GKN plc results for the year ended
31 December 2015
Nigel Stein | 23 February 2016
Disclaimer
Cautionary statement
This presentation contains forward looking statements which are made in good faith
based on the information available at the time of its approval. It is believed that the
expectations reflected in these statements are reasonable but they may be affected
by a number of risks and uncertainties that are inherent in any forward looking
statement which could cause actual results to differ materially from those currently
anticipated. Nothing in this document should be regarded as a profits forecast.
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
1
Results for the year ended 31 December 2015
Sales
Management
PBT
Earnings per
share
Dividend
per share
£7,689m
£603m
27.8p
8.7p
3%
+£2m
(4)%
4%
GKN AEROSPACE
GKN DRIVELINE
GKN POWDER
METALLURGY
GKN LAND SYSTEMS
TRANSITION PERIOD
EXCELLENT GROWTH
STRONGER MARGIN
TOUGH MARKETS
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
2
GKN highlights in 2015
GKN Aerospace acquired Fokker Technologies
GKN Driveline sales growth ahead of the market
GKN Powder Metallurgy margin progressed
GKN Land Systems tackling tough markets
Continued to make strategic progress
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
3
GKN Aerospace
Transition period
Sales growth: Commercial
6%; Military (9)%
Sales (£m)
Margin impact from
portfolio transition
Trading profit (£m)
− Offset by one-off benefit
Trading margin (%)
A350 in profit
2015
Organic
Growth
2,387
2%
291
=
12.2%
(20) bps
Excluding Fokker
$3.5bn new orders*
− Boeing 737MAX, 777X
and 787
− Airbus supplier partnership
− Partner on all Pratt &
Whitney GTF engine
variants
Maiden flight of
the B737MAX.
GKN components
include the engine
nacelle inlet lip
skins
*Over contract lives
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
4
Fokker Technologies strengthens GKN
Acquisition completed
28 October
Fokker increases scale of
division by c20%
Enhances GKN market
leadership
− No.2 Aerostructures
− No.3 Electrical wiring systems
Brings new technologies
Integration well underway
− GLARE, thermoplastics,
electrical wiring and landing gear
− Savings on track
Expands footprint
Combination is well
received by customers
− China, Turkey, Mexico and
Netherlands
Adds content on key
platforms
− A350, F35 & G650
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
5
GKN Aerospace portfolio
Including Fokker shipsets
Declining
Stable
Growing
$6-9
Revenue per Aircraft
million
A380
$3-6
million
$0-3
million
Commercial
A330
F/A-18
Black Hawk
A350
B787
A400M
C130J
JSF
A320
CH53-K
G650
HTF7000
B737MAX
B777X
Military
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
6
Global automotive market in 2015
Global automotive market in 2015*
Europe drove growth for
the industry and GKN
Driveline
N. America steady;
Brazil sharply down
10
5
% change
China recovery in Q4
following slowdown in
Q2/Q3
15
Market (production growth)
GKN Driveline sales growth
9
3
4
3
6
5
2
N. America
Europe
Japan
Brazil
China
(5)
0
India
(5)
(5)
(6)
(10)
(15)
8
GKN Driveline sales
growth v global
market*
(20)
(22)
GKN Driveline 2015 sales by region
4
5%
Americas
0
37%
27%
Asia
1%
Market
GKN
*Source: IHS Automotive
36%
Europe
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
7
GKN Driveline
Excellent growth
2015
Organic
Growth
3,548
5%
CVJ success continues
− 60% of sales
Sales (£m)
− Latest win doubles
business with Daimler
Trading profit (£m)
290
3%
AWD continues to win
Trading margin (%)
8.2
10 bps
− Good growth of BMW X
Series
− Ford Focus RS showcases
our technology
eDrive increasing
− Strong eAxle presence
− PSA Peugeot Citroën plugin hybrid win
Won £0.9bn new orders*
* Annualised new and replacement
The new GKN eAxle system
for the all-new Volvo XC90 is
the world’s first disconnecting
eAxle on a premium SUV
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
8
GKN Powder Metallurgy
Stronger margin
2015
Organic
Growth
Sales growth
− After powder surcharge
Sales (£m)
906
=
Record sales of powder
Trading profit (£m)
109
6%
12.0%
100 bps
− Chinese powder JV agreed
Upgrade of US capacity
Trading margin (%)
Focus on technology and
plant digitisation
New powders
− Titanium, aluminium and
copper
Won £185m new orders*
* Annualised new and replacement
The Ford F-series
trucks are using
GKN forged powder
metallurgy gears in
its open
differentials and
transmissions.
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
9
GKN Land Systems
Tough markets
Challenging agricultural
equipment market
− Mainly US
Strong cost control
− £11m restructuring
Sales (£m)
Trading profit (£m)
Trading margin (%)
2015
Organic
Growth
693
(6)%
24
(43)%
3.5%
(220) bps
Won £110m new orders*
Self help measures to
drive productivity
GKN advanced
vibration analysis
and monitoring
technology is
reducing industrial
shaft downtime
* Annualised new and replacement
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
10
Adam Walker
Group Finance Director | 23 February 2016
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
Results summary
FX impact:
2015
£m
2014
£m
Change
%
7,689
7,456
3
2% organic growth
Trading profit
679
687
(1)
£697m pre Fokker
Trading margin (%)
8.8
9.2
(40) bps
Profit before tax
603
601
-
Earnings per share (p)
27.8
29.0
(4)
Acquisition impact / 24% tax rate
Dividend per share (p)
8.7
8.4
4
Final dividend 5.8p
Sales
- Sales £(4)m
- Trading profit £18m
Margin held at 9.2% pre Fokker
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
12
Group sales
£179m
£m
7,800
173
7,689
2
(44)
(1)
49
7,600
113
7,456
(4)
7,400
(55)
2%
5%
7,200
(6)%
Organic
growth 2%
7,000
2014
FX
Acq/Div
Fokker Aerospace Driveline
Powder
Land
Metallurgy Systems
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
Other
2015
13
Group trading profit
£m
750
18
700
687
8
(7)
(18)
6
4
679
Other
2015
(18)
(1)
650
12.2%
8.2%
600
12.0%
3.5%
Trading
Margins
550
2014
FX
Acq/
Div
Fokker
Aerospace Driveline
Powder
Land
Metallurgy Systems
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
14
Fokker 2016
Revenue flat – growth in 2017 as production rates increase
€50m restructuring plan – as announced on acquisition
Integration synergies of 3% of sales by 2018
ROIC exceed cost of capital in 2017
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
15
Adjusting items
2015
£m
2014
£m
609
612
(122)
(209)
Amortisation of non-operating intangible assets
(80)
(69)
Changes in Group structure
(1)
24
Impairment charges
(71)
(69)
Inventory unwind
(12)
-
Operating profit
323
289
Trading profit
Change in derivative & other financial instruments
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
16
Operating cash flow
2015
£m
2014
£m
Trading profit (subs)
609
612
Deprec’n & amort’n
261
252
EBITDA
870
864
Working capital
70
(33)
Capital expenditure
(411)
(403)
Investment
(341)
(436)
Repayment of principal on
government refundable advance
Other flows
Operating cash flow
-
(38)
(4)
(5)
525
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
385
1
17
Free cash flow and net debt
Operating cash flow
2015
£m
2014
£m
525
385
55
44
(54)
(83)
(111)
(68)
(42)
(42)
(3)
(2)
Dividends received (JVs)
Interest (net)
Tax
Pension funding
Dividend paid (NCI)
Free cash flow
370
234
Dividends
(142)
(133)
Acquisitions & disposals / share placing
(294)
30
Net investment hedges
(54)
(26)
Currency and other
(25)
3
Movement in net debt
(145)
108
Net debt
(769)
(624)
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
18
Group post-employment accounting deficit
£m
-
(400)
(1,007)
(1,095)
(800)
(1,200)
(551)
(616)
100
139
(1,600)
(33)
(46)
(1,711)
(7)
(1,558)
(2,000)
Net Deficit
Dec 2014
Acquisitions
Actuarial
movement
Funded
Service costs
Cash
contribution
Currency &
Other
Net Deficit
Dec 2015
Unfunded
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
19
Key financial metrics
Growth
2%
Financial
Metrics
Growth
Above
Market Target
Margin
8-10%
Target
ROIC
20%
Target
ROIC*
17.8%
Margin*
9.2%
Cash Flow
* Excludes the impact of Fokker
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
20
Summary
Delivered full year expectations in tough end markets
Fokker integration and delivery
Key financial metrics
Stabilising book tax rate
Pensions
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
21
Nigel Stein
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
Good strategic progress
Market leadership
Leverage global footprint
Technology driving margin
Operational excellence
Sustain above market growth
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
23
GKN Aerospace – Major tier one supplier
Aerostructures
Development of
additive manufactured
parts is advancing
Global number two
Fokker expands technology
offering
Engine structures
Independent global number
two
Innovative technology being
applied
Electrical systems
Global number three - new
business for GKN
Opportunity to integrate
structures and electrical
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
GKN is
industrialising
lip skin
technology
Electrical
wiring in
China adds
to GKN’s
capability
and global
footprint
24
GKN Driveline – Innovating as our industry evolves
Driveshafts
The advanced VL3 CVJ is
winning new business
and is a PACE Award
finalist
Market leader
Maintaining technical
leadership
Winning key business
All Wheel Drive
Leading position
Moving from components to
designing full systems
Increasingly includes software
Driveline for
the FIAT 500X
is designed
and built by
GKN
eDrive
Global eAxle leadership
Developing eDrive
technology and footprint
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
Volvo
XC90 with
GKN
eAxle
25
GKN Powder Metallurgy and GKN Land Systems
Parts
GKN POWDER
METALLURGY
Design for PM
Forged PM bevel gears
Powder
Technically enhanced
powders
New technologies
GKN LAND
SYSTEMS
Additive Manufacturing
Hydrogen storage
Increasing efficiency
Positioning for the future
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
26
Market outlook for 2016
Aerospace – remains in transition
− Global sales expected to be slightly down
− GKN Aerospace organic sales expected to be broadly flat with results benefitting from Fokker
− Strong medium term commercial order book supports GKN Aerospace growth
Automotive – global growth
− Global growth expected to be 3% - China, North America, Europe and India up; Brazil down
− GKN Driveline and GKN Powder Metallurgy sales expected to continue to grow organically ahead
of market
Land systems – market softness
− GKN Land Systems sales expected to fall further due to softer agriculture and construction
equipment markets
Although some markets remain challenging, 2016 is expected
to be a year of good growth helped by Fokker
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
27
Appendix
Results for the year ended 31 December 2015
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
Statutory income statement
2015
£m
7,231
609
Sales (subsidiaries)
Trading profit
Change in value of derivative and other financial instruments
Amortisation of non-operating intangible assets arising on
business combinations
2014
£m
6,982
612
(122)
(209)
(80)
(69)
Changes in Group Structure
Impairment charges
Inventory unwind
(1)
(71)
(12)
24
(69)
-
Operating profit
Post-tax joint venture trading
323
59
289
62
59
(65)
(72)
(137)
(1)
61
(73)
(56)
(129)
Profit before tax
245
221
Management profit before tax
603
601
Joint venture exceptional and non-trading items
Share of post-tax earnings of joint ventures
Interest (net)
Other net financing charges
Net financing costs
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
29
Margin
Margin
2015
%
2014
%
12.2
12.4
8.2
8.1
12.0
11.0
Land Systems
3.5
5.7
Group (exc Fokker)
9.2
9.2
Aerospace (exc Fokker)
Driveline
Powder Metallurgy
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
30
Return on invested capital
1
ROIC%
before tax
2015*
2014
697
687
3,924
3,892
17.8
17.7%
2015*
2014
Aerospace
18.1%
17.7%
Driveline
19.5%
19.3%
1
Powder Metallurgy
22.3%
21.8%
7.1%
11.4%
Group Target - 20%
20%
Trading Profit (£m)
Av. Invested Capital
(£m)
Pre-Aerospace
Engine Systems
Group ROIC
15%
ROIC %
Group WACC - 12%
10%
5%
2012
2013
2014
2015 *
Land Systems
* Group and Aerospace exclude the impact of Fokker
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
31
Impact of currency
Translational impact on 2014:
Effect on 2014:
Average Rate
Change
Sales
Trading
Profit
2015
2014
%
£m
£m
US $
1.53
1.65
(7.3)
250
33
Euro
1.38
1.24
11.3
(174)
(15)
Real
5.11
3.87
32.0
(40)
-
Yen
185
174
6.3
(18)
(1)
Renminbi
9.60
10.15
(5.4)
26
4
98
101
(3.0)
3
-
12.88
11.29
14.1
(30)
(2)
(21)
(1)
(4)
18
Indian Rupee
Swedish Krona
Other
Impact (subs & JVs)
Translational impact on 2015 trading profit (including JVs):
Euro moves 1 point e.g. 1.38  1.39 = £(0.9)m
US$ moves 1 point e.g. 1.53  1.54 = £(3.0)m
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
32
Tax update
Book tax
Unrecognised deferred tax assets
−
−
£167m mainly UK and Netherlands
£68m excluding Fokker due to use of
US losses
−
2014
24%
22%
%
£m
450
400
25
£393m
20
350
300
15
250
£204m
200
Fokker acquisition
−
2015
£167m
150
Net deferred tax assets of £38m
recognised at acquisition
Unrecognised assets of £99m
10
£137m
£100m
100
5
50
0
0
2011
2012
2013
2014
2015
Unrecognised deferred tax assets
Book tax rate
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
33
Post-employment obligations: accounting deficit
UK
£m
Americas
£m
Europe
£m
ROW
£m
Total
£m
2,322
186
33
19
2,560
(3,219)
(280)
(36)
(32)
(3,567)
(897)
(94)
(3)
(13)
(1,007)
(15)
(39)
(495)
(2)
(551)
(912)
(133)
(498)
(15)
(1,558)
2,377
195
37
18
2,627
(3,364)
(288)
(40)
(30)
(3,722)
(987)
(93)
(3)
(12)
(1,095)
(18)
(43)
(553)
(2)
(616)
(1,005)
(136)
(556)
(14)
(1,711)
2015 Full Year
Assets
Funded Liabilities
Funded Deficit
Unfunded Liabilities
Net Deficit
2014 Full Year
Assets
Funded Liabilities
Funded Deficit
Unfunded Liabilities
Net Deficit
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
34
Contacts
Adam Walker
Finance Director
Guy Stainer
Investor Relations
Tel +44 (0) 20 7463 2382
guy.stainer@gkn.com
Chris Fox
External Communications
Tel +44 (0)1527 533203
chris.fox@gkn.com
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015
35