Engineering that moves the world
Results for the year ended 31 December 2014
Nigel Stein, Chief Executive | 24 February 2015
Disclaimer
Cautionary statement
This presentation contains forward looking statements which are made in good faith
based on the information available at 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.
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
1
Results for year ended 31 December 2014
Another good year
Sales
2%
Management PBT
Earnings per share
Total dividend
per share
4%
1%
6%

Organic sales
4%
GKN Aerospace
GKN Driveline
GKN Powder Metallurgy
GKN Land Systems
Strong performance
Excellent growth
Continued success
Tough markets
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
2
Our strategy - five key objectives
Lead in
chosen
markets
Growth
above
market
Leverage
global
footprint
Technology
driving
margin
Operational
excellence
Target
margin
8% to
10%
Sustain
above market
growth
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
Business
performance
Target
ROIC
20%
Increasing cash
flow, EPS and
dividends
3
Our strategy - five key objectives
Lead in
chosen
markets
Growth
above
market
4%
Organic
Leverage
global
footprint
Technology
driving
margin
Operational
excellence
9.2%
Target
margin
8% to
10%
Sustain
above market
growth
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
Business
performance
17.7%
Target
ROIC
20%
Dividend
6%
4
Leadership in our chosen markets
Lead in
chosen
markets
Leverage
global
footprint
Technology
driving
margin
Operational
excellence
Sustain
above market
growth
GKN AEROSPACE
• Packages worth $3bn life of
programme work won in 2014
GKN DRIVELINE
• £700m annualised new business

Sideshafts…

…and AWD products
EMITEC exit
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
5
Leveraging our global footprint
Lead in
chosen
markets
Leverage
global
footprint
Technology
driving
margin
Operational
excellence
Sustain
above market
growth
MEXICO
• Driveline and Aerospace invested
in Mexico capacity
INDIA
• Aerospace Bangalore advanced
engineering centre headcount
increased to 70 engineers
CHINA
• New PM plant in Yizheng
onstream
• Land Systems invested and
expanded product portfolio in
Liuzhou and Lian Yungang
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
6
Exploiting our strong technology
Lead in
chosen
markets
Leverage
global
footprint
Technology
driving
margin
Operational
excellence
GKN DRIVELINE
• Designed and launched integrated
AWD System for Fiat Chrysler
B-Class platform
GKN LAND SYSTEMS
• Claas contract win for shafts,
clutches and gearboxes
Sustain
above market
growth
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
7
Delivering operational excellence
Lead in
chosen
markets
Leverage
global
footprint
Technology
driving
margin
Operational
excellence
•
•
Protects business we have
Opens doors to new
opportunities
Sustain
above market
growth
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
8
Winning in the market
Lead in
chosen
markets
Leverage
global
footprint
Technology
driving
margin
Operational
excellence
Sustain
above market
growth
Continued to beat our markets
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
9
GKN Aerospace: Strong performance
2014
Sales (£m)
2,226
3%
277
7%
12.4%
50bps
Trading profit (£m)
Trading margin
Organic
growth
GKN Aerospace sales by market segment: 2014
Military 27%
Commercial 73%
Strong performance
− Driven by B787 ramp up
Engine Systems performed very well
− Engine Systems nearly 50% of division sales
− Pratt & Whitney business win
Airbus & Boeing: 9yr order backlog
− Single aisle demand strong
− Military down in 2015
Growth through technology insertion
GKN was
chosen to lead a
UK ATI
programme to
help develop the
wings of the
future
− And cost effective manufacturing
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
10
GKN Driveline: Excellent growth
2014
Sales (£m)
Trading profit (£m)
Trading margin
Organic
growth
3,444
8%
280
23%
8.1%
20
%
GKN Driveline and market growth rates: 2014
17
15
14
10
5
12
10
8
8
5
3
2
90bps
3
0
(2)
(5)
Strong growth of 8%; ahead of market
(10)
− Margin in target range at 8.1%
(15)
− £53m organic increase in trading profit
(20)
Market (production growth)
GKN Driveline sales growth
Selective CVJ wins and increasing
AWD content per vehicle
(14)
Source: GKN/IHS Automotive
(20)
North
America
Europe
− CVJ market share remains strong
− Integrated AWD projects increasing
Investment in USA and Mexico
capacity; China continues to grow
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
China
Japan
Brazil
India
Global
GKN was awarded
Technology Partner
status for eAxle system
by Porsche for the 918
Spyder
11
GKN Powder Metallurgy: Continued success
2014
Organic
growth
Sales (£m)
916
5%
Trading profit (£m)
101
15%
11.0%
90bps
Trading margin
GKN Powder Metallurgy sales by origin: 2014
Asia Pacific 9%
Europe 37%
Americas 54%
Sales growth of 5%; ahead of market
− Second China plant helped Asia Pacific sales
increase by 12% organically
£165m annualised new business
(2013: £140m)
Design for PM continues to drive
margin
− North America upgrade underway to enhance
Design for PM capacity
High technology powders increased
sales by 15%
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
Developed new GKN press
technology to support enhance
Design for PM and improve
manufacturing efficiency
12
GKN Land Systems: Tough markets
2014
Sales (£m)
776
(10)%
44
(38)%
5.7%
(260)bps
Trading profit (£m)
Trading margin
Organic
growth
GKN Land Systems, sales by market: 2014
Construction &
Mining 14%
Agriculture 45%
Industrial 23%
10% organic revenue decline
− Agricultural market down, construction flat,
some improvement in industrial
Automotive 18%
Further restructure planned (£8m cost)
£120m incremental and replacement
business won
Expanding in US and Asia
OTHER BUSINESSES
GKN Hybrid Power
agreed deal with The
Go-Ahead Group for
500 flywheel systems
that will reduce
emissions in London
GKN Hybrid Power
− Orders for 750 buses with flywheels
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
13
Adam Walker
Finance Director | 24 February 2015
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
14
Results summary
FX impact:
2014
£m
2013
£m
7,456
7,594
Trading profit
687
Trading margin (%)
Sales
Change
£m
Change
%
- Sales £(403)m
- Trading profit £(38)m
(138)
(2)
4% organic growth
661
26
4
11% organic growth
9.2
8.7
50 bps
Profit before tax
601
578
23
4
Earnings per share (p)
29.0
28.7
0.3
1
EPS up 1%
Dividend per share (p)
8.4
7.9
0.5
6
DPS up 6%
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
15
Group sales
£m
£303m
7,800
US$ £(153)m
Euro
£(86)m
7,594
7,600
265
40
23
Organic Growth
Military
Commercial 4%
7,400
7,456
(84)
59
7,200
(403)
(38)
3%
8%
5%
(10)%
7,000
Organic
growth 4%
6,800
2013
FX
Acq/Div Aerospace Driveline
Powder
Land
Metallurgy Systems
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
Other
2014
16
Group trading profit
£m
£66m
750
13
700
53
661
9
687
Other
2014
(27)
650
18
(38)
(2)
FX
Acq/
Div
600
550
2013
Aerospace Driveline
Powder
Land
Metallurgy Systems
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
17
Margin
Margin
2014
%
2013
Reported
%
2013
Adjusted
Margin %1
Target
Range
%
12.4
11.9
11.9
11-13
8.1
7.2
7.7
8-10
11.0
10.1
10.6
9-11
Land Systems
5.7
8.3
8.7
8-11
Group
9.2
8.7
9.0
8-10
Aerospace
Driveline
Powder Metallurgy
1
Margin pre-restructuring charges
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
18
Return on invested capital
1
ROIC%
before tax
2014
2013
687
661
3,892
3,818
17.7%
17.3%
2014
2013
Aerospace
17.7%
17.8%
Driveline
19.3%
17.0%
1
Powder Metallurgy
21.8%
21.1%
Land Systems
11.4%
18.3%
Group Target - 20%
20%
Trading Profit (£m)
Av. Invested Capital
(£m)
Pre-Aerospace
Engine Systems
Group ROIC
15%
ROIC %
Group WACC - 12%
10%
5%
2011
2012
2013
2014
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
19
Adjusting items
2014
£m
2013
£m
612
597
(209)
26
(69)
(75)
24
12
Impairment charges
(69)
-
Operating profit
289
560
Trading profit
Change in derivative & other financial instrument values
Amortisation of non-operating intangibles
Changes in Group structure
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
20
Tax update
2014
2013
Book tax
22%
20%
Cash tax
13%
10%
Unrecognised deferred tax assets
−
£100m: down £37m in 2014
−
Balance focused in US and UK
Book tax rate increasing as deferred
tax asset recognition decreases
%
£m
500
25
£469m
450
£393m
400
20
350
300
15
250
£204m
200
10
£137m
150
£100m
100
5
50
0
0
2010
2011
2012
2013
2014
Unrecognised deferred tax assets
Book tax rate
Cash tax rate
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
21
Operating cash flow
2014
£m
2013
£m
Trading profit (subs)
612
597
Deprec’n & amort’n
252
269
EBITDA
864
866
Working capital
(33)
(47)
Capital expenditure
(403)
(349)
Investment
(436)
(396)
Repayment of principal on government
refundable advance
Other flows
Operating cash flow
(38)
-
(5)
-
385
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
470
1
22
Free cash flow and net debt
2014
£m
2013
£m
385
470
44
44
Interest (net)
(83)
(65)
Tax
(68)
(52)
Pension funding
(42)
(30)
Operating cash flow
Dividends received (JVs)
US Pension settlement
Dividend paid (NCI)
Other
Free cash flow
-
(17)
(2)
(3)
-
(1)
234
346
(133)
(121)
30
(82)
Currency and other
(23)
(4)
Movement in net debt
108
139
(624)
(732)
Dividends
Acquisitions and disposals
Net debt
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
23
Group post-employment accounting deficit
£m
(400)
(763)
(1,095)
(800)
(508)
(1,200)
(1,600)
(2,000)
(616)
186
108
(13)
(160)
(1,271)
(561)
Net Deficit
Dec 2013
Assumption
changes
Asset returns
Funded
Interest
Cash
Trading Profit
contribution
& Currency
(1,711)
Net Deficit
Dec 2014
Unfunded
Pension update
Accounting deficit increase caused principally by change in discount rates
US pension deficit benefitted from lump sum offer to deferred members
Pension increase exchange for UK legacy scheme members in early 2015, to control
inflation risk
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
24
Key financial metrics
8,000
7,000
Growth
CAGR
8%
6,000
5,000
2010
2011
2012
2013
2014
Growth
10%
8-10%
Target
Margin
5%
2010
Financial
Metrics
2011
2012
2013
2014
20%
ROIC
Margin
18%
ROIC
20%
Target
16%
14%
2010
2011
2012
2013
2014
Cash Flow
400
Free Cash
Flow
200
Focus for
2015
0
2010
2011
2012
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
2013
2014
25
2015
Profit conversion
Operating cash conversion
Increasing tax rate
Pension strategies
Another year of growth
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
26
Nigel Stein
Chief Executive | 24 February 2015
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
27
Strong growth markets
We are positioned in markets that will see good baseline growth
over the next few years
− We already have great positions to benefit from this
Aerospace market
Automotive market
2.8%
CAGR
$bn
205
Passenger
vehicles (m)
3%
CAGR
105
200
100
195
2019: C$200bn
Aircraft sales
190
2019: 101.5m
Vehicles
95
185
180
90
175
170
85
165
160
80
2014
Source: Teal data 2014
2015
2016
2017
2018
2019
2014
2015
2016
2017
2018
2019
Source: IHS Automotive
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
28
Looking forward: Technology insertion
We have opportunities to grow ahead of our markets
 GKN Aerospace: Technology insertion to add to shipset value
 GKN Driveline: AWD to increase content on each vehicle
 GKN Powder Metallurgy: Design for PM increases value of products
 GKN Land Systems: Integrating technology; electrification/hybrid
GKN Aerospace:
Turbine exhaust
case
GKN Driveline:
ECO2 TWINSTER®
all-wheel drive
disconnect
GKN Powder
Metallurgy:
Variable valve
timing assembly
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
GKN Hybrid
Power: Flywheel
technology
29
Looking forward: Developing technology
Building key technologies to further increase our value per vehicle
− Future wing (Aerospace)
− Electrification and hybrid technology (Driveline and Land Systems)
− Energy storage (Powder Metallurgy)
− Additive manufacturing (Aerospace and Powder Metallurgy)
Progress in Additive Manufacturing
 Powder
 Process
 Applications
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
GKN has additive
manufacturing
centres in the US,
Germany, Sweden
and UK
30
Outlook for 2015
Aerospace market
Commercial: Expected to
continue to be strong
Military: Forecast to decline
Source: Internal analysis
Automotive market
2015 global production
expected to increase 2%
China
N. Am
Europe
Source: IHS Automotive
A350 maiden flight
Land systems markets
June 2013
Global agricultural markets
softer than 2014
Slight improvement in
European industrial and
construction markets
Selected to manufacture Advanced Technology
Winglet for the new Boeing 737 MAX
Source: Internal analysis
GKN outlook for 2015
GKN Aerospace sales are expected to be broadly flat – reflecting these differing trends and phasing of our
programmes
Strong commercial order book supports attractive growth for GKN Aerospace over the medium term.
GKN Driveline and GKN Powder Metallurgy expected to grow organically above the market
GKN Land Systems sales expected to be lower than in 2014
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 YEAR ENDED 31 DECEMBER 2014
31
Appendix
Results for the year ended 31 December 2014
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
32
Income Statement analysis
Sales
Trading profit
Change in value of derivative & other financial instruments
Amortisation of non-operating intangibles
Gains and losses on changes in Group structure
2014
£m
2013
£m
6,982
7,136
612
597
(209)
26
(69)
(75)
24
12
Impairment charges
(69)
Operating profit
289
560
Post-tax joint venture trading
62
54
Joint venture exceptional and non-trading items
(1)
(2)
Share of post-tax earnings of joint ventures
61
52
Interest (net)
(73)
(73)
Other net financing charges
(56)
(55)
(129)
(128)
– Statutory
221
484
– Management
601
578
– Statutory
10.3p
24.2p
– Management
29.0p
28.7p
Net financing costs
Profit before tax
Earnings per share
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
-
33
Impact of currency
Translational impact on 2013:
Effect on 2013:
Average Rate
Change
Sales
Trading
Profit
2014
2013
%
£m
£m
US $
1.65
1.57
5.1
(153)
(19)
Euro
1.24
1.18
5.1
(86)
(7)
Real
3.87
3.37
14.8
(30)
(3)
Yen
174
153
13.7
(45)
(2)
10.15
9.63
5.4
(22)
(4)
101
91
11.0
(12)
(1)
11.29
10.19
10.8
(23)
(1)
(32)
(1)
(403)
(38)
Renminbi
Indian Rupee
Swedish Krona
Other
Impact (subs & JVs)
Translational impact on 2014 trading profit (including JVs):
Euro moves 1 point e.g. 1.24  1.25 = £(1.2)m
US$ moves 1 point e.g. 1.65  1.66 = £(2.5)m
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
34
Tax charge analysis
2014
Weighted average of tax rates
2013
37%
34%
(24)%
(24)%
13%
10%
Net deferred tax and tax provision
movement
6%
6%
Tax impact of equity movements
(mainly post-employment)
3%
4%
Impact of tax losses, utilisation of
deferred tax assets
“Cash tax” rate
Book tax rate
22%
20%
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
Stable within +/-3% range
Will increase due to
utilisation of losses in US
Movement based on deferred
tax asset recognition &
release of tax risk provisions
35
Post-employment obligations: accounting deficit
UK
£m
Americas
£m
Europe
£m
ROW
£m
Total
£m
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)
2,275
203
36
18
2,532
(2,973)
(253)
(38)
(31)
(3,295)
(698)
(50)
(2)
(13)
(763)
(16)
(37)
(453)
(2)
(508)
(714)
(87)
(455)
(15)
(1,271)
2014 Full Year
Assets
Funded Liabilities
Funded Deficit
Unfunded Liabilities
Net Deficit
2013 Full Year
Assets
Funded Liabilities
Funded Deficit
Unfunded Liabilities
Net Deficit
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
36
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 YEAR ENDED 31 DECEMBER 2014
37