Engineering that moves the world
Results for the six months to 30 June 2014
Nigel Stein, Chief Executive | 29 July 2014
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.
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
1
Results for the six months to 30 June 2014
Good first half performance
Sales
Management PBT
Earnings per share
Interim dividend
per share
1%
6%
4%
8%
Organic sales
6%
GKN Aerospace
GKN Driveline
GKN Powder Metallurgy
GKN Land Systems
Good performance
Strong organic growth
Margin progression
Tough markets
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
2
Progress against our financial goals
Growth above market
6%
Organic
Automotive
Aerospace
Land Systems
8.9%
16.9%
(8.3%)
(16.6%)
Target margin 8% to 10%
Moving up the range
Business
Performance
ROIC >20%
Making progress
Increasing cash flow, EPS
and dividends
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
3
Consistent strategy
Lead in
chosen
markets
― All divisions successfully winning new
business
Leverage
global
footprint
― Expanding our footprint particularly in US,
Mexico and China
Technology
driving
margin
― Investment in advanced technology is increasing
Operational
excellence
― Operational excellence is focus and key
differentiator
Sustain
above market
growth
― Group has sustained above market growth
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
4
GKN Aerospace: Good performance
H1 2014
Sales (£m)
Trading profit (£m)
Trading margin
Organic
growth
1,100
3%
121
6%
11.0%
50bps
GKN Aerospace sales by market segment, H1 2014
Commercial growth driven by B787 ramp up;
A350 rate increasing to plan
Military 26%
H1 2014 organic sales -2%
Commercial 74%
H1 2014 organic sales +5%
Integrating N. America engine components
businesses into GKN Aerospace Engine Systems
Further developing Mexico cost competitive
facilities; Seeking Asian opportunities
Filton site is Airbus supplier of the year
Farnborough Airshow: Airbus and Boeing sales
totalled 700 aircraft valued at $115 billion;
A330neo launched
OEMs requiring fewer, more
capable global suppliers
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
GKN won the contract
for Bombardier Global
7000 and Global 8000
rudders and elevators
5
GKN Driveline: Strong organic growth
H1 2014
Sales (£m)
Organic
growth
1,765
11%
%
GKN and market growth rates: H1 2014
30
27
25
21
20
Trading profit (£m)
Trading margin
142
35%
8.0%
120bps
15
10
5
Strong growth ahead of market; Margin
improvement into target range
c£300m p.a. new business won in H1
− Includes AWD system wins with Ford, GM,
VW, Fiat, JLR, Renault Nissan, BMW, Toyota
AWD in China growing
12
11
11
11
10
8
5
4
4
(5)
Market (production growth)
(10)
GKN Driveline sales growth
(6)
(15)
(15)
(20)
North
America
Europe
China
Japan
(18)
Brazil
India
Global
Source: IHS Automotive
− PTU wins and localisation of AWD products
from Europe and North America
Expanding capacity in Mexico and
North Carolina
New platforms and rising content
per vehicle driving strong growth
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
The TMG EV P002 electric
race car (with two GKN EVO
eDrive axial flux motors) at
this year’s Goodwood
Festival of Speed
6
GKN Powder Metallurgy: Margin progression
H1 2014
Sales (£m)
471
6%
53
20%
11.3%
130bps
Trading profit (£m)
Trading margin
Organic
growth
GKN Powder Metallurgy sales by origin, H1 2014
Asia Pacific 9%
Europe 38%
Sales ahead of market
− Second China plant helped Asian parts sales
increase by 10%
Americas 53%
− N. America 8% growth driven by engine and
transmission programmes with GM and Ford
Design for PM paying off; N. America
capability upgrade project underway
Moving towards higher value powders
Technology developments in additive
manufacture
Focus on advanced process
capability and high-tech powders
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
GKN is now supplying
gears to Audi for its
crank shaft oil pumps
7
GKN Land Systems: Tough markets
H1 2014
Sales (£m)
Trading profit (£m)
Trading margin
Organic
growth
GKN Land Systems sales by market segment, H1 2014
426
(9)%
31
(26)%
Agriculture 46%
7.3%
(190)bps
Industrial 24%
Construction & Mining 12%
EU Agriculture market softened;
Some recovery in EU industrial market
Automotive 11%
Structures 7%
Like-for-like 6% revenue decline
Strong focus on cost control
Strengthening position in Huading wheels
business in China
OTHER BUSINESSES: Creation of GKN
Hybrid Power; Audi Le Mans win powered by
GKN electric flywheel
Investing to support US industrial
sales and Chinese capacity
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
GKN has won the
contract for
Komatsu WL for
WA380 wheels
8
Adam Walker
Group Finance Director | 29 July 2014
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
9
Financial highlights
Organic sales growth of 6%
Organic trading profit growth of 14%
FX Translational impact:
Sales £247m
Trading margin increased to 8.9%
Trading profit £24m
EPS growth of 4% to 14.4p
Potential full year profit
impact of £50m
Interim dividend increased by 8% to 2.8p
Net debt of £813m, 0.9 times net debt / EBITDA
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
10
Group sales
£210m
£m
4,000
3,869
179
26
16
3,828
(43)
3,750
32
(247)
(4)
3%
6%
(9)%
11%
3,500
US$
Euro
£(116)m
£(30)m
3,250
Organic
growth 6%
3,000
H1 2013
FX
Acq/Div Aerospace Driveline
Powder
Land
Metallurgy Systems
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
Other
H1 2014
11
Group trading profit
£m
400
£43m
350
37
9
1
340
(11)
320
1
300
7
(24)
US$
Euro
250
£(13)m
£(2)m
200
H1 2013
FX
Acq/
Div
Aerospace
Driveline
Powder
Metallurgy
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
Land
Systems
Other
H1 2014
12
Margin
Margin
H1 2014
%
H1 2013
Reported
%
H1 2013
Adjusted
Margin %1
Target
Range
%
11.0
10.5
10.5
11-13
8.0
6.8
7.7
8-10
11.3
10.0
11.0
9-11
Land Systems
7.3
9.2
9.9
8-11
Group
8.9
8.3
8.9
8-10
Aerospace
Driveline
Powder Metallurgy
1
Margin pre-restructuring charges
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
13
Return on invested capital
ROIC%
before tax
1
Group Target > 20%
20%
Pre-Aerospace
Engine Systems
H1
2014
H1
2013
Aerospace1
16.8%
20.1%
Driveline
17.9%
15.0%
Powder Metallurgy
21.0%
19.2%
Land Systems
14.6%
18.7%
Group1
16.9%
16.6%
1
Group ROIC
15%
Group WACC - 12%
10%
5%
FY 2011
1
FY 2012
H1 2013
FY 2013
H1 2014
H1 2013 excludes Aerospace Engine Systems impact
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
14
Tax update
Book tax
Unrecognised deferred tax assets
−
£88m: down £49m in H1 2014
−
Balance focused in US and UK
Book tax rate increasing as level of
deferred tax asset recognition
decreasing
Cash tax rate historically lower than
book rate but gap substantially
narrows in 2015
H1 2014
H1 2013
22%
20%
%
£m
500
25
£469m
450
£393m
400
20
350
300
15
250
£204m
200
10
£137m
150
£88m
100
5
50
0
0
2010
2011
2012
2013
H1 2014
Unrecognised deferred tax assets
Book tax rate
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
15
Operating cash flow
H1 2014
£m
H1 2013
£m
Trading profit (subs)
301
289
Deprec’n & amort’n
124
132
EBITDA
425
421
Working capital
(150)
(135)
Capital expenditure
(161)
(158)
Investment
(311)
(293)
(38)
-
1
(3)
77
125
Repayment of Government refundable advance
Other flows
Operating cash flow
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
1
16
Free cash flow and net debt
H1 2014
£m
H1 2013
£m
Operating cash flow
77
125
Dividends received (JVs)
44
27
Interest (net)
(38)
(21)
Tax
(21)
(24)
Pension funding
(42)
(30)
Dividend paid (NCI)
(1)
-
Free cash flow
19
77
(87)
(78)
Acquisitions and disposals
(8)
(60)
Currency and other
(5)
4
(81)
(57)
(813)
(928)
Dividends
Movement in net debt in H1
Net debt
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
17
Group post-employment accounting deficit
Assets
£m
Liabilities
£m
Deficit
£m
June 2014
2,578
(3,941)
(1,363)
Dec 2013
2,532
(3,803)
(1,271)
Pension update
UK triennial valuation complete
and recovery plan agreed
Accounting deficit change
caused by market driven
changes in discount rates
£m
(200)
(400)
(763)
(825)
(600)
(800)
(1,000)
(508)
(538)
(1,200)
(1,400)
71
9
(1,271)
(1,600)
Net Deficit
Dec 2013
(149)
(23)
Assumption
changes
Service
Cost
Funded
(1,363)
Contributions Currency and Net Deficit
other
June 2014
Unfunded
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
18
Summary
Strong set of underlying results
Above market growth
Margin progression
Continued focus on profit and cash conversion
Interim dividend increased
Other areas of focus
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
19
Nigel Stein
Chief Executive | 29 July 2014
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
20
Moving forward
Lead in
chosen
markets
― Sold interest in Emitec
― Organic and add-on opportunities in all divisions
― Aerospace primary focus for acquisitions
Leverage
global
footprint
― Further increase our presence in Asia
Technology
driving
margin
― Steady increase in technology
― Investing in the long-term future
Operational
excellence
― Focus on operational excellence and customer
service as key differentiators
Sustain
above market
growth
― Demonstrate GKN is a winner in what we do
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
21
Investing in the long-term future
Advanced technology opportunities
Additive manufacture
− GKN leading £13 million UK Aerospace Technology
Institute 3D printing project
− First sale of specialist water atomised powder for
additive manufacture use
− Pilot gas atomiser to be installed by year end
Hybrid power systems
− Secured order to supply 500 systems for Go Ahead
buses
−
−
−
−
GKN Hybrid Power electric flywheel
Advanced EVO electric motor
GKN designed and manufactured gearbox
Full integration
GKN has additive
manufacture centres in the
UK, Sweden and US
Other
− Technology partnership established with McPhy Energy
to develop solid state hydrogen storage systems
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
22
Market commentary
Principal markets expected to grow
Aerospace
Automotive
Positive progress in 2014
driven by commercial
growth
Military spend under
pressure
Land Systems
2014 H2 global production
to increase by 3%
N. Am
China
India
6%
8%
9%
Europe
Japan
Brazil
=
(7)%
(2)%
− Cuts in Western budgets
− Delays to new programmes
− Reduced overseas military
operations
Source: Internal analysis
A350 maiden flight
June 2013
Selected to manufacture Advanced Technology
Winglet for the new Boeing 737 MAX
Source: IHS Automotive
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
Agricultural market in EU
and North America softer
than last year
Construction flat
Some improvement in
European industrial and
constructions markets
Source: Internal analysis
23
Outlook for FY 2014
Another year of continued progress
GKN Aerospace sales are expected to show
modest growth
GKN Driveline and GKN Powder Metallurgy are
expected to continue to grow above the market
GKN Land Systems sales expected to be below 2013
“The strength in sterling will adversely affect reported
results. However the Group’s underlying progress is
expected to continue due to the benefits of its diverse
exposure to global markets, strong customer positions and
healthy order books.”
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
24
Appendix
Results for the six months to 30 June 2014
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
25
Statutory income statement
H1 2014
£m
Sales (subsidiaries)
Trading profit
Change in value of derivative and other financial instruments
H1 20131
£m
3,565
3,647
301
289
(7)
(91)
Amortisation of non-operating intangible assets arising on
business combinations
(35)
(35)
Operating profit
259
163
Post-tax joint venture trading
32
25
Joint venture exceptional and non-trading items
(1)
(1)
Share of post-tax earnings of joint ventures
31
24
Interest (net)
(37)
(36)
Other net financing charges
(29)
(24)
Net financing costs
(66)
(60)
Profit before tax
224
127
Management profit before tax
296
278
1
2013 results have been restated for a hindsight fair value adjustment
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
26
Trading profile
2014
2013
H1
£m
H1
£m
H2
£m
FY
£m
3,828
3,869
3,725
7,594
Aerospace
1,100
1,123
1,120
2,243
Driveline
1,765
1,728
1,688
3,416
Powder Metallurgy
471
480
452
932
Land Systems
426
487
412
899
340
320
341
661
Aerospace
121
118
148
266
Driveline
142
117
129
246
Powder Metallurgy
53
48
46
94
Land Systems
31
45
30
75
8.9%
8.3%
9.2%
8.7%
296
278
300
578
Management Basis
Sales
Trading profit
Margin
Profit before tax
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
27
Impact of currency
Translational impact on H1 2013:
Effect on H1 2013:
Average Rate
Change
Sales
Trading
Profit
H1 2014
H1 2013
%
£m
£m
US $
1.67
1.55
7.7
(116)
(13)
Euro
1.22
1.18
3.4
(30)
(2)
Real
3.83
3.15
21.6
(22)
(2)
Yen
171
148
16.0
(24)
(1)
10.30
9.58
7.5
(14)
(2)
102
85
19.3
(11)
(1)
10.91
10.06
8.4
(9)
-
(21)
(3)
(247)
(24)
Renminbi
Indian Rupee
Swedish Krona
Other
Impact (subs & JVs)
Translational impact on H1 2014 trading profit (including JVs):
Euro moves 1 point e.g. 1.22  1.23 = £(0.7)m
US$ moves 1 point e.g. 1.67  1.68 = £(1.2)m
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2014
28
Post-employment obligations: accounting deficit
UK
£m
Americas
£m
Europe
£m
ROW
£m
Total
£m
2,323
203
35
17
2,578
(3,076)
(260)
(38)
(29)
(3,403)
(753)
(57)
(3)
(12)
(825)
(16)
(37)
(483)
(2)
(538)
(769)
(94)
(486)
(14)
(1,363)
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 Half 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 SIX MONTHS TO 30 JUNE 2014
29
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 SIX MONTHS TO 30 JUNE 2014
30