Restructured & Resilient Sir Kevin Smith – Chief Executive
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Restructured & Resilient Sir Kevin Smith – Chief Executive GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Restructured and Resilient Group revenues (excluding currency translation) up 9% Driveline – up 7% OffHighway – up 17% Aerospace – up 23% Powder Metallurgy – up 1% Continuing success in winning substantial new business Driveshafts secures 64% of available volume Aerospace major wins - over $1billion of new business Building for the future Negotiations with Airbus on Filton continue – conclusion imminent Joint venture in engine composites with Rolls-Royce New plants open in China, India and Argentina 2 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Results summary Sales (subsidiaries and JVs) Trading profit (subsidiaries and JVs) Trading margin (subsidiaries and JVs) Profit before tax First half 2008 First half 2007 £2,402m £2,056m 17% £161m £153m 5% 6.7% 7.4% Increase/ (decrease) (70 basis pts) £131m £125m 5% Operating cash flow £60m £16m £44m Earnings per share 15.6p 17.2p (9%) Earnings per share (cash tax rate) 15.5p 14.9p 4% 4.5p 4.3p 5% Dividend per share 3 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Global trends – Light vehicle production Europe Americas Emerging Asia* 14.0 14.0 14.0 12.0 12.0 12.0 10.0 10.0 10.0 8.0 8.0 8.0 6.0 6.0 6.0 4.0 4.0 4.0 2.0 2.0 2.0 0.0 0.0 1st Half 2nd Half 2007 actual – 17.68m 2008 forecast – 16.27m 0.0 1st Half 2nd Half 2007 actual – 22.28m 2008 forecast – 22.76m 1st Half 2nd Half 2007 actual - 11.67m 2008 forecast - 13.23m * India, Thailand, China & Malaysia 2007 2008 Source: Global Insight / GKN Estimates 4 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Driveline Subsidiaries & JVs (constant currency) Sales Trading profit First half 2008 £m First half 2007 £m 1,218 81 1,135 91 Change % 7 (11) Driveshafts Driveshafts deliver 6% increase in sales revenues Americas up 11% - North American increase 12% Europe up 4% - good growth Eastern Europe Asia Pacific up 13% - China remains particularly strong Small improvement in headline profits - Underlying down 12% Translational currency benefit more than offset by unrecovered material costs and transactional currency New arrangements on material recovery – operational actions for weaker markets 80% material recovery 2nd half and beyond 5 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Driveshafts North American shift to smaller vehicles – positive trend for Driveline Rigid axles move to independent suspension – growth in all wheel drive 8% sideshaft demand growth – major model mix changes Speed and scope of change impacts short term profitability Operational disruption and increased support from Europe Readjustment of operations to restore expected efficiency High win rate – 64% of available business – supports continued market share gains 6 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Driveline Torque Technology Torque Technology delivers 12% increase in revenues and small profit improvement Investment in global expansion and new product development New plant opens in China Torque vectoring debut on BMW X6 Development of stronger European and North American torque presence – priority for GKN Group BMW X6 7 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 GKN won award from Nissan for work on GTR Driveline – positioning for 2nd half and beyond Strong order books and global positioning support healthy revenues 26% 16% 16% Driveline sales by Region of Origin – 1st half North America South America & Eastern Europe 42% Western Europe Asia Material recovery and operational actions protect bottom line Expect resilient 2nd half performance from Driveline 8 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Other Automotive Subsidiaries & JVs (constant currency) First half 2008 £m Sales Trading profit First half 2007 £m 102 3 Autostructures Sales down 5% and profits off £4m Non repeat of commercial settlement Restructuring to address weak markets Emitec Slow retrofit market impacts sales and profits Cylinder Liners China operation performs well Good sales growth and improved profitability 9 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 109 9 Change % (6) (67) Powder Metallurgy Subsidiaries & JVs (constant currency) First half 2008 £m Sales Trading profit First half 2007 £m 333 11 Change % 329 16 1 (31) Sinter Metals in Europe performs strongly Sales up 5%, profits up by £4m, double digit margins Investments in Global development continues - £2m impact to profits Capability transfer to India Production build up begins in China New plant opens in Argentina La Presidenta of Argentina opens our new plant 10 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Powder Metallurgy North American environment extremely challenging Overall market down 12% - GM down 25% American Axle strike idles two plants for 6 weeks Scrap steel increases progressively to over $700 per ton Sinter North America revenues down 11% and profits reduce by £7 million Strong action to improve second half and beyond Over 400 people released including two small plant closures Sinter market related pricing and surcharging secures material cost recovery of over 80% Hoeganaes monthly surcharging implemented reducing volatility New business wins continue to support growth for Powder Metallurgy 11 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 OffHighway Subsidiaries & JVs (currency adjusted) Sales Trading profit First half 2008 £m First half 2007 £m 282 25 Change % 241 21 Solid end markets support excellent performance – 17% organic revenue growth Wheels and DLS both perform strongly Revenue increases in Europe up 16% and North America up 21% Small Chinese operations make first contribution to profits Profits up 19% and margin improves to 8.9% 12 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 17 19 OffHighway Successful introduction of Hydromech gearbox and “Powerlock” attachment system Powerlock Hydromech gearbox Outlook for offhighway markets remains positive European agriculture buoyant and construction softening North American mining and agriculture solid and light construction soft Second half well set with strong order books and stable operations 13 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Aerospace market grows strongly in 2008 Continued high US defence expenditure Record new civil aircraft orders 600 Net orders 2007 net orders Backlog at Dec 07 H1 08 net orders Backlog at June 08 Airbus 1,341 3,421 487 3,663 Boeing 1,413 3,427 475 3,661 Total 2,754 6,848 962 7,324 500 400 300 Source: Flight International 200 100 0 $bn 2007 Key: 2008 2009 Base budget (excluding supplementals) Source: US DoD 14 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Aerospace Subsidiaries & JVs (constant currency) First half 2008 £m Sales Trading profit First half 2007 £m 467 47 Change % 379 38 23 24 Aerospace continues on strong growth path 12% underlying sales growth and excellent contribution from Teleflex Boeing 787 delays dampen growth Major programme wins provide over $1bn of new business Business jet nacelle programmes for Honeywell HTF7000 engines Multi-year buy on C-130J – 5 year extension from US Government Technology joint venture with Rolls-Royce on engine composites 15 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 GKN Aerospace – An exceptional position in Aerostructures and Engine composites Engine Composites F35-All composite engine Integrated Front Frame and Ice Protection System Aerostructures Composites A380- Composite Wing Trailing Edge A400M –Full composite Primary wing spar RR- Composite Fan Blade development JVh F22- Composite Sine Wave Wing Spar GENX- All composite Engine fan case 16 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 JUCAS- Composite wing and fuselage structure Market trends Aerostructures market development Facing up to market softening – resilience from Balance of civil and defence $billion 60 Composite Titanium 50 Metallic 40 New programme positions Diversity of product segments 30 20 Composite/titanium focus Plans in place to address areas of vulnerability 10 0 2007 2011 2017 Increasing use of light weight materials Composite/titanium CAGR – 12.4% 17 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Aerospace Filton acquisition and A350 package – major step for Aerospace Successful conclusion imminent – completion before year end Aerospace to enter a new period of consolidation focus on value delivery and new programme implementation £1.5 billion in revenues with double digit margins in 2010 18 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Restructured and Resilient Strengths from market positions, end market diversity and global spread High technology products deliver new business and support growing market shares Market positions strengthened in Aerospace and Automotive Actions taken and plans in place to secure future performance in turbulent times In uncertain markets a resilient GKN will continue to develop and grow 19 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Restructured & Resilient GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Restructured & Resilient Bill Seeger – Finance Director GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Overview Sales up year on year Subsidiaries +18% overall … 8% organic Teleflex acquisition Translation gains Trading Profit up 7% Benefit from higher sales Material cost increases Translation gains … transaction losses Operating cash flow £60 million A Resilient H1 Performance 22 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Results Summary First half 2008 £m First half 2007 £m Increase/ (decrease) 2,270 1,931 18% Trading profit (subsidiaries) 146 137 7% Profit before tax1 131 125 5% 15.6p 17.2p (1.6)p 16% 3% - Sales (subsidiaries) Earnings per share1 Book Tax Rate1 (¹) See note on ‘Income Statement – alternative presentation’ slide for definition 23 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Income Statement First half 2008 £m First half 2007 £m 2,270 1,931 146 137 Restructuring and impairment charges (4) (13) Amortisation of non-operating intangibles arising on business combinations (5) (3) - (7) (4) (1) 133 113 12 12 (26) (23) (1) (1) Net financing costs (27) (24) Profit before tax 118 101 Sales of subsidiaries Trading profit Profits and losses on sale or closures of businesses Changes in fair value of derivative financial instruments Operating profit Post-tax JV earnings Interest (net) Other financing charges 24 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Income Statement First half 2008 £m First half 2007 £m 2,270 1,931 Trading profit 146 137 Operating profit1 146 137 12 12 (26) (23) (1) (1) Net financing costs (27) (24) Profit before tax1 131 125 Alternative presentation showing performance Sales of subsidiaries Post-tax JV earnings Interest (net) Other financing charges (¹) Before restructuring and impairment charges, amortisation of non-operating intangible assets arising on business combinations, profits and losses on sale or closures of businesses and changes in fair value of derivative financial instruments 25 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Sales – Subsidiaries £m 2,400 2,300 2,270 157 2,200 43 139 2,100 2,000 1,931 1,900 8% underlying increase 1,800 1,700 1,600 1,500 F t irs l ha 7 00 f2 rre Cu n ra T y nc tio sla n q Ac iti uis on s 26 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 d Un n lyi er g Fi t rs lf ha 08 20 Trading Profit – Subsidiaries £m 170 6 (11) 14 146 150 137 130 110 Includes £(7)m transactional currency 90 7% underlying decrease 70 50 F th irs al 7 00 2 f rre Cu yT nc io lat s n ra n q Ac iti uis s on 27 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 d Un n lyi er g F th irs al 8 00 2 f Raw Material Costs Approximate spend by type – 2007 ~£800m Scrap & Surcharges £75m Other Metals & Alloys £65m Scrap Steel ($US per ton) 825 $900 $800 $700 654 $600 $500 $400 $300 393 293 $200 $100 Steel – base price £220m Steel based components £420m $0 2007 H1 2008 Q1 2008 Q2 July Spot Scrap steel prices averaged $524/ton in H1’08 vs $293/ton in H1’07 Material escalation in Auto & PM – recovery from customers on increases from H2 forward Automotive, Powder Metallurgy and OffHighway 28 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Impact of Currency Translational - £ has weakened against most major currencies except the US Dollar First half average 2008 2007 Change % Effect on trading profit £m US $ 1.98 1.97 - - Euro 1.30 1.48 12% 10 Yen 208 236 12% 1 Others Impact on trading profit – subsidiaries 3 14 Transactional - £7m adverse impact for the period Translational impact on 2007 annual trading profit (including JVs): 1% move in Euro = £1.6m 1% move in USD = £0.7m 29 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Driveline Subsidiaries Sales and Trading Profit 1,200 Sales £m 1,150 First half Sales - £m Trading profit - £m 2008 2007 Underlying change 1,142 969 7% 71 71 (13%) 1,100 76 1,142 Underlying First half 2008 97 1,050 1,000 969 950 900 Margin 6.2% 7.3% 850 800 Good underlying sales growth in all regions for Driveshafts. Torque posted solid gains from its core business in Japan 750 First half 2007 Translational Currency 90 Trading Profit £m 11 (11) 80 Driveshafts underlying profit down due to input costs not fully recovered 70 Improved recovery in H2 on material increases 60 Torque – modest profit improvement driven by volume 50 71 First half 2007 30 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 71 Translational Currency Underlying First half 2008 Powder Metallurgy Subsidiaries Sales and Trading Profit 400 Sales £m 350 First half Sales - £m 2008 333 2007 Underlying change 309 4 20 333 309 300 1% 250 Trading profit - £m 11 15 (31%) 200 Margin 3.3% 4.9% 150 Continued strong demand in Europe set against decline in North American market 100 Reduced North American volumes compounded by American Axle strike 20 First half 2007 Translational Currency Underlying First half 2008 Trading Profit £m 1 (5) 15 15 Rising raw material costs partially offset by surcharge recoveries Hoeganaes moved to monthly surcharging as of June 2008 11 10 5 0 First half 2007 31 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Translational Currency Underlying First half 2008 OffHighway Subsidiaries Sales and Trading Profit 350 Sales £m 300 First half Sales - £m Trading profit - £m Margin 2008 2007 Underlying change 41 280 Underlying First half 2008 20 250 219 280 219 17% 200 25 19 19% 150 8.9% 8.7% 100 50 Strong demand continues, particularly in the agricultural markets 0 First half 2007 Translational Currency 35 Sales and profit growth in Driveline Systems and Wheels Trading Profit £m 30 4 25 Underlying First half 2008 25 Raw material cost increases largely recovered Margin progression 2 20 19 15 10 5 0 First half 2007 32 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Translational Currency Aerospace Subsidiaries Sales and Trading Profit 600 Sales £m 550 First half Sales - £m 2008 467 2007 Underlying change 500 12% 400 377 45 467 Underlying First half 2008 43 450 377 2 First half 2007 Currency 350 Trading profit - £m 47 38 10.1% 10.1% 8% 300 250 Margin 200 150 Supportive market conditions delivered strong underlying sales growth Sales slowed by delays in B787 100 60 Trading Profit £m 55 3 50 40 Teleflex acquisition fully integrated; strong margin delivered 35 Sustained double digit margins 20 47 6 45 Order book remains strong Acquisitions 38 - 30 25 15 10 First half 2007 33 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Translational Currency Acquisitions Underlying First half 2008 Joint Ventures First half 2008 £m First half 2007 £m 12 12 132 125 15 16 Post-tax profits Sales Trading profit Includes Driveline’s Chinese JVs, Emitec, Chassis Systems and other smaller JVs Growth in Driveline Chinese JVs offset by a drop in German retrofit market at Emitec Post-tax profits held steady 34 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Trading Profit - Summary First half 2008 £m First half 2007 £m Increase/ (decrease) £m Driveline 71 71 - Other Automotive (2) - (2) Powder Metallurgy 11 15 (4) OffHighway 25 19 6 Aerospace 47 38 9 Corporate (6) (6) - 146 137 9 Subsidiaries Group 35 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Trading Profit Margins – Subsidiaries & JVs First half 2008 % First half 2007 % Target range % Driveline 6.7 7.7 8-10 Other Automotive1 2.9 7.7 6-10 Powder Metallurgy 3.3 4.9 8-10 OffHighway 8.9 8.6 7-10 Aerospace 10.1 10.1 10-12 6.7 7.5 8-10 Group1 (1) Excludes Sheepbridge UK 36 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Net Financing Costs Net interest payable Post-employment financing charges Net financing costs First half 2008 £m First half 2007 £m (26) (23) (1) (1) (27) (24) Increased borrowings from Teleflex acquisition in 2007 Increased investments in emerging markets (Brazil, India, China) to support growth opportunities 37 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Tax charge analysed by “Cash Tax” 40% Weighted average Statutory CT Rate 31% 30% 20% 10% 0% Poland UK RoW Australia Mexico Italy Germany Spain Brazil France India Japan US Future rate effect H1 ’08 FY ’07 Weighted average of tax rates in major countries in which we operate 31% 33% (14)% (16)% “Cash tax” rate - 2008 H1 profits 17% 17% Movement in provision for uncertain tax positions (2008 and prior years net) (1)% 2% Benefits of GKN tax profile – tax losses and other timing differences Net Deferred Tax Book Tax rate – 2008 H1 profits - (16)% 16% 3% 38 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Stable within +/- 3% range Stable ranging from 17 - 20% Recognition of DT asset Potential volatility if further DT assets are recognized Cash Flow from Operations First half 2008 £m First half 2007 £m 146 137 85 74 Change in working capital and provisions (53) (91) Strategic restructuring (13) (20) (6) (1) - (1) 159 98 2 7 Capital expenditure (101) (89) Operating cash flow 60 16 Trading profit Depreciation and amortisation Post-employment obligation Other Sub Total Proceeds from sale of fixed assets 39 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Free Cash Flow First half 2008 £m First half 2007 £m Operating cash flow 60 16 Dividends from joint ventures 20 3 Interest (30) (25) Tax (14) (14) Dividends Paid (65) (61) Free cash flow (29) (81) (2) (70) 8 3 (23) (148) Acquisitions Other (inc. currency) Net movement in borrowings Dec 2007 Net Borrowings 40 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 529 574 506 Balance Sheet June 2008 £m December 2007 £m Net operating assets 2,299 2,159 Current and deferred tax (net) (121) (121) Post-employment obligations (450) (331) Net borrowings (529) (506) (35) (5) 1,164 1,196 15% 15% Financial instruments at fair value Net assets ROIC 41 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Results Summary First half 2008 £m First half 2007 £m Increase/ (decrease) 2,270 1,931 339 Trading profit (subsidiaries) 146 137 9 Profit before tax1 131 125 6 Earnings per share1 15.6p 17.2p (1.6)p EPS @ 17% cash tax rate1 15.5p 14.9p 0.6p Interim dividend per share 4.5p 4.3p 0.2p Sales (subsidiaries) A Resilient H1 Performance (¹) See note on ‘Income Statement – alternative presentation’ slide for definition 42 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Outlook Sir Kevin Smith – Chief Executive GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Outlook Economic conditions are uncertain For GKN, global positioning, end market diversity and strong order books support above market growth First half actions will deliver improved second half performance in Driveline and Powder Metallurgy Aerospace and OffHighway to perform strongly 44 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Outlook Automotive markets to soften further Globally, to decline in second half – full year slightly ahead Global agriculture, mining and heavy construction remain strong Aerospace US defence procurement supports a solid military sector Civil growth set to soften - little second half impact 45 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Outlook First half actions significantly improve raw material cost recovery Exchange rates at current levels provide translational benefit – some offset on transactions Imminent conclusion to negotiations on Filton Second half performance will benefit from first half actions Full year progress in line with expectations In uncertain markets a resilient GKN will continue to develop and grow 46 GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008 Restructured & Resilient GKN HALF YEAR RESULTS – 6 MONTHS ENDED 30 JUNE 2008
