Review of Performance

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

Measurement and reporting of performance

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

Comparative data has been restated following the announcement to exit the Axles operations of the former OffHighway segment.

Comparative segmental information has been restated following the creation of GKN Land Systems, which was announced on 16 June 2010. Land Systems brought together the operations of GKN OffHighway (excluding Axles), GKN AutoStructures and GKN Industrial and Distribution Services (IDS). AutoStructures was included in the former Other Automotive segment and IDS was included in the Driveline segment.

Exchange rates

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

Year End
  2010 2009   2010 2009
Euro 1.16 1.12   1.17 1.13
US dollar 1.55 1.56   1.57 1.61

The approximate impact on 2010 trading profit of subsidiaries and joint ventures of a 1% movement in the average rate would be euro – £1.0 million, US dollar – £1.6 million.