Third Quarter Results 2011
Q3 2011 - three months ended 30 September 2011
Overview
Market conditions broadly as expected, notwithstanding a
worsening macroeconomic outlook
Performance strong through the seasonally weaker third quarter and
order books support further progress in the fourth quarter
Acquisition of Stromag was completed on 5 September and the first
month’s trading was in line with plan
The acquisition of Getrag Driveline Products completed on
30 September
Hoeganaes Gallatin plant returned to normal operations in
September
Pre-incident levels of output and profitability are currently planned for January 2012 as
customer demand is fully restored
Remedial plant activities and external powder supply were extended from the original
plan resulting in a one-off charge totalling £34m, remaining £11m taken in the third
quarter
Insurance recovery discussions underway
Q3 2011 - three months ended 30 September 2011
2
Group results
2011
Management basis
2010
H1
£m
Q3
£m
9m YTD
£m
H1
£m
Q3
£m
9m YTD
£m
2,988
1,483
4,471
2,701
1,336
4,037
247
113
360
202
100
302
8.3%
7.6%
8.1%
7.5%
7.5%
7.5%
Gallatin
(23)
(11)
(34)
-
-
-
Trading profit inc. Gallatin
224
102
326
202
100
302
7.5%
6.9%
7.3%
7.5%
7.5%
7.5%
223
100
323
175
88
263
Sales
Trading profit before Gallatin
Trading Margin (%)
Trading Margin (%)
Profit before tax excl. Gallatin
Third quarter sales up 11% to £1,483m
Trading profit up 13% to £113m, before one-off Gallatin costs of £11m
Trading margin of 7.6%
Profit before taxation (before Gallatin) of £100m
Net debt at 30 September 2011 was £696m (30 June 2011: £174m)
Q3 2011 - three months ended 30 September 2011
3
Automotive
Global light vehicle production in Q3 of 18.3m vehicles increased 2%
compared with Q3 2010, but decreased by 1% compared with Q2 2011
Largest increase over the second quarter was the recovery in Japanese
domestic production offset by small car weakness in Europe
% change (Q3 11 vs Q3 10)
% change (Q3 11 vs Q2 11)
70
60
50
40
30
20
10
0
-10
-20
Japan
60%
India
North America
China
Europe
10
8
6
4.0% 4.5%
4.3%
4
2
0
0%
-2
0% -4%
-15%
Q3 2011 - three months ended 30 September 2011
-4
-1.4%
-2.4%
4
Driveline
2011
Sales
2010
H1
£m
Q3
£m
9m YTD
£m
H1
£m
Q3
£m
9m YTD
£m
1,333
672
2,005
1,189
609
1,798
94
45
139
82
40
122
7.1%
6.7%
6.9%
6.9%
6.6%
6.8%
Trading profit
Trading Margin
Third quarter sales increased 10% to £672m
Trading profit increased 15% to £46m, at a margin of 6.8%, before
incurring £1m of acquisition costs associated with Getrag Driveline
Products
Japanese customers in North America returned to normal in September
Demand in the Brazilian and Indian markets softened
European premium segment and China have remained strong
Q3 2011 - three months ended 30 September 2011
5
Powder Metallurgy
2011
Sales
Trading profit
Trading Margin
2010
H1
£m
Q3
£m
9m YTD
£m
H1
£m
Q3
£m
9m YTD
£m
435
210
645
378
191
569
39
16
55
26
15
41
9.0%
7.6%
8.5%
6.9%
7.9%
7.2%
Third quarter sales increased 10% to £210m
Trading profit of £16m and trading margin of 7.6%, excluding £11m
one-off costs associated with Gallatin
Within Powder Metallurgy
Sinter Metals sales grew 16% supported by strength in all regions, trading margin of 8.4%
(2010: 6.5%)
Hoeganaes’ sales fell 9% following the Gallatin temporary plant closure, making a small
profit in the period
Q3 2011 - three months ended 30 September 2011
6
Land Systems
2011
Sales
Trading profit
Trading Margin
2010
H1
£m
Q3
£m
9m YTD
£m
H1
£m
Q3
£m
9m YTD
£m
444
213
657
359
165
524
38
16
54
19
8
27
8.6%
7.5%
8.2%
5.3%
4.8%
5.2%
Markets remained robust, with agricultural equipment demand
continuing its strong recovery
Sales increased 23% to £213m on a comparable basis with Q3 2010,
9% lower than Q2 2011 due to normal seasonal demand patterns
Trading profit increased £8m to £16m with a trading margin of 7.5%
Stromag, acquired in September, added £10m of sales with a strong
margin but its profit was mostly offfset by acquisition costs during
the period
Q3 2011 - three months ended 30 September 2011
7
Aerospace
2011
H1
£m
Q3
£m
9m YTD
£m
H1
£m
Q3
£m
9m YTD
£m
723
360
1,083
734
349
1,083
80
39
119
80
39
119
11.1%
10.8%
11.0%
10.9%
11.2%
11.0%
Sales
Trading profit
Trading Margin
2010
Performance in line with expectations
Sales up 3% at £360m
Trading profit was £39m at a trading margin of 10.8%
Revenue reductions on F22 and C17 programmes have now been
fully offset by increases in civil demand
Q3 2011 - three months ended 30 September 2011
8
Net debt and financing
Net debt at 30 September 2011 was £696m
(30 June 2011: £174m)
Net cash outflow of £444m attributable to the acquisitions of
Stromag and Getrag Driveline Products
Remaining £78m cash outflow reflects
Normal seasonal working capital outflows
Interim dividend payment (£31m)
Hoeganaes temporary plant closure
Net debt expected to be c.£600m at year end
Around £400m of new revolving credit facilities
secured, maturing in 2016
Q3 2011 - three months ended 30 September 2011
9
Outlook
Macroeconomic uncertainty has increased in recent months although no
significant deterioration has been experienced in GKN’s order books
In Automotive, Driveline and Sinter Metals are expected to continue to deliver
similar levels of underlying improvement over 2010 to that achieved in the third
quarter, with trading in Hoeganaes continuing to improve
Land Systems sales are expected to be at similar levels to the third quarter
Aerospace is expected to continue its growth phase in the fourth quarter as
activity levels increase on civil programmes
Stromag and Getrag Driveline Products acquisitions are expected to have a
small positive impact on fourth quarter profits
On the basis of current market conditions, we expect the Group to continue to
perform strongly through the fourth quarter
Overall we continue to expect 2011 to be a year of strong progress, with the
Group well positioned for growth in 2012 and beyond
GKN
Delivering Sustainable Growth
Q3 2011 - three months ended 30 September 2011
10
Financial summary
Management Basis (1)
2011 H1 £m
Driveline
2011 Q3 £m
2011 9M £m
1,333
672
2,005
Powder Metallurgy
435
210
645
Aerospace
723
360
1,083
Land Systems
444
213
657
53
28
81
2,988
1,483
4,471
Driveline
94
45
139
Powder Metallurgy
39
16
55
Aerospace
80
39
119
Land Systems(*)
38
16
54
Other Businesses
2
1
3
(23)
(11)
(34)
Corporate Costs(*)
(6)
(4)
(10)
Total trading profit
224
102
326
Interest
(19)
(11)
(30)
(5)
(2)
(7)
200
89
289
Other Businesses
Total sales
Gallatin Temporary Closure
JV interest and tax
Profit before tax
(1)
Management Basis – please see press release for definition
£1m of Stromag acquisition costs reallocated from Corporate Costs
2011 to Land Systems in H1
(*)
Q3 2011 - three months ended 30 September
11