Delivering Sustainable Growth. Bill Seeger

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Gordon Cain
8 years ago
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1 GKN Delivering Sustainable Growth Bill Seeger

2 Overview GKN is now well positioned to deliver sustainable growth following the completion of significant restructuring initiatives GKN s aim of delivering value is driven by the following elements Growth in excess of the markets Improving margins Strong cash generation GKN will also seek to grow through strategic, bolt-on acquisitions with the purpose of adding capability, market position and global footprint The achievement of these key elements will provide the foundation for value creation 2

3 Growth in Excess of the Markets Driveline Land Systems Ongoing evolution of sideshaft technology Growth in driveline systems and solutions Innovative products for more fuel efficient vehicles Strong market share in high growth regions Solid relationships with strategic customers Increasing global platforms Global capability to support customer base Demand for high efficiency reliable power management solutions Exploitation of GKN technology capability across customer base New market penetration Geographic expansion Powder Metallurgy Value of PM content per vehicle outgrowing the market Unique parts and powder position support rapid exploitation of Design for PM Higher performance trends create technology pull for PM capability Geographic expansion in Asia and South America Aerospace Economic growth drives commercial demand supporting strong backlog Existing civil platform volumes increasing to satisfy demand Stable US defence production with JSF/CH53K providing growth New aircraft platforms move into rate production over next few years Composite and lightweight metallics technology development positioning for next generation platforms 3

4 Strategic Benefits of Restructuring Restructuring and global repositioning Driveline - productive assets rebalanced to higher growth markets Powder Metallurgy - move from cost-based substitution to design for PM Aerospace - exploiting technology and design capability for positions on a wide range of new civil and defence aircraft Land Systems - leveraging GKN technologies to drive growth in existing and new markets Balance sheet strengthened Rights issue provided flexibility and capacity to grow Focused on cash generation UK pension framework in place to address deficit 4

5 Cyclical Business Key Points GKN increased resilience to cyclicality is driven by the following key factors: Diversity in end markets Diversity in geographic coverage Diversity in customers Industrial 10% Aerospace 27% Agriculture 5% Construction and Mining 1% Automotive 57% Japan 8% Latin America 8% North America 30% China 5% Eastern Europe 4% Prudent management of balance sheet India 2% Aligning debt with asset coverage RoW 2% Providing clarity on pension funding Measures to reduce pension liabilities Western Europe 41% Other Customers 43% Approx 1%: John Deere Suzuki GE PSA Caterpillar Rolls-Royce EADS 8% VW 7% Boeing 6% Ford 5% BMW 2 United 2% Mitsubishi Technologies Tata 2% Toyota 4% 2% 4% Lockheed 2% Renault Nissan 6% Fiat Chrysler 5% General Motors 4% Source: GKN 2010 sales 5

6 Trading Margins Trading Margin 2010 FY Q Targets Driveline 6.9 % 7.4 % 8-10 % Powder Metallurgy 7.1 % 9.2 % 8-10 % Aerospace 11.2 % 9.1 % % Land Systems 5.3 % 8.2 % 7-10 % Structurally positioned to move through the target margin ranges supported by Organic growth New products delivering increasing value Group 7.6 % 8.0 % 8-10% 6

7 Free Cash Flow Operating results Growth > market Margin expansion Restructuring Completes in m cash flow Investment Working Capital (Average) UK pension deficit funding Capex : depreciation ratio of 1.1x A m investment Modest increase in average working capital inventory supporting growth 7.5% 8% of sales Cash flow at 30m/year Strong FCF supports Organic growth Investment Dividend progression Investment grade metrics Prudent balance sheet supports bolt-on acquisitions Tax rate Debt Book rate 15-20%, near term Debt levels within investment grade range Dividends Progressive to 2.5x management EPS cover near term 7

8 Return on Invested Capital 24% 20% 16% 12% 8% ROIC Target = 20% WACC = 12% ROIC Group target 20% ROIC significantly exceeds WACC Reflection of efficient capital utilisation Investment returns improve as margins expand 4% ROIC 8

9 Summary Strong sustainable growth from each division in excess of market Expansion of division margins through target ranges Free cash flow supports growth, progressive dividends and investment grade metrics Balance sheet strength provides financial flexibility to sustain a strong growth agenda GKN Delivering Sustainable Growth 9

10 GKN Delivering Sustainable Growth

Financial Information

Financial Information Solid results with in all key financial metrics of 23.6 bn, up 0.4% like-for like Adjusted EBITA margin up 0.3 pt on organic basis Net profit up +4% to 1.9 bn Record Free Cash Flow