Key performance indicators.

Financial KPIs.

Sales growth(a)(b)

Method of calculation

Management sales(c) measured both in absolute terms and on an underlying basis (i.e. excluding the effects of currency translation, acquisitions and divestments) relative to the prior year.

Target

To achieve growth rates at both a Group and divisional level (in absolute terms and on an underlying basis) in excess of the growth in our major automotive, aerospace and land systems markets.

2011 performance

Group management sales(c) grew by 13% on an absolute basis and 10% on an underlying basis. The corresponding figures for GKN Driveline were increases of 15% and 10% respectively, for GKN Powder Metallurgy 11% and 13% respectively, for GKN Aerospace 2% and 4% respectively, and for GKN Land Systems 27% and 21% respectively.

Earnings per share (EPS)(b)

Method of calculation

Management earnings for the Group (as set out in note 3(a) to the financial statements) divided by the weighted average number of ordinary shares in issue (excluding treasury shares).

Target

To achieve absolute growth in EPS each year and in the longer term, recognising the nature and cyclicality of our major markets, to achieve average annual compound growth of at least 6%.

2011 performance

Management EPS in 2011 was 22.6p compared with 20.7p in 2010, an increase of 9%.

Trading margins(a)

Method of calculation

Management trading profit(c) as a percentage of management sales(c).

Target

To achieve medium-term trading margins of between 8% and 10% for GKN Driveline, 9% and 11% for GKN Powder Metallurgy, 11% and 13% for GKN Aerospace and 8% and 11% for GKN Land Systems, giving an overall Group trading margin of between 8% and 10%.

2011 performance

The Group trading margin in 2011 of 7.7% reflects good performance in all four divisions. Excluding the effect of acquisitions, the divisional trading margins were: GKN Driveline – 7.1%, GKN Powder Metallurgy – 8.5%, GKN Aerospace – 11.2% and GKN Land Systems – 8.0%.

Free cash flow

Method of calculation

Cash flows from operating activities (excluding special pension contributions) after capital expenditure and including fixed asset disposal proceeds, receipts of government capital grants and refundable advances and non-controlling dividends.

Target

To generate positive free cash flow sufficient to cover dividend payments and provide funding resources to support organic and acquisitive earnings growth.

2011 performance

Free cash flow amounted to £147 million, following a continued focus on operating cash generation throughout 2011 offset by an increase in capital expenditure and the first distribution of £23 million from the Pension partnership to the UK Pension scheme.

Return on average invested capital (ROIC)(a)

Method of calculation

Ratio of management trading profit(c) to average total net assets including the appropriate share of joint ventures but excluding current and deferred tax, cash, borrowings, post-employment obligations and derivative financial instruments.

Target

To achieve ROIC at both a Group and divisional level which exceeds the weighted cost of capital of the Group (12% as a pre-tax threshold and between 9% and 10% on a post-tax basis). The Group target is to achieve ROIC of 20% or above (pre-tax).

2011 performance

Group ROIC increased to 18.3%* in 2011 as a result of significantly improved profitability against a relatively stable asset base. Divisional ROIC performance is as follows: GKN Driveline – 17.0%, GKN Powder Metallurgy – 16.7%, GKN Aerospace – 22.7% and GKN Land Systems – 29.5%.

* excluding 2011 acquisitions

Dividend per share(b)

Method of calculation

Amount declared as payable by way of dividend divided by the number of ordinary shares in issue (excluding treasury shares).

Target

A progressive dividend policy aligning dividends with the long-term trend in management earnings whilst achieving a sustainable management earnings-to-dividend cover ratio of around 2.5 times.

2011 performance

2011 saw progress in the dividend payment, reflecting strong earnings and cash performance. The dividend for the year, at 6.0p, is covered 3.8 times by management earnings.

Non-financial KPIs.

Health and safety performance.

Method of calculation

Accident frequency rate (AFR) measured as the number of lost time accidents per 1,000 permanent employees and accident severity rate (ASR) measured as the number of days/shifts lost due to accidents and occupational ill health per 1,000 permanent employees.

Target

Zero preventable accidents.

2011 performance

AFR and ASR both showed a slight reduction in 2011, to 2.4 (2010: 2.7) and 63 (2010: 68) respectively. However, there were two accidents leading to five fatalities in the Hoeganaes plant in Gallatin, USA. More detail can be found in the health and safety section of the sustainability report.

Environmental performance.

Method of calculation

Energy consumption and associated CO2 emissions, waste generation, waste recycled and water consumption measured on a divisional basis per unit of production and against sales in GKN Aerospace.

Target

Improved year-on-year performance across all KPIs.

2011 performance

Performance in 2011 across all environmental KPIs, with the exception of recycled waste which saw a slight reduction, has improved. See the sustainability report for further information.

Employee turnover.

Employee turnover is a measure of our success in retaining our people and achieving our goal of being an employer of choice. Voluntary turnover is calculated as a percentage of total permanent employees.

In 2011, voluntary turnover, which excludes compulsory redundancies or terminations, was 3.97% (2010: 4.02%).

(a)
2009 was previously restated following the decision to exit the Axles business of the former OffHighway segment.
(b)
As restated in 2007-2008 for the bonus issue inherent in the July 2009 rights issue.
(c)
Management sales and management trading profit are defined in the review of performance.