Half Yearly Report

NEWS RELEASE 31 July 2012

GKN plc Results Announcement for the six months ended 30 June 2012

(*) 2011 includes a £23 million charge and 2012 includes a net £2 million credit following a further insurance claim recovery relating to the 2011 temporary Hoeganaes plant closure in Gallatin, USA.

Group Highlights(1)

·; Group results reflect the continued strong organic growth in all four Divisions and the contribution from acquisitions:

o Sales up 16% (£471 million) to £3,459 million, +8% on an organic basis;

·; Excluding the 2011 effects of the Gallatin incident:

o Management trading (operating) profit up 19% to £293 million;

o Trading margin improved to 8.5%;

o Profit before tax increased 19% to £266 million;

o Earnings per share up 22% to 14.4 pence per share;

o Return on average invested capital reduced to 17.2% (2011: 18.1%), reflecting the 2011 acquisitions.

·; Reported profit before tax of £289 million (2011: £202 million).

·; Positive free cash flow of £28 million (2011: £25 million).

·; Net debt of £590 million (31 December 2011: £538 million).

·; Since 30 June 2012:

o Announcement of agreement to acquire Volvo Aero, significantly strengthening GKN Aerospace's engine components business.

"GKN has continued to make good progress both in terms of financial performance and implementing our strategy to build a global market-leading business. First half trading has seen sales increases and margin progression for each of our four Divisions and our new acquisitions, Stromag and Getrag Driveline Products, are performing well.

As a result of the strong performance and confidence in the future, the Board has decided to increase the interim dividend by 20% to 2.4 pence per share.

The macroeconomic environment continues to be uncertain, with increasing headwinds in European auto markets. However, with the benefit of a good first half and the Group's broad exposure to global markets, our expectations for 2012 remain unchanged. We expect 2012 to be another good year of progress for GKN and, in addition, we look forward to welcoming our new acquisition, Volvo Aero, into GKN when the transaction completes in the next few months."

Nigel Stein

Chief Executive, GKN plc

Divisional Highlights

(*) 2011 includes a £23 million charge and 2012 includes a net £2 million credit following a further insurance claim recovery relating to the 2011 temporary Hoeganaes plant closure in Gallatin, USA.

The table does not include Other businesses (Cylinder Liners and Emitec).

GKN Driveline

·; Getrag Driveline Productsacquisition integrated and delivering ahead of expectations.

·; Good progress made in all-wheel drive (AWD) systems, particularly with electronic differential lockers (EDLs).

GKN Powder Metallurgy

·; Continued strong product development and £80 million of new business awarded.

·; Trading margin improved 110bps, to 10.1%.

GKN Aerospace

·; New facility to open in Mexico to manufacture composite structural components for Blackhawk helicopters.

·; New work packages won on Boeing 787, 525 Bell helicopter, Bombardier business jets and others.

GKN Land Systems

·; Stromag acquisition integrated and performing well. Now leveraging its customers and sales network to offer enhanced customer solutions from the Division's combined technologies.

·; Trading margin improved 140bps, to 10.2%.

Outlook

Although the macroeconomic environment remains uncertain, the Group's broad exposure to global markets and strong customer positions mean that GKN should make good progress in 2012, helped by the full year contribution from the acquisitions in 2011 of Getrag Driveline Products and Stromag.

In automotive, external forecasts suggest that global light vehicle production in the second half will be lower than the first half, but should reach approximately 81 million vehicles for the whole of 2012, an increase of nearly 5%. The strongest annual growth is expected in Japan and North America with a decline in Europe.

Against this background, GKN Driveline is expected to show good year-on-year improvement, although the rate of growth will slow slightly due to stronger second half 2011 comparators as the effects of the Japanese tsunami unwind. GKN Powder Metallurgy expects sales to be lower than the first half reflecting normal seasonality and weaker European markets.

In aerospace, civil aircraft production is expected to continue to grow, as both Airbus and Boeing increase production. This should more than offset the effects of lower production of US military aircraft.

The performance of GKN Land Systems should continue to show an improvement, benefiting from the expected on-going strength in European and North American agricultural equipment markets partially offset by weaker European industrial markets. Sales in the second half are expected to show a reduction when compared with the first half, due to normal seasonal patterns.

For the year as a whole, free cash flow is expected to exceed 2011's £147 million, before the impact of the Volvo Aero acquisition which is expected to complete around the end of the third quarter.

In the final quarter of 2012, Volvo Aero is expected to achieve a profit from its trading activities but have a negative impact on the Group's reported profit due to integration costs and acquisition accounting adjustments. In 2013, the first full year of ownership, Volvo Aero's contribution is expected to be earnings enhancing.

Notes

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

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. Nothing in this statement should be regarded as a profit 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)207 269 7113

M: +44 (0)7775 641807

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=2012. Questions may be asked at the event or via the webcast.

A live dial in facility will be available by telephoning:

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

Conf ID: 11156527#

A replay of the conference call will be available until 13 August 2012 on:

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

Replay Access Number: 11156527#

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 2012

Group Overview

Markets

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

These results reflect a good performance in each division and the benefit of the successful integration of the 2011 acquisitions.

Management salesincreased 16% in the six months ended 30 June 2012 to £3,459 million (2011: £2,988 million). The effect of currency translation was £35 million negative and there was a £294 million benefit from acquisitions which was partly offset by a £15 million reduction due to disposals. Excluding these items, the organic increase was £227 million (+8%). Within this organic figure, Driveline increased by £120 million, Powder Metallurgy was £40 million higher, Aerospace increased £47 million and Land Systems was up £24 million.

Management trading profit increased £69 million to £293 million (2011: £224 million). In 2011, the temporary closure of Hoeganaes' Gallatin facility in the US resulted in a £23 million charge in the first half, whereas in 2012, there was a net £2 million profit following a further insurance claim settlement. After adjusting for the adverse currency translational impact of £5 million and the profit from acquisitions of £27 million, the organic increase was £22 million, excluding the impact of the Gallatin incident. Within this figure, Driveline was £10 million higher, Powder Metallurgy increased by £9 million, Aerospace was £5 million higher and Land Systems increased £7 million.

Group trading margin in the first half increased to 8.5% (2011: 8.3%, excluding the impact of Gallatin). Return on average invested capital (ROIC), was 17.2% (2011: 17.1% or 18.1%, excluding the impact of Gallatin), reflecting last year's acquisitions. At 31 December 2011, ROIC excluding Gallatin and including the pro forma impact of the 2011 acquisitions was 16.9%.

(*) 2011 includes a £23 million charge and 2012 includes a net £2 million credit following a further insurance claim recovery relating to the 2011 temporary Hoeganaes plant closure in Gallatin, USA.

Divisional Performance

Automotive market

As shown in the table below, Japan had the strongest growth in car and light vehicle production in the first half of 2012, recovering from the earthquake and tsunami that affected output in 2011. Strong growth was also experienced in North America, India and China while production in Europe and Brazil fell.

Source: IHS Automotive

(#) Growth is derived from unrounded production figures

Overall, global production volumes increased 9% in the first half of 2012 to 41.4 million vehicles (2011: 38.0 million) whilst sales of cars and light vehicles increased by 6%, from 38.0 million vehicles to 40.3 million vehicles. Global production, excluding Japan, increased 5%.

Demand for European larger (premium) vehicles remains strong outside of the region while demand for smaller vehicles, particularly in Europe, was lower. In North America recovery following the recession continued.

External forecasts indicate that global production in 2012 will increase by 5% to 80.7 million vehicles. Major markets that are expected to grow fastest include Japan (+21%), North America (+14%) and China (+6%). Production in Western Europe is forecast to contract by 8%.

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 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:

Return on average invested capital in 2012 reflects the pro forma impact of Getrag Driveline Products acquired on 30 September 2011

Driveline's sales increased 25% to £1,664 million (2011: £1,333 million). The adverse impact of currency translation was £21 million and sales were £7 million lower due to the sale of GKN Driveline's 49% share of the Japanese driveshaft sales and distribution joint venture GKN JTEKT Ltd, in March 2011. Getrag Driveline Products achieved strong sales of £239 million. Organicsales increased by £120 million, or 9%, compared with an increase in global vehicle production of 9%, or 5% excluding Japan.

This strong growth was broad based across North America, Europe and China reflecting recent market share gains, a stronger position in premium vehicles, demand for which continued to be good, and GKN Driveline's broadening product mix, particularly with all-wheel drive (AWD) systems. In Japan, GKN Driveline was affected less than the market generally by the earthquake in 2011 and is therefore not benefiting from the significant bounce back in production volumes.

Trading profit increased to £121 million (2011: £94 million). The adverse impact of currency translation was £3 million and Getrag Driveline Products contributed £20 million. The organic increase in trading profit was £10 million, held back by slower demand in Brazil and some operating inefficiencies in India.  Engineering costs increased to support new programmes and future growth. Driveline's trading margin was 7.3% (2011: 7.1%).

Return on average invested capital was 15.2% (2011: 16.1%), reflecting the impact of the Getrag Driveline Products acquisition. At 31 December 2011, return on average invested capital was 14.7%, including the pro forma impact of Getrag Driveline Products.

In the first half, a good level of new business wins continued for the CVJ Systems business and progress was made in AWD systems, particularly with electronic differential lockers (EDLs) and eDrive, with a number of eAxle wins for hybrid vehicles. GKN Driveline expansion plans also continue with the addition of its third precision forge in Celaya, Mexico.

GKN Powder Metallurgy

GKN Powder Metallurgy is the world's largest manufacturer of sintered components. GKN Powder Metallurgy comprises GKN Sinter Metals and Hoeganaes. Hoeganaes produces the metal powder that GKN Sinter Metals and other customers use to manufacture precision automotive components for engines, transmissions and body and chassis applications. GKN Sinter Metals also produces a range of components for industrial and consumer applications.

The key financial results for the period are as follows:

GKN Powder Metallurgy sales were £465 million (2011: £435 million), an increase of 7%. The negative impact of currency translation was £10 million. Organic sales increased by £40 million (+9%). Hoeganaes increased the number of tons of powder shipped by 8%. GKN Sinter Metals increased sales in all regions, benefiting from strong automotive production in North America and new business wins entering production. Organic sales for GKN Sinter Metals increased by 13% in North America and 3% in Europe. Strong growth was also achieved in India, Brazil and China.

Overall, GKN Powder Metallurgy reported a trading profit of £47 million (2011: £39 million). The negative impact of currency translation was £1 million. The divisional trading margin was 10.1% (2011: 9.0%). Return on average invested capital was 18.2% (2011: 15.7%), reflecting the improvement in profitability. At 31 December 2011, return on average invested capital was 16.7%.

Increasing trends in industrial and automotive markets to improve fuel efficiency and reduce emissions continue to drive the demand for products made by powder metallurgy. During the period, around £80 million (annualised sales) of new programme business was awarded.

GKN Aerospace

GKN Aerospace is a global first tier supplier of airframe and engine structures, components, assemblies, transparencies, fuel tank and flotation systems for 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 special products.

The overall aerospace market remains positive in 2012 driven by a growing civil aircraft market partly offset by a more subdued military market. The division has increased its sales for civil aerospace to 63%, with defence representing 37%.

Civil aircraft production is expected to grow well with Airbus and Boeing continuing to project the procurement of new single aisle and wide-bodied aircraft at between 26,900 and 33,500 by 2030. Both companies continue to benefit from record deliveries and record order backlog. This sustained order growth has led both Airbus and Boeing to increase production levels for single aisle and wide bodied aircraft. The smaller business jet market is also showing some signs of recovery.

World-wide defence spending remains under pressure, largely driven by cutbacks throughout Europe and likely reductions in the U.S. Defense Budget. GKN's position on 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 stable production base despite potential budget pressure and delay in the F-35 programme ramp-up.

The key financial results for the period are as follows:

Aerospace sales of £770 million were £47 million higher than the prior period (2011: £723 million). The £8 million positive impact from currency on translation of sales was exactly offset by the disposal of the Engineering Services division, which was sold in November 2011. The organic increase in sales of £47 million represented a 7% increase. This level of increase reflects lower production rates on military programmes, such as the C-17, F-15 and F-18, being more than offset by higher civil sales, particularly for the Airbus A320, A330, A380 and the Boeing 787.

Trading profit increased by £6 million to £86 million (2011: £80 million). The impact from currency on translation of results was £1 million positive. The trading margin was 11.2% (2011: 11.1%).

Return on average invested capital was 22.4% (2011: 22.5%) reflecting increased investment in new programmes, particularly the A350. At 31 December 2011, return on average invested capital was 22.7%.

During the first half a number of important new contracts and other milestones were achieved, including:

·; Composite Technology and Applications Limited (CTAL), a joint venture between GKN and Rolls-Royce, opened a pre-production facility on the Isle of Wight, UK. The facility will develop and demonstrate new methods for high volume production of carbon fibre aero-engine fan blade and fan case technology to improve future aero-engine performance.

·; Establishing a new composite aerostructures manufacturing facility in Mexico to manufacture composite airframe structures, initially for the Sikorsky UH-60 Blackhawk helicopter.

·; New contracts awarded to provide key metal and composite structures and fuel systems for the new 525 Relentless Bell helicopter.

·; A contract for the design, development and production of transparencies (cockpit and passenger cabin windows), winglets and ailerons for the Bombardier Global 7000 and Global 8000 business jets.

·; Further work packages for the Boeing 787 relating to floor sections, wing ribs and seat tracks.

·; A multi-year contract extension for the UH-60 Blackhawk helicopter.

As part of the finalisation of commercial contracts relating to the Filton acquisition, it has been agreed that GKN Aerospace would cease managing a supply chain contract on behalf of its customer from the end of 2012. Therefore, in 2013, GKN Aerospace's sales will reduce by around £100 million. However, its trading profit will only reduce marginally and its trading margin will improve, due to the relatively low margin earned on this pass-through business.

On 5 July 2012, the SEK6.9 billion (£633 million) acquisition of Volvo Aero was announced. Volvo Aero designs, engineers and manufactures components and sub-assemblies for aircraft engine turbines. It supplies all the major aero engine manufacturers and has positions on most major civil aerospace platforms that are set to increase as aircraft build rates ramp up, significantly enhancing GKN Aerospace's engine components business.

The acquisition is expected to complete at the end of the third quarter. The combination of GKN Aerospace and Volvo Aero creates a world leader in both aero structures and aero engine components.

GKN Land Systems

GKN Land Systems is a global leading supplier of technology differentiated power management components and services. It designs, manufactures and supplies products and services for the agricultural, construction, mining, and industrial machinery markets. In addition, it provides global aftermarket distribution and through-life support.

Sales in GKN Land Systems were ahead of the prior year. This is due to the contribution from Stromag together with 6% organic growth, which has normalised following the strong recovery seen in the agricultural equipment, construction and mining markets in 2011 when sales increased by more than 30%. Industrial markets have seen some volatility in certain segments, including wind, with weakness in some geographic areas, notably Southern Europe. Automotive structures activity declined slightly due to some expected programme cessations. The key financial results for the period are as follows:

Return on average invested capital in 2012 reflects the pro forma impact of Stromag acquired on 5 September 2011

GKN Land Systems sales in the first half increased 15% to £512 million (2011: £444 million). The negative impact of currency translation was £11 million. Excluding the £55 million of sales in Stromag, the organic increase in sales was £24 million (+6%).

The division reported a 33% increase in trading profit to £52 million (2011: £39 million). The negative impact of currency translation was £1 million. Excluding the £7 million of trading profit from Stromag, the organic increase in trading profit was £7 million (+18%). Trading margin was significantly higher at 10.2%. Return on average invested capital decreased to 18.7% (2011: 24.2%), reflecting the impact of the Stromag acquisition. At 31 December 2011, return on average invested capital was 17.9%, including the pro forma impact of Stromag.

Since acquiring Stromag, good progress has been made in integrating the business, leveraging its customer relationships and extensive sales network, including its presence in the US, Brazil, India and China, and offering enhanced customer solutions through combined technology capabilities.

With its broader "Power Source to Power Applied" product portfolio, recent examples of GKN Land System's new business wins include: prototype overload clutch for Atlas Copco/Carraro in a mining application; drivetrain for a combine header for a Claas harvester; brakes a for Mitsubishi wind turbine.

Other Businesses

GKN's other businesses comprise Cylinder Liners, which is mainly a 59% 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 £48 million (2011: £53 million), reflecting the slowing sales in the commercial vehicle market. Trading profit was £1 million (2011: £2 million).

Hoeganaes' Gallatin plant, USA

As previously reported, on 27 May 2011, the Hoeganaes Gallatin plant in the US was temporarily closed following a hydrogen explosion. In the first half of 2011, £23 million of costs were recorded. In the second half of 2011 a further £11 million of costs were recorded, offset by initial recoveries of £15 million from an insurance claim. During the first half of 2012, a further £2 million net has been recovered from external insurance claims.

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 £16 million (2011: £7 million), the increase principally reflecting transaction costs, including those related to the proposed acquisition of Volvo Aero which was announced on 5 July 2012.

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 2012 and 30 June 2012, 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 £18 million (2011: £24 million credit). There was a £1 million charge arising from a change in the value of embedded derivatives in the period (2011: £2 million charge) and a credit of £1 million attributable to the translational currency impact on intra-group funding balances (2011: £4 million charge).

Amortisation of non-operating intangibles arising on business combinations

The charge for the amortisation of non-operating intangible assets (for example, customer contracts, technology assets and intellectual property rights) arising on business combinations was £16 million (2011: £10 million). The increase reflects the impact of the Group's acquisitions in 2011 of Getrag Driveline Products and Stromag.

Gains and losses on changes in Group structure

During the period the Group sold its 49% share in a joint venture company, GKN JTEKT (Thailand) Limited for cash consideration of £1 million, realising neither a profit nor loss.

Post-tax earnings of joint ventures

On a management basis, the sales and trading profits of joint ventures 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 of joint ventures in the period was £23 million (2011: £20 million) with trading profit of £29 million (2011: £26 million). The Group's share of post-tax earnings on a management basis was £24 million (2011: £21 million). The Group's share of the tax charge amounted to £5 million (2011: £5 million) with no net financing costs in either period. The organic increase in trading profit was £2 million.

Net financing costs

Net financing costs totalled £35 million (2011: £28 million) and include the non-cash charge on post-employment benefits of £11 million (2011: £8 million) and unwind of discounts of £2 million (2011: £1 million). Interest payable was £27 million (2011: £21 million), whilst interest receivable was £5 million (2011: £2 million) resulting in net interest payable of £22 million (2011: £19 million). The £3 million increase in net interest payable is primarily as a result of the increased borrowings following the acquisitions in 2011.

The non-cash charge on post-employment benefits arises as the expected return on scheme assets of £72 million (2011: £77 million) was more than offset by interest on post-employment obligations of £83 million (2011: £85 million). Details of the assumptions used in calculating post-employment costs and income are provided in note 10 to the financial statements.

Profit before tax

Management profit before tax was £266 million including a net £2 million credit following a further insurance claim recovery relating to the temporary closure of the Hoeganaes Gallatin plant in 2011, described above (2011: £200 million, including a £23 million charge relating to the Gallatin impact). The profit before tax on a statutory basis was £289 million (2011: £202 million).

Taxation

The book tax rate on management profits of subsidiaries was 17% (2011:16%), arising as a £40 million tax charge on management profits of subsidiaries of £242 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 34% (2011: 31%). The book tax rate is significantly lower, largely because of the recognition of substantial deferred tax assets (mainly in the UK and US) due to increased confidence in the Group's ability to offset brought forward tax deductions against future taxable profits in various countries.

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 14%. 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 20% (2011: 15%) arising as a £53 million tax charge on a statutory profit of £266 million.

Non-controlling interests

The profit attributable to non-controlling interests was £12 million (2011: £14 million) including a £10 million (2011: £11 million) impact from the pension partnership arrangement.

Earnings per share

Management earnings per share was 14.4 pence (2011: 10.9 pence, including the effect of the £23 million net charge relating to the Hoeganaes incident at Gallatin, US). On a statutory basis earnings per share was 14.4 pence (2011: 10.4 pence).

Dividend

In view of the improving trading performance, the Board has decided to pay an interim dividend of 2.4 pence per share (2011: 2.0 pence). The interim dividend will be paid on 24 September 2012 to shareholders on the register at 10 August 2012. 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 3 September 2012.

Cash flow

Operating cash flow, which is defined as cash generated from operations of £215 million (2011: £175 million) adjusted for capital expenditure (net of proceeds from capital grants) of £149 million (2011: £131 million) and proceeds from the disposal / realisation of fixed assets of £nil million (2011: £2 million), was an inflow of £66 million (2011: £46 million).

Within operating cash flow there was a movement in working capital and provisions of £141 million (2011: £102 million), including cash outflow from previous restructuring plans of £3 million (2011: £22 million). Average working capital as a per cent of sales was 7.9% (2011: 6.9%).

Capital expenditure (net of proceeds from capital grants) on both tangible and intangible assets totalled £149 million (2011: £131 million), including £13 million (2011: £35 million) on the A350 programme. Of this, £127 million (2011: £108 million) was on tangible fixed assets and was 1.2 times (2011: 1.2 times) the depreciation charge. Expenditure on intangible assets, mainly non-recurring costs on Aerospace programmes, totalled £22 million (2011: £23 million).

Net interest paid totalled £25 million (2011: £14 million) as a result of the additional debt required to fund the 2011 acquisitions and tax paid in the period was £24 million (2011: £13 million).

Free cash flow

Free cash flow, which is operating cash flow including joint venture dividends and after interest, tax, amounts paid to non-controlling interests and shares purchased but before dividends paid to GKN shareholders, was an inflow of £28 million (2011: £25 million). The year on year change reflects an improvement in profitability partially offset by increased capital expenditure and working capital outflow.

Net borrowings

At the end of the period, the Group had net debt of £590 million compared with £538 million at 31 December 2011.

Post-employment obligations

GKN operates a number of defined benefit and defined contribution pension schemes together with retiree medical arrangements across the Group. The amount included within trading profit for current service cost is £20 million (2011: £19 million). Other net financing charges of £11 million (2011: £8 million) have increased due to lower returns on scheme assets relative to the interest cost on scheme liabilities.

The deficit of all schemes at 30 June 2012 was £926 million, a £58 million increase over 31 December 2011 (£868 million deficit).

The UK deficit of £322 million was £50 million higher than the 31 December 2011 year end figure of £272 million. The change was mainly due to the change in discount rate used from 4.7% to 4.6%.

On 1 April 2012 the Group transferred the assets and liabilities of its defined benefit pension scheme of the hourly paid workers at GKN Aerospace's St. Louis facility to the International Association of Machinists and Aerospace Workers ('IAM') National Pension Fund. As a result there was a net pension scheme curtailment benefit of £35 million.

The post-employment obligations of overseas businesses, which is mostly the unfunded schemes in Germany, was largely unchanged at £604 million (31 December 2011: £596 million) and reflected the positive impact of exchange rates (£17 million) more than offset by a decrease of 120 bps in the European discount rate to 3.7%.

Contributions for the six months across the Group totalled £42 million (2011: £34 million). In addition, the Group paid £30 million from the Pension partnership to the UK Pension scheme in June 2012.

Net assets

Net assets of £1,578 million were £46 million lower than the December 2011 year end figure of £1,624 million. The decrease includes profit attributable to equity shareholders of £224 million offset by adverse currency movements of subsidiaries of £66 million, actuarial losses in respect of post-employment obligations of £121 million and distributions to both equity shareholders and non-controlling interests of £92 million.

Exchange rates

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

The approximate impact on first half 2012 trading profit of subsidiaries and joint ventures of a 1% movement in the average rate would be euro - £1 million, US dollar - £1 million.

Funding and liquidity

At 30 June 2012, UK committed bank facilities were £755 million. Within this there are committed revolving credit facilities of £675 million. At 30 June 2012, drawings against the revolving credit facilities were £297 million. Capital market borrowings at 30 June 2012 were the £350 million 6.75% bonds maturing in October 2019. The outstanding £176 million 7% 2012 unsecured bond was repaid in the period. In addition to the above, adequate new banking facilities have been arranged in relation to the proposed acquisition of Volvo Aero.

Financial resources and going concern

At 30 June 2012, the Group had gross borrowings of £802 million (31 December 2011: £694 million) and cash and deposits of £212 million (31 December 2011: £156 million) resulting in net borrowings of £590 million (31 December 2011: £538 million).

The Directors have assessed the future funding requirements of the Group and compared them to the level of committed available borrowing facilities. The assessment included a review of both divisional and Group financial forecasts, for the 15 months from the balance sheet date.

The forecasts show that the Group will have a sufficient level of headroom in the foreseeable future and the Directors have assessed that the likelihood of breaching covenants in this period is remote.

Having undertaken this work, the Directors are of the opinion that the Group has sufficient committed resources to fund its operations for the foreseeable future and so determine that it is appropriate for the financial statements to be prepared on a going concern basis.

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 2011 annual report. Overall macro-economic and political uncertainty, Eurozone instability, US budget priorities, and inflation in Asian and other economies continue to influence the macro environment, and to varying degrees are manifested in uneven growth geographically which could adversely impact Group results. 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; volatile input costs; product quality issues; inadequate safety processes; lack of technical capability and management depth; effectiveness of acquisition integration; pension deficit volatility; 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 36 and 37 of the 2011 annual report.

Basis of Reporting

The financial statements for the period are shown on pages 17-34 and have been prepared using accounting policies which were used in the preparation of audited accounts for the year ended 31 December 2011 and which will form the basis of the 2012 Annual Report.

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 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 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, joint venture dividends, own shares purchased 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 joint ventures excluding current and deferred tax, net debt, post-employment obligations and derivative financial instruments.

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 2011 Annual Report that could do so.

The Directors of GKN plc are listed in the GKN annual report for 2011; however since the publication of the annual report Mr. R. D. Brown has retired from the Board.

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

Mike Turner

Chairman

30 July 2012

APPENDICES