Annual Report 2008 in PDF - GKN

26
Business Review: Powder Metallurgy
Products
GKN’s Powder Metallurgy business consists of two
elements: GKN Sinter Metals producing sintered
components and Hoeganaes producing metal
powders, the raw material for component production.
This combination provides a number of advantages,
including technology development. Powder is largely
iron based, although growth is also being seen in the
use of aluminium and alloys.
GKN Sinter Metals
GKN Sinter Metals utilises powdered metals to
manufacture precision automotive components
for engines, transmissions and body and chassis
applications as well as a range of components for other
industrial and consumer applications.
GKN estimates that it has around a 15% global market
share in the sintered product business, approximately
double the size of its nearest competitors. The business
is well placed to serve global markets with operations in
the Americas, Europe, South Africa and Asia Pacific.
Hoeganaes
Hoeganaes produces principally ferrous based metal
powder, the raw material for ferrous based sintered
components. It is the largest producer of metal powder
in North America with approximately 50% market
share. Some 45% of Hoeganaes’ powder production
is sold to GKN Sinter Metals. It has also continued its
development outside the US, especially in Europe and
emerging Asian markets, driven by the increased use
of powder metal components, particularly engine valve
control applications related to emissions improvement.
Markets
Approximately 80% of divisional sales are to automotive
markets (which are discussed in detail on page 20),
with around 29%, either directly or indirectly, to the
North American operations of Chrysler, Ford and General
Motors.
The balance of 20% is to a range of other industries,
including office equipment, white goods and home and
garden. All of these markets weakened during 2008 with
expectations for a continuing decline in 2009.
Divisional strategy
In the period from 2004 to 2007, the business
focused on the continued profitable growth of the
European sintered parts and powder business and the
restructuring and rationalisation of the North American
Sinter Metals business. Technology development
was also undertaken to position the business to
take advantage of new trends in automotive markets
including lower emissions and higher fuel efficiency.
GKN Sinter Metals also continued to position its
operations to benefit from high growth economies with
new capacity established in India, South America and
GKN plc Annual Report 2008
China. The powder production business maintained
its near 50% market share in North America and also
improved market share in both Europe and Asia.
Although the recent priority has been to realign cost
structures in the face of the global economic downturn,
the medium and long term strategy remains intact with
growth in the powder metallurgy market expected to be
at higher rates than the end markets it serves. Growth
is being driven primarily by continued evolution of
powder metal technology which will provide access to
new applications and evolving trends in the automotive
market such as emissions related products.
Against this backdrop, the objective remains to achieve
value creating growth ahead of markets served on a
global basis by:
exploiting the technology synergies between
Hoeganaes and GKN Sinter Metals to extend the
application of powder metallurgy solutions in its end
markets;
continuing to develop new products which meet the
emerging requirements of new engine, emissions and
transmission technologies; and
continuing the development of the business in high
growth economies.
2008 Performance
Sales in the year were £618 million compared with £602
million in 2007. The underlying sales decline, after the
currency translation benefit of £68 million, was £52
million (8%).
The North American Powder Metallurgy business
experienced difficult trading conditions throughout the
year, with the impact of weak sales to General Motors and
the prolonged American Axle strike in the first half being
followed by the steep decline in overall US automotive
builds in the second half.
The European Powder Metallurgy business achieved
good growth in the first half of the year with sales 5%
ahead of 2007, but experienced a steep decline in the
second half such that full year sales were 16% below
2007 at constant exchange rates.
Hoeganaes’ external customer sales were ahead of
2007, as a result of market share gains in Europe and
Asia Pacific and increased surcharge revenues. Total
tons shipped however were down 8% compared with
2007, the revenue impact of which was offset by higher
customer surcharges.
GKN Sinter Metals’ businesses in the emerging markets
of South America and Asia experienced growth of 12%
in the first half of the year, but second half sales were
broadly level with the comparative period in 2007 and
sales in the final quarter of 2008 were down compared
with 2007.
Powder
Metallurgy sales
by product type
■ Sintered products:
GKN Sinter Metals 84%
■ Metal powder:
Hoeganaes 16%
GKN Sinter Metals
sales
by region of origin
■ Europe 54%
■ Americas 40%
■ Rest of the World 6%