible assets are stated at cost less accumulated
amortisation and accumulated impairment losses.
On acquisition of businesses, separately identifiable intangible
assets are initially recorded at their fair value at the
acquisition date.
Access to the use of brands and intellectual property are valued
using a "relief from royalty" method which determines the net
present value of future additional cash flows arising from the use
of the intangible asset.
Customer relationships and contracts are valued on the basis of
the net present value of the future additional cash flows arising
from customer relationships with appropriate allowance for
attrition of customers.
Technology assets are valued using a replacement cost approach,
or a "relief from royalty" method.
2. Summary of significant accounting policies (continued)
Intangible assets (continued)
Amortisation of intangible assets is recorded in administration
expenses in the Income Statement and is calculated on a
straight-line basis over the estimated useful lives of the asset as
follows:
Customer relationships and contracts 20 years or less
Brands and intellectual property 20 years or less
Technology 9 years or less
Computer software 5 years or less
Development costs 6 years or less
Where computer software is not integral to an item of property,
plant or equipment, its costs are capitalised and categorised as
intangible assets. Computer software is initially recorded at cost.
Where these assets have been acquired through a business
combination, this will be the fair value allocated in the
acquisition accounting. Where these have been acquired other than
through a business combination, the initial cost is the aggregate
amount paid and the fair value of any other consideration given to
acquire the asset.
Intangible assets (other than computer software and development
costs) are tested for impairment annually or more frequently
whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Impairment losses are
measured on a similar basis to property, plant and equipment.
Useful lives are also examined on an annual basis and adjustments,
where applicable, are made on a prospective basis.
Research and development costs
Research costs are expensed as incurred.
Costs relating to clearly defined and identifiable development
projects are capitalised when there is a technical degree of
exploitation, adequacy of resources and a potential market or
development possibility in the undertaking that are recognisable;
and where it is the intention to produce, market or execute the
project. A correlation must also exist between the costs incurred
and future benefits and those costs must be able to be measured
reliably. Capitalised costs are expensed on a straight-line basis
over their useful lives of 6 years or less. Costs not meeting such
criteria are expensed as incurred.
Inventories
Inventories are valued at the lower of cost and net realisable
value and are measured using a first in, first out or weighted
average cost basis. Cost includes all direct expenditure and
appropriate production overhead expenditure incurred in bringing
goods to their current state under normal operating conditions. Net
realisable value is based on estimated selling price less costs
expected to be incurred to completion and disposal. Provisions are
made for obsolescence or other expected losses where necessary.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, balances with
banks and similar institutions, and short-term deposits which are
readily convertible to cash and are subject to insignificant risks
of changes in value.
For the purpose of the Statement of Cash Flows, cash and cash
equivalents consist of cash and cash equivalents as defined above,
net of outstanding bank overdrafts.
Loans with Related Parties
Loans with Related Parties consisted of loans with the ultimate
parent Melrose Industries PLC and other non-group entities owned by
Melrose Industries PLC prior to the Group demerging from Melrose
Industries PLC on 20 April 2023.
Interest bearing loans and borrowings
All loans and borrowings are initially recognised at fair value
of the consideration received net of associated issue costs. After
initial recognition, interest-bearing loans and borrowings are
subsequently measured at amortised cost using the effective
interest rate method. Amortised cost is calculated by taking into
account any issue costs, and any discount or premium on
settlement.
Gains and losses are recognised in the Income Statement when the
liabilities are derecognised or impaired, as well as through the
amortisation process.
Issue costs of loans
The finance cost recognised in the Income Statement in respect
of the issue costs of borrowings is allocated to periods over the
terms of the instrument using the effective interest rate
method.
Leases
Where a lease arrangement is identified, a liability to the
lessor is included in the Balance Sheet as a lease obligation
calculated at the present value of minimum lease payments. A
corresponding right-of-use asset is recorded in property, plant and
equipment. The discount rate used to calculate the lease liability
is the Group's incremental borrowing rate, unless there is a rate
implicit in the lease. The incremental borrowing rate is used for
the majority of leases. Incremental borrowing rates are based on
the term, currency, country and start date of the lease and reflect
the rate the Group would pay for a loan with similar terms and
security.
Following initial recognition, the lease liability is measured
at amortised cost using the effective interest rate method. Where
there is a change in future lease payments due to a rent review,
change in index or rate, or a change in the Group's assessment of
whether it is reasonably certain to exercise a purchase, extension
or break option, the lease obligation is remeasured. A
corresponding adjustment is made to the associated right-of-use
asset. Right-of-use assets are depreciated over the shorter of the
estimated useful life of the asset and the lease term.
2. Summary of significant accounting policies (continued)
Leases (continued)
Lease payments are apportioned between finance costs and a
reduction in the lease obligation so as to reflect the interest on
the remaining balance of the obligation. Finance charges are
recorded in the Income Statement within finance costs.
Leases with a term of 12 months or less and leases for low value
are not recorded on the Balance Sheet and lease payments are
recognised as an expense in the Income Statement on a straight-line
basis over the lease term. Expenses relating to variable lease
payments which are not included in the lease liability, due to
being based on a variable other than an index or rate, are
recognised as an expense in the Income Statement.
Financial instruments - assets
Classification and measurement
All financial assets are classified as either those which are
measured at fair value, through profit or loss or Other
Comprehensive Income, and those measured at amortised cost.
Financial assets are initially recognised at fair value. For
those which are not subsequently measured at fair value through
profit or loss, this includes directly attributable transaction
costs. Trade and other receivables, contract assets and amounts due
from equity accounted investments are subsequently measured at
amortised cost.
Recognition and derecognition of financial assets
Financial assets are recognised in the Balance Sheet when the
Group becomes a party to the contractual provisions of the
instrument. The Group derecognises a financial asset only when the
contractual rights to the cash flows from the asset expire, or when
it transfers the financial asset and substantially all the risks
and rewards of ownership of the asset to another entity.
Impairment of financial assets
For trade receivables and contract assets, the simplified
approach permitted under IFRS 9 is applied. The simplified approach
requires that at the point of initial recognition the expected
credit loss across the life of the receivable must be recognised.
As these balances do not contain a significant financing element,
the simplified approach relating to expected lifetime losses is
applicable under IFRS 9. Cash and cash equivalents and other
receivables are also subject to impairment requirements.
Derivatives over own equity
The Group holds a derivative asset over its own equity as a
result of a contract for its own shares to be returned to it at nil
cost under certain circumstances. As a transaction with a
shareholder, the asset was initially recognised directly in equity
at the fair value of the shares expected to be returned. Following
initial recognition, the derivative asset is held on the Balance
Sheet at fair value. Gains and losses arising on the remeasurement
of the asset are recognised immediately in the Income
Statement.
Trade and other receivables
Trade and other receivables are measured and carried at
amortised cost using the effective interest method, less any
impairment. For trade receivables, the carrying amount is reduced
by an allowance for expected lifetime losses. Subsequent recoveries
of amounts previously written off are credited against the
allowance account and changes in the carrying amount of the
allowance account are recognised in the Income Statement.
Trade receivables that are assessed not to be impaired
individually are also assessed for impairment on a collective
basis. In measuring the expected credit losses, the Group considers
all reasonable and supportable information such as the Group's past
experience at collecting receipts, any increase in the number of
delayed receipts in the portfolio past the average credit period,
and forward looking information such as forecasts of future
economic decisions.
Other receivables are also considered for impairment and if
required the carrying amount is reduced by any loss arising which
is recorded in the Income Statement, although for the Group this is
not material.
Financial instruments - liabilities
Recognition and derecognition of financial liabilities
Financial liabilities are recognised in the Balance Sheet when
the Group becomes a party to the contractual provisions of the
instruments and are initially measured at fair value, net of
transaction costs. The Group derecognises financial liabilities
when the Group's obligations are discharged, significantly
modified, cancelled or they expire.
Classification and measurement
Non-derivative financial liabilities are subsequently measured
at amortised cost using the effective interest method, with
interest expense recognised on an effective interest rate basis.
The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest
expense over the relevant periods. The effective interest rate is
the rate that discounts estimated future cash payments throughout
the expected life of the financial liability, or, where
appropriate, a shorter period to the gross carrying amount of the
financial liability.
2. Summary of significant accounting policies (continued)
Financial instruments - liabilities (continued)
Derivative financial instruments
The Group uses derivative financial instruments to manage its
exposure to interest rate, foreign exchange rate and commodity
risks, arising from operating and financing activities. The Group
does not hold or issue derivative financial instruments for
speculative trading purposes.
Derivative financial instruments are recognised and stated at
fair value in the Balance Sheet. Their fair value is recalculated
at each reporting date. The accounting treatment for the resulting
gain or loss will depend on whether the derivative meets the
criteria to qualify for hedge accounting and are designated as
such.
Where derivatives do not meet the criteria to qualify for hedge
accounting, any gains or losses on the revaluation to fair value at
the period end are recognised immediately in the Income Statement.
Where derivatives do meet the criteria to qualify for hedge
accounting, recognition of any resulting gain or loss on
revaluation depends on the nature of the hedge relationship and the
item being hedged.
Derivative financial instruments with maturity dates of less
than one year from the period end date are classified as current in
the Balance Sheet. Derivatives embedded in non-derivative host
contracts are recognised at their fair value in the Balance Sheet
when the nature, characteristics and risks of the derivative are
not closely related to the host contract. Gains and losses arising
on the remeasurement of these embedded derivatives at each balance
sheet date are recognised in the Income Statement.
Hedge accounting
In order to qualify for hedge accounting, the Group is required
to document from inception the relationship between the item being
hedged and the hedging instrument, along with its risk management
objectives and its strategy for undertaking various hedge
transactions. Furthermore, at the inception of the hedge and on an
ongoing basis, the Group documents that the hedge will be highly
effective, which is when the hedging relationships meet all of the
following hedge effectiveness requirements:
-- there is an economic relationship between the hedged item and the hedging instrument;
-- the effect of credit risk does not dominate the value changes
that result from that economic relationship; and
-- the hedge ratio of the hedging relationship is the same as
that resulting from the quantity of the hedged item that the Group
actually hedges and the quantity of the hedging instrument that the
Group actually uses to hedge that quantity of hedged item.
The Group discontinues hedge accounting only when the hedging
relationship (or a part thereof) ceases to meet the qualifying
criteria (after rebalancing, if applicable). This includes
instances when the hedging instrument expires or is sold,
terminated or exercised. The discontinuation is accounted for
prospectively. The Group designates certain hedging instruments as
either cash flow hedges or hedges of net investments in foreign
operations.
No hedge accounting was in place within the Group prior to the
demerger from the Melrose Industries PLC group.
Cash flow hedge
Derivative financial instruments are classified as cash flow
hedges when they hedge the Group's exposure to the variability in
cash flows that are either attributable to a particular risk
associated with a recognised asset or liability, or a highly
probable forecasted cash flow.
The Group designates the full change in the fair value of
interest rate swap contracts as the hedging instrument for variable
interest rate exposure on debt. The effective portion of any gain
or loss from revaluing the derivative financial instrument is
recognised in the Statement of Comprehensive Income and accumulated
in equity. The gain or loss relating to the ineffective portion is
recognised immediately in the Income Statement.
Amounts previously recognised in the Statement of Comprehensive
Income and accumulated in equity are recycled to the Income
Statement in the periods when the hedged item is recognised in the
Income Statement or when the forecast transaction is no longer
expected to occur.
Hedges of net investments in foreign operations
Debt financial instruments are classified as net investment
hedges when they hedge the Group's net investment in foreign
operations. The effective element of any foreign exchange gain or
loss from revaluing the debt at a reporting period end is
recognised in the Statement of Comprehensive Income. Any
ineffective element is recognised immediately in the Income
Statement.
Gains and losses accumulated in equity are recognised
immediately in the Income Statement when the foreign operation is
disposed.
Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. If the effect
of the time value of money is material, provisions are determined
by discounting the expected future cash flows at a rate that
reflects the current market assessment of the time value of money
and, where appropriate, the risks specific to the liability. Where
discounting is used, the increase in the provision due to the
passage of time is recognised as a finance cost.
2. Summary of significant accounting policies (continued)
Pensions and other retirement benefits
The Group operates defined benefit pension plans and defined
contribution plans, some of which require contributions to be made
to administered funds separate from the Group.
For the defined benefit pension and retirement benefit plans,
plan assets are measured at fair value and plan liabilities are
measured on an actuarial basis and discounted at an interest rate
equivalent to the current rate of return on a high-quality
corporate bond of equivalent currency and term to the plan
liabilities. Any assets resulting from this calculation are limited
to past service cost plus the present value of available refunds
and reductions in future contributions to the plan. The present
value of the defined benefit obligation, and the related current
service cost and past service cost, are measured using the
projected unit credit method.
The service cost of providing pension and other retirement
benefits to employees for the period is charged to the Income
Statement.
Net interest expense on net defined benefit obligations is
determined by applying discount rates used to measure defined
benefit obligations at the beginning of the year to net defined
benefit obligations at the beginning of the year. The net interest
expense is recognised within finance costs.
Remeasurement gains and losses comprise actuarial gains and
losses, the effect of the asset ceiling (if applicable) and the
return on plan assets (excluding interest). Remeasurement gains and
losses, and taxation thereon, are recognised in full in the
Statement of Comprehensive Income in the period in which they occur
and are not subsequently recycled.
Actuarial gains and losses may result from differences between
the actuarial assumptions underlying the plan obligations and
actual experience during the period or changes in the actuarial
assumptions used in the valuation of the plan obligations.
For defined contribution plans, contributions payable are
charged to the Income Statement as an operating expense when
employees have rendered services entitling them to the
contributions.
Foreign currencies
The individual financial statements of each Group company are
presented in the currency of the primary economic environment in
which it operates (its functional currency). For the purpose of the
Group's consolidated Financial Statements, the results and
financial position of each Group company are expressed in pounds
Sterling, which is also the presentation currency.
In preparing the financial statements of the individual
companies, transactions in currencies other than the entity's
functional currency (foreign currencies) are recorded at the rates
of exchange prevailing on the dates of the transactions. At each
balance sheet date, monetary assets and liabilities that are
denominated in foreign currencies are retranslated at the rates
prevailing on the balance sheet date. Non-monetary items carried at
fair value that are denominated in foreign currencies are
translated at the rates prevailing at the date when the fair value
was determined. Non-monetary items that are measured in terms of
historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary
items, and on the retranslation of monetary items, are included in
the Income Statement for the period. Exchange differences arising
on the retranslation of non-monetary items carried at fair value
are included in the Income Statement for the period except for
differences arising on the retranslation of non-monetary items in
respect of which gains and losses are recognised directly in total
invested capital. For such non-monetary items, any exchange
component of that gain or loss is also recognised directly in total
invested capital.
For the purpose of presenting the Group's consolidated Financial
Statements, the assets and liabilities of the Group's foreign
operations are translated at exchange rates prevailing on the
balance sheet date. Income and expense items are translated at the
average exchange rates for the period, unless exchange rates
fluctuate significantly during that period, in which case the
exchange rates at the date of transactions are used. Exchange
differences arising, if any, are recognised in the Statement of
Comprehensive Income and accumulated in equity (attributed to
non-controlling interests as appropriate). Such translation
differences are recognised as income or as expenses in the period
in which the related operation is disposed of. Any exchange
differences that have previously been attributed to non-controlling
interests are derecognised but they are not reclassified to the
Income Statement.
Goodwill and fair value adjustments arising on the acquisition
of a foreign entity are treated as assets and liabilities of the
foreign entity and translated at the rate prevailing at the balance
sheet date.
Taxation
The tax expense is based on the taxable profits for the period
and represents the sum of the tax paid or currently payable and
deferred tax.
Taxable profit differs from net profit as reported in the Income
Statement because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items
that are never taxable or deductible. The Group's liability for
current tax is calculated using tax rates and tax laws that have
been enacted or substantively enacted by the balance sheet
date.
A tax provision is recognised for those matters for which the
tax determination is uncertain but it is considered probable that
there will be a future outflow of funds to a tax authority. The
provisions are measured at the best estimate of the amount expected
to become payable. The assessment is based on the judgement of tax
professionals within the Company supported by previous experience
in respect of such activities and in certain cases based on
specialist independent advice.
Deferred tax is provided, using the liability method, on all
temporary differences at the balance sheet date between the tax
bases of assets and liabilities and their carrying amounts for
financial reporting purposes.
2. Summary of significant accounting policies (continued)
Taxation (continued)
Deferred tax liabilities are recognised for all taxable
temporary differences except:
-- where the deferred tax liability arises on the initial
recognition of goodwill or an asset or liability in a transaction
that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable
profit or loss; and
-- where the timing of the reversal of the temporary differences
associated with investments in subsidiaries and interests in equity
accounted investments can be controlled and it is probable that the
temporary differences will not reverse in the foreseeable
future.
Deferred tax assets are recognised for all deductible temporary
differences, carry-forward of unused tax assets and unused tax
losses, to the extent that it is probable that taxable profit will
be available against which the deductible temporary differences,
and carry-forward of unused tax assets and unused tax losses can be
utilised except:
-- where the deferred tax asset arises from the initial
recognition of an asset or liability in a transaction that is not a
business combination and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or loss; and
-- in respect of deductible temporary differences associated
with investments in subsidiaries and interests in equity accounted
investments, deferred tax assets are only recognised to the extent
that it is probable that the temporary differences will reverse in
the foreseeable future and taxable profit will be available against
which the temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow
all or part of the deferred tax asset to be utilised.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply to the year when the asset is
realised or the liability is settled, based on tax rates and tax
laws that have been enacted or substantively enacted at the
relevant balance sheet date.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied
by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis.
Tax relating to items recognised directly in other comprehensive
income is recognised in the Statement of Comprehensive Income and
not in the Income Statement.
Revenues, expenses and assets are recognised net of the amount
of sales tax except:
-- where the sales tax incurred on a purchase of goods and
services is not recoverable from the taxation authority, in which
case the sales tax is recognised as part of the cost of acquisition
of the asset or as part of the expense item as applicable; and
-- where receivables and payables are stated with the amount of
sales tax included.
The net amount of sales tax recoverable from, or payable to, the
taxation authority is included as part of receivables or payables
in the Balance Sheet.
Share-based payments
The Group has applied the requirements of IFRS 2: "Share-based
payment". The Group issues equity-settled share-based payments to
certain employees. Equity-settled share-based payments are measured
at fair value of the equity instrument excluding the effect of
non-market based vesting conditions at the date of grant. The fair
value determined at the grant date of the equity-settled
share-based payments is expensed on a straight-line basis over the
vesting period, based on the Group's estimate of shares that will
eventually vest and adjusted for the effect of non-market based
vesting conditions. Fair value is measured by use of a Monte Carlo
pricing model.
Government grants
Government grants are not recognised in the Income Statement
until there is reasonable assurance that the Group will comply with
the conditions attached to them and that the grants will be
received. Government grants are recognised in the Income Statement
on a systematic basis over the periods in which the Group
recognises the related costs for which the grants are intended to
compensate.
Specifically, government grants where the primary condition is
that the Group should purchase, construct or otherwise acquire
non-current assets (including property, plant and equipment) are
recognised as deferred government grants in the Balance Sheet and
transferred to the Income Statement on a systematic and rational
basis over the useful lives of the related assets.
Government grants that are receivable as compensation for
expenses or losses already incurred or for the purpose of giving
immediate financial support to the Group with no future related
costs are recognised in the Income Statement in the period in which
they become receivable.
2. Summary of significant accounting policies (continued)
Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies, which are
described above, the Executive Directors are required to make
judgements, estimates and assumptions about the carrying amounts of
assets and liabilities that are not readily apparent from other
sources. The estimates and associated assumptions are based on
historical experiences and other factors that are considered to be
relevant. Full detail on the critical accounting judgements and key
sources of estimation uncertainty are included on pages 98 - 100 of
the Carve-out Historical Financial Information included within the
Dowlais Group plc prospectus which is published on the Group's
website at www.dowlais.com.
There have been no change to the Group's critical judgements or
key sources of estimation uncertainty during the period.
Assumptions used to determine the recoverable amount of goodwill
and other assets
In accordance with IAS 36, the Group assesses its goodwill and
other assets for impairment formally each year, at the testing date
of 31 October. An impairment indicator assessment has been
performed at 30 June 2023 and no impairment has been identified at
this date. However, as this remains a key source of estimation
uncertainty, assumptions and sensitivities have been included below
as at 31 December 2022, as previously detailed in the Group's
Carve-out Historical Financial Information found within the Dowlais
Group plc prospectus.
Determining whether the goodwill of groups of cash generating
units ("CGUs") is impaired requires an estimation of its
recoverable amount which is compared against the carrying value.
The fair values of the groups of CGUs are calculated using a
combination of estimated discounted cash flows and EBITDA multiple
valuations, as in the current environment it has been difficult to
assess a sales value using observable market inputs (level 1) or
inputs based on market evidence (level 2) and so unobservable
inputs (level 3) have been used.
The Automotive and Powder Metallurgy groups of CGUs are
sensitive to a change in estimates, depending on how their markets
continue to recover from the implications of the COVID-19 pandemic
and supply chain disruption as well as how they continue to recover
inflation impacts on input costs. As at 31 December 2022, the
carrying amount of goodwill and other intangible assets (not
including computer software and development costs) in the
Automotive group of CGUs was GBP1,938 million and in the Powder
Metallurgy group of CGUs was GBP1,081 million.
In order for a material impairment charge or loss on disposal to
be recorded in the 12 months from 31 December 2022, the following
reasonably possible changes in key assumptions would need to
occur:
-- In the Automotive groups of CGUs a reasonably possible change
in the discount rate and long-term growth rate from 11.25% to
12.50% or from 3.5% to 1.8% respectively would reduce headroom to
GBPnil. Continuing the recovery of inflationary impacts on input
costs is key to margin assumptions and a reduction in the terminal
operating profit of 15% would reduce the terminal operating margin
by 1.6 percentage points reducing headroom to GBPnil.
-- In the Powder Metallurgy groups of CGUs, a reasonably
possible change in the discount rate and long-term growth rate from
12.0% to 12.5% or from 3.9% to 3.2% respectively would reduce
headroom to GBPnil. Optimising market penetration is key to margin
assumptions and a reduction in the terminal operating profit of 8%
would reduce the terminal operating margin by 1.0 percentage points
reducing headroom to GBPnil.
3. Segment information
Segment information is presented in accordance with IFRS 8:
"Operating segments" which requires operating segments to be
identified on the basis of internal reports about components of the
Group that are regularly reported to the Group's Chief Operating
Decision Maker ("CODM"), which has been deemed to be the Group's
Board, in order to allocate resources to the segments and assess
their performance.
The operating segments are as follows:
Automotive - a global technology and systems engineer which
designs, develops, manufactures and integrates an extensive range
of driveline technologies, including electric vehicle
components.
Powder Metallurgy - a global leader in precision powder metal
parts for the automotive and industrial sectors, as well as the
production of powder metal.
Hydrogen - offering reliable and secure hydrogen storage
solutions, launched in 2021.
In addition, there are central cost centres which are also
reported to the Board. The central corporate cost centres contain
the Group head office costs and charges related to the divisional
management long-term incentive plans.
Reportable segment results include items directly attributable
to a segment as well as those which can be allocated on a
reasonable basis. Inter-segment pricing is determined on an arm's
length basis, in a manner similar to transactions with third
parties.
The Group's geographical segments are determined by the location
of the Group's non-current assets and, for revenue, the location of
external customers. Inter-segment sales are not material and have
not been disclosed.
The following tables present the segment revenues and operating
profits as regularly reported to the CODM, as well as certain asset
and liability information regarding the Group's operating segments
and central cost centres for the six-month period ended 30 June
2023 and comparative periods.
a) Segment revenues
6 months ended 30 June 2023
Powder
Automotive Metallurgy Hydrogen Total
Notes GBPm GBPm GBPm GBPm
----------------------------- ----- ------------- ------------ ---------- -------
Adjusted revenue 2,283 545 2 2,830
Equity accounted investments 8 (265) (13) - (278)
----------------------------- ----- ------------- ------------ ---------- -------
Revenue 2,018 532 2 2,552
6 months ended 30 June 2022
Powder
Automotive Metallurgy Hydrogen Total
Notes GBPm GBPm GBPm GBPm
----------------------------- ----- ------------- ------------ ---------- -------
Adjusted revenue 2,003 515 - 2,518
Equity accounted investments 8 (270) (12) - (282)
----------------------------- ----- ------------- ------------ ---------- -------
Revenue 1,733 503 - 2,236
Year ended 31 December 2022
Powder
Automotive Metallurgy Hydrogen Total
Notes GBPm GBPm GBPm GBPm
----------------------------- ----- ------------- ------------- ---------- -------
Adjusted revenue 4,223 1,022 1 5,246
Equity accounted investments 8 (625) (26) - (651)
Revenue 3,598 996 1 4,595
3. Segment information (continued)
b) Segment operating profit
6 months ended 30 June
2023
Powder
Automotive Metallurgy Hydrogen Corporate Total
GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------------- ------------ ---------- --------- -------
Adjusted operating profit/(loss) 149 50 (8) (14) 177
Items not included in
adjusted operating profit
(1) :
Amortisation of intangible
assets acquired in business
combinations (74) (25) - - (99)
Restructuring costs (86) (2) - - (88)
Demerger costs - - - (39) (39)
Movement in derivatives
and associated financial
assets and liabilities (9) - - 30 21
Equity accounted investments
adjustments (14) - - - (14)
Net release and changes
in discount rates of
certain fair value items - 2 - - 2
Operating (loss)/profit (34) 25 (8) (23) (40)
Finance costs (40)
Finance income 25
Loss before tax (55)
Tax (27)
Loss after tax for the
period (82)
(1) For further details on adjusting items, refer to note 4.
6 months ended 30 June
2022
Powder
Automotive Metallurgy Hydrogen Corporate Total
GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------------- ------------ ---------- --------- -------
Adjusted operating profit/(loss) 78 54 (6) 1 127
Items not included in
adjusted operating profit
(1) :
Amortisation of intangible
assets acquired in business
combinations (72) (25) - - (97)
Restructuring costs (19) (10) - - (29)
Movement in derivatives
and associated financial
assets and liabilities (3) (1) - 7 3
Equity accounted investments
adjustments (14) - - - (14)
Net release and changes
in discount rates of
certain fair value items - 2 - - 2
Impairment of assets (20) - - - (20)
Acquisition and disposal
related gains - - - 1 1
Operating (loss)/profit (50) 20 (6) 9 (27)
Finance costs (185)
Finance income 82
Loss before tax (130)
Tax 29
Loss after tax for the
period (101)
(1) For further details on adjusting items, refer to note 4.
3. Segment information (continued)
b) Segment operating profit (continued)
Year ended 31 December Powder
2022 Automotive Metallurgy Hydrogen Corporate Total
GBPm GBPm GBPm GBPm GBPm
---------------------------------- -------------- ------------ --------- ---------- --------
Adjusted operating profit/(loss) 250 96 (14) 1 333
Items not included in
adjusted operating profit(1)
:
Amortisation of intangible
assets acquired in business
combinations (147) (51) - - (198)
Restructuring costs (37) (17) - - (54)
Movement in derivatives
and associated financial
assets and liabilities (7) (1) - 23 15
Equity accounted investments
adjustments (29) - - - (29)
Net release and changes
in discount rates of
certain fair value items 5 9 - - 14
Impairment of assets (20) - - - (20)
Acquisition and disposal
related (losses)/gains (4) - - 1 (3)
Operating profit/(loss) 11 36 (14) 25 58
Finance costs (272)
Finance income 151
Loss before tax (63)
Tax (14)
Loss after tax for the
year (77)
(1) For further details on adjusting items, refer to note 4.
c) Segment total assets and liabilities
Total assets Total liabilities
------------------- -------------------------------- --------------------------------
30 June 30 June 31 December 30 June 30 June 31 December
2023 2022 2022 2023 2022 2022
GBPm GBPm GBPm GBPm GBPm GBPm
------------------- -------- -------- ------------ -------- -------- ------------
Automotive 4,692 3,389 4,832 2,244 2,111 2,177
Powder Metallurgy 1,727 1,812 1,791 410 463 409
Hydrogen 15 5 7 6 1 6
Corporate 422 4,818 3,129 1,212 2,320 2,202
------------------- -------- -------- ------------ -------- -------- ------------
Total 6,856 10,024 9,759 3,872 4,895 4,794
d) Segment capital expenditure and depreciation
Capital expenditure Depreciation of Depreciation of
(1) owned assets (1) leased assets
------------ -------------------------------- ---------------------------------- ----------------------------------
6 6 6 6 6
months months Year months months months
ended ended ended ended ended Year ended 6 months
30 30 31 30 30 ended 30 ended Year ended
June June December June June 31 December June 30 June 31 December
2023 2022 2022 2023 2022 2022 2023 2022 2022
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ -------- -------- ------------ -------- --------- ------------- -------- --------- -------------
Automotive 97 64 187 90 92 184 8 7 14
Powder
Metallurgy 12 19 44 26 26 53 5 4 10
Hydrogen 2 - - - - - - - -
Corporate - - - - - - - - -
------------ -------- -------- ------------ -------- --------- ------------- -------- --------- -------------
Total 111 83 231 116 118 237 13 11 24
(1) Includes computer software and development costs. Capital
expenditure excludes lease additions.
3. Segment information (continued)
e) Geographical information
The Group operates in various geographical areas around the
world. The parent company's country of domicile is the UK and the
Group's revenues and non-current assets in the rest of Europe and
North America are also considered to be material.
The Group's revenue from external customers and information
about specific segment assets (non-current assets excluding loans
receivable from Related Parties, deferred tax assets, non-current
derivative financial assets, other financial assets, retirement
benefit surplus and non-current other receivables) by geographical
location are detailed below:
Revenue(1) from external
customers Segment assets
---------------- ----------------------------------- ---------------------------------
6 months 6 months
ended ended Year ended
30 June 30 June 31 December 30 June 30 June 31 December
2023 2022 2022 2023 2022 2022
GBPm GBPm GBPm GBPm GBPm GBPm
---------------- --------- --------- ------------- --------- -------- ------------
UK 91 87 172 691 748 723
Rest of Europe 891 756 1,495 1,860 1,923 1,952
North America 1,084 915 1,946 1,443 1,533 1,525
Other 486 478 982 988 1,129 1,112
---------------- --------- --------- ------------- --------- -------- ------------
Total 2,552 2,236 4,595 4,982 5,333 5,312
(1) Revenue is presented by destination.
4. Reconciliation of adjusted profit measures
As described in note 2, adjusted profit measures are an
alternative performance measure used by the Board to monitor the
performance of the Group.
a) Operating profit
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
Notes GBPm GBPm GBPm
-------------
Operating (loss)/profit (40) (27) 58
------------------------------------------------- ---------- ---------- -------------
Amortisation of intangible assets
acquired in business combinations a 99 97 198
Restructuring costs b 88 29 54
Demerger costs c 39 - -
Movement in derivatives and associated
financial assets and liabilities d (21) (3) (15)
Equity accounted investments
adjustments e 14 14 29
Net release and changes in discount
rates of certain fair value items f (2) (2) (14)
Impairment of assets g - 20 20
Acquisition and disposal related
(gains)/losses h - (1) 3
Total adjustments to operating
(loss)/profit 217 154 275
Adjusted operating profit 177 127 333
a. The amortisation charge on intangible assets acquired in
business combinations of GBP99 million (2022: GBP97 million), is
excluded from adjusted results due to its non-trading nature and to
enable comparison with companies that grow organically. However,
where intangible assets are trading in nature, such as computer
software and development costs, the amortisation is not excluded
from adjusted results.
b. Costs associated with restructuring projects in the period
totalling GBP88 million (2022: GBP29 million) are shown as
adjusting items due to their size and non-trading nature and during
the period ended 30 June 2023 these included:
-- A charge of GBP86 million (2022: GBP19 million) within the
Automotive division, primarily relating to significant footprint
consolidation actions in Europe as the business continues to
address its cost base and deliver transformational programmes.
-- A charge of GBP2 million (2022: GBP10 million) within the Powder Metallurgy division.
4. Reconciliation of adjusted profit measures (continued)
a) Operating profit (continued)
c. One off costs relating to the demerger of the Group from
Melrose Industries PLC of GBP39 million were incurred during the
period (2022: GBPnil). Costs incurred were incremental costs
directly associated with the transaction. These items have been
excluded from adjusted results due to their size and non-trading
nature.
d. Movements in the fair value of derivative financial
instruments (primarily forward foreign currency exchange contracts
where hedge accounting is not applied) entered into to mitigate the
potential volatility of future cash flows, on long-term foreign
currency customer and supplier contracts, including foreign
exchange movements on the associated financial liabilities, are
shown as an adjusting item because of their volatility and size.
This totalled a credit of GBP21 million (2022: GBP3 million).
e. The Group has a number of equity accounted investments
("EAIs") in which it does not hold full control, the largest of
which is a 50% interest in Shanghai GKN HUAYU Driveline Systems
("SDS"), within the Automotive business. EAIs in the Group
generated GBP278 million (2022: GBP282 million) of revenue in the
period, which is not included in the statutory results but is shown
within adjusted revenue so as not to distort the operating margins
reported in the businesses when the adjusted operating profit
earned from these EAIs is included.
In addition, the profits and losses of EAIs, which are shown
after amortisation of intangible assets arising on acquisition,
interest and tax in the statutory results, are adjusted to show the
adjusted operating profit consistent with the adjusted operating
profits of the subsidiaries of the Group. The revenue and profit of
EAIs are adjusted because they are considered to be significant in
size and are important in assessing the performance of the
business.
f. Certain items previously recorded as fair value items on
acquisitions, have been resolved for more favourable amounts than
first anticipated. The net release of certain fair value items
recognised on acquisitions in the period of GBP2 million (2022:
GBP2 million) related to loss-making contract provisions recognised
on acquisition. These items are shown as adjusting to avoid
positively distorting the adjusted results.
g. No impairments were recorded in the current period (2022:
GBP20 million). In the prior period the write down was recognised
as a result of exiting any direct trading links with Russian
operations as a consequence of the invasion of Ukraine. The asset
write downs were within the Automotive division and are shown as an
adjusting item because of their non-trading nature and size.
h. No acquisition and disposal related gains or losses were
recorded in the period (2022: gain of GBP1 million). In prior
periods these items have been excluded from adjusted results due to
their non-trading nature and volatility.
b) Profit before tax
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
Notes 2023 2022 2022
Notes GBPm GBPm GBPm
--------------------------------------- -------- -------- -------- ------------
Loss before tax (55) (130) (63)
------------------------------------------------- -------- -------- ------------
Adjustments to operating (loss)/profit
per above 217 154 275
Net foreign exchange movements
on loans with Related Parties i (22) 49 24
Fair value changes on other financial
assets j (2) - -
Equity accounted investments -
interest k 1 1 2
Fair value changes on cross-currency
swaps l - 35 59
Total adjustments to loss before
tax 194 239 360
------------------------------------------------- -------- -------- ------------
Adjusted profit before tax 139 109 297
i. The movement in loans with Related Parties as a result of
changes in foreign currency exchange rates is shown as an adjusting
item because of its volatility, size and non-trading nature.
Related Parties comprise Melrose Industries PLC, the ultimate
parent company prior to demerger on 20 April 2023 and other
non-group entities controlled by Melrose Industries PLC.
j. The fair value changes on other financial assets relating to
the movement in their valuation, are shown as an adjusting item
because of their volatility and non-trading nature.
k. As explained in paragraph e above, the profits and losses of
equity accounted investments are shown after interest and tax in
the statutory results. They are adjusted to show the profit before
tax and the profit after tax, consistent with the subsidiaries of
the Group.
4. Reconciliation of adjusted profit measures (continued)
b) Profit before tax (continued)
l. The fair value changes on cross-currency swaps relating to
cost of hedging which are not deferred in equity, are shown as an
adjusting item because of their volatility and non-trading
nature.
c) Profit after tax
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
Notes GBPm GBPm GBPm
---------------------------------------- ------- -------- -------- -------------
Loss after tax (82) (101) (77)
---------------------------------------- ------- -------- -------- -------------
Adjustments to loss before tax
per above 194 239 360
Tax effect of adjustments to
loss before tax 5 (16) (46) (62)
Equity accounted investments
- tax k (4) (4) (9)
Derecognition of deferred tax
asset 5 11 - -
Tax effect of significant restructuring - - 6
Total adjustments to loss after
tax 185 189 295
---------------------------------------- ------- -------- -------- -------------
Adjusted profit after tax 103 88 218
5 . Tax
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
Analysis of the charge/(credit) in 2023 2022 2022
the period: GBPm GBPm GBPm
------------------------------------ --------- ---------------------- -------------
Current tax 25 (23) 45
Deferred tax 2 (6) (31)
------------------------------------ --------- ---------------------- -------------
Total tax charge/(credit) 27 (29) 14
The effective tax rate in respect of adjusted profit before tax
for the period is 26% (2022: 19%). Adjusted tax has been calculated
by applying the expected tax rate to the adjusted profit before tax
of GBP139 million (2022: GBP109 million), giving an adjusted tax
charge of GBP36 million (2022: GBP21 million).
The adjusted tax charge of GBP36 million (2022: GBP21 million)
excludes a tax credit on adjustments to loss before tax of GBP16
million (2022: GBP46 million). This represents a deferred tax
credit on intangible asset amortisation of GBP24 million (2022:
GBP22 million) and a tax charge on other adjusting items of GBP8
million (2022: credit of GBP24 million). In addition, the adjusted
tax charge includes a charge in respect of Equity Accounted
Investments of GBP4 million (2022: GBP4 million). The adjusted tax
charge also includes a tax adjusting item of GBP11 million (2022:
GBPnil) relating to the derecognition of a deferred tax asset
previously recognised in connection with accumulated US tax losses
which are no longer considered available for use in future
periods.
In addition to the amounts in the Income Statement, a charge of
GBP4 million (2022: GBP57 million) has been recognised directly in
the Statement of Comprehensive Income. This represents a tax credit
of GBP1 million (2022: charge of GBP55 million) in respect of the
remeasurement of retirement benefit obligations and a tax charge of
GBP5 million (2022: GBP2 million) in respect of movements on hedge
relationships and translation differences.
The Group's underlying effective tax rate may be impacted, from
2024 onwards, by the UK's substantive enactment of the Organisation
for Economic Co-operation and Development's Global Anti-Base
Erosion Model Rules (Pillar Two). The Group has applied the
International Accounting Standards Board amendments to IAS 12
Income Taxes in respect of Pillar Two which gives companies a
temporary exception from accounting for deferred taxes arising from
the OECD Pillar Two model rules. At this stage the Group does not
have sufficient information to determine the potential quantitative
impact of Pillar Two.
6. Earnings per share
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
Earnings attributable to owners of the 2023 2022 2022
parent GBPm GBPm GBPm
----------------------------------------- -------- -------- -------------
Net loss attributable to shareholders (85) (103) (82)
Adjustment for earnings attributable
to shares subject to recall 2 2 2
Earnings for basis of earnings per share (83) (101) (80)
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
Number Number(1) Number(1)
------------------------------------------- -------- --------- ------------
Weighted average number of ordinary shares
(million) 1,392 1,393 1,393
Adjustment for shares subject to recall
(million) (28) (28) (28)
Weighted average number of ordinary shares
for the purposes of basic earnings per
share (million) 1,364 1,365 1,365
Weighted average number of ordinary shares
for the purposes of diluted earnings
per share (million) 1,364 1,365 1,365
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
Earnings per share pence pence pence
--------------------------- -------- -------- -------------
Basic earnings per share (6.1) (7.4) (5.9)
--------------------------- -------- -------- -------------
Diluted earnings per share (6.1) (7.4) (5.9)
--------------------------- -------- -------- -------------
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
-------------------------------------------------- ---------- ---------- -------------
Adjusted earnings attributable to shareholders(2) 100 86 213
Adjustment for earnings attributable
to shares subject to recall (2) (2) (4)
Adjusted earnings for the basis of adjusted
earnings per share 98 84 209
Adjusted earnings per share
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
pence pence pence
------------------------------------ -------- -------- ------------
Adjusted basic earnings per share 7.2 6.2 15.3
Adjusted diluted earnings per share 7.2 6.2 15.3
(1) See note 2 for details on application of merger
accounting.
(2) Adjusted earnings for the 6 months ended 30 June 2023
comprises adjusted profit after tax (see note 4c) of GBP103 million
(2022: GBP88 million), net of an allocation of profit to
non-controlling interests of GBP3 million (2022: GBP2 million).
Adjusted earnings for the year ended 31 December 2022 comprises
adjusted profit after tax of GBP218 million, net of an allocation
to non-controlling interests of GBP5 million.
7. Dividends
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
---------------------------------- -------- -------- ------------
Dividends paid to Related Parties 1,675 - -
Total dividends paid 1,675 - -
On 23 February 2023, prior to the demerger, G.K.N. Industries
Limited declared a dividend of GBP1,675 million (72.83 pence per
ordinary share) in favour of its immediate parent undertaking GKN
Enterprise Limited, a member of the Melrose Industries PLC
Group.
An interim dividend of 1.4 pence per ordinary share (2022:
GBPnil) is declared by the Board, totalling GBP19 million.
8. Share of results of equity accounted investments
Summary information for the Group's equity accounted investments
is as follows:
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
------------------------------------- -------- -------- ------------
Revenue 278 282 651
Operating costs (251) (258) (573)
------------------------------------- -------- -------- ------------
Adjusted operating profit 27 24 78
------------------------------------- -------- -------- ------------
Adjusting items (11) (11) (22)
Net finance income 1 1 2
Profit before tax 17 14 58
Tax (4) (4) (9)
------------------------------------- -------- -------- ------------
Share of results of equity accounted
investments 13 10 49
9. Provisions
Property Warranty
Loss-making related Environmental related
contracts costs and litigation costs Restructuring Other Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ----------- ---------- --------------- -------- ------------- -------- --------
At 1 January
2023 46 5 67 156 20 32 326
Utilised (8) - (1) (7) (31) (37) (84)
Charge to operating
profit(1) - - 2 14 90 36 142
Release to operating
profit(2) (2) (1) - (4) (1) (1) (9)
Exchange adjustments (2) - (5) (5) - (1) (13)
--------------------- ----------- ---------- --------------- -------- ------------- -------- --------
At 30 June 2023 34 4 63 154 78 29 362
Current 12 1 27 72 18 18 148
Non-current 22 3 36 82 60 11 214
--------------------- ----------- ---------- --------------- -------- ------------- -------- --------
34 4 63 154 78 29 362
(1) Includes GBP121 million of adjusting items and GBP21 million
recognised in adjusted operating profit.
(2) Includes GBP3 million of adjusting items and GBP6 million
recognised in adjusted operating profit.
Provisions for loss-making contracts are considered to exist
where the Group has a contract under which the unavoidable costs of
meeting the obligations exceed the economic benefits expected to be
received under it. This obligation has been discounted and will be
utilised over the period of the respective contracts, which is up
to 15 years.
The provision for property related costs represents dilapidation
costs for ongoing leases and is expected to result in cash
expenditure over the next eight years.
Environmental provisions relate to the estimated remediation
costs of pollution, soil and groundwater contamination at certain
sites and at 30 June 2023 amounted to GBP17 million (31 December
2022: GBP18 million). Litigation provisions amounting to GBP46
million (31 December 2022: GBP49 million) relate to estimated
future costs and settlements in relation to legal claims and
associated insurance obligations. Due to their nature, it is not
possible to predict precisely when these provisions will be
utilised.
Provisions for the expected cost of warranty obligations under
local sale of goods legislation are recognised at the date of sale
of the relevant products and subsequently updated for changes in
estimates as necessary. Warranty terms are, on average, between one
and five years.
Restructuring provisions relate to committed costs in respect of
restructuring programmes (as described in note 4), usually
resulting in cash spend within three years.
Other provisions include long-term incentive plans for senior
management and the employer tax on equity-settled incentive schemes
which are expected to result in cash expenditure over the next one
to five years.
Where appropriate, provisions have been discounted using
discount rates between 0% and 10% (31 December 2022: 0% and 14%)
depending on the territory in which the provision resides and the
length of its expected utilisation.
10. Financial instruments
The table below sets out the Group's accounting classification
of each category of financial assets and liabilities and their fair
values as at 30 June 2023, 30 June 2022 and 31 December 2022:
Current Non-current Total
GBPm GBPm GBPm
--------------------------------------- -------- ------------ --------
30 June 2023
Financial assets
Classified as amortised cost:
Cash and cash equivalents 300 - 300
Net trade receivables 583 - 583
Classified as fair value:
Derivative over own equity - 32 32
Derivative financial assets:
Foreign currency forward contracts 53 9 62
Interest rate swaps - 13 13
Financial liabilities
Classified as amortised cost:
Interest-bearing loans and borrowings (8) (1,141) (1,149)
Lease obligations (22) (133) (155)
Other financial liabilities (1,170) (10) (1,180)
Classified as fair value:
Derivative financial liabilities:
Foreign currency forward contracts (6) (1) (7)
30 June 2022
Financial assets
Classified as amortised cost:
Cash and cash equivalents 218 - 218
Net trade receivables 556 - 556
Loans receivable from Related
Parties(1) - 3,026 3,026
Classified as fair value:
Derivative financial assets:
Foreign currency forward contracts 16 5 21
Financial liabilities
Classified as amortised cost:
Loans payable to Related Parties(1) - (2,176) (2,176)
Lease obligations (20) (139) (159)
Other financial liabilities (1,128) (17) (1,145)
Classified as fair value:
Derivative financial liabilities:
Foreign currency forward contracts (13) (3) (16)
Cross-currency swaps (102) - (102)
31 December 2022
Financial assets
Classified as amortised cost:
Cash and cash equivalents 270 - 270
Net trade receivables 511 - 511
Loans receivable from Related
Parties (1) - 2,826 2,826
Classified as fair value:
Derivative financial assets:
Foreign currency forward contracts 24 9 33
Financial liabilities
Classified as amortised cost:
Loans payable to Related Parties(1) - (2,176) (2,176)
Lease obligations (25) (134) (159)
Other financial liabilities (1,149) (20) (1,169)
Classified as fair value:
Derivative financial liabilities:
Foreign currency forward contracts (10) (2) (12)
--------------------------------------- -------- ------------ --------
(1) Related parties comprise Melrose Industries PLC, the
ultimate parent company prior to demerger on 20 April 2023 and
other non-group entities controlled by Melrose Industries PLC.
The fair value of the derivative financial instruments is
derived from inputs other than quoted prices that are observable
for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices) and they are therefore
categorised within level 2 of the fair value hierarchy set out in
IFRS 13: "Fair value measurement". The Group's policy is to
recognise transfers into and out of the different fair value
hierarchy levels at the date of the event or change in
circumstances that caused the transfer to occur. There have been no
transfers between levels in the period.
The fair value of the derivative over own equity is derived from
unobservable inputs and as such is classified as level 3 of the
fair value hierarchy set out in IFRS 13. Inputs to the valuation
include the terms of the contract under which the asset arises, the
Company's current share price and expected volatility in the share
price. The asset value is most sensitive to movements in the
Company's share price. As detailed in the accounting policies (note
2) the asset was recorded initially directly in equity with
subsequent revaluations recognised in the Income Statement.
11. Retirement benefit obligations
The Group sponsors defined benefit plans for qualifying
employees of certain subsidiaries. The funded defined benefit plans
are administered by separate funds that are legally separated from
the Group. The Trustees of the funds are required by law to act in
the interest of the fund and of all relevant stakeholders in the
plans. The Trustees of the pension funds are responsible for the
investment policy with regard to the assets of the fund.
The most significant defined benefit pension plans in the Group
at 30 June 2023 were:
GKN Group Pension Schemes No.2 and No.3
The GKN Group Pension Schemes No.2 and No.3 are funded plans,
closed to new members and were closed to future accrual in 2017.
The valuation of the plans was based on a full actuarial valuation
as of 5 April 2022, updated to 30 June 2023 by independent
actuaries.
GKN US Consolidated Pension Plan
The GKN US Consolidated Pension Plan is a funded plan, closed to
new members and closed to future accrual. The US Pension Plan
valuation was based on a full actuarial valuation as of 1 January
2023, updated to 30 June 2023 by independent actuaries.
GKN Germany Pension Plans
The GKN Germany Pension Plans provide benefits dependent on
final salary and service with the Company. The plans are generally
unfunded and closed to new members.
Other plans include a number of funded and unfunded defined
benefit arrangements and retiree medical insurance plans,
predominantly in the US and Europe.
The cost of the Group's defined benefit plans is determined in
accordance with IAS 19 (revised): "Employee benefits" using the
advice of independent professionally qualified actuaries on the
basis of formal actuarial valuations and using the projected unit
credit method. In line with normal practice, these valuations are
undertaken triennially in the UK and annually in the US and
Germany.
The amount recognised in the Balance Sheet in respect of defined
benefit plans was as follows:
30 June 2023
European
UK plans US plans plans Other plans Total
GBPm GBPm GBPm GBPm GBPm
------------------------- ---------- ---------- ---------- ------------- ---------------------
Plan assets 631 72 18 21 742
Plan liabilities (626) (119) (420) (30) (1,195)
Net assets/(liabilities) 5 (47) (402) (9) (453)
Analysed as:
Retirement benefit surplus(1) 35
Retirement benefit obligations (488)
------------------------------------------------- ---------- ------------- ---------------------
Net liabilities (453)
(1) Includes a surplus relating to the GKN Group Pension Scheme
No.2 of GBP33 million and the Japan employee plan of GBP2
million.
30 June 2022
European
UK plans US plans plans Other plans Total
GBPm GBPm GBPm GBPm GBPm
------------------------- ---------- ---------- ---------- -------------
Plan assets 797 114 22 30 963
Plan liabilities (695) (173) (425) (35) (1,328)
Net assets/(liabilities) 102 (59) (403) (5) (365)
Analysed as:
Retirement benefit surplus(1) 114
Retirement benefit obligations (479)
Net liabilities (365)
(1) Includes a surplus relating to the GKN Group Pension Schemes
No.2 and No.3 of GBP111 million and the Japan employee plan of GBP3
million.
11. Retirement benefit obligations (continued)
31 December 2022
European
UK plans US plans plans Other plans Total
GBPm GBPm GBPm GBPm GBPm
---------- ---------- ---------- -------------
Plan assets 666 73 19 21 779
Plan liabilities (651) (127) (433) (29) (1,240)
Net assets/(liabilities) 15 (54) (414) (8) (461)
Analysed as:
Retirement benefit surplus(1) 42
Retirement benefit obligations (503)
Net liabilities (461)
(1) Includes a surplus relating to the GKN Group Pension Scheme
No.2 of GBP40 million and the Japan employee plan of GBP2
million.
Valuations of material plans have been updated at 30 June 2023
by independent actuaries to reflect updated assumptions regarding
discount rates, inflation rates and asset values. The major
assumptions were as follows:
Rate of increase
of pensions
in payment Discount rate Price inflation
% p.a. % % (RPI/CPI)
30 June 2023
GKN UK - Group Pension Schemes
(Numbers 2 and 3) 2.7 5.2 3.2/2.7
GKN US plans n/a 4.9 n/a
GKN Europe plans 2.6 3.7 2.6/2.6
30 June 2022
GKN UK - Group Pension Schemes
(Numbers 2 and 3) 2.6 3.8 3.1/2.6
GKN US plans n/a 4.5 n/a
GKN Europe plans 2.3 3.2 2.3/2.3
31 December 2022
GKN UK - Group Pension Schemes
(Numbers 2 and 3) 2.7 4.8 3.2/2.7
GKN US plans n/a 5.0 n/a
GKN Europe plans 2.6 3.7 2.6/2.6
In addition, the defined benefit plan assets and liabilities
have been updated to reflect the contributions made to the defined
benefit plans and the benefits earned during the period to 30 June
2023.
12. Notes to the Cash Flow Statement
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
Reconciliation of operating (loss)/profit
to net cash from operating activities
Operating (loss)/profit (40) (27) 58
Adjusting items (note 4) 217 154 275
---------- -------------
Adjusted operating profit 177 127 333
Adjustments for:
Depreciation of property, plant and
equipment 124 124 251
Amortisation of computer software
and development costs 5 5 10
Share of adjusted operating profit
of equity accounted investments (27) (24) (78)
Restructuring costs paid and movements
in provisions (82) (87) (147)
Defined benefit pension contributions
paid (11) (11) (40)
Change in inventories (20) (36) (33)
Change in receivables (114) (164) (102)
Change in payables 79 117 103
Acquisition related gains/(costs)
and associated transaction taxes - 1 (3)
Tax paid (28) (44) (72)
Interest paid on loans and borrowings (18) - (6)
Interest paid on lease obligations (3) (3) (6)
Net cash from operating activities 82 5 210
12. Notes to the Cash Flow Statement (continued)
30 June 30 June 31 December
Reconciliation of cash and cash equivalents, 2023 2022 2022
net of bank overdrafts GBPm GBPm GBPm
Cash and cash equivalents per Balance
Sheet 300 218 270
------- -----------
Bank overdrafts included within current
Interest-bearing loans and borrowings (7) - -
Bank overdrafts included within current
loans payable to Related Parties - - (7)
-----------
Cash and cash equivalents, net of bank
overdrafts per Statement of Cash Flows 293 218 263
Net debt reconciliation
Net debt consists of interest-bearing loans and borrowings,
loans with Related Parties, cross-currency swaps and cash and cash
equivalents. Currency denominated balances within net debt are
translated to Sterling at swapped rates where hedged by
cross-currency swaps.
Net debt is an alternative performance measure as it is not
defined in IFRS. The most directly comparable IFRS measure is the
aggregate of interest-bearing loans and borrowings (current and
non-current) and cash and cash equivalents.
A reconciliation from the most directly comparable IFRS measure
to net debt is given below.
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
Interest-bearing loans and borrowings
- due within one year (8) - -
Interest-bearing loans and borrowings
- due after one year (1,141) - -
Loans payable to Related Parties - due
within one year - (2,176) (2,176)
Loans receivable from Related Parties
- due after one year - 3,026 2,826
External (debt)/funds (1,149) 850 650
Less:
Cash and cash equivalents 300 218 270
------------
(849) 1,068 920
Adjustments:
Impact of cross-currency swaps - (102) -
Net (debt)/funds (849) 966 920
The table below shows the key components of the movement in net
debt:
At Other At
31 December non-cash Effect of 30 June
2022 Cash flow movements foreign exchange 2023
GBPm GBPm GBPm GBPm GBPm
Loans with Related
Parties (excluding
bank overdrafts) 657 (582) (97) 22 -
External debt (excluding
bank overdrafts) - (1,173) 11 20 (1,142)
Cash and cash equivalents
(net of overdrafts) 263 43 - (13) 293
Net (debt)/funds 920 (1,712) (86) 29 (849)
12. Notes to the Cash Flow Statement (continued)
Following the settlement of all loans with Related Parties on
demerger from Melrose Industries PLC, the Group drew down on new
external debt facilities, the details of which are provided
below:
30 June
2023
GBPm
Floating rate obligations
Bank borrowings - US Dollar loan (571)
Bank borrowings - Sterling loan (294)
Bank borrowings - Euro loan (287)
Other loans and bank overdrafts (8)
Unamortised finance costs 11
Total interest-bearing loans and borrowings (1,149)
The Group's committed bank funding includes a multi-currency
denominated term loan of GBP100 million, US$400 million and EUR100
million and a multi-currency denominated revolving credit facility
of GBP350 million, US$660 million and EUR450 million. Loans drawn
under this facility are guaranteed by Dowlais Group plc and certain
of its subsidiaries, and there is no security over any of the
Group's assets in respect of this facility.
At 30 June 2023, the term loan was fully drawn and GBP194
million, US$325 million and EUR234 million were drawn on the
multi-currency revolving credit facility. There are also a number
of uncommitted overdraft, guarantee and borrowing facilities made
available to the Group.
13. Lease obligations
Amounts payable under lease obligations:
30 June 30 June 31 December
2023 2022 2022
Minimum lease payments GBPm GBPm GBPm
Amounts payable:
Within one year 28 25 32
After one year but within five years 68 67 65
Over five years 105 117 113
Less: future finance charges (46) (50) (51)
Present value of lease obligations 155 159 159
Analysed as:
Amounts due for settlement within
one year 22 20 25
Amounts due for settlement after
one year 133 139 134
Present value of lease obligations 155 159 159
It is the Group's policy to lease certain of its property, plant
and equipment. The average lease term is ten years. Interest rates
are fixed at the contract date.
14. Related Parties
Transactions and balances between the Group and its Related
Parties, being Melrose Industries PLC, the ultimate parent company
prior to demerger on 20 April 2023, and other non-Group entities
controlled by Melrose Industries PLC, are classified as related
party transactions. Transactions primarily relate to royalties
paid, dividends paid and interest payable on loans with Related
Parties.
Amounts recognised in the Balance Sheet in respect of these
related party transactions were as follows:
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
Amounts owed by Related Parties - 3,028 2,829
Amounts owed to Related Parties - (2,186) (2,189)
Amounts owed by Related Parties were included within Loans
receivable from Related Parties (30 June 2022: GBP3,026 million; 31
December 2022: GBP2,826 million) and Trade and other receivables
(30 June 2022: GBP2 million; 31 December 2022: GBP3 million).
Amounts owed to Related Parties were included within Loans
payable to Related Parties (30 June 2022: GBP2,176 million; 31
December 2022: GBP2,176 million) and Trade and other payables (30
June 2022: GBP10 million; 31 December 2022: GBP13 million).
14. Related Parties (continued)
Amounts recognised in the Income Statement in respect of these
related party transactions were as follows:
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
Interest payable to Related Parties (8) (10) (22)
Charges payable to Related Parties - (4) (9)
Amounts recognised in the Statement of Changes in Equity in
respect of these related party transactions were as follows:
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
Charges received from Related Parties - (2) (1)
Reorganisation in respect of Related
Parties (57) 45 (105)
Tax effect of transactions with
Related Parties - - (4)
Total transactions with Related
Parties (57) 43 (110)
Reorganisation in respect of Related Parties includes
reorganisational steps taken as part of the demerger, as well as
other income and charges with entities in the Melrose Industries
PLC Group prior to the demerger on 20 April 2023.
Dividends of GBP1,675 million were paid to GKN Enterprise
Limited, a member of the Melrose Industries PLC Group on 23
February 2023 (note 7).
15. Post balance sheet events
On 1 August 2023, the Parent Company, Dowlais Group plc,
undertook a court-approved capital reduction in accordance with
section 645 of the Companies Act 2006, through which the Company's
share premium of GBP1,070,179,000 was cancelled in full. The Order
of the High Court of Justice, Chancery Division, was registered at
Companies House and became effective from 3 August 2023. In
accordance with IS 2008 No 1915 The Companies (Reduction of Share
Capital) Order 2008 this resulted in a credit to the distributable
reserves of the Company of GBP1,070,179,000.
Glossary
Alternative Performance Measures ("APMs")
In accordance with the Guidelines on APMs issued by the European
Securities and Markets Authority ("ESMA"), additional information
is provided on the APMs used by the Group below.
In the reporting of financial information, the Group uses
certain measures that are not required under IFRS. These additional
measures (commonly referred to as APMs) provide additional
information on the performance of the business and trends to
stakeholders. These measures are consistent with those used
internally, and are considered important in understanding the
financial performance and financial health of the Group. APMs are
considered to be an important measure to monitor how the businesses
are performing because this provides a meaningful comparison of how
the business is managed and measured on a day-to-day basis and
achieves consistency and comparability between reporting
periods.
These APMs may not be directly comparable with similarly titled
measures reported by other companies and they are not intended to
be a substitute for, or superior to, IFRS measures. All Income
Statement and Cash Flow measures are provided for continuing
operations.
Closest Reconciling
equivalent items to
statutory statutory
APM measure measure Definition and purpose
Income Statement Measures
Adjusted Revenue Share of Adjusted revenue includes the Group's
revenue revenue share of revenue of equity accounted
of equity investments ("EAIs"). This enables comparability
accounted between reporting periods and consistency
investments with internal reporting.
(note 3)
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
Adjusted revenue GBPm GBPm GBPm
Revenue 2,552 2,236 4,595
Share of revenue
of equity accounted
investments
(note 3) 278 282 651
Adjusted revenue 2,830 2,518 5,246
Adjusting None Adjusting Those items which the Group excludes
items items (note from its adjusted profit metrics in
4) order to present a further measure
of the Group's performance.
These include items which are significant
in size or volatility or by nature
are non-trading or non-recurring, any
item released to the Income Statement
that was previously a fair value item
booked on an acquisition, and includes
adjusted profit from EAIs.
This provides a meaningful comparison
of how the business is managed and
measured on a day-to-day basis, provides
consistency and comparability between
reporting periods and is used to partly
determine the variable element of remuneration
of senior management throughout the
Group.
Adjusted Operating Adjusting The Group uses adjusted profit measures
operating loss(1) items (note for consistency with internal reporting
profit 4) and to provide a useful and more comparable
measure of the ongoing performance
of the Group. Adjusted measures are
reconciled to statutory measures by
removing adjusting items, the nature
of which are disclosed above and further
detailed in note 4.
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
Adjusted GBPm GBPm GBPm
operating
profit
---------- --------------------
Operating
(loss)/profit (40) (27) 58
Adjusting items
to operating
profit/loss
(note
4) 217 154 275
---------- --------------------
Adjusted
operating
profit 177 127 333
Closest Reconciling
equivalent items to
statutory statutory
APM measure measure Definition and purpose
Adjusted Operating Share of Adjusted operating margin represents
operating margin(2) revenue Adjusted operating profit as a percentage
margin of equity of Adjusted revenue. The Group uses
accounted adjusted profit measures to provide
investments a useful and more comparable measure
(note 3) of the ongoing performance of the Group
and adjusting to both internal and external stakeholders.
items (note
4)
Adjusted Loss before Adjusting Profit before the impact of adjusting
profit tax items (note items and tax. As discussed above, adjusted
before 4) profit measures are used to provide
tax a useful and more comparable measure
of the ongoing performance of the Group
to both internal and external stakeholders.
Adjusted measures are reconciled to
statutory measures by removing adjusting
items, the nature of which are disclosed
above and further detailed in note 4.
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
Adjusted profit GBPm GBPm GBPm
before tax
Loss before tax (55) (130) (63)
Adjusting items
to loss before tax
(note 4) 194 239 360
Adjusted profit
before tax 139 109 297
Adjusted Loss after Adjusting Profit after tax but before the impact
profit tax items (note of the adjusting items. As discussed
after 4) above, adjusted profit measures are
tax used to provide a useful and more comparable
measure of the ongoing performance of
the Group to both internal and external
stakeholders. Adjusted measures are
reconciled to statutory measures by
removing adjusting items, the nature
of which are disclosed above and further
detailed in note 4.
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2022 2022 2022
Adjusted profit GBPm GBPm GBPm
after tax
Loss after tax (82) (101) (77)
Adjusting items
to loss after tax
(note 4) 185 189 295
Adjusted profit
after tax 103 88 218
Constant Income Constant The Group uses GBP based constant currency
currency Statement, currency models to measure performance. These
which foreign are calculated by applying fixed exchange
is reported exchange rates to local currency reported results
using rates for the current and prior periods. This
actual gives a GBP denominated Income Statement
average which excludes any translational variances
foreign attributable to foreign exchange rate
exchange movements.
rates
Closest Reconciling
equivalent items
statutory to statutory
APM measure measure Definition and purpose
Adjusted Operating Adjusting Adjusted operating profit for 12 months
EBITDA loss(1) items (note prior to the reporting date, before
for leverage 4), depreciation depreciation and impairment of property,
covenant of property, plant and equipment and before the amortisation
purposes plant and and impairment of computer software
equipment and development costs.
and amortisation
of computer Adjusted EBITDA for leverage covenant
software purposes is a measure used by external
and development stakeholders to measure performance.
costs,
share of 12 months
non-controlling ended
interests 30 June
and other Adjusted EBITDA for leverage 2023
adjustments covenant purposes GBPm
required
for leverage Adjusted operating profit 383
covenant Depreciation of property, plant
purposes and equipment and amortisation
of computer software and development
costs 261
Non-controlling interests (8)
Other adjustments required for
leverage covenant purposes (3) (19)
---------
Adjusted EBITDA for leverage
covenant purposes 617
Adjusted Effective Adjusting The income tax charge for the Group
tax rate tax rate items, excluding adjusting tax items, and the
adjusting tax impact of adjusting items, divided
tax items by adjusted profit before tax.
and the
tax impact This measure is a useful indicator of
of adjusting the ongoing tax rate for the Group to
items (note external stakeholders.
4 and note
5) 6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
Adjusted tax rate GBPm GBPm GBPm
Tax per Income
Statement (27) 29 (14)
Adjusted for:
Tax impact of adjusting
items (16) (46) (62)
Tax impact of EAIs (4) (4) (9)
Derecognition of
deferred tax asset 11 - -
Tax impact of significant
restructuring - - 6
Adjusted tax charge (36) (21) (79)
Adjusted profit
before tax 139 109 297
Adjusted tax rate 26% 19% 27%
Adjusted Basic Adjusting Profit after tax attributable to owners
basic earnings items (note of the parent and before the impact
earnings per share 4 and note of adjusting items, divided by the weighted
per share 6) average number of ordinary shares in
issue during the financial period.
This measure is useful in showing the
current performance of the Group to
external stakeholders.
Adjusted Diluted Adjusting Profit after tax attributable to owners
diluted earnings items (note of the parent and before the impact
earnings per share 4 and note of adjusting items, divided by the weighted
per share 6) average number of ordinary shares in
issue during the financial period adjusted
for the effects of any potentially dilutive
options.
This measure is useful in showing the
current performance of the Group to
external stakeholders.
Closest Reconciling
equivalent items to
statutory statutory
APM measure measure Definition and purpose
Balance Sheet Measures
Working Inventories, Not applicable Working capital comprises inventories,
capital trade current trade and other receivables,
and other non-current other receivables, current
receivables trade and other payables and non-current
less trade other payables.
and other
payables This measure provides additional information
in respect of working capital management
to external stakeholders.
Net debt Cash and Reconciliation Net debt comprises cash and cash equivalents,
cash equivalents, of net debt interest-bearing loans and borrowings,
loans (note 12) loans with Related Parties(4) and cross-currency
with Related swaps.
Parties(4)
, interest-bearing Net debt is one measure that could be
loans used to indicate the strength of the
and borrowings Group's Balance Sheet position and is
and finance a useful measure of the indebtedness
related of the Group.
derivative
instruments
Bank covenant Cash and Impact of Net debt (as above) is presented in
definition cash equivalents foreign the Balance Sheet translated at period
of net less interest-bearing exchange end exchange rates.
debt at loans and adjustments
average and borrowings for bank For bank covenant testing purposes net
rates covenant debt is converted using average exchange
and leverage purposes rates for the previous 12 months.
Leverage is calculated as the bank covenant
definition of net debt divided by adjusted
EBITDA for leverage covenant purposes.
This measure is used for bank covenant
testing.
30 June
2023
Net debt GBPm
Net debt at closing rates (note
12) (849)
Impact of foreign exchange (19)
Bank covenant definition of
net debt at average rates (868)
Leverage 1.4
Closest Reconciling
equivalent items
statutory to statutory
APM measure measure Definition and purpose
Cash Flow Measures
Free cash Net increase/ Net cash Free cash flow represents cash generated
flow decrease from/(used after all trading costs including restructuring,
in cash in) financing pension contributions, tax and interest
and cash activities payments but before any cash flows associated
equivalents with financing activities.
(net
of bank This measure is a useful metric for
overdrafts) monitoring cash management within the
Group and is consistent with internal
reporting.
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
Free cash flow GBPm GBPm GBPm
Net cash from operating
activities 82 5 210
Net cash used in
investing activities (88) (34) (137)
Free cash flow (6) (29) 73
Adjusted Net increase/ Free cash Adjusted free cash flow represents free
free cash decrease flow, cash flow adjusted for demerger related
flow in cash as defined exceptional cash flows.
and cash above,
equivalents adjusted This measure is a useful metric for
(net for demerger monitoring cash management within the
of bank related Group and is consistent with internal
overdrafts) exceptional reporting.
cash flows
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
Adjusted free cash GBPm GBPm GBPm
flow
Free cash flow (6) (29) 73
Demerger LTIP payments 36 - -
(5)
Other cash demerger 3 - -
exceptional items
Adjusted free cash
flow 33 (29) 73
Capital None Not applicable Calculated as the purchase of owned
expenditure property, plant and equipment and computer
(capex) software and expenditure on capitalised
development costs during the period,
excluding any assets acquired as part
of a business combination.
Net capital expenditure is capital expenditure
net of proceeds from disposal of property,
plant and equipment.
Capital None Not applicable Net capital expenditure divided by depreciation
expenditure of owned property, plant and equipment
to depreciation and amortisation of computer software
ratio and development costs.
This measure is a useful metric for
monitoring the investment in capital
expenditure within the Group and is
consistent with internal reporting.
(1) Operating loss is not defined within IFRS but is a widely
accepted profit measure being loss before finance costs, finance
income and tax.
(2) Operating margin is not defined within IFRS but is a widely
accepted profit measure being derived from operating loss(1)
divided by revenue.
(3) Included within other adjustments required for covenant
purposes are dividends received from equity accounted investments,
the removal of adjusted operating profit of equity accounted
investments, IFRS 2 related charges and non-cash finance costs.
(4) Related parties comprise Melrose Industries PLC, the
ultimate parent company prior to demerger on 20 April 2023 and
other non-group entities controlled by Melrose Industries PLC.
(5) Demerger LTIP payments relate to the cash payment of the
divisional long-term incentive plans which were put in place under
management of Melrose Industries PLC and crystallised on demerger
on 20 April 2023.
Glossary of Terms and Definitions
Automotive The GKN Automotive business operated by
the Group.
Board The board of directors of the Company.
bps Basis points.
book-to-bill ratio In respect of a period, the ratio of forecast
lifetime revenue awarded in that period
to revenues earned in that period.
BEV Battery electric vehicles.
CEO Chief Executive Officer.
Company Dowlais Group plc.
CFO Chief Financial Officer.
Dowlais Dowlais Group plc.
demerger The demerger of the Company from Melrose
Industries PLC which took place on 20 April
2023.
drop-through margin Drop-through margin is the operating profit
margin at which incremental sales volumes
contribute incremental operating profit.
DTR The disclosure guidance and transparency
rules made by the FCA under Part VI of
the Financial Services and Markets Act
2000.
EBITDA Earnings before interest, tax, depreciation
and amortisation.
EMEA Europe, Middle East and Africa.
EPCs Engineering, Procurement and Construction
businesses.
EPS Earnings per share.
ESG Environmental, Social and Governance.
EVs Battery electric vehicles and full hybrid
vehicles.
FX Foreign exchange.
Group The Company, its direct and indirect subsidiaries
and other investments.
H1 or H2 The first or second half (as applicable)
of the relevant financial year.
Hydrogen The GKN Hydrogen business operated by the
Group.
IFRS International Financial Reporting Standards.
LFP Lithium iron phosphate.
M&A Mergers and acquisitions.
market Global light vehicle market.
Melrose Melrose Industries PLC.
OEM Original equipment manufacturer, typically
of light vehicles.
Powder Metallurgy The GKN Powder Metallurgy business operated
by the Group.
Q1, Q2, Q3 or Q4 The first, second, third or fourth quarter
(as applicable) of the relevant financial
year.
SBTi Science Based Targets initiative.
S&P S&P Global.
SUV Sport utility vehicle.
UAW International Union, United Automobile,
Aerospace and Agricultural Implement Workers
of America (UAW).
UN SDGs United Nations Sustainable Development
Goals.
US Unites States of America.
vehicle production Global light vehicle production volumes.
volumes
year-on-year In comparison to the immediately preceding
period.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
IR SFMFWFEDSEEU
(END) Dow Jones Newswires
September 12, 2023 02:00 ET (06:00 GMT)
Dowlais (LSE:DWL)
Historical Stock Chart
From Apr 2024 to May 2024
Dowlais (LSE:DWL)
Historical Stock Chart
From May 2023 to May 2024