Annual Report 2008 in PDF - GKN

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Business Review: OffHighway
Products
GKN OffHighway designs, manufactures and distributes,
on a global basis, a portfolio of products for off-highway
vehicles primarily in the agricultural, construction,
mining and other specialty vehicle markets. It consists
of three primary business streams — driveline products,
wheels and systems solutions which includes advanced
power transmissions, axles and trailer equipment. The
division is a global market leader in its wheels and
driveline products businesses.
A service and distribution business supplies GKN’s
and other manufacturers’ products to aftermarket
wholesalers and distributors, principally within Europe.
Major customers include many of the world’s major offhighway
equipment and specialty vehicle manufacturers
such as John Deere, Caterpillar, Case New Holland,
CLAAS and AGCO, in addition to a wide range of smaller
customers.
Markets
During 2008, 68% of divisional sales were to the
agricultural market, 20% to the construction and mining
equipment market and the balance to the industrial
machinery market. The wheels and driveline products
businesses account for close to 80% of divisional
sales, with the systems solutions business providing
the balance. The wheels business has market shares in
North America and Europe of 32% and 44% respectively.
The driveline products business enjoys shares of 27%
and 51%, respectively, in the same regions.
The division’s other businesses serve the original
equipment market and aftermarket with a range of
gearboxes, tractor attachments and axles.
Overall in 2008, the division showed solid year on year
growth and achieved record sales. However, all end
markets showed increasing weakness late in 2008 and
are expected to decline further in 2009.
Agriculture
In Europe the overall agricultural machinery market
continued a positive trend in 2008 compared with 2007.
Record high crop prices in the first half of the year
together with high demand and structural changes in
the market, such as the rapid development of bio-fuels,
drove demand for agricultural equipment.
In the second half, crop prices weakened and overall
demand reduced in Europe and North America, but
remained ahead of prior year levels.
GKN plc Annual Report 2008
Construction and mining
The construction and mining machinery markets had
a mixed year with light construction heavily impacted
by much reduced housing starts in Europe and North
America, partially offset by heavy construction which
remained strong until late in the year.
Mining equipment sales were strong for the majority
of the year, with commodity prices at record highs
and demand out-stripping capacity in certain areas.
As commodity prices weakened in the latter part of
the year, equipment order books showed signs of
weakening and in 2009 demand is expected to reduce
significantly in all product segments.
Industrial machinery
The industrial machinery sector includes products
for material handling and a range of other industries.
Demand in this sector in 2008 weakened in the latter
half of the year, with a further weakening expected
in 2009.
Divisional strategy
GKN OffHighway’s strategy is to achieve value creating
growth above that of the markets it serves by providing
market leading products and systems to customers on a
global basis.
The business has a good balance of end market diversity
and customer mix. Its focus continues to be on:
securing competitive advantage through continuing
technology-led product development in wheels and
driveline products;
extending our support opportunities to original
equipment manufacturers (OEMs) and other
customers;
extending our product offering to individual
customers as they consolidate their procurement;
and
consolidating the advantages of an extensive global
footprint in serving our OEMs as they globalise.
2008 Performance
Sales of subsidiaries in the year were £549 million
compared with £416 million in 2007, including a £53
million increase from currency translation effects.
The underlying increase of £80 million (17%) mainly
reflected strong market conditions in most markets for
the first nine months of the year when the underlying
sales increase was 20%, and the impact of price
increases to cover significant material cost increases.
OffHighway sales
by market
■ Agriculture 68%
■ Construction & Mining 20%
■ Industrial Machinery 12%
OffHighway sales
by region of origin
■ Europe 70%
■ Americas 27%
■ Rest of the World 3%