Engineering that moves the world
Results for the six months to 30 June 2013
Nigel Stein, Chief Executive | 30 July 2013
Results for the six months to 30 June 2013
Good first half
Sales up 12% to £3.87bn
Management PBT up 5% to £278m
£25m restructuring costs included in H1
A350 pic
EPS down 3%; Interim dividend increased by 8%
On xx 2013 the A350 successfully performed its
maiden flight
All divisions performing well
Engine Systems (Volvo Aero) made strong contribution
to GKN Aerospace
GKN Driveline reported good organic sales growth
GKN Powder Metallurgy delivered excellent margin
GKN Land Systems maintained strong operational
discipline
2
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Our strategy – a reminder from Capital Markets Day
Lead in
chosen
markets
Leverage
global
footprint
Technology
driving
margin
Operational
excellence
Sustain above
market growth
All divisions won key business with global OEMs
GKN Driveline extended Chinese JV adding AWD
GKN Land Systems wheels JV in Donghai, China
Increased investment in technology
GKN Aerospace engineering centre in Bangalore
Won customer quality awards

Airbus, Bosch, Caterpillar, Ford & GM
All four divisions outperformed their markets
3
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
GKN Aerospace
Change (%)
H1 2013
Sales (£m)
Trading profit (£m)
Trading margin
H1 2012
Headline
Organic
1,123
770
46
3
118
86
37
(7)
10.5%
11.2%
Good performance
Strong H1 contribution from Engine Systems
− Integration going well; purchasing savings; headcount reduced by 10%
GKN Aerospace organic sales met targets; increased 3%
A350 maiden flight, June 2013
8% growth in commercial sales driven by B787, A320 and A330
− Airbus A350 production not at full rate; shipments below H1 2012
− Supply contract taken back in house by Airbus reduced H1 sales c. £20m
6% fall in military sales; impact from phasing of spares programme
GKN Aerospace sales by
market segment, H1 2013
H1 2012 benefitted positive pricing correction
Military
29%
Commercial market continues to strengthen
Airbus and Boeing announce c.$150bn of sales at Paris Airshow
GKN Aerospace won $480m contracts in H1
4
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Commercial
71%
GKN Driveline
Change (%)
H1 2013
H1 2012
Headline
Organic
Sales (£m)
1,728
1,664
4
4
Trading profit (£m)
Trading margin
117
6.8%
121
7.3%
(3)
(4)
Encouraging first half
Sales up 4%, well ahead of market growth of 1%
Performance underpinned by strong North America
Europe market difficult, but stabilised
£16m restructure costs; charges complete
Underlying margin progression; driven by actions on
pricing, material savings and selective business wins
GKN is manufacturing BMW X3, FDUs
GKN Driveline and market growth rates, H1 2013
%
20
17
15
15
14
10
13
10
5
Increasing content per vehicle
AWD accounts for c.40% of sales
First Final Drive Units for the BMW X3 to be shipped by
Driveline N. Carolina in August
1
4
(5)
(4) (2)
4
(6)
(8)
(11)
(10)
(13)
(15)
Geographic expansion
China: SDS JV extension; Wuhan forge expansion
North Europe
America
China
Market (units production)
5
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Japan
Brazil
India
Global
GKN Driveline sales growth
GKN Powder Metallurgy
Change (%)
H1 2013
Sales (£m)
Headline
Organic
480
465
3
2
48
47
2
-
10.0%
10.1%
Trading profit (£m)
Trading margin
H1 2012
Very good first half
Organic sales increased 2%; ahead of market
Sinter grew 4%; increased sales in tough European market
Hoeganaes sales slightly lower; reduced material surcharges,
volume decline
Growth in China; new Yizheng plant comes on stream Q3
Brazil slightly down; softness in industrial market
Margin 10%; £5m of restructuring costs
Design for PM driving performance
Launching lightweight differential gears
GKN Powder Metallurgy
sales by origin, H1 2013
Asia Pacific
8%
£65m business wins in H1
Europe
38%
− Including Ford, GM, Honda, Pierburg, Subaru & Tsubaki
Extension to GKN Sinter Metals Gallipolis, Ohio plant to launch
differential gears
6
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Americas
54%
GKN Land Systems
Change (%)
H1 2013
Sales (£m)
Trading profit (£m)
Trading margin
H1 2012
Headline
Organic
487
512
(5)
(7)
45
52
(13)
(15)
9.2%
10.2%
Challenging market conditions
Organic sales down 7%
Construction down; weaker Europe aftermarket; main agricultural
market held up
Sales reduced £5m by end of long term chassis contracts
Global agricultural market remains firm
− £45m annualised sales; £3m restructuring costs incurred
Good margin performance in face of tough markets
Strong cash conversion
GKN Land Systems sales
by market segment, H1 2013
Construction &
Mining
11%
Focus on customers
Building on the benefits of Stromag
New customer account system to drive cross-selling
Integrated customer technology days held in US
Industrial
24%
Automotive
19%
7
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Agriculture
46%
Overview of H1 2013
Good first half
Strategic progress in all divisions
Delivered a strong financial result, in-line with our expectations
Demonstrates strength of Group
A350 maiden flight,
June 2013
GKN is manufacturing
BMW X3, FDUs
Launching lightweight
differential gears
8
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Global agricultural
markets remain firm
Engineering that moves the world
Results for the six months ended 30 June 2013
Bill Seeger, Finance Director | 30 July 2013
Results summary
H1 2013
£m
H1 2012
£m
Change
£m
Change
%
3,869
3,459
410
12
Trading profit
320
291
29
10
Trading margin (%)
8.3
8.4
(10) bpts
Profit before tax
278
264
14
5
Earnings per share (p)
13.8
14.3
(0.5)
(3)
2.6
2.4
0.2
8
Sales
Interim dividend (p)
2% organic growth
8.9% margin prerestructuring
2013 results include a £25m charge for restructuring
2012 results have been restated for the impact of IAS 19 (revised) – see appendix page 37
10
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Interim dividend
increase
Income Statement extract
H1 2013
£m
H1 20121
£m
Trading profit
289
262
Change in derivative & other financial instrument values
Amortisation of non-operating intangibles
Pension scheme curtailment
(91)
(28)
-
18
(16)
35
Operating profit
170
299
Earnings per share – Statutory
5.8p
13.9p
7% strengthening of dollar against sterling impacts mark to market value
Engine Systems acquisition impacts amortisation of non-operating intangibles
US pension scheme curtailment in 2012, no equivalent transaction in 2013
(1) 2012 results have been restated for the impact of IAS 19 (revised) – see appendix page 37
11
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Group overview
Sales by division
Trading profit by division
£487m
GKN
Land
Systems
13%
£480m
GKN
Powder
Metallurgy
12%
Group
£3,869m
+12%
GKN
Driveline
45%
£45m
GKN
Land
Systems
14%
£1,123m
GKN
Aerospace
29%
£48m
GKN
Powder
Metallurgy
14%
Group1
£320m
+10%
£118m
GKN
Aerospace
36%
GKN
Driveline
35%
£1,728m
£117m
1
12
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Including central costs
Group sales
£m
4,000
68
325
20
2%
3,750
3%
3,500
9
3,459
3,250
3,869
Other
H1 2013
(34)
(7)%
4%
20
2
Organic
growth 2%
Engine Systems £327m
3,000
H1 2012
FX
Acq/Div Aerospace Driveline
Powder
Land
Metallurgy Systems
13
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Group profit
Driveline
Powder Metallurgy
Land Systems
Other Businesses
£m
£(16)m
£(5)m
£(3)m
£(1)m
£9m
350
41
5
11
4
320
Other
H1 2013
(5)
300
4
(6)
291
Engine Systems
Sales
£327m
Trading profit
£37m
Margin
11.3%
250
200
(25)
H1 2012 1
FX
Acq/
Div
Restructuring
Aerospace
Driveline
Powder
Metallurgy
Land
Systems
(1) 2012 results have been restated for the impact of IAS 19 (revised) – see appendix page 37
14
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Margin
Margin
H1 2013
Reported
%
H1 2012
%
Target
Range
%
10.5
11.2
11-13
Base
10.2
11.2
Engine Systems
11.3
-
6.8
7.3
7.7
8-10
10.0
10.1
11.0
9-11
Land Systems
9.2
10.2
9.9
8-11
Group1
8.3
8.4
8.9
8-10
Aerospace
-
Driveline
Powder Metallurgy
H1 2013
Adjusted
Margin2
(1) 2012 results have been restated for the impact of IAS 19 (revised) – see appendix page 37
(2) Margin pre-restructuring charges
15
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Return on invested capital
ROIC%
before tax
20%
1
Group Target > 20%
H1
2013
H1
2012
Aerospace (base)
20.1%
22.4%
Driveline
15.0%
15.2%
Powder Metallurgy
19.2%
18.2%
Land Systems
18.7%
18.7%
Group (w/o Engine
Systems)1
16.6%
17.2%
1
Group ROIC
15%
Group WACC - 12%
10%
5%
FY 2010
FY 2011
H1 2012
FY 2012
H1 2013
(1) 2012 results have been restated for the impact of IAS 19 (revised) – see appendix page 37
16
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Net financing cost
1
H1 2013
£m
H1 2012
£m
Net interest payable
(36)
(22)
Other net financing charges
(24)
(21)
Net financing costs
(60)
(43)
Increased net interest payable driven by acquisition of Volvo
Aerospace in 2012
−
Net interest guidance for 2013 c.£80m
Other net financing charges impacted by IAS 19 (revised) in 2013
−
Other net financing charge guidance for 2013 c.£55m
(1) 2012 results have been restated for the impact of IAS 19 (revised) – see appendix page 37
17
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Tax update
H1 2013
H1 2012
Book tax %
20
17
Cash tax %
12
14
Unrecognised Deferred Tax Assets
Recognition of deferred tax asset
lowers cash tax as utilised
Unrecognised deferred tax assets
−
−
£196m: down £8m in H1 2013
Balance focused in US and UK
Guidance for 2013
−
−
Book tax rate c.20%
Cash tax rate <15%
%
£m
500
25
£469m
450
£393m
400
20
350
15
300
250
£204m
200
£196m
10
150
5
100
50
0
0
2010
2011
2012
H1 2013
Unrecognised deferred tax assets
Cash tax rate
18
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Cash flow summary
H1 2013 H1 2012
£m
£m
EBITDA £421m up 13%
Working capital outflow £135m,
similar to 2012
421
374
Working capital
(135)
(138)
Capital expenditure
(158)
(149)
(3)
(21)
125
66
27
41
Interest & tax
(45)
(49)
FCF improved vs prior year
Pension partnership
(30)
(30)
77
28
Net debt change includes initial
deferred payment to AB Volvo £43m
Dividends
(78)
(62)
Other flows (inc AB Volvo £43m)
(56)
(18)
Movement in Net Debt
(57)
(52)
EBITDA1
Other1
Operating cash flow
Dividends received (JVs)
Free cash flow
Capex ratio 1.2x depreciation
Lower JV dividends – timing
Interest, tax, pension broadly similar
to prior year
Net debt (£m)
(1) 2012 results have been restated for the impact of IAS 19 (revised) – see appendix page 37
19
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
H1 2013
FY 2012
(928)
(871)
Group post-employment accounting deficit
Assets
£m
Liabilities
£m
Deficit
£m
June 2013
2,505
(3,745)
(1,240)
Dec 2012
2,759
(3,737)
(978)
Funding status
UK triennial valuation now
underway
Manageable increase in funding
requirement expected in 2014
£m
(200)
Pension partnership
(446)
(703)
(400)
Removal of IAS19 plan asset from
balance sheet
(600)
(800)
(1,000)
(532)
(978)
52
(537)
54
(1,200)
(323)
(1,400)
Net Deficit Assumption Asset outPension
Dec 2012
changes performance partnership
(Net)
Funded
(45)
(1,240)
Currency
and
other
Net Deficit
June 2013
Deficit without change = £917m
No change to economics: funding
deficit and cash payments
Unfunded
20
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Summary
Sales growth reflects strong global position and diversity
Margin shows progression pre-restructuring
Free cash flow generation improved
Interim dividend increased
Foundation from which to grow
21
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Engineering that moves the world
Results for the six months to 30 June 2013
Nigel Stein, Chief Executive | 30 July 2013
Outlook for FY 2013
GKN Aerospace
− Excluding Engine Systems, sales expected to be similar to last year
− H2 profit should benefit from ramp-up of new programmes and Engine
Systems synergy benefits
GKN Driveline and GKN Powder Metallurgy
− Expected to show good year-on-year sales improvement, although reflecting
normal seasonality
− H2 profit will also benefit from the absence of restructuring charges
GKN Land Systems
− Weaker industrial and construction markets; planned cessation of chassis
programmes
− Expected to see lower sales in 2013 than in 2012
With a stronger second half profit performance anticipated,
GKN expects 2013 to be a year of good progress, helped
by the contribution from GKN Aerospace Engine Systems
23
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Driving towards a strong 2013 performance
Growth
above market
On track to outperform
market
ROIC
>20%
Target Margin
8% to 10%
Good progress in H2
Business
performance
Increasing EPS, cash
flow & dividends
24
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Good underlying progress
Engineering that moves the world
Results for the six months to 30 June 2013
Questions
Disclaimer
Cautionary statement
This presentation contains forward looking statements which are made in good faith
based on the information available to 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.
26
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Appendix
Results for the six months ended 30 June 2013
27
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Statutory income statement
H1 2013
£m
H1 20121
£m
3,647
3,254
Trading profit
289
262
Change in value of derivative and other financial instruments
(91)
18
Amortisation of non-operating intangible assets arising on
business combinations
(28)
(16)
Sales (subsidiaries)
-
35
170
299
Post-tax joint venture trading
25
24
Joint venture exceptional and non-trading items
(1)
(1)
Share of post-tax earnings of joint ventures
24
23
Interest (net)
(36)
(22)
Other net financing charges
(24)
(21)
Net financing costs
(60)
(43)
Profit before tax
134
279
Pension scheme curtailment
Operating profit
(1) 2012 results have been restated for the impact of IAS 19 (revised) – see appendix page 37
28
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Trading profile
20121
2013
H1
£m
H1
£m
H2
£m
FY
£m
3,869
3,459
3,445
6,904
Aerospace – base
796
770
814
1,584
Aerospace – Engine Systems
327
-
191
191
1,728
1,664
1,572
3,236
Powder Metallurgy
480
465
409
874
Land Systems
487
512
421
933
320
291
262
553
Aerospace – base
81
86
91
177
Aerospace – Engine Systems (trading)
37
-
15
15
-
(4)
(18)
(22)
117
121
114
235
Powder Metallurgy
48
47
40
87
Land Systems
45
52
36
88
8.3%
8.4%
7.6%
8.0%
278
264
229
493
Management Basis
Sales
Driveline
Trading profit1
Aerospace – Engine Systems (charges)
Driveline
Margin %1
Profit before tax1
(1) 2012 results have been restated for the impact of IAS 19 (revised) – see appendix page 37
29
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Impact of currency
Translational:
Effect on H1 2012:
Average Rate
Change
Sales
Trading
Profit
H1 2013
H1 2012
%
£m
£m
US $
1.55
1.57
(1.3)
15
1
Euro
1.18
1.22
(3.3)
30
3
Real
3.15
2.93
7.5
(8)
(1)
Yen
148
125
18.4
(34)
(2)
Renminbi
9.58
9.95
(3.7)
7
1
Indian Rupee
85.16
82.10
3.7
(3)
-
Swedish Krone
10.06
10.80
(6.9)
10
1
3
1
20
4
Other
Impact (subs & JVs)
Translational impact on H1 2013 trading profit (including JVs):
1% move in euro = £1m; 1% move in US dollar = £2m
30
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
GKN Aerospace
Trading Performance
H1 2013
H1 2012
1,123
770
118
86
Margin
10.5%
11.2%
Return on invested capital1
20.1%
22.4%
Sales - £m
Trading profit - £m
1
Sales up 46% (£353m), organic growth
3%
Commercial sales grew 8% organically
Military sales declined 6% organically
Sales mix: Commercial 71%; Military
29%
Excluding Engine Systems
Sales by market & origin
Military
£321m
Europe
Americas 10%
19%
Americas
20%
Europe
51%
Commercial
£802m
31
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
GKN Driveline
Trading Performance
Sales - £m
Trading profit - £m
Margin
Return on invested capital1
1
H1 2013
H1 2012
1,728
1,664
117
121
6.8%
7.3%
15.0%
15.2%
Sales up 4% (£64m); organic growth 4%
Strong growth in Americas and China
H1 2012 ROIC includes pro forma adjustment for Getrag
Sales by region
£450m
Asia
26%
£645m
Americas
37%
Europe
37%
£633m
32
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
GKN Powder Metallurgy
Trading Performance
H1 2013
H1 2012
480
465
48
47
Margin
10.0%
10.1%
Return on invested capital
19.2%
18.2%
Sales - £m
Trading profit - £m
Sales up 3% (£15m); organic growth 2%
Growth in US business driven by
automotive market
Margin maintained
ROIC improved
Sales by region
£39m
Europe
38%
Asia
8%
Americas
54%
£260m
£181m
33
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
GKN Land Systems
Trading Performance
Sales - £m
Trading profit - £m
Margin
Return on invested capital1
1
H1 2013
H1 2012
487
512
45
52
9.2%
10.2%
18.7%
18.7%
Sales down 5% (£25m); down 7%
organically
Changes (China Wheels) and cessation
of UK auto programme
H1 2012 ROIC includes pro forma adjustment for Stromag
Sales by market
£54m
£223m
£116m
C&M
11%
Industrial
24%
Auto
Aftermarket
£51m
Agriculture
46%
10%
9%
Structures
£43m
34
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Post-employment obligations: accounting deficit
UK
£m
Americas
£m
Europe
£m
ROW
£m
Total
£m
2,251
198
38
18
2,505
(2,855)
(276)
(42)
(35)
(3,208)
(604)
(78)
(4)
(17)
(703)
(17)
(59)
(459)
(2)
(537)
(621)
(137)
(463)
(19)
(1,240)
2,522
181
36
20
2,759
(2,846)
(282)
(39)
(38)
(3,205)
(324)
(101)
(3)
(18)
(446)
(17)
(62)
(451)
(2)
(532)
(341)
(163)
(454)
(20)
(978)
2013 Half Year
Assets
Funded Liabilities
Funded Deficit
Unfunded Liabilities
Net Deficit
1
2012 Full Year
Assets
Funded Liabilities
Funded Deficit
Unfunded Liabilities
Net Deficit
1
Includes impact of pension partnership change (£342m)
35
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
Cash flow
Operating cash flow
Trading profit (subs)1
H1 2013
£m
H1 2012
£m
289
262
Free cash flow
Operating cash flow
Dividends received (JVs)
H1 2013
£m
H1 2012
£m
125
66
27
41
Deprec’n & amort’n
132
112
Interest (net)
(21)
(25)
EBITDA1
421
374
Tax
(24)
(24)
Pension partnership
(30)
(30)
77
28
(78)
(62)
5
2
(60)
(12)
(1)
(8)
(57)
(52)
(928)
(871)2
Working capital
(135)
(138)
Capital expenditure
(158)
(149)
Investment
(293)
287
Free cash flow
Dividends
Share options
Acquisitions and disposals
Currency and other
Other flows
Operating cash flow
(3)
(21)
125
66
Movement in net debt in H1
Net debt
(1) 2012 results have been restated for the impact of IAS 19 (revised) – see appendix page 37
36
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
2
Net Debt @ 31 Dec 2012
IAS 19 Revised – Adjustment Summary
H1 2012
FY 2012
Previous
Change
Restated
Previous
Change
Restated
Trading profit
293
(2)
291
557
(4)
553
Trading margin (%)
8.5
(0.1)
8.4
8.1
(0.1)
8.0
EBITDA (subs)
376
(2)
374
743
(4)
739
Profit before tax
266
(2)
264
497
(4)
493
Tax
(40)
-
(40)
(74)
1
(73)
Earnings
224
(2)
222
420
(3)
417
EPS (pence)
14.4
(0.1)
14.3
26.5
(0.2)
26.3
ROIC
17.2
-
17.2
18.1
(0.1)
18.0
Trading profit
264
(2)
262
508
(4)
504
Other finance charges
(13)
(8)
(21)
(26)
(16)
(42)
Profit before tax
289
(10)
279
588
(20)
568
Tax
(53)
1
(52)
(85)
5
(80)
Earnings
224
(9)
215
480
(15)
465
EPS (pence)
14.4
(0.5)
13.9
30.2
(0.9)
29.3
Management basis
Statutory basis
37
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
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
38
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013