Delivering the potential
Results for the six months to 30 June 2012
Nigel Stein, Chief Executive | 31 July 2012
1
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
H1 performance
Strong organic growth across GKN
Sales +16% to £3.5 billion; +8% on an organic basis
Group trading margin increased to 8.5%
GKN Driveline
GKN Powder Metallurgy
Profit before tax of £266 million; +19% *
GKN Aerospace
GKN Land Systems
A good six months for GKN
* Excluding H1 2011 Gallatin impact £23m
2
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Strategic progress
Good strategic progress across the Group
Lead in chosen markets
Acquisition of Volvo Aero strengthens
engine components
Leverage global footprint
Two significant investments in Mexico
by GKN Driveline and GKN Aerospace
Technology driving margin
Sustain above market
growth
Technology wins across the business
All four divisions grew ahead of
their major markets
3
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
GKN Driveline
First half
2012
Change (%)
2011
Headline
Organic
Sales (£m)
1,664
1,333
25
9
Trading profit (£m)
Trading margin
121
7.3%
94
7.1%
29
11
Increased sales and trading profit
Strong performance from Getrag Driveline Products
− AWD attractive to customers (e.g. Range Rover Evoque)
Sales by product
AWD now more than one third of total sales
Technology wins in AWD – differential lockers
£1,060m
+6%
£604m
+81%
AWD
Systems
36%*
CVJ
Systems
64%
* includes Transaxle Systems & eDrive
4
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
GKN Driveline
Continued growth in global automotive
Global automotive volume up 9%
− Driveline beat market in North America, Europe and China
− Japan distorted by earthquake unwind
Good sideshaft growth in North America
− Additional precision forge in Mexico; 1,700 people, 24/7
Europe sales around one third of total
%
70
Market (units production)
60
GKN Driveline organic
sales growth
50
57%
40
30
29%
22%
16%
20
(10)
Margin impacted
(20)
9%
8%
6%
10
− 40% of Europe sales to premium brands
− South Europe headwind increasing
− Market in Brazil softening
− Operational issues in India
Automotive market change H1 2012
9%
2%
(7)%
(5)%
North
America
Europe
China
Japan
(1)%
Brazil
GKN Driveline sales by region
Asia
28%
Americas
33%
Europe
39%
5
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Global
GKN Powder Metallurgy
First half
2012
Sales (£m)
Trading profit (£m)
Trading margin
Change (%)
2011
Headline
Organic
465
435
7
9
47
10.1%
39
9.0%
21
24
Good organic growth
Achieved double-digit margin
Sustaining positive trading trend
− Considering further expansion in China
− India and Brazil strong
− Argentina restructuring
Hoeganaes sales and profitability recovered
‘Design for PM’ creates increased opportunities
−
−
−
−
Differential gears
Torque converter
£80m new business awarded
Differential gears for Ford Super Duty Truck
Chrysler Torque converter
Variable valve timing components for China
Variable valve timing components
6
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
GKN Aerospace
First half
2012
Sales (£m)
Trading profit (£m)
Trading margin
Change (%)
2011
Headline
Organic
770
723
7
7
86
11.2%
80
11.1%
8
6
Organic sales and profit up
Civil sales up 16%; Military down 7%
− Civil driven by A330, A320, A380 and Boeing 787
− A350 making good progress, start-up costs in H1
Technology landmarks in H1
− CTAL JV composite pre-production facility opened
− New wing research and design facility at Filton, UK
New Mexico composite aero-structures facility
Order book wins include:
Assembling the A380 rear spar and trailing edge
GKN Aerospace sales growth H1 2012
%
20
15
10
16%
Military
Civil
5
− Bell 525 Relentless Helicopter
− Boeing 787 additional work packages
− Bombardier Global 7000 and 8000 business jets
7
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
(5)
(10)
(7)%
H1 2012
Volvo Aero overview
Pro forma 2011 GKN Aerospace sales
Strong financial rationale
Other
7%
Attractive price; expect it to be earnings accretive in 2013
Engines
38%
Excellent strategic fit
GKN
10%
Volvo
Aero
28%
Creates a market leader – No.3 in engine components
Well invested in facilities and engine programmes
Structures
55%
Complementary technology
Well-respected engineering capability
Skilled workforce
Pro forma 2011 GKN Group trading profit
Strengthens OEM relationships
GKN Land
Systems
12%
Other
1%
GKN Driveline
37%
Better balanced business
Engine systems/structures; civil/military; aerospace/automotive
GKN Aerospace
37%
GKN Powder Metallurgy
13%
Value enhancing acquisition for GKN
8
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
GKN Land Systems
First half
2012
2011
Headline
Organic
512
444
15
6
52
10.2%
39
8.8%
33
18
Sales (£m)
Trading profit (£m)
Trading margin
Change (%)
Good growth
Growth in sales helped by Stromag acquisition
Organic 6% sales increase
− Fuelled by agriculture and construction equipment markets
− Weakness in European industrial markets
Claas combine harvester
Trading profit - 18% organic improvement
− Double-digit margin
Business wins include
− Prototype clutch for mining sector - Atlas Copco/Carraro
− Drivetrain for Claas harvesters
− Brakes for Mitsubishi Windpower installations
Windpower brakes
9
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Bill Seeger
Finance Director
10
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Results summary
H1 2012
£m
H1 2011
£m
Change
£m
Change
%
3,459
2,988
471
16
Trading profit1
293
247
46
19
Trading margin1 (%)
8.5
8.3
20 bpts
Profit before tax1
266
223
43
19
Earnings per share1 (p)
14.4
11.8
2.6
22
2.4
2.0
0.4
20
Sales
Interim dividend (p)
1
Excluding H1 2011 Gallatin impact £23m
11
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Group overview
Sales by division
Sales by origin
Other
2%
£1,664m
+27%
£512m
+18%
GKN
Land
Systems
15%
GKN
Aerospace
22%
£770m
+5%
Group
£3,459m
+17%
GKN
Driveline
48%
GKN
Powder
Metallurgy
13%
£465m
+9%
£1,607m
Organic
+5%
£540m
Organic
+11%
Asia
16%
Group
£3,459m
Organic
+8%
£1,312m
Organic
+10%
Growth presented at constant currency
12
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Americas
38%
Europe
46%
Sales growth
£231m
£m
3,500
47
3,459
24
40
(4)
120
6%
7%
279
9%
9%
3,000
2,988
Organic
growth 8%
(35)
2,500
H1 2011
FX
Acq/Div
Driveline
Powder
Metallurgy
Aerospace
13
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Land
Systems
Other
H1 2012
Trading profit growth
£31m
£m
7
300
293
5
9
(7)
10
27
Includes £6m deal
related costs
250
247
(5)
9.2%
Margin
200
H1 20111
1
FX
Acq/Div
Driveline
Powder
Metallurgy
Aerospace
Excluding H1 2011 Gallatin impact £23m
14
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Land
Systems
Other
H1 2012
Trading margins
H1 2012
%
H1 2011
%
Target
Range
%
7.3
7.1
8-10
Powder Metallurgy
10.1
9.0
9-11
Aerospace
11.2
11.1
11-13
Land Systems
10.2
8.8
8-11
Driveline
Group
1
8.5
Excluding H1 2011 Gallatin impact £23m
15
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
8.3
1
8-10
Return on invested capital
ROIC%
before tax
20%
Group Target > 20%
Rebased*
FY
2011
Driveline1
15.2%
14.7%
Powder Metallurgy
18.2%
16.7%
Aerospace
22.4%
22.7%
Land Systems1
18.7%
17.9%
Group – reported1
17.2%
16.2%
17.2%
15%
Group ROIC
Group WACC - 12%
10%
Group – rebased*
5%
2007
1
H1
2012
2008
2009
2010
2011
1
H1 2012
16.9%
1
ROIC includes pro forma adjustment for 2011 acquisitions
16
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
* Adjusted for Gallatin impact
Cash flow summary
Average working capital % of sales
EBITDA
H1
2012
£m
H1
2011
£m
376
294
12
11.5
% of
sales
9.2
9
Working capital
(138)
(80)
Capital expenditure
(149)
(131)
(23)
(37)
Operating cash flow
66
46
Free cash flow
28
25
Other
7.9
7.4
6.8
6
FY 2008
FY 2009
FY 2010
FY 2011*
H1 2012*
Tangible reinvestment ratio (ex A350)
1.5
YE
2011
£m
H1
2012
£m
Net debt
(590)
1.2x
1.1x
1.2x
1.0
0.6x
0.7x
0.5
(538)
0.0
* includes pro forma adjustment for 2011 acquisitions
2008
17
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
2009
2010
2011
H1 2012
Post-employment obligations
Liability reduction
H1 movement in net deficit
£m
Funded
Unfunded
Total
Career average salary (UK)
(465)
(403)
(868)
Trend towards defined contribution
(51)
(63)
(114)
Curtailment
35
-
35
Transfer
20
(20)
-
Other
19
2
21
(442)
(484)
(926)
Dec 2011
Discount rate
June 2012
Modest H1 change in accounting deficit
UK discount rate aligned with liability profile
Annual cash flow c.£100m
St. Louis (US) transfer to multi-employer
Funding stability
UK Pension partnership structure
Risk management
Longevity risk sharing
Inflation hedging
UK scheme separation
18
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Tax update
H1 2012
FY 2011
Cash tax
14%
13%
Book tax
17%
16%
Unrecognised deferred tax assets
−
−
£335m: down £58m in H1 2012
Balance focussed in UK and US
Unrecognised Deferred Tax Assets
£m
700
%
35
£631m
30
600
Guidance for 2012
500
−
Improved versus prior guidance
400
−
Cash tax rate c.14%
300
15
−
Book tax rate c.17%
200
10
100
5
£469m
25
£393m
£335m
20
0
0
2009
19
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
2010
2011
30 June
2012
Unrecognised deferred tax assets
Cash tax rate
Volvo Aero – expected 2012 impact
Trading expectations
Cash flows
2012
£m
Sales
c.670
Trading Profit before charges
(margin c.9%)
Q4
£m
c.170
c.15
Expected acquisition related charges
include:
−
−
−
−
£m
Enterprise value
633
Pension settlement
(50)
Working capital
(70)
Consideration
513
Managing FX volatility through
operational hedges
Transaction fees (£6m)
Separation and synergy costs (£24m, over
time)
Pension settlement
Fair value inventory unwind
Q4 trading profit of £15m more than offset
by above charges
20
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Funding update
Volvo Aero funding
600
− Debt bridge £500m in place
Current profile
− Equity £140m completed
500
Rating agencies affirm current
position
400
Debt bridge to be refinanced
− 5 to 10 year term Bond
300
Mid 2013 RCF to be replaced
200
− 5 year facility
100
0
2012
£m
2013
2014
RCF2
2015
RCF3
2016
2017
2019 Bond
2018
2019
EIB
21
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Summary
Good sales growth in each division
Margins and return on invested capital improved
Tax and pension actions delivering positive results
Cash generation ongoing focus
Interim dividend increased
Good start to the year
22
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Nigel Stein
Chief Executive
23
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Progress in strategic financial metrics
Growth
+16%
Target: Above market
Broadly-based organic
growth +8%
Helped by acquisitions
Margin
Increased to 8.5%
ROIC
17.2%
Group target: 8-10%
Target: 20%+
Group margin increased
to 8.5%
Underlying progress
All divisions made progress
BUSINESS
PERFORMANCE
GKN Driveline focussing on
pricing, costs and selective
growth
2011 acquisitions
temporarily reduced
Group ROIC
Tightened capital allocation
process
Increasing cashflow,
EPS and dividends
24
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
2012 outlook
Macro economics uncertain
Good performance in H1
Broad exposure to global markets
No change in full year expectations
− Excluding effects of Volvo Aero
Expect 2012 to be another year of good progress for GKN
25
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
GKN beyond 2012
Excellent market positions
Strong capabilities
Automotive
Global OEM relationships
Aerospace
Right technologies
Land Systems
Operational excellence
GKN is very well placed for the future
26
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Delivering the potential
27
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Appendix
Delivering the potential
28
RESULTS FOR SIX MONTHS ENDED 30 JUNE 2012
Statutory income statement
Sales (subsidiaries)
Trading profit
Change in value of derivative and other financial instruments
Amortisation of non-operating intangible assets arising on
business combinations
H1 2012
£m
H1 2011
£m
3,254
2,799
264
198
18
18
(16)
(10)
35
-
-
4
301
210
Post-tax joint venture trading
24
21
Joint venture exceptional and non-trading items
(1)
(1)
Share of post-tax earnings of joint ventures
23
20
Interest (net)
(22)
(19)
Other net financing charges
(13)
(9)
Net financing costs
(35)
(28)
Profit before tax
289
202
Pension scheme curtailment
Gains and losses on changes in Group structure
Operating profit
29
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Trading profile
2011*
2012
H1
£m
H1
£m
H2
£m
FY
£m
3,459
2,988
3,124
6,112
1,664
1,333
1,462
2,795
Powder Metallurgy
465
435
410
845
Aerospace
770
723
758
1,481
Land Systems
512
444
441
885
293
247
240
487
121
94
104
198
Powder Metallurgy
47
39
33
72
Aerospace
86
80
86
166
Land Systems
52
39
33
72
8.5%
8.3%
7.7%
8.0%
266
223
213
436
Management Basis
Sales
Driveline
Trading profit
Driveline
Margin %
Profit before tax
* Excluding 2011 Gallatin impact
30
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Sales change
FX
£m
Portfolio
changes
£m
Organic
changes
£m
H1
2012
£m
1,333
(21)
232
120
1,664
Powder Metallurgy
435
(10)
-
40
465
Aerospace
723
8
(8)
47
770
Land Systems
444
(11)
55
24
512
53
(1)
-
(4)
48
2,988
(35)
279
227
3,459
Driveline
Other businesses
Group sales
H1
2011
£m
31
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
PBT change
H1
2011
£m
FX
£m
Portfolio
changes
£m
Organic
changes
£m
H1
2012
£m
Driveline
94
(3)
20
10
121
Powder Metallurgy
39
(1)
-
9
47
Aerospace
80
1
-
5
86
Land Systems
39
(1)
7
7
52
2
-
-
(1)
1
(7)
(1)
-
(8)
(16)
Gallatin
(23)
-
-
25
2
Group trading profit
224
(5)
27
47
293
Net interest (subsidiaries)
(19)
-
-
(3)
(22)
(5)
-
-
-
(5)
200
(5)
27
44
266
Other businesses
Corporate & unallocated
JV interest & tax
Group PBT
32
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Impact of currency
Translational:
Effect on H1 2011:
Average Rate
Change
Sales
Trading
Profit
H1 2012
H1 2011
%
£m
£m
US $
1.57
1.61
(2.5)
23
1
Euro
1.22
1.15
6.1
(51)
(5)
Real
2.93
2.64
11.0
(13)
(2)
Yen
125
132
(5.3)
11
-
Renminbi
9.95
10.56
(5.8)
9
2
82.10
72.57
13.1
(9)
(1)
(5)
-
(35)
(5)
Indian Rupee
Other
Impact (subs & JVs)
Translational impact on H1 2012 trading profit (including JVs):
1% move in euro = £0.8m; 1% move in US dollar = £1.1m
33
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
GKN Driveline
Trading Performance
H1 2012
H1 2011
1,664
1,333
Sales - £m
Trading profit - £m
121
94
7.3%
7.1%
15.2%
16.1%
Margin
Return on invested capital1
1
H1 2012 ROIC includes pro forma adjustment for Getrag
Sales up 25% (£331m); organic growth
9%
All geographic regions grew
Getrag Driveline Products performance
strong
AWD Systems now 30% of GKN
Driveline
Sales by region
£471m
+9%
Asia
28%
Americas
33%
Sales by product
£554m
+49%
£1,060m
+6%
£498m
+110%
AWD
Systems
30%
Other2
6%
Europe
39%
£639m
+26%
CVJ
Systems
64%
£106m
+47%
2
Growth rates presented at constant currency
34
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Transaxle, eDrive
GKN Powder Metallurgy
Trading Performance
H1 2012
H1 2011
465
435
47
39
Margin
10.1%
9.0%
Return on invested capital
18.2%
15.7%
Sales - £m
Trading profit - £m
Sales up 7% (£30m); organic growth 9%
Broad based growth
Margin increased to double digits
ROIC improved
Sales by region
£235m
+12%
Sales by product
£174m
+3%
Europe
37%
North
America
51%
£83m
+9%
Hoeganaes
18%
Asia/SA
12%
£47m
-2%
Industrial
10%
£56m
+22%
Growth rates presented at constant currency
35
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
£335m
+11%
Automotive
72%
GKN Aerospace
Trading Performance
H1 2012
H1 2011
770
723
86
80
Margin
11.2%
11.1%
Return on invested capital
22.4%
22.5%
Sales - £m
Trading profit - £m
Civil programme sales growth
15
Sales up 7% (£47m), organic growth 7%
Civil sales grew 16%
Military sales declined 7%
Sales mix: Civil 63%; Military 37%
Sales by market & origin
Military
£287m
-7%
10
Europe
Americas 11%
26%
5
Americas
23%
£m
B787
A320
A330
A380
Growth rates presented at constant currency
36
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Europe
40%
Civil
£483m
+16%
GKN Land Systems
Trading Performance
H1 2012
H1 2011
512
444
52
39
Margin
10.2%
8.8%
Return on invested capital1
18.7%
24.2%
Sales - £m
Trading profit - £m
1
Sales up 15% (£68m); organic growth
6%
Sales growth reflects:
−
−
−
−
−
Stromag acquisition
Agriculture (+22%)
Industrial (+39%)
Construction & Mining (+27%)
Power Management strengthens
H1 2012 ROIC includes pro forma adjustment for Stromag
Sales by market
Sales by business
£216m
+22%
£114m
-6%
Agriculture
42%
Automotive
22%
£61m
+27%
C&M
12%
Industrial
24%
£117m
-4%
£121m
+39%
Growth rates presented at constant currency
PSS*
23%
Wheels &
Structures
36%
Power
Management
41%
£183m
+6%
£212m
+53%
* Powertrain Systems & Services
37
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Cash flow
Operating cash flow
H1 2012
£m
H1 2011
£m
Trading profit (subs)
264
198
H1 2012
£m
H1 2011
£m
Operating cash flow
66
46
Dividends received (JVs)
41
34
Interest (net)
(25)
(14)
Tax
(24)
(13)
Pension partnership
(30)
(23)
-
(5)
28
25
Free cash flow
Deprec’n & amort’n
112
96
EBITDA
376
294
Working capital
(138)
(80)
Capital expenditure
(149)
(131)
Free cash flow
Investment
(287)
(211)
Dividends
(62)
(54)
Acquisitions and disposals
(12)
3
(6)
3
(52)
(23)
(590)
(174)
Other
Currency and other
Other flows
Operating cash flow
(23)
(37)
66
46
Movement in net debt
Net debt
38
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Capital investment
Tangible reinvestment ratio
H1 2012
£m
H1 2011
£m
124
89
3
19
Total tangible capex
127
108
Depreciation
105
92
Ratio (times)
1.2x
1.2x
H1 2012
£m
H1 2011
£m
Expenditure
12
7
A350
10
16
Total intangible capex
22
23
7
4
149
131
Tangible
1.5x
Expenditure
1.2x
1.2x
1.2x
1.1x
1.0x
0.6x
0.7x
0.5x
A350
0.0x
2007
2008
2009*
2010*
2011*
H1
2012*
Capex ratio 1.2x depreciation
A350 expenditure £141m to date
Intangible
Amortisation
2012 guidance: 1.2x depreciation
Total expenditures
* Excluding A350
39
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Tax charge analysis
H1 2012
H1 2011
34%
31%
(20)%
(16)%
“Cash tax” rate
14%
15%
Net deferred tax and tax provision
movement
(2)%
(4)%
Tax impact of equity movements
(mainly post-employment)
5%
5%
Book tax rate
17%
16%
Weighted average of tax rates
Impact of tax losses, utilisation of
deferred tax assets
40
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Stable within +/-3% range
Target: 20% or below
Movement based on deferred
tax asset recognition
Post-employment obligations: accounting deficit
UK
£m
Americas
£m
Europe
£m
ROW
£m
Total
£m
2,401
178
29
22
2,630
(2,723)
(350)
(439)
(44)
(3,556)
(322)
(172)
(410)
(22)
(926)
2,391
248
31
23
2,693
(2,663)
(469)
(383)
(46)
(3,561)
(272)
(221)
(352)
(23)
(868)
2,398
249
31
22
2,700
(2,454)
(393)
(384)
(43)
(3,274)
(56)
(144)
(353)
(21)
(574)
2012 Half Year
Assets
Liabilities
Net Deficit
2011 Full Year
Assets
Liabilities
Net Deficit
2011 Half Year
Assets
Liabilities
Net Deficit
41
RESULTS FOR SIX MONTHS TO 30 JUNE 2012
Contacts
Bill Seeger
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
42
RESULTS FOR SIX MONTHS TO 30 JUNE 2012