Printable Logo
Expect More
 

Powder Metallurgy Full Review

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 within the Business Review for Automotive), 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 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
GKN Sinter Metals sales by region of origin

Despite a £6 million positive impact from currency translation, Powder Metallurgy reported a full year loss of £2 million in 2008, compared with a trading profit of £29 million in 2007. The underlying profit decline, which arose predominantly in the second half of the year, was driven by the reduction in volumes, the impact of the American Axle strike and raw material cost volatility.

The divisional operating margin in 2008 was (0.3)% (2007 – 4.8%). Return on invested capital was (0.5)% (2007 – 6.9%).

The main raw material in the Powder Metallurgy business is scrap steel, prices for which were highly volatile in 2008, peaking in September at approximately $900 per ton, three times higher than the 2007 average. Powder alloying materials including nickel, copper and molybdenum remained at historically high levels for most of the year, before declining sharply in the final quarter. The management of input costs to remove volatility, recover costs and eliminate recovery lag from customers was a key focus for the year. Significant changes were made to achieve this with Hoeganaes moving to a monthly customer surcharge for all input materials. In addition, the Sinter Metals business now has surcharging mechanisms in place on around 80% of its business.

Actions implemented to respond to significant declines in sales volume included a total headcount reduction in the year of 1,200, coupled with short-time working in all plants during the fourth quarter. Additional actions to reduce the fixed cost base are also in place for 2009.

Net restructuring costs and asset impairments in 2008 totalled £106 million (2007 – £14 million). Of these, £81 million related to the impairment of assets in GKN Sinter Metals North America and an impairment of £11 million arising from the rationalisation of manufacturing activity across Hoeganaes’ North American plants. Restructuring costs of £6 million were charged in the year and were in relation to redundancies, short-time working and other reorganisation costs.

Capital expenditure on tangible fixed assets in the period totalled £33 million (2007 – £38 million) with depreciation of £32 million (2007 – £28 million). The ratio of capital expenditure to depreciation was 1.0 times (2007 – 1.4 times).

New business wins related to emerging technology trends continued with a particular focus on applications to improve fuel efficiency and reduce emissions, such asvariable valve timing in engines and high performance gear sets in automatic transmissions. Other business wins included manual transmission gears where the potential of ‘design for Powder Metal’ continues to enable performance differentiation over competing technologies.

Precision Sintered components

GKN is the only manufacturer involved in the complete powder metallurgy process, from production and blending of metal powder to the manufacture of precision sintered components. A high proportion of new business wins in 2008 were for new applications on the latest automotive technologies, where the demand for smaller, lighter and more fuel efficient vehicles offers new opportunities for the latest powder metal technologies.