Final Results

NEWS RELEASE 23 February 2016

GKN plc Results Announcement for the year ended 31 December 2015

Group Highlights(1)

· Sales increased 2% organically

o Good growth in Automotive; GKN Aerospace up; GKN Land Systems down in tough markets

· Trading margin unchanged at 9.2%, excluding Fokker Technologies ("Fokker")

· Profit before tax (management basis) of £603 million (2014: £601 million)

· Reported profit before tax £245 million (2014: £221 million), (higher primarily due to the movement on the mark to market valuation of forward foreign exchange contracts)

· Management earnings per share slightly lower, as a result of the costs of the Fokker acquisition and an increased tax rate to 24% (2014: 22%)

· Total dividend increased 4% to 8.7 pence per share

· Free cash flow of £370 million (2014: £234 million), with the benefit of customer advances

· Net debt of £769 million, £145 million higher than last year due to Fokker acquisition

· Acquisition of Fokker completed 28 October 2015, integration proceeding well

Commenting on the results, Nigel Stein, Chief Executive of GKN said:

"GKN continued to make progress in 2015 and delivered on our expectations. We performed well against our key markets, overcoming some demand weakness and demonstrating once again the strength of our businesses, strong market positions and leading technology. Highlights of the year were GKN Aerospace's acquisition of Fokker Technologies, strong market-beating growth by GKN Driveline and good margin advances by GKN Powder Metallurgy. Looking forward, we expect 2016 to be a year of good growth, helped by the contribution from Fokker."

Divisional Highlights

GKN Aerospace

· Acquisition of Fokker for £480 million

· Organic sales growth in commercial aerospace (+6%) partly offset by decline in military (-9%)

· Margin of 12.2% (2014: 12.4%), before Fokker, impacted by mature programmes declining partly offset by progress on an onerous contract

· New work packages won exceed $3.5 billion

GKN Driveline

· Organic sales growth of 5%, significantly ahead of global auto production helped by our broad geographic footprint and increased content per vehicle

· Trading margin improved to 8.2% (2014: 8.1%)

· Around £880 million of annualised new and replacement business won

GKN Powder Metallurgy

· Organic sales growth ahead of market, before the pass-through of lower raw material surcharges

· Trading margin increased to 12.0% (2014: 11.0%), benefiting partly from the lower surcharges

· £185 million annualised new and replacement business won

· Chinese powder production venture agreed subject to approvals, expansion of Chinese sintered parts production facilities and upgrade of North American capacity in progress

GKN Land Systems

· Organic sales down 6% due to challenging agricultural and construction equipment markets

· Good cost control results in trading margin of 3.5% (2014: 5.7%), including £11 million restructuring charge

· £110 million annualised new and replacement business won

Outlook

Aerospace markets generally remain in transition as some aircraft programmes run down and others ramp up. The overall market will be slightly down, according to external forecasts. Against that backdrop, GKN Aerospace's 2016 organic sales are expected to be broadly flat, although the results will benefit from the contribution of Fokker. In the medium term, our strong commercial order book supports continuing growth for GKN Aerospace.

In automotive, external forecasts predict growth in global light vehicle production of around 3% with increases in China, North America, Europe and India while Brazil is expected to show a further sharp decline. Against this background, GKN Driveline and GKN Powder Metallurgy are expected to continue to grow organically above the market.

GKN Land Systems sales are expected to fall further due to softer agricultural and construction equipment markets.

Although the economic backdrop is uncertain and some of our markets remain challenging, 2016 is expected to be a year of good growth, helped by the contribution from Fokker.

Notes

(1) Financial information set out in this announcement, unless otherwise stated, is presented on a management basis as defined on page 14.

Cautionary Statement

This announcement contains forward looking statements which are made in good faith based on the information available at the time of its approval. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a number of risks and uncertainties that are inherent in any forward looking statement which could cause actual results to differ materially from those currently anticipated. Nothing in this document should be regarded as a profits forecast.

Further Enquiries

Analysts/Investors:

Guy Stainer, Investor Relations Director, GKN plc

T: +44 (0)207 463 2382

M: +44 (0)7739 778187

E: [email protected]

Media:

Chris Fox, Group Communications Director, GKN plc

T: +44 (0)1527 533238

M: +44 (0)7920 540051

E: [email protected]

Andrew Lorenz, FTI Consulting

T: +44 (0)203 727 1323

M: +44 (0)7775 641807

There will be an analyst and investor meeting today at 08.30am at UBS, Ground Floor Presentation Suite, 1 Finsbury Avenue, London EC2M 2PP.

A live videocast of the presentation will be available at http://www.gkn.com/investorrelations/Pages/Webcasts.aspx.

Slides will be put onto the GKN website approximately 45 minutes before the presentation is due to begin, and will be available to download from the GKN website at: http://www.gkn.com/investorrelations/Pages/results-and-presentations.aspx?year=2015.

Questions will only be taken at the event.

A live dial in facility will be available by telephoning: +44 (0) 1452 555 566, Conf ID: 48695650

NEWS RELEASE

GKN plc Results Announcement for the year ended 31 December 2015

Group Overview

Markets

The Group operates in the global aerospace, automotive and land systems markets. GKN Aerospace sells to manufacturers of commercial and military aircraft, aircraft engines and equipment. In the automotive market, GKN Driveline sells to manufacturers of passenger cars and light vehicles. Around 80% of GKN Powder Metallurgy sales are also to the automotive market, with the balance to other industrial customers. GKN Land Systems sells to producers of agricultural, industrial and construction equipment and to the automotive and commercial vehicle sectors.

Results

Organic sales increased £179 million (2%). The adverse effect of currency translation on management sales was £4 million and there was a £116 million benefit from acquisitions which was partly offset by a £58 million reduction due to disposals.

Overall organic trading profit reduced by £1 million. There was a benefit from currency translation of £18 million and a £25 million reduction due to acquisitions and divestments.

Group trading margin reduced to 8.8% (2014: 9.2%) primarily due to the costs of acquiring Fokker. Return on average invested capital (ROIC) increased to 17.8% (2014: 17.7%), excluding Fokker which has not been owned for a full 12 month period.

Divisional Performance

GKN Aerospace

GKN Aerospace is a leading global tier one supplier of airframe and engine structures, landing gear, electrical interconnection systems, transparencies and aftermarket services. It supplies products and services to a wide range of commercial and military aircraft and engine prime contractors and other tier one suppliers.

The overall aerospace market remained positive in 2015 driven by a growing commercial aircraft market partly offset by a declining military market. The division's commercial sales were 75%, with military representing 25%.

In commercial, both Airbus and Boeing continued to benefit from higher deliveries and a record order backlog, and both have announced plans to increase production levels for single aisle aircraft in the future. The short term outlook for wide-body aircraft is mixed with A330 and Boeing 777 rate reductions projected in advance of their next generation successors, while the A350 continues to ramp-up to full rate production. Military sales are projected to decline in the short term with this sector stabilising over the mid-term as the F-35 continues to ramp up its production rate.

The key financial results for the year are as follows:

Overall, GKN Aerospace's organic sales were £49 million higher (2%). There was a £111 million (5%) benefit from currency translation and sales from acquisitions amounted to £114 million (5%).

Trading profit was £273 million (2014: £277 million). There was a favourable currency translation impact of £16 million, the organic reduction in trading profit was £1 million and the reduction in profit from acquisitions was £19 million, including £18 million in relation to Fokker. As highlighted at the half year, GKN Aerospace made further progress on an onerous contract, which resulted in a full year benefit of £22 million, and warranty claims were resolved favourably resulting in a credit of £8 million; partly offset by £5 million of restructuring charges.

Organic commercial aerospace sales were 6% higher, benefiting from stronger orders for the A350, business jets, Boeing 737 and Boeing 787 partly offset by a reduction in A330 production. Military organic sales were 9% lower, primarily due to the ending of the C-17 programme and lower sales for F/A-18 Super Hornet and UH-60 Black Hawk helicopter.

Overall, organic profits in GKN Aerospace held steady year on year. Progress was made on the A350, with units delivered late in the year moving into profit, as planned. Early production of the work that was won following the Sheets acquisition was encouraging. Profits were negatively impacted by the reduction in mature commercial and military programmes.

The integration of Fokker Technologies, acquired on 28 October 2015, is proceeding well. It added sales of £113 million. The losses of £18 million included £13 million of deal and integration costs and £5 million of restructuring costs, planned prior to the acquisition by GKN Aerospace. These are separate to the €50 million (£35 million) of restructuring costs which were announced at the time of the acquisition and are expected to be charged in 2016, although excluded from Management profits.

During the year, new work packages won exceeded $3.5 billion over their contract lives and a number of important milestones were achieved, including:

· The acquisition of Sheets Manufacturing Inc. on 8 June 2015, a technology leader in the manufacture of aircraft engine inlet lip skins with legacy programme positions on the Boeing 747-8 and KC-46 tanker. This acquisition will support GKN Aerospace on the contract awarded for engine inlet lip skins for the Boeing 737Max and Boeing 777X, and work to assemble the Section 47 floor grid for the Boeing 787;

· Agreeing a new (US$650 million) risk and revenue sharing partnership (RRSP) with Pratt & Whitney covering the supply of components for the PurePower® PW1400-JM Geared Turbofan™ engine for the Irkut MC-21 mid-range, single aisle aircraft;

· The Filton facility being awarded 'Accredited Member' status by Airbus, the highest level of recognition by the Airbus supply chain and quality improvement programme (SQIP); and

· Entering into a strategic partnership with Arcam AB to develop and industrialise one of the most promising new additive manufacturing (AM) processes to meet the needs of the expanding future aerospace market. Production orders were received for AM parts flying on production aircraft.

Automotive market

The major automotive markets of China, Europe, North America and India increased production in 2015 compared to 2014, while Japan and Brazil declined. Overall, global production volumes increased by 1.4% to 88.6 million vehicles (2014: 87.4 million).

Source: IHS Automotive; (#) Growth is derived from unrounded production figures

Production in Europe showed an improvement compared with 2014 due to recovery in demand in Western Europe being partly offset by the decline in Russia.

Production in North America benefitted from improved consumer confidence and localisation of foreign manufacturers' capacity. Cheap credit and the low price of fuel also had a positive impact on demand and production especially for full-size pickups and SUVs. The deteriorating economy in Brazil caused vehicle manufacturers to cut back on production and align it with the significant fall in vehicle sales.

Production growth in China eased as the economy slowed, with particular volatility in the third quarter, but was helped in the final quarter by a sales tax cut for small cars. Production in India increased as a result of a better economic outlook. Weak production in Japan resulted from a tough comparator in the first half of 2014 and a slump in mini-vehicle demand due to a tax rise.

External forecasts anticipate global production in 2016 will increase 3.1% to 91.4 million vehicles.

GKN Driveline

GKN Driveline is the world's leading supplier of automotive driveline systems and solutions. As a global business serving the leading vehicle manufacturers, it develops, builds and supplies an extensive range of automotive driveline products and systems - for use in everything from the smallest low-cost car to the most sophisticated premium vehicle demanding complex driving dynamics.

The key financial results for the year are as follows:

Organic sales increased by £173 million (5%) compared with global light vehicle production which was up 1%. The adverse effect of currency translation was £69 million (2%). Constant Velocity Jointed (CVJ) Systems accounted for 60% of sales and non-CVJ sales were 40%. 

The organic improvement in trading profit was £8 million reflecting higher volumes in Europe. Profit conversion was limited by lower profitability in Japan and Brazil. The positive impact of currency translation on trading profit was £2 million.

GKN Driveline's market outperformance was mainly in Europe reflecting recent market share gains. A stronger position in premium vehicles, demand for which continued to be positive, and GKN Driveline's broadening product mix, particularly with all-wheel drive (AWD) systems such as for the Fiat 500X, Jeep Renegade and Volvo XC90. GKN Driveline performed broadly in line with the market in North America (reflecting its lower content on truck-based platforms) and slightly below the market in China (recognising its greater exposure to global brands, which performed less strongly than domestic producers, and negative pricing).

The Americas operations were impacted by the Brazil market although capacity there was utilised to support growth in other plants. European plants were running at very high capacity with a strong conversion on the additional sales. In China, after the volatility in the third quarter, the business had a better end to the year.

During the year, around £880 million of annualised sales in new and replacement business was secured and a number of important milestones achieved, including:

· Being selected by Volvo Cars to be their development partner on the front-wheel drive, AWD and hybrid drivelines of the all-new Volvo XC90;

· Becoming the first global Tier One supplier to design, develop and manufacture a complete AWD system in China. GKN Driveline supplies the complete AWD to SAIC Motors' new MG GS compact SUV, as well as the front wheel-drive system;

· Winning an Automotive News PACE award for its two-speed eAxle technology, showcased on the class-redefining BMW i8 plug-in hybrid supercar;

· Expanding production facilities in Mexico, Turkey, Poland, Thailand and Chongqing, China and opening a state-of-the-art engineering facility at MIRA Technology Park, UK to test and develop the driveline technologies of the future; and

· GKN Driveline Brazil being awarded Toyota's prestigious South America Supplier Quality Excellence Award for the second year in a row.

GKN Powder Metallurgy

GKN Powder Metallurgy comprises GKN Sinter Metals and Hoeganaes. GKN Sinter Metals is the world's leading manufacturer of precision automotive sintered components as well as components for industrial and consumer applications. Hoeganaes is one of the world's leading manufacturers of metal powder, the essential raw material for powder metallurgy.

The key financial results for the year are as follows:

Organic sales were £2 million higher, after the £23 million pass through to customers of lower steel prices and other surcharges. There was an adverse £5 million (1%) impact from currency translation and there was a £7 million decline as a result of the disposal of GKN Sinter Argentina.

Underlying growth (before raw material pass through) was 3%, ahead of global light vehicle production which was up 1%. Underlying sales growth was achieved in North America, China and Europe but sales in Brazil fell sharply due to weaker automotive and industrial markets.

The organic increase in profit was £6 million and there was a £2 million gain from currency translation.

The divisional trading margin was 12.0% (2014: 11.0%), reflecting the move towards higher value "design for powder metallurgy" parts and a small margin benefit from lower raw material prices passed through to customers.

During the year, GKN Powder Metallurgy achieved a number of important milestones, which included:

· Winning around £185 million of annualised sales in new and replacement business;

· Its position in China being further enhanced by forming a new venture to produce metal powders, subject to approvals; and

· Development of new technically enhanced powders continuing with a new research titanium atomizer being commissioned at the Powder Innovation Centre, in the USA and the attainment of AS9100 Certification for the AncorTi™ range of gas atomized titanium powders for aerospace applications.

GKN Land Systems

GKN Land Systems is a leading supplier of power management products and services. It designs, manufactures and supplies products and services for the agricultural and construction markets and key industrial segments, offering integrated powertrain solutions and complete in-service support.

Sales in GKN Land Systems were lower than the prior year primarily due to a significant decline in agricultural equipment markets. Demand for construction equipment was also weaker while industrial sales were slightly down.

The key financial results for the year are as follows:

The organic decrease in sales was £44 million (6%) and the adverse impact of currency translation was £39 million (5%).

The organic decrease in trading profit was £18 million, which includes £11 million of restructuring charges. £5 million of the restructuring charges relate to two chassis contracts which end during 2016, reducing sales by £25 million in 2016. The negative impact of currency translation was £2 million (5%).

Trading margin was 5.1% (2014: 5.7%), excluding restructuring charges.

2015 was a year dominated by tough market conditions which impacted trading and necessitated restructuring actions to right size the business for the future. Good progress was made to further develop capabilities and expand the product portfolio in Taicang, China. In addition, new technology such as integrated continuous slip clutches, hot induction forming wheels and synergy driveshafts is winning new business and new services, such as one for condition monitoring industrial shafts, focus on niche, low capital opportunities with specific customers. During the year around £110 million of annualised sales in new and replacement business was won, helping to ensure GKN Land Systems is outperforming the market.

Other Businesses and corporate costs

GKN's Other Businesses comprise Cylinder Liners (which is a 59% owned venture mainly in China, manufacturing engine liners for the truck market in the US, Europe and China), EVO eDrive Systems (a developer of axial flux motors) and GKN Hybrid Power (a flywheel energy storage and hybrid system manufacturer), acquired on 1 April 2014. During the year, GKN Hybrid Power delivered its innovative fuel-saving solution for 45 buses.

GKN's Other Businesses reported combined sales in the year of £42 million (2014: £94 million). The change reflects a £1 million organic decrease in sales, the £51 million impact from the disposal of Emitec on 31 July 2014 and £2 million adverse currency translation impact more than offsetting the £2 million benefit from acquisitions. Trading profit was £1 million (2014: £5 million profit) reflecting the disposal of Emitec and the start-up costs of GKN Hybrid Power.

Corporate costs, which comprise the costs of stewardship of the Group and operating charges and credits associated with the Group's legacy businesses, were £18 million (2014: £20 million), primarily due to a £7 million past service credit following completion of a Pension Increase Exchange exercise in the UK partly offset by a £5 million charge relating to an environmental matter in a legacy business.

Other Financial Information

Items excluded from management trading profit

In order to achieve consistency and comparability between reporting periods the following items are excluded from management measures as they do not reflect trading activity:

Change in value of derivative and other financial instruments

The change in value of derivative and other financial instruments during the year resulted in a loss of £122 million (2014: £209 million loss).

When the business wins long term customer contracts that are in a foreign currency, the Group offsets the potential volatility of the future cash flows by hedging through forward foreign currency exchange contracts. At each period end, the Group is required to mark to market these contracts even though it has no intention of closing them out in advance of their maturity dates.

At 31 December 2015, the net fair value of such instruments was a liability of £351 million (2014: £180 million) and the change in fair value during the year was a £103 million charge (2014: £232 million charge). During the year £68 million of liabilities in the form of forward currency contracts were taken on via the acquisition of Fokker.

There was also a £1 million credit arising from the change in fair value of embedded derivatives in the year (2014: £4 million credit) and a net loss of £20 million attributable to the currency impact on Group funding balances (2014: £19 million net gain).

Amortisation of non-operating intangible assets arising on business combinations

The charge for amortisation of non-operating intangible assets arising on business combinations (for example, customer contracts, order backlog, technology and intellectual property rights) was £80 million (2014: £69 million).

Gains and losses on changes in Group structure

The net loss on changes in Group structure was £1 million (2014: £24 million gain).

On 30 January 2015, the Group sold GKN Sinter Metals Argentina SA for a cash consideration of £1 million before professional fees. The loss on sale of £5 million comprises a £1 million loss on disposal of net assets and £4 million loss from reclassification of previous currency variations from other reserves.

During the year, following reassessment of fair value, £4 million of contingent consideration related to a previous acquisition was released to the income statement.

Impairment charges

Consistent with previous years, goodwill and cash generating units were tested for impairment. As a result of difficult markets and reduced sales of certain products during the year an impairment charge of £71 million (2014: £69 million) has been recorded in respect of four cash generating units; two in Aerospace, one in Powder Metallurgy and one in Other Businesses.

Reversal of inventory fair value adjustment arising on business combinations

The inventory fair value adjustment of £12 million arising on the acquisition of Fokker was reversed in full before the year end.

Post-tax earnings of equity accounted investments

On a management basis, the sales and trading profits of equity accounted investments are included pro-rata in the individual divisions to which they relate, although shown separately post-tax in the statutory income statement.

The Group's share of post-tax earnings on a management basis was £59 million (2014: £62 million), with trading profit of £70 million (2014: £75 million). The Group's share of the tax and interest charges amounted to £11 million (2014: £13 million). Trading profit decreased £5 million, reflecting more challenging market conditions for our equity accounted investment companies, primarily in China.

Net financing costs

Net financing costs totalled £137 million (2014: £129 million) and comprise the net interest payable of £65 million (2014: £73 million), the non-cash charge on post-employment benefits of £49 million (2014: £50 million), charges from fair value changes on cross currency interest rate swaps of £17 million (2014: £3 million credit) and charge for unwind of discounts of £6 million (2014: £9 million). The non-cash charge on post-employment benefits, fair value changes on cross currency interest rate swaps and unwind of discounts are not included in management figures. Details of the assumptions used in calculating post-employment costs are provided in note 24.

Interest payable was £72 million (2014: £75 million), whilst interest receivable was £7 million (2014: £2 million) including £4 million of interest from recoveries on a tax case resulting in net interest payable of £65 million (2014: £73 million).

Interest charged on Government refundable advances was £3 million (2014: £7 million).

Profit before tax

Management profit before tax was £603 million (2014: £601 million). Profit before tax on a statutory basis was £245 million (2014: £221 million). The main differences between management and statutory figures for 2015 are the change in value of derivative and other financial instruments, amortisation of non-operating intangible assets arising on business combinations, gains and losses on changes in Group structure and the fair value charges on cross currency interest rate swaps. Further details are provided in note 3 to the financial statements.

Taxation

The book tax rate on management profits of subsidiaries was 24% (2014: 22%), arising as a £133 million tax charge (2014: £121 million) on management profits of subsidiaries of £544 million (2014: £539 million).

The book tax rate is significantly lower than the theoretical weighted average tax rate, largely because of the utilisation of deferred tax assets, movements in tax risk provisions as outstanding issues are settled and tax on items excluded from management profit.

The tax rate on statutory profits of subsidiaries was 23% (2014: 29%) arising as a £43 million tax charge (2014: £47 million charge) on statutory profits of subsidiaries of £186 million (2014: £160 million).

Non-controlling interests

The profit attributable to non-controlling interests was £5 million (2014: £5 million).

Earnings per share

Management earnings per share was 27.8 pence (2014: 29.0 pence). Average shares outstanding in 2015 were 1,674.1 million (2014: 1,640.6 million).

On a statutory basis earnings per share was 11.8 pence (2014: 10.3 pence), higher primarily due to the year on year reduction in losses on mark to market of foreign exchange hedging contracts.

Dividend

In view of the Group's future prospects, the Board has decided to recommend a final dividend of 5.8 pence per share (2014: 5.6 pence per share). The total dividend for the year will, therefore, be 8.7 pence per share (2014: 8.4 pence per share). The Group's objective is to have a progressive dividend policy reflecting growth in earnings per share and free cash flow generation. The final dividend is payable on 16 May 2016 to shareholders on the register on 8 April 2016. Shareholders may choose to use the Dividend Reinvestment Plan (DRIP) to reinvest the final dividend. The closing date for receipt of new DRIP mandates is 22 April 2016.

Cash flow

Operating cash flow, which is defined as cash generated from operations of £885 million (2014: £765 million) adjusted for capital expenditure (net of proceeds from capital grants) of £411 million (2014: £403 million), proceeds from the disposal/realisation of fixed assets of £9 million (2014: £19 million), was an inflow of £483 million (2014: £343 million). Included in 2014 operating cash flow is the repayment of principal for a UK government refundable advance of £38 million.

Cash generated from operations includes movements in working capital and provisions totalling a net inflow of £82 million (2014: £33 million outflow). In 2015, the improvement of £115 million was primarily as a result of a substantial one-off customer advance, the VAT on which was repaid in 2016.

Capital expenditure (net of proceeds from capital grants) on both tangible and intangible assets totalled £411 million (2014: £403 million). Of this, £330 million (2014: £328 million) was on tangible fixed assets and was 1.5 times (2014: 1.5 times) the depreciation charge. Expenditure on intangible assets, mainly initial non-recurring costs on Aerospace programmes, totalled £81 million (2014: £75 million).

The Group invested £157 million in the year (2014: £161 million) on research and development activities not qualifying for capitalisation, net of customer and government funding.

Net interest paid totalled £54 million (2014: £83 million, including £16 million of previously accrued interest on a government refundable advance). Tax paid in the year was £111 million (2014: £68 million).

Free cash flow

Free cash flow, which is operating cash flow including equity accounted investment dividends and after interest, tax, amounts paid to non-controlling interests but before dividends paid to GKN shareholders, was an inflow of £370 million (2014: £234 million). The year on year change reflects improvements in working capital in addition to the repayment of a government refundable advance in 2014.

Net debt

At the end of the year, the Group had net debt of £769 million (2014: £624 million after payment of a government refundable advance (including accrued interest) of £54 million). In September 2014, the Group entered into a series of cross currency interest rate swaps to better align its foreign currency income receipts with its debt coupon payments. The fair value of these derivative instruments at 31 December 2015 was a liability of £69 million (2014: £26 million) which is included in the net debt figure of £769 million.

Pensions and post-employment obligations

GKN operates a number of defined benefit pension schemes and historic retiree medical plans across the Group.

At 31 December 2015, the total deficit on post-employment obligations of the Group totalled £1,558 million (2014: £1,711 million), comprising deficits on funded obligations of £1,007 million (2014: £1,095 million) and on unfunded obligations of £551 million (2014: £616 million). In total, the deficit decreased £153 million since 31 December 2014, primarily due to changes in the discount rates used, further deficit contributions and beneficial currency movements.

The amount included within trading profit for the year comprises current service cost of £50 million (2014: £49 million), administrative costs of £3 million (2014: £3 million) and a past service credit of £4 million (2014: settlement credit of £9 million). The interest charge on net defined benefit plans, which is excluded from management figures, was £49 million (2014: £50 million).

Cash contributions to the various defined benefit pension schemes and retiree medical arrangements totalled £100 million (2014: £108 million).

UK pensions

The accounting deficit for UK schemes decreased to £912 million (2014: £1,005 million), following continued cash contributions from the Group.

Both UK pension schemes underwent funding valuations as at 5 April 2013. The agreed deficit recovery plan requires payments of £10 million per year to the pension schemes combined.

Defined contribution pension schemes

In addition to defined benefit pension schemes, the Group also operates a number of defined contribution schemes for which the income statement charge was £42 million (2014: £35 million).

Net assets

Net assets of £1,886 million were £385 million higher than the December 2014 year end figure of £1,501 million. The increase is driven by management profit after tax of £470 million and a gain on remeasurement of defined benefit plans of £139 million which, in aggregate, more than offsets dividends paid to equity shareholders of £142 million and currency on translation of subsidiaries / equity accounted investments net of tax and the change in value of derivative and other financial instruments of £90 million.

Exchange rates

Exchange rates used for currencies most relevant to the Group's operations are:

The approximate impact on 2015 trading profit of subsidiaries and equity accounted investments of a 1% movement in the average rate would be euro - £1million, US dollar - £5 million.

Funding, liquidity and going concern

At 31 December 2015, UK committed bank facilities were £864 million (2014: £880 million). Within this amount there are committed revolving credit facilities of £800 million (2014: £800 million) and a £64 million (2014: £80 million) eight-year amortising facility from the European Investment Bank (EIB). The revolving credit facilities of £800 million mature in 2019, whilst the first of five equal, annual £16 million EIB repayments was paid this year. At 31 December 2015, £64 million of the EIB facility was drawn (2014: £80 million fully drawn) and there were no drawings on any of the UK revolving credit facilities (2014: no drawings).

Capital market borrowings at 31 December 2015 comprised a £350 million 6.75% annual unsecured bond maturing in October 2019 and a £450 million 5.375% semi-annual unsecured bond maturing in September 2022.

As at 31 December 2015, the Group had net debt of £769 million (2014: £624 million).

All of the Group's committed credit facilities have financial covenants requiring EBITDA of subsidiaries to be at least 3.5 times net interest payable and for net debt to be no greater than 3 times EBITDA of subsidiaries. The covenants are tested every six months using the previous 12 months' results. For the 12 months to 31 December 2015, EBITDA was 13.4 times greater than net interest payable, whilst net debt was 0.9 times EBITDA.

During 2014 the Group entered into a series of cross currency interest rate swaps to better align its foreign currency income receipts in USD and EUR with its debt and had the effect of converting its Sterling bonds into US Dollars ($951 million) and Euros (€284 million). The cross currency interest rate swaps have been designated as a net investment hedge of the Group's USD and EUR net assets. The fair value of the cross currency interest rate swaps at 31 December 2015 was a liability of £69 million (2014: £26 million).

The Directors have taken into account both divisional and Group forecasts for the 18 months from the balance sheet date to assess the future funding requirements of the Group and compared them to the level of committed available borrowing facilities, described above. The Directors have concluded that the Group will have a sufficient level of headroom in the foreseeable future and that the likelihood of breaching covenants in this period is remote, such that it is appropriate for the financial statements to be prepared on a going concern basis.

Definitions

Financial information set out in this announcement, unless otherwise stated, is presented on a management basis which aggregates the sales and trading profit of subsidiaries (excluding certain subsidiary businesses sold and closed) with the Group's share of the sales and trading profit of equity accounted investments. References to trading margins are to trading profit expressed as a percentage of sales. Management profit or loss before tax is management trading profit less net subsidiary interest payable and receivable and the Group's share of net interest payable and receivable and taxation of equity accounted investments. These figures better reflect performance of continuing businesses. Where appropriate, reference is made to organic results which exclude the impact of acquisitions/divestments as well as currency translation on the results of overseas operations. Operating cash flow is cash generated from operations adjusted for capital expenditure, government capital grants, proceeds from disposal of fixed assets and government refundable advances. Free cash flow is operating cash flow including interest, tax, equity accounted investment dividends and amounts paid to non-controlling interests, but excluding dividends paid to GKN shareholders. Return on average invested capital (ROIC) is management trading profit as a percentage of average total net assets of continuing subsidiaries and equity accounted investments excluding current and deferred tax, net debt, post-employment obligations and derivative financial instruments.

APPENDICES

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