GKN
Delivering Sustainable Growth
Bill Seeger
GKN Capital Markets Day – 12 April 2011
Overview
GKN is now well positioned to deliver sustainable growth
following the completion of significant restructuring initiatives
GKN’s aim of delivering value is driven by the following elements
Growth in excess of the markets
Improving margins
Strong cash generation
GKN will also seek to grow through strategic, bolt-on acquisitions
with the purpose of adding capability, market position and global
footprint
The achievement of these key elements will provide the
foundation for value creation
GKN Capital Markets Day – 12 April 2011
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Growth in Excess of the Markets
Driveline
Land Systems
Ongoing evolution of sideshaft technology
Global capability to support customer base
Growth in driveline systems and solutions
Demand for high efficiency reliable power management
solutions
Innovative products for more fuel efficient
vehicles
Strong market share in high growth regions
Solid relationships with strategic customers
Increasing global platforms
Powder Metallurgy
Value of PM content per vehicle outgrowing the market
Unique parts and powder position support rapid
exploitation of “Design for PM”
Higher performance trends create technology “pull” for
PM capability
Geographic expansion in Asia and South America
Exploitation of GKN technology capability across
customer base
New market penetration
Geographic expansion
Aerospace
Economic growth drives commercial demand supporting
strong backlog
Existing civil platform volumes increasing to satisfy
demand
Stable US defence production with JSF/CH53K providing
growth
New aircraft platforms move into rate production over
next few years
Composite and lightweight metallics technology
development positioning for next generation platforms
GKN Capital Markets Day – 12 April 2011
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Strategic Benefits of Restructuring
Restructuring and global repositioning
Driveline - productive assets rebalanced to higher growth
markets
Powder Metallurgy - move from cost-based substitution to
“design for PM”
Aerospace - exploiting technology and design capability for
positions on a wide range of new civil and defence aircraft
Land Systems - leveraging GKN technologies to drive growth in
existing and new markets
Balance sheet strengthened
Rights issue provided flexibility and capacity to grow
Focused on cash generation
UK pension framework in place to address deficit
GKN Capital Markets Day – 12 April 2011
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Cyclical Business – Key Points
GKN increased resilience to cyclicality is driven by the following
key factors:
Diversity in
geographic coverage
Diversity in end markets
Agriculture
5%
Industrial
10%
Construction
and Mining
1%
India
China 2%
5%
EADS
8%
RoW
2%
Other
Customers
43%
Japan
8%
Western Europe
41%
Latin America
8%
Aerospace
27%
Diversity in customers
Automotive
57%
North America
30%
Eastern Europe
4%
Prudent management of balance sheet
Approx 1%:
John Deere
Suzuki
GE
PSA
Caterpillar
Rolls-Royce
VW
7%
Boeing
6%
Renault
Nissan
6%
Fiat Chrysler
5%
General
Ford Motors
5%
4%
BMW 2
United
2% Mitsubishi
Technologies
4%
Lockheed Tata2% Toyota
4%
2%
2%
Source: GKN 2010 sales
Aligning debt with asset coverage
Providing clarity on pension funding
Measures to reduce pension liabilities
GKN Capital Markets Day – 12 April 2011
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Trading Margins
Trading Margin
Structurally positioned
to move through the
target margin ranges
supported by
2010 FY
Q1 2011
Targets
Driveline
6.9 %
7.4 %
8 - 10 %
Powder Metallurgy
7.1 %
9.2 %
8 - 10 %
Organic growth
New products
delivering increasing
value
Aerospace
11.2 %
9.1 %
10 - 12 %
Land Systems
5.3 %
8.2 %
7 - 10 %
Group
7.6 %
8.0 %
8 - 10%
GKN Capital Markets Day – 12 April 2011
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Free Cash Flow
Operating results
Growth > market
Margin expansion
Restructuring
Completes in 2011
£30m cash flow
Investment
Capex : depreciation ratio of
1.1x
A350 £170m investment
Working Capital
(Average)
Modest increase in average
working capital – inventory
supporting growth
7.5% – 8% of sales
UK pension deficit
funding
Cash flow at £30m/year
Tax rate
Book rate 15-20%, near term
Debt
Debt levels within investment
grade range
Dividends
Progressive to 2.5x
management EPS cover –
near term
GKN Capital Markets Day – 12 April 2011
Strong FCF supports
Organic growth
Investment
Dividend progression
Investment grade metrics
Prudent balance sheet
supports bolt-on
acquisitions
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Return on Invested Capital
24%
ROIC Target = 20%
20%
ROIC Group target 20%
ROIC significantly
exceeds WACC
16%
Reflection of efficient
capital utilisation
WACC = 12%
12%
Investment returns
improve as margins
expand
8%
4%
2005
2006
2007
2008
2009
2010
ROIC
GKN Capital Markets Day – 12 April 2011
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Summary
Strong sustainable growth from each division in
excess of market
Expansion of division margins through target ranges
Free cash flow supports growth, progressive
dividends and investment grade metrics
Balance sheet strength provides financial flexibility to
sustain a strong growth agenda
GKN
GKN Capital Markets Day – 12 April 2011
Delivering Sustainable Growth
9
GKN
Delivering Sustainable Growth
GKN Capital Markets Day – 12 April 2011