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ENGINEERING
TRANSFORMATION
Dowlais Group plc
2023 Annual Report
Contents
Strategic Report
Our story
1
Dowlais at a glance
2
What we do
3
Our strategic framework
4
Our business model
5
Chair's statement
6
CEO's statement
8
Lead
10
Transform
12
Accelerate
14
Market review
16
Key performance indicators
18
Financial review
20
Operating reviews
25
GKN Automotive
25
GKN Powder Metallurgy
29
GKN Hydrogen
33
Sustainability
35
Our approach to sustainability
36
Stakeholder engagement and
Section 172 statement
39
Planet and climate action
44
TCFD
48
SECR
59
People and society
63
Risk management
71
Viability statement
78
Non financial and sustainability
information statement
79
Corporate Governance
Chair's letter
80
Board of Directors
82
Our governance framework
84
How our Board works
86
The Board's role in our purpose, our
culture andourpeople
89
Audit Committee report
91
Nomination Committee report
97
Remuneration Committee report
99
Directors’ Report
122
Financial Statements
Auditor’s report
127
Consolidated Financial statements
137
Notes to the Consolidated Financial
Statements
141
Company Financial Statements
181
Alternative Performance Measures
190
Shareholder information
195
Glossary
197
2023 reporting suite
See our Sustainability
Report 2023
Engineering Transformation
Pages 24, 28, 32, 38, 43, 62 and 77 of
this Strategic Report showcase
some of our innovative products,
including products where we are
market leaders, and newer
products and technologies we are
bringing to market.
Visit our website:
dowlais.com
ENGINEERING
TRANSFORMATION FOR
ASUSTAINABLE WORLD
I am delighted to present the inaugural Annual
Report forDowlais, the UK’s leading listed
automotive components business.
We manage a portfolio of market-leading,
high-technology engineering businesses that
advance theworld’s transition to sustainable vehicles.
This includes the world leaders in drive systems
andin powder metallurgy, delivering precisely
engineered products, solutions and technological
innovation necessary for a net zero economy.
This year we have made significant financial and
strategic progress. We have delivered strong
growth, expanded margins in a period of high
inflation, generated positive cash flow and executed
well across all of our strategic priorities. Thanksto
theoutstanding quality of our businesses, we
remainconfident of delivering long-term, sustainable
and sector-leading financialperformance.
We look forward to an exciting future as wecontinue
to play a pivotal role in the evolution ofourindustry.
FINANCIAL HIGHLIGHTS
£5,489m
(2022: £5,246m)
Adjusted
1
Revenue,
representing 6.3%
year-on-yeargrowth
2
£355m
(2022: £333m)
Adjusted
1
Operating
Profitrepresenting
10% year-on-year growth
2
6.5%
(2022: 6.3%)
Adjusted
1
Operating Profit
Margin, representing 30 bps
year-on-year expansion
2
13.8p
Adjusted
1
earnings
per share
4.2p
Full-year dividends per share
(subject to final dividend
approval by shareholders)
£50m
Intention to commence
share buy-back programme
£4,864m
(2022: £4,595m)
Statutory revenue,
representing 5.9%
year-on-year growth
£(450)m
(2022: £58m profit)
Statutory operating
loss, reflecting non-cash
goodwill impairment
£93m
Adjusted
1
Free
CashFlow
SBTi
3
Automotive and
PowderMetallurgy
targetssubmitted, with
Automotive validated
Platinum
EcoVadis medal for Powder
Metallurgy, withAutomotive
receivingSilver
<0.1
Group Accident
FrequencyRate
SUSTAINABILITY HIGHLIGHTS
1. All adjusted financial measures and explanation about our use of Alternative Performance Measures
(APMs) can be found on page 190.
2. At constant currency, as defined on page 192.
3. Science Based Targets initiative.
Liam Butterworth
Chief Executive
Officer
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Dowlais Group plc
OUR STORY
OUR STORY
SINCE 1759, OUR BUSINESSES HAVE POWERED CHANGE
1759
Dowlais Ironworks founded
The Ironworks is founded in Dowlais, South
Wales, and quickly starts producing 1,000
tonnes of iron each year.
1997
Growth of Powder Metallurgy
The expansion of the GKN Powder Metallurgy
business starts in earnest with a series of
international acquisitions that significantly
growits capabilities.
2011
Growing all-wheel drive
(AWD) expertise
GKN Automotive invests significantly in its all-wheel
drive capabilities, strengthening its position as the
leading supplier of drive systems for light vehicles.
1902
Forging Guest, Keen andNettlefolds
A series of deals, takeovers and mergers in theearly 20
th
century,
including the purchase of Dowlais Iron Co., leads to the creation
ofGuest, Keen and Nettlefolds (later rebranded as GKN). By
1905, thiswas the largest iron, steel and coalgroup in the UK.
2023
Establishing Dowlais
Dowlais Group plc lists on the London
StockExchange. The Group comprises
GKNAutomotive, GKN Powder Metallurgy
andGKN Hydrogen.
1988
Expanding global reach
GKN Automotive becomes the first Tier 1
1
automotive supplier to establish a joint venture in
China. This joint venture, known as SDS, becomes
the leading driveshaft supplier for the rapidly
growing Chinese market.
1966
Pioneering new technology
Following acquisitions, GKN Automotive
enhances its constant velocity joint expertise
and pioneers its use in front wheel drive cars
like the Mini.
1947
Moving into the
automotive industry
The nationalisation of its collieries prompts the
business to diversify and start producing
propeller shafts and constant velocity joints.
1. See Glossary on page 198.
2023 Annual Report 1Dowlais Group plc
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
DOWLAIS AT A GLANCE
#1
global drive
system
supplier
1
#1
sinter metals
supplier
DOWLAIS AT A GLANCE
We are a specialist
engineering group
focused on the
automotive sector
We generate growth
through a portfolio
oftransformative
andinnovative
businesses
We develop
exceptional
productsthat drive
transformation in
ourworld
WE ARE
77
manufacturing
facilities
>30,000
employees globally
2
19
countries
>95%
of global OEMs
1
served
>50%
of all light vehicles
1
worldwide contain
ourtechnology
£5,489m
adjusted revenue
REVENUE BY REGION
40%
Americas
34%
Europe
3
12%
RestofAsia
14%
China
1. See Glossary on page 198.
2.Total employees of the Group’s undertakings, including its non-consolidated joint ventures. 3. Includes Europe, Middle East and Africa (EMEA).
2023 Annual Report 2Dowlais Group plc
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
WHAT WE DO
WHAT WE DO
EVERY BUSINESS IN OUR PORTFOLIO IS A MARKET LEADER
The world leader in drive systems and
atrusted partner to global automotive
manufacturers.
A global leader in powder metallurgy,
creating precise, sustainable products
forthe automotive and industrial sectors.
The leader in metal hydride storage,
providing innovative solutions to the
hydrogen and energy storage markets.
GKN AUTOMOTIVE GKN POWDER METALLURGY GKN HYDROGEN
See pages 25 to 27 for more information See pages 29 to 31 for more information See pages 33 to 34 for more information
GKN Automotive is the market leader in sideshafts,
propshafts, AWD
systems and advanced differentials.
Its products drive the wheels of around halfthe world’s
light vehicles, and it has been a pioneer inthe
development ofeDrive systems, remaining at the
forefront of electric vehicle powertrain
technology.
GKN Powder Metallurgy is the world’s leading producer
ofsintered metal products and a world-class manufacturer
of atomised metal powders. Its sustainable technology
enables the production of parts with complex geometries,
higher densities and improved physical properties.
GKN Hydrogen is pioneering solutions for storing
hydrogen and electricity. Using innovative metal
hydride-based technology, it develops and manufactures
storage systems which are green, safe and emission-free,
helping support the world’s journey to net zero.
#1
market leader in
sideshafts, propshafts,
AWD systems,
advanced differentials
~50%
of all light vehicles
use its technology
>90%
of global OEMs
served
#1
market leader in
sintered metal
components
~10m
components
produced per day
>3,000
customers
worldwide
#1
market leader in
metal hydride
hydrogen storage
technology
27
systems installed
>10
years of experience
in the hydrogen
storage market
Driveline product group
1
Sideshafts | Propshafts
ePowertrain product group
1
AWD Systems | eDrive Systems
ePowertrain Components
Sintered Metal Components | Metal Powders
Additive Manufactured Components
Hydrogen storage systems
Power-to-power energy storage systems.
1. See Glossary on page 198.
3Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
OUR STRATEGIC FRAMEWORK
STRATEGIC FRAMEWORK
We have a clear purpose: Engineering transformation for a sustainable world. This forms part of our wider Strategic Framework within
which our purpose, our strategy and our values are aligned.
OUR PURPOSE
Engineering transformation for a sustainable world.
OUR STRATEGY
We are a portfolio of market-leading, high-technology engineering businesses
that advance the world's transition to sustainable vehicles.
Lead
Market leadership and industry-leading
financial performance.
Transform
Technological innovation to
enable a net zero economy.
Accelerate
Sustainable organic growth
and disciplined M&A.
OUR VALUES
Agility
We have a lean central structure and fast, clear
decision making; we move at pace and respond
quickly to opportunity.
Accountability
We make things happen, get things done
anddeliver on our commitments; we are
accountable for our actions and act
responsiblyandwith integrity.
Ambition
We set ambitious goals to realise the full
potentialofour businesses; we find opportunities
toapply our expertise in new ways and
innewmarkets.
2023 Annual Report 4Dowlais Group plc
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
OUR BUSINESS MODEL
CREATING VALUE IN
ENGINEERING TRANSFORMATION
Dowlais’ value proposition
– A highly experienced team
ofautomotive leaders
– A diversified portfolio of market-
leading businesses
– A relentless focus on achieving
industry-leading financial
performance
– Strong commitment to
sustainability
– Flexibility to complement organic
growth with strategic acquisitions
– A culture of fast, bold
decision making
Focused strategy for growth
– Lead
Market leadership and
industry-leading financial
performance
– Transform
Technological innovation to
enable a net zero economy
– Accelerate
Sustainable organic growth
and disciplined M&A
What sets our businesses apart
– Trusted brands with strong heritage
– Market-leading positions
– Compelling product portfolios aligned
to the transition to electrification
– Industry-leading technologies
– Strong, lasting relationships with
global customers
– Talented and committed workforce
– Global vertically-integrated
manufacturingfootprint, delivering
quality products at scale
– Sustainable practices embedded
throughout our operations
Value created and shared
– Our People: inspired by our shared
purpose and proud of our inclusive
working environment
– Society and Communities:
supporting anature-positive,
netzero and justtransition
– Our Customers: long-lasting
technology partnerships
– Our Suppliers: growing together
responsibly
– Our Investors: a clear dividend
policyand a commitment to
generate value
Inspired by our values
– Agility
– Accountability
– Ambition
D
e
l
i
v
e
r
e
d
t
h
r
o
u
g
h
o
u
r
t
h
r
e
e
b
u
s
i
n
e
s
s
e
s
T
R
A
N
S
F
O
R
M
A
T
I
V
E
I
N
N
O
V
A
T
I
O
N
F
O
C
U
S
E
D
S
T
R
A
T
E
G
Y
L
O
N
G
-
T
E
R
M
V
A
L
U
E
C
R
E
A
T
I
O
N
THE FUTURE OF
AUTOMOTIVE
THE TRANSITION
TO SUSTAINABLE
MOBILITY
D
R
I
V
E
N
B
Y
LEAD
TRANSFORM
ACCELERATE
BUSINESS INVESTMENT
SHAREHOLDER RETURNS
STAKEHOLDER VALUE
Dowlais is a
portfolio of
market-leading,
high-technology
engineering
businesses that
advance the
world’s transition
to sustainable
vehicles
Guided by our purpose
Engineering
transformation for
asustainable world
GKN
AUTOMOTIVE
GKN
HYDROGEN
GKN
POWDER
METALLURGY
See pages 39 to 42 for more
information about ourstakeholders
2023 Annual Report 5Dowlais Group plc
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
CHAIR’S STATEMENT
In April 2023, Dowlais was admitted to the London Stock Exchange (LSE) and a new chapter
in the proud history of our world-leading businesses began. I am very privileged to serve
asDowlais’ first Chair as it begins life as an independent company. Dowlais’ heritage dates
back to the industrial revolution, but our technology has never been more relevant than
itis today. We are delivering cutting-edge innovation, at the very heart of the automotive
industry, during the most dynamic period of change since the creation of the car.
Our Board
I am delighted with the calibre of the talented, experienced and diverse Board we have
been able to assemble. In our CEO, Liam Butterworth, and CFO, Roberto Fioroni, we have
two leaders with decades of experience in automotive and a proven record of improving
the businesses they lead. Together with our Non-Executive Directors, we have a team with
abroad and relevant range of skills and experience. Our Board members have many years
ofexecutive and non-executive experience, across numerous listed companies andindustries.
As a Board we are committed to ensuring that Dowlais operates with the highest standards
of corporate governance. Our Board took part in a detailed induction process to ensure
that we fully understand our businesses, strategy and markets. We have also established
the Board Committees required by the UK Corporate Governance Code: our Remuneration
Committee, chaired by Celia Baxter; Audit Committee, chaired by Philip Harrison; and
Nomination Committee, which I chair. Finally, we have ensured that Dowlais’ governance
processes allow our businesses the freedom to operate at pace, whilst maintaining an
appropriate level of Board oversight and control.
Following the smooth separation from Melrose, Simon Peckham stepped down from the
Board and Geoffrey Martin will not stand for election at our first AGM. Alexandra Innes
willalso not stand for election at the AGM. I would like to thank them all for their very
valuable contributions to Dowlais. In light of these changes, the Nomination Committee
hascommenced a process to review our Board composition.
Simon Mackenzie Smith
Chair
A PORTFOLIO OF
MARKET-LEADING,
HIGH-TECHNOLOGY
ENGINEERING
BUSINESSES
See pages 82 and 83 for
more details on our Board
Our purpose and strategy
Transformation is a fundamental part of Dowlais. It is reflected in our heritage, in how
weoperate and in our strategy for future value creation. Our businesses are helping our
customers transform the industry, creating engineering solutions critical to the vehicles
which allow sustainable mobility in our world. We also continue to transform our own
businesses to ensure our operations are efficient and sustainable. During the past five years
significant progress has been made to restructure and improve our businesses, positioning
them to go on to achieve the level of financial performance they deserve.
See pages 91, 97 and 99 for Reports
from our Committee Chairs
6Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Dowlais Group plc
CHAIR'S STATEMENT CONTINUED
We also want to ensure that Dowlais is an inclusive and diverse organisation, where our
people have the opportunity to develop and grow. Our management teams are
relentlessly focused on talent, allowing our people to reach their full potential, grow in
theirroles and expand their responsibilities. We are also making progress on improving our
diversity, but there is still much to do, in particular to ensure that we can attract and retain
female talent to our industry and our Company.
Finally, this year the Board also approved Dowlais’ first employee code of conduct,
OurCode, which sets out the standards of behaviour we expect of all our employees.
Itexplains how we respect and protect each other and our business, behave ethically
andlawfully, and care for our communities and our world. We have high expectations
ofourselves and I have confidence we can meet them.
Progress over the year
I would like to thank everyone who was involved in the demerger and listing of Dowlais in
April 2023 and all employees across our businesses for their hard work this year. Whilst the
demerger and the creation of Dowlais was, of course, a significant task, it did not distract
the Group and our people from our most important priority of successfully managing and
improving our businesses. Throughout the year, our management teams and workforce
have remained relentlessly focused on this goal and 2023 has been a year of progress in
allour businesses. We have seen meaningful margin improvement and significant bookings
in GKN Automotive; GKN Powder Metallurgy is a market-leading business where continued
focus is required to successfully navigate the transition to EVs and develop its portfolio;
and GKN Hydrogen’s innovative technology is starting to gain real commercial traction.
Our people
We employ over 30,000 people worldwide, each of whom plays a crucial part in helping
usachieve our purpose and deliver our strategy. I have been privileged to be able to meet
some of our employees this year, including when the Senior Independent Director, Celia
Baxter and I visited our Automotive manufacturing facility in Oleśnica, Poland in October
2023 and the Board visited our Automotive and Powder Metallurgy facilities in Italy in
February 2024. On each occasion I have been struck by the pride that our employees have
in working forour businesses and delivering products with the highest levels of quality,
where and whenour customers need them. I look forward to engaging with more of our
people throughout2024.
When it comes to our people, health and safety is our most important consideration. Wehave
a good track record, as evidenced by our low Accident Frequency Rate of less than 0.1,
butwe must never become complacent. This year our businesses have been very focused
on behaviour-based safety initiatives. We can only maintain our strong safety record if our
people continue to exhibit the right behaviours and raise issues of concern whenever they
seethem. As a Board we have been kept regularly updated on the Group’s health and
safety management and performance and this will be an area of continued focus for us.
See page 4 for our Strategic Framework
See pages 63 to 66 for more details on Our People
See pages 35 to 70 and our dedicated Sustainability Report for more details on our
approachtosustainability
All this informed our new purpose: Engineering transformation for a sustainable world.
Agreeing this purpose and our strategic framework was one of our first tasks as a
Boardthisyear.
Looking ahead, the Board will continue to drive our businesses to adapt, innovate and
transform, improving their operations, products, processes and performance. This appetite
for continuous improvement is reflected in our values: Agility, Accountability and Ambition.
Our impact
I am delighted that, alongside this Annual Report, we have been able to publish our
dedicated Sustainability Report, which I encourage you to read.
Sustainability is at the heart of Dowlais. Our sustainability principles are built on the
foundations already established in our businesses prior to the creation of Dowlais and
support the behaviours needed to drive positive change. This means not only contributing
to the transition to a net zero economy through our products and technologies, but also
placing sustainability at the heart of how we run our businesses, manage our supply chains
and recruit and develop our people.
This year the Board reviewed the Group’s sustainability strategy, including the role
ofsustainability in the automotive sector, how our performance compares to our peers,
theoutput of our materiality assessment and our immediate priorities for the following
year. We view sustainability as a topic which the Board as a whole must ‘own’, and we plan
to regularly review progress as we move forward and make progress on our targets.
Looking ahead
Our achievements this year reflect the hard work, talent and determination of all our
people across the world. My thanks go to all of them.
Looking ahead, this work continues as we move forward on our journey to realise the full
potential of our market-leading businesses, achieve our margin targets and continue to
play our part in engineering transformation for a sustainable world. The Board and I look
forward to making continued progress in 2024.
7Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
CEO’S STATEMENT
I am delighted to be able to present our first Annual Report to allof our stakeholders. It reflects
ayear in which we have made significantprogress as a new Group across all of our businesses.
Dowlais commenced trading in April 2023, with completion of the demerger process
andour admission to the main market of the LSE. I would like to express my gratitude
toeveryone involved in the smooth execution of that process and establishing the
foundations for a very exciting future for the Group. I am incredibly proud to be Dowlais’
first Chief Executive Officer, having previously led our GKN Automotive business. We have
a portfolio of outstanding businesses and an exciting future ahead of us.
Our leadership teams and our people
I have a strong conviction that the success of any organisation depends on having the right
people, in the right roles and creating the right environment for them to succeed. I am
therefore delighted to have been able to assemble such a strong leadership team to drive
the Group forward. In our Group Executive Committee and Business Unit Executive Teams,
we have an outstanding management team with a proven track record of delivery. We
have been able to build on our businesses’ existing high-calibre teams with fresh talent,
both by promoting from within and selective external appointments. This includes the
Dowlais central functions, which we successfully established following the demerger.
Theseteams lead over 30,000 colleagues across our businesses, in 19 countries, each of
whom has played a key role in our first year of financial and strategic progress. I would like
to thank everyone for their hard work and for helping us achieve our goals this year.
Our strategy
Dowlais’ purpose, engineering transformation for a sustainable world, is shaped by
ourambition to make a positive impact on the world through product innovation and
technology. Our strategy, which has been defined in service of this purpose, is clear and
focused on three pillars; Lead, Transform, Accelerate. You can read more about our
strategy on pages 10 to 15.
2023 Group performance
In 2023 we continued to execute strongly to make progress on our three key priorities:
Margin expansion: Group adjusted revenue was £5.5 billion, growing 6.3% year-on-year at
constant currency. This growth was driven by increased light vehicle production volumes and
inflation-related price increases. Our long-term focus on profitability, with a rigorous discipline
on pricing, sometimes at the expense of volume, delivered improved margins, with adjusted
operating profit of £355 million, representing a year-on-year increase of 10% at constant currency
and an adjusted operating profit margin expansion of 30bps. This was achieved despite ongoing
inflationary headwinds, and the impact of the UAW strike in the US. This resulted in a drop-
through margin of 29% at constant currency. Excluding the impact of incremental stand-alone
plc costs, adjusted operating profit grew year-on-year by 20%, with adjusted operating profit
margin expanding by 90bps, in each case at constant currency.
Cash generation: The Group reported a free cash flow of £45 million for the year and reduced
net debt to £847 million. Free cash flow was impacted by non-recurring costs of £48 million
FINANCIAL AND
STRATEGIC PROGRESS
IN OUR FIRST YEAR
Liam Butterworth
Chief Executive Officer
82023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Dowlais Group plc
CEO’S STATEMENT CONTINUED
related to the demerger. Excluding these non-recurring costs the Group generated £93 million
of adjusted free cash, ahead of our expectations. Strong execution and a rigorous approach
toworking capital management supported our cash performance. When combined with an
increase in adjusted EBITDA, the Group’s leverage ratio reduced to 1.4x from a pro forma
position of 1.5x as at the date of demerger. This has been achieved whilst continuing to invest
inorganic growth, new production facilities and executing ongoing restructuring programmes.
Portfolio transition: Our businesses remain well positioned to benefit from the long-term
electrification of the automotive industry. Whilst the pace of change has accelerated in recent
years, it continues to be volatile. We will therefore continue to maintain a pragmatic approach
toinvesting in our portfolio to ensure we remain well balanced and able to track the pace of
transition of our customers’ vehicle platforms. Progress in securing new business which supports
our transition, was made across the Group. Automotive had a record bookings performance
with contracts totalling over £6 billion of forecast lifetime revenue awarded, well balanced across
its Driveline and ePowertrain product groups. This represents an outstanding achievement,
with74% of those bookings on EV platforms. In Powder Metallurgy, work to successfully navigate
the transition progressed, with 72% of new business bookings for propulsion source agnostic
products (by forecast peak annual revenue) and continued progress on promising new product
segments including magnets and iron powder for lithium iron phosphate (LFP) batteries.
Operational highlights
Our businesses continued to demonstrate positive operational performance throughout
theyear. The operational strength of our businesses was demonstrated by their ability to
successfully navigate the impact of the UAW strike action in the US during September and
October. The impact of the strike was approximately £30 million of revenue and £10 million
of adjusted operating profit. We are pleased with how our businesses were able to respond
to the resulting shutdown of many OEM plants, while at the same time mitigating the
impact on our people and maintaining high standards of quality and delivery.
Automotive has continued to drive operational efficiencies by improving the cost base of
itsmanufacturing operations, most notably with the announcement of the closure of its Mosel,
Germany plant, the opening of its new manufacturing facility in Hungary in September and
the major expansion of its production facilities in Mexico, which proceeded according to plan.
Automotive also recently announced the closure of its plant in Roxboro, North Carolina, which
will be completed by the end of 2024 and was factored into our previous cashflow assumptions.
These developments will ensure that the business continues to have a competitive
manufacturing footprint to serve its customers in Europe and the Americas, supporting our
margin improvement targets. Powder Metallurgy has continued to improve itsoperational
performance, increasing automation, optimising its US footprint and expanding its operations
in Mexico. A change of leadership for the Powder Metallurgy business was made subsequent
to the year-end, with the appointment of Jean-Marc Durbuis as new CEO on 11 March 2024.
GKN Hydrogen continued to make good commercial progress, with a notable increase
inrevenue and 16 of its innovative hydrogen storage systems installed in the year,
demonstrating its capability with larger capacity installations for a range of use-cases. Our
focus on quality and delivery saw the Group deliver low single-digit parts-per-million (PPM)
defect rates across the portfolio, and a good health and safety performance across the Group.
Engineering transformation for a sustainable world
During the period, we continued to make progress with our sustainability agenda and
aredelighted that alongside our Annual Report we have published our first stand-alone
Sustainability Report. Sustainability is at the heart of Dowlais, embedded in our purpose
and strategic framework. We are delivering the technological innovation required to
enable a net zero economy, whilst embedding sustainable practices throughout our
organisation to minimise our direct impact. In 2023, the Group’s Scope 1 and Scope 2
emissions fell by 6.4% against a 2022 baseline, while both Automotive and Powder
Metallurgy submitted science-based targets to the Science Based Targets initiative (SBTi)
for validation in the year. Both business units were also recognised with improved EcoVadis
ratings, with Automotive achieving a silver medal and Powder Metallurgy a platinum medal,
the latter being only awarded to the top 1% of companies assessed.
Outlook
Group
As we look forward, current industry forecasts imply a slight decline in global light vehicle
production in 2024. Based on these external forecasts and our current order book, we
anticipate Group revenues will be similar to the prior year, at constant currency, with a
modestyear-on-year reduction in the first half offset by an improvement in the second half
due to theexpected timing of several new programme launches. On this basis, and with our
strong continued focus on operational efficiencies, we expect to further expand operating
margins and grow free cash flow in 2024. As with revenue, we expect operating profit to
bemodestly second half weighted, with cash generation also more skewed to H2 in 2024.
Automotive
GKN Automotive’s priorities remain unchanged: continued margin expansion; technology
development to support the transition to electrification; and sustainable, profitable growth.
The 2024 revenue outlook is consistent with the Group. Encouragingly, we expect adjusted
operating margins to expand further building on the good momentum delivered in H2 2023
and supported by prior year actions to enhance operational efficiency. In the medium-term
and based on current industry light vehicle production forecast growth, we expect
Automotive to achieve its adjusted operating profit target of 10%+. Of the incremental
c.300 bps operating margin expansion required to achieve this, we expect approximately
two thirds to result from ongoing operational efficiencies, largely underpinned by
announced restructuring, and the remaining one third to come from revenue growth.
Powder Metallurgy
Powder Metallurgy continues to focus on transitioning its portfolio, winning new business and
ensuring higher levels of efficiency across its manufacturing operations. As a result, we expect
revenues in 2024 to be similar to the prior year, based on new customer product launches, with
performance more closely aligned with the market. We expect this trend to continue over the
medium term. We also expect adjusted operating margins of approximately 10%. Longer term,
with a renewed focus on expanding the range of applications for its products, we expect the
business to be able to return to growth with the potential for higher operating margins.
9Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
LEAD
LEAD
MARKET LEADERSHIP AND INDUSTRY-LEADING
FINANCIAL PERFORMANCE
2023 Annual Report 10Dowlais Group plc
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
LEAD
LEAD
Dowlais has a group of market-leading businesses and is on track
toindustry-leading financial performance
Our strategy is to lead, both in our position within our product markets and in our financial
performance against our peers. Market leadership in our core product lines allows us to
provide superior value to our customers. It enables the scale,production efficiencies, deep
customer relationships, operational flexibility and resilience that are increasingly necessary
to succeed in our industry. When combined with operational excellence, financial discipline,
and bold, decisive management, it will deliver sector-leading financialperformance.
Maintaining and enhancing our market-leading positions
Our businesses are leaders in their chosen markets. Our two main businesses, GKN
Automotive and GKN Powder Metallurgy, are both global market leaders in their core
product segments. This is demonstrated by the fact that across the world, hundreds
ofmillions of vehicles are powered by their technology every day. GKN Hydrogen is the
world leader in metal hydride storage solutions. Our goal is tomaintain and enhance these
leadership positions, to ensure that we remain an integral partof our customers’
businesses and a critical player in our industries.
Driving margin expansion and cash generation
Market leadership and growth are essential to deliveringshareholder value. Wedrive
ourbusinesses to fulfil their potential to deliver industry-leading financial performance,
both in terms of operating margin and cash generation. This requires arelentless focus on
operational excellence; adopting world-class manufacturing, commercial and procurement
processes; and applying a rigorous approach to cash management. We invest to create
value, and we empower ourmanagement teams to actwith pace, take bold decisions
anddeliver their commitments.
GKN AUTOMOTIVE
Leading in its key product markets and delivering year-on-year margin
improvement
GKN Automotive is synonymous with market leadership, having been at the forefront
ofthe automotive industry for generations. Its Driveline product group is the market leader
in sideshafts and propshafts, and its ePowertrain product group is the world’s leading supplier
of all-wheel drive systems and advanced differentials. Thebusiness’s scale, breadth and
capability has helped it develop deep andlongstanding relationships across the
automotive industry with traditional OEMs, Chinese OEMs and pureplay EV OEMs
1
.
#1
automotive sideshafts
and propshafts supplier
#1
AWD systems and
advanced differentials
supplier
90%
of global light vehicle
manufacturers served
6.3%
year-on-year adjusted
revenue growth
2
30 bps
year-on-year adjusted
operating margin
expansion
2
£93m
adjusted free cash flow
See pages 25 to 27 for more information on GKN Automotive's performance in 2023
GKN POWDER METALLURGY
A market leader in powder metallurgy, from powder to parts, via an
integrated manufacturing model
From powder to parts, GKN Powder Metallurgy is at the forefront of its industry. No other
powder metallurgy business has such a broad scope of capability, both as a leading supplier
of metal powders and as the world’s largest sintered metal components manufacturer.
GKNPowder Metallurgy helps customers to optimise complex components for powder
metal processes by using itsworld-class engineering expertise to design and develop parts
that are consistently lighter, stronger andmore efficient. This engineering expertise
issupported by a digitised manufacturing process that includes over 1,800 digitally
connected production machines, producing over 10 million parts per day.
#1
sintered metal
components supplier
#2
metal powder supplier
>10m
components produced
per day
See pages 29 to 31 for more information on
GKN Powder Metallurgy’s performance in 2023
See pages 33 and 34 for information on
GKN Hydrogen’s performance in 2023
1. See the Market Review on pages 16 and 17 for more details on these customer groups.
2. At constant currency, as defined on page 192.
112023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Dowlais Group plc
TRANSFORM
TRANSFORM
TECHNOLOGICAL INNOVATION TO
ENABLE A NET ZERO ECONOMY
2023 Annual Report 12Dowlais Group plc
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
TRANSFORM
TRANSFORM
Weare transforming our businesses and we are contributing
to the wider transformation of the automotive industry
A history of transformation
Our origins date back to 1759 and a pioneering ironworks in Dowlais, South Wales.
Overthedecades, our businesses have transformed themselves many times over.
Today,we are helping enable a net zero economy by playing a key role in supporting our
customers’ transition toelectric vehicles.
Transformation as a way of working
For Dowlais, transformation is not just a process, it is a way of working and a state of mind.
Continuous improvement is fundamental to how we operate and includes transformation
inour operations, where we are digitising andstreamlining our manufacturing processes;
inour manufacturing footprint, where we have re-balanced and re-positioned ourselves
toimprove our competitiveness; and in our products, where our innovation will help drive
the vehicles of the future.
Innovation as a competitive advantage
Product and process innovation is core to everything we do and is essential to protect
andgrow our market-leading positions. Through our extensive engineering capabilities,
wehelp our customers create the next generation of vehicles, and ensure our products are
manufactured efficiently, sustainably and to the highest quality, wherever they are
needed around the world. We are curious and agile, focusing our resources where they
have the greatest impact. We also protect our innovations through an extensiveportfolio
of patents and other intellectual property.
Driving transformation of the automotive industry
We are in the most significant period of change for the automotive industry since
theinvention of the car. The pace of transformation is rapid but not always predictable.
Ourbalanced product portfolio and our proximity to our customers enable our businesses
to influence and adapt to that pace of change, ensuring we transition according to the
needs of our customers and the wider automotive market. Our prudent and balanced
approach to investing in products and technologies gives us the flexibility to adapt
tothese dynamic market changes.
GKN AUTOMOTIVE
Investing in market-leading technology and its global engineering
capabilities
As the global leader in drive systems, GKN Automotive continues to invest in its world-class
technology. Inits core sideshaft portfolio, it has invested in products optimised for use in EVs
1
,
whichhave different requirements for torque, efficiency and acoustics than those used in ICE
1
vehicles. The business offers an extensive range of driveshafts manufactured at a scale unmatched
by its competitors. It is also the global market leader in all-wheel drive systems and advanced
differentials that have formed the foundation ofa portfolio of eDrive systems and products. It has
supplied over two and a half million eDrive systems and this progress will continue in2024 as the
business prepares to launch its first 3-in-1 integrated eDrive system fora major global OEM. In 2023
GKN Automotive continued to expand its engineering and technological capabilities, with further
investment in its engineering centres in Mexico, Poland, India and Hungary. Theyear also saw GKN
Automotive achieve full ASPICE Level 2 certification
2
at eDrive system level, which is a key enabler
fordeveloping eDrive system software.
74%
of 2023 bookings on
EVplatforms
6
technology centres
globally
>1,800
patents granted
orpending
GKN POWDER METALLURGY
Developing new products to support the transition to EVs
The world’s leading power metallurgy business, GKN Powder Metallurgy, is solving complex
challenges inautomotive and industrial markets through best-in-class sustainable and innovative
powder metallurgytechnology. In recent years, GKN Powder Metallurgy has expanded its core
capabilities to suitthe needs of future automotive and industrial applications. It has also added
exciting new technologies to its portfolio, some of which are critical to enabling the shift to
electrification. These include powders for use in lithium iron phosphate (LFP) batteries and
permanent magnets for electric motors. In2023, the business supplied its first customer with
powder for LFP batteries, and installed its first magnet production line, establishing a foothold
inthese promising new product segments.
72%
of 2023 bookings on
propulsion agnostic
products
3
technology centres
globally
>680
patents granted
orpending
1. See the Glossary on page 198.
2. See page 27 for more details.
132023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Dowlais Group plc
ACCELERATE
ACCELERATE
SUSTAINABLE ORGANIC GROWTH
AND DISCIPLINED M&A
2023 Annual Report 14Dowlais Group plc
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
ACCELERATE
ACCELERATE
We are accelerating our business through sustainable, profitable organic
growth that creates shareholder value
The global automotive market is expected to grow in the medium term, with a forecast
increase inglobal light vehicle production of 5% between 2023 and 2028. We also expect
changes in our customers' requirements to result in increased content per vehicle for our
core products. We aim to benefit from that growth, but alwaysin a sustainable way that
does not compromise our core profitability objectives. Wehave aclear portfolio strategy,
based onbusinesses that are leaders in their product markets. We are well placed to
capitalise ontheexpected increase inunderlyingdemand, grow our share of existing
product markets and increase our content per vehicle.
Identified growth segments that will benefit from the EV transition
Wehave invested in growth segments that we expect to profitably benefit our business
asthe global transition to electrified vehicles takes place. Theseinclude products like
sideshafts, where we expect content per vehicle to increases on EVs, eDrive systems
andePowertrain components, permanent magnets for electric motors and powder for
LFPbatteries. Weexpect these and other opportunities to more than offset the decline
inother types of product and contribute to our growth and profit objectives.
A prudent, disciplined approach to M&A opportunities
We will explore opportunities for value-accretive M&A, whether via consolidation in
existing segments or entry into adjacent markets, and consider disposals where they make
sense. We will be disciplined in our approach and pursue opportunities only when we
believe they are compelling and are confident they will create shareholder value.
5%
forecast growth in
global light vehicle
production between
2023 and 2028
215%
forecast growth in
global EV production
volumes between 2023
and 2028
26%
points forecast growth
in global EV
penetration rate
between 2023 and2028
GKN AUTOMOTIVE
A record year of bookings, with systemic growth in its core product
portfolio and progress in the rapidly growing eDrive systems market
GKN Automotive continues to demonstrate its strong growth potential, having secured
significant new business in 2023, in what was a record year of bookings. Unlike many
ofitspeers, GKN Automotive has a propulsion source agnostic core portfolio, with
electrification expected to increase sideshaft content per vehicle, both in terms of
component value andnumber of shafts per vehicle. In addition, the business is now seeing
significant growth in the eDrive systems market, inwhich it has been a leading player for
decades thanks to its market leadership in AWD systems. Its strategy continues to capture
profitable growth, by selectively developing programmes where it can add significant
value through high-technology engineering. Thiswas demonstrated by the business
securing anew contract for a 3-in-1 eDrive system, fully designed by GKN Automotive,
foruse inahigh-performance sports utility vehicle (SUV).
7.0%
year-on-year
revenue increase
1
>£6bn
new business
awarded
2
1.4
book-to-bill ratio
3
3.5%
year-on-year
revenue increase
1
>£120m
per annum new
business awarded
3
>3,000
customers supplied
in the year
GKN POWDER METALLURGY
Progress in new technologies with significant growth potential
GKN Powder Metallurgy’s revenues also grew year-on-year in 2023. Over time, certain
ofitsproducts which are supplied for use in ICE vehicles will gradually decline due to the
transition to EVs and downsizing of combustion engines. The business has identified new
products where demand is expected to increase and is pursuing opportunities in wider
industrial markets beyond its core automotive segment. By carefully navigating the
transition, we expect the business to secure long-term profitable growth and reinforce
itsposition as the world’s leading powder metallurgy business.
1. At constant currency, as defined on page 192.
2. By forecast lifetime revenue.
3. By forecast maximum in-year revenue.
152023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Dowlais Group plc
Global light vehicle production over the past five years
In recent years, global light vehicle production volumes have been adversely
impacted by a number of global and regional macroeconomic factors, most
notably the Covid-19 pandemic which began in 2020. The industry has since
recovered and underlying consumer demand for vehicles remains strong.
– 2020: The Covid-19 pandemic caused an unprecedented drop in vehicle
production levels. The industry saw a 16% drop in vehicle volumes, taking it
backto output levels not seen since 2010.
– 2021: Volume recovery was limited due to lingering, localised Covid-19
outbreaks, supply chain bottlenecks and semiconductor shortages.
– 2022: Healthy consumer demand coupled with the easing of semiconductor
pressures enabled moderate growth, but annual production volumes remained
8% below 2019 levels.
– 2023: Further recovery saw the industry return to 2019 levels, albeit with a
different regional mix, as manufacturers satisfied order backlogs and re-built
inventories. Labour negotiations in the US slightly reduced volumes, as the
UAWled strike action against the three largest North American OEMs.
MARKET REVIEW
GLOBAL AUTOMOTIVE MARKETOVERVIEW
GKN Automotive typically supplies components directly to OEMs and is therefore what
isknown in the Automotive industry as a Tier 1 supplier. GKN Powder Metallurgy supplies
both OEMs and Tier 1 suppliers.
The vast majority of components supplied by both GKN Automotive and GKN Powder
Metallurgy are for light vehicles, which means passenger cars and light trucks up to 6
tonnes in weight. In 2023, the total number of light vehicles produced globally is estimated
to have been 90.3 million, a 10% increase on the number manufactured in the prior year.
Regionally, the world’s largest manufacturer of light vehicles in 2023 was Asia, with China
producing 29 million vehicles and the rest of Asia 22.5 million vehicles. This was followed
byEMEA (20.1 million vehicles) and the Americas (18.6 million vehicles). In 2023, production
inChina grew year-on-year by 10%, compared to 9% in the rest of Asia, 11% in EMEA and
9%in the Americas.
In 2024 global production growth is expected to be broadly flat, at 90 million vehicles,
butlonger-term industry forecasts are for further growth in global light vehicle production,
with absolute growth of 5% forecast between 2023 and 2028.
Dowlais’ businesses are market-leading suppliers to the Automotive sector, with approximately 95%
ofGroup revenues directly attributable to the sale of automotive components.
2019
year-on-year
change
2020 2021 2022 2023
89.0
74.6
77.2
-16% 3%
82.3
7%
90.3
10%
Covid-19
disruption
Limited
recovery
Resilient
growth
Return to 2019
volumes
Global light vehicle production (million units)
Market Data Source
All references in this
Annual Report to
historical and
forecast global light
vehicle production
volumes are based
on S&P Global's
mobility forecast,
February 2024.
16Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
MARKET REVIEW CONTINUED
Global EV penetration forecast
It is generally recognised that four “mega-trends”
arecurrently driving technological change in the
automotive industry. These are connected vehicles,
autonomous driving, shared mobility and electrification.
For Dowlais, electrification is the most relevant to
ourcurrent product portfolio.
The electrification trend and global growth in EV
production have been primarily driven by global
regulation. Many governments have introduced laws
aimed at reducing carbon emissions created by the
use of ICE vehicles by imposing penalties on the
production of those vehicles and introducing
incentives to encourage the production and sale
ofEVs. This has resulted in EVs now representing
anincreasingly material share of the light vehicle
market. In 2023, approximately 12 million EVs
weremanufactured globally, which represents a
penetration of approximately 13%. This is an increase
from 11% penetration in 2022 and represents a
year-on-year volume growth of 34%. Regionally,
thehighest share of EV production can currently be
found in China (25% in 2023), followed by Europe (11%)
and North America (7%). Forecasts suggest that this
EV market penetration will increase to approximately
48% globally by 2030.
How Dowlais is responding
GKN Automotive has a propulsion source agnostic
core sideshaft portfolio that will benefit from
increased content on EV platforms. Its ePowertrain
product group is also well positioned to deliver
profitable growth from the shift to electrification
GKN Powder Metallurgy is actively expanding
itsproduct portfolio to grow its offering of
components for EVs. The business has had
commercial success with a number of “EV ready”
components, including sintered magnets for
electricmotors and metal powder for LFP batteries.
ELECTRIFICATION
The three automotive industry trends most relevant to Dowlais and how we are responding.
GEOPOLITICS
The automotive industry is truly global in nature,
andis therefore affected by global events. A number
of geopolitical factors influenced the industry and
global light vehicle production during 2023. Global
supply chains have overcome some of the restraints
seen in recent years (as referenced on page 16) and
demonstrated increased resilience, which has helped
support production growth in the industry in 2023.
This growth was further supported by strong
consumer demand for new vehicles.
The wars and conflicts in Ukraine and the Middle East
have affected certain parts of the automotive supply
chain, although the overall impact on the industry
and on Dowlais has so far been relatively minor.
Finally, the trend for governments to adopt more
protectionist trade strategies, and increasing
de-globalisation, means that many OEMs and
suppliers are increasingly focused on supply chain
localisation, to reduce risk including the risk of
additional international sanctions, tariffs and other
trade restrictions.
How Dowlais is responding
With 77 manufacturing facilities across 19 countries,
Dowlais has a truly global footprint. Although their
supply chains are highly efficient, resilient and
routinely optimised, both GKN Automotive and GKN
Powder Metallurgy have continued to localise their
supply chains during 2023 and plan to continue to
doso in future years. In addition, both businesses
have Chinese operations which are almost entirely
dedicated to serving the local Chinese market.
De-globalisation can also bring opportunities,
ascustomers look to secure their supply chains.
When we consider our vehicle manufacturer
customers, we group them into three broad
categories: traditional OEMs, Chinese OEMs and
pureplay EV OEMs.
Traditional OEMs, are the incumbent global
manufacturers, who produce both ICE and EVs.
Theyaccounted for approximately 78% of global
light vehicle production in 2023. Chinese OEMs
arelocal Chinese manufacturers who operate
independently from the traditional OEMs. They were
responsible for approximately 20% of global light
vehicle production in 2023. Finally, pureplay EV OEMs
are more recent market entrants with a strategy to
only produce EVs. They are a smaller segment of the
market, accounting for approximately 2% of global
light vehicle production in 2023.
Both Chinese and pureplay EV manufacturers have
increased their market share in recent years and this
trend is forecast to continue in the medium term.
How Dowlais is responding
GKN Automotive and GKN Powder Metallurgy are
global automotive market leaders and therefore
have relationships with almost every traditional OEM.
Both businesses also have a meaningful operational
presence in China and longstanding relationships
with Chinese OEMs. Finally, they have also developed
commercial relationships with all the prominent
pureplay EV OEMs worldwide.
CUSTOMER LANDSCAPE
52%
2% 98%
48%
87%13%
2019
2023
2030F
EV penetration ICE Vehicles
17Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
KEY PERFORMANCE INDICATORS
MEASURING OUR PERFORMANCE
Financial KPIs
Adjusted
revenue
Adjusted
operating
profit
Adjusted
operating
margin
Adjusted Free
Cash Flow
Adjusted
earnings
pershare
Our financial KPIs include Alternative Performance Measures (APMs) which are explained on page 190.
£93m
(2022: n/a)
Definition
Cash generated from
tradingoperations, after
accounting for all trading
costs, restructuring, pension
contributions and tax
payments, but before any
cash flows related to financing
activities, adjusted for
demerger-related cash flows.
Progress in 2023
Better than expected free
cash flow generation allowed
us to announce the
commencement of a
£50 million share buy-back
programme, whilst continuing
to maintain leverage within
our target range, and invest
in our operations and new
business opportunities for
organic growth.
Net leverage
ratio
1.4x
(2022: 1.5x)
Definition
Net debt divided by last
12 months’ adjusted EBITDA.
Progress in 2023
Net debt reduction to
£847 million, combined with
adjusted EBITDA growth, led
to a lower leverage ratio of
1.4x compared to a pro forma
position of 1.5x at the
demerger date.
6.5%
(2022: 6.3%)
Definition
Adjusted operating profit
asapercentage of
adjustedrevenue.
Progress in 2023
Adjusted operating margin
grew 30bps year-on-year,
aswe continue to aim for
industry-leading financial
performance.
Excluding central costs, our
adjusted operating margin
was 7.1% with 90bps margin
expansion.
£355m
(2022: £333m)
Definition
Statutory profit, adjusted
forsignificant or volatile
items, non-trading or
non-recurring items, certain
fair value items released
tothe income statement
relating to historical
acquisitions, and adjusted
profit from EAIs.
Progress in 2023
Adjusted operating profit
increased 10% year-on-year
atconstant currency, driven
by revenue drop-through,
operational efficiencies and
the benefit of ongoing
restructuring.
£5,489m
(2022: £5,246m)
Definition
External revenue including
the Group’s share of revenue
of equity accounted
investments (EAIs).
Progress in 2023
Our revenue grew 6.3%
year-on-year at constant
currency, mainly driven
byincreased light vehicle
production volumes and
commercial pricing
recoveries.
13.8p
(2022: n/a)
Definition
Adjusted profit after tax
divided by the weighted
average number ofordinary
shares in issue during the
financial period.
Progress in 2023
We delivered EPS in line with
expectations for our first year
of trading.
18Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
KEY PERFORMANCE INDICATORS CONTINUED
Accident
Frequency
Rate
Scope 1 and 2
CO
2
emissions
EV-related
medium-term
order book
Non-financial KPIs
We use our KPIs to track our success in delivering
our strategy
We report our key performance indicators (KPIs) which we consider the most important
metrics to track our performance. The Board reviews these KPIs annually and regularly
monitors progress during the year. Some KPIs are directly linked to our Executive Directors’
remuneration. We have reported prior year KPIs where we can, but as this report relates
toour first year as a company, prior year data is not always available. Where that is the case,
we expect to be able to report more comparative prior year data in future years.
Financial progress
Our financial KPIs track how our financial performance meets our strategic goals. This includes
our strategy to achieving industry-leading financial performance by driving margin
expansion, increasing earnings per share and generating cash, whilst maintaining prudent
levels of leverage.
Health and safety
The health and safety of our people is our number one priority. Our Accident Frequency
Rate is our key health and safety KPI and reflects accidents that have resulted in time off
work. Other health and safety metrics we monitor include our Major Accident Frequency
Rate and Accident Severity Rate, each of which reflects whether or not any accidents result
in more serious injuries. All lost-time accidents are reported to the Board on a regular basis.
Carbon emissions
To track our performance towards our net zero targets, we treat our Scope 1 and Scope 2
emissions as a KPI. These are emissions generated in our own operations or in generating
the energy we use, so are directly influenced by our actions. Our Scope 3 emissions are
largely outside our control, but we expect them to reduce significantly over time as the
automotive industry continues to transition to EVs.
Transition to sustainable mobility
Tracking the percentage of GKN Automotive’s medium-term order book which relates
tobookings for EV programmes, reflects the importance of our strategy to successfully
navigate the wider EV transition. Our goal is to smoothly track that transition, so we aim
forthis KPI to broadly track the forecast market penetration rate of EVs.
<0.1 683Kt CO
2
e
(2022: 730Kt C0
2
e)
49%
Method of calculation
Number of lost time
accidents (whether serious
orminor) divided by the total
number of hours worked
multiplied by 200,000.
Method of calculation
Our emissions data is
reported in accordance with
the reporting requirements
of the Greenhouse Gas
Protocol (GHG Protocol),
Revised Edition and the
Environmental Reporting
Guidelines, including the
SECR guidance dated
March2019.
Method of calculation
The percentage of GKN
Automotive’s forecast
revenue in five years’ time
(2027) from the supply of
products for use in EVs, based
on currently awarded
business. Does not include
GKN Powder Metallurgy,
aftermarket or cylinder liners
order book.
Progress in 2023
We are committed to
protecting our employees
and workers from injury and
harm, focusing on continuous
improvement to provide a
safe and healthy workplace
for all.
Our target is to maintain
anAccident Frequency Rate
ofless than 0.1 which we
achieved thisyear.
Progress in 2023
We reduced our Scope 1 and
2 emissions by 6.4%, with
emissions falling from 729,635
tonnes in 2022, to 682,761
tonnes in 2023. This was
achieved despite an increase
in revenue of 6.3% at constant
currency. We also saw a 11.6%
reduction in energy
consumption intensity.
Progress in 2023
Our strategy to smoothly
navigate the EV transition
means our goal is for this KPI
to broadly track the market
penetration rate of EVs.
Current 2027 forecasts are for
that penetration rate to be
51%, and we therefore believe
we are closely aligned to the
expected future trajectory
ofthe market.
19Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
FINANCIAL REVIEW
The Group achieved impressive year-on-year improvements in its key performance
measures, driven by a combination of global light vehicle production (GLVP) volume
increases, operational efficiencies, easing supply chain disruptions and a continuing
focuson cost management. Despite prolonged inflationary headwinds and the UAW
strikein September and October, we have demonstrated resilience in navigating these
challenges and executed strongly by growing profits, expanding margins and increasing
cash generation.
Overview
£ millions
Adjusted
1
Statutory
2023 2022 Change
Constant
FX
1
2023 2022 Change
Revenue 5,489 5,246 4.6% 6.3% 4,864 4,595 5.9%
Operating profit/(loss) 355 333 6.6% 10% (450) 58 n/m
4
Operating margin 6.5% 6.3% 20bps 30bps -9.3% 1.3% n/m
4
Operating profit/(loss)
excl. stand-alone costs
2
387 333 16% 20% – – –
Operating margin excl.
stand-alone costs
2
7.1% 6.3% 80bps 90bps – – –
Basic EPS
3
13.8p – – – (36.0)p – –
Free cash flow
3
93 – – – – – –
Net debt
3
847 – – – – – –
1. Adjusted financial measures are defined and reconciled to statutory measures in the Alternative
Performance Measures section on pages 190-194, which also sets out the definition and basis of calculation
ofconstant currency.
2. Excludes £32 million of incremental stand-alone plc costs.
3. Prior year comparators are not included as not considered meaningful or are not possible to calculate due
tothe change in structure of the business. Prior year comparators will be included from December 2024.
4. Not meaningful.
Revenue
Adjusted revenue in the year increased to £5,489 million (2022: £5,246 million), with growth
of 6.3% at constant currency. This reflected volume growth in all our operating regions,
although we did underperform GLVP, and price increases as the businesses recovered
significant cost inflation. Translational foreign exchange headwinds on adjusted revenues
were £90 million greater than the prior year, resulting in a reported adjusted revenue
growth of 4.6%. Statutory revenue (which excludes revenues from non-consolidated joint
ventures including the Group’s major Automotive joint venture in China) in the year was
£4,864 million (2022: £4,595 million) with reported growth of 5.9%.
STRONG MARGIN
EXPANSION AND
CASHGENERATION
Roberto Fioroni
Chief Financial Officer
“We delivered strong performance in 2023,
withrevenue growth,margin expansion, and
better than expected free cash flow generation.“
202023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Dowlais Group plc
FINANCIAL REVIEW CONTINUED
The regional breakdown of Group adjusted revenues in the year is shown below.
Adjusted Revenue share by region
2023
Americas 40%
Europe, Middle East & Africa 34%
China
1
14%
Asia (ex China) 12%
1. China revenues reflect Joint Venture shareholding percentages.
Operating profit
Adjusted operating profit for the year increased by 10% at constant currency to
£355 million, with margin improvement of 30bps. This improvement excludes the impact
offoreign exchange headwinds due to the British pound sterling strengthening against
theUS dollar and the Chinese Renminbi. The increase in adjusted operating profit was
driven by higher volume, and offsetting inflation through a combination of customer
priceincreases and operational efficiencies. Excluding incremental stand-alone plc costs,
adjusted operating profit in the year increased by 20% to £387 million, with margin
expansion of 90bps.
The statutory operating loss in the year was £450 million (2022: £58 million profit), primarily
reflecting a goodwill impairment charge of £449 million relating to the Powder Metallurgy
business, resulting in a carrying value of £884 million. As part of our year-end process,
wereview the carrying value of all of our assets, which has led to this non-cash impairment.
After completing a detailed business review, while we still believe that the business
haspromising longer-term prospects, current medium-term profit and cash assumptions
are lower than those previously assumed when determining its book value. This is largely
driven by a softening in the underlying forecast of the growth assumptions in its core
business. This is discussed in more detail in Note 12 to the Financial Statements. Other
adjustments between adjusted and statutory operating profit relate to the amortisation
ofacquisition-related intangible assets, restructuring costs and demerger costs.
Translational Foreign Exchange Impact
The difference in reported and constant currency values relates to translational foreign
exchange impacts as further set out on in the Alternative Performance Measures section on
pages 190-194. When considering the sensitivity of potential 2024 full-year adjusted operating
profit to translational foreign exchange movements, we expect that a 10% strengthening of
certain underlying currencies against British pound sterling would increase adjusted operating
profit as follows: US dollar approximately £20 million; Euro approximately £5 million; and
Chinese Renminbi approximately £10 million. Based on current spot rates we expect a full
year2024 revenue and operating profit headwind.
Net finance costs
The Group’s net finance charges of £72 million (2022: £121 million) represent £101 million
offinance costs (2022: £272 million) and £29 million of finance income (2022: £151 million).
The finance costs include interest on bank borrowings of £63 million (2022: £11 million),
interest on the Group’s pension schemes of £17 million (2022: £6 million) and finance lease
charges of £6 million (2022: £6 million). The increase in interest on bank borrowings
compared to the prior year reflects the change in capital structure to a stand-alone entity
following the demerger. The Group’s effective interest rate on bank borrowings was 6.4%.
Finance income includes the benefit of foreign exchange gains of £22 million on loans
withMelrose up to the date of demerger. In the prior year, foreign exchange movements
on loans with Melrose resulted in a £24 million net cost, comprising exchange gains of
£143 million offset by exchange losses of £167 million.
Dowlais has a clear capital allocation framework, which sets out how we intend to use our capital
andapply any excess cash available after paying an appropriate dividend in line with our
statedpolicy.
CAPITAL ALLOCATION FRAMEWORK
OPERATING CASH FLOW
EXCESS CASH
BUSINESS INVESTMENT
DIVIDEND
DELEVERAGING M&A
ADDITIONAL
SHAREHOLDER
RETURNS
Maintain ratio at 1.0x to
1.5x net debt: EBITDA
A disciplined, prudent
approach to exploring M&A
where it will create value
Return excess capital to
shareholders, by share
buy-backs or special dividends
A sustainable and progressive dividend policy,
targeting approximately 30% of adjusted profit
after tax
Capital to sustain organic growth,
support transitionto EV and increase
competitiveness of manufacturing footprint
21Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
FINANCIAL REVIEW CONTINUED
Adjusted net finance costs of £91 million (2022: £36 million) include £2 million of interest
income from equity accounted investments (2022: £2 million) and exclude movements
inforeign exchange movements on loans with Melrose as well as a £1 million fair value
movement on other financial assets (2022: £59 million fair value changes on cross currency
swaps). Adjusting interest items are set out in Note 6(b) to the Financial Statements.
The Group is actively monitoring interest costs in light of volatile global interest rates
andhas fixed the interest rates on 55% of the drawn debt under its banking facilities with
interest rate swaps, maturing in line with those facilities.
Net finance charges are expected to be higher in 2024, in the range of between
£100 million and £110 million, due to the full-year impact of our debt structure and
theincrease in global interest rates.
Tax
The results for the year show an adjusted tax charge of £66 million (2022: £79 million),
arising on an adjusted profit before tax of £264 million (2022: £297 million). The Group’s
current adjusted effective tax rate (ETR) is 25.0% (2022: 26.6%). The Group’s ETR is driven
primarily by the jurisdictional split of profits and includes the benefit of operating in low
taxregimes in certain parts of China and Thailand. In addition, the Group has claimed
thebenefit of patent box tax relief in Italy during the year. These downward drivers
arepartially offset by the non-recognition for tax purposes of the losses arising in the
Hydrogen business as well as withholding tax suffered on dividends received by the UK
from overseas businesses.
Earnings per share
In accordance with the Group’s measures of performance, the Group also presents its
earnings per share (EPS) on an adjusted basis. Adjusted EPS for the year was 13.8 pence
perordinary share.
Statutory basic EPS was a loss of 36.0 pence per share as it included the impact of the
goodwill impairment and other adjusting items such as amortisation of acquisition-related
intangible assets, restructuring costs and demerger costs, as shown in Note 6 of the
Financial Statements.
Free cash flow
The Group reported a free cash flow of £45 million for the year, which was impacted by
non-recurring costs of £48 million related to the demerger. These costs include employee
incentive payments under the terms of a previous Melrose scheme that became payable at
the point of the demerger and costs associated with establishing the Group's new central
functions. Excluding these non-recurring costs, the adjusted free cash flow was £93 million.
The growth in adjusted free cash flow was primarily driven by an increase in adjusted
EBITDA and improvements in working capital of £18 million resulting from a continued
focuson supply chain optimisation. It also benefited from lower tax and restructuring cash
outflows, which more than offset the higher interest payments and capital expenditure.
Interest payments, totalling £68 million, were £56 million higher compared to the previous
year due to the new stand-alone capital structure established after the demerger,
therefore, interest payments in 2024 are expected to be in the range of £80 million
to£90 million. Capital expenditure increased by £73 million to £295 million, reflecting
investments in business growth and footprint optimisation. Capital expenditure in 2024
isexpected to be towards the lower end of 1.0x and 1.2x depreciation, in line with our
medium-term guidance. Restructuring cash outflows of £70 million, related to
manufacturing footprint optimisation, were lower than the previous year and expectations,
largely due to phasing. As a result, restructuring cash outflows in 2024 are expected to
increase to between £90 million and £100 million.
Liquidity and leverage
The Group’s primary sources of liquidity are the cash generated from operating activities
and funds available under its revolving credit facility. At year end, the Group's cash and
cash equivalents balance stood at £313 million, while the revolving credit facility had
available headroom of £590 million, translating to a total liquidity position of £903 million.
The Group is funded through two core banking facilities, comprised of a term loan
andrevolving credit facility, with a combined facility limit of approximately £1.8 billion.
Both facilities have an initial maturity date of 20 April of 2026, and the Group has the
option to extend the revolving credit facility for up to two further one-year periods,
atitssole discretion.
The Group’s net debt at 31 December 2023 was £847 million, slightly less than 30 June 2023
and approximately £30 million less than the pro forma net debt of £880 million at
31 December 2022.
The Group’s net leverage ratio at 31 December 2023 was 1.4x adjusted EBITDA, comfortably
below the covenant requirement under its debt facilities of 3.5x, and aligned with the
Group’s intention to maintain a strong balance sheet with net leverage of between 1.0x
and1.5x the last 12 months’ adjusted EBITDA. A separate interest cover covenant (which
measures the adjusted EBITDA to net interest charge over the preceding 12 months and
requires a ratio of at least 4.0x) does not come into effect until 30 June 2024. The Group
expects to have comfortable headroom above this covenant.
22Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
FINANCIAL REVIEW CONTINUED
Retirement benefit obligations
The Group operates several defined benefit pension schemes. The Group’s assets and
liabilities under these schemes were calculated as at 31 December 2023 to reflect the latest
assumptions and are summarised below.
Position at 31 December 2023
£ millions Assets Liabilities
Accounting
Deficit
UK plans
1
665 (672) (7)
European plans 16 (416) (400)
US plans 73 (118) (45)
Other Group pension schemes 21 (28) (7)
Total Group pension schemes 775 (1,234) (459)
1. UK plans primarily relate to the GKN Group Pension Schemes No. 2 and No. 3 and also include a legacy UK
post-retirement medical scheme.
The Group’s most significant defined benefit pension plans are the GKN Group Pension
Scheme No. 2 and the GKN Group Pension Scheme No. 3, which constitute the majority
ofthe UK plans. These defined benefit schemes are closed to new entrants and to the
accrual of future defined benefits for current members. The Group continues to contribute
£15 million per annum to these UK schemes as part of its asset-backed funding
arrangements. As at 31 December 2023, these schemes had a net deficit of £5 million
(2022:net surplus of £17 million), with an additional £2 million of liabilities relating to a
legacy post-retirement medical scheme. The UK schemes were last subject to their triennial
statutory valuation in April 2022, the outcome of which and the related funding principles
was agreed by the Group with the trustee directors of the schemes. The next triennial
valuation is due in April 2025.
The most significant of the Group’s other pension liabilities are the future payment
obligations under the German GKN pension plans, which provide benefits dependent
onfinal salary and service and which are generally unfunded and closed to new entrants.
Atyear end, the future obligations associated with these plans represented an unfunded
liability of £390 million (2022: £405 million).
Full-year pension cash outflows in relation to the defined benefit pension schemes were
£39 million (2022: £40 million). This amount is expected to be approximately £45 million
in2024.
Dividend
The Board has recommended a final dividend of 2.8 pence per ordinary share. This
dividend, together with the interim dividend of 1.4 pence per ordinary share represents
30% of adjusted profit after tax, in line with the Group’s dividend policy. Subject to
approval by shareholders, the final dividend will be paid on 30 May 2024 to shareholders
onthe register on 19 April 2024. A Dividend Reinvestment Plan (DRIP) is provided
byEquiniti Financial Services Limited. The DRIP enables the Company’s shareholders
toelect to have their cash dividend payments used to purchase the Company’s shares.
More information can be found at www.shareview.co.uk/info/drip.
Share buy-back
The Board has announced its intention to commence a share buy-back programme of up
to£50 million, to be transacted over 12 months commencing in April 2024. This is in line
with our capital allocation policy as we continuously evaluate the deployment of our
available capital to support investment for future growth whilst maintaining leverage at or
below 1.5x through the period and maximise value for our shareholders. The Board believes
that purchasing its own shares is an attractive use of its capital in light of the Group’s strong
long-term outlook and improving cash generation. The programme will be executed in
accordance with applicable legal requirements and a further announcement regarding the
terms of the share buy-back programme will be made in due course.
23Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
ENGINEERING TRANSFORMATION
ENGINEERING TRANSFORMATION: SIDESHAFTS
Sideshafts
Having pioneered the development of constant velocity
driveshafts since the 1960s, we are the global market leader
inthis essential technology.
Sideshafts transfer torque to the wheels of a vehicle. Modern sideshafts are a highly
engineered component, which are fundamental to how a vehicle performs, making them
acore partof the driving experience. Over decades, we have continually enhanced
ourportfolio, using our expertise to improve performance, efficiency and durability.
Our market-leading technology portfolio enables our customers to meet specific torque,
articulation, noise, weight, durability and cost requirements. For example, by using
software simulation we can give our customers sideshafts that meet the specific
characteristics of their vehicle, and our advanced joint technologies help improve efficiency
by reducing energy loss during torque transfer. This helps to improve fuel economy for ICE
vehicles and extend the range of EVs.
As the automotive industry embraces electrification, the requirements for sideshafts have
changed significantly. EVs have different vehicle architectures, require higher efficiency
and generate higher torque levels compared to ICE vehicles. We offer a range of solutions,
from larger articulation angles to address changes in available space, to increased stiffness
for better oscillation control, and higher efficiency that translates into battery cost savings.
Electrification also introduces new challenges, such as more stringent acoustics
requirements and different endurance requirements due to the loads placed on the shaft
in driving or regeneration. Our sideshaft systems can not only handle these challenges but
continue to provide best-in-class performance, which is why we remain the market leader.
2023 Annual Report 24Dowlais Group plc
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
OPERATING REVIEW: GKN AUTOMOTIVE
The world leader in drivesystems and a trusted partner
for90% of global automotivemanufacturers.
GKN AUTOMOTIVE
GKN Automotive made strong progress during 2023 with
revenue growth, significant margin expansion, improving
cashflow generation and record new business bookings.
Automotive overview
£ millions
Adjusted
1
Statutory
2023 2022 Change Constant FX
1
2023 2022 Change
Revenue 4,437 4,223 5.1% 7.0% 3,843 3,598 6.8%
Operating Profit 306 250 22% 27% 30 11 173%
Operating Margin 6.9% 5.9% 100bps 110bps 0.8% 0.3% 50bps
1. Adjusted financial measures are defined and reconciled to statutory measures on pages 190-194, which also
sets out the definition and basis of calculation of constant currency.
Adjusted revenue grew 7.0% year-on-year to £4,437 million, driven by increased global
light vehicle production volumes. The under-performance compared to a GLVP growth
of9.7% is largely due to our strategic focus on commercial discipline, prioritising profitable
growth over volume growth. The business also grew adjusted operating profit by 27%.
Thisreflects a drop-through margin of 29% on incremental volume at constant currency.
This resulted in adjusted operating margin expansion of 110bps to 6.9%, reflecting
incremental volumes, operational efficiencies including procurement benefits, offsetting
ongoing inflation and foreign exchange headwinds. The second half performance was
particularly pleasing, with the business achieving an adjusted operating margin of 7.3%,
despite the impact of the UAW strike action in the US.
To optimise its manufacturing footprint and further improve efficiency, the business
incurred £109 million in restructuring costs during the year, with a £58 million cash outflow.
Key actions included the ongoing closure of its Mosel plant in Germany and shifting
production to Miskolc, Hungary, alongside the expansion of facilities in Mexico.
Record new business wins
GKN Automotive had an outstanding year of new business bookings, securing strategically
significant wins and contract awards worth more than £6 billion in forecast lifetime revenue.
This is GKN Automotive’s best-ever year for new business wins, representing an 11%
increase on 2022 and a book-to-bill ratio of approximately 1.4x.
These business wins are well balanced across the Driveline and ePowertrain product
groups,with 74% related to EV platforms, and 69% for pure Battery Electric Vehicle (BEV)
platforms(in each case by forecast lifetime revenue). The wins were also balanced across
the business’s product portfolio, including sideshafts tailored for EVs, ePowertrain
components such as Electronic Differential Locks (EDL), Electronic Torque Managers (ETM)
and Limited Slip Differentials (LSD), and afull eDrive system. They were also across a broad
range of end customers, including traditional, Chinese and pureplay EV OEMs.
Visit gknautomotive.com to learn more
GKN Automotive is a global automotive technology business at the forefront of
innovation. It specialises in designing, developing and producing market-leading
drive systems, with eight out of ten of the world’s best-selling cars using its
technology. GKN Automotive is the world leader in sideshafts, propshafts, AWD
systems and advanced differentials, on which it has built its eDrive system capability,
which was launched over 20 years ago and has since been used inover 2.5 million
electrified vehicles worldwide
>25,000
employees
1
48
manufacturing facilities
GKN AUTOMOTIVE PRODUCT PORTFOLIO
Sideshafts | Propshafts
Driveline product group
ePowertrain product group
AWD Systems | eDrive Systems
ePowertrain Components
1. Total employees of the Group’s undertakings
within GKN Automotive, including its
non-consolidated joint ventures.
252023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Dowlais Group plc
OPERATING REVIEW: GKN AUTOMOTIVE CONTINUED
With approximately halfa million cars forecast
tobe built in the country in 2025, the automotive
industry continues to expand inHungary.
In September 2023, GKN Automotive
completed the first construction
phaseof a new manufacturing site
inFelsőzsolca, near Miskolc in
northeastern Hungary, enabling
thebusiness to further improve its
manufacturing cost base and remain
close to many current and potential
customers in the European region.
The 29,000sqm facility, which began
producing sideshafts in October 2023,
comprises a production and logistics
hall, office building, and engineering
centre complete with testing facilities.
It has been constructed with a focus
onsustainable design and best-in-class
production flow processes. The second
phase of construction is now in progress,
which will expand the facility to
60,000sqm.
The new site complements GKN
Automotive’s existing network
ofproduction sites in eastern Europe,
including Oleśnica in Poland and Zreče
inSlovenia, further improving its
competitiveness.
New production facility
inHungary
The business’s order book remains very well aligned to the evolving vehicle portfolio of its
customers and the S&P Global’s forecast for 2027, with 33% of its current 2027 order book
now relating to battery electric vehicles, 16% to hybrid electric vehicles and 51% to internal
combustion engine vehicles. The balanced nature of GKN Automotive’s product portfolio
enables it to remain propulsion source agnostic, and to prudently track the pace of
transition of its customers’ vehicle platforms to EVs.
Notably, the business was also awarded a contract for a full 3-in-1 eDrive system, comprising
two electric drive units (front and rear) for a high-performance electric SUV. The forecast
profitability of this award is also fully aligned to our margin objectives. This win further
demonstrates GKN Automotive’s ability to profitably leverage its AWD systems
engineering expertise into eDrive systems. Separately, the business’s first entirely in-house
designed and developed 3-in-1 eDrive system, to be supplied to a major global OEM,
isexpected to enter series production in the second half of 2024.
China continues to lead the world in the transition to electric vehicles, and this key market
was an area of particular focus during the year. GKN Automotive’s presence in China is via
its joint venture SDS with local partner HUAYU Automotive Systems Co. Ltd (HASCO). SDS
has continued to grow and remains the leading supplier of driveline products to the
Chinese market, with ten manufacturing facilities located in the country. 2023 represented
the 35
th
anniversary of the establishment of the joint venture, reflecting GKN Automotive’s
early entry into the domestic Chinese market. Following the easing of restrictions on travel
resulting from the pandemic, the GKN Automotive leadership team has spent considerable
time in China, working in close collaboration with HASCO and the SDS team to ensure that
the joint venture continues to maintain its strong and profitable position in the Chinese
market, with progress made. Chinese OEMs continue to become more global in their
ambitions, and the business made good progress in profitably increasing sales with this
group of customers, leveraging its strong and longstanding relationships.
2027 forecasts by vehicle propulsion type
33%16%15%36%
GKN Automotive 2027 order book
2027 global light vehicle production
34%17%11%38%
ICE Mild Hybrid
HEV
BEV & FCEV
26Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
OPERATING REVIEW: GKN AUTOMOTIVE CONTINUED
Technology and product portfolio
GKN Automotive is a drive systems technology leader, with six global technology centres,
aglobal engineering organisation and dedicated vehicle testing facilities. It has the
mostcomprehensive drive system portfolio in the industry, transferring the torque
fromavehicle’s power source to the wheels to ensure superior performance, efficiency
andreliability.
In 2023, the business continued to expand its core sideshaft portfolio, with products
designed to match the changing demands of EV platforms. With over 100 joint types
andsizes, world-class drivetrain expertise and over 1,400 active driveshaft patents,
itistheworld leader in this market.
As the global leader in AWD systems and advanced differentials, GKN Automotive is well
positioned to capitalise on the increasing number of vehicle architectures and the efficiency
requirements of EVs. The business designs and manufactures a wide range of systems,
sub-systems, and components, that enable improvements in efficiency, vehicle dynamics,
stability and safety. These capabilities have contributed to its success in the rapidly growing
eDrive systems market.
Further expanding its electronic and software capabilities, GKN Automotive achieved
ASPICE Level 2 certification for a full eDrive system with a leading German vehicle
manufacturer in 2023. ASPICE (Automotive Software Process Improvement Capability
Determination) is a standard which assesses the maturity of development processes for
electronic and software-based automotive systems. All future GKN Automotive eDrive
systems will be ASPICE Level 2 compliant.
Operational excellence
With operations in 18 countries, the business is global in nature, and capable of meeting
itscustomers’ needs wherever they are located.
GKN Automotive had an excellent health and safety performance in the year, with an
Accident Frequency Rate of 0.05, an improvement from 2022, due to a range of behaviour-
based safety initiatives, including those relating to hand safety and slips, trips and falls.
Thebusiness also continued to demonstrate excellent quality standards, achieving a PPM
(parts rejected per million manufactured) defect rate of six.
Throughout the year, GKN Automotive continued to make significant progress in
improving the competitiveness of its manufacturing footprint, as part of its wider
industrialstrategy to ensure a best-in-class cost structure and continues to sustainably
drive margin improvement.
In October 2023, GKN Automotive commenced production at its new manufacturing
facilityin Miskolc, Hungary. In addition, the business invested to expand its Mexico facilities
by a total of 28,000 sqm, to a total of 182,000 sqm, adding further manufacturing and
engineering capabilities. In addition to these expansions, the business announced the
proposed closure of a Driveline plant in Mosel, Germany. Following consultation and
negotiation with affected employees and other stakeholders, the final phase of the plant
closure will take place in the second half of 2025. The proposed closure of its plant in
Roxboro, North Carolina was also announced on 7 March 2024. The cash impact of these
actions is in line with our original expectations and commentary.
GKN Automotive’s ability to meet its customers’ demanding operational schedules was
demonstrated by the business successfully completing 115 new programme launches
during the year. Operational improvements were made across many plants, with a
continued focus on areas such as excellence in its global procurement function, smart
automation, cost optimisation and the implementation of intelligent material-flow systems.
The business also fully restructured its supply chain functions, closing its Global Freight
Services operation and transferring accountability for global freight management activities
to a streamlined internal team located within its manufacturing plants, working directly
with external logistics providers. This project, which was implemented on time and without
operational disruption, is expected to further enhance operational performance, reduce
costs and improve working capital.
Sustaining transformation
GKN Automotive continued to make progress on its sustainability strategy in the year.
Transitioning to green electricity is an important focus for the business, and it made
progress in finalising power-purchase agreements for its European operations which,
when fully implemented, are expected to enable those operations to use 100% green
electricity. The business obtained an EcoVadis Silver sustainability award for its 2023
submission, an improvement on the prior year, placing it in the top 15% of businesses
assessed. GKN Automotive also submitted its first science-based targets to the SBTi for
validation, with the business targeting a 45% reduction in absolute Scope 1 and 2
emissions by 2030 from a 2021 base year, a 25% reduction in absolute Scope 3 emissions
by 2030 from a 2021 base year, and reaching net zero emissions by 2045.
In 2023 the business launched the Advanced Research Centre (ARC), a collaborative
partnership between GKN Automotive, Newcastle University and the University of
Nottingham, delivering a series of advanced technology projects focused on power
electronics, advanced cooling methods in motors and motor control techniques.
Theseprojects aim to enhance drive system performance and efficiency, which are
criticalto the ongoing evolution of the EV market.
27Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
All-Wheel Drive Systems
All-wheel drive systems allow a vehicle to operate in the most
demanding of driving environments, whether on or off-road.
Theydo this by delivering torque to all four wheels of the vehicle
when and where it is needed, resulting in enhanced traction and
improving driving performance.
Designing and manufacturing all-wheel drive systems which meet our customers’ needs,
means ensuring maximum efficiency, whilst providing optimal traction, dynamics and
off-road performance. Our systems vary in their functionality, but can include features such
as disconnects, allowing seamless switching between all-wheel drive and two-wheel drive
depending onroad conditions and driver inputs, improving efficiency.
Our most advanced systems feature torque vectoring, delivering precise amounts
oftorque to individual wheels, providing intelligent control of the vehicle dynamics.
Thisgives our customers the power, refinement and flexibility they need, helping them
create smarter, more dynamic driving experiences.
As a pioneer in the development of all-wheel drive systems, we can design, engineer,
manufacture, optimise, package and integrate a complete all-wheel drive system in-house.
Our system integration expertise ensures we remain theleading supplier in this important
market and partner of choice for many of the world’sautomakers.
ENGINEERING TRANSFORMATION
ENGINEERING TRANSFORMATION: ALL-WHEEL DRIVE SYSTEMS
2023 Annual Report 28Dowlais Group plc
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
OPERATING REVIEW: GKN POWDER METALLURGY
GKN POWDER
METALLURGY
The world’s leading power metallurgy business, producing
millions of highly-engineered components every day.
GKN Powder Metallurgy is solving complex challenges in automotive and industrial
markets through best-in-class sustainable and innovative powder metallurgy
technology. It is a world-class supplier of powder metal materials and sintered metal
components. The business comprises three focused divisions under one brand:
GKN Powders/Hoeganaes, GKN Sinter Metals, and GKN Additive, supplying metal
powders, high-precision powder metal solutions and 3D-printed parts.
Visit gknpm.com to learn more
>5,000
employees
27
manufacturing facilities
Sintered Metal Components |
Metal Powders |
Additive Manufactured Components
GKN POWDER METALLURGY
PRODUCTPORTFOLIO
Powder Metallurgy overview
£ millions
Adjusted
1
Statutory
2023 2022 Change Constant FX
1
2023 2022 Change
Revenue 1,047 1,022 2.4% 3.5% 1,016 996 2.0%
Operating Profit 96 96 – 3.1% (409) 36 n/m
2
Operating Margin 9.2% 9.4% (20)bps (10)bps -40.3% 3.6% n/m
2
1. Adjusted financial measures are defined and reconciled to statutory measures in the Alternative
Performance Measures section on pages 190-194, which also sets out the definition and basis of calculation
ofconstant currency.
2. Not meaningful.
Powder Metallurgy’s performance in the year was in line with expectations, including good
cash generation. Adjusted revenues were £1,047 million, 3.5% ahead of 2022. This reflected
the benefit of strong inflation-recovery through pricing and flat year-on-year volumes.
Themarket under-performance was largely driven by the EV transition headwinds, engine
downsizing and the impact of the UAW strikes in the US.
Adjusted operating profit for the year was £96 million, at an adjusted operating margin of
9.2%. This compares to an equivalent margin of 9.4% in 2022 and reflects the dilutive effect
of inflation recoveries in the year.
Powder Metallurgy has been heavily focused on inflation recovery throughout the year,
and successfully recovered around 100% of commodity and energy inflation for the full
year, by pricing initiatives and surcharge pass-through agreements. The business offset
other inflationary increases through operational efficiencies.
Commercial progress and EV transition
Powder Metallurgy made commercial progress in the year, securing new business wins with
a 23% year-on-year increase in bookings when measured by forecast peak annual revenues.
The business has a broad and stable customer base, with over 3,000 customers in
automotive and other industrial markets.
A key priority for the business is successfully navigating the EV transition, as a significant
proportion of its sales are currently from products used in ICE vehicles. Progress continues
to be made, with approximately 72% of the value of its new business wins in 2023 for EV
orpropulsion source agnostic product groups, by forecast peak annual revenue. This was
amaterial step-up from the prior year and a confirmation that the new products Powder
Metallurgy has developed over recent years are gaining commercial traction.
292023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Dowlais Group plc
OPERATING REVIEW: GKN POWDER METALLURGY CONTINUED
Auto EV powertrain
Auto body and chassis
(propulsion source agnostic)
Auto ICE powertrain
Industrial
28%
25%
28%
19%
2023 New business bookings by endmarket
X-by-wire
Thermal management
Battery and electronics
Drivetrain
18%
34%
26%
22%
Sintered components EV opportunity sales funnel
Scrap metal is recycled.
Selectgrades are chosen to
provide the desired chemistry
and quality.
The metal is melted in an
electric arc furnace to remove
undesirable compounds.
The melted metal is atomised
using high pressure water jets
to produce powder.
The powder is blended,
refined and mixed to meet
the specific requirements
needed.
The pressed part is sintered,
by heating it in a furnace to
very high temperatures.
Thisfuses the metal powder
into a solid component.
The powder is pressed into the
desired shape, using hydraulic
presses and tooling specifically
optimised for the part
concerned.
WHAT IS POWDER METALLURGY?
1
2
3
4
5
6
The business continues to identify new areas in which its powder metallurgy expertise can
be applied to EV-specific products. This includes areas such as battery connectors and
packs; components for high-voltage cables, electric motors and thermal management
systems; e-pumps; x-by-wire components and differential gears. Multiple business wins
inEV-specific products were secured in the year, including the single largest contract the
business has ever secured, for the supply of sintered differential gears for a leading US
vehicle manufacturer, with production due to commence in 2025.
Powder Metallurgy’s strategy to successfully navigate the EV transition is based not only
onadapting its core sinter metals business but also on identifying new markets for its metal
powders. The business has had success this year in selling high-quality iron powder to
produce cathodes for Lithium Iron Phosphate (LFP) batteries. LFP batteries are becoming
more widely used and are gaining share in the growing EV battery market due to their
lower cost and thermal stability. The business is already supplying customers with this
material and working with vehicle and battery manufacturers (and their suppliers) on
several potential opportunities involving localised supply across Europe, North America,
and China.
30Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
OPERATING REVIEW: GKN POWDER METALLURGY CONTINUED
Sustaining transformation
GKN Powder Metallurgy is committed to offering sustainable solutions to its
customers. The business has continued to invest in sustainability projects
throughout the world. As a result of these, energy usage was reduced by 80 GWh,
more than 10,000 tonnes of waste was diverted from landfill, and consumption of
water reduced by 25 million litres. The business obtained a Platinum EcoVadis
sustainability medal for its 2023 submission, placing it in the top 1% of businesses
assessed, an award that recognises the very positive sustainability progress it has
made in recent years. GKN Powder Metallurgy also submitted its first science-based
targets to the SBTi for validation, targeting a 42% reduction in absolute Scope 1 and
2 emissions by 2030 from a 2022 base year, a 25% reduction in absolute Scope 3
emissions by 2030 from a 2022 base year and reaching net zero emissions by 2050.
An additional potential growth area which the business is pursuing is the manufacture and
supply of permanent magnets for electric motors for EVs and other applications. Progress
was made during the year, including the first commercial agreement for the manufacture
ofmagnets for Schaeffler. The business continues to see interest in these products from
multiple customers (both OEMs and Tier 1 suppliers), who wish to diversify their supply
chains for these critical components. Commercial negotiations and advanced technical
qualifications have continued with several potential customers, and the business is working
on establishing a robust and sustainable supply chain for the critical raw materials as part
ofits “Mine-to-Magnet” supply chain strategy. Construction of a new low-scale production
line capable of producing up to 400 tonnes of permanent magnets a year has commenced
and is expected to be operational in Q1 2025. Investment in the manufacturing of magnets
totalled £2 million in the year, and appropriate investment in full-scale production facilities
will be considered as and when contractual demand reaches the required threshold and
returns meet our financial criteria.
While primarily an automotive-focused business, Powder Metallurgy supplies a wide range
of products to other industrial markets, including: consumer white goods; heating,
ventilation and air conditioning (HVAC); and lawn and garden products. These markets
represent approximately 20% of the business’s revenue, and advancing non-automotive
opportunities, in particular into high-growth sectors such as medical, advanced computing
and renewable energy, will continue to be a strategic target for the business. As an
example, during the year the company won a substantial order for the supply of isostatic
tubes for a renewable energy project in China.
Operations
Powder Metallurgy is a global business, with operations in 11 countries, 27 manufacturing
plants and three technology centres.
We set demanding standards of health and safety for our businesses. Powder Metallurgy’s
Accident Frequency Rate of 2.2 was slightly higher than our internal target, and as such this
remains an area of focus for the business. Quality performance was better than our target,
with a PPM defect rate of less than five.
Throughout the year the business continued to make progress on improving operations,
with some of its US plants experiencing operational challenges in first half of the year.
Investments were made to drive efficiencies, mainly through automation, helping to offset
inflationary pressures. Powder Metallurgy also continues to develop its best-cost country
strategy by expanding its operations in Mexico.
On 11 March 2024, Dowlais appointed a new Chief Executive Officer to lead the GKN
Powder Metallurgy business. Jean-Marc Durbuis joins GKN Powder Metallurgy from Allnex,
a global supplier of resins and additives to the coating and inks industry, where he was
Executive Vice President and a member of the executive committee and board of directors
of one of its divisions. His achievements at Allnex include driving growth, delivering
significant improvements in his division’s financial and operational performance, and
executing significant M&A projects in several geographies. Jean-Marc will bring extensive
commercial, operational and leadership experience to GKN Powder Metallurgy as it
continues its portfolio transition.
31Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
ENGINEERING TRANSFORMATION: SINTERED METAL COMPONENTS
Sintered metal components
We produce millions of sintered metal parts every day and billions
each year across our global production footprint. Most of these
parts are for use in the automotive sector and it is highly likely
that the car you drivecontains at least one of our sintered
metalproducts.
For decades we have been using our powder metallurgy expertise to engineer and supply
high-performance sintered components to the automotive and industrial sectors at
volume. We work closely with our customers to provide solutions to their most challenging
technical problems.
ENGINEERING TRANSFORMATION
Our expertise in advanced materials, press technology and sintering processes allows
ustomanufacture complex shapes of high quality, at scale, at the best costs and with
minimal waste.
Today, we are using our market-leading position to support the transition to EVs.
Ourproducts help drive today’s automotive platforms, and our range of new components
specifically for EVs will power the vehicles of tomorrow. Whether that’sthe hydraulic
systems that keep batteries cool, the smallactuation systems that are required for
electromechanical brakes, or components of future drive systems, our capabilities allow
usto design and supply on a global scale.
For an explanation of our powder metallurgy processes including sintering, see page 30.
2023 Annual Report 32Dowlais Group plc
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
OPERATING REVIEW: GKN HYDROGEN
GKN HYDROGEN
A world leader in the nascent metal hydride storage industry,
well placed to capture growth across both the hydrogen
storage and long-duration energy storage markets.
GKN Hydrogen offers the most sustainable and safe long-term hydrogen storage
systems, which store hydrogen in significant quantities, without losses, in a compact
footprint. Its systems are based on patented metal hydride technology and can
be used as a robust hydrogen storage solution or for long-term energy storage,
in new or existing infrastructure projects. The wide range of potential applications
for hydrogen systems includes off-grid energy storage, CO
2
-neutral emergency
power supply for critical facilities such as hospitals and data centres, resiliency
storage in hydrogen infrastructure and refuelling stations, clean microgrids and
charging infrastructure.
Hydrogen overview
£ millions
Adjusted
1
Statutory
2023 2022 Change Constant FX
1
2023 2022 Change
Revenue 5 1 n/m
2
n/m
2
5 1 n/m
2
Operating Profit (15) (14) -7.1% -7.1% (16) (14) -14%
Operating Margin n/m
2
n/m
2
n/m
2
n/m
2
n/m
2
n/m
2
n/m
2
1. Adjusted financial measures are defined and reconciled to statutory measures in the Alternative
Performance Measures section on pages 190-194, which also sets out the definition and basis of
calculation of constant currency.
2. Not meaningful.
Commercial traction
GKN Hydrogen’s innovative storage technology continued to generate commercial
traction throughout the year, as its order book increased and it continued to make
progress in a variety of market segments. 2023 was the first year in which the business
generated meaningful revenues, which were £5 million for the year, and although the
business was loss-making, the business has a clear first-mover advantage.
The business installed and commissioned 16 new systems over the year, increasing the total
number that are operational, in production or in commissioning to 27. The business also
secured its first repeat customer. GKN Hydrogen’s commercial focus is on targeting
scalable customers including Engineering, Procurement and Construction businesses
(EPCs), utilities providers and relevant industrial and transit businesses. GKN Hydrogen
believes that customers in these industries particularly value the safety and reliability
ofitsstorage systems, and its expertise in integrating these systems into larger and more
complex energy applications.
Visit gknhydrogen.com to learn more
27
patents covering material
and systems know-how
82
employees based inItaly,
Germany and the USA
Hydrogen storage systems |
Power-to-power energy
storage systems
GKN HYDROGEN PRODUCT PORTFOLIO
Systems installed since GKN Hydrogen launched
GKN Hydrogen increased both bookings and installations in the year, with system
installations more than doubling in comparison to 2022.
3
2021
8
2022
16
2023
332023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Dowlais Group plc
OPERATING REVIEW: GKN HYDROGEN CONTINUED
Large-capacity installations
In 2023, GKN Hydrogen supplied what are believed to be the largest metal hydride
hydrogen storage solutions ever brought to market, installing 500kg of hydrogen
storage capacity for two customers, one inthe US and one in Germany.
Each installation consists of two 20-foot storage units, each with
capacity to store 250kg of hydrogen, and a separate thermal
management container to control the flow of hydrogen to and from
the storage units. While both customers required safe and compact
storage solutions, the installations represent different use-cases.
Colorado, USA (power-to-power)
GKN Hydrogen’s customer, the National Renewable Energy Lab
(NREL), located just outside Boulder, Colorado, engaged GKN
Hydrogen to supply a hydrogen storage system as part of its
ongoing efforts to support the adoption of clean microgrids.
GKNHydrogen’s system, integrated between a 1.25 megawatt
electrolyser and a 1 megawatt fuel cell, allows the use of hydrogen
power blocks by directly connecting intermittent uncompressed
hydrogen production to a safe and compact storage system.
Thisthen supplies hydrogen directly to the fuel cell when electrical
power is needed. The system as a whole represents a simple,
efficient and safe energy storage solution.
Braunschweig, Germany (hydrogen storage)
The Steinbeis Innovation Center (SIZ) engaged GKN Hydrogen to
supply a 250kg storage solution to be installed at its new Hydrogen
Terminal. The system is connected to a 1 megawatt electrolyser and
provides hydrogen directly to various test facilities used by SIZ, in
apower-to-gas arrangement. Space and safety were critical factors
inSIZ’s decision, which means that the two storage containers will
bestacked, minimising their footprint. This use-case demonstrates
amajor advantage of GKN Hydrogen’s systems over traditional
compressed gas storage, where more space is typically required
tostore the same amount of hydrogen under pressure.
GKN Hydrogen’s systems en route
tobeing installed at NREL Colorado
Operational progress
Whilst remaining focused on bringing
its products to market, GKN Hydrogen
continues to develop and refine its
underlying technology. During the
year it launched its new large-scale
storage system, Hy2Mega, with four
systems, each with 8.3MWh of energy
capacity, commissioned in the year.
The business also supplied what are
believed to be the largest metal hydride
hydrogen storage solutions ever brought
to market, installing 500kg of hydrogen
storage capacity for two customers,
onein the US and one in Germany. The
business’s flexible and modular approach
to its storage systems enables it to
efficiently adapt its products to meet
customers’ needs.
In April 2023, the business opened its
newhydrogen technology centre in
Pfalzen, Italy, where approximately 60
employees lead its global development
and production activities. The Hydrogen
business also continues to work closely
with research institutions, universities, and
industry partners to promote local and
international co-operation and
knowledge exchange.
Outlook
The Board believes that the Hydrogen
business would benefit from the
involvement of a strategic commercial
partner or specialist investor, as it seeks
to accelerate the commercial adoption
ofits technology. As previously
communicated, a process is ongoing
toidentify suitable investment partners.
Weexpect the business to continue to
make commercial traction in this nascent
market and grow revenue during theyear.
34Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
SUSTAINABILITY
At Dowlais, we believe that our technology and
the way we operate our businesses can positively
impact people, society and our world.
For generations, our businesses have contributed to the communities in which they
operate and have developed products that have shaped the world in which we live.
Todayis no different, as we ensure we continue to have a positive impact on our planet,
ourpeople and wider society. Our products and technologies contribute to the global
transition to EVs and a net zero economy. At the same time, we are increasing the
sustainability of our operations. We are inspiring and developing our employees, seeking
to maintain the highest health and safety standards, whilst building long-lasting
partnerships with our customers, suppliers and other stakeholders.
PUTTING
SUSTAINABILITY
ATTHEHEART OF
EVERYTHING WE DO
Well positioned for sustainable growth
As a business, we are well positioned to deliver environmentally sustainable growth
that benefits wider society.
The net zero transition
Our products, in particular those used in EVs, are supporting the automotive
industry’s transition to an electrified and greener future.
Changing investor landscape
We are confident that our strategic focus on sustainability will help enable long-
term value creation, ensuring we meet our investors’ expectations.
Evolving customer requirements
Our businesses are developing innovative solutions in response to the changing
needs of our customers, supporting them as they work towards their own ambitious
climate targets.
Shifting global mobility patterns
Our businesses have embraced electrification, and we are well positioned
topositively influence the world’s changing approach to personal mobility.
The potential of hydrogen
Hydrogen has significant potential to contribute to the green economy, but only
with safe storage for green hydrogen. As a pioneer in metal hydride hydrogen
storage systems, GKN Hydrogen is innovating and leading in this area.
Throughout the process of the demerger and the creation of Dowlais, we have focused
onestablishing our sustainability governance framework. We have carried out a materiality
assessment to prioritise activity and developed a series of Group sustainability-related
policies, which set out our expectations in certain key sustainability areas, including the
environment, health and safety, energy and sustainable sourcing. At a Group level, we have
established a central sustainability function and procedures for monitoring, assuring and
reporting on our performance. We have assessed our risks and opportunities under the
recommendations ofthe Task Force on Climate-related Financial Disclosures (TCFD).
Wehave aligned to the UN Sustainable Development Goals and to the SASB Auto Parts
sector standards, which will continue to inform development of our sustainability strategy.
352023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Dowlais Group plc
SUSTAINABILITY CONTINUED
As a new business, we wanted an approach to sustainability that
built on the extensive work done by our businesses over many
years, but also allowed us to develop a Group-level approach
thatwe could communicate easily to stakeholders.
As a supplier to over 95% of global OEMs, we play an essential role in the transition to
sustainable mobility, delivering the technological innovation required to enable a net zero
economy. In addition, as a both a Tier 1 and 2 supplier, we understand that our customers
cannot meet their ESG goals, without us meeting ours.
In addition, as a Group we believe in the importance of taking responsibility for our people,
planet and society, constantly striving to inspire our employees, build long-lasting
partnerships with our customers, suppliers and investors and care for our communities and
our world.
Governance
Our approach to sustainability is embedded in all aspects of what we do. Prior to the
demerger, we established a central sustainability function. We have since formed a Group
Sustainability Committee, chaired by our Chief Executive, to oversee all our activity.
Asmembership of this Committee includes the Chief Executives of all our Business Units,
aswell as various specialists, it is an ideal forum to monitor both business performance and
share best practice and ideas. To ensure consistency across our operations, we developed
acomprehensive set of policies and processes for all our ESG issues.
The Board is updated quarterly on our sustainability progress and has retained
responsibility for setting these policies.
A full description of our approach to sustainability governance is set out in our TCFD Statement
on pages 48 to 58.
Our Group-level materiality assessment
In 2023, we completed a materiality assessment to identify the Group’s most significant
sustainability issues. The results have increased our understanding of our key economic,
social and environmental impacts, risks and opportunities, and laid the foundations for
thedevelopment of our approach to sustainability. We engaged with a range of internal
and external stakeholders to help us determine our highest-priority sustainability topics.
This was facilitated through a mix of quantitative scoring and qualitative interviews.
Key stakeholders included shareholders, customers, suppliers, Non-Executive Directors,
business unit CEOs and industry think tanks. The assessment was discussed by our Group
Sustainability Committee, before being approved by the Board in November. Full details of
our materiality process are set out in our stand-alone Sustainability Report. This assessment
will underpin the development of our double materiality assessment (which will include
amore granular understanding of the financial impact of these issues), which we plan
toundertake in 2024. This will be an important step to ensure we are ready for the EU
Corporate Sustainability Reporting Directive (CSRD). It is our ambition to refresh our
materiality assessment at least every three years, supplemented with annual high-level
assessments if there are significant changes to the Group’s business model or the
external landscape.
HOW WE DO IT – OUR SUSTAINABILITY APPROACH
Very high priority
– Health, safety and wellbeing
– Product safety and quality
– Ethics and integrity
– Diversity, equity and inclusion
– Responsible sourcing
– Greenhouse gas emissions
High priority
– Product sustainability
– Human rights
– Talent
– Fair working practices
Medium priority
– Community
– Waste management
– Water management
– Biodiversity
Our Material Issues
36Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
SUSTAINABILITY CONTINUED
See our Section 172 Statement on page 42 and pages 39
to 41 for more information on our wider approach to
stakeholder engagement.
Sustainability Framework
Our materiality assessment informed the creation of
ourSustainability Framework, which enables both robust
internal conversations about progress in particular topics,
as well as helping stakeholders navigate the various issues
we are managing.
We are taking a comprehensive and systematic approach
to ensure our operations are aligned with our commercial
strategy while our businesses are empowered to manage
their day-to-day activities and deliver on their respective
targets. This ensures we can make rapid progress with
agile decision making that’s relevant to customers.
See our standalone Sustainability Report to find more
onour approach
SUSTAINABILITY FRAMEWORK
ENGINEERING TRANSFORMATION FOR A SUSTAINABLE WORLD
Our
purpose
PLANET AND CLIMATE
Our products and operations underpin
Dowlaistechnological innovation to
enableanetzero economy.
PEOPLE AND SOCIETY
Our business practices ensure safety and
wellbeing while contributing to the
communitieswhere we operate.
Our
sustainability
pillars
Our
material
topics
– Climate change
– Product sustainability
– Natural resources
– Health, safety and wellbeing
– DE&I, talent and fair working practices
– Community
UNDERPINNED BY HIGH STANDARDS OF GOVERNANCE
– Product safety and quality
– Responsible sourcing and human rights
– Ethics and integrity
Looking ahead
At a Group level, in 2024 we will continue to work towards
realising our sustainability strategy and delivering on our
ambitions. We are reviewing KPIs and legacy business unit
targets. This process will benefit from continued
improvements in how we measure our performance data.
We expect this will allow us to react faster and more
effectively to the rapidly evolving regulatory landscape
and continue to meet the needs of our customers and
other stakeholders as they change over time.
In addition to preparing for the CSRD, our priority actions
for the year ahead include working towards meeting
therequirements of the EU’s Carbon Border Adjustment
Mechanism (CBAM), aligning our operations with the
recommendations of the Transition Plan Taskforce and
completing an integrated assessment of our supply
chain and operational human rights risks, following
the UN Guiding Principles for Business and Human Rights.
Alongside these Group-level actions, our business
units will continue to focus on making progress against
their priority areas and continue with their carbon
reduction plans.
37Dowlais Group plc 2023 Annual Report
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ENGINEERING TRANSFORMATION: MAGNETS
Permanent magnets
Used in the vast majority of electric
motors, permanent magnets are critical
tothe production of EVs and renewable
energy systems.
Demand for permanent magnets is expected to increase,
but securely and reliably sourcing magnets is a potential
challenge for automotive supply chains. This presents an
opportunity to offer a stable, localised sourcing solution.
As a trusted partner to global automotive OEMs and Tier 1
suppliers, we understand their challenges and are well-
positioned to use our powder metallurgy expertise
tomeettheir requirement for a local, secure source
ofpermanent magnets.
To meet expected increases in demand, we have been
investing in our magnet research and development facilities
in both Europe and North America, whilst installing our first
production line in Germany. When it comes to permanent
magnets, the supply chain is key, so we also continue to
develop our ‘mine-to-magnet’ strategy by finding better
ways to source raw materials, building new partnerships
andplanning for volume production.
Permanent magnets are vital to the delivery of a low-carbon
future. In addition to EVs and other electric mobility
applications, we see growing demand for use in renewable
energy systems, including wind turbines. Our team
isalready exploring opportunities in these markets.
ENGINEERING
TRANSFORMATION
38Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
STAKEHOLDER ENGAGEMENT AND SECTION 172 STATEMENT
ENGAGING WITH OUR STAKEHOLDERS
AND SECTION 172 STATEMENT
Ensuring we engage with our stakeholders and properly consider their interests is crucial to the long-term success of the Group.
Our Board recognises the importance of considering the interests of the Company’s stakeholders in its decision making. It has identified the Company’s key stakeholder groups, which are set
out below.
Stakeholder group
Why we engage How we engage The impact of that engagement
Our Investors
Our shares are held by institutional and
retail investors from across the world.
Other key stakeholders include our
lenders, covering analysts, proxy
advisers and rating agencies.
– To ensure access to equity and debt
capital.
– To comply with our regulatory
obligations.
– To drive high-quality governance
and effective management.
– To ensure our business and
performance are well understood.
– Our shareholders own our Company,
making them our key stakeholder.
– In 2023 our Executive Directors had over 100 meetings with
shareholders or potential new investors.
– Our investor relations team regularly engages with covering
analysts and the Board receives updates on share price
performance, the shareholder register and shareholder
views and sentiment.
– We held a capital markets day prior to the demerger and
hosted an investor site visit in Vigo, Spain in October 2023.
– Our Remuneration Committee Chair wrote to major
shareholders to seek their input on our proposed Directors’
Remuneration Policy.
– The Chair meets with major shareholders on request.
– We engaged with significant shareholders on our
sustainability materiality process.
– Feedback from investors was reflected in the Group’s
purpose, strategic framework and strategy reviews.
– Feedback from investors was reflected in our
proposed Directors’ Remuneration Policy.
– The Board reviewed and approved all trading
updates, results announcements and similar
shareholder communications.
Our People
We have a global workforce made up
of approximately 30,000 employees.
We also engage with our non-
employee workers, and those who no
longer work for us but are members of
our pension schemes.
– Our employees are a key strategic
asset.
– To improve workforce motivation,
morale and productivity.
– To improve employee retention
andreduce turnover.
– To identify solutions to problems
weface.
– To identify the needs of our
workforce.
– We undertake engagement surveys in all business units,
withPowder Metallurgy and Hydrogen undertaking
updated surveys in 2023.
– The Chair and Senior Independent Director met with
employees and trade union representatives when they
visited GKN Automotive Oleśnica in October.
– Regular town-hall and ‘skip-level’ meetings are hosted
byBusiness Unit Leadership teams.
– The Group operates a Workforce Advisory Panel to review
employee engagement across its business units.
– We consult with unions and employee representative
bodies on relevant decisions, such as the closure of our site
in Mosel, Germany.
– The Board approved and adopted Our Code, which
sets out our expectations for all our employees.
– The Board approved our Diversity, Equity & Inclusion
Policy and approved ethnic diversity targets for the
Group’s senior management.
– We achieved an Accident Frequency Rate of less than
0.1 in the year, helping to keep our people safe.
– We successfully navigated the impact of the UAW
strikes in the US whilst minimising the impact on
ourworkforce and supporting them throughout.
– We negotiated successful agreements with
recognised trade unions and workers representatives
across our business.
39
Dowlais Group plc 2023 Annual Report
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STAKEHOLDER ENGAGEMENT AND SECTION 172 STATEMENT CONTINUED
Stakeholder group
Why we engage How we engage The impact of that engagement
Our Customers
Our major customers are light vehicle
manufacturers. We also have many
customers at other tiers of the
automotive supply chain, or in other
industries.
– To help maintain our market-leading
positions.
– To identify and secure new business
opportunities and ensure our
products meet our customers’
needs.
– To ensure uninterrupted supply and
address issues or concerns where
they arise.
– We operate account teams dedicated to each of our vehicle
OEM customers and have regular contact with our
customers at all levels of our business.
– On significant commercial matters, our Chief Commercial
Officers, Account Team Vice Presidents and other senior
leaders communicate directly with senior executives at
ourcustomers.
– We host customer-focused “Drive” events, to give our
customers the opportunity to see our products in action.
– We engaged with key customers on our sustainability
materiality process.
– The Board receives regular updates from the
Executive Committee and Business Unit CEOs
oncustomer topics.
– In response to the high inflation environment,
wesuccessfully negotiated inflation pass-through
arrangements with our customers.
– We engaged with our customers in the US to minimise
the impact of the UAW strike action.
Our Suppliers
We operate in global supply chains,
work with hundreds of suppliers
whoprovide us with raw materials,
sub-components and services we
needto deliver our products and
runour business.
– To obtain competitive pricing,
quality and reliability of supply.
– To access advanced materials and
components.
– To ensure we have reserved
manufacturing capacity where we
need it.
– To ensure responsible sourcing
practices in our supply chains.
– We aim to build deep relationships with our strategic
suppliers, managed by dedicated procurement teams
whoare specialists in the products and services we source.
– Inviting our strategic suppliers to Supplier Conferences,
sothey can understand our strategy and what we need
fromthem.
– Undertaking supplier audits and inspections, to ensure
oursuppliers are meeting their obligations.
– There were no new major supplier quality concerns
inthe year.
– We issued our Group Supplier Code of Conduct,
which can be found at dowlais.com/
suppliercodeofconduct.
– Our business units addressed requests for price
increases in a fair and consistent manner.
Society and Communities
As a global business, we understand
that we have an impact on society,
theenvironment and the local
communities in the countries in which
we operate. Across the world hundreds
of millions of people use vehicles
containing our products every day.
– To maintain our reputation as a
responsible and ethical business.
– To attract, motivate and retain
employees at all levels of the
organisation.
– To conserve resources and reduce
our impact on the environment.
– Regular meetings with key local stakeholders in the locations
in which we are based, and membership of local community
organisations and forums.
– Supporting local charities and not-for-profit organisations
bydonations and volunteering.
– Participating in university and educational partnerships
andsupporting employment and apprenticeship schemes.
– We established our purpose: engineering
transformation for a sustainable world.
– GKN Automotive and GKN Powder Metallurgy
submitted net zero targets to the SBTi for validation.
– The Board reviewed and approved our sustainability
materiality assessment.
– We made cash donations of around £710,000 to
charities and good causes in 2023.
– We published our first Modern Slavery and Human
Trafficking Statement.
– The Board adopted our Product Safety Policy.
40
Dowlais Group plc 2023 Annual Report
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STAKEHOLDER ENGAGEMENT AND SECTION 172 STATEMENT CONTINUED
Stakeholder group
Why we engage How we engage The impact of that engagement
Governments, Regulators and
Non-Government Organisations
As a global business, we interact with
governments, regulators and other
organisations in the markets and
territories in which we work.
– To allow us access to opportunities.
– To help protect our reputation and
to be a responsible corporate
citizen.
– To fulfil our legal obligations.
– To maintain our “licence to operate”.
– We engage with governments on key local and national
issues that affect our industry and our business.
– We engage in regular dialogue with relevant tax authorities,
including with HMRC in the UK with whom we communicate
frequently.
– We are a member of numerous industry bodies and trade
associations in the automotive industry.
– We paid approximately £61 million of corporate
income taxes in 2023.
– We published our Tax Strategy which can be found at
dowlais.com/our-company/policies.
– We engaged with the Hungarian Investment
Promotion Agency and local authorities on the
construction of our new manufacturing plant in
Hungary.
Our Joint
Venture Partners
We operate parts of our business
through joint ventures and seek
tocreate long-lasting and mutually
beneficial relationships with our joint
venture partners.
– To ensure our joint ventures
aresuccessful.
– To protect our market-leading
positions.
– Our management teams meet regularly with management
teams from our joint venture partners.
– We have seats on the boards of our material joint ventures,
and we engage constructively and positively in joint venture
board and shareholder meetings.
– We interface with our joint ventures at all levels of our
organisation where necessary.
– We celebrated the 35
th
anniversary of the
establishment of our SDS joint venture in China.
– We worked with our JV partner HASCO on the future
strategy for the SDS business as the Chinese vehicle
market continues to rapidly evolve.
– We continued to successfully operate our other
long-running joint ventures.
41
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STAKEHOLDER ENGAGEMENT AND SECTION 172 STATEMENT CONTINUED
Board decision Stakeholders and 172 factors considered
Purpose and
strategic
framework
The Board approved and adopted the Group’s purpose at its September Board meeting. The Group’s purpose is engineering
transformation for a sustainable world. At the same time the Board adopted the Group’s wider strategic framework (see page 4).
Intaking these decisions, a wide range of relevant stakeholders were considered, as were the long-term consequences of adopting
our purpose and strategic framework, which are intended to guide the Board’s decision making in both the short and long term.
Our Investors, Our People, Our Customers,
OurSuppliers, Society and Communities, Environment
Long-term consequences, Reputation for high
standards of business conduct
Dividend
policy
The Group’s dividend policy was considered and approved at the September Board meeting, following which the Company
declared its first interim dividend. In determining the dividend policy, the Board was mindful of balancing the interests of investors in
receiving an attractive dividend, with the longer-term capital requirements and growth opportunities of our businesses. The Board
also recognised that shareholders have differing views on the value of dividends and on how the Group uses its cash, and the
dividend policy seeks to achieve a fair balance between the interests of shareholders.
Our Investors
Long-term consequences, Acting fairly
betweenshareholders
Our Code Our Code is the Group’s employee code of conduct. It sets out the standards expected of all our employees globally. In preparing
and adopting Our Code, which was adopted at the June Board meeting, the Board considered the interests not only of employees,
who are the principal focus of Our Code, but of the Group’s wider stakeholders including customers, who increasingly take an interest
in documentation of this nature and our reputation for ethical conduct. Our Code expressly addresses the interests of a range of the
Group’s stakeholders, including customers, suppliers, society, communities and regulators.
Our Investors, Our People, Our Customers,
OurSuppliers, Society and Communities, Environment,
Governments, Regulators and NGOs
Reputation for high standards of business conduct
ESG
materiality
assessment
As set out on page 36, the Group has undertaken an ESG materiality assessment which was reviewed and approved by the Board at
its November meeting. The purpose of such an assessment is to ensure that the interests of all relevant stakeholders are reflected
and understood, and as such the Board considered those interests when approving the assessment. An average was taken of
stakeholder scores, to give a combined measure of stakeholder importance of each topic and ensure that the interests of
stakeholders was balanced. The assessment will help shape our long-term sustainability strategy.
Our Investors, Our People, Our Customers,
OurSuppliers, Society and Communities, Environment
Long-term consequences, Reputationfor high
standards of business conduct
First annual
budget
At its November meeting, the Board approved the first annual Dowlais Group budget. This necessitated the consideration of the
impact on a range of stakeholders, most crucially our investors, but also our customers, our people and our joint venture partners,
forwhom our investment decisions and financial targets are very relevant.
Our Investors, Our People, Our Customers,
OurJointVenture Partners
Policy
framework
As Dowlais prepared for its demerger and listing in April 2023, the Board approved our Group policy framework, to ensure that
thenecessary processes and controls were place to effectively operate as a stand-alone listed company. In doing so, the Board
wasmindful first and foremost of preserving the Group’s reputation for high standards of business conduct, but also the interests
ofother stakeholders to whom the policy framework relates.
Our Investors, Our People, Society and Communities
Reputation for high standards ofbusiness conduct
Reflecting stakeholders and section 172 factors in Board decisions
Section 172(1) of the Companies Act 2006 provides that each Director must ensure that
theyact in the way they consider, in good faith, would most likely promote the Company’s
success for the benefit of its members as a whole, and in doing so have regard (among
other matters) to: (a) the likely consequences of any decision in the long term; (b) the
interests of the Company’s employees; (c) the need to foster business relationships with
suppliers, customers and others; (d) the impact of operations on the community and the
environment; (e) the desirability of maintaining a reputation for high standards of business
conduct; and (f) the need to act fairly between shareholders of the Company.
Examples of decisions taken by the Board in 2023 and the stakeholders and other section
172 factors that the Board considered when taking those decisions are set out below.
Theseexamples demonstrate how the Board, both individually and collectively, has had
regard to the matters set out in section 172(1)(a) to (f) when performing its duty under
section 172, during the year ended 31 December 2023.
42Dowlais Group plc 2023 Annual Report
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ePowertrain components
Many drivers may not appreciate the importance of the torque management components in their car,
but they are often critical for providing safety, stability, control and comfort.
ENGINEERING TRANSFORMATION: EPOWERTRAIN COMPONENTS
ENGINEERING TRANSFORMATION
For example, our electronic differential lockers and torque managers improve traction on
challenging terrains so drivers are always confident of navigating safely, bothonand off-road.
With optimised torque distribution, vehicles are more stable during cornering and manoeuvring.
Electronic disconnect devices reduce residual torque and energy loss, lowering energy
consumption. This contributes to higher vehicle range, a critical factor for EVs, and is just one
ofthe reasons we see these components as a growth opportunity. Our solutions can also drive
further efficiencies in electrified powertrains, enhancing EV off-road capabilities and
compensating for increased vehicle weight.
Without them, not only would the driving experience suffer, but the vehicle
would be less efficient. These components include advanced differentials such
asmechanical and electronic limited slip differentials, locking differentials and
disconnect devices. They manage torque and direct it where and when it is
needed, improve driving efficiency and enhance the driver experience, whether
in EVs or ICE vehicles.
2023 Annual Report 43Dowlais Group plc
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
PLANET AND CLIMATE ACTION
PLANET AND CLIMATE ACTION
Committed to protecting and respecting
ourenvironment
Contributing to a cleaner, more sustainable world is more than an aspiration for Dowlais,
itisa central part of ourbusiness strategy. Our technology helps facilitate the transition
toEVs, itself a necessary change to enable a net zero economy. That contribution
isunderpinned by our work to embed sustainable practices throughout our own
organisation, utilise resources more efficiently and minimise our direct environmental
impact. We have a deep commitment to addressing our environmental impacts, backed
upby ambitious targets and robust policies.
Throughout the year we have worked to leverage the capabilities and experience of
ourbusinesses to strengthen our approach to climate action. As a newly formed Group,
with aclear understanding of the climate risks and opportunities that impact our
businesses, weare driving continuous improvements in our approach to emissions
reduction and reducing and eliminating wider environmental impacts.
Cutting our emissions
We recognise the serious threat posed by climate change and the urgent need for
meaningful action. It is also core to our strategy. As EVs become more widely adopted,
thecarbon footprint of the automotive industry will reduce, but for our customers to meet
their emissions reduction targets, we will need to reduce ours.
We are proud to have submitted our emissions reduction targets for validation by the SBTi
and to have GKN Automotive’s targets validated. We also maintained the CDP score of
ourbusiness’s previous owners, being rated as C, which we plan to work to improve in 2024.
Across the Group, our business units continue to make progress and are implementing
carbon reduction plans by sourcing more renewable energy, improving energy efficiency
and addressing emissions from our supply chain.
GKN Automotive’s facility in Bruneck, Italy, provides several examples
of measures that have reduced the business’s carbon footprint.
Theplant is powered by 100% green electricity, an initiative that began
in 2012 and saves 5,000 tons of CO
2
annually. A groundwater cooling
system installed at the plant saves 1MWh of energy annually. It also
incorporates a heat recovery system, which means waste heat from
machinery can be used to supplement the hot water and heating
supply in the buildings, thereby reducing the amount of energy the
plant uses for heating.
Emission reduction inaction
Emissions performance
This year, the Group’s Scope 1 and 2 greenhouse gas (GHG) emissions fell by 6.4%,
against an increase in revenue of 6.3% at constant currency. Our emissions intensity
fellby 11.6%. In our next Annual Report, we expect to publish our first Transition Plan,
demonstrating our journey to net zero by 2050, in line with our science-based targets.
44Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
PLANET AND CLIMATE ACTION CONTINUED
The business also expects to sign its first renewable energy purchase power agreement
(PPA). Finally, the GHG emissions of its supply chain will be reviewed as it targets
areduction in Scope 3 emissions.
GKN Powder Metallurgy targets submitted to SBTi
In 2023, GKN Powder Metallurgy developed its first decarbonisation roadmap, with
well-defined GHG reduction targets for 2030 and a net zero target for 2050. This was
created inalignment with the resources and guidance of the SBTi and submitted to it for
validation. A newly formed decarbonisation committee will lead the to work to deliver the
roadmap, which outlines how the reductions are expected to be achieved. This includes
transitioning electricity consumption to green sources, improved operational efficiencies,
replacing natural gas consumption and decarbonising transport, among other activities.
The business has already been making progress, with its plants in Buzău, Romania, and
Hortolândia, Brazil, converting to full renewable energy use in 2023 and an efficient
newheating system installed at its plant inMilan, Italy.
45%
reduction in absolute
Scope 1 and 2 GHG
emissions by 2030 from
a 2021 base year.
42%
reduction in absolute
Scope 1 and 2 GHG
emissions by 2030 from
a 2022 base year.
25%
reduction in absolute
Scope 3 GHG
emissionsby 2030 from
a 2021 base year.
25%
reduction in absolute
Scope 3 GHG
emissionsby 2030 from
a 2022 base year.
1
Net zero GHG
A commitment to
reachnet zero GHG
emissions across the
value chain by 2045.
Net zero GHG
A commitment to
reachnet zero GHG
emissions across the
value chain by 2050.
A changing climate presents multiple business risks to our operations. These include
transition risks such as changing customer behaviour, carbon pricing and regulation,
andnew technologies. There are also physical risks which could impact facilities and supply
chains such as severe weather. However, it is important to recognise the opportunities
created, not only in terms ofnew revenue streams but also through operational efficiencies
that help drive margin expansion.
For more detail on our climate-related risks and opportunities see our TCFD statement
onpages48 to 58.
Energy usage
Our ambition to improve our energy efficiency as part of our decarbonisation plans is
setout in our Energy Policy and Environmental Policy, which include ensuring ISO 14001
certifications at all manufacturing sites. We are pleased that total operational energy
consumption fell by 3.5% in 2023, but there is more to do as we become more efficient,
alongside the transition to renewable sources of power. Renewable electricity made up 10%
of our total energy use in 2023 (up from 8% in 2022) and we expect to see this grow
significantly as we secure more supplies of clean electricity for our operations.
Establishing our SBTi targets
Our Group policy is that all business units should be covered by science-based targets,
ensuring our Group performance is in line with the best available science. Given the very
different nature of each business, it is appropriate that they set their own decarbonisation
ambitions and have them validated independently. GKN Hydrogen’s emissions, at a Group
level, are currently de minimis, and accordingly at this stage we do not intend to adopt
anSBTi target for that business. Nevertheless, as a growing business in the green economy,
the business will remain focused on minimising emissions as it grows, and securing
renewable electricity as it expands.
GKN Automotive’s validated SBTi targets
In 2023, GKN Automotive had its GHG reduction targets for 2030 and a net zero target
for2045 validated by the SBTi, demonstrating its robustness and alignment with climate
science. This solidified its target of reducing Scope 1, 2 and 3 emissions in line with
achieving net zero and builds on its multi-year focus on carbon reduction. GKN Automotive
expects to achieve Scope 1 and 2 emissions reductions needed to reach these targets
inseveral ways. Energy efficiency will be improved through equipment upgrades, better
equipment control and insulation and by reducing the business’s reliance on fossil fuels.
Growing its use of renewable energy will also help to reduce its emissions over time.
ItsScope 3 emissions are more difficult to reduce, but are expected to decline as adoption
ofEVs increases and it works with suppliers that are decarbonising their operations. In 2024,
GKN Automotive plans to develop net zero plans across its key manufacturing sites.
GKN Automotive's SBTi targets
GKN Powder Metallurgy's SBTi targets
1. Covering fuel- and energy-related activities, upstream transportation and distribution, downstream
transportation and distribution, and processing of sold products.
45Dowlais Group plc 2023 Annual Report
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PLANET AND CLIMATE ACTION CONTINUED
Product sustainability
Across the Group we are developing products and technologies that address the world’s
sustainability challenges. However, the way in which we make our products, the processes
we use and how easily our products can be reused and recycled is equally important.
Wemust therefore ensure we better understand and improve the lifetime environmental
impact of our products. GKN Automotive focused on developing its internal capability
forboth carbon footprinting and product life cycle analysis (LCA) in 2023. A new “Product
Sustainability Office” was established in the year, dedicated to improving the ways the
business measures the carbon impact of its products. This new team will support the
creation of indicative carbon footprint reports for its products and help embed carbon
impact considerations in new product development. GKN Powder Metallurgy's design and
manufacturing processes already incorporate a significant degree of circularity. Most of
itsraw materials usage, primarily base irons, comes from recycled steel. It also buys back
green scrap and powder, and selected sintered scrap, from customers to reuse in certain
products, further reducing the end-of-life impact on the environment.
Engineering innovation and behaviour change to reduce
energy use in Bruneck, Italy
GKN Powder Metallurgy’s plant in Bruneck, Italy, has created an innovative system
to save energy and ensure excess heat from its machinery doesn’t go to waste.
Surplus heat from its sintering furnaces is used to supplement the heating of water
and the central heating supply in its buildings thanks to a heat recovery system.
Excess heat is also fed into the city’s local heating network. GKN Powder Metallurgy
is exploring opportunities to bring similar systems to other plants.
Optimising Shift Patterns The team also reviewed all the operating practices at the
sinter and secondary heating furnaces to find efficiencies. This resulted in changes
to shift patterns which, in turn, meant the furnaces could be shut down for 20%
longer than usual. This resulted in a saving of approximately 7,000 tonnes of CO
2
e,
without any extra capital expenditure. This project is continuing in 2024, with the
goal of introducing this at all possible sites.
GKN Automotive's relentless pursuit of technological innovation is
evident in its market-leading AWD systems technology. For instance,
their AWD disconnect system significantly reduces CO
2
emissions by
upto 80%. New generation AWD components are 30% more efficient
and 20% lighter than previous generations and are made from 98%
recyclable materials.
Similarly, the development of its next generation 3-in-1 eDrive system
has increased product durability by 25%, now achieving more than
320,000 kilometres, which means that with less material embedded
inand energy required for the product manufacturing, it will last
longer, contributing to reduction of its ultimate environmental impact.
Cutting carbon through
technological innovation
46Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Natural Resources
All our operations are dependent on the natural environment and, while our materiality
assessment deemed these areas relatively less material, we still understand their
importance. We therefore have clear commitments to ensure we are diverting all waste
from landfill by 2030, ensuring we have a robust approach to water stewardship and fully
understand our wider impacts on nature and biodiversity. This has been enabled by
developing an understanding of our risks following the recommendations of the Taskforce
on Nature related Financial Disclosures.
Water
Water is an important issue for our customers globally and one we take seriously. In 2023
wecontinued to improve our water management practices by reducing water withdrawal
and instilling responsible use across our footprint. Our commitment in this area is set out
inour Water Policy. Dowlais’ primary objective is to ensure that our businesses remain
resilient against water-related risks, minimise potential impacts on water availability and
quality, and encourage contributions towards addressing water challenges and enhancing
water management practices. All our manufacturing sites have environmental management
systems certified to ISO14001, or equivalent, which ensures they are compliant with legal
obligations regarding water use, discharge, and consumption. This covers 100% of all our
products sold. In 2023, we carried out an exercise to ensure our water data was ready for
limited assurance under the EU CSRD. In 2024 we will take part in the CDP Water Security
questionnaire. In our businesses, GKN Automotive is taking steps to better understand how
it can reduce its water consumption. In 2023, it engaged a specialist consultancy to carry
out a risk and data assessment for its current water use and measurement. These results
willfeed into our commitment to develop and implement a Group Water Stewardship
Programme by 2025. GKN Metallurgy’s fundamental approach to water conservation is
through process optimisation. They aim to recycle as much water as possible, and only
replace water when it is lost through vaporisation and during capital maintenance. They
launched several water optimisation projects in 2023, including powder magnet separation,
and improvements to sintering furnaces.
Waste
The materials that we use during the manufacturing of our products have a direct impact
onthe environment. It is important that we continue to reduce the amount of waste we
generate as well as find ways to divert unavoidable waste from landfill. We have a Group
level target of diverting 100% of the waste we produce from landfill by2030 and we
arecurrently on track. In 2023, we have assessed waste data collection processes across
ourbusinesses and are working to improve our waste management disclosures.
Biodiversity
We are committed to protecting biodiversity and minimising the potentially negative
impact that the Group’s businesses may have on the natural environment over the longer
term. Our Biodiversity Policy sets our commitments and our approach to adopt a “NoNet
Loss” principle in our operations, to seek opportunities to reduce deforestation wherever
possible, to compensate any potential negative biodiversity impacts with future
reforestation and regeneration projects and to respect High Conservation Areas and
threatened and protected species. Our businesses are expected to comply with and
respect local biodiversity laws where applicable. In 2024, we will start work to understand
our nature risks to support reporting under the recommendations of the Taskforce for
Nature Related Financial Disclosures, although we can confirm already that none of our
sitesare close to any nature-protected areas or areas with endangered biodiversity.
PLANET AND CLIMATE ACTION CONTINUED
47Dowlais Group plc 2023 Annual Report
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TCFD
Introduction
With this section, we aim to demonstrate to our stakeholders that climate-related thinking
is embedded within our organisation and that relevant climate-related risks and opportunities
are incorporated into our business strategy. The report covers the Group as a whole and
allbusiness locations and climate-related risks and opportunities within the Group.
Connectivity between TCFD, CFD and other disclosures
We have reviewed Dowlais’ existing climate change governance, strategy, risk
management process, metrics and targets against the TCFD recommendations and
recommended disclosures as detailed in “Recommendations of the Task Force on Climate-
related Financial Disclosures” (2017) and the associated FCA Listing Rules and Climate-
related Financial Disclosures (CFD) requirements. Based on this assessment, Dowlais is
fullycompliant with all recommended disclosures which are set out in the following pages.
Governance
Board Oversight of Climate Change
Sustainability is central to our purpose at Dowlais. Our businesses enable the transition
toacleaner, more sustainable world. Since the demerger, Dowlais has established and
implemented best-practice climate-related governance structures to support its strategy
of developing exceptional products that advance the world’s transition to sustainable
vehicles.
The Board is responsible for the strategy and overseeing the performance of Dowlais.
ESGand our approach to climate change, sits within the scope of matters reserved for the
Board, with the Board’s approval required for the Company’s publicly stated ESG targets
including emissions reduction and other climate-related targets, and for key climate
related policies.
The Board’s responsibilities include oversight of and ultimate responsibility for the Group’s
sustainability strategy, targets, disclosures, and reporting, including climate change,
identifying, and considering climate-related risks and opportunities, and alignment with
TASK FORCE ON CLIMATE-RELATED
FINANCIAL DISCLOSURES STATEMENT
TCFD recommendations. Whilst the Board has overall responsibility for managing the
Group, day-to-day management responsibilities are delegated to the CEO and Executive
Committee, who have in turn established the Group’s Sustainability Committee.
The Board is also responsible for risk management, supported by the Audit Committee.
The Board defines risk appetite and monitors the management of the Group’s principal
risks. The Group’s principal risks and uncertainties are set out on pages 73 to 76, have
beendetermined by the Audit Committee and approved by the Board. Sustainability Risk,
including a failure to comply with stakeholder expectations, is a Group principal risk.
Frequency of climate governance processes at Board level
Given its importance, climate change (and sustainability more generally) is a standing
agenda item for each Board meeting and a quarterly report (or more frequent if required)
is prepared and presented by the Chief People, Sustainability and Communications Officer.
The report provides an update on progress against climate-related targets of the Dowlais
businesses and any significant emissions reduction programmes underway.
In 2023, the Board has overseen and contributed to substantial efforts to identify Dowlais’
material issues. Greenhouse gas emissions were identified as one of the most material
sustainability-related issues by Dowlais’ stakeholders. Maintaining the highest product
safety and quality, health and safety and well-being were also amongst the most material
issues. Accordingly, these issues have been integrated into the Group Sustainability
approach and the individual businesses’ strategies, of which the Board has oversight.
Formore information on our materiality assessment please see our standalone
Sustainability Report.
Our two largest businesses, GKN Automotive and GKN Powder Metallurgy, have already
begun their net zero journeys, having implemented GHG reduction plans over a number
ofyears. In 2023, they submitted near- and long-term science-based emissions reduction
targets to the SBTi for approval in 2023. GKN Automotive, which comprises approximately
80% of Group revenue, has had its science-based targets validated. GKN Powder
Metallurgy is awaiting its targets to be validated by H1 2024.
48Dowlais Group plc 2023 Annual Report
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TCFD CONTINUED
Dowlais intends to focus further on climate change in 2024, as net zero pathways are
identified with a Group net zero transition plan to underpin our existing science-based
targets. The Board will oversee this process and subsequently monitor and hold
responsibility for ensuring progress against climate-related targets.
Management oversight of climate change
At Board level, the climate related oversight and responsibilities of the Board and its
Committees can be seen on page 50.
The Group’s Sustainability Committee is responsible for implementing the Group’s
sustainability strategy into its operations, including the Group’s approach to climate
change. The Sustainability Committee is chaired by the Group’s Chief Executive Officer
andits members include the Chief People, Sustainability and Communications Officer;
theDirector of Sustainability; business unit Chief Executive Officers and relevant supporting
sustainability experts.
Business unit Chief Executive Officers have responsibility for implementing the Group
Sustainability Strategy and climate change approach within their respective businesses.
With support from sustainability leads, the business unit CEOs liaise with regional and
divisional leads to capture information on emissions and details of any actions, such
asstrategic or financial planning, required to address climate-related issues before each
Group Sustainability Committee meeting.
Site managers across the Group report to the regional and divisional leads to inform
thisupdate. As such, the business unit CEOs, through the Sustainability Committee, can
escalate material sustainability and climate-related risks and opportunities to the Board
asappropriate, ensuring that the implications of these are considered by the Board when
setting the Group’s strategy and, where relevant, financial plans, to address climate-related
risks and pursue opportunities.
Frequency of climate governance processes at management level
The Sustainability Committee meets at least quarterly to discuss and review climate
performance and data against targets, and to consider climate-related risks and
opportunities. The Committee met twice in 2023, reflecting its formation after our
demerger. In 2023, the Committee led the development of the Group Sustainability
approach, following the completion of the first Group Materiality Assessment and intends
to lead the development of the Net Zero Transition Plan in 2024.
49Dowlais Group plc 2023 Annual Report
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Board
Responsible for setting the Group’s sustainability strategy, including climate change, and for approving key policies and targets and monitoring business unit performance.
Remuneration Committee
Responsible for setting executive remuneration policy
which supports the execution of business strategy.
Includes appropriate integration of sustainability
priorities into executive remuneration structure
Nomination Committee
Considers board and senior management diversity as
part of appointments and succession planning.
Audit Committee
Ensures effective risk management, including climate
related risks. Overseas the integrity of the Group’s
reporting, including reporting of climate related data.
CEO
Chairs the Sustainability Committee and responsible for delivery of the Group’s sustainability strategy.
Group Sustainability Committee
Chaired by the CEO. Responsible for developing and delivering Group's sustainability strategy, monitoring, assuring, and reporting of performance. Develops and proposes
the Group’s ESG Targets, KPIs and programmes. Overseas compliance with the Group’s ethics, environmental, health and safety, sourcing, and diversity policies.
Business unit CEOs and executive management teams
Deliver operational ESG initiatives to meet their business’ sustainability targets and commitments. Manage, implement and oversee of their business unit sustainability strategy and
climate-related risk assessment and implement mitigation actions where necessary. Responsible for adapting to changing customer preferences, market demands and sectoral
regulatory requirements for sustainability and climate-related matters. Responsible for ensuring effective financial management of the costs of implementing ESG related activities,
including energy costs and emissions reduction plans.
Business unit sustainability leads
Execute the day-to-day running of the business unit’s plans and strategy, including coordinating the activities of local site teams. Help to identify business unit specific sustainability
matters, including ESG risks and opportunities and ensure these are escalated and shared as appropriate. Monitor performance against business unit sustainability targets in detail.
Dowlais Executive Committee
Supports the CEO in the day-to-day management of the Group.
Includes the Group’s Chief People, Sustainability and Communications
Officer, who leads the Dowlais sustainability team.
Dowlais sustainability and climate governance structure
TCFD CONTINUED
Dowlais sustainability team
Coordinates activities between the business unit sustainability teams and
ensures the effective operation of the Group Sustainability Committee.
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Risk management
Identifying and assessing risk
Overall responsibility for risk management within the Group resides with the Board,
whichdetermines the overall risk strategy and approach to risk management. Business unit
management teams, under the leadership of the business unit CEO, are responsible for
oversight and management of risk within their business unit.
Each site, location and function within a business unit maintains a risk register to track
relevant site-related risks. These local and functional risk registers are consolidated up
tothe business unit level, and each business unit maintains a business unit risk register
capturing the principal risks that it faces. The business-level risk registers are reviewed
regularly by the business executive teams, and then consolidated at Group level,
with Group principal risks presented to the Audit Committee as part of the annual
reporting process.
Identifying and assessing climate risks and opportunities
As with all risks identified and monitored across the Group, and as set out in our Risk Policy,
climate-related risks are assessed on a five-point scale for both the probability of the
riskoccurring and its potential impact (the financial and reputational outcome of the risk
occurring), providing an overall risk score between 1 and 25. The risk score is calculated by
multiplying the probability rating by the impact rating to achieve an overall low, medium,
high, or severe descriptive risk rating.
As this is the first year of operation for Dowlais, a new climate scenario analysis was
completed, to ensure that the specific climate-related risks and opportunities identified
bythe Group are aligned with the automotive industry. Physical and transition climate risks
and opportunities were identified through a comprehensive assessment conducted with
the assistance of third-party consultants. This assessment involved a combination of
interviews with key stakeholders, including several internal functions and rigorous
desktopresearch.
The biggest climate-related risk to Dowlais’ businesses is the ability to adapt to
technological change resulting from electrification of the automotive industry. This risk
forms part of the Group’s principal risk of Technology and industry evolution, details
ofwhich are set out on page 75.
The identification and assessment of climate-related risks and opportunities will
beundertaken each year in preparation for our TCFD reporting requirements.
Integrating climate into wider risk management
After the climate-related risks and opportunities have been assigned a risk rating, those
rated the highest are collated into a ‘climate risk register’; they are then considered by the
Audit Committee meeting as part of the preparation of this statement. The risk register is
subsequently reviewed and signed off by the Board, with climate-related risks consolidated
into a single sustainability principal risk. This incorporates climate change into the overall
risk management process by allowing a Group-level view of climate risk but also helps us
tounderstand the specific risks and opportunities that individual divisions face.
Management of risk
With Dowlais’ support, each business unit invests in and implements appropriate systems
and processes to manage their climate related risks and continually reviews these in line
with evolving expected practices. Frameworks are in place for identifying principal risks
andopportunities appropriate to each business and its stakeholders, which include
climate-related risks. The executive management team of each business regularly reviews
any significant climate-related issues, risks and opportunities related to the business.
Thesereviews consider the level of climate-related risk that the business is prepared
totake in pursuit of its business strategy. Any risk rated severe are deemed unacceptable
and require additional action.
Risk analysis and strategy
Group climate risk approach and results summary
Existing and emerging risks associated with climate change pose physical and transitional
risks as well as opportunities for Dowlais.
Two separate climate risk assessments have been carried out to reflect the differences
inphysical and transition risks and opportunities. Both these risk assessments included
aGroup-wide review of operations, customers, and the supply chain, and considered how
each risk could impact revenue, assets and other costs. These assessments were completed
with support from external consultants, thorough climate-related workshops and
interviews across the business. Risks and opportunities have been prioritised to determine
which have a material financial impact on the organisation using both likelihood (the
probability of the risk occurring) and impact (the financial and reputational outcome of the
risk occurring), resulting in a combined risk register with a low, medium, or high risk rating
for each time horizon and scenario.
For more information on the Group's approach to risk management, see pages 71 and 72.
TCFD CONTINUED
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TCFD CONTINUED
Specific transitional climate-related issues were identified and assessed over three different
time horizons. These horizons allowed us to consider the lifespan of our assets and
infrastructure as well as any longer-term regulatory changes and to consider our near and
long-term SBTi commitments. The time horizons for our climate-related risk assessment
areas follows:
– Short term: 2024–2025
– Medium term: 2026–2030
– Long term: 2031–2050
Our risk assessment and climate scenario analysis have shown that, in aggregate, the overall
climate risk exposure for Dowlais is medium, and the Group is financially resilient and
strategically robust to climate change. Our current understanding of climate-related risks
isthat any impacts on assets are limited, and risks can be accommodated in our business-
as-usual activity considering our existing and planned mitigation strategies.
Dowlais will continue to develop this analysis as new data becomes available, both
internally and externally, whilst continuing to monitor our climate exposures and action
plans through the Group’s risk management framework. The opportunities identified
continue to be developed in line with the Company’s strategy and objectives.
Scenario analysis
As part of Dowlais’ assessment of climate-related risks and opportunities, we commissioned
a climate scenario analysis to assess the resilience of the Group’s business model and
strategy regarding climate change under different scenarios. Different scenarios for both
physical and transition risks and opportunities have been selected as they provide
comparisons of ambitious, baseline and optimistic climate scenarios, which are appropriate
for the nature of Dowlais’ businesses and its operating environment. The scenarios used
areoutlined below.
All categories outlined in TCFD guidance on climate-related risks and opportunities have
been considered in relation to our operations, supply chain and downstream but not all
categories were applicable or material to our business.
Against the relevant risks, the risk impacts will be described using the risk scale of Low to
Severe.
Score Risk rating
1–4 Low
5–9 Medium
10–19 High
20–25 Severe
Physical climate-related risks
As global temperatures rise, the frequency and severity of extreme weather events are
likely to increase, resulting in a higher chance of disruptions to our global operations and
supply chain. We used the Munich Re Location Risk Intelligence Tool to assess current and
potential future physical climate-related risks facing our facilities. The potential physical
risks were assessed at 30 of Dowlais’ most financially material sites based on sales data for
2022, which together represented over 70% of total sales. The sales revenue of each site
was considered to determine the materiality of identified risks to specific sites.
Four climate-related scenarios were used, looking as far as the year 2100 for physical risks.
These are the default scenarios in the Munich Re climate risk analysis software we used.
They have been adopted by the Intergovernmental Panel on Climate Change and are
appropriate standard scenarios to enable comparison with peers.
– RCP 2.6: a climate-positive pathway, likely to keep global temperature rise below 2°C
by2100. CO
2
emissions start declining by 2020 and reach zero by 2100.
– RCP 4.5: an intermediate and probably baseline scenario likely to result in a global
temperature rise between 2°C and 3°C by 2100 with a mean sea level rise 35% higher than
that of RCP 2.6. Many plant and animal species will be unable to adapt to the effects of
RCP 4.5 and higher RCPs. Emissions peak around 2040, then decline.
– RCP 7.0: consists of a baseline outcome rather than a mitigation target and represents
the medium-to-high end of the range of future emissions and warming resulting from
noadditional climate policy.
– RCP 8.5: a bad-case scenario where global temperatures rise between 4.1-4.8°C by 2100.
This scenario is included for its extreme impacts on physical climate risks as the global
response to mitigating climate change is limited.
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TCFD CONTINUED
Out of all the possible physical risks assessed in table below based on a combination of the
likelihood of an event, the materiality of the location and the potential financial impact,
wehave identified one significant climate-related physical risk.
Physical Risk Reasons for exclusion
Tropical Cyclone Not identified as a climate-related risk. Not discussed further.
No sites are projected above the low-risk zone, under any climate scenario
by2100.
River Flood Not identified as a climate-related risk. Not discussed further.
Although 14.8% of sites are currently identified within in zone 50 (representing
a 1 in 50 year chance of an extreme flood), this is constant across the climate
scenarios over time. Therefore this is not a climate-related risk. No additional
sites are projected to move into the higher-risk zones under any climate
scenario by 2100.
Fire Weather Stress Not identified as a climate-related risk. Not discussed further.
Although 22% of sites are currently identified as high or very high risk, this
proportion does not increase under any scenario by 2100. Therefore this is not
a climate-related risk.
Drought Stress Not discussed further as good quality freshwater is not essential for the
industrial processes at sites with risk exposure.
Although 78% of sites are currently identified as very low or low risk, this will
decrease to 52% of sites under RCP 4.5 or 45% of sites under RCP 8.5 by 2050,
and further to 30% of sites under RCP 8.5 by 2100. Although no sites are
identified in the higher risk categories currently, this increases to 4% of sites
under RCP 4.5 or 19% of sites under RCP 8.5 by 2050, and further to 37% of sites
under RCP 8.5 by 2100.
Heat Stress Not discussed further as most activities at sites with increased risk take
placeindoors.
Although exposure to high levels of Heat Stress was projected to impact
anincreasingly material proportion of sites, due to the nature of the Group’s
operations with most activities undertaken indoors, this risk was also not
deemed material. Furthermore, sufficient controls are in place to manage
extreme heat for those sites that currently have high exposure, which can
beeasily scaled up at minimal cost as exposure increases.
Precipitation Stress Discussed below – becomes increasingly financially material.
Cold Stress Not identified as a climate-related risk. Not discussed further.
Although substantial exposure is identified currently, Cold Stress is a progressively
declining hazard under all scenarios and time horizons so was discounted.
Sea Level Rise Not identified as a climate-related risk. Not discussed further.
96.3% of sites are exposed to no hazard under all scenarios by 2100. Only one
site is identified at medium risk under RCP 2.6 and 4.5, or high risk under RCP
8.5 by 2100.
Our findings indicated that a financially material proportion of sites (equating to 23%
oftotal Group sales) are currently exposed to high, very high or extreme Precipitation
Stress which is projected to increase under climate scenarios.
Risk
Damage or disruption from severe precipitation events
TCFD Category
Physical (Acute)
Area
Own operations
Potential impact on the
business
– Productivity losses
– Asset damage costs
– Increased insurance costs
Time horizon
– Short-medium term (currently exposed, and projected to increase
by 2030, but not substantially beyond 2030)
Likelihood
– High (currently exposed, and projected to increase under
allscenarios)
Impact
– Low
Metrics used to track risk – Number of days lost due to disruptions
Severe precipitation events, and the potential flash flooding that these can cause, have
thepotential to:
– Cause damage to site infrastructure, products and equipment stored at sites.
– Impact access to sites through damage to local roads and infrastructure.
– Cause disruptions to manufacturing output and delay production times, such as through
power outages.
In addition, increasing exposure to severe precipitation may lead to higher insurance costs.
However, many of the sites currently identified with high exposure have not recorded
substantial impacts to date as the existing mitigation measures are adequate.
Mitigation of physical risks
Business continuity plans and crisis management procedures are adopted by all our businesses.
Business continuity procedures include ongoing preventative actions (for example,
awareness of storm forecasts and stormwater network maintenance), steps to be taken
inthe first hour (for example, examination of exterior and closing off exposed areas),
inthefirst 24 hours (for example, restoration of utilities and assessing damages) and
following the incident (for example, notifying insurers of damages).
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TCFD CONTINUED
Transition risks and opportunities
We are exposed to the risks and opportunities that result in a transition to a low-carbon
economy. The speed of this transition and the pace at which the economy decarbonises,
will determine the severity and impact of climate transition risks and opportunities.
Our transition risks and opportunities were identified through a comprehensive assessment
which involved a combination of interviews with key stakeholders, several internal functions
and rigorous desktop research. The most significant climate-related transition risk
toDowlais’ businesses is the ability to adapt to technological change resulting from
electrification of the automotive industry. This risk forms part of the Group’s principal risk
of“Technology and Industry Evolution”, details of which are set out on page 75.
All transitional risks are being actively managed, and have therefore been rated as
mitigated to acceptable levels, with current controls and planned measures in place.
Twoclimate-related scenarios were used: Net Zero 2050 (NZE), an ambitious “below 2°C”
scenario; and a Stated Policies Scenario (STEPS) 3, which represents the roll forward of
already-announced policy measures. This scenario outlines a combination of physical and
transition risk impacts as temperatures rise by around 2.5°C by 2100 from pre-industrial
levels, with a 50% probability. This scenario is included as it represents a base case pathway
with a trajectory implied by today’s policy settings.
Potential impacts of the risks on the business and mitigation measures are considered
andincluded in the following table along with the metrics used to track said risks. For each
ofthe opportunities identified we have included a specific strategy to capitalise on that.
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TCFD CONTINUED
TCFD
category Risk description Area
Potential impact
onthebusiness
Mitigation / actions
tomanage risk
Metrics used to
track risk
NZE STEPS
Short
term Medium
Long
term
Short
term Medium
Long
term
Technology & Industry Evolution (Group Principal Risk 7)
Market,
Technology
Dowlais has market-leading
technologies in the automotive
industry and navigating the EV
transition is core to our strategy.
Inability to maintain sufficient
technological differentiation, or
adapt to technological change in
key markets, particularly the major
shift in the automotive markets
resulting from electrification, is a
risk. Products and technologies
may over time become obsolete
or un-competitive and will need to
be replaced. Disruptive innovation
by competitors, or the
development of new technologies
which eliminate or reduce demand
for certain products is also a risk.
Own
operations
– Adverse effect on revenue,
revenue growth or profit
margins.
– Increased costs of R&D and
engineering to keep pace
with technological innovation.
– Reduction in demand for
products or failure to have
product portfolio which meets
market expectations.
– Erosion of reputation as a
technology leader in product
markets.
– Damage to our ability to
attract and retain talent.
– Close relationships with our
customers to understand their
development roadmap and
invest in technologies that
willbe used on next-
generation platforms.
– Horizon-scanning to identify
new technologies and
monitoring of competing
technologies, including
viateardown and testing.
– Significant investment
inengineering and R&D,
particularly in EV and
propulsion source agnostic
components.
– Significant patent portfolio
andprocesses for protecting
our innovation.
– Focus on building a culture
ofinnovation and attracting
the best engineering talent.
– Revenue,
– % revenue from
EVs
– Revenue
growth,
– Revenue
growth from
EV-related
sales,
– Profit margin,
– Profit margin
from EVs
– % total research
& development
(R&D)
expenditure on
climate-related
R&D
Climate performance
Market,
Reputation
Failing to reduce emissions in our
own operations in line with market
and customer expectations could
damage our reputation ability to
win business, and impact investor
and OEM attempts to meet their
own net zero targets, as our
customers, investors, analysts and
regulators are placing an increasing
focus on our ability to operate
sustainably.
Own
operations
– Increased shareholder
concern could lead to
increased cost of capital
andloss of investment.
– Failure to maintain customer
expectations on sustainability
performance could lead to
loss of trust, competitive
advantage and ultimately
commercial contracts.
– Reducing our emissions is
acore part of or strategy.
– Dedicated resources centrally
and in each business to
manage our decarbonisation
activities.
– Clear ambition with SBTi
targets submitted (Scope 1-3
reductions).
– Net Zero Transition plan
tobedeveloped.
– Clear communication through
dedicated sustainability report
that meets stakeholder
requirements.
– Scope 1-3
emissions
– ESG rating
agency scores
– Revenue
Key transition risks
Risk rating
Low
Medium
High
Severe
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TCFD CONTINUED
TCFD
category Risk description Area
Potential impact
onthebusiness
Mitigation / actions
tomanage risk
Metrics used to
track risk
NZE STEPS
Short
term Medium
Long
term
Short
term Medium
Long
term
Regulatory disclosures
Policy and
legal,
Reputation
As a global business, we operate
against a range of local and
regional reporting requirements.
Asinvestors and governments put
greater emphasis on transparency
in climate performance, the risk of
failing to meet disclosure
expectations across all the
territories we operate in, import
from and export to increases.
Own
operations
– Failure to comply with all
relevant disclosure regulations
could result in fines from
regulatory bodies.
– Litigation due to lack of
compliance could result in loss
of trust from customers and
investors.
– Continuous improvement in
sustainability reporting to align
with external frameworks and
rating agencies.
– Appropriate resourcing
incentral functions.
– ESG rating
agency scores
Regulation including carbon pricing
Policy
andlegal,
Reputation
Carbon pricing and other taxes
related to emissions of GHGs are
likely to increase as the climate
crisis worsens. This can affect
allparts of our value chain, from
theprices our customers are able
to pay for our products, through
toour own operating cost, and
thecosts we incur from our
supplychain.
Own
operations,
Upstream,
Downstream
– Price of carbon related to
GHG emissions in own
operations increases opex.
– Increasing regulations on
existing products (for example
carbon intensity) increases
costs and exposes the
business to litigation.
– Greater costs associated with
emissions reduction activities.
– Higher costs associated with
carbon tax on Scope 3
emissions.
– Higher costs of purchased
goods and services as
suppliers pass on costs.
– Monitor current and future
taxes/carbon pricing costs/
obligations.
– Reduce our scope 1 & 2
emissions (according to
ourSBTI roadmap).
– Complete LCAs so we can
support our customer's
transition roadmaps.
– Work with suppliers to ensure
they contribute to our
reduction efforts.
– Scope 1,2 & 3
emissions
– Renewable
energy sourced
– Profit margin
Renewable energy costs
Market To meet our net zero
commitments, we must secure
adequate supplies of renewable
heat and electricity. However, as
demand for clean energy increases,
there is a risk that the costs and
volatility of sourcing renewable
energy at requisite volumes in
allour global markets increase
exponentially due to a shortage
ofsupply.
Own
operations
– Increased operating costs.
– Capital expenditure for
installation of onsite
renewables.
– Current and planned initiatives
to reduce energy
consumption.
– Increased use of onsite
renewables to reduce reliance
on external supply.
– Opex
– Capex
– % of renewable
energy
Risk rating
Low
Medium
High
Severe
56Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
TCFD CONTINUED
TCFD category Opportunity description Area Potential impact on the business Strategy / actions to exploit opportunity
Metrics used to
track opps
Technology and Industry Evolution
Products &
Services, Markets
Innovation of our core product
portfolio can lead to increased content
per vehicle and/or market share gains
if we develop products that are
optimised for EVs and less carbon
intensive to manufacture. Secondly,
EVs offer growth channels through
new products and components that
are not present on ICE vehicles.
Own
operations
– Potential revenue and profit growth from core
portfolio.
– Potential revenue and profit growth from new
product segments.
– Overall positive effect on revenue, revenue
growthand profit margins.
– Identify the opportunity areas through close customer
relationships and strategic portfolio management.
– Invest in high potential products and divert R&D
resources to the opportunities that can add value.
– We protect our innovations through a carefully managed
portfolio of patents.
– We consider inorganic growth opportunities when
appropriate, such as strategic partnerships and M&A.
– Revenue
– Revenue
growth
– Profit margin
Climate performance
Markets The businesses are well prepared to
meet client expectations relating to
climate performance. A focus on
de-carbonising the business would
successfully enhance its reputation
amongst clients and other stakeholders
in the future, especially if it achieves its
targets and goals before competitors.
Own
operations
– Improving our sustainability performance could
make us more attractive to investors.
– Customer expectations on sustainability
performance within their supply chain are increasing
exponentially. By providing evidence of its strong
sustainability credentials, Dowlais can strengthen ties
with existing and new customers ultimately growing
revenue and market share.
– SBTi targets submitted (Scope 1-3 reductions).
– Net Zero Transition plan to be developed.
– Investment in LCA.
– Promotion of success in this area with our customers.
– Scope 1-3
emissions
– Order book
Enhanced sustainability reporting
Markets As a global business, we operate
against a range of local and regional
reporting requirements.By meeting
investor and government
expectations, we have the opportunity
to demonstrating transparency to all
stakeholders.
Own
operations
– Increased shareholder confidence could lead to
greater investment opportunities.
– Winning new business with customers, as they
haveconfidence in our ambitions, resilience and
ability to execute.
– Continuous improvement in sustainability reporting
toalign with external frameworks and rating agencies.
– Scope 1-3
emissions
– ESG rating
agency scores
– Cost of capital
Supporting the energy transition
Resource
efficiency, Energy
Source, Resilience
Opportunities to reduce operating
costs through improving production
efficiency, transitioning to green
energy and improving business
resilience through generation of
ownrenewable energy, as a result
ofmeeting climate-related targets.
Own
operations
– Reduced production costs by improving operational
efficiency, material efficiency and recyclability of
products.
– Reduced operating costs longer term through
transition to green energy sources.
– Reduced impact of carbon pricing in own operations
and reduced energy bills through generation of own
renewable energy on site.
– Energy efficiency and renewable energy targets built
into our operational excellence principles.
– Capital allocated to support operational efficiency
andrenewable energy goals.
– Governance to monitor and support initiatives.
– Employee awareness and engagement.
– Scope 1-3
emissions
– Energy
consumption
Key transition opportunities
57Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
TCFD CONTINUED
Metrics and targets
Climate-related metrics
Although the Group was only formed in April 2023, our businesses already have established
data capture and management processes to support the monitoring of our environmental
performance, including energy consumption and carbon emissions. We are working on
further enhancing these systems to be ready for future reporting requirements and help
set targets and enrich our strategies.
We track various metrics against our identified risks and opportunities as shown in tables
inpages 55 to 57.
We publicly report our Scope 1, 2 and 3 emissions. Calculations were made in accordance
with the requirements of the Greenhouse Gas Protocol Corporate Accounting and
Reporting Standard, which covers the accounting and reporting of seven greenhouse
gases. An operational control approach was adopted, with all material emissions
sources reported.
Climate-related targets
Science-based emissions targets have been adopted as the most relevant to our climate-
related risk, particularly relating to carbon pricing risks, and in order to directly manage
ourcontribution to global climate change.
Both our major business units’ targets are aligned with the SBTi. This ensures we are aligned
with the UK’s target to achieve Net Zero by 2050 as well as the best scientific practice.
Full details of business unit science-based targets are set out on page 45.
In line with the SBTi, our targets do not include the use of carbon credits. Whilst no such
action is planned currently, we may consider using offsets as an option for additional
emission reductions beyond the science-based targets.
Progress against these targets will be monitored through our annual carbon footprint
results, which will be collated by the Sustainability Committee and presented to the Board
annually through the governance structures described in page 50.
58Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
STREAMLINED ENERGY AND CARBON REPORTING
Total energy consumption and GHG emissions for the period 1 January 2023 to 31 December 2023
Energy consumption (MWh)
UK
2023
Global (excl. UK)
2023
Total
2023
UK
2022
Global (excl. UK)
2022
Total
2022 Change (2023/22)
Total operational energy consumption 647 2,066,179 2,066,826 10,155 2,131,457 2,141,612 -3.5%
Total renewable energy consumption – 144,697 144,697 – 119,875 119,875 20.7%
Share of renewable electricity in total electricity mix 0% 10% 10% 0% 8% 8% 22.0%
Energy consumption intensity 425 466 -8.8%
Fuels
Total fuels consumption 219 656,313 656,532 4,322 712,007 716,329 -8.3%
Non-renewable fuels consumption 219 656,313 656,532 4,322 712,007 716,329 -8.3%
Renewable fuels consumption – – – – – – 0.0%
Electricity
Total electricity consumption 428 1,408,344 1,408,772 5,833 1,418,283 1,424,116 -1.1%
Renewable electricity consumption (self-generated, purchased or acquired) – 144,697 144,697 – 119,875 119,875 20.7%
Non-renewable electricity consumption (purchased or acquired) 428 1,263,647 1,264,075 5,833 1,298,409 1,304,242 -3.1%
Steam
Steam consumption (purchased or acquired) – 1,522 1,522 – 1,168 1,168 30.4%
Operational emissions (tCO
2
e)
1
Scope 1: Direct GHG emissions
2
41 123,060 123,101 791 138,207 138,998 -11.4%
Scope 2: Indirect GHG emissions (Location-based)
3
89 531,769 531,858 1,208 530,775 531,983 0.0%
• Total purchased electricity 89 531,496 531,585 1,208 530,575 531,783 0.0%
• Steam (purchased or acquired) – 273 273 – 199 199 37.2%
Scope 2: Indirect GHG emissions (Market-based) 88 559,572 559,660 1,208 589,429 590,637 -5.2%
• Total purchased electricity 88 559,299 559,387 1,208 589,230 590,438 -5.3%
• Steam (purchased or acquired) – 273 273 – 199 199 37.2%
Total Scope 1 and Scope 2 emissions (Location-based) 130 654,829 654,959 1,999 668,982 670,981 -2.4%
Total Scope 1 and Scope 2 emissions (Market-based) 129 682,632 682,761 1,999 727,636 729,635 -6.4%
Emissions intensity
4
(Market-based) 140 159 -11.6%
Total Scope 3 emissions
5
14,230,329 23,055,646 -38.3%
Total emissions
Total Scope 1, Scope 2 (Location-based) and Scope 3 emission 14,885,288 23,726,627 -37.3%
Total Scope 1, Scope 2 (Market-based) and Scope 3 emissions 14,913,090 23,785,281 -37.3%
1. CO
2
e – carbon dioxide equivalent, this figure includes GHGs in addition to carbon dioxide.
2. Scope 1 figures include emissions from fuel used on premises, transport emissions from owned or controlled vehicles, losses of refrigerant, and process and fugitive emission.
3. Scope 2 figures include emissions from electricity and heat purchased.
4. Company’s chosen intensity measurement: emissions reported above normalised tonnes CO
2
e per £m revenue. The data has been standardised from the source units in which it was initially collected. The revenue figures used
tocalculate the intensity ratio include continuing operations under operational control only.
5. Please see data annex for the full breakdown of Scope 3 upstream emissions.
STREAMLINED ENERGY AND CARBON REPORTING
59Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Methodology
This section has been prepared for the reporting period of 1 January 2023 to 31 December
2023. We report on all of the material emission sources in line with an operational control
approach method, as required in Part 7 under the Companies Act 2006 (Strategic Report
and Directors’ Reports) Regulations 2013 and under the UK’s Streamlined Energy and
Carbon Reporting (“SECR”) requirements. These emission sources fall within our
Consolidated Financial Statements. We do not have responsibility for any emission sources
that are not included in our Consolidated Financial Statements.
Our energy consumption and emissions data is reported in accordance with the reporting
requirements of the Greenhouse Gas Protocol (GHG Protocol), Revised Edition and the
Environmental Reporting Guidelines, including the SECR guidance dated March 2019.
TheGHG Protocol standard covers the accounting and reporting of seven Greenhouse
gases covered by the Kyoto Protocol. The statement of alignment with the GHG Protocol
and statement on SECR disclosures can be found in our Annual and Sustainability Reports.
We currently disclose Scopes 1 and 2 and select Scope 3 GHG emissions, representing a
breakdown of the Group’s emissions by type and intensity measurement.
Emission factors from the UK Government’s GHG Conversion Factors for Company
Reporting 2023 (the Department for Environment, Food and Rural Affairs (“DEFRA”) factors)
have been used to calculated Scope 1 emissions. Scope 2 emissions associated with the
GHG Protocol “Location-Based” method have been calculated using International Energy
Agency (“IEA”) country-specific emission factors. Scope 2 emissions associated with the
GHG Protocol “Market-Based” method have been calculated using residual mix emission
factors from Association of Issuing Bodies 2022 (AIB) where applicable. In the absence of
residual mix emission factor availability, International Energy Agency (“IEA”) country specific
emissions factors have been used in line with the GHG Protocol guidance. If sites generate
their own renewable electricity or purchase electricity backed by contractual instruments
(such as Renewable Energy Guarantee Origin), this has been taken into consideration within
the calculations.
For comparability of environmental performance, we have disclosed emissions and energy
data for GKN Automotive and GKN Powder Metallurgy business units for FY2022.
Energy efficiency action
A number of approaches were in place during the year to lower our energy consumption, including:
– Multi stacking to achieve maximum load capacity in our furnaces.
– Shift pattern adjustment to fully utilise equipment and shutdown underutilised equipment.
– Extensive awareness training on energy management.
– Peak load management.
– Installation of renewable energy sources on site.
– Slag door improvements for energy reduction.
– LED lighting installation.
– Recycling of heat waste wherever possible.
– Efficient belt loading of products.
– Double layer sintering wherever possible.
– Shut off furnaces and implementation of weekend energy saving mode.
– Use of automation loading units for direct loading.
Annex
Scope 1 & 2 emissions
Renewable electricity consumption increased in 2023 due to the procurement of renewable
energy certificates to cover 100% of electricity consumption at our Oleśnica, Poland, site.
Meanwhile, total electricity and fuel consumption decreased, in part due to energy
efficiency actions taken as detailed above, leading to an overall decrease in non-renewable
energy consumption of 3.8% and a fall in our scope 1 and scope 2 market-based emissions.
Scope 3 emissions
During 2023, we carried out a full assessment of our value chain emissions. Our evaluation
confirmed that our value chain emissions are significantly greater than our operational
carbon footprint, with our Scope 3 emissions accounting for 95% of our 2023 total emissions
(2022: 97%). All applicable Scope 3 categories were calculated for inclusion in our carbon
footprint. Category 11 (Use of Sold Products) is the largest category of Scope 3 emissions.
However, some of these emissions – namely those associated with GKN Powder Metallurgy
– are indirect and are outside of the “minimum boundary”, and as such have been excluded
from our Scope 3 footprint.
Three categories contributed a combined 96% of Scope 3 emissions in 2023 (2022: 94%).
Identifying our carbon hotspots has enabled us to develop a decarbonisation roadmap and
for our subsidiaries GKN Automotive and GKN Powder Metallurgy to submit Scope 3
targets aligned to the SBTi criteria for validation. The three categories are: for our
businesses GKN Automotive and GKN Powder Metallurgy to submit Scope 3 targets
aligned to the SBTi criteria for validation. The Three categories are:
– Use of sold products (85% of scope 3) – only relevant to GKN Automotive and calculated
using sales records with volume of product sold, type of vehicle and lifetime mileage
data. Emissions were approximated using the proportionate weight of the product
byweight ofvehicle. At present, calculation of use of sold products is estimated based
on several assumptions, however, Dowlais will strive to improve the accuracy of its
emissions data overtime and subject to data availability. Emissions associated with
Useof sold products decreased considerably year-on-year, principally due to greater
granularity of data and improvements in methodology.
STREAMLINED ENERGY AND CARBON REPORTING CONTINUED
60Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
– Purchased goods and services (7% of scope 3) – similarly to use of sold products,
purchased goods and services emissions decreased substantially year-on-year for GKN
Automotive for which a spend-based methodology was used. The change in emissions
wasdue to a change in methodology and emissions factors. GKN Powder Metallurgy’s
emissions were calculated using a mix of average data and purchase data by spend of
rawmaterials, components and services. GKN Powder Metallurgy’s emissions associated
with purchased powdered metal were approximated using emissions figures associated
with its own powdered metal production which applies meaningfully similar processes
tothose of its competitors. The remaining purchased goods and services emissions were
estimated using EEIO models; as more granular data becomes available we will refine
thismethodology and look to move towards a greater coverage using an “average data
based” approach.
Scope 3 categories
Group Dowlais HQ GKN Auto GKN PM
tCO
2
e 2023 2022 2023 2022 2023 2022 2023 2022
Category 1: Purchased goods and services 1,025,380 2,040,189 803 – 885,623 1,901,991 138,954 138,198
Category 2: Capital goods 12,171 14,680 110 – – n/a 12,061 14,680
Category 3: Fuel-and-energy-related activity 125,554 127,564 – – 66,705 68,048 58,849 59,516
Category 4: Upstream logistics 129,970 128,902 – – 112,703 104,031 17,267 24,871
Category 5: Waste generated in operations 7,162 11,714 – – 4,262 8,691 2,900 3,023
Category 6: Business travel 10,812 5,794 128 – 8,178 3,818 2,506 1,976
Category 7: Employee commuting 29,302 27,996 15 – 22,415 21,056 6,872 6,940
Category 8: Upstream leased assets 26,973 27,657 – – 26,973 27,657 – –
Category 9: Downstream logistics 243,719 219,897 – – 232,366 206,342 11,353 13,555
Category 10: Processing of sold products 428,473 502,442 – – 154,183 206,442 274,290 296,000
Category 11: Use of sold products 12,164,245 19,050,270 – – 12,164,245 19,050,270 – –
Category 12: End of life treatment of sold products 9,472 15,050 – – 9,472 15,050 – –
Category 13: Downstream leased assets – – – – – – – –
Category 14: Franchises – – – – – – – –
Category 15: Investments 17,095 883,492 – – 16,900 883,117
195 375
Scope 3 total 14,230,328 23,055,647 1,056 – 13,704,025 22,496,513 525,247 559,134
– Processing of sold products (3% of scope 3) – calculated using an average data approach.
Processing of sold products is GKN Powder Metallurgy’s most material category, due
tothe processing of its sold powdered metal. Emissions were approximated using
emissions associated with its own sintering and processing of powdered metals
operations which are meaningfully similar to those of its competitors. GKN Automotive
used peer reviewed scientific literature to estimate an emissions intensity metric which
was applied to weight of sold products. This category also decreased year-on-year due
to efficiencies in production processes and better granularity of data.
STREAMLINED ENERGY AND CARBON REPORTING CONTINUED
61Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
ENGINEERING TRANSFORMATION: POWDER FOR LFP BATTERIES
Powder for LFP batteries
All batteries contain a cathode and an anode. The cathode is
theelectrode which absorbs electrons during discharge, and LFP
batteries utilise lithium iron phosphate as the cathode material.
LFP batteries provide enhanced safety, lower cost and increased
cycle life when compared to other types of lithium-ion batteries.
For these reasons, LFP batteries are becoming increasingly
popular for use in electric vehicles and renewable energy
storagesystems.
High-purity iron is an essential raw material for LFP battery production. It is used to create
the iron phosphate that is required to manufacture the cathode material and iron powder
is increasingly viewed as an effective source of the iron needed for this process. GKN
Powder Metallurgy provide high-purity iron powder for iron phosphate production,
enabling the manufacture of LFP batteries using more environmentally friendly processes.
Our iron powder is produced using our proven high-volume powder production processes,
resulting in consistent quality and performance tailored to the needs of our customers.
Thepowder is manufactured from scrap metal, resulting in a fully recycled product, helping
to reduce the vehicle’s overall environmental impact. Whilst we are still in the early stages
of growing our customer base, we are supplying powder for commercial use and actively
engaging with battery manufacturers and their suppliers on the benefits our powder can
bring them.
We believe that LFP will form an important segment of the battery technologies
adoptedby the automotive industry, with global demand set to increase significantly as
the industry shifts to EVs. In addition, LFP batteries are also used extensively outside the
Automotive sector, and we expect this technology to become more widely used as a result
of the global transition to renewable energy. Our iron powder can also be used in other
emerging battery technologies, such as lithium manganese iron phosphate (LMFP), and our
expertise in powder manufacture and commitment to continuous innovation make us well
positioned to play an important role in the growing use ofthis technology.
ENGINEERING TRANSFORMATION
2023 Annual Report 62Dowlais Group plc
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
PEOPLE AND SOCIETY
Making a positive impact on our people and society
Dowlais employs approximately 30,000 people around the world, we rely on over 2,200
suppliers and we supply over 95% of global OEMs. As a global business, we recognise the
impact we have on people both inside and beyond our organisation, whether that is in
thesafety of the products we sell, the impact on the communities where we have our
operations, or the people working in our business and supply chains. Through everything
we do, we have a real opportunity to make a positive contribution to wider society.
Health, safety and wellbeing
The health and safety of our people is our number one priority. We are committed to
protecting our employees from injury and harm, focusing on continuous improvement
toprovide a safe and healthy workplace for all, and maintaining an Accident Frequency
Rate ofless than 0.1 across the Group, which we achieved in 2023.
We do this by having a culture of focusing on health and safety and maintaining the highest
standards of operational health and safety throughout our operations. In accordance with
our Health and Safety Policy, our businesses are required to have robust health and safety
policies, processes, procedures and standards in place, with 100% of our manufacturing
sites being certified to ISO 45001, the internationally recognised standard for safety
management systems.
In line with our business model, each business is responsible for maintaining health and
safety excellence across its operations. The Board is presented with a quarterly scorecard
showing a range of leading and lagging indicators, including: percentage of people
trained, near miss reporting rate and near miss action closure rate, Accident Frequency
Rate, Accident Severity Rate, number of major and minor lost-time accidents.
Behavioural based safety is a key component of our approach across the business.
Thisyearmultiple health and safety workshops and training sessions were delivered across
our operations, with GKN Automotive sites in India, Thailand and the USA being recognised
bylocal bodies and industry peers for their safety performance. In GKN Powder Metallurgy,
health and safety focused weeks took place across the year, involving all employees,
onallshifts, in all locations, which included a “Do More” risk identification and
countermeasure activity.
In addition to safety, the wellbeing of our people is also vitally important. In 2023 GKN
Automotive launched a new wellbeing framework to develop its employees’ awareness
through monthly sessions on topics such as nutrition and exercise, financial wellbeing
andmental health.
<0.1
Group Accident
Frequency Rate
74%
of workforce received
training in 2023
100%
of sites certified to
ISO9001 or IATF 16949
“The success of any organisation depends
on having the right people, in the right roles
and creating the right environment for them
to succeed.”
Liam Butterworth, CEO
PEOPLE AND SOCIETY
63Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
PEOPLE AND SOCIETY CONTINUED
We think it is important that all employees receive regular feedback on their performance,
regardless of their role. As a Group, our target is for all employees to have an annual
performance conversation. In 2023, over 98% of eligible employees received an annual
performance review, and over 2024 we will ensure our business units maintain and improve
to meet the group target.
Engagement
Maintaining high levels of employee engagement is vital to business performance.
Engaged employees perform better, and a positive, equitable employee experience
supports improved retention, and employee wellbeing
We engage in a number of activities to monitor employee engagement. GKN Powder
Metallurgy’s annual My Voice survey was carried out in November, with action plans to
bedefined for all sites for 2024. Actions completed in 2023, based on feedback from the
previous survey, included new all-hand meetings and newsletters from local management
teams. In 2023, GKN Automotive’s focus was on implementing actions from its previous
engagement survey. GKN Automotive’s next engagement survey is scheduled for 2024
and will measure the effectiveness of these and other actions from the previous survey,
inaddition to listening to other ways the business can improve the employee experiences.
Across the Group, we also engage with our workforce through a range of communication
methods and forums, including business unit and functional global “town-hall” meetings,
local face-to-face meetings, local or multinational engagement forums, such as our
European Works Councils, and “open door” meetings with senior managers, which are open
to all employees to attend.
Fair working practices
As a company, we seek to ensure our employees are treated fairly and equitably. We aim
tocomply with all legal obligations relating to our workforce, including those relating to
pay, working hours and practices, rest breaks, and family leave. Many of our employees
arerepresented by trade unions, works councils or other employee representative bodies,
and we respect collective negotiation and seek to form positive working relationships with
these organisations, working in partnership with them.
Talent
Attracting and retaining talent
Our people are one of our key competitive advantages and attracting and retaining the
right talent is critical to the delivery of our strategy. Our workforce comprises a wide
variety of roles, including those that work on our manufacturing and assembly lines and in
supporting operational roles such as logistics, maintenance and supply chain; engineering
and other technical roles in our commercial, procurement and programme management
teams; and those that work in supporting functions such as finance, human resources and
information technology. Whatever their role, everyone who works for Dowlais and its
businesses has an important part to play in delivering our strategy and achieving our
purpose, and it is critical that we have the right people in these roles and give them the
tools they need to succeed
Training and development
As a Group, we believe in empowering our people to reach their full potential, providing
opportunities to develop, train, and expand their responsibilities.
We offer a wide range of opportunities to promote life-long learning, from eLearning
courses to monthly gatherings with site learning leads. For example, this year GKN
Automotive launched a new Learning Academy portal to promote self-learning and
improve visibility of all available learning content, and GKN Powder Metallurgy introduced
a new learning management system across its business, to help employees build their key
competencies.
In addition, leadership training is an important requirement for development of our
management roles. GKN Automotive’s Global Leader Programme is focused on sharing
tools to accelerate transformation, increasing collaboration and developing communication
skills. It was completed by 24 senior managers in 2023, and a pilot programme for new
Senior Leader Capsules also took place ahead of a full roll out in 2024.
Supporting the next generation of talent is also important, and as a Group we are placing
an increased focus on early-years training and development. GKN Automotive currently
has 414 apprentices and interns enrolled in local early careers programmes across the
business and in 2024, it will look to scale up its early career roadmap. In GKN Powder
Metallurgy, early careers talent is recruited through apprentice and/or graduate
programmes in Germany, the US, China and India.
64Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
PEOPLE AND SOCIETY CONTINUED
Diversity, equity and inclusion
We recognise that diversity is an asset in our business and we want to provide an inclusive
environment which allows our people to perform at their best. At the same time, we
recognise that we operate in a sector in which there is much more to be done to foster
diversity, in particular gender diversity, which is a specific focus area.
At a Group level, we have prioritised setting the right tone from the top and are proud that
our Board meets the diversity targets set by the FTSE Woman Leaders Review, the Parker
Review and the UK Financial Conduct Authority.
Across our operations, diversity, equity and inclusion principles are part of our core people
activities and processes, including our hiring practices, training and development
programmes and policies that support work-life balance and respect for individual needs.
We strive to attract talent from a broad range of backgrounds and create an environment
where everyone feels valued, respected and empowered.
Our commitment to encouraging diversity and ensuring all employees are treated fairly
and with dignity and respect is detailed in our Diversity, Equity and Inclusion Policy, which
was adopted by the Board this year. The policy sets out our core principles and ambitions,
but there is more work to do if we are to achieve them.
Within our businesses, there are specific targets and initiatives to promote diversity.
GKNAutomotive has set a target to achieve 33% female membership of the Executive
Committee by 2030 and in 2024 it plans to roll out cultural awareness training for leaders,
diversity mandates across all hiring and increase local diversity, equity and inclusion
activities and celebrations. The business has also developed a new global parental leave
policy to ensure a more competitive employee offering. GKN Powder Metallurgy launched
its first diversity, equity, inclusion and belonging vision and principles in the year and will
further develop its programmes in 2024. The roll out of unconscious bias training in the
United States, as part of the on-boarding process, has continued, alongside the
development of KPI dashboards to monitor progress. The business has also focused
ontheimportance of flexibility and hybrid working arrangements, where practical,
andtheprovision of childcare in certain facilities .
65Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
PEOPLE AND SOCIETY CONTINUED
Ethnic background
4
Number
ofboard
members
Percentage ofthe
board
Number of
senior positions
on board
(CEO,CFO, SID
and Chair)
Number in
executive
management
Percentage of
executive
management
White British or other
White (including
minority-white groups)
9 90% 4 5 100
Mixed/Multiple
EthnicGroups
0 0% 0 0
Asian/Asian British 1 10% 0 0 0
Other ethnic groups
including Arab
0 0% 0 0 0
Not specified/prefer
nottosay
0 0% 0 0 0
Notes and definitions
1. Reflecting the requirements of section 414C of the Companies Act 2006, the total employees of the Group
only includes employees of the undertakings included in the consolidation, and not its associated companies
not included in the consolidation. For this reason, the number of employees referenced here is lower than
the approximately 30,000 employees referred to elsewhere in this report, as this larger number includes
employees of the Group’s non-consolidated joint ventures.
2. “Executive Committee and direct reports” comprises the Executive Directors, other Executive Committee
members (including the General Counsel and Company Secretary) and their direct reports (being those
individuals for whom they have direct line management responsibility, excluding administrative and support
roles).
3. “Senior managers” comprises the Executive Committee, Business Unit CEOs and all directors of the Group’s
subsidiary undertakings. This reflects the requirements of section 414C of the Companies Act 2006. Directors
of the Group’s subsidiary undertakings include employees of varying levels of seniority and are not
necessarily representative of the Group’s senior management.
4. “Executive Management” for these purposes comprises the Executive Committee (being the most senior
executive body below the Board). This reflects the requirements of Listing Rule 9.8.6R(10). For the purposes
of collecting the data required to be disclosed by Listing Rule 9.8.6R(10), Board members were asked to
provide data relating to their gender and ethnicity as part of a Board skills matrix exercise. Other employees
were asked to provide data relating to their gender and ethnicity on a voluntary basis, in which the
individual self-reports their ethnicity and gender identity. In each case the data is aligned with the
definitions set out in the Listing Rules.
This page contains certain diversity-related data required to be disclosed in accordance
with Dowlais’ legal, regulatory and disclosure obligations.
Group employee gender diversity
Male Female % Male % Female
Employees of the Group
1
20,583 4,052 83.6% 16.4%
Senior leadership gender diversity
Details of gender diversity within Dowlais’ executive management are set out below,
including data required to be disclosed in accordance with section 414C of the Companies
Act 2006, in each case as at 31 December 2023.
Male Female % Men % Female
Directors of the Company 6 4 60% 40%
Executive Committee 4 1 80% 20%
Executive Committee and direct reports
2
14 7 66.7% 33.3%
Senior managers
3
126 31 80.25% 19.75%
Gender and ethnicity disclosure requirements
In accordance with Listing Rule 9.8.6R(10), the tables below set out data relating to gender
identity and ethnic background within the Group’s leadership positions, in each case as at
31 December 2023.
Gender identity
Number of board
members
Percentage ofthe
board
Number of senior
positions on
board (CEO,CFO,
SID andChair)
Number in
executive
management
Percentage of
executive
management
Men 6 60% 3 4 80%
Women 4 40% 1 1 20%
Not specified/
prefer nottosay
0 0% 0 0 0%
GROUP DIVERSITY DATA
2023 Annual Report 66Dowlais Group plc
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
PEOPLE AND SOCIETY CONTINUED
Community
Beyond the positive impact of our products and operations, we seek to contribute
totackling environmental and societal issues across the communities we work in.
Our origins go back to 1759 when an ironworks was established in Dowlais village in South
Wales. In recognition of this, and the fact that the Group has adopted the village’s name
asits own, we have committed to provide funding for the refurbishment of Dowlais Rugby
Football Club’s changing facilities and club house. This will result in new male and female
changing rooms, physiotherapy room and new catering/dining facilities, all of which the
local community will be able to use, including the local mountain rescue team.
We are also committed to developing the STEM talent of the next generation as part
ofour community activity and, over 2024, will develop a framework to support this activity
at a Group level.
We aim to support our communities through direct financial and equipment donations,
andencouraging volunteering support. Our businesses support many international, national
and local charities and community organisations, and many of our sites have longstanding
relationships with charitable and community organisations based locally to their operations.
During 2023, charitable cash donations by our businesses totalled more than £710,000.
In 2023, GKN Automotive launched a new charitable giving framework and network of
localcommunity champions. The framework lays out roles and responsibilities, budgets,
processes and the causes the business is focused on to enable site-level autonomy that
enables all of our locations to contribute to charities that make a direct impact on local
communities. GKN Automotive has also set a target for all its sites to have at least one
charitable partnership that aligns with its purpose by 2025, and is developing a global
philanthropic STEM programme, to be launched in 2024.
A key focus of GKN Automotive’s community work is to empower, educate and develop
pathways to increase the number of girls pursuing STEM subjects and careers. The business
has developed a global philanthropic STEM programme to be launched in 2024. Focused
on Mexico, Poland and India, the programme will aim to support future STEM talent while
increasing its community outreach work in these countries.
GKN Powder Metallurgy sites and employees supported a wide range of charitable causes
during 2023. Alongside corporate sponsorship of events and organisations local to all sites,
employee activities included food bank donations, volunteer support for flood and tornado
victims, team litter picks and tree planting
See pages 68 and 69 for examples of some of the many community and charitable initiatives
theGroup supported in 2023.
Product safety and quality
All over the world hundreds of millions of people rely on our products to keep them
safeevery day. A rigorous focus on product safety and quality is non-negotiable in the
automotive industry and is part of our culture and embedded in all aspects of our design
and manufacturing processes.
Our Product Safety Policy mandates that all our businesses follow relevant industry
standards relating to product safety. Crucial to our approach is ensuring that all our
manufacturing sites are covered by Quality Management Systems and we are proud that
100% of the Group’s operations are certified to either ISO 9001 or IATF 16949 standards.
Manufacturing sites are audited for every year against the standard and re-certified every
three years. In 2023 we had no product-safety related recalls.
67Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
PEOPLE AND SOCIETY CONTINUED
SUPPORTING OUR COMMUNITIES
Getting back to
our roots
Our origins go back to 1759 when an
ironworks was established in Dowlais village
in South Wales. In recognition of this,
andthe fact that the Group has adopted
the village’s name as its own, we have
committed to provide funding for the
refurbishment of Dowlais Rugby Football
Club’s changing facilities and club house.
This will result in new male and female
changing rooms, physiotherapy room and
new catering/dining facilities, all of which
the local community will be able to use,
including the local mountain rescue team.
Sponsoring female
empowerment
festival
In2023, Thrive – an association
for sustainable female
empowerment and personal
growth – held its first festival
inSouth Tyrol, Italy, and GKN
Hydrogen was a sponsor.
Thefestival saw over 800
attendees enjoy talks and panels
and engage in workshops and
coaching sessions.
Snehalaya Rehabilitation
Project
GKN Powder Metallurgy’s operations India have been
supporting the Snehalaya Rehabilitation Project for
overa decade. Snehalaya provide services for families
affected by poverty, HIV and AIDS, by providing a
rangeof support including food, shelter, education
andvocational training. GKN Powder Metallurgy has
provided extensive support over many years, including
the construction of residential units, dormitories,
vocational training halls, and water tanks. The
infrastructure provided by GKN Powder Metallurgy
overmany years has allowed Snehalaya to significantly
enhance its capacity to support families in need, helping
them to provide a safe and nurturing environment
inwhich they can access these essential services.
The opening of a building constructed by the Snehalaya
Rehabilitation Project with the support of GKN Powder
Metallurgy in March 2023.
68Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
SUPPORTING OUR COMMUNITIES
“Love the earth” recycling
initiative
At GKN Automotive’s Rayong plant in Thailand, employees
participate in litter picking throughout the year. They collect
plastic bottles from the local area, or save consumed ones.
After a year, they recycle the accumulated plastic
for community projects, often chosen through
employee voting.
Since 2020, approximately 20,000 plastic bottles had been
collected by employees. A group of employees from the
Rayong team delivered 20,000 plastic bottles tothe Temple
at Wat Jak Daeng, Prapadaend, Samutprakran. At the
Temple, the team were shown the process for recycling
plastic bottles so that they could be used as fabric. With the
amount that had been recycled, it was possible tomake
1,500 sets of robes for the monks at the temple.
Together for Turkey
After the earthquake hit Turkey and
Syriain February 2023, GKN Automotive
collated materials such as food, toiletries,
and other necessities directly through
acentral collection point at their site
inOleśnica, Poland. These goods were
transported to the affected areas,
usingour freight management expertise.
GKN Automotive also donated £125,000 to
the Disasters Emergency Committee
appeal to help those affected.
Building a dream
GKN Powder Metallurgy India supports the Mamata
Bal Sadan orphanage, which has built a "Dream
Home” for 140 orphaned girls, winning the
Greentech CSR Award 2023 for rural development.
Keeping the traditions alive
GKN Automotive Mexico employees volunteer and
donate toys, personal hygiene items, clothing, nappies
etc. to keep the 'Three Kings Day' tradition alive. They
volunteer at children's homes, and old people's homes.
GKN Automotive employees also bring Christmas
presents to old people's homes in December.
PEOPLE AND SOCIETY CONTINUED
69Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Responsible sourcing and human rights
Maintaining high sourcing standards is critical to a range of our most material issues.
Wearecommitted to respecting human rights through our processes, behaviours,
operations and conduct, including in our supply chain. We recognise all human rights set
out in the United Nations Universal Declaration of Human Rights, the ten principles of the
United Nations Global Compact and the International Labour Organization’s Declaration
onFundamental Principles and Rights at Work.
We engage with our suppliers on the sustainability of their operations and their own supply
chains. We expect them to follow our own high standards of environmental, social and ethical
responsibility, as detailed in our Responsible Sourcing Policy and our Conflict Minerals
Policy. In 2024, we intend to carry out a Group-wide assessment of our supply chain
andoperations to formally identify our salient human rights risks under the UN Guiding
Principles on Business and Human Rights. This work will then underpin further development
of our existing programmes.
In our businesses, in 2023 GKN Automotive worked to better understand the social
andenvironmental practices of its suppliers. Alongside its established policies and annual
supplier conference, it introduced a new supplier self-assessment tool and invited almost
200 of its key suppliers to participate. By year end, 39% of strategic suppliers had shared
their sustainability roadmap and targets. Also this year, GKN Powder Metallurgy began
discussions to introduce more governance to ensure it targets reliable and ethical sources
of materials, from iron scrap to rare earth materials.
Ethics, compliance and integrity
At Dowlais, one of our core values is Accountability. Being accountable means being
responsible for our actions, but it also means acting responsibly. Maintaining the highest
standards of business ethics, meeting our legal obligations and conducting ourselves with
integrity, are all core to what we do at Dowlais. We have a strong track record in this regard,
and we intend to maintain it. We expect our people to do the right thing at all times,
whether that is in how they perform their role, how they interact with each other in the
workplace, and how they represent Dowlais as a Group. We believe in doing the right
things in the right way, acting with integrity and respect in all our business dealings.
Our Code
In 2023, the Board adopted Dowlais’ first employee code of conduct, Our Code, which
setsout the standards of behaviour we expect of all our employees. A copy of Our Code
isavailable at dowlais.com.
Legal Compliance
As Dowlais businesses operate globally, we are subject to numerous laws and regulations
which apply in the countries in which we are based or operate. It is Dowlais policy to always
comply with the laws and regulations to which we are subject, including those relating
tobribery and corruption, competition, and data privacy. But complying with the law is not
enough. We expect our people to go further, to always behave with the highest ethical
standards and conduct themselves in a way which reflects Dowlais’ values. This means being
honest and transparent, conducting ourselves professionally, acting with integrity, being
trustworthy and keeping our promises, and when we make mistakes, being open and not
covering them up.
Speaking Up – Our approach to Whistleblowing
We also recognise that however hard we try to do the right thing, sometimes things do
gowrong. We therefore encourage a culture of Speaking Up in which we ask our people
tobring issues of concern to our attention, and are clear that these concerns will be
listened to, investigated and dealt with properly and sensitively. Our Whistleblowing Policy
sets out our policy in this area, and in order to encourage our people to Speak Up, we
maintain a confidential and anonymous Employee Disclosure Hotline and Portal which can
be used to report issues of concern. This is open 24 hours a day, seven days a week, and is
hosted by an external, independent company. This service is promoted at all sites, and calls
are monitored by our Legal and HR functions and regularly by our Executive Committee.
In2023, we received 87 disclosures through our Whistleblowing procedures, all of which
were thoroughly investigated. No material, ethical or compliance violations were identified.
PEOPLE AND SOCIETY CONTINUED
Setting out our high standards
of responsibility
Our Code:
www.dowlais.com/ourcode
Supplier Code of Conduct:
dowlais.com/suppliercodeofconduct
70Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
RISK MANAGEMENT
RISK MANAGEMENT
We understand the risks and uncertainties we face and take
aproactive approach to risk management. We have adopted
aframework that provides the Board and management with
acomprehensive view of the Group’s risk profile, enabling risks
tobe properly identified, assessed and treated, whether
bymitigation, elimination or other management action.
Risk management framework
Continual assessment and management of risk is embedded in our businesses, which have
been operating robust risk management frameworks for many years before the creation
ofDowlais. Since our listing in April 2023, we have built on this solid foundation and
implemented a risk management framework that reflects our strategy, values and
operating model. This risk management framework, as set out in our Risk Policy, ensures
accountability for the identification, assessment, monitoring and management of risks.
Risk appetite
The Board has considered its risk appetite for each of the Group’s principal risks, including
whether those principal risks currently reflect that risk appetite. When considering risk
appetite, the Board uses the following terminology.
Averse
– A strong unwillingness to accept risk, irrespective of the reward.
Cautious
– A reluctance to accept risk, but careful acceptance of certain risk with
appropriate controls.
Moderate
– A willingness to accept a reasonable level of risk.
Open
– A willingness to accept a greater level of risk, reflecting a higher
potential reward.
Hungry
– A willingness to pursue high-risk or unproven options with the potential
for very high rewards.
Details of the risk appetite that the Board has determined for each of the Group’s principal
risks are set out on pages 73 to 76. The Board’s risk appetite review demonstrated that
the Group is currently operating in line with its risk appetite. This review will support
decision-making processes during 2024, and the Board intends to review risk appetite
at least annually.
Board
Overall responsibility
forriskmanagement
Audit Committee
Monitors the Group’s risk
management processes
– Monitors the Group’s risk management processes and controls.
– Monitors, oversees and reviews the effectiveness of the Group’s
internal controls and risk management systems and processes.
– Makes recommendations to the Board on risk appetite,
controls and mitigation, and the Group’s principal and
emerging risks.
Executive
Committee
Develops the Group’s risk
management processes
and manages Group risks
– Develops the Group’s risk management processes and controls.
– Engages in risk identification, analysis, evaluation and
treatment at Group level including emerging risks.
– Oversees and challenges risk mitigation plans and supports
those responsible for risk management within the business units.
Business unit
executive teams
Responsible for risk
management in their
business unit
– Engage in risk identification, analysis, evaluation and
treatment for their business units.
– Develop risk management processes and controls
at business unit level.
Business unit
managers and
controllers
Day-to-day risk management
– Engage in risk identification, analysis, evaluation and treatment
within their area of responsibility.
– Comply with risk mitigation plans and controls.
– Approves the Group’s risk management strategy and policy.
– Determines an acceptable risk appetite for the Group.
– Reviews reports and recommendations from the Executive
Committee and the Audit Committee on risk governance,
processes and controls.
– Determines and assesses the Group’s principal and
emergingrisks.
Risk management governance
Responsibility for risk management across the Group is summarised below.
71Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
RISK MANAGEMENT CONTINUED
Identification and assessment of emerging and principal risks
Our approach to risk identification is a combined ‘top-down’ and ‘bottom-up’ approach,
inwhich our executive management teams identify strategic and emerging risks affecting
our businesses and the Group, but also review risks which are identified, tracked and
reported at a site, plant or sub-function level. These risks are consolidated into a Group Risk
Register in which the Group’s material risks are identified, assessed and monitored.
During the year, the Board undertook a robust assessment of the Group’s principal risks.
This was facilitated by a Group Risk Report, which was prepared with the assistance of
external risk specialists, ensuring a level of independent oversight and challenge. It also
gave the Board visibility of the Group’s principal risks, risk trends and mitigation plans.
The Board has also undertaken a robust assessment of the Group’s emerging risks, which
are separately tracked and monitored by the Executive Committee. The Group views
emerging risks as those that are unlikely to materialise in the short term or cannot be fully
assessed yet, but which may become more material in the future. The Group’s assessment
of emerging risks includes ‘horizon-scanning’ of potential new risk areas, consideration of
emerging risks affecting other industry participants and other industries, and potential
economic, political, environmental, social, legal and technological changes. These risks
typically do not require mitigation activities at this early stage, but are closely monitored
incase mitigation is required in the future.
Principal risks
Following the review described above, the Board considers the following risks to be the
principal risks and uncertainties faced by the Group, including those that might threaten
the Group’s strategy, business model, future performance, solvency, liquidity or reputation.
Number Risk title Risk exposure Risk appetite
1 Information security and cyber
High
Cautious
2 Economic and political
High
Moderate
3 Supply chain
Medium
Cautious
4 Competition and automotive market
Medium
Moderate
5 Operational delivery
Medium
Cautious
6 Product quality and safety
Medium
Averse
7 Technology and industry evolution
Medium
Open
8 Sustainability
Medium
Cautious
9 Legal and ethical
Medium
Averse
10 People
Medium
Cautious
These ten principal risks have been assessed for potential impact and probability, with the
impact assessment affecting the potential financial, reputational, strategic and operational
impact on the Group. This assessment reflects the impact of relevant mitigation and
controls. The Group’s resulting risk profile is summarised below.
5
2
1
4
Impact
Rare Unlikely Possible Likely Almost Certain
ModerateLowVery Low High Very High
Probability
10
7
3
6
9
8
Risk rating
Low
Medium
High
Severe
These principal risks do not comprise an exhaustive list of risks associated with the Group.
While the Board has carried out a robust assessment of these risks, additional risks not
known to the Board or assessed to be less significant may also materialise and result in
anadverse effect on the Group. Risks recorded in the Company’s March 2023 Prospectus
and referenced in its 2023 half-year results have been incorporated into the Group’s risk
management framework and continue to be managed in accordance with that framework.
72Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
RISK MANAGEMENT CONTINUED
Risk description Potential impact Examples of how we mitigate this risk
Risk 1: Information and cyber security
Like many businesses, we face the risk of cyber attacks and other
information security risks. The risk is potentially enhanced by the
scale and complexity of our operations and the ‘just-in-time’ nature
of the automotive supply chain. This risk includes potential loss of
confidentiality, integrity and availability of our information through
malicious or accidental means, the risk of theft, fraud (including
phishing) and ransomware attacks.
– Loss of confidentiality, integrity and availability of information.
– Inability to protect our technology or intellectual property.
– Inability to operate business as usual due to unavailability
ofITorother systems.
– Loss of production resulting from non-availability of
manufacturing and related systems including operational
technology.
– Inability to meet customer and supplier contractual requirements
related to information security, and breach of contract claims
bycustomers and suppliers.
– Adverse publicity and damage to our reputation.
– Dedicated information security functions and teams in all business
units.
– Accredited information security management systems at key
sites, including the Trusted Information Security Assessment
Exchange (TISAX) accreditation.
– Extensive information security policies and procedures, which
areregularly reviewed against best practice.
– Extensive employee training and awareness programmes,
toreduce the risk of phishing and other methods of attack.
– Infrastructure resilience, cyber controls, and vulnerability
management processes.
– Regular technical penetration testing.
Risk appetite:
Cautious
Strategy: Lead, Transform
Values: Agility, Accountability
Risk 2: Economic and political
We operate in numerous countries and are therefore potentially
affected by global economic and political conditions, and events
in those countries. Macroeconomic conditions that impact our
businesses include monetary policy, inflation or deflation, the
availability of capital, levels of business and consumer confidence,
fluctuations in commodity prices and economic growth or
contraction. Other risks include global, regional or national events
such as war, political unrest or instability, or legislative or political
acts of states, governments or supranational organisations such
asthe imposition of tariffs, trade controls or other policy changes.
– Reduction of, or volatility in, demand for passenger vehicles,
which in turn affects demand for our products.
– A reduction in availability or increase in the costs of the goods
and services we purchase.
– A volatile trading environment and disruption in supply chains
that may impact our operations, or those of customers or
suppliers.
– Increases in the cost of production or making certain product
orgeographic markets less accessible to us.
– A resulting impact on our operational performance and financial
condition.
– A geographically diversified business model that allows
continued supply in case of localised disruption.
– Regular monitoring of demand forecasts, orders and other
indicators, to ensure we can respond quickly to changes in
trading conditions.
– Agreements that enable some element of workforce-level
flexibility to adapt to short-term fluctuations in demand.
– Active monitoring of the global trade environment and
regulatory landscape, and reacting quickly to changes in
government policy.
– The strategy of localising suppliers in regions wherever possible,
mitigating the impact of trade barriers. Appropriate tariff-
mitigation actions where required.
– Committed debt facilities, to enable the Group to withstand
material economic shocks.
Risk appetite:
Moderate
Strategy: Lead, Transform, Accelerate
Values: Agility
Risk 3: Supply chain
We operate within complex supply chains and have a large number
of suppliers, some of whom are critical to our operations. Replacing
suppliers in the automotive industry is a time-consuming process.
Increases in the cost of materials or production may be difficult to
pass on to customers and may erode margins. We are contractually
responsible for the quality and delivery of the products we supply
and may not be able to pass on contractual liabilities to our
suppliers. In addition, supply chain disruption could result from
matters outside our control, such as geopolitical events, wars,
epidemics, accidents or natural catastrophes.
– Inadequate quality or unsafe products.
– An inability to operate the Group’s facilities or supply its
products, resulting in the same potential impacts as set out under
the Operational Delivery risk below.
– Increased costs due to inflation or commercial pricing pressure,
which it may not be possible to pass on to the Group’s customers.
– Becoming uncompetitive and adverse impact on our ability
towin new business.
– Developing long-term relationships with key suppliers.
– Identification of high-risk suppliers, based on penetration rate,
criticality of supply and financial strength monitoring.
– Dual sourcing and validation approvals, and mitigation plans
forsole-source suppliers.
– Supplier quality and capacity audits, and inspections.
– Robust contracts with suppliers.
– Sales, inventory and operational planning processes.
– Supplier regional localisation activities.
Risk appetite:
Cautious
Strategy: Lead, Transform
Values: Agility
73
Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
RISK MANAGEMENT CONTINUED
Risk description Potential impact Examples of how we mitigate this risk
Risk 4: Competition and automotive market
We operate primarily in the global automotive market, in which
competition is strong and high levels of efficiency and operational
excellence are required to succeed. Many of our customers are
large, demanding organisations with significant purchasing power,
who can develop and introduce competitors to put pressure
onour pricing.
– Losing business to competitors.
– Being forced to accept lower returns to remain competitive.
– The insolvency of a single large customer could have a significant
impact on revenue.
– The merger of two or more customers could introduce additional
pricing pressure.
– Unexpected significant falls in demand for our products, or
volatility in demand, without commercial or contractual recourse.
– Strong customer relationship management, building multiple-
level relationships with our customers. Increased market
penetration activity through customer intimacy plans and
customer intelligence.
– Selective customer and market growth, prioritising margin and
cash generation.
– IP-protected technological development to aid margin retention.
– Competitor benchmarking and product tear-down/analysis to
ensure we have intelligence on competing customer technology.
– Flexibility across our operations to adapt to demand fluctuations.
Risk appetite:
Moderate
Strategy: Lead, Transform, Accelerate
Values: Agility, Ambition
Risk 5: Operational delivery
Our manufacturing operations and processes are complex and our
customers’ delivery expectations are demanding. The failure of
key equipment, systems or other disruption at a site or production
line could cause significant disruption, and some operations may
represent a 'single point of failure' due to our vertically-integrated
manufacturing structure. In addition, we design and manufacture
products that are critical to the launch of global vehicles and
otherprogrammes. Many of these products are complex
andengineered specifically to meet our customers’ needs,
whichpresents the risk that we are unable to meet customer
expectations and our contractual requirements.
– Loss or damage to our plants, facilities and assets.
– Inability to operate our manufacturing operations.
– Contractual claims from our customers for losses resulting from
the unavailability or late delivery of our products, or for delays or
cancellations of programme launches.
– Loss of existing customers.
– Reputational damage and adverse impact on ability to win new
business.
– Business continuity and disaster recovery plans in place and
tested for critical locations.
– Regular evaluation of the operational risks facing sites and
functions.
– Crisis management plans and systems.
– Property damage and business interruption insurance.
– Sophisticated programme and resource management systems
and regular high-risk programme and gate reviews, with a focus
on flawless programme launch.
– Thorough design validation and production validation testing
with customer sign off.
Risk appetite:
Cautious
Strategy: Lead, Transform
Values: Agility, Accountability, Ambition
Risk 6: Product quality and safety
Product quality and safety is at the heart of the global automotive
industry. As a trusted supplier to the world’s leading vehicle
manufacturers and other customers, it is imperative that our
products are safe to use and meet quality requirements. A defect
in the design or manufacturing process, a failure of controls,
ortheinadequate performance of our suppliers could result in
ussupplying products that are unsafe or of inadequate quality.
Many of our automotive products are considered safety critical
andare the subject of vehicle safety and industry regulations.
– Warranty and other contractual claims from our customers
forlosses caused by the replacement or unavailability of our
products.
– The cost of product recalls and other field service actions,
ifproducts need to be replaced or repaired in the field.
– Material product liability claims from customers or third parties
inthe event of any death, injury or damage to people or property
caused by our products.
– Loss of existing customers.
– Reputational damage and adverse impact on our ability to win
new business.
– Extensive product safety and quality policies and procedures.
– Dedicated quality and safety functions.
– Extensive product monitoring and testing.
– Rapid cascading of lessons learned within operations.
– Management of significant/critical characteristics to identify
andcascade them to the point of use on the shop floor.
– Core process audits.
– Product safety training and awareness.
– Dedicated product safety governance and oversight with
independent reporting lines.
Risk appetite:
Averse
Strategy: Lead
Values: Accountability
74
Dowlais Group plc 2023 Annual Report
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RISK MANAGEMENT CONTINUED
Risk description Potential impact Examples of how we mitigate this risk
Risk 7: Technology and industry evolution
We have market-leading technologies in the sectors in which
weoperate and successfully navigating the EV transition is core
toour strategy. However, there remains a risk that we may be
unable to maintain sufficient technological differentiation, or adapt
to technological change in our key markets, particularly the major
shift in the automotive markets resulting from electrification. There
is a risk that parts of our product portfolio and technologies may
over time become obsolete or uncompetitive and will need to be
replaced. We may also face disruptive innovation by competitors,
or the development of new technologies that eliminate or reduce
demand for certain products.
– Increased costs of engineering, research and development,
inorder to keep pace with technological innovation.
– Reduction in demand for our products or a failure to offer
aproduct portfolio that meets market expectations, if we are
unable to do so.
– Erosion of our reputation as a technology leader in our product
markets.
– Damage to our ability to attract and retain talent.
– Resulting adverse effect on revenue, revenue growth or profit
margins.
– Close relationships with our customers to understand their
development roadmap and invest in technologies that will
beused on next-generation platforms.
– Horizon-scanning to identify new technologies and monitoring
ofcompeting technologies, including via teardown and testing.
– Significant investment in engineering and R&D, particularly
inEVand propulsion source agnostic components.
– Significant patent portfolio and processes for protecting our
innovation.
– Focus on building a culture of innovation and attracting the best
engineering talent.
Risk appetite:
Open
Strategy: Transform, Accelerate
Values: Agility, Ambition
Risk 8: Sustainability
Sustainability is a key focus for our investors, customers and other
stakeholders. Expectations continue to rapidly evolve and become
more onerous. Failure to meet our stakeholders’ expectations on
sustainability, environmental, social and governance-related
matters may expose us to reputational or financial risk, or result in
an inability to meet our customers’ expectations. This includes risks
associated with investor sentiment, evolving customer requirements,
supply chain trends, social attitudes toward the environmental impact
of products, and the Group’s ability to attract and retain talent.
– Limiting the number and types of debt and equity investors
whoare willing or able to invest in the Group.
– Inability to meet our customer expectations on sustainability
performance, with potential for resulting loss of business or
inability to secure new business.
– Loss of key talent and other employees, who increasingly want
towork for a socially responsible and sustainability-focused
organisation.
– Increased cost of meeting ESG expectations.
– Breach of laws and regulations.
– Adverse publicity and reputational damage.
– Sustainability Committee as part of our governance structure.
– Executive team accountability for ESG with dedicated
representation on this topic.
– Reporting on ESG in a transparent way with appropriate data
collection and verification.
– Sustainability strategy integrated with business unit strategies,
accountable at business unit, CEO and Executive Team level.
– Science-based targets established and net zero roadmaps
indevelopment.
– A business strategy that is integrally linked to the decarbonisation
of the automotive industry.
Risk appetite:
Cautious
Strategy: Lead, Transform
Values: Accountability, Ambition
Risk 9: Legal and ethical
Laws and regulations are becoming more complex and pervasive,
and the levels of fines and penalties – and the appetite of
government agencies to prosecute businesses for compliance
failings – are increasing. Our geographic breadth, scale and
complexity presents a risk that we may fail to fully comply with
certain laws and regulations. Even where our conduct is lawful, any
ethical misconduct (or the perception thereof) could cause harm.
Finally, we have an extensive intellectual property portfolio, but it
may not be sufficient to prevent competitors from replicating our
products, and we may face claims by third parties, including for
actual or alleged infringement of their intellectual property rights.
– Costs of defending legal actions, claims and prosecutions by
regulators or third parties.
– Fines and criminal penalties, and contractual penalties and
liabilities.
– Suspension or revocation of licences or privileges, or debarment
from government or public sector contracts.
– Failure to identify and protect the technology that we develop,
or inability to prevent third-party use of our technology.
– Adverse publicity and reputational damage.
– Actively fostering a culture of the highest ethical standards,
assetout in Our Code and our Supplier Code of Conduct.
– Legal teams embedded in and close to our businesses, regular
monitoring and review of legal and regulatory matters, and
horizon-scanning for upcoming legal risks.
– Group-wide legal and compliance policies.
– Due diligence procedures and screening systems for third parties
such as customers, suppliers and other counterparties.
– A culture of “speaking up”, with an employee hotline and online
portal, allowing employees to report anonymously and without
fear of retaliation.
– Mandatory, regular compliance training for relevant employees.
– Leadership compliance and ethics assurance programmes.
Risk appetite:
Averse
Strategy: Lead
Values: Accountability, Ambition
75
Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
RISK MANAGEMENT CONTINUED
Risk description Potential impact Examples of how we mitigate this risk
Risk 10: People
Our most valuable assets are our people. They are our only truly
sustainable source of competitive advantage and our strategy and
performance depend on attracting and retaining the right people
in the right roles and creating the right environment for them to
succeed. Competition for talent and skills is intense and the Group
may not be successful in attracting or retaining qualified personnel,
particularly in leadership or technical roles. In addition, we are an
industrialised manufacturing business with a resulting risk of
accident and injury to employees and contractors. Our people
work in environments where maintaining the highest standards
ofoperational health and safety is critical.
– Reduced levels of operational performance.
– Increased costs of hiring and retention.
– Ineffective strategic decision making and loss of competitive
advantage.
– Liabilities resulting from health and safety incidents.
– The cost of defending legal actions, claims and prosecutions
byregulators or third parties.
– Fines and criminal penalties.
– Adverse publicity and damage to our reputation.
– Succession planning at Executive Director and senior
management level, led by the Nomination Committee
inconjunction with the Board.
– Regularly evaluating remuneration against market trends
andensuring appropriate remuneration packages and long-term
incentives are offered.
– Diversity and inclusion initiatives across all businesses to maintain
a diverse talent pipeline.
– Monitoring our workforce via regular review of KPIs and annual
employee engagement surveys.
– Robust health and safety policies, processes, procedures and
standards in all businesses and manufacturing sites certified
tointernational safety standards, including ISO 45001.
– Extensive health and safety training and awareness programmes.
Risk appetite:
Cautious
Strategy: Accelerate
Values: Agility, Accountability, Ambition
How our strategy and our values reflect our principal risks
The Group’s ten principal risks set out above reflect the global scale of our business, the nature of our operations, and the markets in which we operate. They are inherent in what we do.
Accordingly, our strategy encompasses and responds to these risks, and is specifically designed to address and mitigate them in a number of ways. But risk management is also about
behaviours, so our values are also intended to encourage and foster the kind of behaviours in our people which are needed to address the risks we face.
The strategic pillars and values that are relevant to each principal risk are set out against each individual risk above. More detail on how our strategy and values reflect certain of our principal
risks is set out below.
Our strategy Our values
Lead Our strategy to Lead in our chosen markets directly reflects the competition
andautomotive market and economic and political risks we face. Market-leading
businesses are more resilient to the commercial pressures that come with
operating in a highly competitive automotive industry, and can more easily
respond to demand volatility and macroeconomic shocks.
Agility Many of the risks we face as a business require us to act at pace, make quick clear
decisions and respond swiftly to opportunity. This is reflected in our value of
Agility. Responding to certain risks like cyber security incidents, supply chain
failures, or disruption to operational delivery, requires us to have an organisation
that can respond rapidly and act decisively.
Transform It is a fundamental part of our strategy to Transform alongside the wider
automotive industry transition to electric vehicles. This strategy directly reflects
the greatest technology and industryevolution risk we face, which is the risk
offailure to adapt as the automotive industry experiences a period of rapid
technological change.
Accountability Our value of Accountability includes acting responsibly and with integrity.
Doingthis reduces therisk of product quality and safety incidents, legal and
ethical violations and ensures the health and safety of our people. Accountability
is also about delivering on our commitments, which is a required to achieve our
sustainability commitments.
Accelerate Our strategy to Accelerate includes identifying and exploiting organic growth
segments and growing via disciplined M&A. Successfully implementing this
growth strategy will contribute to the mitigation of a number of risks, including
those relating to competition and automotive market, economic and political,
and technology and industry evolution.
Ambition We seek to set ambitious goals and find new opportunities in new ways and new
markets. These behaviours, reflected in our value of Ambition, help engage and
motivate our people to mitigate talent retention risk, and reflect our ambitious
sustainability goals and support a culture of driving progress to achieving them.
76
Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
ENGINEERING TRANSFORMATION: EDRIVE SYSTEMS
eDrive systems
In the rapidly evolving world of automotive technology, eDrive
systems are the core component of electric mobility. We have
been developing and manufacturing eDrive systems for decades
and remain a key player in this segment.
An eDrive system is the equivalent of a car's engine and transmission. It encompasses
arange of components and sub-systems such as one or more electric motors, a gearbox,
power electronics, torque management devices and software. These components are
carefully integrated and all work together to transform electrical power into mechanical
power, delivering torque to the sideshafts and then ontothe wheels of the vehicle.
The future of the automotive industry is forecast to be electric and eDrive systems the key
technical enabler of thistransformation. The transition to EVs means that over time eDrive
systems will replace many internal combustion engines in light vehicles. You can see more
details about the expected growth of EVs on page 17. As such, eDrive systems reflect
arapidly growing product segment and a growth opportunity for Dowlais.
Weunderstand all aspects of an eDrive system and can design and produce systems to
reflect our customers’ needs. We also understand how these systems function within the
wider context of the vehicle, allowing us to work closely with our customers to optimise
oursystems, ensuring they seamlessly integrate with the vehicle architecture and wider
systems and software. We continue to innovate in eDrive technology at our dedicated
technology centres in Germany, USA, Japan, India, China and the UK, to drive
improvements in performance and efficiency.
ENGINEERING TRANSFORMATION
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
772023 Annual ReportDowlais Group plc
VIABILITY STATEMENT
VIABILITY STATEMENT
In accordance with the requirements of the UK Corporate Governance Code, the Directors
have assessed the prospects of the Company, considering the potential impact of the
principal risks facing the Group.
The Directors’ assessment of the Group’s viability has been made over a three-year period,
which is considered to be appropriate for this assessment as it is consistent with the
Group’s detailed planning cycle and current financing arrangements.
The Directors’ assessment has been made by reference to the Group’s financial position
asat 31 December 2023 and its prospects, the Group’s strategy, the Directors’ risk appetite
and the Group’s principal risks and their management, all of which are described in this
Strategic Report.
The Directors’ assessment of the Group’s viability is underpinned by a paper prepared by
management, which is supported by comprehensive and detailed analysis and modelling.
The model underpinning this statement is stress-tested, based on severe but plausible
scenarios developed by considering how the Group’s principal risks (set out on pages 73
to76), together with the climate-related risks (set out on pages 52 to 56), could impact
theGroup’s viability.
The key assumptions driving the output from the model relate to forecast revenue,
drop-through operating margin and cash generation over the viability period. The base
model includes three years of forecast data from the Group’s business units. Thethree
downside scenarios that have been modelled are:
1. An economic shock/downturn. Prolonged global downturn in economic conditions,
higher unemployment and inflation resulting in reduced customer confidence and
lowerspending. Includes the risk of adverse changes in the financial markets which could
prevent the Group from accessing capital either when required or at an appropriate rate.
2. Losing a key market/product/customer. This scenario envisages Dowlais being unable
toadapt to technological change or experiencing a significant reduction in demand
forglobal light vehicles.
3. Significant contract delivery issues. This scenario envisages the risk that the Group’s
products fail resulting in warranty claims and reputational impact, as well as modelling
the impact of a moderately severe cyber attack.
Each scenario has been carefully considered both individually and in combination by the
Directors, together with the impact of expected achievable mitigating actions on the
working capital model. Although considered unlikely, if all three scenarios were to
occursimultaneously:
a. liquidity would be significantly reduced over the viability period when compared
toour base case scenario;
b. the Group would still be able to continue operating (and no covenants etc would
bebreached); and
c. the Group would consider implementing relevant mitigating actions including
deferral of capital expenditure, delay of cash restructuring spend, working capital
actions, strategic restructuring including labour management, reduction of
discretionary spending and short-term delay or cancellation of dividend payments.
These scenarios sensitise the main assumptions noted above, considering the medium-
term impact of continued implications on supply chains resulting from the current global
macroeconomic uncertainty and ongoing inflationary pressures on input costs.
Finally, the model has been used to perform a reverse stress test to determine the level
ofrevenue/volume reduction which would use up all available cash, and the Directors
aresatisfied, whilst also considering the available mitigating actions described above, that
the conditions required to prevent the Group from continuing to operate are sufficiently
remote so as to not affect the overall conclusions reached.
On the basis of the above assessment, the Directors confirm that they have a reasonable
expectation that the Group will continue in operation and meet its liabilities, as they fall
due, up to 31 December 2026.
78Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NON FINANCIAL AND SUSTAINABILITY INFORMATION STATEMENT
The information below summarises how we comply with non-financial performance and sustainability reporting requirements and is produced to comply with sections 414CA and 414CB ofthe
Companies Act 2006. It sets out where relevant information relating to non-financial and sustainability matters can be found in our Strategic Report.
Reporting requirements Most relevant Dowlais policies For more information on the impact and outcomes
Environmental matters Our Code
Environmental Policy
Biodiversity Policy
Water Policy
Energy Policy
Sustainability (pages 35 and 36)
Stakeholders and s. 172 statement (pages 39 to 42) in particular the section on society and communities (page 40)
Planet and Climate Action (pages 44 to 47) in particular, the sections on cutting our emissions (page 44) and
product sustainability (page 46)
Task Force on Climate-related Financial Disclosures (TCFD) report (pages 48 to 58) and SECR (pages 59 to 61)
The Company’s employees Our Code
Health and Safety Policy
Diversity, Equity and Inclusion Policy
Whistleblowing Policy
Sustainability (pages 35 and 36)
People and society (pages 63 to 66) in particular the sections on health, safety and wellbeing (page 63), training
anddevelopment (page 64), and diversity, equity and inclusion (pages 65 and 66)
Stakeholders and s. 172 statement (pages 39 to 42) in particular the section on our people (page 39)
Social matters Our Code
Sustainability Policy
Responsible Sourcing Policy
Product Safety Policy
Sustainability (pages 35 and 36)
People and society (63 to 66) in particular the sections on community and product safety (page 67)
Stakeholders and s. 172 statement (pages 39 to 42) in particular the section on society and communities (page 40)
Human rights Our Code
Human Rights Policy
Anti-Slavery and Human Trafficking Policy
Sustainability (pages 35 and 36)
People and society (pages 63 to 66) in particular the section on responsible sourcing and human rights (page 70)
Stakeholders and s. 172 statement (pages 39 to 42) in particular in particular the section on society and communities
(page 40)
Anti-corruption and anti-bribery
matters
Our Code
Anti-Bribery and Corruption Policy
Anti-Money Laundering Policy
Anti Facilitation of Tax Evasion Policy
Conflict of Interest Policy
Sustainability (pages 35 and 36)
People and society (pages 63 to 66) in particular the section on ethics, compliance and integrity (page 70)
Business model Our business model (page 5)
Principal risks Risk management (pages 71 to 76) in particular our principal risks of product quality and safety (page 74),
sustainability, legal and ethical (page 75) and people (page 76)
Key transition risks (pages 55 and 56)
Non-financial KPIs Non-financial KPIs (page 19), being our Accident Frequency Rate, Scope 1 and 2 emissions, and Automotive order
book relating to products for use in EVs
Task Force on Climate-related Financial Disclosures (TCFD) report (pages 48 to 58) and SECR (pages 59 to 61)
Climate related disclosures Task Force on Climate-related Financial Disclosures (TCFD) report (pages 48 to 58) SECR (pages 59 to 61)
This Strategic report has been prepared in accordance with the requirements of the Companies Act 2006, and has been approved and signed on behalf of the Board.
Liam Butterworth
20 March 2024
NON FINANCIAL ANDSUSTAINABILITY
INFORMATION STATEMENT
79Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
CHAIR'S LETTER
GOVERNANCE
REPORT
Simon Mackenzie Smith
Chair
Dear shareholder,
On behalf of the Board, I am pleased to present the Group’s Governance Report for the
financial year ended 31 December 2023. The Board recognises the importance of having
aneffective governance framework and is committed to maintaining the highest standards
of corporate governance, which will ensure wecan deliver our strategy.
Dowlais demerged from Melrose and listed on the London Stock Exchange on 20 April
2023. Although the Board was appointed prior to the demerger and carried out various
activities in connection with the demerger process, this Governance Report principally
relates to the period from 20 April 2023 to the end of the 2023 financial year. During this
period we have implemented strong governance foundations, which as a Board we will
continue to review and build upon.
Creating our Board and governance
As part of the preparations for the demerger, a significant amount of work was undertaken
to establish the Group’s governance, policy and controls framework, to ensure we could
meet our obligations as an independent listed company.
This included identifying and appointing an experienced Board with a relevant and diverse
set of skills. We also ensured continuity of management of our Business Units with the
appointment of Liam Butterworth as Chief Executive Officer (CEO) and Roberto Fioroni as
Chief Financial Officer (CFO), both of whom have significant experience in the Automotive
industry and previously ran our GKN Automotive business. The appointment of Simon
Peckham, until his resignation from the Board on 31 December 2023, and Geoffrey Martin
asadditional Executive Directors provided further continuity and expertise, in light of their
roles as Melrose CEO and CFO respectively. Further details about our Board can be found
on pages 82 to 83.
Prior to the demerger and listing, the Directors benefited from an onboarding
programmewhich included understanding our businesses and their principal risks,
theirresponsibilities as Board Directors of a listed company, and reviewing and approving
thedemerger prospectus.
Since the demerger, the Board has established its governance framework, Board
Committees, and processes and ways of working. During this period, the Board has been
focused on the Group’s strategy, purpose and values, business performance, stakeholder
engagement and our sustainability strategy. Alongside these areas, the Board has
approved a number of external reporting and governance matters. You can read more
about our governance framework and the areas the Board has focused on during the
period on pages 84 to 90. During the period the Company was in full compliance with the
provisions of the Code and applied the principles of the Code. Pages 80 to 126 of this
report form ourCorporate Governance Statement.
“We recognise the importance of having a
robust and effective governance framework
which underpins our decision making and
ensures we can deliver our strategy.”
802023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Dowlais Group plc
CHAIR'S LETTER CONTINUED
Relationship with shareholders and other stakeholders
The Board recognises the importance of engaging with our shareholders and other
stakeholders and our section 172 statement, which can be found on pages 39 to 42, sets
outour key stakeholder groups, how we have engaged with them throughout the period
and how the Board has considered their interests in its decision making.
Both prior to and following the demerger, we conducted a comprehensive investor
relations programme, led by our CEO and CFO. We have taken part in a large number
ofmeetings with our major shareholders and potential investors, each of which has given
usthe opportunity to obtain direct feedback on our business, strategy and performance.
The Board has been kept informed of shareholders’ views at each Board meeting. Both Celia
Baxter, our Senior Independent Director, and I are available to meet with shareholders
asappropriate and we have met with shareholders when requested. Ahead of asking our
shareholders to vote on our Directors’ Remuneration Policy at our first Annual General
Meeting, Celia Baxter, who also serves as Remuneration Committee Chair, wrote to our
major shareholders to seek their feedback. Further details of our proposed Remuneration
Policy and that engagement process can be found on pages 99 to 112.
Annual General Meeting
Our first Annual General Meeting will be held on 21 May 2024 and will provide the Board
anopportunity to further engage with shareholders and answer any questions about
thebusiness.
Simon Mackenzie Smith
Chair
20 March 2024
Compliance with the UK Corporate Governance Code
The Board is committed to complying with the UK Corporate Governance Code
2018 (the Code) which became applicable to the Company with effect from its
admission to trading on 20 April 2023. The Board confirms that Dowlais complied
with all of the provisions set out in the Code for the period under review. Details
ofhow we have applied theprinciples set out in the Code and how governance
operates at Dowlais are set out in the table below. A copy of the Code can be found
atfrc.org.uk.
Code section
Location of information and how the application of the Code
Principles shaped governance actions and outcomes in the year
Leadership and
Purpose
– Board biographies (pages 82 to 83)
– Board operation and key areas of discussion since listing (pages
86to88)
– The formation of the Company purpose, values and strategy
(pages4 and 80 to 87)
– The promotion of the long-term sustainable success of the Company
as described in the s. 172 statement (page 42)
– Assessment and monitoring of culture (pages 89 to 90 )
– Employee engagement (page 89)
Divisions of
Responsibilities
– Our Governance Framework (pages 84 to 85)
– The balance of executive and non-executive directors (pages 82
to83 and 86)
– Independence, sufficient time and the process for approving
external appointments (page 87
Composition,
Succession and
Evaluation
– Governance Report (pages 80 to 90)
– Promoting and embedding diversity and inclusion (page 98)
– Monitoring the balance of Board members’ skills, experience and
knowledge (page 98)
– Board evaluation process and outcomes (page 88)
– Nomination Committee report (pages 97 to 98)
Audit, Risk and
Internal Control
– Audit Committee report (pages 91 to 96)
– The evaluation of risk management and internal controls including
process and outcomes (pages 95 to 96)
– The linking of Principal Risks with strategy and its assessment by
theBoard (page 71 to 76)
Remuneration – Remuneration Report (pages 99 to 121)
– Assessment of the alignment of purpose, values and strategy with
remuneration (pages 99 to 101)
– Executive, senior management and wider workforce remuneration
(pages 107 and 118 to 119)
81Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
BOARD OF DIRECTORS
OUR BOARD OF DIRECTORS
AN EXPERIENCED BOARD WITH A RELEVANT AND DIVERSE SET OF SKILLS
Liam Butterworth
Chief Executive Officer
Liam is an experienced leader in the
automotive industry. He started his
career in 1986 at Lucas Industries
asanapprentice toolmaker before
moving into sales and marketing.
Hejoined FCI Automotive in 2000
inFrance, where he lived for 18 years.
From 2008, Liam was CEO of FCI
Automotive and led the sale of the
business to Delphi Automotive plc
in2012, which he then joined as SVP
and the President of its Powertrain
Division. He subsequently became
group CEO of Delphi Technologies
plc in December 2017 when he led its
demerger from Aptiv plc (formerly
Delphi Automotive) and admission
tothe New York Stock Exchange.
In2018, he became CEO of GKN
Automotive before its demerger
from Melrose Industries plc and
became CEO of Dowlais Group plc
onits listing on the LSE in April 2023.
Appointed: 10 February 2023
Other directorships and
appointments: A non-executive
director of United Utilities Group PLC;
a member of the Audit, Corporate
Responsibility and Nomination
Committees. A non-executive
director of United Utilities Water
Limited.
Committee membership: None
Simon Mackenzie Smith
Chair
Simon has a wealth of experience in
corporate finance and M&A, with an
investment banking career spanning
over 35 years. He has advised on
some of the UK’s largest mergers and
acquisitions including Royal Dutch
Shell plc’s $52 billion takeover of BG
Group Plc in 2016. Before retiring in
2021, he was Chair of Corporate and
Investment Banking UK and Ireland at
Bank of America Merrill Lynch. Simon
joined Merrill Lynch in 1996 from
Morgan Grenfell. He qualified as
achartered accountant with KPMG
in1985.
Appointed: 9 February 2023
Other directorships and
appointments: A non-executive
director of Interpath Advisory.
Chairof the Trustees of the children's
mental health charity Place2Be.
Committee membership
RN
Philip Harrison
Independent Non-Executive
Director
Philip has extensive international
financial leadership experience across
a range of sectors and at all points
inthe business cycle. He is Chief
Financial Officer at Balfour Beatty plc,
a role he has performed since 2015.
Philip began his career with Texas
Instruments before moving to Rank
Xerox and then to Compaq, where
heremained following the merger
with Hewlett Packard. He has also
held board and executive committee
positions as Group Finance Director
at VT Group Plc and Hogg Robinson
Group Plc. Philip is a Fellow of the
Chartered Institute of Management
Accountants.
Appointed: 10 February 2023
Other directorships and
appointments: Chief Financial Officer
of Balfour Beatty plc.
Committee membership
A N
Celia Baxter
Senior Independent Director
Celia brings a global perspective and
deep understanding of industrial
companies and organisations that
have grown by acquisition. She spent
her executive career in Human
Resources, beginning her career with
Ford Motor Company before moving
to KPMG. She has also held executive
HR positions with Tate & Lyle plc,
Enterprise Oil Plc and Hays Plc. Most
recently in her executive career she
was Director of Group HR at Bunzl
PLC where she was responsible for
HRand sustainability across the group.
Previously Celia was an independent
director for NV Bekaert SA, a leader
in steel wire transformation and
coatings, and RHI Magnesita NV,
aglobal leader in refractories, and
was also Senior Independent Director
and Chair of the Remuneration
Committee at Senior Plc.
Appointed: 20 February 2023
Other directorships and
appointments: Non-executive
director and Chair of the
Remuneration Committee of DS
Smith Plc. Non-executive director
ofdiscoverIE Group plc.
Committee membership
R A N
Roberto Fioroni
Chief Financial Officer
Roberto has extensive experience
inthe automotive industry. Roberto
joined GKN Automotive in 2019 and
was instrumental in the development
and execution of GKN Automotive’s
margin expansion plan. Roberto
joined from WABCO, a NYSE-listed
leading player in braking and
steering systems for commercial
vehicles, where he was Chief Financial
Officer. Prior to that, Roberto was
Vice President, Finance for
Goodyear’s Europe, Middle East and
Africa business unit and also held
several senior positions during a 13
year career with General Electric (GE)
across its GE Security and GE
Consumer & Industrial divisions,
aswell as with GE Corporate.
Appointed: 10 February 2023
Other directorships and
appointments: None
Committee membership: None
Key
Committee Chair
R
Remuneration Committee
A
Audit Committee
N
Nomination Committee
82Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
BOARD OF DIRECTORS CONTINUED
Shali Vasudeva
Independent Non-Executive
Director
Shali has extensive experience of
technology, operational resilience
and cyber and business
transformation, spanning the UK,
Europe and Asia. Since 2019, Shali
hasbeen the Chief Operating Officer
atAXA Insurance UK & Ireland,
leading on IT, data, cyber security
and operational resilience, digital
strategy, property and procurement.
Shali spent the first phase of her
career in leadership roles in the
outsourcing sector with Cap Gemini
and Capita Business Services. She
subsequently held executive
operational roles at Prudential
Assurance UK and senior roles at both
Resolution Life Group Holdings and
Hiscox Plc.
Appointed: 20 February 2023
Other directorships and
appointments: Chief Operating
Officer at Axa Insurance UK & Ireland.
Committee membership
A N
Geoffrey Martin
2
Executive Director
Geoffrey was Group Finance Director
at Melrose Industries PLC from 2005
until he stepped down from the
Board on 7 March 2024. He has
extensive public company
experience and expertise in
corporate finance, raising equity
finance and financial strategy.
Achartered accountant, Geoffrey
qualified with Coopers & Lybrand,
where he worked within the
corporate finance and audit
departments. In 1996, Geoffrey joined
Royal Doulton plc, serving as Group
Finance Director from October 2000
until June 2005.
Appointed: 13 January 2023
Other directorships and
appointments: None
Committee membership: None
Fiona MacAulay
Independent Non-Executive
Director
Fiona is an experienced board
director within the resources and
industrials sectors, with particular
experience in ESG topics. She has
held senior roles across both large
and small cap companies, having
begun her career as a geologist with
Mobil and Amerada Hess before
joining British Gas in international
geological operations. Latterly Fiona
was Chief Operating Officer of
Rockhopper Exploration Plc and Chief
Executive Officer of Echo Energy Plc
before transitioning to a Non-
Executive portfolio career.
Appointed: 20 February 2023
Other directorships and
appointments: Senior Independent
Director and Remuneration
Committee Chair of Ferrexpo Plc.
Non-executive Director of Chemring
Group PLC and Costain Group PLC,
where she is Chair of the
Remuneration Committee.
Committee membership
R N
Simon Peckham
Executive Director
Simon was a Director of Dowlais
Group plc until 31 December
2023 when he stepped down
from the Board. Simon was
previously Chief Executive
officer at Melrose Industries PLC
from May 2003 until he stepped
down on 7 March 2024.
Alexandra Innes
1
Independent Non-Executive
Director
Alexandra brings capital markets and
economic insight and sustainability
expertise tothe development of
strategy. Herearly career was focused
on investment banking and investment
management in the technology
sector. She was Director of Global
Markets at Bank of America and later
Managing Director and Head of Equity
and Multi-Strategy Prime Origination,
EMEA at Barclays Plc. Sheis a Fellow
ofChapter Zero, aChartered Banker
Green and Sustainable Finance
Professional, a Chartered Member
ofthe CISI, holds an MA Hons Cantab
(Economics) andthe CFA Institute
Certificate inESG Investing.
Appointed: 20 February 2023
Other directorships and
appointments: Non-Executive
Committee Member at the Bank of
England. Non-Executive Adviser and
board member at Knight Frank LLP,
Non-Executive Director at Waverton
Investment Management Group Ltd,
STS Global Income and Growth Trust
plc, Schroder Real Estate Investment
Trust Limited, Facilities by ADF Plc
and the UCI Cycling World
Championships 2023 Ltd.
Committee membership
R N
Key
Committee Chair
R
Remuneration Committee
A
Audit Committee
N
Nomination Committee
1. Alexandra Innes has informed the
Board that she will not stand for
election as a Director at the 2024
AGM and will therefore retire
from office with effect from the
conclusion of the meeting.
2. Geoffrey Martin has informed
the Board that he will not stand
for election as a Director at the
2024 AGM and will therefore
retire from office with effect from
the conclusion of the meeting.
83Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
OUR GOVERNANCE FRAMEWORK
OUR GOVERNANCE FRAMEWORK
See page 36 for a summary of the
Committee's work
The Board
Dowlais’ Board is responsible for promoting the long-term sustainable success of the Group and generating value for shareholders.
The Board oversees the performance of Dowlais and sets our purpose, values and strategy, ensuring that our culture is aligned to each of them.
Audit Committee
The Committee ensures the
integrity of the financial reporting
and audit, oversees the Group’s
internal control and risk
management systems and
monitors the effectiveness of
internal and external audit.
Remuneration Committee
The Committee determines
remuneration policies and monitors
their effectiveness, establishes
policies and practices that are
designed to support the Company’s
strategy and promote the long-term
sustainable success of the business,
and sets the remuneration of
the Company’s Chair, Executive
Directors and senior management.
Nomination Committee
The Committee leads the process
forBoard appointments, ensures
succession plans are in place for the
Board and senior management, and
oversees the development of
adiverse pipeline for succession.
Disclosure Committee
The Committee monitors the
existence of inside information
and its disclosure to the market.
See page 91 See page 99
See page 97
CEO
Responsible for the day-to-day management of the Group
Group Executive Committee
Supports the CEO in the day-to-day
management of the Group including
overseeing the implementation of
strategic and operational plans.
Business Unit CEOs and executive teams
Responsible for management of their
Business Unit and achieving their
business-specific targets.
Sustainability Committee
Supports in the development and day-to-day
delivery of the Group's sustainability strategy.
84Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
OUR GOVERNANCE FRAMEWORK CONTINUED
Division of responsibilities
The Chair is responsible for:
– Leading the Board and providing effective and ethical leadership.
– Promoting a culture of openness and debate by facilitating the contribution of Non-
Executive Directors, in particular, and ensuring constructive relations between Executive
and Non Executive Directors.
– Ensuring effective decision making and governance by ensuring effective information
flows and sufficient time for discussion at Board meetings.
– Ensuring effective communication with key stakeholders, including shareholders.
– Overseeing each Director’s induction and ongoing training.
– Leading the Board and Committee evaluation process.
The CEO is responsible for:
– Day-to-day management of the Group’s business in line with the strategic and
commercial objectives agreed by the Board.
– In conjunction with the wider executive team, implementing the decisions of the Board
and its Committees and ensuring the Board is aware of Executive Directors’ views on
business issues.
– In conjunction with the Chair, ensuring effective communication with key stakeholders.
The Senior Independent Director is responsible for:
– Providing a sounding board for the Chair and serving as an intermediary for the other
Directors and shareholders when necessary.
– Being available to shareholders if they have concerns which contact through the normal
channels of Chair, CEO or other Executive Directors has failed to resolve or for which
such contact is inappropriate.
– Leading meetings of the Non-Executive Directors without the Chair present at least
annually to appraise the Chair’s performance, taking into account the view of Executive
Directors, and on such other occasions as are deemed appropriate.
– Being responsible for an orderly succession process for the Chair.
– Assisting in the maintenance of the stability of the Board and Company, particularly
during periods of stress.
– Being available to shareholders if they have concerns which contact through the normal
channels has failed to resolve, or for which such contact is inappropriate.
The Non-Executive Directors are responsible for:
– Constructively challenging and helping to develop proposals on strategy.
– Scrutinising the performance of management in meeting agreed goals and objectives
and monitoring the reporting of performance.
– Supporting the Executive Directors in instilling appropriate culture, values and
behaviours in the boardroom and beyond.
The Company Secretary advises the Board on matters of procedure and governance,
including:
– Providing all required information to the Board on a timely basis.
– Enabling information flows between senior management, the Board and its Committees.
– Providing support to the Chair and Non-Executive Directors.
– Being responsible for compliance with relevant statutory and regulatory requirements.
85Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
HOW OUR BOARD WORKS
HOW OUR BOARD WORKS
Board composition
As at 20 March 2024 the Board comprised the Chair, who was independent upon
appointment, five Independent Non-Executive Directors and three Executive Directors.
The Board’s biographies can be found on pages 82 to 83.
Board leadership and purpose
The Board is collectively responsible for promoting the long-term sustainable success
ofthe Group and for generating value for shareholders. The Board is responsible for setting
the strategy, holding management accountable for its delivery, and overseeing the
performance of the Group, with a view to ensuring success over the longer term. It is also
responsible for setting the tone from the top and ensuring that the Group’s culture aligns
with its strategy, purpose and values.
Whilst day-to-day responsibility for the management of the Group has been delegated
tothe Executive Directors of the Company, there are a number of key matters that are
reserved for the Board as a whole. These include:
– Establishing the Group’s purpose, values and strategy.
– Determining the basis on which the Group generates or preserves value over the longer
term.
– Approving the Group’s annual operating and capital expenditure budget.
– Approving changes relating to the Group’s capital structure.
– Approving any significant restructuring or reorganisation including material acquisitions,
disposals or joint ventures.
– Approving material changes to the Group’s policies relating to governance, compliance
and controls.
– Approving the Group’s sustainability targets and key sustainability policies.
– Ensuring effective communications with shareholders.
Full details of the matters reserved for the Board can be found at dowlais.com.
Board attendance and activities
Prior to the demerger from Melrose and admission to the LSE, the Board held a number of
ad hoc meetings in conjunction with the demerger and listing process which included
implementing the Group’s governance framework and adopting allnecessary policies and
procedures in readiness for commencing life as an independent listed company.
In the eight months following the demerger, the Board held four scheduled meetings.
Details of individual attendance for each of the Board meetings held following the
demerger is set out below. Any Director who is unable to attend a Board meeting has
theopportunity to review the papers and provide contributions outside of the meeting.
The Board receives regular reports from the CEO, CFO, Chief People,Sustainability and
Communications Officer and the General Counsel and Company Secretary at its meetings.
Inaddition, the Chair frequently meets with the Non-Executive Directors privately without
executive management present, including either immediately prior to or after each Board
meeting.
Director Board Audit Nomination Remuneration
Simon Mackenzie Smith 4/4 2/2 2/2
Liam Butterworth 4/4
Roberto Fioroni 4/4
Celia Baxter 4/4 3/3 2/2 2/2
Philip Harrison 4/4 3/3 2/2
Alexandra Innes 4/4 2/2 2/2
Fiona MacAulay 4/4 2/2 2/2
Shali Vasudeva 4/4 3/3 2/2
Simon Peckham
1 2
3/4
Geoffrey Martin
1
3/4
1. Simon Peckham and Geoffrey Martin were unable to attend the Board meeting on 11 September due to
unforeseen circumstances.
2. Simon Peckham stepped down from the Board on 31 December 2023.
86Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
HOW OUR BOARD WORKS CONTINUED
Board induction and training
Prior to the demerger and listing, the Directors received comprehensive briefings on their
responsibilities as directors of a listed company and related regulatory requirements.
Inaddition, the Non-Executive Directors attended a Board induction session to ensure they
had a full understanding of the Group’s businesses and their specific products, markets
andstrategies. The induction session included a detailed overview from Liam Butterworth
on the Group and the wider markets in which it operates, a finance overview which was led
by Roberto Fioroni, presentations on the Group’s three business units: Automotive, Powder
Metallurgy and Hydrogen each of which was provided by the CEOs and management
teams of those business units.
The standing agendas for the Board and its Committees include briefings on a range of
topics including regulatory and corporate governance requirements, which ensure the
Board is kept up to date with developments in these areas. The Directors also have access
to the Company Secretariat for advice and assistance and independent, professional advice
should this be necessary to discharge their responsibilities.
A comprehensive and formal induction programme, which will be facilitated by the
Company Secretary in consultation with the Chair, will be provided to any new Directors
that are appointed.
Independence, time commitment and external directorships
All Directors have service agreements or letters of appointment and details of their terms
are set out in the Remuneration Report. The service agreements and letters of
appointment are available for inspection at the Company’s Registered Office during normal
business hours.
The Board has reviewed the independence of its Non-Executive Directors and considers
each of the Non-Executive Directors, including the Chair, to be independent. Approval
ofany Director’s appointment as a director of another company is a matter reserved
fortheBoard.
The Chair and the Non-Executive Directors are expected to devote sufficient time
tocarrying out their duties which is expected to be approximately 20 days per year,
orsuch additional time as may be required. The Board considers that all the Directors
havesufficient time to perform their duties.
Key decisions and areas of discussion since demerger
Group
strategy
Reviewed and discussed the individual strategies of the Group’s business
units and the overall Group strategy.
Approved the Group’s purpose, values and strategy
(ourStrategicFramework).
Received regular automotive market updates.
Reviewed and discussed the operational performance of the Group
bybusiness unit.
Discussed and approved the Group’s sustainability strategy.
Financials
and
performance
Received updates on the financial performance of the business units
andtheGroup as a whole.
Approved the Group’s half-year results and the Company’s initial accounts.
Reviewed the approach to the dividend and approved the Company’s
dividend policy and first interim dividend.
Approved the annual budget for 2024.
People,
cultureand
values
Reviewed andapproved Our Code.
Reviewed Health and Safety dashboards from across the business.
Received People-related updates relating to the Group’s global workforce.
Received a report from the Group’s Workforce Advisory Panel.
Approved the Group’s first Slavery and Human Trafficking Statement.
Sustainability Reviewed the Group’s ESG roadmap and plan for the year.
Received an update on the Group’s Sustainability Strategy.
Governance Received reports from each Committee Chair after scheduled
Committeemeetings.
Received updates on key regulatory and corporate governance
developments.
Discussed the outcome of the 2023 Board and Committee effectiveness
review and agreed the actions for 2024.
Shareholder
and
stakeholder
engagement
Discussed and approved the Group’s stakeholder map.
Received an update on the Group’s communications plan.
Received updates on and discussed investor relations matters.
Received an update on the development of Group’s charitable givingstrategy.
87
Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
HOW OUR BOARD WORKS CONTINUED
Board effectiveness and performance
The Board agreed that, given the timing of the demerger and listing, the 2023 Board and
Committee effectiveness review should be conducted by way of a questionnaire-based
approach, facilitated by the Company Secretary. The objective of the evaluation was
tohighlight what has been working well and what needed to be focused on in 2024.
Thequestionnaires for the Board and each Committee were circulated to the Board and
respective Committee members for completion and the findings were shared with the
Chair before being discussed by the Board.
The evaluation concluded that the Board had the necessary mix of skills, knowledge and
expertise and was sufficiently diverse.
The actions that were agreed for the Board and each Committee as part of this
effectiveness review are summarised below and will be monitored during 2024.
Board – Focus on business strategy, including understanding the strategic
opportunities within the Group’s portfolio, financial performance and creating
shareholder value.
– Continued development of Director induction and ensuring Board members
have opportunities to increase their knowledge of the business and its product
range.
– Continued development of awareness of the Group’s corporate culture,
tobefacilitated through site visits and further engagement with employees.
Audit – Continued focus on the key areas within the Committee’s remit.
– The Committee to meet the wider Dowlais Finance teams.
– Focus on information and cyber security risk in 2024.
Nomination – Continued focus on succession planning both at Board and executive team
level and for other senior positions within the Group.
– Continue to build strong working relationships with the Dowlais executive
team.
Remuneration – Focus on the key areas within the Committee’s remit, particularly the Executive
Directors’ Remuneration Policy and bonus and LTIP targets.
– Continue to receive ongoing market updates from the Committee’s
Remuneration advisers to keep abreast of market trends.
Group Chair and Directors’ performance
In accordance with our obligations under the Code, the Senior Independent Director led
anannual review process for the Chair of the Board, as part of which she sought feedback
from the other Non-Executive Directors without the Chair present. She also sought the
views of the Executive Directors. This feedback was collated and shared with the Chair.
Similarly, the Chair carried out an annual review of the performance of the other individual
Directors. As part of this review, one-to-one discussions were held with each Director which
covered, amongst other things, individual performance and effectiveness, their time
commitment to Dowlais and their ongoing development.
Election of Directors
Newly appointed Directors are required to submit themselves for election by shareholders
at the AGM following their appointment. Dowlais’ first AGM will take place on 21 May 2024.
Now that the process to establish Dowlais as a stand-alone plc has completed, Geoffrey
Martin, Executive Director, has informed the Board that he will not stand for election as a
Director at the 2024 AGM and will therefore step down from the Board with effect from the
conclusion of the meeting. In addition, Alexandra Innes, Non-Executive Director, has also
informed the Board that she will not stand for election as a Director at the 2024 AGM and
will therefore also step down from the Board with effect from the conclusion of the
meeting. All other Directors have confirmed they intended to stand for election at the
Company’s 2024 AGM. The Board has commenced a process to review its composition,
which is being led by the Nomination Committee.
88Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
THE BOARD'S ROLE IN OUR PURPOSE, OUR CULTURE AND OUR PEOPLE
THE BOARD'S ROLE IN OUR PURPOSE,
OUR CULTURE AND OUR PEOPLE
Assessment and monitoring ofculture
The Board recognises its role in overseeing the Group’s purpose: Engineering
transformation for a sustainable world, and our organisational culture. Only by having the
right culture in our organisation can we ensure the successful delivery of our purpose and
our strategy. Culture is about how people act and behave, and we want our culture to
reflect both our purpose and our values of Agility, Accountability and Ambition. This means
the kind of culture and behaviours that we expect from our people includes:
– Moving at pace and taking decisions clearly and quickly.
– Delivering on their commitments.
– Acting responsibly and with integrity.
– Looking for new opportunities.
– Respecting and protecting each other.
– Behaving ethically and lawfully.
– Caring for our communities and our world.
We believe that if our people exhibit these behaviours, it will foster a culture which reflects
our purpose and our values. At its June meeting, the Board approved Our Code, which is
our employee code ofconduct. It explains in more detail the standards and behaviours that
are expected ofeveryone who works for Dowlais and its businesses. Our Code is supported
by a range ofpolicies which cover areas such as health and safety, diversity and inclusion
and whistleblowing. Our Code reflects our values and the culture we seek to foster as a
Group, and to help us monitor the culture of the Group, the Board receives an update on
people related topics from our Chief People, Sustainability and Communications Officer at
each scheduled Board meeting. This includes the results of engagement surveys and other
employee engagement activities, talent management, and health and safety within
ourbusiness units. The Board also uses other methods to monitor the culture of our
organisation and ensure that it reflects our purpose and our values. They include:
– Engaging directly and indirectly with the workforce, as described in more detail within
the ’Workforce engagement’ section and on pages 39 and 64.
– Reviewing whistleblowing reports and the outcome of internal investigations where
appropriate.
– Monitoring relevant KPIs such as health and safety and quality performance data.
See pages 39 to 42 for examples of how our people have been reflected in Board decision
making
Workforce engagement
Our people are at the heart of Dowlais, so it is vital that the Board can engage effectively
with them, understand their views and reflect them in its decision making.
The Board has chosen to establish a Workforce Advisory Panel (WAP) as one mechanism
bywhich it monitors employee engagement. The WAP is chaired by the Chief People,
Sustainability and Communications Officer. Other participants include the Group General
Counsel, the Chief HR Officers of each Business Unit, the Group HR Manager and other HR
representatives by invitation.
The WAP meets twice a year to review all workforce engagement mechanisms adopted
byeach business unit, relations between each business unit and relevant employee
representative bodies and to ensure the views of the workforce are taken into account
inexecutive decision making within each business unit.
The WAP is responsible for ensuring the Board understands the views of the workforce
asawhole and for assisting the Board in ensuring that the workforce’s interests are duly
considered in its decision making. This is done through the Chair of the WAP formally
reporting to the Board on its activities at least once ayear, and ensuring that these topics
are well understood by the Board at all times.
The Board received a report from the WAP at its November meeting which covered:
– A review of the business unit workforce engagement mechanisms and their outcomes.
– An update on relations between the business units and all relevant employee-
representative bodies.
– An update on how workforce views are taken into account in executive decision making
at business unit level.
Although the WAP is designed to ensure that workforce views are communicated to the
Boardin a structured and clear manner, the Board also engages with the workforce in a number
ofother more informal ways. This includes direct interaction with employees when visiting
theGroup’s sites, and where appropriate engaging with employee representatives. This form
of direct interaction helps ensure that the Board can receive ‘unfiltered’ views direct from
employees, in addition to the broader, more structured information provided via the WAP.
Further information about our people and culture can be found on pages 63 to 70.
89Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
THE BOARD'S ROLE IN OUR PURPOSE, OUR CULTURE AND OUR PEOPLE
Visiting our manufacturing and
engineering facilities is an important
way in which the Board can assess and
monitor our purpose and culture,
engage with our employees and better
understand our products, customers
and suppliers.
Visiting our Driveline plants in Poland
In October 2023, our Chair, Simon Mackenzie Smith and Senior
Independent Director, Celia Baxter, visited our GKN Automotive
manufacturing plants in Oleśnica, Poland. The two sites, located
2km apart, represent an important facility within our European
manufacturing footprint, supplying sideshafts and propshafts
toour customers’ European vehicle assembly plants.
The visit allowed the Directors extensive opportunities to
engage with our workforce and understand their views.
Itincluded meetings with local management teams, and time
spent reviewing the manufacturing and engineering operations,
during which they engaged with ouroperational teams who
work on our production lines and in important functions such
asHealth and Safety, Logistics, Quality and Engineering. This
included reviewing processes such as cold forging, machining,
assembly and painting of sideshaft and propshaft components,
as well as reviewing the sites’ extensive engineering and testing
facilities. The two Directors also received a workforce update,
including updates on employee engagement, social
responsibility and people strategy. They also held a meeting
with more junior employees, including high-potential talent,
allowing them to gain valuable insight into what attracts junior
employees towork for our businesses and how they see the
future development of their careers. Finally, they met with local
trade union representatives, to understand their views and
communicate our strategy.
Visiting our ePowertrain and Sinter Metals sites in Italy
In February 2024, the Dowlais Board visited two of our sites
inItaly. Our Automotive manufacturing plant in Bruneck
manufactures eDrive systems and ePowertrain components and
our state-of-the-art Powder Metallurgy plant in Sand in Taufers
produces sintered metal components. The Board then held
itsFebruary Board meeting at our Automotive plant.
The visit allowed the Board to better understand our
ePowertrain and Powder Metallurgy manufacturing and
engineering processes, and see first hand some of the energy
efficiency initiatives that have been successfully implemented
at these sites. Just as importantly, it allowed the Board to
engage with employees from our two largest businesses,
helping them understand the views of our people and
monitor culture.
Visiting our sites
90Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
AUDIT COMMITTEE REPORT
AUDIT COMMITTEE
REPORT
Dear shareholder,
I am pleased to present the Committee’s report for the period ended 31 December 2023.
This report describes how the Committee has fulfilled its responsibilities since its formation
following the demerger and listing of the Group in April 2023.
The Committee’s key objectives include assisting the Board in ensuring the integrity
oftheGroup’s financial reporting and the effectiveness of the Group’s risk management
andinternal control systems. The Committee also oversees the effectiveness of the internal
and external audit functions.
The Committee has held three meetings since the Company listed on the London Stock
Exchange on 20 April 2023. Further details regarding meeting attendance can be found on
page 86. The Committee also met in March 2024 to consider the Group’s full-year financial
results and this Annual Report and Accounts.
During this period the Committee focused on monitoring the integrity of the Group’s
financial reporting, risk management reporting, including the Group’s principal and
emerging risks and the internal controls environment. Further details of the Committee’s
activities are set out in this report.
Philip Harrison
Chair of the Audit Committee
20 March 2024
Composition of committee
The Committee is comprised of three independent Non-Executive Directors: Philip
Harrison as Chair, Celia Baxter and Shali Vasudeva. The biographies of the Committee
members are set out on pages 82 to 83. Philip Harrison has recent and relevant financial
experience and the Board has determined that the Committee as a whole has competence
in relation to the sectors in which the Group operates.
Philip Harrison
Chair of the Audit Committee
“The Committee has fulfilled its role in
monitoringthe Group’s processes relating
tofinancial reporting, risk management and
internal controls.”
912023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Dowlais Group plc
AUDIT COMMITTEE REPORT CONTINUED
Key responsibilities of the Committee
The Committee’s key responsibilities and objectives are set out in its terms of reference
and include:
– Reviewing and monitoring the integrity of the financial statements of the Company and
any formal announcements relating to the financial performance of the Group. This
includes providing advice to the Board as to whether the Annual Report and Accounts
are fair, balanced and understandable and providing the information necessary for
shareholders to assess the Company’s performance, business model and strategy.
– Reviewing, challenging and reporting to the Board on the going concern assumption
and the assessment forming the basis of the longer-term viability statement.
– Reviewing and, where necessary, challenging the consistency of accounting policies,
themethods used to account for significant or unusual transactions, and compliance
with accounting standards.
– Developing, implementing and monitoring the Group’s policy on external audit.
– Monitoring and evaluating the independence and effectiveness of the external audit
function and approving the external audit plan and fee.
– Taking into account relevant UK laws, regulations, the Ethical Standards and other
professional requirements and the relationship with the auditor as a whole.
– Developing and overseeing the selection process for the appointment of the external
auditor and in respect of an external audit tender, making a recommendation to the
Board on the appointment of the external auditor following on from such tender
process.
– Reviewing and where necessary challenging the provision of non-audit services by the
external auditor.
– Monitoring and reviewing the effectiveness of the internal control and risk management
systems.
– Reviewing the Company’s procedures for detecting fraud, and its systems and controls
for the prevention of bribery.
– Monitoring and evaluating the independence and effectiveness of the internal audit
function and approving the internal audit plan and fee.
The Committee’s terms of reference can be viewed at dowlais.com.
How we work
The Committee ordinarily plans to meet four times a year and meetings are scheduled
atappropriate times in the financial reporting cycle. This enables the Committee to review
the Annual Report and Financial Statements, the Interim Financial Statements and the audit
plan ahead of the year-end audit and to maintain a view of the internal financial controls
and processes throughout the year. Since the Company listed in April 2023, the Committee
has held three meetings. Individual member attendance at these meetings can be found
on page 86.
The Chair of the Board, Chief Executive Officer, Chief Financial Officer, Group Financial
Controller and General Counsel and Company Secretary attend Committee meetings on
aregular basis and the Chair of the Board attended all scheduled Committee meetings
in2023. Representatives from BM Howarth Ltd, the Group’s internal auditor, and Deloitte
LLP (Deloitte), the Group’s external auditor, attend all meetings by standing invitation.
The Committee holds a closed session with the representatives from the internal auditor
and external auditor without executive management present at each meeting.
Committee evaluation
During the year, the Committee undertook an internal effectiveness review. Further details
of the review can be found on page 88.
92Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
AUDIT COMMITTEE REPORT CONTINUED
Main activities
Since listing in April 2023, the Committee has focused on the following areas:
Financial Reporting • Reviewed and recommended to the Board for approval the half-year
and full-year Financial Statements and the Annual Report for the year
ended 31 December 2023.
• Reviewed the Company’s initial accounts for the period from 13 January
2023 to 10 August 2023 and recommended them to the Board
forapproval.
• Reviewed and approved a proposed change in the Group’s accounting
policy with respect to alternative performance measures related to
certain fair value items recognised on historical acquisitions.
External Audit • Received reports from the external auditor relating to the half-year
andfull-year Financial Statements.
• Reviewed and approved the Auditor’s letter of engagement.
• Reviewed management’s letter of representation for the half-year and
full-year Financial Statements.
• Reviewed and approved the auditor’s half-year and full-year plan
• Approved the Non-Audit Services Policy.
Internal Audit • Received regular reports from the Internal Auditor.
• Approved the Internal Audit Charter.
• Discussed the scope of internal audit and reviewed and approved the
proposed plan for 2024.
Risk Management
andInternal Controls
• Reviewed the Group’s risk management process.
• Undertook a robust assessment of the Group’s principal and
emergingrisks.
• Approved plans to expand the scope of the Group's non-financial
assurance processes.
Compliance • Received and reviewed regular reports on the Group’s whistleblowing
arrangements and anti-bribery and corruption compliance programme.
• Received and reviewed an annual fraud report.
• Considered proposals for improvements to the Group’s non-financial
assurance processes.
Priorities for 2024
– Consider the timing for conducting a full competitive tender for the provision
ofexternal audit services.
– Support the onboarding of Deloitte’s new lead audit partner.
– Focus on information and cyber security risk.
– Consider the outcomes of the process commenced in 2023 to expand the scope
oftheGroup’s assurance processes relating to certain existing non-financial controls
tobetter reflect the Group’s structure.
– Focus on maturing the Group’s risk management and internal control processes in line
with recently announced changes to the UK Corporate Governance Code.
Significant issues considered in relation to the Financial Statements
forthe year ended 31 December 2023
Asset impairment indicators, including goodwill
The Group tests goodwill annually for impairment and as required if there are indications
that goodwill might be impaired. In preparing the impairment assessments, management
makes certain assumptions over the growth rates, operating margins, discount rates and
long-term growth rates to be applied. The Group’s impairment testing utilised cash flow
projections included within one-year budgets and three- to five-year strategic plans.
The Committee reviewed the output of the detailed impairment assessment, challenging
management over the assumptions made and conclusions reached. Management
concluded that there was significant headroom for the Automotive group of cash
generating units (GCGU) but the Powder Metallurgy GCGU was impaired by £449 million.
The Committee agreed with these conclusions and has reviewed the sensitivity disclosures,
included within Note 12, and considers them appropriate.
Alternative Performance Measures
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. Whilst the Group has a defined policy over
the treatment of adjusting items, there is still some judgement to be applied as to the
classification of these items, specifically in regards to demerger and restructuring costs.
The Committee reviewed management’s paper outlining the nature of such items,
challenging the application of policy and consistency of treatment, ensuring that there
issufficient disclosure to explain the nature of these items.
Retirement benefit obligations
The Group has a number of pension plans that are significant in size. As at 31 December
2023, the retirement benefit obligation was a net deficit of £459 million (2022: £461 million).
The valuation of each plan is sensitive to the discount rate, inflation rate and mortality
assumptions made by management. The Committee has reviewed the assumptions made
and the sensitivity disclosures included within Note 23 and considers them appropriate.
93Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
AUDIT COMMITTEE REPORT CONTINUED
Financial reporting
The Committee has reviewed and recommended the approval of the Group’s half-year and
full-year Financial Statements, taking into consideration the areas of significant accounting
judgements, going concern and viability.
At the Board’s request, at its meeting in March 2024, the Committee considered whether
the Annual Report, when taken as a whole, was fair, balanced and understandable and
provided the information necessary for shareholders to assess the Company’s performance,
business model and strategy. The Committee reviewed the effectiveness of the processes
adopted by management in preparing the first Annual Report of the Company, which
included:
– Ensuring that all contributors involved in preparing the Annual Report understood the
requirements for creating a report that is “fair, balanced, and understandable”.
– Regular engagement with senior management to seek feedback on proposed content
and changes.
– Consultation with external parties to develop the Company’s first Annual Report,
including corporate reporting specialists, remuneration advisers and the external
auditor.
– Verification of non-financial information, key performance indicators and statements
contained within the Annual Report.
– Use of cold readers, including an external independent proof reader.
– Senior management review to ensure overall balance, consistency and a fair reflection
ofthe performance of the Group.
The Committee reviewed the form, content and consistency of the narrative in the Annual
Report and Financial Statements and the associated processes and controls ahead of
recommending approval of the Annual Report and Financial Statements to the Board.
A longer-term viability review was undertaken by management, covering the three-year
period to 31 December 2026, including its going concern assessment. The Committee
reviewed and considered management’s assessment, challenging the key assumptions
used and the downside scenarios applied in relation to the Group’s key risks. Based on
itsreview, the Committee considers it appropriate to prepare the Financial Statements
onthe going concern basis and approved the Viability Statement. The Viability Statement
and the going concern disclosure can be found on pages 78 and 143.
External Audit
During the period, the Committee oversaw the work undertaken by the Group’s external
auditor Deloitte. The Committee approved the external audit plan for the full-year
Financial Statements, terms of engagement and the proposed audit fees.
The Committee conducted a review of the effectiveness of Deloitte which covered its work
during the 2023 interim review and the subsidiary audit process. The review took the form
of a questionnaire which was circulated by the Company Secretary to members of the
Committee, members of senior management, and the finance teams in our business units.
The review process was designed to assess the performance, effectiveness, independence
and resources of the auditor. The review concluded that the auditor was effective,
objective and had maintained independence.
Alongside the results of the effectiveness review, the Committee received a confirmation
of independence from the auditor for the year ending 31 December 2023 at its March
2024 meeting.
In accordance with the FRC’s Ethical Standard the lead audit partner should rotate every
five years. Including his tenure as lead partner at Melrose Industries PLC, the current lead
partner, Edward Hanson has completed his fifth year and as such Deloitte has proposed
anew partner, John Charlton, to succeed him for the 2024 financial year, subject to their
reappointment as the Group auditor.
In accordance with section 489 of the Companies Act 2006, a resolution proposing the
reappointment of Deloitte as Group auditor will be put to shareholders at the 2024 AGM.
There are no contractual obligations in place which would restrict the Group’s
choiceofauditor.
The Committee is conscious that, as a public interest entity (PIE), Dowlais Group plc is
subject to the rules of the Competition and Markets Authority’s Statutory Audit Services
for Large Companies Market Investigation (Mandatory Use of Competitive Processes and
Audit Committee Responsibilities) Order 2014. Although Dowlais only became a PIEupon
its creation this year, Deloitte has audited the Group’s Business Units since 2016, first in
itscapacity as auditor of GKN plc and subsequently in its capacity as auditor of Melrose
Industries PLC. The Committee is therefore considering at what point it would
beappropriate to conduct a full competitive tender for the provision of external audit
servicesand will provide an update on this in 2024.
94Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
AUDIT COMMITTEE REPORT CONTINUED
During the year BM Howarth conducted 26 audits across the Group’s sites and evaluated
the reliability and integrity of financial information as reported to the Dowlais central
finance function; accounting procedures and internal controls affecting financial
statements; and compliance with accounting policies and procedures as set out in the
Group’s Accounting Policy and Procedures. The key findings of each internal audit were
discussed and agreed with management from the business unit and representatives from
the Dowlais central finance function.
BM Howarth provides regular reports to the Committee on the activities that it has
undertaken which has enabled the Committee to review the effectiveness of the Internal
Audit function on an ongoing basis during the period.
At its November meeting, the Committee agreed to commence a process to expand the
scope of its assurance processes relating to certain existing non-financial controls, to better
reflect the Group’s structure. Work is ongoing in that regard and will continue in 2024.
Internal controls
The Committee is responsible for reviewing and monitoring the Group’s internal control
and risk management systems. Features of the Group’s internal control environment
include:
– A comprehensive system of financial reporting, business planning and forecasting.
– A defined delegation of authority structure, with clearly defined matters reserved
forthe Board, Executive Committee members, Group central functions and other
defined levels ofauthority.
– Formal documentation of Group policies and procedures, including those relating to
Accounting, Audit, Compliance, Ethics, Governance, Legal, Risk, Secretariat, Tax and
Treasury.
– The close oversight of the Executive Committee in day-to-day operations, including
regular meetings with business unit management teams and senior managers to review
operational activities.
– Regular reporting on the effectiveness of the Group’s internal controls to the
Committee and the Board.
– Internal assurance processes, including rigorous financial assurance processes in each
business unit and an annual legal and compliance assurance process.
– Regular Board review of Group strategy, including forecasts of the Group’s future
performance.
– Extensive employee training programmes, targeted at key risk areas.
– Review by the Committee of internal audit reports and reports from the external auditor.
Non-Audit services
The Committee has adopted a non-audit services policy which governs the provision of
non-audit services and is designed to safeguard the independence and objectivity of the
external auditor. The policy complies with the FRC’s 2019 Revised Ethical Standard and
details the circumstances in which the auditors may be permitted to undertake non-audit
services for the Group and which services are prohibited.
The Audit Committee has pre-approved the use of the auditor for non-audit services
where they are included in the policy’s list of permitted non-audit services and:
– They are approved by the CFO and do not exceed £25,000; or
– They are approved by the Chair of the Audit Committee or their designate and do not
exceed £50,000.
All requests for permitted non-audit services are assessed with regards to whether the
provision could impair the external auditor’s independence or objectivity and the
safeguards in place to mitigate such threats; whether the skills and experience of the
external auditor makes it the most suitable supplier of the services; and the nature of the
non-audit services and fees (both individual and aggregate). The total fees for non-audit
services provided by the external auditor must not exceed 70% of the average of the
statutory audit fee for the Company, of its controlled undertakings and of the consolidated
Financial Statements paid to the auditor in the last three consecutive financial years.
During the period ended 31 December 2023, the external auditors undertook non-audit
work relating to a review of the Group’s interim report and assurance services relating
tocertain regulatory compliance matters across several different components. Details of
the fees of £0.5 million paid to the external auditors are set out in Note 7 to the Financial
Statements.
Internal Audit
The Group’s internal audit function, which is outsourced to BM Howarth, supported where
needed by EY, provides independent risk-based and objective assurance, advice and
insight on the Group’s governance, risk management and control processes. The Committee
oversees the work of internal audit including approving the internal audit plan and scope
ofwork. The Committee approved the Internal Audit Charter at its June meeting and has
reviewed and agreed the plan for 2024.
95Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
The Group’s internal controls were reviewed by the Committee throughout the year and
subject to a formal review by the Committee in March 2024. This included a review of:
– The key areas of the Group’s control environment, including governance, financial and
reporting, legal and compliance, and operational-related controls.
– Identified control failures during the year, underlying causes and lessons learned,
although no significant failings or weaknesses were identified.
– Planned improvements, which included an expansion of assurance processes related to
the Group’s non-financial controls in areas such as legal and compliance, health and safety
and business continuity.
The review also involved discussion by the Committee with executive management.
Aspart of the review, the Committee concluded that there were no material weaknesses
inthe Group’s internal controls. The findings of the review were then shared with the Board.
Risk management
The Committee is responsible for monitoring the Group’s risk management processes and
controls, and making recommendations to the Board regarding risk appetite, risk controls
and risk mitigation. This includes reviewing the Group’s risk management framework, its
principal and emerging risks, key controls and their oversight at least once per year.
The Group’s risk management systems were reviewed by the Committee throughout the
year and subject to a formal review by the Committee in June 2023, September 2023,
November 2023 and March 2024. As part of its review, the Audit Committee considered
the detective and remedial controls which relate to those risks and whether these are
considered to be operating effectively.
Aspart of the review, the Committee concluded that the Group’s risk management
systems were appropriate. The findings of the review were then shared with the Board.
An overview of the Group’s risk management processes and the Group’s principal risks
aredescribed in more detail on pages 71 to 76.
Whistleblowing
The Committee oversees the Group’s whistleblowing arrangements. The Company’s
Whistleblowing Policy encourages employees and others to ‘Speak Up’ and raise any issues
of concern they may have, including any potential illegal or unethical practices. A
confidential whistleblowing hotline, which is externally managed, is available and issues
canbe raised anonymously. Any potential concerns that are raised, either via the hotline or
by other means, are followed up and investigated as appropriate. The Committee receives
a whistleblowing report at each meeting which includes details of ongoing investigations
and the outcomes of closed investigations. In 2023, 87 whistleblowing calls or disclosures
were made across the Group, all of which were investigated and resolved. No material
compliance or control failures were identified as a result of such disclosures.
Anti-bribery and corruption and fraud
The Group has a zero-tolerance approach to bribery and corruption and the Committee
has oversight of the Group’s anti-bribery and corruption systems and controls. The Group’s
anti-bribery and corruption compliance framework includes extensive measures to combat
the risk of bribery and corruption, including risk assessments, mandatory training
programmes, supplier, agent, intermediary and counterparty due diligence and approval
processes, donations and sponsorship procedures and gifts and hospitality procedures.
The Committee receives a report at each meeting which details any current bribery and
corruption investigations or incidents and any relevant outcomes. No incidents of bribery
and corruption involving the Group or its employees were identified in the year.
The Committee is also responsible for reviewing the Group’s procedures for detecting
andpreventing fraud. The Committee received an annual fraud prevention report at its
November meeting which provided the Committee with an update on the Group’s fraud
prevention procedures, incidents investigated in the year and planned improvements.
AUDIT COMMITTEE REPORT CONTINUED
96Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOMINATION COMMITTEE REPORT
NOMINATION
COMMITTEE REPORT
Dear shareholder,
I am pleased to present the Committee’s report for the year ended 31 December 2023.
Thisreport describes how the Committee has fulfilled its responsibilities since its formation
following the demerger and listing of the Group in April 2023.
The Committee’s key responsibilities include leading the process for appointments to the
Board and ensuring succession plans are in place for the Board and senior management
team, including overseeing the development of a diverse succession pipeline.
The Committee held two meetings since our listing, and further details regarding meeting
attendance can be found on page 86. During this period the Committee has focused on
Board balance, composition and skills, and succession planning. The Committee also agreed
the Board and Committee evaluation process for the period ended 31 December 2023.
Details of the Committee’s activities are set out in this report.
Simon Mackenzie Smith
Chair of the Nomination Committee
20 March 2024
Composition of the Committee
The Committee is comprised solely of independent Non-Executive Directors: Simon
Mackenzie Smith as Chair; Celia Baxter, Phil Harrison, Fiona MacAulay, Alexandra Innes and
Shali Vasudeva. The biographies of the Committee members are set out on pages 82 to 83.
Key responsibilities of the Committee
The Committee’s key responsibilities and objectives are set out in its terms of reference
and include:
– Monitoring the membership of the Board (including structure, size, composition,
skills,knowledge, experience and diversity) and recommending any adjustments
itthinks necessary to the Board.
– Leading the process for appointments to the Board.
– Ensuring plans are in place for orderly succession to the Board and senior
managementpositions.
– Overseeing a diverse pipeline for succession for the Board and senior management team.
– Approving the Company’s Diversity, Equity and Inclusion policy.
– Overseeing the Board and Committee evaluation process.
The Committee’s terms of reference can be viewed at dowlais.com.
Simon Mackenzie Smith
Chair of the Nomination Committee
“Our focus has been on ensuring we develop a
strong and diverse talent pipeline so we have
the skills and capabilities we need, both now
and in the future.”
97Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Dowlais Group plc
NOMINATION COMMITTEE REPORT CONTINUED
How we work
The Committee meets at least twice per year, with additional meetings to take place as
necessary. The Chief Executive Officer, General Counsel and Company Secretary and Chief
People, Sustainability and Communications Officer attend Committee meetings where
necessary and appropriate. Since listing in April 2023, the Committee has held two
meetings. Individual attendance at these meetings can be found on page 86.
Main activities
Since listing in April 2023, the Committee has focused on the following areas:
Board composition,
balanceand skills
Discussed and approved a Board skills matrix which identifies the skills
necessary to support Dowlais’ strategy.
Reviewed the completed skills matrix as part of a discussion on Board
succession planning.
Received an update on diversity and inclusion.
Reviewed senior management gender and ethnicity data and discussed
potential diversity targets.
Commenced a process to identify and appoint one or more additional
Non Executive directors.
Board and Committee
evaluation process
Agreed the proposal for the annual Board and Committee evaluation
andprovided feedback on the evaluation questionnaires.
Board composition and succession planning
Since Dowlais’ demerger and listing in April 2023, the Committee has considered the
composition and skills of the Board. At its June meeting, the Committee agreed a Board skills
matrix which details areas of expertise that the Committee considers will support Dowlais’
strategic goals. The matrix also includes information relating to diversity, ethnicity and tenure.
The Committee discussed Board succession planning at its November meeting, focusing
onsuccession planning for the CEO and CFO. The Committee also discussed the potential to
appoint additional Non-Executive Directors, taking into consideration the fact that theNon-
Executive Directors are all newly appointed. Although the Board were all recentlyappointed,
we recognise that it is important that we ensure we have well-considered succession plans in
place, and in 2024 the Committee will continue to focus onsuccession planning, including
developing a diverse pipeline, both at Board level and forsenior management.
Now that the process to establish Dowlais as a stand-alone plc has completed, Geoffrey
Martin, Executive Director, has informed the Board that he will not stand for election as
aDirector at the 2024 AGM and will therefore step down from the Board with effect from
the conclusion of the meeting. In addition, Alexandra Innes, Non-Executive Director,
hasalso informed the Board that she will not stand for election as a Director at the 2024
AGM and will therefore also step down from the Board with effect from the conclusion of
the meeting. The Board would like to thank both Geoffrey and Alexandra for their valuable
contribution to Dowlais and its businesses, both prior to and following its listing in April
2023. All other Directors have confirmed they intended to stand for election at the
Company’s 2024 AGM. The Board has commenced a process to review its composition,
which is being led by the Committee.
Board diversity, equity and inclusion
Skills, experience and expertise are key to determining any appointment to the Board,
irrespective of any personal characteristic, trait or orientation. However, Dowlais recognises
the value of diversity to its long-term success and achieving its strategic objectives. Both
the Board and the Committee therefore place great emphasis on ensuring that the Board’s
membership and the pipeline for succession planning is diverse.
The Board has adopted a Board diversity policy which applies to the Board and its
Committees and outlines the Group’s commitment to making appointments on the basis
ofmerit whilst taking into account various factors including the relevant balance of skills,
knowledge and experience needed to ensure a rounded Board. The Nomination
Committee leads the Board appointment process and, as set out in the policy, takes into
consideration characteristics such as race, ethnicity, sexual orientation, disability, age,
nationality, socio-economic background and gender in order to encourage a diverse range
of candidates. The policy can be viewed at dowlais.com.
In accordance with Listing Rule 9.8.6, we confirm that as at 31 December 2023, our Board
composition was 40% women. We have a female Senior Independent Director who is also
Chair of our Remuneration Committee and one of our Board Directors is from a minority
ethnic background. As at 31 December 2023, 33.3% of Dowlais’ senior management team
and direct reports were women. We are supportive of the FTSE Women Leaders Review
ongender diversity and the Parker Review on ethnic diversity, and we have already met the
Parker Review objective of having one Board member from a minority ethnic background
by 2024. The Group’s diversity data can be found on page 66.
Board and Committee evaluation
At its June meeting, the Committee discussed the proposal for the 2023 Board and
Committee evaluation which was conducted by way of a questionnaire facilitated by
theCompany Secretary. Committee members provided feedback on the content of
theevaluation questionnaires and reviewed the agreed timetable for the review.
TheCommittee further considered and agreed the proposed annual evaluation process
forthe Chair of the Board and the individual Directors.
See pages 88 for further details of the Board and Committee evaluation process
98Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
REMUNERATION COMMITTEE REPORT
REMUNERATION
COMMITTEE REPORT
Introduction
On behalf of the Board, I am delighted to present the first Directors’ Remuneration Report
for Dowlais Group plc, following the demerger and Dowlais’ successful admission to the
London Stock Exchange on 20 April 2023.
The key features of the Directors’ Remuneration Policy (Policy) were disclosed in the
prospectus published on 3 March 2023. Shareholders voted overwhelmingly (99.7% in
favour of votes cast) to accept the demerger on the terms set out in the prospectus and
nonegative feedback was received regarding executive remuneration.
ThefullPolicy, as set out in this report, will be submitted to shareholders for approval
atour2024 AGM.
Dowlais’ remuneration policies and processes are compliant with all applicable regulatory
requirements and consistent with the UK Corporate Governance Code.
Alignment of incentives to strategy
With the intent to create a direct and tangible link between incentive measures and
strategic business priorities, the Committee identified the following key measures for use
inthe 2023 incentives:
– Adjusted operating profit, entity cash flow and strategic targets for the annual bonus
plan, reflecting the significance of profitable cash generation to delivering our 2023
businessplan.
– Adjusted earnings per share (EPS) annual growth and total shareholder return (TSR)
ranking for the performance share awards, reflecting the importance of sustainable
growth to long-term value creation and alignment with shareholder interests.
The Committee regards these measures as key to the successful execution of Dowlais’
strategy and considers that they reflect the priorities of the Company following demerger.
Further information about the measures and targets set for the 2023 incentives is provided
on pages 114 to 117.
Remuneration decisions related to the demerger
On demerger, the Committee implemented remuneration arrangements for Executive
Directors in line with the key features of the Policy, as set out in the prospectus.
Thisincluded targets for the 2023 annual bonus plan and performance share awards
thatwere set prior to demerger.
The Committee set the remuneration levels, benefits and contractual terms for the
Executive Directors to reflect the scope of roles in the newly listed company, the
“Our Remuneration Policy and practices are
aligned to our strategy and seek to drive
outperformance.”
Celia Baxter
Chair of the Remuneration Committee
992023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Dowlais Group plc
REMUNERATION COMMITTEE REPORT CONTINUED
international scale of the business and the current talent market. As these were internal
appointments, the Committee also had to consider the remuneration packages previously
set by Melrose. Details of remuneration payable to Executive Directors are set out on
pages 113 to 117.
Executive Directors were appointed as Directors of Dowlais on 10 February 2023, however,
their Dowlais employment and remuneration terms were effective from 20 April 2023.
2023 remuneration decisions
The key discussions of the Committee and decisions taken since 20 April 2023 were:
– Ensuring there is appropriate balance between the business need for meaningful
incentivisation formanagement and the wider context in which the business operates,
taking into account the differing expectations of stakeholders.
– Tendering for and selecting an independent adviser to the Committee.
– Approving awards of performance shares to the Executive Directors and other
seniorexecutives.
– Approving targets for the 2023 annual bonus and performance share awards.
– Considering the right approach to linking ESG measures to executive compensation.
– Considering and approving shareholder engagement timeline and materials.
– Considering feedback received from shareholders when making decisions on
remuneration andfinalising the proposed Remuneration Policy for 2024 to 2027.
– Reviewing the salaries of the Executive Directors, taking into account salary increases
implemented across the wider workforce.
– Approving performance measures, targets and weighting for the 2024 annual bonus and
performance share awards.
– Approving the development of a unified ‘omnibus’ share plan (OSP) as the delivery
mechanism for the Company’s share-based awards in 2024, including: performance
shares, deferred bonus shares and restricted shares (for recruitment and retention
purposes below the Executive Committee only).
– Considering whether the formulaic outcome of the 2023 annual bonus was aligned
withbusiness performance and stakeholder experience over the relevant period.
Business achievements in 2023 and approach to pay
You can read about the achievements of our business during 2023 in more detail in the
Strategic Report starting on page 25. Highlights for 2023 include:
– An increase in adjusted revenue, up 6.3% on prior year on a constant currency basis.
– An increase in adjusted operating profit, up 10% on prior year on a constant currency basis.
– Adjusted operating margin expansion.
– Cash generation and net debt ahead of expectations.
– Record order intake in Automotive with over £6 billion of forecast lifetime revenue wins.
– Continued adaption of the product portfolio to the EV transition, with commercial
progress in magnets, powder for batteries and other EV-specific products.
In line with the financial performance outcomes described in the Strategic Report, adjusted
operating profit and entity cash flow were achieved at 93% and 183% of the maximum
bonus targets respectively, details of which are set out on pages 114 to 115. Combined
withperformance against the strategic objectives, this led to a formulaic outcome of 91%
ofmaximum annual bonus opportunity for the Executive Directors.
The performance share award granted to Executive Directors is not scheduled to vest
until2026, so there were no long-term incentive outcomes in 2023. Full details of the 2023
remuneration paid to Directors and the basis for its determination are set out on pages 113
to 117.
Stakeholder experience in 2023
When making remuneration decisions the Committee considered the experience of a wide
range of the Group’s key stakeholders during the 2023 financial year.
– Good health and safety performance across the Group, with an Accident Frequency
Rateof less than 0.1, better than our target.
– Good quality performance, with single-digit parts per million (PPM) defect rates.
– Successfully navigating the UAW strikes in the US and supporting our people through
that disruption.
– Progress on our ESG strategy, with submission of SBTi targets for both Automotive and
Powder Metallurgy.
– In respect of 2023, an interim dividend was announced with our H1 results and paid on
20 October 2023, and a final dividend has been recommended, subject to the approval
of shareholders at the forthcoming 2024 AGM.
The Committee reviewed the evidence of performance and considered the context of the
wider experience of our key stakeholders; it concluded the annual bonus outcome for 2023
appropriately reflected the Company’s performance and was commensurate with the
broader stakeholder experience in the period. It was therefore not felt necessary to apply
any discretion to amend the outcome. The Committee also concluded that the
remuneration framework had operated as intended, both in terms of appropriately
incentivising corporate performance and in respect of quantum.
100Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
REMUNERATION COMMITTEE REPORT CONTINUED
Our Remuneration Policy for 2024 to 2027
As the Policy was only implemented following the demerger in April 2023, there has been
insufficient time for the Committee to fully assess its operation. Therefore, we do not
propose to change the structure of remuneration in the Policy that will be submitted for
shareholder approval at the May 2024 AGM. We will continue to take into consideration the
broader environment and context in making decisions in respect of the Executive Directors’
pay throughout the lifetime of this Policy.
To provide greater alignment with investor guidelines and market typical practice,
wepropose to replace the existing performance share plan (PSP) with a unified 'omnibus'
share plan (OSP) as the sole delivery mechanism for the Company's share-based awards,
including the 2024 long-term share incentives to Executive Directors. Consistent with good
practice, long-term incentive awards are ordinarily granted shortly after full-year results
areannounced (in this year, on 21 March 2024), but in 2024 awards will be granted under
theOSP immediately following the May AGM, subject to shareholder approval of the plan.
To ensure participants are in the same position they would have been had the 2024 grant
not been delayed by the need to obtain shareholder approval, the Committee intends
togrant byreference to the share price at the end of March 2024 (that is when the awards
would ordinarily have been granted). For the avoidance of doubt the performance period
will be three years from 1 January 2024 to 31 December 2026.
Policy application in 2024
The Committee carefully considered whether any increases should be awarded to Executive
Directors’ salaries in 2024. Factors considered in making the decision included investors’
expectations and external environment, Company performance, planned salary increases
forthe wider employee population, personal performance of the executives, competitive
market positioning of the current salaries and total remuneration packages, and the
prevailing talent market.
The Committee noted that in 2023 the Company delivered strong performance against
itsfinancial and strategic objectives. On this basis, it resolved that 2024 salaries for Executive
Directors should be increased by 3.5%, an increase that took into account the average
increase of 4% that had been budgeted for the wider workforce in the UK.
The structure, performance measures and weightings of the 2024 annual bonus plan willremain
largely unchanged from 2023. 2024 annual bonus targets are considered commercially sensitive
and will be disclosed in the 2024 Annual Report. In line with the Policy, Executive Directors
whodo not meet the minimum shareholding requirement will berequired to defer 30% of
theirannual bonus award into shares of the Company for two years and which will be subject
tomalus and clawback provisions.
The structure, performance measures and weightings of the 2024 performance share awards will
remain unchanged from 2023. The Committee reviewed and set EPS growth targets that
accurately reflect the current business environment whilst continuing to be sufficiently stretching.
Before approving the 2024 performance share awards, the Committee noted the share price
volatility experienced by our shareholders since the demerger, which is not uncommon
following a listing. The Committee also noted the strong financial performance of Dowlais and
the Executive Directors. Recent shareholder feedback has also questioned whether long-term
incentive awards are sufficiently competitive taking into account business complexity and the
global remit of the Executive Directors’ roles. After much discussion, the Committee concluded
that the 2024 long-term incentive awards would not be scaled back and would be granted at
the same level as in 2023. However, the Committee noted that it has discretion within policy to
scale back vesting to avoid windfall gains.
Engagement with our workforce
We operate a range of engagement mechanisms across the business, overseen by aWorkforce
Advisory Panel to ensure effectiveness. The primary methods include engagement surveys, skip-level
meetings and employee town halls (both local and global). Further details are provided on page 119.
Whilst we have not directly consulted on executive remuneration in the limited time since the
demerger, the wider workforce can ask questions and provide feedback on this topic through
our engagement mechanisms referred to above.
Engagement with our shareholders
Shareholder views, whether directly or indirectly expressed, together with relevant guidance and
emerging trends, are carefully considered when reviewing reward design and outcomes. The key
features of the Policy were disclosed in the prospectus published on 3 March 2023.Shareholders
voted overwhelmingly to accept the demerger on the terms set out intheprospectus and no
negative feedback was received from shareholders regarding executiveremuneration.
We wrote to our major shareholders in December 2023 seeking feedback onthe proposed 2024 Policy.
At our AGM in May 2024, shareholders will be asked to vote on the Policy and the Remuneration
Report. I hope that the Committee will have your support on both of these resolutions.
As Committee Chair, I continue to be available to engage with shareholders who wish to
discuss the proposed Policy, or any of the content set out in this report, ahead of the 2024 AGM.
Celia Baxter
Chair of the Remuneration Committee
20 March 2024
101Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
REMUNERATION COMMITTEE REPORT CONTINUED
REMUNERATION AT A GLANCE
Summary of the Directors’ Remuneration Policy application in 2023 and 2024
The information below summarises how the remuneration framework set out in the demerger prospectus was applied in 2023, and how the Policy proposed for 2024 to 2027 will apply
during 2024.
Element 2023 2024 2025 2026 2027 Application for 2023 Application for 2024
Base salary Base salaries from Admission:
– CEO: £890,000
– CFO: £630,000
Increases of 3.5% applied so that salaries from 1 January 2024 are:
– CEO: £921,200
– CFO: £652,100
(Average budgeted increase for UK workforce as a whole is 4%.)
Benefits Provide market-competitive and cost-effective benefits enabling the
recruitment and retention of Executive Directors
Benefits will operate in line with the Policy
Retirement
benefits
Employer contributions:
– CEO: 12% of salary
– CFO: 12% of salary
No change from the Policy which applied on Admission
Annual bonus
Deferral period
Maximum annual bonus opportunities from Admission:
– CEO: 200% of salary
– CFO: 150% of salary
2023 performance measures:
– 40% adjusted operating profit
– 40% entity cash flow
– 20% strategic / ESG objectives
No change from the Policy which applied on Admission
No change to performance measures for 2024
Performance
shares
Vesting period Holding period
2023 performance share award levels:
– CEO: 300% of salary
– CFO: 200% of salary
2023 performance measures:
– 50% adjusted EPS annual growth
– 50% TSR ranking against comparator group
Vested awards are subject to a 2-year holding period
No change from the Policy which applied on Admission
Awards will be granted under a new Omnibus Share Plan (OSP),
subject to shareholder approval at the 2024 AGM
No change to performance measures for 2024
Share ownership
requirements
Minimum share ownership requirement:
– CEO: 300% of salary
– CFO: 300% of salary
No change from the Policy which applied on Admission
What performance means for Executive Directors’ pay in 2023
Remuneration packages are designed to ensure strong alignment between individual pay and Company performance. 2023 saw the Company perform strongly against its financial
andstrategic objectives which has been appropriately reflected in the incentive outcomes, as set out in the Annual Report on Remuneration.
Single total figure of remuneration for 2023 (Audited)
CEO Liam Butterworth CFO Roberto Fioroni
£1,126,518
£714,606
Fixed Pay Variable Pay
£598,159£512,141
For more information on how this iscalculated see page 113.
2023 Annual Report 102Dowlais Group plc
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
DIRECTORS' REMUNERATION POLICY
DIRECTORS’ REMUNERATION POLICY
Dowlais is a specialist engineering group whose purpose
isengineering transformation for a sustainable world.
This section sets out the Directors’ Remuneration Policy (Policy)
proposed for shareholders’ approval at the 2024 AGM. The
keyelements of the Policy were disclosed in the Company’s
prospectus published on 3 March 2023.
The Remuneration Committee (Committee) will consider the Policy annually to ensure
itremains aligned with strategic objectives. Subject to approval by shareholders, it
isintended that the Policy will apply immediately from the 2024 AGM for three years.
Ifamendments are required to the Policy within that timeframe, for example due to
changes to strategy or competitive pressures, it will first be presented to be voted upon
by shareholders.
As described in the Company’s prospectus published on 3 March 2023, Geoffrey Martin,
who was appointed an Executive Director of Dowlais, will not receive any remuneration
from the Company in connection with his appointment. Given this, references to the
Executive Directors in this Policy do not include Geoffrey Martin.
Committee process to determine the Policy
The process the Committee went through in determining the Policy included the
followingsteps:
– Reviewing the remuneration arrangements for Executive Directors with a particular focus
on alignment with business strategy and priorities.
– Seeking advice from its independent remuneration adviser on general best practices,
the requirements of the UK Corporate Governance Code, relevant regulations and proxy
adviser and investor views.
– Considering wider workforce remuneration.
– Consulting with the Chair of the Board, CEO, CFO, Chief People, Sustainability and
Communications Officer (CPSCO) and other key stakeholders on the proposed Policy.
In its deliberations on the new Policy, the Committee sought to minimise potential conflicts
of interest by ensuring no Director or employee participated in discussions or decisions
relating to their own remuneration and by seeking independent advice. Key stakeholders
were kept well informed to ensure alignment between executive and wider employee
remuneration structures.
The Committee’s strategy was to establish a Policy that:
– Drives the success of the Company and the delivery of its business strategy, for the
benefit of its stakeholders.
– Creates shareholder value.
– Provides an appropriately competitive package to attract, retain and motivate
executive talent for a group of its size and nature, and which sources talent globally.
– Is aligned with the Company’s business priorities, culture, wider employee remuneration
structures and best practice.
The Company’s remuneration policies and processes are fully compliant with all regulatory
requirements and may be amended from time to time to ensure continued compliance.
The Policy will allow implementation of the remuneration strategy through a combination
of base salary, retirement and other benefits, annual bonus and long-term incentives.
103Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
DIRECTORS’ REMUNERATION POLICY CONTINUED
Remuneration Policy Table
Fixed remuneration
Base salary
Purpose and link
tostrategy
To recruit and retain Executive Directors of the calibre and talent required
to deliver Dowlais’ strategic objectives and priorities.
Operation Salaries are normally reviewed annually, typically any increase with effect from
1 January. Ordinarily, when reviewing salaries, the Committee will consider factors
including:
– Business performance.
– The complexity and international spread of the business.
– Personal performance, skills and expertise.
– Independently sourced data for relevant comparator groups.
– Salary increases awarded to the Dowlais executive management team and the
wider Dowlais Group workforce.
Maximum
opportunity
There is no formal maximum limit and, ordinarily, salary increases will be no higher
than the average increases for employees across the wider Group. However,
increases may be higher to reflect a change in the scope of an individual’s role,
responsibilities or experience, or in other exceptional circumstances.
Should a new Executive Director have a base salary set below the previous
incumbent’s level, or below market level, the Committee reserves the right to
make phased increases, which may be above the wider employee level, subject
tothe individual’s development in role.
Performance
framework
The results of an individual’s annual performance assessment and business
performance are considered when reviewing salary levels.
Benefits
Purpose and link
to strategy
To recruit and retain Executive Directors of the calibre and talent required
to deliver Dowlais’ strategic objectives and priorities with market-
competitive and cost-effective benefits, which are consistent with an
individual’s role and the location in which they operate.
Operation Executive Directors are eligible to receive benefits consistent with other Group
employees and market practice, which may vary by location. This typically
includes, but is not limited to:
– Car benefit.
– Private medical insurance (including eligibility for the Executive Director’s
spouse or partner and eligible dependent children).
– Health checks.
– Life assurance.
– Group income protection.
– Directors’ and Officers’ liability insurance and the indemnity provided by the
Company in the form provided to all Directors.
Operation
(continued)
Executive Directors based in the UK are eligible to participate in any all-employee
share schemes which may be established by the Group, on the same terms as
other employees.
In line with the policy for other employees, Executive Directors may be eligible
toreceive relocation allowances and international transfer-related benefits where
appropriate.
Other limited benefits may be provided to new Executive Directors based
onindividual circumstances as deemed necessary and appropriate by the
Committee.
Maximum
opportunity
Whilst there is no maximum level of benefits prescribed, they are generally set
atan appropriate market-competitive level determined by the Committee.
Performance
framework
None.
Retirement benefits
Purpose and link
tostrategy
Provide market-competitive post-employment benefits (or cash
equivalent) to recruit and retain Executive Directors of the calibre required
to deliver Dowlais’ strategic objectives and priorities.
Operation Executive Directors are eligible to receive a company contribution to an individual
defined contribution pension arrangement which they may elect to receive as a
cash payment in lieu of such contributions.
Base salary is the only element of remuneration that is used to determine such
retirement benefits.
Maximum
opportunity
The maximum contribution of 12% of base salary for Executive Directors is in line
with that available to the wider workforce in the country where the Executive
Directors are based for employment purposes, currently being the United
Kingdom.
Performance
framework
None.
104
Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
DIRECTORS’ REMUNERATION POLICY CONTINUED
Variable remuneration
Annual bonus
Purpose and link
tostrategy
To incentivise and reward execution of the business strategy on an annual
basis. Considers individual behaviours and contributions. The use of deferral
into the Company’s shares delivers longer-term shareholder alignment.
Operation Performance measures, targets and weightings will typically be set by the
Committee at the start of the year to align with the Company’s strategy and
goals. After the end of the year, the Committee determines the extent to which
these have been achieved.
Once set, performance measures and targets will generally remain unaltered
unless events occur which, in the Committee’s opinion, make it appropriate
tomake adjustments to the performance conditions so that they maintain their
commercial relevance.
Performance is assessed on an annual basis, using a combination of the payouts
forperformance against each of the targets.
The Committee has discretion to adjust the formulaic bonus outcomes both
upwards and downwards (including to zero) to ensure alignment with pay for
performance, taking into account shareholder and broader stakeholder
experience.
Executive Directors will be required to defer 30% of their annual bonus into
ashare-based award for a period of two years, where they do not meet the
minimum shareholding requirement.
Dividend equivalent payments will normally accrue on deferred bonus awards
during the deferral period, to the extent the awards vest. The calculation of these
payments may assume the reinvestment of dividends.
Annual bonuses and deferred bonus shares are subject to malus and clawback
provisions (see page 106 for details). The treatment of bonus payments upon
cessation of employment is described on page 109.
Maximum
opportunity
The maximum bonus opportunities are 200% of salary for the CEO and 150% for
the CFO.
Performance
framework
Performance measures may be a mix of financial and non-financial metrics,
although it is expected that the majority will be financial metrics.
Financial performance will be assessed against one or more key metrics of the
business, determined on an annual basis. The weighting between metrics will be
determined by the Committee each year according to business priorities.
For financial targets, not more than 25% of the potential bonus opportunity will be
payable for achieving threshold performance rising on a graduated scale to 100%
of potential bonus opportunity for maximum performance. Threshold
performance is the level of performance required for the bonus to start paying.
Performance
framework
(continued)
For non-financial targets, the structure of the target will vary based on the nature
of the target set and it will not always be practicable to set targets using a
graduated scale so payout may take place in full if specific criteria are met infull.
The Committee will provide appropriate levels of disclosure on a retrospective
basis of the targets used in the annual bonus plan in the subsequent Directors’
Remuneration Report.
The financial performance measures for 2024 are adjusted operating profit
andentity cash flow with each determining up to 40% of the maximum potential
bonus opportunity. The remaining 20% of the bonus opportunity will be
determined by reference to non-financial strategic objectives.
Performance share awards
Purpose and link
tostrategy
To incentivise and reward long-term performance and align the interests
ofExecutive Directors with those of shareholders. The post-vesting holding
period delivers longer-term shareholder alignment.
Operation Under the Omnibus Share Plan (OSP), awards may be granted in the form of
conditional share awards, nil- or nominal-cost options or forfeitable shares. Awards
granted under the OSP (excluding deferred bonus awards) vest at the end of a
performance period determined by the Committee, subject to the achievement
of stretching performance targets.
Awards to Executive Directors are subject to performance conditions set by the
Committee. Awards are usually granted annually to Executive Directors and
normally have at least a three-year performance period and a further post-vesting
holding period of two years.
The performance conditions are reviewed before each award cycle to ensure they
remain appropriately stretching.
The Committee may adjust upwards or downwards (including to zero) the extent
to which an award vests if it considers that the extent to which the award would
otherwise vest is not a fair reflection of the performance of the Company, the
Executive Director’s performance and/or such other factors as the Committee
may consider relevant.
Dividend equivalent payments will normally accrue on awards, to the extent the
awards vest, during the vesting period and post-vesting holding period
applicable to the awards. The calculation of these payments may assume the
reinvestment of dividends
Awards are also subject to malus and clawback provisions (see page 106 for
details). The treatment of awards upon cessation of employment is described
onpage 109.
Maximum
opportunity
The maximum annual award is 300% of salary for the CEO and 200% of salary
forthe CFO in respect of any financial year of the Company.
105
Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
DIRECTORS’ REMUNERATION POLICY CONTINUED
Performance
framework
Vesting of performance share awards is subject to continued employment and
the achievement of stretching targets.
Performance measures may be a mix of financial and non-financial measures.
For financial targets, not more than 25% of the total award will vest for threshold
performance rising on a graduated scale to 100% of the total award for maximum
performance. Threshold performance is the level of performance required for
theaward to start to vest.
For non-financial targets, the structure of the target will vary based on the nature
ofthe target set and it will not always be practicable to set targets using a
graduated scale so vesting may take place in full if specific criteria are met in full.
Further details, including the performance targets attached to the performance
share awards in respect of each year, are disclosed in the Directors’ Remuneration
Report (see pages 116 and 117).
Share ownership requirements
Purpose and link
tostrategy
To align Executive Directors’ interests with those of shareholders.
Operation Executive Directors are expected to build and maintain a minimum shareholding
in the Company over time expressed as a multiple of salary (300% for both CEO
and CFO). Executive Directors have five years from the Company’s listing date,
20 April 2023, or the date of their appointment, whichever is later, to meet the
requirement.
Until the relevant share ownership requirements have been met, Executive
Directors are required to hold all Dowlais shares acquired under company share
awards and from deferred annual bonuses (net of income tax).
Unvested deferred bonus awards (which are not subject to performance
conditions) and vested performance share awards which are subject to a holding
period will count towards these shareholding requirements on a net-of-tax basis.
Executive Directors will normally be required to continue to hold 100% of the
in-employment shareholding requirement (or, if lower, their actual shareholding
on cessation) for a two-year period after leaving the Group. During this period,
former Directors will be required to fully cooperate with the implementation of
such arrangements as the Committee may reasonably expect in order to enforce
this requirement.
Malus and clawback
Purpose and link
tostrategy
To align Executive Directors’ interests with those of shareholders and
prevent payment for failure.
Operation All variable pay will be subject to malus and clawback.
The Committee or relevant body may apply malus and/or clawback provisions
atany time up until:
– the second anniversary of the date of payment of a cash bonus or grant of
adeferred bonus award; and/or
– the fifth anniversary of the date of grant of an OSP award.
The Committee or relevant body may apply these malus or clawback provisions
where it considers there are exceptional circumstances such as:
– material misstatement of the financial results of a member of the Dowlais Group;
– either the assessment of the performance conditions relating to, or the
calculation of the number of shares subject to, a performance share award,
orthe assessment of the bonus by reference to which a deferred bonus award
is granted being based on an error or inaccurate or misleading information;
– gross misconduct by the relevant Executive Director;
– serious reputational damage to the Company; and/or
– the Company becoming insolvent or suffering a similar corporate failure.
Notes to the Policy Table
Performance measure selection and approach to target setting
Performance targets are set to be stretching, yet achievable, and take into account the
Company’s strategic priorities and business environment. The Committee sets targets
based on a range of reference points including the business plan, analysts’ consensus and
historical and projected performance for the Company. Typically, a combination of financial
and non-financial measures will be chosen to ensure that executive remuneration is aligned
with the key performance indicators used in the business to monitor performance against
our strategic priorities.
The measures used under the annual bonus are selected to reflect the Group’s main
priorities for any given financial year.
Regarding performance share awards, the Committee regularly reviews the performance
measures to ensure that they align well with the Company’s strategy and with our
shareholders’ interests.
106Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
DIRECTORS’ REMUNERATION POLICY CONTINUED
CEO – Liam Butterworth (£’000s) CFO – Roberto Fioroni (£’000s)
Minimum
100%
46%
25%
29%
49%
£7,050£5,668£3,710£1,062
32%
19%
20%
26%
39%
15%
Mid Maximum Maximum
including
share price
growth
Fixed pay
Annual bonus
Performance shares
Share price growth
Minimum
100%
39%
24%
37%
43%
£3,695£3,043£2,065£761
32%
25%
18%
26%
35%
21%
Mid Maximum Maximum
including
share price
growth
Differences in policy from the wider employee population
The reward framework for the wider employee population is based on the principle that
itshould be sufficient to recruit and retain high-calibre talent, without paying more than
isnecessary, and be competitive within our broader industry, remunerating employees
fordelivery of the Company’s strategy.
The Group has operations in various countries, with employees of differing levels of
seniority. Accordingly, though based on the over-arching principle above, reward policies
are also informed by local market practice as well as level of responsibility and
accountability, reflecting the global nature of Dowlais’ business.
The reward structures for executives and the wider employee population are aligned, in
the way that remuneration principles are followed, in the way base salary and benefit levels
are set in accordance with prevailing market conditions and relevant regulations in the
countries in which employees are based, and in incentive plan design, which is broadly
consistent throughout the Group.
Eligible employees participate in an annual bonus plan with similar performance criteria
tothose used for the Executive Directors, in order to drive alignment and a focus on results.
Bonus opportunities and specific performance conditions vary by organisational level,
withbusiness area-specific metrics incorporated where appropriate. All performance share
awards have the same performance conditions as those applicable to the Executive
Directors, although award sizes vary by organisational level.
The approach to reward for Executive Directors is consistent with the remuneration
package for members of the Executive Committee. In general, a higher proportion of total
remuneration for Executive Directors is linked to business performance, compared to the
wider employee population, so that remuneration will increase or decrease in line with
business performance and align the interests of Executive Directors and shareholders.
Consideration of employment conditions elsewhere in the Company
Whilst decisions on remuneration for employees outside the Executive Committee remain
the responsibility of Company management, the Committee has oversight of the reward
arrangements of the wider employee population. Although the Committee did not
specifically consult employees when setting the Policy, employment conditions and
remuneration arrangements applicable for the wider employee population are taken into
account by the Committee when making decisions on executive remuneration (including
workforce salary increases and bonus outcome). The Committee will also consider the
CEOpay ratio.
Projected total remuneration scenarios
The charts below illustrate what could be received by each Executive Director under the
Policy. These charts are illustrative, as the actual value will depend on business performance
and share price performance. The maximum performance also includes an additional bar
which shows the impact of a 50% share price growth on the performance share outcome
over the relevant performance period to show how the package value is aligned to shareholders.
The charts reflect projected remuneration for the 2024 financial year.
107Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
DIRECTORS’ REMUNERATION POLICY CONTINUED
Basis of calculations and assumptions
Minimum Fixed pay only – base salary, benefits and retirement benefits, being the only
elements ofthe Executive Directors’ remuneration package not linked to
performance. Based on basic salary and retirement benefits applicable from
1 January 2024 andthe value of other benefits provided in 2023.
Mid Includes fixed pay, plus a payout of 50% of maximum under the 2024 annual
bonus plan and mid-point performance vesting for the performance shares
awarded in 2024 (62.5% of the maximum award).
Maximum Includes fixed pay, plus full payout of annual and long-term incentives.
Maximum including
share price growth
All elements the same as Maximum but assumes a 50% share price
appreciation over the performance period.
Consideration of shareholder views
The Company is committed to regular and ongoing engagement and has sought the views
of key shareholders and other stakeholders, including guidance from shareholder
representative bodies more broadly, when shaping this Policy.
In March 2023, shareholders were given the opportunity to provide feedback on the
proposed structure and quantum of executive remuneration set out within the demerger
prospectus which was published ahead of the Company’s admission to the London Stock
Exchange. Shareholders voted overwhelmingly (99.7% in favour of votes cast) to accept the
demerger on the terms set out in the prospectus; no negative feedback was received
regarding executive remuneration.
Major shareholders were also engaged prior to finalising the Policy. A summary of the
proposed Policy was sent to our largest shareholders and proxy advisers in December 2023,
with a request for feedback and an invitation to discuss any aspects of executive
remuneration they would like the Committee to consider when finalising the Policy.
The Committee will keep the Policy under regular review, to ensure it continues to
reinforce the Company’s long-term strategy and aligns closely with shareholders’ interests.
The Committee will consult major shareholders before making any significant changes
tothe Policy.
Recruitment policy
When agreeing a remuneration package for the appointment of a new Executive Director,
the Committee will apply the following principles:
– The package will be sufficient to attract the calibre of Executive Director required
todeliver the Company’s strategy.
– The Committee will seek to ensure that no more is paid than is necessary.
– In the next Directors’ Remuneration Report after an appointment, the Committee
willexplain to shareholders the rationale for the arrangements implemented.
The Committee will align the remuneration package of new Executive Directors with the
Policy Table and may make use of all existing components of remuneration, as follows:
Component Approach
Base salary The base salaries of new appointees will be determined by reference to
relevant market data, experience and skills of the individual, internal
relativities and their current basic salary. Where new appointees have initial
base salaries set below market, or the previous incumbent’s salary, the
shortfall may be managed with phased increases subject to their
development in the role.
Retirement benefits The maximum contribution defined on page 104 will apply to new appointees
based on the country they are based in for employment purposes. For the UK
this is currently 12% of base salary.
Other benefits New appointees will be eligible to receive benefits which may include (but are
not limited to) the provision of car benefits, healthcare, income protection,
lifeassurance and any necessary relocation expenses (including schooling
andother fees) in line with the ongoing Policy (including tax thereon).
Annual bonus The structure described in the Policy Table will apply to new appointees with
the relevant maximum opportunity.
Performance shares New appointees will be granted performance share awards on the same
terms asother executives, as described in the Policy Table.
The Committee may make awards on hiring an external candidate to buy out remuneration
arrangements forfeited on leaving a previous employer. In doing so, the Committee will
have regard to relevant factors, including any performance conditions attached to such
arrangements, the form of those awards (e.g. cash or shares) and the timeframe of such
awards. While such awards are excluded from the maximum levels of variable remuneration
referred to in the Remuneration Policy table on page 105, the Committee’s intention is that
the value awarded (as determined by the Committee on a fair and reasonable basis) would
be no higher than the expected value of the forfeited arrangements. Where considered
appropriate, buyout awards will be subject to forfeiture or clawback on early departure.
108Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
DIRECTORS’ REMUNERATION POLICY CONTINUED
The Committee retains the discretion to rely on the exemption under the FCA Listing Rule
9.4.2 to make such an award, or to utilise any other incentive plan operated by the Group.
In the case of an internal hire, any outstanding variable pay awarded in relation to the prior
role will be allowed to pay out according to its terms of grant. However, the remuneration
package associated with the Board appointment may be adjusted as relevant to take into
account such legacy incentive awards.
In the event of the appointment of a new Chair or Non-Executive Director, remuneration
arrangements will reflect the policy outlined in the Remuneration Policy table for Non-
Executive Directors on page 111.
Directors leaving the Group
In the event of termination, service contracts for the CEO and the CFO provide for
payments of base salary, retirement and other benefits only over the notice period or for
the employer to terminate immediately by making a payment in lieu of notice, which will
cover base salary only.
Notice (or payment in lieu) will only be payable where the Executive Director has not been
terminated summarily in accordance with the terms of their service contract. The treatment
of variable remuneration will depend on whether the Executive Director is classified as a
‘Good Leaver’ on cessation of employment, which will occur if the Executive Director ceases
employment in the circumstances outlined in the following circumstances: death; ill-health;
injury; disability; the sale of the employing company or business out of the Group; or
otherwise at the discretion of the Committee. An Executive Director will be a ‘Bad Leaver’
ifthey cease employment other than as a ‘Good Leaver.’
The following table sets out the treatment of variable remuneration in the event of loss ofoffice:
Variable pay
component Leaver treatment
Annual bonus Performance conditions will be measured at the bonus measurement date for
‘Good Leavers’ only, with the bonus normally pro-rated for the period worked
during the financial year and paid in cash. Any such bonus may be paid in such
proportions of cash and shares, and subject to such deferral arrangements, as the
Committee may determine. No bonus will be payable to any Executive Director
other than a ‘Good Leaver’ for the year of cessation.
‘Good Leavers’ will be entitled to retain their deferred bonus awards which will
normally vest on their normal vesting dates. Deferred bonus awards granted to
a‘Bad Leaver’ will lapse.
The Committee has the following elements of discretion with respect to the
annual bonus and deferred bonus awards in the event of cessation of employment:
– The Committee’s normal policy is that it will time pro-rate a cash bonus, except
in circumstances where there is an appropriate justification which will be
explained in full to shareholders.
– To vest any deferred bonus awards at the end of the original deferral period
orat the date of cessation. The Committee will make this determination
depending on the type of ‘Good Leaver’ reason resulting in the cessation.
Performance
shares
If an Executive Director holding performance share awards ceases employment
incircumstances where they are a ‘Good Leaver’ before the vesting date, awards
will normally continue and vest on the original vesting date, except in the case
ofthe Executive Director’s death or other exceptional circumstances, in which
case the awards may vest early.
The extent to which awards vest in these circumstances will be determined by the
Committee, taking into account the extent to which the relevant performance
conditions have been met, the underlying performance of the Company and the
Executive Director, such other factors the Committee may consider relevant and,
unless the Committee decides otherwise, the proportion of the performance
period which has elapsed when the Executive Director leaves.
If an Executive Director holding performance share awards ceases employment
incircumstances where they are a ‘Bad Leaver’ before the vesting date, all of their
unvested awards will lapse as of the date on which their employment terminates.
If an Executive Director ceases to be employed by the Company after the vesting
date for whatever reason, they will be entitled to retain any outstanding vested
awards held by them unless the Executive Director is summarily dismissed.
Post-vesting holding periods applicable to awards will continue to apply unless
the Committee determines otherwise.
The Company may also pay outplacement costs, legal costs and other reasonable relevant
costs associated with termination and may settle any claim or potential claim relating
tothetermination.
109Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
DIRECTORS’ REMUNERATION POLICY CONTINUED
Corporate events
In the event of a takeover of the Company, deferred bonus and performance share awards
will normally vest (and be released from any holding periods) early. The proportion of any
unvested awards which vest will be determined by the Committee, taking into account
theextent to which the performance conditions have been satisfied, the underlying
performance of the Company and the Executive Director, such other factors the
Committee may consider relevant, and, unless the Committee determines otherwise,
theproportion of the performance period which has elapsed. Deferred bonus awards will
normally vest in full in the event of a takeover.
If the Company is wound up or other corporate events occur such as a variation of
theCompany’s share capital, a demerger, special dividend or other transaction which,
intheCommittee’s opinion, would materially affect the share price, the Committee may
determine that awards will vest (and be released) on the same basis as for a takeover.
Service contracts
The Company’s policy is for Executive Directors to be employed on the terms of service
agreements, which may be terminated by either the Executive Director or the Company
onthe giving of not less than 12 months’ written notice (subject to certain exceptions).
The table below sets out the dates of Executive Directors’ service contracts, which are
available for inspection at the Company’s registered office.
Name Position Contract date Notice period
Liam Butterworth Chief Executive Officer 1 March 2023 12 months
Roberto Fioroni Chief Financial Officer 1 March 2023 12 months
Geoffrey Martin
1
Executive Director 1 March 2023 1 month
Notes
1. Geoffrey Martin has informed the Board that he will not stand for election as a Director at the 2024 AGM
andwill therefore retire from office with effect from the conclusion of the meeting.
Non-Executive Directors’ terms of appointment
The Non-Executive Directors and the Chair were each appointed by a letter of appointment,
which are available for inspection at the Company’s registered office. Ineachcase, either
party may terminate the appointment on six months’ written notice, or, if earlier, with the
consent of the Board.
Name Position Date of Appointment
Current letter of
appointment expires
Simon
Mackenzie Smith Chair 9 February 2023 9 February 2026
Celia Baxter
Senior Independent
Non-ExecutiveDirector 20 February 2023 20 February 2026
Philip Harrison Independent Non-Executive Director 10 February 2023 10 February 2026
Alexandra Innes
1
Independent Non-Executive Director 20 February 2023 20 February 2026
Fiona MacAulay Independent Non-Executive Director 20 February 2023 20 February 2026
Shali Vasudeva Independent Non-Executive Director 20 February 2023 20 February 2026
Notes
1. Alexandra Innes has informed the Board that she will not stand for election as a Director at the 2024 AGM
and will therefore retire from office with effect from the conclusion of the meeting.
110Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Remuneration Policy for Non-Executive Directors
The Policy for Non-Executive Directors is set out below. The Chair and other Non-Executive
Directors are not eligible to participate in any of the Company’s incentive arrangements
and will not receive retirement benefits.
Fees and benefits
Purpose
and link
tostrategy
To attract and retain Non-Executive Directors with appropriate knowledge
andexpertise that add value to our business and help oversee and drive
ourstrategy.
Operation – Fees will be reviewed periodically and amended to reflect market positioning
andany change in responsibilities.
– Consideration is given to business performance, current remuneration
competitiveness and average salary increases for the wider Dowlais employee
population.
– A base fee is determined for the Non-Executive Director role and additional
supplemental amounts applied for additional responsibilities such as Committee
membership and chairing roles.
– Non-Executive Directors’ fees are set by the Chair of the Board and Executive
Directors; the Chair’s fees are set by the Committee.
– No Board member may participate in the approval of their own fees.
– Benefits may include use of secretarial support, reimbursement of travel and
accommodation costs and other benefits that may be appropriate (including any
tax payable on those benefits).
– Each Non-Executive Director is eligible to benefit from a director’s indemnity
andfor cover under the Company’s Directors’ and Officers’ liability insurance policy
and is entitled to be reimbursed for all reasonable and properly documented
expenses incurred in the performance of their duties.
– Non-Executive Directors are not eligible to participate in Dowlais incentive plans
orretirement benefits.
Maximum
opportunity
– Fees are based on the level of fees paid to non-executive directors serving
onboards of comparable UK-listed companies and the time commitment and
contribution expected for the role.
– While there is no maximum, fee increases will take into account the circumstances
of the business, increases in remuneration across the Group and relevant market
practice.
Performance
framework
– Non-Executive Directors are not eligible to participate in any performance-related
incentive plans.
The Non-Executive Directors have been appointed for a period of three years, subject
toannual re-election. Alexandra Innes, Non-Executive Director, has informed the Board that
she will not stand for election as a Director at the 2024 AGM and will therefore retire from
office with effect from the conclusion of the meeting. All other Non-Executive Directors
willstand for election at the first annual general meeting of the Company.
Details of Committee memberships and appointment dates are shown on pages 82 and 83
of this Annual Report.
Compliance with the Corporate Governance Code
The Policy reflects Dowlais’ philosophy of pay for performance, shareholder alignment
andstrategic alignment over the short, medium and long term.
When determining the Policy, provision 40 of the UK Corporate Governance Code
wastaken into account as follows:
Code provision How the Remuneration Committee applies the principle
Clarity The Committee has engaged with the Company’s largest shareholders and their
advisers on the Policy. Remuneration arrangements are transparent, and reflect
shareholder alignment and Dowlais’ strategic priorities, thereby effectively
engaging with the wider workforce and other shareholders. Details on Executive
Directors’ pay is clearly set out in the Remuneration Report on pages 113 to 117.
Simplicity The Committee has aimed to incorporate simplicity and transparency into the
design of our first Policy. The remuneration arrangements for Executive Directors
are simple, comprising fixed pay (salary, benefits, retirement benefits), an annual
bonus plan and performance share awards.
Risk The Policy defines maximum limits for both annual and long-term incentive plans.
The reward structures include deferral of the annual bonus and holding periods
for vested performance share awards. Malus and clawback provisions apply to all
incentives to encourage the right behaviours, which lead to long-term
shareholder alignment and sustained value creation. The Committee has
discretion to adjust the formulaic bonus and performance share award outcomes
both upwards and downwards where appropriate.
Predictability The total of fixed pay and variable pay (target and maximum) illustrated in the
scenarios of total remuneration in our Policy provide an estimate of the potential
future remuneration of the Executive Directors, including the total remuneration
ifa 50% share price growth is achieved.
Proportionality There is a clear link between pay for performance and business strategy, with
stretching financial targets applied to annual bonus payouts and performance
share award vesting.
Alignment
toculture
Financial targets apply to the annual bonus and performance share awards
acrossthe wider workforce to drive business performance. The vesting period
ofperformance share awards reflects the time horizon of the business plan.
Theadditional post-vesting holding period and post-employment shareholding
requirement strengthens the alignment of interests between Executive Directors
and other stakeholders.
Malus and clawback provisions apply to annual bonus and performance share
awards, and together with deferred bonus awards, holding periods and share
ownership for the Executive Directors (and any other relevant senior employees),
drive the right behaviours expected within Dowlais.
New and existing Executive Directors are offered retirement benefits aligned
withthose available to the wider workforce in the country where the Executive
Directors are based for employment purposes, currently being the United
Kingdom.
DIRECTORS’ REMUNERATION POLICY CONTINUED
111Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
DIRECTORS’ REMUNERATION POLICY CONTINUED
Legacy arrangements
The Committee reserves the right to honour any commitments entered into with Directors
which were fully disclosed in the Company’s prospectus published on 3 March 2023. Details
of any such payments will be set out in the Annual Report on Remuneration as they arise.
Discretions retained by the Committee
The Committee operates the Group’s variable pay plans according to their respective rules,
their respective ancillary documents and the UK FCA’s Listing Rules. In administering these
plans, the Committee may apply certain operational discretions.
These include the following:
– Who participates in the plan.
– Determining the timing of grants of awards and/or payments.
– Determining the quantum of an award and/or payment.
– Determining the extent of vesting based on the assessment of performance.
– Determining the status of leavers and, where relevant, the extent of vesting.
– Determining the extent of vesting of awards under share-based plans in the event
ofachange of control.
– Making appropriate adjustments required in certain circumstances (for example rights
issues, corporate restructuring events, variation of capital and special dividends).
– What the weighting, measures and targets should be for the annual bonus plan and
performance share awards from year to year.
– Adjusting existing targets if events occur that cause the Committee to determine
thatthe targets set are no longer appropriate and that amendment is required so the
relevant award can achieve its original intended purpose, provided that the new targets
are not materially less difficult to satisfy.
The Committee also retains discretion to make non-significant changes to the Policy
without reverting to shareholders (for example, for regulatory, tax, legislative or
administrative purposes).
112Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
ANNUAL REPORT ON REMUNERATION
ANNUAL REPORT ON REMUNERATION
Single figure of remuneration – Executive Directors (audited)
The following table shows a single total figure of remuneration for each Executive Director
in respect of qualifying services for the 2023 financial year. This covers the period between
Dowlais Group plc's Admission to the London Stock Exchange (20 April 2023) and the
endofthe financial year (31 December 2023). Given that the Dowlais demerger took place
on 20 April 2023, no comparable prior year data could be provided.
Simon Peckham and Geoffrey Martin, who were appointed Executive Directors of Dowlais,
did not receive any remuneration from the Company in connection with their
appointments (Simon Peckham subsequently resigned as a Director of the Company with
effect from 31 December 2023). Given this, they are excluded from the table below.
£'000
Liam
Butterworth
Roberto
Fioroni
Salary 619 438
Benefits 21 21
Pension 74 53
Total fixed remuneration 714 512
Annual bonus
1
1,127 598
Performance share award
2
– –
Total variable remuneration 1,127 598
Total remuneration
3
1,841 1,110
Notes
1. 30% of the total annual bonus for 2023 was deferred into shares of the Company for a period of two years.
2. There were no performance share awards vesting in 2023. Performance share awards were made on 2 May
2023 and are scheduled to vest in Q2 2026.
3. Prior to Admission, the Executive Directors and selected senior employees participated in the GKN
Automotive long-term participation cash bonus scheme. Payments under the scheme were triggered by
thedemerger and the value of payment was based on the value created between the date of grant and the
date of Admission and so relate to performance prior to listing over a number of years. The awards were
cash-settled, with executives being required to reinvest 15% of the net cash proceeds in shares as soon as
practical following Admission. There are no outstanding awards under the scheme which terminated onthe
date of Admission. Upon Admission, Liam Butterworth received a gross payment of £12,000,000, ofwhich
£954,000 was re-invested into Dowlais shares on 24 April 2023 at a price of £1.224 per share. RobertoFioroni
received a gross payment of £4,200,000, of which £333,900 was re-invested into Dowlais shares on24 April
2023 at a price of £1.224 per share. The shares will be required to be held in accordance with theminimum
shareholding guidelines outlined in the Remuneration Policy.
Salaries for 2023 (audited)
2023 annual salary levels for the Executive Directors applied from the date of Admission
(20 April 2023). Total base salary paid in 2023 is for the period between Admission
(20 April2023) and the endof the financial year (31 December 2023).
Annual base
salary as of
20 April 2023
Total base
salary paid in
2023
Liam Butterworth, CEO £890,000 £618,966
Roberto Fioroni, CFO £630,000 £438,212
Geoffrey Martin, Executive Director £0 £0
Simon Peckham, Executive Director £0 £0
2024 salaries
The Committee carefully considered whether any increases should be awarded to
Executive Directors’ salaries in 2024. Factors that have been taken into account when
considering the pay review for Directors included investors’ expectations and external
environment, Company performance, planned salary increases for the wider employee
population, personal performance of the executives, competitive market positioning
ofthecurrent salaries and total remuneration packages and the current talent market.
The Committee noted that 2023 saw the Company perform strongly against its financial
and strategic objectives. On this basis, it resolved that 2024 salaries for Executive Directors
should be increased by 3.5%, an increase that took into account the average increase of 4%
that will be awarded to the wider workforce in the UK.
Annual base
salary as of
1 January 2024 % increase
Liam Butterworth, CEO £921,200 3.5%
Roberto Fioroni, CFO £652,100 3.5%
Geoffrey Martin, Executive Director £0 0%
Simon Peckham resigned as a Director of the Company with effect from 31 December 2023
and Geoffrey Martin has informed the Board that he will not stand for election as a Director
at the 2024 AGM and will therefore retire from office with effect from the conclusion of the
meeting. Neither received remuneration for undertaking the role of Director and neither
will receive payment as former Directors.
113Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
ANNUAL REPORT ON REMUNERATION CONTINUED
Benefits for 2023 (audited)
2023 benefits for the CEO and CFO included car allowance, private medical insurance
(including spouse or partner and eligible dependent children), health checks, life assurance,
membership of a Group income protection plan, and reimbursement of expenses properly
incurred in the ordinary course of business, which are deemed to be taxable benefits.
Geoffrey Martin and Simon Peckham did not receive any Company benefits in 2023.
2024 benefits
Benefits for 2024 remain in line with the Policy.
Retirement benefits for 2023
From the date of Admission both Executive Directors received retirement benefits at
therate of 12% of annual base salary, which comprised cash payments in lieu of pension
contributions. Executive Directors do not participate in defined benefit pension plans.
The retirement benefit for Executive Directors is in line with that available to the wider
workforce in the country where they are based for employment purposes, currently being
the United Kingdom.
Total cash
allowance paid
in 2023
Liam Butterworth, CEO £74,276
Roberto Fioroni, CFO £52,585
Geoffrey Martin, Executive Director £0
Simon Peckham, Executive Director £0
Total cash allowance paid in 2023 is for the period between Admission (20 April 2023)
andthe endof the financial year (31 December 2023).
2024 retirement benefits
Retirement benefits for 2024 remain in line with the Policy.
Annual bonus for 2023 (audited)
The 2023 annual bonus plan set by Melrose prior to demerger was based on performance
for the year ended 31 December 2023. 80% of the bonus opportunity was determined by
performance against financial targets and 20% was based upon the achievement against
strategic objectives. Annual bonuses were based on performance for the full 2023
financialyear.
The maximum annual bonus opportunity for the Executive Directors from Admission
was200% of salary for the CEO and 150% of salary for the CFO. Geoffrey Martin and Simon
Peckham did not participate in the 2023 annual bonus plan.
Performance measures
2023 annual bonus performance points and outcomes
Threshold
(25% of max)
Maximum
(100%) Achieved
Adjusted operating profit
1
£320m £400m £370m
Entity cash flow
2
£(20)m £40m £73m
Strategic objectives Fully achieved
Notes
1. Adjusted operating profit is an Alternative Performance Measure, defined and reconciled to statutory
measures in the Alternative Performance Measure section on page 191 on a constant currency basis.
2. Entity cash flow is defined as being adjusted free cash flow (as defined in the Alternative Performance
Measures section on page 194) of £93 million adjusted for lease principal payments of £25 million and
dividends paid to non-controlling interests of £7 million, on a constant currency basis.
20% of the Executive Directors’ 2023 annual bonus is linked to the achievement of strategic
objectives. The objectives were set ahead of Admission and were focused on key strategic
priorities for 2023.
At its meeting in February 2024, the Committee considered the level of achievement against
the strategic objectives for 2023. The table below summarises the performance outcomes.
Objective Description of performance
Level of
performance
Submission of science-
based targets to the SBTi
for Automotive business
by February 2023
Targets for the Automotive business were submitted
to the SBTi on 28 February 2023; targets for the
Powder Metallurgy business were submitted on
21 December 2023.
Achieved
Miskolc production facility
successful go-live: on or
under budget, on time or
earlier
Production for first serial delivery achieved on
16 October 2023, as planned. Positive customer
feedback.
Project on budget, despite inflationary pressures vs.
business case. Other elements of the project
delivered on time, including site construction,
equipment transfer, recruitment and customer
deliveries.
Achieved
114
Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
ANNUAL REPORT ON REMUNERATION CONTINUED
Objective Description of performance
Level of
performance
Material progress
on the Group's
Americas industrial
strategy
Major 2023 milestones achieved according to plan. Villagran
capability build according to plan, access to site achieved in
November 2023. Alamance re-layout and validation of Roxboro
equipment on track.
Implementation of a major project milestone was postponed
to Q1 2024 at a key customer's request, but all Dowlais internal
elements of the project were ready to be executed in
accordance with the plan.
Achieved
Successful in-year
execution of EV
strategy as
outlined in Capital
Markets Event; BEV
and HEV at or
ahead of market
Automotive: new business awards with strong BEV and HEV
programme wins, ensuring order book aligned with market
expectations (2027 order book forecasts GKN Automotive
portfolio of 64% non-ICE vs. market assumption of 63% for light
vehicle production). New business awards across the product
portfolio, including a 3-in-1 eDrive system.
Powder Metallurgy: portfolio transition accelerated. Increase of
new business awards for propulsion source agnostic products
from 58% in 2022 to 72% in 2023, including a major business win
for an EV differential. First sales of powder for LFP batteries and
first commercial agreement secured for e-motor magnets.
Achieved
Recognising the strong performance against the strategic objectives during 2023, the
Committee judged that the maximum of 20% of the total bonus potential attributable
tostrategic objectives was appropriate for the Executive Directors.
The table below summarises the formulaic performance outcome against the 2023 annual
bonus targets and the resulting bonuses, including the portion payable in cash in 2024
andthe portion deferred into shares for a further two years to be released in 2026, subject
to continued employment and malus and clawback provisions. Deferral provisions apply
to30% of the 2023 bonus paid.
Outcomes
Liam
Butterworth,
CEO
Roberto
Fioroni,
CFO
Adjusted operating profit
(as a proportion of the maximumopportunity) 31/40 31/40
Entity cash flow (as a proportion of the maximum opportunity) 40/40 40/40
Strategic objectives (as a proportion of the maximum opportunity) 20/20 20/20
Total (as a proportion of the maximum opportunity) 91/100 91/100
Maximum bonus opportunity as a % of salary 200% 150%
Value of bonus paid in cash £1,133,860 £601,965
Value of bonus deferred into shares £485,940 £257,985
Overall award level £1,619,800 £859,950
When deciding the level of annual bonus, the Committee considered the experience of
theGroup’s key stakeholders during the 2023 financial year (as summarised on page 100).
The Committee concluded that the outcome of the 2023 annual bonus appropriately
reflected the Company’s performance in 2023 and was commensurate with the broader
stakeholder experience in that period. Consequently, it was not felt necessary to apply
anydiscretion to amend the formulaic outcome of the overall award level.
Deferral policy
In line with the Policy, as the Executive Directors have not yet met their minimum personal
shareholding requirements, 30% of the 2023 annual bonuses have been deferred for two
years into shares of the Company, subject to continued employment and malus and
clawback provisions.
2024 annual bonus
In line with Policy and unchanged from 2023, for 2024 the threshold and maximum annual
bonus opportunities for the Executive Directors will be:
Threshold
opportunity
(% of salary)
Maximum
opportunity
(% of salary)
Liam Butterworth, CEO 40% 200%
Roberto Fioroni, CFO 30% 150%
Geoffrey Martin will not participate in the 2024 annual bonus plan. Performance will be
based on Group financial performance targets and strategic objectives. The performance
measures and percentage weightings will be:
– adjusted operating profit (40%);
– entity cash flow (40%), and
– strategic / ESG objectives (20%).
2024 annual bonus targets are considered commercially sensitive and will be disclosed
inthe 2024 Annual Report.
In line with the Policy, Executive Directors who do not meet the minimum shareholding
requirement will be required to defer 30% of their annual bonus award into shares of the
Company for two years, subject to continued employment and malus and clawback provisions.
Long-term incentive awards vesting
No Dowlais long-term incentive awards vested in 2023. Performance share awards
weregranted under the Performance Share Plan (PSP) in May 2023, as set out in the
sectionbelow.
115Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
ANNUAL REPORT ON REMUNERATION CONTINUED
Performance share awards made in 2023 (audited)
Performance share awards are used as a long-term incentive for senior managers in the
Group, with awards vesting after three years, and held for a further two years by the
Executive Directors. The CEO and CFO were granted awards with a face value of 300%
ofsalary and 200% of salary respectively.
The table below sets out details of awards made on 2 May 2023:
Executive Director
End of
performance
period
Type of
award
2
Nature of
award
Number of
shares subject
to award Grant price
1
Face value
atgrant
Liam Butterworth
31 December
2025 PS
Conditional
shares 2,119,576 £1.2597 £2,670,030
Roberto Fioroni
31 December
2025 PS
Conditional
shares 1,000,249 £1.2597 £1,260,014
Notes
1. Grant price was calculated as the average closing share price over the seven trading days immediately
preceding the grant date.
2. PS = Performance share.
3. Geoffrey Martin and Simon Peckham did not participate in any long-term incentive plan of the Company
in2023.
Performance measures for the 2023 performance share awards
As disclosed in the demerger prospectus, the performance share awards granted in 2023
have two performance measures which carry equal weighting: adjusted EPS and relative
TSR. The Committee’s policy is that no adjustments for exchange rate movements are
made to EPS over the performance period as these are of a long-term nature and
fluctuations are more likely to average out over the period.
Measure Weighting
Target ranges
Threshold
(25% vesting)
Maximum
(100% vesting)
Adjusted EPS annual growth
1
50%
5% annual compound
growth over 3 years
20% annual compound
growth over 3 years
TSR ranking
2
50%
Median ranking against
comparator group
Upper quartile ranking
(or higher) against
comparator group
TSR comparator group
European Automotive sector UK industrials sector
Valeo Spirax Sarco
Schaeffler IMI
Continental Rotork
Gestamp Tyman
Plastic Omnium Weir
Forvia Hill & Smith
Typical practice would be to baseline the TSR measurement using an average over one
month immediately prior to the start of a three-year performance period. As Dowlais Group
plc listed on 20 April 2023, part way through the 2023 financial year, several one-off
transitionary adjustments to typical practice were applied.
Dowlais TSR was baselined using the average closing share price over the first seven trading
days (20 to 28 April 2023 inclusive); TSR for the comparator group was baselined by
averaging closing share prices over the one-month period ending on 28 April 2023. To align
with the Company’s financial year end, TSR performance measurement is averaged over
the one-month period from 1 December to 31 December 2025 (for both Dowlais and the
comparator group). Whilst this slightly shortens the typical three-year performance period
(from 36 to 32 months), it ensures alignment of the TSR performance period with the
financial year, both for the 2023 performance share award and subsequent annual awards.
The TSR element of the award will not vest if the Company performs below the median
constituent of the comparator group; 25 per cent of the TSR element of the award will vest
if the Company performs in line with the median constituent of the comparator group; and
100 per cent of the TSR element of the award will vest if the Company performs equal to or
outperforms the upper quartile of the comparator group. Vesting between Threshold and
Maximum will be on a straight-line basis.
In determining the vesting levels and any adjustment which should apply, the Committee
will also consider wider factors, to ensure outcomes are a fair reflection of the performance
of the Company and the experience of stakeholders.
Details of performance against each of the measures and the level of any adjustment
applied by the Committee, if applicable, will be fully disclosed in the 2025 Directors’
Remuneration Report.
Notes
1. Up to 50% of the 2023 performance share award vests by reference to the Group’s adjusted earnings per share (”EPS”) annual compound growth averaged over the three complete financial years ending 31 December 2025. If EPS
average annual compound growth is less than 5%, there will be no vesting of the EPS element of the award; 25 per cent of the EPS element of the award will vest if EPS average annual compound growth is 5%; and 100 per cent of
the EPS element of the award will vest if EPS average annual compound growth is 20% or more. Vesting between Threshold and Maximum will be on a straight-line basis.
2. Up to 50% of the 2023 performance share award will vest by reference to the Company's total shareholder return (TSR) performance, as compared to that of a comparator group consisting of 12 EU automotive and UK industrials companies.
116Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
ANNUAL REPORT ON REMUNERATION CONTINUED
20-Apr
23
28-Apr
23
£110
£115
£105
£100
£95
£90
£85
30-Jun
23
31-Jul
23
31-Aug
23
29-Sep
23
31-Oct
23
30-Nov
23
29-Dec
23
31-May
23
Dowlais (£100 investment)
FTSE 250 Index (£100 investment)
The awards are in respect of the performance period 1 January 2023 – 31 December 2025
and are scheduled to vest following the announcement of the FY25 results. Malus and
clawback provisions and a two-year post-vesting holding period apply to these awards.
2024 performance share awards
In line with the Policy, the CEO and CFO will each be granted an award with a face value of
300% of salary and 200% of salary respectively. Geoffrey Martin will not participate in any
long-term incentive plan of the Company for 2024.
The structure, performance measures and weightings of the 2024 performance share awards will
remain unchanged from 2023. The Committee reviewed and set EPS growth targets that
accurately reflect the current business environment whilst continuing to be sufficiently stretching.
Before approving the 2024 performance share awards, the Committee noted the share price
volatility experienced by our shareholders since the demerger, the strong financial
performance of Dowlais and the Executive Directors, and shareholder feedback questioning
whether the quantum of long-term incentive awards was sufficiently competitive taking into
account business complexity and the global remit of the Executive Directors’ roles. After much
discussion, the Committee concluded that the 2024 long-term incentive awards would not be
scaled back and would be granted at the same level as in 2023. However, the Committee
noted that it has discretion within policy to scale back vesting to avoid windfall gains.
For the 2024 award, the following performance measures will be used:
Measure Weighting
Target ranges
Threshold
(25% vesting)
Maximum
(100% vesting)
Adjusted EPS annual growth
1
50% 5% annual compound
growth over 3 years
15% annual compound
growth over 3 years
TSR ranking² 50% Median ranking against
comparator group
Upper quartile ranking
(or higher) against
comparator group
Notes
1. Up to 50% of the 2024 performance share awards vest by reference to the Group’s adjusted earnings per
share (”EPS”) annual compound growth averaged over the three complete financial years ending
31 December 2026. The targets reflect accurately the current business environment whilst continuing to be
sufficiently stretching. Vesting between Threshold and Maximum will be on a straight-line basis.
2. Up to 50% of the 2024 performance share award will vest by reference to the Company's total shareholder
return (TSR) performance, as compared to that of a comparator group consisting of 12 EU automotive and
UK industrials companies measured over a three-year performance period from 1 January 2024 to
31 December 2026. TSR for Dowlais and the comparator group will be baselined by averaging closing share
prices over the one-month period ending on 31 December 2026. TSR performance measurement is
averaged over the one-month period from 1 December to 31 December 2026 (for both Dowlais and the
comparator group of companies). Vesting between Threshold and Maximum will be on a straight-line basis.
In determining the vesting levels and any adjustment which should apply, the Committee
will also consider wider factors to ensure outcomes are a fair reflection of the performance
of the Company and the experience of stakeholders.
Total Shareholder Return
Payments for loss of office and to past Directors (audited)
There were no payments to Directors for loss of office and no payments to past Directors
during 2023.
Total shareholder return (TSR)
The chart shows the monthly value, from the time of demerger to 31 December 2023,
of£100 invested in Dowlais shares on 20 April 2023, compared to £100 invested in the FTSE
250 Index on the same date. The FTSE 250 Index was chosen as the comparator because
theCompany is a constituent of this index.
Chief Executive Officer – historical remuneration information
The table below shows the remuneration of the Chief Executive Officer for the period
between Admission (20 April 2023) and the endof the financial year (31 December 2023).
Asthis is the Company’s first Remuneration Report, there is no prior year data.
Year 2023
Chief Executive Officer Liam Butterworth
Single figure of total remuneration (£'000) 1,841
Annual bonus outcome (% of maximum) 91%
Performance share award vesting (% of maximum)
1
n/a
Notes
1. There were no performance share awards vesting in 2023. The first performance share awards were granted
on 2 May 2023 and so are not scheduled to vest until Q22026.
117Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
ANNUAL REPORT ON REMUNERATION CONTINUED
Relative importance of spend on pay
As this is the Company’s first Remuneration Report, there is no year-on-year comparison.
Acomparison of spend on pay in 2023 and 2024 will be made in the 2024 Directors’
Remuneration Report.
Year 2023
Total employee costs
1
£1,206m
Dividends
2
£58m
Notes
1. Total employee costs are presented in line with the Note 7 to the Financial Statements.
2. Dividends are presented in line with the Note 10 to the Financial Statements.
Chief Executive Officer’s pay compared with employee pay
On 31 December 2023, Dowlais employed 232 individuals in the UK; the average for 2023
asa whole was 247. Despite this being below the threshold for disclosure purposes, in the
interests of transparency the Committee has chosen to provide pay ratios of the CEO’s
total remuneration to the remuneration of UK employees at the lower quartile, median
andupper quartile. The total remuneration for each quartile employee, and the salary
component within this, is also outlined below.
Year Method
25
th
percentile
pay ratio
Median
pay ratio
75
th
percentile
pay ratio
2023
1,2
Option A 64:1 35:1 22:1
Notes
1. 2023 CEO single figure does not include any long-term incentive component as the first performance share
award was made to the CEO in 2023 and will be included, subject to vesting, within the 2026 single figure of
remuneration.
2. The total remuneration for employees is based on earnings between 20 April 2023 and 31 December 2023
and the 2023 bonus pro-rated for that period.
Year 25
th
percentile Median 75
th
percentile
2023 salary
1
£28,668 £44,139 £66,164
2023 total remuneration
1
£28,847 £53,258 £85,359
Notes
1. Remuneration shown in the table above is based on earnings between 20 April 2023 and 31 December 2023
and the 2023 bonus pro-rated for that period.
Methodology
We have chosen to use Option A as our preferred methodology to calculate the CEO pay
ratio as this produces the most meaningful data that is representative of the remuneration
levels for UK employees.
Remuneration was calculated in line with the methodology used to determine the single
total figure of remuneration for the CEO, as presented in this report. Remuneration figures
are determined with reference to the financial year ending on 31 December 2023. The
remuneration covers salary, benefits and retirement benefits from 20 April to 31 December
2023, and pro-rated bonus in respect of 2023 which will be paid in March 2024. Where
required, actual remuneration was converted into a full-time equivalent by pro-rating
earnings to reflect full-time contractual working hours.
The Committee determined that the identified employees are reasonably representative,
since the structure of their remuneration arrangements is in line with that of the majority
ofemployees in the UK. The Committee believes that the median pay ratio for the 2023
financial year is consistent with the pay, reward and progression policies for the Company’s
UK employees as a whole. It should be noted, however, that the CEO’s 2023 remuneration
does not include any long-term incentives vesting and as such, the pay ratio may change in
future years. Given that the Dowlais demerger took place on 20 April 2023, no comparable
prior year data could be provided.
Percentage change in remuneration
As this is the Company’s first Remuneration Report, there is no year-on-year comparison.
Acomparison of remuneration in 2023 and 2024 will be made in the 2024 Directors’
Remuneration Report.
118Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
ANNUAL REPORT ON REMUNERATION CONTINUED
Consideration of workforce pay and approach to engagement
The Board receives verbal updates on employee engagement quarterly, with a detailed
update, including employee survey results, presented annually. In addition, the Group
operates a Workforce Advisory Panel whose purpose is to ensure suitable engagement
with our workforce, ensuring that employee engagement mechanisms are regularly
reviewed and remain effective.
The role of the Panel includes:
– reviewing all employee engagement activities undertaken by the Business Units to
ensure they are achieving their aims;
– enabling management to understand the views of their colleagues across the business;
– reviewing relations between each Business Unit and relevant employee-representative
bodies to ensure they are effective;
– ensuring that the views of the workforce are being taken into account in executive
decision making;
– considering methods by which engagement with the workforce could be improved;
– ensuring that the Board understands the views of the workforce as a whole;
– assisting the Board in ensuring that the interests of the workforce are duly considered
bythe Board in its decision making.
Although the mechanisms differ across the business, the primary methods of engagement
comprise engagement surveys, skip-level meetings and employee town halls (both local
and global). Whilst we have not directly consulted on executive remuneration in the limited
time since the demerger, the wider workforce can ask questions and provide feedback on
this topic through our engagement mechanisms referenced above. The Company intends
to include executive remuneration as an explicit topic for discussion in the coming year.
To ensure that the remuneration-related decisions are fair and appropriate, the Committee
considered employees’ pay increases when determining the appropriate salary levels for
the Executive Directors and fees for the Chair. In addition, the Committee was provided
with an update on bonus outcomes for the wider employee population, which were taken
into account to ensure that the bonus outcomes are appropriately reflecting business
performance at all levels in the organisation. Furthermore, the Committee approved
theterms and details of the 2023 share awards made to the executives and the wider
workforcepopulation.
Remuneration Committee advisers
During 2023, Willis Towers Watson (WTW) was the independent remuneration adviser
tothe Committee. WTW was appointed by the Committee in May 2023 following a tender
and selection process.
As part of this process, the Committee considered the services that WTW provided to
other FTSE 250 companies and Dowlais’ competitors, as well as other potential conflicts
ofinterest. WTW is a member of the Remuneration Consultants Group and voluntarily
operates under its code of conduct when providing advice on executive remuneration
inthe UK. The Committee is comfortable that the WTW engagement partner and team
providing remuneration advice to the Committee do not have connections with Dowlais
orits individual Directors that may impair their independence and objectivity.
The total fees paid to WTW for the provision of independent advice to the Committee in
2023 were £42,805 charged on a fixed fee as well as time and materials basis. During 2023,
WTW also provided other services to Dowlais entities, including incentive valuations and
other general remuneration data and advice. Remuneration advice is provided by an
entirely separate team within WTW.
2023 Non-Executive Directors’ remuneration
The Chair is entitled to receive a fee of £400,000 per annum and is inclusive of all Committee
roles. The base fee for each other Non-Executive Director is £70,000 per annum.
Additional fees are payable as follows:
– £20,000 per annum for the Senior Independent Director;
– £25,000 per annum for chairing the Audit Committee;
– £25,000 per annum for chairing the Remuneration Committee;
– £15,000 per annum for membership of the Audit Committee;
– £15,000 per annum for membership of the Remuneration Committee; and
– £5,000 per annum for membership of the Nomination Committee.
‘Single figure’ of remuneration – Non-Executive Directors (audited)
The table below shows the total remuneration received by the Non-Executive Directors for
the period between the demerger (20 April 2023) and the endof the financial year
(31 December 2023). This consists entirely of fees; no benefits or other forms of
remuneration were received during this period. Given that the demerger took place on
20 April 2023, no comparable prior year data can be provided.
Non-Executive Director
2023 total
remuneration
£'000
Simon Mackenzie Smith £278
Celia Baxter £94
Philip Harrison £70
Alexandra Innes £63
Fiona MacAulay £63
Shali Vasudeva £63
119
Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Executive Directors are expected to build and maintain a holding in Dowlais shares with
avalue equivalent to 300% of base salary. Executive Directors have five years from the
Company’s listing date, 20 April 2023, or the date of their appointment, whichever is later,
to meet the requirement.
Until the share ownership requirements have been met, Executive Directors are required
tohold all Dowlais shares acquired under performance share and/or deferred annual bonus
awards (net of income tax and National Insurance contributions).
ANNUAL REPORT ON REMUNERATION CONTINUED
Statement of Directors’ shareholding and share interests (audited)
Total shareholding of Directors on 31 December 2023 is shown below.
Director
Shares
beneficially
owned
Shares
not subject to
performance
Shares
subject to
performance
Total
interest
Shareholding
required
(% salary)
Share
ownership as
as % of
2023 salary
1
Share
ownership
requirement
met
Chair Simon Mackenzie Smith 163,392 – – 163,392 n/a – n/a
Executive Directors Liam Butterworth 1,601,952 – 2,119,576 3,721,528 300% 184% No
Roberto Fioroni 902,012 – 1,000,249 1,902,261 300% 146% No
Geoffrey Martin 2,218,576 – See note 2 2,218,576 n/a – n/a
Simon Peckham 4,023,965 – See note 2 4,023,965 n/a – n/a
Non-Executive Directors Celia Baxter 92,855 – – 92,855 n/a – n/a
Philip Harrison 42,768 – – 42,768 n/a – n/a
Alexandra Innes 19,946 – – 19,946 n/a – n/a
Fiona MacAulay 12,182 – – 12,182 n/a – n/a
Shali Vasudeva – – – – n/a – n/a
Notes
1. Share ownership as % of 2023 salary is based on salary at 31 December 2023 and the average mid-market closing share price between 1 December and 31 December 2023 of £1.0225.
2. Geoffrey Martin and Simon Peckham were granted options by Melrose Industries PLC under the Melrose Automotive Share Plan (MASP), providing each of them with an opportunity to acquire up to 16% of the ordinary shares
inDowlais Group plc shares held by the MASP employee share ownership trust (27,865,471 shares at the commencement date of the MASP), subject to performance conditions. More information about the MASP options can be
found on pages 137 – 141 of the Melrose Industries PLC Annual Report 2022. As Geoffrey Martin and Simon Peckham have not received any remuneration from Dowlais in connection with their appointment as Executive Directors,
itis not possible to express their share interests under the MASP as a percentage of salary.
Executive Directors will normally be required to continue to maintain the in-employment
shareholding requirement (or, if lower, their actual shareholding on cessation) for a two-
year period after leaving the Group.
120Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
ANNUAL REPORT ON REMUNERATION CONTINUED
The Committee consults with the Chief Executive Officer, who may attend meetings of the
Committee by invitation, but is not involved in deciding his own remuneration. The
Committee also receives support from the Chief People, Sustainability and Communications
Officer, the Group General Counsel and Company Secretary, and WTW, the independent
remuneration adviser to the Committee.
No-one is permitted to be involved in discussions or decisions regarding their own
remuneration or conditions of service.
Statement of voting at the Annual General Meeting (AGM)
The statement of voting at Dowlais’ first AGM on 20 May 2024 will be disclosed in the 2024
Directors’ Remuneration Report.
Approval of the Directors’ Remuneration Report
The Directors’ Remuneration Report was approved by the Board on 20 March 2024.
Signed on behalf of the Board
Celia Baxter
Chair of the Remuneration Committee
20 March 2024
Remuneration Committee governance
Composition of Committee
The Committee is comprised of three independent Non-Executive Directors and the Chair
of the Board who is also considered independent: Celia Baxter as Chair, Fiona MacAulay,
Alexandra Innes and Simon Mackenzie Smith.
Key responsibilities of the Committee
The Board holds the ultimate responsibility for the remuneration of executives and assigns
this duty to the Remuneration Committee. The main role of the Committee is to align
withthe Group's strategy by ensuring its execution is supported by the overarching
Remuneration policy, as described earlier in this report. Additionally, it decides on the
individual remuneration packages, which include service contracts and retirement benefits,
for each Executive Director and the top executives, as well as the fees paid to the Chair.
The Committee’s key responsibilities and objectives are set out in its terms of reference
and include:
– Designing the Remuneration Policy.
– Implementing the Remuneration Policy.
– Ensuring that compensation remains competitive within a suitable governance structure.
– Developing the incentive plans.
– Establishing incentive objectives and deciding on award levels.
– Overseeing all share awards across the Group.
The Committee is aware of the importance of the wider context in which it operates
indischarging these responsibilities.
The Committee’s terms of reference can be viewed at dowlais.com.
How we work
The Committee ordinarily plans to meet at least twice a year and since listing in April 2023
has held two meetings. Individual attendance at these meetings can be found on page 86.
Each member of the Committee is an independent Non-Executive Director, which is
essential for ensuring that the remuneration for Executive Directors and senior executives
isdetermined by individuals who are impartial and have no personal financial stake in the
decisions made, aside from their interests as shareholders. The Committee operates
without any potential conflicts of interest related to cross-directorships and there is no
day-to-day involvement in running the business.
121Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
DIRECTORS' REPORT
DIRECTORS’ REPORT
Introduction
Dowlais Group plc is a public limited company incorporated in England and Wales under
the Companies Act 2006 with registered number 14591224.
This Directors’ Report and the Strategic Report on pages 1 to 126 (inclusive) together
comprise the ‘management report’ for the purposes of Disclosure Guidance and
Transparency Rule 4.1.5R. This Directors’ Report contains information to be given in
accordance with the Companies Act 2006. Relevant information below, which is contained
elsewhere in this Annual Report, is incorporated by cross reference.
Dividends and dividend policy
The Board has adopted a sustainable and progressive dividend policy, targeting a payout
of approximately 30% of adjusted profit after tax. In respect of the period since the
demerger to 31 December 2023, the Board has recommended a final dividend of 2.8 pence
per ordinary share which, together with the interim dividend of 1.4 pence per ordinary
share paid on 27 October 2023, gives a total dividend for the year of 4.2 pence per ordinary
share. Subject to shareholder approval, the final dividend will be paid on 30 May 2024 to
shareholders on the register on 19 April 2024.
The Company offers a Dividend Reinvestment Plan (“DRIP”) which gives shareholders the
opportunity to use their dividend payments to purchase further ordinary shares in the
Company. Further details about the DRIP can be found within the Shareholder FAQs in the
Investors section of the Company’s website.
The Company may, by ordinary resolution, declare dividends not exceeding the amount
recommended by the Board. Subject to the Companies Act 2006, the Board may pay
interim dividends and any fixed rate dividend, whenever the financial position of the
Company, in the opinion of the Board, justifies its payment.
Share capital, control of the Company and significant shareholders
andagreements
As at 31 December 2023, the Company had 1,393,273,527 ordinary shares of £0.01 each
inissue, all fully paid up and listed on the London Stock Exchange. No shares were held
inTreasury. There are no special control rights, restrictions on voting rights, restrictions
onshare transfers or limitations on the holding of any class of shares and the Company
isnot aware of any agreements between holders of securities that may result in restrictions
on the transfer of securities or that might result in restrictions on voting rights.
Subject to applicable statutes, rights attached to any class of share may be varied with
thewritten consent of the holders of at least three quarters in nominal value of the issued
shares of that class, or by a special resolution passed at a separate general meeting of the
shareholders. Subject to the provisions of the Companies Act 2006, any resolution passed
by the Company under the Companies Act 2006 and other shareholders’ rights, shares
maybe issued with such rights and restrictions as the Company may by ordinary resolution
decide, or (if there is no such resolution or so far as it does not make specific provision)
asthe Board may decide.
Prior to the demerger, Dowlais received shareholder approval to make market purchases
ofits own shares up to a maximum number representing 10% of its issued share capital,
subject to customary limitations on the minimum price applicable to each purchase.
Duringthe year, the Company did not purchase any of its own shares. A resolution seeking
shareholder authority for the purchase of the Company’s shares will be put to shareholders
at the AGM to be held in May 2024.
Following approval by shareholders at a general meeting of the Company on 28 February
2023 and formal approval by the High Court of Justice, and in accordance with section 645
of the Companies Act 2006, the Company cancelled the entire amount of the Company’s
share premium account on 1 August 2023. The purpose was to create distributable reserves.
Further details can be found in the prospectus published by the Company on 3 March 2023.
On 21 March 2024, Dowlais announced its intention to commence a share buy-back
programme of up to £50 million to be transacted over a period of 12 months commencing
in April 2024. Further details of the proposed share buy-back can be found on page 23.
As at 31 December 2023 the persons listed in the table on page 123 had disclosed an
interest in the issued ordinary share capital of the Company in accordance with the
requirements ofrules 5.1.2 or 5.1.5 of the Financial Conduct Authority’s Disclosure Guidance
and Transparency Rules (DTRs). The Company’s major shareholders have the same voting
rights as other shareholders. The Company does not know of any arrangements the
operation of which may result in a change in its control.
122Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
DIRECTORS’ REPORT CONTINUED
Information provided to the Company pursuant to the DTRs is published on a Regulatory
Information Service and on the Company’s website. As at 15 March 2024, the following
information has been received, in accordance with DTR 5, from holders of notifiable
interests in the Company’s issued share capital. The information provided below was
correct at the date of notification; however, the date it was received may not have been
within the current financial year. It should be noted that these holdings are likely to have
changed since the Company was notified. However, notification of any change is not
required until the next notifiable threshold is crossed.
Notifiable interests Voting rights
% of capital
disclosed
Nature of holding
asperdisclosure
The Capital Group
Companies, Inc.
205,399,016 14.74% Indirect holding
T. Rowe Price
International Ltd
74,121,303 5.32% Indirect holding
FIL Limited 69,978,321 5.02% Indirect holding
Select Equity Group, L.P. 69,054,820 4.96% Direct holding
Change of control
The Company’s subsidiary, G.K.N. Industries Limited is party to a £450,000,000,
$1,060,000,000 and €550,000,000 Senior Term and Revolving Facilities Agreement, under
which the majority of the Group's debt funding is advanced. This facility agreement
provides that, on a change of control of the Company, the respective bank can give notice
to G.K.N. Industries Limited to repay all outstanding amounts under the relevant facility.
Companies in GKN Automotive and GKN Powder Metallurgy are party to supply contracts
with customers, certain of which contain provisions which would entitle the customer
toterminate the contract in the event of a change of control of the Company, or which
provide for different rights or remedies on such a termination than would apply to a
termination in other circumstances. All of the Company’s share schemes contain provisions
relating to a change of control. Outstanding awards normally vest and become exercisable
on a change of control subject to the satisfaction of any performance conditions at that
time. There are no agreements providing for compensation for the Directors or employees
of the Company on a change ofcontrol.
Board of Directors
The biographical details of the current serving Directors are set out on pages 82 and 83.
Appointments during the year and up to the date of this report are set out below. Simon
Peckham stepped down from the Board on 31 December 2023. Therewere no other
departures during this period.
Name Role
Effective date
ofappointment
Simon Mackenzie Smith Chair 9 February 2023
Celia Baxter Independent Non-Executive Director 20 February 2023
Philip Harrison Independent Non-Executive Director 10 February 2023
Alexandra Innes Independent Non-Executive Director 20 February 2023
Fiona MacAulay Independent Non-Executive Director 20 February 2023
Shali Vasudeva Independent Non-Executive Director 20 February 2023
Geoffrey Martin Executive Director 13 January 2023
Simon Peckham Executive Director 13 January 2023
Liam Butterworth CEO 10 February 2023
Roberto Fioroni CFO 10 February 2023
The interests of Directors who served during the year and their immediate families, in the shares
ofDowlais, along with details of Executive Directors’ conditional share awards, are contained in the
Directors’ Remuneration Report set out on page 120. Further information regarding employee share
schemes is provided in Note 22 to the Financial Statements on page 168. The appointment and
retirement of Directors is governed by the Company’s Articles of Association, the UK Corporate
Governance Code 2018, the Companies Act 2006 and other related legislation. Geoffrey Martin and
Alexandra Innes have each informed the Board that they will not stand for election as a Director at the
Company’s forthcoming AGM and will therefore retire from office with effect from the conclusion of
the meeting. In accordance with the Articles of Association of the Company, all other Directors will
submit themselves for election at the Company’s forthcoming AGM.
At no time during the year did any of the Directors have a material interest in any significant
contract with the Company or any of its subsidiaries. A qualifying third-party indemnity provision,
as defined in section 234 of the Companies Act 2006, is in force to the extent permitted by law
forthe benefit of each of the Directors in respect of liabilities incurred as a result of their office.
TheCompany maintains a Directors’ and Officers’ liability insurance policy, and the cover in place
isreviewed annually. Qualifying pension scheme indemnity provisions (as defined by section 235
ofthe Companies Act 2006) were in force during the course of the financial year ended
31 December 2023 for the benefit of the Group’s two UK pension scheme corporate trustees:
GKN2 Trustee 2018 Limited and GKN 3 Trustee 2018 Limited, and two legacy pension scheme
corporate trustees: GKN Group Pension Trustee Limited and GKN Group Pension Trustee (No.2)
Limited. All such indemnities and provisions remain in force at the date of this Annual Report.
The Directors may exercise all the powers of the Company, subject to the Articles of Association,
legislation and regulation. This includes the ability, subject to shareholder approval at the
Company’s AGM each year, to exercise the authority to allot or purchase the Company’s shares.
Further details of the powers of the Directors can be found in the Articles of Association.
The Company’s Articles of Association may only be amended by special resolution at
ageneral meeting of the shareholders.
123Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
DIRECTORS’ REPORT CONTINUED
Conflicts of interest
The Company has formal procedures in place for identifying and managing potential and
actual conflicts of interest. All Directors are required to avoid situations in which they have,
or could have, a direct or indirect interest that conflicts, or possibly may conflict, with the
interests of the Company. Under the Articles and as permitted by the Companies Act, the
Board may authorise any matter which would otherwise involve a Director breaching their
statutory duty to avoid conflicts of interest and may attach to any such authorisation such
conditions and/or restrictions as the Board deems appropriate. Situations considered
bythe Board and authorisations given are recorded in the Board minutes and in a register
ofconflicts maintained by the Company Secretary and are reviewed annually by the Board.
The Board believes that this system operates effectively.
Political donations
It is the Group’s policy not to make political donations, as set out in our Anti-Bribery and
Corruption Policy, and no political donations were made in the year.
Going concern, longer-term prospects and viability statement
An overview of the business activities of the Group, including a review of the key business
risks that the Group faces, is given in the Strategic Report on pages 71 to 76. The scenarios
considered and assessment made by the Directors with respect to the Company’s viability
are set out on page 78. The Directors have reviewed the Group’s cash flow forecasts,
financial position and exposure to the Principal Risks and have formed the view that the
Group will generate sufficient cash to meet its ongoing requirements for at least 12 months
from the date the Financial Statements have been authorised. The Directors believe that
itis appropriate to adopt the going concern basis of accounting in preparing the Group’s
Consolidated Financial Statements.
Modern Slavery Act
As required by section 54(1) of the Modern Slavery Act 2015, our Slavery and Human
Trafficking Statement is reviewed and approved by the Board on an annual basis and
published on our Group website. As Dowlais is in its first financial year, it is not required
tomake a statement for the financial year ended 31 December 2022, but has made a
statement voluntarily on behalf of the Group. The Group adheres to high ethical standards
and is committed to respecting fundamental human rights in its business operations and
value chain. It is a requirement of the Group’s Human Rights Policy that the Group takes
steps to combat slavery and human trafficking in its businesses and supply chains. Further
details can be found in our Slavery and Human Trafficking Statement and Anti-Slavery and
Human Trafficking Policy on our website.
Anti-bribery and corruption
We have a zero-tolerance approach to bribery and corruption across the Group. It is Group
policy to comply with all anti-bribery and corruption laws in the countries in which the
Group operates or which otherwise apply to the Group, and to adopt procedures which
robustly and visibly ensure compliance. Key controls include our Anti-Bribery and
Corruption Policy and our Whistleblowing Policy; our due diligence procedures; our
rigorous and regular training of colleagues on bribery risks; and our annual bribery and
corruption risk assessments by each business unit.
Auditor
Resolutions to reappoint Deloitte LLP as auditor of the Company and to authorise the Audit
Committee to determine its remuneration will be proposed at the 2024 AGM.
The Directors who held office at the date of approval of this Directors’ report confirm that,
so far as they each are aware, there is no relevant audit information (being information
needed by the external auditor in connection with preparing their audit report) of which
the Company’s external auditor is unaware, and each Director has taken all the steps that he
or she is obliged to take as a Director in order to make himself/herself aware of any relevant
audit information and to establish that the Company’s auditor is aware of that information.
This confirmation is given pursuant to Section 418 of the Companies Act 2006.
AGM
The AGM of Dowlais Group plc will be held at the offices of Slaughter and May, One Bunhill
Row, London, EC1Y 8YY, United Kingdom, on 21 May 2024 at 11am. Please see the Notice
ofMeeting, together with explanatory notes and guidance on how to access the meeting,
for further information.
Branches outside of the UK
The Group has no branches outside of the United Kingdom.
124Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
DIRECTORS’ REPORT CONTINUED
Additional disclosures
The Company has chosen, in accordance with section 414C(11) of the Companies Act 2006
and Schedule 7, Part 1, Paragraph 1A of the Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations 2008, to include certain matters in its Strategic
Report that would otherwise be required to be disclosed in this Directors’ Report. Other
information that is relevant to the Directors’ Report, and which is incorporated by reference
into this report, can be located as follows:
Events after the reporting period page 180
Future developments page 9, 17 and 34
Risk Management pages 51 and 71
Research and development pages 13, 17, 24, 26 to 30, 32 to
34, 38, 43, 46, 55, 62, 75 and 77
Financial instruments and financial risk management pages 147 and 148
GHG emissions, energy consumption, and energy efficiency action pages 44 to 46 and 59 to 61
Corporate governance report pages 60 to 126
Workforce engagement pages 39, 64 and 89
Employment policies pages 63 to 65 and 70
Stakeholder engagement pages 39 to 42
Related party transactions pages 179 to 180 and 189
Disclosures required pursuant to the Listing Rules can be found
onthefollowing pages:
Listing rule Information to be included Disclosure
9.8.4 (1) Interest capitalised by Group Not applicable
9.8.4 (2) Unaudited financial information
(LR9.2.18R)
Not applicable
9.8.4 (4) Long-term incentive scheme
information involving Board Directors
(LR 9.4.3R)
Details can be found on pages 115 to 117
oftheDirectors’ Remuneration Report.
9.8.4 (5) Waiver of emoluments by a Director Not applicable
9.8.4 (6) Waiver of future emoluments
byaDirector
Not applicable
9.8.4 (7) Non-pre-emptive issues of equity
forcash
None
9.8.4 (8) Non-pre-emptive issues of equity
forcash in relation to major subsidiary
undertakings.
None
9.8.4 (9) Listed company is a subsidiary
ofanother company
Not applicable
9.8.4 (10) Contracts of significance involving a
Director or a Controlling Shareholder
Not applicable
9.8.4 (11) Contracts for the provision of services
by a Controlling Shareholder
None
9.8.4 (12) Shareholder waiver of dividends The trustees of the Dowlais Group plc
Employee Share Trust have a dividend waiver
in place in respect of Ordinary Shares in the
Company which are its beneficial property.
The trustees of a legacy Melrose Industries PLC
Employee Share Trust have a dividend waiver
in place in respect of Ordinary Shares in the
Company which are its beneficial property.
9.8.4 (13) Shareholder waiver of future dividends The trustees of the Dowlais Group plc
Employee Share Trust have a dividend waiver
in place in respect of Ordinary Shares which
areits beneficial property.
The trustees of a legacy Melrose Industries PLC
Employee Share Trust have a dividend waiver
in place in respect of Ordinary Shares which are
its beneficial property.
9.8.4 (14) Agreement with Controlling
Shareholder
Not applicable
125
Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
DIRECTORS’ REPORT CONTINUED
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report and the financial statements
in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year.
Under that law the Directors are required to prepare the Group Financial Statements in
accordance with United Kingdom adopted international accounting standards. The
Directors have chosen to prepare the parent company financial statements in accordance
with United Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards and applicable law), including FRS 102 “The Financial Reporting
Standard applicable in the UK and Republic of Ireland”. Under company law the Directors
must not approve the financial statements unless they are satisfied that they give a true
and fair view of the state of affairs of the company and of the profit or loss of the Company
for that period.
In preparing the parent company financial statements, the Directors are required to:
– select suitable accounting policies and then apply them consistently;
– make judgements and accounting estimates that are reasonable and prudent;
– state whether applicable UK Accounting Standards have been followed, subject
toanymaterial departures disclosed and explained in the financial statements; and
– prepare the financial statements on the going concern basis unless it is inappropriate
topresume that the company will continue in business.
In preparing the Group Financial Statements, International Accounting Standard 1 requires
that directors:
– properly select and apply accounting policies;
– present information, including accounting policies, in a manner that provides relevant,
reliable, comparable and understandable information;
– provide additional disclosures when compliance with the specific requirements of the
financial reporting framework are insufficient to enable users to understand the impact
of particular transactions, other events and conditions on the entity’s financial position
and financial performance; and
– make an assessment of the Company’s ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient
to show and explain the Company’s transactions and disclose with reasonable accuracy at
any time the financial position of the Company and enable them to ensure that the financial
statements comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and
financial information included on the Company’s website. Legislation in the United
Kingdom governing the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
– the Financial Statements, prepared in accordance with the relevant financial reporting
framework, give a true and fair view of the assets, liabilities, financial position and
profitor loss of the Company and the undertakings included in the consolidation taken
as a whole;
– the Strategic Report and the Directors’ Report (which together comprise the
'management report' for the purposes of Disclosure Guidance and Transparency Rule
4.1.5R) together include a fair review of the development and performance of the
business and the position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of the principal risks
anduncertainties that they face; and
– the Annual Report and Financial Statements, taken as a whole, are fair, balanced and
understandable and provide the information necessary for shareholders to assess the
Company’s position and performance, business model and strategy.
This responsibility statement was approved by the Board of Directors on 20 March 2024
and is signed on its behalf by:
Chief Executive Officer
Liam Butterworth
20 March 2024
Chief Financial Officer
Roberto Fioroni
20 March 2024
126Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
AUDITOR'S REPORT
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF DOWLAIS GROUP PLC
Report on the audit of the financial statements
1. Opinion
In our opinion:
– the financial statements of Dowlais Group plc (the ‘parent company’) and its
subsidiaries (the ‘Group’) give a true and fair view of the state of the Group’s
and of the parent company’s affairs as at 31 December 2023 and of the Group’s
profit for the year then ended;
– the Group financial statements have been properly prepared in accordance
with United Kingdom adopted international accounting standards;
– the parent company financial statements have been properly prepared in accordance
with United Kingdom Generally Accepted Accounting Practice, including Financial
Reporting Standard 102 “The Financial Reporting Standard applicable in the UK
and Republic of Ireland”; and
– the financial statements have been prepared in accordance with the requirements
of the Companies Act 2006.
We have audited the financial statements which comprise:
– the Consolidated Income Statement;
– the Consolidated Statement of Comprehensive Income;
– the Consolidated Statement of Cash Flows;
– the Consolidated and Parent Company Balance Sheets;
– the Consolidated and Parent Company Statements of Changes in Equity;
– the material accounting policy information and statement of accounting policies;
– notes 1 to 30 of the Consolidated Financial Statements; and
– notes 1 to 9 to the Company Financial Statements.
The financial reporting framework that has been applied in the preparation of the Group
financial statements is applicable law and United Kingdom adopted international accounting
standards. The financial reporting framework that has been applied in the preparation of
theparent company financial statements is applicable law and United Kingdom Accounting
Standards, including FRS 102 “The Financial Reporting Standard applicable in the UK and
Republic of Ireland” (United Kingdom Generally Accepted Accounting Practice).
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs
(UK)) and applicable law. Our responsibilities under those standards are further described
inthe auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the Group and the parent company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the UK, including
the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public
interest entities, and we have fulfilled our other ethical responsibilities in accordance with
these requirements. The non-audit services provided to the Group and parent company
for the year are disclosed in note 7 to the financial statements. We confirm that we have not
provided any non-audit services prohibited by the FRC’s Ethical Standard to the Group
orthe parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our opinion.
3. Summary of our audit approach
Key audit matters The key audit matters that we identified in the current year were:
– Impairment of assets including goodwill;
– Classification of adjusting items; and
– The recognition and disclosure of the Group’s demerger
accounting transactions.
Materiality The materiality that we used for the Group financial statements was
£20 million which was determined on the basis of 0.4% of revenue.
Scoping We selected seven reporting units where we requested component
auditors to perform a full scope audit of the components' financial
information. We also requested component auditors to audit specified
account balances and transactions ("SAB") at a further 16 reporting units.
Centrally we performed full scope audit of two reporting units, including
the parent company, and an SAB scope audit over 19 entities. Coverage
from full scope and SAB scope components totals 77% of the Group's
revenue, 81% of adjusted operating profit and 94% of net assets.
127
Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
AUDITOR'S REPORT CONTINUED
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going
concern basis of accounting in the preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the Group’s and parent company’s ability
to continue to adopt the going concern basis of accounting included:
– obtaining an understanding of the Directors’ process for determining the
appropriateness of the use of the going concern basis;
– evaluating the Group’s existing access to sources of financing, including undrawn
committed bank facilities;
– comparing sales and gross margin forecasts to recent historical financial information,
the latest economic forecasts, the latest customer order book, and our understanding
of management’s discussions with key customers;
– testing the underlying data generated to prepare the forecast scenarios
and to determine whether there was adequate support for the assumptions
underlying the forecast, including consideration of uncertainty driven by ongoing
global macroeconomic volatility;
– testing the mechanical and logical accuracy of management’s calculations in the
forecast; and
– evaluating the Group’s disclosures on going concern in accordance with the
requirements of IAS 1 Presentation of Financial Statements.
Based on the work we have performed, we have not identified any material uncertainties
relating to events or conditions that, individually or collectively, may cast significant doubt
on the Group's and parent company’s ability to continue as a going concern for a period
of at least twelve months from when the financial statements are authorised for issue.
In relation to the reporting on how the Group has applied the UK Corporate Governance
Code, we have nothing material to add or draw attention to in relation to the directors’
statement in the financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern
are described in the relevant sections of this report.
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance
in our audit of the financial statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to fraud) that we identified.
These matters included those which had the greatest effect on: the overall audit strategy;
the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.
5.1. Impairment of assets including goodwill
Key audit
matter description
Goodwill of £1.1 billion (2022: £1.6 billion) and other intangible assets
of£1.3 billion (2022: £1.5 billion) were recorded on the balance sheet at
31 December 2023. As required by IAS 36 Impairment of assets ("IAS 36")
management performs an impairment review for all goodwill balances
on an annual basis and for other assets whenever an indication of
impairment is identified. This review identified the following Groups
of Cash Generating Units ("CGUs"):
– Automotive (goodwill £1.0 billion, other acquired intangible assets
£0.7 billion); and
– Powder Metallurgy (goodwill £79 million after a recorded impairment
of £449 million, other acquired intangible assets £0.6 billion).
Impairment of assets including goodwill has been identified as a key
audit matter as a result of the quantitative significance of the balances,
and the application of management judgement and estimation in
performing impairment reviews, specifically with respect to:
– the estimation of forecast future cash flows, specifically revenue
and operating margin assumptions; and
– the determination of the appropriate discount and growth rates
to be used in the model.
There is judgement involved in preparing forecast future cash flows due
to uncertainty surrounding the effect of vehicle electrification on the
automotive industry.
The Group’s impairment review was based on a comparison of the
carrying value and recoverable value, determined using a value-in-use
methodology. Based on this, the Group has recorded an impairment
of£449 million against the goodwill balance in the Powder Metallurgy
Group of CGUs.
For the Automotive Group of CGUs, management’s value in use
assessment demonstrated headroom above carrying value of
£449 million.
Further details are included in note 12 to the Group financial statements
in relation to the sensitivities reflecting the risks inherent in the valuation
of goodwill and other non-current assets, and also in notes 2 and 3 to the
Group financial statements in relation to the key sources of estimation
uncertainty for these businesses. Refer also to page 93 of the Audit
Committee report.
128
Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
AUDITOR'S REPORT CONTINUED
5.1. Impairment of assets including goodwill continued
How the scope of our
audit responded to the
key audit matter
We obtained an understanding of the relevant controls over the
valuation of goodwill and other intangible assets, in particular controls
over the forecasts that underpin the value in use models and controls
around management's preparation of impairment models.
We assessed management's impairment paper, underlying analysis and
supporting financial models, and challenged the reasonableness of the
assumptions that underpin management's forecasts. Specifically, our
work included:
– assessing the methodology selected by management to estimate
recoverable amount (value in use) against the requirements of IAS 36;
– performing sensitivity analysis to identify the key assumptions that
have a significant effect on the value-in-use determined for the CGUs;
– challenging management's assumptions within the impairment
models, particularly forecast revenue growth rates, operating profit
margin, discount rates and long-term growth rates, through engaging
with internal specialists on the automotive industry including the
impact of electrification, and comparing to external industry data and
analyst reports;
– benchmarking long term growth rates to applicable macro-economic
and market data;
– involving our internal valuation specialists to challenge the discount
rate applied; this was done by obtaining the underlying data used
in the calculation and benchmarking it against market data and
comparable organisations, and by evaluating the underlying process
used to determine the risk adjusted cash flow projections;
– evaluating the integrity of the impairment models through testing
of the mathematical accuracy, checking the application of the input
assumptions and testing their compliance with IAS 36; and
– assessing the appropriateness of the disclosures included by
management in notes 3 and 12 to the Group financial statements
and re-performing the calculations that underpin those disclosures.
Key observations We determined that the assumptions applied in the impairment model
were within an acceptable range, that the overall position adopted
wasreasonable and that the disclosures in notes 3 and 12 in respect
ofreasonably possible changes to key assumptions are appropriate.
5.2. Classification of adjusting items
Key audit matter
description
In addition to the statutory results, the Group continues to present
adjusted profit measures which are before the impact of adjusting items.
Judgements made by management regarding the classification of
adjusting costs and income therefore have a significant impact on the
presentation of the Group's results. As set out in note 6 to the Group
financial statements, adjustments of £805 million (2022: £275 million) have
been made to the statutory operating loss of £450 million
(2022: £58 million operating profit) to derive an adjusted operating profit
of £355 million (2022: £333 million).
We identified a key audit matter in respect of the classification of items
recorded as adjusting, including consideration of the use of use of
‘non-GAAP’ or ‘Alternative Performance’ measures in the context of
ESMA’s Guidelines on Alternative Performance Measures.
While the key measure used by management to monitor performance is
adjusted operating profit, adjusted profit before tax is also a key measure
used in communication with shareholders. There is a risk that costs or
income may be classified as adjusting which are trading or recurring items,
and therefore distort the reported adjusted profit, whether due to
manipulation or error. Consistency in the identification and presentation
of the adjusted costs or income is important for the comparability of
year-on-year reporting.
Explanations of each adjustment are set out in note 6 to the Group
financial statements, and also in note 3 to the Group financial statements
in relation to the critical judgements involved in determining adjusting
items. Refer also to page 93 of the Audit Committee report.
129
Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
AUDITOR'S REPORT CONTINUED
5.2. Classification of adjusting items continued
How the scope of our audit
responded to the key audit
matter
We obtained an understanding of the relevant internal controls over
theclassification of adjusting items in the financial statements.
We evaluated the appropriateness of the inclusion of items, both
individually and in aggregate, within adjusted results. Our work included:
– assessing the consistency of items included year on year, the content
and application of management's accounting policy, challenging
thenature of these items in comparison to ESMA guidance and FRC
guidance, and challenging in particular the inclusion of those items
that recur annually;
– testing a sample of adjusting items by agreeing to source
documentation and evaluating their nature in order to assess whether
they are disclosed in accordance with the Group's accounting policy,
and also to assess consistency of adjusting items between periods in
the Group financial statements;
– focussing our challenge on certain categories within adjusting items
where we assessed that increased level of judgement had been
applied by management, and there was increased risk for fraud
orerror. This included additional testing of restructuring costs;
– agreeing the amounts recorded through to underlying financial
records and other supporting evidence to test that the amounts
disclosed were complete and accurate;
– for restructuring costs, assessing whether the recognised costs meet
the recognition criteria set out in IAS 37 Provisions; and
– assessing whether the disclosures within note 6 to the Group financial
statements provide sufficient detail for the reader to understand
thenature of these items and how adjusted results reconcile to
statutory results.
Key observations Whilst we note that the majority of adjusting items recur from period
toperiod, their classification is consistent with the Group's policy.
5.3. The recognition and disclosure of the Group’s demerger accounting transactions
Key audit matter
description
The demerger of the Group from Melrose Industries PLC was completed
on20 April 2023 after a series of share for share exchanges with its
previous shareholders.
The share exchanges did not constitute business combinations and
felloutside the scope of IFRS 3 Business Combinations and as such, the
Group accounted for the corporate restructuring following “demerger
accounting” (refer to note 2 to the Group financial statements).
Accordingly, the Group continued to present its assets and liabilities 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. In addition, earnings per share in the comparative
period is presented on the basis of the demerged Group share structure.
Further detail is set out in note 2 to the Consolidated Financial Statements.
We identified demerger accounting as a key audit matter due to the
significance and pervasiveness of the transactions to the financial
statements of the Group in its first-year post demerger, resulting in the
allocation of a significant portion of audit resources to assess this matter.
How the scope of our
audit responded to the key
audit matter
Together with our accounting specialists we assessed the
appropriateness of the demerger accounting as part of our audit
procedures. This included consideration of:
– the appropriateness of the demerger accounting approach applied
by management;
– the measurement of the assets and liabilities recognised within the
Group at the point of demerger;
– the effects on reserves movements in equity; and
– the initial recognition and subsequent measurement of the derivative
asset over own equity.
We tested the restated earnings per share to reflect the revised equity
of the Group.
Key observations We concluded that the demerger accounting has been appropriately
applied for Dowlais Group plc.
130
Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
AUDITOR'S REPORT CONTINUED
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that
makes it probable that the economic decisions of a reasonably knowledgeable person
would be changed or influenced. We use materiality both in planning the scope of
ouraudit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial
statements as a whole as follows:
Group financial statements
Parent company
financial statements
Materiality £20 million £14 million
Basis for
determining
materiality
We have determined materiality
on the basis of 0.4% of Group revenue.
We determined materiality based on net
assets, which was then capped at 70% of
Group materiality in order to address the
risk of aggregation when combined with
other reporting units.
Rationale for the
benchmark
applied
We consider Group revenue to be
the most appropriate measure to
reflect the focus of users of the
financial statements.
The parent company is primarily an
investment holding company and net
assets is considered the most
appropriate benchmark.
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability
that, in aggregate, uncorrected and undetected misstatements exceed the materiality
forthe financial statements as a whole.
Group financial statements
Parent company
financial statements
Performance
materiality
70% of Group materiality 70% of parent company materiality
Basis and rationale
for determining
performance
materiality
In determining performance materiality, we considered the following factors:
– the assessment of the complexity of the Group and nature of the Group's
business model;
– the de-centralised nature of the Group's control environment and its variation
across the Group; and
– our past experience of the audit of the subsidiaries of the Group, which has
indicated a low number of corrected and uncorrected misstatements identified
in prior periods.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit
differences in excess of £1 million, as well as differences below that threshold that, in our
view, warranted reporting on qualitative grounds. We also report to the Audit Committee
on disclosure matters that we identified when assessing the overall presentation of the
financial statements.
7. An overview of the scope of our audit
7.1. Identification and scoping of components
In order to determine the scoping of components we considered the structure of the
Group how it is organised, and assessed the audit risks.
There are three operating segments in the continuing operations of the Group – Automotive,
Powder Metallurgy and Hydrogen. Each operating segment consists of a number of reporting
units and manages operations on a geographical and functional basis, maintaining their own
accounting records and controls and using an integrated consolidation system to report to
the UK head office. Our risk assessment considered the structure of each operating segment,
including group-wide and segment-wide controls, and taking into account the scope of the
operations of the shared service centre in the Automotive division.
In addition to the operating segments above, the Group has a number of central cost
centres which report to the Board and include head office companies for corporate
functions and costs.
Revenue
Group materiality
Group materiality
£20.0m
Revenue £4,864m
Component materiality range
£4.9m to £18.0m
Audit Committee
reporting threshold
£1.0m
131Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
AUDITOR'S REPORT CONTINUED
We identified financially significant components on the basis of their relative contribution
to Group revenue, adjusted operating profit before tax and net assets. This resulted in
ourselecting 7 reporting units where we requested component auditors to perform a full
scope audit of the components' financial information – China, Poland, Mexico, as well as two
units in the USA and two units in Italy.
Additionally, our audit planning identified an additional 16 non-financially significant
reporting units where we consider there to be a reasonable possibility of material
misstatement in specific balances within the financial statements. Accordingly we directed
component auditors to audit specified account balances and transactions ("SAB") at further
units in Sweden, Spain, Hungary, Japan, Thailand, Brazil, Germany, the USA and Italy.
Theprecise list of non-financial significant components varies each year as we rotate certain
components in and out of Group audit scope.
For entities in the Automotive segment where some transactions are recorded through
theshared service centre, we instructed a separate component team in Portugal, where
theshared services centre is located, to audit those balances that are in scope for the audit.
Centrally we performed full scope audit of two reporting units, including the parent
company, and performed audit procedures over specified balances (primarily over cash
and cash equivalents, tax, deferred tax and adjusting items) within a further 19 entities.
Wealso audited the consolidation process and performed audit procedures on centrally
managed balances including treasury, post-employment benefit obligations, litigation and
claims, goodwill, tax and head office costs.
Residual balances
All entities not subject to the audit procedures above were subject to centrally directed
analytical procedures by the Group engagement team, to confirm our conclusion that
there was no significant risk of material misstatement in the residual population.
Each component was set a specific component materiality, considering its relative size
and any component-specific risk factors such as internal audit findings and history of error.
The component materialities applied were in the range £4.9 million to £18.0 million.
Coverage
Coverage from full scope and SAB scope components totals 77% of the Group's revenue,
81% of adjusted operating profit and 94% of net assets.
Full audit scope
Specified audit procedures
Review at group level
Revenue
45%
32%
23%
Full audit scope
Specified audit procedures
Review at group level
Adjusted operating profit
41%
40%
19%
Full audit scope
Specified audit procedures
Review at group level
Net assets
63%31%
6%
7.2. Our consideration of the control environment
The Group has a tiered management structure that includes head-office and divisional
management functions providing support to and oversight of the operational component-
level finance teams. The Automotive division operates a shared service centre, and for
anumber of components, certain key finance functions are performed by the shared
service centre.
The Group operates a diverse IT infrastructure globally, and is reliant on the effectiveness
of a number of IT applications and controls, with varying levels of maturity, to ensure that
financial transactions are processed and recorded completely and accurately. Given this
level of maturity our planned approach was to test a limited number of controls for the
purposes of our work.
With the involvement of IT audit specialists in the UK and in the relevant countries, we
obtained an understanding of the relevant IT environment including in some instances
performing general IT control (“GITC”) testing, on which we were able to place reliance.
Thediverse infrastructure led us to our audit strategy of performing a mostly substantive audit.
For all in-scope components we obtained an understanding of the relevant controls
associated with the financial reporting process, areas of significant risk, and in relation
to significant accounting estimates. Where applicable we relied on certain controls we
tested relating to revenue, trade receivables and inventory where relevant. Also refer
to pages 95 and 96 of the Audit Committee report.
132Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
7.3. Our consideration of climate-related risks
In planning our audit, we have considered the potential impact of climate change on the
Group’s business and its financial statements.
The Group continues to develop its assessment of the potential impacts of climate change
which is currently premised upon an analysis of physical and transition risks over a short,
medium and long-term horizon as explained in the Strategic Report on pages 51 to 57.
As a part of our audit, we have obtained management’s climate-related risk assessment
andheld discussions with the head of sustainability and finance management to understand
the process of identifying climate related risks, the determination of mitigating actions
andthe impact on the Group’s financial statements.
The key areas in the Consolidated Financial Statements considered were
– going concern and viability of the Group over the next three years;
– cash flow forecasts used in the impairment assessments of non-current assets including
goodwill and other intangible assets; and
– carrying value and useful economic lives of property, plant and equipment.
Management concluded there was no material impact arising from climate change on the
judgements and estimates made in the financial statements as explained in note 2 and 12.
We performed our own qualitative risk assessment of the potential impact of climate
change on the Group’s account balances and classes of transaction and did not identify
any reasonably possible risks of material misstatement.
With the involvement of climate change and sustainability specialists, we evaluated
management’s risk assessment process in respect of the potential impact of climate change
in judgements and estimates relevant to the Consolidated Financial Statements and
evaluated the appropriateness of management’s Task Force on Climate-Related Financial
Disclosures. We also read the climate-related disclosures in the Strategic Report to
consider whether it is materially consistent with the financial statements and our
knowledge obtained in the audit.
7.4. Working with other auditors
In 2023 we visited sites in the USA, China, Italy and Hungary as well as the shared service
centre in Portugal. We also had regular communication with component audit teams and
component management teams using conference and video calls, with a particular focus
onlocations where work was performed which impacted our significant audit risks.
In addition to the above, the Group audit partners (including the senior statutory auditor)
held Group-wide, divisional and individual planning and close meetings which covered
allbusinesses. Each division has a dedicated senior member of the Group audit team
responsible for the supervision and direction of components, including where appropriate
sector-specific expertise.
We included the component audit teams in our Group audit team briefing, discussed
andreviewed their risk assessment, and reviewed documentation of the findings from
theirwork. We also reviewed the audit work papers supporting component teams'
reporting to us using remote shared desktop technology and on-site visits where needed.
8. Other information
The other information comprises the information included in the annual report, other
thanthe financial statements and our auditor’s report thereon. The directors are
responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except
to the extent otherwise explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are
required to determine whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed, we conclude that there
is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
AUDITOR'S REPORT CONTINUED
133Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
11. Extent to which the audit was considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations.
We design procedures in line with our responsibilities, outlined above, to detect material
misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below.
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities,
including fraud and non-compliance with laws and regulations, we considered the
following:
– the nature of the industry and sector, control environment and business performance
including the design of the Group’s remuneration policies, key drivers for directors’
remuneration, bonus levels and performance targets;
– results of our enquiries of management, internal audit, legal counsel, operational staff,
the directors and the Audit Committee about their own identification and assessment
of the risks of irregularities, including those that are specific to the Group’s sector;
– any matters we identified having obtained and reviewed the Group’s documentation
of their policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations and whether they
were aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge
of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks of fraud or non-compliance with
lawsand regulations; and
– the matters discussed among the audit engagement team including significant
component audit teams and relevant internal specialists, including tax, valuations,
financial instruments, pensions and IT specialists regarding how and where fraud might
occur in the financial statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may
exist within the organisation for fraud and identified the greatest potential for fraud in the
following areas impairment of assets including goodwill and the classification of adjusting
items. In common with all audits under ISAs (UK), we are also required to perform specific
procedures to respond to the risk of management override.
9. Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are
responsible for the preparation of the financial statements and for being satisfied that
theygive a true and fair view, and for such internal control as the directors determine
isnecessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the
Group’s and the parent company’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 Group or the parent
company or to cease operations, or have no realistic alternative but to do so.
10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue
an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements can arise from fraud
orerror and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis
ofthese financial statements.
A further description of our responsibilities for the audit of the financial statements is
located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
AUDITOR'S REPORT CONTINUED
134Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
We also obtained an understanding of the legal and regulatory frameworks that the Group
operates in, focusing on provisions of those laws and regulations that had a direct effect
onthe determination of material amounts and disclosures in the financial statements.
Thekey laws and regulations we considered in this context included the UK Companies
Act, Listing Rules, pensions legislation and tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a
direct effect on the financial statements but compliance with which may be fundamental
tothe Group’s ability to operate or to avoid a material penalty. These included the
environmental regulations in the jurisdictions the Group operates in.
11.2. Audit response to risks identified
As a result of performing the above, we identified impairment of assets including goodwill
and the classification of adjusting items as key audit matters related to the potential risk
of fraud. The key audit matters section of our report explains the matters in more detail
and also describes the specific procedures we performed in response to those key
audit matters.
In addition to the above, our procedures to respond to risks identified included
the following:
– reviewing the financial statement disclosures and testing to supporting documentation
to assess compliance with provisions of relevant laws and regulations described
as having a direct effect on the financial statements;
– enquiring of management, the audit committee and in-house and external legal
counsel concerning actual and potential litigation and claims;
– performing analytical procedures to identify any unusual or unexpected relationships
that may indicate risks of material misstatement due to fraud;
– reading minutes of meetings of those charged with governance, reviewing internal
audit reports and reviewing correspondence with HMRC; and
– in addressing the risk of fraud through management override of controls, testing
the appropriateness of journal entries and other adjustments; assessing whether the
judgements made in making accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions that are unusual or
outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks
toall engagement team members including internal specialists and significant component
audit teams, and remained alert to any indications of fraud or non-compliance with laws
and regulations throughout the audit.
Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been
properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
– the information given in the strategic report and the directors’ report for the financial
year for which the financial statements are prepared is consistent with the financial
statements; and
– the strategic report and the directors’ report have been prepared in accordance
with applicable legal requirements.
In the light of the knowledge and understanding of the Group and the parent company
and their environment obtained in the course of the audit, we have not identified any
material misstatements in the strategic report or the directors’ report.
13. Corporate Governance Statement
The Listing Rules require us to review the directors' statement in relation to going concern,
longer-term viability and that part of the Corporate Governance Statement relating to the
Group’s compliance with the provisions of the UK Corporate Governance Code specified
for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the
following elements of the Corporate Governance Statement is materially consistent with
the financial statements and our knowledge obtained during the audit:
– the directors’ statement with regards to the appropriateness of adopting the going concern
basis of accounting and any material uncertainties identified set out on page 124;
– the directors’ explanation as to its assessment of the Group’s prospects, the period
this assessment covers and why the period is appropriate set out on page 78;
– the directors' statement on fair, balanced and understandable set out on page 126;
– the board’s confirmation that it has carried out a robust assessment of the emerging
and principal risks set out on page 72;
– the section of the annual report that describes the review of effectiveness of risk
management and internal control systems set out on page 95 and 96; and
– the section describing the work of the audit committee set out on page 92 and 93.
AUDITOR'S REPORT CONTINUED
135Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
14. Matters on which we are required to report by exception
14.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
– we have not received all the information and explanations we require for our audit; or
– adequate accounting records have not been kept by the parent company, or returns
adequate for our audit have not been received from branches not visited by us; or
– the parent company financial statements are not in agreement with the accounting
records and returns.
We have nothing to report in respect of these matters.
14.2. Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain
disclosures of directors’ remuneration have not been made or the part of the directors’
remuneration report to be audited is not in agreement with the accounting records
and returns.
We have nothing to report in respect of these matters.
15. Other matters which we are required to address
15.1. Auditor tenure
The company was incorporated on 13 January 2023. Following the recommendation of the
audit committee, we were appointed by the Board of Directors in 2023 to audit the financial
statements for the year ending 31 December 2023 and subsequent financial periods.
We were appointed in 2016 for other Group entities, which were then part of the group
headed by GKN plc, to audit the Financial Statements for the year ended 31 December
2016, and continued in our appointment throughout the period they were part of this
group, and subsequently when they were part of the group headed by Melrose Industries
PLC. The period of total uninterrupted engagement is therefore 8 years, covering the years
ending 31 December 2016 to 31 December 2023.
15.2. Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are
required to provide in accordance with ISAs (UK).
16. Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3
of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might
state to the company’s members those matters we are required to state to them in an
auditor’s 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 and the company’s
members as a body, for our audit work, for this report, or for the opinions we have formed.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and
Transparency Rule (DTR) 4.1.15R – DTR 4.1.18R, these financial statements form part of the
Electronic Format Annual Financial Report filed on the National Storage Mechanism of the
FCA in accordance with DTR 4.1.15R – DTR 4.1.18R. This auditor’s report provides no
assurance over whether the Electronic Format Annual Financial Report has been prepared
in compliance with DTR 4.1.15R – DTR 4.1.18R.
Edward Hanson (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
20 March 2024
AUDITOR'S REPORT CONTINUED
136Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
CONSOLIDATED
STATEMENT OF
COMPREHENSIVE INCOME
CONSOLIDATED INCOME STATEMENT
Notes
Year ended
Year ended
31 December 31 December
2023 2022
£m£m
Revenue
4, 5
4,864
4,595
Cost of sales
(4,107)
(3,937)
Gross profit
757
658
Share of results of equity accounted investments
14
51
49
Operating expenses
7
(809)
(649)
Impairment of goodwill
12
(449)
–
Operating (loss)/profit
5, 6
(450)
58
Finance costs
8
(101)
(272)
Finance income
8
29
151
Loss before tax
(522)
(63)
Tax
9
27
(14)
Loss after tax for the year
(495)
(77)
Attributable to:
Owners of the parent
(501)
(82)
Non-controlling interests
6
5
(495)
(77)
Earnings per share
–
 Basic
11
(36.0)p
(5.9)p
–
 Diluted
11
(36.0)p
(5.9)p
Adjusted
(2)
results
Adjusted revenue
5
5,489
5,246
Adjusted operating profit
5, 6
3 55
333
Adjusted profit before tax
6
264
297
Adjusted profit after tax
6
198
218
Adjusted basic earnings per share
11
13.8p
15.3p
Adjusted diluted earnings per share
11
13.8p
15.3p
(1)
1. Historical Financial Information including the year ended 31 December 2022 was issued in the Dowlais Group plc
prospectus prior to listing on the London Stock Exchange. See Note 1.2 for further information.
2. Defined in the summary of material accounting policies (Note 2).
Notes
Year ended Year ended
31 December 31 December
2023 2022
£m £m
Loss after tax for the year
(495)
(77)
Items that will not be reclassified subsequently to the Income Statement:
Net remeasurement (loss)/gain on retirement benefit obligations
23
(22)
72
Income tax credit/(charge) relating to items that will not be reclassified
9
4
(27)
(18)
45
Items that may be reclassified subsequently to the Income Statement:
Currency translation
(152)
272
Impact of hyperinflationary economies
8
28
Share of other comprehensive (expense)/income from equity
accounted investments
14
(32)
12
Derivative and exchange gains on hedge relationships
24
21
–
Income tax credit/(charge) relating to items that may be reclassified
9
4
(12)
(151)
300
Other comprehensive (expense)/income for the year
(169)
345
Total comprehensive (expense)/income for the year
(664)
268
Attributable to:
Owners of the parent
(668)
262
Non-controlling interests
4
6
(664)
268
(1)
1. Historical Financial Information including the year ended 31 December 2022 was issued in the Dowlais Group plc
prospectus prior to listing on the London Stock Exchange. See Note 1.2 for further information.
137Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
Notes
Year ended Year ended
31 December 2023 31 December 2022
£m£m
Net cash from operating activities
26
239
210
Investing activities
Purchase of property, plant and equipment
(279)
(202)
Proceeds from disposal of property, plant and equipment
33
23
Purchase of computer software and capitalised development costs
(16)
(20)
Dividends received from equity accounted investments
14
63
59
Interest received
5
3
Net cash used in investing activities
(194)
(137)
Financing activities
Cash settlements with Related Parties
(1,096)
(78)
Drawings on borrowings facilities
1,313
–
Repayment of borrowing facilities
(124)
–
Costs of raising debt finance
(12)
–
Repayment of principal under lease obligations
27
(25)
(22)
Purchase of own shares
25
(7)
–
Dividends paid to non-controlling interests
(7)
–
Dividends paid to equity shareholders
10
(19)
–
Net cash from/(used in) financing activities
23
(100)
Net increase/(decrease) in cash and cash equivalents, net of bank overdrafts
68
(27)
Cash and cash equivalents, net of bank overdrafts at the beginning of the year
26
263
275
Effect of foreign exchange rate changes
26
(18)
15
Cash and cash equivalents, net of bank overdrafts at the end of the year
26
313
263
(1)
(2)
1. Historical Financial Information including the year ended 31 December 2022 was issued in the Dowlais Group plc prospectus prior to listing on the London Stock Exchange. See Note 1.2 for further information.
2. Related Parties comprise Melrose Industries PLC, the ultimate parent company prior to demerger on the 20 April 2023 and other non-group entities controlled by Melrose Industries PLC. Further details are provided in Note 26.
As at 31 December 2023, the Group had net debt of £847 million (31 December 2022: net funds of £920 million). A definition and reconciliation of the movement in net debt is shown in Note 26.
138Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
Notes
31 December 31 December
2023 2022
£m£m
Non-current assets
Goodwill and other intangible assets
12
2,365
3,095
Property, plant and equipment
13
1,751
1,821
Interests in equity accounted investments
14
380
424
Loans receivable from Related Parties
28
–
2,826
Deferred tax assets
21
146
99
Derivative financial assets
24
8
9
Other financial assets
24
28
–
Retirement benefit surplus
23
27
42
Other receivables
16
12
21
4,717
8,337
Current assets
Inventories
15
510
498
Trade and other receivables
16
628
638
Derivative financial assets
24
45
24
Current tax assets
21
20
Cash and cash equivalents
17
313
270
1,517
1,450
Total assets
5
6,234
9,787
Current liabilities
Trade and other payables
18
1,179
1,188
Interest-bearing loans and borrowings
19
2
–
Loans payable to Related Parties
28
–
2,176
Lease obligations
27
25
25
Derivative financial liabilities
24
4
10
Current tax liabilities
100
109
Provisions
20
13 6
140
1,446
3,648
Net current assets/(liabilities)
71
(2,198)
(1)
(2)
(2)
Notes
31 December 31 December
2023 2022
£m £m
Non-current liabilities
Other payables
18
18
28
Interest-bearing loans and borrowings
19
1,158
–
Lease obligations
27
126
134
Derivative financial liabilities
24
4
2
Deferred tax liabilities
21
248
293
Retirement benefit obligations
23
486
503
Provisions
20
182
186
2,222
1,146
Total liabilities
5
3,668
4,794
Net assets
2,566
4,99 3
Equity
Issued share capital
25
14
–
Share premium account
25
–
–
Own shares
25
(7)
–
Translation reserve
25
(81)
6 9
Hedging reserve
25
1
–
Retained earnings
2,603
4,885
Equity attributable to owners of the parent
2,530
4,954
Non-controlling interests
36
39
Total equity
2,566
4,99 3
(1)
1. Historical Financial Information including the year ended 31 December 2022 was issued in the Dowlais Group plc
prospectus prior to listing on the London Stock Exchange. See Note 1.2 for further information.
2. Related Parties comprise Melrose Industries PLC, the ultimate parent company prior to demerger on 20 April
2023 and other non-group entities controlled by Melrose Industries PLC.
The Consolidated Financial Statements were approved and authorised for issue by the Board of
Directors on 20 March 2024 and were signed on its behalf by:
Roberto Fioroni
Chief Financial Officer
20 March 2024
139Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Equity attributable
Issued share Share premium Translation to owners Non-controlling Total
capitalaccountOwn sharesreserveHedging reserveRetained earningsof the parent interestsequity
£m£m£m£m£m£m£m£m£m
At 1 January 2022
–
–
–
(230)
–
5,032
4,802
33
4,835
Loss for the year
–
–
–
–
–
(82)
(82)
5
(77)
Other comprehensive income
–
–
–
299
–
45
344
1
345
Total comprehensive income/(expense)
–
–
–
299
–
(37)
262
6
268
Transactions with Related Parties
–
–
–
–
(110)
(110)
–
(110)
At 31 December 2022
(2)
–
–
–
69
–
4,885
4,954
39
4,993
Loss for the year
–
–
–
–
–(501)
(501)
6
(495)
Other comprehensive (expense)/income
–
–
–
(150)
1
(18)
(167)
(2)
(169)
Total comprehensive (expense)/income
–
–
–
(150)
1
(519)
(668)
4
(664)
Dividends paid to Related Parties
–
–
–
–
–
(1,675)
(1,675)
–
(1,675)
Transactions with Related Parties––––
–
(57)
(57)
–
(57)
Effect of change of ultimate holding company
14
1,070
–
–
–
(1,084)
–
–
–
Purchase of own shares by Employee Benefit Trust
–
–
(7)
–
–
–
(7)
–
(7)
Capital reduction
–
(1,070)
–
–
–
1,070
–––
Dividends paid to equity shareholders
–
–
–
–
–
(19)
(19)
(7)
(26)
Equity-settled share-based payments
–
–
–
–
–
2
2
–
2
At 31 December 2023
14
–
(7)
(81)
1
2,603
2,530
36
2,566
(1)
(1)
(1)
(3)
(4)
1. Related Parties comprise Melrose Industries PLC, the ultimate parent company prior to demerger on 20 April 2023 and other non-group entities controlled by Melrose Industries PLC.
2. Historical Financial Information including the year ended 31 December 2022 was issued in the Dowlais Group plc prospectus prior to listing on the London Stock Exchange. See Note 1.2 for further information.
3. Following the demerger, the issued share capital and share premium account of Dowlais Group plc were recognised in the Consolidated Financial Statements. See Note 2 for details of application of merger accounting.
4. On 31 May 2023 an Employee Benefit Trust (EBT) established for the benefit of certain employees of the Group purchased shares in the capital of the Company to be held for the purpose of settling awards vesting under the Group’s
share incentive scheme.
Further information on issued share capital and reserves is set out in Note 25.
140Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate information
Dowlais Group plc comprises the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen
businesses along with certain Corporate functions, together referred to as the “Group”. GKN
Automotive is a global technology and systems engineer which designs, develops, manufactures
and integrates an extensive range of driveline technologies, including electric vehicle components.
GKN Powder Metallurgy is a global leader in precision powder metal parts for the automotive and
industrial sectors, as well as the production of powder metal. GKN Hydrogen, launched in 2021,
offers reliable and secure hydrogen storage solutions.
1.1 Corporate structure
Dowlais Group plc was incorporated as a public company limited by shares in the United Kingdom
on 13 January 2023 under the Companies Act 2006 and is registered in England & Wales. On 28
February 2023, Melrose Industries PLC (“Melrose”) transferred the entire shareholding of G.K.N.
Industries Limited and GKN Powder Metallurgy Holdings Limited to Dowlais Group plc such that
all the entities within the Group became owned directly or indirectly by Dowlais Group plc.
On 20 April 2023, Melrose made a distribution to its shareholders of Dowlais Group plc shares with
one Dowlais share issued for every Melrose share held. On the same day, Dowlais Group plc shares
were admitted to the premium listing segment of the Official List of the Financial Conduct Authority
(FCA) and to trading on the London Stock Exchange’s main market for listed securities.
Prior to 20 April 2023, the ultimate parent company and controlling party of the Group was Melrose
Industries PLC, a public company limited by shares and incorporated in England & Wales.
Subsidiaries of Melrose Industries PLC prior to the date of the demerger which do not form part of
the Dowlais Group are considered non-group entities. Melrose Industries PLC and other non-group
entities controlled by Melrose Industries PLC are Related Parties of the Group up to the date of the
demerger on 20 April 2023.
1.2 Basis of Preparation
The comparative information and results up to 28 February 2023 in this set of accounts show an
aggregation of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses along
with certain Corporate functions, which form the operating segments of the Group. The aggregation
has been prepared as though the current legal structure of the Group was in place at the beginning
of the comparative period under the principles of merger accounting (see Note 2).
The information for the year ended 31 December 2022 does not constitute statutory accounts as
defined in section 434 of the Companies Act 2006, but has been extracted from the Historical
Financial Information of Dowlais Group plc included in the prospectus in relation to the admission
of the Dowlais Group plc ordinary shares to the London Stock Exchange, which is available on the
Group’s website at www.dowlais.com. The auditor has reported on those accounts. Their report was
unqualified, and did not draw attention to any matters by way of emphasis. The information for the
year ended 31 December 2022 was prepared under the basis of preparation in Note 1.1 to the
Historical Financial Information in that document and the accounting policies therein except in
relation to the application of IAS 29 Financial Reporting in Hyperinflationary Economies as set out
in Note 1.3.
1.3 IAS 29 Financial Reporting in Hyperinflationary Economies
The December 2022 results reflect the application of IAS 29 Financial Reporting in Hyperinflationary
Economies. During 2022 Turkey became hyperinflationary. IAS 29 requires affected entities to
present their financial statements reflecting the general purchasing power of the relevant functional
currency in terms of the measuring unit current at the end of the reporting period. Following a
detailed assessment performed during the year, the December 2022 financial statements of the
Group’s operations in Turkey, which are based on a historical cost approach, were adjusted to
reflect the level of the Turkey Domestic Producer Price Index (D-PPI) which was 2,026 as at the end of
the year. As a result, goodwill and other intangibles assets were increased by £20 million, property,
plant and equipment were increased by £8 million and a total of £28 million was recognised in other
comprehensive income as a credit to translation reserves. The impact of applying IAS 29 in the
current year was to increase goodwill and other intangibles by £5 million and property, plant and
equipment by £3 million, with a credit of £8 million recognised in other comprehensive income.
These adjustments reflected the change in the D-PPI to 2,915 as at 31 December 2023.
1.4 New Standards, Amendments and Interpretations affecting amounts, presentation or
disclosure reported in the current year
The following amendments to IFRS Accounting Standards have been applied for the first time by
the Group. Their adoption has not had any material impact on the disclosures or on the required
amounts reported in these Consolidated Financial Statements:
– IFRS 17 Insurance Contracts (including the June 2020 and December 2021 Amendments to IFRS 17)
–
Amendments to IAS 12 Income Taxes – Deferred Tax related to Assets and Liabilities arising from
a Single Transaction
– Amendments to IAS 12 Income Taxes – International Tax Reform – Pillar Two Model Rules
– Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making
Materiality Judgements – Disclosure of Accounting Policies
– Amendments to IAS 8 Accounting Polices, Changes in Accounting Estimates and Errors –
Definition of Accounting Estimates
1.5 New and revised IFRS Accounting Standards in issue but not yet effective
At the date of authorisation of these financial statements, the Group has not applied the following
new and revised IFRS Accounting Standards that have been issued but are not yet effective:
– Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture
– Amendments to IAS 1 Classification of Liabilities as Current or Non-current
– Amendments to IAS 1 Non-current Liabilities with Covenants
– Amendments to IAS 7 and IFRS 7 Supplier Finance Arrangements
– Amendments to IFRS 16 Lease Liability in a Sale and Leaseback
The Directors do not expect that the adoption of the Standards listed above will have a material
impact on the financial statements of the Group in future periods.
141Dowlais Group plc 2023 Annual Report
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2. Summary of material accounting policies
Basis of accounting
The Consolidated Financial Statements have been prepared in accordance with the requirements of
the Companies Act 2006 and United Kingdom adopted international accounting standards. The
Consolidated Financial Statements are presented in pounds Sterling and, unless stated otherwise,
rounded to the nearest million. They have been prepared under the historical cost convention, as
modified by the revaluation of certain financial assets and financial liabilities (including derivative
instruments).
Material accounting policies applied in preparing the Consolidated Financial Statements and
Alternative Performance Measures are consistent with those detailed in the carve out Historical
Financial Information issued in the Dowlais Group plc prospectus prior to listing on the London Stock
Exchange, except for the application of IAS 29 Financial reporting in hyperinflationary economies
and a change in accounting policy with respect to alternative performance measures as set out
below.
During the year, the Board of Directors approved a change in the accounting policy with respect to
alternative performance measures. Net releases of fair value provisions other than loss-making
contracts recorded upon acquisitions are no longer included within adjusting items, as the Directors
consider that the nature of such provisions is operational and therefore the new presentation
provides reliable and more relevant financial information.
Merger accounting
As set out in Note 1.1 above, the Group was separated from Melrose during the current year. The
demerger took place while the business was under Melrose ownership and therefore the Directors
assessed that the transaction was under common control and outside of the scope of IFRS 3 Business
Combinations.
IFRS is not prescriptive as to the accounting for such transactions, and under IAS 8 Accounting
Polices, Changes in Accounting Estimates and Errors, the Directors used guidance in UK GAAP (FRS
102) to apply merger accounting. The effects of this accounting on the Consolidated Financial
Statements for the year were as follows:
– The value of the assets and liabilities of the business were transferred to Dowlais at book value on
the date of the transaction with no adjustments required to estimate fair value.
– The results of the Group have been presented for a continuous period to include both pre- and
post-demerger trading with comparatives included for prior periods as though the new
structure has always been in place.
– As set out in the basis of preparation for the comparative, prior year reserves are therefore
presented as a translation reserve and a single remaining balance of shareholders’ funds.
– The comparative for Earnings Per Share has been calculated as if the current share structure has
always existed in accordance with IAS 33.26.
– Costs relating to the demerger are charged to the Income Statement.
Alternative performance measures
The Group presents Alternative Performance Measures (“APMs”) in addition to the statutory results.
These are presented in accordance with the Guidelines on APMs issued by the European Securities
and Markets Authority (“ESMA”). APMs used by the Group are set out in the Alternative
Performance Measures section on pages 190 to 194 and the reconciling items between statutory
and adjusted results are listed below and described in more detail in Note 6.
Adjusted revenue includes the Group’s share of revenue from equity accounted investments
(“EAIs”).
Adjusted profit measures exclude items which are significant in size or volatility or by nature are
non-trading or non-recurring, and include adjusted profit from EAIs.
On this basis, the following are the principal items included within adjusting items impacting
operating profit:
– Amortisation of intangible assets that are acquired in a business combination, excluding
computer software and development costs;
– Significant restructuring project costs and other associated costs, including losses incurred
following the announcement of closure for identified businesses and pre-operational losses for
new operating sites, arising from significant strategy changes that are not considered by the
Group to be part of the normal operating costs of the business;
– Acquisition and disposal related gains and losses;
– Costs relating to or resulting from the demerger of the Group from Melrose Industries PLC;
– Impairment charges that are considered to be significant in nature and/or value to the trading
performance of the business;
– Movement in derivative financial instruments not designated in hedging relationships, including
revaluation of associated financial assets and liabilities;
– Removal of adjusting items, interest and tax on equity accounted investments to reflect
operating results; and
– The net release of loss-making contract provision fair value items booked on acquisitions.
Further to the adjusting items above, adjusting items impacting profit before tax include:
– The fair value changes on cross-currency swaps, relating to cost of hedging which are not
deferred in equity;
– The movement in loans with Related Parties as a result of changes in foreign currency exchange
rates; and
– The fair value changes on remeasurement of non-trading financial assets.
142Dowlais Group plc 2023 Annual Report
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2. Summary of material accounting policies continued
Alternative performance measures continued
In addition to the items above, adjusting items impacting profit after tax include:
– The net effect on tax of significant restructuring from strategy changes that are not considered
by the Group to be part of the normal operating costs of the business;
– The net effect of significant new tax legislation; and
– The tax effects of adjustments to profit before tax, described above.
The policy above is consistent with that used in the comparative year, with the exception of the
release of fair value items, which from 2023 are restricted to loss-making contract provisions, as the
Directors believe this better represents the operational nature of such items. The effect of this
change is a credit to adjusted operating profit of £24 million in the current year and was immaterial
in 2022.
The Board considers the adjusted results to be an important measure used to monitor how the
businesses are performing as this provides a meaningful reflection of how the businesses are
managed and measured on a day-to-day basis and achieves consistency and comparability
between reporting periods.
The adjusted measures are used to partly determine the variable element of remuneration of senior
management throughout the Group and are also in alignment with performance measures used by
certain external stakeholders.
Adjusted profit is not a defined term under IFRS and may not be comparable with similarly titled
profit measures reported by other companies. It is not intended to be a substitute for, or superior
to, GAAP measures. All APMs relate to the current year results and comparative years where
provided.
Going concern
The Consolidated Financial Statements have been prepared on a going concern basis as the
Directors consider that adequate resources exist for the Company to continue in operational
existence for a period of not less than 12 months from the date of this report. The Group’s liquidity
and funding arrangements are described in the Financial Review on page 22. There is significant
financing headroom at 31 December 2023 (c. £0.6 billion) and throughout the going concern
forecast period. Forecast covenant compliance is considered further below.
Covenants
The current facility has two financial covenants being a net debt to adjusted EBITDA covenant and
an interest cover covenant, both of which are tested half yearly, in June and December following
commencement in December 2023 and June 2024 respectively.
The financial covenants for the going concern period are as follows:
31 December 30 June 31 December
2023 2024 2024
Net debt to adjusted EBITDA
3.50x
3.50x
3.50x
Interest cover
n/a
4.00x
4.00x
Testing
In concluding that the going concern basis is appropriate, the Directors have modelled the impact
of a ‘worst case scenario’ to the ‘base case’ by including an aggregation of the same three plausible
but severe downside risks also used for the Group’s Viability Statement.
The base case takes into account the estimated impact of end market and operational factors,
including supply chain and inflationary challenges throughout the going concern period. Climate
related risks have also been considered, including estimating the expected transition from internal
combustion engines to electric vehicles and considering potential risks to the Group’s infrastructure
resulting from extreme weather or climate events.
As set out in more detail in the Viability Statement (on page 78), the three downside scenarios
modelled were (i) economic shock/downturn, (ii) losing a key market, product or customer and
(iii) significant contract delivery issues, including a cyber attack scenario.
Throughout the period covered, financing headroom was at least £400 million and the Group’s
leverage was no higher than 2.8x, indicating that the Group would comfortably remain within
covenant limits. Finally, a reverse stress test was performed which demonstrated that a significant
reduction in revenue and operating profit in 2024, still assuming no mitigating actions, would be
required before the Group breached its leverage and interest covenants.
Even after applying significant downside risk scenarios in aggregation, no covenant is forecast to be
breached at the relevant testing dates being 30 June 2024 and 31 December 2024, and the Group
would not expect to require any additional sources of finance. Testing at 30 June 2025 is also
expected to be favourable under the terms of existing facilities.
Consideration of climate change
In preparing the financial statements, the Directors have considered the impact of climate change,
particularly in the context of the risks identified in the TCFD disclosure on pages 51 to 57. There has
been no material impact identified on the financial reporting judgements and estimates. In
particular, the Directors considered the impact of climate change in respect of the following areas:
– going concern and viability of the Group over the next three years;
– cash flow forecasts used in the impairment assessments of non-current assets including goodwill
and other intangible assets; and
– the carrying value and useful economic lives of property, plant and equipment.
Whilst there is currently no medium-term impact expected from climate change, the Directors are
aware of the ever-changing risks that may result from climate change and will regularly assess these
risks against judgements and estimates made in preparation of the Group’s financial statements.
143Dowlais Group plc 2023 Annual Report
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2. Summary of material accounting policies continued
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 IFRS. 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.
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 by applying 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 the Group does not
currently generate any revenue that qualifies to be recognised over time.
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.
144Dowlais Group plc 2023 Annual Report
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2. Summary of material accounting policies continued
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.
Finance costs
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.
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 Incom
e Statement in the period in which they are
incurred and accrued on a time basis, by reference to the principal outstanding and the effective
interest rate applicable.
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.
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 and presented within Plant and equipment. 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 Leases 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 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. No depreciation is charged on
freehold land.
145Dowlais Group plc 2023 Annual Report
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2. Summary of material accounting policies continued
Property, plant and equipment continued
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.
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
W
here 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 considered necessary.
Cash and cash equivalents
Cash and cash equivalents may 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. In the prior year, outstanding
bank overdrafts were presented as loans with Related Parties due to banking arrangements across
the Melrose Industries PLC group and not deducted from cash balances.
146Dowlais Group plc 2023 Annual Report
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2. Summary of material accounting policies continued
Loans with Related Parties
Loans with Related Parties consisted of loans with the previous ultimate parent Melrose Industries
PLC and other non-group entities owned by Melrose Industries PLC prior to the demerger on
20 April 2023. Loans receivable from and payable to Related Parties are accounted for as financial
assets and financial liabilities respectively as set out below.
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.
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. Lease payments for these leases 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. Financial assets are derecognised when, and only when,
a) the contractual rights to the cash flows from the financial asset expire or are settled, b) the Group
transfers to another party substantially all of the risks and rewards of ownership of the financial asset,
or c) the Group, despite having retained some, but not all, significant risks and rewards of
ownership, has transferred control of the asset to another party.
Impairment of financial assets
For trade receivables and contract assets, the simplified approach permitted under IFRS 9 Financial
Instruments 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.
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 dependent on the Company’s share price at
a future date. 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 that are held within a business model whose objective is to hold the
receivables in order to collect contractual cash flows, and where the contractual terms of the
receivables give rise to cash flows that are solely payments of principal and interest on the principal
amount outstanding, are measured and carried at amortised cost using the effective interest
method, less any impairment. For trade receivables, the carrying amount is reduced by a loss
allowance for expected credit 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. The Group recognises the expected lifetime
credit loss when there has been a significant increase in credit risk (such as changes to credit ratings
or when the contractual payments are overdue by more than 30 days) since initial recognition.
However, if the credit risk has not increased significantly since initial recognition, the Group
measures the loss allowance at an amount equal to the 12-month expected credit loss. The carrying
amount is reduced by any loss arising which is recorded in the Income Statement.
147Dowlais Group plc 2023 Annual Report
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2. Summary of material accounting policies continued
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.
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.
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.
148Dowlais Group plc 2023 Annual Report
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2. Summary of material accounting policies continued
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.
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 equity. For such non-monetary items,
any exchange component of that gain or loss is also recognised directly in equity.
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.
149Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2. Summary of material accounting policies continued
Taxation continued
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 Group 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.
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.
150Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
3. Critical accounting judgements and key sources of
estimation uncertainty
In the application of the Group’s accounting policies, which are described in Note 2, the Directors
are required to make judgements, estimates and assumptions about the carrying amounts of assets
and liabilities that are not readily apparent from other sources. The estimates and associated
assumptions are based on historical experiences and other factors that are considered to be
relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the estimate is revised if the revision
affects only that period, or in the period of revision and future periods if the revision affects both
current and future periods.
Critical accounting judgements
Adjusting items
Judgements are required as to whether items are disclosed as adjusting, with consideration given
to both quantitative and qualitative factors. Further information about the determination of
adjusting items is included in Note 2.
There are no other critical judgements other than those involving estimates, that have had a
significant effect on the amounts recognised in the Consolidated Financial Statements. Those
involving estimates are set out below.
Key sources of estimation uncertainty
Assumptions concerning the future and other key sources of estimation uncertainty at the balance
sheet date, that may have a significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial year, are discussed below.
Assumptions used to determine the recoverable amount of goodwill and other assets
Determining whether the goodwill of groups of cash-generating units (“CGUs”) is impaired requires
an estimation of its recoverable amount which is compared against the carrying value. The
recoverable amount is deemed to be the higher of the value in use and fair value less costs to sell.
For the year ended 31 December 2023, impairment testing has been performed for each group of
CGUs using the value in use method based on estimated discounted cash flows.
The impairment tests concluded that there was headro
om of £449 million for the Automotive
group of CGUs, but that the Powder Metallurgy group of CGUs was impaired by £449 million
(2022: £nil).
The models used to calculate value in use for each group of CGUs are particularly sensitive to key
assumptions around discount rates, long-term growth rates and underlying assumptions
underpinning forecasts including the impact of macroeconomic conditions such as interest rates
and inflation on future sales and input prices which drive forecast operating margins and ultimately
cash flows.
Details of the key assumptions supporting the impairment tests, together with sensitivity analysis in
respect of those key assumptions, are set out in Note 12.
Assumptions used to determine the carrying amount of the Group’s net retirement benefit obligations
The Group’s pension plans are significant in size. The defined benefit obligations in respect of the
plans are discounted at rates set by reference to market yields on high quality corporate bonds.
Estimation is required when setting the criteria for bonds to be included in the population from
which the yield curve is derived. The most significant criteria considered for the selection of bonds
to include are the issue size of the corporate bonds, quality of the bonds and the identification of
outliers which are excluded. In addition, assumptions are made in determining mortality and
inflation rates to be used when valuing the plan’s defined benefit obligations. At 31 December 2023,
the retirement benefit obligation was a net deficit of £459 million (2022: £461 million).
Further details of the assumptions applied and a sensitivity analysis on the principal assumptions
used to determine the defined benefit liabilities of the Group’s obligations are shown in Note 23.
Whilst actual movements might be different to sensitivities shown, these are considered to reflect a
reasonably possible change that could occur.
151Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
4. Revenue
An analysis of the Group’s revenue, presented by destination, is as follows:
Powder
Automotive Metallurgy Hydrogen Total
Year ended 31 December 2023 £m £m £m £m
UK
180
12
–
192
Rest of Europe
1,312
360
4
1,676
North America
1,606
446
1
2,053
South America
144
17
–
161
Asia
588
180
–
768
Africa
13
1
–
14
Revenue
3,843
1,016
5
4,864
Powder
Automotive Metallurgy Hydrogen Total
Year ended 31 December 2022 £m £m £m £m
UK
161
10
1
172
Rest of Europe
1,168
327
–
1,495
North America
1,503
443
–
1,946
South America
160
17
–
177
Asia
593
197
–
790
Africa
13
2
–
15
Revenue
3,598
996
1
4,595
The Group derives its revenue from the transfer of goods at a point in time.
5. 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, central corporate cost centres are also reported to the Board. The central corporate
cost centres contain the Group head office costs and charges related to the divisional management
long-term incentive plans.
Reportable segment results include items directly attributable to a segment as well as those which
can be allocated on a reasonable basis. Inter-segment pricing is determined on an arm’s length
basis, in a manner similar to transactions with third parties.
The Group’s geographical segments are determined by the location of the Group’s non-current
assets and, for revenue, the location of external customers. Inter-segment sales are not material and
have not been disclosed.
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.
a) Segment revenues
The Group has assessed that the disaggregation of revenue recognised from contracts with
customers by operating segment is appropriate as this is the information regularly reviewed by the
CODM in evaluating financial performance.
Powder
Automotive Metallurgy Hydrogen Total
Year ended 31 December 2023
Notes
£m £m £m £m
Adjusted revenue
4,437
1,047
5
5,489
Equity accounted investments
14
(594)
(31)
–
(625)
Revenue
4
3,843
1,016
5
4,864
Powder
Automotive Metallurgy Hydrogen Total
Year ended 31 December 2022
Notes
£m £m £m £m
Adjusted revenue
4,223
1,022
1
5,246
Equity accounted investments
14
(625)
(26)
–
(651)
Revenue
4
3,598
996
1
4,595
152Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
5. Segment information continued
b) Segment operating profit
Powder
Automotive Metallurgy Hydrogen Corporate Total
Year ended 31 December 2023 £m £m £m £m £m
Adjusted operating profit/(loss)
306
96
(15)
(32)
355
Items not included in adjusted
operating profit
(1)
:
Impairment of goodwill
–
(449)
–
–
(449)
Amortisation of intangible assets
acquired in business combinations
(146)
(51)
–
–
(197)
Restructuring costs
(109)
(10)
(1)
–
(120)
Demerger costs
–
–
–
(42)
(42)
Equity accounted investments
adjustments
(30)
–
–
–
(30)
Movement in derivatives and
associated financial assets and
liabilities
(3)
–
–
19
16
Net release and changes in
discount rates of certain fair value
items
12
5
–
–
17
Operating profit/(loss)
30
(409)
(16)
(55)
(450)
Finance costs
(101)
Finance income
29
Loss before tax
(522)
Tax 27
Loss after tax for the year
(495)
(2)
1. For further details on adjusting items, refer to Note 6.
2. Corporate adjusted operating loss of £32 million, includes a charge of £8 million in respect of divisional
management long-term incentive plans.
Powder
Automotive Metallurgy Hydrogen Corporate Total
Year ended 31 December 2022 £m £m £m £m £m
Adjusted operating profit/(loss)
250
96
(14)
1
333
Items not included in adjusted
operating profit
(1)
:
Amortisation of intangible assets
acquired in business combinations
(147)
(51)
–
–
(198)
Restructuring costs
(37)
(17)
–
–
(54)
Equity accounted investments
adjustments
(29)
–
–
–
(29)
Movement in derivatives and
associated financial assets and
liabilities
(7)
(1)
–
23
15
Net release and changes in
discount rates of certain fair value
items
5
9
–
–
14
Impairment of assets
(20)
–
–
–
(20)
Acquisition and disposal related
(losses)/gains
(4)
–
–
1
(3)
Operating profit/(loss)
11
36
(14)
25
58
Finance costs
(272)
Finance income
151
Loss before tax
(63)
Tax (14)
Loss after tax for the year
(77)
(2)
1. For further details on adjusting items, refer to Note 6.
2. Corporate adjusted operating profit of £1 million, includes a credit of £10 million in respect of divisional
management long-term incentive plans and a £2 million charge relating to costs allocated to the Group for
general corporate services which the Group would have incurred had it operated on a standalone basis.
153Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
5. Segment information continued
c) Segment total assets and liabilities
Total assets
Total liabilities
31 December 31 December 31 December 31 December
2023 2022 2023 2022
£m £m £m £m
Automotive
4,561
4,837
2,059
2,177
Powder Metallurgy
1,268
1,814
404
409
Hydrogen
14
7
6
6
Corporate
391
3,129
1,199
2,202
Total
6,234
9,787
3,668
4,794
d) Segment capital expenditure and depreciation
(1)
Depreciation of Depreciation of
Capital expenditure owned assets leased assets
Year ended Year ended Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December 31 December 31 December
2023 2022 2023 2022 2023 2022
£m £m £m £m £m £m
Automotive
217
187
187
184
15
14
Powder
Metallurgy
42
44
50
53
10
10
Hydrogen
3
–
–
–
–
–
Total
262
231
237
237
25
24
(1)
1. Including computer software and development costs. Capital expenditure excludes lease additions.
e) Geographical information
The Group operates in various geographical areas around the world. The parent company’s country
of domicile is the UK and the Group’s revenues and non-current assets in the rest of Europe and
North America are also considered to be material.
The Group’s revenue from external customers and information about specific segment assets (non-
current assets excluding loans receivable from Related Parties, deferred tax assets, non-current
derivative financial assets, other financial assets, retirement benefit surplus and non-current other
receivables) by geographical location are detailed in the following table:
external customers
Revenue
(1)
from
Segment assets
Year ended Year ended
31 December 31 December 31 December 31 December
2023 2022 2023 2022
£m £m £m £m
UK
192
172
633
723
Rest of Europe
1,676
1,495
1,637
1,980
North America
2,053
1,946
1,298
1,525
Other
943
982
928
1,112
Total
4,864
4,595
4,496
5,340
1. Revenue is presented by destination.
6. 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 operating performance of the Group.
a) Operating profit
Notes
Year ended
Year ended
31 December 31 December
2023 2022
£m £m
Operating (loss)/profit
(450)
58
Impairment of goodwill
a
449
–
Amortisation of intangible assets acquired in business combinations
b
197
198
Restructuring costs
c
120
54
Demerger costs
d
42
–
Equity accounted investments adjustments
e
30
29
Movement in derivatives and associated financial assets and liabilities
f
(16)
(15)
Net release and changes in discount rates of certain fair value items
g
(17)
(14)
Impairment of assets
h
–
20
Acquisition and disposal related losses
i
–
3
Total adjustments to operating (loss)/profit
805
275
Adjusted operating profit
355
333
154Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
6. Reconciliation of adjusted profit measures continued
a) Operating profit continued
a. An impairment charge of £449 million (2022: £nil) has been recognised in the year in relation to
goodwill held in the Powder Metallurgy cash-generating unit (“CGU”). The impairment charge
primarily reflects current mid-term profit and cash assumptions being lower than those
previously assumed for the CGU when determining its carrying value, with the reduction largely
a result of the softening in the underlying forecast of the growth assumptions in its core business.
Further details of the impairment can be found in Note 12.
b. The amortisation charge on intangible assets acquired in business combinations of £197 million
(2022: £198 million), is excluded from adjusted results due to its non-trading nature and to enable
comparison with companies that grow organically. However, where intangible assets are trading
in nature, such as computer software and development costs, the related amortisation is not
excluded from adjusted results.
c. Costs associated with restructuring projects in the year totalling £120 million (2022: £54 million)
are shown as adjusting items due to their size and non-trading nature. During the year these
included:
– A charge of £109 million (2022: £37 million) within the Automotive division, primarily relating
to significant footprint consolidation actions in Europe as the business continues to address its
cost base and deliver transformational programmes. Significant costs incurred include
severance provisions and other direct costs relating to the closure of a Driveline plant in
Mosel, Germany; costs relating to opening a new manufacturing facility in Miskolc, Hungary in
advance of the plant becoming operational; and direct costs of expansion in Mexico as new
product lines are added to the facility.
– A charge of £11 million (2022: £17 million) within the Powder Metallurgy and Hydrogen
divisions.
d. One-off costs relating to the demerger of the Group from Melrose Industries PLC of £42 million
were incurred during the year (2022: £nil). Costs incurred were incremental costs directly
associated with the transaction. These items have been excluded from adjusted results due to
their size and non-recurring nature.
e. The Group has a number of equity accounted investments (“EAIs”) in which it does not hold full
control, the largest of which is a 50% interest in Shanghai GKN HUAYU Driveline Systems (“SDS”),
within the Automotive business. EAIs in the Group generated £625 million (2022: £651 million) of
revenue in the year, which is not included in the statutory results but is shown within adjusted
revenue so as not to distort the operating margins reported in the businesses when the adjusted
operating profit earned from these EAIs is included.
In addition, the profits and losses of EAIs, which are shown after amortisation of intangible assets
arising on acquisition, interest and tax in the statutory results, are adjusted to show the adjusted
operating profit consistent with the adjusted operating profits of the subsidiaries of the Group.
The revenue and profit of EAIs are adjusted because they are considered to be significant in size
and are important in assessing the performance of the business.
f. Movements in the fair value of derivative financial instruments (primarily forward foreign
currency exchange contracts where hedge accounting is not applied) entered into to mitigate
the potential volatility of future cash flows, on long-term foreign currency customer and supplier
contracts, including foreign exchange movements on the associated financial liabilities, are
shown as an adjusting item. This totalled a credit of £16 million (2022: £15 million). Movements in
fair value are treated as an adjusting item due to their volatility. Any gains and losses on
settlement are recorded in underlying results to give a better understanding of how the gains
and losses on currency contracts relate to the trading cash flows.
g. Certain items previously recorded as fair value items on historical acquisitions, have been
resolved for more favourable amounts than first anticipated. The net release of certain fair value
items in the year of £17 million related to loss-making contract provisions (2022: £14 million
primarily relating to loss making contracts). These items are shown as adjusting to avoid
positively distorting the adjusted results.
h. In the prior year a write down of £20 million was recognised as a result of exiting any direct
trading links with Russian operations as a consequence of the invasion of Ukraine. The asset write
downs were within the Automotive division and are shown as an adjusting item because of their
non-trading nature and size.
i. No business acquisition and disposal related gains or losses were recorded in the year (2022: loss
of £3 million). In prior years these items have been excluded from adjusted results due to their
non-trading nature.
b) Profit before tax
Notes
Year ended Year ended
31 December 31 December
2023 2022
£m £m
Loss before tax
(522)
(63)
Adjustments to operating (loss)/profit as above
805
275
Net foreign exchange movements on loans with Related Parties
j
(22)
24
Fair value changes on other financial assets
k
1
–
Equity accounted investments – interest
l
2
2
Fair value changes on cross-currency swaps
m
–
59
Total adjustments to loss before tax
786
360
Adjusted profit before tax
264
297
155Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
6. Reconciliation of adjusted profit measures continued
b) Profit before tax continued
j. The movement in loans with Related Parties as a result of changes in foreign currency exchange
rates up to the date of demerger is shown as an adjusting item due to its volatility and non-
recurring nature. Related Parties comprise Melrose Industries PLC, the ultimate parent company
prior to demerger on 20 April 2023 and other non-group entities controlled by Melrose
Industries PLC.
k. The fair value changes on other financial assets relating to the movement in their valuation, are
shown as an adjusting item due to their volatility and non-trading nature.
l. As explained in paragraph e above, the profits and losses of equity accounted investments are
shown after interest and tax in the statutory results. They are adjusted to show the profit before
tax and the profit after tax, consistent with the subsidiaries of the Group.
m. In the prior year, hedge accounting was not applied in the Dowlais Group and therefore fair value
changes on cross-currency swaps relating to cost of hedging are shown as an adjusting item
because of their volatility and non-trading nature.
c) Profit after ta
x
Notes
Year ended
Year ended
31 December 31 December
2023 2022
£m £m
Loss after tax
(495)
(77)
Adjustments to loss before tax as above
786
360
Tax effect of adjustments to loss before tax
9
(87)
(62)
Equity accounted investments – tax
l
(11)
(9)
Derecognition of deferred tax asset
9
5
–
Tax effect of significant restructuring
9
–
6
Total adjustments to loss after tax
693
295
Adjusted profit after tax
198
218
7. Expenses
Year ended Year ended
31 December 31 December
2023 2022
£m £m
Operating expenses comprise:
Selling and distribution costs
(38)
(31)
Administration expenses
(771)
(618)
Total operating expenses
(809)
(649)
(1)
1. Includes £326 million (2022: £246 million) of adjusting items (Note 6).
Year ended Year ended
31 December 31 December
2023 2022
£m £m
Operating (loss)/profit is stated after charging/(crediting):
Cost of inventories recognised as an expense
4,107
3,937
Impairment of goodwill
449
–
Amortisation of intangible assets acquired in business combinations
197
198
Depreciation and impairment of property, plant and equipment
253
258
Amortisation and impairment of computer software and development costs
10
19
Lease expense
1
2
Staff costs
1,206
1,099
Research and development costs
151
147
Profit on disposal of property, plant and equipment
(18)
(11)
Expense of writing down inventory to net realisable value
15
16
Reversals of previous write-downs of inventory
(8)
(17)
Impairment recognised on trade receivables
4
3
Impairment reversed on trade receivables
(1)
(5)
(1)
(2)
(3)
1. Includes costs relating to short-term leases.
2. Includes staff costs totalling £119 million (2022: £121 million).
3. Includes £8 million of adjusting items and £10 million recognised in adjusted operating profit (2022: £11 million in
adjusted operating profit).
156Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
7. Expenses continued
An analysis of staff costs and employee numbers is as follows:
Year ended Year ended
31 December 31 December
2023 2022
£m £m
Staff costs during the year (including Executive Directors)
Wages and salaries
985
892
Social security costs
202
185
Pension costs (Note 23)
–
 defined benefit plans
6
9
–
 defined contribution plans
12
13
Share-based compensation expense (Note 22)
1
–
Total staff costs
1,206
1,099
Year ended Year ended
31 December 31 December
2023 2022
Number Number
Average monthly number of persons employed (including Executive Directors)
Automotive
18,264
18,520
Powder Metallurgy
5,544
5,672
Hydrogen
85
65
Corporate
19
–
Total average number of persons employed
23,912
24,257
The analysis of auditor’s remuneration is as follows:
Year ended Year ended
31 December 31 December
2023 2022
£m £m
Fees payable to the Company’s auditor for the audit of the Company’s annual
accounts
2.0
–
Fees payable to the Company’s auditor and their associates for other audit
services to the Group:
The audit of the Company’s subsidiaries
3.1
2.7
Total audit fees
5.1
2.7
Audit-related assurance services:
Review of the half year interim statement
0.5
–
Total audit-related assurance services
0.5
–
Total audit and audit-related assurance services
5.6
2.7
Total audit and non-audit fees
5.6
2.7
Details of the Company’s policy on the use of the auditors for non-audit services and how auditor’s
independence and objectivity were safeguarded are set out in the Audit Committee report on
page 95. No services were provided pursuant to contingent fee arrangements.
8. Finance costs and Finance income
An analysis of finance costs and income is as follows:
Year ended Year ended
31 December 31 December
2023 2022
£m £m
Finance costs and income
Interest on bank loans and overdrafts
(63)
(11)
Interest on loans due to Related Parties
(8)
(22)
Foreign exchange movements on loans with Related Parties
–
(167)
Amortisation of costs of raising finance
(3)
–
Net interest cost on pensions
(17)
(6)
Lease interest
(6)
(6)
Unwind of discount on provisions
–
(1)
Fair value changes on cross-currency swaps
–
(59)
Fair value changes on other financial assets
(1)
–
Other finance costs
(3)
–
Total finance costs
(101)
(272)
Foreign exchange movements on loans with Related Parties
22
143
Other finance income
7
8
Total finance income
29
151
Total net finance costs
(72)
(121)
(1)
(1), (2)
(2)
(2)
(1), (2)
1. Related Parties comprise Melrose Industries PLC, the ultimate parent company prior to demerger on 20 April
2023 and other non-group entities controlled by Melrose Industries PLC.
2. Fair value changes in cross-currency swaps, foreign exchange movements on loans with Related Parties and Fair
value changes on other financial assets are all shown as adjusting items (Note 6) .
157Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
9. Tax
Year ended Year ended
31 December 31 December
2023 2022
£m £m
Analysis of tax charge in the year:
Current tax
Current year tax charge
55
50
Adjustments in respect of prior years
(2)
(5)
Total current tax charge
53
45
Deferred tax
Origination and reversal of temporary differences
(111)
(57)
Adjustments in respect of prior years
27
12
Tax on the change in value of derivative financial instruments
–
6
Adjustments to deferred tax attributable to changes in tax rates
1
3
Non-recognition of deferred tax
3
5
Total deferred tax credit
(80)
(31)
Total tax (credit)/charge for the year
(27)
14
Analysis of tax (credit)/charge for the year:
£m
£m
Tax charge in respect of adjusted profit before tax
66
79
Tax credit recognised as an adjusting item
(93)
(65)
Total tax (credit)/charge for the year
(27)
14
The tax charge of £66 million (2022: £79 million) arising on adjusted profit before tax of £264 million
(2022: £297 million), results in an effective tax rate of 25% (2022: 27%).
The £93 million (2022: £65 million) tax credit recognised as an adjusting item includes £87 million
(2022: £62 million) in respect of tax credits on adjustments to loss before tax of £786 million (2022:
£360 million), £11 million (2022: £9 million) in respect of the tax on equity accounted investments and
other adjusting tax charges of £5 million (2022: £6 million).
The Group’s underlying effective tax rate may be impacted, from 2024 onwards, by the UK’s
substantive enactment of the Organisation for Economic Co-operation and Development’s Global
Anti-Base Erosion Model Rules (Pillar Two). Upon a review of the Group’s results for the year ended
31 December 2023 and their interaction with the Pillar Two rules (had they been in force in relation to
that year), the Group considers that the impact of Pillar Two on its global tax position will be
immaterial.
The tax (credit)/charge for the year can be reconciled to the loss before tax per the Income
Statement as follows:
Year ended Year ended
31 December 31 December
2023 2022
£m £m
Loss before tax:
(522)
(63)
Tax credit on loss before tax at the weighted average rate of 25% (2022: 23%)
(131)
(14)
Tax effect of:
Disallowable expenses and other permanent differences within adjusted profit
(23)
12
Disallowable items included within adjusting items
104
(13)
Temporary differences not recognised in deferred tax
3
5
Tax credits, withholding taxes and other rate differences
(7)
14
Adjustments in respect of prior years
25
7
Tax charge classified within adjusting items
5
6
Effect of changes in tax rates
(3)
(3)
Total tax (credit)/charge for the year
(27)
14
The reconciliation has been performed at a blended Group tax rate of 25% (2022: 23%) which
represents the weighted average of the tax rates applying to profits and losses in the jurisdictions in
which those results arose in the year.
Tax (credits)/charges included in other comprehensive income are as follows:
Year ended Year ended
31 December 31 December
2023 2022
£m £m
Deferred tax on retirement benefit obligations
(4)
27
Deferred tax on foreign exchange gains and losses
(4)
–
Current tax on foreign exchange gains and losses
–
12
Total (credit)/charge for the year
(8)
39
Franked investment income – litigation
Since 2003, certain entities in the Group have been involved in litigation with HMRC in respect of
various advance corporate tax payments and corporate tax paid on certain foreign dividends which,
in their view, were levied by HMRC in breach of the Group’s EU community law rights.
The continuing complexity of the case and uncertainty over the issues raised means that it is not
possible to predict the final outcome of the litigation with any reasonable degree of certainty. The
Group entities included in the case assigned their rights and obligations in relation to the litigation
to GKN Holdings Limited, a member of the Melrose Industries PLC Group, in advance of the
demerger.
158Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
10. Dividends
Year ended Year ended
31 December 31 December
2023 2022
£m £m
Dividends paid to Related Parties
1,675
–
Interim dividend for the year ended 31 December 2023
19
–
1,694 –
On 23 February 2023, prior to the demerger, G.K.N. Industries Limited declared a dividend of
£1,675 million (72.83 pence per ordinary share) in favour of its immediate parent undertaking GKN
Enterprise Limited, a member of the Melrose Industries PLC Group.
An interim dividend of 1.4 pence per ordinary share (2022: £nil) was declared by the Board on
12 September 2023 and paid on 27 October 2023, totalling £19 million.
A final dividend of 2.8 pence per ordinary share (2022: £nil) is proposed by the Board, totalling
£39 million.
11. Earnings per share
Earnings attributable to owners of the parent
Year ended Year ended
31 December 31 December
2023 2022
£m £m
Net loss attributable to shareholders
(501)
(82)
Adjustments for earnings attributable to shares subject to recall
10
2
Earnings for basis of earnings per share
(491)
(80)
Year ended Year ended
31 December 31 December
2023 2022
Number Number
Weighted average number of ordinary shares (million)
1,390
1,393
Adjustment for shares subject to recall (million)
(28)
(28)
Weighted average number of ordinary shares for the purposes of basic earnings
per share (million)
1,362
1,365
Weighted average number of ordinary shares for the purposes of diluted
earnings per share (million)
1,362
1,365
(1)
1. See Note 2 for details on application of merger accounting.
Earnings per share
Year ended Year ended
31 December 31 December
2023 2022
pence pence
Basic earnings per share
(36.0)
(5.9)
Diluted earnings per share
(36.0)
(5.9)
Year ended Year ended
31 December 31 December
2023 2022
£m £m
Adjusted earnings attributable to shareholders
192
213
Adjustment for earnings attributable to shares subject to recall
(4)
(4)
Adjusted earnings for the basis of adjusted earnings per share
188
209
(2)
Adjusted earnings per share
Year ended Year ended
31 December 31 December
2023 2022
pence pence
Adjusted basic earnings per share
13.8
15.3
Adjusted diluted earnings per share
13.8
15.3
2. Adjusted earnings for the year ended 31 December 2023 comprises adjusted profit after tax (see Note 6c) of
£198 million (2022: £218 million), net of an allocation of profit to non-controlling interests of £6 million (2022:
£5 million).
159Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
12. Goodwill and other intangible assets
Goodwill
Customer
relationships Brands and
and intellectual Computer Development
contracts property Other software costs Total
£m £m £m £m £m £m £m
Cost
At 1 January 2022
1,508
1,655
183
402
89
94
3,931
Additions
–
–
–
–
6
14
20
Disposals
–
–
–
–
(2)
(1)
(3)
Impact of hyperinflationary economies
10
10
–
–
–
–
20
Exchange adjustments
87
124
–
2
5
5
223
At 31 December 2022
(2)
1,605
1,789
183
404
98
112
4,191
Additions
–
–
–
–
12
4
16
Disposals
–
–
–
–
(5)
–
(5)
Impact of hyperinflationary economies
2
3
–
–
–
–
5
Reclassification
–
–
–
–
3
(3)
–
Exchange adjustments
(51)
(73)
–
(2)
(2)
(4)
(132)
At 31 December 2023
1,556
1,719
183
402
106
109
4,075
Amortisation and impairment
At 1 January 2022
–
(493)
(34)
(175)
(79)
(52)
(833)
Charge for the year:
Adjusted operating profit
–
–
–
–
(3)
(7)
(10)
Adjusting items
–
(140)
(9)
(49)
–
–
(198)
Impairments
–
–
–
–
–
(9)
(9)
Disposals
–
–
–
–
2
1
3
Exchange adjustments
–
(39)
(1)
(2)
(4)
(3)
(49)
At 31 December 2022
–
(672)
(44)
(226)
(84)
(70)
(1,096)
Charge for the year:
Adjusted operating profit
–
–
–
–
(5)
(5)
(10)
Adjusting items
–
(140)
(9)
(48)
–
–
(197)
Impairments
(449)
–
–
–
–
–
(449)
Disposals
–
–
–
–
5
–
5
Reclassification
–
–
–
–
(1)
1
–
Exchange adjustments
–
30
–
2
3
2
37
At 31 December 2023
(449)
(782)
(53)
(272)
(82)
(72)
(1,710)
Net book value
At 31 December 2023
1,107
937
130
130
24
37
2,365
At 31 December 2022
(2)
1,605
1,117
139
178
14
42
3,095
(1)
(2)
(3)
(3)
1. Other includes technology and order backlog intangible assets recognised on acquisitions.
2. Goodwill and other intangible assets at 31 December 2022 include the impact of hyperinflation. See Note 1.3 for
further information.
3. Includes a charge of £449 million (2022: £nil) within impairment of goodwill and £nil (2022: £9 million) within
impairment of assets, both presented within adjusting items (Note 6).
The goodwill generated as a result of acquisitions represents the premium paid in excess of the fair
value of all net assets, including intangible assets, identified at the point of acquisition. As merger
accounting was applied on demerger of the Group from Melrose, goodwill relating to historical
acquisitions was transferred at book value based on the goodwill that arose on the original
acquisition. No additional goodwill was created as a result of the demerger. Further details are set
out in Note 2.
Goodwill acquired in business combinations, net of impairment, has been allocated to the
businesses, each of which comprises several cash-generating units (“CGUs”). Goodwill is allocated to
the Automotive and Powder Metallurgy groups of CGUs, which each represent reportable
segments, as this is the level where resources are allocated and where there is consistent senior
management review and oversight.
Goodwill
31 December 31 December
2023 2022
£m £m
Automotive
1,028
1,056
Powder Metallurgy
79
549
Total
1,107
1,605
Impairment testing
The Group tests goodwill annually or more frequently if there are indications that goodwill might be
impaired. The date of the annual impairment test is 31 October, aligned with internal forecasting
and review processes. In accordance with IAS 36 Impairment of Assets, the Group values goodwill
at the recoverable amount, being the higher of the value in use or fair value less costs to sell.
Based on impairment testing completed for the year ended 31 December 2023 no impairment
was identified in respect of the Automotive group of CGUs however, as explained below,
an impairment of £449 million was recognised in respect of the Powder Metallurgy group of
CGUs (2022: no impairment identified to either group of CGUs).
Significant assumptions and estimates
The basis of the impairment tests and the key assumptions are set out in the tables below:
Groups of CGUs
31 December 2023 31 December 2022
Pre-tax Long-term Years in Post-tax Long-term Years in
discount rates growth rates forecast discount rates growth rates forecast
Automotive
13.3%
3.3%
5
11.3%
3.5%
5
Powder Metallurgy
13.4%
3.3%
5
12.0%
3.9%
5
160Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
12. Goodwill and other intangible assets continued
Risk adjusted discount rates
Cash flows within the groups of CGUs are discounted using a post-tax discount rate specific to each
group of CGUs. Discount rates reflect the current market assessments of the time value of money
and the territories in which the group of CGUs operates. In determining the cost of equity, the
Capital Asset Pricing Model (“CAPM”) has been used. Under CAPM, the cost of equity is determined
by adding a risk premium, based on an industry adjustment (“Beta”), to the expected return of the
equity market above the risk-free return. The relative risk adjustment reflects the risk inherent in
each group of CGUs relative to all other sectors and geographies on average.
The cost of debt is determined using a risk-free rate based on the cost of government bonds and
an interest rate premium equivalent to a corporate bond with a credit rating similar to an estimated
rating for the Group.
The pre-tax discount rate for each group of CGUs is derived such that when applied to pre-tax cash
flows it gives the same result as when the observable post-tax weighted average cost of capital is
applied to post-tax cash flows. The goodwill impairment test performed at 31 December 2022 used
post-tax discount rates as a ‘fair value less costs to sell’ methodology was applied.
Assumptions applied in financial forecasts
The Group prepares cash flow forecasts derived from financial budgets and medium-term forecasts.
Each forecast has been prepared using a cash flow period deemed most appropriate by
management, considering the nature of each group of CGUs. The key assumptions used in
forecasting cash flows relate to future budgeted revenue and operating margins likely to be
achieved and the expected rates of long-term growth by market sector. Underlying factors in
determining the values assigned to each key assumption are shown below.
Revenue growth and operating margins
Revenue growth assumptions in the forecast period are based on financial budgets and medium-
term forecasts by management, taking into account industry growth rates and management’s
historical experience in the context of wider industry and economic conditions. Projected sales are
built up with reference to markets and product categories. They incorporate past performance,
historical growth rates, projections of developments in key markets, secured orders and orders
forecast to be achieved in the short to medium-term given trends in the relevant market sector.
Revenue assumptions are made using external market data, where available, and also consider the
potential continued impact of recent macroeconomic and political instability.
Operating margins have been forecast based on historical levels achieved considering the likely
impact of changing economic environments and competitive landscapes on volumes and revenues
and the impact of management actions on costs. Projected margins reflect the impact of all
committed and initiated projects to improve operational efficiency and leverage scale and
increases from returning sales volumes.
Forecasts for other operating costs are based on inflation forecasts and supply and demand factors,
which take account of climate change implications for affected markets. Overall, climate risk
exposure is considered to be relatively low across the divisions in the short and medium-term but
starts to increase in the longer-term, for example through increasing likelihood of flooding risk or
increasing wildfire risk. Impairment testing includes short to medium-term planning (five years) for
each of the groups of CGUs, which addresses known risks from climate change and other
environmental factors impacting forecast costs as well as the opportunities in associated markets as
they prepare for change, for example, transition to electrification in Automotive which is expected
to impact revenues.
Across the Group, key drivers for growth in revenue and operating margins include the ability to
win new business and increase market share. Operating margins are driven by the Group’s ability to
optimise performance. This includes manufacturing optimisation and automation, making supply
chain savings, commercial activities to align sales prices with inflationary pressures, and restructuring
activities to ensure the Group is operating an efficient cost base.
For Automotive, sector growth is driven by global demand for a large range of cars, ranging from
smaller low-cost cars to larger premium vehicles. Demand is influenced by technological
advancements, particularly in electric and full hybrid vehicles, market expectations for global
vehicle production requirements, fuel prices, raw material input costs and expectations of their
recovery, consumer spending, credit availability, and other macroeconomic factors.
For Powder Metallurgy, growth is dependent on trends in the automotive and industrial markets.
Market expectations for global light vehicle production requirements, raw material input costs and
technological advancements, particularly in additive manufacturing, influence demand for these
products along with other macroeconomic factors.
Long-term growth rates
Long-term growth rates are based on long-term forecasts for growth in the sectors and
geographies in which the group of CGUs operates. These rates are determined using forecasts that
reflect the international presence and the markets in which each business operates.
Sensitivity analysis
The models used to calculate value in use for each group of CGUs are particularly sensitive to key
assumptions around discount rates, long-term growth rates and underlying assumptions
underpinning forecasts including the impact of macroeconomic conditions such as interest rates
and inflation on future sales and input prices which drive forecast operating margins and ultimately
cash flows.
161Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
12. Goodwill and other intangible assets continued
Automotive group of CGUs – sensitivity analysis
The forecasts show headroom of £449 million above the carrying amount for the Automotive group
of CGUs. Sensitivity analysis has been carried out and a reasonably possible increase in the discount
rate from 13.3% to 15.0%, whilst management consider this to be unlikely, would reduce headroom
to £nil. Further increases in the discount rate to 15.3% would result in an impairment charge of
c.£69 million being recognised in 2024. Management does not believe reasonably possible changes
in the long-term growth rate of 3.3% would result in headroom being eroded to £nil, however for
indication purposes, a decrease in the long-term growth rate by 1.0% to 2.3% would result in a
reduction of headroom by £197 million. Operating margin assumptions are a key driver of business
value and a 14% reduction in the terminal operating profit would reduce operating profit margin
by 1.3 percentage points, resulting in headroom of £nil. An additional reduction in the terminal
operating profit, representing a total reduction of 18%, would reduce operating profit margin by
1.6 percentage points, resulting in an impairment charge of c.£112 million in 2024.
Powder Metallurgy group of CGUs – impairment and sensitivity analysis
The 2023 Powder Metallurgy impairment test was based on the 2024 budget and 2025-2028
strategic plan which reflects the division’s latest outlook including the estimated continued impacts
of the recent global political and macroeconomic instability. Whilst management believe that the
business has promising longer-term prospects, current mid-term profit and cash assumptions are
lower than those previously assumed when determining carrying value. This is largely driven by a
softening in the underlying forecast of the growth assumptions in its core business. This has been
reflected in the budget and strategic plan forecasts resulting in lower revenue and profit growth
assumptions over the 5-year forecast period. Based on these forecasts, the discounted cash flow
exercise implied a reduced recoverable amount, based on value in use, of £884 million. As this is
lower than the carrying value, an impairment charge of £449 million has been applied to goodwill
and recognised in the Consolidated Income Statement accordingly. At December 2022 the
recoverable amount was higher than the carrying value when applying a fair value less costs to sell
methodology and consequently no impairment was recorded.
The value of the Powder Metallurgy group of CGUs remains sensitive to and dependent upon the
underlying forecast and financial assumptions in the future. Operating margin assumptions are a
key driver of business value and a reduction in the terminal operating profit by 10% would reduce
the operating margin by 1.0 percentage points, resulting in an additional impairment charge of
£80 million. A reasonably possible 1.0% increase in discount rates from 13.4% to 14.4% would result in
an additional impairment charge of £81 million being incurred. A reasonably possible 1.0% decrease
in growth rates from 3.3% to 2.3% would result in an additional impairment charge of £50 million
being incurred. For all sensitivities, it is assumed that all other variables remain unchanged.
Allocation of significant intangible assets
The
allocation of significant customer relationships and contracts, brands, intellectual property and
technology is as follows:
Customer relationships and contracts
Remaining amortisation period
Net book value
31 December 31 December 31 December 31 December
2023 2022 2023 2022
years years £m £m
Automotive
7
8
501
621
Powder Metallurgy
12
13
436
496
Total
937
1,117
Brands, intellectual property and technology
Remaining amortisation period
Net book value
31 December 31 December 31 December 31 December
2023 2022 2023 2022
years years £m £m
Automotive
15
16
214
261
Powder Metallurgy
15
16
46
56
Total
260
317
162Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
13. Property, plant and equipment
Land and Plant and
buildings equipment Total
£m £m £m
Cost
At 1 January 2022
611
1,699
2,310
Additions
23
202
225
Disposals
(14)
(85)
(99)
Impact of hyperinflationary economies
4
4
8
Exchange adjustments
35
185
220
At 31 December 2022
(1)
659
2,005
2,664
Additions
10
263
273
Disposals
(24)
(40)
(64)
Transfer
71
(71)
-
Impact of hyperinflationary economies
1
2
3
Exchange adjustments
(30)
(88)
(118)
At 31 December 2023
687
2,071
2,758
Accumulated depreciation and impairment
At 1 January 2022
(89)
(479)
(568)
Charge for the year
(30)
(221)
(251)
Disposals
2
81
83
Impairments
–
(7)
(7)
Exchange adjustments
(4)
(96)
(100)
At 31 December 2022
(121)
(722)
(843)
Charge for the year
(30)
(222)
(252)
Disposals
10
38
48
Impairments
(1)
–
(1)
Exchange adjustments
6
35
41
At 31 December 2023
(136)
(871)
(1,007)
Net book value
At 31 December 2023
551
1,200
1,751
At 31 December 2022
538
1,283
1,821
(1)
(2)
1. Property, plant and equipment as at 31 December 2022 includes the impact of hyperinflation. See Note 1.3 for
further information.
2. December 2022 impairment charge of £7 million was shown as an adjusting item (Note 6).
Assets under the course of construction at 31 December 2023 totalled £158 million (31 December
2022: £156 million). Assets under the course of construction are presented as plant and equipment
until the point at which the asset is ready for use. Transfers of £71 million (2022: £nil) between asset
classes were recorded on completion of construction projects.
The basis of testing for impaired assets, which resulted in a charge totalling £1 million (2022:
£7 million), primarily used fair value less costs to sell methodology which was classified as a level 3
fair value under the IFRS 13 fair value hierarchy. The assets were deemed to have no further
recoverable value.
Property, plant and equipment includes the net book value of right-of-use assets as follows:
Right-of-use asset
Land and Plant and
buildings equipment Total
£m £m £m
At 1 January 2022
120
31
151
Additions
7
7
14
Depreciation
(14)
(10)
(24)
Disposals
(4)
–
(4)
Exchange adjustments
5
2
7
At 31 December 2022
114
30
144
Additions
9
18
27
Depreciation
(14)
(11)
(25)
Disposals
(1)
–
(1)
Exchange adjustments
(6)
(2)
(8)
At 31 December 2023
102
35
137
14. Equity accounted investments
31 December 31 December
2023 2022
£m £m
Aggregated amounts relating to equity accounted investments:
Share of current assets
453
409
Share of non-current assets
255
311
Share of current liabilities
(298)
(289)
Share of non-current liabilities
(30)
(7)
Interests in equity accounted investments
380
424
Group share of results
Year ended Year ended
31 December 31 December
2023 2022
£m £m
Revenue
625
651
Operating costs
(544)
(573)
Adjusted operating profit
81
78
Adjusting items
(21)
(22)
Net finance income
2
2
Profit before tax
62
58
Tax
(11)
(9)
Share of results of equity accounted investments
51
49
163Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
14. Equity accounted investments continued
Group share of equity accounted investments
Year ended Year ended
31 December 31 December
2023 2022
£m £m
At 1 January
424
422
Share of results of equity accounted investments
51
49
Dividends paid to the Group
(63)
(59)
Exchange adjustments
(32)
12
At 31 December
380
424
Within the Group’s share of equity accounted investments there is one significant joint venture,
held within the Automotive segment, Shanghai GKN HUAYU Driveline Systems Co Limited (“SDS”).
SDS had total sales in the year of £1,189 million (2022: £1,243 million), adjusted operating profit of
£142 million (2022: £142 million), adjusting items relating to the amortisation of acquisition related
intangible assets recognised on consolidation of £42 million (2022: £44 million), statutory operating
profit of £100 million (2022: £98 million), an interest credit of £6 million (2022: £4 million) and a tax
charge of £20 million (2022: £18 million), leaving retained profit of £86 million (2022: £84 million).
Total net assets of SDS at 31 December 2023 were £696 million (2022: £786 million). These comprised
non-current assets of £449 million (2022: £580 million), current assets of £796 million (2022: £715 million),
current liabilities of £506 million (2022: £504 million) and non-current liabilities of £43 million (2022:
£5 million). During 2023, SDS paid a dividend to the Group of £57 million (2022: £58 million).
15. Inventories
31 December 31 December
2023 2022
£m £m
Raw materials
288
273
Work in progress
123
134
Finished goods
99
91
510
498
In 2023 the write down of inventories to net realisable value amounted to £15 million (2022: £16 million),
of which £nil related to impairment of assets (2022: £2 million included within adjusting items).
The reversal of write downs amounted to £8 million (2022: £17 million). Write downs and reversals
in both years relate to ongoing assessments of inventory obsolescence, excess inventory holding
and inventory resale values across all of the Group’s businesses.
The Directors consider that there is no material difference between the net book value of
inventories and their replacement cost.
16. Trade and other receivables
Current
31 December 31 December
2023 2022
£m £m
Trade receivables
476
524
Allowance for expected credit loss
(16)
(13)
Amounts receivable from Related Parties
–
3
Other receivables
151
100
Prepayments
10
11
Contract assets
7
13
628
638
Trade receivables are non interest-bearing. Credit terms offered to customers vary upon the
country of operation but are generally between 30 and 90 days.
Non-current
31 December 31 December
2023 2022
£m £m
Other receivables
6
14
Contract assets
6
7
12
21
As described in Note 24, certain businesses participate in receivables working capital programmes
and have the ability to choose whether to receive payment earlier than the normal due date, for
specific customers on a non-recourse basis. As at 31 December 2023, eligible receivables under
these programmes have been factored and derecognised in line with the derecognition criteria of
IFRS 9 Financial Instruments.
An allowance has been made for expected lifetime credit losses with reference to past default
experience and management’s assessment of credit worthiness over trade receivables, an analysis
of which is as follows:
Powder
Automotive Metallurgy Total
£m £m £m
At 1 January 2022
9
5
14
Income Statement (credit)/charge
(3)
1
(2)
Exchange adjustments
–
1
1
At 31 December 2022
6
7
13
Income Statement charge
3
–
3
At 31 December 2023
9
7
16
The concentration of credit risk is limited due to the large number of unrelated customers. Credit
control procedures are implemented to ensure that sales are only made to organisations that are
willing and able to pay for them. Such procedures include the establishment and review of customer
credit limits and terms. The Group does not hold any collateral or any other credit enhancements
over any of its trade receivables nor does it have a legal right of offset against any amounts owed by
the Group to the counterparty .
164Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
16. Trade and other receivables continued
The ageing of impaired trade receivables past due, provision and recoverable amounts are as
follows:
31 December 2023
Gross Provision Recoverable
£m £m £m
Current
444
–
444
0 – 30 days
21
(9)
12
31 – 60 days
4
–
4
60+ days
7
(7)
–
476
(16)
460
31 December 2022
Gross Provision Recoverable
£m £m £m
Current
489
–
489
0 – 30 days
23
(4)
19
31 – 60 days
5
(2)
3
60+ days
7
(7)
–
524
(13)
511
The Directors consider that the carrying amount of trade and other receivables approximates to
their fair value.
The Group’s contract assets comprise the following:
Participation
fees Other Total
£m £m £m
At 1 January 2022
12
15
27
Additions
1
–
1
Utilised
(3)
(5)
(8)
At 31 December 2022
10
10
20
Additions
–
1
1
Reclassification
–
(3)
(3)
Utilised
(1)
(3)
(4)
Exchange adjustments
(1)
–
(1)
At 31 December 2023
8
5
13
An assessment for impairment of contract assets has been performed in accordance with policies
described in Note 2. No such impairment has been recorded.
Participation fees
Participation fees are described in the accounting policies in Note 2 and are considered to be a
reduction in revenue for the related customer contract. Amounts are capitalised and ‘amortised’ to
match to the related performance obligation.
17. Cash and cash equivalents
31 December 31 December
2023 2022
£m £m
Cash and cash equivalents
313
270
Cash and cash equivalents comprises cash at bank and in hand which earns interest at floating rates
based on daily bank deposit rates. The carrying amount of these assets is considered to be equal to
their fair value.
18. Trade and other payables
Current
31 December 31 December
2023 2022
£m £m
Trade payables
698
714
Amounts payable to Related Parties
–
13
Accruals and other payables
440
422
Customer advances and contract liabilities
4
7
Other taxes and social security
33
25
Deferred government grants
4
7
1,179
1,188
As at 31 December 2023, and as described in Note 24, included within trade payables were drawings
on supplier finance facilities of £106 million (2022: £125 million).
Trade payables are non-interest-bearing. Normal settlement terms vary by country and the
average credit period taken for trade and other payables is 89 days (2022: 89 days).
Non-current
31 December 31 December
2023 2022
£m £m
Other payables
13
20
Customer advances and contract liabilities
5
8
18
28
The Directors consider that the carrying amount of trade and other payables approximates to their
fair value. Non-current other payables fall due for payment within one to two years.
165Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
19. Interest-bearing loans and borrowings
This note provides information about the contractual terms of the Group’s interest-bearing loans
and borrowings. Details of the Group’s exposure to credit, liquidity, interest rate and foreign
currency risk are included in Note 24.
Current
Non-current
Total
31 December 31 December 31 December 31 December 31 December 31 December
2023 2022 2023 2022 2023 2022
£m £m £m £m £m £m
Floating rate obligations
Bank borrowings – US Dollar
loan
–
–
584
–
584
–
Bank borrowings – Sterling loan
–
–
285
–
285
–
Bank borrowings – Euro loan
–
–
298
–
298
–
Other loans and bank
overdrafts
2
–
–
–
2
–
Unamortised finance costs
–
–
(9)
–
(9)
–
Total interest-bearing loans
and borrowings
2
–
1,158
–
1,160 –
Following the settlement of all loans with Related Parties on demerger from Melrose Industries PLC,
the Group drew down on new external debt facilities. The Group’s committed bank facility includes
a multi-currency denominated term loan of £100 million, US$400 million and €100 million and a
multi-currency denominated revolving credit facility of £350 million, US$660 million and €450 million.
Loans drawn under this facility are guaranteed by Dowlais Group plc and certain of its subsidiaries.
There is no security over any of the Group’s assets in respect of this facility.
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. The net
debt to adjusted EBITDA covenant is effective from 31 December 2023 with the interest cover
covenant test commencing on 30 June 2024. Further details on covenant compliance for the year
ended 31 December 2023 are contained in Note 24.
At 31 December 2023, the term loan was fully drawn and £185 million, US$345 million and €244 million
were drawn on the multi-currency revolving credit facility. No facilities were drawn in the prior year.
There are also a number of uncommitted overdraft, guarantee and borrowing facilities made
available to the Group.
The bank margin on the bank facility depends on the Group’s leverage. The average interest rate
payable on the debt facilities, net of the impact of interest rate hedging, was 6.38% for the period
from the initial drawdown of the debt facilities to the 31 December 2023.
20. Provisions
Loss-making Property Environmental Warranty
contracts related costs and litigation related costs Restructuring Other Total
£m £m £m £m £m £m £m
At 1 January 2023
46
5
67
156
20
32
326
Utilised
(11)
–
(3)
(18)
(70)
(42)
(144)
Charge to operating profit
–
–
3
25
129
44
201
Release to operating profit
(17)
–
(18)
(18)
(2)
(1)
(56)
Exchange adjustments
(1)
–
(3)
(4)
1
(2)
(9)
31 December 2023
17
5
46
141
78
31
318
Current
6
1
21
61
31
16
136
Non-current
11
4
25
80
47
15
182
17
5
46
141
78
31
318
(1)
(2)
1. Includes £159 million of adjusting items and £42 million recognised in adjusted operating profit.
2. Includes £19 million of adjusting items and £37 million recognised in adjusted operating profit.
Loss-making contracts
Provisions for loss-making contracts are considered to exist where the Group has a contract under
which the unavoidable costs of meeting the obligations exceed the economic benefits expected to
be received under it. This obligation has been discounted and will be utilised over the period of the
respective contracts, which is up to five years.
Calculation of loss-making contract provisions is based on contract documentation and delivery
expectations, along with an estimate of directly attributable costs and represents management’s
best estimate of the unavoidable costs of fulfilling the contract.
Utilisation during the year of £11 million (2022: £17 million) has benefited adjusted operating profit
with £10 million recognised in Automotive and £1 million recognised in Powder Metallurgy. In
addition, £17 million (2022: £7 million) has been released on a net basis and is shown as an adjusting
item, as described in Note 6, as part of the release of fair value items split; £12 million in Automotive
and £5 million in Powder Metallurgy.
Property related costs
The provision for property related costs represents dilapidation costs for ongoing leases and is
expected to result in cash expenditure over the next seven years. Calculation of dilapidation
obligations are based on lease agreements with landlords and external quotes or, in the absence of
specific documentation, management’s best estimate of the costs required to fulfil obligations.
166Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
20. Provisions continued
Environmental and litigation
Environmental provisions relate to the estimated remediation costs of pollution, soil and
groundwater contamination at certain sites and amounted to £16 million (2022: £18 million).
Liabilities for environmental costs are recognised when environmental assessments are probable
and the associated costs can be reasonably estimated. The majority of the provision is anticipated
to be utilised over the next 15 years.
Litigation provisions amounting to £30 million (2022: £49 million) relate to estimated future costs
and settlements in relation to legal claims and associated insurance obligations. The Group has on
occasion been required to take legal or other actions to defend itself against proceedings brought
by other parties. Provisions are made for the expected costs associated with such matters, based on
past experience of similar items and other known factors, considering professional advice received.
This represents management’s best estimate of the likely outcome. The timing of utilisation of these
provisions is frequently uncertain, reflecting the complexity of issues and the outcome of various
court proceedings and negotiations. Contractual and other provisions represent management’s
best estimate of the cost of settling future obligations and reflect management’s assessment of the
likely settlement method, which may change over time. However, no provision is made for
proceedings which have been, or might be, brought by other parties against Group companies
unless management, considering professional advice received, assess that it is more likely than not
that such proceedings may be successful.
Warranty related costs
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. The provision for warranty related costs represents the best estimate of the
expenditure required to settle the Group’s obligations, based on past experience, recent claims
and current estimates of costs relating to specific claims. Warranty terms are, on average, between
one and five years.
Restructuring
Restructuring provisions relate to committed costs in respect of restructuring programmes (as
described in Note 6), usually resulting in cash spend within three years. A restructuring provision is
recognised when the Group has developed a detailed formal plan for the restructuring and has
raised a valid expectation in those affected that it will carry out the restructuring by either starting
to implement the plan or by announcing its main features to those affected by it. The measurement
of a restructuring provision includes only the direct expenditures arising from the restructuring,
which are those amounts that are necessarily entailed by the restructuring programmes.
Other
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 depending on the
territory in which the provision resides and the length of its expected utilisation.
21. Deferred tax
The following are the major deferred tax assets and liabilities recognised by the Group and
movements thereon during the current and prior year.
Deferred tax
assets
Deferred tax liabilities
Accelerated
capital
Tax losses and allowances and Deferred tax on Total deferred Total net
other assets other liabilities intangible assets tax liabilities deferred tax
£m £m £m £m £m
At 1 January 2022
324
(115)
(390)
(505)
(181)
Credit/(charge) to income
13
(31)
49
18
31
(Charge)/credit to equity
(42)
15
–
15
(27)
Exchange adjustments
15
(1)
(22)
(23)
(8)
Transactions with Related Parties
(10)
1
–
1
(9)
At 31 December 2022
300
(131)
(363)
(494)
(194)
Credit to income
15
16
49
65
80
Credit to equity
–
8
–
8
8
Exchange adjustments
(12)
5
11
16
4
At 31 December 2023
303
(102)
(303)
(405)
(102)
(1)
1. Related parties comprise Melrose Industries PLC, the ultimate parent company prior to demerger on the 20
April 2023 and other non-group entities controlled by Melrose Industries PLC.
Deferred tax assets and liabilities are recognised on the Balance Sheet, after offset of balances
within territories in accordance with IAS 12, as follows:
31 December 31 December
2023 2022
£m £m
Deferred tax asset
146
99
Deferred tax liability
(248)
(293)
(102)
(194)
A deferred tax asset of £72 million (2022: £49 million) has been recognised in respect of £234 million
(2022: £167 million) of tax losses. No asset has been recognised in respect of the remaining losses of
£382 million (2022: £354 million) due to the divisional and geographic split of anticipated future
profit streams. Most of these losses may be carried forward indefinitely subject to certain continuity
of business requirements. Where losses are subject to time expiry, a deferred tax asset is recognised
to the extent that sufficient future profits are anticipated to utilise these losses. In addition to the
corporate income tax losses included above, a deferred tax asset of £24 million (2022: £17 million)
has been recognised on tax credits (primarily US) and US state tax losses.
Deferred tax assets have also been recognised on Group retirement benefit obligations at
£53 million (2022: £62 million).
167Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
21. Deferred tax continued
There are no material unrecognised deferred tax assets at 31 December 2023 (2022: £nil), other than
the losses referred to above. No deferred tax is recognised on the unremitted earnings of overseas
subsidiaries except where the distribution of such profits is planned. If these earnings were remitted
in full, tax of £59 million (2022: £60 million) would be payable.
22. Share-based payments
2023 Performance Share Plan (PSP)
During the year, the Company recognised a charge of £1 million (2022: £nil) in respect of the 2023
Performance Share Plan. The share-based payment arrangements are as follows:
Date of grants
2 May 2023, 10 October 2023, 15 November 2023
Number of share awards
granted
6,223,292
Contractual life
3 years
Vesting condition
Three years’ service, achievement of target growth in earnings per share and
achievement of a total shareholder return ranking against comparator group.
Each employee share award converts into one ordinary share of the Company on vesting. No
amounts are paid or payable by recipient on receipt of the award. The awards carry neither rights to
dividends nor voting rights. Awards are forfeited if the employee leaves the Company before the
share awards vest.
Details of the share options outstanding during the year are as follows:
Fair value of share options and assumptions
The inputs into the Monte Carlo pricing model that were used to fair value the plan at the grant
dates were as follows:
Due to the short listing period of the Company’s shares, expected volatility was determined using
an average of the historic volatility of the Company’s peer group share prices.
During the year, the Company received services from Melrose Industries PLC under a Transitional
Service Agreement as part of the demerger process for which consideration was settled in shares of
the Company. A charge of £1 million (2022: £nil) in respect of these services has been recognised in
demerger costs as equivalent to the value of services rendered.
23. Retirement benefit obligations
Defined contribution plans
The Group operates defined contribution plans for qualifying employees across several
jurisdictions. The assets of the plans are held separately from those of the Group in funds under the
control of Trustees.
The total costs charged during the year of £12 million (2022: £13 million) represent contributions
payable to these plans by the Group at rates specified in the rules of the plans.
Defined benefit plans
The Group sponsors defined benefit plans for qualifying employees of certain subsidiaries. The
funded defined benefit plans are administered by separate funds that are legally separated from
the Group. The Trustees of the funds are required by law to act in the interest of the fund and of all
relevant stakeholders in the plans. The Trustees of the pension funds are responsible for the
investment policy with regard to the assets of the fund.
The most significant defined benefit pension plans in the Group at 31 December 2023 were:
UK: GKN Group Pension Schemes (No.2 and No.3)
The GKN Group Pension Schemes (Numbers 2 and 3) are disclosed within the Automotive segment.
These schemes are funded, closed to new members and were closed to future accrual in 2017.
The valuation of the schemes was based on a full actuarial valuation as of 5 April 2022, updated to
31 December 2023 by independent actuaries.
US: GKN Automotive and GKN Powder Coatings Pension Plans
The GKN Automotive and GKN Powder Coatings Pension Plans are funded plans, closed to new
members and closed to future accrual. The valuation of these plans was based on a full actuarial
valuation as of 1 January 2023, updated to 31 December 2023 by independent actuaries.
Germany: GKN Germany Pension Plans
The GKN Germany Pension Plans provide benefits dependent on final salary and service with the
Company. The plans are generally unfunded and closed to new members.
Other plans include a number of funded and unfunded defined benefit arrangements and retiree
medical insurance plans, predominantly in the US and Europe.
The cost of the Group’s defined benefit plans is determined in accordance with IAS 19 (revised 2011)
Employee Benefits, using the advice of independent professionally qualified actuaries on the basis
of formal actuarial valuations and using the projected unit credit method. In line with normal
practice, these valuations are undertaken triennially in the UK and annually in the US and Germany.
Number of
share options
Outstanding at the beginning of the year
–
Granted during the year
6,223,292
Forfeited during the year
(73,632)
Outstanding at the end of the year
6,149,660
Valuation
assumptions
Weighted average share price
£1.31
Weighted average exercise price
Nil
Expected volatility
38.65%
Expected life at inception
3 years
Risk free interest rate
3.78%
Expected dividend yield
3.2%
168Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
23. Retirement benefit obligations continued
Contributions
The Group contributed £39 million (2022: £40 million) to defined benefit pension plans and
post-employment plans in the year ended 31 December 2023. The Group expects to contribute
£44 million in 2024.
Actuarial assumptions
The major assumptions used by the actuaries in calculating the Group’s pension liabilities are as set
out below:
Rate of increase
of pensions in Price inflation
payment Discount rate (RPI/CPI)
% per annum % %
31 December 2023
GKN Group Pension Schemes (No.2 – No.3)
2.5
4.5
3.0/2.6
GKN US plans
n/a
4.8
n/a
GKN Europe plans
2.1
3.3
2.1/2.1
31 December 2022
GKN Group Pension Schemes (No.2 – No.3)
2.7
4.8
3.2/2.7
GKN US plans
n/a
5.0
n/a
GKN Europe plans
2.6
3.7
2.6/2.6
Mortality
GKN Group Pension Schemes (No.2 – No.3)
The GKN Group Pension Schemes (No.2 – No.3) use the SAPS “S3PA” base tables with scheme-
specific adjustments. The base table mortality assumption for each of the UK schemes reflects best
estimate results from the most recent mortality experience analyses for each scheme. Weighting
factors vary by scheme.
Future improvements for all UK plans are in line with the 2022 Continuous Mortality Investigation
(“CMI”) core projection model (SK = 7.5, A = 0%, w2020 = 0, w2021 = 0, w2022 = 25%) with a long-term
rate of improvement of 1.25% p.a. for both males and females.
GKN US Consolidated Pension Plan
GKN US Pension and Medical Plans use base mortality tables (PRI 2012) as used in the 2023 funding
valuation. Future improvements for all US plans are in line with MP2021.
GKN Germany Pension Plans
All German plans use the Richttafeln 2018 G tables, with no adjustment.
The following table shows the future life expectancy of individuals aged 65 at the year end and the
future life expectancy of individuals aged 65 in 20 years’ time.
GKN Group
Pension GKN US
Schemes Consolidated GKN Germany
(No2.–No.3) Pension Plan Pension Plans
years years years
Male today
21.3
19.7
20.8
Female today
23.3
21.6
24.2
Male in 20 years’ time
22.2
21.2
23.5
Female in 20 years’ time
24.7
23.1
26.4
Balance Sheet disclosures
The amounts recognised in the Consolidated Balance Sheet in respect of defined benefit plans were
as follows:
31 December 31 December
2023 2022
£m £m
Present value of funded defined benefit obligations
(786)
(780)
Fair value of plan assets
775
779
Funded status
(11)
(1)
Present value of unfunded defined benefit obligations
(446)
(460)
Asset ceiling
(2)
–
Net liabilities
(459)
(461)
Analysed as:
Retirement benefit surplus (non-current assets)
(1)
27
42
Retirement benefit obligations (non-current liabilities)
(486)
(503)
Net liabilities
(459)
(461)
1. Includes a surplus relating to the GKN Group Pension Scheme (No.2) of £25 million (2022: £40 million) and the
Japan Employee plan of £2 million (2022: £2 million).
A retirement benefit surplus is recognised in relation to the GKN Group Pension Scheme (No.2)
as the Group has an unconditional right to a refund of surplus assets when there are no remaining
members of the scheme.
The net retirement benefit obligation is attributable to Automotive: liability of £430 million
(2022: £427 million) and Powder Metallurgy: liability of £29 million (2022: £34 million).
169Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
23. Retirement benefit obligations continued
The plan assets and liabilities at the year end were as follows:
31 December 2023
UK US European Other
Plans Plans Plans Plans Total
£m £m £m £m £m
Plan assets
665
73
16
21
775
Plan liabilities
(672)
(118)
(416)
(26)
(1,232)
Asset ceiling
–
–
–
(2)
(2)
Net liabilities
(7)
(45)
(400)
(7)
(459)
The plan assets and liabilities at the previous year end were as follows:
31 December 2022
UK US European Other
Plans Plans Plans Plans Total
£m £m £m £m £m
Plan assets
666
73
19
21
779
Plan liabilities
(651)
(127)
(433)
(29)
(1,240)
Net liabilities
15
(54)
(414)
(8)
(461)
The major categories and fair values of plan assets at the end of the year for each category were
as follows:
31 December 31 December
2023 2022
£m £m
Equities
56
54
Government bonds
404
310
Corporate bonds
85
72
Property
7
7
Insurance contracts
13
14
Multi-strategy/Diversified growth funds
116
121
Private equity
15
41
Other
79
160
Total
775
779
(1)
1. Primarily consists of cash collateral and other assets associated with liability driven investments in the UK
schemes.
The assets were well diversified and the majority of plan assets had quoted prices in active markets.
All government bonds were issued by reputable governments and were generally AA rated or
higher. Interest rate and inflation rate swaps were also employed to complement the role of fixed
and index-linked bond holdings for liability risk management.
The Trustees continually review whether the chosen investment strategy is appropriate with a view
to providing the pension benefits and to ensure appropriate matching of risk and return profiles.
The main strategic policies included maintaining an appropriate asset mix, managing interest rate
sensitivity and maintaining an appropriate equity buffer. Investment results are regularly reviewed.
Movements in the present value of defined benefit obligations during the year:
Year ended Year ended
31 December 31 December
2023 2022
£m £m
At 1 January
1,240
1,733
Current service cost
6
9
Interest cost on obligations
53
31
Remeasurement losses – demographic
–
1
Remeasurement losses/(gains) – financial
18
(508)
Remeasurement losses – experience
1
44
Benefits paid out of plan assets
(67)
(61)
Benefits paid out of Group assets for unfunded plans
–
(18)
Transfers
–
(5)
Settlements
–
(35)
Exchange adjustments
(19)
49
At 31 December
1,232
1,240
(1)
1. Effective as at 1 January 2022, the Group transferred part of the GKN post-retirement medical plan to an entity
controlled by Melrose Industries PLC but outside of the Melrose Group. This resulted in a reduction of £5 million
in the retirement benefit obligation. There were no assets associated with the scheme, with consideration
being settled through loans with Related Parties.
The defined benefit plan liabilities were 17% (2022: 18%) in respect of active plan participants, 23%
(2022: 23%) in respect of deferred plan participants and 60% (2022: 59%) in respect of pensioners.
The weighted average duration of the defined benefit plan liabilities at 31 December 2023 was
13 years (31 December 2022: 13 years).
Movements in the fair value of plan assets during the year:
Year ended Year ended
31 December 31 December
2023 2022
£m £m
At 1 January
779
1,205
Interest income on plan assets
36
25
Loss on plan assets, excluding interest income
(3)
(391)
Contributions
39
22
Benefits paid out of plan assets
(67)
(61)
Plan administrative costs
(3)
(4)
Settlements
–
(33)
Exchange adjustments
(6)
16
At 31 December
775
779
The actual return on plan assets was a gain of £33 million (2022: loss of £366 million).
170Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
23. Retirement benefit obligations continued
Income Statement disclosures
Amounts recognised in the Consolidated Income Statement in respect of these defined benefit
plans were as follows:
Year ended Year ended
31 December 31 December
2023 2022
£m £m
Included within operating (loss)/profit:
–
 current service cost
6
9
–
settlement gains
(1)
–
(2)
–
 plan administrative costs
3
4
Included within net finance costs:
–
 interest cost on defined benefit obligations
53
31
–
 interest income on plan assets
(36)
(25)
1. Settlement gains for the year ended 31 December 2022 were presented as an adjusting item within
restructuring costs.
Statement of Comprehensive Income disclosures
Amounts recognised in the Consolidated Statement of Comprehensive Income in respect of these
defined benefit plans were as follows:
Year ended Year ended
31 December 31 December
2023 2022
£m £m
Loss on plan assets, excluding interest income
(3)
(391)
Remeasurement losses arising from changes in demographic assumptions
–
(1)
Remeasurement (losses)/gains arising from changes in financial assumptions
(18)
508
Remeasurement losses arising from experience adjustments
(1)
(44)
Net remeasurement (loss)/gain on retirement benefit obligations
(22)
72
Risks and sensitivities
The defined benefit plans expose the Group to actuarial risks, such as longevity risk, inflation risk,
interest rate risk and market (investment) risk. The Group is not exposed to any unusual, entity
specific or plan specific risks.
A sensitivity analysis on the principal assumptions used to measure the plan liabilities at the year
end was as follows:
Increase/
Decrease/ (decrease)
(increase) to profit before
to plan liabilities tax
Change in assumption £m £m
Discount rate
Increase by 0.5 ppts
71
1
Decrease by 0.5 ppts
(78)
(1)
Inflation assumption
(1)
Increase by 0.5 ppts
(49)
n/a
Decrease by 0.5 ppts
46
n/a
Assumed life expectancy at age 65 (rate of mortality)
Increase by 1 year
(43)
n/a
Decrease by 1 year
42
n/a
1. The inflation sensitivity encompasses the impact on pension increases and salary increases, where applicable.
The sensitivity analysis above was determined based on reasonably possible changes to the
respective assumptions, while holding all other assumptions constant. There has been no change in
the methods or assumptions used in preparing the sensitivity analysis from prior years. Sensitivities
are based on the relevant assumptions and membership profile as at 31 December 2023 and are
applied to obligations at the end of the reporting period. Whilst the analysis does not take account
of the full distribution of cash flows expected, it does provide an approximation to the sensitivity of
assumptions shown. Extrapolation of these results beyond the sensitivity figures shown may not be
appropriate and the sensitivity analysis presented may not be representative of the actual change
in the defined benefit obligation as it is unlikely that the change in assumptions would occur in
isolation of one another as some of the assumptions may be correlated.
The Group is aware of a case involving Virgin Media and NTL Pension Trustee, which could
potentially lead to additional liabilities for some pension schemes and sponsors, including (if
applicable) the Group. This case is subject to appeal and the impact (if any) is not known and will be
assessed as relevant in future.
171Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
24. Financial instruments and risk management
The table below sets out the Group’s accounting classification of each category of financial assets
and liabilities and their carrying values at 31 December 2023 and 31 December 2022:
Current Non-current Total
£m £m £m
31 December 2023
Financial assets
Classified as amortised cost:
Cash and cash equivalents
313
–
313
Net trade receivables
460
–
460
Classified as fair value:
Derivative over own equity
–
28
28
Derivative financial assets
Foreign currency forward contracts
43
4
47
Interest rate swaps
2
46
Financial liabilities
Classified as amortised cost:
Interest-bearing loans and borrowings
(2)
(1,158)
(1,160)
Lease obligations
(25)
(126)
(151)
Other financial liabilities
(1,063)
(11)
(1,074)
Classified as fair value:
Derivative financial liabilities
Foreign currency forward contracts
(4)
(1)
(5)
Interest rate swaps
–
(3)
(3)
(1)
1. Included within other financial assets.
Current Non-current Total
£m £m £m
31 December 2022
Financial assets
Classified as amortised cost:
Cash and cash equivalents
270
–
270
Net trade receivables
511
–
511
Loans receivable from Related Parties
–
2,826
2,826
Classified as fair value:
Derivative financial assets
Foreign currency forward contracts
24
9
33
Financial liabilities
Classified as amortised cost:
Loans payable to Related Parties
(2,176)
–
(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)
(2)
(2)
2. Related parties comprise Melrose Industries PLC, the ultimate parent company prior to demerger on 20 April
2023 and other non-group entities controlled by Melrose Industries PLC.
The fair value of the derivative financial instruments is derived from inputs other than quoted prices
that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived
from prices) and they are therefore categorised within level 2 of the fair value hierarchy set out in
IFRS 13 Fair Value Measurement. The Group’s policy is to recognise transfers into and out of the
different fair value hierarchy levels at the date of the event or change in circumstances that caused
the transfer to occur. There have been no transfers between levels during the current year.
The fair value of the derivative over own equity is derived from unobservable inputs and as such is
classified as level 3 of the fair value hierarchy set out in IFRS 13. Inputs to the valuation include the
terms of the contract under which the asset arises, the Company’s current share price and expected
volatility in the share price. The asset value is most sensitive to movements in the Company’s share
price. A 10% reduction in the Company’s share price would result in a £2 million reduction in the fair
value of the asset.
As detailed in the accounting policies (Note 2) the asset was initially recorded directly in equity with
subsequent revaluations recognised in the Income Statement. In the current year a loss of £1 million
was recorded within interest expense in relation to fair value changes on the derivative.
172Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
24.Financial instruments and risk management continued
Fair values
Management consider that the financial assets and financial liabilities have fair values not materially
different to the carrying values.
Credit risk
The Group’s principal financial assets were cash and cash equivalents, trade receivables and
derivative financial assets which represented the Group’s maximum exposure to credit risk in
relation to financial assets.
The Group’s credit risk on cash and cash equivalents and derivative financial assets was limited
because the ultimate counterparties were banks with investment grade credit ratings assigned by
international credit rating agencies. Exposure is managed on the basis of risk rating and
counterparty limits. The value of credit risk in derivative assets has been modelled using publicly
available inputs as part of their fair value.
The Group’s credit risk was therefore primarily attributable to its trade receivables. The amounts
presented in the Consolidated Balance Sheet were net of an allowance for expected credit losses,
estimated by the Group’s management based on prior experience and their assessment of the
current economic environment. Note 16 provides further details regarding the recovery of
trade receivables.
Capital risk
The Group manages its capital to ensure that entities in the Group will be able to continue as a
going concern. The capital structure of the Group consists of net debt, as disclosed in Note 26,
and equity attributable to the owners of the parent, comprising issued share capital, reserves and
retained earnings as disclosed in the Consolidated Statement of Changes in Equity.
Liquidity risk management
Overview of banking facilities
The Group’s committed bank facility includes a multi-currency denominated term loan of £100 million,
US$400 million and €100 million and a multi-currency denominated revolving credit facility of
£350 million, US$660 million and €450 million. Loans drawn under this facility are guaranteed by
Dowlais Group plc and certain of its subsidiaries. There is no security over any of the Group’s assets
in respect of this facility.
At 31 December 2023, the term loan was fully drawn and £185 million, US$345 million and €244 million
were drawn on the multi-currency revolving credit facility. There are also a number of uncommitted
overdraft, guarantee and borrowing facilities made available to the Group.
Cash amounted to £313 million at year end and is offset to arrive at the Group net debt position of
£847 million. The combination of this cash and the headroom on the revolving credit facility allows
the Directors to consider that the Group has sufficient access to liquidity for its current needs. The
Board takes careful consideration of counterparty risk with banks when deciding where to place
cash on deposit.
Covenants
The committed bank funding 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 net debt to adjusted EBITDA covenant test level is 3.50x and as at 31 December 2023, the Group
net debt leverage was 1.4x.
The interest cover bank covenant does not come into effect until June 2024.
Maturity of financial liabilities (excluding currency contracts)
The table below shows the maturity profile of anticipated future cash flows, including interest, on an
undiscounted basis in relation to the Group’s financial liabilities. The amounts shown therefore differ
from the carrying value and fair value of the Group’s financial liabilities.
Loans Interest
Interest- payable rate
bearing to derivative Finance Other Total
loans and Related financial lease financial financial
borrowings Parties liabilities obligations liabilities liabilities
£m £m £m £m £m £m
Within one year
78
–
–
31
1,063
1,172
In one to two years
76
–
2
26
11
115
In two to five years
1,279
–
1
47
–
1,327
After five years
–
–
–
92
–
92
Total anticipated cash flows
1,433
–
3
196
1,074
2,706
Effect of financing
(273)
–
–
(45)
–
(318)
31 December 2023
1,160
–
3
151
1,074
2,388
Within one year
–
2,176
–
32
1,149
3,357
In one to two years
–
–
–
22
20
42
In two to five years
–
–
–
43
–
43
After five years
–
–
–
113
–
113
Total anticipated cash flows
–
2,176
–
210
1,169
3,555
Effect of financing
–
–
–
(51)
–
(51)
31 December 2022
–
2,176
–
159
1,169
3,504
Working capital
The Group has a small number of uncommitted working capital programmes, which provide
favourable financing terms on eligible customer receipts and competitive financing terms to
suppliers on eligible supplier payments.
Businesses that participate in these customer related finance programmes have the ability to
choose whether to receive payment earlier than the normal due date, for specific customers on a
non-recourse basis. As at 31 December 2023, the drawings on these facilities were £178 million (2022:
£187 million).
173Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
24. Financial instruments and risk management continued
Working capital continued
Some suppliers may utilise the Group’s supplier finance programmes, which are provided by a
limited number of the Group’s relationship banks. There is no cost to the Group for providing these
programmes to its suppliers. These arrangements do not change the date suppliers are due to be
paid by the Group, and therefore there is no additional impact on the Group’s liquidity. These
programmes allow suppliers to choose, at their sole discretion, whether they want to accelerate the
payment of their invoices, by the financing banks, for an interest cost which is competitive and
based on the credit rating of the Group as determined by the financing banks funding each
programme. The amounts owed to the banks are included in trade payables on the Balance Sheet
and the cash flows are presented in cash flows from operating activities. The arrangements do
not change the timing of the Group’s cash outflows. The amounts drawn on these facilities as at
31 December 2023 were £106 million (2022: £125 million).
Finance cost risk management
The bank margin on the bank facility depends on the Group’s leverage. Management performs
periodic reviews of the Group’s interest rate exposure and fix a proportion of the exposure as
deemed necessary at that time. As at 31 December 2023, 55% of the Group’s interest exposure
was fixed.
Interest rate risk
Cash flow hedges
The interest rate swaps are designated as cash flow hedges and were highly effective from
inception in April 2023 (US Dollar) and July 2023 (Euro). They are used to hedge against the risk of
interest rate fluctuation on the US Dollar and Euro floating rate debt. The fair value of the interest
rate swaps as at 31 December 2023, was a net asset of £3 million (31 December 2022: £nil). The
movement of £3 million for the year ended 31 December 2023 (2022: £nil) comprised of a credit
of £1 million (2022: £nil) booked to derivatives gains on hedge relationships within other
comprehensive income, £6 million credit (2022: £nil) booked to interest in the Income Statement,
and a cash inflow of £4 million (2022: £nil).
There is an economic relationship between the hedged item and the hedging instrument in relation
to SOFR and EURIBOR interest cash flows. The Group has established a hedge ratio of 1:1 for the
hedging relationships based on the notional of the hedging instrument and the hedged item.
Group management performs periodic prospective effectiveness assessments to determine hedge
effectiveness.
Hedge ineffectiveness may occur due to:
– Differences in the timing of the cash flows of the hedged items and the hedging instruments;
– The counterparties’ credit risk differently impacting the fair value movements of the hedging
instruments and hedged items;
– Changes to the forecasted amount of cash flows of hedged items and hedging instruments; or
– Mismatches in payment frequency and/or reset dates.
During the year ended 31 December 2023, some of the critical terms of the interest rate swaps and
the hedged items were not perfectly matched; however, this did not give rise to any ineffectiveness
through the Consolidated Income Statement in the year (2022: £nil).
Interest rate sensitivity analysis
Assuming the net debt, inclusive of interest rate swaps, held as at the balance sheet date was
outstanding for the whole year, a one percentage point rise in market interest rates for all
currencies would increase/(decrease) profit before tax by the following amounts:
Year ended Year ended
31 December 31 December
2023 2022
£m £m
Sterling
(3)
3
US Dollar
(1)
(13)
Euro
(1)
16
On the basis of the floating-to-fixed interest rate swaps in place at the balance sheet date, a one
percentage point fall in market interest rates for all currencies would have a pre-tax impact of
decreasing Group equity by £18 million.
Exchange rate risk management
The Group trades in various countries around the world and is exposed to movements in a number
of foreign currencies. The Group therefore carries exchange rate risk that can be categorised
into three types: transaction, translation and disposal related risk as described in the paragraphs
below. The Group’s policy is designed to protect against the majority of the cash risks but not the
non-cash risks.
The most common exchange rate risk is the transaction risk the Group takes when it invoices a
customer or purchases from suppliers in a different currency to the underlying functional currency
of the relevant business. The Group’s policy is to review transactional foreign exchange exposures,
and place appropriate hedging contracts, quarterly on a rolling basis. To the extent the cash flows
associated with a transactional foreign exchange risk are committed, the Group will hedge up to
100% at the time that the cash flow becomes committed. For forecast and variable material cash
flows, the Group hedges a proportion of the expected cash flows on a phased basis over a time
horizon of up to two years in accordance with the Group’s treasury policy. The average time
horizons for GKN Automotive and GKN Powder Metallurgy reflect the long-term nature of the
contracts within these divisions. Typically, in total the Group hedges a minimum of 70% of foreign
exchange exposures expected over the following year, and 40% to 60% of exposures between one
and two years. This policy reduces, but does not eliminate, the cash risk.
The translation rate risk is the effect on the Group’s results in the year due to the movement in
exchange rates used to translate results in foreign currencies into Sterling from one period to the
next. No specific exchange instruments are used to protect against the translation risk because until
foreign currency is converted to Sterling, this is a non-cash risk to the Group.
174Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
24. Financial instruments and risk management continued
Exchange rate risk management continued
Finally, exchange rate risk arises when a business that reports in a currency, other than Sterling,
is sold. The proceeds for those businesses may be received in a foreign currency and therefore
an exchange rate risk may arise on conversion of the foreign currency proceeds into Sterling.
Protection against this risk is considered on a case-by-case basis and, if appropriate, hedged
at that time.
As at 31 December 2023, the Group held foreign exchange forward and swap contracts to mitigate
expected exchange rate fluctuations on future cash flows from sales to customers and purchases
from suppliers. The fair value of all foreign exchange forward and swap contracts across the Group
was a net asset at 31 December 2023 of £42 million (2022: £21 million).
The following table shows the maturity profile of undiscounted contracted gross cash outflows of
derivative financial liabilities used to manage currency risk:
0-1 year 1-2 years Total
£m £m £m
Year ended 31 December 2023
Foreign exchange forward contracts
74
54
128
Foreign exchange swap contracts
9
–
9
Year ended 31 December 2022
Foreign exchange forward contracts
208
46
254
Hedge of net investment in foreign operations
The interest-bearing loans as at 31 December 2023 (Note 19) include US Dollar borrowings of
US$745 million and Euro borrowings of €344 million, which have been designated as hedges of the
Group’s net investments in 15 US Dollar-denominated subsidiaries and nine Euro-denominated
subsidiaries respectively. These borrowings are used to hedge the Group’s exposure to the foreign
exchange risk on these investments. Gains or losses on the retranslation of these borrowing are
recorded in other comprehensive income to offset any gains or losses on translation of the net
investments in the subsidiaries.
There is an economic relationship between the hedged item and the hedging instrument as the net
investment creates a translation risk that matches the risks of foreign exchange fluctuation on the
borrowings. The Group has established a hedge ratio of 1:1 as the underlying risk of the hedging
instrument is identical to the hedged risk component. The Group performs periodic prospective
effectiveness assessments to determine hedge effectiveness.
Foreign currency sensitivity analysis
Currency risks are defined by IFRS 7 Financial instruments: Disclosures as the risk that the fair value
or future cash flows of a financial asset or liability will fluctuate because of changes in foreign
exchange rates.
The following table details the transactional impact of hypothetical changes in foreign exchange
rates on financial assets and liabilities at the balance sheet date, illustrating the increase in Group
operating profit caused by a 10% strengthening of the US Dollar, Euro and Mexican Peso against
Sterling compared to the year-end spot rate. The analysis assumes that all other variables, in
particular other foreign currency exchange rates, remain constant. The Group operates in a range of
different currencies, and those with a notable impact are shown below:
Year ended Year ended
31 December 31 December
2023 2022
£m £m
US Dollar
3
1
Euro
1
–
Mexican Peso
4
4
The following table details the impact of hypothetical changes in foreign exchange rates on financial
assets and liabilities at the balance sheet date, illustrating the decrease in the Group’s equity caused
by a 10% strengthening of the US Dollar and Euro against Sterling. The analysis assumes that all other
variables, in particular other foreign currency exchange rates, remain constant.
31 December 31 December
2023 2022
£m £m
US Dollar
(12)
(3)
Euro
(11)
(5)
In addition, the change in equity due to a 10% strengthening of the US Dollar against Sterling for the
translation of net investment hedging instruments would be a decrease of £58 million (2022: £nil)
and for the Euro, a decrease of £30 million (2022: £nil). However, there would be no overall effect on
equity because there would be an offset in the currency translation of the foreign operations.
Fair value measurements recognised in the Balance Sheet
Foreign currency forward contracts are measured using quoted forward exchange rates and yield
curves derived from quoted interest rates matching the maturities of the contracts.
Interest rate swap contracts are measured using yield curves derived from quoted interest and
foreign exchange rates.
Derivative financial assets and liabilities are presented within the Balance Sheet as:
31 December 31 December
2023 2022
£m £m
Non-current assets
8
9
Current assets
45
24
Current liabilities
(4)
(10)
Non-current liabilities
(4)
(2)
175Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
24. Financial instruments and risk management continued
Hedge accounted derivatives
The following table sets out details of the Group’s material cash flow hedging instruments where
hedge accounting is applied at the balance sheet date:
Fair value of assets/
Average fixed rate
Notional principal
(liabilities)
31 December 31 December 31 December 31 December 31 December 31 December
2023 2022 2023 2022 2023 2022
Cash flow hedging Instruments % % £m £m £m £m
Cash flow hedge – Interest
rate risk
Pay fixed, receive floating
interest rate swaps
USD Interest rate swaps
Within one year
–
–
–
–
2
–
In two to five years
3.43%
–
470
–
3
–
EUR interest rate swaps
In two to five years
3.48%
–
174
–
(2)
–
Total
–
644
–
3 –
All cash flow hedging instruments are booked in the Balance Sheet as derivative financial assets or
derivative financial liabilities.
The fair value of 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. The Group’s policy is to recognise transfers into and out of the different fair value hierarchy
levels at the date the event or change in circumstances that caused the transfer to occur. There
have been no transfers between levels in the year.
The following table sets out details of the Group’s material hedging relationships at the balance
sheet date where hedge accounting is applied:
calculating ineffectiveness Change in fair value for reserves for continuing hedges Balance in hedging and translation
31 December 31 December 31 December 31 December
2023 2022 2023 2022
£m £m £m £m
Cash flow hedge – interest rate risk
Hedged items
Floating rate borrowings
(1)
–
n/a
–
Hedging instruments
US Dollar Interest rate swaps
4
–
4
–
Euro Interest rate swaps
(3)
–
(3)
–
Net investment hedge
Hedged items
Net assets of designated investments
(20)
–
(20)
–
Hedging instruments
US Dollar floating rate debt
15
–
15
–
Euro floating rate debt
5
–
5
–
There are no balances held in hedging reserves from relationships for which hedge accounting is no
longer applied.
Impact of hedging on equity
The following table sets out the reconciliation for each component of the hedging reserve and the
analysis of associated other comprehensive income.
Total hedging
Cash flow hedge Net investment recognised in
reserve hedge reserve equity
£m £m £m
At 1 January 2023
–
–
–
Effective portion of changes in fair value arising from:
Interest rate swaps
1
–
1
Foreign currency revaluation of the US Dollar floating rate loan
–
15
15
Foreign currency revaluation of the Euro floating rate loan
–
5
5
Tax impact
–
(5)
(5)
At 31 December 2023
1
15
16
176Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
25. Issued share capital and reserves
Share capital
Share Capital
31 December 31 December
2023 2022
£m £m
Allotted, called-up and fully paid
1,393,273,527 ordinary shares of 1p each
14
–
14 –
On 13 January 2023 the Company was incorporated with an initial share capital of one ordinary £1
share issued at par.
On 19 January 2023 the Company issued, for cash consideration, a further 49,999 ordinary £1 shares
at par.
On 28 February 2023 the Company subdivided the 50,000 issued £1 ordinary shares into 5,000,000
ordinary shares of £0.01 (one pence) each.
On 28 February 2023 the Company issued 1,388,273,527 ordinary shares of £0.01 each to Melrose
Industries PLC (“Melrose”) in consideration for the entire shareholding of G.K.N. Industries Limited
and GKN Powder Metallurgy Holdings Limited. This resulted in a total issued share capital of
1,393,273,527 ordinary shares of £0.01 each.
As permitted under sections 611(4) and 615 of the Companies Act 2006, the issue of ordinary shares
and the cost of investments in G.K.N. Industries Limited and GKN Powder Metallurgy Holdings
Limited has been measured at the cost of those investments in the transferor company (Melrose).
The value of the consideration for the shares allotted is the amount by which the value of the assets
transferred exceeds the value of any liabilities assumed by the Company as part of the
consideration for the assets transferred. The value of the G.K.N. Industries Limited and GKN Powder
Metallurgy Holdings Limited was £1,084 million and this was initially recognised as share capital of
£14 million and share premium of £1,070 million.
On 20 April 2023, Melrose made a distribution to its shareholders of the Company’s shares with one
Dowlais share issued for every Melrose share held. On the same day, the Company’s 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.
Share premium
On 1 August 2023, the Company undertook a court-approved capital reduction in accordance with
section 645 of the Companies Act 2006, through which the Company’s share premium of £1,070
million 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 £1,070 million.
Own shares
On 31 May 2023 an Employee Benefit Trust (EBT) established for the benefit of certain employees of
the Group purchased 5,575,630 shares in the capital of the Company to the value of £7 million to be
held for the purpose of settling awards vesting under the Group’s share incentive scheme.
Translation reserve
The translation reserve contains exchange differences on the translation of subsidiaries with a
functional currency other than pound Sterling together with exchange differences arising on debt
financial instruments which have been designated as hedges of net investment.
Hedging reserve
The hedging reserve contains the effective portion of any gains or losses from revaluation of
interest rate swap contracts which have been designated as cash flow hedging instruments.
26. Cash flow statement
Reconciliation of operating (loss)/profit to net cash from operating activities
Year ended Year ended
31 December 31 December
2023 2022
Notes £m £m
Operating (loss)/profit
(450)
58
Adjusting items
6
805
275
Adjusted operating profit
6
355
333
Adjustments for:
Depreciation & impairment of property, plant and equipment
253
251
Amortisation of computer software and development costs
10
10
Share of adjusted operating profit of equity accounted investments
14
(81)
(78)
Gain on disposal of non-current assets
(10)
(11)
Share-based payment expense
1
–
Restructuring costs paid and movements in provisions
(100)
(149)
Demerger costs paid
(48)
–
Defined benefit pension costs charged
9
13
Defined benefit pension contributions paid
(39)
(40)
Change in inventories
(36)
(33)
Change in receivables
6
(102)
Change in payables
48
103
Corporation tax paid
(61)
(72)
Interest paid on loans and borrowings
(62)
(6)
Interest paid on lease obligations
(6)
(6)
Acquisition related costs and associated transaction taxes
–
(3)
Net cash from operating activities
239
210
177Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
26. Cash flow statement continued
Reconciliation of cash and cash equivalents, net of bank overdrafts
31 December 31 December
2023 2022
£m £m
Cash and cash equivalents per Balance Sheet
313
270
Bank overdrafts included within current loan payable to Related Parties
–
(7)
Cash and cash equivalents, net of bank overdrafts per Statement of Cash Flows
313
263
Reconciliation of liabilities arising from financing activities
As at 31 December 2022, liabilities arising from financing activities, as defined by IAS 7 Statement of
Cash Flows, totalled £2,328 million comprising; loans payable to Related Parties of £2,169 million
(excluding bank overdrafts) and lease obligations of £159 million. Assets arising from financing
activities totalled £2,826 million of loans receivable from Related Parties.
During the year, cash transactions on financing balances totalled a net cash inflow £56 million. This
comprised an outflow relating to the settlement of loans payable to and receivable from Related
Parties of £1,096 million (excluding bank overdrafts), net drawdowns on external debt facilities of
£1,189 million, a cash outflow of £12 million relating to the costs of raising debt finance and the
repayment of finance lease principal of £25 million.
Non-cash transactions included a £51 million reduction in liabilities due to foreign exchange
movements, £1,775 million increase in financial liabilities due to non-cash transactions on Related
Party loans, £3 million increase in liabilities due to the amortisation of debt issue costs and £26 million
increase in lease liabilities due to new leases and the reassessment of existing lease liabilities.
Non-cash transactions on Related Party loans related to transactions with Melrose Industries PLC
prior to demerger and included the declaration of the £1,675 million dividend to Related Parties.
As at 31 December 2023, liabilities arising from financing activities, as defined by IAS 7, totalled
£1,311 million comprising interest-bearing loans and borrowings of £1,160 million (excluding bank
overdrafts of £nil) and lease obligations of £151 million.
Net debt reconciliation
Net debt at the balance sheet date consists of interest-bearing loans and borrowings and cash and
cash equivalents. This measure is aligned with the Group’s banking covenants. Currency
denominated balances within net debt are translated to Sterling at the balance sheet rate. In the
prior year, net funds consisted of loans payable to and receivable from Related Parties and cash and
cash equivalents.
Net debt is an alternative performance measure as it is not defined in IFRS. The most directly
comparable IFRS measure is the aggregate of interest-bearing loans and borrowings (current and
non-current) and cash and cash equivalents.
A reconciliation from the most directly comparable IFRS measure to net debt is given below:
31 December 31 December
2023 2022
£m £m
Interest-bearing loans and borrowings – due within one year
(2)
–
Interest-bearing loans and borrowings – due after one year
(1,158)
–
Loans payable to Related Parties – due within one year
–
(2,176)
Loan receivable from Related Parties – due after one year
–
2,826
Total (debt)/funds
(1,160)
650
Less:
Cash and cash equivalents
313
270
Net (debt)/funds
(847)
920
The table below shows the key components of the movement in net debt:
At Other non-cash Effect of foreign At
31 December 2022 Cash flow movements exchange 31 December 2023
£m £m £m £m £m
Loans with Related Parties
(excluding bank overdrafts)
657
1,096
(1,775)
22
–
External debt (excluding bank
overdrafts)
–
(1,177)
(3)
20
(1,160)
Cash and cash equivalents, net of
bank overdrafts
263
68
–
(18)
313
Net (debt)/funds
920
(13)
(1,778)
24
(847)
(1)
1. Loans with Related Parties were presented gross in the Balance Sheet as they did not meet the IAS 32 offset
criteria at the balance sheet date. Prior to demerger, all loans with Related Parties were used for financing
purposes.
Other non-cash movements with Related Parties include a £1,675 million declared dividend as well as
other income and charges with the Melrose Industries PLC group which were added to the loan
accounts prior to demerger. Cash flows with Related Parties include all financing transactions up to
the date of demerger, including settlement of the final loan balances.
178Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
27. Commitments
Amounts payable under lease obligations:
Minimum lease payments
31 December 31 December
2023 2022
£m £m
Amounts payable:
Within one year
31
32
After one year but within five years
73
65
Over five years
92
113
Less: future finance charges
(45)
(51)
Present value of lease obligations
151
159
Analysed as:
Amounts due for settlement within one year
25
25
Amount due for settlement after one year
126
134
Present value of lease obligations
151
159
It is the Group’s policy to lease certain of its property, plant and equipment. The average lease term
is ten years. Interest rates are fixed at the contract date. All leases are on a fixed repayment basis
and no arrangements have been entered into for contingent rental payments.
The Group’s obligations under lease arrangements are secured by the lessors’ rights over the
leased assets.
The table below shows the key components in the movement in lease obligations.
Year ended Year ended
31 December 31 December
2023 2022
£m £m
At 1 January
159
163
Additions
27
14
Interest charge
6
6
Reassessment of lease obligation
(1)
–
Payment of principal
(25)
(22)
Payment of interest
(6)
(6)
Disposals
–
(4)
Exchange adjustments
(9)
8
At 31 December
151
159
Capital commitments
At 31 December 2023, there were commitments of £42 million (2022: £50 million) relating to the
acquisition of new plant and machinery.
28. Related parties
Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the Group, is set out
below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures:
Year ended Year ended
31 December 31 December
2023 2022
£m £m
Short-term employee benefits
19
3
Share-based payments
1
–
20
3
Transactions between companies within the Group, which are Related Parties, have been eliminated
on aggregation and are not disclosed in this note. Sales to and purchases from Group companies
are priced on an arm’s length basis and generally are settled on 30 day terms.
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 up until the date of
demerger. Transactions primarily relate to royalties paid, dividends paid and interest payable on
loans with Related Parties.
Amounts recognised in the Balance Sheet in respect of these related party transactions were
as follows:
31 December 31 December
2023 2022
£m £m
Amounts receivable from Related Parties
–
2,829
Amounts payable to Related Parties
–
(2,189)
Amounts receivable from Related Parties were included within loans receivable from Related Parties
(2022: £2,826 million) and trade and other receivables (2022: £3 million). Loans receivable from
Related Parties were unsecured, accumulated interest in the range of 0% to 7% and were repayable
on demand with no fixed date of repayment.
Amounts payable to Related Parties were included within loans payable to Related Parties (2022:
£2,176 million) and trade and other payables (2022: £13 million). Loans payable to Related Parties
were unsecured, accumulated interest in the range of 1% to 5% and were repayable on demand with
no fixed date of repayment.
179Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
28. Related parties continued
Amounts recognised in the Income Statement in respect of these related party transactions were as
follows:
Year ended Year ended
31 December 31 December
2023 2022
£m £m
Interest payable to Related Parties
(8)
(22)
Charges payable to the Related Parties
–
(9)
Amounts recognised in the Statement of Changes in Equity in respect of these related party
transactions were as follows:
Year ended Year ended
31 December 31 December
2023 2022
£m £m
Charges received from non-Group entities
–
(1)
Reorganisation in respect of non-Group entities
(57)
(105)
Tax effect of transactions with Related Parties
–
(4)
Total transactions with Related Parties
(57)
(110)
(1)
1. The prior year includes an expense of £2 million as an allocation of corporate costs considered to be
attributable to the Group. No allocation was made for the current year.
Reorganisation in respect of Related Parties includes the initial recognition of a derivative over
own equity of £29 million, reorganisational steps taken as part of the demerger, as well as other
income and charges with entities in the Melrose Industries PLC Group prior to the demerger on
20 April 2023.
Dividends of £1,675 million were paid to GKN Enterprise Limited, a member of the Melrose
Industries PLC Group on 23 February 2023 (Note 10).
29. Contingent liabilities
As a result of historical acquisitions, certain contingent legal and warranty liabilities were identified
as part of the fair value review of these acquisition balance sheets. Whilst it is difficult to reasonably
estimate the timing and ultimate outcome of these claims, the Directors’ best estimate has been
included in the Consolidated Balance Sheet where they existed at the time of acquisition and hence
were recognised in accordance with IFRS 3 Business combinations. Where a provision has been
recognised, information regarding the different categories of such liabilities and the amount and
timing of outflows is included within Note 20.
Given the nature of the Group’s business many of the Group’s products have a large installed base,
and any recalls or reworks related to such products could be particularly costly. The costs of product
recalls or reworks are not always covered by insurance. Recalls or reworks may have a material
adverse effect on the Group’s financial condition, results of operations and cash flows.
The Group has contingent liabilities representing guarantees and contract bonds given in the
ordinary course of business on behalf of trading subsidiaries. No losses are anticipated to arise on
these contingent liabilities. The Group does not have any other significant contingent liabilities.
30. Post balance sheet events
There were no material post balance sheet events arising.
180Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
COMPANY BALANCE SHEET
Notes
31 December 2023
£m
Fixed assets
Investment in subsidiaries 4 1,085
Other financial assets 5 28
Total assets 1,113
Creditors:
Amounts falling due within one year 6 (50)
Net current liabilities (50)
Total assets less current liabilities 1,063
Capital and reserves
Issued share capital 7 14
Own shares (7)
Retained earnings 1,056
Shareholders’ funds 1,063
The Company reported a loss for the financial period ended 31 December 2023 of £26 million.
The financial statements were approved by the Board of Directors on 20 March 2024 and were signed on its behalf by:
Roberto Fioroni
Chief Financial Officer
20 March 2024
Registered number: 14591224
181Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
COMPANY STATEMENT OF CHANGES IN EQUITY
Issued share capital
£m
Share premium account
£m
Own shares
£m
Retained earnings
£m
Shareholders’ funds
£m
At 13 January 2023
–––––
Loss for the period (Note 3) – – – (26) (26)
Total comprehensive loss – – – (26) (26)
Issue of shares 14 1,070 – – 1,084
Capital reduction – (1,070) – 1,070 –
Transactions with shareholders
(1)
– – – 29 29
Purchase of own shares
(2)
– – (7) – (7)
Dividends paid – – – (19) (19)
Equity-settled share-based payments – – – 2 2
At 31 December 2023 14 – (7) 1,056 1,063
1. The Company entered into an agreement with Melrose Industries PLC, the Company’s then ultimate parent (prior to the demerger on 20 April 2023) in its capacity as shareholder. Under the terms of the agreement, shares in the
Company may be returned to the Company at nil cost. See Note 1 for further details.
2. On 31 May 2023 the Company gave a loan to the Group’s Employee Benefit Trust (the ‘Trust’) to enable the Trust to purchase the Company’s shares. These shares are to be held in the Trust for the purpose of settling awards
vesting under the Company’s share incentive scheme.
182Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
1. Material accounting policies
Basis of accounting
Dowlais Group plc (the “Company”) is a public company limited by shares. The Company is
incorporated in the United Kingdom under the Companies Act 2006 and registered in England
and Wales. The address of the Company’s registered office is 2nd Floor Nova North, 11 Bressenden
Place, London, United Kingdom, SW1E 5BY.
The principal activity of the Company is to act as the ultimate parent holding company for the
Company’s direct and indirect subsidiaries (referred to as the “Dowlais Group”). The nature of the
Group’s operations and its principal activities are set out in the Strategic Report.
The Company was incorporated as a public limited company on 13 January 2023 with the name
Dowlais Group Headquarters plc. The Company subsequently changed its name to Dowlais Group
plc on 3 February 2023.
The Financial Statements have been prepared under the historical cost convention, modified to
include certain items at fair value, and in accordance with Financial Reporting Standard 102 (FRS
102), the Financial Reporting Standard applicable in the UK and the Republic of Ireland and the
Companies Act 2006.
The functional currency of the Company is considered to be pounds Sterling because that is the
currency of the primary economic environment in which the Company operates.
Dowlais Group plc meets the definition of a qualifying entity under FRS 102 and has therefore
taken advantage of the disclosure exemptions available to it in respect of its separate Financial
Statements. Dowlais Group plc is consolidated in its Group Financial Statements. Exemptions have
been taken in these separate Company Financial Statements in relation to share-based payments,
presentation of a cash flow statement, the remuneration of key management personnel and
financial instruments.
Going concern
The 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 Financial Review on page 22.
There is significant financing headroom at 31 December 2023 (c. £0.6 billion) and throughout the
going concern forecast period. Forecast covenant compliance is considered further below.
Covenants
The current facility has two financial covenants being a net debt to adjusted EBITDA covenant and
an interest cover covenant, both of which are tested half yearly, in June and December following
commencement in December 2023 and June 2024 respectively.
The financial covenants for the going concern period are as follows:
31 December
2023
30 June
2024
31 December
2024
Net debt to adjusted EBITDA 3.50x 3.50x 3.50x
Interest cover n/a 4.00x 4.00x
Testing
In concluding that the going concern basis is appropriate, the Directors have modelled the impact
of a ‘worst case scenario’ to the ‘base case’ by including an aggregation of the same three plausible
but severe downside risks also used for the Group’s Viability Statement.
The base case takes into account the estimated impact of end market and operational factors,
including supply chain and inflationary challenges throughout the going concern period. Climate
related risks have also been considered, including estimating the expected transition from internal
combustion engines to electric vehicles and considering potential risks to the Group’s
infrastructure resulting from extreme weather or climate events.
As set out in more detail in the Viability Statement (on page 78), the three downside scenarios
modelled were (i) economic shock/downturn, (ii) losing a key market, product or customer and (iii)
significant contract delivery issues, including a cyber attack scenario.
Throughout the period covered, financing headroom was at least £400 million and the Group’s
leverage was no higher than 2.8x, indicating that the Group would comfortably remain within
covenant limits. Finally, a reverse stress test was performed which demonstrated that a significant
reduction in revenue and profit in 2024, still assuming no mitigating actions, would be required
before the Group breached its leverage and interest covenants.
Even after applying significant downside risk scenarios in aggregation, no covenant is forecast to
be breached at the relevant testing dates being 30 June 2024 and 31 December 2024, and the
Group would not expect to require any additional sources of finance. Testing at 30 June 2025 is
also expected to be favourable under the terms of existing facilities.
Investments in subsidiaries
Investments in subsidiaries are held at cost less any accumulated impairment losses.
Impairment of assets
Assets are assessed for indicators of impairment at each balance sheet date. If there is objective
evidence of impairment, an impairment loss is recognised in profit or loss.
Financial instruments
Financial assets and financial liabilities are recognised in the Balance Sheet when the Company
becomes a party to the contractual provisions of the instrument. Financial liabilities are classified
according to the substance of the contractual arrangements.
183Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
1. Material accounting policies continued
Financial assets and liabilities
All financial assets and liabilities are initially measured at transaction price (including transaction
costs).
Financial assets and liabilities are only offset in the Balance Sheet when, and only when, there exists
a legally enforceable right to set off the recognised amounts and the Company intends either to
settle on a net basis, or to realise the asset and settle the liability simultaneously.
Financial assets are derecognised when, and only when, a) the contractual rights to the cash flows
from the financial asset expire or are settled, b) the Company transfers to another party
substantially all of the risks and rewards of ownership of the financial asset, or c) the Company,
despite having retained some, but not all, significant risks and rewards of ownership, has
transferred control of the asset to another party.
Financial liabilities are derecognised only when the obligation specified in the contract is
discharged, cancelled or expires.
Derivatives over own equity
The Company 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. The derivative asset is held
on the Balance Sheet at fair value, with gains and losses arising on its remeasurement recognised
immediately in the Income Statement. As the derivative arose from a transaction with a
shareholder acting in its capacity as owner, the initial value of the asset was recognised directly
in equity at the fair value of the shares expected to be returned.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, current balances with banks and similar
institutions and highly liquid investments with maturities of three months or less. They are readily
convertible into known amounts of cash and have an insignificant risk of changes in value.
Share-based payments
The Company issues equity-settled share-based payments to certain employees. The required
disclosures are included in the Group Consolidated Financial Statements.
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 Company’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.
Where equity-settled share-based payments are made available to employees of the Company’s
subsidiaries, these are treated as increases in equity over the vesting period of the award with a
corresponding increase in the Company’s investment in subsidiaries.
Taxation
Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be
paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted
by the balance sheet date.
Deferred tax is recognised in respect of all timing differences that have originated but not
reversed at the balance sheet date where transactions or events that result in an obligation to pay
more tax in the future or a right to pay less tax in the future have occurred. Timing differences are
differences between the Company’s taxable profits and its results as stated in the Financial
Statements that arise from the inclusion of gains and losses in tax assessments in periods different
from those in which they are recognised in the Financial Statements.
Own shares
Own shares represent the shares of the Company that are held by the Employee Benefit Trust.
Own shares are recorded at cost and deducted from equity.
2. Critical accounting judgements and key sources of estimation uncertainty
Other than the matter noted below there were no other critical accounting judgements that
would have a significant effect on the amounts recognised in the Company Financial Statements or
key sources of estimation uncertainty at the balance sheet date that would have a significant risk
of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year.
Application of Group reconstruction relief
The Company has applied section 611 of the Companies Act 2006 ‘Group reconstruction relief’.
On 28 February 2023 the Company issued ordinary shares to Melrose Industries PLC (‘Melrose’ also
referred to as ‘the transferor company’) in consideration for the entire shareholding of G.K.N.
Industries Limited and GKN Powder Metallurgy Holdings Limited.
As permitted under sections 611(4) and 615 of the Companies Act 2006, the cost of investments in
G.K.N. Industries Limited and GKN Powder Metallurgy Holdings Limited have been measured at
the carrying value of those investments in the transferor company (Melrose). The value of the
investments in G.K.N. Industries Limited and GKN Powder Metallurgy Holdings Limited totalled
£1,084 million with ordinary shares issued in consideration. Total consideration was recognised as
share capital of £14 million (consisting of ordinary shares at a par value of £0.01) and share premium
of £1,070 million.
3. Result for the period
As permitted by section 408 of the Companies Act 2006 the Company has elected not to present
its own Profit and Loss Account for the period. Dowlais Group plc reported a loss for the financial
year ended 31 December 2023 of £26 million.
The auditor’s remuneration for audit services to the Company is disclosed in Note 7 to the Group
Consolidated Financial Statements.
Directors’ remuneration is disclosed in the Directors’ Remuneration Report on pages 99 to 121.
There were no other employees of the Company in the period.
184Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
4. Investment in subsidiaries
£m
At 13 January 2023 –
Additions 1,085
At 31 December 2023 1,085
The Directors believe that the carrying values of the investments are supported by their
underlying net assets or the future cashflows expected to be generated by these businesses,
therefore no further impairment is considered to be necessary.
The following subsidiaries and significant holdings were owned by the Company as at
31 December 2023:
Equity
interest %
Class of
share held
Brazil
Rua Joaquim Silveira 557, Parque Sao Sebastiao, 91060-320 Porto Alegre,
RS
GKN do Brasil Limitada 100 Common
Av. da Emancipacao no. 4.500, Bairro Jardim Santa Clara, Hortolandia,
Sao Paulo
GKN Sinter Metals Ltda 100 Common
Canada
Citco (Canada) Inc, 2 Bloor Street East, Suite 2700, Toronto ON M4W 1A8
GKN Sinter Metals – St Thomas Ltd 100 Common
China
950 KangQiao Road, Pudong New Area, Shanghai
Shanghai GKN HUAYU Driveline Systems Company Limited 50 Registered investment
Zijin Kechuang Center 4 Level, 416 Room, Economy Development Zone,
Lishui, Nanjing
Nanjing FAYN Piston Ring Company Limited 19.79 Registered investment
No. 8, Kangmin Rd, Yizheng
GKN Sinter Metals Yizheng Co Ltd 100 Registered investment
18 North Shitan Road, North Industrial Park, Development Zone,
Danyang, Jiangsu
GKN Danyang Industries Company Limited 100 Registered investment
Xiguo Industrial Zone, Mengzhou City, Henan Province, 454750
GKN Zhongyuan Cylinder Liner Company Limited 59 Registered investment
No. 1 Cuigu, Northern New Zone, Chongqing, 401122
GKN HUAYU Driveline Systems (Chongqing) Co. Ltd 34.5
(1)
Ordinary
898 Kangshen Road, Pudong, Shanghai
Shanghai GKN Driveline Sales Co Ltd 49 Ordinary
Equity
interest %
Class of
share held
Wuping East Road, Shengfang Town, Bazhou City, Hebei Province,
065701
GKN (Bazhou) Metal Powder Company Limited 40 Registered investment
Unit A, 6/F, Building A1#, No. 2555 Xiupu Road, Pudong New Area,
Shanghai, 201315
GKN China Holding Co Ltd 100 Registered investment
Factory No. 1, No. 2188 Zhongxi Road, Pinghu, Jiaxing, Zhejiang Province
GKN HUAYU Driveline Systems (Pinghu) Co., Ltd. 50
(2)
Registered investment
Colombia
Calle 32 No. 15 – 23 Barrio Rincon de Girón, Girón Santander
Transejes Transmisiones Homocineticas de Colombia SA 49 Ordinary
France
5-7 rue Charles-Edouard Jeanneret, 78300, Poissy
GKN Driveline SA 100 Ordinary
GKN Freight Services EURL 100 Ordinary
GKN Automotive SAS 100 Ordinary
GKN Automotive Management SAS 100 Ordinary
7 rue de la Briqueterie, 02240 Ribemont
GKN Driveline Ribemont SARL 100 Ordinary
Germany
Am Fliegerhorst 9, 99947 Bad Langensalza
GKN Sinter Metals GmbH, Bad Langensalza 100 Ordinary
Carl-Legien-Strasse 10, 63073 Offenbach am Main
GKN Driveline Deutschland GmbH 100 Ordinary
GKN Automotive Management GmbH 100 Ordinary
Dahlienstrasse 43, 42477 Radevormwald
GKN Sinter Metals Filters GmbH Radevormwald 100 Ordinary
Hafenstrasse 41, 54293 Trier
GKN Driveline Trier GmbH 100 Ordinary
Hauptstrasse 130, 53797 Lohmar
GKN Driveline International GmbH 100 Ordinary
Industriestr. 1, 97769 Bad Brückenau
GKN Sinter Metals & Forge Operations GmbH 100 Ordinary
Nussbaumweg 19-21, 51503 Roesrath
GKN Driveline Service GmbH 100 Ordinary
185Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
4. Investment in subsidiaries continued
Equity
interest %
Class of
share held
Pennefeldsweg 11 – 15, 53177 Bonn
GKN Powder Metallurgy Holding GmbH 100 Ordinary
GKN Hydrogen GmbH 100 Ordinary
GKN Sinter Metals Components GmbH 100 Ordinary
GKN Powder Metallurgy Engineering GmbH 100 Ordinary
Hungary
Kalvin ter 12-13. 4. em., Budapest, 1085, Hungary
GKN Automotive Hungary Korlátolt Felelősségű Társaság 100 Ordinary
India
146 Mumbai Pune Road, Pimpri, Pune 411 018
GKN Sinter Metals Private Limited 100 Ordinary
270, Sector-24, Faridabad 121 005, (Haryana)
GKN Driveline (India) Limited 97.03 Ordinary
Ground Floor, East Wing, Salarpuria Supreme S.No.92/5, Munnekolalu
Village, Varthur Hobli, Bangalore, Bangalore, KA 560037
GKN Automotive Bengaluru Private Limited (India) 100 Ordinary
Italy
Via dei Campi della Rienza 8, 39031 Brunico, BZ
GKN Driveline Brunico SpA 100 Ordinary
Falzes (BZ), Bachla 6 Cap, 39030, Milan
GKN Hydrogen SRL 100 Ordinary
GKN Hydrogen Italy Srl 100 Ordinary
Via Delle Fabbriche 5, 39031 Brunico, BZ
GKN Sinter Metals SpA 100 Ordinary
Japan
Senri Life Science Center, Bldg.12F, 1-4-2 ShinSenri Higashi-machi,
Toyonaka-city, Osaka
GKN Powder Metallurgy Japan KK 100 Ordinary
2388 Ohmiya-cho, Tochigi City, Tochigi, 328-8502
GKN Driveline Tochigi Holdings KK 100 Ordinary
GKN Driveline Japan Ltd 100 Ordinary
Malaysia
43-2, Plaza Damansara, Jalan Medan Setia 1, Bukit Damansara, 50490
Kuala Lumpur, Wilayah Persekutuan
GKN Driveline Malaysia Sdn Bhd 68.42 Ordinary
Equity
interest %
Class of
share held
Mexico
Carretera Panamericana km 284, Celaya, Guanajuato, C.P. 38110
GKN Driveline Celaya SA de CV 100 Ordinary
GKN Driveline Mexico Trading SA de CV 100 Ordinary
Av. DR. Jesus Valdes Sanchez 104, San Jose Agua Azul, Apaseo El Grande,
Guanajuato
GKN Sinter Metals Mexico S. De. R. L. De. C. V. 100 Membership interest
GKN Sinter Metals Mexico Services S. De R. L. De. C. V. 100 Membership interest
Netherlands
2
nd
Floor Nova North, 11 Bressenden Place, London, SW1E 5BY, United
Kingdom
GKN UK Holdings BV 100 Ordinary
Poland
Ul. B. Krzywoustego 31 G, 56-400 Oleśnica
GKN Driveline Polska Sp z o o 100 Ordinary
Portugal
Avenida Marechal Gomes da Costa, nº 1131, Aldoar, Foz do Douro e
Nevogilde, 4150 360 Porto
GKN Automotive Portugal, Limitada 100 Quota
Romania
33 Urziceni Street, Buzau, 120226
Hoeganaes Corporation Europe SA 100 Ordinary
Str. Urziceni no. 33, Alexandru Ioan Cuza Hall, Buzau, Buzau County
GKN Specialty Products Europe S.R.L. 100 Ordinary
Slovenia
Rudniska cesta 20, Zrece 3214
GKN Driveline Slovenija d o o 100 Ordinary
Spain
Avenida de Citroen s/n, 36210 Vigo
GKN Driveline Vigo, SA 100 Ordinary
Sagarbidea 2, 20750 Zumaia
GKN Driveline Zumaia, SA 100 Ordinary
186Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
4. Investment in subsidiaries continued
Equity
interest %
Class of
share held
Pol. Ind. Can Salvatella, Avenida Arrahona 54-56, 08210 Barbera del
Valles, Barcelona
GKN Ayra Servicio, SA 100 Ordinary
Sweden
SE – 731 29, Köping
GKN Driveline Köping AB 100 Ordinary
Taiwan
14 Kwang Fu Road, Hsin-Chu Industrial Park, Hukou, Hsin Chu 30351
Taiway Limited 36.25 Common Stock
Thailand
Eastern Seaboard Industrial Estate, 64/9 Moo 4, Tambon Pluakdaeng,
Amphur Pluakdaeng, Rayong 21140
GKN Driveline (Thailand) Limited 100 Ordinary
Turkey
Organize Sanayi Bolgesi 20, Cadde No: 17, 26110, Eskisehir
GKN Eskisehir Automotive Products Manufacture and Sales A.S. 100 Ordinary
Yakuplu Mah. Haramidere Sanayi Sitesi, J Blok, No. 106-107-108,
Beylikdüzü, İstanbul
GKN Sinter Istanbul Metal Sanayi Ve Ticaret Anonim Şirketi 100 Ordinary
United Kingdom
2100 The Crescent, Birmingham Business Park, Birmingham, West
Midlands, B37 7YE
GKN Hybrid Power Limited 100 Ordinary
GKN Freight Services Limited 100
Ordinary and cumulative
preference
GKN Driveline UK Limited 100 Ordinary
Equity
interest %
Class of
share held
2
nd
Floor Nova North, 11 Bressenden Place, London, SW1E 5BY
GKN EVO eDrive Systems Limited 100 Ordinary
Dowlais Group Headquarters Limited * 100 Ordinary
GKN UK Investments Limited 100 Ordinary
GKN USD Investments Limited 100 Ordinary
GKN Ventures Limited 100 Ordinary
GKN Sinter Metals Limited 100 Ordinary
GKN Euro Investments Limited 100 Ordinary
GKN Firth Cleveland Limited 100 Ordinary
GKN Group Pension Trustee (No.2) Limited 100 Ordinary
G.K.N. Group Services Limited 100
Ordinary and
redeemable preference
GKN Overseas Holdings Limited 100 Ordinary
GKN Group Pension Trustee Limited 100 Ordinary
G.K.N. Powder Met. Limited 100 Ordinary
GKN U.S. Investments Limited 100 Ordinary
GKN Service UK Limited 100 Ordinary
GKN Sheepbridge Limited 100 Ordinary
GKN Sheepbridge Stokes Limited 100 Ordinary
G.K.N. Industries Limited * 100 Ordinary
G.K.N. International Trading (Holdings) Limited 100 Ordinary
GKN Marks Limited 100 Ordinary
GKN Hydrogen Limited 100 Ordinary
Dowlais Industries Limited 100 Ordinary
GKN Driveline Birmingham Limited 100 Ordinary
GKN Automotive Limited 100 Ordinary and Preference
GKN Birfield Extrusions Limited 100 Ordinary
GKN Countertrade Limited 100 Ordinary
GKN Automotive Holdings Limited 100 Ordinary
Ball Components Limited 100 Ordinary
Dowlais Automotive Limited 100 Ordinary
GKN 2 Trustee 2018 Limited 100 Ordinary
GKN 3 Trustee 2018 Limited 100 Ordinary
187Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
4. Investment in subsidiaries continued
Equity
interest %
Class of
share held
c/o Brodies LLP, 15 Atholl Crescent, Edinburgh, EH3 8HA
GKN Investments III LP 100 Membership interest
c/o Brodies LLP, Capital Square, 58 Morrison Street, Edinburgh, EH3 8BP
GKN Investments III GP Limited 100 Ordinary
Rhodium Building, Central Boulevard,, Blythe Valley Park,
Solihull, B90 8AS
GKN Powder Metallurgy Holdings Limited * 100 Ordinary
Unit 1, Cobnar Wood Close Chesterfield Trading Estate, Chesterfield,
Derbyshire, S41 9RQ
GKN Cylinder Liners UK Limited 100 Ordinary
Unit 5, Kingsbury Business Park, Kingsbury Road, Minworth, Sutton
Coldfield, B76 9DL
GKN Driveline Service Limited 100 Ordinary
United States
2710 Gateway Oaks Drive, Suite 150 N, Sacramento, CA, 95833
Product Slingshot, Inc. (dba Forecast 3D) 100 Common stock
2711 Centerville Road, Suite 400, Wimington, Delaware, 19808
XIK, LLC 100 Membership interest
GKN Driveline Newton LLC 100 Membership interest
251 Little Falls Drive, Wilmington,
Delaware, 19808
GKN America Corp 100 Common stock
GKN North America Investments Inc 100 Ordinary
GKN North America Services, Inc 100 Common stock
GKN Freight Services, Inc 100 Common stock
GKN Driveline North America, Inc. 100 Common stock
Hoeganaes Corporation 100 Common stock
GKN Hydrogen Corp. 100 Common stock
GKN Powder Metallurgy Holdings, Inc. 100 Common stock
GKN Specialty Products Americas Corp. 100 Common stock
GKN Sinter Metals, LLC 100 Membership interest
50 West Broad Street, Suite 1330, Columbus OH 43215
GKN Driveline Bowling Green, Inc 100 Common stock
9 E. Loockerman Street, Suite 311, Dover DE 19901
GKN Cylinder Liners, LLC 100 Membership interest
Notes:
* Investment held directly by the Company. All other investments are indirectly held.
1. The Group owns 9% directly with a total effective ownership of 34.5% in the company.
2. The Group indirectly has a total effective ownership of 50% in the company.
5. Other financial assets
31 December
2023
£m
At 13 January
–
Additions – initial addition 29
Revaluation (1)
At 31 December 28
The Company 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. The derivative asset is held on the
Balance Sheet at fair value, with gains and losses arising on its remeasurement recognised
immediately in the Income Statement. As the derivative arose from a transaction with a
shareholder acting in its capacity as owner, the initial value of the asset was recognised directly in
equity at the fair value of the shares expected to be returned. Further details are provided in Note
24 to the Consolidated Financial Statements.
6. Creditors
31 December
2023
£m
Amounts falling due within one year:
Amounts owed to Group undertakings 47
Other taxes and social security 1
Accruals and other creditors 2
50
Interest is charged on certain amounts owed to group undertakings and is calculated using rates
derived from SONIA (Sterling Overnight Index Average) 1 month swap rate curves. All amounts
owed to group undertakings are repayable on demand.
188Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
7. Issued share capital
Authorised Share Capital
31 December
2023
£m
Allotted, called-up and fully paid
1,393,273,527 Ordinary shares of 1p each
14
14
On 13 January 2023 the Company was incorporated with an initial share capital of one ordinary £1
share issued at par.
On 19 January 2023 the Company issued, for cash consideration, a further 49,999 ordinary £1 shares
at par.
On 28 February 2023 the Company subdivided the 50,000 issued £1 ordinary shares into 5,000,000
ordinary shares of £0.01 (one pence) each.
On 28 February 2023 the Company issued 1,388,273,527 ordinary shares of £0.01 each to Melrose
Industries PLC (“Melrose”) in consideration for the entire shareholding of G.K.N. Industries Limited
and GKN Powder Metallurgy Holdings Limited. This resulted in a total issued share capital of
1,393,273,527 ordinary shares of £0.01.
As permitted under sections 611(4) and 615 of the Companies Act 2006, the issue of ordinary shares
and the cost of investments in G.K.N. Industries Limited and GKN Powder Metallurgy Holdings
Limited has been measured at the cost of those investments in the transferor company
(Melrose).The value of the consideration for the shares allotted is the amount by which the value
of the assets transferred exceeds the value of any liabilities assumed by the Company as part of
the consideration for the assets transferred. The value of the G.K.N. Industries Limited and GKN
Powder Metallurgy Holdings Limited was £1,084 million and this was initially recognised as share
capital of £14 million and share premium of £1,070 million.
On 20 April 2023, Melrose made a distribution to its shareholders of the Company’s shares with
one Dowlais share issued for every Melrose share held. On the same day, the Company’s 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.
On 1 August 2023, the Company undertook a court-approved capital reduction in accordance with
section 645 of the Companies Act 2006, through which the Company’s share premium of £1,070
million 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 £1,070 million.
8. Contingent liabilities
Dowlais Group plc, and certain other group subsidiary companies, has guaranteed loans drawn
under the Senior Term and Revolving Facilities Agreement dated 22 February 2023. Details of the
debt facilities and amounts drawn as at 31 December 2023 are provided in Note 19 to the
Consolidated Financial Statements. No liability has been recognised in respect of these guarantees
as the likelihood of the guarantees being called is considered remote.
9. Related party transactions
The Company has taken the exemption in FRS 102.33 Related party information not to disclose
intercompany balances and transactions in the period with fully owned subsidiary undertakings.
189Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
ALTERNATIVE PERFORMANCE MEASURES
ALTERNATIVE PERFORMANCE MEASURES (“APMS”)
In accordance with the Guidelines on APMs issued by the European Securities and
MarketsAuthority (“ESMA”), additional information is provided on the APMs used
bytheGroup below.
In the reporting of financial information, the Group uses certain measures that are not
required under IFRS. These additional measures (commonly referred to as APMs) provide
additional information on the performance of the business and trends to stakeholders.
These measures are consistent with those used internally, and are considered important
inunderstanding the financial performance and financial health of the Group.
APMsareconsidered to be an important measure to monitor how the businesses are
performing because this provides a meaningful comparison of how the business is
managed and measured on a day-to-day basis and achieves consistency and comparability
between reporting periods.
These APMs may not be directly comparable with similarly titled measures reported
byother companies and they are not intended to be a substitute for, or superior to,
IFRSmeasures. All Income Statement and Cash Flow measures are provided for
continuingoperations.
APM Closest equivalent statutory measure Reconciling items to statutory measure Definition and purpose
Income Statement Measures
Adjusted revenue Revenue Share of revenue of equity
accounted investments
(Note5)
Adjusted revenue includes the Group’s share of revenue of equity accounted investments (EAIs).
This enables comparability between reporting periods and consistency with internalreporting.
Adjusted revenue
Year ended
31 December
2023
£m
Year ended
31 December
2022
£m
Revenue 4,864 4,595
Share of revenue of equity accounted investments (Note 5) 625 651
Adjusted revenue 5,489 5,246
Adjusting items None Adjusting items (Note 6) Those items which the Group excludes from its adjusted profit metrics in order to present
afurther measure of the Group’s performance.
These include items which are significant in size or volatility or by nature are non-trading
ornon-recurring, any onerous contract provision 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.
190
Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
ALTERNATIVE PERFORMANCE MEASURES CONTINUED
APM Closest equivalent statutory measure Reconciling items to statutory measure Definition and purpose
Income Statement Measures continued
Adjusted operating profit Operating loss
1
Adjusting items (Note 6) The Group uses adjusted profit measures for consistency with internal reporting and to provide
a useful and more comparable measure of the ongoing performance of the Group. Adjusted
measures are reconciled to statutory measures by removing adjusting items, the nature of which
are disclosed above and further detailed in Note 6.
Adjusted operating profit
Year ended
31 December
2023
£m
Year ended
31 December
2022
£m
Operating (loss)/profit (450) 58
Adjusting items to operating (loss)/profit (Note 6) 805 275
Adjusted operating profit 355 333
Adjusted operating margin Operating margin
2
Share of revenue of equity
accounted investments
(Note5) and adjusting
items(Note 6)
Adjusted operating margin represents Adjusted operating profit as a percentage of Adjusted
revenue. The Group uses adjusted profit measures to provide a useful and more comparable
measure of the ongoing performance of the Group to both internal and external stakeholders.
Adjusted profit before tax Loss before tax Adjusting items (Note 6) Profit before the impact of adjusting items and tax. As discussed above, adjusted profit
measures are used to provide a useful and more comparable measure of the ongoing
performance of the Group to both internal and external stakeholders. Adjusted measures are
reconciled to statutory measures by removing adjusting items, the nature of which are disclosed
above and further detailed in Note 6.
Adjusted profit before tax
Year ended
31 December
2023
£m
Year ended
31 December
2022
£m
Loss before tax (522) (63)
Adjusting items to loss before tax (Note 6) 786 360
Adjusted profit before tax 264 297
Adjusted profit after tax Loss after tax Adjusting items (Note 6) Profit after tax but before the impact of the adjusting items. As discussed above, adjusted profit
measures are used to provide a useful and more comparable measure of the ongoing
performance of the Group to both internal and external stakeholders. Adjusted measures are
reconciled to statutory measures by removing adjusting items, the nature of which are disclosed
above and further detailed in Note 6.
Adjusted profit after tax
Year ended
31 December
2023
£m
Year ended
31 December
2022
£m
Loss after tax (495) (77)
Adjusting items to loss after tax (Note 6) 693 295
Adjusted profit after tax 198 218
191
Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
ALTERNATIVE PERFORMANCE MEASURES CONTINUED
APM Closest equivalent statutory measure Reconciling items to statutory measure Definition and purpose
Income Statement Measures continued
Constant currency Income Statement, which is
reported using actual average
foreign exchange rates
Constant currency foreign
exchange rates
The Group uses GBP-based constant currency models to measure performance. These are
calculated by applying fixed exchange rates to local currency reported results for the current
and prior periods. This gives a GBP-denominated Income Statement which excludes any
translational variances attributable to foreign exchange rate movements.
Adjusted EBITDA for leverage
covenant purposes
Operating loss
1
Adjusting items (Note 6),
depreciation of property, plant
and equipment and
amortisation of computer
software and development
costs, share of non-controlling
interests and other
adjustments required for
leverage covenant purposes
Adjusted operating profit for 12 months prior to the reporting date, before depreciation
andimpairment of property, plant and equipment and before the amortisation and impairment
ofcomputer software and development costs.
Adjusted EBITDA for leverage covenant purposes is a measure used by external stakeholders
tomeasure performance.
Adjusted EBITDA for leverage covenant purposes
Year ended
31 December
2023
£m
Adjusted operating profit 355
Depreciation of property, plant and equipment and amortisation
ofcomputer software and development costs 263
Non-controlling interests (8)
Other adjustments required for leverage covenant purposes
3
(18)
Adjusted EBITDA for leverage covenant purposes 592
Adjusted tax rate Effective tax rate Adjusting items, adjusting
taxitems and the tax impact
ofadjusting items
(Note6andNote 9)
The income tax charge for the Group excluding adjusting tax items, and the tax impact of
adjusting items, divided by adjusted profit before tax.
This measure is a useful indicator of the ongoing tax rate for the Group to external stakeholders.
Adjusted tax rate
Year ended
31 December
2023
£m
Year ended
31 December
2022
£m
Tax per Income Statement 27 (14)
Adjusted for:
Tax impact of adjusting items (87) (62)
Tax impact of EAIs (11) (9)
Other adjusting tax charges 5 6
Adjusted tax charge (66) (79)
Adjusted profit before tax 264 297
Adjusted tax rate 25% 27%
192
Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
ALTERNATIVE PERFORMANCE MEASURES CONTINUED
APM Closest equivalent statutory measure Reconciling items to statutory measure Definition and purpose
Income Statement Measures continued
Adjusted basic earnings
pershare
Basic earnings per share Adjusting items
(Note6andNote 11)
Profit after tax attributable to owners of the parent and before the impact of adjusting items,
divided by the weighted average number of ordinary shares in issue during the financial period.
This measure is useful in showing the current performance of the Group to external stakeholders.
Adjusted diluted earnings
pershare
Diluted earnings per share Adjusting items
(Note6andNote 11)
Profit after tax attributable to owners of the parent and before the impact of adjusting items,
divided by the weighted average number of ordinary shares in issue during the financial period
adjusted for the effects of any potentially dilutive options.
This measure is useful in showing the current performance of the Group to external stakeholders.
Balance Sheet Measures
Working capital Inventories, trade and other
receivables less trade and
other payables
Not applicable Working capital comprises inventories, current trade and other receivables, non-current other
receivables, current trade and other payables and non-current other payables.
This measure provides additional information in respect of working capital management
toexternal stakeholders.
Net debt Cash and cash equivalents,
loans with Related Parties
4
,
interest-bearing loans and
borrowings and finance related
derivative instruments
Reconciliation of net debt
(Note 26)
Net debt comprises cash and cash equivalents, interest-bearing loans and borrowings, loans
withRelated Parties
4
and cross-currency swaps, where applicable.
Net debt is one measure that could be used to indicate the strength of the Group’s Balance
Sheet position and is a useful measure of the indebtedness of the Group.
Bank covenant definition of
net debt at average rates and
leverage
Cash and cash equivalents less
interest-bearing loans and
borrowings
Impact of foreign exchange
and adjustments for bank
covenant purposes
Net debt (as above) is presented in the Balance Sheet translated at period end exchange rates.
For bank covenant testing purposes net debt is converted using average exchange rates for
theprevious 12 months.
Leverage is calculated as the bank covenant definition of net debt divided by adjusted EBITDA
for leverage covenant purposes. This measure is used for bank covenant testing.
Net debt
31 December
2023
£m
Net debt at closing rates (Note 26) (847)
Impact of foreign exchange (10)
Bank covenant definition of net debt at average rates (857)
Leverage 1.4x
193
Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
ALTERNATIVE PERFORMANCE MEASURES CONTINUED
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.
APM Closest equivalent statutory measure Reconciling items to statutory measure Definition and purpose
Cash Flow Measures
Free cash flow Net increase/ decrease in cash
and cash equivalents (net of
bank overdrafts)
Net cash from/(used in)
financing activities
Free cash flow represents cash generated after all trading costs including restructuring, pension
contributions, tax and interest payments but before any cash flows associated with financing
activities.
This measure is a useful metric for monitoring cash management within the Group and
isconsistent with internal reporting.
Free cash flow
Year ended
31 December
2023
£m
Year ended
31 December
2022
£m
Net cash from operating activities 239 210
Net cash used in investing activities (194) (137)
Free cash flow 45 73
Adjusted free cash flow Net increase/ decrease in cash
and cash equivalents (net of
bank overdrafts)
Free cash flow, as defined
above, adjusted for demerger
related exceptional cash flows
Adjusted free cash flow represents free cash flow adjusted for demerger-related exceptional
cash flows.
This measure is a useful metric for monitoring cash management within the Group and
isconsistent with internal reporting.
Adjusted free cash flow
Year ended
31 December
2023
£m
Year ended
31 December
2022
£m
Free cash flow 45 73
Demerger LTIP payments
5
37 –
Other cash demerger exceptional items 11 –
Adjusted free cash flow 93 73
Capital expenditure (capex) None Not applicable Calculated as the purchase of owned property, plant and equipment and computer software
and expenditure on capitalised development costs during the period, excluding any assets
acquired as part of a business combination.
Net capital expenditure is capital expenditure net of proceeds from disposal of property,
plantand equipment.
Capital expenditure to
depreciation ratio
None Not applicable Net capital expenditure divided by depreciation of owned property, plant and equipment
andamortisation of computer software and development costs.
This measure is a useful metric for monitoring the investment in capital expenditure within
theGroup and is consistent with internal reporting.
194
Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
Financial diary Registrar
Our Registrar is Equiniti Limited who can be contacted at Aspect House, Spencer Road,
Lancing, West Sussex, BN99 6DA.
Please contact the Registrar at the above address to advise of a change of address or
forany enquiries relating to dividend payments, lost share certificates or other share
registration matters. The Registrar provides online facilities at shareview.co.uk. Once
youhave registered you will be able to access information on your Dowlais Group plc
shareholding, update your personal details and amend your dividend payment instructions
online without having to call or write to the Registrar.
Share dealing services
The Registrar offers a real-time telephone and internet dealing service for the UK.
Furtherdetails including terms and rates can be obtained by logging on to the website
atshareview.co.uk/dealing or by calling 0371 384 2030. Lines are open between 8.30am
and 5.30pm (UK time), Monday to Friday (excluding public holidays in England and Wales).
Information on how to manage your shareholdings can be found at https://help.shareview.
co.uk. The pages at this web address provide answers to commonly asked questions
regarding shareholder registration, links to downloadable forms and guidance notes.
Ifyour question is not answered by the information provided, you can send your enquiry
via secure email from these pages. You will be asked to complete a structured form and
toprovide your shareholder reference, name and address. You will also need to provide
your email address if this is how you would like to receive your response.
Alternatively, you can telephone 0371 384 2030. Lines are open between 8.30am and
5.30pm (UK time), Monday to Friday (excluding public holidays in England and Wales).
Forcall charges, please check with your provider as costs may vary.
Dividends
Shareholders who wish to have their dividends paid directly into a bank or building society
account should contact the Registrar. In addition, the Registrar is now able to pay dividends
to over 90 different countries. This service enables the payment of your dividends directly
into your bank account in your home currency. For international payments, a charge is
deducted from each dividend payment to cover the costs involved. Please contact the
Registrar to request further information.
SHAREHOLDER INFORMATION
* Provisional date
Annual General Meeting
The Annual General Meeting (AGM) of the Company will be held on Tuesday 21 May 2024
at 11am UK time at the office of Slaughter and May, One Bunhill Row, London, EC1Y 8YY.
Further details regarding the format, location and business to be transacted at the meeting
will be disclosed within the 2024 Notice of AGM.
Company website
The Company’s website at dowlais.com contains the latest information for shareholders,
including press releases and an updated financial diary. Email alerts of the latest regulatory
announcements about the Company may be obtained by registering for the email news
alert service on the website.
Registered office
Dowlais Group plc, 2
nd
Floor Nova North, 11 Bressenden Place, London, England, SW1E 5BY.
Share price information
The latest price of the Company’s ordinary shares is available on londonstockexchange.com.
Dowlais’ ticker symbol is DWL. It is recommended that you consult your financial adviser
and verify information obtained before making any investment decision.
21 May 2024
Annual General
Meeting
13 August 2024*
Announcement
ofhalf-year results
for the six months
ended 30 June 2024
5 March 2025*
Announcement
offull-year results
for the year ended
31 December 2024
195Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION CONTINUED
This report includes 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 this report speak only to the date
ofthis report. 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.
Pages 1 to 126 consist of a Strategic Report and Directors’ Report (including the Directors’
Remuneration Report) that have been drawn up and presented in accordance with and
inreliance upon applicable English company law. The liability of the Directors in connection
with such reports shall be subject to the limitation and restrictions provided by, and shall
be no greater than is required by, applicable English company law.
196Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
GLOSSARY OF TERMS AND DEFINITIONS
Accident Frequency
Rate or AFR
A safety key performance indicator, calculated as the number of lost time
accidents (whether serious or minor) divided by the total number of
hours worked multiplied by 200,000.
Automotive The GKN Automotive business operated by the Group.
Board The Board of Directors of the Company.
book-to-bill ratio A metric used by GKN Automotive to describe, in respect of a period,
theratio of forecast lifetime revenue awarded in that period to revenues
earned in the same period. It is calculated using reported FX rates and
excludes aftermarket, cylinder liners and freight services revenues.
bps Basis points.
CEO Chief Executive Officer.
CFO Chief Financial Officer.
CO
2
e Carbon dioxide equivalent. This figure includes GHGs in addition
tocarbon dioxide.
Company or Dowlais Dowlais Group plc.
CSRD EU Corporate Sustainability Reporting Directive
demerger The demerger of the Company from Melrose on 20 April 2023.
Director A director of the Company.
drop-through
margin
The margin at which incremental sales volumes contribute incremental
operating profit.
EBITDA Earnings before interest, tax, depreciation and amortisation.
EMEA Europe, Middle East and Africa.
EPS Earnings per share.
ESG Environmental, Social and Governance.
FX Foreign exchange.
GLOSSARY
Abbreviations and definitions used in this report
GHG Greenhouse gas.
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.
incremental
stand-alone plc costs
Principally being the costs of the Dowlais head office operations, the
Board and the executive committee, which were £32 million in the period.
LCA Product life cycle analysis.
lifetime revenue In respect of a contract, the revenue earned over the life of that contract.
M&A Mergers and acquisitions, which may include disposals and joint ventures.
Melrose Melrose Industries PLC.
Powder Metallurgy The GKN Powder Metallurgy business operated by the Group.
Prospectus The prospectus published by the Company on 3 March 2023.
Q1, Q2, Q3 or Q4 The 1
st
, 2
nd
, 3
rd
or 4
th
quarter (as applicable) of the relevant year.
SBTi Science Based Targets initiative.
SECR Streamlined Energy and Carbon Reporting.
STEM Science, technology, engineering and mathematics.
TCFD Task Force on Climate-related Financial Disclosures.
UAW International Union, United Automobile, Aerospace and Agricultural
Implement Workers of America (UAW).
UN SDGs United Nations Sustainable Development Goals.
US United States of America.
year-on-year In comparison to the immediately preceding financial year (or relevant
period thereof).
197
Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
advanced
differentials
Torque management components enabling specific advanced
driving features such as mechanical and electronic limited slip
differentials, locking differentials and disconnect devices.
AWD All wheel drive.
AWD systems Torque management components (being a power take-off unit
and rear drive unit) for AWD vehicles with an East-West /
transverse engine layout.
BEV Battery electric vehicle, a light vehicle without an ICE which uses
abattery to store the electricity needed to power the vehicle.
constant velocity
joint
A type of joint which allows a driveshaft to transfer torque via
avariable angle at a constant rotational speed.
Driveline A product group of GKN Automotive which comprises sideshafts
and propshafts.
drive systems Sideshafts, propshafts, and AWD systems.
drivetrain The components of a light vehicle which transfer torque from the
power source to the wheels.
eDrive System The electric drive unit which is used to power BEVs, FCEVs and
(along with an ICE) HEVs
ePowertrain A product group of GKN Automotive, which includes AWD
systems, ePowertain components and eDrive systems.
EVs Electrified light vehicles, including BEVs, FCEVs and HEVs (but
not including Mild Hybrids).
FCEV Fuel cell electric vehicle, a light vehicle without an ICE which uses
a fuel cell to generate the vehicle’s power.
global OEM An OEM which produces light vehicles in more than one country
and produces more than 100,000 light vehicles each year.
GLVP Global light vehicle production.
HEV Hybrid electric vehicle, a light vehicle which uses both an ICE
anda high voltage electric motor to produce torque.
ICE Internal combustion engine and an ICE vehicle means a light
vehicle powered by an ICE.
LFP / LFMP Lithium iron phosphate / Lithium manganese iron phosphate.
light vehicle Passenger cars and light trucks up to 6 tonnes in weight.
market Unless otherwise specified, means the global light vehicle
market.
Mild Hybrid An ICE vehicle which features a low-voltage electric motor to
provide supplementary power to the ICE and ancillary vehicle
equipment.
OEM Original equipment manufacturer of light vehicles.
powertrain The drivetrain and the power source of a light vehicle.
PPM Parts per million, a measures of defects per component
manufactured.
propshaft Propeller shaft, a type of driveshaft used to transfer torque from
the front of the vehicle to the rear, or vice versa.
propulsion source
agnostic
The product is not only for use in an EV or ICE vehicle, but can be
used in both.
sideshaft A type of driveshaft used to transfer torque directly to the
wheels of the vehicle and which typically features two constant
velocity joints.
SUV Sport utility vehicle, a type of light vehicle.
Tier 1, Tier 2, Tier 3
etc.
The tiers of supplier in the automotive supply chain, in which Tier
1 suppliers supply the OEM directly, Tier 2 suppliers supply Tier 1
suppliers, and so on.
torque Rotational force, which in a light vehicle is generated by the
engine or drive system.
Technical, automotive industry and Dowlais terms used in this report
GLOSSARY OF TERMS AND DEFINITIONS CONTINUED
198Dowlais Group plc 2023 Annual Report
STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Consultancy and design by Black Sun Global
www.blacksun-global.com
This report is printed on paper certified in accordance with the FSC® (Forest Stewardship Council®) and is
recyclable and acid-free.
Pureprint Ltd is FSC certified and ISO 14001 certified showing that it is committed to all round excellence
and improving environmental performance is an important part of this strategy. Pureprint Ltd aims to
reduce at source the effect its operations have on the environment and is committed to continual
improvement, prevention of pollution and compliance with any legislation or industry standards.
Pureprint Ltd is a Carbon / Neutral® Printing Company.
CBP024006
2
nd
Floor Nova North, 11 Bressenden Place
London, United Kingdom, SW1E 5BY
DowlaisGroupplc
www.dowlais.com