Half Yearly Report

NEWS RELEASE 03 August 2011

GKN plc Results Announcement for the six months ended 30 June 2011

Highlights(1)

·; Group results reflect the continued strong growth in Driveline, Powder Metallurgy and Land Systems and a good performance in Aerospace:

o sales up 11% (£287 million) to £2,988 million.

o trading profit of £247 million, up £45 million, before the £23 million one-off charge relating to the temporary plant closure at the Hoeganaes plant in Gallatin, US (see page 11).

·; Driveline sales up 12% with 7.1% trading margin, after £12 million profit impact from Japanese earthquake.

·; Powder Metallurgy sales up 15%, with 9.0% trading margin.

·; Aerospace underlying sales broadly flat; trading margin, however, increased from 10.9% to 11.1%.

·; Land Systems sales up 24% with 8.8% trading margin.

·; New business:

o around $2.8 billion of contract extensions, new programme wins and work scope expansions in Aerospace.

o 74% win rate on driveshafts and important wins in all-wheel-drive (AWD), transaxle and eDrive products.

o investment in EVO and set up joint venture to manufacture axial flux electric motors and drive systems for hybrid and all-electric vehicles.

o JV with COMAC to manufacture exclusively the horizontal tailplane for C919 aircraft.

·; Positive free cash flow of £25 million (2010: £107 million), reflecting investment to support growth.

·; Net debt of £174 million (31 December 2010: £151 million).

·; Interim dividend of 2.0 pence per share (2010: 1.5 pence).

·; Earnings per share up 23% to 11.8 pence per share (2010: 9.6 pence per share).

·; Acquisitions since 30 June 2011:

o agreement to acquire Stromag - market leading engineer of industrial power management components.

o agreement to acquire Getrag's Driveline Products Business, to create the leading global supplier of AWD driveline products.

Sir Kevin Smith, Chief Executive of GKN plc, commented:

"GKN has continued to make strong progress both in terms of financial performance and in building the future of our global market-leading businesses. The first half trading environment has seen strong market outperformance for GKN's Driveline, Powder Metallurgy and Land Systems businesses. The aerospace market has remained subdued although civil aerospace is now moving into a strong growth phase with volume increases on existing platforms and new aircraft moving into production.

We are also pleased to further strengthen our Driveline and Land Systems businesses with two highly complementary acquisitions in Stromag and Getrag Driveline Products.

As a result of the strong performance and outlook, the Board has decided to pay an interim dividend of 2.0 pence per share.

GKN's excellent global market positions, strong order books and leading technology leave us extremely well positioned for sustainable growth and further margin expansion."

Outlook

GKN's Markets

The outlook for our major markets is positive although some uncertainty remains, particularly around macro-economic conditions.

In automotive, external forecasts suggest that global light vehicle production should reach almost 78 million vehicles in 2011, an increase of 4%, with the strongest growth in India, continuing improvement in North America and Europe and slower growth in China. Vehicle production in Japan is expected to recover strongly in the second half.

In aerospace, US military aircraft market demand is expected to show a small reduction as a result of the rundown of the F-22 and the decrease on the C-17 programmes. Civil aircraft demand is expected to continue to grow in 2011 as both Airbus and Boeing increase production schedules.

The markets for Land Systems should continue to improve.

GKN's Performance

Against this background, Driveline is expected to show a small increase in sales in the second half compared to the first half, as Japanese producers recover in the US and growth in China offsets the normal seasonal decline in Europe. Sales in Japan are expected to be broadly flat as Driveline has already benefited from strong customer recovery in the first half.

Powder Metallurgy has a limited exposure to Japanese OEMs and therefore its sales are expected to be lower than the first half, in the seasonally weaker second half.

Aerospace sales are expected to show a small increase in the second half with increased sales from civil aircraft being partially offset by seasonality factors in Europe. Aerospace should return to its strong growth trend in 2012.

Land Systems should continue its improving trend although sales in the second half are expected to show a reduction when compared with the first half, as normal seasonal patterns return.

Completion of the recently announced acquisitions of Stromag and Getrag Driveline Products businesses are expected in September. These acquisitions should have a small positive impact on Group management results in the remainder of 2011. Both acquisitions are expected to be earnings enhancing and cash generative in the first full year.

Free cash flow is again expected to be positive, although net debt will increase due to the completion of the previously announced acquisitions.

Summary

In summary, GKN expects second half Group sales to show a small seasonal reduction when compared to the first half, excluding any impact from acquisitions and 2011 as a whole to be another year of strong progress for the Company. GKN is growing strongly and developing rapidly and as end markets continue to improve, the strength of our market positions and order books leaves the Group well placed for sustainable growth, margin expansion and strong free cash flow generation.

Cautionary Statement

This announcement contains forward looking statements which are made in good faith based on the information available to 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.

Notes

(1) 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 subsidiary businesses sold and closed) with the Group's share of the sales and trading profit of joint ventures. 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 joint ventures. These figures better reflect performance of continuing businesses. Where appropriate, reference is made to underlying 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, joint venture dividends, own shares purchased and dividends paid to non-controlling interests, but excluding dividends paid to GKN shareholders. Return on average invested capital is management trading profit as a percentage of average total net assets of continuing subsidiaries and joint ventures deducting current and deferred tax, net debt, post-employment obligations and derivative financial instruments.

(2) Restatement of comparative data.  Following the Group's assumption of control over GKN Aerospace Services Structures Corp. ("GASS") on 1 April 2010 the fair value exercise was not finalised until 31 December 2010. In accordance with IFRS 3 Business Combinations the 30 June 2010 comparatives included in this release have been restated to reflect the fair value changes. Note 2 to the financial statements has more details.

Further Enquiries

Guy Stainer

Director, Investor Relations and External Communications

GKN plc

T: +44 (0)207 463 2382

M: +44 (0)7739 778 187

E: [email protected]

Andrew Lorenz

Financial Dynamics

T: +44 (0)20 7269 7113

M: +44 (0)7775 641 807

There will be an analyst and investor meeting today at 09.30am at UBS, Ground Floor Presentation Suite, 1 Finsbury Avenue, London EC2M 2PP.

A live audiocast of the presentation will be available at http://www.gkn.com/investorrelations/Pages/Webcasts.aspx. Slides will be put onto the GKN website approximately 15 minutes before the presentation is due to begin, and will be available to download from the results and presentation page on the GKN website at: http://www.gkn.com/investorrelations/Pages/results-and-presentations.aspx?year=2011. Questions will only be taken at the event.

A live dial in facility will be available by telephoning one of the following numbers:

Standard International Dial In: +44 (0) 1452 555 566

Conf ID: 82273540

A replay of the conference call will be available until 16 August 2011 at the following numbers:

Standard International Number: +44 (0) 1452 550 000

Replay Access Number: 82273540#

This announcement together with the attached financial statements and notes thereto may be downloaded from http://www.gkn.com/media/Pages/default.aspx.

NEWS RELEASE

GKN plc Results Announcement for the six months ended 30 June 2011

Group Overview

GKN plc, the global engineering business that serves the automotive, aerospace and land systems markets, today issues its results for the six months ended 30 June 2011.

Markets

The Group operates in the global automotive, aerospace and land systems markets. In the automotive market, Driveline sells to manufacturers of passenger cars and light vehicles. Around 75% of Powder Metallurgy sales are also to the automotive market, with the balance to other industrial customers. Aerospace sells to manufacturers of military and civil aircraft, aircraft engines and equipment. Land Systems sells to producers of agricultural, construction, mining and industrial equipment and to the automotive and commercial vehicle sectors.

These results reflect strong market outperformance in Automotive, continuing recovery in land systems markets and another solid performance in our Aerospace business.

Management salesincreased 11% in the six months ended 30 June 2011 to £2,988 million (2010: £2,701 million). The effect of currency translation was £28 million negative and there was a £8 million benefit from acquisitions which was more than offset by the £9 million reduction due to disposals. Excluding these items, the underlying increase was £316 million (12%). Within this underlying figure, Driveline increased by £148 million, Powder Metallurgy was £66 million higher, Aerospace was £5 million higher and Land Systems increased by £88 million.

Management trading profit increased £45 million to £247 million (2010: £202 million), excluding the £23 million one-off impact from the temporary closure of Hoeganaes' Gallatin facility in the US. Excluding the adverse currency translational impact of £3 million, the underlying increase was £48 million. Within this figure, Driveline was £12 million higher, Powder Metallurgy increased by £13 million and Land Systems was £21 million higher, all largely as a result of sales growth and cost reduction benefits. Market conditions remained stable for Aerospace where underlying trading profit rose by £1 million. Group trading margin in the first half increased to 8.3% (2010: 7.5%).

(*) excludes the £23 million one-off impact from Hoeganaes temporary plant closure in Gallatin, US

Divisional Performance

Markets

Automotive

As shown in the table below, all markets, except Japan due to the earthquake and tsunami in March 2011, experienced production growth relative to 2010, with the strongest markets being India, North America and Europe.

Source: IHS Automotive

Overall, global production volumes increased 1.5% in the first half of 2011 to 37.8 million vehicles (2010: 37.2 million) whilst sales of cars and light vehicles increased by 3.5%, from 36.2 million vehicles to 37.5 million vehicles.

Demand for larger (premium) vehicles and light commercial vehicles increased strongly. The demand for smaller vehicles, particularly in Europe, was lower as the prior year's scrappage and tax incentive schemes had the effect of pulling forward demand. However, vehicle production in Europe overall benefited from a strong improvement in exports while in North America the recovery following the recession continued.

External forecasts indicate that global production in 2011 will increase by approximately 4% to 77.7 million vehicles. Major markets that are expected to grow fastest include India (16%), North America (9%) and Europe (6%). Production growth in China is forecast to slow to a more modest 5%. Production is likely to show a slight improvement in the second half of 2011 compared with 2010, whilst being around 6% higher than the first half of 2011, mostly as a result of a return to normal production in Japan and elsewhere as supplies of components improve.

Driveline

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

The key financial results for the period are as follows:

Driveline's sales increased 12% to £1,333 million (2010: £1,189 million) compared with global vehicle production which increased 1.5%. The favourable impact of currency translation was £5 million which was more than offset by the £9 million lower sales resulting from the sale of Driveline's 49% share of the Japanese driveshaft sales and distribution joint venture GKN JTEKT Ltd (GTK), in March 2011. Underlying sales increased by £148 million (12%). This market outperformance was broad based across North America, China and Japan reflecting recent market share gains and the Group's stronger position in premium vehicles, demand for which continued to be strong. In Japan, the market outperformance by Driveline reflected its exposure to companies less affected by the earthquake and the priority given to reinstating production capability for exported vehicles.

Trading profit increased to £94 million (2010: £82 million) reflecting higher sales and the benefits of restructuring, offset by around £12 million impact of the Japanese earthquake and tsunami. This affected production in Japan and also overseas as component supply chains were disrupted. Outside Japan, this was most pronounced for Driveline in North America where many of the Japanese OEMs cut production rates significantly in the second quarter. Driveline's trading margin was 7.1% (2010: 6.9%).

Return on average invested capital was 16.1% (2010: 12.1%), reflecting the increase in profitability.

During the first half of 2011, Driveline opened a new sideshafts plant in Changchun, Northern China and started construction of a new sideshafts facility in Pune, India.

On 22 June 2011, Driveline announced that it had invested £4 million in EVO Electric Ltd, a UK pioneer in axial flux motors, and formed a joint venture, GKN EVO eDrive Systems, to manufacture and sell axial flux electric motors and drive systems for use in hybrid and all-electric vehicles.

Driveline is already a pioneer in the development and supply of eTransmissions and eAxles for hybrid and electric vehicles. This venture will enable GKN Driveline to offer advanced axial flux motors and generators, adding to its existing eDrive Systems portfolio and enhancing its capability in full driveline systems. Recent new business wins in eDrive, include:

·; Major European OEM customer for eAxle;

·; New European customer for 1-speed eTransmissions, and demonstration vehicle contract for Asian OEM;

·; Development/prototype orders for 2-speed transmissions from three European OEMs.

In the first half, the recent high level of new business wins continued for the CVJ Systems business and much progress was made in the Trans Axle Solutions business, particularly with open differentials and limited slip differentials. The benefit of Driveline's global footprint was particularly evident as 80% of booked differentials business is to supply global platforms, with recent high volume wins in China and the Americas.

On 28 July 2011, Driveline announced that it had agreed to acquire Getrag Driveline Products, a tier one supplier of geared driveline products, namely Power Transfer Units and Rear Drive Units for AWD vehicles, along with Final Drive Units for high performance rear wheel drive vehicles.

Getrag Driveline Products, which will be integrated into GKN Driveline, is an excellent fit with GKN's existing range of products and technology. With operations in the United States and Europe, Getrag Driveline Products has a product, manufacturing and customer footprint that is complementary to GKN's own geared product business, which is predominantly based in Asia. The combined businesses will be the leading global supplier of AWD driveline products with an excellent customer base and product portfolio.

As part of the overall transaction, GKN is also acquiring an exclusive licence, principally for Europe and the Americas, to Getrag's electric drivetrain technology for use in electric and certain hybrid vehicles.

Powder Metallurgy

Powder Metallurgy produces metal powder (Hoeganaes) and sintered products (GKN Sinter Metals). Hoeganaes is the largest producer of metal powder in North America. GKN Sinter Metals is the world's largest manufacturer of sintered components. Sinter Metals uses powdered metals to manufacture precision automotive components for engines, transmissions and body and chassis applications. It also produces a range of components for industrial and consumer applications, including power tools, bearings, white goods and garden equipment.

The key financial results for the period are as follows:

Powder Metallurgy sales were £435 million (2010: £378 million), an increase of 15%. The negative impact of currency translation was £9 million. Underlying sales increased by £66 million (17%). Sales increased in all regions as automotive markets recovered, recent new business wins entered production and market share gains were made. Underlying sales for Sinter Metals increased by 17% in North America and 16% in Europe. Strong growth was also achieved in India, Brazil and China.

Hoeganaes' underlying sales were 19% higher, reflecting a 4% increase in the number of tons shipped and an increase in the commodity metals surcharge passed on to customers as raw material prices increased.

Overall, Powder Metallurgy reported a trading profit of £39 million (2010: £26 million), excluding the first half £23 million one-off costs associated with the explosion and subsequent temporary plant closure at the Gallatin, US facility which are reported outside the divisional trading performance (see below page 11). The divisional trading margin was 9.0% (2010: 6.9%). Return on average invested capital was 15.7% (2010: 8.0%), reflecting the improvement in profitability.

Increasing trends in industrial and automotive markets to improve fuel efficiency and reduce emissions, such as variable valve timing in engines, high performance gear sets in automatic transmissions and differential gears, are driving the demand for products made by powder metallurgy. During the first half, approximately £50 million (annualised sales) of new programme business was awarded. New contracts include:

·; E-locker rear axle differential gear set for Ford's Super-Duty truck enabling higher torque loads with similar dimensions;

·; Connecting rod for SAIC/GM for next generation small petrol engine offering improved strength and dimensional stability;

·; One way clutch system for a Mazda transmission in Asia with unique geometries which are only possible using powder metallurgy technology;

·; Variable valve timing - one piece combination sprocket for VW engine;

·; A number of soft magnetics products, including a torque sensing actuator component for Nexteer with improved edge geometry and superior magnetic response.

Aerospace

Aerospace is a global first tier supplier of airframe and engine structures, components, assemblies, transparencies and engineering services to a wide range of aircraft and engine prime contractors and other first tier suppliers. It operates in three main product areas: aerostructures, engine components and sub-systems and special products.

The overall aerospace market in 2011 remains positive driven by recovery of civil aircraft production and a generally stable defence sector. The division has a balanced position in civil (58%) and defence (42%) programs.

In the civil aerospace market, passenger air traffic rose 8% in 2010 and is expected to achieve an additional 6% growth in 2011. Longer term worldwide passenger market demand is projected to grow at 5.1% per annum and worldwide cargo traffic is expected to grow 5.6% per annum. Airbus and Boeing continue to benefit from their extensive order backlog of over 7,300 aircraft. Combined deliveries for the first half of 2011 reached 480 aircraft (2010: 472 aircraft) compared with new orders for the same period of 811 aircraft. The recovery in passenger and cargo volumes has led both Airbus and Boeing to announce increases in production levels of single aisle and wide bodied aircraft.

US defence spending is expected to remain stable in 2011 with the President's 2012 to 2016 Budget Request showing modest growth. Key multi-year programmes such as the UH-60 Blackhawk Helicopter, F/A-18 Super Hornet, F-15 Eagle and C-130J Super Hercules provide a strong production base for the business. The completion of F-22 Raptor production and reduced volume of the C-17 Globemaster (from 14 units to 10 per year) are partially offset by the initial production ramp-up of the F-35 Lightening (Joint Strike Fighter). Foreign military sales also support future production rates, for example, F-15 sales to Saudi Arabia and C-17 to India.

The key financial results for the period are as follows:

Aerospace sales of £723 million were £11 million lower than the prior year (2010: £734 million). The impact from currency on translation of sales was £20 million negative and from acquisitions was £4 million positive, representing sales from GKN Aerospace Services Structures Corp., of which the Group gained management control in April 2010. The underlying increase in sales of £5 million represented a 1% increase. This increase reflects lower F-22 sales as the programme continued its run down more than offset by higher civil sales, particularly for the A330 but also for the Boeing 787, A320 and A380.

Trading profit was unchanged at £80 million. The impact from currency on translation of results was £2 million negative. The trading margin was 11.1% (2010: 10.9%).

Return on average invested capital was 22.5% (2010: 24.4%) reflecting increased investment in new programmes, particularly the A350.

GKN Aerospace was awarded around $2.8 billion of contract extensions, new programme wins and work scope expansions during the first half, including:

·; New multi-year contracts for: UH-60 Blackhawk (5 years); F/A-18 Super Hornet (4 years), F-15 Eagle (7 years); C-130J Super Hercules (5 years); C-17 Transporter (3 years);

·; Lockheed Martin installed 1,000th GKN C-130J military airlifter engine nacelle and awarded new multi-year contract worth c$450 million;

·; Around $200 million of new customer's business won at Filton including Bombardier C-Series ailerons and life of programme contract for Dassault mid-sized business jet wing structure and moveable surfaces;

·; St. Louis and Cowes facilities won 2011 American Helicopter Supplier Excellence Award and Bell Helicopter Premier Supplier Award, respectively;

·; Additional contracts for Boeing 787 titanium structures and thrust struts for Boeing 787 and 747-8.

The division has an excellent position on new programmes that come into full production over the period 2012 to 2016, providing significant growth potential.

Land Systems

Land Systems designs, manufactures and distributes a portfolio of products for vehicles primarily in the agricultural, construction, mining, automotive and other specialty vehicle markets, along with industrial applications. It consists of three primary business streams - power management, wheels and structures, and aftermarket and services. The division has leading global positions in the supply of power take-off shafts and off-highway wheels. The Aftermarket and Services business provides a range of new and remanufactured components to the automotive and industrial aftermarket and repairs and replaces heavy duty propshafts for various forms of transport.

Sales in Land Systems were strongly ahead in the first half reflecting the continued broad market recovery in all regions and sectors, especially for agriculture, heavy construction, mining and industrial equipment.

In Europe, the strongest recovery occurred in agricultural equipment, construction, industrial and in the structures market relating to new vehicle production.

In the Americas, agriculture, construction, mining and industrial markets all enjoyed good growth.

The key financial results for the period are as follows:

Against this background, sales in the first half increased 24% to £444 million (2010: £359 million). The division reported a doubling in trading profit to £39 million (2010: £19 million). Trading margin was 8.8%. Return on average invested capital increased to 24.2% (2010: 6.2%), reflecting the strong increase in profitability of the division.

Good progress was made in winning new business. Specific areas of success included:

·; Integrated seven piece mechanical driveshafts system for Liebherr 30 tonne dumper;

·; New innovative custom engineered wheel design for JLG Telehandler;

·; First major non-automotive win for structures business to manufacture JCB Fastrac tractor chassis;

·; First application of auxiliary pump and high speed shafts in oil exploration;

·; Specialist CVJ driveshafts for a British sports car;

·; Driveshafts maintenance contract in Spain for TGV and Pendolino trains;

·; CVJ driveshafts for the Foxhound military vehicle.

In addition to achieving strong organic growth and new business wins, on 18 July 2011, the Group announced that it had agreed to acquire Stromag Holding GmbH (Stromag).

Stromag is a market leading engineer of industrial power management components. Its core products include hydraulic clutches, electro-magnetic brakes and flexible couplings serving end-markets including renewable energy, agricultural equipment, construction and mining machinery and the metal processing industry. The business is headquartered in Unna, Germany and has operations in Germany, France, US, Brazil, India and China.

The acquisition of Stromag is an important step in the implementation of the GKN Land Systems' strategy to build a global leader in power management, extending its capability in electro-mechanical power management components and systems. In combination with the existing business, it will provide a strong platform to accelerate growth in existing markets, together with access to a number of new customers and industrial segments, including renewable energy.

The acquisition cost comprises a cash consideration of £146 million for the equity and repayment of debt of £28 million. Closing of the transaction is expected during September, subject to customary conditions and necessary regulatory approvals.

Other Businesses

GKN's other businesses comprise Cylinder Liners, which is mainly a 60% owned venture in China, manufacturing engine liners for the truck market in the US, Europe and China, and a 50% share in Emitec, which manufactures metallic substrates for catalytic converters in Germany, the US, China and India.

Sales in the period were £53 million (2010: £41 million), including £4 million resulting from the acquisition of NoNOx by Emitec and reflecting the recovery in automotive markets. Trading profit was £2 million (2010: £2 million) reflecting an improvement in the underlying business offset by the heavy investment by NoNOx into selective catalytic reduction systems, particularly for the truck market.

Hoeganaes' Gallatin plant, USA

Two tragic unrelated events at the Hoeganaes Gallatin plant in the US in the first half have left a deep scar on GKN and a very sad loss to the families of five colleagues who lost their lives. The Company continues to provide the families with every means of comfort and support at this difficult time.

The second incident, a hydrogen explosion on 27 May 2011 at the Gallatin plant, resulted in the temporary closure of the facility whilst a thorough safety review took place. This full plant safety review was supported by two independent organisations, to ensure that the cause of the incident was fully understood and that appropriate measures are implemented to prevent a recurrence. As the safety review and remedial work was completed, production was gradually brought back with the majority of the facility being in operation at the end of July.

During the period of reduced operation, customer orders continued to be met from a combination of powder inventory and shipping of product from the company's other operations as well as product sourced from other metal powder producers.

In the first half, £23 million of one-off shipping, purchasing and plant closure and remedial works costs were recorded, with a further £7 million expected in the second half as production has gradually been resumed. The total of around £30 million is prior to any potential recovery from insurance claims, the first £10 million of which would be self insured through the Group's captive insurance arrangements. Refer to note 1 of the financial statements for further details.

Other Financial Information

Corporate costs

Corporate costs, which comprise the costs of stewardship of the Group and operating charges and credits associated with the Group's legacy businesses, were £7 million (2010: £7 million).

Restructuring and impairment charges

There were no Group restructuring and impairment charges during the period (2010: £26 million).

Change in value of derivative and other financial instruments

The Group enters into foreign exchange contracts to hedge much of its transactional exposure. Where hedge accounting has not been applied, the change in fair value between 1 January 2011 and 30 June 2011, or the date of maturity if earlier, is reflected in the income statement as a component of operating profit and has resulted in a credit of £24 million (2010: £32 million charge). There was a £2 million charge arising from a change in the value of embedded derivatives in the period (2010: £5 million credit) and a charge of £4 million attributable to the translational currency impact on intra-group funding balances (2010: £23 million credit).

Amortisation of non-operating intangibles arising on business combinations

The charge for the amortisation of non-operating intangible assets (for example, customer contracts, order backlogs and intellectual property rights) arising on business combinations was £10 million (2010: £9 million).

Post-tax earnings of joint ventures

The Group's share of post-tax earnings of joint ventures in the period was £20 million (2010: £19 million) with trading profit of £26 million (2010: £23 million). The Group's share of post-tax earnings on a management basis was £21 million (2010: £19 million). The Group's share of the tax charge amounted to £5 million (2010: £4 million) with no net financing costs in either period. Underlying trading profit increased by £4 million reflecting continued growth in the Chinese automotive market.

Net financing costs

Net financing costs totalled £28 million (2010: £42 million) and include the non-cash charge on post-employment benefits of £8 million (2010: £18 million) and unwind of discounts of £1 million (2010: £1 million). Interest payable was £21 million (2010: £25 million), whilst interest receivable was £2 million (2010: £2 million) resulting in net interest payable of £19 million (2010: £23 million). The £4 million decrease in net interest payable includes the benefit from the bond buy-back in May 2010.

The non-cash charge on post-employment benefits arises as the expected return on scheme assets of £77 million (2010: £70 million) was more than offset by interest on post-employment obligations of £85 million (2010: £88 million). Details of the assumptions used in calculating post-employment costs and income are provided in note 12 to the financial statements.

Profit before tax

The management profit before tax was £223 million (2010: £175 million), before the £23 million one-off impact from the temporary closure of the Hoeganaes Gallatin plant, described above. The profit before tax on a statutory basis was £202 million (2010(2): £181 million).

Taxation

The book tax rate on management profits of subsidiaries was 16% (2010: 14%), arising as a £28 million tax charge on management profits of subsidiaries of £179 million.

The Group's theoretical weighted average tax rate, which assumes that book profits/losses are tax affected at the statutory tax rates in the countries in which they arise, is 31% (2010: 33%). The book tax rate is significantly lower, largely because of the recognition of substantial deferred tax assets (mainly in the US) due to increased confidence in the Group's ability to offset brought forward tax deductions against future taxable profits in various countries. In addition, certain profit making territories have benefited from the use of tax deductions for which no deferred tax assets have previously been recognised.

The Group aims to access brought forward tax deductions in order to sustain a 'cash tax' charge on management profits of below 20%. 'Cash tax' provides a proxy for the cash cost of taxation of management profits, plus the cash effect of prior year items, and so excludes elements of the book tax charge which do not have a cash effect. The cash tax rate was 15%. In the near term, the cash tax rate is expected to continue below 20% as brought forward tax deductions are utilised.

The tax rate on statutory profits of subsidiaries was 15% (2010: 9%) arising as a £27 million tax charge on a statutory profit of £182 million.

Non-controlling interests

The profit attributable to non-controlling interests was £14 million (2010: £9 million) including an £11 million impact from the pension partnership.

Earnings per share

Management earnings per share, before the £23 million one-off impact from the Hoeganaes incident at Gallatin, US, was 11.8 pence (2010: 9.6 pence). On a statutory basis earnings per share was 10.4 pence (2010(2): 10.1 pence). The improvement is mainly due to the higher profitability of the Group. Average shares outstanding in 2011 were 1,553.0 million.

Dividend

In view of the improving trading environment, the Board has decided to pay an interim dividend of 2.0 pence per share (2010: 1.5 pence). The Company expects to move towards the total dividend being split in the more traditional way of one-third interim and two-thirds final. The final dividend will depend on the overall Company performance. In the medium term, it is the intention to have a progressive dividend policy based on a management earnings cover ratio of around 2.5 times. The interim dividend will be paid on 26 September 2011 to shareholders on the register at 12 August 2011. Shareholders may choose to use the Dividend Reinvestment Plan (DRIP) to reinvest the interim dividend. The closing date for receipt of new DRIP mandates is 12 September 2011.

Cash flow

Operating cash flow, which is defined as cash generated from operations of £175 million (2010: £197 million) adjusted for capital expenditure (net of proceeds from capital grants) of £131 million (2010: £72 million) and proceeds from the disposal / realisation of fixed assets of £2 million (2010: £3 million), was an inflow of £46 million (2010: £128 million).

Within operating cash flow there was an outflow of working capital and provisions of £102 million (2010: £45 million outflow), including cash outflow relating to the 2008 and 2004 restructuring plans of £22 million (2010: £29 million). Average working capital as a percent of sales remained below 7%.

Capital expenditure (net of proceeds from capital grants) on both tangible and intangible assets totalled £131 million (2010: £72 million), including £35 million (2010: £13 million) on the A350 programme. Of this, £108 million (2010: £64 million) was on tangible fixed assets and was 1.2 times (2010: 0.7 times) the depreciation charge. Expenditure on intangible assets, mainly non-recurring costs on Aerospace programmes, totalled £23 million (2010: £8 million).

Free cash flow before dividends

Free cash flow, which is operating cash flow including joint venture dividends and after interest, tax, amounts paid to non-controlling interests and own shares purchased but before dividends paid to GKN shareholders, was an inflow of £25 million (2010: £107 million). Net interest paid totalled £14 million (2010: £20 million) and tax paid in the period was £13 million (2010: £21 million).

Net borrowings

At the end of the period, the Group had net debt of £174 million compared with £202 million at 30 June 2010 and £151 million at 31 December 2010.

Post-employment obligations

GKN operates a number of defined benefit and defined contribution pension schemes together with retiree medical arrangements across the Group. The net amount included within trading profit of £15 million (2010: £18 million) includes the current service cost of £19 million (2010: £18 million) partly offset by credits arising from initiatives taken to reduce the Group's pension liabilities. Other net financing charges of £8 million (2010: £18 million) reduced primarily due to an increase in the expected return on scheme assets arising from the Partnership arrangement.

The deficit of all schemes at 30 June 2011 was £574 million, a £26 million decrease over December 2010.

The UK deficit of £56 million was £28 million lower than the December 2010 year end figure of £84 million. The reduction was mainly due to gains in asset values.

The post-employment obligations of overseas businesses, which is mostly the unfunded schemes in Germany, was largely unchanged at £518 million (31 December 2010: £516 million) and reflected the adverse impact of exchange rates (£14 million) partly offset by the benefit of the 10 bps increase in European discount rate to 5.1%.

Contributions for the six months across the Group totalled £34 million (2010: £29 million).

The Group paid its first distribution of £23 million from the Pension Partnership to the UK pension scheme in June 2011.

Net assets

Net assets of £1,825 million were £138 million higher than the December 2010 year end figure of £1,687 million. The increase includes profit attributable to equity shareholders of £161 million, currency movements of subsidiaries of £4 million and actuarial gains in respect of post-employment obligations of £29 million.

Exchange rates

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

The approximate impact on H1 2011 trading profit of subsidiaries and joint ventures of a 1% movement in the average rate would be euro - £0.8 million, US dollar - £0.6 million.

Funding and liquidity

At 30 June 2011, there were £280 million of UK committed revolving credit facilities of which £45 million expires in October 2011 and £11 million was utilised against letters of credit. In June 2011, the Group drew down in full its £80 million facility from the European Investment Bank. The loan is repayable in five £16 million instalments from 2015 and bears interest at 4.1%. Capital market borrowings were £526 million at 30 June 2011 and include unsecured issues of £176 million 7% bonds maturing in May 2012 and £350 million 6.75% bonds maturing in October 2019.

Financial resources and going concern

At 30 June 2011, the Group had gross borrowings of £658 million (31 December 2010: £593 million) and cash and deposits of £484 million (31 December 2010: £442 million) resulting in net borrowings of £174 million (31 December 2010: £151 million).

The Directors have reviewed forecast cash flows and utilisation of banking facilities, including the impact of the proposed acquisitions as outlined in Note 18 to the financial statements.

After making enquires, the Directors have a reasonable expectation that the Group has adequate resources to continue funding its operations for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the financial statements.

Principal risks and uncertainties

The principal risks and uncertainties faced by the Group in the remaining six months of the year remain largely unchanged from those reported in the 2010 annual report. Tensions in the Middle East, European currency concerns, inflation in Asian economies, US budget worries and overall macro-economic instability have however increased. Additional risks noted in the annual report include changes in customer demand; customer concentration; highly competitive markets; technology advancements; changes in the legal, regulatory, political and socio-economic conditions of the countries of operation; supply chain disruption; rising input costs; product quality issues; reliance on key personnel; effectiveness of acquisition integration; volatility in the financial reporting of pension deficits; foreign exchange risk; and operating internationally in environments subject to complex tax laws. A more detailed explanation of the principal risks and uncertainties, together with the mitigating actions in place, can be found in pages 32 and 33 of the 2010 annual report.

The incidents at our Hoeganaes plant in Gallatin, US, during the first half of the year, described elsewhere in this announcement, have caused us to review our processes across the Group with a particular emphasis on health and safety. We continue to make improvements to strengthen the management of health and safety which remains of the utmost importance to the Group.

Basis of Reporting

The financial statements for the period are shown on pages 18-38 and have been prepared using accounting policies which were used in the preparation of audited accounts for the year ended 31 December 2010 and which will form the basis of the 2011 Annual Report, except as set out in the basis of preparation on page 27.

Directors' Responsibility Statement

The half yearly financial report is the responsibility of the Directors who confirm that to the best of their knowledge:

Ÿ the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as endorsed and adopted by the EU;

Ÿ the interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the 2010 Annual Report that could do so.

The Directors of GKN plc are listed in the GKN Annual Report for the year ended 31 December 2010, and in addition Tufan Erginbilgic was appointed as a non-executive Director with effect from 9 May 2011.

Approved by the Board of GKN plc and signed on its behalf by:

Roy Brown

Chairman

2 August 2011

APPENDICES