Element Six Abrasives
Element Six Abrasives
Element Six Abrasives
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<strong>Element</strong> <strong>Six</strong><br />
<strong>Abrasives</strong><br />
Elmer Larsson<br />
Technical Manager<br />
<strong>Element</strong> <strong>Six</strong> <strong>Abrasives</strong> China
A bit of history<br />
1947: Diamond Research Laboratory established by De Beers<br />
1953: first diamond synthesized by ASEA, Sweden<br />
1980s: polycrystalline products developed<br />
1990s: more intensive competition<br />
Today:<br />
<strong>Element</strong> <strong>Six</strong> is the world’s leading<br />
manufacturer of industrial diamonds<br />
2
<strong>Element</strong> <strong>Six</strong> is organised into two business<br />
segments<br />
Applications<br />
End User<br />
Markets<br />
Stone &<br />
Construction<br />
Saw<br />
segments<br />
Quarrying<br />
Stone<br />
cutting<br />
Construction<br />
Wheel<br />
Grit &<br />
Micron<br />
Grinding<br />
wheels,<br />
Micron<br />
powder<br />
for lapping<br />
&<br />
Polishing<br />
Automotive<br />
Aerospace<br />
Glass<br />
Carbide<br />
Woodworking<br />
Saw blades,<br />
Cutting<br />
inserts<br />
Wood<br />
<strong>Abrasives</strong> Technologies<br />
Metalworking<br />
Cutting<br />
inserts<br />
Automotive<br />
Aerospace<br />
Oil & Gas<br />
Drill bit<br />
inserts<br />
Oil & gas<br />
drilling<br />
Mining &<br />
Speciality<br />
Rock boring<br />
inserts.<br />
Diamond<br />
enabled<br />
materials.<br />
Mining.<br />
Construction.<br />
Thermal<br />
Mangmt<br />
CVD<br />
Thermal,<br />
Optical,<br />
Cutting<br />
Telecomms<br />
Lasers<br />
Medical<br />
60% De Beers, 40% Umicore 100% De Beers<br />
3
<strong>Element</strong> <strong>Six</strong> has facilities in 9 locations<br />
<strong>Abrasives</strong><br />
Technologies<br />
Location Production<br />
Shannon, IE<br />
Springs, ZA<br />
Robertsfors, SE<br />
Poltava, UA<br />
Suzhou, CN<br />
Wales, UK<br />
Ascot, UK<br />
Isle of Man, UK<br />
Cuijk, NL<br />
Processing<br />
Synthesis<br />
Synthesis<br />
Synthesis<br />
Synthesis<br />
Pre-synthesis<br />
Synthesis /<br />
Processing<br />
Processing<br />
Research &<br />
Development<br />
Market Support<br />
DRL<br />
Development<br />
CVD<br />
Sales &<br />
Marketing<br />
Main S&M function<br />
ZA market<br />
CVD JV<br />
development<br />
Main S&M function<br />
Group<br />
Finance, IT, Audit,<br />
Legal<br />
CEO, HR, Corp.<br />
Development<br />
4
Technologies<br />
5
Technologies Division develops the<br />
extreme properties of diamond<br />
1. Highest Knoop hardness<br />
2. Highest light transparency<br />
3. Highest thermal conductivity<br />
4. Highest resistance to thermal shock<br />
5. Low thermal expansion coefficient<br />
6. High chemical (bio) inertness<br />
7. Highest Young’s modulus<br />
8. High tensile strength<br />
9. Good electrical insulator<br />
10. Good electrical conductor (doped)<br />
11. Low dielectric constant<br />
12. Low dielectric loss<br />
13. Wide electronic band gap<br />
14. High electronic mobility<br />
Optical<br />
Thermal<br />
Electronic<br />
Diamond<br />
Chemical<br />
Electrical<br />
Mechanical<br />
6
<strong>Abrasives</strong>
<strong>Abrasives</strong> has production plants in six<br />
countries<br />
Note: Excludes distribution agencies<br />
Ireland<br />
Sweden<br />
UK<br />
Ukraine<br />
South Africa<br />
China<br />
8
…R&D facilities in four of these<br />
Note: Excludes distribution agencies<br />
Ireland<br />
Sweden<br />
UK<br />
Diamond<br />
Research<br />
Laboratory<br />
South Africa<br />
9
…and has 11 wholly-owned distribution<br />
offices<br />
Brazil<br />
USA<br />
UK<br />
Spain<br />
Germany<br />
Switzerland<br />
Hong Kong<br />
India<br />
South Africa<br />
Japan<br />
Taiwan<br />
10
R&D investment & returns have been<br />
increasing steadily<br />
Sales of new<br />
products 1 as %<br />
of total sales<br />
100%<br />
90<br />
80<br />
70<br />
60<br />
50<br />
40<br />
30<br />
20<br />
10<br />
Efficient innovators<br />
Inter-industry average<br />
Low intensity innovators<br />
High intensity innovators<br />
2006<br />
2004<br />
2003<br />
2005<br />
Low leverage innovators<br />
0<br />
0 2 4 6 8 10%<br />
1. Sales of products launched in the past 5 years<br />
R&D expenses as % of total sales<br />
2. High revenue<br />
growth & increasing %<br />
of new products<br />
1. R&D investment<br />
yields increasing % of<br />
new product sales<br />
11
<strong>Abrasives</strong> revenue growth by product type<br />
Cutting<br />
Tools<br />
PCBN<br />
Oil & Gas<br />
Grits<br />
2003 2004 2005 2006<br />
CAGR<br />
11%<br />
25%<br />
64%<br />
3%<br />
12
1. Saw Grits<br />
Diamond grit used in saw blades for<br />
stone & construction and in core drills<br />
13
2. Wheel Grit &<br />
Micron<br />
Diamond & CBN used in grinding<br />
wheels and in lapping and polishing<br />
14
3. Wood<br />
working<br />
PCD used in cutting & machining<br />
wood<br />
15
4. Oil & Gas<br />
Products used in oil & gas drilling<br />
16
5. Metal<br />
working<br />
PCBN used in ferrous & non-ferrous<br />
metal cutting and machining<br />
17
SURF – Strategy execution 2001-2005<br />
How to deal with potentially terminal shifts in prices<br />
driven by Chinese entrants, significant adverse currency<br />
movements and other challenges
In the year 2000, De Beers Industrial<br />
Diamonds…<br />
• Had been in the Industrial Diamond business for<br />
more than 50 years<br />
• Had seen growth in almost every year<br />
• Had seen very healthy profitability<br />
• Was an industry leader<br />
• But…..<br />
19
The world was changing ...<br />
• Rapid price declines<br />
• Erosion of technical<br />
leadership<br />
• Huge over capacity<br />
• New entrants<br />
• Commoditising markets<br />
Strategic Review<br />
20
Grit price trends 1995 - 2000<br />
normalised price per carat (Q2 95 = 100)<br />
100<br />
90<br />
80<br />
70<br />
60<br />
50<br />
40<br />
30<br />
Q2<br />
95<br />
Q3<br />
95<br />
Q4<br />
95<br />
Q1<br />
96<br />
Q2<br />
96<br />
Q3<br />
96<br />
Q4<br />
96<br />
Q1<br />
97<br />
Q2<br />
97<br />
Q3<br />
97<br />
Q4<br />
97<br />
Q1<br />
98<br />
Q2<br />
98<br />
Q3<br />
98<br />
Q4<br />
98<br />
Q1<br />
99<br />
Q2<br />
99<br />
Q3<br />
99<br />
Q4<br />
99<br />
21
Industrial products businesses follow a<br />
typical competitive life cycle<br />
Market<br />
Value<br />
• Technology<br />
Dissemination<br />
• New Entrants<br />
• Price Pressure<br />
• Product Innovation<br />
• Technology<br />
Development<br />
• Few Players<br />
• Price Umbrella<br />
• Declining Costs<br />
• High Margins<br />
Time<br />
• Commodity Market<br />
• Consolidation<br />
• Declining Margins<br />
• Consistent Quality<br />
22
<strong>Element</strong> <strong>Six</strong>’s businesses are in different<br />
phases of the product life cycle<br />
Market<br />
Value<br />
PCD CT’s<br />
PCD Drill<br />
PcBN<br />
Innovate<br />
through<br />
investment<br />
in R&D<br />
Time<br />
Grit<br />
Cut Costs<br />
through<br />
restructuring<br />
and R&D<br />
23
In commoditised markets the sustainable<br />
businesses are the low-cost producers based on<br />
Low Cost<br />
Location<br />
Scale<br />
South<br />
Africa<br />
Technology /<br />
Process<br />
Leadership<br />
24
We closed 2 out of 4 diamond synthesis plants<br />
and transferred grit production to South Africa<br />
Note: Excludes distribution agencies<br />
Shannon<br />
Robertsfors<br />
Hamburg<br />
Springs<br />
25
Grit price trends 1995 - 2004<br />
normalised price per carat (Q2 95 = 100)<br />
100<br />
90<br />
80<br />
70<br />
60<br />
50<br />
40<br />
30<br />
Q2 95<br />
Q4 95<br />
Q2 96<br />
Q4 96<br />
Q2 97<br />
Q4 97<br />
Q2 98<br />
Q4 98<br />
Q2 99<br />
Q4 99<br />
Q2 00<br />
Q4 00<br />
Q2 01<br />
Q4 01<br />
Q2 02<br />
Q4 02<br />
Q2 03<br />
Q4 03<br />
26
Main lessons<br />
• Identify where products are in their life-cycle<br />
• For commodity products, restructure to achieve a low<br />
cost / lowest cost position in the industry<br />
• For non-commodity products, invest heavily in R&D to<br />
ensure a high rate of innovation to prevent<br />
commoditization<br />
• Act early<br />
• R&D is critical for product innovation and process<br />
leadership<br />
27
• 2000 – 2003: The SURF Strategy execution took out<br />
almost $50m of cost from a business with sales of<br />
$200m and saved E6 <strong>Abrasives</strong> from possible failure<br />
• 2003 – 2005: From 2003 to 2005 the business was hit<br />
by further price reductions, but also by a significant<br />
impact from adverse currency movements<br />
ZAR/USD from 11.2 to 7.0<br />
USD/EUR from 0.95 to 1.22<br />
• Overall top-line growth during period reached 13%<br />
CAGR<br />
28
SPG – Sustainable Profitable Growth –<br />
Strategy 2006 - 2010<br />
How to bring a new dimension and growth to an<br />
industrial raw material business and keep off<br />
commoditisation
E6 <strong>Abrasives</strong> Strategic Plan 2006-2010<br />
• To build on our position as the world’s leading producer<br />
of synthetic industrial diamonds by:<br />
• Accelerating development of higher value-added products<br />
• Developing lower cost synthesis operations to support<br />
product development:<br />
April 2006: acquired majority shareholding in Poltava Diamond<br />
plant in Ukraine<br />
May 2006: inauguration of new Suzhou investment ($25m)<br />
• Target: to continue growing top line<br />
at 13% CAGR 2005-2010<br />
Opening ceremony of <strong>Element</strong> <strong>Six</strong> <strong>Abrasives</strong>,<br />
Suzhou - May 2006<br />
30
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