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Company Announcements

Results for the period ended 30 June 2016

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RNS Number : 1857F

GKN PLC

26 July 2016

NEWS RELEASE 26 July 2016

GKN plc Results Announcement for the six months ended 30 June 2016

Group Highlights^(*)

· Another period of growth - in line with expectations

o Sales up 17% and management eps increased 7%

o Continued market outperformance with organic sales up 2%

o Fokker integration on track and performing well

· Sharpening the focus

o Reducing fixed costs; annualised savings of £30 million from 2017 through a GKN wide fixed cost optimisation programme; charge of £35 million in the second half of 2016

o Capital allocation to be progressively directed towards productivity improvement in core aerospace and automotive divisions

· Continued investment in technology

o Strong technology pipeline; innovation recognised by customer and industry awards

o Momentum of new business wins continues to support growth ahead of markets

	Management basis^(*)			As reported
	2016 £m	2015 £m	Change %	2016 £m	2015 £m	Change %
Sales	4,518	3,853	+17	4,237	3,616	+17
Operating profit	390	346	+13	209	245	-15⁽²⁾
Trading margin (%)	8.6%	9.0%	-40bps
Profit before tax	344	307	+12	182	212	-14⁽²⁾
Earnings per share (p)	15.5p	14.5p	+7	9.5p	9.9p	-4
Interim dividend per share (p)	2.95p	2.90p	+2	2.95p	2.90p	+2
Free cash flow	40	21
Net debt	918	769⁽¹⁾

⁽¹⁾ As at 31 December 2015

⁽²⁾Primarily lower due to mark to market valuation of FX contracts

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

"This is a good set of first half results with GKN continuing to make underlying progress in line with our expectations. Each division has continued to deliver against our strategy. GKN is in good shape with excellent technology and strong positions in the aerospace and automotive markets. Capital allocation will continue to be focussed on these divisions, with greater emphasis on internal productivity.

We expect 2016 to be another year of growth, helped by currency translation and Fokker. To increase momentum going into 2017, we will reduce our fixed costs by £30 million.

With our excellent technologies, global footprint and strong focus on costs we are very well placed to compete and succeed in the future."

Divisional Highlights

GKN Aerospace

· Strong headline sales growth, driven by good Fokker performance with integration on track

· Organic sales growth of 2%, comprising commercial (+8%) partially offset by a decline in military (-14%)

· Margin of 9.9% (2015: 11.4%), primarily impacted by the inclusion of Fokker and mature programmes declining

· New and replacement work packages won of c.$5 billion over contract lives

GKN Driveline

· Organic sales growth of 5%, significantly ahead of global auto production helped by our broad geographic footprint and increased content per vehicle

· Trading margin of 8.2% (2015: 8.3%), a good performance in Europe offset by excess launch costs on an US all-wheel drive (AWD) programme

· More than £400 million of annualised new and replacement business won

GKN Powder Metallurgy

· Organic sales growth in line with the market, before the pass-through of lower raw material surcharges

· Trading margin increased to 12.6% (2015: 11.8%), benefiting partly from the lower surcharges

· Strong focus on technology and £120 million annualised new and replacement business won

· Chinese powder production commenced

GKN Land Systems

· Organic sales down 6% due to challenging agricultural and construction equipment markets and the ending of chassis contracts

· Good cost control results in trading margin of 4.6% (2015: 4.0%)

Outlook

Aerospace markets generally remain in transition as some aircraft programmes run down and others ramp up. The overall market in 2016 will be broadly flat, according to external forecasts. Against that backdrop, GKN Aerospace's 2016 organic sales are expected to be slightly up on last year, and the results will benefit from the contribution of Fokker. In the medium term, our strong commercial order book supports continuing growth for GKN Aerospace.

In automotive, external forecasts predict growth in global light vehicle production of around 3% with increases in China, North America, Europe and India. Against this background, GKN Driveline and GKN Powder Metallurgy are expected to continue to grow organically above the market.

GKN Land Systems sales are expected to continue to decline due to softer agricultural and construction equipment markets, although the rate of decline is slowing.

GKN is sharpening its focus on costs and also directing capital expenditure more towards productivity. Fixed cost reductions of £30 million will benefit 2017. There will be a charge to achieve these savings of £35 million (included within management results) in the second half of 2016. This is in addition to the Fokker integration charge that was previously announced.

Despite market uncertainty following the EU Referendum, there should be little impact on GKN over the medium term and 2016 is expected to be another year of growth, helped by currency translation and Fokker.

Notes

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

Cautionary Statement

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

Further Enquiries

Analysts/Investors:

Guy Stainer, Investor Relations Director, GKN plc

T: +44 (0)207 463 2382

M: +44 (0)7739 778187

E: guy.stainer@gkn.com

Media:

Chris Fox, Group Communications Director, GKN plc

T: +44 (0)1527 533238

M: +44 (0)7920 540051

E: chris.fox@gkn.com

Andrew Lorenz, FTI Consulting

T: +44 (0)203 727 1323

M: +44 (0)7775 641807

There will be an analyst and investor meeting today at 08.30am at UBS, Ground Floor Presentation Suite, 1 Finsbury Avenue, London EC2M 2PP.

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

Slides will be put onto the GKN website approximately 45 minutes before the presentation is due to begin, and will be available to download from the GKN website at: http://www.gkn.com/investorrelations/Pages/results-and-presentations.aspx?year=2016.

Questions will only be taken at the event.

A live dial in facility will be available by telephoning: +44 (0) 1452 555 566, Conf ID: 46551273

Following the event, a replay of the conference call will be uploaded onto the GKN website and the on-demand archive webcast will be available via the link http://www.gkn.com/investorrelations/Pages/Webcasts.aspx.

NEWS RELEASE

GKN plc Results Announcement for the six months ended 30 June 2016

Group Overview

Markets

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

Results

Group	First half 2016			First half 2015	Change (%)
	GKN base	Fokker	Total		Headline	Organic
Sales (£m)	4,149	369	4,518	3,853	17	2
Trading profit (£m)	362	28	390	346	13	(3)
Trading margin (%)	8.7%	7.6%	8.6%	9.0%
Return on average invested capital (%)	16.6%			17.5%

Organic sales increased £92 million (2%). The effect of currency translation on management sales was a £202 million benefit and there was a £371 million benefit from acquisitions.

Overall organic trading profit reduced by £10 million (3%). There was a benefit from currency translation of £22 million and a £32 million increase due to acquisitions (including the absence of £3 million acquisition costs in the first half of 2015).

Group trading margin in the first half was 8.6% (2015: 9.0%). Return on average invested capital (ROIC) was 16.6% (2015: 17.5%), excluding Fokker which has not been owned for a full 12 month period.

At 30 June 2016, the Group had net debt of £918 million (31 December 2015: £769 million) and the total deficit on post-employment obligations totalled £2,101 million (31 December 2015: £1,558 million).

Divisional Performance

GKN Aerospace

GKN Aerospace is a leading global tier one supplier of airframe and engine structures, landing gear, electrical interconnection systems, transparencies and aftermarket services. It supplies products and services to a wide range of commercial and military aircraft and engine prime contractors and other tier one suppliers.

According to external forecasts, the overall aerospace market is expected to be slightly down in 2016. In commercial, both Airbus and Boeing continued to benefit from higher deliveries and a record order backlog, and both have announced plans to increase production levels for single aisle aircraft in the future. The short term outlook for wide-body aircraft has been mixed with A330 and Boeing 777 rate reductions in advance of their next generation successors and plans for a reduction in A380 deliveries, while the A350 continues to ramp-up to full rate production. Sales of business jets and commercial rotorcraft are both expected to fall. Military sales are higher and will benefit from the ramp up in the production rate of the F-35.

The key financial results for the period are as follows:

GKN Aerospace	First half 2016			First half 2015	Change (%)
	GKN base	Fokker	Total		Headline	Organic
Sales (£m)	1,262	369	1,631	1,171	39	2
Trading profit (£m)	133	28	161	133	21	(6)
Trading margin (%)	10.5%	7.6%	9.9%	11.4%
Return on average invested capital (%)	16.8%			17.7%

Overall, GKN Aerospace's organic sales were £30 million higher (2%). There was a £59 million (5%) benefit from currency translation and sales from acquisitions amounted to £371 million.

The organic reduction in trading profit was £9 million, due to the transition from more profitable mature military and commercial programmes, partly offset by good growth and catch-up payments in engine spares and the benefit from the ramping up of structures production on new programmes. There was a favourable currency translation impact of £8 million and the profit contribution from acquisitions was £29 million.

Trading margin was 9.9% (2015: 11.4%). Return on average invested capital, excluding Fokker which has not been owned for a full 12 month period, was 16.8% (2015: 17.7%).

The division's commercial sales were 76%, with military 24%. Organic commercial aerospace sales were 8% higher, benefiting from stronger orders for the A350, A320 and Boeing 737 partly offset by a reduction in A330 production. Military organic sales were 14% lower, primarily due to lower sales for F/A-18 Super Hornet, F-15 Eagle and rotorcraft.

The integration of Fokker Technologies, acquired on 28 October 2015, is proceeding well. It added sales of £369 million and a profit of £28 million. Restructuring costs, which are excluded from Management profits, were £22 million during the first half and are expected to total around €50 million (£39 million) in the year, as previously announced. During the period, the outstanding pre-acquisition fine that was agreed with the Department of Justice was settled.

During the period, new and replacement work packages totalling $5 billion over their contract lives have been won and a number of important milestones were achieved, including:

· An agreement to extend to the risk and revenue sharing partnership (RRSP) with Rolls-Royce on the Trent XWB engine. The agreement covers the design and supply of a lower weight, higher performance intermediate compressor case for the enhanced performance Trent XWB-84 engine;

· Signing a long term agreement with Mitsubishi Heavy Industries Ltd. to manufacture aero-engine casings for Rolls-Royce Trent engines which will power Airbus A330neo and Boeing 787 aircraft;

· Partnering with Rolls-Royce on the UltraFan™ large engine programme, with responsibility for the intercase;

· Being named by the US Air Force as one of seven major contractors who will join Northrop Grumman in building the next-generation B-21 bomber;

· Signing a four-year contract extension with FMV (Swedish Defence Material Administration) to provide comprehensive support for the GKN Aerospace RM12 engine, which powers the JAS 39 Gripen C/D fighter; and

· Extending an agreement with Boeing for a further three years to continue manufacturing electrical wiring systems and junction boxes for the 777 and 737 aircraft programmes and signing a memorandum of agreement with UTC Aerospace Systems to develop electrical integrated systems for the More Electric Aircraft initiative.

Automotive market

The major automotive markets of China, India, Europe, and North America experienced increased production in the first half of the year compared to 2015, while Brazil and Japan declined. Overall, global production volumes increased 2.4% to 45.9 million vehicles (2015: 44.9 million).

Car and light vehicle production (rounded millions of units)	First half		Growth
	2016	2015	(%)^(#)
Europe	11.4	10.9	4.5
North America	9.1	8.8	3.3
Brazil	1.0	1.2	-22.2
Japan	4.3	4.4	-2.7
China	12.4	11.7	5.9
India	2.0	1.9	6.4
Others	5.7	6.0	-5.0
Total - global	45.9	44.9	2.4

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

Production in Europe increased in the first half of 2016 as demand in Western Europe continued to recover, partly offset by the decline in Russia.

Production in North America benefitted from continuing consumer confidence and localisation of foreign manufacturers' capacity. Cheap credit and the low price of fuel supported increased demand and production for full-size pickups and Sport Utility Vehicles (SUVs), which outpaced that of passenger cars. The recession in the Brazilian vehicle market deepened, resulting in a further decline in output.

Production growth in China resulted from the positive impact of the reduction in sales tax on small cars. Production in India increased due to improved economic conditions and higher demand for newly launched models. Japanese production, however, was adversely affected by the earthquakes in southern Japan and output stoppages at some manufacturers due to fuel economy irregularities.

External forecasts anticipate global production for full year 2016 will increase 2.9% to 91.3 million vehicles.

GKN Driveline

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

The key financial results for the period are as follows:

GKN Driveline	First half		Change (%)
	2016	2015	Headline	Organic
Sales (£m)	2,002	1,814	10	5
Trading profit (£m)	164	150	9	3
Trading margin (%)	8.2%	8.3%
Return on average invested capital (%)	18.5%	19.6%

Organic sales increased by £95 million (5%) compared with global light vehicle production which was up 2%. The beneficial effect of currency translation was £93 million (5%). Constant Velocity Jointed (CVJ) Systems accounted for 60% of sales and non-CVJ sales were 40%.

The organic improvement in trading profit was £5 million and the positive impact of currency translation was £9 million. GKN Driveline's trading margin was 8.2% (2015: 8.3%). Return on average invested capital was 18.5% (2015: 19.6%).

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

In terms of profitability, European plants were running at very high capacity utilisation with a strong conversion on the additional sales. In China, production was relatively stable following the tax incentives available for small cars, but margin was slightly lower, due to negative pricing, in-line with expectations. The Americas operations were impacted by short term production issues at AWD facilities as customers struggled to obtain parts following the Japanese earthquake and sizeable additional launch costs on a new global AWD programme. These launch problems have now been addressed with production reaching target levels, however, some further launch costs will be incurred in the second half. The technology developed provides an excellent platform for continued success in AWD.

To provide better strategic and customer alignment, GKN Driveline is reorganising in the second half of the year from three regions into two global product lines (CVJ and AWD/eDrive) which will provide a more efficient, leaner organisation.

During the period, more than £400 million of annualised sales in new and replacement business was secured and a number of important milestones achieved, including:

· Being selected by BMW to supply its eAxle on the BMW 2 Series Active Tourer;

· Winning an Automotive News PACE award for VL3 sideshaft technology, which debuted on the BMW 7 Series, whilst also picking up an innovation partnership award for work on the Ford Focus RS; and

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

GKN Powder Metallurgy

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

The key financial results for the period are as follows:

GKN Powder Metallurgy	First half		Change (%)
	2016	2015	Headline	Organic
Sales (£m)	499	474	5	(1)
Trading profit (£m)	63	56	13	5
Trading margin (%)	12.6%	11.8%
Return on average invested capital (%)	21.3%	22.0%

Organic sales were £3 million lower, after the £14 million pass through to customers of lower steel prices and other surcharges. There was a £28 million (6%) benefit from currency translation.

Underlying growth (before raw material pass through) was 2%, in line with global light vehicle production. Underlying sales growth was achieved in all regions with the strongest performance being in Asia.

The organic increase in trading profit was £3 million and there was a £4 million gain on currency translation. The divisional trading margin was 12.6% (2015: 11.8%) reflecting the move towards higher value "design for powder metallurgy" parts and a small margin benefit from lower raw material prices passed through to customers. Return on average invested capital was 21.3% (2015: 22.0%).

During the period, GKN Powder Metallurgy achieved a number of important milestones, which included:

· Winning, in just six months, around £120 million of annualised sales in new and replacement business;

· The commencement of production of high quality automotive grade powders in China for the Asian market; and

· Receiving three prestigious design awards from the Metal Powder Industries Federation (MPIF) at the annual technical conference POWDERMET2016.

GKN Land Systems

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

Sales in GKN Land Systems were lower than the prior period primarily due to a significant decline in North American agricultural equipment markets and the ending of a chassis contract. Demand for construction equipment was also weaker while industrial sales remained relatively stable.

The key financial results for the period are as follows:

GKN Land Systems	First half		Change (%)
	2016	2015	Headline	Organic
Sales (£m)	368	371	(1)	(6)
Trading profit (£m)	17	15	13	6
Trading margin (%)	4.6%	4.0%
Return on average invested capital (%)	7.4%	7.6%

The organic decrease in sales was £24 million (6%) and the beneficial impact of currency translation was £21 million (5%). The first of two chassis contracts ending in 2016 reduced sales by £5 million in the first half. The second contract ends during the third quarter of 2016.

Trading profit was £1 million higher on an organic basis and there was a £1 million benefit from currency translation. Trading margin was 4.6% (2015: 4.0%). Return on average invested capital was 7.4% (2015: 7.6%).

End markets remain tough, particularly in North American agricultural equipment. Nevertheless, progress has been made with many mid-tier customers and important new business won in the industrial, shaft and wheels operations, whilst continuing to invest in technology.

Other Businesses and corporate costs

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

GKN's Other Businesses reported combined sales in the period of £18 million (2015: £23 million). The change reflects a £6 million organic decrease in sales and £1 million benefit from currency translation. A trading loss of £4 million was reported in the first half (2015: £2 million loss) reflecting a restructuring charge at GKN Hybrid Power. Following changes in the commercial landscape of the UK bus market, it has been decided to scale back this operation back and combine it with GKN Driveline's hybrid and electric engineering resource.

Corporate costs, which comprise the costs of stewardship of the Group and operating charges and credits associated with the Group's legacy businesses, were £11 million (2015: £6 million, including a £7 million past service credit following completion of a Pension Increase Exchange exercise in the UK and £3 million of costs in relation to the Fokker acquisition).

Other Financial Information

All comparative information provided below relates to the first half of 2015, unless otherwise stated.

Items excluded from management trading profit

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

Change in value of derivative and other financial instruments

The change in value of derivative and other financial instruments during the period resulted in a loss of £71 million (2015: £20 million loss).

When the business wins long term customer contracts that are in a foreign currency, the Group offsets the potential volatility of future cash flows by hedging through forward foreign currency exchange contracts. At each period end, the Group is required to mark to market these contracts even though it has no intention of closing them out in advance of their maturity dates.

At 30 June 2016, the net fair value of such instruments was a liability of £399 million (31 December 2015: liability of £351 million) and the change in fair value during the period was a £52 million charge (2015: £31 million charge).

There was also a £3 million credit arising from the change in fair value of embedded derivatives in the period (2015: nil) and a net loss of £22 million attributable to the currency impact on Group funding balances (2015: £11 million net gain).

Amortisation of non-operating intangible assets arising on business combinations

The charge for amortisation of non-operating intangible assets arising on business combinations (for example customer contracts, order backlog, technology and intellectual property rights) was £46 million (2015: £36 million).

Gains and losses on changes in Group structure

There was no change in Group structure during the period (2015: £5 million loss).

Restructuring charges

During the period there has been a charge of £22 million in relation to redundancy and integration costs relating to the Group's acquisition of Fokker in 2015.

Post-tax earnings of equity accounted investments

On a management basis, the sales and trading profits of equity accounted investments are included pro-rata in the individual divisions to which they relate, although shown separately post-tax in the statutory income statement.

The Group's share of post-tax earnings on a management basis was £34 million (2015: £34 million), with trading profit of £42 million (2015: £40 million). The Group's share of the tax charge amounted to £8 million (2015: £6 million) with no net financing costs in either period. The organic decrease in trading profit was £1 million.

Net financing costs

Net financing costs totalled £61 million (2015: £67 million) and comprise the net interest payable of £38 million (2015: £33 million), the non-cash charge on post-employment benefits of £27 million (2015: £25 million), a gain from fair value changes on cross currency interest rate swaps of £5 million (2015: £6 million charge) and charge for unwind of discounts of £1 million (2015: £3 million). The non-cash charge on post-employment benefits, fair value changes on cross currency interest rate swaps and unwind of discounts are not included in management figures. Details of the assumptions used in calculating post-employment costs are provided in note 10.

Profit before tax

Management profit before tax was £344 million (2015: £307 million). Profit before tax on a statutory basis was £182 million (2015: £212 million). The main differences between management and statutory figures for 2016 are the change in value of derivative and other financial instruments, amortisation of non-operating intangible assets arising on business combinations, restructuring charges and non-cash charge on post-employment benefits. Further details are provided in note 3 to the interim financial statements.

Taxation

The book tax rate on management profits of subsidiaries was 25% (2015: 24%), arising as a £76 million tax charge (2015: £66 million charge) on management profits of subsidiaries of £310 million (2015: £273 million).

The tax rate on statutory profits of subsidiaries was 11% (2015: 26%), arising as a £17 million tax charge (2015: £46 million charge) on statutory profits of subsidiaries of £148 million (2015: £178 million). The decrease is largely as a result of certain foreign exchange gains which are not taxable.

Non-controlling interests

The profit attributable to non-controlling interests was £2 million (2015: £3 million).

Earnings per share

Management earnings per share was 15.5 pence (2015: 14.5 pence). On a statutory basis earnings per share was 9.5 pence (2015: 9.9 pence), impacted by an increased charge on the change in value of derivatives and other financial instruments and restructuring charges.

Dividend

The Board has declared an interim dividend of 2.95 pence per share (2015: 2.9 pence), an increase of 2%. The interim dividend will be paid on 19 September 2016 to shareholders on the register at 12 August 2016. Shareholders may choose to use the Dividend Reinvestment Plan (DRIP) to reinvest the interim dividend. The closing date for receipt of new DRIP mandates is 26 August 2016.

Cash flow

Operating cash flow, which is defined as cash generated from operations of £252 million (2015: £242 million) adjusted for capital expenditure (net of proceeds from capital grants) of £227 million (2015: £198 million), proceeds from the disposal/realisation of fixed assets of £25 million (2015: £2 million), was an inflow of £50 million (2015: £46 million).

Cash generated from operations includes movements in working capital and provisions totalling a net outflow of £188 million (2015: £142 million outflow), driven by a VAT payment following the substantial one-off customer advance received at the end of 2015.

Capital expenditure (net of proceeds from capital grants) on both tangible and intangible assets totalled £227 million (2015: £198 million). Of this, £192 million (2015: £166 million) was on tangible fixed assets and was 1.5 times (2015: 1.6 times) the depreciation charge. Expenditure on intangible assets, mainly non-recurring costs on Aerospace programmes, totalled £35 million (2015: £32 million).

Net interest paid totalled £23 million (2015: £21 million). Tax paid in the period was £42 million (2015: £58 million).

Free cash flow

Free cash flow, which is operating cash flow including equity accounted investment dividends and after interest, tax, amounts paid to non-controlling interests but before dividends paid to GKN shareholders, was an inflow of £40 million (2015: £21 million).

Net debt

At the end of the period, the Group had net debt of £918 million (31 December 2015: £769 million). At 30 June 2016 the fair value of cross currency interest rate swaps, taken out to better align foreign currency income receipts with debt coupon payments, was a liability of £165 million (31 December 2015: liability of £69 million) which is included in net debt.

Pensions and post-employment obligations

GKN operates a number of defined benefit pension schemes and historical retiree medical plans across the Group.

At 30 June 2016, the total deficit on post-employment obligations of the Group totalled £2,101 million (31 December 2015: £1,558 million), comprising deficits on funded obligations of £1,367 million (31 December 2015: £1,007 million) and on unfunded obligations of £734 million (31 December 2015: £551 million). In total, the deficit increased £543 million from 31 December 2015, primarily due to changes in the discount rates used and adverse currency movements.

The amount included within trading profit for the period comprises current service cost of £25 million (2015: £27 million) and administrative costs of £2 million (2015: £1 million). There was no past service credit in the period (2015: settlement credit of £6 million). The interest charge on net defined benefit plans, which is excluded from management figures, was £27 million (2015: £25 million).

Cash contributions to the various defined benefit pension schemes and retiree medical arrangements totalled £71 million (2015: £71 million).

UK pensions

The Group's two UK defined benefit pension schemes are currently undergoing triennial funding valuations as at 5 April 2016. Once the valuation process is complete, the 5 April 2016 funding deficit in each scheme will be confirmed and any incremental deficit contributions payable by the Group will be established. It is likely that some additional Group funding will be required, but given the early stage of negotiations with the scheme Trustees and the many variables involved in both establishing the valuation and agreeing any resulting recovery plan, the final outcome cannot currently be predicted with any reasonable degree of certainty. The current deficit funding payment is £42 million per year.

The accounting deficit for UK schemes increased to £1,234 million (31 December 2015: £912 million), following a decrease in discount rates.

Defined contribution pension schemes

In addition to defined benefit pension schemes, the Group also operates a number of defined contribution schemes for which the income statement charge was £28 million (2015: £20 million).

Net assets

Net assets of £1,916 million were £30 million higher than the 31 December 2015 figure of £1,886 million. The increase is primarily driven by management profit after tax of £266 million and currency retranslation from subsidiaries of £431 million, partially offset by a loss on remeasurement of defined benefit plans of £466 million and dividends paid to equity shareholders of £99 million.

Exchange rates

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

	Average		Period End
	2016	2015	2016	2015
Euro	1.28	1.37	1.20	1.41
US dollar	1.43	1.53	1.33	1.57

The approximate impact on 2016 trading profit of subsidiaries and equity accounted investments of a 1% movement in the average rate would be euro - £1 million, US dollar - £2 million.

Funding, liquidity and going concern

At 30 June 2016, UK committed bank facilities were £865 million. Within this amount were committed Revolving Credit Facilities of £801 million, £48 million outstanding on an eight-year amortising facility from the European Investment Bank (EIB) and £16 million outstanding on a seven-year £16 million amortising facility from KfW. There were drawings of £67 million against the Revolving Credit Facilities. There were also drawings of £31 million against uncommitted bank facilities.

Capital market borrowings at 30 June 2016 comprised a £350 million 6.75% annual unsecured bond maturing in October 2019 and a £450 million 5.375% semi-annual unsecured bond maturing in September 2022. At 30 June 2016, the Group had net debt of £918 million (31 December 2015: £769 million), including the fair value of the cross currency interest rate swaps, a liability of £165 million (31 December 2015: £69 million liability).

All of the Group's committed credit facilities have financial covenants requiring EBITDA of subsidiaries to be at least 3.5 times net interest payable and for net debt to be no greater than 3 times EBITDA of subsidiaries. The covenants are tested every six months using the previous 12 months' results. For the 6 months to 30 June 2016, EBITDA was 13.4 times greater than net interest payable, whilst net debt was 1.0 times EBITDA.

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

Basis of Reporting

The interim financial statements for the period are shown on pages 16 to 32 and have been prepared using accounting policies which were used in the preparation of audited financial statements for the year ended 31 December 2015 and which will form the basis of the 2016 Annual Report.

Definitions

Financial information set out in this announcement, unless otherwise stated, is presented on a management basis which aggregates the sales and trading profit of subsidiaries (excluding certain subsidiary businesses sold and closed) with the Group's share of the sales and trading profit of equity accounted investments. References to trading margins are to trading profit expressed as a percentage of sales. Management profit or loss before tax is management trading profit less net subsidiary interest payable and receivable and the Group's share of net interest payable and receivable and taxation of equity accounted investments. These figures better reflect performance of continuing businesses. Where appropriate, reference is made to organic results which exclude the impact of acquisitions/divestments as well as currency translation on the results of overseas operations. Operating cash flow is cash generated from operations adjusted for capital expenditure, government capital grants, proceeds from disposal of fixed assets and government refundable advances. Free cash flow is operating cash flow including interest, tax, equity accounted investment dividends and amounts paid to non-controlling interests, but excluding dividends paid to GKN shareholders. Return on average invested capital (ROIC) is management trading profit as a percentage of average total net assets of continuing subsidiaries and equity accounted investments excluding current and deferred tax, net debt, post-employment obligations and derivative financial instruments.

Principal risks and uncertainties

The principal risks faced by the Group in the remaining six months of the year remain largely unchanged from those reported on pages 38 to 47 of the 2015 Annual Report. These risks relate to the following: highly competitive markets; supply chain; customer concentration; operating in global markets; joint ventures; laws, regulations and corporate reputation; technology and innovation; acquisition integration; people capability; product quality; contract risk; programme management; health and safety; information systems resilience; business continuity and pension funding.

On Thursday 23 June 2016 the UK voted to leave the EU, resulting in uncertain future trading arrangements between the UK and the rest of the world, and falling expectations for UK GDP in the short to medium term. GKN is a global business with over 90% of its products manufactured outside the UK; this will limit the effect of the vote on the Group. Weaker sterling following the referendum has so far had a positive effect on the Group's reported earnings but a negative impact on its reported debt and pension liabilities. Pension liabilities have also increased as a result of falling yields on long term bonds. Discussions with the trustees of the UK pension schemes in relation to the April 2016 funding valuation are progressing in a constructive manner.

Directors' Responsibility Statement

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

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

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

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

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the 2015 Annual Report that could do so.

The Directors of GKN plc are listed in the GKN annual report for 2015, with the exception of Anne Stevens who was appointed as a non-executive Director on 1 July 2016.

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

Mike Turner

Chairman

25 July 2016

APPENDICES

	Page

GKN Condensed Consolidated Financial Statements

Consolidated Income Statement for the half year ended 30 June 2016	16



Consolidated Statement of Comprehensive Income for the half year ended 30 June 2016	17



Condensed Consolidated Statement of Changes in Equity for the half year ended 30 June 2016	18



Consolidated Balance Sheet at 30 June 2016	19



Consolidated Cash Flow Statement for the half year ended 30 June 2016	20



Notes to the Half Year Consolidated Financial Statements	21 - 32



Independent Review Report	33

CONSOLIDATED INCOME STATEMENT
FOR THE HALF YEAR ENDED 30 JUNE 2016

				Unaudited
			Notes	First half	First half	Full year
				2016	2015	2015
				£m	£m	£m

Sales			1a	4,237	3,616	7,231

	Trading profit		1b	348	306	609
	Change in value of derivative and other financial instruments		4	(71)	(20)	(122)
	Amortisation of non-operating intangible assets arising on
		business combinations		(46)	(36)	(80)
	Gains and losses on changes in Group structure			-	(5)	(1)
	Impairment charges			-	-	(71)
	Reversal of inventory fair value adjustment arising on
		business combinations		-	-	(12)
	Restructuring charges		5	(22)	-	-

Operating profit				209	245	323

Share of post-tax earnings of equity accounted
	investments		6	34	34	59

	Interest payable			(41)	(34)	(72)
	Interest receivable			3	1	7
	Other net financing charges		7	(23)	(34)	(72)
Net financing costs				(61)	(67)	(137)

Profit before taxation				182	212	245

Taxation			8	(17)	(46)	(43)
Profit after taxation for the period				165	166	202

Profit attributable to non-controlling interests				2	3	5
Profit attributable to owners of the parent				163	163	197
				165	166	202
Earnings per share - pence
Continuing operations - basic				9.5	9.9	11.8
Continuing operations - diluted				9.5	9.8	11.7

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE HALF YEAR ENDED 30 JUNE 2016

				Unaudited
			Notes	First half	First half	Full year
				2016	2015	2015
				£m	£m	£m
Profit after taxation for the period				165	166	202

Other comprehensive income:

Items that may be reclassified to profit or loss
Currency variations - subsidiaries
		Arising in period		431	(102)	74
		Reclassified in period		-	4	4
Currency variations - equity accounted investments
		Arising in period		20	(2)	1
		Reclassified in period		-	-	-
Derivative financial instruments - transactional hedging
		Arising in period		-	-	5
		Reclassified in period		-	-	(5)
Net investment hedge changes in fair value
		Arising in period		(108)	23	(37)
		Reclassified in period		-	-	-
Taxation			8	(36)	2	(5)
				307	(75)	37

Items that will not be reclassified to profit or loss
Remeasurement of defined benefit plans
	Subsidiaries		10	(466)	106	139
Taxation			8	110	(28)	(42)
				(356)	78	97

Other comprehensive income/(expense) for the period				(49)	3	134

Total comprehensive income for the period				116	169	336

Total comprehensive income for the period attributable to:
	Non-controlling interests			4	2	4
	Owners of the parent			112	167	332
				116	169	336

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE HALF YEAR ENDED 30 JUNE 2016

		Notes	Share capital £m	Capital redemption reserve £m	Share premium account £m	Retained earnings £m	Other reserves £m	Equity attributable to equity holders of the parent £m	Non-controlling interests £m	Total equity £m
At 1 January 2016			173	298	330	1,217	(155)	1,863	23	1,886
Profit for the period			-	-	-	163	-	163	2	165
Other comprehensive income/(expense)			-	-	-	(356)	305	(51)	2	(49)
Total comprehensive income/(expense)			-	-	-	(193)	305	112	4	116
Share-based payments			-	-	-	4	-	4	-	4
Addition of non-controlling interests		14	-	-	-	-	-	-	9	9
Dividends paid to equity shareholders		9	-	-	-	(99)	-	(99)	-	(99)
At 30 June 2016 (unaudited)			173	298	330	929	150	1,880	36	1,916

At 1 January 2015			166	298	139	1,069	(193)	1,479	22	1,501
Profit for the period			-	-	-	163	-	163	3	166
Other comprehensive income/(expense)			-	-	-	78	(74)	4	(1)	3
Total comprehensive income/(expense)			-	-	-	241	(74)	167	2	169
Share-based payments			-	-	-	1	-	1	-	1
Share options exercised		14	-	-	-	2	-	2	-	2
Dividends paid to equity shareholders		9	-	-	-	(92)	-	(92)	-	(92)
Dividends paid to non-controlling interests			-	-	-	-	-	-	(1)	(1)
At 30 June 2015 (unaudited)			166	298	139	1,221	(267)	1,557	23	1,580

At 1 January 2015			166	298	139	1,069	(193)	1,479	22	1,501
Profit for the year			-	-	-	197	-	197	5	202
Other comprehensive income/(expense)			-	-	-	97	38	135	(1)	134
Total comprehensive income/(expense)			-	-	-	294	38	332	4	336
Share-based payments			-	-	-	1	-	1	-	1
Share options exercised			-	-	-	2	-	2	-	2
Proceeds from share issue			7	-	191	-	-	198	-	198
Purchase of own shares by Employee
	Share Ownership Plan Trust		-	-	-	(7)	-	(7)	-	(7)
Dividends paid to equity shareholders		9	-	-	-	(142)	-	(142)	-	(142)
Dividends paid to non-controlling interests			-	-	-	-	-	-	(3)	(3)
At 31 December 2015			173	298	330	1,217	(155)	1,863	23	1,886

CONSOLIDATED BALANCE SHEET
AT 30 JUNE 2016

		Unaudited
	Notes	30 June	30 June	31 December
		2016	2015	2015
		£m	£m	£m
Assets
Non-current assets
Goodwill		665	491	591
Other intangible assets		1,341	911	1,265
Property, plant and equipment	12	2,484	2,014	2,200
Equity accounted investments		194	151	195
Other receivables and investments		47	35	42
Derivative financial instruments		28	18	21
Deferred tax assets		509	314	388
		5,268	3,934	4,702
Current assets
Inventories		1,370	1,000	1,170
Trade and other receivables		1,652	1,259	1,311
Current tax assets		4	7	9
Derivative financial instruments		16	8	13
Other financial assets		5	3	5
Cash and cash equivalents	11	227	273	299
		3,274	2,550	2,807
Total assets		8,542	6,484	7,509

Liabilities
Current liabilities
Borrowings		(136)	(103)	(137)
Derivative financial instruments		(166)	(87)	(151)
Trade and other payables		(2,028)	(1,561)	(1,757)
Current tax liabilities		(151)	(120)	(121)
Provisions		(78)	(51)	(78)
		(2,559)	(1,922)	(2,244)
Non-current liabilities
Borrowings		(849)	(871)	(867)
Derivative financial instruments		(430)	(152)	(294)
Deferred tax liabilities		(165)	(145)	(157)
Trade and other payables		(447)	(199)	(425)
Provisions		(75)	(82)	(78)
Post-employment obligations	10	(2,101)	(1,533)	(1,558)
		(4,067)	(2,982)	(3,379)
Total liabilities		(6,626)	(4,904)	(5,623)
Net assets		1,916	1,580	1,886

Shareholders' equity
Share capital		173	166	173
Capital redemption reserve		298	298	298
Share premium account		330	139	330
Retained earnings		929	1,221	1,217
Other reserves		150	(267)	(155)
Equity attributable to equity holders of the parent		1,880	1,557	1,863
Non-controlling interests		36	23	23
Total equity		1,916	1,580	1,886

CONSOLIDATED CASH FLOW STATEMENT
FOR THE HALF YEAR ENDED 30 JUNE 2016

			Unaudited
		Notes	First half	First half	Full year
			2016	2015	2015
			£m	£m	£m
Cash flows from operating activities
Cash generated from operations		11	252	242	885
Interest received			3	1	15
Interest paid			(26)	(22)	(69)
Tax paid			(42)	(58)	(111)
Dividends received from equity accounted investments			55	55	55
			242	218	775
Cash flows from investing activities
Purchase of property, plant and equipment			(198)	(167)	(332)
Receipt of government capital grants			6	1	2
Purchase of intangible assets			(35)	(32)	(81)
Proceeds from sale and realisation of fixed assets			25	2	9
Payment of deferred and contingent consideration			(1)	(1)	(7)
Acquisitions of subsidiaries (net of cash acquired)		14	(8)	(8)	(117)
Repayment of debt acquired in business combinations			-	-	(371)
Equity accounted investments loan settlement			4	-	3
Investment in equity accounted investments			-	(2)	-
			(207)	(207)	(894)
Cash flows from financing activities
Purchase of own shares by Employee Share Ownership
	Plan Trust		-	-	(7)
Proceeds from exercise of share options		14	-	2	2
Gross proceeds from issuance of ordinary shares			-	-	200
Costs associated with issuance of ordinary shares			-	-	(2)
Amounts placed on deposit			-	-	(2)
Proceeds from borrowing facilities			102	75	485
Repayment of other borrowings			(134)	(24)	(423)
Dividends paid to equity shareholders		9	(99)	(92)	(142)
Dividends paid to non-controlling interests			-	(1)	(3)
			(131)	(40)	108
Movement in cash and cash equivalents			(96)	(29)	(11)
Cash and cash equivalents at beginning of period			291	317	317
Currency variations on cash and cash equivalents			29	(19)	(15)
Cash and cash equivalents at end of period		11	224	269	291

NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS
FOR THE HALF YEAR ENDED 30 JUNE 2016
1	Segmental analysis
	The Group's reportable segments have been determined based on reports reviewed by the Executive Committee led by the Chief Executive. The operating activities of the Group are largely structured according to the markets served; aerospace, automotive, and the land systems agricultural, construction and industrial markets. Automotive is managed according to product groups; driveline and powder metallurgy. Reportable segments derive their sales from the manufacture of product and sale of service. Revenue from inter segment trading and royalties is not significant. There have been no changes to segments in the period.
a)	Sales

			Automotive
				Powder	Land
		Aerospace	Driveline	Metallurgy	Systems	Total
		£m	£m	£m	£m	£m
	FIRST HALF 2016 (unaudited)
	Subsidiaries	1,598	1,768	499	354
	Equity accounted investments	33	234	-	14
		1,631	2,002	499	368	4,500
	Other businesses					18
	Management sales					4,518
	Less: Equity accounted investments sales					(281)
	Income statement - sales					4,237

	FIRST HALF 2015 (unaudited)
	Subsidiaries	1,171	1,590	474	358
	Equity accounted investments	-	224	-	13
		1,171	1,814	474	371	3,830
	Other businesses					23
	Management sales					3,853
	Less: Equity accounted investments sales					(237)
	Income statement - sales					3,616

	FULL YEAR 2015
	Subsidiaries	2,387	3,124	906	670
	Equity accounted investments	-	424	-	23
		2,387	3,548	906	693	7,534
	Acquisitions
	Subsidiaries	102	-	-	-
	Equity accounted investments	11	-	-	-
		113	-	-	-	113
	Other businesses					42
	Management sales					7,689
	Less: Equity accounted investments sales					(458)
	Income statement - sales					7,231

NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2016
1	Segmental analysis (continued)
b)	Trading profit

			Automotive
				Powder	Land
		Aerospace	Driveline	Metallurgy	Systems	Total
		£m	£m	£m	£m	£m
	FIRST HALF 2016 (unaudited)
	Trading profit before depreciation and amortisation	221	185	85	23
	Depreciation of property, plant and equipment	(38)	(55)	(21)	(7)
	Amortisation of operating intangible assets	(24)	(5)	(1)	-
	Trading profit - subsidiaries	159	125	63	16
	Trading profit - equity accounted investments	2	39	-	1
		161	164	63	17	405
	Other businesses					(4)
	Corporate and unallocated costs					(11)
	Management trading profit					390
	Less: Equity accounted investments trading profit					(42)
	Income Statement - trading profit					348

	FIRST HALF 2015 (unaudited)
	Trading profit before depreciation and amortisation	176	164	75	22
	Depreciation of property, plant and equipment	(28)	(50)	(19)	(8)
	Amortisation of operating intangible assets	(15)	(3)	-	-
	Trading profit - subsidiaries	133	111	56	14
	Trading profit - equity accounted investments	-	39	-	1
		133	150	56	15	354

	Other businesses					(2)
	Acquisition charges - Fokker					(3)
	Corporate and unallocated costs					(3)
	Management trading profit					346
	Less: Equity accounted investments trading profit					(40)
	Income Statement - trading profit					306

	FULL YEAR 2015
	Trading profit before depreciation and amortisation	383	329	148	39
	Depreciation of property, plant and equipment	(59)	(101)	(38)	(15)
	Amortisation of operating intangible assets	(33)	(7)	(1)	(1)
	Trading profit - subsidiaries	291	221	109	23
	Trading profit - equity accounted investments	-	69	-	1
		291	290	109	24	714

	Acquisitions
	Subsidiaries	(5)	-	-	-
	Acquisition related charges	(13)	-	-	-
		(18)	-	-	-	(18)
	Other businesses					1
	Corporate and unallocated costs					(18)
	Management trading profit					679
	Less: Equity accounted investments trading profit					(70)
	Income Statement - trading profit					609
	No income statement items between trading profit and profit before tax are allocated to management trading profit, which is the Group's segmental measure of profit or loss.

NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2016
1	Segmental analysis (continued)

c)	Goodwill, fixed assets and working capital - subsidiaries only

				Automotive
						Powder		Land
			Aerospace	Driveline		Metallurgy		Systems		Total
			£m	£m		£m		£m		£m
	FIRST HALF 2016 (unaudited)
	Property, plant and equipment and operating intangible
		assets	1,285	1,229		436		139		3,089
	Working capital		258	115		147		91		611
	Net operating assets		1,543	1,344		583		230
	Goodwill and non-operating intangible assets		901	282		36		147
	Net investment		2,444	1,626		619		377

	FIRST HALF 2015 (unaudited)
	Property, plant and equipment and operating intangible
		assets	1,050	949		357		121		2,477
	Working capital		208	116		100		76		500
	Net operating assets		1,258	1,065		457		197
	Goodwill and non-operating intangible assets		487	253		27		131
	Net investment		1,745	1,318		484		328

	FULL YEAR 2015
	Property, plant and equipment and operating intangible
		assets	1,208	1,049		375		128		2,760
	Working capital		159	22		97		64		342
	Net operating assets		1,367	1,071		472		192
	Goodwill and non-operating intangible assets		841	258		29		134
	Net investment		2,208	1,329		501		326

d)	Inter segment sales
	Subsidiary segmental sales gross of inter segment sales are; Aerospace £1,599 million (first half 2015: £1,171 million, full year 2015: £2,489 million), Driveline £1,796 million (first half 2015: £1,617 million, full year 2015: £3,176 million), Powder Metallurgy £501 million (first half 2015: £475 million, full year 2015: £908 million) and Land Systems £355 million (first half 2015: £360 million, full year 2015: £672 million).

e)	Reconciliation of segmental property, plant and equipment and operating intangible assets to the Balance Sheet
					Unaudited
					First half		First half		Full year
					2016		2015		2015
					£m		£m		£m
	Segmental analysis - property, plant and equipment and operating intangible
		assets			3,089		2,477		2,760
	Segmental analysis - goodwill and non-operating intangible assets				1,366		898		1,262
	Goodwill				(665)		(491)		(591)
	Other businesses				26		32		25
	Corporate assets				9		9		9
	Balance Sheet - property, plant and equipment and other intangible assets				3,825		2,925		3,465

f)	Reconciliation of segmental working capital to the Balance Sheet
					Unaudited
					First half		First half		Full year
					2016		2015		2015
					£m		£m		£m
	Segmental analysis - working capital				611		500		342
	Other businesses				11		15		13
	Corporate items				(24)		(24)		(45)
	Accrued interest				(34)		(26)		(25)
	Restructuring provisions				(1)		(2)		(1)
	Equity accounted investment funding				(14)		(4)		(10)
	Deferred and contingent consideration				(11)		(12)		(3)
	Government refundable advances				(97)		(46)		(86)
	Balance Sheet - inventories, trade and other receivables, trade and other
		payables and provisions			441		401		185

NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2016
2	Basis of preparation
	These half year condensed consolidated financial statements for the six months ended 30 June 2016 have been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting as adopted by the European Union and the Disclosure and Transparency Rules of the Financial Conduct Authority. These financial statements have been prepared on a going concern basis. These financial statements, which are unaudited but have been reviewed by the auditors, provide an update of previously reported information and should be read in conjunction with the audited consolidated financial statements for the year ended 31 December 2015, which were prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS). These financial statements do not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the audited consolidated statutory financial statements for the year ended 31 December 2015 has been delivered to the Registrar of Companies. The auditors' report on these financial statements was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498(2) or (3) of the Companies Act 2006.
	Accounting policies The accounting policies and methods of presentation applied in these financial statements are the same as those applied in the audited consolidated financial statements for the year ended 31 December 2015. Estimates, judgements and assumptions The Group's significant accounting policies are set out in the audited consolidated financial statements for the year ended 31 December 2015. Application of the Group's accounting policies requires the use of estimates, subjective judgement and assumptions. The Directors base these estimates, judgements and assumptions on a combination of past experience, professional expert advice and other evidence that is relevant to the particular circumstance. The accounting policies where the Directors consider the more complex estimates, judgements and assumptions have to be made are those in respect of business combinations, post-employment obligations, derivative and other financial instruments, taxation, provisions and impairment of non-current assets. Details of the principal estimates, judgements and assumptions are set out in notes 30, 24, 4b, 20, 6, 21 and 11 of the audited consolidated financial statements for the year ended 31 December 2015 as updated in notes 14 (Business combinations), 10 (Post-employment obligations), 4 (Change in value of derivative and other financial instruments) and 8 (Taxation) of these financial statements. Date of approval These financial statements were approved by the Board of Directors on Monday 25 July 2016.

NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2016

3	Adjusted performance measures

(a)	Reconciliation of reported and management performance measures
	FIRST HALF 2016 (unaudited)
			As reported	Equity accounted investments	Adjusting and non- trading items	Management basis
			£m	£m	£m	£m
	Sales		4,237	281	-	4,518

	Trading profit		348	42	-	390
	Change in value of derivative and other financial instruments		(71)	-	71	-
	Amortisation of non-operating intangible assets arising on
		business combinations	(46)	-	46	-
	Restructuring charges		(22)	-	22	-
	Operating profit		209	42	139	390

	Share of post-tax earnings of equity accounted investments		34	(42)	-	(8)

	Interest payable		(41)	-	-	(41)
	Interest receivable		3	-	-	3
	Other net financing charges		(23)	-	23	-
	Net financing costs		(61)	-	23	(38)
	Profit before taxation		182	-	162	344

	Taxation		(17)	-	(59)	(76)
	Profit after taxation for the period		165	-	103	268
	Profit attributable to non-controlling interests		(2)	-	-	(2)
	Profit attributable to owners of the parent		163	-	103	266
	Earnings per share - pence		9.5	-	6.0	15.5

	FIRST HALF 2015 (unaudited)
			As reported	Equity accounted investments	Adjusting and non- trading items	Management basis
			£m	£m	£m	£m
	Sales		3,616	237	-	3,853

	Trading profit		306	40	-	346
	Change in value of derivative and other financial instruments		(20)	-	20	-
	Amortisation of non-operating intangible assets arising on
		business combinations	(36)	-	36	-
	Gains and losses on changes in Group structure		(5)	-	5	-
	Operating profit		245	40	61	346

	Share of post-tax earnings of equity accounted investments		34	(40)	-	(6)

	Interest payable		(34)	-	-	(34)
	Interest receivable		1	-	-	1
	Other net financing charges		(34)	-	34	-
	Net financing costs		(67)	-	34	(33)
	Profit before taxation		212	-	95	307

	Taxation		(46)	-	(20)	(66)
	Profit after taxation for the period		166	-	75	241
	Profit attributable to non-controlling interests		(3)	-	-	(3)
	Profit attributable to owners of the parent		163	-	75	238
	Earnings per share - pence		9.9	-	4.6	14.5

	FULL YEAR 2015
	For the year ended 31 December 2015, management sales were £7,689 million, management trading profit was £679 million, management profit before tax was £603 million and management earnings per share was 27.8 pence.

NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2016

3	Adjusted performance measures (continued)

(b)	Summary by segment
	FIRST HALF 2016 (unaudited)
		Sales	Trading profit	Margin
		£m	£m
	Aerospace	1,631	161	9.9%
	Driveline	2,002	164	8.2%
	Powder Metallurgy	499	63	12.6%
	Land Systems	368	17	4.6%
	Other businesses	18	(4)
	Corporate and unallocated costs	-	(11)
		4,518	390	8.6%

	FIRST HALF 2015 (unaudited)
		Sales	Trading profit	Margin
		£m	£m
	Aerospace	1,171	133	11.4%
	Driveline	1,814	150	8.3%
	Powder Metallurgy	474	56	11.8%
	Land Systems	371	15	4.0%
	Other businesses	23	(2)
	Corporate and unallocated costs	-	(6)
		3,853	346	9.0%

	FULL YEAR 2015
		Sales	Trading profit	Margin
		£m	£m
	Aerospace	2,387	291	12.2%
	Driveline	3,548	290	8.2%
	Powder Metallurgy	906	109	12.0%
	Land Systems	693	24	3.5%
	Other businesses	42	1
	Acquisition - Fokker (Aerospace)	113	(18)
	Corporate and unallocated costs	-	(18)
		7,689	679	8.8%

NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2016
4	Change in value of derivative and other financial instruments
			Unaudited
			First half		First half		Full year
			2016		2015		2015
			£m		£m		£m
	Forward currency contracts (not hedge accounted)		(52)		(31)		(103)
	Embedded derivatives		3		-		1
			(49)		(31)		(102)
	Net gains and losses on intra-group funding
		Arising in period	(22)		11		(20)
	Change in value of derivative and other financial instruments		(71)		(20)		(122)

	Forward foreign currency contracts, cross currency interest rate swaps and embedded derivatives (all level 2) are valued using observable rates and published prices together with forecast cash flow information where applicable, consistent with the prior year. The amount in respect of embedded derivatives represents a commercial contract denominated in US dollars between European Aerospace subsidiaries and a customer outside the USA. Carrying values of derivative instruments at 30 June 2016 were; forward currency contracts liability of £399 million (31 December 2015: liability of £351 million), embedded derivatives asset of £12 million (31 December 2015: asset of £9 million) and cross currency interest rate swaps liability of £165 million (31 December 2015: liability of £69 million).

5	Restructuring charges
				Unaudited
				First half		First half		Full year
				2016		2015		2015
				£m		£m		£m
	Redundancy and integration costs			(22)		-		-
	Restructuring charges			(22)		-		-

	Restructuring charges of £22 million, separately identified, relate to the recently acquired Fokker Technologies Group B.V. business within Aerospace.

6	Share of post-tax earnings of equity accounted investments
				Unaudited
				First half		First half		Full year
				2016		2015		2015
				£m		£m		£m
	Sales			281		237		458
	Operating costs			(239)		(197)		(388)
	Trading profit			42		40		70
	Net financing costs			-		-		(1)
	Profit before taxation			42		40		69
	Taxation			(8)		(6)		(10)
	Share of post-tax earnings - before adjusting and non-trading items			34		34		59
	Adjusting and non-trading items			-		-		-
	Share of post-tax earnings			34		34		59

7	Other net financing charges
				Unaudited
				First half		First half		Full year
				2016		2015		2015
				£m		£m		£m
	Interest charge on net defined benefit plans			(27)		(25)		(49)
	Fair value changes on cross currency interest rate swaps			5		(6)		(17)
	Unwind of discounts			(1)		(3)		(6)
	Other net financing charges			(23)		(34)		(72)

NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2016
8	Taxation
	The tax charge for the period is based on an estimate of the Group's expected annual effective rate of tax for 2016 based on tax legislation substantively enacted at 30 June 2016 applied to taxable profit for the period ended 30 June 2016.

			Unaudited
			First half	First half	Full year
			2016	2015	2015
			£m	£m	£m
	Tax included in the income statement
	Analysis of tax charge in the period
	Current tax (charge)/credit
		Current period charge	(66)	(74)	(121)
		Utilisation of previously unrecognised tax losses and other assets	-	-	38
		Adjustments in respect of prior periods	3	8	-
		Net movement on provisions for uncertain tax positions	-	3	(23)
			(63)	(63)	(106)
	Deferred tax		46	17	63
	Total tax charge for the period		(17)	(46)	(43)

	Analysed as:
	Tax in respect of management profit
	Current tax		(63)	(63)	(107)
	Deferred tax		(13)	(3)	(26)
			(76)	(66)	(133)
	Tax in respect of items excluded from management profit
	Current tax		-	-	1
	Deferred tax		59	20	89
			59	20	90
	Total tax charge for the period		(17)	(46)	(43)

			Unaudited
			First half	First half	Full year
			2016	2015	2015
			£m	£m	£m
	Tax included in other comprehensive income
	Current tax on post-employment obligations		2	2	4
	Current tax on foreign currency gains and losses on intra-group funding		-	-	(6)
	Deferred tax on post-employment obligations		108	(30)	(46)
	Deferred tax on foreign currency gains and losses on intra-group funding		(36)	2	1
			74	(26)	(47)
	Management tax rate The tax charge arising on management profits of subsidiaries of £310 million (first half 2015: £273 million, full year 2015: £544 million) was £76 million (first half 2015: £66 million charge, full year 2015: £133 million charge) giving an effective tax rate of 25% (first half 2015: 24%, full year 2015: 24%). UK tax rate reduction A reduction in the mainstream rate of UK corporation tax from 20% to 19% from 1 April 2017 and to 18% from 1 April 2020 have been substantively enacted. UK temporary differences are measured at the rate they are expected to reverse. The Finance Bill 2016 provides for a further rate reduction to 17% which is expected to be substantively enacted in the Autumn 2016. The most significant impact of this reduction will be on deferred tax assets related to post-employment obligations which have been recognised through equity.

NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2016

9	Dividends
	An interim dividend of 2.95 pence per share (first half 2015: 2.9 pence per share, full year 2015: 8.7 pence per share) has been declared by the Directors and will be paid on 19 September 2016 to shareholders on the register at 12 August 2016. Based on the number of shares ranking for dividend at 30 June 2016, the interim dividend is expected to absorb £51 million. During the period £99 million (first half 2015: £92 million, full year 2015: £142 million) was paid in respect of dividends to equity shareholders.
10	Post-employment obligations
	Actuarial assessments of the key defined benefit pension and post-employment medical plans (representing 97% of liabilities and 98% of assets) were carried out as at 30 June 2016.

	Movement in post-employment obligations during the period:
					Unaudited
					First half		First half		Full Year
					2016		2015		2015
					£m		£m		£m
	At 1 January				(1,558)		(1,711)		(1,711)
	Current service cost				(25)		(27)		(50)
	Past service				-		6		4
	Businesses acquired				-		-		(7)
	Administrative costs				(2)		(1)		(3)
	Interest on net defined benefit plans				(27)		(25)		(49)
	Remeasurement of defined benefit plans				(466)		106		139
	Contributions/benefits paid				71		71		100
	Currency variations				(94)		48		19
	At end of period				(2,101)		(1,533)		(1,558)

	Post-employment obligations as at the period end comprise:
					Unaudited
					30 June		30 June		31 December
					2016		2015		2015
					£m		£m		£m
	Pensions	- funded			(1,329)		(967)		(977)
		- unfunded			(683)		(489)		(505)
	Medical	- funded			(38)		(27)		(30)
		- unfunded			(51)		(50)		(46)
					(2,101)		(1,533)		(1,558)

			UK	Americas		Europe		ROW	Total
			£m	£m		£m		£m	£m
	At 30 June 2016 - unaudited		(1,234)	(173)		(676)		(18)	(2,101)
	At 30 June 2015 - unaudited		(920)	(117)		(483)		(13)	(1,533)
	At 31 December 2015		(912)	(133)		(498)		(15)	(1,558)

NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2016

10	Post-employment obligations (continued)
	Assumptions

	The major assumptions used were:

			UK			Americas	Europe	ROW
			GKN1	GKN2
			%	%		%	%	%
	At 30 June 2016 - unaudited
	Rate of increase in pensionable salaries		n/a	3.80		n/a	2.50	-
	Rate of increase in payment and deferred pensions		2.80	2.80		n/a	1.75	n/a
	Discount rate		2.75	2.95		3.60	1.30	0.80
	Inflation assumption		2.80	2.80		n/a	1.75	n/a
	Rate of increase in medical costs:
		Initial/long term	5.4/5.4			7.0/5.0	n/a	n/a
	At 30 June 2015 - unaudited
	Rate of increase in pensionable salaries		n/a	4.20		n/a	2.50	-
	Rate of increase in payment and deferred pensions		3.20	3.20		n/a	1.75	n/a
	Discount rate		3.50	3.75		4.40	2.20	0.80
	Inflation assumption		3.20	3.20		n/a	1.75	n/a
	Rate of increase in medical costs:
		Initial/long term	5.5/5.5			7.0/5.0	n/a	n/a
	At 31 December 2015
	Rate of increase in pensionable salaries		n/a	4.10/4.15		n/a	2.50	-
	Rate of increase in payment and deferred pensions		3.05	3.10		n/a	1.75	n/a
	Discount rate		3.55	3.85/4.05		4.30	2.40	0.80
	Inflation assumption		3.05	3.10/3.15		n/a	1.75	n/a
	Rate of increase in medical costs:
		Initial/long term	5.4/5.4			7.0/5.0	n/a	n/a

	The table above at 31 December 2015 specifies separate assumptions for past and future service in relation to the UK schemes. Consistent with the prior period and year end, the UK discount rate at 30 June 2016 is based on AA corporate bonds with duration weighted to the UK pension schemes' liabilities, derived from the Mercer pension discount yield curve. The methodologies used to derive the German and US discount rates were similarly consistent with those used at 31 December 2015. The UK scheme mortality assumptions are based on S1NA (year of birth) mortality tables with CMI 2013 improvements and a 1.25% long term improvement trend. In Germany RT2005-G tables were used, whilst RP-2014 tables were used in the US.

	Assumption sensitivity analysis The impact of a one percentage point movement in the primary assumptions for the defined benefit net obligations as at 30 June 2016 is set out below:

					UK	Americas	Europe	ROW
					£m	£m	£m	£m
	Discount rate +1%				509	44	101	4
	Discount rate -1%				(663)	(55)	(126)	(2)
	Rate of inflation +1%				(583)	(1)	(105)	-
	Rate of inflation -1%				427	-	89	-
	Life expectancy +1 year				(110)	(9)	(24)	-
	Life expectancy -1 year				109	9	21	-

	UK deficit funding The Group's two UK defined benefit pension schemes are currently undergoing triennial funding valuations as at 5 April 2016. Once the valuation process is complete, the 5 April 2016 funding deficit in each scheme will be confirmed and any incremental deficit contributions payable by the Group will be established. It is likely that some additional Group funding will be required, but given the early stage of negotiations with the scheme Trustees and the many variables involved in both establishing the valuation and agreeing any resulting recovery plan, the final outcome cannot currently be predicted with any reasonable degree of certainty. Following the previous triennial valuation in the UK, additional deficit funding payments of £10 million per year have continued and there is potential for further payments commencing in 2017, contingent upon asset performance. In addition the Group agreed, during 2014, to pay £2 million per year for 4 years to the UK scheme, GKN 1, to cover a funding requirement arising from a £123 million bulk annuity purchase. During the period the Group paid £30 million (first half 2015: £30 million, full year 2015: £30 million) to the 2 UK pension schemes through its pension partnership arrangement.

NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2016

11	Cash flow notes

				Unaudited
				First half	First half	Full year
				2016	2015	2015
				£m	£m	£m
	Cash generated from operations
	Operating profit			209	245	323
	Adjustments for:
	Depreciation, impairment and amortisation of fixed assets
		Charged to trading profit
			Depreciation	124	106	218
			Amortisation	31	20	43
		Amortisation of non-operating intangible assets arising on business
			combinations	46	36	80
		Impairment charges		-	-	71
	Change in value of derivative and other financial instruments			71	20	122
	Gains and losses on changes in Group structure			-	5	1
	Amortisation of government capital grants			(1)	(1)	(2)
	Net loss/(profit) on sale/realisation of fixed assets			-	1	(3)
	Charge for share-based payments			4	1	1
	Movement in post-employment obligations			(44)	(49)	(51)
	Change in inventories			(63)	(61)	(33)
	Change in receivables			(184)	(71)	110
	Change in payables and provisions			59	(10)	5
				252	242	885

	Movement in net debt
	Net movement in cash and cash equivalents			(96)	(29)	(11)
	Net movement in borrowings and deposits			32	(51)	(60)
	Movement on finance leases			-	-	(2)
	Movement on cross currency interest rate swaps			(96)	16	(43)
	Movement on other net investment hedges			(12)	-	(11)
	Amortisation of debt issue costs			(1)	(1)	(2)
	Currency variations			24	(19)	(16)
	Movement in period			(149)	(84)	(145)
	Net debt at beginning of period			(769)	(624)	(624)
	Net debt at end of period			(918)	(708)	(769)

	Reconciliation of cash and cash equivalents
	Cash and cash equivalents per balance sheet			227	273	299
	Bank overdrafts included within "current liabilities - borrowings"			(3)	(4)	(8)
	Cash and cash equivalents per cash flow			224	269	291

	The fair values of most financial instruments approximate to carrying value either due to the short-term maturity of the instruments or because interest rates are reset frequently, with the exception of borrowings and government refundable advances which are carried at amortised cost. The carrying value of borrowings at 30 June 2016 was £930 million (first half 2015: £952 million) with a fair value of £1,035 million (first half 2015: £1,054 million) and the carrying value of government refundable advances at 30 June 2016 was £97 million (first half 2015: £46 million) with a fair value of £115 million (first half 2015: £45 million).

NOTES TO THE HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS (continued)
FOR THE HALF YEAR ENDED 30 JUNE 2016

12	Property, plant and equipment (unaudited)

	During the period ended 30 June 2016 the Group asset additions were £166 million (first half 2015: £138 million). Assets with a carrying value of £25 million (first half 2015: £3 million) were disposed of during the period ended 30 June 2016.
13	Related party transactions (unaudited)

	In the ordinary course of business, sales and purchases of goods take place between subsidiaries and equity accounted investment companies priced on an 'arm's length' basis. The Group also provides short-term financing facilities to equity accounted investment companies. There have been no significant changes in the nature of transactions between subsidiaries and equity accounted investment companies that have materially affected the financial statements in the period. Similarly, there has been no material impact on the financial statements arising from changes in the aggregate compensation of key management.
14	Other financial information (unaudited)

	Commitments relating to future capital expenditure not provided by subsidiaries at 30 June 2016 amounted to £189 million (30 June 2015: £134 million) and the Group's share not provided by equity accounted investments amounted to £23 million (30 June 2015: £8 million). During the period a total of 189,505 ordinary shares (first half 2015: 5,362,689 ordinary shares) were issued in connection with the exercise/release of options/awards under the Company's share incentive schemes, all of which were transferred from treasury. This generated a cash inflow of nil (first half 2015: £2 million). On 22 June 2016, the Group repaid the second of five annual instalments of £16 million on its £80 million European Investment Bank Loan. On 30 June 2016 the Group took control, through a 60% equity shareholding, of a newly formed company; GKN (Bazhou) Metal Powder Company Limited (Bazhou). Bazhou specialises in metal powder production in China. The fair value of consideration for the 60% shareholding is £17 million and comprises an initial cash payment of £8 million and deferred consideration of £9 million. The fair value of net assets acquired, before non-controlling interests, of £26 million comprises; property, plant and equipment of £15 million, inventory of £3 million, receivables of £4 million and provisional goodwill of £4 million. Due to the proximity of the transaction to the reporting date, a formal valuation exercise will be performed in the second half of the year to appropriately allocate the fair value of assets and liabilities acquired. Bazhou has been included in Powder Metallurgy for segmental reporting.
15	Contingent assets and liabilities (unaudited)

	Since 2003, the Group has been involved in litigation with HMRC in respect of various advance corporate tax payments and corporate tax paid on certain foreign dividends which, in its view, were levied by HMRC in breach of the Group's EU community law rights. The most recent High Court judgment in the case was published in December 2014. This judgement was broadly positive but HMRC appealed the decision and a hearing took place in June 2016 in the Court of Appeal. A judgement is expected towards the end of 2016. There has been a recent judgement in the Prudential case from the Court of Appeal considering similar issues which was also broadly favourable, however, HMRC appealed this judgement to the Supreme Court. The continuing complexity of the remaining case and uncertainty over the issues raised (and in particular which points HMRC may seek to appeal) means that it is not possible to predict the final outcome of the litigation with any reasonable degree of certainty. There are no other material contingent assets at 30 June 2016 or 30 June 2015. At 30 June 2016 the Group had no contingent liabilities in respect of bank arrangements and no guarantees (30 June 2015: none). In the case of certain businesses, performance bonds and customer finance obligations have been entered into in the normal course of business.

Independent review report to GKN plc

We have been engaged by the Company to review the condensed consolidated financial statements in the half-yearly financial report for the six months ended 30 June 2016 which comprises the Consolidated income statement, the Consolidated statement of comprehensive income, the Condensed consolidated statement of changes in equity, the Consolidated balance sheet, the Consolidated cash flow statement and related notes 1 to 15. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of consolidated financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of consolidated financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of consolidated financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated financial statements in the half-yearly financial report for the six months ended 30 June 2016 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditor

London, United Kingdom

25 July 2016

This information is provided by RNS

The company news service from the London Stock Exchange

END

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