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