GKN Aerospace Update

LEI: 213800QNZ22GS95OSW84

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION.

27 February 2018

GKN plc ("GKN")

GKN Aerospace: Generating value for decades to come

Introduction

On 14 February 2018, GKN announced details of its new strategy and transformation plan along with its cash improvement initiative ("Project Boost") and financial performance targets to the end of the financial year ending 31 December 2020.

Today, immediately following the presentation of GKN's results for the year ended 31 December 2017, the GKN Aerospace team will be presenting further details on the scale of the upside opportunity for GKN Aerospace, including its ability to deliver higher margins and cash flows through Project Boost. They will also be presenting on the attractive long-term cash flow profile of GKN's Aero Engine risk and revenue sharing partnerships ("RRSPs").

Boost for Aerospace

Boost for Aerospace is expected to deliver £160m of recurring annual cash benefit from the end of 2020 by focusing on manufacturing excellence, functional excellence, direct procurement cost savings and indirect procurement cost savings.1  

The GKN Aerospace team will be providing further details regarding the implementation of Boost during today's presentation, including explaining how Boost is underpinned by the adoption of an integrated Global Operating Model across the Aerospace business. In addition, they will update on the plan to improve performance at various US sites and will provide examples of the initiatives being undertaken to deliver procurement savings.

Aero Engine RRSP portfolio

GKN Aerospace is a global leader in the Aero Engines market. This position is built on GKN's technology leadership and balanced portfolio across civil, military and space end markets.

Approximately 60% of GKN Aero Engines revenue comes from its RRSP positions. GKN has positions on over 20 engine RRSP programmes. These positions have been built up over many years and reflect significant levels of historical investment. GKN's RRSP positions are expected to generate $146m2 of derived net cash inflow3 in 2018.

GKN's RRSP positions are positioned to deliver substantially increased cash flows for decades to come. All RRSP programmes in the current portfolio are expected to generate positive net cash flow by 2022 and in the period from 2018 to 2055, GKN expects its RRSP portfolio to generate $13.5bn4 of derived net cash flow.

ENDS

1 This statement includes a quantified financial benefits statement which has been reported on for the purposes of the City Code on Takeovers and Mergers (the "City Code") (see Appendix 3). This does not take account of any relevant proportion of one-off associated incentive payments, which are estimated to be, in aggregate, in the region of £70m (to be satisfied in GKN ordinary shares) and which have not been reported on for the purposes of the City Code. Excludes impact of potential disposals.

2 This statement includes a cash flow forecast which the Takeover Panel has determined is to be treated as a "profit forecast" under Rule 28.1(a) of the City Code (see Appendix 2).

3 RRSP derived net cash flows are calculated by taking net receipts from partners less attributable direct and indirect costs of programme participation less allocated selling, general and administration expenses and after taking account of movements in associated working capital and directly attributable capital expenditure.

 4 This statement has been calculated from cash flow forecasts which the Takeover Panel has determined are to be treated as "profit forecasts" under Rule 28.1(a) of the City Code and which have been reported on (in respect of the forecast for 2018) or confirmed by the directors (in respect of the forecasts for 2019-2055) in accordance with the City Code (see Appendix 2).

Contacts:

GKN plc

Guy Stainer, Investor Relations Director

Tel: +44 (0)20 7463 2382

FTI Consulting

Andrew Lorenz / Richard Mountain

Tel: +44 (0)203 727 1340

Gleacher Shacklock (Financial Adviser to GKN plc)

Tim Shacklock, Dominic Lee, Tom Quinn

Tel: +44 (0)20 7484 1150

J.P. Morgan Securities plc (Financial Adviser and Corporate Broker to GKN plc)

Robert Constant, Dwayne Lysaght, Stephen Smith

Tel: +44 (0)20 7742 4000

UBS (Financial Adviser and Corporate Broker to GKN plc)

Hew Glyn Davies, James Robertson, Jonathan Retter

Tel: +44 (0)20 7567 8000

Publication on a website

In accordance with Rule 26.1 of the City Code, a copy of this announcement will be published on the GKN website (www.gkn.com) by no later than 12 noon on the business day following this announcement. The content of the website referred to in this announcement is not incorporated into and does not form part of this announcement.

Analyst and investor meeting and conference call

There will be an analyst and investor meeting today at 08.45am at UBS, 5 Broadgate, London, EC2M 2QS in the Auditorium located on the ground floor.

A live videocast of today's presentation will be available at http://lps.ggwebcast.com/gkn/35

Slides will be put onto the GKN website approximately 60 minutes before the presentation is due to begin, and will be available to download from the GKN website at: www.gkn.com

A live dial in facility will be available by telephoning: +44 (0) 2071 928000, Conf ID: 8298024

Following the event, a replay of the conference call will be uploaded onto the GKN website and the on-demand archive webcast will be available via www.gkn.com

Note: Questions will only be taken at the event and the webcast and dial in facility will be turned off before the Q&A session commences.

Further information

This announcement is not intended to, and does not, constitute or form part of any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities whether pursuant to this announcement or otherwise.

The distribution of this announcement in jurisdictions outside the United Kingdom may be restricted by law and therefore persons into whose possession this announcement comes should inform themselves about, and observe, such restrictions. Any failure to comply with the restrictions may constitute a violation of the securities law of any such jurisdiction.

Gleacher Shacklock, which is authorised and regulated by the Financial Conduct Authority in the United Kingdom, is acting exclusively as financial adviser to GKN and no one else in connection with the matters set out in this announcement and will not be responsible to anyone other than GKN for providing the protections afforded to clients of Gleacher Shacklock or for providing advice in connection with the subject matter of this announcement or any other matter referred to herein.

J.P. Morgan Securities plc (which conducts its UK investment banking business as J.P. Morgan Cazenove) ("J.P. Morgan Cazenove") is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom. J.P. Morgan Cazenove is acting exclusively as financial adviser to GKN and no one else in connection with the matters set out in this announcement and will not regard any other person as its client in relation to the matters set out in this announcement and will not be responsible to anyone other than GKN for providing the protections afforded to clients of J.P. Morgan Cazenove or its affiliates, nor for providing advice in relation to any matter referred to herein.

UBS is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom. UBS is acting exclusively as financial adviser to GKN and no one else for the purpose of the consideration of a proposed acquisition by Melrose and will not be responsible to anyone other than GKN for providing the protections offered to clients of UBS nor for providing advice in relation to the subject matter of this announcement or any transaction, arrangement or other matter referred to herein.

No profit forecasts or estimates

Other than the Cash Flow Estimate, which as referred to in Appendix 2 has been reported on as a "profit estimate" for the purposes of the City Code, the Cash Flow Forecast, which as referred to in Appendix 2 has been reported on as a "profit forecast" for the purposes of the City Code, and the Long-Run Cash Flow Forecast, which as referred to in Appendix 2 has been confirmed by the directors as a "profit forecast" for the purposes of the City Code, no statement in this announcement is to be treated as or is intended to be a profit forecast or estimate for any period. For the purposes of Rule 28 of the City Code, the Cash Flow Estimate, the Cash Flow Forecast and the Long-Run Cash Flow Forecast are the responsibility of GKN and the directors of GKN (the "Directors").

Quantified Financial Benefits Statement

The Quantified Financial Benefits Statement referred to in Appendix 3 relates to future actions and circumstances which, by their nature, involve risks, uncertainties and contingencies and which may in some cases be subject to consultation with employees or their representatives. The targets, cost savings and efficiency gains referred to may not be achieved, or may be achieved later or sooner than estimated, or those achieved could be materially different from those estimated. For the purposes of Rule 28 of the City Code, the Quantified Financial Benefits Statement is the responsibility of GKN and the Directors.

Disclosure requirements of the City Code

Under Rule 8.3(a) of the City Code, any person who is interested in 1% or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any securities exchange offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time) on the 10th business day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the City Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s), save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the business day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. You should contact the Panel's Market Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.

APPENDIX 1

Further details of GKN's RRSP positions

Overview of GKN's current RRSP positions

Derived net cash flows from GKN RRSP portfolio (actual and forecast)6

5 Reflects RRSP programme start date

6 The 2017 derived net cash flow from GKN RRSP portfolio contains a cash flow estimate which has been reported on as a profit estimate for the purposes of the City Code (see Appendix 2). The 2018 derived net cash flow from RRSP portfolio contains a cash flow forecast which has been reported on as a profit forecast for the purposes of the City Code (see Appendix 2). The projected figures for derived net cash flow from GKN RRSP portfolio for 2019-2055 contain cash flow forecasts which have been confirmed by the directors of GKN as a profit forecast for the purposes of the City Code and for which the Takeover Panel has granted a dispensation from the requirement to report on because they are for financial periods ending more than 15 months from the date on which they were first published (see Appendix 2).

APPENDIX 2

PART A

CASH FLOW ESTIMATE AND CASH FLOW FORECAST

The Directors estimate that the RRSP derived net cash inflow for the year ended 31 December 2017 is $165 million (the "Cash Flow Estimate").

The Directors forecast that the RRSP derived net cash inflow for the year ending 31 December 2018 will be $146 million (the "Cash Flow Forecast").

The Directors forecast that the RRSP derived net cash inflow for the years ending 31 December 2019-2055 will be as set out in the relevant cells of the table titled "Derived net cash flows from GKN RRSP portfolio" in Appendix 1 to this announcement (the "Long-Run Cash Flow Forecast").

RRSP derived net cash flows are calculated by taking net receipts from partners less attributable direct and indirect costs of programme participation less allocated selling, general and administration expenses and after taking account of movements in associated working capital and directly attributable capital expenditure.

Basis of preparation and principal assumptions

Cash Flow Estimate

The Cash Flow Estimate for the 12 months ended 31 December 2017 is based on information from GKN's management information system.

The RRSPs included in the Cash Flow Estimate comprise commercial agreements on engine programmes entered into as detailed in Appendix 1 to this announcement.

Cash Flow Forecast and Long-Run Cash Flow Forecast

The RRSPs included in the Cash Flow Forecast and Long-Run Cash Flow Forecast comprise commercial agreements on engine programmes entered into as detailed in Appendix 1 to this announcement.

The Cash Flow Forecast and the Long-Run Cash Flow Forecast are based on the RRSP models developed and maintained by Aerospace Management and utilised by the Directors to perform impairment assessments on net intangible assets.

The SEK/USD rate used is 8.05.

The Directors have prepared the Cash Flow Forecast and the Long-Run Cash Flow Forecast on the basis of the following assumptions which are outside of the influence or control of the GKN Board and could turn out to be incorrect and therefore affect whether the Cash Flow Forecast and/or the Long-Run Cash Flow Forecast can be achieved:

there will be no fundamental change in the political or economic environment in which GKN's customers and suppliers operate;

there will be no business disruptions that materially affect GKN's Aerospace operations or its key customers and suppliers;

there will be no material deviation in engine deliveries and aftermarket demand from the latest forecasts provided by the RRSP's to GKN;

there will be no adverse impact on GKN's production as a result of supplier disruption or non-conformance;

customers operate within contractual credit terms.

Reports and Directors' confirmation

The Takeover Panel has determined that the Cash Flow Estimate and Cash Flow Forecast be treated as a "profit estimate" and a "profit forecast", respectively, under Rule 28.1(a) of the City Code. KPMG LLP, as reporting accountant to GKN, and Gleacher Shacklock LLP, J.P. Morgan Securities plc and UBS Limited, as financial advisers to GKN, have provided a report in respect of the Cash Flow Estimate and the Cash Flow Forecast as required under that Rule.

Copies of these reports are included in Parts B and C of this Appendix 2. Each of KPMG LLP, Gleacher Shacklock LLP, J.P. Morgan Securities plc and UBS Limited has given and has not withdrawn its consent to the inclusion of its report in the form and context in which it is included.

The Takeover Panel has determined that the Long-Run Cash Flow Forecast be treated as a "profit forecast" under Rule 28.1(a) of the City Code. However, in accordance with Rule 28.2 of the City Code, the Takeover Panel has granted GKN a dispensation from the requirement to include reports from reporting accountants and GKN's financial advisers in relation to the Long-Run Cash Flow Forecast because it is for a financial period ending more than 15 months from the date of this announcement, which is the date on which it is first published.

The Directors confirm that the Long-Run Cash Flow Forecast has been properly compiled on the basis of the assumptions stated above.

PART B

ACCOUNTANT'S REPORT ON PROFIT ESTIMATE AND PROFIT FORECAST

The DirectorsGKN plcPO Box 55Ipsley HouseIpsley Church LaneRedditchWorcestershireB98 0TL

Gleacher Shacklock LLPCleveland House33 King StreetLondon SW1Y 6RJ

J.P.Morgan Securities plc25 Bank StreetCanary WharfLondon E14 5JP

UBS Limited5 BroadgateLondon EC2M 2QS

27 February 2018

Ladies and Gentlemen

GKN plc

We report on (i) the cash flow estimate comprising the estimate of RRSP derived net cash inflow of GKN plc ('the Company') and its subsidiaries ('the Group') for the year ended 31 December 2017 (the 'Cash Flow Estimate') and (ii) the cash flow forecast comprising the forecast of RRSP derived net cash inflow of the Group for the year ending 31 December 2018 (the 'Cash Flow Forecast').

The Cash Flow Estimate and the basis on which it is prepared and the Cash Flow Forecast, and the material assumptions upon which it is based, are set out in Appendix 2 Part A of the announcement entitled "Aerospace: Generating value for decades to come" (the 'Announcement') dated 27 February 2018. The Takeover Panel has determined that the Cash Flow Estimate and Cash Flow Forecast be treated as a "profit estimate" and "profit forecast" under Rule 28.1(a) of the City Code.

This report is required by Rule 28.1 of The City Code on Takeovers and Mergers ('the City Code') and is given for the purpose of complying with that rule and for no other purpose. Accordingly, we assume no responsibility in respect of this report to the offeror or to any person connected to, or acting in concert with, the offeror, or to any other person who is seeking or may in future seek to acquire control of the Company ('an Alternative Offeror') or to any person connected to, or acting in concert with, an Alternative Offeror.

Responsibilities

It is the responsibility of the directors of the Company ('the Directors') to prepare the Cash Flow Estimate and Cash Flow Forecast in accordance with the requirements of the City Code. In preparing the Cash Flow Estimate and the Cash Flow Forecast the Directors are responsible for correcting errors that they have identified which may have arisen in unaudited financial results used as the basis of preparation of the Cash Flow Estimate and the Cash Flow Forecast.

It is our responsibility to form opinions as required by the City Code as to the proper compilation of the Cash Flow Estimate and the Cash Flow Forecast and to report those opinions to you. 

Save for any responsibility which we may have to those persons to whom this report is expressly addressed, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statements, required by and given solely for the purposes of complying with Rule 23.2 of the City Code, consenting to its inclusion in the Announcement.

Basis of preparation of the Cash Flow Estimate

The Cash Flow Estimate has been prepared on the basis stated in Appendix 2 Part A of the Announcement and is based on the unaudited financial results for the year ended 31 December 2017. 

Basis of preparation of the Cash Flow Forecast

The Cash Flow Forecast has been prepared on the basis stated in Appendix 2 Part A of the Announcement and is based on a forecast for the year ending 31 December 2018. 

Basis of opinion in relation to the Cash Flow Estimate

We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. Our work on the Cash Flow Estimate included evaluating the basis on which the historical financial information for the twelve months to 31 December 2017 included in the Cash Flow Estimate has been prepared and considering whether the Cash Flow Estimate has been accurately computed using that information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with reasonable assurance that the Cash Flow Estimate has been properly compiled on the basis stated.

However, the Cash Flow Estimate has not been audited. The actual results reported, therefore, may be affected by the impact of unforeseen events and the correction of errors in the unaudited financial statements. Consequently, we can express no opinion as to whether the actual results achieved will correspond to those shown in the Cash Flow Estimate and the difference may be material.

Basis of opinion in relation to the Cash Flow Forecast

We conducted our work in accordance with Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. Our work included considering whether the Cash Flow Forecast has been accurately computed based upon the disclosed. Whilst the assumptions upon which the Cash Flow Forecast are based are solely the responsibility of the Directors, we considered whether anything came to our attention to indicate that any of the assumptions adopted by the Directors which, in our opinion, are necessary for a proper understanding of the Cash Flow Forecast have not been disclosed or if any material assumption made by the Directors appears to us to be unrealistic.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with reasonable assurance that the Cash Flow Forecast has been properly compiled on the basis stated.

Since the Cash Flow Forecast and the assumptions on which it is based relate to the future and may therefore be affected by unforeseen events, we can express no opinion as to whether the actual results reported will correspond to those shown in the Cash Flow Forecast and differences may be material.

Our work in relation to the Cash Flow Estimate and the Cash Flow Forecast has not been carried out in accordance with auditing or other standards and practices generally accepted in the United States of America or other jurisdictions and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices. We have not consented to the inclusion of this report and our opinion in any registration statement filed with the SEC under the US Securities Act of 1933 (either directly or by incorporation by reference) or in any offering document enabling an offering of securities in the United States (whether under Rule 144A or otherwise). We therefore accept no responsibility to, and deny any liability to, any person using this report and opinion in connection with any offering of securities inside the United States of America or who makes a claim on the basis they had acted in reliance on the protections afforded by United States of America law and regulation.

Opinions

In our opinion the Cash Flow Estimate has been properly compiled on the basis stated.

In our opinion the Cash Flow Forecast has been properly compiled on the basis stated.

Yours faithfully

KPMG LLP

PART C

REPORT FROM GLEACHER SHACKLOCK LLP, J.P. MORGAN SECURITIES PLC AND UBS LIMITED

The Board of Directors (the "Directors")GKN plcPO Box 55Ipsley HouseIpsley Church LaneRedditchWorcestershireB98 0TL

27 February 2018

Dear Ladies and Gentlemen,

We refer to: (i) the cash flow estimate comprising an estimate of RRSP derived net cash inflow of GKN plc ("GKN") and its subsidiaries (together the "Group") for the year ended 31 December 2017 (the "Cash Flow Estimate"); and (ii) the cash flow forecast comprising a forecast of RRSP derived net cash inflow of the Group for the year ending 31 December 2018 (the "Cash Flow Forecast"). The Cash Flow Estimate and the Cash Flow Forecast, and the basis on which they are prepared, are set out in Part A of Appendix 2 to the announcement entitled "GKN Aerospace: Generating value for decades to come" dated 27 February 2018 (the "Announcement"), for which the Directors are solely responsible under Rule 28.3 of the City Code on Takeovers and Mergers (the "City Code").

We have discussed the Cash Flow Estimate and the Cash Flow Forecast (including the bases and assumptions on which they are made), with the Directors and those officers and employees of GKN who prepared the unaudited financial results for the year ended 31 December 2017 and the forecast to 31 December 2018. The Cash Flow Estimate and Cash Flow Forecast are both subject to uncertainty as described in the Announcement and our work did not involve an independent examination, or verification, of any of the financial or other information underlying the Cash Flow Estimate or the Cash Flow Forecast.

We have relied upon the accuracy and completeness of all the financial and other information provided to us by or on behalf of GKN, or otherwise discussed with or reviewed by us, in connection with the Cash Flow Estimate and/or the Cash Flow Forecast, and we have assumed such accuracy and completeness for the purposes of providing this letter.

We do not express any view as to the achievability of the Cash Flow Estimate and/or the Cash Flow Forecast, whether on the basis identified by the Directors in the Announcement, or otherwise.

We have also reviewed the work carried out by KPMG LLP ("KPMG") on the Cash Flow Estimate and the Cash Flow Forecast and have discussed with KPMG its opinion addressed to you and us on this matter and which is set out in Part B of Appendix 2 to the Announcement.

On the basis of the foregoing, we consider that the Cash Flow Estimate and the Cash Flow Forecast, for which the Directors are solely responsible, have been prepared with due care and consideration.

This letter is provided to you solely having regard to the requirements of, and in connection with, Rule 28.1(a)(ii) of the City Code and for no other purpose. We accept no responsibility to GKN, its shareholders or to any person other than the Directors in respect of the contents of this letter. We are acting exclusively as financial advisers to GKN and no one else and it was for the purpose of complying with Rule 28.1(a)(ii) of the City Code that GKN requested us to prepare this letter relating to the Cash Flow Estimate and the Cash Flow Forecast. No person other than the Directors can rely on the contents of, or the work undertaken in connection with, this letter, and to the fullest extent permitted by law, we exclude and disclaim all liability (whether in contract, tort or otherwise) to any other person, in respect of this letter, its contents or the work undertaken in connection with this letter or any of the results or conclusions that may be derived from this letter or any written or oral information provided in connection with this letter, and any such liability is expressly disclaimed except to the extent that such liability cannot be excluded by law.

Yours faithfully,

For and on behalf of For and on behalf of For and on behalf ofGleacher Shacklock LLP J.P. Morgan Securities plc UBS Limited

APPENDIX 3

QUANTIFIED FINANCIAL BENEFITS STATEMENT

The statements labelled by way of a footnote as including a quantified financial benefits statement in this announcement include "quantified financial benefits statements" for the purposes of Rule 28 of the City Code, in relation to GKN's new strategy and transformation plan along with its cash improvement initiative ("Project Boost"), which have been reported on previously (as set out in the final section of this Appendix 3) in accordance with the requirements of the City Code in the following form (the "Quantified Financial Benefits Statement"):

"The benefits of the Project Boost transformation plan are expected to deliver a recurring annual cash cost benefit of at least £340m from the end of 2020, with approximately 15% of this achieved in-year in 2018, increasing to 44% in 2019 and 81% in 2020.

Over 40% of the benefits are driven by world-class process improvement, implementing Industry 4.0 across the divisions and addressing underperformance in the US aerospace business. The remaining benefits are derived from improved procurement processes in both direct and indirect procurement, and other functional savings.

The nature of the programmes mean that there will be minimal jobs losses to achieve these benefits, but there will be an adjustment in working practices required to adopt the leading edge technologies.

Phasing

Boost benefits by division

In addition to cash flow generated by these benefits, we anticipate generating an average cash release through improvement in working capital management of £257million cumulatively in the period to the end of 2020, with an average working capital release of approximately £105m in 2018, £82m in 2019 and £70m in 2020. The benefits will come equally from payables (43%) and inventories (43%) with remainder coming from receivables (14%).

This will be delivered through both specific initiatives and as a result of embedding world class processes throughout the group.

The majority of the benefits are split broadly evenly between the two major divisions, Driveline and Aerospace. The Aerospace benefits are primarily focused on addressing existing operations in the US and embedding best practice processes across the division, whereas the Driveline benefits are primarily based on investment in technology.

We estimate that the Project Boost programme will require one-off costs to achieve of £450m with approximately 32% incurred in 2018, approximately 44% in 2019 and the remainder in 2020. Of this, approximately £134m will be investment in capital expenditure to facilitate the adoption of world class Industry 4.0 processes."

The Directors confirm that the Quantified Financial Benefits Statement remains valid and has been properly compiled on the basis of the assumptions contained below.

Bases of belief, assumptions and sources

The following approach and sources have been utilised in developing the Project Boost benefits case:

• Work streams led by GKN's Divisional CEOs have developed the Project Boost benefits case, including identification and quantification of estimates of potential benefits and associated one-off costs relating to the programme.

• In preparing the Quantified Financial Benefits Statement, the Divisional CEOs have been supported by functional management (and in several cases external advisors) to facilitate analysis and evaluation of the potential benefits available as a result of Project Boost.

• Where possible, estimated benefits and costs have been calculated on a bottom-up basis, however in circumstances where data has been limited, estimates and assumptions have been made by Management, with input from external advisors, to aid the development of individual benefits and one off costs.

• Cost bases used as the basis for the quantification exercise are a profit estimate for the financial year ended 31 December 2017 (see Appendix 1 of the announcement made by GKN on 14 February 2018 entitled "Moving GKN to world class financial performance") and audited financial results for the year ended 31 December 2016. Key sources of information used to develop Project Boost include financial results for the year ended 31 December 2017, audited financial results for the year ended 31 December 2016 and information from Management's Oracle Hyperion system.

• Benefits of growth in the businesses have been excluded.

• Assumed to be no significant changes in macro-economic conditions.

• Estimates of ongoing cost benefits and one-off costs have been phased over a three year period.

• The exchange rate used to convert between USD and GBP is 1.35 (GKN's 2018 Budget rate).

• A stretch case of benefits has been also been prepared.

Reports

As required by Rule 28.1(a)(i) of the City Code, KPMG LLP ("KPMG"), as reporting accountants to GKN, has provided a report stating that, in its opinion, the Quantified Financial Benefits Statement has been properly compiled on the basis stated.

Gleacher Shacklock, J.P. Morgan Cazenove and UBS, as financial advisers to GKN, have provided a report for the purposes of Rule 28.1(a)(ii) of the City Code stating that, in their opinion and subject to the terms of the report, the Quantified Financial Benefits Statement has been prepared with due care and consideration.

Copies of these reports are included in Parts B and C of Appendix 2 to the announcement dated 14 February 2018 made by GKN entitled "Moving GKN to world class financial performance" (a copy of which is available on the GKN website). Each of KPMG, Gleacher Shacklock, J.P. Morgan Cazenove and UBS has also confirmed to GKN that the report that they previously produced in connection with the Quantified Financial Benefits Statement continues to apply.

Notes

The assessment and quantification of the potential cost savings and efficiency gains of Project Boost relate to future actions and circumstances which, by their nature, involve risks, uncertainties and contingencies. As a result, the potential cost savings, efficiency gains and/or other expected benefits may not be achieved, or may be achieved later or sooner than estimated, or those achieved could be materially different from those estimated.

Due to the scale of GKN, there may be additional changes to its operations as a result of Project Boost. As a result, and given the fact that the changes relate to the future, the resulting cost savings may be materially greater or less than those estimated.

No statement in the Quantified Financial Benefits Statement or in this announcement generally should be construed as a profit forecast or interpreted to mean that GKN's earnings in the first full year following implementation of the Project Boost, or in any subsequent period, would necessarily match or be greater than or be less than those of GKN for the relevant preceding financial period or any other period.