Goldman Sachs Autos Conference
Introduction to GKN
6 December 2013
Bill Seeger
Strategy
Creating long-term
shareholder value
Four strong divisions
Lead in chosen
markets
Growth target:
Above market
Leverage global
footprint
Technology driving
margin
Operational
excellence
Margin
Group target:
8-10%
Sustain above
market growth
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
BUSINESS
PERFORMANCE
Increasing cashflow,
EPS and dividends
ROIC
Target: 20%
Overview
Top 10 customers – c.50% Group Sales
Divisional Sales Split
Other
Boeing
VW
GE
Land
Systems
Ford
UTC
Driveline
Aerospace
EADS
Powder
Metallurgy
GM
JLR/
Tata
Fiat/
Chrysler
Renault /
Nissan
Automotive
Aerospace
Source: 2013 consensus sales
Source: Pro forma 2012 sales
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
GKN Aerospace
Sales $3.5 billion
35 sites, 12,000 people
World-class product portfolio
% of 2012 Pro-forma sales
53%
Aerostructures
42%
Engine Systems & Structures
5%
GKN Aerospace
Wing; Fuselage
North America
Nacelle &GKN
Pylon;
Engine systems and services
Aerospace
Europe
Special products
Aerospace North America
Aerospace Europe & Special Products Group
Aerospace Engine Systems (Volvo Aero)
Transparencies and Protection Systems
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
GKN Aerospace - markets and customers
Market
Business
Mix
Sector
Customer base
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
GKN Aerospace – World class product portfolio
J-UCAS Fuselage
B747-8 Exhaust
A380 Fixed Trailing Edge
A350XWB Rear Spar
B787 Cabin Windows
B787 Anti-icing System
V22 Fuel Tanks
CH53K Aft Fuselage
A400M Engine Intake
F35 Canopy
A330 Flap Skins
B787 Floor Grid
B787 Inner Core Cowl
Engine
Structures
Engine
Rotatives
Fuel Transportation
AW101 Canopy
Silicone Seals
HondaJet Fuselage
B767 Winglet
Flying
Surfaces
Fuselage
Sections
Ariane 5 Exhaust nozzle
Full Engine MRO & Support
Nacelle &
Pylon
Engine Products &
Services
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
HondaJet Cockpit
Window
Transparencies
& Coatings
Fuel tanks
Protection
Systems
Well balanced portfolio
Commercial
Sales by market 2012
Large commercial aircraft – record order
backlog (8,500 aircraft, >$1 trillion)
Military
Commercial
30,000 aircraft forecast to be delivered
2013 to 2032
30%
Military
Worldwide defence spending remains
subject to budget cutbacks
70%
External forecasts
Latest forecast growth rates –
2013 to 2018:
Military split
US
87%
Europe
13%
− Civil: 3% to 4% CAGR
− Military: Flat near term; Future uncertain
Note: Engine Systems pro forma
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
GKN Aerospace Engine Systems
3rd largest Tier 1
aero-engine
partner
OEM for the RM12
engine for Gripen
aircraft
EU centre of
excellence - space
turbines & nozzles
MRO facility for gas
turbines and small
engines
Components for aircraft
engines and gas turbines
Military aircraft
engines
Sub-systems for
rocket engines
Engine
services
Volvo Aero acquired 1 October 2012
Positions on most major new civil aerospace
platforms
Risk & Revenue Sharing Partner (RRSP) on
many platforms; provides life of program
participation
Significant aftermarket content (c.30%) providing
profitable long term revenue streams
Integration progressing well
Comme
Commercial
rcial
LTA
24%
RRSP
59%
MRO
9%
Military/
Space
8%
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
Engine Systems Sales E2013
GKN Driveline – An excellent global footprint
GKN Driveline
end-2012
£3.24 billion
Sales
c.22,000
Employees
U.K.
France
Spain
Italy
Slovenia
Turkey
United
States
45 Plants
22 Countries
Sweden
Poland
Germany
South
Korea
Japan
China
India
Mexico
Thailand
Manufacturing plant
Singapore
Colombia
Taiwan
Malaysia
Joint Venture
Corporate office /
Engineering centre
Australia
Brazil
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
Leading positions in our core product segments
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
Balanced global footprint with rising AWD contribution
Sales by region of origin 2012
Asia
29%
Europe
37%
All-Wheel Drive
Americas
34%
CVJ Systems
61% of
Sales
39% of
Sales
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
Positioned to continue outperforming the market
Global LV market growth
Mega-platforms
AWD systems content
Mega-platforms and
AWD growth and content
GKN Driveline target growth c.2% ahead of market
Unrivalled global
positioning
− Geographic footprint
− Broad customer base
− Strength in growth markets
Technology leadership /
increasing AWD content
− Response to tighter legislation
− Customer co-developments
− Fuel-efficient products
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
Globally competitive
− Increasingly lean and agile cost
structure
GKN Powder Metallurgy – the industry leader
Hoeganaes
Powder production
240,000 tons of powder
per year
Global # 2
22% global share
Sinter Metals
Component manufacture
6 billion parts per year
many applications
Global # 1
18% global share
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
Diverse customer base
75% automotive/
25% industrial
3,000 customers
globally
Design for PM – Drives margins
“…is the design and application of products using the unique characteristics of powder
metal to produce parts which cannot be made economically using alternative technologies.”
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
Accelerated trend towards design for PM
Key growth drivers
Automotive products
Fuel efficiency
Reduced emissions
Electrification
P-Rotor Pump components
Differential gears
Torque converter
Weight and space saving
Sales by product type
Variable valve timing components
Magnetic clutches
Industrial products
Hoeganaes
17%
Sintered
components
- industrial
10%
Sintered
components
- automotive
73%
Connecting rod
Pneumatic silencer
Rotor parts
Surgical instruments
Parts for prosthetic knee joints
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
GKN Powder Metallurgy market outperformance
LV Market
m vehicles
Global LV market growth
PM Market
PM market growth driven by
new technology trends
− Innovative design
− Technically enhanced powders
− Advanced process technology
2013
104
2018
5.6
4.3
£m
GKN Powder Metallurgy
outperformance c.3% above LV market
Unique “Design for PM”
capability
83
2013
Global manufacturing and
engineering footprint
− Product and process engineering
capability in all regions
− Growing presence in high growth
markets
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
2018
Market Share Gain
− Market concentration ongoing
− Mega-platforms awarded to global
PM players
GKN Land Systems: Attractive growth markets
Land Systems
Market
£4bn
Agriculture
Macro Drivers
Increasing population
Changing eating patterns
39% of Sales
Segment Growth
2013-18
3%-5%
(CAGR)
Climate changes
Land Systems
Market
£6bn
Construction,
Mining & Utility
Urbanisation
Infrastructure
11% of Sales
Segment Growth
2013-18
4%-6%
(CAGR)
Increased mass transit
Raw material demand
Land Systems
Market
£8bn
Industrial
Globalisation
Energy availability/costs
27% of Sales
* Based on 2012 sales. 23% Other (mainly automotive aftermarket and structures)
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
Segment Growth
2013-18
3%-5%
(CAGR)
GKN Land Systems offers unique technology coverage
From Power
Source
Segment
Presence
GKN
Position
Key
Competitors
To Power
Applied
Ind.
Ag. &
CE.
Ind.
Ag. &
CE.
Ag. &
CE.
#2
#2 or #3
Niche
Ag.
Altra
Renold
KTR
Centa
Rexroth
Altra
KEB
Dana
Altra
Brevini
Bonfiglioli
Ag.
CE. &
Ind.
#1 Ag
#2 CE
Dana
Comer
Bondioli
Weasler
Ind.
Ind.
Ag. &
CE.
Ag.
CE. &
Ind.
#1 or #2
(Material
Handling)
Niche
(Material
Handling)
Niche
Ag. & CE.
#1 or #2
Svenborg
Carlisle
KEB
Altra
Mayr
Linak
Oerlikon
Titan
Mefro
Wheels
India
Brands
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
GKN Group: Growth of sales above our markets
GKN Land Systems
GKN Aerospace
Innovation insertion in key new programs
Customer demand for global suppliers
New aircraft platforms move into rate production
Demand for efficient, reliable power management
solutions
Application of composite and light weight metallic
technology
Leverage GKN technology to increase content
Customer partnerships on key, high-growth platforms
New market penetration - globalisation
GKN Driveline
GKN Powder Metallurgy
New product application of PM technology
Growth in all wheel drive increases content
Higher performance trends create Design for PM
opportunities
Innovative products for more fuel efficient vehicles
Strong market share in high growth regions
Unique parts and powder capability
Increasing global/mega platforms
Geographic expansion into high growth regions
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
Drivers to progress through the margin range
Trading
Margin
2012
FY
2013
9m
Target
Technology sustains margin
progression
GKN
Aerospace
11.2%
10.7%
11-13%
− Light weight
GKN
Driveline
7.3%
6.8%
8-10%
− Electrification
GKN Powder
Metallurgy
10.0%
9.9%
9-11%
Operational excellence provides
foundation
GKN Land
Systems
9.4%
8.8%
8-11%
− Lean and flexible cost structure
Group
= in the range
− Fuel efficiency
− Optimising supply chain
8.1%
8.2%*
8-10%
− Value driven pricing
* 8.7%, excluding £25m of restructuring charges
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
A balanced approach to Growth, Margin and ROIC
Growth
above market
Increasing content per
platform
Strength in high growth
markets
Target Margin
8% to 10%
ROIC
>20%
Focussed capital
allocation
Technology underpins
margin
Operational excellence
Business
performance
Increasing EPS, cash
flow & dividends
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
Profitable growth
Questions
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
Appendix
Q3 Results for the 3 month period
ended 30 September 2013
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
Overview
Since H1 results on 30 July, demand has remained consistent with expectations
− Commercial aerospace strong while military aerospace and spares continued to be weak
− Global light vehicle production up 4% - good growth in China/North America and Europe/Japan improved slightly
− Weakness in construction and industrial markets continued; agricultural equipment demand broadly flat
Sales up 16% to £1,865m, including 6% organic growth
Trading profit of £152m
Trading margin increased to 8.2%, due to underlying performance improvement and £21m from GKN
Aerospace Engine Systems
Net debt at 30 September 2013 of £973m (30 June 2013: £928m)
Management basis (1)
2013
Q3
£m
2013
9m YTD
£m
2012(*)
Q3
£m
2012(*)
9m YTD
£m
Sales
1,865
5,734
1,608
5,067
152
472
113
404
8.2%
8.2%
7.0%
8.0%
131
409
98
362
Trading Profit
Trading Margin (%)
Profit before Tax
* Restated for IAS 19 (revised)
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
Divisional performance
GKN Aerospace
GKN Aerospace
Strong organic growth in commercial
aerospace
Sales
Trading Profit
2013
Q3
£m
2013
9m YTD
£m
2012
Q3
£m
2012
9m YTD
£m
555
1,678
392
1,162
61
179
42
128
11.0%
10.7%
10.7%
11.0%
Continuing decline in military sales
Trading Margin (%)
Spares sales lower
Sales up 42% to £555m, with 3% organic
growth
Trading profit increased 45% to £61m,
with organic change showing a decline of
£3m, due to reduced spares sales and
unfavourable currency in the quarter
Trading margin of 11%, due to strong
performance by GKN Aerospace Engine
Systems
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
Automotive markets
10
China
Brazil
% change
North
America
+9%
5
+7%
India
+6%
+5%
Japan
Europe
+2%
+2%
0
Source: IHS Automotive Forecast, October 2013
Global light vehicle production increased by 4% in Q3
Strong growth still evident in China and North America
Production in Japan and Europe improved slightly
Brazil and India continue to be volatile
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
Divisional performance
GKN Driveline
GKN Driveline
Sales up 9% to £842m
Sales
2013
Q3
£m
2013
9m YTD
£m
2012
Q3
£m
2012
9m YTD
£m
842
2,570
773
2,437
58
175
42
163
Organic sales up well ahead of global
automotive production
Trading Profit
Trading profit increased to £58m
Trading Margin (%)
6.9%
6.8%
5.4%
6.7%
GKN Powder
Metallurgy
2013
Q3
£m
2013
9m YTD
£m
2012
Q3
£m
2012
9m YTD
£m
234
714
208
673
23
71
20
67
9.8%
9.9%
9.6%
10.0%
Trading margin of 6.9%
GKN Powder Metallurgy
Sales up 13%
Sales
10% organic growth, outperforming automotive
production in North America and Europe
Trading Profit
Trading profit increased to £23m
Trading Margin (%)
Trading margin improved to 9.8%
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
Divisional performance
GKN Land Systems
GKN Land Systems
Performance affected by:
− weaker industrial and construction markets
− conclusion of Structures contracts
− agricultural equipment demand broadly flat
Sales
Sales down 4%, including 8% organic decline
which was similar to H1
Trading Margin (%)
Trading Profit
2013
Q3
£m
2013
9m YTD
£m
2012
Q3
£m
2012
9m YTD
£m
208
695
216
728
16
61
18
70
7.7%
8.8%
8.3%
9.6%
Trading profit of £16m
Trading margin of 7.7%, reflecting more
challenging markets and normal seasonality
Other Businesses
Sales increased to £26 million (2012: £19 million) due to a rebound in sales from both Cylinder Liners and
Emitec as commercial vehicle markets recovered
Trading profit of £2 million (2012: trading loss of £2 million)
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013
Financial Summary
Management Basis (1)
2013 H1 £m
2013 Q3 £m
2013 9M YTD £m
Aerospace
1,123
555
1,678
Driveline
1,728
842
2,570
Powder Metallurgy
480
234
714
Land Systems
487
208
695
51
26
77
3,869
1,865
5,734
Aerospace
118
61
179
Driveline
117
58
175
Powder Metallurgy
48
23
71
Land Systems
45
16
61
2
2
4
Central Costs
(10)
(8)
(18)
Total trading profit
320
152
472
Interest
(36)
(19)
(55)
(6)
(2)
(8)
278
131
409
Other Businesses
Total sales
Other Businesses
JV interest and tax
Profit before tax
Management Basis (1) – please see press release for definition
http://www.gkn.com/media/News/Pages/Interim-Management-Statement.aspx
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GOLDMAN SACHS AUTOS CONFERENCE – 6 DECEMBER 2013