Annual Report and Accounts 2010 ENGINEERING. for the future

Aual Report ad Accouts 2010 ENGINEERING for the future

ENGINEERING FOR THE FUTURE We believe that everythig we do well today ca be doe better tomorrow. Stadards, disciplies, systems ad processes have built a culture that ecourages us to challege everythig. This way of thikig turs the isigificat ito the sigificat; it accelerates our mometum ad delivers the products of our imagiatio. Directors report busiess review IFC 2010 performace 01 GKN at a glace 03 This is GKN 04 Chairma s statemet 06 Chief Executive s review 08 GKN strategy 09 Divisioal strategies 10 Our strategy i actio Drivelie Powder Metallurgy Aerospace Lad Systems 18 Key performace idicators 20 Review of performace 32 Risks ad ucertaities 34 Sustaiability report Directors report goverace 38 The Board 40 Corporate goverace 46 Audit Committee report 48 Remueratio report 59 Other statutory iformatio 62 Statemet of Directors resposibilities Fiacial statemets 63 Idepedet auditors report (Group) 64 Group fiacial statemets 109 Idepedet auditors report (Compay) 110 Compay fiacial statemets 113 Group fiacial record Other iformatio 114 Subsidiaries ad joit vetures 116 Shareholder iformatio 118 Subject idex 119 Cotact details Key IFC Iside Frot Cover www.gk.com www.gk.com

2010 PeRFORMANce Group results reflect the strog recovery i Drivelie, Powder Metallurgy ad Lad Systems, a good performace i Aerospace ad the o-goig beefits from restructurig. Sales up 22% ( 975 millio) to 5.4 billio. Tradig profit of 411 millio, up 255 millio, ad tradig margi of 7.6%. New busiess: Drivelie achieves 80% wi rate o ew driveshaft busiess ad Aerospace wis $1.5 billio of ew cotracts. Positive free cash flow of 188 millio ad et debt dow 149 millio to 151 millio. Fial divided of 3.5 pece per share, givig a total divided for 2010 of 5.0 pece per share. Retur o average ivested capital of 17% reflectig higher profitability. Statutory basis Sales 5,084m 2009: 4,223m Profit/(loss) before tax 345m 2009: (54)m Earigs/(loss) per share 19.6p 2009: (3.2)p Maagemet basis Sales 5,429m 2009: 4,454m (restated) Profit before tax 363m 2009: 87m (restated) Earigs per share 20.7p 2009: 5.7p (restated) See page 20 for details of measuremet ad reportig of performace o a maagemet basis. 2009 figures have bee restated followig the decisio to exit the Axles busiess of the former OffHighway segmet.

01 / GKN AT A GLANce Deliverig more through techology ad iovatio Drivelie GKN Drivelie is the world s leadig supplier of automotive drivelie systems ad solutios. Products costat velocity joited systems. All-wheel drive systems icludig propshafts, coupligs ad fial drive uits. Tras axle solutios icludig ope, limited slip ad lockig differetials ad electroic torque vectorig products. edrive systems icludig electric rear axles ad electric trasmissios. Markets We supply maily to vehicle maufacturers i the global car ad light vehicle markets. Techology treds Key treds i Drivelie s markets iclude demad for improved fuel efficiecy ad icreased cocetratio o electric power as a solutio to developig sustaiable, evirometally efficiet trasport. Our respose Our products are developed with a clear focus o providig weight, space ad fuel savigs. Our edrive Systems busiess cotiues to develop iovative solutios, for use i vehicles where the primary power is electricity ad also where the primary drive is a covetioal egie with a secodary electric drive. Powder Metallurgy GKN Powder Metallurgy is the world s leadig producer of sitered compoets ad the largest producer of metal powder i North America. Products Sitered compoets for egies ad gearboxes. Sitered bearigs ad filters. Metal ijectio moulded compoets. Soft magetic materials for use i electric motors. Markets The majority of our products are for applicatios i the automotive idustry, with the balace for a wide variety of idustrial ad cosumer uses. Techology treds Treds i automotive ad idustrial markets have led to greater demad for lower emissios, higher fuel efficiecy ad lighter weight. Our respose Powder metal techology eables the flexible desig of high performace complex shapes ad the productio of compoets at, or close to, et shape, leadig to a reductio i material waste ad associated eergy cosumptio i maufacture. Demad for high precisio ad the use of ew materials has led to the developmet of compoets such as helical gears for e-steerig systems ad, i cojuctio with GKN Drivelie, siter-forged differetial gears. SALeS BY customer SALeS BY customer 6% Mitsubishi 8% Ford 8% Toyota 4% BMW 3% PSA Peugeot Citroe 15% Volkswage Group 12% Reault Nissa Group 2% ThysseKrupp Presta 2% Volkswage Group 2% Liamar 3% FiatChrysler 2% Bosch 7% Ford 6% Geeral Motors 4% ZF Group 10% FiatChrysler 26% Other 8% Geeral Motors 72% Other

02 / Aerospace GKN Aerospace is a first tier supplier to the global aviatio idustry ad a leader i the maufacture of highly complex composite aerostructures ad egie products. Products Itegrated aerostructures, icludig wig ad flight cotrol surface assemblies ad fuselage. Propulsio products such as fa blades, exhaust systems ad acelles. Trasparecies, icludig cockpit widows, bullet resistat glass ad coatigs. Niche techologies such as ice protectio ad oise cotrol systems. Markets We supply our products to a wide rage of aircraft ad egie prime cotractors i both military ad civil aerospace markets. Techology treds Icreasig ivestmet i, ad developmet of, lightweight structures to improve fuel efficiecy, lower emissios ad miimise the evirometal impact of aviatio. Our respose We are developig ew applicatios for composites to meet these requiremets. Productio o the A350 XWB s advaced composite rear wig spar recetly commeced at our dedicated composite facility i Filto, UK. GKN Aerospace recetly delivered the first major structural assembly for the Sikorsky ch-53k helicopter, featurig a advaced hybrid composite, alumiium ad titaium structure. Lad Systems GKN Lad Systems desigs, maufactures ad supplies a wide rage of products for the global agricultural, costructio, miig ad other idustrial markets. Products Power maagemet devices such as primary ad secodary driveshafts, clutches ad gearboxes. Sigle ad multi-piece steel ad alumiium wheels. Structures such as chassis systems. Aftermarket parts for use i a rage of areas icludig passeger cars ad commercial ad agricultural vehicles. Markets I additio to existig markets, GKN Lad Systems is the platform to leverage GKN Group capability for ew busiess opportuities i emergig high growth markets such as reewable eergy ad mass trasit solutios. Techology treds There is heighteed focus i all of our markets o improvig performace through efficiet, reliable power maagemet, icreased electrificatio ad use of lightweight structures. Our respose We are focused o developig products that meet these challeges, such as our ew Itegrated cotiuously Variable Drive System (IcVD ) for agricultural ad costructio machiery, which ca be idividually cofigured to vehicle-specific parameters to optimise performace. SALeS BY customer 3% Spirit 3% Rolls Royce 4% Geeral Electric 6% Lockheed Marti 14% Uited Techologies 18% Other 3% Bombardier 28% EADS 21% Boeig SALeS BY customer 2% Agco 2% JCB 2% Volkswage Group 2% Ford 8% Joh Deere 3% Claas 6% Tata 4% Caterpillar 6% Case New Hollad 65% Other

/ 03 This is GKN GKN is a global egieerig group. Our techology ad products are at the heart of vehicles ad aircraft produced by the world s leadig maufacturers. GKN operates through four divisios: Drivelie, Powder Metallurgy, Aerospace ad Lad Systems. We employ approximately 40,000 people i over 30 coutries, haressig our cosiderable techology ad maufacturig resources to supply the highest quality systems, structures, compoets ad services. GKN plc Aual Report ad Accouts 2010

04 / CHAIRMAN S STATEMENT Our global footprit, Results combied with our leadig product positios ad strog techology ad customer base, has eabled us to take advatage of the market opportuities that arose. ad divided 2010 was a year i which the beefits of the decisive restructurig actios take durig the recessio saw us emerge much stroger as a busiess, with a lower cost base ad improved operatioal efficiecy. I the recovery that has followed, our global footprit, combied with our leadig product positios ad strog techology ad customer base, has eabled us to take advatage of the market opportuities that arose. As a result, we delivered maagemet profit before tax of 363 millio ad earigs per share of 20.7p. Our strog cash flow performace cotributed to a reductio i et debt to 151 millio, uderliig the stregth of our balace sheet. Agaist the backgroud of this strog performace ad our cofidece i the future, the Board is recommedig to shareholders a fial divided of 3.5p per share. Together with the iterim divided of 1.5p, this will brig the divided for the year to 5.0p per share. This is i lie with our progressive divided policy, desiged to alig divideds with the log term tred i earigs. We cotiue to make progress i addressig the Group s pesio liabilities. I April, we aouced a iovative asset-backed cash paymet scheme to provide 30 millio per aum to the UK pesio scheme for the ext 20 years. The combiatio of this ad other actios take to improve the fudig of the UK scheme should cotribute to a sigificat reductio i the pesio deficit oce the results of the curret trieial fudig valuatio are implemeted. Our retur to the FTSE 100 Idex i September after a absece of some six years was very pleasig. We are oe of oly two survivig members of the origial FT 30 Idex, the oldest cotiuous idex i the UK, established i 1935. Board matters 2010 has see a umber of chages i the compositio of the Board. At the AGM i May, Sir Peter Williams ad Sir Christopher Meyer retired from the Board as o-executive Directors. Sir Peter had also bee Chairma of the Remueratio Committee ad our Seior Idepedet Director. I October, Helmut Mamsch also retired from the Board as a o-executive Director. I would like to take this opportuity to thak them all for their cotributios to the Compay durig their time o the Board. We welcomed Shoaid Jemmett-Page as a ew o-executive Director i Jue. Shoaid has a strog fiacial backgroud together with extesive experiece of Asia which is a importat market for our busiesses. A recruitmet process to idetify a further o-executive Director is earig its coclusio ad a aoucemet will be made i due course. This appoitmet will agai esure that we have a appropriate balace of executive ad idepedet o-executive Directors o the Board. Oe of the Board highlights of the year was the visit to Chia i September whe Directors ot oly had the opportuity to visit Shaghai Expo, but also toured GKN s expadig operatios i Chia ad met with some of our major Chiese customers.

/ 05 Goverace The publicatio of the ew UK Corporate Goverace Code i Jue itroduced chages that move the emphasis of the Code towards Board quality, risk ad accoutability to shareholders. Whilst the revised Code does ot apply to GKN util the 2011 fiacial year, we have goe some way to meetig certai of the ew provisios. We recetly coducted a exterally facilitated Board evaluatio which focused o those areas that will iform ad assist the Board s effectiveess i drivig the Compay forward through its ext stage of growth ad developmet. We are curretly reviewig the output from the evaluatio with a view to implemetig agreed chages as soo as practicable. Shareholders ca be assured of our cotiued commitmet to strog goverace disciplies; these ad the processes that uderpi them are described i more detail o pages 40 to 45. Sir Trevor Holdsworth Before leavig Board matters, I would like to pay tribute to Sir Trevor Holdsworth who died i September 2010. Sir Trevor had a log ad successful career with GKN culmiatig i his teure as Chairma from 1980 to 1988, a period of cosiderable chage ad ucertaity i the idustrial world. Sir Trevor helped to trasform GKN from a maufacturer predomiatly of steel, uts ad bolts, ad screws ad fasteers ito areas such as costat velocity techology for the automotive market, effectively layig the strog foudatios of the GKN of today. GKN owes him a tremedous debt. Outlook As we progress to the ext phase i our developmet, we do so as a Group much more balaced betwee earigs cotributios from our Automotive ad Aerospace busiesses ad with promisig opportuities for growth i our Lad Systems divisio. Supported by strog operatioal performace ad rapid growth i the emergig markets we serve, we look forward to the future with cofidece. Roy Brow Chairma GKN plc Aual Report ad Accouts 2010

06 / CHIEF EXECUTIVE S REVIEW I closig last year s statemet, I wrote that Agaist a backgroud of expected improvemets i global ecoomies, the Group should make sigificat progress i 2010. Our balace sheet stregth ad excellet market positios give the Board cofidece i a strog ad sustaied GKN recovery. New techologies ad ew products are creatig opportuities to build stroger relatioships with our customers as they strive to develop more highly egieered solutios for a low carbo world. I am pleased to be able to report that the Group s performace i the year has fully uderscored that statemet. A strog set of fiacial results, together with the excellet progress made i the cotiued developmet of our market leadig busiesses, provide a solid platform for cotiued above-market growth, improvig profitability ad strog cash geeratio. Our markets ad divisioal performace The recovery i global automotive productio which started i the secod half of 2009 accelerated i 2010 with demad stroger tha we had aticipated. Global productio reached 75 millio uits i the year, which is ow higher tha 2007 pre-recessio levels ad compares with 60 millio vehicles i 2009. The geographical distributio of this productio is ow however sigificatly differet, with demad i Wester Europe, North America ad Japa still dow aroud 20% o 2007, whilst Chia s output has doubled ad we have experieced strog growth i Brazil ad Idia. GKN s global positioig, together with our exposure to the high performig Europea premium brads, has eabled us to take full advatage ad reveues i Drivelie ad Powder Metallurgy icreased by 38% i the year. The beefits of the sigificat restructurig programme lauched at the ed of 2008 also cotributed to a very strog bouce back i profitability, ad tradig profits for these two divisios reached 223 millio, which compares with 3 millio i 2009. Last Jue we lauched a ew divisio GKN Lad Systems, which brought together the OffHighway busiess with our AutoStructures operatios ad the Aftermarket busiess of GKN Drivelie. This ew divisio will focus o better exploitig GKN s competecies i markets we already serve, such as agriculture, miig, costructio, defece ad rail, ad also build positios i ew idustrial sectors. I the first half of 2010 we saw the start of recovery i the global heavy costructio ad miig equipmet markets together with improvig agricultural equipmet demad i North America ad by the fial quarter the begiigs of the recovery i the Europea agricultural machiery market. Lad Systems performace also beefited from 2009 restructurig actios ad, o reveues of 699 millio (up 106 millio), the divisio tured a small prior year loss ito a tradig profit of 37 millio. I aerospace, otwithstadig the very egative impact of the recessio o the airlie idustry, large commercial aircraft productio has falle oly slightly ad is already startig its recovery, with output for both wide bodied ad arrow bodied aircraft expected to icrease i 2012. GKN s defece activities (47% of Aerospace reveues) are almost etirely associated with US Govermet programmes, ad i 2010 the productio rudow of the F-22 fighter aircraft commeced ad schedule reductios o the C-17 trasporter were implemeted. Growth i ew programme reveues was ot able to compesate ad as a result GKN s Aerospace reveues were dow aroud 2% ad profits reduced by 7 millio to 162 millio. Group performace Overall GKN Group sales were up 22% to 5.4 billio ad tradig profit more tha doubled to 411 millio. Group cash flow has agai bee strog, with particular emphasis o workig capital cotrol where, otwithstadig rapidly icreasig productio activity, ivetory turs cotiued to improve. As a result et debt reduced from 300 millio to 151 millio. The fial actios i the Group restructurig programme were lauched i the secod half, ad will coclude early i 2011. This will brig to a ed a period of extesive strategic ad recessioary-drive restructurig which commeced i 2004.

/ 07 Buildig the future It s bee extremely ecouragig to see the cotiued success of all four divisios i wiig ew busiess ad lauchig ew products. I Drivelie, recet high levels of ew driveshaft busiess have led to the lauch of a expasio programme i Idia, Chia ad North America which will add approximately 60% to available capacity i those markets over the ext few years. Demad for ew tras axle ad electroic torque cotrol products has also bee ecouragig, ad we have secured ew hybrid electric vehicle trasmissio programmes i Japa ad North America to add to the hybrid rear axle product that will be available o the Peugeot 3008 HYbrid4 system i 2011. Powder Metallurgy cotiues to beefit from demads o auto maufacturers to implemet ew techologies to improve fuel efficiecy ad reduce emissios. Variable valve timig i egies, dual clutch trasmissios ad lightweight, high performace pumps, trasmissios ad differetials, together with soft magetic compoets i electric motors ad alterators, are examples of a whole rage of ew applicatios secured by Powder Metallurgy which will support strog reveue growth i the comig years. Our strategy i Lad Systems will take some time to evolve, although we are already seeig the beefits i our order books of providig a outlet for GKN drivelie techology i offhighway markets. A costat velocity joited driveshaft has bee developed for agricultural tractors, improvig mobility, comfort ad speed of operatio, ad a GKN torque sesig product which liks with the tractor GPS ow eables much more efficiet lad fertilisatio. Lad Systems has also developed a hydro split gearbox which allows cotiued ad automatic variatio of power to combie harvesters, optimisig performace irrespective of the crop beig harvested. Aerospace has cotiued to secure extesios to existig programmes, such as a further multi-year cotract for F-18 fighters, ad to wi additioal work packages o ew oes, icludig A350 XWB, the Joit Strike Fighter ad Boeig 747-8 ad 787. Major multi-year cotracts were secured with all three mai egie maufacturers which will provide over $1 billio of reveues to GKN. New programme activity has made excellet progress, with our first composite major assembly o the Sikorsky CH-53K heavy lift helicopter beig delivered, as was our first complete composite fuselage for the HodaJet ad i December we started productio of the first Airbus A350 wig spars i our ew purpose-built facility i Filto, UK. We were pleased also that our joit veture with Rolls-Royce, iitially coverig developmet of composite fa blades, has ow bee exteded to iclude frot fa casigs. Right across GKN ew techologies ad ew products are creatig opportuities to build stroger relatioships with our customers as they strive to develop more highly egieered solutios for a low carbo world. Outlook The outlook for our major markets is positive although some ucertaity remais, particularly aroud macro-ecoomic coditios. Agaist this backgroud, Drivelie ad Powder Metallurgy are expected to show further good improvemet i 2011. The coclusio of Drivelie's restructurig actios will also provide some additioal beefits to operatig performace. Aerospace sales are expected to be broadly flat as secod half icreases i reveue from civil aircraft offset reduced military sales. The ramp up of a umber of ew aircraft programmes ad further icreases i civil volumes should retur Aerospace to its strog growth tred i 2012. Lad Systems performace should cotiue to improve, beefitig particularly from the expected icrease i Europea agricultural equipmet markets, which represet aroud a quarter of Lad Systems sales. Free cash flow is agai expected to be positive, givig a further reductio i et debt for the year. I summary, GKN expects 2011 to be a year of good progress for the Group. As ed markets cotiue to improve, the stregth of our market positios ad order books leaves GKN well placed for a period of sustaied growth, margi expasio ad strog free cash flow geeratio. Edurig Values As GKN employees we are boud together by shared values, commo ways of workig ad a cotiued drive for excellece i everythig we do. I closig my report, I oce agai wat to pay tribute to GKN s employees for their commitmet, talet ad eterprise, which has ot oly eabled the Compay to weather the worst global recessio of our time, but has also built a exceptioal platform for GKN to cotiue to develop ad grow. I cogratulate ad thak everyoe who has crossed the GKN threshold i 2010 for their cotributio to a year of exceptioal progress. Sir Kevi Smith Chief Executive GKN plc Aual Report ad Accouts 2010

08 / GKN STRATEGY We are committed to providig log term shareholder value i the form of steadily growig earigs ad divideds through the delivery of sustaied growth i sales, profitability ad cash geeratio. Our strategic objectives Market leadership Achieve the highest market share i our chose ed markets. Develop superior techology i all our busiesses. Deliver exceptioal customer service. Growth Achieve above market growth i our chose ed markets. Leverage ad exted our global footprit to icrease market share. Accelerate growth through strategic acquisitios. Operatioal excellece Develop a world class lea maufacturig eterprise. Be the employer of choice with a high performace culture, motivated people ad outstadig leaders. Achieve preferred status with our strategic customers ad suppliers. Sustaiability Develop products ad processes for the ew low carbo world. Achieve a world leadig health ad safety record. Have a positive impact o the eviromet ad the commuities i which we operate. KPIs We implemet ad moitor performace agaist strategy through key performace idicators (KPIs), both fiacial ad o-fiacial. Progress agaist these KPIs is reported regularly to the Board ad seior maagemet. I additio, certai fiacial KPIs are liked to executive remueratio. See pages 18 ad 19 for more iformatio. Risk maagemet We have a extesive risk maagemet framework desiged to idetify, assess ad mitigate sigificat busiess risks which could impact delivery of our strategic pla. Risk maagemet processes operate throughout the Group at plat, divisioal ad corporate levels ad regular reports are made to the Board ad its Committees. See pages 32 ad 33 for more iformatio. Key capabilities Superior techology, world class lea maufacturig, leveragig our global footprit, exceptioal customer service, outstadig leadership ad developmet for all are Group-wide key capabilities that uderpi the delivery of our strategy. At their heart are our Values which bid GKN together ad guide our relatioships with all our stakeholders. See pages 34 to 37 for more iformatio.

DIVISIONAL STRATEGIES / 09 Buildig world leaders Drivelie GKN Drivelie is the world s leadig supplier of automotive drivelie systems ad solutios. Our strategy is to exploit this market leadig presece ad the busiess strog techology ad global maufacturig footprit to: provide iovative drivelie systems ad solutios, supportig developig market treds for more fuel efficiet vehicles; ad icrease our busiess i high growth regios servig the eeds of strategic customers. Powder Metallurgy GKN Powder Metallurgy is the world s leadig producer of sitered compoets ad the largest producer of metal powder i North America. Our strategy is to exploit powder metal techology workig closely with our customers to develop desig for powder metal applicatios: to meet the rapidly developig requiremets for high efficiecy egies, advaced trasmissio applicatios ad evolvig emissios stadards; ad to expad the busiess i high growth markets, supportig customers through a global operatioal etwork. Aerospace GKN Aerospace is a first tier supplier to the global aviatio idustry ad a leader i the maufacture of highly complex composite aerostructures ad egie products. Our strategy is to build o our superior techology ad desig capabilities to grow the busiess by: exploitig our strog positios o existig programmes for ew aircraft; ad developig ew techologies for future commercial ad defece platforms. Lad Systems GKN Lad Systems desigs, maufactures ad supplies a wide rage of products for the global agricultural, costructio, miig ad other idustrial markets. Our strategy is to brig Group-wide power maagemet ad structures capabilities to existig ad ew idustrial markets thereby: ehacig customer ad market focus through superior techology based solutios to our chose sectors; ad extedig our ability to meet market eeds globally through world class operatios. GKN plc Aual Report ad Accouts 2010

10 / OUR STRATEGY IN ACTION Drivelie GKN Drivelie cotiues to deliver drivelie systems ad solutios to the world s premier automotive maufacturers. GKN Drivelie desigs, develops ad maufactures a broad rage of drivelie systems used i the smallest ultra-low cost car through to the most sophisticated premium vehicle With a focus o efficiecy, performace ad dyamics, GKN Drivelie is a pioeer ad leader i systems that provide space, weight ad fuel savigs with greater all-roud efficiecy Brad New Thikig Case Study edrive Systems: GKN Drivelie is pursuig globally more tha 25 differet hybrid ad electric vehicle projects i the wake of its groud-breakig electric rear axle project with Peugeot Citroë

/ 11 GKN Drivelie has desiged a ew rage of electric drive axles both for use i pure electric vehicles ad for covertig covetioal vehicles ito hybrids. A electric drive axle was developed for use i the Peugeot 3008 HYbrid4, which comes to market i 2011. The axle allows the frot-wheel drive vehicle to have all-wheel drive performace together with hybrid fuel ecoomy ad the ability to operate i all-electric drive mode with zero emissios. I parallel with hybrids, iterest i electric cars ad vehicles with rage exteders has bee evidet at auto shows for several years, ad GKN Drivelie has developed a electric drive etrasmissio o a demostratio electric vehicle for Beijig Automotive Idustry Holdig Co Ltd as well as axles for electric car projects i Asia ad North America. GKN plc Aual Report ad Accouts 2010

12 / OUR STRATEGY IN ACTION Powder Metallurgy GKN Powder Metallurgy comprises GKN Siter Metals, the world s largest maufacturer of sitered compoets, ad Hoegaaes, which produces metal powder used i the maufacture of these compoets. Powder metallurgy is a eablig techology that is deliverig smaller, lighter, ad higher performig products Challegig Cocepts Case Study Siter-forged differetial gears cotiue to expad the potetial of powder metal techology Differetial gears are used to distribute torque betwee two wheels or axles ruig at differet speeds. The differetial is a critical system which operates i a icreasigly high stress, space-costraied eviromet. Siter-forged differetial gears deliver weight savigs ad cosistetly higher performace tha established gear techologies. The result is a product that reduces drivelie rotatig mass ad system size both essetial elemets for future vehicle desigs. These beefits directly traslate ito lower fuel cosumptio ad CO 2 emissios as well as improved vehicle dyamic respose.

/ 13 GKN Powder Metallurgy provides both sophisticated raw materials ad highly egieered compoets to automotive ad idustrial markets i all major regios of the world GKN plc Aual Report ad Accouts 2010

14 / OUR STRATEGY IN ACTION Aerospace GKN Aerospace is oe of the world s largest idepedet first tier aerospace suppliers, providig complex, high-performace, high-value itegrated metallic ad composite assemblies for aerostructures ad egie products. GKN has sigificat participatio o almost every major civil ad military fixed ad rotary wig programme i developmet ad productio today GKN Aerospace s techology-led products are maufactured usig the latest developmets i materials processig ad advaced metallic ad composite maufacturig techologies. GKN s experiece, kowledge ad capabilities i itegrated aerostructures, propulsio systems, trasparecies ad specialist products are supported by aftermarket operatios

/ 15 Automated fibre placemet (AFP) is oe of may techologies i which we are ivestig throughout the composite maufacturig ad assembly process, both for the A350 XWB ad for future products. Expadig Horizos Case Study GKN has ivested i a state-of-the-art automated composites desig ad maufacturig facility icorporatig productio techiques that represet the future of aerospace composites Automatio eables the efficiet productio of complex itegrated structures ad the attaimet of high productio rates demaded by our customers. The purpose-built productio facility at Filto, UK, was desiged to utilise lea maufacturig techiques ad icreased automatio i order to reduce productio time ad cost ad icrease output. It is a cetre of excellece for the desig, maufacture ad assembly of complex itegrated composite structures. GKN plc Aual Report ad Accouts 2010

16 / OUR STRATEGY IN ACTION Lad Systems GKN Lad Systems is a diversified maufacturer ad aftermarket service supplier to demadig global markets icludig agricultural, costructio ad miig, with a focus o power maagemet ad high performace structures Our customers operate i a wide variety of workig eviromets ad use our solutios every day to improve their equipmet, makig the ed user s daily work easier ad more efficiet A Joied Up Approach Case Study We work i close partership with our customers to esure that high performace solutios are timely ad iovative

/ 17 GKN ad JCB have worked closely to develop ad brig to market a Itegrated Cotiuously Variable Drive System (ICVD ). The ICVD is a groud-breakig hydrostatic drive system which allows smooth drivig betwee 0-40km/h with optimal power trasmissio at all times. This cost-effective trasmissio brigs the followig advatages: high eergy efficiecy which sigificatly reduces fuel cosumptio, supportig fulfilmet of the latest emissio regulatios; high levels of comfort ad simple hadlig improvig safety; ad exteded rage ad higher speed. All of this must be delivered globally to the highest stadards. GKN plc Aual Report ad Accouts 2010

18 / KEY PERFORMANCE INDICATORS Fiacial KPIs (a) (b) Earigs per share (EPS) 2010 20.7p 2009 2008 2007 5.7p 16.0p 2006 20.3p 23.5p Divided per share (b) 2010 5.0p 2009 0p 2008 3.0p 2007 2006 9.1p 8.6p Method of calculatio Maagemet earigs for the Group (as set out i ote 3(a) to the fiacial statemets) divided by the weighted average umber of ordiary shares i issue (excludig treasury shares). Target To achieve absolute growth i EPS each year ad i the loger term, recogisig the ature ad cyclicality of our major markets, to achieve average aual compoud growth of at least 6%. 2010 Performace Maagemet EPS i 2010 was 20.7p compared with 5.7p i 2009. This icrease is pricipally due to the sigificatly improved profitability of the Group i 2010. Method of calculatio Amout declared as payable by way of divided divided by the umber of ordiary shares i issue (excludig treasury shares). Target A progressive divided policy aligig divideds with the log term tred i maagemet earigs whilst achievig a sustaiable maagemet earigs to divided cover ratio of aroud 2.5 times. 2010 Performace 2010 saw the re-commecemet of divided paymets, reflective of strog earigs ad cash performace. The divided for the year, at 5.0p, is covered 4.1 times by maagemet earigs. Sales growth (a) 2010 5,429m 2009 4,454m 2008 4,617m 2007 4,100m 2006 3,815m Tradig margis (a) 2010 7.6% 2009 3.5% 2008 4.8% 2007 2006 7.5% 7.1% Method of calculatio Maagemet sales (c) measured both i absolute terms ad o a uderlyig basis (i.e. excludig the effects of currecy traslatio, acquisitios ad divestmets) relative to the prior year. Target To achieve growth rates at both a Group ad divisioal level (i absolute terms ad o a uderlyig basis) i excess of the growth i our major automotive, aerospace ad lad systems markets. 2010 Performace Group maagemet sales (c) grew by 22% o a absolute basis ad 21% o a uderlyig basis. The correspodig figures for Drivelie were icreases of 35% ad 32% respectively, for Powder Metallurgy 48% absolute ad uderlyig, for Aerospace a absolute declie of 2% ad a uderlyig declie of 4%, ad for Lad Systems growth of 18% i absolute terms ad 20% o a uderlyig basis. Method of calculatio Maagemet tradig profit (c) as a percetage of maagemet sales (c). Target To achieve medium term tradig margis of betwee 8% ad 10% for Drivelie ad Powder Metallurgy, 7% to 10% i Lad Systems ad 10% to 12% i Aerospace, givig a overall Group tradig margi of betwee 8% ad 10%. 2010 Performace The Group tradig margi i 2010 of 7.6% reflects a strog recovery i Drivelie (6.9%), Powder Metallurgy (7.1%) ad Lad Systems (5.3%), a good performace i Aerospace (11.2%) ad the beefits of the Group s restructurig activities.

/ 19 Retur o average ivested capital (ROIC) (a) 2010 17.0% 2009 6.2% 2008 9.1% 2007 2006 15.1% 14.4% Free cash flow before divided 2010 188m 2009 136m 2008 59m 2007 68m 2006 42m Method of calculatio Ratio of maagemet tradig profit (c) to average total et assets icludig the appropriate share of joit vetures but excludig curret ad deferred tax, cash, borrowigs, post-employmet obligatios ad derivative fiacial istrumets. Target To achieve ROIC at both a Group ad divisioal level which exceeds the weighted cost of capital of the Group (12% as a pre-tax threshold ad betwee 9% ad 10% o a post-tax basis). Method of calculatio Cash flows from operatig activities (excludig special pesio cotributios) after capital expediture ad icludig fixed asset disposal proceeds, receipts of govermet capital grats ad refudable advaces ad o-cotrollig divideds. Target To geerate positive free cash flow sufficiet to cover divided paymets ad provide fudig resources to support orgaic ad acquisitive earigs growth. 2010 Performace Group ROIC icreased to 17.0% i 2010 as a result of sigificatly improved profitability agaist a relatively stable asset base. Divisioal ROIC performace is as follows: Drivelie 16.0%; Powder Metallurgy 13.2%; Aerospace 23.3%; Lad Systems 15.8%. 2010 Performace Free cash flow amouted to 188 millio reflectig the strog focus o operatig cash geeratio throughout 2010, icludig a cotiued strog focus o workig capital maagemet, a capital expediture reivestmet ratio at 0.8 times, receipt of govermet refudable advaces ( 10 millio), ad joit veture divideds ( 23 millio). (a) 2009 has bee restated followig the decisio to exit the Axles busiess of the former OffHighway segmet. (b) As restated i 2006-2008 for the bous issue iheret i the July 2009 rights issue. (c) Maagemet sales ad maagemet tradig profit are defied o page 20. No-Fiacial KPIs Health ad safety performace Evirometal performace Method of calculatio Accidet frequecy rate (AFR) measured as the umber of lost time accidets per 1,000 employees ad accidet severity rate (ASR) measured as the umber of days/shifts lost due to accidets ad occupatioal ill health per 1,000 employees. Target Zero prevetable accidets. 2010 Performace AFR i 2010 icreased from 2.1 to 2.7; ASR showed a slight decrease from 71 to 68. See page 36 for further iformatio. Method of calculatio Eergy cosumptio ad associated CO 2 emissios, waste geeratio, waste recycled ad water cosumptio measured o a divisioal basis per uit of productio ad agaist sales i Aerospace. Target Improved year o year performace across all KPIs. 2010 Performace Performace i 2010 across all evirometal KPIs improved with a particularly good performace i regard to water cosumptio. See pages 36 ad 37 for further iformatio. GKN plc Aual Report ad Accouts 2010

20 / REVIEW OF PERFORMANCE I this sectio Group performace page 21 Divisioal performace page 21 Other fiacial iformatio page 27 The Group operates i the global automotive, aerospace ad lad systems markets. I the automotive market, Drivelie sells to maufacturers of passeger cars ad light vehicles. Aroud 75% of Powder Metallurgy sales are also to automotive markets, with the balace to other idustrial customers. Aerospace sells to maufacturers of military ad civil aircraft, aircraft egies ad equipmet. Lad Systems sells to producers of agricultural, costructio, miig ad idustrial equipmet ad to the automotive ad commercial vehicle sectors. Measuremet ad reportig of performace I this review, fiacial iformatio, Group ad divisioal, uless otherwise stated, is preseted o a maagemet basis which aggregates the sales ad tradig profit of subsidiaries (excludig subsidiary busiesses sold ad closed) with the Group s share of the sales ad tradig profit of joit vetures. Refereces to tradig margis are to tradig profit expressed as a percetage of sales. Maagemet profit or loss before tax is maagemet tradig profit less et subsidiary iterest payable ad receivable ad the Group s share of et iterest payable ad receivable ad taxatio of joit vetures. These figures better reflect performace of cotiuig busiesses. Where appropriate, referece is made to uderlyig results which exclude the impact of acquisitios as well as currecy traslatio o the results of overseas operatios. Operatig cash flow is cash geerated from operatios adjusted for capital expediture, govermet capital grats, proceeds from disposal of fixed assets ad govermet refudable advaces. Free cash flow is operatig cash flow icludig iterest, tax, joit veture divideds ad divideds paid to o-cotrollig iterests, but excludig divideds paid to GKN shareholders. Retur o average ivested capital is maagemet tradig profit as a percetage of total et assets of cotiuig subsidiaries ad joit vetures deductig curret ad deferred tax, et debt, post-employmet obligatios ad derivative fiacial istrumets. Comparative data has bee restated followig the aoucemet to exit the Axles operatios of the former OffHighway segmet. Comparative segmetal iformatio has bee restated followig the creatio of GKN Lad Systems, which was aouced o 16 Jue 2010. Lad Systems brought together the operatios of GKN OffHighway (excludig Axles), GKN AutoStructures ad GKN Idustrial ad Distributio Services (IDS). AutoStructures was icluded i the former Other Automotive segmet ad IDS was icluded i the Drivelie segmet. Exchage rates Exchage rates used for currecies most relevat to the Group s operatios are: Average Year Ed 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 o 2010 tradig profit of subsidiaries ad joit vetures of a 1% movemet i the average rate would be euro 1.0 millio, US dollar 1.6 millio.

/ 21 Group performace 2010 2009 restated Sales ( m) 5,429 4,454 Tradig profit ( m) 411 156 Tradig margi 7.6% 3.5% MANAGEMENT SALES 1,451m Aerospace 699m Lad Systems 759m Powder Metallurgy MANAGEMENT TRADING PROFIT 162m Aerospace 37m Lad Systems 2,433m Drivelie 87m Other busiesses 169m Drivelie Maagemet sales Maagemet sales icreased 22% i the year eded 31 December 2010 to 5,429 millio (2009 restated: 4,454 millio). The effect of currecy traslatio was 35 millio favourable ad there was a 17 millio beefit from acquisitios. Excludig these items, the uderlyig icrease was 923 millio (21%). Withi this figure, Drivelie was 589 millio higher, Powder Metallurgy icreased by 247 millio, Lad Systems was 116 millio higher, while Aerospace was 56 millio lower. Maagemet tradig profit Maagemet tradig profit icreased by 255 millio to 411 millio (2009 restated: 156 millio). The currecy traslatioal beefit was 5 millio ad there was o et beefit from acquisitios. Excludig these items, the uderlyig icrease was 250 millio. Withi this figure, Drivelie was 156 millio higher, Powder Metallurgy icreased by 60 millio ad Lad Systems was 40 millio higher, all largely as a result of volume improvemets ad cost reductio beefits. Aerospace profit fell by 10 millio. Group tradig margi icreased to 7.6% (2009 restated: 3.5%). Restructurig charges Restructurig charges i the year amouted to 39 millio, icludig 2 millio of short-time workig charged i the first half ad 37 millio redudacy ad reorgaisatio charges. The total beefit of the actios to address the cost base is estimated to be 156 millio, icludig 18 millio i 2011. Cash expediture o restructurig programmes amouted to 55 millio. Millio uits 3m Other busiesses 54m Powder Metallurgy Total (icludig corporate costs) 411m GLOBAL LIGHT VEHICLE PRODUCTION MILLION UNITS Compoud Aual Growth Rate (CAGR) 1990-2016: 2.9% 120 100 80 60 40 20 0 90 93 96 99 02 05 08 11 14 16 CAGR Total Source: IHS Automotive 1990-2010 actual 2011-2016 forecast Divisioal performace Lauch of Lad Systems O 16 Jue 2010, the Group aouced the formatio of its Lad Systems divisio which brought together the operatios of GKN OffHighway, GKN AutoStructures ad GKN Idustrial ad Distributio Services. The aim of GKN Lad Systems is to develop a fourth global leader alogside Drivelie, Powder Metallurgy ad Aerospace, buildig o existig stregths i the off-highway market ad, by applyig the leadig-edge techologies developed across the Group, capitalisig o growth opportuities i ew ad existig markets. Potetial growth opportuities exist i high speed rail, reewable eergy ad defece. Automotive markets Productio of cars ad light vehicles cotiued to improve i 2010 as markets recovered followig the recessio of late 2008 ad 2009. As show i the table below, all markets experieced productio growth, with the strogest beig North America, Idia ad Chia. Car ad light vehicle productio Growth (millios of uits) 2010 2009 (%) Europe 19.5 16.8 16 North America 11.9 8.6 38 Brazil 3.2 2.9 10 Japa 9.3 7.7 21 Chia 16.8 12.9 30 Idia 3.2 2.4 33 Others 10.7 8.7 23 Total global 74.6 60.0 24 Source: IHS Automotive Overall, global productio volumes of cars ad light vehicles icreased 24% i 2010 to 74.6 millio vehicles (2009: 60.0 millio) whilst sales icreased by 13%, from 63.7 millio vehicles to 72.0 millio vehicles. GKN plc Aual Report ad Accouts 2010

22 / REVIEW OF PERFORMANCE CONTINUED EUROPE LIGHT VEHICLE PRODUCTION millio uits 6 5 4 3 2 1 0 Q1 Q2 Q3 Q4 2009 actual 2010 actual Source: IHS Automotive Demad for larger (premium) vehicles ad light commercial vehicles recovered strogly, whereas the edig of scrappage ad tax icetive schemes slowed demad for smaller vehicles, particularly i Europe. Vehicle productio i Europe ad Japa beefited from a strog reboud i exports. Exteral forecasts idicate that global productio i 2011 will icrease by approximately 5% to 78.1 millio vehicles. Major markets that are expected to grow fastest iclude Idia (20%), North America (7%) ad Chia (7%), whereas productio i Europe is expected to grow at a more modest pace of 3%. Drivelie 2010 2009 restated Sales ( m) 2,433 1,803 Tradig profit ( m) 169 10 Tradig margi 6.9% 0.6% NORTH AMERICA LIGHT VEHICLE PRODUCTION millio uits 4 3 2 1 0 Q1 Q2 Q3 Q4 2009 actual 2010 actual Source: IHS Automotive BRAZIL, INDIA & CHINA LIGHT VEHICLE PRODUCTION millio uits 7 6 5 4 3 2 1 0 Q1 Q2 Q3 Q4 2009 actual 2010 actual Source: IHS Automotive DRIVELINE SALES BY REGION OF ORIGIN 185m Other 209m Chia 218m Brazil 81m Idia 886m Europe Drivelie s sales icreased 35% to 2,433 millio (2009 restated: 1,803 millio) compared with global vehicle productio which icreased 24%. Excludig the favourable impact of currecy traslatio of 41 millio, uderlyig sales icreased by 589 millio (32%). This market outperformace was particularly apparet i North America, Chia ad Japa. It reflects Drivelie s global footprit, ew programme wis, a retur to more ormal vehicle segmet demad patters as govermet support schemes are progressively withdraw ad its strog positio i Europea premium vehicles. Tradig profit icreased substatially to 169 millio (2009 restated: 10 millio) reflectig higher sales ad the beefits of restructurig, partially offset by higher egieerig costs to support ew programmes ad future growth ad some temporary costs icurred to raise capacity i some regios to keep pace with sigificat icreases i demad. Curret year tradig profit icluded a 6 millio curtailmet gai arisig from chages to pesio arragemets i Japa. The impact of traslatioal currecy was 3 millio positive, with uderlyig tradig profit up by 156 millio. Drivelie tradig margi was 6.9% (2009 restated: 0.6%). Net restructurig charges were take amoutig to 29 millio (2009 restated: 79 millio), reflectig the coclusio of charges o the programme that commeced i 2008. Capital expediture o tagible fixed assets was 73 millio (2009 restated: 73 millio), 0.7 times (2009 restated: 0.7 times) depreciatio. Retur o average ivested capital was 16.0% (2009 restated: 0.9%), reflectig the icrease i profitability. Durig the year, Drivelie cotiued its good performace of ew busiess awarded; as well as cotiued stregth i our core sideshafts busiess, there were otable successes with propshaft, all-wheel drive (AWD) couplig, electroic differetial lockig ad ope differetial product lies. Drivelie s hybrid/electric drive products also wo ew cotracts i North America, Japa ad Europe. Although iitial volumes are small, these are importat programmes i positioig Drivelie for the rapidly emergig hybrid electric vehicles segmet. Drivelie also commeced productio of ope differetials i North America ad power trasfer uits (PTUs) i Chia, ad lauched a umber of iovative products desiged to help vehicle maufacturers improve vehicle hadlig performace, icludig: Direct Torque Flow techology: a ew desig solutio to coect the propshaft to the vehicle s trasmissio i a way that saves weight, assembly time, space ad cost. The first applicatio is o the Audi A8 Quattro high performace luxury saloo; Face Splie ad Twi Ball CVJ: results i smaller products, lighter weight ad tighter turig circles. This has lauched o the BMW 7 Series ad will appear o the ew BMW 5 ad 6 Series all-wheel drive vehicles later this year; 426m Japa 428m North America ElectroMagetic Couplig Device (EMCD): GKN Drivelie s AWD couplig is ow beig produced for the first time i Europe ad appears o the ew Mii Coutryma ALL4 crossover vehicle; Frot electroic limited slip differetial (elsd): a world first applicatio of EMCD techology as a frot elsd i a Japaese OEM s performace SUV; New propshaft busiess wo with Mercedes, for the first time, ad a cotract to supply a major Europea customer with 100% of their propshaft eeds, commecig i 2013.

/ 23 POWDER METALLURGY SALES 53m GKN Siter Metals Rest of World 136m Hoegaaes As previously aouced, i order to meet productio demads from uderlyig growth i Chia, Idia ad North America, major driveshaft capacity expasio is uderway which will icrease capacity i these markets by aroud 60% over the ext four years. Drivelie also opeed a ew sideshaft plat i Turkey, a small but high growth market. Powder Metallurgy 2010 2009 Sales ( m) 759 512 Tradig profit ( m) 54 (7) Tradig margi 7.1% (1.4)% 286m GKN Siter Metals Europe 284m GKN Siter Metals Americas GKN Siter Metals sales by regio of origi POWDER METALLURGY SALES BY PRODUCT TYPE 156m Sitered compoets idustrial 136m Hoegaaes metal powder 467m Sitered compoets automotive Powder Metallurgy sales were 759 millio (2009: 512 millio), a icrease of 48%. There was o et impact from currecy traslatio. Sales icreased i all regios as automotive markets recovered ad recet ew busiess wis etered productio. Uderlyig sales for Siter Metals icreased by 43%, with strog growth achieved i North America, Europe, Idia ad Brazil. Overall, Hoegaaes total tos shipped were 46% higher tha i 2009 ad uderlyig sales were 76% higher, the differece reflectig a icrease i the commodity metals surcharge passed o to customers as raw material prices icreased. A ew powder mixig ad fiishig facility was opeed by Hoegaaes, i Chia, towards the ed of the year, to support growth i that rapidly expadig market. Powder Metallurgy reported a tradig profit of 54 millio (2009: 7 millio tradig loss) with a divisioal tradig margi of 7.1% (2009: (1.4)%). Icreasig treds i idustrial ad automotive markets to improve fuel efficiecy ad reduce emissios, such as variable valve timig i egies, high performace gear sets i automatic trasmissios ad differetial gears, are drivig the demad for products made by powder metallurgy. Durig the year approximately 100 millio (aualised sales) of ew programme busiess was awarded ad more tha 30 techical days were hosted for existig ad ew customers, i order to promote the applicability of powder metallurgy products ad applicatios. Restructurig costs i 2010 totalled 1 millio (2009: 20 millio) reflectig the coclusio of the programme. Capital expediture o tagible fixed assets was 27 millio (2009: 10 millio). The ratio of capital expediture to depreciatio was 0.9 times (2009: 0.3 times). Retur o average ivested capital was 13.2% (2009: (1.6)%), reflectig the improvemet i profitability. Aerospace 2010 2009 Sales ( m) 1,451 1,486 Tradig profit ( m) 162 169 Tradig margi 11.2% 11.4% The overall aerospace market remaied subdued i 2010. There was modest growth i the defece sector while large civil aircraft productio was dow aroud 6%, as the impact of the recessio worked its way through the airlie sector. The divisio has a balaced positio i civil (53%) ad defece (47%) programmes. US defece spedig remaied robust apart from the plaed reductio i sales of the F-22; productio across most programmes such as F-18, F-15, C-130J ad C-17 trasport aircraft remaied stable. 2011 productio volumes for the C-17 programme have bee reduced from 14 aircraft to 10. The iitial productio phase for the Lockheed F-35 (Joit Strike Fighter) has commeced ad although volumes may ow be lower i the iitial years tha origially plaed, this aircraft remais a key part of the US defece programme with plas to build i excess of 2,500 aircraft. Although still to be formally voted ito law, the US Defese Departmet 2011 budget pla shows aroud 1% growth over the ext five years. I Europe, where GKN has very limited exposure, defece budgets remai uder sigificat pressure ad i Asia ad the Middle East, a umber of sigificat export programmes are beig pursued by GKN s customers. GKN plc Aual Report ad Accouts 2010

24 / REVIEW OF PERFORMANCE CONTINUED AEROSPACE SALES BY PRODUCT 406m Egie compoets ad sub-systems 116m Special products AEROSPACE SALES BY MARKET 47% Military 929m Aerostructures 53% Civil I the civil aerospace market, Airbus ad Boeig beefited from their extesive backlogs ad delivered a combied total of 923 aircraft, a reductio of 6% compared with the 979 deliveries i 2009. Airbus delivered 461 aircraft (2009: 498 aircraft) ad Boeig delivered 462 aircraft (2009: 481 aircraft). The recovery i passeger ad cargo volumes, a sigificat icrease i et orders ad a growig backlog, have led both Airbus ad Boeig to aouce icreases i productio levels of sigle aisle ad wide bodied aircraft from 2012. Aerospace sales of 1,451 millio were 35 millio lower tha the prior year (2009: 1,486 millio). The impact from currecy o traslatio of sales was 6 millio positive ad from acquisitios was 15 millio positive, represetig sales from GKN Aerospace Services Structures Corp., of which the Group gaied maagemet cotrol i April 2010 (see ote 24 to the fiacial statemets for further details). The uderlyig decrease i sales of 56 millio represeted a 4% reductio. This declie reflects lower F-22 sales as the programme started its ru dow ad softer military aftermarket busiess, particularly for rotorcraft, partly offset by higher F-18 sales. Icreased sales for the Boeig 787 more tha offset a declie i other civil market sales across a broad rage of programmes ad sectors. Tradig profit decreased by 7 millio to 162 millio (2009: 169 millio). The impact from currecy o traslatio of results was 1 millio positive ad from acquisitios was 2 millio positive. The tradig margi was 11.2% (2009: 11.4%). Restructurig charges were take amoutig to 4 millio (2009: 10 millio). Capital expediture o tagible assets i 2010 amouted to 51 millio (2009: 43 millio) which represets 1.3 times depreciatio (2009: 1.0 times). Expediture o itagible assets, maily iitial o-recurrig programme costs, was 26 millio (2009: 13 millio). 39 millio of the capital expediture ad o-recurrig programme costs relate to the Airbus A350 wig assembly ad trailig edge programme. A total of 79 millio had bee ivested by 31 December 2010. Spedig is likely to cotiue at aroud the curret level i 2011 ad reduce thereafter. This programme is partly fuded by UK Govermet refudable advaces, 10 millio of which was received i 2010 (2009: 28 millio). Customer advaces i the Aerospace busiesses, which are show i trade ad other payables i the balace sheet, amouted to 70 millio (2009: 66 millio). Retur o average ivested capital was 23.3% (2009: 24.2%) reflectig icreased ivestmet i ew programmes.

/ 25 CIVIL AIRCRAFT MARKET 2009-2015 by aircraft type US$ billio 100 90 80 70 60 50 40 30 20 10 0 2009 2010 2011 2012 2013 2014 2015 Regioal aircraft Busiess jets Commercial jetliers MILITARY AIRCRAFT MARKET 2009-2015 by aircraft type US$ billio 50 45 40 35 30 25 20 15 10 5 0 2009-2010 actual 2011-2015 forecast Source: Teal 2009 2010 2011 2012 2013 2014 2015 Traiers/light attack Military trasports Rotorcraft Fighters 2009-2010 actual 2011-2015 forecast Source: Teal GKN Aerospace secured a umber of ew programme wis ad achieved a umber of sigificat milestoes durig the year, icludig: two ew cotracts for detailed parts for the iboard ad outboard ladig flaps for the Airbus A350 XWB; a five year $300 millio agreemet with GE Aviatio to supply a rage of ew ad existig flight critical alumiium ad titaium compoets for GE s rage of commercial ad military egies; a te year agreemet with a value of $360 millio with Pratt & Whitey for high performace egie ducts for the F135 egie; a $300 millio te year cotract with Rolls-Royce for Tret 700 ad Tret 1000 egie structures; a multi-year productio cotract to supply lightweight titaium thrust liks for the Boeig 747-8 ad Boeig 787; a umber of trasparecy cotracts icludig Airbus A350, Boeig 787 ad Bombardier C Series cabi widows ad cockpit widows for the Boeig 747-8; delivery of its first major assembly of the Sikorsky CH-53K heavy lift helicopter which features a advaced hybrid composite, alumiium ad titaium structure covered with exteral composite skis; istallatio ad commissioig of the first two auto fibre placemet machies for productio of A350 wig spars, with maufacturig of the first spar commecig at the ed of 2010. The divisio has a excellet positio o ew programmes that come ito full productio over the period 2012 to 2016, providig sigificat growth potetial. Lad Systems 2010 2009 restated Sales ( m) 699 593 Tradig profit ( m) 37 (3) Tradig margi 5.3% (0.5)% Followig a very difficult secod half of 2009 for Lad Systems busiesses, 2010 started more positively with the recovery cotiuig throughout the year, especially for miig, heavy costructio ad geeral idustrial equipmet ad for automotive products. I Europe, the strogest recovery occurred i costructio ad i the structures market, relatig to ew vehicle productio. The Aftermarkets ad Services busiess was ot impacted by the recessio to the same extet as other parts of Lad Systems ad therefore has see a more modest improvemet i sales as markets have recovered. The weakest recovery has bee i Europea agricultural equipmet markets which remaied relatively soft durig the first half but started to improve i the secod half, supported by higher global commodity prices ad some re-stockig withi the supply chai. I North America, agriculture, costructio ad miig markets all ejoyed good growth. Agaist this backgroud, sales i the period were 699 millio, 18% higher tha the prior year (2009 restated: 593 millio). Excludig currecy traslatio of 10 millio egative, the uderlyig icrease i sales was 116 millio (20%) with all product areas ad regios seeig a improvemet. GKN plc Aual Report ad Accouts 2010

26 / REVIEW OF PERFORMANCE CONTINUED LAND SYSTEMS SALES BY MARKET 136m Idustrial 80m Costructio & Miig 223m Commercial vehicle, passeger cars ad other LAND SYSTEMS SALES BY BUSINESS 190m Power Maagemet Devices 253m Wheels & Structures 260m Agriculture 256m Aftermarkets & Services The divisio reported tradig profit of 37 millio (2009 restated: 3 millio tradig loss). There was o et impact from currecy traslatio. The tradig margi was 5.3% compared with (0.5)% i 2009 (restated). Restructurig actios durig the year resulted i charges of 5 millio (2009 restated: 20 millio). Capital expediture o tagible fixed assets was 7 millio (2009 restated: 11 millio), 0.5 times (2009 restated: 0.7 times) depreciatio. Retur o average ivested capital icreased to 15.8% (2009 restated: (1.1)%), reflectig the retur to profitability of the divisio. Good progress was made i wiig ew busiess. Specific areas of success icluded: CVJ for 4x4 tractors utilisig our automotive drivelie techology a CVJ shaft was developed for the agricultural tractor market, which is icreasigly movig towards idepedet suspesio. This iovative solutio allows tractor desigers to improve mobility, comfort, speed of operatio ad reduce ruig oise; Rauch fertilisig equipmet followig the tred for precisio farmig a torque sesig device has bee developed. The device is liked to a global positioig system (GPS) ad allows farmers to fertilise the farm accordig to defied soil requiremets i a repeatable ad accurate way; Combie hydro split drive i order to improve further the efficiecy of a combie harvester, the hydro split gearbox allows the trasfer of power to the areas where it is most eeded with ifiite variable speed; Specialist driveshafts for electric cars the Aftermarkets ad Services busiess secured further driveshaft busiess for the Fisker electric car, offerig a highly efficiet low weight driveshaft; New wheels busiess i the fast growig South America market with a major origial equipmet maufacturer. The requiremet to make off highway vehicles more fuel efficiet ad with lower emissios will provide opportuities for Lad Systems to utilise its ow expertise ad leverage techology from Drivelie i makig lighter compoets ad icreasig the efficiecy of power maagemet products. Furthermore, a strategic review idetified a umber of potetial growth opportuities that could utilise GKN s core skills ad techologies. Examples iclude military vehicles requirig idepedet suspesio ad advaced drivelie solutios to cope with more challegig terrai, icreasig urbaisatio leadig to demad for high speed rail solutios ad icreasig use of reewable eergy to meet lower carbo emissio targets. Lookig forward to 2011, lad systems markets are expected to cotiue to improve ad we expect the divisio to make further progress i developig stroger positios i existig ad ew markets. Other busiesses GKN s other busiesses comprise Cylider Liers, which is maily a 60% owed veture i Chia, maufacturig egie liers for the truck market i the US, Europe ad Chia ad a 50% share i Emitec, which maufactures metallic substrates for catalytic coverters i Germay, the US, Chia ad Idia. Sales i the year were 87 millio (2009 restated: 60 millio), reflectig the recovery i automotive markets. A profit of 3 millio for the year compares to a loss of 1 millio (restated) i 2009. Durig the year Emitec acquired NoNox, oe of the world s leadig producers of pumps ad related meterig equipmet for selective catalytic reductio systems which is ivestig heavily i ew products, maily for the truck market.

/ 27 Corporate costs Corporate costs, which comprise the costs of stewardship of the Group ad operatig charges ad credits associated with the Group s legacy busiesses, were 14 millio (2009: 12 millio). Other fiacial iformatio Restructurig ad impairmet charges Group restructurig ad impairmet charges of 39 millio (2009: 141 millio) relate to the fial charges o the restructurig programme iitially aouced i November 2008 which was completed durig 2010. The major elemets arose withi subsidiaries ad represet redudacy ad re-orgaisatio costs of 37 millio ad short-time workig costs of 2 millio. Impairmet charges were a et il i the year. No further restructurig charges are expected i 2011 although 31 millio of cash expediture is expected as the actios charged i 2010 are implemeted. Chage i value of derivative ad other fiacial istrumets The Group eters ito foreig exchage cotracts to hedge much of its trasactioal exposure. At 31 December 2010, the et fair value of such istrumets was a liability of 54 millio (2009: 52 millio liability). Where hedge accoutig has ot bee applied, the chage i fair value resulted i a charge of 3 millio (2009: 106 millio credit). There was a 3 millio credit arisig from the chage i the value of embedded derivatives i the year (2009: 29 millio charge) ad a et gai of 12 millio attributable to the currecy impact o Group fudig balaces (2009: 3 millio et loss). There was o chage i the value of Powder Metallurgy commodity cotracts (2009: 2 millio credit). Amortisatio of o-operatig itagible assets arisig o busiess combiatios The charge for the amortisatio of o-operatig itagibles (for example customer cotracts, order backlogs ad itellectual property rights) arisig o busiess combiatios was 19 millio (2009: 24 millio). The decrease relates to the amortisatio of short-life customer order backlog itagible assets arisig from the Filto acquisitio i 2009. Gais ad losses o chages i Group structure I the first half of 2010, the decisio was take to exit the Axles busiess of the former OffHighway segmet. Durig the year, the busiess icurred a tradig loss of 2 millio (2009: 4 millio) ad impairmet charges of 4 millio. I September 2010, the Group cocluded the sale of the Europea agricultural axles operatios, with other operatios closed durig the year. Post-tax earigs of joit vetures The post-tax earigs of joit vetures i the year were 35 millio (2009: 21 millio). Posttax earigs o a maagemet basis were 36 millio (2009: 18 millio), with tradig profit of 44 millio (2009: 23 millio). The tax charge amouted to 7 millio (2009: 4 millio) with a iterest charge of 1 millio (2009: 1 millio). Uderlyig tradig profit icreased 22 millio due to strog performace i our Chiese joit vetures, up 13 millio, ad improvemets i Emitec ( 5 millio) ad Chassis Systems ( 3 millio). Net fiacig costs Net fiacig costs totalled 75 millio (2009: 114 millio) ad iclude the o-cash charge o post-employmet beefits of 31 millio (2009: 49 millio) ad uwid of discouts of 4 millio (2009: 1 millio). Iterest payable was 46 millio (2009: 67 millio), whilst iterest receivable was 6 millio (2009: 3 millio) resultig i et iterest payable of 40 millio (2009: 64 millio). The 24 millio decrease i et iterest payable icludes the beefits from the bod buy-backs i December 2009 ad May 2010. Capitalised iterest costs attributable to the Group s A350 ivestmet were 4 millio (2009: 1 millio) ad iterest charged o UK Govermet refudable advaces was 2 millio (2009: less tha 1 millio). The o-cash charge o post-employmet beefits arises as the expected retur o scheme assets of 145 millio (2009: 121 millio) was more tha offset by iterest o postemploymet obligatios of 176 millio (2009: 170 millio). Details of the assumptios used i calculatig post-employmet costs ad icome are provided i ote 26(b) to the fiacial statemets. GKN plc Aual Report ad Accouts 2010

28 / REVIEW OF PERFORMANCE CONTINUED MANAGEMENT PROFIT BEFORE TAX OF CONTINUING OPERATIONS m 400 350 300 250 200 150 100 50 0 230 255 170 87 363 2006 2007 2008 2009 2010 MANAGEMENT EARNINGS PER SHARE pece 25.0 23.5 20.0 15.0 10.0 5.0 0.0 20.3 16 5.7 20.7 2006 2007 2008 2009 2010 As restated i 2006-2008 for the bous issue iheret i the July 2009 rights issue. Profit/(loss) before tax The maagemet profit before tax was 363 millio (2009 restated: 87 millio). The profit before tax o a statutory basis was 345 millio compared with a 54 millio loss before tax i 2009. Taxatio The book tax rate o maagemet profit of subsidiaries was 11% (2009 restated: 17%), arisig as a 37 millio tax charge o maagemet profit of subsidiaries of 327 millio. The Group s theoretical weighted average tax rate, which assumes that book profits/losses are taxed at the statutory tax rates i the coutries i which they arise, is 32% (2009: 31%). The book tax rate is sigificatly lower, largely because of the recogitio of substatial deferred tax assets (maily i the US) due to icreased cofidece i the Group s ability to make future taxable profit to absorb brought forward tax deductios ad the fact that certai profit makig territories have beefited from the use of tax deductios. Oe of GKN s core tax strategic objectives is to access brought forward tax deductios i order to sustai a cash tax charge o maagemet profit at or below 20%. Cash tax provides a proxy for the cash cost of taxatio of maagemet profit. The cash tax charge was 13% (2009 restated: 29%). I the ear term, we expect the cash tax rate to cotiue at or below 20% as we utilise brought forward tax deductios. The tax rate o statutory profit of subsidiaries was 6% (2009: 20%) arisig as a 20 millio tax charge o statutory profit of 310 millio. No-cotrollig iterests The profit attributable to o-cotrollig iterests was 20 millio (2009: 2 millio) reflectig a 15 millio impact from the pesio partership arragemet (see ote 26(d) to the fiacial statemets for further details). Earigs per share Maagemet earigs per share was 20.7 pece (2009 restated: 5.7 pece). O a statutory basis earigs per share was 19.6 pece (2009: (3.2) pece). The improvemet is maily due to the higher profitability of the Group. Average shares outstadig i 2010 were 1,552.6 millio. Divided I view of the improvig tradig eviromet ad takig ito accout the Group s future prospects, the Board has decided to recommed a fial divided of 3.5 pece per share (2009: o fial divided). The total divided for the year is, therefore, 5.0 pece (2009: o divided). Our objective, i the medium term, is a progressive divided policy based o a maagemet earigs cover ratio of aroud 2.5 times. The fial divided will be paid o 19 May 2011 to shareholders o the register at 26 April 2011. Cash flow Operatig cash flow, which is defied as cash geerated from operatios of 420 millio (2009: 288 millio) adjusted for capital expediture (et of proceeds from capital grats) of 190 millio (2009: 153 millio), proceeds from the disposal / realisatio of fixed assets of 5 millio (2009: 35 millio) ad UK Govermet refudable advaces of 10 millio (2009: 28 millio), was a iflow of 245 millio (2009: 198 millio). Withi operatig cash flow there was a outflow of workig capital ad provisios of 59 millio (2009: 133 millio iflow), pricipally as a result of higher ivetory across the Group as volumes icreased. Average workig capital as a percetage of sales cotiued to improve from 9.2% i 2009, to 6.8% i 2010.

/ 29 OPERATING CASH FLOW* m 250 200 150 100 50 0 100 128 131 198 245 2006 2007 2008 2009 2010 * Operatig cash flow is cash geerated from operatios adjusted for capital expediture, proceeds from disposal/realisatio of fixed assets, govermet refudable advaces, joit veture divideds ad a 200 millio special UK pesio paymet i 2006. NET BORROWINGS m (800) (600) (400) (200) 0 (426) (506) (708) (300) (151) 2006 2007 2008 2009 2010 Capital expediture (et of proceeds from capital grats) o both tagible ad itagible assets totalled 190 millio (2009: 153 millio), icludig 39 millio (2009: 32 millio) o the A350 programme. Of this, 159 millio (2009: 139 millio) was o tagible fixed assets ad was 0.8 times (2009: 0.7 times) the depreciatio charge. Expediture o itagible assets, maily iitial o-recurrig costs o Aerospace programmes, totalled 31 millio (2009: 14 millio). The Group ivested 92 millio i the year (2009: 83 millio) o research ad developmet activities ot qualifyig for capitalisatio. Free cash flow before divideds Free cash flow, which is operatig cash flow icludig joit veture divideds ad after iterest, tax ad divideds paid to o-cotrollig iterests but before divideds paid to GKN shareholders, was a iflow of 188 millio (2009: 136 millio), after 55 millio (2009: 99 millio) of expediture o the Group s restructurig programmes. The year o year improvemet reflects the improvig profitability of the Group ad a cotiued focus o our balace sheet. Net iterest paid totalled 46 millio (2009: 61 millio) icludig 14 millio iterest beefit relatig to the December 2009 ad May 2010 bod buy-backs ad tax paid i the year was 33 millio (2009: 15 millio). Net borrowigs At the ed of the year, the Group had et borrowigs of 151 millio (2009: 300 millio). The Group s share of et fuds i joit vetures was 17 millio (2009: 9 millio). Pesios ad post-employmet obligatios GKN operates a umber of defied beefit ad defied cotributio pesio schemes together with retiree medical arragemets across the Group. The et amout icluded withi tradig profit of 26 millio (2009: 22 millio) icludes the curret service cost of 35 millio (2009: 34 millio) partly offset by credits arisig from iitiatives take to reduce the Group s pesio liabilities. Other et fiacig charges of 31 millio (2009: 49 millio) have reduced maily due to the impact of the pesio partership arragemet. Net amout icluded Other et Curret service cost withi tradig profit fiacig charges 2010 2009 2010 2009 2010 2009 m m m m m m UK pesios (22) (20) (20) (20) (7) (23) Overseas pesio (12) (13) (6) (6) (21) (23) Retiree medical ad life isurace (1) (1) 4 (3) (3) (35) (34) (26) (22) (31) (49) Durig the year the Group has agreed beefit chages ad a paymet arragemet to improve the fudig positio of the UK pesio scheme. The impact of beefit chages gave rise to a 68 millio curtailmet credit which has bee reported as a separate compoet of operatig profit. The agreemet of a asset-backed cash paymet arragemet resulted i the recogitio of a 331 millio pla asset. Further details are provided below. UK pesios The UK defied beefit scheme is a fuded pla with all future beefits accrued o a career average basis. A hybrid pesio pla providig beefits from a elemet of both defied beefit ad defied cotributio arragemets is ope to ew members. Members curretly i employmet with the Compay represet approximately 16% of total liabilities of 2,435 millio (2009: 2,429 millio). The charge relatig to the UK defied beefit scheme reflected i tradig profit icluded a settlemet credit of 2 millio, et of expeses, relatig to a ehaced trasfer value exercise for deferred members of the UK scheme. A curtailmet gai of 68 millio resulted from beefit chages itroduced i the UK i April 2010 whereby accrued fial salary beefits for active members were crystallised, whilst future revaluatio will be liked to RPI compared to the previous salary icrease assumptio of RPI + 1%. I additio, a umber of beefits were harmoised across the differet sectios of the UK scheme. GKN plc Aual Report ad Accouts 2010

30 / REVIEW OF PERFORMANCE CONTINUED UK PENSION ACCOUNTING DEFICIT m 600 500 400 300 200 100 0 174 3 272 499 71 2006 2007 2008 2009 2010 GROUP POST-EMPLOYMENT OBLIGATIONS ACCOUNTING BASIS m 996 1,000 900 800 700 600 500 400 300 200 100 0 561 331 834 600 2006 2007 2008 2009 2010 The accoutig deficit at 31 December 2010 of 71 millio was sigificatly lower tha the 499 millio at the ed of 2009. The reductio was maily due to the 331 millio special cotributio provided as part of the pesio partership arragemet. Uder the partership arragemet, the special cotributio allows the UK pesio scheme a distributio of 30 millio per aum for 20 years, subject to a fudig coditio ad discretio exercisable by the Group. The partership receives retal icome from various UK freehold properties ad global trade mark royalty icome (see ote 26(d) to the fiacial statemets for further details). Other chages to the accoutig deficit icluded 147 millio of gais that reflect actual experiece of assets ad liabilities durig 2010 compared to the 2009 ed year assumptios, the 68 millio curtailmet, a 13 millio reductio followig chages i the statutory miimum icrease from RPI to CPI partly offset by a 100 millio impact from the 30 basis poit reductio i the discout rate to 5.4% ad 48 millio from the chage i mortality assumptios to a 1% uderpi. Overseas pesios Overseas pesio obligatios arose maily i the US, Germay ad Japa. Tradig profit beefited from the oe-time curtailmet/past service credit i Japa of 6 millio. Similar actios i 2009 i the US gave rise to a 7 millio credit. The deficit icreased by 25 millio to 468 millio largely as a result of discout rate reductios i the US ad Europe by 50 ad 40 basis poits, respectively. Retiree medical ad life isurace GKN operates retiree medical ad life isurace arragemets i North America ad has a scheme, closed to ew members, i the UK. The obligatio i respect of all schemes at the ed of the year was 61 millio compared with 54 millio at the ed of 2009 largely due to the impact of lower discout rates ad chages that reflect actual experiece i place of previous assumptios. Summary At 31 December 2010, the total deficit o post-employmet obligatios of the Group totalled 600 millio (2009: 996 millio), comprisig the deficit o fuded obligatios of 193 millio (2009: 610 millio) ad ufuded obligatios of 407 millio (2009: 386 millio). Net assets Net assets of 1,687 millio were 715 millio higher tha the December 2009 year ed figure of 972 millio. The icrease icludes the 331 millio impact of the pesio partership, retaied profit of 325 millio ad currecy movemets of 50 millio. Fiacig The followig sectio describes the way i which the Group maages ad cotrols its treasury fuctio ad esures it is fiaced i a appropriate ad cost-effective maer. Treasury maagemet All treasury activities are co-ordiated through a cetral fuctio (Group Treasury), the purpose of which is to maage the fiacial risks of the Group ad to secure short ad log term fudig at the miimum cost to the Group. It operates withi a framework of clearly defied Board-approved policies ad procedures, icludig permissible fudig ad hedgig istrumets, exposure limits ad a system of authorities for the approval ad executio of trasactios. It operates o a cost cetre basis ad is ot permitted to make use of fiacial istrumets or other derivatives other tha to hedge idetified exposures of the Group. Speculative use of such istrumets or derivatives is ot permitted. Group Treasury prepares reports at least aually to the Board, ad o a mothly basis to the Fiace Director ad other seior executives of the Group. I additio, liquidity, iterest rate, currecy ad other fiacial risk exposures are moitored weekly. The overall idebtedess of the Group is reported o a weekly basis to the Chief Executive ad the Fiace Director. The Group Treasury fuctio is subject to a aual iteral ad exteral review of cotrols.

/ 31 Fudig ad liquidity The Group fuds its operatios through a mixture of retaied earigs ad borrowig facilities, icludig bak ad capital markets borrowigs ad leasig. The relative proportios of equity ad borrowigs are govered by specific Board-approved parameters. These are desiged to preserve prudet fiacial ratios, icludig iterest, divided ad cash flow cover, whilst also miimisig the overall weighted average cost of capital to the Group. The Group s borrowig facilities are arraged by Group Treasury ad the fuds raised are the let to operatig subsidiaries o commercial arm s legth terms. I some cases, operatig subsidiaries have exteral borrowigs, but these are supervised ad cotrolled cetrally. The Group s objective is to maitai a balace betwee cotiuity of fudig ad flexibility through borrowig at a rage of maturities. Wherever practicable, poolig, ettig or cocetratio techiques are employed to miimise gross debt of the Group. At 31 December 2010, there were 10 millio of drawigs related to the issuace of letters of credit agaist the 358 millio of the Group s UK committed credit facilities. Followig a 25 millio bod buy-back i May 2010, capital market borrowigs reduced to 526 millio ad iclude usecured issues of 176 millio 7% bods maturig i May 2012 ad 350 millio 6.75% bods maturig i October 2019. I total, the Group s bak committed credit facilities have maturities ragig from 2011 to 2019. The weighted average maturity profile of the Group s committed borrowig facilities was 5.3 years. This leaves the Group well placed i the short term to withstad sudde chages i liquidity i the fiacial markets. All of the Group s committed credit facilities have a sigle fiacial coveat requirig EBITDA of subsidiaries to be at least 3.5 times et fiacig costs. EBITDA of subsidiaries is operatig profit before restructurig charges, impairmet of goodwill, amortisatio of o-operatig itagible assets, revaluatio of fiacial istrumets, profit ad losses o sale or closures of busiesses, other items reported as separate compoets of operatig profit ad depreciatio, impairmet ad amortisatio charged ito tradig profit. Net fiacig costs exclude other fiacig charges ad capitalised borrowig costs. For the 12 moths to 31 December 2010 this ratio stood at 13 times. Fiacial resources ad goig cocer At 31 December 2010, the Group had gross borrowigs of 593 millio (2009: 636 millio) ad cash ad deposits of 442 millio (2009: 336 millio) resultig i et borrowigs of 151 millio. I additio, it had available, but udraw, committed UK borrowig facilities totallig 348 millio. Of the Group s total committed borrowig facilities, 50 millio is due to expire i October 2011. The Directors have assessed the future fudig requiremets of the Group ad the Compay ad compared them to the level of committed available borrowig facilities. The assessmet icluded a review of both divisioal ad Group fiacial forecasts, fiacial istrumets ad hedgig arragemets for the 15 moths from the balace sheet date. Major assumptios have bee compared to exteral referece poits such as global light vehicle volumes, build schedules from aircraft assemblers ad market forecasts from major maufacturers of agricultural ad costructio machiery. The forecasts show that the Group will have ample headroom i the foreseeable future ad a assessmet of the likelihood of breachig bakig coveats i this period is cosidered to be remote. Havig udertake this work, the Directors are of the opiio that the Group has adequate committed resources to fud its operatios for the foreseeable future ad so determie that it is appropriate for the fiacial statemets to be prepared o a goig cocer basis. GKN plc Aual Report ad Accouts 2010

32 / RISKS AND UNCERTAINTIES GKN has a extesive risk maagemet framework desiged to idetify ad assess the likelihood ad cosequeces of risk ad to maage the actios ecessary to mitigate their impact. A detailed descriptio of this framework is give o page 44. Set out below are the pricipal risks ad ucertaities which could have a material impact o the Group ad the correspodig mitigatig actios that are i place. Additioal risks ot curretly kow or which are curretly regarded as immaterial could also adversely affect future performace. Market risks Risk Nature of risk ad potetial impact Mitigatio Market cycles Chages i macro-ecoomic coditios, cosumer demad Diverse busiess portfolio servig differet markets ad prefereces. GKN s fiacial performace could be Effective maagemet of the cost base impacted by volatility i automotive demad ad chagig Efficiet cash maagemet icludig focus o workig cosumer prefereces; reschedulig or cacellatio of capital ad ivestmet spedig orders for civil aircraft ad chages i amout or timig Ogoig review of market idicators of defece spedig; volatility i agricultural, costructio, miig ad idustrial markets. Customers Sigificat customer cocetratio i automotive GKN is ot depedet o cotractual or other ad aerospace idustries. Some 67% of Group sales arragemets with ay idividual customer are from 25 major customers, although o customer Active maagemet of customer relatios ad credit represeted more tha 10% of Group sales at exposure 31 December 2010. The isolvecy of, damage to Strog commercial ad egieerig focus at relatios, or sigificat worseig of commercial terms customer level with a major customer could result i the loss of future Effective programme maagemet busiess opportuities, asset write-offs ad restructurig actios. Competitio Highly competitive markets with customer decisios Cotiual review of competitio ad market treds based typically o price, quality, techology ad service. Ivestmet i egieerig ad lea maufacturig Customer vertical itegratio (icludig OEMs takig capabilities productio i-house), the etry of ew competitors or Strog customer relatioships cosolidatio of existig competitors could restrict GKN s New product techology ability to grow its busiess. Techology Iability to lauch ew products, ew product Regular assessmet of market ad techology treds applicatios or derivatios of existig products to meet ad drivers customers eeds. GKN may lose customers to Divisioal techology plas aliged to emergig ad competitors offerig ew techologies i the evet of future treds a iability to adapt to market developmets. Chages Focused ivestmet i research ad developmet i legislative, regulatory or idustry requiremets, Effective programme delivery competitive techologies or cosumer prefereces may reder GKN s products obsolete or less attractive. Geo-political Legal, regulatory, political ad socio-ecoomic Ogoig review of market eviromet icludig coditios i coutries of operatio. Give the global political, fiscal ad regulatory developmets footprit of the Group, its operatios could be adversely Group-wide goverace framework supported by impacted by chages i the political, ecoomic ad a strog cotrol eviromet regulatory eviromets i coutries i which it does busiess.

/ 33 Operatioal risks Risk Nature of risk ad potetial impact Mitigatio Supply chai Lack of availability of equipmet, compoets, Ogoig assessmet of supplier techology ad services ad raw materials that meet specificatios. depedecy Volatility i productio ad the eed to maitai Dual sourcig to reduce depedece o sigle appropriate ivetory levels requires effective supply supplier chai maagemet. Supply chai disruptio could Moitorig of fiacial viability of key suppliers impact GKN s sales to ad relatioships with its customers ad result i additioal urecoverable costs. Iput costs Risig cost of raw materials, labour ad eergy. The cost Cotract egotiatios to esure the ability to pass o of raw materials for the Group s products ad other key charges to customers iputs may fluctuate ad could adversely affect the Secure log term cotracts for key iputs with stable Group s earigs if it were uable to pass icreases pricig o to its customers. Forward purchasig of eergy requiremets where appropriate Maitaiig good labour relatios Product quality Potetial liabilities for defects i products, warraty High levels of quality assurace claims or product recalls. Product quality issues could Robust maufacturig systems adversely affect profits ad damage GKN s reputatio. People Iability to attract ad retai qualified persoel, Aual talet maagemet ad performace particularly egieerig professioals. The absece developmet process of adequate talet ad a lack of cotiuity i Competitive reward packages ad Group-wide traiig maagemet ad leadership could result i a iability ad developmet programmes to execute the strategic pla ad deliver improvig A high performace culture ad motivatig eviromet fiacial performace. Acquisitios Iability to realise expected beefits of acquisitios. Focused reviews to esure strategic aligmet A lack of suitable acquisitio targets aliged with the of acquisitios plaed growth strategy, a failure to itegrate acquired Extesive pre-acquisitio due diligece busiesses successfully, or a iability to capture value Careful maagemet of itegratio plas by from them could impact operatios ad prevet experieced o-site maagemet successful delivery of GKN s strategic objectives. Post acquisitio reviews Fiacial risks Risk Nature of risk ad potetial impact Mitigatio Pesios Pesio deficit levels are affected by chages i asset Active maagemet of pesio scheme assets ad values, discout rates, iflatio ad mortality assumptios. log term view of liability assumptios Accoutig valuatios of pesio obligatios ca cause Cotiuig review of the level of beefits provided volatility i fiacial results. Additioal Compay pesio Alterative fudig ad deficit reductio plas cotributios may restrict ivestmet i busiesses. implemeted where appropriate Exchage rates Currecy risks: trasactioal (subsidiary sales or Hedgig of trasactio exposures through forward purchases i currecies other tha their fuctioal foreig exchage cotracts currecy) ad traslatioal (exchage rate movemets Balace sheet traslatioal hedgig policy (curretly i ivestmets i overseas operatios). The Group s suspeded due to cotiuig volatility of foreig fiacial statemets may fluctuate as a result of currecies agaist sterlig) movemets i exchage rates. Borrowigs i local currecy icludig access to overseas debt capital markets Taxatio GKN is subject to complex tax laws ad audit procedures. Ogoig moitorig of tax developmets i major Actual tax liabilities could differ from accruals which are jurisdictios based o maagemet judgemets. Group-wide tax compliace programme The Group isures agaist the impact of a rage of upredictable losses associated with both its busiess assets ad liabilities. GKN s risk fiacig strategy is based o a sigificat level of capped self-isured retetio at the Group level (withi GKN s ow captive isurace compay, Ipsley Isurace Ltd, which does ot isure the risks of ay other etity) ad a much lower retetio at subsidiary level through deductibles. Catastrophe isurace is the purchased i the commercial market over ad above these levels of retetio. Ipsley s curret participatio i GKN s pricipal isurace programme is 10 millio per icidet capped at 20 millio i ay oe year. Due to the ature of the risk, the Group s aviatio products liability isurace is placed solely i the commercial market. GKN plc Aual Report ad Accouts 2010

34 / SUSTAINABILITY REPORT Uderpiig our strategic objectives GKN is committed to providig log term shareholder value i the form of steadily growig earigs ad divideds. To help deliver our strategic objectives, which we summarise uder the four headigs of market leadership, growth, operatioal excellece ad sustaiability, we develop ad deploy key capabilities across the Group. These are superior techology, world class lea maufacturig, leveragig our global footprit, exceptioal customer service, outstadig leadership ad developmet for all. At the heart of all of these are our Values which bid the Group together. This review summarises activity durig the year i relatio to certai key capabilities, ot covered elsewhere i this report, with a particular focus o corporate resposibility. Livig our Values I our relatioships with shareholders, employees, customers, suppliers ad other stakeholders, we are guided by our Values. These Values are cotaied i the GKN Code which, together with a series of related policies, provides a framework for the behaviour of all our employees whatever their job ad wherever they work. The GKN Code ad policies ca be foud o our website at www.gk.com. Resposible busiess coduct All our employees are required to maitai the highest stadards of itegrity, hoesty ad fair dealig. Compliace with all relevat laws ad regulatios wherever we operate is a miimum requiremet i all our policies. We support the Uiversal Declaratio of Huma Rights ad do ot tolerate the use of child labour or forced labour. Through our supplier maagemet policy we require equivalet stadards through our supply chai; Group compaies are prohibited from egagig suppliers that offer iadequate health ad safety stadards for employees, ifrige iteratioally accepted stadards of workers rights, use child or forced labour, usoud evirometal practices, have poor stadards of social resposibility or that fail to comply with relevat laws ad regulatios. The policy ecourages Group compaies to develop ad maitai value addig relatioships with our supply base. Superior techology Superior techology is the corerstoe of our strategy. The Group s techology pla is developed o a Group ad divisioal basis, reflectig the priorities of each of the Group s portfolios, ad focusig o the products we make, how we make them, the material we use i the maufacturig process, how our customers use our products ad how they ca be recycled or disposed of safely. The pla takes ito accout market drivers for each busiess area, such as the low carbo ageda, electrificatio, urbaisatio, water shortage ad chages i food cosumptio, all of which help defie the techologies of the future. GKN s Techology Strategy Board, sposored by the Chief Executive ad chaired by the Group s Pricipal Egieer, drives the developmet ad deploymet of the techology pla. It also facilitates collaboratio o techology developmets across the Group s busiesses, through sharig best practice ad exploitig syergies where appropriate. The Techology Strategy Board has a key role i further developig exteral relatioships ad parterships, icludig access to sources of fudig. A importat focus of the Strategy Board s work durig the year has bee o esurig that GKN has the ecessary iteral resources to deliver the techology pla. To this ed, a career framework for egieers, based o the GKN leadership framework, has bee developed which defies the skills ad experiece required to progress from team member through to seior executive level. Commo traiig ad developmet programmes to eable idividuals to advace their careers are beig developed.

/ 35 EMPLOyEES By REGION as at 31 December 2010 9,200 Rest of World 12,200 Americas EMPLOyEES By BUSINESS as at 31 December 2010 4,700 Lad Systems 8,500 Aerospace 5,900 Powder Metallurgy 5,500 UK 13,100 Cotietal Europe Icludig subsidiaries ad joit vetures 1,700 Other busiesses Total 40,000 19,200 Drivelie Total 40,000 Icludig subsidiaries ad joit vetures Cotiuous improvemet GKN s culture of cotiuous improvemet i everythig we do is reiforced through the applicatio of Lea Eterprise techiques i our busiess ad productio processes worldwide. All our sites have a cotiuous improvemet pla, which is refreshed regularly ad aliged to busiess objectives. Employee ivolvemet is a core cocept of GKN s Lea Eterprise approach; cotiuous improvemet plas egage all employees i drivig the flow of value through the busiess, elimiatig waste i all its forms icludig materials ad time. The recessioary coditios i 2009 i may of our markets caused us to focus efforts o ivetory maagemet to esure that our busiesses were able to match the dramatic chages i customer demad. Sigificat reductios i productio ivetory were achieved throughout the Group through the use of Lea techiques ad we cotiued our focus o this area i 2010. GKN s busiesses use Busiess Excellece based o the EFQM model to assess their performace i their jourey towards excellece ad to idetify improvemet actios. These are the implemeted through the cotiuous improvemet plaig process. More fudametally, Busiess Excellece is also a importat tool i the developmet of busiess strategy ad establishig a eviromet for its successful executio. Our employees Oe of our strategic objectives is to be the employer of choice with a high performace culture, motivated employees ad outstadig leaders. A importat factor i this is for all employees to uderstad the Group s strategy ad their idividual roles i deliverig it. To this ed, i 2010 we deployed globally a visual strategy map, based o the EFQM Busiess Excellece model, which describes the strategy, the processes ad eablers ivolved i deliverig the strategy ad how we will measure progress agaist our strategic objectives. At divisioal ad site level this is used to create a framework for the cotributio of busiess uits to the achievemet of the overall Group strategy. Our orgaisatio plaig process (OPP) is desiged to eable us to idetify ad develop the capability of the people eeded at every level to deliver GKN s strategy. I 2010, some 8,500 employees were icluded i the process. The OPP is supported by the performace developmet process (PDP) through which a employee s developmet eeds are idetified ad addressed. This process is carried out agaist the GKN leadership framework which defies the skills, competecies ad experiece eeded to be successful at every level i the orgaisatio. 76% of seior maagemet vacacies were filled iterally i 2010. A suite of three leadership developmet programmes has bee lauched globally as we build a strog leadership culture: the Essetial Leadership Developmet Programme for juior maagemet, the Advaced Leadership Developmet Programme for middle/seior maagemet ad the Executive Leadership Programme for the executive populatio. The GKN Academy, a olie traiig resource accessible to all GKN employees lauched i 2010, represets the ext step i realisig our visio of Developmet for All. It offers programmes o a variety of subjects icludig fiace, Lea techiques, customer relatioship maagemet, commuicatio skills, health, safety ad the eviromet. Employee egagemet is key to our success. Every two years each site coducts a employee opiio survey ad actio plas are put i place. Mothly, a subset of questios from the employee opiio survey is used to coduct sesig sessios with groups of betwee 10-20 employees at locatios globally. The results of these Positive Climate Idex (PCI) sessios provide a PCI score. Improvemet actios arisig from PCI sessios are icorporated ito site cotiuous improvemet plas. The ext global survey will be carried out i 2011. I 2010, GKN wo the category Employee Egagemet Strategy of the Year at the aual Chartered Maagemet atioal maagemet ad leadership awards. O a ogoig basis, we use a variety of commuicatio chaels, with the emphasis o two-way face to face techiques, to esure that employees are kept iformed of busiess developmets at a local ad Group level. Our objective is to have a positive ad iclusive workig eviromet free from all kids of discrimiatio ad i which employees are motivated to maximise their cotributio. All Group compaies must esure that employees are treated justly ad with respect ad that their abilities, differeces ad achievemets are recogised. Employees ca report ad discuss problems o a cofidetial basis. We operate a iteratioal whistleblowig hotlie (which is ru idepedetly) to esure that employees ca make, aoymously if they wish, cofidetial disclosures about suspected wrogdoig without fear of recrimiatio. GKN plc Aual Report ad Accouts 2010

36 / SUSTAINABILITY REPORT CONTINUED ACCIDENT FREqUENCy RATE Number of lost time accidets per 1,000 employees 4.0 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 3.4 2.5 2.1 2.7 2006 2007 2008 2009 2010 ACCIDENT SEvERITy RATE Number of days/shifts lost due to accidets ad occupatioal ill health per 1,000 employees 150 120 90 60 129 99 75 71 68 Health ad safety GKN is committed to cotiuous improvemet i health ad safety performace. Our goal is zero prevetable accidets. The maagemet of health ad safety, icludig compliace with laws ad regulatios i GKN, is based o the iteratioally recogised health ad safety system stadard OHSAS 18001. So far 94 locatios (68% of the total umber) have achieved certificatio to OHSAS 18001 ad the remaiig sites are workig towards this. RADAR (Risk Awareess, Detectio, Actio ad Review), a GKN developed behaviour awareess ad improvemet tool, assists employees i recogisig hazards ad risks i their workig area ad empowers them to take actio for themselves to improve their workplace. Employees receive traiig ad the take part i a RADAR evet. Durig 2010, we traied over 29,000 employees who have subsequetly participated i evets i their workplace. GKN has developed a itesive machiery risk assessmet programme aimed at buildig o existig assessmets but broadeig the scope ad icreasig employee ivolvemet ad awareess. I 2010, some 20,000 machies were assessed to the ew stadard, represetig approximately 90% of the total. Employee commuicatio is a importat elemet of good health ad safety performace. A icreasig umber of GKN plats have implemeted a safety corer, located i a promiet positio withi the plat, to give employees a opportuity to lear about hazards i their workig eviromet, ofte by iteractive displays. Employees receive safety briefigs, audio/visual cotet ad are made aware of ay Group-wide safety alerts or icidets. GKN recogises the eed to share good practice, kowledge ad experiece throughout the Group. With this i mid i 2010 a ew improvemet iitiative kow as the Assess ad Improve programme was piloted ad will be rolled out i 2011. Iitially 20 locatios will be visited by GKN global safety specialists who will focus o a simple qualitative assessmet of safety systems i a plat, sharig best practice ad idetifyig areas for improvemet. 30 0 2006 2007 2008 2009 2010 Health ad safety performace is measured o a regular basis ad reports are made periodically to the Executive Sub-Committee o Goverace ad Risk ad to the Executive Committee; a half yearly report is made to the Board. Accidet frequecy rate (AFR) ad accidet severity rate (ASR) are key health ad safety performace idicators for the Group ad our performace agaist these i 2010 is show i the charts above left. Whilst performace over the last te years by referece to both these metrics has bee extremely positive (a 86% improvemet i AFR ad a 81% improvemet i ASR), 2010 has see a icrease i AFR compared with 2009 which is disappoitig. To address this we are drivig the use of RADAR cosistetly throughout our busiesses such that its disciplies become a itegral part of every employee s daily workig life. Assess ad Improve will also support further improvemets i performace. Each busiess is required to target aual performace improvemets. Targets are set at portfolio, divisioal ad plat level takig ito accout risk ad improvemet priorities. Durig 2010 there were three health ad safety eforcemet actios agaist GKN compaies i the USA, two of which were issued by the relevat authorities with fies totallig US $4,295. ENERGy CONSUMPTION PER UNIT OF PRODUCTION kwh/toe 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Drivelie 2008 2009 2010 Powder Aerospace* Metallurgy Lad Systems * Aerospace measured agaist 1,000 sales. Eviromet Our mai impacts o the eviromet are eergy use ad associated CO 2 emissios, waste geeratio ad recyclig, ad water cosumptio. We are committed to cotiuous improvemet i our evirometal performace ad have take strog actio i 2010 to address each of these impact areas. All sigificat GKN maufacturig locatios are either certified to ISO 14001, the iteratioally recogised evirometal maagemet system, or are i the process of obtaiig certificatio. To improve our eergy efficiecy we apply Lea Eterprise techiques focused o idetifyig ad reducig eergy waste, both i the office ad o the shop floor. Most GKN maufacturig locatios have established eergy efficiecy targets ad icorporated those objectives i their site cotiuous improvemet plas, esurig regular maagemet attetio ad the ecessary resources. The targets set at site level must meet, at a miimum, the Group objective, which is to improve eergy efficiecy by 15% over the five year period from 2009 to 2014.

/ 37 CO 2 EMISSIONS PER UNIT OF PRODUCTION kg/toe 1,200 1,000 800 600 400 200 0 Drivelie WASTE GENERATION PER UNIT OF PRODUCTION kg/toe 350 300 250 200 150 100 50 0 100 80 60 40 20 0 2008 2009 2010 Drivelie 2008 2009 2010 RECyCLED WASTE % of total waste Drivelie 2008 2009 2010 Powder Aerospace* Metallurgy Powder Aerospace* Metallurgy Powder Metallurgy Aerospace Lad Systems Lad Systems Lad Systems WATER CONSUMPTION PER UNIT OF PRODUCTION m 3 /toe 8 7 6 5 4 3 2 1 0 Drivelie 2008 2009 2010 Powder Aerospace* Metallurgy Lad Systems * Aerospace measured agaist 1,000/sales. All four divisios improved eergy efficiecy i 2010, albeit with some of the improvemet attributable to icreased productio volumes. Powder Metallurgy, our most eergy itesive busiess, achieved a improvemet i eergy efficiecy of almost 10% over the prior year, as did Drivelie. Because our CO 2 emissios closely track eergy use, our CO 2 performace also improved across all four divisios. Our actios to reduce the geeratio of waste adhere to the waste hierarchy of first, ad the best alterative, of ot producig waste, secodly (the ext best alterative) of reusig materials, ad fially, if either of these is possible, to recycle rather tha simply dispose of the material. Our particular focus is to reduce the quatity of waste geerated per uit of productio, ad the to recycle as much of the waste as we ca. With regard to our performace, all four divisios reduced the quatity of waste geerated per uit of productio, ad three of the four divisios also maitaied or improved the percetage of waste recycled. I the period 2008 to 2010, waste geeratio ad recyclig levels i the Powder Metallurgy divisio have bee impacted by the recyclig of large amouts of stockpiled slag from historic powder productio. Durig the year, 89% of overall Group waste was recycled. I 2009 the Group Excellece Award for Eviromet was wo by GKN Lad Systems Rockford plat for a sigificat reductio i water cosumptio. Oe of the drivers for these awards is to commuicate ad promote best practice throughout the Group. I that regard we are pleased to report sigificat improvemets i water cosumptio across all four divisios: 18% i Drivelie, 14% i Powder Metallurgy, 11% i Lad Systems ad 10% i Aerospace. Compliace with all applicable rules ad regulatios is a priority for us. Ufortuately i 2010 we received five otices of o compliace ad paid US$90,425 i pealties. Our priority for 2011 is to stregthe the bods betwee our Lea Eterprise systems ad evirometal improvemets. We will also be sharig ew evirometal traiig material with all GKN employees. Workig i our commuities GKN has a proud history of workig with its commuities. I 2009, to celebrate our 250th aiversary, we lauched a global competitio to ecourage ad fud ideas to establish sustaiable egieerig ad educatioal projects. Three wiers were fially selected from early 100 etries from aroud the world ad durig 2010 they have progressed the implemetatio of these projects. Wiig the prize of 100,000 was a project based i Idia to create a egieerig educatio cetre ad idustry steppig-stoe programme for childre ad youg adults i the rural regio of Pabal. The programme is a partership with the Vigya Ashram orgaisatio, already well established i the regioal educatio system. The fudig is beig used to create a 520 square metre teachig facility at oe of Vigya Ashram s existig sites with mechaical, electrical ad electroic workshops together with traiig rooms ad chagig facilities for studets. Receivig a award of 50,000, our Powder Metallurgy plat i Chivilcoy, Argetia, established a partership with a local educatioal establishmet to develop a specialised powder metallurgy course ad facility. The plat worked with the local authorities to desig ad itegrate a techology course ito the atioal school curriculum. The project icludes the creatio of a mii productio lie withi the techical school i Chivilcoy (approximately 650 studets), which will provide direct experiece of the process ad the opportuity to carry out research ad experimets. 25,000 was awarded to GKN Aerospace to establish a teachig ad iovatio facility withi a idustrial research ad developmet cetre at Filto i the UK. Leveragig GKN s positio withi the UK Natioal Composites Network, it will provide access ad traiig to studets to help them desig ew products ad miimise their evirometal impact through the cosideratio of the life-cycle aalysis. This year the project lauched a pilot programme supportig the teachig of egieerig ad maufacturig i the Bristol area ad has potetial to expad across the regio. We recogise, each year, the cotributios made to our local commuities by groups ad idividuals across the Compay through our Hearts of Gold programme. We are extremely proud of their efforts which make a sustaiable differece to the lives of people i the commuities of which we are a part. GKN plc Aual Report ad Accouts 2010

38 / THE BOARD Roy Brow (64) Chairma N Appoited a o-executive Director i 1996 ad became Chairma i May 2004. Sir Kevi Smith, CBE (56) Chief Executive N E Appoited Chief Executive i Jauary 2003. Marcus Bryso (56) Divisioal Chief Executive E Appoited to the Board i Jue 2007. Experiece Former executive Director of Uilever plc ad Uilever NV from 1992 to 2001 with resposibility for the group s activities i Europe, Africa ad the Middle East. He is a former o-executive director of Brambles plc, Brambles Ltd (Australia), British Uited Providet Associatio Ltd (BUPA), the Frachise Board of Lloyd s of Lodo ad HMV Group plc. Chartered Egieer, Fellow of the Istitutio of Mechaical Egieers ad Fellow of the Istitutio of Egieerig ad Techology. Exteral Appoitmets No-executive director of Satader UK plc ad Alliace & Leicester plc. Experiece Joied GKN i 1999 as Maagig Director, Aerospace. Prior to GKN he held various positios i BAE Systems plc over a 20 year period, latterly as Group Maagig Director New Busiess. Former oexecutive director of Scottish ad Souther Eergy plc. Former Co-Chairma of the Govermet s Maufacturig Forum. Fellow of the Royal Aeroautical Society ad Compaio of the Chartered Maagemet Istitute. Exteral Appoitmets Member of the Govermet s Asia Task Force ad a UK Busiess Ambassador. Experiece Joied GKN with the acquisitio of the Westlad Group i 1994 ad has extesive experiece of the aerospace idustry. Havig joied Westlad i 1984, he held a umber of fiace ad commercial roles withi the busiess prior to its acquisitio by GKN. He was appoited Chief Executive GKN Aerospace Services Europe i 2000 ad Chief Executive Propulsio Systems ad Special Products i 2004. Joied the Executive Committee as Chief Executive Aerospace i Jauary 2006. Exteral Appoitmets Vice-Presidet, Aerospace of A D S. William Seeger (59) Fiace Director E Appoited to the Board i September 2007. Experiece Joied GKN i 2003 as Seior Vice- Presidet ad Chief Fiacial Officer of GKN Aerospace. I Jue 2007 he became a member of the Executive Committee as Presidet ad Chief Executive Propulsio Systems ad Special Products. Appoited Fiace Director i September 2007. Prior to GKN, he held a umber of seior fiace positios at TRW Ic spaig over 20 years, latterly as Vice-Presidet Fiacial Plaig ad Aalysis. Joh Sheldrick (61) Idepedet o-executive Director A R N Appoited to the Board i December 2004. Experiece Former Group Fiace Director of Johso Matthey plc from 1995 to 2009. Prior to joiig Johso Matthey i 1990 he was Group Treasurer of The BOC Group plc. He is also a former o-executive director of API Group plc. Fellow of the Associatio of Corporate Treasurers ad Fellow of the Chartered Istitute of Maagemet Accoutats. Exteral Appoitmets No-executive director of Feer plc. Nigel Stei (55) Divisioal Chief Executive E Appoited to the Board i August 2001. Experiece Joied GKN i 1994 ad has held a rage of commercial, geeral maagemet ad fiace roles, icludig Fiace Director. Appoited Chief Executive Automotive i Jue 2007. Prior to GKN, he gaied experiece i the commercial vehicle ad maufacturig sector ad held seior fiacial positios with Laird Group plc ad Hestair Duple Ltd. Member of the Istitute of Chartered Accoutats of Scotlad. Exteral Appoitmets No-executive director of Wolseley plc ad Presidet of The Society of Motor Maufacturers ad Traders Ltd. Member of the Automotive Coucil.

/ 39 Shoaid Jemmett-Page (50) Idepedet o-executive Director A R N Appoited to the Board o 1 Jue 2010. Richard Parry-Joes, CBE (59) Idepedet o-executive Director A R N Appoited to the Board i March 2008. Adrew Reyolds Smith (44) Divisioal Chief Executive E Appoited to the Board i Jue 2007. Experiece Curretly Chief Operatig Officer for CDC Group plc, the UK Govermet s developmet fiace istitutio. She joied CDC i early 2009 from Uilever, where for eight years she was Seior Vice-Presidet Fiace ad Iformatio, Home ad Persoal Care, origially i Asia ad later for the group as a whole. Her early career was spet at KPMG, latterly as a parter. Former o-executive director of Havelock Europa plc. Exteral Appoitmets Chair of the Sustaiability Committee of the Istitute of Chartered Accoutats i Eglad & Wales (ICAEW) ad a Associatio Member of BUPA. Experiece Has extesive experiece of the automotive idustry havig previously worked for the Ford Motor Compay for 38 years, latterly as Group Vice-Presidet Global Product Developmet ad Group Chief Techical Officer. Fellow of the Royal Academy of Egieerig, the Istitutio of Mechaical Egieers ad the Royal Society of Statistical Sciece. Exteral Appoitmets Chairma of the Welsh Assembly Govermet Miisterial Advisory Group. Visitig Professor withi the Departmet of Aeroautical ad Automotive Egieerig at Loughborough Uiversity. Joit Chairma of the Automotive Coucil. Experiece Joied GKN i 2002 as Maagig Director Operatios Europe for GKN Drivelie. Appoited Chief Executive GKN Siter Metals i 2004, joied the Executive Committee i Jauary 2006 ad was appoited Chief Executive Powder Metallurgy, OffHighway ad Idustrial Services i Jue 2007, becomig Chief Executive Powder Metallurgy ad Lad Systems i Jue 2010. Prior to GKN, he held various maagemet ad fuctioal positios at Igersoll Rad, Siebe plc (ow Ivesys plc) ad Delphi Automotive Systems. Exteral Appoitmets Chairma of the CBI Maufacturig Coucil. Member of the Miisterial Advisory Group for Maufacturig ad of the Govermet s Gree Ecoomy Coucil. Michael Turer, CBE (62) Seior Idepedet Director A R N Appoited to the Board i September 2009 ad became Seior Idepedet Director i May 2010. Experiece Has extesive experiece of the aerospace idustry havig worked for BAE Systems plc for over 40 years, ad where he was Chief Executive from 2002 to 2008. Former Presidet of the Aerospace & Defece Idustries Associatio of Europe. Fellow of the Royal Aeroautical Society. Judith Felto Compay Secretary E Joied GKN i 1980 ad became Deputy Compay Secretary i 1995 before beig appoited Compay Secretary i 2009. Fellow of the Istitute of Chartered Secretaries ad Admiistrators. Exteral Appoitmets No-executive director ad Trustee of Youg Eterprise UK. Exteral Appoitmets No-executive chairma of Babcock Iteratioal Group plc ad o-executive director of Lazard Ltd. Member of the Govermet s Appreticeship Ambassadors Network. A Member of Audit Committee R Member of Remueratio Committee N Member of Nomiatios Committee E Member of Executive Committee GKN plc Aual Report ad Accouts 2010

40 / CorporaTe GoVerNaNCe I this sectio Leadership page 41 Effectiveess page 43 Accoutability page 44 Relatios with shareholders page 45 Compliace statemet page 45 The GKN Board remais committed to high stadards of corporate goverace which are key to the Group s objective of deliverig log term shareholder value. GKN s goverace framework, led by the Chairma of the Board, is desiged to facilitate a combiatio of effective, etrepreeurial ad prudet maagemet required both to safeguard shareholders iterests ad to sustai the success of GKN over the loger term. The Board recogises that to achieve good goverace requires cosiderable ad cotiuig effort. Goverace is therefore a itegral part of the way i which the Board ad its Committees operate. The goverace framework exteds across the Group to esure that all relevat laws ad regulatios are complied with wherever GKN operates ad that a appropriate iteral cotrol eviromet exists. I pursuit of GKN s Values, Directors ad employees are expected to act with itegrity at all times, combiig high stadards of busiess performace with equivalet stadards of corporate goverace ad risk maagemet. Directors also have a statutory duty to take ito accout the log term cosequeces of their decisios, the iterests of employees, relatioships with suppliers, customers ad others, the impact of the Group s operatios o local commuities ad the eviromet, ad the eed to maitai a reputatio for high stadards of busiess coduct.

/ 41 Leadership The role of the Board The GKN Board is collectively resposible for the log term success of the Group. Key aspects of the Board s role iclude settig the Group s strategic aims, esurig that the ecessary capabilities to deliver the strategy are i place, reviewig operatioal performace ad esurig that a appropriate ad effective framework of cotrol ad risk maagemet exists. a full descriptio of the role of the Board, which icludes a umber of specific resposibilities reserved for its decisio, is available o our website at www.gk.com. roy Brow has bee Chairma sice 2004; he is resposible for leadig the Board ad for its effectiveess. Sir Kevi Smith leads the busiess as Chief executive, a positio he has held sice 2003. With the support of the executive Committee he is resposible for the executio of the Group s strategy ad the day-to-day ruig of the busiess. Board agedas are set by the Chairma i cosultatio with the Chief executive ad with the assistace of the Compay Secretary, who maitais a 12 moth rollig programme of items for discussio by the Board to esure that all matters reserved to the Board ad other key issues are cosidered at the appropriate time. agedas are closely aliged to the key aspects of the Board s role; below are examples of areas of the Board s focus i 2010. Strategy approved strategic plas ad cosidered the risks iheret i them. Capabilities Performace Cotrol approved the Group s aual budget to support the strategic plas. approved a 20 year assetbacked cash paymet arragemet for the UK pesio scheme. Successio plaig for the Board ad seior executives. reviewed the Group s techology pla ad the activities of the Group Techology Strategy Board. Cosidered progress o the deploymet of Lea eterprise across the Group. Discussed divisioal operatig performace. Cosidered Group fiacial performace, with particular focus o cash geeratio ad workig capital. reviewed performace agaist the Group s ofiacial KpIs (coverig health, safety ad evirometal matters). assessed, with the support of the audit Committee, the effectiveess of iteral cotrol ad audit processes. Cosidered a post acquisitio review i respect of Stellex aerostructures. assessed the effectiveess of the Board ad its Committees. The Board meets formally at least eight times a year. at least oe meetig is combied with a Board visit to oe of the Group s busiess locatios. I 2010, to coicide with the Shaghai expo (GKN was oe of the fouder sposors of the UK pavilio), the Board visited Chia ad toured a umber of the Group s busiesses ad joit veture operatios. a umber of iformal meetigs are also held durig the year which help to stregthe relatios betwee Directors. There are sufficiet opportuities for the Chairma to meet with the o-executive Directors, without the executive Directors beig preset, should this be deemed appropriate. Board Committees The Board has appoited a umber of Committees which play a importat goverace role through the detailed work they carry out to fulfil the resposibilities delegated to them. all Board Committees are supported by the Compay Secretariat. Their terms of referece are available o our website. Corporate Goverace Committees Audit Committee moitors the itegrity of fiacial reportig ad audit processes ad reviews the effectiveess of the Group s (chaired by Joh Sheldrick) systems of iteral cotrol ad risk maagemet. a report o its activities i 2010 is give o pages 46 ad 47. Remueratio Committee determies ad makes recommedatios o the Group s remueratio policy ad framework to recruit, retai (chaired by richard parry-joes) ad reward Directors ad seior executives. The remueratio report is set out o pages 48 to 58. Nomiatios Committee recommeds Board ad Board Committee appoitmets ad reviews successio plaig agaist the (chaired by roy Brow) leadership eeds of the Group. all idepedet o-executive Directors are members of these Committees. This gives them detailed isight ito matters critical to the success of the Group ad helps to iform Board discussios. The Chairma ad the Chief executive are also members of the Nomiatios Committee. Briefig papers are prepared ad circulated to Committee members i advace of each meetig ad, i respect of the audit Committee, made available to other Directors. I order that the Board remais fully appraised of their work, the Committee Chairme report formally o Committee activities at the subsequet Board meetig. These Committees ca obtai exteral professioal advice at the cost of the Compay if deemed ecessary. GKN plc aual report ad accouts 2010

42 / CorporaTe GoVerNaNCe CoNTINUeD Operatioal Goverace Committees Executive Committee (chaired by Sir Kevi Smith) Lea Eterprise Sub-Committee Group Techology Strategy Board Goverace ad Risk Sub-Committee is resposible for executig strategy by leadig, overseeig ad directig the activities of the Group. Its work is supported by a umber of sub-committees: is resposible for drivig operatioal best practice globally through the applicatio of Lea busiess processes. is resposible for developmet of the Group s techology pla, drivig the developmet of appropriate techologies across the Group ad the stregtheig of exteral relatioships icludig access to sources of fudig. has resposibility for developig strategy for ad providig oversight ad directio o all matters relatig to goverace ad compliace, risk maagemet ad corporate social resposibility. Board ad Committee attedace The attedace of Directors at relevat meetigs of the Board ad of the audit, remueratio ad Nomiatios Committees held durig 2010 was as follows: audit remueratio Nomiatios Board Committee Committee Committee Director (10 meetigs) (4 meetigs) (8 meetigs) (8 meetigs) Chairma roy Brow 10 8 Executive Directors Sir Kevi Smith 10 8 Marcus Bryso 10 adrew reyolds Smith 10 William Seeger 10 Nigel Stei (a) 9 No-executive Directors Shoaid Jemmett-page 6/6* 2/2* 4/4* 4/4* richard parry-joes (b) 10 3 8 8 Joh Sheldrick (c) 9 4 7 8 Michael Turer (d) 9 3 7 7 * actual attedace/maximum umber of meetigs Director could atted based o date of appoitmet. (a) (b) (c) Nigel Stei was uable to atted the Board meetig i Jauary due to illess. richard parry-joes was uable to atted the audit Committee meetig i February due to persoal commitmets. Joh Sheldrick was uable to atted the remueratio Committee meetig i Jauary due to a prior busiess commitmet ad the Board meetig i September due to persoal commitmets. (d) Michael Turer was uable to atted the Board, remueratio ad Nomiatios Committee meetigs i February ad the audit Committee meetig i July due to prior busiess commitmets with Lazard Ltd, of which he is a o-executive director.

/ 43 Effectiveess Board compositio The Board curretly comprises five executive ad five o-executive Directors, icludig the Chairma. Biographical details of all Directors are give o pages 38 ad 39. The Board cosiders that all of the o-executive Directors, excludig the Chairma, are idepedet ad is ot aware of ay relatioship or circumstace likely to affect the judgemet of ay Director. Chages to Board compositio i 2010 are set out below: o 6 May Sir peter Williams ad Sir Christopher Meyer retired from the Board as o-executive Directors after ie ad six years service respectively. Shoaid Jemmett-page was appoited a o-executive Director o 1 Jue for a iitial term of three years. She brigs cosiderable experiece of asia ad has a strog fiacial backgroud. o 31 october Helmut Mamsch retired from the Board as a oexecutive Director after seve years service. I December the Board reewed the terms of appoitmet for Joh Sheldrick for a further ad fial three year period. at the agm o 5 May 2011, ad i accordace with the Compay s articles of associatio, shareholders will be asked to elect Shoaid Jemmett-page to the Board. all other Directors will be seekig re-electio i accordace with the provisios of the UK Corporate Goverace Code published i 2010. This will be the fial time the Chairma will be seekig re-electio as his term of appoitmet will expire at the date of the Compay s agm i 2012. Descriptios of the role of the Chairma, Chief executive, Seior Idepedet Director ad Compay Secretary are available o our website. The o-executive Directors provide costructive challege ad brig idepedece to the Board ad its decisio makig process. recommedatios for appoitmets to the Board are made by the Nomiatios Committee. The Committee follows Board approved procedures (available o our website) which provide a framework for the differet types of Board appoitmets o which the Committee may be expected to make recommedatios. appoitmets are made o merit, ad agaist objective criteria with due regard to diversity (icludig skills, experiece ad geder). No-executive appoitees are also required to demostrate that they have sufficiet time to devote to the role. These procedures were used by the Nomiatios Committee i recommedig to the Board the appoitmet of Shoaid Jemmett-page as a o-executive Director. The Committee egaged the services of a exteral search cosultat i relatio to her appoitmet. Developmet Directors are cotiually updated o the Group s busiesses, the markets i which they operate ad chages to the competitive ad regulatory eviromet through briefigs to the Board ad meetigs with seior executives. Board visits to Group busiess locatios eable the Directors to meet with local maagemet ad employees ad to update ad maitai their kowledge ad familiarity with the Group s operatios. No-executive Directors are also ecouraged to visit Group operatios throughout their teure to icrease their exposure to the busiess. Traiig ad developmet eeds are discussed with each Director by the Chairma as part of the idividual performace review process. The suitability of exteral courses is kept uder review by the Compay Secretary such that ay eeds idetified either through the review process or o a ad hoc basis ca be addressed. I 2010, Directors atteded exteral traiig courses o a umber of matters icludig risk, board effectiveess, climate chage ad sustaiability, ad advaced fiacial leadership. Two executive Directors also completed the Group s Strategic Leadership Developmet programme. Iformatio ad support The Chairma is resposible for esurig that Directors receive accurate, timely ad clear iformatio. The provisio of iformatio to the Board was reviewed durig the year as part of the performace evaluatio exercise referred to below. To esure that adequate time is available for Board discussio ad to eable iformed decisio makig, briefig papers are prepared ad circulated to Directors oe week prior to scheduled Board meetigs. all Directors have direct access to the advice ad services of the Compay Secretary who is tasked with esurig that the Board is fully briefed o legislative, regulatory ad corporate goverace developmets. I additio, Directors may, i the furtherace of their duties, take idepedet professioal advice at the Compay s expese. The Compay Secretary also supports the Committee Chairme by esurig that agedas are appropriate ad address all matters for which the Committee has specific resposibility. o joiig the Board, a Director receives a comprehesive iductio pack which icludes backgroud iformatio about GKN ad its Directors, ad details of Board meetig procedures, Directors duties ad resposibilities, procedures for dealig i GKN shares ad a umber of other goverace-related issues. This is supplemeted by a briefig with the Compay Secretary who is charged with facilitatig the iductio of ew Directors both ito the Group ad as to their roles ad resposibilities as Directors. The Director meets with the Chief executive ad with relevat seior executives to be briefed o the geeral Group strategy ad each idividual busiess portfolio. plat visits ad exteral traiig, particularly o matters relatig to the role of a Director ad the role ad resposibilities of Board Committees, are arraged as appropriate. as part of their iductio Shoaid Jemmett-page ad Michael Turer visited GKN operatios i the UK, Germay ad Idia durig 2010. Performace evaluatio recogisig the beefits that a exteral evaluatio could brig, the Board appoited a third party to evaluate the performace of the Board ad its Committees towards the ed of 2010. The exteral facilitator has o other coectio with the Compay. The evaluatio process ivolved expasive face to face iterviews with each Director to gather feedback o the followig areas believed to be critical to iformig ad assistig the Board s effectiveess: strategy ad process; Board compositio ad balace; successio plaig; moitorig fiacial ad o-fiacial performace; deep dive topics; risk ad risk maagemet systems; overall Board workig (meetigs ad ageda, papers ad executive reportig); key themes for discussio focus i 2011; Board developmet; ad Board Committee feedback. GKN plc aual report ad accouts 2010

44 / CorporaTe GoVerNaNCe CoNTINUeD The exteral facilitator also observed a Board meetig to view first had the way i which it fulfils its resposibilities. The results of the evaluatio exercise were preseted at a separate meetig of the Board i late Jauary 2011. The output remais uder cosideratio by the Board; ay agreed chages will be implemeted as soo as practicable. Board ad Committee terms of referece will also be reviewed i light of the chages adopted. The idividual performace of the Directors was also evaluated through oe-to-oe iterviews with the Chairma. To assist this process, a umber of assessmet areas were idetified i advace ad used as a framework for coductig the appraisal iterviews. Michael Turer, as Seior Idepedet Director, led the review by the o-executive Directors of the Chairma s performace, which took ito accout the views of the executive Directors. Similarly, the views of the other Directors were take ito accout by the Chairma i his review of the Chief executive s performace. No actios were cosidered ecessary as a result of these evaluatios ad the Chairma cofirms that each Director cotiues to make a valuable cotributio to the Board ad, where relevat, its Committees ad devotes sufficiet time to the role. Accoutability Fiacial ad busiess reportig Whe reportig exterally the Board aims to preset a balaced ad uderstadable assessmet of the Group s positio ad prospects. Such assessmet is provided i the busiess review sectios of this aual report. The resposibilities of the Directors i respect of the preparatio of the aual report are set out o page 62 ad the auditors report o page 63 icludes a statemet by pwc about their reportig resposibilities. as set out o page 31, the Directors are of the opiio that GKN s busiess is a goig cocer. Risk maagemet ad iteral cotrol The Board attaches cosiderable importace to, ad ackowledges its resposibility for, the Group s systems of iteral cotrol ad risk maagemet ad receives regular reports o such matters. The Board s policy is to have systems i place which optimise the Group s ability to maage risk i a effective ad appropriate maer. The Board has delegated to the executive Committee resposibility for idetifyig, evaluatig ad moitorig the risks facig the Group ad for decidig how these are to be maaged. I additio to formal reviews of risk maagemet by the executive Committee, members are expected to report to the Committee as ecessary the occurrece of ay material cotrol issues, serious accidets or evets that have had a major commercial impact, or ay sigificat ew risks which have bee idetified. Such matters are reported to the ext Board meetig ad/or audit Committee meetig as appropriate. as part of its remit, the Goverace ad risk Sub-Committee develops strategy for ad provides oversight ad directio o all matters relatig to risk maagemet. GKN s eterprise risk maagemet programme facilitates a commo, Group-wide approach to the assessmet of risks ad the way i which these are moitored, maaged ad cotrolled. risk profilig is udertake at plat, divisioal ad corporate levels usig a software tool which provides a cosistet set of risk defiitios ad a commo approach to probability ad impact. a broad spectrum of risks is cosidered, icludig those relatig to strategy, operatioal performace, fiacial (icludig credit risk, risk fiacig ad fraud), product egieerig ad techology, busiess reputatio, huma resources, health ad safety, ad the eviromet. Cosolidated risk maps are reviewed by divisioal maagemet, the executive Committee, the audit Committee ad the Board. a summary of those risks which could have a material impact o the Group is give o pages 32 ad 33. The Group also has i place systems ad procedures for exercisig cotrol ad maagig risk i respect of fiacial reportig ad the preparatio of cosolidated accouts. These iclude: the formulatio ad deploymet of Group accoutig policies ad procedures, supported by regular bulletis from the cetral ad divisioal fiace teams o the applicatio of accoutig stadards; Group ad divisioal policies goverig the maiteace of accoutig records, trasactio reportig ad key fiacial cotrol procedures; a proprietary iteral cotrol moitorig system, GKN reportig ad Itegrity procedures (GrIp), to assess compliace with key fiacial cotrols o mothly, quarterly ad aual cycles; mothly operatioal review meetigs which iclude, as ecessary, reviews of iteral fiacial reportig issues ad fiacial cotrol moitorig; ad ogoig traiig ad developmet of fiacial reportig persoel. each year all Group busiesses are required formally to review their busiess risks ad to report o whether there has bee ay material breakdow i their iteral cotrols. This formal review is supplemeted by a iterim review coducted at the half year. Compaies also have to cofirm aually whether they have complied with statutory ad regulatory obligatios as well as with the policies which support the GKN Code. The Group s systems ad procedures are desiged to idetify, maage ad, where practicable, reduce ad mitigate the effects of the risk of failure to achieve busiess objectives. They are ot desiged to elimiate such risk, recogisig that ay system ca oly provide reasoable ad ot absolute assurace agaist material misstatemet or loss. The review process The audit Committee is resposible for reviewig the ogoig cotrol processes, ad the actios udertake by the Committee to discharge this resposibility are described i the audit Committee s report o pages 46 ad 47. The Board receives a aual report from the audit Committee cocerig the operatio of the systems of iteral cotrol ad risk maagemet. This report is cosidered by the Board i formig its ow view o the effectiveess of the systems. The Board has reviewed the effectiveess of the Group s systems of iteral cotrol ad risk maagemet durig the period covered by this aual report. It cofirms that the processes described above, which accord with the guidace o iteral cotrol appeded to the Code (the revised Turbull Guidace), have bee i place throughout that period ad up to the date of approval of the aual report. The Board also cofirms that o sigificat failigs or weakesses were idetified i relatio to the review.

/ 45 Relatios with shareholders The Board maitais a dialogue with shareholders directed towards esurig a mutual uderstadig of objectives. Major shareholders Commuicatio with major istitutioal shareholders is udertake as part of GKN s ivestor relatios programme, i which o-executive Directors are ecouraged to participate. The Chairma ad Seior Idepedet Director, with support from the Compay Secretary, meet with istitutioal shareholders ad ivestor represetatives to discuss matters relatig to goverace ad strategy. They are joied by the remueratio Committee Chairma where discussio icludes matters relatig to executive remueratio. ay issues raised are fed back to the Board by the Chairma. The Seior Idepedet Director is also available to discuss issues with shareholders where cocers caot be addressed through ormal chaels of commuicatio. The Chief executive, Fiace Director ad Head of Ivestor relatios meet regularly with major shareholders to discuss strategy, fiacial ad operatig performace. Feedback is sought by the Compay s brokers after meetigs ad presetatios to esure that the Group s strategy ad performace is beig commuicated effectively ad to develop further a uderstadig of shareholder views. This feedback is icluded i a twice-yearly report to the Board which also provides a update o ivestor relatios activity, highlights chages i holdigs of substatial shareholders ad reports o share price movemets. I additio, exteral brokers reports o GKN are circulated to all Directors. I late 2010 the Board commissioed a ivestor perceptio survey, the results of which were cosidered by the Board i Jauary 2011. Commuicatios with shareholders Writte resposes are give to letters or email received from shareholders ad all shareholders receive, or ca access electroically, copies of the aual ad half year reports. The ivestor relatios sectio of our website provides further detail about the Group, icludig share price iformatio, webcasts ad presetatios of aual ad half year results, other presetatios made to the ivestmet commuity, ad copies of fiacial reports. Aual Geeral Meetig Iformatio regardig the 2011 agm is give o page 59. Shareholders who atted the agm are ivited to ask questios durig the meetig ad to meet with Directors after the formal proceedigs have eded. Details of the level of proxy votes received are advised to shareholders at the meetig ad are published o our website. Compliace statemet This corporate goverace statemet, together with the audit Committee report o pages 46 ad 47 ad the remueratio report o pages 48 to 58, provide a descriptio of how the mai priciples of the 2008 Combied Code o Corporate Goverace (the Code) have bee applied withi GKN durig 2010. The Code is published by the Fiacial reportig Coucil ad is available o its website at www.frc.org.uk. Throughout the fiacial year eded 31 December 2010, GKN was i compliace with the relevat provisios set out i Sectio 1 of the Code with the exceptio of provisio a.3.2 which requires that at least half the Board, excludig the Chairma, should comprise idepedet oexecutive Directors. For the period from 6 May to 31 May 2010 ad sice 1 November 2010 the Board has comprised five executive Directors ad four o-executive Directors (excludig the Chairma). The importace of successio plaig is recogised by the Board as is the eed to appoit o-executive Directors with the ecessary skills ad experiece to complemet the existig Board compositio. Whilst the appoitmet of Shoaid Jemmett-page was cofirmed prior to 6 May 2010, her existig commitmets meat that it was ot possible for her to take up the role as o-executive Director with GKN util 1 Jue 2010. Helmut Mamsch decided to retire from the Board o 31 october 2010 for persoal reasos ad a recruitmet process to idetify a ew o-executive Director to replace him was started immediately. a aoucemet cofirmig the outcome of this process will be made i due course. The Board is cotet that the idepedet judgemet of the o-executive Directors has ot bee adversely impacted durig the periods of o-compliace. a revised Code (etitled the UK Corporate Goverace Code) was published by the Fiacial reportig Coucil i Jue 2010. Whilst this does ot apply to GKN util the 2011 fiacial year a umber of ew provisios have already bee addressed durig 2010. The Board will report o compliace agaist the revised Code i its aual report for the year edig 31 December 2011. This statemet complies with sub-sectios 2.1, 2.2(1), 2.3(1), 2.5, 2.7 ad 2.10 of rule 7 of the Disclosure rules ad Trasparecy rules of the Fiacial Services authority. The iformatio required to be disclosed by sub-sectio 2.6 of rule 7 is show o pages 59 to 61. GKN plc aual report ad accouts 2010

46 / audit CoMMITTee report Compositio The audit Committee comprises the followig idepedet oexecutive Directors: Name audit Committee positio Joh Sheldrick Chairma Shoaid Jemmett-page Member (from 1 Jue 2010) richard parry-joes Member Michael Turer Member Sir Christopher Meyer ad Sir peter Williams were members of the Committee util they retired from the Board o 6 May 2010. Helmut Mamsch was also a Committee member util his retiremet from the Board o 31 october 2010. The secretary to the Committee is Judith Felto, Compay Secretary. The Committee s members have, i the Board s view, recet ad relevat fiacial experiece as required by the UK Corporate Goverace Code. This was stregtheed durig the year with the appoitmet of Shoaid Jemmett-page who has held a umber of seior fiace roles i Uilever, is a former parter at KpMG ad is curretly Chief operatig officer at CDC Group plc. Joh Sheldrick, the Committee Chairma, was Group Fiace Director of Johso Matthey plc from 1995 util his retiremet i September 2009 ad has chaired GKN s audit Committee sice 2004. Role The primary role of the audit Committee, which reports its fidigs to the Board, is to esure the itegrity of the fiacial reportig ad audit processes ad the maiteace of soud iteral cotrol ad risk maagemet systems. The Committee is resposible for moitorig ad reviewig: the itegrity of the Group s fiacial statemets ad the sigificat reportig judgemets cotaied i them; the appropriateess of the Group s relatioship with the exteral auditors, icludig auditor idepedece, fees ad provisio of o-audit services; the effectiveess of the exteral audit process, makig recommedatios to the Board o the appoitmet of the exteral auditors; the activities ad effectiveess of the iteral audit fuctio (Corporate audit); the effectiveess of the Group s iteral cotrol ad risk maagemet systems; ad the Group s policies ad practices cocerig busiess coduct ad ethics, icludig whistleblowig. Writte terms of referece that outlie the Committee s authority ad resposibility are available o our website at www.gk.com. I the performace of its duties, the Committee has idepedet access to the services of Corporate audit ad to the exteral auditors, ad may obtai outside professioal advice as ecessary. Durig 2010 o member of the Committee, or the Committee collectively, sought such outside professioal advice beyod that which was provided directly to the Committee by the exteral auditors. Both the Head of Corporate audit ad the exteral auditors have direct access to the Chairma of the Committee outside formal Committee meetigs. Activities The Committee met o four occasios i 2010 timed to coicide with the fiacial ad reportig cycles of the Compay. Members attedace at these meetigs is set out i the table o page 42. The Group Chairma, Chief executive, Fiace Director, Head of Corporate audit, the egagemet parter of pricewaterhousecoopers LLp (pwc) ad other members of seior maagemet atteded meetigs by ivitatio. The Head of Corporate audit ad pwc had the opportuity to discuss matters with the Committee without ay executive maagemet beig preset at three meetigs. I additio, the members of the Committee met separately at the start of each meetig to discuss matters i the absece of ay persos attedig by ivitatio. Fiacial reportig Durig the year the audit Committee reviewed a wide rage of fiacial reportig ad related matters i respect of the Compay s half year ad aual results statemets ad its aual report prior to their cosideratio by the Board. I particular, the Committee reviewed the sigificat accoutig judgemets made i respect of restructurig ad impairmet charges, tax ad warraty provisioig, o-recurrig costs o aerospace cotracts, ad assumptios i respect of postemploymet obligatios. Key poits of disclosure ad presetatio to esure the adequacy, clarity ad completeess of the fiacial statemets were also cosidered, icludig the accoutig treatmet i respect of the asset-backed cash paymet arragemet implemeted durig the year for the UK pesio scheme. reports highlightig key accoutig matters ad sigificat judgemets were also received from pwc i respect of each set of fiacial statemets; these were discussed i Committee with the auditors. aalysis to support the goig cocer judgemet give o page 31 was also reviewed. Followig cosideratio of the matters preseted to it ad discussio with both maagemet ad pwc, the Committee was satisfied that the sigificat judgemets made were justified ad that the fiacial reportig disclosures were appropriate ad meaigful. Exteral auditors Idepedece The audit Committee is resposible for the developmet, implemetatio ad moitorig of the Compay s policies o exteral audit. The policies, desiged to maitai the objectivity ad idepedece of the exteral auditors, regulate the appoitmet of former employees of the exteral audit firm to positios i the Group ad set out the approach to be take whe usig the exteral auditors for o-audit work. ay amedmets required to the latter policy as a result of the recet cosultatio by the auditig practices Board o the provisio of o-audit services by auditors will be cosidered by the Committee i 2011. as a geeral priciple the exteral auditors are excluded from cosultacy work ad caot be egaged by GKN for other o-audit work uless there are compellig reasos to do so. ay proposal to use the exteral auditors for o-audit work must be submitted to the Fiace Director, via the Group Fiacial Cotroller, for approval prior to appoitmet. The Fiace Director, who is permitted to delegate approval to the Group Fiacial Cotroller for amouts below 20,000, will, depedig o the ature of the service, seek the prior authorisatio of the Chairma of the audit Committee. The o-audit fees icurred durig 2010 are set out i ote 4(a) to the fiacial statemets. These iclude half year review work, tax compliace ad advice (whereby pwc ca draw upo sigificat historic kowledge gaied through the audit process), techical accoutig advice ad other verificatio procedures; all such activities remai withi the policy approved by the audit Committee.

/ 47 The Committee receives aual cofirmatio from pwc as to their idepedece ad objectivity withi the cotext of applicable regulatory requiremets ad professioal stadards, as well as maagemet cofirmatio of compliace with the Group s policies o the employmet of former employees of the exteral auditors ad the use of the exteral auditors for o-audit work. The objectivity ad idepedece of pwc is also cosidered as part of Corporate audit s aual review of the effectiveess of both the exteral auditors ad the audit process. Effectiveess ad reappoitmet The Committee has udertake its aual review of the qualificatio, expertise, resources ad idepedece of the exteral auditors ad the effectiveess of the exteral audit process by: reviewig ad approvig pwc s plas for the audit of the Group s 2010 fiacial statemets, the terms of egagemet for the audit ad the proposed audit fee; cosiderig the views of Directors, seior maagemet ad the pwc egagemet parter o pwc s idepedece, objectivity, itegrity, audit strategy ad its relatioship with the Group, obtaied by way of iterview by Corporate audit; ad takig ito accout iformatio provided by pwc o their idepedece ad quality cotrol procedures. I makig its recommedatio to the Board that pwc be reappoited for a further year, the Committee took ito accout their teure as auditors ad cosidered whether there should be a full teder process. a review of the exteral auditor appoitmet is curretly uderway to esure that the objectivity ad idepedece of the relatioship remais appropriate. There are o cotractual obligatios restrictig the Committee s choice of exteral auditors. Details of the fees paid to pwc i 2010 ca be foud i ote 4(a) to the fiacial statemets. Iteral cotrol I 2010 the Committee reviewed the results of the audits udertake by Corporate audit ad cosidered the adequacy of maagemet s respose to the matters raised, icludig the implemetatio of ay recommedatios made. It also approved proposals to amed the existig audit ratig ad reportig system to ecourage further improvemet i the cotrol eviromet. The Committee cosidered ad approved the 2011 Corporate audit programme, icludig the proposed audit approach, coverage ad allocatio of resources. The effectiveess of Corporate audit was formally reviewed, takig ito accout the views of Directors ad seior maagemet o matters such as idepedece, proficiecy, resourcig, ad audit strategy, plaig ad methodology. The appoitmet of a ew Head of Corporate audit was also approved by the Committee followig the retiremet of the previous icumbet. The Committee reviewed regular reports o cotrol issues of Group level sigificace, icludig details of ay remedial actio beig take. These reports icluded updates o the status of the Group s proprietary iteral cotrol moitorig system (GKN reportig ad Itegrity procedures), ad activities to esure compliace with both the Seior accoutig officer provisios of the Fiace act 2009 ad XBrL reportig requiremets for UK tax returs, computatios ad accompayig accouts. It cosidered reports from Corporate audit ad pwc o the Group s systems of iteral cotrol ad reported to the Board o the results of its review. The iteral cotrol system is closely aliged to the Group s eterprise risk maagemet system desiged to assess, moitor, maage ad cotrol risk; the Committee received a demostratio of this system durig the year. The Committee also examied reports detailig the Group s actual or potetial material litigatio, moitored compliace with the Group s policy for the appoitmet of agets ad cosultats (which is available o our website), ad reviewed the Directors ad Compay Secretary s expeses. Further iformatio o the Group s systems of iteral cotrol ad risk maagemet is give o page 44. Whistleblowig To support the Group s employee Disclosure procedures policy (which is available o our website), GKN operates a Group-wide iteratioal whistleblowig hotlie. ru by a exteral ad idepedet third party, the hotlie facilitates arragemets whereby employees ca make (o a aoymous basis if preferred) cofidetial disclosures about suspected impropriety ad wrogdoig. ay matters so reported are ivestigated ad escalated to the audit Committee as appropriate. Statistics o the volume ad geeral ature of all disclosures made are reported to the Committee o a aual basis. Performace evaluatio Details of the Board ad Committee evaluatio process which commeced i 2010 ca be foud o pages 43 ad 44. o behalf of the Committee Joh Sheldrick Chairma of the audit Committee 28 February 2011 GKN plc aual report ad accouts 2010

48 / remuneration report I this sectio The Remueratio Committee page 49 Executive Directors page 49 Chairma ad o-executive Directors page 53 Shareholdig requiremet page 54 Historical TSR performace page 54 Directors remueratio 2010 page 55 The remueratio report for 2010 sets out the remueratio policy for Directors ad how it has bee applied, icludig disclosures o directors remueratio required by law. Durig the year, ad agaist the backdrop of recovery from severe recessioary coditios, the Committee cotiued to take a coservative approach to Directors remueratio, applyig the remueratio policy prudetly ad with a clear aligmet to the iterests of shareholders: Below iflatio average icreases to basic salaries were awarded i 2010 followig a year of o salary icrease i 2009. The maximum potetial paymets uder the short term variable remueratio scheme (STVrS) were restored, for 2011, to the prerecessioary level of 110%. a Deferred Bous pla was itroduced uder which ay bous payable above target performace uder the STVrS is deferred i shares for a period of two years. The shareholdig requiremet for Directors was ameded to take accout of the Deferred Bous pla. Both log term ad short term icetives cotiued to support the Group s strategic objectives with targets that were ot oly stretchig but also achievable without takig iappropriate busiess risks. I 2011, the Committee will review the policy ad structure of remueratio for executive Directors i order to esure its cotiued aligmet with the Group s strategy. The Committee will cosult with pricipal shareholders should ay material chages be proposed as a result of this review.

/ 49 The Remueratio Committee Compositio The Committee comprises the followig idepedet o-executive Directors: Name remueratio Committee positio richard parry-joes Chairma (from 6 May 2010) Shoaid Jemmett-page Member (from 1 Jue 2010) Joh Sheldrick Member Michael Turer Member Sir peter Williams chaired the Committee util he retired from the Board o 6 May 2010. Sir Christopher Meyer ad Helmut Mamsch were members of the Committee util they retired from the Board o 6 May 2010 ad 31 october 2010 respectively. The secretary to the Committee is Judith Felto, Compay Secretary. Role The pricipal role of the remueratio Committee is to determie ad make recommedatios to the Board o the Group s policy for the remueratio of the executive Directors of GKN plc. Withi the framework of the agreed policy, which is reviewed aually by the Committee ad the Board, the Committee has resposibility for: determiig the detailed terms of service of the executive Directors ad the Compay Secretary, icludig basic salary, icetives ad beefits, ad the terms upo which their service may be termiated; determiig the fees of the Chairma; ad recommedig to the Chief executive ad moitorig the level ad structure of remueratio of the most seior executives immediately below Board level. Writte terms of referece that outlie the Committee s authority ad resposibilities are available o our website at www.gk.com. Advice provided to the Committee The Committee appoited Hewitt New Bridge Street (HNBS) i 2006 as its idepedet cosultats to provide advice o executive Directors remueratio ad icetive arragemets for seior executives below Board level. HNBS provides iput to papers to be cosidered by the Committee ad represetatives atted Committee meetigs by ivitatio. HNBS also provides the total shareholder retur moitorig service i coectio with the Group s log term icetive arragemets, a role it has performed for the Group sice 2004. HNBS did ot provide ay other services direct to the Group durig the year. ao Hewitt (the paret compay of HNBS sice october 2010) provided advice to the Compay i relatio to a UK pesio de-riskig project i 2010 ad provides ogoig admiistratio services relatig to US employee healthcare beefits. The Committee receives iput from the Chief executive whe cosiderig the remueratio of other executive Directors ad of the Compay Secretary. Activities The Committee met o eight occasios i 2010; members attedace at meetigs is set out i the table o page 42. The key matters that were cosidered by the Committee durig the year were as follows: awards uder the Group s log term icetive arragemets for 2010 ad the outtur of awards made i 2007; paymets uder the short term variable remueratio scheme for 2009 ad proposals for 2010 awards; salary review proposals for executive Directors ad seior executives immediately below Board level; a review of Directors shareholdig requiremet guidelies; a review of exteral advisers ad remueratio Committee procedures; exteral adviser s review of treds i remueratio practices, bechmarkig ad goverace; a review of the Directors remueratio ad severace policies together with a review of the remueratio policy i the cotext of risk; ad approval of the 2009 remueratio report. Executive Directors The Compay s remueratio strategy is closely aliged with its busiess strategy, summarised o page 8, ad is delivered through the policy set out below. I particular, log term icetives measure performace agaist growth i earigs ad total shareholder retur relative to compaies i the FTSe 350 Idex; the short term variable remueratio scheme supports the operatioal performace of the busiess by measurig agaist key busiess fudametals of profit, margi, operatig cash flow ad et debt, all of which uderpi the Group s strategic objectives; i settig performace targets uder both short ad log term icetives, the Committee esures that, whilst stretchig, the targets are both realistic ad achievable without takig iappropriate busiess risks; ad i determiig salary levels, the Committee esures that there is a strog lik betwee pay ad performace. Remueratio policy GKN s remueratio policy for executive Directors is desiged to attract, retai ad motivate executives of the high calibre required to esure that the Group is maaged successfully to the beefit of shareholders. To achieve this, a competitive package of icetives ad rewards liked to performace is provided. I settig remueratio levels, the Committee takes ito cosideratio the remueratio practices foud i other multiatioal compaies based i the UK ad also esures that the remueratio arragemets for executive Directors are compatible with those for executives throughout the Group. It also cosiders the most recet pay awards i the Group geerally whe reviewig the basic salaries of the executive Directors. o the basis of the expected value of log term icetives ad achievemet of o target performace for the purposes of the short term variable remueratio scheme, the total aual remueratio (excludig pesio beefits) of each executive Director uder the Group s remueratio policy is weighted betwee performace-related ad o performace-related elemets, valued as at the time of award of log term icetives, at aroud 55% ad 45% respectively. The Committee believes that these proportios represet a appropriate balace betwee certaity of icome ad icetive-based remueratio liked to the achievemet of GKN s operatioal ad strategic objectives. GKN plc aual report ad accouts 2010

50 / remuneration report CoNTINUeD Summary of key elemets of executive Directors remueratio elemet of remueratio purpose policy Basis of delivery Basic salary Help recruit ad retai. To maitai salaries at reviewed aually by the Committee with recogise skills, experiece aroud media level of ay icrease usually effective from 1 July. I ad resposibility. the relevat employmet its review, the Committee cosiders exteral reward idividual markets. bechmark data ad takes ito accout performace. idividual performace, Group profitability, prevailig market coditios ad recet pay awards i the Group geerally. performace of Directors is reviewed to esure that paymet of salaries i accordace with the stated policy is etirely justified. Salary is supplemeted with ormal beefits available to seior maagers icludig car allowace ad healthcare arragemets. Short term variable remueratio Drive ad reward the aual awards based o Structure of pla is reviewed aually. achievemet of short term a oe year measuremet Stretchig fiacial targets are set each year fiacial targets relevat to period. reflectig busiess priorities which uderpi GKN s log term strategic Targets, whilst stretchig, Group strategy ad alig with fiacial key objectives. do ot ecourage performace idicators. Deferred proportio of award, iappropriate busiess Maximum paymet opportuity is 110% of delivered i shares, provides risks to be take. basic salary. a retetio elemet. percetage of paymet paymets are determied by the Committee deferred ad awarded after year ed, based o performace i shares. agaist targets. amout awarded above 65% (2010: 60%) of basic salary is paid i deferred shares to be held for two years. Loger term icetives Drive ad reward the aual awards over a Structure of plas is cosidered aually as achievemet of loger term three year measuremet part of the award process. objectives aliged closely period which deliver Curret plas target eps growth ad relative to shareholders iterests. shares o vestig. TSr performace. retai key executives over Targets, whilst stretchig, remueratio Committee must also be a three year measuremet do ot ecourage satisfied that the uderlyig fiacial period. iappropriate busiess performace of the Group justifies the risks to be take. vestig of shares. Combied maximum potetial aual award uder plas is 250% of basic salary. a persoal shareholdig requiremet must be satisfied before shares ca vest (see page 54). retiremet beefits Help recruit ad retai. To provide market Beefits are provided by meas of a esure adequate icome competitive arragemets. allowace which ca be delivered i cash i retiremet. or as paymet to a defied cotributio retiremet pla. I circumstaces where there are historical cotractual commitmets, beefits i part are provided through membership of the GKN Group pesio Scheme.

/ 51 Basic salary Idividual salaries of executive Directors are reviewed aually by the Committee, takig ito accout idividual performace, Group profitability, prevailig market coditios, recet pay awards i the Group geerally ad exteral bechmark data o remueratio. Followig the latest review, effective 1 July 2010, the basic aual salaries payable i respect of executive Directors as at 31 December 2010 were: Salary Icrease Director % Sir Kevi Smith 747,579 0.0% Marcus Bryso 420,000 (a) 6.1% adrew reyolds Smith 420,000 5.0% William Seeger 410,000 2.5% Nigel Stei 500,000 2.6% (a) I additio, a subsistece allowace of 21,000 per aum to which Marcus Bryso was etitled followig the relocatio of GKN s operatioal headquarters was cosolidated ito his basic salary with effect from 1 July 2010 ad is reflected i the aual salary show above. Sir Kevi Smith s basic salary has remaied uchaged sice 2007; he chose ot to take a icrease i either 2008 or 2010 ad o icreases were awarded to Directors i 2009. The salary icreases for William Seeger ad Nigel Stei were i lie with the 2010 global budget set for the geeral maagemet populatio of aroud 2.5%. The salary icreases for Marcus Bryso ad adrew reyolds Smith reflected the icreased cotributio made to Group performace by each Director s portfolio. The weighted average icrease i executive Directors salaries i 2010 was 2.75%. The average basic salary of those ie executives i the most seior executive grade below Board level whose remueratio is moitored by the remueratio Committee was 262,590 as at 31 December 2010 (all o-sterlig amouts have bee traslated ito sterlig at the year ed exchage rate for this purpose). Beefits i kid Beefits i kid comprise pricipally car ad healthcare beefits. The level of beefits provided to executive Directors ad other seior maagemet is cosistet with that provided by other major compaies. These beefits do ot form part of pesioable earigs. Details of the beefits i kid provided to executive Directors i 2010 are set out i the first table o page 55. Due to the complicated iteractio betwee the UK ad the US tax regimes, tax ad social security equalisatio is applied to William Seeger s remueratio. additioal taxes which arise i excess of the mothly cotributio deducted from Mr Seeger s salary are settled by the Compay i order to esure that he is ot disadvataged by his global tax positio. Performace-related short term variable remueratio scheme (STVRS) For the 2010 fiacial year, stretchig targets related to a combiatio of Group ad, where appropriate, idividual portfolio profit, margi ad cash flow performace ad Group et debt were applied. achievemet of o target performace would result i paymets of approximately 60% of a executive Director s salary ad paymets were capped at 100% of salary. Details of the targets applied ad paymets made i respect of the 2010 STVrS are set out i the secod table o page 55. The maximum paymet opportuity for 2011 has bee icreased to 110% of salary, represetig a retur to pre-recessioary levels. STVrS paymets made i respect of above target performace to executive Directors ad some 80 seior executives below Board level are compulsorily deferred ad ivested i GKN shares uder the Group s Deferred Bous pla. Shares will ormally be released after a two year deferral period durig which time ay divideds eared are accrued ad a equivalet cash amout paid o release of the shares. Details of the amouts ivested i respect of the STVrS paymets for the 2010 fiacial year are set out i footote (a) to the first table o page 55. The remueratio Committee has discretio to alter targets to reflect chaged circumstaces such as material chages i accoutig stadards or chages i the structure of the Group. paymets to Directors are based upo a percetage of basic salary received durig the year ad do ot form part of pesioable earigs. Log term icetive arragemets These curretly comprise the GKN Log Term Icetive pla which targets earigs per Share (eps) growth ad the GKN executive Share optio Scheme which is based o Total Shareholder retur (TSr). The Committee believes that these arragemets, aliged to the Group s growth strategy ad reflectig performace relative to the exteral market, provide a meaigful icetive package for the motivatio ad retetio of executive Directors which is liked directly to shareholders iterests. The combied maximum potetial aual award uder the GKN Log Term Icetive pla ad the GKN executive Share optio Scheme is 250% of basic salary. Uder both plas the umber of shares that vest will deped o the Group s performace agaist the relevat targets durig the three years commecig o 1 Jauary i the year of award ad o satisfactio of a persoal shareholdig requiremet (see page 54). I additio, before ay shares become eligible for release or exercise the remueratio Committee must be satisfied that this is justified by the uderlyig fiacial performace of the Group over the measuremet period. There is o provisio for the retestig of awards. The maximum umber of shares that could vest upo satisfactio of the relevat performace coditio i respect of each executive Director is set out i the tables o pages 56 ad 57. Neither the GKN Log Term Icetive pla or the GKN executive Share optio Scheme cotais provisios for the automatic release of uvested awards o a chage of cotrol of GKN plc. GKN Log Term Icetive Pla (LTIP) each executive Director may be awarded aually a right to receive GKN shares up to a maximum value of 150% of basic salary. The remueratio Committee decides the level of award i each year. The value of shares for this purpose is calculated by referece to the average of the daily closig prices of a GKN share durig the precedig year. Vestig levels uder the rules of the LTIp are as follows: Compoud aual EPS (a) growth Vestig level 12% or more 100% 6% 30% less tha 6% 0 Betwee 6% ad 12% Straight lie basis (a) Normalised for tax, ad excludig exceptioal items, other et fiacig charges ad volatile IFrS charges or credits (see ote 10 to the fiacial statemets). Followig vestig, awards are ot released to the Director for at least oe further year other tha i the specific circumstaces set out i the rules of the LTIp. Divideds are treated as havig accrued from the begiig of the third year of the measuremet period o ay shares that vest ad the equivalet cash amout paid to the Director o release of such shares. GKN plc aual report ad accouts 2010

52 / remuneration report CoNTINUeD 2009 awards: performace targets were set by the remueratio Committee to take accout of the impact of the severe recessioary coditios o the Group s earigs; these performace targets were aliged to the strategic pla at the time of award ad aimed to icetivise earigs recovery followig the recessio ad, i the Committee s view, were o less challegig tha those that would ormally have applied; i settig the performace targets the Committee took accout of market expectatios of the Group s earigs performace ad performace i 2009 to date of grat; eps of 12.4p i 2011 is required for miimum vestig (30%) ad 15.5p for maximum vestig (100%). 2010 awards: performace targets were set by the remueratio Committee to take accout of uusually low base 2009 earigs due to recessioary coditios; these performace targets were aliged to the strategic pla at the time of award ad market expectatios of GKN s performace; eps of 15.3p i 2012 is required for miimum vestig (30%) ad 18.0p for maximum vestig (100%). 2011 awards: performace targets to be applied will be i accordace with the table o page 51. The table below sets out, i respect of each LTIp award made withi the last five years, the percetage which has vested ad the percetage of each outstadig award that would have vested had the measuremet period eded o 31 December 2010: LTIP Percetage vested o maturity or idicative vestig percetage based o performace as at Year of award Performace coditio 31 December 2010 2006 TSr 0% (eded o 31 December 2008) 2007 TSr 0% (eded o 31 December 2009) 2008 No award made N/a 2009 eps 100% (performace after 24 moths) 2010 eps 100% (performace after 12 moths) GKN Executive Share Optio Scheme (ESOS) each executive Director may be awarded aually a optio to acquire a umber of GKN shares. The remueratio Committee decides the level of awards i each year. aual award levels are ot specifically capped uder the esos, but whe combied with awards uder the LTIp (which are capped at 150% of basic salary) they caot exceed 250% of basic salary. optios grated uder the esos are ormally exercisable betwee the third ad teth aiversary of the date of grat. The exercise price is fixed at the market price of a GKN share at the time of grat. performace is measured by comparig the TSr from GKN shares with the TSr from shares of compaies i a comparator group comprisig the costituets of the FTSe 350 Idex at the start of a three year measuremet period commecig o 1 Jauary i the year of award. The remueratio Committee believes the FTSe 350 Idex to be appropriate as it is a broadly based idex which cotais more maufacturig ad egieerig compaies tha the FTSe 100 Idex. Vestig levels uder the rules of the esos are as follows: TSR rakig i comparator group Vestig level Upper quartile 100% Media level 35% (a) Below media level 0 Betwee media ad upper quartile Straight lie basis (a) reduced from 50% i 2008. The TSr data ad rakig iformatio is obtaied from HNBS to esure that the comparative performace is idepedetly verified. The table below sets out, i respect of each esos award made withi the last five years, the percetage which has vested ad the percetage of each outstadig award that would have vested had the measuremet period eded o 31 December 2010: ESOS Percetage vested o maturity or idicative vestig percetage based o performace as at Year of award Performace coditio 31 December 2010 2006 TSr 0% (eded o 31 December 2008) 2007 TSr 0% (eded o 31 December 2009) 2008 No award made N/a 2009 TSr 100% (performace after 24 moths) 2010 TSr 100% (performace after 12 moths) Retiremet beefits retiremet beefits take the form of a supplemetary allowace, expressed as a percetage of basic salary, which may be delivered by meas of either a cash paymet or as a paymet to a defied cotributio retiremet pla. I certai cases, based o historical cotractual commitmets, retiremet beefits i part are delivered by membership of the executive sectio of the GKN Group pesio Scheme, which is a defied beefit scheme. The retiremet provisios are made i order to assist each Director towards securig overall retiremet beefits comparable i value with those available uder the pesio scheme had it ot bee for the operatio of the earigs cap itroduced by the Fiace act 1989 (some members have specific idividual earigs caps). Details of the supplemetary allowaces paid to executive Directors i the year are set out i footote (b) to the first table o page 55. GKN s defied beefit pesio scheme provides executive Directors with a pesio of up to two-thirds of basic aual salary (up to their earigs cap), from 1 September 2007 calculated o a career average basis, o retiremet at age 60 after 20 or more years service ad proportioately less for shorter service or for retiremet before pesio age. a employee cotributio of 7.9% of salary (8.6% from 1 Jauary 2011) up to their earigs cap is required uder the scheme. Details of defied beefit provisios for executive Directors are set out i the first table o page 58. Followig chages i the taxatio of pesios itroduced by the UK Govermet from april 2006, for those Directors previously affected by the limit o aual pesioable earigs, a otioal limit has bee maitaied beyod april 2006 so that, overall, the existig pesio ad salary supplemet arragemets are broadly uchaged (for some members a specific idividual earigs cap has bee itroduced). No compesatio is offered for ay additioal tax suffered by the idividual i the evet that the value of their pesio exceeds the Lifetime allowace.

/ 53 executive Directors with o-uk service agreemets typically receive retiremet beefits cosistet with local practice. I particular, i accordace with stadard practice i the US, GKN makes a total aual cotributio equivalet to 11% of William Seeger s basic salary ad ay STVrS paymet made i the relevat year to his qualified ad o-qualified defied cotributio pesio arragemet. The amout cotributed by GKN is deducted from the supplemetary allowace that would otherwise have bee payable to him (a maximum of 40% of salary). Service agreemets The Board s curret policy is that, uless local employmet practice requires otherwise, the otice period i executive Directors service agreemets is oe year. With the exceptio of William Seeger, the executive Directors service agreemets have o fixed term. William Seeger has a US service agreemet, also termiable o oe year s otice, which termiates, i ay evet, o 31 December 2016 (uless exteded by prior agreemet with Mr Seeger). There is o cotractual provisio for predetermied compesatio payable upo early termiatio of a executive Director s service agreemet, other tha i the evet of early termiatio followig a chage of cotrol of GKN plc. I the evet of such a early termiatio (other tha o a chage of cotrol) the remueratio Committee would apply the priciples of the severace policy adopted by the Board. Uder this policy, which may be varied i idividual cases, a immediate lump sum severace paymet will be made to the Director equivalet to oe year s basic salary plus oe year s pesio cotributios. Cosideratio would be give to the iclusio i the severace paymet of additioal elemets relatig to short term variable remueratio ad major beefits i kid. However, such additioal elemets will ot ormally be icluded where the severace is as a result of uderperformace. Cosideratio would also be give to makig the severace paymet i 12 equal istalmets which will oly be paid to the extet that the Director has ot bee able to mitigate his loss by the date of the relevat paymet. I the evet of the service agreemet comig to a ed by mutual coset, the remueratio Committee will approve such termiatio arragemets as are appropriate i the particular circumstaces. If, i breach of its terms, termiatio of a Director s service agreemet occurs o less tha due otice withi 12 moths followig a chage i cotrol of GKN plc, a predetermied amout is payable to the Director equivalet to oe year s basic salary, pesio cotributios, beefits i kid ad loss of etitlemets uder performace-related short term remueratio arragemets. No right to such a paymet arises simply by virtue of a chage i cotrol. a ehacemet to the pesio rights of a executive Director upo early retiremet will oly be cosidered i exceptioal cases ad a full costig would be provided to the remueratio Committee at the time of its deliberatios. I ay evet, such ehacemet would ot be cosidered uless objectives set for the Director had bee met or it was otherwise merited i the opiio of the remueratio Committee. It is also the Board s policy that, at the time of cosideratio of a proposed appoitmet of a executive Director, the remueratio Committee will take ito accout the likely cost of severace i determiig the appropriateess of the proposed terms of appoitmet. I accordace with the relevat provisios of the Compaies act 2006, o paymet will be made to a Director for loss of office or employmet with the Compay i excess of the Director s cotractual obligatios without the prior approval of shareholders i geeral meetig. Exteral appoitmets The Board recogises the beefit which GKN ca obtai if executive Directors of GKN serve as o-executive directors of other compaies. Subject to review i each case, the Board s geeral policy is that each executive Director may accept oe o-executive directorship with aother compay (but ot the chairmaship of a FTSe 100 compay) from which the Director may retai the fees. Nigel Stei is a o-executive director of Wolseley plc. He retais the fee payable i respect of this appoitmet (curretly 61,800 per aum). Chairma ad o-executive Directors Remueratio policy The remueratio policy for the Chairma ad the other o-executive Directors is for recompese by way of fees i lie with those paid by other UK listed compaies of comparable size. Such fees may iclude additioal paymets to the Seior Idepedet Director ad i respect of the chairmaship of Board Committees to reflect the sigificat extra resposibilities attached to these positios. The fees of the o-executive Directors (other tha the Chairma), together with ay additioal fees payable to the Seior Idepedet Director ad the Chairme of Board Committees, are determied by the Board upo the recommedatio of the Chairma ad Chief executive ad are set at a level that the Board believes will attract idividuals with the ecessary experiece ad ability to make a substatial cotributio to the Group s affairs. The fees received by the Chairma are determied by the remueratio Committee. No Director participates i deliberatios cocerig his ow fee. Curret aual fee levels, which remai uchaged sice 2008, are as follows: Base fee 000 Chairma 300 No-executive Directors 50 Additioal fees 000 Seior Idepedet Director 5 audit Committee Chairma 11 remueratio Committee Chairma 10 Neither the Chairma or the other o-executive Directors participate i the Group s short term variable remueratio or log term icetive arragemets or i its pesio scheme, or do they receive beefits i kid. Terms of appoitmet The terms of service of the Chairma ad other o-executive Directors are cotaied i letters of appoitmet. roy Brow became Chairma i May 2004 for a iitial period of three years, this term beig subsequetly exteded to 2010, termiable at ay time upo 12 moths otice by either party. I 2009, by resolutio of the Board, his term was further exteded util the date of the Compay s agm i 2012. The curret policy for other o-executive Directors is to serve o the Board for ie years with iterim reewals after three ad six years, subject to mutual agreemet ad aual performace reviews. appoitmets may be termiated upo 3 moths otice by either party ad there are o provisios for compesatio i the evet of termiatio. roy Brow s letter of appoitmet provides for the paymet of fees up to the date of the 2012 agm i the evet that his service is termiated by the Compay other tha i accordace with his letter of appoitmet. GKN plc aual report ad accouts 2010

54 / remuneration report CoNTINUeD Shareholdig requiremet I order to reiforce the aligmet of their iterests with those of shareholders geerally, all Directors are subject to a shareholdig requiremet. Details of Directors shareholdigs are give i the secod table o page 58. Executive Directors Uder a policy adopted by the remueratio Committee, executive Directors are required to establish ad maitai a ivestmet i GKN shares equivalet to at least 100% of their basic salary. The receipt of ay shares by a Director from a award made uder the LTIp ad esos is coditioal upo the shareholdig requiremet beig met o the third aiversary of the grat of the award. For these purposes ay vested but uexercised rights uder the LTIp will be couted as shares. Util the required shareholdig level is reached, a executive Director must: use 30% of that amout of the gross (i.e. before tax) paymet uder the STVrS which exceeds 50% of the Director s gross basic salary at that time to buy GKN shares (shares deferred uder the Deferred Bous pla (DBp) are couted towards this requiremet); ad retai such umber of shares received uder the LTIp ad esos as represets at least 30% of the gross gai which the Director would have realised o the exercise of such a award had the shares bee sold o the day of exercise. No-executive Directors It is the Board s policy that o-executive Directors will ormally be expected to acquire a holdig of GKN shares of a value equivalet to 30% of oe year s basic fee withi three years of appoitmet. Satisfactio of share-based icetive arragemets Share-based icetive awards are satisfied by the issue of ew shares, the trasfer of shares held i treasury or by shares purchased i the market. I accordace with the recommedatios of the associatio of British Isurers, the umber of ew shares that may be issued to satisfy awards grated uder the LTIp ad esos ad ay other employee share scheme is restricted to 10% of the issued ordiary share capital of the Compay over ay 10 year period. Further, the umber of ew shares that may be issued to satisfy awards grated uder the LTIp ad esos ad ay other executive scheme is restricted to 5% of the issued ordiary share capital of the Compay over ay 10 year period. at 31 December 2010, the Compay had used 1.4% of the share capital available uder the 5% i te years limit ad 1.9% of the share capital available uder the 10% i te years limit. The DBp will operate usig market-purchased shares to be held i a employee Beefit Trust. Historical TSR performace TOTAL SHAREHOLDER RETuRN % 2007-2009 2006-2008 2005-2007 2004-2006 2003-2005 -60-40 -20 0 20 40 60 80 100 (%) GKN TSR LTIP Comparator Group Media TSR ESOS Comparator Group Media TSR Historic LTIp awards used differet comparator groups ad for both the LTIp ad esos the TSr calculatio methodology required is differet from that required by Schedule 8 to the Large ad Medium-sized Compaies ad Groups (accouts ad reports) regulatios 2008 (the regulatios). The chart above illustrates GKN s TSr compared to the media TSr of the relevat comparator group uder the LTIp ad esos i respect of the five most recetly completed measuremet periods (o measuremet period eded i December 2010 as o log term icetive awards were made i 2008). For the measuremet period uder the LTIp that eded o 31 December 2005 the comparator group was based o the FTSe 100 Idex less the telecommuicatios, media, techology ad fiacial services sectors ad comprised 64 compaies (icludig GKN). For the measuremet periods that eded o 31 December 2006, 2007, 2008 ad 2009, they comprised tailored peer groups of approximately 40 iteratioal automotive ad aerospace compaies (icludig GKN). The esos comparator groups comprised the FTSe 350 Idex costituet compaies o 1 Jauary i the first year of the relevat measuremet period. TOTAL SHAREHOLDER RETuRN STERLING Value ( ) 140 120 100 80 60 40 20 0 2005 2006 2007 2008 2009 2010 GKN TSR FTSE 350 Idex TSR Source: Hewitt New Bridge Street The chart above is prepared i accordace with the regulatios. It shows the Compay s TSr ad that of the FTSe 350 Idex, based o a iitial ivestmet of 100, over the five-year period to the ed of 2010. The FTSe 350 Idex was chose for this chart as it is a broadly based idex which cotais more maufacturig ad egieerig compaies tha the FTSe 100 Idex.

/ 55 Directors remueratio 2010 With the exceptio of the dates show i the first table below ad i the first two tables o page 56 ad the sectio headed Share iterests o page 58, the iformatio set out o pages 55 to 58 represets the auditable disclosures required by Schedule 8 to the Large ad Medium-sized Compaies ad Groups (accouts ad reports) regulatios 2008 which have bee audited by the Compay s auditors, pricewaterhousecoopers LLp. The remueratio of the executive Directors who served durig the year, excludig retiremet beefits/allowaces ad log term icetives, was as follows: performacerelated Date of service Basic salary (STVrS cash) Car allowace other beefits Total 2010 Total 2009 executive Director agreemet 000 000 000 000 000 000 Sir Kevi Smith 24.01.03 748 426 (a) 14 6 1,194 (b) 968 (d) Marcus Bryso 01.10.07 376 227 (a) 15 16 (c) 634 (b) 669 adrew reyolds Smith 14.11.07 400 234 (a) 12 5 651 (b) 516 (d) William Seeger (e) 11.02.08 405 231 (a) 12 15 663 (b) 593 Nigel Stei 22.08.01 484 281 (a) 12 4 781 (b) 624 (d) 2,413 1,399 65 46 3,923 (b) 3,370 (a) of the 2010 STVrS paymets agreed by the remueratio Committee i respect of the executive Directors, 57% is paid i cash ad icluded i the table above. 2010 STVrS paymets which will be deferred ito shares uder the DBp are as follows: Sir Kevi Smith 285,426; Marcus Bryso 115,593; adrew reyolds Smith 164,000; William Seeger 154,629; Nigel Stei 187,625. No amouts were deferred i 2009. (b) The total remueratio show above excludes the followig supplemetary allowaces delivered to executive Directors by meas of either a cash paymet or as a paymet to a defied cotributio retiremet pla to assist them towards securig retiremet beefits: Sir Kevi Smith 299,031 (2009: 299,031); Marcus Bryso 50,460 (2009: 44,160); adrew reyolds Smith 115,760 (2009: 112,960); William Seeger 100,260 (2009: 107,225); Nigel Stei 149,260 (2009: 147,960). The actual pesio cost for William Seeger was 162,000 (2009: 160,000); this icludes GKN s cotributio to Mr Seeger s US qualified ad o-qualified defied cotributio pesio arragemet (equivalet to 11% of Mr Seeger s gross earigs). (c) a total of 10,557 of this amout relates to a subsistece allowace to which Mr Bryso was etitled followig the relocatio of GKN s operatioal headquarters ad which was cosolidated ito his basic salary with effect from 1 July 2010. The paymet was subject to ormal tax ad atioal isurace deductios. (d) Due to prevailig coditios i the Group s markets ad their impact o Group profitability, Sir Kevi Smith ad Nigel Stei waived 20% of their basic salary etitlemet ad adrew reyolds Smith waived 15% of his basic salary etitlemet for the period 1 Jauary 2009 to 31 august 2009. (e) Uder the terms of his service agreemet, Mr Seeger s emolumets are paid semi-mothly i US$, coverted at the exchage rate published i the UK Fiacial Times o the first busiess day of the relevat moth. Mr Seeger is a US Natioal who relocated to the UK i 2008 i the role of Fiace Director. Mr Seeger had full US Federal ad State hypothetical tax withholdig through the US payroll i 2010. as a result of the complicated iteractio of the UK ad US tax regimes, a additioal paymet of 387,996 was made by GKN to the UK ad US tax authorities o his behalf i order to avoid a period of double taxatio. all subsequet tax refuds resultig from the tax paid by GKN will be refuded to the Compay i due course. The best estimate of the amout which is ot expected to be refuded based o iformatio available to date is 166,684 (2009: 60,858); these amouts are ot icluded i the total remueratio show above. The 2010 performace-related paymets made uder the STVrS were triggered by the achievemet of a umber of Group ad, where appropriate, idividual portfolio targets relatig to profit, margi ad cash flow performace ad Group et debt. The maximum amout that a idividual could receive ad the actual total paymets to executive Directors uder the 2010 STVrS were as follows: elemet Target % Maximum % actual % profit 25 50 41.6 to 50.0 Margi 20 30 24.5 to 27.0 Cash flow 10 10 10.0 Group et debt 5 10 10.0 60 100 86.1 to 97.0 GKN plc aual report ad accouts 2010

56 / remuneration report CoNTINUeD The remueratio of the o-executive Directors who served durig the year was as follows: Date of curret letter expiry of 2010 2009 No-executive Director of appoitmet curret term (a) 000 000 roy Brow 28.04.09 2012 agm 300 280 (b) Shoaid Jemmett-page (c) 28.04.10 31.05.13 29 richard parry-joes 03.02.11 28.02.14 57 50 Joh Sheldrick 05.01.11 19.12.13 61 61 Michael Turer 31.07.09 01.09.12 53 17 Date of leavig expiry of 2010 2009 Former o-executive Directors the Board curret term 000 000 Helmut Mamsch 31.10.10 N/a 42 50 Sir Christopher Meyer 06.05.10 N/a 17 50 Sir peter Williams 06.05.10 N/a 23 65 (a) 582 573 I accordace with the Compay s articles of associatio, Directors are subject to re-electio at the agm followig their appoitmet ad subsequetly at itervals of o more tha three years. I accordace with provisios of the UK Corporate Goverace Code published i Jue 2010, all Directors will offer themselves for aual re-electio from the 2011 agm. (b) I light of prevailig coditios i the Group s markets ad their impact o Group profitability, roy Brow waived 10% of his fee from 1 Jauary 2009 to 31 august 2009. (c) appoited 1 Jue 2010. Directors aggregate emolumets for 2010 amouted to 6.4 millio (2009: 4.7 millio). LTIP awards over GKN shares uder the LTIp held by the executive Directors who served durig the year, together with ay movemets i those awards i the year, are show below: (a) (b) awards held awards made awards lapsed Awards held Date of grat 1 Jauary 2010 durig year (a) durig year 31 December 2010 Sir Kevi Smith 02.04.07 346,398 346,398 12.08.09 400,000 400,000 11.08.10 678,383 678,383 746,398 678,383 346,398 1,078,383 Marcus Bryso 02.04.07 30,400 30,400 12.08.09 200,647 200,647 11.08.10 381,125 381,125 231,047 381,125 30,400 581,772 adrew reyolds Smith 02.04.07 37,794 37,794 12.08.09 214,024 214,024 11.08.10 381,125 381,125 251,818 381,125 37,794 595,149 William Seeger 12.08.09 214,024 214,024 11.08.10 372,050 372,050 214,024 372,050 586,074 Nigel Stei 02.04.07 206,447 206,447 12.08.09 260,841 260,841 11.08.10 453,720 453,720 467,288 453,720 206,447 714,561 The closig mid-market price of a GKN share o the date of award was 138.4p. The measuremet period relatig to these awards eds o 31 December 2012 ad the performace coditio is described o page 51. Durig 2010, o awards vested ad o shares were released to Directors.

/ 57 ESOS optios over GKN shares uder the esos held by the executive Directors who served durig the year, together with ay movemets i those optios i the year, are show below: Shares Shares uder optio optios optios optios uder optio 1 Jauary grated lapsed exercised 31 December exercise exercisable exercisable Date of grat 2010 durig year durig year durig year (a) 2010 price (b) from (c) to (c) Sir Kevi Smith 15.03.02 147,196 147,196 207.87p 15.03.05 14.03.12 19.03.03 940,481 150,000 (d) 790,481 110.04p 19.03.06 18.03.13 02.04.07 323,605 323,605 256.66p 02.04.10 01.04.17 12.08.09 1,154,509 1,154,509 110.08p 12.08.12 11.08.19 07.05.10 666,489 666,489 134.60p 07.05.13 06.05.20 2,565,791 666,489 323,605 150,000 2,758,675 Marcus Bryso 15.03.02 22,638 22,638 207.87p 15.03.05 14.03.12 19.03.03 45,489 45,489 (e) 110.04p 19.03.06 18.03.13 12.08.09 579,124 579,124 110.08p 12.08.12 11.08.19 07.05.10 334,323 334,323 134.60p 07.05.13 06.05.20 647,251 334,323 45,489 936,085 adrew 15.03.02 33,957 33,957 207.87p 15.03.05 14.03.12 reyolds Smith 19.03.03 87,095 87,095 110.04p 19.03.06 18.03.13 12.08.09 617,732 617,732 110.08p 12.08.12 11.08.19 07.05.10 356,612 356,612 134.60p 07.05.13 06.05.20 (a) (b) (c) (d) (e) 738,784 356,612 1,095,396 William Seeger 12.08.09 617,732 617,732 110.08p 12.08.12 11.08.19 07.05.10 356,612 356,612 134.60p 07.05.13 06.05.20 617,732 356,612 974,344 Nigel Stei 15.03.02 129,878 129,878 207.87p 15.03.05 14.03.12 19.03.03 359,834 359,834 110.04p 19.03.06 18.03.13 02.04.07 192,864 192,864 256.66p 02.04.10 01.04.17 12.08.09 752,861 752,861 110.08p 12.08.12 11.08.19 07.05.10 434,621 434,621 134.60p 07.05.13 06.05.20 1,435,437 434,621 192,864 1,677,194 The aggregate gais made by Directors o the exercise of optios was 55,273 (2009: il). adjusted where appropriate to take accout of the dilutive effect of the 2009 rights issue. represets the earliest exercise date (assumig satisfactio of the relevat performace coditio ad persoal shareholdig requiremet) ad latest expiry date of optios held by the Director durig the year. The performace coditio is described o page 52. The optios were exercised o 30 March 2010, o which date the closig mid-market price of a GKN share was 137.5p. all shares were retaied o exercise. The optios were exercised o 1 april 2010, o which date the closig mid-market price of a GKN share was 141p. all shares were retaied o exercise. (f) The closig mid-market price of a GKN share o 31 December 2010 was 222.2p ad the price rage durig the year was 102p to 226p. awards held by the executive Directors uder the GKN profit Growth Icetive pla (pgip) as at 1 Jauary 2010 were as follows: Sir Kevi Smith il; Marcus Bryso 30,199; adrew reyolds Smith 37,543; William Seeger 10,790; Nigel Stei il. Directors are prohibited from participatig i the pgip; awards were grated prior to the relevat idividual s appoitmet as a Director of the Compay. Uder the pgip, the shares which are the subject of the awards would be capable of release depedet o the extet to which profit growth targets were satisfied by the Group over a three year measuremet period which commeced o 1 Jauary 2007 (the Group s reported profit for 2006 formed the baselie for this performace measure) ad the satisfactio of a persoal shareholdig requiremet. The above pgip awards lapsed durig the year. GKN plc aual report ad accouts 2010

58 / remuneration report CoNTINUeD Retiremet beefits The table below sets out the defied beefit provisio for those executive Directors whose retiremet beefits are delivered i part through the GKN Group pesio Scheme. Trasfer value Trasfer value Trasfer value at Accrued aual accrued aual of accrued of accrued 31 December 2010 pesio at pesio at aual pesio aual pesio Chage i Icrease i of icrease i 31 December 31 December at 31 December at 31 December trasfer value aual pesio aual pesio 2010 (a) 2009 (a) 2010 2009 i 2010 i 2010 (b) i 2010 (b) 000 000 000 000 000 000 000 Marcus Bryso 158 149 3,287 2,911 376 1 21 adrew reyolds Smith 29 25 371 301 70 2 25 Nigel Stei 63 60 1,233 1,085 148 1 17 (a) (b) (c) The accrued aual pesio icludes etitlemets eared as a employee prior to becomig a Director as well as for qualifyig services after becomig a Director. Icrease over the year i accrued pesio i excess of iflatio to which the Director would have bee etitled o leavig service. a trasfer value represets the preset value of accrued beefits. It does ot represet a amout of moey which the idividual is etitled to receive. The chage i trasfer value over the year reflects the additioal pesio eared ad the effect of chages i stock market coditios durig the year. The trasfer values have bee calculated i accordace with the method ad assumptios used to calculate trasfer values from the GKN Group pesio Scheme. These assumptios were adopted by the Trustees with effect from april 2008 i order to meet the requiremets of ew trasfer value legislatio which came ito effect o 1 october 2008. Total amouts paid to Directors as supplemetary cash allowaces ad/or as paymets to defied cotributio retiremet plas are set out i footote (b) to the first table o page 55. For Sir Kevi Smith ad William Seeger, such paymets comprise their retiremet beefits i full. Share iterests The iterests of the Directors, ad of their coected persos, i GKN shares are set out below: Shareholdigs as at 31 December 1 Jauary Directors as at 31 December 2010 2010 2010 Executive Directors Sir Kevi Smith 1,460,928 1,204,401 Marcus Bryso 207,214 161,725 adrew reyolds Smith 283,123 283,123 William Seeger 100,000 100,000 Nigel Stei 510,398 460,398 Chairma roy Brow 80,780 80,780 No-executive Directors Shoaid Jemmett-page 7,854 1,989 (a) richard parry-joes 20,000 20,000 Joh Sheldrick 20,000 20,000 Michael Turer 160,000 100,000 (a) o appoitmet to the Board o 1 Jue 2010. There were o chages i the Directors iterests i shares or optios betwee 31 December 2010 ad 28 February 2011*. o behalf of the Board Richard Parry-Joes Chairma of the remueratio Committee 28 February 2011 * as at 1 March 2011, there were o chages to the iterests of the Directors. This report, approved by the Board, has bee prepared i accordace with the requiremets of the Compaies act 2006 (the act), the Listig rules of the UK Listig authority ad Statutory Istrumet 2008/410: The Large ad Medium-sized Compaies ad Groups (accouts ad reports) regulatios 2008. Furthermore, the Board has applied the priciples of good goverace relatig to Directors remueratio cotaied withi the UK Combied Code ad, where applicable, has already adopted priciples from the UK Corporate Goverace Code which will come ito effect for fiacial years begiig o or after 29 Jue 2010. The act requires the auditors to report to the Compay s shareholders o the audited iformatio withi this report ad to state whether, i their opiio, those parts of the report have bee prepared i accordace with the act. The auditors opiio is set out o page 109 ad those aspects of the report which have bee subject to audit are clearly marked.

other STaTUTorY INForMaTIoN / 59 Aual Geeral Meetig The aual Geeral Meetig of the Compay will be held at 2.00 pm o Thursday, 5 May 2011 at the Cavedish Coferece Cetre, 22 Duchess Mews, Lodo W1G 9DT. The otice of meetig, which icludes the special busiess to be trasacted at the meetig, is icluded withi the agm circular. The circular also cotais a explaatio of all the resolutios to be cosidered at the agm. Divided The Directors recommed a fial divided of 3.5p per ordiary share i respect of the year eded 31 December 2010, payable to shareholders o the register at the close of busiess o 26 april 2011. This, together with the iterim divided of 1.5p paid i September 2010, brigs the total divided for the year to 5.0p. Issued share capital at 31 December 2010, the issued share capital of the Compay cosisted of 1,590,529,859 ordiary shares of 10p, of which 37,565,178 shares (2.36%) were held i treasury. a total of 636,687 ordiary shares were issued durig the year i coectio with the exercise of optios uder the Compay s share optio schemes, of which 634,401 were treasury shares. To simplify the share capital structure ad to eable a appropriate reserve to be created, the Compay purchased ad subsequetly cacelled 705,519,691 deferred shares of 40p each (represetig 64% of the Compay s issued share capital) for a aggregate cosideratio of 1p. It also cacelled the remaiig 38,384,253 deferred shares which had bee held i treasury. The ordiary shares are listed o the Lodo Stock exchage. I additio, GKN has a sposored Level 1 america Depository receipt (adr) programme for which the Bak of New York Mello acts as Depositary. The adrs trade i the US over-the-couter market where each adr represets oe GKN ordiary share. Rights ad obligatios attachig to shares Holders of ordiary shares are etitled to receive divideds whe declared, to receive the Compay s aual report, to atted ad speak at geeral meetigs of the Compay, to appoit proxies ad to exercise votig rights. o a show of hads at a meetig of GKN, every member preset holdig ordiary shares has oe vote. o a poll take at a meetig, every member preset ad etitled to vote has oe vote i respect of each ordiary share held by him. I the case of joit shareholders oly the vote of the seior joit holder who votes (ad ay proxy duly authorised by him) may be couted. Shares held i treasury carry o votig rights. Full details of the rights ad obligatios attachig to the Compay s shares are cotaied i the articles of associatio; these are available o our website at www.gk.com. Restrictios o the trasfer of securities Whilst the Board has the power uder the articles of associatio to refuse to register a trasfer of shares, there are o restrictios o the trasfer of shares. Uder the Compay s articles, the Directors have power to susped votig rights ad the right to receive divideds i respect of shares i circumstaces where the holder of those shares fails to comply with a otice issued uder sectio 793 of the Compaies act 2006. The Compay is ot aware of ay agreemets betwee shareholders that may result i restrictios o the trasfer of securities or votig rights. Substatial shareholders as at 28 February 2011*, the Compay had bee otified of the followig holdigs of votig rights i its shares uder rule 5 of the Disclosure rules ad Trasparecy rules of the Fiacial Services authority: Shareholder Nature of iterest % of issued capital held Stadard Life Ivestmets Ltd Direct 7.62% Idirect 5.39% Total 13.01% Capital Group Iteratioal Ic Idirect 6.98% ameriprise Fiacial Ic Direct 0.15% Idirect 4.98% Cotracts for differece 0.02% Total 5.15% axa S.a. Idirect 5.12% Legal & Geeral Group plc Direct 3.89% Igis Ivestmet Services Ltd Idirect 2.69% Cotracts for differece 0.32% Total 3.01% * see footote o page 61. GKN plc aual report ad accouts 2010

60 / other STaTUTorY INForMaTIoN CoNTINUeD Directors The Directors who served durig the fiacial year were as follows: Name Positio Service i the year eded 31 December 2010 roy Brow Chairma Served throughout the year Sir Kevi Smith Chief executive Served throughout the year Marcus Bryso Divisioal Chief executive Served throughout the year Shoaid Jemmett-page Idepedet o-executive Director appoited 1 Jue 2010 Helmut Mamsch Idepedet o-executive Director retired 31 october 2010 Sir Christopher Meyer Idepedet o-executive Director retired 6 May 2010 richard parry-joes Idepedet o-executive Director Served throughout the year adrew reyolds Smith Divisioal Chief executive Served throughout the year William Seeger Fiace Director Served throughout the year Joh Sheldrick Idepedet o-executive Director Served throughout the year Nigel Stei Divisioal Chief executive Served throughout the year Michael Turer Seior Idepedet Director Served throughout the year as o-executive Director ad appoited Seior Idepedet Director o 6 May 2010 Sir peter Williams Seior Idepedet Director retired 6 May 2010 Membership of the Board ad biographical details of the Directors i office at the date of this report are show o pages 38 ad 39. Further details relatig to Board ad Committee compositio are disclosed i the corporate goverace statemet o pages 40 to 45. Followig her appoitmet to the Board i Jue 2010 ad i accordace with the Compay s articles of associatio, Shoaid Jemmett-page will retire ad offer herself for electio at the 2011 agm. all other Directors will retire ad offer themselves for re-electio i accordace with the UK Corporate Goverace Code published i Jue 2010. The articles of associatio provide that a Director may be appoited by a ordiary resolutio of shareholders or by the existig Directors, either to fill a vacacy or as a additioal Director. Further iformatio o GKN s iteral procedures for the appoitmet of Directors is give i the corporate goverace statemet. The remueratio report, which icludes details of service agreemets ad the Directors iterests i GKN shares, is set out o pages 48 to 58. Copies of the service cotracts of the executive Directors ad the letters of appoitmet of the o-executive Directors are available for ispectio at the Compay s registered office durig ormal busiess hours ad will be available for ispectio at the Compay s agm. Directors powers The Board of Directors may exercise all the powers of the Compay subject to the provisios of relevat legislatio, the Compay s articles of associatio ad ay directios give by the Compay i geeral meetig. The powers of the Directors iclude those i relatio to the issue ad buy back of shares. at the 2010 agm the Compay was authorised to purchase up to 155,232,799 of its ordiary shares. No shares were purchased uder this authority i 2010. a special resolutio to reew the authority will be proposed at the 2011 agm. Directors idemities pursuat to the articles of associatio, the Compay has executed a deed poll of idemity for the beefit of the Directors of the Compay ad persos who were Directors of the Compay i respect of costs of defedig claims agaist them ad third party liabilities. These provisios remai i force. The idemity provisio i the Compay s articles of associatio also exteds to provide a limited idemity i respect of liabilities icurred as a director, secretary or officer of a associated compay of the Compay. a copy of the deed poll of idemity is available for ispectio at the Compay s registered office durig ormal busiess hours ad will be available for ispectio at the Compay s agm. The Compay has also arraged appropriate isurace cover for ay legal actio take agaist its Directors ad officers. Coflicts of iterest Uder the Compaies act 2006, Directors have a statutory duty to avoid coflicts of iterest with the Compay. as permitted by the act, the Compay s articles of associatio eable Directors to authorise actual ad potetial coflicts of iterest. Formal procedures for the otificatio ad authorisatio of such coflicts are i place. These procedures eable o-coflicted Directors to impose limits or coditios whe givig or reviewig authorisatio ad require the Board to review the register of Directors coflicts aually ad o a ad hoc basis whe ecessary. ay potetial coflicts of iterest i relatio to ewly appoited Directors are cosidered by the Board prior to appoitmet. Articles of associatio The Compay s articles of associatio ca oly be ameded by special resolutio of the shareholders. at the 2010 agm shareholders approved the adoptio of ew articles of associatio which reflected those provisios of the Compaies act 2006 which came ito effect o 1 october 2009 ad the implemetatio of the Shareholders rights Directive i the UK.

/ 61 Chage of cotrol The Compay s subsidiary, GKN Holdigs plc, etered ito separate agreemets i 2008 with the followig baks each i relatio to a bilateral bakig facility i a amout of 20 millio: Barclays Bak plc; Calyo; Commerzbak aktiegesellschaft; Citibak N.a.; Deutsche Bak a.g.; HSBC Bak plc; ING Bak N.V.; The royal Bak of Scotlad plc; ad Wachovia Bak Natioal associatio. GKN Holdigs plc also etered ito a 55 millio bilateral bakig facility with Bak of Chia Ltd ad a 50 millio bilateral facility with Ladesbak Bade-Württemberg i 2008. each agreemet provides that, o a chage of cotrol of GKN plc, the respective bak ca give otice to GKN Holdigs plc to repay all outstadig amouts uder the relevat facility. all of the Compay s share schemes cotai provisios relatig to a chage of cotrol. outstadig optios ad awards ormally vest ad become exercisable o a chage of cotrol subject to the satisfactio of ay performace coditios at that time. The executive Directors service agreemets provide for paymet of a predetermied amout equivalet to oe year s salary ad beefits o termiatio by the Compay of a Director s service agreemet o less tha due otice withi 12 moths of a chage of cotrol of GKN plc. Further iformatio is give i the remueratio report o page 53. Paymets to suppliers It is Group policy to abide by the paymet terms agreed with suppliers, provided that the supplier has performed its obligatios uder the cotract. Give the ature ad diversity of the Group s iteratioal purchasig arragemets ad cotracts, it is ot Group policy to follow ay specific code or stadard i relatio to paymet practice. GKN plc, as a holdig compay, did ot have ay amouts owig to trade creditors at 31 December 2010. Auditors & disclosure of iformatio resolutios to reappoit pricewaterhousecoopers LLp as auditors of the Compay ad to authorise the Directors to determie their remueratio will be proposed at the 2011 agm. each of the Directors who held office at the date of approval of this Directors report cofirms that, so far as he/she is aware, there is o relevat audit iformatio of which the Compay s auditors are uaware. each Director has take all the steps that he/she ought to have take as a Director i order to make himself/herself aware of ay relevat audit iformatio ad to establish that the Compay s auditors are aware of that iformatio. This Directors report comprisig the iside frot cover ad pages 1 to 62 has bee approved by the Board ad is siged o its behalf by Judith Felto Compay Secretary 28 February 2011 as at 1 March 2011, the Compay had ot bee advised of ay chages or additios to the otifiable iterests set out o page 59. Doatios I 2010, charitable doatios made by Group compaies aroud the world totalled 537,000, of which 77,000 was to UK registered charities. I additio, the GKN Milleium Trust, a UK charitable trust established i 1995, doated a total of 137,000 to the egieerig Developmet Trust ad Youg eterprise i 2010. The Trust also provided fudig for the wiig projects of the Group s 2009 evolve competitio, desiged to foster log term sustaiable liks i local educatioal establishmets. The GKN Foudatio, a idepedet US charitable body established i 1951, supported more tha 220 orgaisatios i the US i 2010 with cotributios totallig almost US$700,000. I accordace with the Group s policy, o political doatios were made ad o political expediture was icurred durig 2010. The Group s US aerospace busiess has a political actio Committee (pac) which is fuded etirely by employees ad their spouses. No fuds are provided to the pac by GKN ad ay admiistrative services provided to the pac by the US aerospace busiess are fully charged to ad paid for by the pac, ad the Compay does ot therefore cosider these to be political doatios. employee cotributios are etirely volutary ad o pressure is placed o employees to participate. Uder US law, a employee-fuded pac must bear the ame of the employig compay. GKN plc aual report ad accouts 2010

62 / STaTeMeNT of DIreCTorS responsibilities The Directors are resposible for preparig the aual report, the Directors remueratio report ad the Group ad Compay fiacial statemets i accordace with applicable law ad regulatios. Compay law requires the Directors to prepare Group ad Compay fiacial statemets for each fiacial year. Uder that law, the Directors are required to prepare the Group fiacial statemets i accordace with applicable law ad Iteratioal Fiacial reportig Stadards (IFrSs) as adopted by the europea Uio (eu) ad have elected to prepare the Compay fiacial statemets i accordace with applicable law ad Uited Kigdom (UK) accoutig Stadards (UK Geerally accepted accoutig practice). Uder compay law, the Group fiacial statemets are required to preset fairly the fiacial positio ad performace of the Group. The Compay fiacial statemets are required by law to give a true ad fair view of the affairs of the Compay ad of the profit or loss of the Compay for that period. I preparig each of the Group ad Compay fiacial statemets the Directors are required to: select appropriate accoutig policies ad apply them cosistetly; make judgemets ad estimates that are reasoable ad prudet; for the Group fiacial statemets, state whether they have bee prepared i accordace with IFrSs as adopted by the eu; for the Compay fiacial statemets, state whether applicable UK accoutig Stadards have bee followed, subject to ay material departures disclosed ad explaied i the Compay fiacial statemets; ad prepare the fiacial statemets o a goig cocer basis uless it is iappropriate to presume that the Group ad the Compay will cotiue i busiess. The Directors are resposible for keepig adequate accoutig records that are sufficiet to show ad explai the Compay s trasactios, disclose with reasoable accuracy at ay time the fiacial positio of the Group ad the Compay, ad eable them to esure that the fiacial statemets ad the Directors remueratio report comply with the Compaies act 2006 ad as regards the Group fiacial statemets, article 4 of the IaS regulatio. They have a geeral resposibility for takig such steps as are reasoably ope to them to safeguard the assets of the Compay ad the Group ad to prevet ad detect fraud ad other irregularities. The Directors are resposible for the maiteace ad itegrity of the corporate ad fiacial iformatio icluded o the Compay s website. Legislatio i the UK goverig the preparatio ad dissemiatio of fiacial statemets may differ from legislatio i other jurisdictios. The Directors as at the date of the aual report, whose ames ad fuctios are set out o pages 38 ad 39, cofirm that to the best of their kowledge: the Group fiacial statemets, prepared i accordace with IFrSs as adopted by the eu, give a true ad fair view of the assets, liabilities, fiacial positio ad profit or loss of the Compay ad the udertakigs icluded i the cosolidatio take as a whole; ad the Directors report icludes a fair review of the developmet ad performace of the busiess ad the positio of the Compay ad the udertakigs icluded i the cosolidatio take as a whole, together with a descriptio of the pricipal risks ad ucertaities that they face. approved by the Board of GKN plc ad siged o its behalf by Roy Brow Chairma 28 February 2011

INDepeNDeNT auditors report To THe MeMBerS of GKN plc / 63 We have audited the Group fiacial statemets of GKN plc for the year eded 31 December 2010 which comprise the Cosolidated Icome Statemet, the Cosolidated Statemet of Comprehesive Icome, the Cosolidated Statemet of Chages i equity, the Cosolidated Balace Sheet, the Cosolidated Cash Flow Statemet ad the related otes. The fiacial reportig framework that has bee applied i their preparatio is applicable law ad Iteratioal Fiacial reportig Stadards (IFrSs) as adopted by the europea Uio. Respective resposibilities of Directors ad auditors as explaied more fully i the Statemet of Directors resposibilities o page 62, the Directors are resposible for the preparatio of the Group fiacial statemets ad for beig satisfied that they give a true ad fair view. our resposibility is to audit ad express a opiio o the Group fiacial statemets i accordace with applicable law ad Iteratioal Stadards o auditig (UK ad Irelad). Those stadards require us to comply with the auditig practices Board s ethical Stadards for auditors. This report, icludig the opiios, has bee prepared for ad oly for the Compay s members as a body i accordace with Chapter 3 of part 16 of the Compaies act 2006 ad for o other purpose. We do ot, i givig these opiios, accept or assume resposibility for ay other purpose or to ay other perso to whom this report is show or ito whose hads it may come save where expressly agreed by our prior coset i writig. Scope of the audit of the fiacial statemets a audit ivolves obtaiig evidece about the amouts ad disclosures i the fiacial statemets sufficiet to give reasoable assurace that the fiacial statemets are free from material misstatemet, whether caused by fraud or error. This icludes a assessmet of: whether the accoutig policies are appropriate to the Group s circumstaces ad have bee cosistetly applied ad adequately disclosed; the reasoableess of sigificat accoutig estimates made by the Directors; ad the overall presetatio of the fiacial statemets. Opiio o fiacial statemets I our opiio the Group fiacial statemets: give a true ad fair view of the state of the Group s affairs as at 31 December 2010 ad of its profit ad cash flows for the year the eded; have bee properly prepared i accordace with IFrSs as adopted by the europea Uio; ad have bee prepared i accordace with the requiremets of the Compaies act 2006 ad article 4 of the las regulatio. Opiio o other matter prescribed by the Compaies Act 2006 I our opiio the iformatio give i the Directors report for the fiacial year for which the Group fiacial statemets are prepared is cosistet with the Group fiacial statemets. Matters o which we are required to report by exceptio We have othig to report i respect of the followig: Uder the Compaies act 2006 we are required to report to you if, i our opiio: certai disclosures of Directors remueratio specified by law are ot made; or we have ot received all the iformatio ad explaatios we require for our audit. Uder the Listig rules we are required to review: the Directors statemet, o page 31, i relatio to goig cocer; ad the part of the corporate goverace statemet relatig to the Compay s compliace with the ie provisios of the Jue 2008 Combied Code specified for our review; ad certai elemets of the report to shareholders by the Board o Directors remueratio. Other matter We have reported separately o the Compay fiacial statemets of GKN plc for the year eded 31 December 2010 ad o the iformatio i the Directors remueratio report that is described as havig bee audited. Roy Hodso (Seior Statutory auditor) for ad o behalf of pricewaterhousecoopers LLp Chartered accoutats ad Statutory auditors Birmigham 28 February 2011 Notes: (a) The maiteace ad itegrity of the GKN plc website is the resposibility of the Directors; the work carried out by the auditors does ot ivolve cosideratio of these matters ad, accordigly, the auditors accept o resposibility for ay chages that may have occurred to the fiacial statemets sice they were iitially preseted o the website. (b) Legislatio i the Uited Kigdom goverig the preparatio ad dissemiatio of fiacial statemets may differ from legislatio i other jurisdictios. GKN plc aual report ad accouts 2010

64 / CoNSoLIDaTeD INCoMe STaTeMeNT For THe Year ended 31 DeCeMBer 2010 2010 2009 restated Notes m m Sales 2 5,084 4,223 Tradig profit 367 133 Restructurig ad impairmet charges (39) (144) Chage i value of derivative ad other fiacial istrumets 12 76 Amortisatio of o-operatig itagible assets arisig o busiess combiatios (19) (24) UK Pesio scheme curtailmet 68 Gais ad losses o chages i Group structure (4) (2) Operatig profit 4 385 39 Share of post-tax earigs of joit vetures 14 35 21 Iterest payable (46) (67) Iterest receivable 6 3 other et fiacig charges (35) (50) Net fiacig costs 5 (75) (114) Profit/(loss) before taxatio 345 (54) Taxatio 6 (20) 15 Profit/(loss) from cotiuig operatios 325 (39) profit after taxatio from discotiued operatios 7 5 Profit/(loss) after taxatio for the year 325 (34) profit attributable to other o-cotrollig iterests 5 2 profit attributable to the pesio partership 15 profit attributable to o-cotrollig iterests 20 2 profit/(loss) attributable to equity shareholders 305 (36) 325 (34) Earigs per share p 8 Cotiuig operatios basic 19.6 (3.2) Cotiuig operatios diluted 19.6 (3.2)

CoNSoLIDaTeD STaTeMeNT of CoMpreHeNSIVe INCoMe For THe Year ended 31 DeCeMBer 2010 / 65 2010 2009 Notes m m profit/(loss) after taxatio for the year 325 (34) other comprehesive icome Currecy variatios Subsidiaries arisig i year 42 (154) reclassified i year 4 (1) 8 Joit vetures arisig i year 14 9 (12) reclassified i year (2) Derivative fiacial istrumets Trasactioal hedgig 21 arisig i year 1 2 reclassified i year 5 actuarial gais ad losses o post-employmet obligatios Subsidiaries 26 (24) (190) Joit vetures 14 Taxatio 6 58 17 85 (326) Total comprehesive icome/(expese) for the year 410 (360) Total comprehesive icome/(expese) for the year attributable to: equity shareholders 387 (362) other o-cotrollig iterests 8 2 pesio partership 15 No-cotrollig iterests 23 2 410 (360) GKN plc aual report ad accouts 2010

66 / CoNSoLIDaTeD STaTeMeNT of CHaNGeS IN equity For THe Year ended 31 DeCeMBer 2010 Other reserves No-cotrollig iterests Capital Share Share- Pesio Share redemptio premium Retaied Exchage Hedgig Other holders parter- Total capital reserve accout earigs reserve reserve reserves equity ship Other equity Notes m m m m m m m m m m m At 1 Jauary 2010 457 9 431 343 (197) (95) 948 24 972 Total comprehesive icome/(expese) for the year 341 45 1 387 15 8 410 Ivestmet i pesio partership by UK pesio scheme 26 331 331 purchase of o-cotrollig iterests (2) (2) (3) (5) Share-based paymets 11 3 3 3 Trasfers (298) 298 38 (38) Divideds paid to equity shareholders 9 (23) (23) (23) Divideds paid to o-cotrollig iterests (1) (1) At 31 December 2010 159 298 9 788 388 (196) (133) 1,313 346 28 1,687 at 1 Jauary 2009 372 29 290 499 (204) (81) 905 23 928 Total comprehesive icome/(expese) for the year (213) (156) 7 (362) 2 (360) rights issue 85 338 423 423 rights issue costs charged to share premium (20) (20) (20) Share-based paymets 11 2 2 2 Trasfers 352 (352) Divideds paid to o-cotrollig iterests (1) (1) at 31 December 2009 457 9 431 343 (197) (95) 948 24 972 other reserves iclude accumulated reserves where distributio has bee restricted due to legal or fiscal requiremets ad accumulated adjustmets i respect of piecemeal acquisitios.

CoNSoLIDaTeD BaLaNCe SHeeT at 31 DeCeMBer 2010 / 67 2010 2009 Notes m m Assets No-curret assets Goodwill 12 350 338 other itagible assets 12 200 187 property, plat ad equipmet 13 1,651 1,636 Ivestmets i joit vetures 14 143 112 other receivables ad ivestmets 15 23 24 Derivative fiacial istrumets 21 19 16 Deferred tax assets 6 171 71 2,557 2,384 Curret assets Ivetories 16 637 563 Trade ad other receivables 17 762 644 Curret tax assets 6 10 13 Derivative fiacial istrumets 21 13 6 other fiacial assets 19 4 20 Cash ad cash equivalets 19 438 316 1,864 1,562 Total assets 4,421 3,946 Liabilities Curret liabilities Borrowigs 19 (61) (72) Derivative fiacial istrumets 21 (13) (14) Trade ad other payables 18 (1,065) (873) Curret tax liabilities 6 (100) (79) provisios 22 (57) (84) (1,296) (1,122) No-curret liabilities Borrowigs 19 (532) (564) Derivative fiacial istrumets 21 (61) (51) Deferred tax liabilities 6 (63) (57) Trade ad other payables 18 (108) (97) provisios 22 (74) (87) post-employmet obligatios 26 (600) (996) (1,438) (1,852) Total liabilities (2,734) (2,974) Net assets 1,687 972 Shareholders equity Share capital 23 159 457 Capital redemptio reserve 23 298 Share premium accout 9 9 retaied earigs 788 431 other reserves 59 51 1,313 948 No-cotrollig iterests 374 24 Total equity 1,687 972 The fiacial statemets o pages 64 to 108 were approved by the Board of Directors ad authorised for issue o 28 February 2011. They were siged o its behalf by: Sir Kevi Smith, William Seeger Directors GKN plc aual report ad accouts 2010

68 / CoNSoLIDaTeD CaSH FLoW STaTeMeNT For THe Year ended 31 DeCeMBer 2010 2010 2009 Notes m m Cash flows from operatig activities Cash geerated from operatios 25 420 288 Special cotributio to the UK pesio scheme 26 (331) Iterest received 7 7 Iterest paid (53) (68) Tax paid (33) (15) Divideds received from joit vetures 14 23 15 33 227 Cash flows from ivestig activities purchase of property, plat ad equipmet (162) (140) receipt of govermet capital grats 3 1 purchase of itagible assets (31) (14) receipt of govermet refudable advaces 10 28 proceeds from sale ad realisatio of fixed assets 5 35 acquisitio of subsidiaries (et of cash acquired) (6) (99) purchase of o-cotrollig iterests (5) proceeds from sale of busiesses 4e 5 proceeds from sale of joit veture 1 1 Ivestmets i joit vetures 14 (10) (2) Ivestmet loas ad capital cotributios 24 (3) (11) (193) (201) Cash flows from fiacig activities Ivestmet i pesio partership by UK pesio scheme 26 331 Net proceeds from rights issue 403 Net proceeds from other ordiary share capital trasactios 23 proceeds from borrowig facilities 38 148 Bod buy back icludig buy back premium (26) (131) repaymet of other borrowigs (48) (221) Fiace lease paymets (1) (1) amouts placed o deposit (4) (20) amouts retured from deposit 20 Divideds paid to shareholders 9 (23) Divideds paid to o-cotrollig iterests (1) (1) 286 177 Currecy variatios o cash ad cash equivalets 7 (9) Movemet i cash ad cash equivalets 133 194 Cash ad cash equivalets at 1 Jauary 288 94 Cash ad cash equivalets at 31 December 25 421 288

NoTeS To THe FINaNCIaL STaTeMeNTS For THe Year ended 31 DeCeMBer 2010 / 69 1 Accoutig policies ad presetatio The Group s key accoutig policies are summarised below. Basis of preparatio The cosolidated fiacial statemets (the statemets ) have bee prepared i accordace with Iteratioal Fiacial reportig Stadards (IFrS) as edorsed ad adopted for use by the europea Uio. These statemets have bee prepared uder the historical cost method except where other measuremet bases are required to be applied uder IFrS as set out below. These statemets have bee prepared usig all stadards ad iterpretatios required for fiacial periods begiig 1 Jauary 2010. No stadards or iterpretatios have bee adopted before the required implemetatio date. Durig the year the decisio was take to exit the axles busiess of the former offhighway segmet. The tradig losses of this busiess have bee re-aalysed from Tradig profit to profits ad losses o sale or closure of busiesses which is icluded withi Gais ad losses o chages i Group structure. There was o impact o operatig profit, eps or the balace sheet arisig from this restatemet. The impact of this restatemet is as follows: as previously reported restated m m Tradig profit 129 133 Gais ad losses o chages i Group structure 2 (2) operatig profit 39 39 adjusted performace measures Maagemet profit before tax 83 87 Maagemet profit after tax 72 75 Maagemet basic eps pece 5.5 5.7 Stadards, revisios ad amedmets to stadards ad iterpretatios as outlied i the audited statemets for the year eded 31 December 2009, IFrS 3 (revised) Busiess combiatios, accompaied by IaS 27 (revised) Cosolidated ad separate fiacial statemets were idetified as likely to impact the reportig of the Group s results, assets ad liabilities. These stadards were adopted o 1 Jauary 2010. Durig the year there has bee oe busiess combiatio ad a purchase of a ocotrollig iterest. as a cosequece of the revised stadards a 1 millio gai o revaluatio of the Group s existig shareholdig has bee recorded i Gais ad losses o chages i Group structure arisig from the busiess combiatio with a correspodig icrease i goodwill ad a 2 millio charge to retaied earigs arisig from the purchase of a o-cotrollig iterest has bee recogised which would have previously bee recogised as goodwill or o-operatig itagibles assets. I additio, followig the amedmet to IaS 21 The effects of chages i foreig exchage rates reclassificatio adjustmets regardig itragroup fudig are o loger required with effect from 1 Jauary 2010. The Group also adopted the followig relevat amedmets to stadards with o material impact o its results, assets ad liabilities; aual improvemets 2009 amedmet to IaS 39 Fiacial istrumets: recogitio ad measuremet, o eligible hedged items amedmet to IFrS 2 Share-based paymet, group cash-settled share-based paymet trasactios IFrIC 12 Service cocessio arragemets IFrIC 15 arragemets for costructio of real estates IFrIC 16 Hedges of a et ivestmet i a foreig operatio IFrIC 17 Distributios of o cash assets to owers IFrIC 18 Trasfer of assets from customers. Basis of cosolidatio The statemets icorporate the fiacial statemets of the Compay ad its subsidiaries (together the Group ) ad the Group s share of the results ad equity of its joit vetures. Subsidiaries are etities over which, either directly or idirectly, the Compay has cotrol through the power to gover fiacial ad operatig policies so as to obtai beefit from their activities. except as oted below, this power is accompaied by a shareholdig of more tha 50% of the votig rights. The results of subsidiaries acquired or sold durig the year are icluded i the Group s results from the date of acquisitio or up to the date of disposal. all busiess combiatios are accouted for by the purchase method. assets, liabilities ad cotiget liabilities acquired i a busiess combiatio are measured at fair value. I a sigle case the Compay idirectly owed 100% of the votig share capital of a etity but was precluded from exercisig either cotrol or joit cotrol by a cotractual agreemet with the Uited States Departmet of Defese. I accordace with IaS 27 this etity was excluded from the cosolidatio ad treated as a ivestmet. Durig 2010 this cotractual agreemet chaged such that the Group obtaied cotrol of the etity. Further details are cotaied i ote 24. Itra-group balaces, trasactios, icome ad expeses are elimiated. other o-cotrollig iterests represet the portio of shareholders earigs ad equity attributable to third party shareholders. GKN plc aual report ad accouts 2010

70 / NoTeS To THe FINaNCIaL STaTeMeNTS CoNTINUeD 1 Accoutig policies ad presetatio (cotiued) Joit vetures Joit vetures are etities i which the Group has a log term iterest ad exercises joit cotrol with its parters over their fiacial ad operatig policies. I all cases votig rights are 50% or lower. Ivestmets i joit vetures are accouted for by the equity method. The Group s share of equity icludes goodwill arisig o acquisitio. The Group s share of profits ad losses resultig from trasactios betwee the Group ad joit vetures are elimiated. Foreig currecies Subsidiaries ad joit vetures accout i the currecy of their primary ecoomic eviromet of operatio, determied havig regard to the currecy which maily iflueces sales ad iput costs. Trasactios are traslated at exchage rates approximatig to the rate rulig o the date of the trasactio except i the case of material trasactios where actual spot rate may be used if it more accurately reflects the uderlyig substace of the trasactio. Where practicable, trasactios ivolvig foreig currecies are protected by forward cotracts. assets ad liabilities i foreig currecies are traslated at the exchage rates rulig at the balace sheet date. Material foreig currecy movemets arisig o the traslatio of itra-group balaces treated as part of the et ivestmet i a subsidiary are recogised through equity. Movemets o other itra-group balaces are recogised through the icome statemet. The Group s presetatioal currecy is sterlig. o cosolidatio, results ad cash flows of foreig subsidiaries ad joit vetures are traslated to sterlig at average exchage rates except i the case of material trasactios where the actual spot rate is used if it more accurately reflects the uderlyig substace of the trasactio. assets ad liabilities are traslated at the exchage rates rulig at the balace sheet date. profits ad losses o the realisatio of currecy et ivestmets iclude the accumulated et exchage differeces that have arise o the retraslatio of the currecy et ivestmets sice 1 Jauary 2004 up to the date of realisatio. Presetatio of the icome statemet IFrS is ot fully prescriptive as to the format of the icome statemet. Lie items ad subtotals have bee preseted o the face of the icome statemet i additio to those required uder IFrS. Sales show i the icome statemet are those of cotiuig subsidiaries. operatig profit is profit before discotiued operatios, taxatio, fiace costs ad the share of post-tax profit of joit vetures accouted for usig the equity method. I order to achieve cosistecy ad comparability betwee reportig periods, operatig profit is aalysed to show separately the results of ormal tradig performace ad idividually sigificat charges ad credits. Such items arise because of their size or ature ad, comprise: charges relatig to the Group wide restructurig programme aouced i 2008; the impact of the aual goodwill impairmet review; asset impairmet ad restructurig charges which arise from evets which are sigificat to ay reportable segmet; amortisatio of the fair value of o-operatig itagible assets arisig o busiess combiatios; chages i the fair value of derivative fiacial istrumets ad material currecy traslatio movemets arisig o itra-group fudig; profits or losses o busiesses sold or closed which do ot meet the defiitio of discotiued operatios or which the Group views as capital rather tha reveue i ature; profits or losses arisig from busiess combiatios icludig fair value adjustmets to pre-combiatio shareholdigs, chages i estimates of deferred ad cotiget cosolidatio made after the provisioal fair value period ad material expeses icurred o a busiess combiatio; ad the 2010 UK pesio scheme curtailmet. The Group s post-tax share of joit veture profits is show as a separate compoet of profit before tax. Material restructurig ad impairmet charges, amortisatio of the fair value of o-operatig itagible assets arisig o busiess combiatios ad other et fiacig charges ad their related taxatio are separately idetified. Net fiace costs are aalysed to show separately iterest payable, iterest receivable ad other et fiacig charges. other et fiacig charges iclude the et of iterest payable o post-employmet obligatios ad the expected retur o pesio scheme assets ad uwid of discouts o fair value amouts established o busiess combiatios. Reveue recogitio Sales reveue from the sale of goods is measured at the fair value of the cosideratio receivable which geerally equates to the ivoiced amout, excludig sales taxes ad et of allowaces for returs, early settlemet discouts ad rebates. Ivoices for goods are raised whe the risks ad rewards of owership have passed which, depedet upo cotractual terms, may be at the poit of despatch, acceptace by the customer or, i aerospace, certificatio by the customer. reveue from royalties ad the rederig of services is ot sigificat. May busiesses i automotive ad Lad Systems recogise a elemet of reveue via a surcharge or similar raw material cost recovery mechaism. The surcharge ivoiced or credited is geerally based o prior period movemet i raw material price idices applied to curret period deliveries. other cost recoveries are recorded accordig to the customer agreemet. I those istaces where recovery of such icreases is guarateed, irrespective of the level of future deliveries, reveue is recogised, or due allowace made, i the same period as the cost movemet takes place.

/ 71 1 Accoutig policies ad presetatio (cotiued) Reveue recogitio (cotiued) Other icome Iterest icome is recogised usig the effective iterest rate method. reveue from divideds is ot sigificat. Sales ad other icome is recogised i the icome statemet whe it ca be reliably measured ad its collectability is reasoably assured. Property, plat ad equipmet property, plat ad equipmet is stated at cost less accumulated depreciatio ad impairmet charges. Cost Cost comprises the purchase price plus costs directly icurred i brigig the asset ito use ad borrowigs costs o qualifyig assets. Where freehold ad log leasehold properties were carried at a valuatio at 23 March 2000, these values have bee retaied as book values ad therefore deemed cost at the date of the IFrS trasitio. Where assets are i the course of costructio at the balace sheet date they are classified as capital work i progress. Trasfers are made to other asset categories whe they are available for use. Depreciatio Depreciatio is ot provided o freehold lad or capital work i progress. I the case of all other categories of property, plat ad equipmet, depreciatio is provided o a straight lie basis over the course of the fiacial year from the date the asset is available for use. Depreciatio is applied to specific classes of asset so as to reduce them to their residual values over their estimated useful lives, which are reviewed aually. The rage of mai rates of depreciatio used are: Years Freehold buildigs Up to 50 Steel powder productio plat 18 Geeral plat, machiery, fixtures ad fittigs 6 to 15 Computers 3 to 5 Commercial vehicles ad cars 4 to 5 property, plat ad equipmet is reviewed at least aually for idicatios of impairmet. Impairmets are charged to the icome statemet. Similarly, where property, plat ad equipmet has bee impaired ad subsequet reviews demostrate the recoverable value is i excess of the impaired value a impairmet reversal is recorded. The amout of the reversal caot exceed the theoretical et book amout at the date of the reversal had the item ot bee impaired. Impairmet reversals are credited to the icome statemet agaist the same lie item to which the impairmet was previously charged. Costs attributable to leasehold properties are writte off to profit by equal aual istalmets over the period of the lease or 50 years, whichever is the shorter. Leased assets operatig lease retals are charged to the icome statemet as icurred over the lease term. Fiace leased assets are ot sigificat. Borrowig costs Borrowig costs are capitalised as cost o qualifyig tagible ad itagible fixed asset expediture. a qualifyig asset is a asset or programme where the period of capitalisatio is more tha 12 moths ad the capital value is more tha 10 millio. For geeral borrowigs the capitalisatio rate is the weighted average of the borrowig costs outstadig durig the year. For specific fudig ad borrowigs the amout capitalised is the actual borrowig cost icurred less ay ivestmet icome o the temporary ivestmet of those borrowigs. Fiacial assets ad liabilities Fiacial liabilities are recorded i arragemets where paymets, or similar trasfers of fiacial resources, is uavoidable or guarateed. I respect of the Group s pesio partership arragemet paymets are subject to discretio ad ca, if certai coditios are met, be avoided. I this istace, the arragemet is classified as a o-cotrollig iterest. Borrowigs are measured iitially at fair value which usually equates to proceeds received ad icludes trasactio costs. Borrowigs are subsequetly measured at amortised cost. Cash ad cash equivalets comprise cash o had ad demad deposits ad overdrafts together with highly liquid ivestmets of less tha 90 days maturity. other fiacial assets comprise ivestmets with more tha 90 days util maturity. Uless a eforceable right of set-off exists ad there is a itetio to et settle, the compoets of cash ad cash equivalets are reflected o a gross basis i the balace sheet. The carryig value of other fiacial assets ad liabilities, icludig short term receivables ad payables, are stated at amortised cost less ay impairmet provisio uless the impact of the time value of moey is cosidered to be material. GKN plc aual report ad accouts 2010

72 / NoTeS To THe FINaNCIaL STaTeMeNTS CoNTINUeD 1 Accoutig policies ad presetatio (cotiued) Derivative fiacial istrumets The Group does ot trade i derivative fiacial istrumets. Derivative fiacial istrumets icludig forward foreig currecy cotracts are used by the Group to maage its exposure to risk associated with the variability i cash flows i relatio to both recogised assets or liabilities or forecast trasactios. all derivative fiacial istrumets are measured at the balace sheet date at their fair value. Where derivative fiacial istrumets are ot desigated as or ot determied to be effective hedges, ay gai or loss o remeasuremet is take to the icome statemet. Where derivative fiacial istrumets are desigated as ad are effective as cash flow hedges, ay gai or loss o remeasuremet is held i equity ad recycled through the icome statemet whe the desigated item is trasacted. Gais or losses o derivative fiacial istrumets o loger desigated as effective hedges are take directly to the icome statemet. Derivatives embedded i o-derivative host cotracts are recogised at their fair value whe the ature, characteristics ad risks of the derivative are ot closely related to the host cotract. Gais ad losses arisig o the remeasuremet of these embedded derivatives at each balace sheet date are take to the icome statemet. Goodwill Goodwill cosists of the excess of the fair value of the cosideratio over the fair value of the idetifiable itagible ad tagible assets et of the fair value of the liabilities icludig cotigecies of busiesses acquired at the date of acquisitio. Goodwill i respect of busiess combiatios of subsidiaries is recogised as a itagible asset. Goodwill arisig o the acquisitio of a joit veture is icluded i the carryig value of the ivestmet. Where egative goodwill arises, followig reassessmet of fair values, it is credited to the icome statemet i the year i which the acquisitio is made. Goodwill is ot amortised but tested at least aually for impairmet. Impairmets are charged to the icome statemet. Goodwill is carried at cost less ay recogised impairmet losses that arise from the aual assessmet of its carryig value. To the extet that the carryig value exceeds the recoverable amout, determied as the higher of estimated discouted future et cash flows or recoverable amout o a fair value less cost to sell basis, goodwill is writte dow to the recoverable amout ad a impairmet charge is recogised i the icome statemet. Other itagible assets other itagible assets are stated at cost less accumulated amortisatio ad impairmet charges. Computer software Where computer software is ot itegral to a item of property, plat or equipmet its costs are capitalised ad categorised as itagible assets. Cost comprises the purchase price plus costs directly icurred i brigig the asset ito use. amortisatio is provided o a straight lie basis over its useful ecoomic life which is i the rage of 3-5 years. Developmet costs Where developmet expediture results i a ew or substatially improved product or process ad it is probable that this expediture will be recovered it is capitalised. Cost comprises developmet expediture ad borrowig costs o qualifyig assets. amortisatio is charged from the date the asset is available for use. I aerospace, amortisatio is charged over the asset s life up to maximum of fiftee years either o a straight lie basis or, where sufficiet cotractual terms exist, a uit of productio method is applied. I automotive, amortisatio is charged o a straight lie basis over the asset s life up to a maximum of seve years. Capitalised developmet costs are subject to aual impairmet reviews. Impairmets are charged to the icome statemet. research expediture ad developmet expediture ot qualifyig for capitalisatio are writte off as icurred. Assets acquired o busiess combiatios o-operatig itagible assets No-operatig itagible assets are itagible assets that are acquired as a result of a busiess combiatio, which arise from cotractual or other legal rights ad are ot trasferable or separable. o iitial recogitio they are measured at fair value. amortisatio is charged o a straight lie basis to the icome statemet over their expected useful lives which are: Marketig related assets brads ad trademarks 30-50 agreemets ot to compete Life of agreemet Customer related assets order backlog Legth of backlog other customer relatioships 2-15 Techology based assets 5-10 Years Ivetories Ivetories are valued at the lower of cost ad estimated et realisable value with due allowace beig made for obsolete or slow-movig items. Cost is determied o a first i, first out or weighted average cost basis. Cost icludes raw materials, direct labour, other direct costs ad the relevat proportio of works overheads assumig ormal levels of activity. Net realisable value is the estimated sellig price less estimated sellig costs ad costs to complete.

/ 73 1 Accoutig policies ad presetatio (cotiued) Taxatio Curret tax ad deferred tax are recogised i the icome statemet uless they relate to items recogised directly i other comprehesive icome whe the related tax is also recogised i other comprehesive icome. Full provisio is made for deferred tax o all temporary differeces resultig from the differece betwee the carryig value of a asset or liability i the statemets ad its tax base. The amout of deferred tax reflects the expected maer of realisatio or settlemet of the carryig amout of the assets ad liabilities usig tax rates eacted or substatively eacted at the balace sheet date. Deferred tax assets are reviewed at each balace sheet date ad are oly recogised to the extet that it is probable that they will be recovered agaist future taxable profits. Deferred tax is recogised o the uremitted profits of joit vetures. No deferred tax is recogised o the uremitted profits of overseas braches ad subsidiaries except to the extet that it is probable that such earigs will be remitted to the paret i the foreseeable future. Pesios ad post-employmet beefits The Group s pesio arragemets comprise various defied beefit ad defied cotributio schemes throughout the world. I the UK ad i certai overseas compaies pesio arragemets are made through exterally fuded defied beefit schemes, the cotributios to which are based o the advice of idepedet actuaries or i accordace with the rules of the schemes. I other overseas compaies fuds are retaied withi the busiess to provide for retiremet obligatios. The Group also operates a umber of defied cotributio ad defied beefit arragemets which provide certai employees with defied postemploymet healthcare beefits. The Group accouts for all post-employmet defied beefit schemes through full recogitio of the schemes surpluses or deficits o the balace sheet at the ed of each year. actuarial gais ad losses are icluded i other comprehesive icome. Curret ad past service costs, curtailmets ad settlemets are recogised withi operatig profit. returs o scheme assets ad iterest o obligatios are recogised i other et fiacig charges. For defied cotributio arragemets the cost charged to the icome statemet represets the Group s cotributios to the relevat schemes i the year i which they fall due. Govermet refudable advaces Govermet refudable advaces are reported i Trade ad other payables i the balace sheet. refudable advaces iclude amouts let by Govermet, accrued iterest ad directly attributable costs. refudable advaces are provided to the Group to part-fiace expeditures o specific developmet programmes. The advaces are provided o a risk sharig basis, i.e. repaymet levels are determied subject to the success of the related programme. Iterest is calculated usig the effective iterest rate method. Share-based paymets Share optios grated to employees ad share-based arragemets put i place sice 7 November 2002 are valued at the date of grat or award usig a appropriate optio pricig model ad are charged to operatig profit over the performace or vestig period of the scheme. The aual charge is modified to take accout of shares forfeited by employees who leave durig the performace or vestig period ad, i the case of omarket related performace coditios, where it becomes ulikely the optio will vest. Stadards, revisios ad amedmets to stadards ad iterpretatios issued but ot yet adopted The Group does ot ited to adopt ay stadard, revisio or amedmet before the required implemetatio date. The impact of the adoptio of the IFrS 9 Fiacial istrumets is beig assessed. The followig is a summary of revisios ad amedmets to stadards ad iterpretatios which the Group does ot curretly believe will have a material impact o the Group s results, assets or liabilities. aual improvemets 2010 IaS 12 (amedmet) regardig deferred tax recogitio o ivestmet properties IaS 24 (revised) regardig govermet related etities IaS 32 regardig presetatio o classificatio of rights issues IFrS 7 (amedmet) regardig derecogitio of fiacial assets IFrIC 14 (amedmet) regardig prepaymets of a miimum fudig requiremet IFrIC 19 extiguishig fiacial liabilities with equity istrumets Sigificat judgemets, key assumptios ad estimates The Group s sigificat accoutig policies are set out above. The preparatio of fiacial statemets, i coformity with IFrS, requires the use of estimates, subjective judgemet ad assumptios that may affect the amouts of assets ad liabilities at the balace sheet date ad reported profit ad earigs for the year. The Directors base these estimates, judgemets ad assumptios o a combiatio of past experiece, professioal expert advice ad other evidece that is relevat to the particular circumstace. The accoutig policies where the Directors cosider the more complex estimates, judgemets ad assumptios have to be made are those i respect of acquired o-operatig itagible assets busiess combiatios (ote 24), post-employmet obligatios icludig the valuatio of the pesio partership pla asset (ote 26), derivative ad other fiacial istrumets (otes 4c ad 21), taxatio (ote 6) ad impairmet of o-curret assets (ote 12). The details of the priciple estimates, judgemets ad assumptios made are set out i the related otes as idetified. GKN plc aual report ad accouts 2010

74 / NoTeS To THe FINaNCIaL STaTeMeNTS CoNTINUeD 2 Segmetal aalysis The Group s reportable segmets have bee determied based o reports reviewed by the executive Committee led by the Chief executive. The operatig activities of the Group are largely structured accordig to the markets served; automotive, aerospace ad the lad systems markets. automotive is maaged accordig to product groups; drivelie ad powder metallurgy. reportable segmets derive their sales from the maufacture of product. reveue from services, iter segmet tradig ad royalties is ot sigificat. o 16 Jue 2010 the Group aouced the formatio of GKN Lad Systems. Lad Systems brought together the operatios of GKN offhighway (excludig axles), GKN autostructures ad GKN Idustrial ad Distributio Services. Lad Systems builds o existig stregths i the agricultural, miig ad costructio equipmet markets with a strategic focus o developig these ad ew markets i defece vehicles, mass trasit ad reewable eergy. autostructures was icluded i the former other automotive segmet ad IDS was icluded i the Drivelie segmet. The remaiig busiesses i the former other automotive reportable segmet, emitec ad Cylider Liers, are o loger reportable ad are icluded as recocilig items as other busiesses. Comparative iformatio has bee restated. Drivelie, aerospace ad Lad Systems are operatig ad reportable segmets. powder Metallurgy comprises GKN Siter Metals ad Hoegaaes Corporatio. (a) Sales Automotive Powder Lad Drivelie Metallurgy Aerospace Systems Total m m m m m 2010 Subsidiaries 2,180 759 1,451 664 Joit vetures 253 35 2,433 759 1,451 699 5,342 other busiesses 87 Maagemet sales 5,429 Busiesses sold ad closed axles 10 Less: Joit veture sales (355) Icome statemet sales 5,084 2009 restated Subsidiaries 1,628 512 1,486 569 Joit vetures 175 24 1,803 512 1,486 593 4,394 other busiesses 60 Maagemet sales 4,454 Busiesses sold ad closed axles 14 Less: Joit veture sales (245) Icome statemet sales 4,223

/ 75 2 Segmetal aalysis (cotiued) (b) Tradig profit Automotive Powder Lad Drivelie Metallurgy Aerospace Systems Total m m m m m 2010 Tradig profit before depreciatio, impairmet ad amortisatio 238 84 209 49 Depreciatio ad impairmet of property, plat ad equipmet (107) (30) (39) (15) amortisatio of operatig itagible assets (3) (6) (1) Tradig profit subsidiaries 128 54 164 33 Tradig profit/(loss) joit vetures 41 (2) 4 169 54 162 37 422 other busiesses 3 Corporate ad uallocated costs (14) Maagemet tradig profit 411 Less: Joit veture tradig profit (44) Icome statemet tradig profit 367 2009 restated Tradig profit before depreciatio, impairmet ad amortisatio 95 24 217 12 Depreciatio ad impairmet of property, plat ad equipmet (107) (30) (41) (15) amortisatio of operatig itagible assets (3) (1) (6) (1) Tradig profit/(loss) subsidiaries (15) (7) 170 (4) Tradig profit/(loss) joit vetures 25 (1) 1 10 (7) 169 (3) 169 other busiesses (1) Corporate ad uallocated costs (12) Maagemet tradig profit 156 Less: Joit veture tradig profit (23) Icome statemet tradig profit 133 No icome statemet items betwee tradig profit ad profit before tax are allocated to maagemet tradig profit, which is the Group s segmetal measure of profit or loss. Credits icluded withi tradig profit i respect of chages to retiree beefit arragemets, et of expeses, arose as follows: Drivelie 6 millio ad Corporate 2 millio (2009: Drivelie 3 millio; powder Metallurgy 1 millio; aerospace 5 millio ad Corporate 1 millio). as a result of chaged customer cotract requiremets, 2009 tradig profit icluded a 3 millio credit from the release of uutilised provisios established o acquisitio i a aerospace busiess. restructurig ad impairmet disclosures, icludig segmetal aalysis, are icluded i ote 4b. GKN plc aual report ad accouts 2010

76 / NoTeS To THe FINaNCIaL STaTeMeNTS CoNTINUeD 2 Segmetal aalysis (cotiued) (c) Goodwill, fixed assets ad workig capital subsidiaries oly Automotive Powder Lad Drivelie Metallurgy Aerospace Systems Total m m m m m 2010 property, plat ad equipmet ad operatig itagible fixed assets 878 307 421 110 1,716 Workig capital 72 89 67 58 286 Net operatig assets 950 396 488 168 Goodwill ad o-operatig itagible fixed assets 81 29 296 54 Net ivestmet 1,031 425 784 222 2009 restated property, plat ad equipmet ad operatig itagible fixed assets 870 313 374 120 1,677 Workig capital 53 65 80 58 256 Net operatig assets 923 378 454 178 Goodwill ad o-operatig itagible fixed assets 78 28 294 56 Net ivestmet 1,001 406 748 234 (d) Fixed asset additios, ivestmets i joit vetures ad other o-cash items Automotive Powder Lad Other Drivelie Metallurgy Aerospace Systems Busiesses Corporate Total m m m m m m m 2010 Fixed asset additios ad capitalised borrowig costs property, plat ad equipmet 88 26 60 8 1 183 itagible assets 4 26 1 31 Ivestmets i joit vetures 107 12 24 143 other o-cash items share-based paymets 1 1 1 3 2009 restated Fixed asset additios ad capitalised borrowig costs property, plat ad equipmet 61 9 45 7 122 itagible assets 1 14 15 Ivestmets i joit vetures 86 10 16 112 other o-cash items share-based paymets 1 1 2 (e) Coutry aalysis uited Other Total Kigdom usa Germay coutries o-uk Total m m m m m m 2010 Maagemet sales by origi 819 1,571 858 2,181 4,610 5,429 Goodwill, other itagible assets, property, plat ad equipmet ad ivestmets i joit vetures 355 695 354 940 1,989 2,344 2009 Maagemet sales by origi restated 794 1,325 729 1,606 3,660 4,454 Goodwill, other itagible assets, property, plat ad equipmet ad ivestmets i joit vetures 318 677 330 948 1,955 2,273

/ 77 2 Segmetal aalysis (cotiued) (f) Other sales iformatio Subsidiary segmetal sales gross of iter segmet sales are; Drivelie 2,234 millio (2009 restated: 1,669 millio), powder Metallurgy 765 millio (2009: 515 millio), aerospace 1,451 millio (2009: 1,486 millio) ad Lad Systems 665 millio (2009 restated: 571 millio). I 2010 ad 2009, o customer accouted for 10% or more of subsidiary sales or maagemet sales. Maagemet sales by product are: Drivelie driveshafts 76% (2009 restated: 79%), propshafts 7% (2009 restated: 7%), torque maagemet products 15% (2009 restated: 12%) ad other goods 2% (2009 restated: 2%). powder Metallurgy sitered compoets 82% (2009: 85%) ad metal powders 18% (2009: 15%). aerospace aerostructures 64% (2009: 65%), egie compoets ad sub-systems 28% (2009: 27%) ad special products 8% (2009: 8%). Lad Systems power maagemet devices 27% (2009 restated: 28%), wheels ad structures 36% (2009 restated: 32%) ad aftermarket 37% (2009 restated: 40%). (g) Recociliatio of segmetal property, plat ad equipmet ad operatig itagible fixed assets to the balace sheet 2010 2009 restated m m Segmetal aalysis property, plat ad equipmet ad operatig itagible fixed assets 1,716 1,677 Segmetal aalysis goodwill ad o-operatig itagible fixed assets 460 456 Goodwill (350) (338) other busiesses 19 18 Busiesses sold ad closed axles 5 Corporate assets 6 5 Balace sheet property, plat ad equipmet ad other itagible assets 1,851 1,823 (h) Recociliatio of segmetal workig capital to the balace sheet 2010 2009 restated m m Segmetal aalysis workig capital 286 256 other busiesses 6 5 Busiesses sold ad closed axles 2 Corporate items (47) (44) Short term joit veture fiacig facilities 1 accrued et fiacig costs (19) (24) restructurig provisios (41) (59) Deferred ad cotiget cosideratio (27) (31) Govermet refudable advaces (40) (28) Ivestmet ad loa to GKN aerospace Services Structures Corp. 12 Balace sheet ivetories, trade ad other receivables, trade ad other payables ad provisios 118 90 GKN plc aual report ad accouts 2010

78 / NoTeS To THe FINaNCIaL STaTeMeNTS CoNTINUeD 3 Adjusted performace measures (a) Recociliatio of reported ad maagemet performace measures 2010 2009 restated Exceptioal exceptioal As Joit ad o- Maagemet as Joit ad o- Maagemet reported vetures tradig items basis reported vetures tradig items basis m m m m m m m m Sales 5,084 355 (10) 5,429 4,223 245 (14) 4,454 Tradig profit 367 44 411 133 23 156 Restructurig ad impairmet charges (39) 39 (144) 144 Chage i value of derivative ad other fiacial istrumets 12 (12) 76 (76) Amortisatio of o-operatig itagible assets arisig o busiess combiatios (19) 19 (24) 24 UK Pesio scheme curtailmet 68 (68) Gais ad losses o chages i Group structure (4) 4 (2) 2 Operatig profit 385 44 (18) 411 39 23 94 156 Share of post-tax earigs of joit vetures 35 (44) 1 (8) 21 (23) (3) (5) Iterest payable (46) (46) (67) (67) Iterest receivable 6 6 3 3 other et fiacig charges (35) 35 (50) 50 Net fiacig costs (75) 35 (40) (114) 50 (64) Profit/(loss) before taxatio 345 18 363 (54) 141 87 Taxatio (20) (17) (37) 15 (27) (12) Profit/(loss from cotiuig operatios 325 1 326 (39) 114 75 profit attributable to o-cotrollig iterests (20) 15 (5) (2) (2) earigs 305 16 321 (41) 114 73 earigs per share p 19.6 1.1 20.7 (3.2) 8.9 5.7 (b) Summary by segmet 2010 2009 restated Tradig Tradig Sales profit Margi Sales profit Margi m m m m Drivelie 2,433 169 6.9% 1,803 10 0.6% powder Metallurgy 759 54 7.1% 512 (7) (1.4)% aerospace 1,451 162 11.2% 1,486 169 11.4% Lad Systems 699 37 5.3% 593 (3) (0.5)% other busiesses (Cylider Liers ad emitec) 87 3 60 (1) Corporate ad uallocated costs (14) (12) 5,429 411 7.6% 4,454 156 3.5%

/ 79 4 Operatig profit The aalysis of the compoets of operatig profit is show below: (a) Tradig profit 2010 2009 restated m m Sales by subsidiaries 5,084 4,223 Less: Busiesses sold ad closed axles (10) (14) 5,074 4,209 Operatig costs Chage i stocks of fiished goods ad work i progress 31 (82) raw materials ad cosumables (2,157) (1,747) Staff costs (ote 10) (1,346) (1,219) reorgaisatio costs (ii): redudacy ad other employee related amouts (4) (3) Impairmet of plat ad equipmet Depreciatio of property, plat ad equipmet (iii) (191) (193) Impairmet of plat ad equipmet (2) (2) amortisatio of itagible assets (10) (11) operatig lease retals payable: plat ad equipmet (13) (13) property (32) (29) Impairmet of trade receivables (7) (4) amortisatio of govermet capital grats 1 1 Net exchage differeces o foreig currecy trasactios 2 7 other costs (979) (781) (4,707) (4,076) Tradig profit 367 133 (i) ebitda is subsidiary tradig profit before depreciatio, impairmet ad amortisatio charges icluded i tradig profit. ebitda i 2010 was 570 millio (2009 restated 339 millio). (ii) reorgaisatio costs show above reflect ogoig actios i the ordiary course of busiess to reduce costs, improve productivity ad ratioalise facilities i cotiuig operatios. (iii) Icludig depreciatio charged o assets held uder fiace leases of 1 millio (2009: 1 millio). (iv) research ad developmet expediture i subsidiaries was 92 millio (2009: 83 millio). (v) other costs iclude less tha 1 millio i respect of directly attributable expeses o busiess combiatios. (vi) Auditors remueratio The aalysis of auditors remueratio is as follows: 2010 2009 m m Fees payable to pricewaterhousecoopers LLp for the Compay s aual fiacial statemets (0.6) (0.7) Fees payable to pricewaterhousecoopers LLp ad their associates for other services to the Group: audit of the Compay s subsidiaries pursuat to legislatio (3.1) (3.2) Total audit fees (3.7) (3.9) other services pursuat to legislatio rights issue (1.1) other (0.1) (0.1) Tax services (0.6) (0.6) Corporate fiace trasactio services other services (0.1) (0.1) Total o-audit fees Fees payable to pricewaterhousecoopers LLp ad their associates i respect of associated pesio schemes: audit other services (0.8) (1.9) Total fees payable to pricewaterhousecoopers LLp ad their associates (4.5) (5.8) GKN plc aual report ad accouts 2010

80 / NoTeS To THe FINaNCIaL STaTeMeNTS CoNTINUeD 4 Operatig profit (cotiued) (a) Tradig profit (cotiued) (vi) Auditors remueratio (cotiued) all fees payable to pricewaterhousecoopers LLp, the Compay s auditors, iclude amouts i respect of expeses. all fees payable to pricewaterhousecoopers LLp have bee charged to the icome statemet except for those i relatio to associated pesio schemes, which are bore by the respective schemes, those i respect of the rights issue, which were charged to share premium ad fees which relate to directly attributable expeses o busiess combiatios which occurred prior to 1 Jauary 2010 which have bee capitalised. (b) Restructurig ad impairmet charges 2008 Restructurig programme The 2008 programme restructurig actios comprise facility ad operatio closures, permaet headcout reductios achieved through redudacy programmes ad the structured use of short-time workig arragemets, available through atioal or state legislatio, by europea, Japaese ad North america subsidiaries. Short-time workig arragemets cocluded i the year. 2008 Restructurig programme Goodwill impairmet Fixed asset impairmets/reversals other asset write-dows Impairmets 2010 2009 m m (7) (2) (3) (12) Short-time workig costs (2) (24) redudacy ad post-employmet costs (12) (86) other reorgaisatio costs (25) (22) redudacy ad other costs (39) (132) Subsidiaries (39) (144) Joit vetures impairmet reversal 3 Subsidiaries ad joit vetures (39) (141) 2008 Restructurig programme aalysis by segmet 2010 2009 restated Redudacy redudacy Impairmets Short-time ad other Impairmets Short-time ad other /reversals workig costs Total /reversals workig costs Total m m m m m m m m Drivelie 1 (2) (28) (29) 1 (19) (61) (79) powder Metallurgy (1) (1) (4) (16) (20) aerospace (4) (4) (1) (9) (10) Lad Systems (1) (4) (5) (1) (19) (20) Busiesses sold ad closed axles (9) (3) (12) Corporate (2) (37) (39) (9) (24) (108) (141) Subsidiaries (2) (37) (39) (12) (24) (108) (144) Joit vetures 3 3 I Drivelie, reorgaisatio costs of 16 millio have bee charged i respect of the aouced UK ad Japaese site ratioalisatio iitiatives ad redudacy ad reorgaisatio charges of 12 millio were made regardig headcout ad capacity reductio actios i europea operatios. Short-time workig arragemets cocluded i the year with 2 millio charged i europea ad Japaese operatios. The impairmet reversal arose i the UK followig completio of the sale of oe site. I powder Metallurgy, a further 1 millio of itegratio costs were charged i fialisatio of the europea ratioalisatio. I aerospace, actios icluded the aoucemet of the closure of oe facility i Frace, with a 2 millio charge made i respect of redudacy costs. I Lad Systems, actios iitiated i the former offhighway segmet, autostructures ad Idustrial ad Distributio Services have cotiued. These icluded ratioalisatio at a UK facility with associated redudacy costs of 1 millio, restructurig of the europea distributio etwork icludig redudacy charges of 1 millio ad fixed asset impairmets of 1 millio ad reorgaisatio costs of 1 millio associated with maufacturig cocetratio iitiatives i North america. Cash outflow i respect of the 2008 ad 2004 restructurig plas was 55 millio (2009: 99 millio). proceeds from sale of fixed assets, put out of use as part of the 2008 restructurig programme, of 2 millio were recogised i the year (2009: il).

/ 81 4 Operatig profit (cotiued) (c) Chage i value of derivative ad other fiacial istrumets 2010 2009 m m Forward currecy cotracts (ot hedge accouted) (3) 106 embedded derivatives 3 (29) Commodity cotracts (ot hedge accouted) 2 79 Net gais ad losses o itra-group fudig arisig i year 12 5 reclassified i year (8) 12 (3) 12 76 IaS 39 requires derivative fiacial istrumets to be valued at the balace sheet date ad ay differece betwee that value ad the itrisic value of the istrumet to be reflected i the balace sheet as a asset or liability. ay subsequet chage i value is reflected i the icome statemet uless hedge accoutig is achieved. Such movemets do ot affect cash flow or the ecoomic substace of the uderlyig trasactio. I 2010 ad 2009 the Group used trasactioal hedge accoutig i a limited umber of istaces. (d) Amortisatio of o-operatig itagible assets arisig o busiess combiatios 2010 2009 m m Marketig related Customer related Techology based (1) (16) (20) (3) (3) (19) (24) (e) Gais ad losses o chages i Group structure 2010 2009 restated m m profits ad losses o sale or closure of busiesses Busiess sold ad closed axles Tradig losses (2) (4) Tagible fixed asset impairmet (1) other asset write dows (3) recyclig of cumulative traslatioal currecy adjustmets 1 profit o sale of joit veture 2 Ivestmet write up o acquisitio of GKN aerospace Services Structures Corp. 1 (4) (2) o 1 September 2010 the Group cocluded the sale of the europea agricultural axles operatios of the former offhighway axles busiess to Sviluppo europa Spa, a subsidiary of La Leoessa Spa, with other operatios closed durig the year. Sale proceeds were 5 millio. GKN plc aual report ad accouts 2010

82 / NoTeS To THe FINaNCIaL STaTeMeNTS CoNTINUeD 5 Net fiacig costs 2010 2009 m m (a) Iterest payable ad fee expese Short term bak ad other borrowigs (7) (13) Loas repayable withi five years (15) (24) Loas repayable after five years (24) (24) Bod buy back premium (1) (7) Govermet refudable advaces (2) Borrowig costs capitalised 4 1 Fiace leases (1) (46) (67) Iterest receivable Short term ivestmets, loas ad deposits 6 3 Net iterest payable ad receivable (40) (64) The capitalisatio rate o specific fudig was 5.6% (2009: 6.4%) ad o geeral borrowigs was 6.8% (2009: 6.1%). 2010 2009 m m (b) other et fiacig charges expected retur o scheme assets 145 121 Iterest o post-employmet obligatios (176) (170) post-employmet fiace charges (31) (49) Uwid of discouts (4) (1) (35) (50) 6 Taxatio (a) Tax expese 2010 2009 Aalysis of charge i year m m Curret tax (charge)/credit Curret year charge (65) (31) Utilisatio of previously urecogised tax losses ad other assets 20 1 Net movemet o provisios for ucertai tax positios (27) 25 adjustmets i respect of prior years (1) 5 (73) Deferred tax (charge)/credit origiatio ad reversal of temporary differeces (23) 54 Tax o chage i value of derivative fiacial istrumets (2) (3) other chages i urecogised deferred tax assets 72 (41) Chages i tax rates (2) 2 adjustmets i respect of prior years 8 3 53 15 Total tax (charge)/credit for the year (20) 15

/ 83 6 Taxatio (cotiued) (a) Tax expese (cotiued) Aalysed as: 2010 2009 restated Tax i respect of maagemet profit m m Curret tax (84) (1) Deferred tax 47 (11) (37) (12) Tax i respect of items excluded from maagemet profit Curret tax credit 11 1 Deferred tax credit 6 26 17 27 Total for tax (charge)/credit for the year (20) 15 Maagemet tax rate The tax charge arisig o maagemet profits of subsidiaries of 327 millio was 37 millio (2009 restated: 12 millio charge) givig a effective tax rate of 11% (2009 restated: 17%). The Group is required to estimate the icome tax due i each of the jurisdictios i which it operates. This requires a estimatio of the curret tax liability together with a assessmet of the temporary differeces which arise as a cosequece of differig accoutig ad tax treatmets. These temporary differeces result i deferred tax assets or liabilities which are measured usig substatively eacted tax rates expected to apply whe the temporary differeces reverse. recogitio of deferred tax assets, ad hece credits to the icome statemet, is based o forecast future taxable icome ad therefore ivolves the exercise of maagemet s judgemet regardig the future fiacial performace of particular legal etities or tax groups i which the deferred tax assets are recogised. The Group is subject to may differet tax jurisdictios ad tax rules as a cosequece of its geographic spread. It is also subject to tax audits which, by their ature, are ofte complex ad ca require several years to coclude. The total accrual for icome tax i ay year requires the exercise of maagemet judgemet i respect of the iterpretatio of coutry specific tax law ad the likelihood of challege of ucertai tax positios ad their subsequet settlemet. Where appropriate, estimates of iterest ad pealties are icluded i these provisios for ucertai tax positios. Tax beefits are ot recogised uless it is probable that the tax positios are sustaiable. as amouts set aside i ay year could differ from actual tax liabilities, adjustmets may be required i subsequet years which may have a material impact o the Group s icome statemet ad/or cash tax paymets. paymets i respect of tax liabilities for a accoutig period comprise paymets o accout ad paymets o the fial resolutio of ope items with tax authorities ad, as a result, there ca be substatial differeces betwee the charge i the icome statemet ad cash tax paymets. Details of the effective tax rate for the Group ad the uderlyig evets ad trasactios affectig this are give o page 28. 2010 2009 Tax recociliatio m % m % profit/(loss) before tax 345 (54) Less share of post-tax earigs of joit vetures (35) (21) profit/(loss) before tax excludig joit vetures 310 (75) Tax (charge)/credit calculated at 28% stadard UK corporate tax rate (87) (28) 21 28 Differeces betwee UK ad overseas corporate tax rates 8 3 2 3 No-deductible ad o-taxable items (11) (4) (3) (4) Utilisatio of previously urecogised tax losses ad other assets 20 7 1 1 other chages i urecogised deferred tax assets 72 23 (41) (55) Chages i tax rates (2) (1) 2 3 Curret year tax (charge)/credit o ordiary activities (18) (24) Net movemet o provisio for ucertai tax positios (27) (8) 25 33 other adjustmets i respect of prior years 7 2 8 11 Total tax (charge)/credit for the year (20) (6) 15 20 GKN plc aual report ad accouts 2010

84 / NoTeS To THe FINaNCIaL STaTeMeNTS CoNTINUeD 6 Taxatio (cotiued) (b) Tax icluded i comprehesive icome 2010 2009 m m Deferred tax o post-employmet obligatios 46 14 Deferred tax o o-qualifyig assets (1) Deferred tax o foreig currecy gais ad losses o itra-group fudig (3) (2) Curret tax o post-employmet obligatios 14 Curret tax o foreig currecy gais ad losses o itra-group fudig 1 6 58 17 (c) Curret tax 2010 2009 m m assets 10 13 Liabilities (100) (79) (90) (66) (d) Recogised deferred tax 2010 2009 m m Deferred tax assets 171 71 Deferred tax liabilities (63) (57) 108 14 There is a et 53 millio deferred tax credit to the icome statemet i the year, primarily o accout of the recogitio of previously urecogised future tax deductios i the US. I additio, a deferred tax credit of 46 millio has bee recorded directly i other comprehesive icome i relatio to the availability of future tax deductios for post-employmet cotributios i the US ad UK. The recogitio of these assets has bee based o maagemet projectios which idicate the availability of taxable profits to absorb the deductios i future years. I territories where there is more ucertaity regardig the availability of a sufficiet level of future taxable profits, deferred tax assets have ot bee recogised i full. The movemets i deferred tax assets ad liabilities (prior to the offsettig of balaces withi the same jurisdictio as permitted by IaS 12) durig the year are show below: Assets Liabilities Total Postemploymet obligatios Tax losses Other Fixed assets Other m m m m m m At 1 Jauary 2010 74 45 46 (145) (6) 14 other movemets 2 (2) Icluded i the icome statemet (11) 75 1 (12) 53 Icluded i other comprehesive icome 46 (3) 43 Busiesses acquired (3) (3) Currecy variatios 1 1 At 31 December 2010 111 120 47 (161) (9) 108 at 1 Jauary 2009 44 27 87 (166) (3) (11) other movemets 32 (32) Icluded i the icome statemet (9) 19 (5) 10 15 Icluded i other comprehesive icome 14 (1) (2) 11 Busiesses acquired 1 1 Currecy variatios (8) (1) (4) 12 (1) (2) at 31 December 2009 74 45 46 (145) (6) 14 Deferred tax assets totallig 39 millio (2009: 41 millio) have bee recogised relatig to territories where tax losses have bee icurred i the year. It is aticipated that future profitability arisig from restructurig ad other actios will result i their realisatio.

/ 85 6 Taxatio (cotiued) (e) urecogised deferred tax assets Deferred tax assets have ot bee recogised i relatio to certai tax losses ad other temporary differeces o the basis that the Group s ability to utilise them i the future is ucertai. The gross ad tax values of these urecogised assets together with ay expiry periods, where relevat, are show below. 2010 2009 Tax value Gross Expiry Tax value Gross expiry m m period m m period Tax losses with expiry: atioal 215 619 2011-2030 293 846 2010-2029 Tax losses with expiry: local 41 480 2011-2030 41 491 2010-2029 Tax losses without expiry 109 399 105 349 Total tax losses 365 1,498 439 1,686 post-employmet obligatios 66 245 149 518 other temporary differeces 38 136 43 142 Total other temporary differeces 104 381 192 660 Urecogised deferred tax assets 469 1,879 631 2,346 No deferred tax is recogised o the uremitted earigs of overseas subsidiaries except where the distributio of such profits is plaed. If the earigs were remitted i full tax of 25 millio (2009: 19 millio) would be payable. (f) Pesio partership Note 26 refers to a asset-backed cash paymet arragemet which the Group has agreed with the Trustee of the UK pesio scheme. as a result of this arragemet, the Group will obtai UK tax deductios spread over 4 years for the 331 millio iitial cash pesio cotributio. over the ext 20 years, the Group is also expected to obtai tax deductios for the remaiig 269 millio of the total amout likely to be paid to the UK pesio scheme. Where there is isufficiet tax capacity to utilise these two types of tax deductios as they fall due, they will be carried forward as tax losses with the potetial to be used to reduce future taxable profits i the UK. as this arragemet has bee put i place to fud a pesio deficit which arose partly as a result of actuarial losses, the curret tax beefits for the deductios will be reflected partly i other comprehesive icome ad partly i the icome statemet as they are utilised. Curret tax beefits of 17 millio ( 3 millio icome statemet; 14 millio other comprehesive icome) have bee recogised i the year i this respect. a deferred tax asset of 26 millio has bee recogised o the balace sheet ( 5 millio icome statemet; 21 millio other comprehesive icome) i respect of the iitial cash pesio cotributio. Further deferred tax assets may become recogisable i the future. Similar to the curret tax credits referred to above, the deferred tax credits for these deferred tax assets are recogised partly i other comprehesive icome ad partly i the icome statemet. (g) Chages i uk tax rate o 22 Jue 2010, the UK Govermet aouced a umber of tax measures i its emergecy Budget, icludig a phased reductio i the maistream rate of UK corporatio tax from 28% to 24% over the ext four years. The first stage of these reductios, to 27%, had bee eacted at the year ed, with the result that the recogised UK deferred tax asset was valued at 27%. as further reductios to reach the aticipated 24% rate are eacted, there will be a correspodig reductio i the value of UK deferred tax assets sice deferred tax is measured at the prevailig tax rate. Sice a large part of the potetial UK deferred tax asset curretly remais urecogised, there is ot expected to be a material impact o the tax rate. (h) Fraked ivestmet icome litigatio Sice 2003 the Group has bee ivolved i litigatio with HMrC i respect of various advace corporatio tax paymets made ad corporate tax paid o certai foreig divided receipts which, i its view, were levied by HMrC i breach of the Group s eu commuity law rights. Durig 2009, the Group received a 4 millio paymet o accout from HMrC i respect of the litigatio, but followig a Court of appeal judgemet issued o 23 February 2010 3 millio of this paymet o accout was repaid to HMrC. This has had o impact o the icome statemet. a further Court of appeal hearig to decide whether the remaiig paymet o accout should be repaid will take place i early 2011. The mai case has bee appealed both to the UK Supreme Court (o effective remedies) ad to the europea Court of Justice (for further guidace o breach of commuity law) ad these judgemets are ot expected util late 2011/early 2012. The cotiuig complexity of the case ad ucertaity over the issues raised meas that it is ot possible to predict the fial outcome of the litigatio with ay reasoable degree of certaity ad, as a result, o cotiget asset has bee recogised. 7 Discotiued operatios 2010 2009 m m reversal of 2008 discotiued tax charge 5 There were o discotiued operatios i 2010. GKN plc aual report ad accouts 2010

86 / NoTeS To THe FINaNCIaL STaTeMeNTS CoNTINUeD 8 Earigs per share 2010 2009 Weighted Weighted average average umber of Earigs per umber of earigs per Earigs shares share earigs shares share m m pece m m pece Cotiuig operatios Basic eps 305 1,552.6 19.6 (41) 1,271.7 (3.2) Dilutive securities 0.7 Diluted eps 305 1,553.3 19.6 (41) 1,271.7 (3.2) 2009 total basic ad total diluted eps were (2.8)p. 2009 discotiued basic ad discotiued diluted eps were 0.4p. 9 Divideds Paid or proposed i respect of Recogised 2010 2009 2011 2010 2009 pece pece m m m 2009 iterim divided paid 2009 fial year divided paid 2010 iterim divided paid 1.5 23 2010 fial year divided proposed 3.5 54 5.0 54 23 The 2010 fial year proposed divided will be paid o 19 May 2011 to shareholders who are o the register of members at close of busiess o 26 april 2011. 10 Employees icludig Directors 2010 2009 Employee beefit expese m m Wages ad salaries Social security costs post-employmet costs Share-based paymets (1,128) (1,021) (179) (166) (40) (35) (3) (2) (1,350) (1,224) amouts icluded above relatig to the former offhighway axles busiess are wages ad salaries 3 millio (2009: 4 millio) ad social security 1 millio (2009: 1 millio). Short-time workig expese of 2 millio (2009: 24 millio) icluded i restructurig charges comprises wages ad salaries 2 millio (2009: 17 millio) ad social security costs il (2009: 7 millio). 2010 2009 restated Average mothly umber of subsidiary employees (icludig Executive Directors) Number Number By busiess Drivelie 15,472 15,341 powder Metallurgy 5,738 5,552 aerospace 8,609 8,958 Lad Systems 4,294 4,492 other busiesses 716 638 Busiesses sold ad closed axles 98 152 Corporate 169 182 Total 35,096 35,315

/ 87 10 Employees icludig Directors (cotiued) Key maagemet The key maagemet of the Group comprises GKN plc Board Directors ad the members of the Group s executive Committee durig the year ad their aggregate compesatio is show below. More detailed disclosure o Directors remueratio is set out i the Directors remueratio report o pages 48 to 58. 2010 2009 Key maagemet compesatio m m Salaries ad short term employee beefits 6.0 5.6 post-employmet beefits 0.8 0.7 Termiatio beefits 0.5 Share-based ad medium term icetives ad beefits 3.2 1.0 10.0 7.8 The amout outstadig at 31 December 2010 i respect of aual short term variable remueratio payable i cash was 1.8 millio (2009: 1.4 millio). Key maagemet participate i certai icetive arragemets where the key performace metric is maagemet earigs per share usig the cash tax rate which is discussed o page 28 of the busiess review. Maagemet eps usig the cash tax rate is 20.4p (2009: 5.1p). a total of 27,100 i divideds was received by key maagemet i 2010 (2009: il). 11 Share-based paymets The Group has grated optios over shares to employees for a umber of years uder differet schemes. Where grats were made after 7 November 2002 they have bee accouted for as required by IFrS 2 Share-based paymet. awards made before that date have ot bee so accouted. all optios have bee valued at the date of grat by a idepedet third party usig a Mote Carlo model which uses the same priciple as a biomial model. Details of awards made i 2010 are set out below. Details of awards made sice 7 November 2002 that impact the 2010 accoutig charge are: (a) Executive Share Optio Schemes (ESOS) awards were made to Directors ad certai seior employees i March 2003 uder the 2001 scheme ad i September 2004, april 2005, april 2006, august 2009 ad May 2010 uder the 2004 scheme. I april 2007 awards were made to Directors uder the 2004 scheme. Uder both schemes optios were grated with a fixed exercise price equal to the market price at the date of grat ad subject to meetig performace coditios over a three year period. I the case of the 2001 scheme, the performace coditio was based o earigs per share (eps) growth whilst uder the 2004 scheme the coditio is based o Total Shareholder retur (TSr) compared with that of comparator compaies. Uder the 2001 scheme oly, where the performace coditio is ot satisfied i full after the first three years, retestig is carried out each year up to six years from the date of grat. Iputs to the valuatio model were: optio price 110.08p to 380.3p, volatility 31% to 38%, expected divided yield 3.3% to 6.2%, risk-free iterest rate 2.80% to 5.40% ad expected terms of 6.0 years to 6.7 years. (b) Log Term Icetive Plas (LTIP) awards were made to Directors ad certai seior employees i March 2003 uder the 2001 scheme ad i September 2004, april 2006, april 2007, august 2009 ad august 2010 uder the 2004 scheme. I april 2005 awards were made to Directors uder the 2004 scheme. Uder both schemes, optios were grated subject to TSr performace over a three year period compared with a comparator group. There is o retest facility uder either scheme. Iputs to the valuatio model for awards made prior to 2009 were: optio price il, volatility 23% to 39%, expected divided yield 3.3% to 6.2%, risk-free iterest rate 4.05% to 5.40% ad a term of 3 years to 4 years 9.5 moths. I respect of the 2009 ad 2010 awards, the iputs to the valuatio model were: optio price il, volatility il, expected divided yield 4.5%, ad a term of 4 years. These awards were oly made to mai Board Directors. (c) Profit Growth Icetive Pla (PGIP) awards were made i april 2007 ad august 2010 uder the pgip to certai seior employees (excludig Directors). ay beefit uder the pgip will be deliverable depedet upo the extet to which profit growth targets are satisfied by the Group over a 3 year performace period. The pgip is a cash-based icetive pla, however, for certai very seior employees the beefit is deliverable i shares; the umber of shares give below will be released followig the performace period if the miimum targeted profit growth is achieved. a maximum of twice the amout of shares listed below will be released o achievemet of the maximum profit growth target, with oe ad a half times the umber beig released for iterim performace. No shares will be released ad the awards will lapse if the miimum profit growth target is ot achieved. release is also coditioal upo the satisfactio of a persoal shareholdig requiremet for certai very seior employees. ay awards deliverable uder the pgip will be satisfied from GKN ordiary shares already i issue. The 2009 pgip award is a 2 year award that is etirely cash based ad therefore ot subject to the IFrS 2 requiremets. ay beefit uder this scheme will be delivered depedet upo the extet to which profit growth targets are satisfied by the Group over a 2 year performace period. The expected volatility is based o historical volatility over a period commesurate with the term of the awards. The risk-free iterest rate is the rate obtaiable from govermet securities over the expected life of the equity icetive. Further details of the esos, LTIp ad pgip schemes are give i the Directors remueratio report o pages 48 to 58. GKN plc aual report ad accouts 2010

88 / NoTeS To THe FINaNCIaL STaTeMeNTS CoNTINUeD 11 Share-based paymets (cotiued) a recociliatio of optio movemets over the year to 31 December 2010 is show below: 2010 2009 Weighted Weighted average average Number exercise price Number exercise price 000s pece 000s pece outstadig at 1 Jauary 17,096 121.32 7,381 247.34 Grated 5,446 134.70 Forfeited (1,289) 178.28 (3,548) 279.33 exercised (636) 112.03 outstadig at 21 July 3,833 217.73 post rights issue adjustmet for rights issue 1,839 146.97 Grated 12,257 110.16 Forfeited (648) 138.04 exercised (185) 110.04 outstadig at 31 December 20,617 121.58 17,096 121.32 exercisable at 31 December 3,666 138.28 4,590 135.25 For optios outstadig at 31 December the rage of exercise prices ad weighted average cotractual life is show i the followig table: 2010 2009 Cotractual Cotractual weighted weighted Number average Number average of shares remaiig life of shares remaiig life Rage of exercise price 000s years 000s years 110p-180p 19,613 7.95 15,492 8.16 205p-230p 1,004 1.21 1,088 2.21 240p-260p 516 7.25 The weighted average share price durig the year for optios exercised over the year was 146.60p (2009: 110.04p). The total charge for the year relatig to share-based paymet plas was 3 millio (2009: 2 millio) all of which related to equity-settled share-based paymet trasactios. after deferred tax, the total charge was 3 millio (2009: 2 millio). Liabilities i respect of share-based paymets were ot material at either 31 December 2010 or 31 December 2009. There were o vested rights to cash or other assets at either 31 December 2010 or 31 December 2009. 12 Goodwill ad other itagible assets 2010 2009 Goodwill m m Cost at 1 Jauary 507 549 Busiesses acquired 4 8 Currecy variatios 16 (50) At 31 December 527 507 Accumulated impairmet at 1 Jauary 169 182 Impairmet losses 7 Currecy variatios 8 (20) At 31 December 177 169 Net book amout at 31 December 350 338

/ 89 12 Goodwill ad other itagible assets (cotiued) The carryig value of goodwill at 31 December comprised: 2010 2009 reportable segmet Busiess Geographical locatio m m Drivelie Drivelie americas 58 55 Drivelie europe 18 19 powder Metallurgy Hoegaaes North america 22 21 aerospace aerostructures North america 32 31 propulsio Systems North america 97 94 propulsio Systems North america 38 37 Lad Systems Wheels ad structures Italy 20 21 285 278 other busiesses ot idividually sigificat to the carryig value of goodwill 65 60 350 338 a impairmet test is a compariso of the carryig value of the assets of a busiess or cash geeratig uit (CGU) to their recoverable amout. Where the recoverable amout is less tha the carryig value, a impairmet results. Durig the year, all goodwill was tested for impairmet with o impairmet charges resultig. For the purposes of carryig out impairmet tests, the Group s total goodwill has bee allocated to a umber of CGUs ad each of these CGUs has bee separately assessed ad tested. The size of a CGU varies but is ever larger tha a primary or secodary reportable segmet. I some cases, a CGU is a idividual subsidiary or operatio. all of the recoverable amouts were measured based o value i use. Detailed forecasts for the ext five years have bee used which are based o approved aual budgets ad strategic projectios represetig the best estimate of future performace. I the case of a idividual CGU withi the Group s aerospace (propulsio Systems) busiess, value i use at 31 December 2010 was measured usig operatig cash flow projectios coverig the ext te years which icorporate the aticipated timig of volumes o curret programmes. Maagemet cosider forecastig over this period to more appropriately reflect the legth of busiess cycle of that CGU s programmes, i particular the growth of certai military programmes. Key assumptios I determiig the recoverable amout of all CGUs it is ecessary to make a series of assumptios to estimate the preset value of future cash flows. I each case, these key assumptios have bee made by maagemet reflectig past experiece ad are cosistet with relevat exteral sources of iformatio. Operatig cash flows The mai assumptios withi forecast operatig cash flow iclude the achievemet of future sales prices ad volumes (icludig referece to specific customer relatioships, product lies ad the use of idustry relevat exteral forecasts of global vehicle productio withi Drivelie busiesses ad cosideratio of specific volumes o certai US military ad civil programmes withi aerospace), raw material iput costs, the cost structure of each CGU ad the ability to realise beefits from aual productivity improvemets, the impact of foreig currecy rates upo sellig price ad cost relatioships ad the levels of ogoig capital expediture required to support forecast productio. Pre-tax risk adjusted discout rates pre-tax risk adjusted discout rates are derived from risk-free rates based upo log term govermet bods i the territory, or territories, withi which each CGU operates. a relative risk adjustmet (or beta ) has bee applied to risk-free rates to reflect the risk iheret i each CGU relative to all other sectors o average, determied usig a average of the betas of comparable listed compaies. The rage of pre-tax risk adjusted discout rates set out below have bee used for impairmet testig. The rage of rates reflects the mix of geographical territories withi CGUs withi the reportable segmets. Drivelie: North ad South america 13%-24% (2009: 13%-24%), europe 12%-13% (2009: 12%-13%) ad Japa ad asia pacific regio coutries 10%-17% (2009: 10%-17%). powder Metallurgy: europe 12% (2009: 12%) ad North america 13% (2009: 13%). aerospace: europe 11% (2009: 11%) ad North america 12% (2009: 12%). Lad Systems: europe 12% (2009: 12%) ad North america 13% (2009: 13%). GKN plc aual report ad accouts 2010

90 / NoTeS To THe FINaNCIaL STaTeMeNTS CoNTINUeD 12 Goodwill ad other itagible assets (cotiued) Key assumptios (cotiued) Log term growth rates To forecast beyod the five years covered by detailed forecasts ito perpetuity, a log term average growth rate has bee used. I each case, this is ot greater tha the published oxford ecoomic Forecast average growth rate i gross domestic product for the ext five year period i the territory or territories where the CGU is primarily based. This results i a rage of omial growth rates from 1% to 9% (2009: 1% to 9%) with most coutries betwee 2% ad 4% i both years. Goodwill sesitivity aalysis The results of the Group s impairmet tests are depedet upo estimates ad judgemets made by maagemet, particularly i relatio to the key assumptios described above. Sesitivity aalysis to likely ad potetial chages i key assumptios has therefore bee reviewed. at 31 December 2010, the date of the Group s aual impairmet test, the estimated recoverable amout of two idividual CGUs withi the Group s aerospace operatios ad oe CGU withi the Group s Drivelie operatios exceeded their carryig value by 53 millio, 11 millio ad 74 millio respectively. The table below shows the discout rate, log term growth rate ad forecast operatig cashflow assumptios used i the calculatio of value i use ad the amout by which each assumptio must chage i isolatio i order for the estimated recoverable amout to exceed the carryig value. Segmet Drivelie aerospace propulsio propulsio Busiess americas Systems Systems Value i use excess over carryig value 74m 53m 11m assumptios used i calculatio of value i use pre-tax adjusted discout rate 13% 12% 12% Log term growth rate 3% 3% 3% Total pre-discouted forecast operatig cashflow 955m 527m 178m Chage required for the carryig value to exceed the recoverable amout pre-tax adjusted discout rate 2.0% pts 2.3% pts 2.6% pts Log term growth rate 3.3% pts 5.9% pts 14.1% pts Total pre-discouted forecast operatig cashflow 15% 25% 10% other tha as disclosed above, it is ot cosidered that a reasoably possible chage i ay of the key assumptios would geerate a differet impairmet test outcome to the oe icluded i this aual report. 2010 2009 Assets assets arisig o arisig o Developmet Computer busiess Developmet Computer busiess costs software combiatios Total costs software combiatios Total Other Itagible Assets m m m m m m m m Cost at 1 Jauary 101 99 170 370 109 104 97 310 Busiesses acquired 9 9 84 84 additios 24 6 30 12 3 15 Capitalised borrowig costs 1 1 Disposals (3) (3) (19) (1) (20) Currecy variatios 2 3 5 (1) (7) (11) (19) At 31 December 126 104 182 412 101 99 170 370 Accumulated amortisatio at 1 Jauary 48 83 52 183 44 82 31 157 Charge for the year Charged to tradig profit 3 7 10 4 7 11 No-operatig itagible assets 19 19 24 24 restructurig ad impairmet 1 1 Disposals (3) (3) (1) (1) Currecy variatios 1 1 2 (5) (3) (8) At 31 December 51 89 72 212 48 83 52 183 Net book amout at 31 December 75 15 110 200 53 16 118 187 other itagible assets iclude developmet costs of 28 millio (2009: 11 millio) which is i the course of developmet ad 14 millio (2009: 15 millio) with a remaiig amortisatio period of up to 9 years (2009: 10 years) i respect of two aerospace programmes ad 61 millio (2009: 70 millio) i respect of a customer relatioship asset arisig from oe busiess combiatio with a remaiig amortisatio period of 7 years (2009: 8 years). The et book amout of assets arisig o busiess combiatios icludes marketig related assets of 4 millio (2009: 4 millio), customer related assets of 93 millio (2009: 103 millio) ad techology based assets of 13 millio (2009: 11 millio).

/ 91 13 Property, plat ad equipmet 2010 2009 Other Capital other Capital Lad ad tagible work i Lad ad tagible work i buildigs assets progress Total buildigs assets progress Total m m m m m m m m Cost at 1 Jauary 660 3,564 82 4,306 696 3,743 123 4,562 Busiesses acquired 1 1 1 3 57 57 additios 20 97 63 180 15 90 16 121 Capitalised borrowig costs 1 2 3 1 1 Disposals (5) (93) (98) (2) (84) (86) Busiesses sold (8) (8) Trasfers 58 (58) 4 43 (47) Currecy variatios 16 57 3 76 (53) (286) (10) (349) At 31 December 693 3,678 91 4,462 660 3,564 82 4,306 Accumulated depreciatio ad impairmet at 1 Jauary 185 2,485 2,670 184 2,581 2,765 Charge for the year Charged to tradig profit Depreciatio 17 174 191 16 177 193 Impairmets 1 1 2 2 2 restructurig ad impairmet (1) (1) 2 2 Busiesses sold ad closed 1 1 Disposals (3) (91) (94) (1) (75) (76) Busiesses sold (4) (4) Currecy variatios 8 38 46 (14) (202) (216) At 31 December 208 2,603 2,811 185 2,485 2,670 Net book amout at 31 December 485 1,075 91 1,651 475 1,079 82 1,636 Icluded withi other tagible assets at et book amout are geeral plat, machiery ad steel powder productio plat 1,056 millio (2009: 1,055 millio), fixtures, fittigs ad computers 17 millio (2009: 22 millio) ad commercial vehicles ad cars 2 millio (2009: 2 millio). The et book amout of assets uder fiace leases is lad ad buildigs 2 millio (2009: 2 millio) ad plat ad equipmet il (2009: 1 millio). 14 Ivestmets i joit vetures Group share of results 2010 2009 m m Sales 355 245 operatig costs (311) (222) Tradig profit 44 23 Net fiacig costs (1) (1) profit before taxatio 43 22 Taxatio (7) (4) Share of post-tax earigs before exceptioal ad o-tradig items 36 18 amortisatio of o-operatig itagible assets arisig o busiess combiatios ad other et fiacig charges, icludig tax of il (1) Impairmet reversal, icludig tax of il 3 Share of post-tax earigs 35 21 GKN plc aual report ad accouts 2010

92 / NoTeS To THe FINaNCIaL STaTeMeNTS CoNTINUeD 14 Ivestmets i joit vetures (cotiued) Group share of et book amout 2010 2009 Group Provisios Group provisios share of for Net book share of for Net book equity impairmet amout equity impairmet amout m m m m m m at 1 Jauary 113 (1) 112 129 (10) 119 Share of post-tax earigs of joit vetures 35 35 18 3 21 Utilisatio of provisio (1) 1 (1) 1 actuarial gais o post-employmet obligatios, icludig deferred tax Divideds paid (23) (23) (15) (15) additios 10 10 2 2 Disposals (7) 4 (3) Currecy variatios 9 9 (13) 1 (12) At 31 December 143 143 113 (1) 112 2010 2009 m m No-curret assets 117 86 Curret assets 139 99 Curret liabilities (87) (61) No-curret liabilities (26) (12) 143 112 The joit vetures have o sigificat cotiget liabilities to which the Group is exposed ad or has the Group ay sigificat cotiget liabilities i relatio to its iterest i the joit vetures. The share of capital commitmets of the joit vetures are show i ote 29. o 15 September 2010, emitec the Group s 50% joit veture with Cotietal ag acquired Grudfos NoNox Holdigs a/s from Grudfos Holdig a/s. 15 Other receivables ad ivestmets 2010 2009 m m other ivestmets 1 Idirect taxes ad amouts recoverable uder employee beefit plas 20 19 other receivables 3 4 23 24 16 Ivetories 2010 2009 m m raw materials 305 266 Work i progress 208 188 Fiished goods 124 109 637 563 Ivetories of 65 millio (2009: 59 millio) are carried at et realisable value. The amout of ay write dow of ivetory recogised as a expese i the year was 4 millio (2009: 1 millio).

/ 93 17 Trade ad other receivables 2010 2009 m m Trade receivables 664 547 amouts owed by joit vetures 17 15 Loa to GKN aerospace Services Structures Corp. 11 other receivables 36 29 prepaymets 17 15 Idirect taxes recoverable 28 27 762 644 provisios for doubtful debts agaist trade receivables at 1 Jauary (8) (9) Charge for the year additios (7) (4) Uused amouts reversed 2 2 amouts used 3 2 Currecy variatios 1 At 31 December (10) (8) Trade receivables subject to provisios for doubtful debts 11 13 ageig aalysis of trade receivables ad amouts owed by joit vetures past due but ot impaired Up to 30 days overdue 36 40 31 60 days overdue 7 8 61 90 days overdue 2 3 More tha 90 days overdue 5 8 18 Trade ad other payables 2010 2009 Curret No-curret Curret No-curret m m m m amouts owed to suppliers ad customers (766) (4) (600) (2) amouts owed to joit vetures accrued iterest (19) (26) Govermet refudable advaces (40) (28) Deferred ad cotiget cosideratio (5) (22) (5) (27) payroll taxes, idirect taxes ad audit fees (46) (1) (43) (1) amouts due to employees ad employee beefit plas (148) (31) (118) (33) Govermet grats (4) (4) (1) (5) Customer advaces ad deferred icome (77) (6) (80) (1) (1,065) (108) (873) (97) Govermet refudable advaces are forecast to fall due for repaymet betwee 2014 ad 2031. No-curret deferred ad cotiget cosideratio falls due as follows: oe-two years 5 millio (2009: 5 millio) ad two-five years 17 millio (2009: 22 millio). No-curret amouts owed to suppliers ad customers fall due withi 2 years. GKN plc aual report ad accouts 2010

94 / NoTeS To THe FINaNCIaL STaTeMeNTS CoNTINUeD 19 Net borrowigs (a) Aalysis of et borrowigs Curret No-curret Total Withi Oe to two Two to five More tha oe year years years five years Total Notes m m m m m m 2010 other borrowigs 350 millio 6¾% 2019 usecured bod i (347) (347) (347) 176 millio 7% 2012 usecured bod i (176) (176) (176) other secured US$ deomiated loa (1) (2) (5) (7) (8) other log term borrowigs (6) (6) Fiace lease obligatios iv (1) (1) (1) (2) (3) Bak overdrafts (17) (17) other short term bak borrowigs (36) (36) Borrowigs (61) (179) (6) (347) (532) (593) Bak balaces ad cash 158 158 Short term bak deposits ii 280 280 Cash ad cash equivalets v 438 438 Other fiacial assets bak deposits iii 4 4 Net borrowigs 381 (179) (6) (347) (532) (151) 2009 other borrowigs 350 millio 6¾% 2019 usecured bod i (347) (347) (347) 201 millio 7% 2012 usecured bod i (201) (201) (201) other secured US$ deomiated loa (2) (2) (5) (7) (9) other log term borrowigs (6) (6) (6) (12) Fiace lease obligatios iv (1) (1) (1) (1) (3) (4) Bak overdrafts (28) (28) other short term bak borrowigs (35) (35) Borrowigs (72) (9) (207) (348) (564) (636) Bak balaces ad cash 132 132 Short term bak deposits ii 184 184 Cash ad cash equivalets v 316 316 other fiacial assets bak deposits iii 20 20 Net borrowigs 264 (9) (207) (348) (564) (300) other borrowigs iclude: Usecured 350 millio (2009: 350 millio) 6¾% bod maturig i 2019 less uamortised issue costs of 3 millio (2009: 3 millio); usecured 176 millio (2009: 201 millio) 7% bod maturig i 2012 less uamortised issue costs of il (2009: il); ad a secured term loa of 8 millio (2009: 9 millio) secured by way of a fixed ad floatig charge o certai aerospace fixed assets. Notes (i) Deotes borrowigs at fixed rates of iterest util maturity. all other borrowigs ad cash ad cash equivalets are at variable iterest rates. (ii) The average iterest rate o short term bak deposits was 0.5% (2009: 0.5%). Deposits at 31 December 2010 had o fixed maturity date (2009: o fixed maturity date). (iii) The iterest rate o bak deposits was 2% (2009: 0.85%); deposits mature o 27 May 2011 (2009: 1 april 2010). (iv) Fiace lease obligatios gross of fiace charges fall due as follows: 1 millio withi oe year (2009: 1 millio), 3 millio i oe to five years (2009: 3 millio) ad 1 millio i more tha five years (2009: 1 millio). (v) 11 millio (2009: 9 millio) of the Group s cash ad cash equivalets are held by the Group s captive isurace compay to maitai solvecy requiremets ad as collateral for Letters of Credit issued to the Group s pricipal exteral isurace providers. These fuds ca ot be circulated withi the Group o demad.

/ 95 19 Net borrowigs (cotiued) (b) Fair values 2010 2009 Book value Fair value Book value Fair value m m m m Borrowigs, other fiacial assets ad cash ad cash equivalets other borrowigs (537) (564) (569) (570) Fiace lease obligatios (3) (3) (4) (4) Bak overdrafts ad other short term bak borrowigs (53) (53) (63) (63) Bak balaces ad cash 158 158 132 132 Short term bak deposits ad other bak deposits 284 284 204 204 (151) (178) (300) (301) Trade ad other payables Govermet refudable advaces (40) (40) (28) (28) Deferred ad cotiget cosideratio (27) (27) (32) (32) (67) (67) (60) (60) The followig methods ad assumptios were used i estimatig fair values for fiacial istrumets: Usecured bak overdrafts, other short term bak borrowigs, bak balaces ad cash ad short term bak deposits approximate to book value due to their short maturities. For other amouts, the repaymets which the Group is committed to make have bee discouted at the relevat iterest rates applicable at 31 December 2010. Bods icluded withi other borrowigs have bee valued usig quoted closig market values. 20 Fiacial risk maagemet The Group s activities give rise to a umber of fiacial risks: market risk, credit risk ad liquidity risk. Market risk icludes foreig currecy risk, cash flow ad fair value iterest rate risk ad commodity price risk. The Group has i place risk maagemet policies that seek to limit the effects of fiacial risk o fiacial performace. Derivative fiacial istrumets, maily forward foreig currecy cotracts, are used to hedge risk exposures that arise i the ordiary course of busiess. risk maagemet policies have bee set by the Board ad are implemeted by the cetral Treasury Departmet that receives regular reports from all the operatig compaies to eable prompt idetificatio of fiacial risks so that appropriate actios may be take. The Treasury Departmet has a policy ad procedures maual that sets out specific guidelies to maage foreig currecy risks, iterest rate risk, fiacial credit risk ad liquidity risk ad the use of fiacial istrumets to maage these. (a) Foreig currecy risk The Group has trasactioal currecy exposures arisig from sales or purchases by operatig subsidiaries i currecies other tha the subsidiaries fuctioal currecy. These exposures are forecast o a mothly basis by operatig compaies ad are reported to the cetral Treasury Departmet. Uder the Group s foreig currecy policy, such exposures are hedged o a reducig percetage basis over a umber of forecast time horizos usig forward foreig currecy cotracts. The Group s reportig currecy for its cosolidated fiacial statemets is sterlig. Chages i exchage rates will affect the traslatio of results ad et assets of operatios outside of the UK. The Group s largest exposures are the euro ad the US dollar where a 1% movemet i the average rate impacts tradig profit of subsidiaries ad joit vetures by 1.0 millio ad 1.6 millio respectively. regardig fiacial istrumets a 1% stregtheig of sterlig agaist the currecy rates idicated below would have the followig impact o operatig profit: Tradig profit: payables Derivative ad fiacial Itra-group receivables istrumets fudig m m m euro (0.4) (0.3) 0.8 US dollar 0.3 7.2 1.1 The derivative sesitivity aalysis has bee prepared by re-performig the calculatios used to determie the balace sheet values adjusted for the chages i the idividual currecy rates idicated with all other cross currecy rates remaiig costat. The sesitivity is a fair value chage relatig to derivatives for which the uderlyig trasactio has ot occurred at 31 December. The Group iteds to hold all such derivatives to maturity. The aalysis of other items has bee prepared based o a aalysis of a currecy balace sheet. GKN plc aual report ad accouts 2010

96 / NoTeS To THe FINaNCIaL STaTeMeNTS CoNTINUeD 20 Fiacial risk maagemet (cotiued) (a) Foreig currecy risk (cotiued) aalysis of et borrowigs by currecy 2010 2009 Cash ad Other Cash ad other cash fiacial cash fiacial Borrowigs equivalets assets Total Borrowigs equivalets assets Total m m m m m m m m Sterlig (524) 304 4 (216) (548) 187 20 (341) US dollar (30) 18 (12) (24) 18 (6) euro (1) 19 18 (17) 36 19 others (38) 97 59 (47) 75 28 (593) 438 4 (151) (636) 316 20 (300) (b) Iterest rate risk The Group is exposed to fair value iterest rate risk o fixed rate borrowigs ad cash flow iterest rate risk o variable rate et borrowigs/fuds. The Group s policy is to optimise iterest cost i reported earigs ad reduce volatility i the debt related elemet of the Group s cost of capital. This policy is achieved by maitaiig a target rage of fixed ad floatig rate debt for discrete aual periods, over a defied time horizo. The Group s ormal policy is to require iterest rates to be fixed for 30% to 70% of the level of uderlyig borrowigs forecast to arise over a 12 moth horizo. This policy remais suspeded followig a Board decisio i December 2004 give the absece of floatig rate bak debt. at 31 December 2010 88% (2009: 86%) of the Group s gross borrowigs were subject to fixed iterest rates. as at 31 December 2010 284 millio (2009: 204 millio) was i bak deposits of which 267 millio (2009: 186 millio) was o deposit with baks i the UK. a 100 basis poit icrease i iterest rates o deposits would result i a 2.8 millio reductio i et iterest expese. This sesitivity flexes the iterest rate of variable deposits assumig deposits as at 31 December 2010 remai i place for 12 moths. (c) Credit risk The Group is exposed to credit-related losses i the evet of o-performace by couterparties to fiacial istrumets. I terms of substace, ad cosistet with the related balace sheet presetatio, the Group cosiders it has two types of credit risk; operatioal ad fiacial. operatioal credit risk relates to o-performace by customers i respect of trade receivables ad by suppliers i respect of other receivables. Fiacial credit risk relates to o-performace by baks ad similar istitutios i respect of cash ad deposits, facilities ad fiacial cotracts, icludig forward foreig currecy cotracts. Operatioal as tier-oe suppliers to automotive, lad systems ad aerospace origial equipmet maufacturers the Group may have substatial amouts outstadig with a sigle customer at ay oe time. The credit profiles of such origial equipmet maufacturers are available from credit ratig agecies. The failure of ay such customer to hoour its debts could materially impact the Group s results. However, there are may advatages i these relatioships. I Lad Systems there are a greater proportio of amouts receivable from small ad medium sized customers. Credit risk ad customer relatioships are maaged at a umber of levels withi the Group. at a subsidiary level documeted credit cotrol reviews are required to be held at least every moth. The scope of these reviews icludes amouts overdue ad credit limits. at a divisioal level debtor ratios, overdue accouts ad overall performace are reviewed regularly. provisios for doubtful debts are determied at these levels based upo the customer s ability to pay ad other factors i the Group s relatioship with the customer. at 31 December the largest 5 trade receivables as a proportio of total trade receivables aalysed by major segmet is as follows: 2010 2009 restated % % Drivelie 50 51 powder Metallurgy 17 20 aerospace 66 64 Lad Systems 25 28 The amout of trade receivables outstadig at the year ed does ot represet the maximum exposure to operatioal credit risk due to the ormal patters of supply ad paymet over the course of a year. Based o maagemet iformatio collected as at moth eds the maximum level of trade receivables at ay oe poit durig the year was 761 millio (2009: 642 millio). Fiacial Credit risk is mitigated by the Group s policy of oly selectig couterparties with a strog ivestmet graded log term credit ratig, ormally at least aa- or equivalet, ad assigig fiacial limits to idividual couterparties. The maximum exposure with a sigle bak for deposits is 56 millio (2009: 61 millio), whilst the maximum mark to market exposure for forward foreig currecy cotracts at 31 December 2010 to a sigle bak was 1 millio (2009: il). The amouts o deposit at year ed represet the Group s maximum exposure to fiacial credit risk with Group idebtedess varyig over the course of a year i lie with ormal fiacig ad tradig patters.

/ 97 20 Fiacial risk maagemet (cotiued) (d) Capital risk maagemet The Group defies capital as total equity. The Group s objectives whe maagig capital are to safeguard the ability to cotiue as a goig cocer i order to provide returs for shareholders ad beefits for other stakeholders ad to maitai a capital structure which optimises the cost of capital. I order to maitai or adjust the capital structure, the Group may adjust the amout of divideds paid to shareholders, retur capital to shareholders, issue ew shares or sell assets to reduce borrowigs. The Group moitors borrowigs o the basis of the ratio of gross borrowigs to ebitda. The Group seeks to operate at a ebitda of subsidiaries to gross debt ratio of 2.5 times or less ad the ratios at 31 December 2010 ad 2009 were as follows: 2010 2009 restated m m Gross borrowigs 593 636 ebitda 570 339 Gross borrowigs to EBITDA ratio 1.0 times 1.9 times The Group s oly exteral bakig coveat requires a ebitda of subsidiaries to et iterest payable ad receivable ratio of 3.5 times or more. The ratios at 31 December 2010 ad 2009 were as follows: 2010 2009 restated m m ebitda 570 339 Net iterest payable ad receivable (excludig borrowig costs capitalised) (44) (65) EBITDA to et iterest payable ad receivable ratio 13.0 times 5.2 times The Group moitors these ratios o a rollig basis ad are part of the budgetig ad forecastig processes. (e) Liquidity risk The Group is exposed to liquidity risk as part of its ormal fiacig ad tradig cycle at times whe peak borrowigs are required. Borrowigs ormally peak i May ad September followig divided ad bod coupo paymets. The Group s policies are to esure that sufficiet liquidity is available to meet obligatios whe they fall due ad to maitai sufficiet flexibility i order to fud ivestmet ad acquisitio objectives. Liquidity eeds are assessed through short ad log term forecasts. Committed bak facilities total 358 millio of which 43 millio expire i october 2011. There were o drawigs o these facilities at 31 December 2010 although 10 millio was utilised for Letters of Credit. Committed facilities are provided through 12 baks. Maturity aalysis of borrowigs, derivatives ad other fiacial liabilities Withi Oe to two Two to five More tha oe year years years five years Total m m m m m 2010 Borrowigs (ote 19) (61) (179) (6) (347) (593) Cotractual iterest paymets ad fiace lease charges (37) (29) (72) (92) (230) Govermet refudable advaces (7) (60) (67) Deferred ad cotiget cosideratio (6) (6) (18) (30) Derivative fiacial istrumets liabilities receipts 147 103 247 271 768 Derivative fiacial istrumets liabilities paymets (160) (114) (271) (285) (830) 2009 Borrowigs (ote 19) (72) (9) (207) (348) (636) Cotractual iterest paymets ad fiace lease charges (39) (39) (78) (114) (270) Govermet refudable advaces (3) (53) (56) Deferred ad cotiget cosideratio (6) (6) (24) (36) Derivative fiacial istrumets liabilities receipts 182 91 211 145 629 Derivative fiacial istrumets liabilities paymets (196) (98) (232) (160) (686) There is o sigificat differece i the cotractual udiscouted value of other fiacial liabilities from the amouts stated i the balace sheet ad balace sheet otes. GKN plc aual report ad accouts 2010

98 / NoTeS To THe FINaNCIaL STaTeMeNTS CoNTINUeD 20 Fiacial risk maagemet (cotiued) (f) Commodity price risk The Group is exposed to chages i commodity prices, particularly of metals, which has a sigificat impact o iput costs ad the overall fiacial results. The Group seeks to mitigate this exposure i a variety of ways icludig medium term price agreemets, surcharges ad advace purchasig. I rare circumstaces ad oly i respect of certai specified risks the Group uses derivative commodity hedgig istrumets. The impact of such fiacial istrumets i respect of the overall commodity price risk is ot material. (g) Categories of fiacial assets ad fiacial liabilities Held for tradig Derivatives Loas ad Amortised Fiacial Fiacial used for receivables cost assets liabilities hedgig Total m m m m m m 2010 other receivables ad ivestmets 3 3 Trade ad other receivables 717 717 Derivative fiacial istrumets 31 (74) 1 (42) other fiacial assets 4 4 Cash ad cash equivalets 438 438 Borrowigs (593) (593) Trade ad other payables (848) (848) provisios (31) (31) 1,162 (1,472) 31 (74) 1 (352) 2009 other receivables ad ivestmets 4 4 Trade ad other receivables 602 602 Derivative fiacial istrumets 21 (64) (43) other fiacial assets 20 20 Cash ad cash equivalets 316 316 Borrowigs (636) (636) Trade ad other payables (680) (680) provisios (35) (35) 942 (1,351) 21 (64) (452) For the purposes of IFrS7 derivative fiacial istrumets are categorised as a Level 2 fair value measuremet. The discouted cotiget elemet of deferred ad cotiget cosideratio of 8 millio (2009: 8 millio) is categorised as a Level 3 fair value measuremet, see ote 27. 21 Derivative fiacial istrumets 2010 2009 Assets Liabilities Total assets Liabilities Total No- No- No- Nocurret Curret curret Curret curret Curret curret Curret m m m m m m m m m m Forward currecy cotracts Not hedge accouted 3 11 (56) (13) (55) 2 5 (46) (13) (52) Hedge accouted 1 1 1 (1) Commodity cotracts Not hedge accouted embedded derivatives 16 1 (5) 12 14 (5) 9 19 13 (61) (13) (42) 16 6 (51) (14) (43) Forward foreig currecy cotracts, commodity cotracts ad embedded derivatives are marked to market usig market observable rates ad published prices. The amouts i respect of embedded derivatives represet commercial cotracts betwee europea aerospace subsidiaries ad suppliers outside the USa which are deomiated i US dollars. Hedge accoutig cash flow hedges The Group maages exposure to foreig currecy fluctuatios o forecast ad outstadig purchase ad sale trasactios usig forward foreig currecy cotracts. The Group has adopted trasactioal foreig currecy hedge accoutig for a limited umber of cotracts. The et value of forward foreig currecy cotracts subject to hedge accoutig was 1 millio (2009: il). The cash flows ad profit impact will occur i 2011 ad 2012 (2009: 2010 to 2012). a 1 millio gai was recogised i equity durig the year (2009: 2 millio gai) i respect of cotracts outstadig at 31 December 2010. No accumulated gai or loss was recycled through cost of sales i the year (2009: 5 millio loss). Cash flow hedgig was 100% effective durig 2010 ad 2009.

/ 99 22 Provisios Legal ad Restructurig Warraty evirometal Other Total m m m m m at 1 Jauary 2010 (59) (30) (24) (58) (171) Net charge for the year: additios (38) (9) (6) (53) Uused amouts reversed 1 7 1 3 12 Uwid of discouts (3) (3) Busiesses acquired (1) (1) amouts used 55 10 14 7 86 Currecy variatios (1) (1) at 31 December 2010 (41) (23) (9) (58) (131) Due withi oe year (31) (11) (5) (10) (57) Due i more tha oe year (10) (12) (4) (48) (74) (41) (23) (9) (58) (131) Restructurig restructurig provisios outstadig at 31 December 2010 relate primarily to the estimated future cash outflows i respect of redudacies ad oerous cotracts (predomiatly leases) arisig from Group strategic restructurig programmes, details of the charges i respect of which are icluded i ote 4b. amouts are oly set aside whe irrevocable commitmets exist at the balace sheet date ad these ivariably reflect actual or costructive cotractual arragemets which idicate the amout ad most likely timig of flows. Utilisatio of the provisio due i more tha oe year is expected as follows: 5 millio i 2012 ad 5 millio from 2013. Warraty provisios set aside for warraty exposures either relate to amouts provided systematically based o historical experiece uder cotractual warraty obligatios attachig to the supply of goods or specific provisios created i respect of idividual customer issues udergoig commercial resolutio ad egotiatio. I the evet of a claim, settlemet will be egotiated with the customer based o supply of replacemet products ad compesatio for the customer s associated costs. amouts set aside represet maagemet s best estimate of the likely settlemet ad the timig of ay resolutio with the relevat customer. Utilisatio of the provisio due i more tha oe year is estimated as 9 millio i 2012 ad 3 millio from 2013. Legal ad evirometal Legal provisios amoutig to 5 millio relate to maagemet estimates of amouts required to settle or remove litigatio actios that have arise i the ormal course of busiess. Further details are ot provided to avoid the potetial of seriously prejudicig the Group s stace i law. amouts uused ad reversed oly arise whe the matter is formally settled or whe a material chage i the litigatio actio occurs where legal advice cofirms lower amouts eed to be retaied to cover the exposure. as a cosequece of primarily legacy activities a small umber of sites i the Group are subject to evirometal remediatio actios, which i all cases are either agreed formally with relevat local ad atioal authorities ad agecies or represet maagemet s view of the likely outcome havig take appropriate expert advice ad followig cosultatio with appropriate authorities ad agecies. amouts used icludes 12 millio of evirometal remediatio expediture. Utilisatio of the provisio due i more tha oe year is estimated as 3 millio i 2012 ad 1 millio from 2013. Other other provisios iclude claims provisios held withi the Group s captive isurace compay 13 millio, provisios held i respect of oerous cotracts ad leases 2 millio ad log service o-pesio ad other employee related obligatios arisig primarily i the Group s cotietal europea subsidiaries 13 millio. Claims provisios ad charges are established i accordace with exteral isurace ad actuarial advice. No-beeficial lease provisios arisig o prior year busiess combiatios were 30 millio (2009: 32 millio). The movemet o this provisio icluded a reversal of 2 millio followig a retal reassessmet, utilisatio of 3 millio ad discout uwid of 3 millio. Utilisatio of other provisios due i more tha oe year is expected as follows: 8 millio i 2012; 3 millio i 2013; 5 millio i 2014 ad 32 millio from 2015. Vacat leasehold property provisios ad o-beeficial lease retals icluded i restructurig ad other provisios above amout to 31 millio (2009: 35 millio). GKN plc aual report ad accouts 2010

100 / NoTeS To THe FINaNCIaL STaTeMeNTS CoNTINUeD 23 Share capital Issued ad Fully paid 2010 2009 m m ordiary shares of 10p each 159 159 Deferred shares of 40p each 298 Total omial value of shares 159 457 2010 2009 Number Number 000s 000s ordiary shares of 50p each at 1 Jauary 743,904 Icrease i authorised share capital Capital reorgaisatio (743,904) Shares issued uder share optio schemes at 31 December ordiary shares of 10p each at 1 Jauary 1,590,528 Capital reorgaisatio 743,904 rights issue 846,624 Shares issued uder share optio schemes 2 at 31 December 1,590,530 1,590,528 Deferred shares of 40p each at 1 Jauary 743,904 Capital reorgaisatio 743,904 Cacellatio (743,904) at 31 December 743,904 at 31 December (ordiary ad deferred) 1,590,530 2,334,432 Notes (i) Followig shareholder approval give at the aual Geeral Meetig held o 6 May 2010, the Compay adopted ew articles of associatio which removed provisios relatig to authorised share capital as permitted uder the Compaies act 2006. (ii) a special resolutio was passed at the 2010 aual Geeral Meetig to approve the purchase ad subsequet cacellatio of 705,519,691 deferred shares of 40p. The shares were purchased for a aggregate cosideratio of 0.01 ad subsequetly cacelled. The 38,384,253 deferred shares held i treasury were also cacelled. The deferred shares were ot listed, had o votig or divided rights, ad oly very limited rights o a retur of capital. at 31 December 2010 there were 37,565,178 ordiary shares of 10p each, with a total omial value of 3.8 millio, held as treasury shares (2009: 38,199,579 ordiary shares of 10p each ad 38,384,253 deferred shares of 40p each with a total omial value of 19.2 millio). No shares were purchased i the ope market durig 2010 or 2009. a total of 634,401 shares were trasferred out of treasury durig 2010 to satisfy the exercise of optios by former employees uder share optio schemes. The remaiig treasury shares, which represeted 2.4% (2009: 4.2%) of the called up share capital at the ed of the year, have ot bee cacelled but are held as treasury shares ad represet a deductio from shareholders equity. Durig the year shares issued uder the share optio schemes geerated less tha 1 millio (2009: less tha 1 millio).

/ 101 24 Busiess combiatios GKN aerospace Services Structures Corp. ( GaSS ) is a etity i which the Group has, sice 2003, had a 100% share i the equity. GaSS operated uder a proxy agreemet with the Uited States Departmet of Defese developig high techology, classified products for the Uited States airforce. The proxy agreemet placed sigificat restrictios o the Group s maagemet ad cotrol of the busiess so that, i accordace with IaS 27, it was excluded from cosolidatio ad treated as a ivestmet. I Jauary 2010 clearace was obtaied to commece the process to remove the sigificat restrictios o the Group s maagemet ad cotrol of GaSS ad o 1 april 2010 all sigificat restrictios were removed. The assumptio of cotrol by the Group has bee accouted for as a busiess combiatio. The values stated below are provisioal as the review of acquired assets ad liabilities remais ogoig. Itagible fixed assets customer related 5 techology based 4 property, plat ad equipmet 3 Ivetories 5 Trade ad other payables (2) Deferred tax (3) provisioal goodwill 4 Satisfied by: Ivestmet cost 10 Ivestmet fair value write up 1 Loa 5 m 16 16 Sice acquisitio GaSS cotributed sales of 15 millio ad tradig profit of 2 millio. If the acquisitio had occurred o 1 Jauary 2010 sales ad tradig profit are estimated at 18 millio ad 1 millio. acquisitio related expeses of less tha 1 millio were icurred. Goodwill is attributable to the value of the assembled workforce ad the applicatio of the techology ito ew products with ew ad existig customers. GKN plc aual report ad accouts 2010

102 / NoTeS To THe FINaNCIaL STaTeMeNTS CoNTINUeD 25 Cash flow recociliatios 2010 2009 Cash geerated from operatios m m operatig profit 385 39 adjustmets for: Depreciatio, impairmet ad amortisatio of fixed assets Charged to tradig profit Depreciatio 191 193 Impairmet 2 2 amortisatio 10 11 amortisatio of o-operatig itagible assets arisig o busiess combiatios 19 24 restructurig ad impairmet charges 9 Chages i fair value of derivative ad other fiacial istrumets (12) (71) amortisatio of govermet capital grats (1) (1) Net profits o sale ad realisatio of fixed assets (1) (6) Gais ad losses o chages i Group structure (1) (2) Charge for share-based paymets 3 2 Movemet i post-employmet obligatios (116) (45) Chage i ivetories (63) 133 Chage i receivables (117) (36) Chage i payables ad provisios 121 36 420 288 Movemet i et debt Movemet i cash ad cash equivalets 133 194 Net movemet i other borrowigs ad deposits (6) 93 Bod buy back 25 124 Fiace leases 1 1 Currecy variatios (4) (4) Busiesses acquired ad sold Movemet i year 149 408 Net debt at begiig of year (300) (708) Net debt at ed of year (151) (300) Recociliatio of cash ad cash equivalets Cash ad cash equivalets per balace sheet 438 316 Bak overdrafts icluded withi curret liabilities borrowigs (17) (28) Cash ad cash equivalets per cashflow 421 288 26 Post-employmet obligatios 2010 2009 post-employmet obligatios as at the year ed comprise: m m pesios fuded (176) (597) ufuded (363) (345) Medical fuded (17) (13) ufuded (44) (41) (600) (996) The Group s pesio arragemets comprise various defied beefit ad defied cotributio schemes throughout the world. The mai exterally fuded defied beefit pesio schemes operate i the UK, US ad Japa. I europe, fuds are retaied withi certai busiesses to provide defied beefit pesio beefits. I additio, i the US ad UK a umber of retiremet plas are operated which provide certai employees with post-employmet medical beefits.

/ 103 26 Post-employmet obligatios (cotiued) (a) Defied beefit schemes measuremet ad assumptios Idepedet actuarial valuatios of all major defied beefit scheme assets ad liabilities were carried out at 31 December 2010. The preset value of the defied beefit obligatio, the related curret service cost ad the past service cost were measured usig the projected uit credit method. Key assumptios were: uk Americas Europe ROW % % % % 2010 rate of icrease i pesioable salaries 4.35 3.5 2.50 rate of icrease i paymet ad deferred pesios 2.90 2.0 1.75 /a Discout rate 5.40 5.5 5.00 1.75 Iflatio assumptio 3.35 2.5 1.75 0.75 rate of icreases i medical costs: Iitial/log term 6.5/6.0 9.0/5.0 /a /a 2009 rate of icrease i pesioable salaries 4.25 3.5 2.50 3.5 rate of icrease i paymet ad deferred pesios 3.40 2.0 1.75 /a Discout rate 5.70 6.0 5.40 2.0 Iflatio assumptio 3.25 2.5 1.75 1.0 rate of icreases i medical costs: Iitial/log term 7.0/4.5 9.0/5.0 /a /a The discout rates i the table above for the UK ad europe were refereced agaist specific iboxx idices, whilst the Citigroup liability idex was the referece poit for the USa discout rate. The referece for the UK discout rate was the yield as at 31 December o the iboxx GBp Corporate rated aa bods with a maturity of 15 years plus. The referece for the europea discout rate was the yield as at 31 December o the iboxx euro Corporate rated aa bods with a maturity of 10 years plus of 4.7%, adjusted to reflect the duratio of liabilities. For the USa, the discout rate matched the Citigroup liability idex as at 31 December 2010 of 5.5%. The uderlyig mortality assumptios for the major schemes are as follows: Uited Kigdom Such is the size ad profile of the UK scheme that data o the scheme s mortality experiece is collected ad reviewed aually. The key curret year mortality assumptios for the scheme use S1Na (year of birth) mortality tables allowig for medium cohort projectios with a miimum improvemet of 1% ad a +0.5 age ratig for male members ad a +0.7 year age ratig for female members. Usig these assumptios a male aged 65 lives for a further 20.6 years ad a female aged 65 lives for a further 23.2 years. a male aged 45 is expected to live a further 22.5 years from age 65 ad a female aged 45 is expected to live a further 25.1 years from age 65. The prior period valuatio used pa92 (year of birth) tables allowig for medium cohort but without a miimum improvemet. The prior period age adjustmets to pa92 (year of birth tables) were equivalet to that of the age ratig adjustmet to S1Na (year of birth) tables. Overseas I the USa, ppa2010 tables have bee used whilst i Germay the rt2005-g tables have agai bee used. I the USa the logevity assumptio for a male aged 65 is that he lives a further 19 years (female 21 years) whilst i Germay a male aged 65 lives for a further 18.1 years (female 22.4 years). The logevity assumptio for a USa male curretly aged 45 is that he also lives for a further 19 years oce attaiig 65 years (female 21 years), with the Germa equivalet assumptio for a male beig 18.2 years (female 23.6 years). These assumptios are based solely o the prescribed tables ot o actual GKN experiece. Assumptio sesitivity aalysis The impact of a oe percetage poit movemet i the primary assumptios o the defied beefit et obligatios as at 31 December 2010 is set out below: UK americas europe row Icome Icome Icome Icome Liabilities statemet Liabilities statemet Liabilities statemet Liabilities statemet m m m m m m m m Discout rate +1% 314 2.8 45 (0.2) 49 0.4 6 (0.3) Discout rate -1% (391) (1.8) (56) 0.2 (58) (6) 0.3 rate of iflatio +1% (298) (21.3) (33) (2.2) rate of iflatio -1% 246 18.2 30 2.0 rate of icrease i medical costs +1% (1) (1) (0.2) rate of icrease i medical costs -1% 1 1 0.2 GKN plc aual report ad accouts 2010

104 / NoTeS To THe FINaNCIaL STaTeMeNTS CoNTINUeD 26 Post-employmet obligatios (cotiued) (b) Defied beefit schemes reportig The amouts icluded i operatig profit are: Tradig Profit Redudacy Restructurig Employee ad other ad uk Pesio beefit employmet impairmet scheme expese amouts charges curtailmet Total m m m m m 2010 Curret service cost (35) (35) past service cost 1 (1) Settlemet/curtailmets 9 68 77 (25) (1) 68 42 2009 Curret service cost (34) (34) past service cost 5 (1) 4 Settlemet/curtailmets 7 7 (22) (1) (23) The beefits from a ehaced trasfer value exercise i the UK together with scheme desig chages i Japa resulted i a 9 millio settlemet/curtailmet credit to Tradig profit. a umber of scheme desig chages itroduced i UK pesio arragemets that icluded a move from fial salary basis to that of career average resulted i a curtailmet credit of 68 millio. The amouts recogised i the balace sheet are: 2010 uk Americas Europe ROW Total 2009 m m m m m m preset value of ufuded obligatios (13) (39) (347) (8) (407) (386) preset value of fuded obligatios (2,435) (360) (22) (36) (2,853) (2,800) Fair value of pla assets 2,364 245 28 23 2,660 2,190 Net obligatios recogised i the balace sheet (84) (154) (341) (21) (600) (996) The cotributios expected to be paid by the Group durig 2011 to the UK scheme is 28 millio ad to overseas schemes 38 millio. Sectio (d) of this ote describes the pesio partership iterest created o 31 March 2010 uder which the first distributio of 23 millio is expected to be made i the secod quarter of 2011. Cumulative actuarial gais ad losses recogised i equity are as follows: 2010 2009 m m at 1 Jauary Net actuarial losses i year at 31 December (334) (144) (24) (190) (358) (334)

/ 105 26 Post-employmet obligatios (cotiued) (b) Defied beefit schemes reportig (cotiued) Post-employmet obligatios Movemet i schemes obligatios (fuded ad ufuded) durig the year uk Americas Europe ROW Total m m m m m at 1 Jauary 2010 (2,440) (355) (352) (39) (3,186) Busiesses acquired Curret service cost (22) (4) (6) (3) (35) Iterest (135) (22) (18) (1) (176) Cotributios by participats (4) (1) (5) actuarial gais ad losses (61) (26) (20) (2) (109) Beefits paid 129 17 17 3 166 past service cost (1) 1 Settlemets/curtailmets 86 6 92 Currecy variatios (10) 11 (8) (7) at 31 December 2010 (2,448) (399) (369) (44) (3,260) at 1 Jauary 2009 (2,043) (401) (353) (46) (2,843) Busiesses acquired (20) (20) Curret service cost (20) (5) (6) (3) (34) Iterest (129) (21) (19) (1) (170) Cotributios by participats (4) (4) actuarial gais ad losses (346) 5 (22) 1 (362) Beefits paid 123 15 17 3 158 past service cost (1) 6 (1) 4 Settlemets/curtailmets 6 1 7 Currecy variatios 40 32 6 78 at 31 December 2009 (2,440) (355) (352) (39) (3,186) Movemet i schemes assets durig the year uk Americas Europe ROW Total m m m m m at 1 Jauary 2010 1,930 215 27 18 2,190 Busiesses acquired expected retur o assets 128 16 1 145 actuarial gais ad losses 76 10 (1) 85 Cotributios by Group 39 16 2 57 Special cotributio 331 331 Cotributios by participats 4 1 5 Settlemets/curtailmets (15) (15) Beefits paid (129) (18) (1) (1) (149) Currecy variatios 6 5 11 at 31 December 2010 2,364 245 28 23 2,660 at 1 Jauary 2009 1,759 202 29 19 2,009 Busiesses acquired expected retur o assets 106 13 2 121 actuarial gais ad losses 152 21 (1) 172 Cotributios by Group 32 15 1 3 51 Cotributios by participats 4 4 Beefits paid (123) (15) (1) (2) (141) Currecy variatios (21) (3) (2) (26) at 31 December 2009 1,930 215 27 18 2,190 GKN plc aual report ad accouts 2010

106 / NoTeS To THe FINaNCIaL STaTeMeNTS CoNTINUeD 26 Post-employmet obligatios (cotiued) (b) Defied beefit schemes reportig (cotiued) The defied beefit obligatio is aalysed betwee fuded ad ufuded schemes as follows: 2010 uk Americas Europe ROW Total 2009 m m m m m m Fuded (2,435) (360) (22) (36) (2,853) (2,800) Ufuded (13) (39) (347) (8) (407) (386) (2,448) (399) (369) (44) (3,260) (3,186) The fair value of the assets i the schemes ad the expected rates of retur were: uk Americas Europe ROW Log term Log term Log term Log term rate of rate of rate of rate of retur retur retur retur expected Value expected Value expected Value expected Value % m % m % m % m At 31 December 2010 equities (ic. Hedge Fuds) 7.8 741 8.5 171 5.5 11 Bods 5.0 1,115 3.6 69 1.0 8 property 6.6 90 Cash ad et curret assets 0.5 39 2.8 5 partership pla asset 6.1 346 other assets 5.5 33 4.8 28 1.25 4 2,364 245 28 23 at 31 December 2009 equities (ic. Hedge Fuds) 7.8 696 8.5 143 5.70 8 Bods 5.3 1,054 4.2 67 1.35 7 property 6.6 82 Cash/short term madate 0.5 67 3.2 5 2 other assets 5.7 31 5.1 27 1.25 1 1,930 215 27 18 The expected retur o pla assets is a bleded average of projected log term returs for the various asset classes. equity returs are developed based o the selectio of the equity risk premium above the risk-free rate which is measured i accordace with the yield o govermet bods. Bod returs are selected by referece to the yields o govermet ad corporate debt, as appropriate to the pla s holdigs of these istrumets, all other asset classes returs are determied by referece to curret experiece. The pesio partership iterest has bee valued o a discouted cash flow basis. The valuatio cosidered separately the profiles of the origiatig royalty ad retal icome streams usig the Group s curret budget ad forecast data with other factors cosidered beig related expeses icludig taxatio, timig of the distributios, exchage rates, bod yields ad the Group s weighted average cost of capital. The actual retur o pla assets was 230 millio (2009: 293 millio).

/ 107 26 Post-employmet obligatios (cotiued) (b) Defied beefit schemes reportig (cotiued) History of experiece gais ad losses 2010 uk Americas Europe ROW experiece adjustmets arisig o scheme assets: amout m 77 10 (1) percetage of scheme assets 3.3% 4.1% (4.3%) experiece gais/(losses) o scheme liabilities: amout m 71 (5) (1) percetage of the preset value of scheme liabilities 2.9% (1.3%) (0.3%) preset value of scheme liabilities m (2,448) (398) (369) (45) Fair value of scheme assets m 2,364 245 28 23 Deficit m (84) (153) (341) (22) 2009 experiece adjustmets arisig o scheme assets: amout m 152 21 (1) percetage of scheme assets 7.9% 9.8% (3.7%) experiece gais/(losses) o scheme liabilities: amout m 1 6 percetage of the preset value of scheme liabilities 0.3% 1.7% preset value of scheme liabilities m (2,440) (355) (352) (39) Fair value of scheme assets m 1,930 215 27 18 Deficit m (510) (140) (325) (21) 2008 experiece adjustmets arisig o scheme assets: amout m (539) (86) (4) percetage of scheme assets (30.6%) (43.1%) (21.0%) experiece gais/(losses) o scheme liabilities: amout m 7 2 (5) percetage of the preset value of scheme liabilities 0.3% 0.5% (1.4%) preset value of scheme liabilities m (2,043) (401) (353) (46) Fair value of scheme assets m 1,759 202 29 19 Deficit m (284) (199) (324) (27) 2007 experiece adjustmets arisig o scheme assets: amout m 21 (1) (1) percetage of scheme assets 0.9% (4.8%) (7.1%) experiece gais/(losses) o scheme liabilities: amout m (7) 4 (3) percetage of the preset value of scheme liabilities (0.3%) 1.6% (1.4%) preset value of scheme liabilities m (2,264) (270) (268) (24) Fair value of scheme assets m 2,248 212 21 14 Deficit m (16) (58) (247) (10) 2006 experiece adjustmets arisig o scheme assets: amout m 35 15 (1) percetage of scheme assets 1.6% 7.6% (4.5%) experiece gais/(losses) o scheme liabilities: amout m 15 (1) percetage of the preset value of scheme liabilities 0.6% (6.7%) preset value of scheme liabilities m (2,375) (301) (277) (23) Fair value of scheme assets m 2,187 196 19 13 Deficit m (188) (105) (258) (10) GKN plc aual report ad accouts 2010

108 / NoTeS To THe FINaNCIaL STaTeMeNTS CoNTINUeD 26 Post-employmet obligatios (cotiued) (c) Defied cotributio schemes The Group operates a umber of defied cotributio schemes outside the Uited Kigdom. The charge to the icome statemet i the year was 15 millio (2009: 13 millio). (d) Pesio partership iterest o 31 March 2010 the Group agreed a asset-backed cash paymet arragemet with the Trustee of the UK pesio scheme to help address the UK pesio fudig deficit. I coectio with the arragemet certai UK freehold properties ad a o-exclusive licece over the GKN trade marks, together with associated retal ad royalty rights, were trasferred to a limited partership established by the Group. The partership is cotrolled by ad its results are cosolidated by the Group. The fair value of the assets trasferred was 535 millio. o 31 March 2010, the Group made a special cotributio to the UK pesio scheme of 331 millio ad o the same date the UK pesio scheme used this cotributio to acquire a omial limited iterest i the partership for its fair value of 331 millio. The UK pesio scheme s omial partership iterest etitles it to a distributio from the icome of the partership of 30 millio per aum for 20 years subject to a discretio exercisable by the Group i certai circumstaces. at iceptio the discouted value of the cash distributios was assessed at 331 millio which was recogised as a pesio pla asset ad as a o-cotrollig iterest i equity. The first distributio of 23 millio for the period from 31 March to 31 December 2010 is expected to be made i the secod quarter of 2011. 27 Cotiget assets ad liabilities aside from the urecogised cotiget asset referred to i ote 6 i respect of Fraked Ivestmet Icome, there were o other material cotiget assets at 31 December 2010. I the case of certai busiesses performace bods ad customer fiace obligatios have bee etered ito i the ormal course of busiess. Cotiget cosideratio of 9 millio is payable ad provided upo Filto achievig certai levels of sales i 2013, 2014 ad 2015. The rage of cotiget cosideratio payable is il to 9 millio. 28 Operatig lease commitmets miimum lease paymets The miimum lease paymets which the Group is committed to make at 31 December are: 2010 2009 Vehicles, plat Vehicles, plat Property ad equipmet property ad equipmet m m m m Paymets uder o-cacellable operatig leases: Withi oe year 26 10 30 10 Later tha oe year ad less tha five years 75 17 82 18 after five years 105 2 118 2 206 29 230 30 29 Capital expediture Cotracts placed agaist capital expediture sactioed at 31 December 2010 so far as ot provided by subsidiaries amouted to 96 millio (2009: 84 millio) ad the Group s share ot provided by joit vetures amouted to less tha 1 millio (2009: 1 millio). 30 Related party trasactios I the ordiary course of busiess, sales ad purchases of goods take place betwee subsidiaries ad joit veture compaies priced o a arm s legth basis. Sales by subsidiaries to joit vetures i 2010 totalled 89 millio (2009: 62 millio). The amout due at the year ed i respect of such sales was 17 millio (2009: 14 millio). purchases by subsidiaries from joit vetures i 2010 totalled 2 millio (2009: 4 millio). The amout due at the year ed i respect of such purchases was il (2009: il). at 31 December 2009 a Group subsidiary had 1 millio receivable from a joit veture i respect of a usecured fiacig facility bearig iterest at six moth LIBor plus 1%. The facility was repaid i 2010. The Group obtaied cotrol of GKN aerospace Services Structures Corp. (GaSS) o 1 april 2010. The Group provided services to GaSS durig the first quarter of 2010 amoutig to less tha 1 millio (2009 full year: 1 millio). No goods were supplied to the Group by GaSS durig the first quarter of 2010 (2009 full year: 1 millio). Trasactios betwee the Group ad GaSS were priced o a arm s legth basis. at 31 December 2009 a Group subsidiary had 11 millio receivable from GaSS i respect of a loa bearig iterest at US prime rate mius 2%.

INDepeNDeNT auditors report To THe MeMBerS of GKN plc / 109 We have audited the Compay fiacial statemets of GKN plc for the year eded 31 December 2010 which comprise the Balace Sheet ad the related otes. The fiacial reportig framework that has bee applied i their preparatio is applicable law ad Uited Kigdom accoutig Stadards (Uited Kigdom Geerally accepted accoutig practice). Respective resposibilities of Directors ad auditors as explaied more fully i the Statemet of Directors resposibilities o page 62, the Directors are resposible for the preparatio of the Compay fiacial statemets ad for beig satisfied that they give a true ad fair view. our resposibility is to audit ad express a opiio o the Compay fiacial statemets i accordace with applicable law ad Iteratioal Stadards o auditig (UK ad Irelad). Those stadards require us to comply with the auditig practices Board s ethical Stadards for auditors. This report, icludig the opiios, has bee prepared for ad oly for the Compay s members as a body i accordace with Chapter 3 of part 16 of the Compaies act 2006 ad for o other purpose. We do ot, i givig these opiios, accept or assume resposibility for ay other purpose or to ay other perso to whom this report is show or ito whose hads it may come save where expressly agreed by our prior coset i writig. Scope of the audit of the fiacial statemets a audit ivolves obtaiig evidece about the amouts ad disclosures i the fiacial statemets sufficiet to give reasoable assurace that the fiacial statemets are free from material misstatemet, whether caused by fraud or error. This icludes a assessmet of: whether the accoutig policies are appropriate to the Compay s circumstaces ad have bee cosistetly applied ad adequately disclosed; the reasoableess of sigificat accoutig estimates made by the Directors; ad the overall presetatio of the fiacial statemets. Opiio o fiacial statemets I our opiio the Compay fiacial statemets: give a true ad fair view of the state of the Compay s affairs as at 31 December 2010; have bee properly prepared i accordace with Uited Kigdom Geerally accepted accoutig practice; ad have bee prepared i accordace with the requiremets of the Compaies act 2006. Opiio o other matters prescribed by the Compaies Act 2006 I our opiio: the part of the Directors remueratio report to be audited has bee properly prepared i accordace with the Compaies act 2006; ad the iformatio give i the Directors report for the fiacial year for which the Compay fiacial statemets are prepared is cosistet with the Compay fiacial statemets. Matters o which we are required to report by exceptio We have othig to report i respect of the followig matters where the Compaies act 2006 requires us to report to you if, i our opiio: adequate accoutig records have ot bee kept by the Compay, or returs adequate for our audit have ot bee received from braches ot visited by us; or the Compay fiacial statemets ad the part of the Directors remueratio report to be audited are ot i agreemet with the accoutig records ad returs; or certai disclosures of Directors remueratio specified by law are ot made; or we have ot received all the iformatio ad explaatios we require for our audit. Other matter We have reported separately o the Group fiacial statemets of GKN plc for the year eded 31 December 2010. Roy Hodso (Seior Statutory auditor) for ad o behalf of pricewaterhousecoopers LLp Chartered accoutats ad Statutory auditors Birmigham 28 February 2011 Notes: (a) The maiteace ad itegrity of the GKN plc website is the resposibility of the Directors; the work carried out by the auditors does ot ivolve cosideratio of these matters ad, accordigly, the auditors accept o resposibility for ay chages that may have occurred to the fiacial statemets sice they were iitially preseted o the website. (b) Legislatio i the Uited Kigdom goverig the preparatio ad dissemiatio of fiacial statemets may differ from legislatio i other jurisdictios. GKN plc aual report ad accouts 2010

110 / BaLaNCe SHeeT of GKN plc at 31 DeCeMBer 2010 2010 2009 Notes m m Fixed assets Ivestmet i subsidiaries at cost 3 3,572 3,569 Curret assets amouts due from subsidiaries 9 10 Creditors: amouts fallig due withi oe year amouts owed to subsidiaries (2,100) (2,188) Net curret liabilities (2,091) (2,178) Total assets less curret liabilities 1,481 1,391 Net assets 1,481 1,391 Capital ad reserves Share capital 5 159 457 Capital redemptio reserve 5 298 Share premium accout 9 9 profit ad loss accout 2, 4 1,015 925 1,481 1,391 The fiacial statemets o pages 110 to 112 were approved by the Board of Directors ad authorised for issue o 28 February 2011. They were siged o its behalf by: Sir Kevi Smith, William Seeger Directors

NoTeS To THe FINaNCIaL STaTeMeNTS of GKN plc / 111 1 Sigificat accoutig policies ad basis of preparatio The separate fiacial statemets of the Compay are preseted as required by the Compaies act 2006. They have bee prepared uder the historical cost covetio except where other measuremet bases are required to be applied ad i accordace with applicable Uited Kigdom accoutig Stadards ad law. I accordace with FrS 1 (revised 1996) ad FrS 8 the Compay has take advatage of the exemptios ot to prepare a cash flow statemet ad ot to disclose trasactios with related parties. as the cosolidated fiacial statemets have bee prepared i accordace with IFrS 7, the Compay is exempt from the disclosure requiremets of FrS 29. The pricipal accoutig policies are summarised below. They have bee applied cosistetly i both years preseted. Ivestmets Fixed asset ivestmets i subsidiaries are show at cost less provisio for impairmet. Treasury shares GKN shares which have bee purchased ad ot cacelled are held as treasury shares ad deducted from shareholders equity. Share-based paymets equity-settled share-based paymets are measured at fair value at the date of grat. The Compay has o employees. equity-settled share-based paymets that are made available to employees of the Compay s subsidiaries are treated as icreases i equity over the vestig period of the award, with a correspodig icrease i the Compay s ivestmets i subsidiaries, based o a estimate of the umber of shares that will evetually vest. Profit ad loss accout Iterest icome is recogised usig the effective iterest method. Divided icome is recogised whe the right to receive paymet is established. Curret tax is recogised i the profit ad loss accout uless items relate to equity. Divideds The aual fial divided is ot provided for util approved at the aual geeral meetig whilst iterim divideds are charged i the period they are paid. 2 Profit ad loss accout as permitted by sectio 408 of the Compaies act 2006 the Compay has elected ot to preset its ow profit ad loss accout for the year. The profit for the year eded 31 December 2010 was 110 millio (2009: 10 millio). auditors remueratio for audit services to the Compay was 0.6 millio (2009: 0.7 millio). 3 Fixed asset ivestmets m at 1 Jauary 2010 3,569 additios share-based paymets 3 at 31 December 2010 3,572 pricipal subsidiary ad joit veture compaies, the ivestmets i which are held through itermediate holdig compaies, are show o pages 114 ad 115. 4 Reserves Capital Profit redemptio ad loss reserve accout m m at 1 Jauary 2010 925 profit for the year 110 Share-based paymets 3 Trasfers 298 Divideds paid to equity shareholders (23) at 31 December 2010 298 1,015 GKN plc aual report ad accouts 2010

112 / NoTeS To THe FINaNCIaL STaTeMeNTS of GKN plc CoNTINUeD 5 Share capital ad capital redemptio reserve Share capital disclosure ad details of the cacellatio of deferred ordiary shares are show i ote 23 of the otes to the cosolidated fiacial statemets o page 100. 6 Recociliatio of movemets i shareholders fuds m at 1 Jauary 2010 1,391 profit for the year 110 Share-based paymets 3 Divideds paid to equity shareholders (23) At 31 December 2010 1,481

GroUp FINaNCIaL record / 113 2010 2009** 2008 2007 2006*** m m m m m Cosolidated icome statemets Sales 5,084 4,223 4,376 3,869 3,634 Tradig profit 367 133 201 277 251 restructurig ad impairmet charges (39) (144) (153) (31) (74) Chage i value of derivative ad other fiacial istrumets 12 76 (124) (10) 33 amortisatio of o-operatig itagible assets arisig o busiess combiatios (19) (24) (10) (8) (3) UK pesio scheme curtailmet 68 Gais ad losses o chages i Group structure (4) (2) (7) (4) Operatig profit/(loss) 385 39 (86) 221 203 Share of post-tax earigs of cotiuig joit vetures 35 21 6 24 17 Net fiacig costs (75) (114) (50) (46) (38) Profit/(loss) before taxatio from cotiuig operatios 345 (54) (130) 199 182 Taxatio (20) 15 10 (1) (5) Profit/(loss) after taxatio from cotiuig operatios 325 (39) (120) 198 177 profit after taxatio from discotiued operatios 5 13 Profit/(loss) for the year 325 (34) (107) 198 177 Less: profit attributable to o-cotrollig iterests (20) (2) (2) (2) profit/(loss) attributable to equity shareholders 305 (36) (109) 196 177 Earigs per share p**** 19.6 (3.2) (11.7) 18.8 16.9 Divided per share p**** 5.0 3.0 9.1 8.6 Maagemet performace measures* Sales 5,429 4,454 4,617 4,100 3,815 Tradig profit 411 156 221 309 272 profit before taxatio 363 87 170 258 234 earigs per share p**** 20.7 5.7 16.0 23.5 20.3 Cosolidated balace sheets No-curret assets Itagible assets (icludig goodwill) 550 525 520 416 356 property, plat ad equipmet 1,651 1,636 1,797 1,462 1,354 Ivestmets i joit vetures 143 112 119 100 83 Deferred tax assets 171 71 52 56 114 other o-curret assets 42 40 65 22 24 2,557 2,384 2,553 2,056 1,931 Curret assets Ivetories 637 563 718 552 470 Trade ad other receivables 762 644 645 571 520 Cash ad cash equivalets ad other fiacial assets 442 336 114 282 342 other (icludig assets held for sale) 23 19 37 27 32 1,864 1,562 1,514 1,432 1,364 Curret liabilities Borrowigs (61) (72) (97) (92) (39) Trade ad other payables (1,065) (873) (972) (837) (743) Curret icome tax liabilities (100) (79) (115) (104) (93) other curret liabilities (icludig liabilities associated with assets held for sale) (70) (98) (105) (75) (77) (1,296) (1,122) (1,289) (1,108) (952) No-curret liabilities Borrowigs (532) (564) (725) (696) (729) Deferred tax liabilities (63) (57) (63) (75) (63) other o-curret liabilities (169) (148) (174) (31) (29) provisios (74) (87) (54) (51) (53) post-employmet obligatios (600) (996) (834) (331) (561) (1,438) (1,852) (1,850) (1,184) (1,435) Net assets 1,687 972 928 1,196 908 Net debt (151) (300) (708) (506) (426) * Maagemet sales ad tradig profit aggregate the sales ad tradig profit of subsidiaries (excludig subsidiary busiesses sold ad closed) with the Group s share of the sales ad tradig profit of joit vetures. Maagemet profit before tax is maagemet tradig profit less et subsidiary iterest payable ad receivable ad the Group s share of et iterest payable ad receivable ad taxatio of joit vetures. Maagemet earigs icludes subsidiary tax related to subsidiary maagemet profit before tax less other ocotrollig iterests. ** as restated followig the aoucemet to exit the axles operatios of the former offhighway segmet. *** as restated for reclassificatio of the tradig results of the UK cylider lier maufacturig operatio. **** as restated i 2006-2008 for the bous issue iheret i the rights Issue that was approved o 6 July 2009. GKN plc aual report ad accouts 2010

114 / SUBSIDIarIeS and JoINT VeNTUreS at 31 DeCeMBer 2010 Drivelie Europe GKN automotive Ltd Eglad GKN Drivelie Birmigham Ltd Eglad GKN Drivelie Brueck ag Italy GKN Drivelie Deutschlad GmbH Germay* GKN Drivelie Fireze Spa Italy GKN Drivelie Iteratioal GmbH Germay GKN Drivelie polska Sp. z o.o. Polad* GKN Drivelie Sa Frace GKN Drivelie Sloveija d.o.o. Sloveia GKN Drivelie Trier GmbH Germay GKN Drivelie Vigo Sa Spai GKN Drivelie Walsall Ltd Eglad GKN Drivelie Zumaia Sa Spai GKN eskisehir automotive products Maufacture ad Sales a.s. Turkey GKN Freight Services Ltd Eglad GKN Gelekwellewerk Kaiserslauter GmbH Germay Americas GKN do Brasil Ltda Brazil* GKN Drivelie Bowlig Gree Ic USA GKN Drivelie Celaya Sa de CV Mexico GKN Drivelie North america Ic USA* GKN Drivelie Uruguay Sa Uruguay GKN Drivelie Villagra Sa de CV Mexico Trasejes Trasmisioes Homociéticas de Colombia Sa (49%) Colombia Rest of World GKN Drivelie (Idia) Ltd (97%) Idia GKN Drivelie Japa Ltd Japa* GKN Drivelie JTeKT Maufacturig Ltd (51%) Thailad GKN Drivelie Korea Ltd South Korea GKN Drivelie Malaysia Sd Bhd (68.4%) Malaysia GKN Drivelie Sigapore pte Ltd Sigapore GKN Drivelie (Thailad) Ltd Thailad GKN Drivelie Torque Techology (Shaghai) Co Ltd Chia GKN Driveshaft (Chogqig) Ltd (34.5%) Chia GKN JTeKT Ltd (49%) Japa GKN JTeKT (Thailad) Ltd (49%) Thailad Shaghai GKN Drivelie Sales Compay Ltd (49%) Chia Shaghai GKN Drive Shaft Compay Ltd (50%) Chia Taiway Ltd (36.25%) Taiwa Uidrive pty Ltd (60%) Australia Powder Metallurgy Siter Metals Europe GKN Siter Metals Compoets GmbH Germay GKN Siter Metals egieerig GmbH Germay GKN Siter Metals Filters GmbH radevormwald Germay GKN Siter Metals GmbH Bad Brückeau Germay GKN Siter Metals GmbH Bad Lagesalza Germay GKN Siter Metals GmbH radevormwald Germay GKN Siter Metals Holdig GmbH Germay GKN Siter Metals Holdigs Ltd Eglad GKN Siter Metals Spa Italy* Americas GKN Siter Metals de argetia Sa Argetia GKN Siter Metals LLC USA* GKN Siter Metals Ltda Brazil GKN Siter Metals St Thomas Ltd Caada Rest of World GKN Dayag Idustries Compay Ltd Chia GKN Siter Metals Cape Tow (pty) Ltd South Africa GKN Siter Metals private Ltd Idia Hoegaaes Hoegaaes Corporatio USA* Hoegaaes Corporatio europe GmbH Germay Hoegaaes Corporatio europe Sa Romaia

/ 115 Aerospace Europe Composite Techology ad applicatios Ltd (49%) Eglad GKN aerospace Deutschlad GmbH Germay GKN aerospace La pacaudière SaS Frace GKN aerospace Services Ltd Eglad* GKN CeDU Ltd Eglad Americas GKN aerospace Bady Machiig Ic USA GKN aerospace Chem-troics Ic USA* GKN aerospace Ciciati Ic USA GKN aerospace Moitor Ic USA GKN aerospace Mucie Ic USA GKN aerospace New eglad Ic USA GKN aerospace North america Ic USA* GKN aerospace precisio Machiig Ic USA GKN aerospace Services Structures Corp. USA GKN aerospace Trasparecy Systems do Brasil Ltda Brazil GKN aerospace Trasparecy Systems Ic USA GKN Westlad aerospace Ic USA* Rest of World GKN aerospace egieerig Services pty Ltd Australia GKN aerospace Trasparecy Systems (Thailad) Ltd Thailad Other busiesses Emitec emitec Demark a/s (50%) Demark emitec Frace SaS (50%) Frace emitec Gesellschaft für emissiostechologie mbh (50%) Germay emitec Ic (50%) USA emitec produktio eiseach GmbH (50%) Germay Cylider Liers GKN Zhogyua Cylider Lier Compay Ltd (59%) Chia Corporate Europe GKN Holdigs plc Eglad GKN Idustries Ltd Eglad GKN Ivestmets Lp Scotlad GKN (Uited Kigdom) plc Eglad Ipsley Isurace Ltd Isle of Ma Americas GKN america Corp USA Rest of World GKN Chia Holdig Co Ltd Chia Lad Systems Europe Chassis Systems Ltd (50%) Eglad GKN autostructures Ltd Eglad GKN ayra Servico Sa Spai GKN Drivelie Service Ltd Eglad GKN Drivelie Service Scadiavia ab Swede GKN FaD Spa Italy GKN Geplasmetal Sa Spai GKN Gleco Sa Frace GKN Lad Systems Ltd Eglad GKN Service austria GmbH Austria GKN Service Beelux BV Netherlads GKN Service Iteratioal GmbH Germay GKN Walterscheid Getriebe GmbH Germay GKN Walterscheid GmbH Germay GKN Wheels Nagbøl a/s Demark Americas GKN armstrog Wheels Ic USA GKN rockford Ic USA GKN Walterscheid Ic USA Rest of World GKN Wheels (Liuzhou) Compay Ltd Chia Matsui-Walterscheid Ltd (40%) Japa * Deotes a subsidiary whose results or fiacial positio pricipally affected the figures show i the Group s fiacial statemets. These subsidiaries were icluded i the cosolidatio ad are held idirectly by GKN plc through itermediate holdig compaies. all shares held are ordiary shares or commo stock with the exceptio of GKN do Brasil Ltda, i which the Group s iterest is held as quota capital, ad GKN Siter Metals LLC, i which the Group s iterest is held as a membership iterest. The pricipal place of busiess of GKN Siter Metals LLC is 3300 Uiversity Drive, aubur Hills, Michiga, USa. a full list of subsidiaries ad joit vetures will be attached to the ext aual retur of GKN plc. The percetage of the share capital held by the Group is idicated where compaies are ot wholly owed. GKN plc aual report ad accouts 2010

116 / SHareHoLDer INForMaTIoN Fiacial caledar 2011 ordiary shares quoted ex-divided 20 april 2011 2010 fial divided record date 26 april 2011 aual Geeral Meetig 5 May 2011 Fial date for receipt of DrIp madates 5 May 2011 2010 fial divided payable 19 May 2011 aoucemet of half year results for 2011 2 august 2011 Aual Geeral Meetig The aual Geeral Meetig will be held o Thursday, 5 May 2011 at the Cavedish Coferece Cetre, 22 Duchess Mews, Lodo W1G 9DT, commecig at 2.00 pm. The otice of meetig, together with a explaatio of the resolutios to be cosidered at the meetig, is cotaied withi the agm circular. GKN website ad share price iformatio Iformatio o GKN, icludig this ad prior years aual reports, half year reports, results aoucemets ad presetatios together with the GKN share price, is available o our website at www.gk.com. Shareholdig equiries ad iformatio GKN s register of members is maitaied by equiiti who act as our registrars. If you have ay questios about your shareholdig or you require ay other guidace you ca cotact equiiti as follows: equiiti aspect House Specer road Lacig West Sussex BN99 6Da Tel: 0871 384 2962 (+44 121 415 7039 from outside the UK) Correspodece should refer to GKN ad iclude your full ame, address ad, if available, the 8 or 11 digit referece umber which ca be foud o your GKN share certificate, divided statioery or proxy card. a rage of shareholder iformatio is available olie at equiiti s website www.shareview.co.uk. Here you ca also view iformatio o your shareholdig ad obtai forms that you may eed to maage your shareholdig, such as a chage of address form or a stock trasfer form. Share dealig service GKN shares ca be traded via the iteret or by phoe through Shareview Dealig, a service provided by equiiti Fiacial Services Ltd. For further details, visit www.shareview.co.uk/dealig or call equiiti o 08456 037 037. equiiti Fiacial Services Ltd is authorised ad regulated by the UK Fiacial Services authority. The registered details of the provider are available from the above umber. a telephoe dealig service is also available through Stocktrade. For further details telephoe 0845 601 0995 (+44 131 240 0414 from outside the UK) ad quote referece Low Co139. GKN does ot edorse or recommed ay particular share dealig service. The value of shares ca fall ad you may get back less tha you ivest; if you are usure as to the suitability of a ivestmet you should seek professioal advice. Divided reivestmet pla (DRIP) GKN offers a DrIp which eables shareholders to reivest their cash divideds to buy additioal GKN shares. If you would like more iformatio about the DrIp or would like to apply olie, please go to equiiti s website www.shareview.co.uk or call the shareholder helplie o 0871 384 2962. America Depositary Receipts GKN has a sposored Level 1 america Depositary receipt (adr) facility i the US, with each adr represetig oe GKN ordiary share. GKN s adrs are traded o the US over-the-couter (otc) market uder the symbol GKNLY. The adr facility is maaged by The Bak of New York Mello. Divided paymets are geerally taxable ad will be distributed to adr holders i US dollars by The Bak of New York Mello. ay queries relatig to GKN s adr facility should be directed to The Bak of New York Mello: BNY Mello Shareower Services po Box 358516 pittsburgh pa 15252-8516 USa Tel: +1 201 680 6825 (From the US, toll free: +1 888 BNY adrs) email: shrrelatios@bymello.com Electroic commuicatios as a alterative to receivig documets i hard copy, shareholders ca elect to be otified by email as soo as shareholder documets such as our aual report ad otice of meetig are published. This otificatio icludes details of where you ca view or dowload the documets o our website. Shareholders who wish to register for email otificatio ca do so via equiiti s website www.shareview.co.uk. Usolicited mail GKN is obliged by law to make its share register publicly available ad as a cosequece some shareholders may receive usolicited mail. If you wish to limit the amout of usolicited mail you receive, you ca register with the Mailig preferece Service by visitig www.mpsolie.org.uk or by telephoig the MpS registratio lie o 0845 703 4599. The use of a omiee compay ca also help protect your privacy. You ca trasfer your shares ito our corporate omiee by cotactig equiiti o 0845 300 0430. Shareholder security Shareholders are advised to be wary of ay usolicited phoe calls or correspodece cocerig ivestmet matters, offers to buy shares at a discout or free compay reports. These are typically from overseas based brokers who target UK shareholders, offerig to sell them what are ofte worthless or high risk shares i US or UK ivestmets. These operatios are commoly kow as boiler rooms. If you receive ay usolicited ivestmet advice: make sure you obtai the correct ame of the perso ad orgaisatio; check that they are properly authorised by the Fiacial Services authority by checkig the FSa register of regulated firms at www.fsa.gov.uk/register/ check the perso is who they say they are by callig the firm usig the cotact umber listed o the FSa register. If you deal with a uauthorised firm you would ot be eligible to receive paymet uder the Fiacial Services Compesatio Scheme; report ay suspicios to the FSa by callig 0300 500 5000 or by visitig www.moeymadeclear.org.uk; ad if the calls persist, hag up.

/ 117 To reduce the risk of becomig a victim of fraud you should: esure all your certificates are stored i a safe place, or hold your shares electroically i CreST (electroic settlemet system for UK ad Irish securities) via a omiee. Keep all correspodece cotaiig your shareholder referece umber i a safe place. Shred all uwated correspodece. If you chage your address, iform equiiti as soo as possible. If you receive a letter from equiiti regardig a chage of address ad have ot recetly moved house, please cotact them immediately. You may be a victim of idetity theft. Kow whe divideds will be paid. You ca request that divideds be paid directly ito your bak, reducig the risk of cheques beig itercepted or lost i the post. If you chage your bak accout, iform equiiti of the details of your ew accout. Capital gais tax a capital gais tax (CGT) liability may arise whe you dispose of a asset (e.g. shares) which is worth more whe you sell it tha whe you acquired it. over the years the capital structure of GKN plc has chaged. evets that may eed to be cosidered whe calculatig ay CGT liability i relatio to our shares are set out i the followig paragraphs. 2001 demerger of the idustrial services busiesses The market values of a GKN ordiary share ad a Brambles Idustries plc (Brambles) ordiary share o 7 august 2001 (the first day of tradig of Brambles shares) to be used to allocate the base cost of GKN ordiary shares acquired sice 31 March 1982 are: GKN ordiary shares 282.5p (43.943224%) ad Brambles ordiary shares 360.375p (56.056776%). 2000 B share issue The market values of a GKN ordiary share ad a GKN B share o 30 May 2000 (the first day of tradig of B shares) to be used to allocate the base cost of GKN ordiary shares acquired sice 31 March 1982 are: GKN ordiary shares 914.5p (98.736774%) ad GKN B shares 11.7p (1.263226%). 1982 base values The adjusted 31 March 1982 base value of oe GKN ordiary share held immediately before the 2009 capital reorgaisatio ad rights issue was 45.501p. The adjusted base value immediately after the capital reorgaisatio ad rights issue was 47.955p. This iformatio is provided primarily for the purpose of idividual shareholders residet i the UK whe calculatig their persoal tax liability. Shareholders who are i ay doubt as to their tax positio or who may be subject to tax i a jurisdictio other tha the UK should seek professioal advice. Neither GKN plc or our registrar ca advise o CGT matters. Shareholder aalysis Holdigs of ordiary shares at 31 December 2010: Shareholders Shares Number Number % (millio) % Holdigs 1 500 6,714 28.2 1.4 0.1 501 1,000 4,048 17.0 3.0 0.2 1,001 5,000 9,377 39.4 22.1 1.4 5,001 50,000 3,070 12.9 34.5 2.2 50,001 100,000 107 0.4 7.5 0.5 100,001 500,000 234 1.0 59.0 3.8 500,001 1,000,000 63 0.3 44.7 2.9 above 1,000,000 194 0.8 1,380.7 88.9 23,807 100 1,552.9 100 Shareholder type Idividuals 21,101 88.6 53.1 3.4 Istitutios 2,403 10.1 1,476.4 95.1 other corporates 303 1.3 23.4 1.5 I additio, GKN held 37.6 millio ordiary shares i treasury as at 31 December 2010. 23,807 100 1,552.9 100 GKN plc aual report ad accouts 2010

118 / SUBJeCT INDeX accoutig policies 69-73, 111 acquisitios 26, 33, 81, 101 aerospace 2, 6, 7, 9, 14-15, 21, 23-25, 37, 115 america depositary receipts 59, 116 aual geeral meetig 45, 59, 116 assets goodwill ad other itagible 72, 88-90 property, plat ad equipmet 71, 91 audit Committee report 46-47 auditors audit iformatio 61 idepedece 46-47 reappoitmet 47, 61 remueratio 61, 79-80 reports 63, 109 Balace sheets 67, 110 Board ad committees 4, 38-39, 40-45 audit Committee 41, 46-47 executive Committee 42 Nomiatios Committee 41, 43 remueratio Committee 41, 49 Borrowigs 29, 31, 71, 94-95 Busiess review IFC, 1-37 Capital expediture 19, 22, 23, 24, 26 28, 29, 108 Capital reorgaisatio 100, 117 Cash flow IFC, 6, 7, 19, 20, 28-29, 68, 102 Cautioary statemet 119 Chairma s statemet 4-5 Chages i equity statemet 66 Chief executive s review 6-7 Combied Code compliace 45 Commuity ivolvemet 37, 61 Comprehesive icome statemet 65 Corporate goverace 5, 40-45 Directors 60 attedace record 42 biographies 38-39 coflicts of iterest 60 iterests i shares 56-58 report IFC, 1-62 remueratio 55-56 resposibility for the accouts 62, 63, 109 service agreemets 53 Disposals 27, 81 Divided IFC, 4, 18, 28, 59, 86 reivestmet pla 116 Drivelie 1, 6, 7, 9, 10-11, 21, 22-23, 37, 114 earigs per share IFC, 18, 28, 86 employees 7, 34, 35, 37, 86-87 eviromet 19, 36-37 Fiacial fudig ad liquidity 31 istrumets 27, 72, 81, 98 record 113 treasury maagemet 30 Fiacig costs (et) 27, 82 Foreig currecies 20, 33, 70 Goig cocer 31, 46 Govermet refudable advaces 19, 24, 27, 73 Group overview 1-2 Health ad safety 19, 36 Icome statemet 64, 70 Iteral cotrol 44, 47 Joit vetures 7, 27, 29, 70, 91-92 114-115 Key performace idicators fiacial 18-19 o-fiacial 19, 36-37 Lad Systems 2, 6, 7, 9, 16-17, 20, 21, 25-26, 37, 115 Log term icetives 51-52, 87-88 Margis IFC, 18, 20, 21, 22, 23, 24, 25, 26, 78 Markets 1, 2, 6, 7, 20-22, 23-24, 25, 26, 32 offhighway 6, 20, 21 other busiesses 26, 115 other statutory iformatio 59-61 outlook 5, 7 pesios/post-employmet obligatios 4, 29-30, 33, 73, 85, 102-108 powder Metallurgy 1, 6, 7, 9, 12-13, 21, 23, 37, 115 profit/loss before tax IFC, 4, 28, 78 operatig 79-81 tradig IFC, 6, 20, 21, 22, 23, 24, 25, 75, 79-80 registrar 116, 119 related party trasactios 108 remueratio report 48-58 research ad developmet 29, 72, 79 restructurig ad impairmet 6, 21, 22, 23, 24, 26, 27, 29, 80 risk ad risk maagemet 32-33, 44, 95-98 Sales IFC, 6, 7, 18, 20, 21, 22, 23, 24, 25, 26, 70, 74 Segmetal aalysis 74-77 Share-based paymets 73, 87-88 Shareholder aalysis 117 Shares capital 59, 100 dealig service 116 price iformatio 116 substatial shareholders 59 Strategy Group 8 divisioal 9, 10-17 Subsidiary compaies 114-115 Sustaiability report 34-37 Taxatio 28, 33, 73, 82-85, 117 Techology 1, 2, 7, 10-17, 22, 23, 25, 26, 32, 34, 42 Values 7, 34 Website 116, 119 Key IFC Iside Frot Cover

contact DeTAILS / 119 GKN plc PO Box 55 Ipsley House Ipsley church Lae Redditch Worcestershire B98 0TL Tel +44 (0)1527 517715 Fax +44(0)1527 517700 Lodo Offce 50 Pall Mall Lodo SW1Y 5JH Tel +44 (0)20 7930 2424 Fax +44 (0)20 7930 3255 iformatio@gk.com www.gk.com Registered i eglad No. 4191106 This aual report is available o our website. Registrar equiiti Aspect House Specer Road Lacig West Sussex BN99 6DA Tel 0871 384 2962* (+44 121 415 7039 from outside UK) Fax 0871 384 2100 (+44 1903 698403 from outside UK) www.equiiti.com www.shareview.co.uk * calls to this umber cost 8p per miute from a BT ladlie, other providers costs may vary. Lies are ope 8.30am to 5.30pm, Moday to Friday. Cautioary statemet This aual report ad accouts has bee prepared for the members of GKN plc ad should ot be relied upo by ay other party or for ay other purpose. It cotais forward lookig statemets which are made i good faith based o the iformatio available at the time of its approval. It is believed that the expectatios reflected i these statemets are reasoable but they may be affected by a umber of risks ad ucertaities that are iheret i ay forward lookig statemet which could cause actual results to differ materially from those curretly aticipated. Images o pages 1, 2, 9 ad 10-17 appear courtesy of Peugeot citroë, Ford, Airbus S.A.S. ad JcB. The paper used i this report is produced with FSc mixed sources pulp which is fully recyclable, biodegradable, ph Neutral, heavy metal absece ad acid-free. It is maufactured withi a mill which complies with the iteratioal evirometal ISO 14001 stadard. ISO 14001 REGISTERED DNV Certificatio BV 013 Fulmar colour is FSc certified, PeFc certified ad ISO 14001 certified showig that it is committed to all roud excellece ad improvig evirometal performace is a importat part of this strategy. Fulmar colour aim to reduce at source the effect their operatios have o the eviromet, ad are committed to cotiual improvemet, prevetio of pollutio ad compliace with ay legislatio or idustry stadards. Fulmar colour is a carbo Neutral Pritig compay. Desiged ad produced by MAGEE www.magee.co.uk Prited by Fulmar colour

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