Filton Acquisition & A350 Contract Win
September 2008
Filton – Transaction highlights
Strategic rationale compelling
Long term strategic supplier relationship with Airbus
Secures A350 contracts in wing composites
Rebalances civil and military exposures
Significantly strengthens GKN’s market position today and for the
future
Accretive to underlying earnings* in first full year and strong cash
generation
Strong order book supports healthy cash flow profile
Subject to EU competition clearance
Completion expected at the end of the year
*See slide 9
1
GKN FILTON ACQUISITION and A350 CONTRACT WIN - 15 SEPTEMBER 2008
Transaction details
Consideration
£100 million in cash on completion
Up to £36 million deferred consideration - Volume related 20102015
Employees enter GKN pension scheme with initial GKN funded
top up
Financed through own resources
Life of programme supply on all current Airbus
programmes - circa £375 million revenues in 2009
A320
2
A330
A340
A380
GKN FILTON ACQUISITION and A350 CONTRACT WIN - 15 SEPTEMBER 2008
A400M
GKN Aerospace – Builds on strong track
record of growth
Sales nearly doubled 2003-8
Excellent position in aerospace composite technology
Leaders in titanium structures, cockpit canopies and
electric de-icing
Broad customer base in both aircraft structures and
engine components
Strong presence in US military market and all major
new programmes
3
GKN FILTON ACQUISITION and A350 CONTRACT WIN - 15 SEPTEMBER 2008
GKN Aerospace – positioned for the future
(shipset values US$)
New Programmes – 2007 participation
787
747-800
A380
A400M
JSF
CH53K
0
$M
0.5
1
1.5
2
2.5
3
3.5
4
$1 billion annual revenues at rate production
4
GKN FILTON ACQUISITION and A350 CONTRACT WIN - 15 SEPTEMBER 2008
4.5
Market Trends
Aircraft production: Civil & Military
Aerostuctures market trends
50
$36.8B
$32.3B
27.9%
$83.5B
23.7%
8.0
$118.3B
76.3%
72.1%
40
18.9
4.4
30
7.9
5.2
12.0
20
2007
2016
Total
$115.8bn
Total
$155.1bn
25.9
26.9
10
17.1
0
Civil
Military
2007
Metallic
Civil sector – 4% Real Compound growth
Source: Flight International/Teal/GKN
5
2011
Titanium
2017
Composite
Composite/Titanium CAGR – 12.4%
Source: PWC/CPIL
GKN FILTON ACQUISITION and A350 CONTRACT WIN - 15 SEPTEMBER 2008
Rebalances revenue streams
Status quo GKN Aerospace
FY08 Estimate
Civil
42%
End market
diversification
Civil
54%
EADS
27%
Boeing
27%
Other
27%
UTC (Pratt &
Sikorsky)
13%
Rolls Royce
2%
Northrop
Grumman
4%
Bombardier
4%
6
Military
46%
Military
58%
EADS
6%
Customer
diversification
Pro forma GKN Aerospace
FY08 Estimate
Honeyw ell
4%
Boeing
22%
Other
20%
GE
Rolls Royce
5%
2%
Lockheed Martin
Northrop
4%
Grumman
Agusta
3%
Westland
Bombardier
4%
3%
Honeyw ell
3%
GKN FILTON ACQUISITION and A350 CONTRACT WIN - 15 SEPTEMBER 2008
Agusta
Westland
3%
UTC (Pratt &
Sikorsky)
10%
GE
4%
Lockheed
Martin
3%
GKN Aerospace – Filton Acquisition
Role of Filton in Airbus UK
Broughton
Machined
Spars & Ribs
Filton Facility
Leading & Trailing Edge
Assembly
Wing Major Sub-Assemblies
Broughton
Wing assembly
Filton Facility
Broughton
Complex pipes & Ducts
Complex machined Parts
Wing box
assembly
Located near Bristol, in the heart of “Aerospace
district” in South West region
Employs c.1,500 people
Centre of excellence in wing systems
and assemblies
Supplies full range of Airbus models: A320 family,
A340 family, A380, A400M and A350
7
GKN FILTON ACQUISITION and A350 CONTRACT WIN - 15 SEPTEMBER 2008
Final Assembly
Line
GKN – Existing Programmes Participation
with Filton (Ship Set Value In US$)
Order backlog
(Aug 2008)
A400M
189
A380
190
A340
33
A330
451
A320
2,725
0
1
2
3
4
5
6
7
$M
GKN
Total backlog value over $6bn
Filton
8
GKN FILTON ACQUISITION and A350 CONTRACT WIN - 15 SEPTEMBER 2008
8
9
Filton Value Creation
Value creation through cost reduction
Headcount reduction across indirects and overheads
Benefits through consolidation procurement, greater productivity
and efficiency
Savings through changes to site costs and removal of Airbus
central services
Power 8 savings for Airbus – acceptable operating
margins and strong cash generation for GKN
Accretive to underlying earnings* in first full year
*Before restructuring and impairment charges, amortisation of non-operating intangible assets and other non-cash charges arising on
business combinations, profits and losses on sale or closure of businesses and changes in fair value of derivative financial instruments
and after tax at a cash tax rate of 17%.
9
GKN FILTON ACQUISITION and A350 CONTRACT WIN - 15 SEPTEMBER 2008
US dollar exposure and tax
Dollar exposure
Airbus pricing and payments in natural currencies for three years –
sterling and US Dollar
Year 4 onward – mutually agree dollar conversion pricing and
hedging
Natural hedge improvements from sourcing
Review in 2011 to agree conversion of dollars and hedging
Further review in 2015
Tax
Filton profits to be offset against existing GKN UK tax losses –
effectively tax free for several years
10
GKN FILTON ACQUISITION and A350 CONTRACT WIN - 15 SEPTEMBER 2008
GKN A350 Participation
Design, Build and Assembly of Rear Wing Spars
and Assembly Of Wing Trailing Edge Structure
11
GKN FILTON ACQUISITION and A350 CONTRACT WIN - 15 SEPTEMBER 2008
The Airbus Composite Technology Journey
A330/340
Component
Build to Print
A380
A400M
Wing Trailing Edge Spar & WTE
Design and Build Design and Build
A350
WTE Assy.
Design & Build
Next Generation
Single Aisle
Filton
1998
2001
2004
2008
2015-20
GKN
Resin Film Infusion
Developed
Auto Tape
&DDF Technology
12
ALCAS
Complex Spar
Integrated Wing
Closed Cell
Structure
High Rate
Manufacture
GKN FILTON ACQUISITION and A350 CONTRACT WIN - 15 SEPTEMBER 2008
A350 Participation
Strategic programme target for GKN
Balances presence on Boeing 787
Demands high rate composite manufacture
Strengthens focus on primary wing structures
A350 current firm order book of 452 aircraft and 106
options with quality airlines
Qatar (80), Emirates (70), Singapore (20)
Airbus “target” market penetration – at least 1,500
aircraft
13
GKN FILTON ACQUISITION and A350 CONTRACT WIN - 15 SEPTEMBER 2008
A350 Participation
GKN content circa £0.9m per aircraft
Investment in specific engineering and design and
generic facility capitalisation
£125 million over 5 years
£60 million Government Launch Investment approved
Delivers revenues of circa £130m at rate production in
2017
*Sterling values based on $2:£1
14
GKN FILTON ACQUISITION and A350 CONTRACT WIN - 15 SEPTEMBER 2008
Filton - Summary
Strategically sound and earnings enhancing
GKN moves into top 3 Global aerostructures suppliers – No 1 in Europe
Tier One – A leader in wing structures and composites
$3 billion revenues and double digit margins in 2010
Balanced sector positions and customer mix
Strategic Supplier relationship with Airbus
Life of Programme across Airbus platforms
Opportunities for synergies with existing Aerospace businesses
Helps secure A350 position and future R&D programmes
Strong order book supports healthy cash flow profile
Significantly strengthens GKN’s market position today and for the future
15
GKN FILTON ACQUISITION and A350 CONTRACT WIN - 15 SEPTEMBER 2008
Forward looking statements
This presentation includes “forward-looking statements”. All
statements other than statements of historical facts included in this
announcement, including, without limitation, those regarding the
Company’s financial position, business strategy, plans and objectives
of management for future operations, the expected timing and
strategic and financial effects of the Filton Acquisition and trends in
the Aerospace industry, are forward-looking statements. Such
forward-looking statements involve known and unknown risks,
uncertainties and other important factors which could cause the actual
results, performance or achievements of the Company or the markets
and economies in which the Company operates to be materially
different from future results, performance or achievements expressed
or implied by such forward-looking statements.
16
GKN FILTON ACQUISITION and A350 CONTRACT WIN - 15 SEPTEMBER 2008
Contacts
Sir Kevin Smith
Chief Executive
Bill Seeger
Finance Director
David Rood Investor Relations
Tel 020 7463 2382
david.rood@gkn.com
Peter Baillie
Director, Corporate Communications
Tel 01527 533327
peter.baillie@gkn.com
17
GKN FILTON ACQUISITION and A350 CONTRACT WIN - 15 SEPTEMBER 2008