Results for the period ended 30 June 2015

NEWS RELEASE 28 July 2015

GKN plc Results Announcement for the six months ended 30 June 2015

Group Highlights(1)

· Sales increased 1% organically

· Trading margin improved to 9.0%

· Profit before tax (management basis) up 4%

· Reported profit before tax was £212 million (2014: £224 million)

· Earnings per share up 1%, impacted by an increased tax rate of 24% (2014: 22%)

· Interim dividend increased 4% to 2.9 pence per share

· Free cash flow of £21 million (2014: £19 million)

· Net debt of £708 million (31 December 2014: £624 million), reflecting normal seasonality

· Acquisition of Fokker Technologies and placing announced separately today.

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

"This was another solid performance, particularly in our automotive businesses, with GKN Driveline delivering 4% organic sales growth and an 8.3% trading margin while GKN Powder Metallurgy achieved an 11.8% margin. GKN Aerospace delivered in line with expectations and won some important new contracts for the future. We have continued to perform well against our key markets and report good results in spite of some end market weakness, particularly in GKN Land Systems. We expect these trends to continue in the second half and for 2015 to be another year of growth.

The acquisition of Fokker Technologies, also announced today, supports our strategy, brings excellent technology, an expanded geographic footprint and additional content on high growth aerospace programmes."

Divisional Highlights

GKN Aerospace

· Organic growth in commercial aerospace (+2%) partially offset by decline in military (-4%)

· Acquisition of Sheets Manufacturing Inc., to support a new contract for engine inlet lip skins for the Boeing 737Max and Boeing 777X, and additional content on Boeing 787

· New work packages won exceed $2.3 billion over contract lives

· Acquisition of Fokker Technologies Group B.V., announced today, supports GKN Aerospace strategy

GKN Driveline

· Growth continues ahead of global auto production helped by increased content per vehicle

· Trading margin improved to 8.3%

· £460 million of annualised new and replacement business won

GKN Powder Metallurgy

· Trading margin increased to 11.8%

· Strong focus on technology and £90 million annualised new and replacement business won

· Chinese powder joint venture agreed subject to approvals

GKN Land Systems

· Organic sales down 8% mainly due to challenging agricultural equipment markets

· Strong cost control results in trading margin of 4.0%, including £5 million restructuring charge

Outlook

GKN Aerospace's 2015 organic sales are expected to be broadly flat, reflecting growth in commercial aircraft production, a decline in military markets and the phasing of our programmes. A strong commercial order book supports attractive growth for GKN Aerospace over the medium term.

In automotive, external forecasts predict growth in global light vehicle production of around 2% with increases in India, China, North America and Europe offsetting a decline in Japan and Brazil. Against this background, GKN Driveline and GKN Powder Metallurgy are expected to continue to grow organically above the market.

Global agricultural equipment markets are expected to remain soft with only modest improvement in industrial markets. As a result, GKN Land Systems 2015 sales are expected to be lower than 2014 and the remaining £3 million restructuring charge is planned in the second half to reduce further the fixed cost base.

Although some markets remain challenging, 2015 is expected to be a year of further growth. Beyond 2015, we are well positioned to outperform in our large global markets.

Notes

(1) Financial information set out in this announcement, unless otherwise stated, is presented on a management basis as defined on page 13.

Cautionary Statement

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

Further Enquiries

Analysts/Investors:

Guy Stainer, Investor Relations Director, GKN plc

T: +44 (0)207 463 2382

M: +44 (0)7739 778187

E: [email protected]

Media:

Chris Fox, Group Communications Director, GKN plc

T: +44 (0)1527 533238

M: +44 (0)7920 540051

E: [email protected]

Andrew Lorenz, FTI Consulting

T: +44 (0)203 727 1323

M: +44 (0)7775 641807

There will be an analyst and investor meeting today at 08.30am at the Grand Hall, JP Morgan,

60 Victoria Embankment, London EC4Y 0JP.

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

Slides will be put onto the GKN website approximately 45 minutes before the presentation is due to begin, and will be available to download from the GKN website at: http://www.gkn.com/investorrelations/News/Pages/default.aspx.

Questions will only be taken at the event.

A live dial in facility will be available by telephoning: +44 (0) 1452 557 851, Conf ID: 85540574

Following the event, the webcast will be made available on the company website www.gkn.com and a replay of the conference call will be available until 28 August 2015 on:

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

Replay Access Number: 85540574

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

NEWS RELEASE

GKN plc Results Announcement for the six months ended 30 June 2015

Group Overview

Markets

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

Results

Organic sales increased £50 million (1%). The effect of currency translation on management sales was a £20 million benefit and there was a £2 million benefit from acquisitions which was more than offset by a £47 million reduction due to disposals.

Organic trading profit increased £3 million (1%) with improvements in GKN Aerospace, GKN Driveline and GKN Powder Metallurgy whilst GKN Land Systems declined. There was a favourable currency translational impact of £9 million and a negative net effect of acquisitions and disposals of £6 million. Corporate costs were lower due to the recognition of a £7 million UK pension past service credit partly offset by £3 million of acquisition related costs.

Group trading margin in the first half was 9.0% (2014: 8.9%). Return on average invested capital (ROIC) was 17.5% (2014: 16.9%).

Divisional Performance

GKN Aerospace

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

The overall aerospace market remains positive in 2015 driven by a growing commercial aircraft market partly offset by a declining military market. The division's commercial sales were 74%, with military representing 26%.

In commercial, both Airbus and Boeing continue to benefit from higher deliveries and a record order backlog, and both have announced plans to increase production levels for single aisle aircraft in the future. There is also more demand for strong global suppliers to support their expansion plans.

Military spending remains under pressure, largely driven by cutbacks throughout the USA and Europe, with the ramp-up of new programmes being delayed and overseas military operations reduced.

The key financial results for the period are as follows:

Organic sales were £7 million (1%) higher. Commercial organic sales were 2% higher, benefiting from stronger orders for business jets and A350 partly offset by a reduction in A330 production. Military organic sales were 4% lower primarily due to the ending of the C-17 programme in the second half of 2014. There was a £64 million (5%) benefit from currency translation.

The organic increase in trading profit was £4 million. There was a favourable currency translation impact of £8 million.

Each year there are commercial issues and provision movements which are included within the results. During the last six months, progress has been made on an engine contract which resulted in a release of £10 million and a warranty matter has been resolved with a £5 million credit (2014: £4 million for milestones achieved in relation to the divestment of Composite Technology and Applications Limited (CTAL)).

Trading margin was 11.4% (2014: 11.0%). Return on average invested capital was 17.7% (2014: 16.8%).

During the period a number of important milestones were achieved including:

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

· Winning a contract to supply wing skins to Gulfstream for their G500 and G600 ultra long range business jets;

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

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

· Entering into a strategic partnership with Arcam AB to develop and industrialise one of the most promising new additive manufacturing processes to meet the needs of the expanding future aerospace market.

Automotive market

The major automotive markets of China, India, North America and Europe experienced increased production in the first half of the year compared to 2014, while Brazil and Japan declined. Overall, global production volumes increased by 0.9% to 44.8 million vehicles (2014: 44.4 million).

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

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

Production in North America benefitted from improved consumer confidence and localisation of foreign manufacturers' capacity. The deteriorating economy in Brazil caused vehicle manufacturers to cut back production in line with the significant fall in vehicle sales.

Weak production in Japan resulted from the long term trend in production moving offshore and the comparison with a strong first half of 2014, boosted by demand from consumer purchases to beat April 2014's rise in consumption tax. Production growth in China slowed to 5%, as the economy slowed whereas the rate of growth in Indian output increased to 6% due to stronger economic activity, improved consumer confidence and lower fuel prices.

External forecasts anticipate global production in 2015 will increase 2% to 88.9 million vehicles. The recovery in India will lead growth (6%) with China (5%) and North America (3%) in support. Production in Europe is forecast to increase 2% with the 4% rise in West Europe offset by continued problems in Russia. Production in Japan is expected to decline by 6% while that of Brazil is forecast to fall 16%.

GKN Driveline

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

The key financial results for the period are as follows:

Organic sales increased by £68 million (4%) compared with global vehicle production which was up 1%. The adverse effect of currency translation was £19 million (1%).

GKN Driveline's market outperformance was mainly in Europe reflecting recent market share gains, a stronger position in premium vehicles, demand for which continued to be positive, and GKN Driveline's broadening product mix, particularly with all-wheel drive (AWD) systems. GKN Driveline performed broadly in line with the markets in North America (reflecting its lower content on truck-based platforms) and China (recognising the strong comparator period in 2014 and its greater exposure to global brands, which performed less strongly than domestic producers). Growth in China is expected to be above the market in the second half due to the strong order book and new programme launches.

The organic improvement in trading profit was £6 million reflecting higher volumes in Europe. Profit conversion was limited by lower profitability in Japan and Brazil. The positive impact of currency translation on trading profit was £2 million. GKN Driveline's trading margin was 8.3% (2014: 8.0%). Return on average invested capital was 19.6% (2014: 17.9%).

During the period, around £460 million of annualised sales in new and replacement business was secured in CVJ and AWD systems and a number of important milestones achieved, including:

· Winning an Automotive News PACE award for its two-speed eAxle technology, showcased on the class-redefining BMW i8 plug-in hybrid supercar. GKN Driveline was also a finalist in the 'Product' category for its AWD disconnect technology featured on JLR's Active Driveline Range Rover Evoque, Fiat 500X and Jeep Renegade; 

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

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

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

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

GKN Powder Metallurgy

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

The key financial results for the period are as follows:

Organic sales at GKN Powder Metallurgy were £6 million higher (1%), after the £8 million pass through to customers of lower scrap steel prices. There was no impact from currency translation and there was a £3 million decline as a result of a disposal. Good growth was achieved in North America, China and Europe but sales in Brazil fell due to weaker automotive and industrial markets.

The organic increase in profit was £2 million and there was a £1 million gain on currency translation. The divisional trading margin was 11.8% (2014: 11.3%) reflecting the move towards higher value "design for powder metallurgy" parts and a small margin benefit from lower raw material prices passed through to customers.  Return on average invested capital was 22.0% (2014: 21.0%), reflecting the improvement in profitability.

During the period, GKN Powder Metallurgy continued to achieve a number of important milestones, which included:

· Continuing strong product and development activities in engines and transmissions;

· Award of £90 million of annualised sales in new and replacement business;

· Its position in China being further enhanced by agreeing to file for approval to form a new joint venture to produce metal powders; and

· Development of new technically enhanced powders continuing with a new research titanium atomizer being commissioned at the Powder Innovation Centre, in the USA.

GKN Land Systems

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

Sales in GKN Land Systems were lower than the prior year primarily due to progressively worsening agricultural equipment markets while demand for construction and industrial equipment remained relatively stable.

The key financial results for the period are as follows:

The organic decrease in sales was £32 million (8%) and the adverse impact of currency translation was £23 million (5%).

The organic decrease in trading profit was £14 million, including £5 million of restructuring charges in the first half of 2015. The negative impact of currency translation was £2 million. There is expected to be a further restructuring charge of £3 million in the second half. Trading margin was 4.0%, or 5.4% before restructuring charges (2014: 7.3%). Return on average invested capital was 7.6% (2014: 14.6%).

The first half of 2015 has been a period of tough trading and restructuring to right size the business for the future. At the same time good progress has been made in further developing capabilities in China and continuing to bring new technology leading products to customers.

Other Businesses and corporate costs

GKN's Other Businesses comprise Cylinder Liners (which is a 59% owned venture mainly in China, manufacturing engine liners for the truck market in the US, Europe and China), EVO eDrive Systems (a developer of axial flux motors) and GKN Hybrid Power (a mechanical flywheel energy storage and hybrid system manufacturer), acquired on 1 April 2014 from Williams Grand Prix Engineering Limited.

GKN's Other Businesses reported combined sales in the period of £23 million (2014: £66 million), reflecting a £1 million organic increase in sales and £2 million benefit from acquisitions, more than offset by the £44 million impact from the disposal of Emitec on 31 July 2014 and £2 million adverse currency translation. A trading loss of £2 million was reported in the first half (2014: £5 million profit) reflecting the disposal of Emitec and the start-up costs of GKN Hybrid Power.

Corporate costs, which comprise the costs of stewardship of the Group and operating charges and credits associated with the Group's legacy businesses, were £6 million (2014: £12 million), primarily due to a £7 million past service credit following completion of a Pension Increase Exchange exercise in the UK partly offset by £3 million of acquisition related costs.

Other Financial Information

All comparative information provided below relates to the first half of 2014, unless otherwise stated.

Items excluded from management trading profit

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

Change in value of derivative and other financial instruments

The change in value of derivative and other financial instruments during the period resulted in a loss of £20 million (2014: loss of £7 million).

When the business wins long term customer contracts that are in a foreign currency, the Group mitigates the potential volatility of the future cash flows by hedging through forward foreign exchange contracts. At each period end, the Group is required to mark to market these contracts even though it has no intention of closing them out in advance of their maturity dates.  At 30 June 2015, the net fair value of such instruments was a liability of £211 million (31 December 2014: liability of £180 million) and the change in fair value during the year was a £31 million charge (2014: £11 million charge).

There was no change in the fair value of embedded derivatives in the period (2014: £1 million charge) and a net gain of £11 million attributable to the currency impact on Group funding balances (2014: £5 million net gain).

Amortisation of non-operating intangible assets arising on business combinations

The charge for the amortisation of non-operating intangible assets arising on business combinations (for example, customer contracts, order backlog, technology and intellectual property rights) was £36 million (2014: £35 million).

Gains and losses on changes in Group structure

The loss on changes in Group structure was £5 million (2014: nil).

On 30 January 2015, the Group sold GKN Sinter Metals Argentina SA for cash consideration of £1 million before cash disposed and fees. The carrying value on the date of disposal was £2 million and £4 million of previous currency variations were reclassified from other reserves resulting in a loss on sale of £5 million.

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 £34 million (2014: £31 million) with trading profit of £40 million (2014: £39 million). The Group's share of post-tax earnings on a management basis was £34 million (2014: £32 million). The Group's share of the tax charge amounted to £6 million (2014: £7 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 £67 million (2014: £66 million) and comprise the net interest payable of £33 million (2014: £37 million), a non-cash charge on post-employment benefits of £25 million (2014: £25 million), a £6 million charge for changes in fair value on net investment hedges (2014: nil) and unwind of discounts of £3 million (2014: £4 million). The non-cash charge on post-employment benefits, changes in fair value on net investment hedges and unwind of discounts are not included in management figures. Details of the assumptions used in calculating post-employment costs and income are provided in note 10 of the financial statements.

Profit before tax

Management profit before tax was £307 million (2014: £296 million). Profit before tax on a statutory basis was £212 million (2014: £224 million). The main differences in the first half of 2015 between management and statutory figures are the change in value of derivative and other financial instruments, amortisation of non-operating intangible assets and the interest charge on net defined benefit pension plans. Further details are provided in note 3 to the financial statements.

Taxation

The book tax rate on management profits of subsidiaries was 24% (2014: 22%), arising as a £66 million tax charge (2014: £58 million charge) on management profits of subsidiaries of £273 million (2014: £264 million).

The Group's theoretical weighted average tax rate, which assumes that book profits/losses are taxed at the statutory tax rates in the countries in which they arise, is 33% (2014: 33%). The book tax rate is significantly lower, largely because of the utilisation of deferred tax assets, movements in tax risk provisions as outstanding issues are settled and tax on items excluded from management profit.

The tax rate on statutory profits of subsidiaries was 26% (2014: 20%) arising as a £46 million tax charge (2014: £39 million charge).

Non-controlling interests

The profit attributable to non-controlling interests was £3 million (2014: £2 million).

Earnings per share

Management earnings per share was 14.5 pence (2014: 14.4 pence). On a statutory basis earnings per share was 9.9 pence (2014: 11.2 pence), impacted by an increased charge on the change in value of derivatives and other financial instruments and an increased tax charge.

Dividend

In view of the Group's continued progress, the Board has decided to pay an interim dividend of 2.9 pence per share (2014: 2.8 pence), an increase of 4%. The interim dividend will be paid on 21 September 2015 to shareholders on the register at 14 August 2015. 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 28 August 2015.

Cash flow

Operating cash flow, which is defined as cash generated from operations of £242 million (2014: £227 million) adjusted for capital expenditure (net of proceeds from capital grants) of £198 million (2014: £161 million), proceeds from disposal of fixed assets £2 million (2014: £7 million), was an inflow of £46 million (2014: £35 million). 2014 operating cash flow included repayment of the principal of a UK government refundable advance of £38 million.

Capital expenditure (net of proceeds from capital grants) on both tangible and intangible assets totalled £198 million (2014: £161 million). Of this, £166 million (2014: £132 million) was on tangible fixed assets and was 1.6 times (2014: 1.2 times) the depreciation charge. Expenditure on intangible assets, mainly non-recurring costs on Aerospace programmes, totalled £32 million (2014: £29 million).

Interest paid was £22 million (2014: £39 million), whilst interest received was £1 million (2014: £1 million) resulting in net interest paid of £21 million (2014: £38 million, including £16 million interest paid on repayment of a Government refundable advance).

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 £21 million (2014: £19 million).

Net debt

At the end of the period, the Group had net debt of £708 million (2014: £813 million) after payment of the 2014 final dividend of £92 million. In September 2014, the Group entered into a series of cross currency interest rate swaps to better align its foreign currency income receipts with its debt coupon payments. The fair value of these derivative instruments at 30 June 2015 was a liability of £10 million (31 December 2014: £26 million liability) which is included in the net debt figure of £708 million.

Pensions and 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 the period comprises current service cost of £27 million (2014: £23 million) and administrative costs of £1 million (2014: £1 million). Interest on net defined benefit plans, which is excluded from management figures, was £25 million (2014: £25 million).

The deficit across all schemes at 30 June 2015 was £1,533 million, a £178 million decrease over the 31 December 2014 deficit (£1,711 million). This decrease is caused by favourable changes in the discount rates used, further deficit contributions and beneficial currency movements.

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

A "pension increase exchange" (PIE) exercise was completed in the UK legacy scheme, GKN1, during the period. This involved pensioners being offered the no-obligation opportunity to exchange future inflationary increases to their pensions for a one-off payment with no future increases. Around 54% of members eligible for the offer accepted it. Due to differences in the inflation assumption used to determine the pension increases and those used for accounting purposes, the PIE exercise has led to a £7 million income statement credit which has been recognised in trading profit.

Group-wide contributions totalled £71 million (2014: £71 million), including a £30 million payment from the pension partnership to the UK pension schemes and £12 million from the deficit recovery plan and a bulk annuity "buy-in" funding.

Defined contribution pension schemes

In addition to the defined benefit pension schemes, the Group also operates a number of defined contribution pension schemes for which the income statement charge was £20 million (2014: £16 million).

Net assets

Net assets of £1,580 million were £79 million higher than the December 2014 year end figure of £1,501 million. The increase includes statutory profit after tax of £166 million and a gain on re-measurement of defined benefit plans net of tax of £78 million partially offset by dividends paid to equity shareholders of £92 million and adverse currency on translation of subsidiaries and joint ventures net of tax of £98 million.

Exchange rates

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

The approximate impact on first half 2015 trading profit of subsidiaries and joint ventures of a 1% movement in the average rate would be euro - £1 million, US dollar - £2 million.

Funding, liquidity and going concern

At 30 June 2015, UK committed bank facilities were £879 million. Within this amount were committed Revolving Credit Facilities of £800 million, £64 million outstanding on an eight-year amortising facility from the European Investment Bank (EIB) and a new euro denominated £15 million seven-year amortising facility from KfW, which was fully drawn at inception. There were drawings of £56 million against the Revolving Credit Facilities. 

As at 30 June 2015, the next major maturities of the Revolving Credit Facilities were for £800 million in 2019.

Capital market borrowings at 30 June 2015 comprised a £350 million 6.75% annual unsecured bond maturing in October 2019 and a £450 million 5.375% semi-annual unsecured bond maturing in September 2022. As at 30 June 2015, the Group had net debt of £708 million (31 December 2014: £624 million).

All of the Group's committed credit facilities have financial covenants requiring EBITDA of subsidiaries to be at least 3.5 times net interest payable and for net debt to be no greater than 3 times EBITDA of subsidiaries. The covenants are tested every six months using the previous 12 months' results. For the 12 months to 30 June 2015, EBITDA was 12.6 times greater than net interest, whilst net debt was 0.8 times EBITDA.

Following an assessment of the Group's principal risks and consideration of current financial forecasts the Directors consider it appropriate to adopt the going concern basis of accounting in preparing the interim financial statements.

Principal risks and uncertainties

The principal risks faced by the Group in the remaining six months of the year remain largely unchanged from those reported on pages 43 to 51 of the 2014 Annual Report. These risks relate to the following: highly competitive markets; supply chain; customer concentration; joint ventures; laws, regulations and corporate reputation; operating in global markets; technology and innovation; contract risk; programme management; product quality; people capability; health and safety; information system resilience; business continuity; and pension funding.

The acquisition of Fokker comes with transaction related risks, such as potential integration issues, difficulty achieving planned synergies, or unexpected compliance or litigation related costs. The Board has carefully reviewed these risks and considers them to be mitigated appropriately. The Group has considerable experience managing integration processes and integration plans will be regularly reviewed by divisional management, the Executive Committee and the Board.

Basis of Reporting

The financial statements for the period are shown on pages 16 to 33 and have been prepared using accounting policies which were used in the preparation of audited accounts for the year ended 31 December 2014 and which will form the basis of the 2015 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:

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

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 2014 Annual Report that could do so.

The Directors of GKN plc are listed in the GKN annual report for 2014.

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

Mike Turner

Chairman

27 July 2015

APPENDICES