Review of performance.

A strong financial performance with at or near record profits in all four divisions.

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

Exchange rates

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

  Average   Year End
  2011 2010   2011 2010
Euro 1.15 1.16   1.20 1.17
US dollar 1.60 1.55   1.55 1.57

The approximate impact on 2011 trading profit of subsidiaries and joint ventures of a 1% movement in the average rate would be euro – £1 million, US dollar – £2 million.