Key Performance Indicators

GKN uses the following indicators of performance to help measure progress in delivering our strategy.

Sales growth

Target

To achieve long-term growth rates at both Group and divisional level (in absolute terms and on an underlying basis) in excess of the growth in our major markets.

2016 performance

Group management sales increased by 22% on an absolute basis and grew by 2% on an organic basis.

Trading margin

Target

To achieve an overall Group trading margin of between 8% and 10%.

2016 performance

The Group trading margin of 8.2% remains within the target range and, excluding the impact of the Group’s restructuring programme, was broadly in line with last year.

Earnings per share (EPS)

Target

To achieve absolute growth in EPS each year and in the longer term, recognising the nature and cyclicality of our major markets to achieve above market growth relative to our end markets.

2016 performance

Management EPS increased by 12% to 31.0 pence, with a first full year contribution from Fokker.

Return on average invested capital (ROIC)

Target

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

2016 performance

Group ROIC of 16.0% reflects improved Group trading profit which was offset by the first time inclusion of Fokker and the impact of the Group’s restructuring programme.

Free cash flow

Target

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

2016 performance

Free cash flow amounted to £201 million, down from the prior year due to the benefit from customer advances in 2015.

R&D as % of sales

Target

Sustainable investment in research and development to support future growth.

2016 performance

R&D expenditure amounted to 3.6% of Group sales.

New business wins

Target

Selective new business wins targeted in our chosen markets to help achieve our strategic objectives and financial goals.

2016 performance

We continued to win new business aligned to our strategic goals during 2016. Key examples are discussed in the divisional business reviews on pages 24 to 35 of the Annual Report 2016.

Non-financial KPIs help measure the sustainability of our business and progress towards operational excellence.

We strive to operate in a safe, efficient and ethical manner, and at the same time aim to be an employer of choice and make a positive impact on the environment and the communities in which we operate.

Accident frequency rate (AFR) / accident severity rate (ASR)

Target

Continued long-term reduction towards zero accidents.

2016 performance

Regrettably there were two fatal accidents in 2016 (see page 52 of the Annual Report 2016 for details). Our underlying AFR and ASR both continued to decrease during the year, reflecting our continued commitment to safety and related improvement activities. 

Energy efficiency

Target

3% year-on-year improvement.

2016 performance

Our energy efficiency improved by 4% in 2016, helped by the full year impact of Fokker. 

Apprentices

Target

Year-on-year increase in the number of apprentices across the Group.

2016 performance

We continued to expand our recruitment of apprentices with 892 across the Group.

Employee disclosure

Target

Year-on-year increase in the number of calls to the employee disclosure hotline, providing an early indicator of potential issues.

2016 performance

The number of hotline calls increased by 18%, reflecting continued promotion and a growing workforce.

Management turnover

Target

Voluntary turnover of management employees of less than 5%.

2016 performance

Voluntary turnover increased to 6.0% in 2016, falling outside our target range due, in part, to disruption around our restructuring activities.

Diversity

Target

To achieve a five-year goal of 20% of leadership to be women by 2020 and, in time, 20% from under-represented groups.

2016 performance

We have continued to make progress towards our diversity goals, which are discussed further on page 53 of the Annual Report 2016.

Compliance training

Target

100% of employees within the target audience to complete training.

2016 performance

94% of the target audience have to date completed our online compliance training.

Financial information, unless otherwise stated, is presented on a management basis, the definition of which is below.

The Group uses management measures, which are non-GAAP measures, to assess operating performance on a consistent basis, as we believe this gives a fairer assessment of the underlying performance of the business. The use of management measures allows the Group to chart progress, make decisions and allocate resources based on the actions for which management is responsible or can influence, without volatility arising from significant one-time trading and portfolio change transactions or the mark to market valuation of currency hedges.

Definitions

Financial information aggregates the sales and trading profit of subsidiaries with the Group’s share of the sales and trading profits of joint ventures. The following definitions apply:

InformationDefinition

Trading margin1

Management trading profit expressed as a percentage of sales.

Management sales

Management sales aggregate the sale of subsidiaries with the Group's share of the sales of equity accounted investments. 

Management profit or loss before tax

Management trading profit less: net subsidiary interest payable and receivable; the Group’s share of net interest payable and receivable; and taxation of equity accounted investments.

Organic results

Where appropriate, reference is made to organic results which are management results excluding the impact of acquisitions/divestments as well as currency translation on the results of overseas operations.

Operating cash flow

Cash generated from operations adjusted for capital expenditure, government capital grants, proceeds from disposal of fixed assets, and government refundable advances.

Free cash flow1

Operating cash flow including interest, tax, equity accounted investment dividends, and amounts paid to non-controlling interests, but excluding dividends paid to GKN shareholders. Free cash flow in 2012 excludes special pension payments and before working capital refinancing for Volvo Aero.

Return on average 
invested capital (ROIC)1

Management trading profit as a percentage of average total net assets of continuing subsidiaries and equity accounted investments, excluding current and deferred tax, net debt, post-employment obligations and derivative financial instruments.

Dividends per share

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

Management earnings per share (EPS)1

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

1These are included in our key performance indicators set out on pages 16 to 18 of the latest Annual Report and Accounts

In addition, the following definitions apply to the calculation of the other key performance indicators set out on pages 16 to 18 of the latest Annual report and Accounts


InformationDefinition

Sales growth

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

New business wins

Aerospace: estimated value of products and services for new work packages won during the year. Based on forecast aircraft sales over the period of long-term agreements or total lifetime if contracts are for the life of the aircraft platform.

Automotive: estimated peak annual revenues from new business contracted during the year.

Separate measures are used to report performance for GKN Aerospace and the automotive divisions (GKN Driveline and GKN Powder Metallurgy) as these are considered to best reflect the nature of each business and industry norms. New business wins for GKN Land Systems are not reported given the short-term and recurring nature of its contracts.

Research and development (R&D) as a percentage of sales

Total research and development expenditure, including customer and government funding, expressed as a percentage of management sales.

Accident frequency rate (AFR)

The number of lost time accidents per 1,000 employees.

Accident severity rate (ASR)

The number of days/shifts lost due to accidents and occupational ill health per 1,000 employees.

Energy efficiency

Energy consumption expressed as a percentage of sales.

Apprentices

Total number of apprentices employed at the year end.

Employee disclosures

Total number of calls received through the Group’s employee disclosure hotline during the year.

Management turnover

Voluntary turnover of management-level employees, excluding compulsory redundancies, terminations and retirements, expressed as a percentage of all subsidiary management level employees in GKN subsidiary companies.

Diversity

% of women in management refers to the number of women in management roles expressed as a percentage of all management-level employees.

% of management-level employees from under-represented groups refers to the number of management-level employees from certain targeted developing markets expressed as a percentage of total management-level employees.

Online compliance training

Completion of mandated compliance training on anti-bribery and corruption, competition law, and IT security measures as a percentage of a pre-defined audience of employees.