Annual Report and Accounts 2011 MARKET LEADERSHIP GROWTH OPERATIONAL EXCELLENCE SUSTAINABILITY ENGINEERING. for the future

Transcription

1 Aual Report ad Accouts 2011 MARKET LEADERSHIP GROWTH OPERATIONAL EXCELLENCE SUSTAINABILITY ENGINEERING for the future

2 2011 performace Fiacial highlights (12 moths eded 31 December 2011) Group sales up 683 millio (13%) to 6.1 billio. Excludig et 19 millio charge for temporary plat closure at Hoegaaes, Gallati, USA: Tradig profit of 487 millio, up 76 millio a icrease of 18%. Group tradig margi of 8.0%, up from 7.6%; icreased targets set for three divisios. Profit before tax of 417 millio, a icrease of 15%. Reported profit before tax, 351 millio. Retur o average ivested capital (excludig 2011 acquisitios) of 18.3%, reflectig higher profitability. Earigs per share up 9% to 22.6 pece per share. Fial divided of 4.0 pece per share, givig a total for 2011 of 6.0 pece per share, a 20% icrease. Net debt of 538 millio, reflectig 444 millio expediture o ew acquisitios. Statutory basis Sales 5,746m 2010: 5,084m Profit before tax 351m 2010: 345m Earigs per share 18.0p 2010: 19.6p Maagemet basis* Sales 6,112m 2010: 5,429m Profit before tax 417m 2010: 363m Earigs per share 22.6p 2010: 20.7p * See page 24 for details of measuremet ad reportig of performace o a maagemet basis.

3 .01 GKN at a glace GKN Drivelie GKN Drivelie is the world s leadig supplier of automotive drivelie systems ad solutios. As a global busiess servig the leadig vehicle maufacturers, GKN Drivelie develops, builds ad supplies a extesive rage of automotive drivelie products ad systems for use i the smallest ultra low-cost car to the most sophisticated premium vehicle demadig the most complex drivig dyamics. Products Costat velocity joited systems icludig CV joits ad sideshafts. All-wheel drive (AWD) systems icludig propshafts, coupligs ad fial drive uits. Tras-axle solutios icludig ope, limited slip ad lockig differetials ad electroic torque vectorig products. edrive systems icludig electric rear axles ad electric trasmissios. Strategy Our strategy is to develop our market-leadig presece, superior techology ad global maufacturig footprit to: provide iovative drivelie systems ad solutios, supportig developig market treds for more fuelefficiet vehicles; ad icrease our busiess i high-growth regios servig the eeds of strategic customers. GKN Powder Metallurgy GKN Powder Metallurgy is the world s largest maufacturer of sitered compoets. It comprises Hoegaaes ad GKN Siter Metals. Hoegaaes produces the metal powder that GKN Siter Metals uses to maufacture precisio automotive compoets for egies, trasmissios ad body ad chassis applicatios. It also produces a rage of compoets for idustrial ad cosumer applicatios. Products Sitered compoets for egies ad gearboxes, as well as bodies ad chassis. Sitered bearigs ad filters. Metal ijectio moulded compoets. Soft magetic compoets for use i electric motors. Sitered compoets for umerous idustrial applicatios. Strategy Our strategy is to exploit powder metal techology, workig closely with our customers to develop desig for powder metal applicatios to: meet the rapidly developig requiremets for highefficiecy egies, advaced trasmissio applicatios ad evolvig emissios stadards; ad expad the busiess i high-growth markets, supportig customers globally. Number of employees: 21,100 Locatios: Operatioal i 51 locatios across 23 coutries. Number of employees: 6,400 Locatios: Operatioal i 30 locatios across 14 coutries. SALES BY CUSTOMER SALES BY CUSTOMER 6% Mitsubishi 7% Toyota 8% Ford 5% BMW 2% Tata Group 16% Volkswage Group 13% Reault Nissa Group 2% Hilite 2% Volkswage Group 2% Liamar 3% Fiat/Chrysler 2% Bosch 8% Ford 6% Geeral Motors 5% ZF Group 23% Other 11% Fiat/Chrysler 9% Geeral Motors 70% Other

4 .02 GKN Aerospace GKN Aerospace is a world leadig global first tier supplier of airframe ad egie structures, compoets, assemblies ad trasparecies to a wide rage of aircraft ad egie prime cotractors ad other first tier suppliers. It operates i three mai product areas: aerostructures, egie compoets/sub-systems ad special products. GKN Lad Systems GKN Lad Systems is a leadig supplier of techology differetiated power maagemet solutios ad services. It desigs, maufactures ad supplies products ad services for the agricultural, costructio, miig ad idustrial machiery markets. I additio, it provides global aftermarket distributio ad through-life support. Products Itegrated aerostructures, icludig wig ad flight cotrol surface sub-assemblies ad fuselage structures ad surfaces. Fixed ad rotatig propulsio products for aircraft egies; fa cases, blades, exhaust systems ad acelles. Trasparecies icludig specially coated cockpit ad cabi widows. Niche products such as ice protectio, fuel systems ad flotatio devices. Strategy Our strategy is to focus ivestmet i core market techology developmet ad applicatio, to: exploit our strog positios o existig programmes for ew aircraft ad pursue log-term cotracts o selective high-growth ad log-ruig platforms; develop ew techologies for future commercial ad defece aircraft, improve fuel efficiecy, reduce emissios ad miimise the evirometal impact of aviatio; ad expad ito adjacet markets with similar product techologies ad maufacturig capabilities. Number of employees: 8,500 Locatios: Operatioal i 27 locatios across five coutries. Products Electro-mechaical power maagemet devices such as electro-magetic brakes, egieered flexible coupligs, clutches, driveshafts ad gear techology. Sesors, actuators ad cotrols. Sigle ad multi-piece steel ad alumiium wheels. Structures ad chassis systems. Aftermarket parts ad remaufacturig for passeger cars, commercial trucks, agricultural ad costructio vehicles. Strategy Our strategy is to build a global leader i idustrial power maagemet solutios o a platform of itegrated powertrai systems ad services, icludig: developig capability i electro-mechaical compoets; expadig the busiess for existig products ito ew markets; ad improvig customer performace by offerig safe, efficiet ad reliable power maagemet, together with icreased electrificatio ad use of lightweight structures. Number of employees: 5,900 Locatios: Operatioal i 40 locatios across 17 coutries. SALES BY CUSTOMER SALES BY CUSTOMER 2% Hoeywell 2% Bombardier 3% Spirit 3% Rolls-Royce 5% Geeral Electric 5% Lockheed Marti 31% EADS 1% Daimler Group 2% Volkswage Group 2% JCB 2% Ford Group 3% Agco 4% Claas 4% Caterpillar 8% Joh Deere 7% Case New Hollad 6% Tata Group 17% Other 61% Other 13% Uited Techologies 19% Boeig

5 This is GKN.03 GKN plc Aual Report ad Accouts 2011 GKN is a global egieerig group our techologies ad products are at the heart of vehicles ad aircraft produced by the world s leadig maufacturers. GKN operates four divisios: GKN Drivelie, GKN Powder Metallurgy, GKN Aerospace ad GKN Lad Systems. Approximately 44,000 people work i GKN compaies ad joit vetures i more tha 35 coutries. We haress our cosiderable techology ad maufacturig resources to supply the highest quality systems, structures, compoets ad services Directors report busiess review IFC 2011 performace 01 GKN at a glace 03 This is GKN 04 Chairma s statemet 06 Chief Executive s review 08 Busiess model 10 GKN strategy 12 Key performace idicators 14 Strategy i actio Market leadership Growth Operatioal excellece Sustaiability 22 Our markets 24 Review of performace 36 Risks ad ucertaities 38 Sustaiability report Directors report goverace 44 The Board 46 Corporate goverace 53 Nomiatios Committee report 54 Audit Committee report 56 Remueratio report 69 Other statutory iformatio 72 Statemet of Directors resposibilities Fiacial statemets 73 Idepedet auditors report (Group) 74 Group fiacial statemets 121 Idepedet auditors report (Compay) 122 Compay fiacial statemets 125 Group fiacial record Busiess review Goverace Fiacial statemets.4 Other iformatio 126 Key subsidiaries ad joit vetures 128 Shareholder iformatio 130 Subject idex 131 Cotact details Other iformatio Key IFC Iside Frot Cover

6 .04 Chairma s statemet GKN performed very well i 2011, deliverig a strog set of results, despite cotiuig macroecoomic ucertaities. Roy Brow Chairma Deliverig strog results It is particularly pleasig to report, i my fial statemet as Chairma, that GKN performed very well i 2011, deliverig a strog set of results despite cotiuig macroecoomic ucertaities. Maagemet profit before tax was 417 millio ad earigs per share icreased to 22.6p. We made good progress agaist our fiacial KPIs, ad et debt, excludig the acquisitio costs of Stromag Holdig ad Getrag Drivelie Products, cotiued to reduce. These two acquisitios, i GKN Lad Systems ad GKN Drivelie respectively, strogly uderpi our strategy of providig log-term sustaiable growth. I light of our performace ad our cofidece i the future prospects of the Compay, the Board is recommedig to shareholders a fial divided of 4.0p, which will brig the divided for the year to 6.0p. This is i lie with our progressive divided policy desiged to alig divideds with the log-term tred i earigs. Safety The safety of our people has always bee ad will cotiue to be of paramout importace. The Board deeply regrets the fatalities that occurred at our Hoegaaes plat i Gallati, USA, i the first half of the year. To esure that the lessos leart at Gallati are reflected i our operatig procedures ad health ad safety processes worldwide, we have put i place a umber of corrective actios ad improvemets described elsewhere i this aual report, to stregthe yet further our safety focus ad esure the safety ad wellbeig of all our employees Group wide. Goverace We are committed to maitaiig high stadards of corporate goverace i what is a costatly chagig regulatory ad goverace eviromet. We set out i the corporate goverace statemet o pages 46 to 52 our goverace procedures ad disciplies ad report o our compliace with the UK Goverace Code throughout the year. The statemet also describes our respose to Lord Davies report o Boardroom Diversity. I am satisfied that the Board cotiues to operate effectively, as cofirmed i this year s Board evaluatio review, details of which are give i the corporate goverace statemet.

7 .05 GKN plc Aual Report ad Accouts 2011 People A great compay like GKN is built by the tes of thousads of committed idividuals who make up its workforce. These are the people who go that extra mile every day to deliver superior products ad services for our customers ad value for all our shareholders. I would like to take this opportuity to thak them all for their efforts i Board chages There is of course oe specific idividual to whom I would like to address thaks. Sir Kevi Smith retired as Chief Executive at the ed of 2011 after ie years i that role ad over 12 years with the Compay. His leadership of the Group was outstadig, brigig together what some commetators suggested was the rump of the busiess followig the demerger of our idustrial services busiesses i 2001 ad developig it ito a world class egieerig compay focused o the automotive, aerospace ad lad systems markets. Kevi helped lay the strogest of foudatios for our growth strategy which we are o course to deliver. We thak him for his tremedous cotributio to the Group ad wish him well for the future. GKN is very fortuate to have a very capable successor to Kevi i Nigel Stei. Nigel has bee with GKN sice 1994 ad, havig served i a umber of roles icludig Group Fiace Director ad Chief Executive Automotive, he brigs extesive skill ad experiece to the role. I May 2011 we were pleased to welcome to the Board Tufa Ergibilgic who was appoited a o-executive Director. Tufa is Chief Operatig Officer for the Refiig ad Marketig divisio of BP plc ad his experiece of the global eergy idustry brigs a relevat ad distictive perspective to the Board. My term of office as Chairma of the Compay comes to a ed at the close of the Aual Geeral Meetig i May after a associatio with GKN of 16 years, eight of those as Chairma. It has bee a great privilege to be ivolved i the Group s progressio over that period. I November last year we aouced that Mike Turer will take over as Chairma whe I retire. Mike has bee a o-executive Director sice September 2009 ad was appoited Seior Idepedet Director i May His wealth of experiece i the egieerig sector ad his wide boardroom experiece make Mike a excellet choice. I wish him every success i the role. Outlook As I look back o my 16 years ivolvemet with GKN, the Compay that has developed over this period is much more focused o its core egieerig techology, uderpied by key capabilities that are deployed cosistetly across its operatios worldwide. GKN has weathered may storms i its log history ad, always midful of the challeges of the curret ucertai macroecoomic coditios, I am cofidet that GKN will cotiue to prosper for the beefit of all its stakeholders. Roy Brow Chairma

8 .06 Chief Executive s review GKN made good progress i 2011, achievig above-market growth ad with further developmet of our marketleadig busiesses icludig two importat acquisitios. Nigel Stei Chief Executive Buildig o a successful platform I am delighted ad hooured to have succeeded Sir Kevi Smith as Chief Executive. GKN is a great compay with a excellet team of committed people; I am cofidet that together we ca build o the platform he has developed ad cotiue the Group s success. I 2011 we posted strog growth ad delivered a good fiacial performace. All four of our divisios reported at or ear record profits. We made good progress o the strategic frot with two importat acquisitios ad we delivered cotiuous improvemet i our operatios strog order wis, acrossthe-board quality improvemets ad cotiued developmet of ew techology products. However, that positive progress was overshadowed by the very tragic evets i our Hoegaaes Gallati plat i Teessee, USA, where, i two separate ad urelated accidets, five colleagues lost their lives. These evets have left a deep scar o the whole Group ad a permaet ad sad loss to the families of five of our colleagues ad frieds. Followig the explosio i May 2011 the Gallati site was immediately shut dow ad a comprehesive safety review of the etire facility udertake. It was oly brought back ito operatio whe we were absolutely sure that all activities were safe. GKN has previously had a very strog safety record ad the health ad safety of our employees remais our umber oe priority. We are applyig the lessos leared from Gallati across the Group to esure that similar accidets will ot happe agai. We report o this more fully o pages 41 to 43. Our markets ad divisioal performace The recovery i global automotive productio cotiued throughout 2011, although atural disasters i Japa ad Thailad temporarily restricted output. Global automotive productio icreased 3% to 76.9 millio uits. GKN s global footprit, together with our excellet exposure to the high-performig Europea premium brads, eabled us to take full advatage of the market with uderlyig sales i GKN Drivelie ad GKN Powder Metallurgy icreasig by 10% ad 13% ad uderlyig profits icreasig by 12% ad 36% respectively. I GKN Aerospace, productio icreases o civil aircraft, such as the Airbus A320 ad A330, ad the cotiuig ramp-up i the productio schedules of ew platforms, such as the A380 ad Boeig 787, more tha balaced the declie i older military programmes such as the F-22 fighter aircraft ad C-17 trasporter. Therefore, uderlyig sales i this year icreased 4% with uderlyig profits up 4%.

9 Although defece budgets cotiue to be uder pressure, some 70% of US military cotracts are log-term or multi-year agreemets. I additio, GKN s positio i the civil market gives us cofidece of good growth ahead. GKN Lad Systems cotiued to beefit from the growth of global heavy costructio, miig ad agricultural equipmet markets ad this led to a 21% uderlyig icrease i sales ad a 84% icrease i uderlyig profit. Group performace GKN made good progress i 2011, achievig above-market growth ad with further developmet of our market-leadig busiesses icludig ew plat opeigs ad two importat acquisitios Getrag Drivelie Products i GKN Drivelie, ad Stromag Holdig i GKN Lad Systems. Overall Group sales were up 13% to 6.1 billio ad tradig profit icreased 18% to 487 millio before a 19 millio oe-off charge relatig to the temporary plat closure at Gallati, USA. Cash flow has agai bee strog ad et debt eded the year at 538 millio, 57 millio lower tha 2010, before the 444 millio cash cost of ew acquisitios. Buildig the future Despite the recessio ad o-goig macroecoomic ucertaities, we have cotiued to ivest i our busiesses, wiig ew orders, lauchig ew products ad expadig our global footprit. I GKN Drivelie, the sideshaft expasio programme is o track, with the first phase of our latest Chiese plat i Chagchu havig opeed i Jue ad the ext phase already uderway. Whe completed, this will create a capacity for two millio sideshafts. I Idia, a precisio forgig facility i Oragadam ear Cheai has opeed ad a ew sideshaft plat i Pue is also uder costructio. We cotiue to see strog growth i products for use i four-wheel ad all-wheel drive (4WD/AWD) vehicles. AWD is the fastest growig segmet i automotive drivelie ad the acquisitio of Getrag Drivelie Products, which provides strog operatig positios i Europe ad North America, makes GKN Drivelie the global leader i AWD systems ad compoets. GKN Drivelie is also buildig aother market-leadig positio i the emergig edrive compoet ad systems market. We have hybrid axle, ad electric ad hybrid trasmissios i productio lauch for customers i Japa, Europe ad North America, together with 20 o-goig developmet ad techology programmes across a broad rage of customers i Asia ad Europe. GKN Powder Metallurgy cotiues to beefit from icreasig treds i idustrial ad automotive markets to improve fuel efficiecy ad reduce emissios, which drive demad for compoets such as variable valve timig i egies, high-performace gear sets i automatic trasmissios ad differetial gears. GKN Aerospace has cotiued to secure extesios to existig programmes ad to wi additioal work packages o ew oes, wiig aroud US$3.5 billio of ew busiess durig the year. Despite pressure o US defece budgets, major multi-year cotracts were secured o a umber of US programmes both for US use ad also for sales to other coutries. Good progress o ew programmes was made with the first A350 wig spars beig delivered to Airbus i a extremely tight timescale. The Filto facility, UK, wo ew work packages with Bombardier ad Dassault ad our US busiess expaded its workscope with Boeig o the 787 ad I GKN Lad Systems, the acquisitio of Stromag broadeed our idustrial power maagemet applicatios ito areas such as reewable eergy ad craes, ad provides GKN with excellet techology ad products that ca be exploited i other markets. All these activities provide a strog platform for growth that will eable us to deliver sustaiable shareholder value. This requires a balaced approach: a balace betwee growth, which GKN is demostratig, betwee margi o sales, where we have moved ito our target rage, ad betwee retur o ivested capital. I busiess, there is always tesio betwee these three; we will be lookig to steer our busiesses o balaced paths to maximise Group earigs per share, divideds ad log-term shareholder value. I closig, I wat to pay tribute to GKN s employees for their commitmet ad their eterprise i buildig a exceptioal platform for GKN to cotiue to develop ad grow. I would also like to add my appreciatio to that of the Chairma i thakig Kevi for his cotributio over the past ie years as Chief Executive. Outlook Overall, the Group s broad exposure to global markets, strog customer positios ad a healthy order book meas that it should make further progress i 2012, with the added beefit of a full year cotributio from the recet acquisitios..07 GKN plc Aual Report ad Accouts 2011 Nigel Stei Chief Executive

10 .08 desigig Busiess model How we create value ew PrOductS ad SOlutiOS Ivestmet i techology, alog with a uderstadig of market treds ad customer eeds, results i iovative, high-quality products that are efficiet, sustaiable ad cost effective for our customers. Our busiess model is drive by, ad supports the achievemet of, our strategy to create log-term value for our shareholders ad eables us to achieve our strategic objectives (see page 10). Market leadership comes from our ability to iovate ad provide techological solutios for our customers, together with exceptioal levels of service, helpig to build log-lastig customer relatioships. Growth across the Group is derived from our global footprit, costat pursuit of ew busiess opportuities ad through expasio ito ew techologies ad markets. Operatioal excellece is a result of a focus o Lea maufacturig, the commitmet of our employees ad the culture of cotiuous improvemet that is embedded i our people aroud the world. Ad fially, at the heart of everythig we do is a drive for Sustaiability that is characterised by efficiet ad ethical operatios from wellsupported, motivated ad dyamic people. > > > deliverig high-quality PrOductS As a result, we deliver highquality products to the right place, at the right time, stregtheig customer relatioships ad creatig strog fiacial returs. OUR VALUES > >

11 > > > > > > wiig ew BuSieSS The combiatio of iovative solutios, GKN s maufacturig footprit ad egieerig capability, eables us to wi ew busiess by offerig solutios for our customers..09 GKN plc Aual Report ad Accouts 2011 > SUPERIOR TECHNOLOGY OUTSTANDING EMPLOYEES > Busiess review SharehOlder retur Log-term shareholder value is provided i the form of steadily growig earigs ad divideds. FOOTPRINT GLOBAL SOurciG raw MaterialS Sustaiably-sourced raw materials from log-stadig suppliers, together with capital ivestmet ad supplier maagemet expertise, are crucial to the GKN supply chai. > RESPONSIBILITY CORPORATE IMPROVEMENT CONTINUOUS > > applyig lea MaufacturiG A safe workig eviromet, ad cotiuous improvemets i our productio processes, with miimised use of resources ad evirometal impact, are a key focus i our facilities aroud the world.

12 .10 GKN strategy STRATEGIC GKN is committed to creatig log-term shareholder value i the form of steadily growig earigs ad divideds through the delivery of sustaied growth i sales, profitability ad cash geeratio. Market leadership Growth Achieve a leadig market share i our chose markets. Develop superior techology ad quality i all our busiesses. Deliver exceptioal customer service. Achieve above average market growth i our chose markets. Leverage ad exted our global footprit to icrease market share. Accelerate growth through value-ehacig strategic acquisitios. Operatioal excellece Develop a world-class, efficiet eterprise usig Lea maufacturig techiques. Be a employer of choice with a high-performace culture, motivated people ad outstadig leaders. Achieve preferred status with our strategic customers ad suppliers. Sustaiability objectives Develop products ad processes to help reduce emissios. Achieve a world-leadig health ad safety record. Have a positive impact o the eviromet ad commuities i which we operate. O the followig pages Fid out more about the progress made i each of these areas i the case studies o pages 14 to 21.

13 .11 GKN plc Aual Report ad Accouts 2011 KPIs (See pages 12 ad 13 for more iformatio.) Risk maagemet (See pages 36 ad 37 for more iformatio.) Key capabilities (See pages 38 to 43 for more iformatio.) Busiess review GKN moitors performace agaist strategy through key performace idicators (KPIs), both fiacial ad o-fiacial. Progress agaist these KPIs is reported regularly to the Board ad seior maagemet. I additio, certai KPIs are liked to executive remueratio. Fiacial KPIs most explicitly measure profitable growth. However, operatioal excellece ad market leadership support the delivery of customer satisfactio, ad cosequetly, esure GKN is well positioed to provide growth for shareholders. No-fiacial KPIs idicate progress i creatig a sustaiable busiess model, i terms of employee egagemet ad health ad safety performace, as well as GKN s evirometal impact. GKN has a extesive risk maagemet framework desiged to idetify, assess ad mitigate sigificat busiess risks which, if ot mitigated, could impact delivery of the strategic pla. Risk maagemet processes operate throughout the Group at plat, divisioal ad corporate levels ad regular reports are made to the GKN Board ad its Committees. Uderpiig the delivery of the GKN strategy are key Groupwide capabilities: superior techology; recruitig, retaiig ad developig outstadig employees; leveragig a global footprit; a culture of cotiuous improvemet; ad a commitmet to corporate resposibility. These are at the heart of the GKN busiess model, together with our Values which bid the Group together ad guide relatioships with all stakeholders.

14 .12 Key performace idicators Fiacial KPIs Sales growth (a)(b) ,112m ,429m ,454m ,617m ,100m Earigs per share (EPS) (b) p p p p p Method of calculatio Maagemet sales (c) measured both i absolute terms ad o a uderlyig basis (i.e. excludig the effects of currecy traslatio, acquisitios ad divestmets) relative to the prior year. target To achieve growth rates at both a Group ad divisioal level (i absolute terms ad o a uderlyig basis) i excess of the growth i our major automotive, aerospace ad lad systems markets performace Group maagemet sales (c) grew by 13% o a absolute basis ad 10% o a uderlyig basis. The correspodig figures for GKN Drivelie were icreases of 15% ad 10% respectively, for GKN Powder Metallurgy 11% ad 13% respectively, for GKN Aerospace 2% ad 4% respectively, ad for GKN Lad Systems 27% ad 21% respectively. Method of calculatio Maagemet earigs for the Group (as set out i ote 3(a) to the fiacial statemets) divided by the weighted average umber of ordiary shares i issue (excludig treasury shares). target To achieve absolute growth i EPS each year ad i the loger term, recogisig the ature ad cyclicality of our major markets, to achieve average aual compoud growth of at least 6% performace Maagemet EPS i 2011 was 22.6p compared with 20.7p i 2010, a icrease of 9%. Tradig margis (a) Free cash flow % % % % % m m m m 188m Method of calculatio Maagemet tradig profit (c) as a percetage of maagemet sales (c). target To achieve medium-term tradig margis of betwee 8% ad 10% for GKN Drivelie, 9% ad 11% for GKN Powder Metallurgy, 11% ad 13% for GKN Aerospace ad 8% ad 11% for GKN Lad Systems, givig a overall Group tradig margi of betwee 8% ad 10% performace The Group tradig margi i 2011 of 7.7% reflects good performace i all four divisios. Excludig the effect of acquisitios, the divisioal tradig margis were: GKN Drivelie 7.1%, GKN Powder Metallurgy 8.5%, GKN Aerospace 11.2% ad GKN Lad Systems 8.0%. Method of calculatio Cash flows from operatig activities (excludig special pesio cotributios) after capital expediture ad icludig fixed asset disposal proceeds, receipts of govermet capital grats ad refudable advaces ad o-cotrollig divideds. target To geerate positive free cash flow sufficiet to cover divided paymets ad provide fudig resources to support orgaic ad acquisitive earigs growth performace Free cash flow amouted to 147 millio, followig a cotiued focus o operatig cash geeratio throughout 2011 offset by a icrease i capital expediture ad the first distributio of 23 millio from the Pesio partership to the UK Pesio scheme.

15 .13 GKN plc Aual Report ad Accouts 2011 Retur o average ivested capital (ROIC) (a) Divided per share (b) % % % % % Method of calculatio Ratio of maagemet tradig profit (c) to average total et assets icludig the appropriate share of joit vetures but excludig curret ad deferred tax, cash, borrowigs, post-employmet obligatios ad derivative fiacial istrumets. target To achieve ROIC at both a Group ad divisioal level which exceeds the weighted cost of capital of the Group (12% as a pre-tax threshold ad betwee 9% ad 10% o a post-tax basis). The Group target is to achieve ROIC of 20% or above (pre-tax) performace Group ROIC icreased to 18.3%* i 2011 as a result of sigificatly improved profitability agaist a relatively stable asset base. Divisioal ROIC performace is as follows: GKN Drivelie 17.0%, GKN Powder Metallurgy 16.7%, GKN Aerospace 22.7% ad GKN Lad Systems 29.5%. * excludig 2011 acquisitios p p p p p Method of calculatio Amout declared as payable by way of divided divided by the umber of ordiary shares i issue (excludig treasury shares). target A progressive divided policy aligig divideds with the log-term tred i maagemet earigs whilst achievig a sustaiable maagemet earigs-to-divided cover ratio of aroud 2.5 times performace 2011 saw progress i the divided paymet, reflectig strog earigs ad cash performace. The divided for the year, at 6.0p, is covered 3.8 times by maagemet earigs. Busiess review (a) 2009 was previously restated followig the decisio to exit the Axles busiess of the former OffHighway segmet. (b) As restated i for the bous issue iheret i the July 2009 rights issue. (c) Maagemet sales ad maagemet tradig profit are defied o page 24. No-fiacial KPIs Health ad safety performace Method of calculatio Accidet frequecy rate (AFR) measured as the umber of lost time accidets per 1,000 permaet employees ad accidet severity rate (ASR) measured as the umber of days/shifts lost due to accidets ad occupatioal ill health per 1,000 permaet employees. target Zero prevetable accidets performace AFR ad ASR both showed a slight reductio i 2011, to 2.4 (2010: 2.7) ad 63 (2010: 68) respectively. However, there were two accidets leadig to five fatalities i the Hoegaaes plat i Gallati, USA. More detail ca be foud o pages Evirometal performace Method of calculatio Eergy cosumptio ad associated CO 2 emissios, waste geeratio, waste recycled ad water cosumptio measured o a divisioal basis per uit of productio ad agaist sales i GKN Aerospace. target Improved year-o-year performace across all KPIs performace Performace i 2011 across all evirometal KPIs, with the exceptio of recycled waste which saw a slight reductio, has improved. See pages for further iformatio. Employee turover Employee turover is a measure of our success i retaiig our people ad achievig our goal of beig a employer of choice. Volutary turover is calculated as a percetage of total permaet employees. I 2011, volutary turover, which excludes compulsory redudacies or termiatios, was 3.97% (2010: 4.02%).

16 .14 Strategy i actio Market leadership Creatig a ew global leader i all-wheel drive GKN Drivelie has established its positio as global leader i the egieerig, maufacture ad vehicle itegratio of all-wheel drive (AWD) systems, through its acquisitio of Getrag s Drivelie Products busiess i September With operatios i the US ad Europe, Getrag Drivelie Products has a product, maufacturig ad customer footprit complemetary to GKN s existig AWD product busiess, which is predomiatly based i Asia. Productio of AWD vehicles is forecast to grow faster tha overall global vehicle productio, reflectig icreasig demad globally for crossover vehicles ad compact Sport Utility Vehicles (SUVs). Followig the acquisitio, ad agaist this positive market outlook, GKN Drivelie ow offers its customers throughout the world a uique capability i the developmet of etire AWD systems.

17 Busiess review.15 Leadig the way i composite techology GKN Aerospace s techology-led products use the latest developmets i materials processig ad advaced metallic ad composite maufacturig capabilities. With advaces i composites for the egie eviromet ad its world-leadig expertise i wig structures, GKN Aerospace is at the forefrot of aerospace composite techology. GKN plc Aual Report ad Accouts 2011 At its plat i Filto, UK, GKN Aerospace maufactures advaced carbo fibre composite wig spars for the ew Airbus A350 XWB, usig state-of-the-art carbo fibre fabricatio techiques. Durig 2011, it delivered the first trailig edge assembly to Airbus. GKN is ivestig heavily i ext geeratio automatio techology ad the Filto site is a global cetre of excellece for advaced wig assembly. This esures its ability to fulfil customers orders ad help them reach weight ad emissios targets through the use of advaced carbo materials.

18 .16 Establishig strog positios i rapidly growig markets GKN Drivelie is icreasigly well positioed to take advatage of the rapid growth i the Chiese ad Idia automotive markets. Strategy i actio Cotiued Durig 2011, GKN opeed its twelfth productio facility i Chia, a ew 52,000 square metre sideshaft plat i Chagchu, orther Chia. Together with a phase two expasio, due to be completed i 2012, this will provide a capacity of oe millio vehicle sets a year from Chia is already the largest car market i the world ad, to keep pace with customer demad, GKN Drivelie s productio capacity i Chia is set to grow by more tha 50% i the ext four years. Rapid growth also cotiues i Idia, where a ew maufacturig facility for CVJ Systems ad Tras-axle solutios is uder costructio. Whe fully operatioal i August 2012, it will have a aual productio capacity of more tha 600,000 CVJ Systems. GKN Drivelie s busiess i Idia has grow at a aual rate of more tha 15% over the past five years ad Idia is expected to remai a high-growth market.

19 .17 GKN plc Aual Report ad Accouts 2011 Extedig expertise to offer ew products Two acquisitios durig 2011 provide platforms for growth i both ew ad existig markets. While the acquisitio of Getrag Drivelie Products (see page 14) helped secure global leadership i the fastgrowig all-wheel drive (AWD) segmet, the Stromag acquisitio supports GKN Lad Systems strategy to build a global leader i idustrial power maagemet capabilities, extedig expertise i electro-mechaical compoets. Busiess review Stromag is a market-leadig egieer i idustrial power maagemet, with a strog techology base ad a focus o providig tailored solutios for its customers. GKN Lad Systems existig busiess combied with Stromag provide a strog platform to accelerate growth i existig markets, such as agriculture ad costructio, together with access to a umber of attractive ew idustrial segmets icludig reewable eergy. Geographic expasio, iitially i North America, ad the ito Asia, will provide further opportuities for the busiess. Growth

20 .18 Strategy i actio Cotiued Applyig Lea processes i all we do A culture of cotiuous improvemet is at the heart of everythig we do at GKN. By costatly lookig to improve our people, processes ad products, we deliver value to our customers. A Lea Eterprise model is applied i GKN busiesses ad productio processes worldwide. This approach splits operatios ito value streams, the ed-to-ed process of deliverig a product or service to the customer. The core aim of the Lea improvemet process is to miimise waste across a etire value stream. GKN brigs together may cotiuous improvemet tools ad techiques to chage ways of workig, servig customer eeds more efficietly. The case study below is a example of the improvemets Lea techiques have made at oe of GKN s sites. All GKN sites have a cotiuous improvemet pla, aliged to busiess objectives, which focuses employees cosistetly o positive developmet. We aim to egage every employee i every locatio across GKN, buildig a culture which costatly challeges the orm ad idetifies opportuities to perform better. Chagig culture to improve efficiecy GKN Aerospace s facility i Garde Grove, Califoria, USA, maufactures military trasparecies, commercial ad busiess jet cockpits ad passeger cabi widows. Usig Lea techiques, it has udergoe a complete trasformatio. Through the deploymet of cotiuous improvemet (CI) ad ehaced orgaisatioal leadership, levels of quality, productivity ad efficiecy have all substatially icreased. To achieve this, busiess goals were aliged with the Lea Eterprise model to establish a CI pla. I a o-goig programme, maagemet participate i traiig ad evets at the site with Employee Ivolvemet (EI) beig a primary focus. All employees are traied i the fudametals of Lea ad take part i daily EI meetigs based aroud sharig iformatio ad moitorig key performace metrics. The site has embraced the CI culture ad has a very motivated workforce, resultig i lower abseteeism ad higher employee retetio. Sice 2008, productivity has icreased 29%, the busiess has goe from loss-makig to profit, ivetory levels are dow 25% ad scrap levels have bee reduced by $2 millio aually. Garde Grove has positioed itself as a cetre of excellece for trasparecy desig, developmet ad maufacture.

21 Operatioal.19 GKN plc Aual Report ad Accouts 2011 excellece Busiess review

22 .20 Strategy i actio Cotiued Operatig low-emissio productio processes GKN Powder Metallurgy operates the world s most eergy efficiet metal-formig process. Siterig helps coserve atural resources by usig recycled scrap metal to produce metal powder. This powder is the pressured ad heated to form sitered compoets i a product s fial shape. Powder Metallurgy creates sigificatly less waste tha competig processes such as castig, forgig ad machiig. A low-emissio maufacturig process ad the avoidace of wasteful secodary operatios further reduce its evirometal impact. Compoets made through a siterig process are also lighter ad their use i the automotive idustry meas that vehicles with powder metal parts require less eergy ad produce less carbo dioxide, thereby icreasig efficiecy ad reducig demad o fiite resources. Drivig electrificatio of trasport Electric power is icreasigly see as a solutio to developig sustaiable, evirometally efficiet trasport. This focus is leadig to progressive electrificatio of the drivetrai i cars. A key part of GKN Drivelie s strategy is to support vehicle maufacturers as they search for fuel savigs ad reduced CO 2 emissios through hybrid ad electric drive vehicles. GKN Drivelie has formed a joit veture with EVO Electric Ltd, a UK pioeer i advaced electric drive solutios, eablig GKN Drivelie to offer advaced axial flux motors ad geerators addig to its existig edrive Systems portfolio. The busiess is workig o more tha 20 electric/hybrid programmes with automotive maufacturers. The ivestmet i EVO strategically ehaced GKN Drivelie s capability i edrive as it cotiues to iovate i the applicatio of alterative power sources ad sustaiable eergy i systems that deliver outstadig performace.

23 .21 GKN plc Aual Report ad Accouts 2011 Busiess review Sustaiability

24 .22 Our markets GKN s four divisios operate i the global automotive, aerospace ad lad systems markets (icludig agricultural, costructio ad miig). GKN aims to achieve a leadig positio i these markets ad deliver above market growth. automotive I the automotive market, GKN Drivelie sells to maufacturers of passeger cars ad light vehicles ad aroud 75% of GKN Powder Metallurgy sales are also to the automotive market. Key market drivers Macroecoomic treds, such as cosumer prosperity ad cofidece. Fuel efficiecy ad emissios: Demad for smaller vehicles. Electric/hybrid applicatios. Progressive electrificatio of the drivetrai. Demad for persoal mobility i emergig markets. Lower weight ad a focus o ew materials. Customer preferece for quality ad safety. Treds Overall, global productio volumes icreased 3% i 2011 to 76.9 millio vehicles (2010: 74.4 millio) whilst sales of cars ad light vehicles icreased by 4%, to 75.1 millio vehicles. (1) All major geographic markets, except Japa due to the earthquake ad tsuami i March 2011, experieced productio growth relative to 2010, with the strogest growth i North America ad Idia. Demad for larger (premium) vehicles ad light commercial vehicles icreased strogly. The demad for smaller vehicles, particularly i Europe, was lower as the prior year s scrappage ad tax icetive schemes had the effect of pullig forward demad. Overall vehicle productio i Europe beefited from a strog improvemet i exports while i North America the ecoomic recovery followig the recessio supported vehicle sales. Outlook Exteral forecasts idicate that global productio i 2012 will icrease by approximately 5% to 80.7 millio vehicles. (1) This projected growth is the result of a retur to ormal productio i Asia after the atural disasters i Japa ad Thailad as supplies of compoets improve, together with cotiued recovery from the global recessio. Major markets that are expected to show the fastest growth iclude Japa (18%), North America (10%), Chia (8%) ad Idia (6%). (1) Europe is forecast to cotract by 8% i the wake of the curret ecoomic climate. (1) (1) IHS Automotive. light vehicle PRODuCTION millio uits GlOBal light vehicle PRODuCTION millio uits Europe North America Brazil, Idia ad Chia CAGR Total actual forecast Source: IHS Automotive Source: IHS Automotive

25 aerospace GKN Aerospace is a global first tier supplier to maufacturers of aircraft, aircraft egies ad equipmet. The divisio has a balaced positio i civil (58%) ad defece (42%) aerospace markets. Key market drivers Backlog of aircraft orders for key customers. Itroductio ad productio rate of ew aerospace programmes. Levels of passeger air traffic. US defece budget. Crude oil/jet fuel prices. Drive to improve aircraft ad egie efficiecy. Evirometal impact reductio programmes. Treds The overall aerospace market i 2011 was positive, drive by recovery of civil aircraft productio ad a geerally stable defece sector. A recovery i passeger ad cargo volumes led both Airbus ad Boeig to aouce icreases i productio levels of both sigle aisle ad wide bodied aircraft. I the civil aerospace market, Airbus ad Boeig reported that they delivered a record 1,011 aircraft i 2011 ad took o ew orders totallig 2,529 aircraft. Both compaies cotiue to beefit from their extesive order backlog that has grow to over 8,200 aircraft. US defece spedig showed slight growth i 2011 with the Presidet s 2012 to 2016 Budget Request expected to remai relatively flat for Outlook Passeger air traffic rose aroud 6% i 2011 ad is projected to cotiue to grow at a similar pace throughout Loger term worldwide passeger market demad is projected to grow at aroud 5% with worldwide cargo traffic market growth at aroud 6%. Boeig ad Airbus forecast that betwee 28,000 ad 32,000 ew sigle-aisle ad wide-bodied aircraft will be required globally over the ext 20 years, with aroud 40% to support fleet replacemet ad approximately 60% to support market growth. lad Systems.23 GKN plc Aual Report ad Accouts 2011 GKN Lad Systems serves the agricultural, costructio, miig, ad idustrial machiery markets, offerig itegrated powertrai solutios, wheels, structures ad aftermarket distributio ad services. Key market drivers Populatio growth ad cosumer prosperity. Urbaisatio leadig to ifrastructure developmet ad icreased mass trasit. Raw material demad. Regulatory drive to cut emissios ad icrease eergy efficiecy. Need for sigificat icreased operatioal efficiecy ad reliability. Treds Recovery i Europea ad US agricultural sectors cotiues. Estimated average growth of 15% i the EU agricultural machiery market i 2011, with a market volume of 24 billio (1) ; ad prospects for 2012 cotiue to be positive. Ifrastructure ivestmet drivig growth i the costructio sector. Cotiued icreasig global demad for eergy. Outlook The agricultural output required will double by 2050 (2) to feed the world populatio which is expected by the to reach ie billio, from seve billio today. The eed for icreased farmig efficiecy will drive ever greater mechaisatio. By 2050, more tha 70% of the world s populatio is expected to live i cities (2) requirig massive urbaisatio; the migratio from rural areas creates eed for roads, power grids, water cotaimet ad distributio systems. Sigificat growth i agricultural ad costructio sectors is expected i Brazil, Russia, Idia ad Chia. Growth i global costructio is expected to outpace world GDP over the ext te years. Growth i Asia ad the cyclical reboud i the US will fuel global costructio growth from $7.2 trillio today to $12 trillio by 2020 (3). Busiess review (1) VDMA Market Perspectives (2) FAO, How to Feed the World 2050 Deere & Compay, Jauary (3) Oxford Ecoomics, Global Costructio CIvIl aircraft MaRKET by aircraft type US$ billio MIlITaRy aircraft MaRKET by aircraft type US$ billio GlOBal CONSTRuCTION, FaRM MaCHINERy and HEavy TRuCKS US$ billio WORlD POPulaTION billio Regioal aircraft Busiess jets Commercial jetliers 2011 actual forecast Source: Teal Traiers/light attack Military trasports Rotorcraft Fighters 2011 actual forecast Source: Teal 2010 actual estimated Source: Datamoitor Urba Rural Source: UN World Urbaisatio Prospects: The 2009 Revisio

26 .24 Review of performace I this sectio Group performace page 25 Divisioal performace page 25 Other fiacial iformatio page 32 A strog fiacial performace with at or ear record profits i all four divisios Measuremet ad reportig of performace I this review, fiacial iformatio, Group ad divisioal, uless otherwise stated, is preseted o a maagemet basis which aggregates the sales ad tradig profit of subsidiaries (excludig certai subsidiary busiesses sold ad closed) with the Group s share of the sales ad tradig profit of joit vetures. Refereces to tradig margis are to tradig profit expressed as a percetage of sales. Maagemet profit or loss before tax is maagemet tradig profit less et subsidiary iterest payable ad receivable ad the Group s share of et iterest payable ad receivable ad taxatio of joit vetures. These figures better reflect performace of cotiuig busiesses. Where appropriate, referece is made to uderlyig results which exclude the impact of acquisitios/divestmets as well as currecy traslatio o the results of overseas operatios. Operatig cash flow is cash geerated from operatios adjusted for capital expediture, govermet capital grats, proceeds from disposal of fixed assets ad govermet refudable advaces. Free cash flow is operatig cash flow icludig iterest, tax, joit veture divideds, ow shares purchased ad amouts paid to o-cotrollig iterests, but excludig divideds paid to GKN shareholders. Retur o average ivested capital (ROIC) is maagemet tradig profit as a percetage of average total et assets of cotiuig subsidiaries ad joit vetures deductig curret ad deferred tax, et debt, post-employmet obligatios ad derivative fiacial istrumets. exchage rates Exchage rates used for currecies most relevat to the Group s operatios are: Average Year Ed Euro US dollar The approximate impact o 2011 tradig profit of subsidiaries ad joit vetures of a 1% movemet i the average rate would be euro 1 millio, US dollar 2 millio.

27 .25 GKN plc Aual Report ad Accouts 2011 Group performace Chage GKN Headlie Uderlyig pre acqs acqs Total % % MaNaGEMENT SalES 1,481m GKN Aerospace 885m GKN Lad Systems 845m GKN Powder Metallurgy MaNaGEMENT TRaDING PROFIT 67m GKN Lad Systems 2,795m GKN Drivelie 106m Other busiesses Sales ( m) 5, ,112 5, Tradig profit* ( m) Tradig margi* 8.1% 8.0% 7.6% ROIC 18.3% 17.0% (*) excludes the et 19 millio impact from Gallati Maagemet sales icreased 13% i the year eded 31 December 2011 to 6,112 millio (2010: 5,429 millio). The effect of currecy traslatio was 15 millio adverse ad there was a 164 millio beefit from acquisitios which was partly offset by the 29 millio reductio due to disposals. Excludig these items, the uderlyig icrease was 563 millio (10%). Withi this figure, GKN Drivelie was 252 millio higher, GKN Powder Metallurgy icreased by 97 millio, GKN Aerospace was 52 millio higher, while GKN Lad Systems was up 148 millio. Maagemet tradig profit icreased 76 millio to 487 millio (2010: 411 millio), excludig the 19 millio et impact from the temporary closure of Hoegaaes Gallati facility i the US ( 34 millio cost, as previously aouced, which was partially offset by 15 millio of isurace recovery). The effect of currecy traslatioal was 3 millio adverse ad there was a 2 millio et beefit from acquisitios. Excludig these items, the uderlyig icrease was 77 millio. Withi this figure, GKN Drivelie was 21 millio higher, GKN Powder Metallurgy icreased by 19 millio, GKN Aerospace was up by 6 millio ad GKN Lad Systems icreased by 31 millio. Excludig the Gallati impact, Group tradig margi icreased to 8.0% (2010: 7.6%), agaist a target rage of 8-10%. Retur o average ivested capital (ROIC) icreased to 18.3% excludig 2011 acquisitios, compared with the Group target of 20% or better. Busiess review 166m GKN Aerospace 195m GKN Drivelie divisioal performace automotive As show i the table below, all major markets, except Japa due to the earthquake ad tsuami i March 2011, experieced icreased productio relative to The strogest rates of productio growth were i North America ad Idia. 3m Other busiesses 72m GKN Powder Metallurgy Total (icludig corporate costs ad impact of Gallati plat closure) 468m Car ad light vehicle productio Growth (millios of uits) (%) Europe North America Brazil Japa Chia Idia Others Total global Source: IHS Automotive Further iformatio o treds i, ad the outlook for, major automotive markets is give o page 22.

28 .26 Review of performace Cotiued GKN DRIvElINE SalES By REGION OF ORIGIN 240m South America 243m Chia 435m Japa 128m Other 84m Idia 573m North America GKN DRIvElINE SalES By PRODuCT GROuP 11m edrive 144m Systems Trasaxle Systems 639m AWD Systems 60m Other 1,092m Europe 1,941m CVJ Systems GKN Drivelie GKN Drivelie is the world s leadig supplier of automotive drivelie systems ad solutios. As a global busiess servig the leadig vehicle maufacturers, it develops, builds ad supplies a extesive rage of automotive drivelie products ad systems for use i the smallest ultra low-cost car to the most sophisticated premium vehicle demadig the most complex drivig dyamics. The key fiacial results for the year are as follows: Chage GKN Getrag Headlie Uderlyig Drivelie Drivelie Total % % Sales ( m) 2, ,795 2, Tradig profit* ( m) Tradig margi 7.1% 7.0% 6.9% ROIC 17.0% 16.0% (*) Getrag Drivelie Products tradig profit icludes acquisitio-related charges of 3 millio. GKN Drivelie s sales icreased 15% to 2,795 millio (2010: 2,433 millio). The favourable impact of currecy traslatio was 20 millio, the acquisitio of Getrag Drivelie Products o 30 September 2011 added 117 millio, which was partly offset by 27 millio lower sales resultig from the sale of GKN Drivelie s 49% share of the Japaese driveshaft sales ad distributio joit veture GKN JTEKT Ltd (GTK) i March Uderlyig sales icreased by 252 millio (10%), icludig Costat Velocity Joited (CVJ) Systems which grew 7% ad o-cvj sales which icreased by 22%, compared with global vehicle productio which icreased 3%. This market outperformace was broad based across North America, Europe, Chia ad Japa, reflectig recet market share gais, the Group s stroger positio i premium vehicles, demad for which cotiued to be strog, ad GKN Drivelie s broadeig product mix, particularly with AWD systems ad tras-axle solutios. I Japa, the market outperformace reflected GKN Drivelie s exposure to compaies less affected by the earthquake ad the priority give to reistatig productio capability for exported vehicles. I North America, lower productio from Japaese compaies experiecig compoet shortages was more tha offset by GKN Drivelie s market share gais through a broader product offerig, ew programme wis ad stroger sales to domestic producers. Tradig profit icreased to 195 millio (2010: 169 millio). The impact of traslatioal currecy was 1 millio positive, ad acquisitios (after costs ad ivetory fair value adjustmet of 3 millio) added 4 millio with uderlyig tradig profit up by 21 millio, icludig aroud 15 millio egative impact from the Japaese earthquake ad tsuami, compouded by the floods i Thailad. These affected productio i Japa ad overseas as compoet supply chais were disrupted. Outside Japa, it was most proouced for GKN Drivelie i North America where may of the Japaese car maufacturers cut productio rates sigificatly i the secod quarter. Egieerig costs icreased to support ew programmes ad future growth, ad some temporary costs were icurred to raise capacity i some regios to keep pace with sigificat icreases i demad. GKN Drivelie s tradig margi was 7.1% (2010: 6.9%) excludig Getrag Drivelie Products. GKN Drivelie s mediumterm target margi rage remais at 8-10%. Capital expediture o tagible fixed assets was 113 millio (2010: 73 millio), 1.0 times (2010: 0.7 times) depreciatio. Retur o average ivested capital, excludig the Getrag Drivelie Products acquisitio, was 17.0% (2010: 16.0%), reflectig the icrease i profitability. Durig the year, GKN Drivelie opeed a ew CVJ systems plat i Chagchu, orther Chia, a precisio forge at Oragadam, ear Cheai, souther Idia, expaded productio at WuHa, Chia ad costructio bega o a ew CVJ systems facility i Pue, Idia.

29 .27 GKN plc Aual Report ad Accouts 2011 Overall, GKN Drivelie wo 500 millio aualised ew ad replacemet busiess with the CVJ Systems busiess wiig a healthy 65% of the cotracts for which it bid. GKN Drivelie AWD Systems lauched a power trasfer uit (PTU) i Chia, saw good growth i propshaft productio i Europe ad beefited from strog sales i North America, icludig the Jeep Grad Cherokee. It also wo sigificat ew busiess with uique all-wheel drive discoect techology with vehicle maufacturers i the US, Europe ad Chia. I Jue, GKN Drivelie ivested 4 millio i EVO Electric Ltd, a UK pioeer i axial flux motors, ad formed a joit veture, GKN EVO edrive Systems Limited, to maufacture ad sell axial flux electric motors ad drive systems for use i hybrid ad all-electric vehicles. GKN Drivelie is already a pioeer i the developmet ad supply of etrasmissios ad eaxles for hybrid ad electric vehicles. This veture will eable GKN Drivelie to offer advaced axial flux motors ad geerators for iche applicatios, addig to its existig edrive systems portfolio ad ehacig its capability i full drivelie systems. Recet ew busiess wis i edrive iclude: major lauch of eaxle for PSA Hybrid 4; Busiess review ew Europea customer for 1-speed etrasmissios ad demostratio vehicle cotract for a Asia vehicle maufacturer; ad developmet orders for 2-speed trasmissios from Europea ad North America vehicle maufacturers. O 30 September 2011, GKN Drivelie completed the acquisitio of Getrag Drivelie Products, a tier oe supplier of geared drivelie products, amely power trasfer uits ad rear drive uits for AWD vehicles, alog with fial drive uits for high-performace rear wheel drive vehicles. Getrag Drivelie Products, with operatios i the Uited States ad Europe, has bee itegrated ito GKN Drivelie. Getrag Drivelie Products has a product, maufacturig ad customer footprit that is complemetary to GKN Drivelie s ow geared product busiess, which is predomiatly based i Asia. Combied, the busiesses are ow the leadig global supplier of AWD drivelie products with a excellet customer base ad product portfolio. AWD ad tras-axle solutios ow represet 28% of GKN Drivelie sales with sigificat further growth opportuities. As part of the Getrag trasactio, GKN Drivelie also acquired a exclusive licece, pricipally for Europe ad the Americas, to Getrag s electric drivetrai techology for use i electric ad certai hybrid vehicles, makig GKN a leadig player i edrive solutios ad very well placed for growth i the medium ad log term.

30 .28 Review of performace Cotiued GKN POWDER METalluRGy SalES* 324m GKN Siter Metals Europe 60m GKN Siter Metals Rest of World 141m Hoegaaes 320m GKN Siter Metals Americas *GKN Siter Metals sales by regio of origi GKN POWDER METalluRGy SalES By PRODuCT TyPE 85m Sitered compoets idustrial 141m Hoegaaes metal powder 619m Sitered compoets automotive GKN Powder Metallurgy GKN Powder Metallurgy is the world s largest maufacturer of sitered compoets. It comprises GKN Siter Metals ad Hoegaaes. Hoegaaes produces the metal powder that GKN Siter Metals uses to maufacture precisio automotive compoets for egies, trasmissios ad body ad chassis applicatios. It also produces a rage of compoets for idustrial ad cosumer applicatios. Iformatio o treds i, ad the outlook for, major automotive markets is give o page 22. The key fiacial results for the year are as follows: Chage Headlie Uderlyig % % Sales ( m) Tradig profit ( m) Tradig margi 8.5% 7.1% ROIC 16.7% 13.2% GKN Powder Metallurgy sales were 845 millio (2010: 759 millio), a icrease of 11%. The egative impact of currecy traslatio was 11 millio. Sales icreased i all regios as automotive markets recovered, recet ew busiess wis etered productio ad market share gais were made. Uderlyig sales for GKN Siter Metals icreased by 17% i North America ad 11% i Europe. Strog growth was also achieved i Idia, Brazil ad Chia. Overall, Hoegaaes total tos shipped were 1% lower tha i 2010 due to the temporary closure of the Gallati plat. Uderlyig sales were 7% higher, pricipally due to a icrease i the commodity metals surcharge passed o to customers as raw material prices icreased. Overall, GKN Powder Metallurgy reported a tradig profit of 72 millio (2010: 54 millio), excludig 19 millio of et costs associated with the temporary plat closure at the Gallati, USA, facility which are reported outside the divisioal tradig performace. The divisioal tradig margi was 8.5% (2010: 7.1%). GKN Powder Metallurgy s mediumterm target margi rage has ow bee icreased to 9-11% (from 8-10%). Capital expediture o tagible fixed assets was 44 millio (2010: 27 millio). The ratio of capital expediture to depreciatio was 1.4 times (2010: 0.9 times). Retur o average ivested capital was 16.7% (2010: 13.2%), reflectig the improvemet i profitability. Icreasig treds i idustrial ad automotive markets to improve fuel efficiecy ad reduce emissios, such as variable valve timig i egies, high performace gear sets i automatic trasmissios ad differetial gears, are cotiuig to drive the demad for products made by powder metallurgy. Durig the year, more tha 100 millio (aualised sales) of ew programme busiess was awarded ad 48 techical days were hosted for existig ad ew customers, i order to promote powder metallurgy products ad applicatios. New cotracts iclude: oe-way clutch system for a Mazda trasmissio i Asia with uique geometries which are oly possible usig powder metallurgy techology; ad variable valve timig stator oe piece combiatio sprocket for VW egie.

31 .29 GKN plc Aual Report ad Accouts 2011 GKN aerospace GKN aerospace SalES By PRODuCT 411m Egie compoets ad sub-systems 119m Special products GKN aerospace SalES By MaRKET 951m Aerostructures GKN Aerospace is a world leadig global first tier supplier of airframe ad egie structures, compoets, assemblies ad trasparecies to a wide rage of aircraft ad egie prime cotractors ad other first tier suppliers. It operates i three mai product areas: aerostructures, egie compoets/sub-systems ad special products. The overall aerospace market remaied positive i 2011, drive by a recoverig civil aircraft market ad a geerally stable defece sector. The divisio has icreased its positio i civil aerospace to 58% of sales, with defece represetig 42% saw the itroductio ito service of the Boeig 787, o which GKN Aerospace has sales of approximately $2.6 millio per aircraft, ad the aoucemet of the 737 MAX ad A320eo sigle aisle aircraft upgrades. Airbus is rampig up productio of the A380 (GKN sales of $8.0 millio per aircraft), but aouced that the first flight of the A350 would slip to 2013 (GKN sales of $2.5 millio per aircraft). Airbus ad Boeig estimate that betwee 28,000 ad 32,000 ew sigle aisle ad wide bodied aircraft will be delivered by Busiess review 42% Military 58% Civil Worldwide defece spedig remais uder pressure, largely drive by cutbacks throughout Europe ad likely reductios i the US defece budget. It is expected that the US 2013 defece budget submittal will be i lie with 2012 spedig levels. GKN s positio o key multi-year programmes such as the UH-60 Blackhawk Helicopter, F/A-18 Super Horet, F-15 Eagle ad C-130J Super Hercules provide a strog productio base for the busiess despite projected defece budget pressures. Further iformatio o treds i, ad the outlook for, aerospace markets is give o page 23. The key fiacial results for the year are as follows: Chage Headlie Uderlyig % % Sales ( m) 1,481 1, Tradig profit ( m) Tradig margi 11.2% 11.2% ROIC 22.7% 23.3% GKN Aerospace sales of 1,481 millio were 30 millio higher tha the prior year (2010: 1,451 millio). The impact from currecy o traslatio of sales was 24 millio egative, from prior year acquisitios was 4 millio positive, represetig sales from GKN Aerospace Services Structures Corp. of which the Group gaied maagemet cotrol i April 2010, ad from disposals was 2 millio egative, represetig sales from the Egieerig Services divisio which was sold i November The uderlyig icrease i sales of 52 millio represeted a 4% icrease. This icrease reflects lower F-22 sales as the programme cotiued its ru dow ad lower productio rates o the C-17 Globemaster, beig more tha offset by higher civil sales, particularly for the A320, A330 ad A380 ad also the early stages of the Boeig 787. Tradig profit icreased by 4 millio to 166 millio (2010: 162 millio). The impact from currecy o traslatio of results was 3 millio adverse ad the et impact from acquisitios ad divestmets was 1 millio positive. The tradig margi was 11.2% (2010: 11.2%). GKN Aerospace s medium term target margi rage has ow bee icreased to 11-13% (from 10-12%).

32 .30 Review of performace Cotiued Capital expediture o tagible assets i 2011 amouted to 59 millio (2010: 51 millio) which represets 1.7 times depreciatio (2010: 1.3 times), or 0.9 times depreciatio excludig the Airbus A350 programme. Expediture o itagible assets, maily iitial o-recurrig programme costs, was 35 millio (2010: 26 millio). 57 millio of the capital expediture ad o-recurrig programme costs, icludig 6 millio of capitalised borrowig costs, relate to the A350 wig assembly ad trailig edge programme. A total of 128 millio had bee ivested o this programme by 31 December 2011, excludig 11 millio of capitalised borrowig costs. Spedig, which has ow reached its peak, is likely to reduce to aroud 33 millio i Customer advaces i the GKN Aerospace busiesses, which are show i trade ad other payables i the balace sheet, amouted to 63 millio (2010: 70 millio). Retur o average ivested capital was 22.7% (2010: 23.3%) reflectig the icreased ivestmet i ew programmes, particularly the A350. Importat milestoes iclude: GKN Aerospace, with idustry parters Airbus, AgustaWestlad, Rolls-Royce, Umeco ad Vestas celebrated the opeig of the UK Natioal Composites Cetre ear Filto, UK. GKN Aerospace has bee drivig forward the use of composites i aviatio ad is expadig the applicatio of ew automated maufacturig techiques that will eable faster ad more cosistet maufacture of complex composite structures. These techiques will be critical if the idustry is to meet risig demad for ew aircraft ad for aircraft that offer improved performace, lower emissios ad reduced maiteace. GKN Aerospace siged a memoradum of uderstadig with Commercial Aerospace of Chia (COMAC) to form a joit veture for composite structures maufacture of the horizotal tailplae for the C919 aircraft, positioig GKN Aerospace i the ifacy of the civil aircraft idustry i Chia. I November, it was aouced that a ew 14,000 square metre aerospace facility i Orageburg, South Carolia, USA would be opeed i The facility will house assembly operatios for the recetly-awarded cotract for the state-of-the-art allcomposite fuselage for the HodaJet (GKN sales of $0.5 millio per aircraft). Also i November, GKN Aerospace delivered the first sectio of the A350 XWB fixed trailig edge (FTE) assembly comprisig the composite port side wig spar with itegrated trailig edge ribs, to Airbus UK. The A350 XWB programme is the latest step i a jourey that has see GKN Aerospace become a major supplier of critical wig assemblies for both the A380 ad for the A400M. GKN Aerospace was awarded aroud $3.5 billio of cotract extesios, ew programme wis ad work scope expasios durig the year, icludig: ew multi-year cotracts for: UH-60 Blackhawk (five years); F/A-18 Super Horet (four years), F-15 Eagle (seve years); C-130J Super Hercules (five years); C-17 Trasporter (three years); aroud $200 millio of ew busiess wo at Filto, icludig Bombardier C-Series aileros ad life of programme cotract for Dassault mid-sized busiess jet wig structure ad moveable surfaces; ew $600 millio log-term agreemet with Pratt & Whitey to supply the forward fa case for the Joit Strike Fighter F135 egie; ad HodaJet composite fuselage assembly. I Jauary 2012, the Composite Techology ad Applicatios Limited joit veture with Rolls-Royce opeed a pre-productio facility o the Isle of Wight, UK for the productio of composite fa blades for aircraft egies.

33 .31 GKN plc Aual Report ad Accouts 2011 GKN lad Systems GKN land SySTEMS SalES By MaRKET 206m Idustrial 110m Costructio & Miig 338m Agriculture GKN Lad Systems is a leadig supplier of techology differetiated power maagemet solutios ad services. It desigs, maufactures ad supplies products ad services for the agricultural, costructio, miig ad idustrial machiery markets. I additio, it provides global aftermarket distributio ad through-life support. Iformatio o treds i, ad the outlook for, lad systems markets is give o page 23. Sales i GKN Lad Systems were strogly ahead of the prior year ad reflected a solid performace agaist a cotiued broad market recovery. All regios ad sectors ejoyed good growth, especially agriculture ad heavy costructio equipmet i Europe ad North America. Busiess review The key fiacial results for the year are as follows: Chage GKN lad Headlie Uderlyig Systems Stromag Total % % 231m Automotive GKN land SySTEMS SalES By BuSINESS 313m Power Maagemet Devices 330m Wheels & Structures 242m Aftermarkets & Services Sales ( m) Tradig profit* ( m) 68 (1) Tradig margi 8.0% 7.6% 5.3% ROIC 29.5% 15.8% (*) Stromag tradig profit icludes acquisitio related charges of 5 millio. Agaist this backgroud, sales i the period were 885 millio, 27% higher tha the prior year (2010: 699 millio). There was o et impact from currecy traslatio ad excludig the 38 millio of sales i Stromag, the acquisitio that completed i September, the uderlyig icrease i sales was 148 millio (21%) with all product areas ad regios seeig a improvemet. GKN Lad Systems reported tradig profit of 67 millio (2010: 37 millio). Uderlyig tradig profit icreased by 31 millio, with Stromag reducig profit by 1 millio, due to acquisitio costs ad ivetory fair value adjustmet of 5 millio. The tradig margi excludig Stromag was 8.0% compared with 5.3% i 2010, reflectig the strog icrease i profitability of the divisio. GKN Lad System s medium-term target margi rage has ow bee icreased to 8-11% (from 7-10%). Capital expediture o tagible fixed assets was 18 millio (2010: 7 millio), 1.3 times (2010: 0.5 times) depreciatio. Retur o average ivested capital, excludig the Stromag acquisitio, icreased to 29.5% (2010: 15.8%), reflectig the strog icrease i profitability drive by operatioal process improvemets. Good progress was made i wiig ew busiess. Specific areas of success icluded: double uiversal joits for Daa ad CNH; custom clutch solutio for Joh Deere; ad first applicatio of auxiliary pump ad high-speed shafts i oil exploratio. I additio to achievig strog orgaic growth ad ew busiess wis, o 5 September 2011, GKN Lad Systems completed the 170 millio acquisitio of Stromag. Stromag is a market leadig egieer of idustrial power maagemet compoets. Its core products iclude hydraulic clutches, electro-magetic brakes ad flexible coupligs servig edmarkets icludig reewable eergy, agricultural equipmet, costructio ad miig machiery ad the metal processig idustry. The acquisitio is a importat step i the implemetatio of the GKN Lad Systems strategy to build a global leader i idustrial power maagemet, extedig its capability i electro-mechaical power maagemet compoets ad systems. I combiatio with the existig busiess, it provides a strog platform to accelerate growth i existig markets, together with access to a umber of ew customers ad idustrial segmets, icludig reewable eergy. Other busiesses GKN s other busiesses comprise Cylider Liers, which is maily a 59% owed veture i Chia, maufacturig egie liers for the truck market i the US, Europe ad Chia ad a 50% share i Emitec, which maufactures metallic substrates for catalytic coverters i Germay, the US, Chia ad Idia.

34 .32 Review of performace Cotiued Sales i the year were 106 millio (2010: 87 millio). Tradig profit was 3 millio (2010: 3 millio) reflectig a improvemet i the uderlyig busiess offset by the heavy ivestmet by NoNOx, a divisio of Emitec, ito selective catalytic reductio systems, particularly for the truck market. hoegaaes Gallati plat, usa As reported with the first half results i August 2011, the Hoegaaes Gallati plat i the US was temporarily closed o 27 May 2011, followig a explosio which resulted i fatalities. Productio was gradually brought back durig the third quarter. I total, 34 millio of icremetal shippig, purchasig ad plat closure ad remedial works costs were recorded. 15 millio has subsequetly bee recovered from exteral isurace claims. Further details are give i ote 2 to the fiacial statemets. corporate costs Corporate costs, which comprise the costs of stewardship of the Group ad operatig charges ad credits associated with the Group s legacy busiesses, were 16 millio (2010: 14 millio). Other fiacial iformatio Restructurig ad impairmet charges There were o Group restructurig ad impairmet charges durig the year (2010: 39 millio). Chage i value of derivative ad other fiacial istrumets The Group eters ito foreig exchage cotracts to hedge much of its trasactioal exposure. At 31 December 2011, the et fair value of such istrumets was a liability of 84 millio (2010: 54 millio liability). Where hedge accoutig has ot bee applied, the chage i fair value resulted i a charge of 29 millio (2010: 3 millio charge). There was a 3 millio charge arisig from the chage i the fair value of embedded derivatives i the year (2010: 3 millio credit) ad a et gai of 2 millio attributable to the currecy impact o Group fudig balaces (2010: 12 millio et gai). There was a 1 millio loss o the chage i the fair value of GKN Powder Metallurgy commodity cotracts (2010: il). amortisatio of o-operatig itagible assets arisig o busiess combiatios The charge for the amortisatio of o-operatig itagible assets (for example, customer cotracts, order backlogs ad itellectual property rights) arisig o busiess combiatios was 22 millio (2010: 19 millio). The icrease relates to the impact of the acquisitios of Getrag Drivelie Products ad Stromag. Gais ad losses o chages i Group structure Durig the year the Group sold its 49% share i a joit veture compay, GKN JTEKT Limited realisig a profit of 4 millio ad its Aerospace Egieerig Services busiess realisig a further profit of 4 millio. I 2010, the loss of 4 millio pricipally related to the sale ad closure of the Axles busiess. Post-tax earigs of joit vetures I maagemet figures, the sales ad tradig profits of joit vetures are icluded pro-rata i the idividual divisios to which they relate, although show separately post-tax i the accouts. The Group s share of post-tax earigs of joit vetures i the year was 38 millio (2010: 35 millio). Post-tax earigs o a maagemet basis were 40 millio (2010: 36 millio), with tradig profit of 49 millio (2010: 44 millio). The Group s share of the tax charge amouted to 8 millio (2010: 7 millio) with a iterest charge of 1 millio (2010: 1 millio). Uderlyig tradig profit icreased 7 millio due to strog performace i our Chiese joit vetures, which icreased by 6 millio, ad improvemets i Emitec, which icreased by 2 millio. Net fiacig costs Net fiacig costs totalled 61 millio (2010: 75 millio) ad iclude the o-cash charge o post-employmet beefits of 17 millio (2010: 31 millio) ad uwid of discouts of 2 millio (2010: 4 millio). Iterest payable was 47 millio (2010: 46 millio), whilst iterest receivable was 5 millio (2010: 6 millio) resultig i et iterest payable of 42 millio (2010: 40 millio). Capitalised iterest costs attributable to the Group s A350 ivestmet were 6 millio (2010: 4 millio) ad iterest charged o UK Govermet refudable advaces was 2 millio (2010: 2 millio). The o-cash charge o post-employmet beefits arises as the expected retur o scheme assets of 153 millio (2010: 145 millio) was more tha offset by iterest o post-employmet obligatios of 170 millio (2010: 176 millio). Details of the assumptios used i calculatig post-employmet costs ad icome are provided i ote 14 to the fiacial statemets.

35 .33 GKN plc Aual Report ad Accouts 2011 MaNaGEMENT PROFIT BEFORE Tax OF CONTINuING OPERaTIONS m MaNaGEMENT EaRNINGS PER SHaRE pece As restated i for the bous issue iheret i the July 2009 rights issue. OPERaTING CaSH FlOW m Profit before tax The maagemet profit before tax was 417 millio (2010: 363 millio), icludig the et 19 millio impact from the temporary closure of the Hoegaaes Gallati plat, described o page 32. The profit before tax o a statutory basis was 351 millio (2010: 345 millio). Taxatio The book tax rate o maagemet profits of subsidiaries was 16% (2010: 11%), arisig as a 60 millio tax charge o maagemet profits of subsidiaries of 377 millio. The Group s theoretical weighted average tax rate, which assumes that book profits/losses are taxed at the statutory tax rates i the coutries i which they arise, is 31% (2010: 32%). The book tax rate is sigificatly lower, largely because of the recogitio of substatial deferred tax assets (maily i the US, UK ad Japa) due to icreased cofidece i the Group s ability both to access ad realise future taxable profits that absorb brought forward tax deductios, partially offset by a icrease i the Group s provisio for ucertai tax positios. Oe of GKN s core strategic tax objectives is to access brought forward tax deductios i order to sustai a cash tax charge o maagemet profits at or below 20%. Cash tax provides a proxy for the cash cost of taxatio of maagemet profits. The cash tax charge was 13% (2010: 13%). I the ear term, the cash tax rate is expected to cotiue at or below 20% due to further utilisatio of brought forward tax deductios. The tax rate o statutory profits of subsidiaries was 14% (2010: 6%) arisig as a 45 millio tax charge o statutory profits of 313 millio. No-cotrollig iterests The profit attributable to o-cotrollig iterests was 27 millio (2010: 20 millio) icludig a 21 millio (2010: 15 millio) impact from the pesio partership arragemet (see ote 14 for further details). Earigs per share Maagemet earigs per share was 22.6 pece (2010: 20.7 pece). O a statutory basis, earigs per share was 18.0 pece (2010: 19.6 pece). Average shares outstadig i 2011 were 1,553.1 millio (see ote 3 for further details). Divided I view of the improvig tradig performace ad takig ito accout the Group s future prospects, the Board has decided to recommed a fial divided of 4.0 pece per share (2010: 3.5 pece). The total divided for the year will, therefore, be 6.0 pece (2010: 5.0 pece), represetig a maagemet earigs cover ratio of 3.8 times (2010: 4.1 times). The itetio is to have a progressive divided policy based o a maagemet earigs cover ratio of aroud 2.5 times. The fial divided is payable o 21 May 2012 to shareholders o the register at 27 April Shareholders may choose to use the Divided Reivestmet Pla (DRIP) to reivest the fial divided. The closig date for receipt of ew DRIP madates is 27 April Cash flow Operatig cash flow, which is defied as cash geerated from operatios of 500 millio (2010: 420 millio) adjusted for capital expediture (et of proceeds from capital grats) of 281 millio (2010: 190 millio), proceeds from the disposal/realisatio of fixed assets of 8 millio (2010: 5 millio) ad UK Govermet refudable advaces of il (2010: 10 millio), was a iflow of 227 millio (2010: 245 millio). Withi operatig cash flow there was a outflow of workig capital ad provisios of 89 millio (2010: 59 millio outflow). Average workig capital as a percetage of sales icreased from 6.8% i 2010 to 7.5% i Capital expediture (et of proceeds from capital grats) o both tagible ad itagible assets totalled 281 millio (2010: 190 millio), icludig 54 millio (2010: 39 millio) o the A350 programme. Of this, 235 millio (2010: 159 millio) was o tagible fixed assets ad was 1.2 times (2010: 0.8 times) the depreciatio charge. Expediture o itagible assets, maily iitial o-recurrig costs o GKN Aerospace programmes, totalled 46 millio (2010: 31 millio). The Group ivested 103 millio i the year (2010: 92 millio) o research ad developmet activities ot qualifyig for capitalisatio. Free cash flow Free cash flow, which is operatig cash flow icludig joit veture divideds ad after iterest, tax, amouts paid to o-cotrollig iterests ad ow shares purchased but before divideds paid to GKN shareholders, was a iflow of 147 millio (2010: 188 millio), after 31 millio Busiess review

36 .34 Review of performace Cotiued NET BORROWINGS m (800) (600) (400) (200) 0 (506) (708) (300) uk PENSION accounting DEFICIT m (151) (538) GROuP POST-EMPlOyMENT OBlIGaTIONS accounting BaSIS m 1, (2010: 55 millio) of expediture o the Group s restructurig programmes ad 19 millio i relatio to the temporary plat closure at Gallati. The year-o-year chage reflects a improvemet i profitability more tha offset by icreased capital expediture ad a workig capital outflow. Net iterest paid totalled 43 millio (2010: 46 millio) ad tax paid i the year was 38 millio (2010: 33 millio). Net borrowigs At the ed of the year, the Group had et borrowigs of 538 millio (2010: 151 millio), the icrease reflectig the 444 millio acquisitios of Getrag Drivelie Products ad Stromag. The Group s share of et fuds i joit vetures was 2 millio (2010: 17 millio). Pesios ad post-employmet obligatios GKN operates a umber of defied beefit ad defied cotributio pesio schemes together with historic retiree medical arragemets across the Group. The et amout icluded withi tradig profit of 33 millio (2010: 26 millio) icludes the curret service cost of 38 millio (2010: 35 millio) partly offset by credits arisig from iitiatives take to reduce the Group s post-employmet liabilities. Other et fiacig charges of 17 millio (2010: 31 millio) have reduced partly due to the full year impact of the pesio partership arragemet ad partly as a result of lower iterest o liabilities due to the 30 basis poit reductio i the discout rate betwee 31 December 2010 ad 31 December Net amout icluded Other et Curret service cost withi Tradig Profit fiacig charges m m m m m m UK pesios (24) (22) (21) (20) 5 (7) Overseas pesio (13) (12) (12) (6) (19) (21) Retiree medical ad life isurace (1) (1) (3) (3) (38) (35) (33) (26) (17) (31) UK pesios The UK defied beefit scheme is a fuded pla with all future beefits accrued o a career average basis. A hybrid pesio pla providig beefits from a elemet of both defied beefit ad defied cotributio arragemets is ope to ew members. Members curretly i employmet with the Compay represet approximately 18% of total liabilities of 2,650 millio (2010: 2,435 millio). The charge relatig to the UK defied beefit scheme reflected i tradig profit icluded a settlemet credit of 2 millio, et of expeses, relatig to a ehaced trasfer value exercise for deferred members of the UK scheme. The accoutig deficit at 31 December 2011 of 259 millio was 188 millio higher tha the deficit at the ed of December 2011 asset values were above those of ed December 2010 but the valuatios of liabilities at 31 December 2011 were 215 millio higher. This icrease largely reflected the 70 basis poit reductio i discout rate to 4.7% ( 274 millio) partially offset by the 109 millio positive impact from a 35 basis poit reductio i the assumptio for log-term iflatio to 3%. Overseas pesios Overseas pesio obligatios arise maily i the US, Germay ad Japa. Tradig profit beefited from the oe-time curtailmet/past service credit i Japa of 1 millio. The deficit icreased by 71 millio to 539 millio, 54 millio of which was as a result of discout rate reductios i the US ad Europe by 100 ad 10 basis poits, respectively. Retiree medical ad life isurace GKN operates retiree medical ad life isurace arragemets i North America ad has a scheme, closed to ew members, i the UK. The obligatio i respect of all schemes at the ed of the year was 70 millio compared with 61 millio at the ed of The 100 basis poit reductio i the US discout rate accouted for 7 millio of the 9 millio icrease. Summary At 31 December 2011, the total deficit o post-employmet obligatios of the Group totalled 868 millio (2010: 600 millio), comprisig the deficit o fuded obligatios of 465 millio (2010: 193 millio) ad ufuded obligatios of 403 millio (2010: 407 millio).

37 .35 GKN plc Aual Report ad Accouts 2011 Net assets Net assets of 1,624 millio were 63 millio lower tha the December 2010 year ed figure of 1,687 millio. The decrease icludes actuarial losses o post-employmet obligatios et of tax of 223 millio, adverse currecy movemets et of tax of 32 millio ad divideds paid to equity shareholders of 85 millio offset by retaied profit of 306 millio. Fiacig The followig sectio describes the way i which the Group maages ad cotrols its treasury fuctio ad esures it is fiaced i a appropriate ad cost-effective maer. Treasury maagemet All treasury activities are co-ordiated through a cetral fuctio (Group Treasury), the purpose of which is to maage the fiacial risks of the Group ad to secure short ad log-term fudig at the miimum cost to the Group. It operates withi a framework of clearly defied Board-approved policies ad procedures, icludig permissible fudig ad hedgig istrumets, exposure limits ad a system of authorities for the approval ad executio of trasactios. It operates o a cost cetre basis ad is ot permitted to make use of fiacial istrumets or other derivatives other tha to hedge idetified exposures of the Group. Speculative use of such istrumets or derivatives is ot permitted. Group Treasury prepares reports at least aually to the Board, ad o a mothly basis to the Fiace Director ad other seior executives of the Group. I additio, liquidity, iterest rate, currecy ad other fiacial risk exposures are moitored weekly. The overall idebtedess of the Group is reported o a weekly basis to the Chief Executive ad the Fiace Director. The Group Treasury fuctio is subject to a aual iteral ad exteral review of cotrols. Fudig ad liquidity At 31 December 2011, UK committed bak facilities were 755 millio. Withi this, there are committed revolvig credit facilities of 675 millio that iclude 445 millio of ew five year facilities put i place i the secod half of the year. The balace of UK committed facilities of 80 millio is a eight-year amortisig facility from the Europea Ivestmet Bak (EIB). At 31 December 2011, drawigs agaist the revolvig credit facilities were 33 millio ad the Group drew dow i full its 80 millio facility from the EIB. The EIB loa is repayable i five 16 millio istalmets from 2015 ad bears a fixed iterest rate of 4.1%. Capital market borrowigs were 526 millio at 31 December 2011 ad iclude usecured issues of 176 millio 7% bods maturig i May 2012 ad 350 millio 6.75% bods maturig i October The weighted average maturity profile of the Group s committed borrowig facilities was 4.7 years. This leaves the Group well placed i the short term to maage sudde chages i liquidity i the fiacial markets. All of the Group s committed credit facilities have a fiacial coveat requirig EBITDA of subsidiaries to be at least 3.5 times et fiacig costs. I additio, the ew five-year revolvig credit facilities put i place i 2011 cotais a fiacial coveat requirig et debt to be o greater tha 3 times EBITDA of subsidiaries. The coveats are tested every six moths usig the previous 12 moths results. For the 12 moths to 31 December 2011 EBITDA was 12.9 times greater tha et iterest, whilst et debt was 0.9 times EBITDA. Fiacial resources ad goig cocer At 31 December 2011, the Group had et borrowigs of 538 millio. I additio, it had available, but udraw, committed UK borrowig facilities totallig 642 millio. The ext maturities of the Group s committed UK borrowig facilities are 176 millio usecured bod i May 2012 ad 160 millio revolvig bak credit facilities i July The Directors have assessed the future fudig requiremets of the Group ad the Compay ad compared them to the level of committed available borrowig facilities. The assessmet icluded a review of both divisioal ad Group fiacial forecasts, fiacial istrumets ad hedgig arragemets for the 19 moths from the balace sheet date. Major assumptios have bee compared to exteral referece poits such as global light vehicle volumes, build schedules from aircraft assemblers ad market forecasts from major maufacturers of agricultural ad costructio machiery. The forecasts show that the Group will have a sufficiet level of headroom i the foreseeable future ad a assessmet of the likelihood of breachig coveats i this period is cosidered to be remote. Havig udertake this work, the Directors are of the opiio that the Group has adequate committed resources to fud its operatios for the foreseeable future ad so determie that it is appropriate for the fiacial statemets to be prepared o a goig cocer basis. Busiess review

38 .36 Risks ad ucertaities GKN has a extesive risk maagemet framework desiged to idetify ad assess the likelihood ad cosequeces of risk ad to maage the actios ecessary to mitigate their impact. A detailed descriptio of this framework is give o page 50. Set out below are the pricipal risks ad ucertaities which could have a material impact o the Group ad the correspodig mitigatig actios that are i place. Additioal risks ot curretly kow or which are curretly regarded as immaterial could also adversely affect future performace. Market risks Risk Nature of risk ad potetial impact Mitigatio Operatig i global markets GKN operates globally ad as such our results could be impacted by chages i macroecoomic coditios, cosumer demad ad prefereces. A adverse impact could result from volatility i automotive demad ad chagig cosumer prefereces; reschedulig or cacellatio of orders for civil aircraft ad chages i amout or timig of defece spedig; ad volatility i agricultural, costructio, miig ad idustrial markets. Diverse busiess portfolio servig differet markets, with lead idicators i those markets kept uder review Effective maagemet of variable ad fixed cost base, ivestmet spedig ad workig capital Ecoomic ad political istability Give the global footprit of the Group, our operatios could be impacted adversely by global ad regioal chages i the ecoomic, political ad regulatory eviromets icludig availability of affordable credit. Regular moitorig of market eviromet, icludig political, ecoomic ad regulatory developmets Flexible systems, icludig daily cash maagemet, to mitigate GKN s risk should a coutry withdraw from the eurozoe Group-wide goverace framework supported by a strog cotrol eviromet Customer cocetratio Sigificat customer cocetratio exists i the automotive ad aerospace idustries. The isolvecy of, damage to relatios, or sigificat worseig of commercial terms with a major customer could result i the loss of future busiess opportuities, asset write-offs ad restructurig actios. GKN is ot depedet o cotractual or other arragemets with ay idividual customer. No customer represeted more tha 10% of Group sales at 31 December 2011 Active maagemet of customer relatios ad credit exposure Strog commercial ad egieerig focus at customer level together with effective programme maagemet Highly competitive markets GKN operates i highly competitive markets with customer decisios based typically o price, quality, techology ad service. Customer vertical itegratio (icludig OEMs takig productio i-house), the etry of ew competitors or cosolidatio of existig competitors could restrict our ability to deliver the Group s strategic objectives. Cotiual review of competitio ad market treds Maitaiig GKN s competitive positio through ew product techology Ivestmet i egieerig ad lea maufacturig capabilities, whilst also maitaiig strog customer relatioships Techology advacemets GKN may lose customers to competitors offerig ew techologies if we are uable to adapt to market developmets such as chages i legislative, regulatory or idustry requiremets, competitive techologies or cosumer prefereces. This may result from failure to lauch ew products, ew product applicatios or derivatios of existig products to meet customers eeds. Regular assessmet of market ad techology treds ad drivers Divisioal techology plas aliged to emergig ad future treds Focused ivestmet i research ad developmet Effective programme delivery over the log term icorporatig chages i techology

39 .37 Operatioal risks Risk Nature of risk ad potetial impact Mitigatio Supply chai disruptio Supply chai disruptio caused by lack of availability of equipmet, compoets, services ad raw materials that meet specificatios could impact GKN s sales to ad relatioships with customers ad result i additioal urecoverable costs. Effective supply chai maagemet to esure appropriate ivetory levels are maitaied i times of productio volatility Ogoig assessmet of supplier techology ad depedecy Dual sourcig where appropriate to reduce depedece o sigle supplier Moitorig of fiacial viability of key suppliers GKN plc Aual Report ad Accouts 2011 volatile iput costs Product quality issues Sudde icreases i the cost of raw materials, labour ad eergy could adversely affect the Group s earigs if we are uable to pass icreases o to customers. Product quality issues could lead to potetial liabilities for defects i products, warraty claims or product recalls ad as a result adversely affect GKN s fiacial performace ad damage our reputatio. Cotracts that esure the ability to pass o charges to customers where possible Securig log-term cotracts with stable pricig for key iputs Maitaiig good labour relatios Forward purchasig of eergy requiremets where appropriate High levels of quality assurace are embedded i robust maufacturig systems Busiess review Iadequate safety i the workplace A lack of robust safety processes ad procedures could result i accidets ivolvig employees ad others o GKN sites ad potetially causig adverse fiacial impact ad damage to GKN s reputatio. Cosistet Groupwide applicatio of health ad safety programmes Developmet of health ad safety audits to esure adherece to Group policies ad procedures A focus o process ad behavioural safety through a umber of Groupwide activities icludig machiery risk assessmet, thiksafe! ad RADAR People A lack of techical capability ad maagemet depth could result i a iability to execute the strategic pla ad deliver improvig fiacial performace. Aual performace appraisal ad developmet process Competitive reward packages together with focused traiig ad developmet programmes A culture that motivates idividuals to perform to the best of their abilities acquisitios ad their itegratio A lack of suitable acquisitio targets aliged with the plaed growth strategy, a failure to itegrate acquired busiesses successfully, or a iability to capture value from them could impact operatios ad prevet successful delivery of GKN s strategic objectives. Thorough reviews to esure strategic aligmet of acquisitios Extesive pre-acquisitio due diligece which cofirms the trasactio value Careful maagemet of itegratio plas Post acquisitio reviews Fiacial risks Risk Nature of risk ad potetial impact Mitigatio Pesio deficit volatility Pesio deficit levels are affected by chages i asset values, discout rates, iflatio ad mortality assumptios. Accoutig valuatios of pesio obligatios ca cause volatility i fiacial results. Additioal Compay pesio cotributios may have a impact o ivestmet i busiesses. Active maagemet of pesio scheme assets ad log-term view of liability assumptios icludig the level of beefits Alterative fudig ad risk mitigatio actios are implemeted where appropriate Exchage rate volatility Currecy risks iclude: trasactioal (subsidiary sales or purchases i currecies other tha their fuctioal currecy) ad traslatioal (exchage rate movemets i ivestmets i overseas operatios). The Group s fiacial statemets may fluctuate as a result of movemets i exchage rates. Hedgig of trasactio exposures through forward foreig exchage cotracts Borrowigs i local currecy icludig access to overseas debt capital markets Complexity of global tax regimes Give GKN s global footprit ad agaist a backgroud of complex tax laws o a global basis, it is possible that actual tax liabilities could differ from accruals which are based o maagemet judgemets. Ogoig moitorig of tax developmets i major jurisdictios Group-wide tax compliace programme supplemeted by appropriate documetatio The Group isures agaist the impact of a rage of upredictable losses associated with both our busiess assets ad liabilities. GKN s risk fiacig strategy is based o a sigificat level of capped self-isured retetio at the Group level (withi GKN s ow captive isurace compay, Ipsley Isurace Ltd, which does ot isure the risks of ay other etity) ad a much lower retetio at subsidiary level through deductibles. Catastrophe isurace is the purchased i the commercial market over ad above these levels of retetio. Ipsley s curret participatio i GKN s pricipal isurace programme is 10 millio per icidet capped at 20 millio i ay oe year. Due to the ature of the risk, the Group s aviatio products liability isurace is placed solely i the commercial market.

40 .38 Sustaiability report Creatig log-term sustaiable value At the heart of everythig GKN does is a drive for sustaiability that is characterised by efficiet ad ethical operatios from teams of well-supported, motivated ad dyamic people. Cetral to the GKN busiess model (pages 8-9) are key capabilities that uderpi sustaiability ad eable the delivery of strategic objectives ad creatio of log-term value for our shareholders. These capabilities are summarised as: our Values, superior techology, outstadig employees, global footprit, cotiuous improvemet ad corporate resposibility. Our values The GKN Code together with the associated policies directs the behaviours expected of all GKN people. The GKN Code is ecapsulated ito 12 promises, six from GKN to its employees ad six from employees to GKN: Promises from GK to employees We will support you through ivestmet ad traiig so we ca build a high performace busiess by deliverig superb customer service. We will help you develop your full potetial ad we will ot tolerate ay discrimiatio. We will care for you by providig a safe workig eviromet. We will do what we ca to miimise our impact o the eviromet. We are all part of a wider society ad we will cotribute positively to the commuities of which we are part. If you have a problem we will liste i cofidece. Promises from employees to GK I share GKN s commitmet to build a high performig busiess with a strog customer focus. I show that commitmet through my work. I always respect the rights of other team members. I do ot put other team members at risk of ijury ad will cousel ayoe I see workig usafely. I believe i hoest ad proper coduct at all times. I kow I am free to report behaviour which is wrog ad I will do so. I will help protect the eviromet ad support local commuities.

41 .39 GKN plc Aual Report ad Accouts 2011 Regular employee dialogue esures that the Values fully iform how we work ad, durig 2011, a global programme of workshops helped reiforce the promises ad the expected behaviours implicit i them all. Over 6,000 people have completed this programme at more tha 25 sites ad it is cotiuig throughout The Values are promoted through posters, the Group itraet ad recogitio schemes across the Group. EMPlOyEES By REGION as at 31 December ,800 Rest of World 13,300 Americas 5,800 UK 15,100 Europe excludig UK Total 44,000 Icludig subsidiaries ad joit vetures Additioally, ew legislatio provides a opportuity to reiforce key priciples that uderpi the GKN Values. Followig the itroductio ito the UK i 2011 of the Bribery Act 2010, a Group-wide traiig programme was lauched explaiig the implicatios of the Act for employees; it also icludes a reprise of existig Competitio ad Ati-Trust legislatio. Superior techology For over 250 years GKN has developed ad deployed ew techologies: from the first steelmakig processes to the moder day use of advaced composites i aircraft, ad from the itroductio of the first frot-wheel-drive vehicle systems 50 years ago to the developmet of electric drive systems for moder cars today. Evidece of the importace of techology to GKN ad examples of its applicatio are show throughout this report ad o our website at The GKN techology pla addresses the complete product lifecycle: from customer requiremet to product developmet ad the implemetatio to safe disposal. The pla is drive by global treds icludig the low-carbo ageda, electrificatio, urbaisatio, shortages of key resources, populatio growth ad chages i food cosumptio. Each busiess uit deploys techology to help customers meet these challeges ad the Group Techology Strategy Board, chaired by the Group s Pricipal Egieer, drives the developmet ad deploymet of the techology pla. It also facilitates collaboratio o techology developmets across the Group s busiesses, sharig best practice ad exploitig syergies where appropriate. The Techology Strategy Board has a key role i further developig exteral relatioships ad parterships, icludig access to exteral sources of fudig. GKN also works with other compaies to develop techological advaces i key sectors. Composite techologies offer evirometal ad competitive advatages ad, i November 2011, GKN Aerospace joied idustry parters Airbus, AgustaWestlad, Rolls-Royce, Umeco ad Vestas i the official opeig of the UK s Natioal Composites Cetre (NCC). The 8,500 square metre NCC facility is situated close to three of GKN Aerospace s major composite maufacturig operatios i the UK, servig the global aerospace sector at Filto ad Wester Approach i Bristol, ad Cowes o the Isle of Wight. Outstadig employees GKN has approximately 44,000 employees, i subsidiaries ad joit vetures, ad success i deliverig shareholder value meas the Group must strive to be a employer of choice, promotig a high performace culture with motivated, well-traied employees ad outstadig leaders. GKN seeks to recruit taleted idividuals with the skills ad passio to become leaders of the future. I 2011, GKN recruited over 100 graduates worldwide, providig opportuities to develop professioal techical ad leadership career paths. GKN is also expadig its recruitmet of appretices ad curretly has some 825 aroud the world. GKN is committed to supportig all its employees through ivestmet ad developmet. I 2011 the GKN Academy, a olie traiig resource, was fully deployed through the iteret eablig all employees worldwide to access this from their workplace or home. It provides over 360 courses i eight laguages to employees ad their families. Good leadership is at the heart of egagig employees. Developmet programmes address key stages of advacemet, for ewly promoted supervisors, through plat leadership roles ad ito executive, Group-wide roles. Leadership developmet frameworks chart employees progress through maagerial ad techical careers, with focused assessmet ad traiig to provide the right support to achieve success. Employee egagemet is a importat elemet i deliverig positive busiess outcomes. Each employee s role is related to the Group strategy, ad their job purpose ad its busiess cotext is explaied. A variety of commuicatio chaels, with a emphasis o face-to-face commuicatio, are used to help employees cotribute their ideas ad uderstad the cotext for decisio-makig i GKN. Busiess review

42 .40 Sustaiability report Cotiued EMPlOyEES By BuSINESS as at 31 December ,500 GKN Aerospace 5,900 GKN Lad Systems 2,100 Other busiesses 6,400 GKN Powder Metallurgy 3,000 2,500 2,000 1,500 1, Drivelie * Aerospace measured agaist 1,000 sales. 21,100 GKN Drivelie Total 44,000 Icludig subsidiaries ad joit vetures ENERGy CONSuMPTION PER unit OF PRODuCTION kwh/toe Powder Aerospace* Lad Metallurgy Systems A Group-wide employee opiio survey (EOS) was coducted i 2011 which idetified progress i maager commuicatio ad the level of uderstadig of busiess objectives ad directio. Actios are beig implemeted i areas where improvemet opportuities were idetified, icludig creatig a greater uderstadig ad demostratio of GKN s Values ad providig better career discussios. Mothly surveys, usig a subset of the questios from the EOS, of some 3,000 employees globally provide a o-goig idicator of commuicatio ad egagemet across the Group. These surveys idetify areas for improvemet i employee commuicatios ad egagemet ad facilitate local actios to address these. I 2011, GKN wo the Cofederatio of British Idustry (CBI) prize for Iteratioal Employee Egagemet ad the People Grad Prix award, recogisig both GKN s employee egagemet strategy ad the progress towards achievig Group goals through employee egagemet. Global footprit To serve its iteratioal customer base ad exploit growig markets requires a truly global busiess. GKN has factories, service cetres ad offices i 37 coutries across five cotiets. This global footprit provides the ability to build ad sustai close relatioships with customers. It helps to optimise GKN s positio i supply chais ad i developig ew techologies i partership with customers wherever they are globally. Maufacturig i close proximity to customers also meas products have to be trasported shorter distaces, helpig the Group reduce its impact o the eviromet. I Chia, GKN Drivelie ad its joit veture parter, SDS, opeed a factory at Chagchu i Jue Chagchu is the largest automotive idustrial city i Chia. I November 2011, GKN Drivelie opeed a ew 6.6 millio precisio forge at Oragadam ear Cheai, Idia, ad work commeced o a ew 8,000 square metre GKN Drivelie facility i Pue, Idia. More iformatio o these ew plats is give i the case study o page 16. Expasio was also see i more established markets, for example GKN Aerospace i the USA aouced its itetio to build a ew 14,000 square metre aerospace compoets assembly facility i South Carolia. The ew facility will perform assembly operatios for the recetly-awarded productio cotract for the HodaJet. cotiuous improvemet A culture of cotiuous improvemet is at the heart of GKN. All GKN sites have a cotiuous improvemet pla, aliged to busiess objectives. This egages employees to focus cosistetly o positive developmet, buildig a culture which costatly questios the orm ad idetifies opportuities to excel further ad deliver greater value for the Compay, customers ad shareholders. A Lea Eterprise model provides the basis for cotiuous improvemet across all operatios ad is key to creatig efficiecy for customers ad reducig GKN s evirometal footprit. Lea is cetral to sustaiability as it helps cut waste, reduce eergy use, miimise raw material use ad streamlie all processes. A Lea Eterprise model is applied to busiess ad productio processes worldwide (see case studies page 18). Cotiuous improvemet is also a importat mechaism i supportig improvemets i health, safety ad evirometal performace which the followig sectio addresses.

43 .41 GKN plc Aual Report ad Accouts 2011 CO 2 EMISSIONS PER unit OF PRODuCTION kg/toe 1,200 1, Drivelie Powder Aerospace* Lad Metallurgy Systems WaSTE GENERaTION PER unit OF PRODuCTION kg/toe Drivelie Powder Aerospace* Lad Metallurgy Systems RECyClED WaSTE % of total waste Drivelie Powder Metallurgy Aerospace Lad Systems WaTER CONSuMPTION PER unit OF PRODuCTION m 3 /toe Automotive Powder Aerospace* Lad Metallurgy Systems corporate resposibility Eviromet GKN s mai impacts o the eviromet are eergy (ad associated CO 2 emissios), waste geeratio ad recyclig, ad water cosumptio. The Group is committed to cotiuous improvemet i all these areas of evirometal performace ad cotiues to take actios to address each of them. 81% of maufacturig locatios are either certified to ISO14001 or are i the process of obtaiig certificatio. As oted above, Lea Eterprise is applied to eergy efficiecy ad waste reductio programmes, both i offices ad at our maufacturig locatios. All sites cotiue to develop eergy efficiecy targets, ad actios are icorporated ito their Cotiuous Improvemet plas, esurig regular reviews ad appropriate actios. The Group objective is to improve eergy efficiecy by 15% over the period 2009 to Every divisio is o track to meet this: sice 2009, GKN Drivelie has improved eergy efficiecy by 13%, GKN Powder Metallurgy by 12%, GKN Aerospace by 7% ad GKN Lad Systems by 18%. All four divisios improved eergy efficiecy i 2011 with i excess of a 4% improvemet over the prior year; i GKN Lad Systems the improvemet exceeded 16%. Actios to reduce the geeratio of waste adhere to a hierarchy of first, ad the best alterative, of ot producig waste, secod of reusig materials, ad fially, if either of these is possible, to recycle rather tha simply dispose of the material. Demostratig the first of these, elimiatig waste, GKN Powder Metallurgy at Meomoee Falls, Wiscosi, USA, wo the GKN Group Evirometal Excellece Award i 2011 for the elimiatio of ahydrous ammoia by replacig the previous system with ewer techologies, thus removig ay risk of evirometal impact. Durig the year 88% of overall Group waste was recycled. Overall Group water cosumptio reduced i 2011, with GKN Lad Systems achievig a 26% reductio. Much work remais to be doe to improve GKN s evirometal footprit ad a combiatio of learig ad best practice sharig will be used to support this. Compliace with all applicable rules ad regulatios remais a core objective. Ufortuately i 2011 five otices of o-compliace were received ad pealties were paid of US$2,600. Health ad Safety GKN is committed to cotiuous improvemet i health ad safety performace, with a goal of zero prevetable accidets. The tragedies at the Hoegaaes site i Gallati, Teessee, USA, i 2011 have broke a previously strog safety record. As a result of these icidets GKN has sigificatly improved health ad safety processes worldwide. The Hoegaaes site i Gallati experieced two sigificat evets that led to the deaths of five GKN employees. The health ad safety of GKN employees is the umber oe priority for GKN ad the Compay deeply regrets the loss of lives. It is takig every measure to esure Gallati operates to world class stadards ad that the lessos leared from these accidets are applied throughout the Group. The accidets ad actios are described below: O 31 Jauary 2011, a flash fire caused by a electric arc seriously ijured two GKN people who subsequetly lost their lives. O 27 May 2011, a fire fuelled by a hydroge leak occurred ear a furace i the orth aealig buildig takig the lives of three GKN people. The plat has historically had a very strog safety record ad, as with all idustrial plats of this kid, is cotiually moitored by exteral agecies to cofirm compliace with all applicable regulatios. These accidets have had a profoud ad permaet affect o everyoe at GKN ad most particularly the families ad frieds of the colleagues who lost their lives. Support cotiues to be provided to the families ad employees at the facility. Followig the icidet i May 2011, all productio ceased at the plat ad two expert exteral firms were egaged to lead a comprehesive safety review of the etire facility. This review ivolved all Gallati employees as well as health ad safety experts from across the Group. Busiess review * Aerospace measured agaist 1,000/sales.

44 .42 Sustaiability report Cotiued The aim of the review was to esure that the root causes of the icidets were fully uderstood ad all ecessary corrective actios implemeted. I additio, it was tasked with makig recommedatios that would take the Gallati facility far beyod regulatory compliace to world class stadards of operatios ad safety. Over a period of three moths, the recommedatios from the review were implemeted to esure that similar accidets will ot happe agai. This primarily ivolved: the upgrade of electrical systems; the replacemet of key compoets i the gas ad air supply system i the affected buildig; the implemetatio of sigificatly upgraded gas maagemet ad hydroge detectio systems; the developmet of a idustry-leadig powder metal dust maagemet system; upgrade to furaces to improve operatios ad safety; ad full ad comprehesive retraiig of all employees ad cotractors. The work was carried out i full cosultatio with Teessee Occupatioal Safety ad Health Admiistratio ad the Gallati Fire Departmet. The plat wet through a phased restart durig August 2011, but oly after the actios from the review were verified as complete. Hoegaaes cotiues to cooperate fully with the US Chemical Safety Board specifically with regard to the recommedatios made i its fial report. The lessos leared from the tragic evets i Gallati are ow beig spread across the whole Group to improve safety performace. The key actios are set out below: Specifically withi the Gallati plat ad the broader Hoegaaes busiess, operatioal procedures have bee fully reviewed, updated, tested ad implemeted, with the ivolvemet of employees to embed ew ways of workig. Appropriate hazard ad risk maagemet educatio has bee deployed, icludig a focus o dust reductio, cotaimet ad mitigatio. Iteral processes Groupwide are beig expaded to iclude a more formal audit regime, cetrally resourced, ad directed agaist broad-based ad wide-ragig audit criteria. Learig from the 2011 icidets is beig icorporated ito the audit regime ad GKN cotiues to egage iteratioally recogised cosultats to assess sites ad recommed actios as appropriate. Throughout 2012, there will be additioal site reviews, peer group compay audits ad dedicated iteral specialist safety audits. thiksafe!, a comprehesive olie ad face-to-face commuicatio programme is beig deployed across the Group durig Curretly implemeted i GKN Drivelie, it has prove highly successful i reducig accidets ad improvig employee behaviour towards safety, as well as egagig employees to help create a safe workig eviromet. Global procedures ad ways of workig are cotiually reviewed ad improved based o best practice, icludig the robust deploymet of RADAR (Risk Awareess, Detectio, Actio ad Review). This is a GKN-developed behavioural awareess ad improvemet tool, which assists employees i recogisig hazards ad risks i their work area ad empowers them to take actio to elimiate or mitigate those hazards or risks detected. A risk assessmet programme has also bee developed for machiery, icludig auxiliary ad support equipmet. The cotiued use ad spread of RADAR ad machiery risk assessmet, supported by improved processes ad procedures, will be regularly audited ad will reiforce the foudatios already i place to drive cotiuous improvemet. Employee commuicatio about health ad safety occurs regularly, icludig safety briefigs, hazard awareess traiig ad icidet ivestigatio. A variety of audio, visual ad aimatio techiques are beig used to egage employees, deliverig clear ad cosistet messages. The maagemet of health ad safety, icludig compliace with laws ad regulatios i GKN, is based o the iteratioal health ad safety system stadard OHSAS % of locatios have achieved certificatio to OHSAS ad the remaiig sites are workig towards this.

45 .43 GKN plc Aual Report ad Accouts 2011 accident FREquENCy RaTE Number of lost time accidets per 1,000 permaet employees accident SEvERITy RaTE Number of days/shifts lost due to accidets ad occupatioal ill health per 1,000 permaet employees Health ad safety performace is measured o a regular basis ad reports are made mothly to the Executive Committee. A half ad full year report is made to the GKN Board. Accidet frequecy rate (AFR) ad Accidet severity rate (ASR) are the key health ad safety performace idicators for the Group ad our performace for 2011 is show i the adjacet charts. The Group has see overall improvemet i these safety metrics over the last te years. Whilst there was a icrease i AFR i 2010, performace agaist both metrics has improved i Each divisio sets aual targets based o health ad safety improvemet ad accidet rate reductio. These targets are set at portfolio, divisio ad plat level takig ito accout local coditios, priorities ad objectives. All actios are aliged with the Group objective of zero prevetable accidets. Durig 2011 there were six health ad safety eforcemet actios agaist GKN compaies i the US ad UK, two of which resulted i fies issued by relevat authorities amoutig to $16,000. This amout does ot iclude fies that may be icurred as a result of the Gallati icidets, which are yet to be fialised. Commuities GKN has a proud history of workig with the commuities i which it operates. To ecourage this, idividuals ad groups of employees are recogised for the cotributio they make through the aual GKN Hearts of Gold Awards. Oe of the highlights of the 2011 awards was a o-goig project at the GKN Drivelie facility i Porto Alegre, Brazil, itegratig people with learig difficulties ad disabilities ito its workforce. Parterships with local specialists support the differet challeges that are ivolved i this. I 2011 two projects, fuded by the GKN Milleium Trust, were completed. The first, a project based i rural Pabal, Idia, is a partership betwee GKN ad Vigya Ashram ad ivolved a ew educatio facility to develop egieerig skills i local childre so that they ca take back to their commuities skills such as weldig, maiteace, electrical istallatio ad much more. The 602 square metre buildig was completed i 2011 ad officially opeed at a ceremoy i which Sir Kevi Smith preseted the first set of studets with certificates of achievemet after completio of their foudatio modules. The secod project is a ew teachig ad iovatio facility which opeed at the GKN Aerospace Filto facility i the UK. Leveragig the Group s positio withi the UK Natioal Composites Network, it provides traiig to studets to help them desig ew products ad uderstad the evirometal impact of productio processes. The facility welcomed its first studets i 2011; sice the 102 studets have atteded for two days of activities. GKN seeks to react positively whe uexpected evets strike the commuities i which we work. I April 2011, torados devastated large parts of North Carolia, USA, close to GKN facilities. 14 GKN employees families were directly affected icludig fatalities, loss of homes ad structural damage to houses. The GKN Drivelie commuity helped clear debris, repair ad rebuild homes ad provide fuds to support affected families. I aother evet ear to GKN s operatios, the massive earthquake ad tsuami that struck orth easter Japa i March 2011 had a devastatig effect, claimig thousads of lives ad destroyig commuities. I the aftermath of this devastatio, ad after seekig advice from colleagues i Japa o the most appropriate way to provide support, GKN made a doatio of US $250,000 to the Japaese Red Cross to help alleviate the sufferig. These activities are just a few of the umerous coectios with commuities; visit for further examples of the work udertake by GKN employees. Busiess review

46 .44 The Board roy Brow (65) Chairma Appoited a o-executive Director i 1996 ad became Chairma i May He will retire from the Board followig the Aual Geeral Meetig o 3 May Experiece Former executive Director of Uilever plc ad Uilever NV from 1992 to 2001 with resposibility for the group s activities i Europe, Africa ad the Middle East. He is a former o-executive Director of Brambles plc, Brambles Ltd (Australia), British Uited Providet Associatio Ltd (BUPA), the Frachise Board of Lloyd s of Lodo ad HMV Group plc. Chartered Egieer, Fellow of the Istitutio of Mechaical Egieers ad Fellow of the Istitutio of Egieerig ad Techology. Exteral Appoitmets No-executive Director of Satader UK plc ad Alliace & Leicester plc. igel Stei (56) Chief Executive e Appoited to the Board i August Experiece Joied GKN i 1994 ad has held a rage of commercial, geeral maagemet ad fiace roles, icludig Fiace Director ad Chief Executive Automotive. He became Chief Executive o 1 Jauary Prior to GKN, he gaied experiece i the commercial vehicle ad maufacturig sector ad held seior fiacial positios with Laird Group plc ad Hestair Duple Ltd. Former oexecutive Director of Wolseley plc. Member of the Istitute of Chartered Accoutats of Scotlad. Exteral Appoitmets Presidet of The Society of Motor Maufacturers ad Traders Ltd ad Member of the Automotive Coucil. Marcus Bryso (57) Chief Executive Aerospace ad Lad Systems e Appoited to the Board i Jue Experiece Joied GKN with the acquisitio of the Westlad Group i He has extesive experiece of the aerospace idustry havig held a umber of fiace ad commercial roles with Westlad ad seior positios i GKN s Aerospace divisio. Joied the Executive Committee as Chief Executive Aerospace i Jauary 2006 ad assumed resposibility for Lad Systems o 1 October Exteral Appoitmets Vice-Presidet Aerospace of ADS Group Ltd. william Seeger (60) Fiace Director e Appoited to the Board i September Experiece Joied GKN i 2003 as Seior Vice- Presidet ad Chief Fiacial Officer of GKN Aerospace. I Jue 2007 he became a member of the Executive Committee as Presidet ad Chief Executive Propulsio Systems ad Special Products. Appoited Fiace Director i September Prior to GKN, he held a umber of seior fiace positios at TRW Ic spaig over 20 years, latterly as Vice-Presidet Fiacial Plaig ad Aalysis. Joh Sheldrick (62) Idepedet o-executive Director a r Appoited to the Board i December Experiece Former Group Fiace Director of Johso Matthey plc from 1995 to Prior to joiig Johso Matthey i 1990 he was Group Treasurer of The BOC Group plc. He is also a former o-executive Director of API Group plc. Fellow of the Associatio of Corporate Treasurers ad Fellow of the Chartered Istitute of Maagemet Accoutats. Exteral Appoitmets No-executive Director of Feer plc ad Low & Boar plc. Michael turer, cbe (63) Seior Idepedet Director a r Appoited to the Board i September 2009 ad became Seior Idepedet Director i May He will succeed Roy Brow as Chairma o 3 May Experiece Has extesive experiece of the aerospace idustry havig worked for BAE Systems plc for over 40 years, ad as Chief Executive from 2002 to Former Presidet of the Aerospace & Defece Idustries Associatio of Europe. Fellow of the Royal Aeroautical Society. Exteral Appoitmets Chairma of Babcock Iteratioal Group plc ad o-executive Director of Lazard Ltd. Member of the Govermet s Appreticeship Ambassadors Network.

47 .45 GKN plc Aual Report ad Accouts 2011 Shoaid Jemmett-Page (51) Idepedet o-executive Director a r Appoited to the Board i Jue Experiece Curretly Chief Operatig Officer for CDC Group plc, the UK Govermet s developmet fiace istitutio. She joied CDC i early 2009 from Uilever, where for eight years she was Seior Vice-Presidet Fiace ad Iformatio, Home ad Persoal Care, origially i Asia ad later for the group as a whole. Her early career was spet at KPMG, latterly as a parter. Former oexecutive Director of Havelock Europa plc. Exteral Appoitmets Chair of the Sustaiability Committee of the Istitute of Chartered Accoutats i Eglad & Wales ad a Associatio Member of BUPA. richard Parry-Joes, cbe (60) Idepedet o-executive Director a r Appoited to the Board i March Experiece Has extesive experiece of the automotive idustry havig previously worked for the Ford Motor Compay for 38 years, latterly as Group Vice-Presidet Global Product Developmet ad Group Chief Techical Officer. Fellow of the Royal Academy of Egieerig, the Istitutio of Mechaical Egieers ad the Royal Society of Statistical Sciece. Former Chairma of the Welsh Assembly Govermet Miisterial Advisory Group. Exteral Appoitmets No-executive Director of Cosworth Group Holdigs Ltd. Visitig Professor withi the Departmet of Aeroautical ad Automotive Egieerig at Loughborough Uiversity. Joit Chairma of the Automotive Coucil. adrew reyolds Smith (45) Chief Executive Automotive ad Powder Metallurgy e Appoited to the Board i Jue Experiece Joied GKN i 2002 ad has held a umber of seior positios across the Group s Drivelie, Powder Metallurgy ad OffHighway busiesses. Joied the Executive Committee i Jauary 2006 ad became Chief Executive Automotive ad Powder Metallurgy o 1 October Prior to GKN, he held various geeral maagemet ad fuctioal positios at Igersoll Rad, Siebe plc (ow Ivesys plc) ad Delphi Automotive Systems. Former Chairma of the CBI Maufacturig Coucil ad former member of the Miisterial Advisory Group for Maufacturig. Exteral Appoitmets Member of the Govermet s Gree Ecoomy Coucil. Goverace tufa ergibilgic (52) Idepedet o-executive Director a r Judith felto Compay Secretary e Appoited to the Board i May Experiece Curretly Chief Operatig Officer for the Refiig ad Marketig divisio of BP plc with specific resposibility for the global lubricats, aviatio ad LPG busiesses as well as all refiig ad fuels operatios outside the US. He joied BP i 1997 ad has held a umber of seior marketig ad operatioal roles, icludig Chief of Staff to the Group Chief Executive. His early career was spet at Mobil Oil. Joied GKN i 1980 ad became Deputy Compay Secretary i 1995 before beig appoited Compay Secretary i Fellow of the Istitute of Chartered Secretaries ad Admiistrators. Exteral Appoitmets No-executive Director ad Trustee of Youg Eterprise UK. a r e Member of Audit Committee Member of Remueratio Committee Member of Nomiatios Committee Member of Executive Committee