Results for the period ended 30 June 2015
Acquisition of Fokker Technologies Group B.V.
Nigel Stein, Chief Executive | 28 July 2015
Disclaimer
RESULTS FOR THE PERIOD ENDED 30 JUNE 2015
1
Results for the period ended 30 June 2015
Good progress
Sales
 1%
Management PBT
Earnings per share
Interim dividend
per share
4%
1%
4%
GKN Aerospace
GKN Driveline
GKN Powder Metallurgy
GKN Land Systems
Positioned for growth
Fokker acquisition
Strong growth continues
Winning technology
Maintaining momentum
New powder JV in China
Difficult markets
Sustaining profitability
RESULTS FOR THE PERIOD ENDED 30 JUNE 2015
2
GKN Aerospace: Positioned for growth
H1 2015
Sales (£m)
Trading profit (£m)
Trading margin
Organic
growth
1,171
1%
133
3%
11.4%
40bps
GKN Aerospace sales by market segment
Military 26%
Commercial 74%
Transitioning from legacy to growth platforms
Growth in Commercial (+2%); Military (-4%)
− A330 volumes down; F15 better than expected
Work won exceeds $2.3bn over contract lives
− Includes Boeing, Pratt & Whitney, Gulfstream, Rolls-Royce
Sheets acquisition adds metallic technology
GKN Aerospace was awarded a
contract to supply inlet lip skins
for the Boeing 737 MAX and
777X
Fokker Technologies acquisition
RESULTS FOR THE PERIOD ENDED 30 JUNE 2015
3
GKN Driveline: Strong growth continues
H1 2015
Sales (£m)
Trading profit (£m)
Trading margin
Organic
growth
1,814
4%
150
4%
8.3%
30bps
GKN and market growth rates
%
10
5
8
5
2
1
6
4
4
2
2
1
(2)
(5)
Outperforming the market
(6)
− Europe driving growth; Brazil challenging
(10)
(15)
China H2: GKN growth ahead of market
− Further AWD and hybrid programmes in pipeline
(9)
Market (production growth)
GKN Driveline sales growth
(17)
(20)
North
America
Europe
£460m annualised and replacement business won
− Increasing capacity in Poland, Turkey, Thailand, Mexico
Automotive News PACE award winner
− Two-speed eAxle for BMW i8 hybrid
RESULTS FOR THE PERIOD ENDED 30 JUNE 2015
China
Japan
Brazil
India
Global
Source: IHS Automotive
GKN Driveline worked with Volvo Cars
on front-wheel drive and all-wheel drive
versions of the all-new Volvo XC90.
GKN has now won the hybrid drive
version
4
GKN Powder Metallurgy: Maintaining momentum
H1 2015
Sales (£m)
Trading profit (£m)
Trading margin
Organic
growth
474
1%
56
4%
11.8%
50bps
GKN Powder Metallurgy sales by origin
Asia Pacific 9%
Europe 35%
Organic sales up 3%, before impact of steel/alloy
surcharges
Americas 56%
£90m annualised new business won
− Supported by upgrade of US capability
China powder joint venture agreed
− Premium grade powder capacity for Asian market
Advanced Powder Innovation Centre operational
G-rotor pump Design for PM
components for Getrag´s new
generation double clutch
transmission (DCT) which is
ideal for use in hybrid vehicles
− Developing additive manufacture titanium powders
RESULTS FOR THE PERIOD ENDED 30 JUNE 2015
5
GKN Land Systems: Difficult markets
H1 2015
Sales (£m)
371
(8)%
15
(48)%
4.0%
(330)bps
Trading profit (£m)
Trading margin
Organic
growth
GKN Land Systems sales by market
8% fall in organic sales
− Challenging markets, particularly US agriculture
Agriculture 47%
Industrial 18%
Construction 16%
Automotive 10%
Structures 9%
Trading margin at 4.0%
− Includes £5m of 2015 £8m restructuring charge
Shafts and industrial products doing well
Strong cost control continues
GKN Land Systems China won the
contract to supply its SIME
hydraulic brake system for a major
hydropower station and boat-lifting
project in China
Growth in China and in Hybrid Power continues
RESULTS FOR THE PERIOD ENDED 30 JUNE 2015
6
Outlook for FY 2015
Aerospace market
A350 maiden flight
Automotive market
Growth in Commercial
Decline in Military
Source: Internal analysis
Land systems markets
June 2013
2015 global production expected to
Agricultural markets remaining
increase by around 2%
soft
India, China, North America and
Industrial markets showing
Europe increasing
modest growth
Selected to manufacture Advanced Technology
Japan and Brazil declining
Winglet for the new Boeing 737 MAX
Source: IHS Automotive
Source: Internal analysis
GKN Aerospace: Organic sales expected to be broadly flat. A strong commercial order book supports attractive
growth over the medium term
GKN Driveline and GKN Powder Metallurgy: Expected to continue to grow organically above the market
GKN Land Systems: Sales expected to be lower than 2014, the remaining £3 million restructuring charge is
planned in H2
Although some markets remain challenging, 2015 is expected to be a year of further growth.
Beyond 2015, we are well positioned to outperform in our large global markets
RESULTS FOR THE PERIOD ENDED 30 JUNE 2015
7
Results for the period ended 30 June 2015
Adam Walker, Finance Director | 28 July 2015
RESULTS FOR THE PERIOD ENDED 30 JUNE 2015
8
Results summary
H1 2015
£m
H1 2014
£m
Change
£m
Change
%
3,853
3,828
25
1
1% organic growth
Trading profit
346
340
6
2
1% organic growth
Trading margin (%)
9.0
8.9
10 bps
Profit before tax
307
296
11
4
Earnings per share (p)
14.5
14.4
0.1
1
EPS up 1%
Dividend per share (p)
2.9
2.8
0.1
4
DPS up 4%
Sales
RESULTS FOR THE PERIOD ENDED 30 JUNE 2015
9
Group sales
£50m
£m
4,000
3,828
68
20
7
6
1%
US$ +£146m
Euro £(102)m
3,500
1%
4%
Military
(4)%
Commercial 2%
3,250
3,853
Other
H1 2015
(32)
(45)
3,750
1
(8)%
Organic
growth 1%
3,000
H1 2014
FX
Acq/Div Aerospace Driveline
Powder
Land
Metallurgy Systems
RESULTS FOR THE PERIOD ENDED 30 JUNE 2015
10
Group trading profit
£3m
£m
400
350
340
9
4
6
(6)
5
(14)
US$ +£18m
Euro £(9)m
300
346
2
Restructuring
£(5)m
250
H1 2014
FX
Acq/
Div
Aerospace Driveline
Powder
Land
Metallurgy Systems
RESULTS FOR THE PERIOD ENDED 30 JUNE 2015
Other
H1 2015
11
Operating cash flow
H1 2015
£m
H1 2014
£m
Trading profit (subs)
306
301
Deprec’n & amort’n
126
124
EBITDA
432
425
Working capital
(142)
(150)
Capital expenditure
(198)
(161)
Investment
(340)
(311)
-
(38)
Other flows
(4)
1
Operating cash flow
88
77
Repayment of Government refundable advance
RESULTS FOR THE PERIOD ENDED 30 JUNE 2015
1
12
Free cash flow and net debt
Operating cash flow
Dividends received (JVs)
Interest (net)
Tax
Pension funding
Dividend paid (NCI)
Free cash flow
Dividends
Acquisitions and disposals
Currency and other
Movement in net debt in H1
Net debt
RESULTS FOR THE PERIOD ENDED 30 JUNE 2015
H1 2015
£m
88
55
(21)
(58)
(42)
(1)
21
(92)
(11)
(2)
(84)
H1 2014
£m
77
44
(38)
(21)
(42)
(1)
19
(87)
(8)
(5)
(81)
(708)
(813)
13
Group post-employment accounting deficit
£m
Scheme admin costs £(1)m
Finance charge
£(25)m
Currency
£48m
(400)
(1,095)
(800)
(1,200)
(616)
71
106
22
(994)
(539)
(1,600)
(2,000)
(1,711)
(21)
Net Deficit
Dec 2014
Service
cost
(1,533)
Actuarial
movement
Funded
Cash
contribution
Currency &
other
Net Deficit
June 2015
Unfunded
Pension update
Accounting deficit decrease caused principally by change in discount rates
UK Pension Increase Exchange completed
RESULTS FOR THE PERIOD ENDED 30 JUNE 2015
14
Key financial metrics
Growth
1%
Growth
5 Year
CAGR 7%
Margin
8-10%
Target
ROIC
20%
Target
Financial
Metrics
ROIC
17.5%
Margin
9%
Cash Flow
Free Cash
Flow
RESULTS FOR THE PERIOD ENDED 30 JUNE 2015
Focus for
2015
15
Summary
Underlying results in line with our expectations
Above market growth maintained in Driveline and Powder
Metallurgy
Continued focus on profit and cash conversion
Interim dividend up 4%
Focus on existing businesses, integrating the acquisition
RESULTS FOR THE PERIOD ENDED 30 JUNE 2015
16
Acquisition of Fokker Technologies
Nigel Stein, Chief Executive | 28 July 2015
RESULTS
FOR THE
ENDED
30 JUNE 2015
ACQUISITION
OFPERIOD
FOKKER
TECHNOLOGIES
17
Fokker Technologies
Specialist Tier 1 aerospace business
Dutch national champion
€758m sales in 2014
Enterprise value €706m (£499m)
8.4x Fokker expected 2015 EBITDA
Consideration of €500m (£353m) in cash
•
Throughout this presentation the following exchange rate is used: GBP:EUR FX rate
of 1.4147 and all figures quoted are FY2014 unless otherwise specified
RESULTS
FOR THE
ENDED
30 JUNE 2015
ACQUISITION
OFPERIOD
FOKKER
TECHNOLOGIES
18
GKN and Fokker Technologies
Excellent strategic fit
GKN strategy
Reinforces GKN Aerospace’s global leadership
•
•
Lead in chosen markets
No.2 in aerostructures
No.3 in electrical wiring systems
Extends global footprint
Leverage global footprint
• China, Turkey, India and Mexico
Expands technology and product capabilities
Technology driving margin
Good reputation for customer service
Extends OEM relationships
Operational improvements identified
Operational excellence
Enhances positions on key growth platforms
Sustain above market growth
RESULTS
FOR THE
ENDED
30 JUNE 2015
ACQUISITION
OFPERIOD
FOKKER
TECHNOLOGIES
19
Fokker overview
Revenue by end-market
€758m revenue; €76m EBITDA
Excellent engineering capabilities
Commercial
Services 25%
25%
Leading technologies in advanced
composites and electrical wiring
Military
Substantial order book
Business
Jets
20%
30%
4,900 people in 8 countries
− Circa 3,500 in the Netherlands
43.57% shareholding of SABCA
Revenue by customer
Dassault
Bombardier
− Société Anonyme Belge de Constructions
Aéronautiques
NHI
Other
8%
3%
5%
Gulfstream
22%
12%
17%
Airbus
RESULTS
FOR THE
ENDED
30 JUNE 2015
ACQUISITION
OFPERIOD
FOKKER
TECHNOLOGIES
Boeing
16%
17%
Lockheed
20
Fokker divisions
AEROSTRUCTURES
€370m Sales*
€36m EBIT** (9.8% margin)
Empennage, fuselage,
wing moveables
A350, G650, F-35, NH90,
A380
 Long term commercial and
military growth positions
 Significant presence in large
business jets
 Strong design and
thermoplastic capabilities (over
70% design and build)
ELECTRICAL SYSTEMS
€162m Sales*
€16m EBIT** (9.6% margin)
Electrical Wiring
Interconnection Systems
packages, wire harnesses
B737, F-35, A320, A350,
C Series
 Expansion of product capability
& entry into electrical wiring
market
 System design capability
 Increased product set with key
OEMs
* Before intra-group eliminations ** Excludes central costs
RESULTS
FOR THE
ENDED
30 JUNE 2015
ACQUISITION
OFPERIOD
FOKKER
TECHNOLOGIES
21
Fokker divisions (2)
LANDING GEAR
€52m Sales*
€4m EBIT** (7.3% margin)
Small / medium landing gear, MRO,
spares, composite capability
NH90, AH-64, F-35
 Extend military presence
 State of the art design and manufacturing
SERVICES
€201m Sales*
€9m EBIT** (4.2% margin)
MRO, component availability and
conversions
43% sales growth in non Fokker legacy
business in 2014
* Before intra-group eliminations ** Excludes central costs
RESULTS
FOR THE
ENDED
30 JUNE 2015
ACQUISITION
OFTECHNOLOGIES
ORANGE
ACQUISITION
OFPERIOD
FOKKER
22
Expands GKN product portfolio and technology
Integrated solutions with proprietary
technologies
Thermoplastics
− Thermoplastics
− GLARE® (glass-reinforced aluminium laminates)
− WDMS (Wiring design and manufacturing system)
WDMS wiring design system
− Thick-walled composite landing gear subsystems
Increased design and build engineering
capabilities
Long-standing relationships with global OEMs
with track record of technological codevelopment
RESULTS
FOR THE
ENDED
30 JUNE 2015
ACQUISITION
OFPERIOD
FOKKER
TECHNOLOGIES
23
Growth led by key platforms
Major programmes delivered across business
Growth projected from 2017
Well positioned on F-35 and
A350
Aerostructures
Electrical
Landing Gear
F-35
Flaperons
In-flight opening doors
Harnesses
Arresting gear
Drag brace
− The Netherlands is founding
partner in F-35 JSF
A350
Outboard flap
Trent XWB
G650
Tail fuselage
Floor
Tail
− A350 production now ramping up
NH90
Composite doors &
empennage
Positions on stable platforms
− Gulfstream 650 business jet
− NH90 European helicopter
Complete landing
gear
Well positioned on key growth programmes
Outlook (no. of units)
94
115
105
105
59
42
35
36
2015E
SOURCE: Teal May 2015
70
90
2016E
2017E
A350
RESULTS
FOR THE
ENDED
30 JUNE 2015
ACQUISITION
OFPERIOD
FOKKER
TECHNOLOGIES
2018E
2019E
F-35
24
GKN + Fokker combined content per aircraft
Revenue per Aircraft
$6-9
A380
million
$3-6
A330
million
F/A-18
$0-3
million
B787
A400M
Blackhawk
C130J
A350
JSF
A320
CH53-K
G650
HTF7000
B737Max
Commercial
Military
Declining
Stable
RESULTS
FOR THE
ENDED
30 JUNE 2015
ACQUISITION
OFPERIOD
FOKKER
TECHNOLOGIES
Growing
25
Excellent strategic fit
Strong financial rationale
RESULTS
FOR THE
ENDED
30 JUNE 2015
ACQUISITION
OFPERIOD
FOKKER
TECHNOLOGIES
26
Transaction
Strong financial rationale
EV €706m (£499m); Equity value €500m (£353m)
8.4x Fokker expected 2015 EBITDA (pre synergies)
Expected cost savings of 3% of sales by 2018
ROIC expected to exceed GKN cost of capital in 2017
Earnings per share accretive in first full year
Historical tax losses
Funded through £200m equity placing and existing debt facilities
Pro forma adjusted 2015E net debt / EBITDA multiple of 0.8x
Pro forma adjusted 2015E net debt + pension / EBITDA multiple of 2.2x (1)
(1) Based on GKN pension deficit of £1.5bn as at 30 June 2015
RESULTS
FOR THE
ENDED
30 JUNE 2015
ACQUISITION
OFPERIOD
FOKKER
TECHNOLOGIES
27
Financial performance
Existing Fokker business plan
Historical financials
2015 and 2016 revenue flat
€m
2012
2013
2014
Sales
769
762
758
Op. EBIT
44
47
53
5.8%
6.2%
7.0%
Op. EBIT margin %
Growth in Aerostructures and Electrical Wiring
activity offset decline in Services. This also helped to
improve overall margin
Source: Fokker Technologies 2014 Annual Reports. EBIT pre-exceptional items
Strong growth from 2017 as A350 and F-35
ramp-up
GKN outlook
Operational improvements planned, similar to
those achieved in previous acquisitions
Identified potential cost savings of 3% of sales
by 2018
− €50m transaction and integration costs
RESULTS
FOR THE
ENDED
30 JUNE 2015
ACQUISITION
OFPERIOD
FOKKER
TECHNOLOGIES
28
Due diligence and process
Thorough due diligence
3rd party contact with customers
Meeting with key government department
Works Council discussions
Sanctions violations
− In 2010 Fokker’s services division voluntarily disclosed sanctions violations to US regulators.
A settlement of $21m was agreed with the Department of Justice and other US regulators in 2014,
but litigation regarding the court’s role in the settlement process continues.
RESULTS
FOR THE
ENDED
30 JUNE 2015
ACQUISITION
OFPERIOD
FOKKER
TECHNOLOGIES
29
Timing
Signing protocol executed 27 July 2015
EU Merger and Hart-Scott Rodino clearance
CFIUS and ITAR approval
Works Council consultation process underway
Transaction closing expected Q4 2015
RESULTS
FOR THE
ENDED
30 JUNE 2015
ACQUISITION
OFPERIOD
FOKKER
TECHNOLOGIES
30
GKN Aerospace + Fokker: A great combination
Reinforces
global leadership
Expands technology and
product capabilities
RESULTS
FOR THE
ENDED
30 JUNE 2015
ACQUISITION
OFPERIOD
FOKKER
TECHNOLOGIES
Enhances positions on
key growth platforms
31
Appendix
RESULTS FOR THE PERIOD ENDED 30 JUNE 2015
32
Statutory income statement
H1 2015
£m
H1 2014
£m
3,616
3,565
Trading profit
306
301
Change in value of derivative and other financial instruments
(20)
(7)
Amortisation of non-operating intangible assets arising on business combinations
(36)
(35)
Sales (subsidiaries)
Changes in Group Structure
(5)
Operating profit
Post-tax joint venture trading
Joint venture exceptional and non-trading items
Share of post-tax earnings of joint ventures
-
245
259
34
32
-
(1)
34
31
Interest (net)
(33)
(37)
Other net financing charges
(34)
(29)
Net financing costs
(67)
(66)
Profit before tax
212
224
Management profit before tax
307
296
RESULTS FOR THE PERIOD ENDED 30 JUNE 2015
33
Trading profile
2015
2014
H1
£m
H1
£m
H2
£m
FY
£m
3,853
3,828
3,628
7,456
Aerospace
1,171
1,100
1,126
2,226
Driveline
1,814
1,765
1,679
3,444
Powder Metallurgy
474
471
445
916
Land Systems
371
426
350
776
346
340
347
687
Aerospace
133
121
156
277
Driveline
150
142
138
280
Powder Metallurgy
56
53
48
101
Land Systems
15
31
13
44
9.0%
8.9%
9.6%
9.2%
307
296
305
601
Management Basis
Sales
Trading profit
Margin
Profit before tax
RESULTS FOR THE PERIOD ENDED 30 JUNE 2015
34
Margin
Margin
H1 2015
%
H1 2014
%
Target
Range
%
11.4
11.0
11-13
8.3
8.0
8-10
11.8
11.3
9-11
Land Systems
4.0
7.3
8-11
Group
9.0
8.9
8-10
Aerospace
Driveline
Powder Metallurgy
RESULTS FOR THE PERIOD ENDED 30 JUNE 2015
35
Return on invested capital
ROIC%
before tax
20%
1
Group Target > 20%
H1
2015
H1
2014
Aerospace
17.7%
16.8%
Driveline
19.6%
17.9%
Powder Metallurgy
22.0%
21.0%
7.6%
14.6%
17.5%
1
16.9%
Group ROIC
15%
Group WACC - 12%
Land Systems
Group
10%
FY 2013
H1 2014
FY 2014
H1 2015
RESULTS FOR THE PERIOD ENDED 30 JUNE 2015
36
Impact of currency – H1 2015 translational impact
Effect on H1 2014:
Average Rate
Change
Sales
Trading Profit
H1 2015
H1 2014
%
£m
£m
US $
1.53
1.67
(8.4)
146
18
Euro
1.37
1.22
12.3
(102)
(9)
Real
4.54
3.83
18.5
(13)
-
Yen
184
171
7.6
(11)
(1)
Renminbi
9.49
10.30
(7.9)
20
3
96
102
(5.9)
4
-
12.78
10.91
17.1
(19)
(1)
Other
(5)
(1)
Impact (subs & JVs)
20
9
Indian Rupee
Swedish Krona
Translational impact on H1 2015 trading profit (including JVs):
Euro moves 1 point e.g. 1.37  1.38 = £(0.5)m
US$ moves 1 point e.g. 1.53  1.54 = £(1.5)m
RESULTS FOR THE PERIOD ENDED 30 JUNE 2015
37
Post-employment obligations: accounting deficit
UK
£m
Americas
£m
Europe
£m
ROW
£m
Total
£m
2,415
191
34
19
2,659
(3,319)
(266)
(39)
(29)
(3,653)
(904)
(75)
(5)
(10)
(994)
(16)
(42)
(478)
(3)
(539)
(920)
(117)
(483)
(13)
(1,533)
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 Half 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 PERIOD ENDED 30 JUNE 2015
38
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 PERIOD ENDED 30 JUNE 2015
39