Review of performance.

GKN Powder Metallurgy.

GKN Powder Metallurgy is the world’s largest manufacturer of sintered components. It comprises GKN Sinter Metals and Hoeganaes. Hoeganaes produces the metal powder that GKN Sinter Metals uses to manufacture precision automotive components for engines, transmissions and body and chassis applications. It also produces a range of components for industrial and consumer applications.

Information on trends in, and the outlook for, major automotive markets is given in our markets.

The key financial results for the year are as follows:

      Change
      Headline Underlying
  2011 2010 £ % £ %
Sales (£m) 845 759 86 11 97 13
Trading profit (£m) 72 54 18 33 19 36
Trading margin 8.5% 7.1%        
ROIC 16.7% 13.2%        

GKN Powder Metallurgy sales were £845 million (2010: £759 million), an increase of 11%. The negative impact of currency translation was £11 million. Sales increased in all regions as automotive markets recovered, recent new business wins entered production and market share gains were made. Underlying sales for GKN Sinter Metals increased by 17% in North America and 11% in Europe. Strong growth was also achieved in India, Brazil and China.

Overall, Hoeganaes’ total tons shipped were 1% lower than in 2010 due to the temporary closure of the Gallatin plant. Underlying sales were 7% higher, principally due to an increase in the commodity metals surcharge passed on to customers as raw material prices increased.

Overall, GKN Powder Metallurgy reported a trading profit of £72 million (2010: £54 million), excluding £19 million of net costs associated with the temporary plant closure at the Gallatin, USA, facility which are reported outside the divisional trading performance. The divisional trading margin was 8.5% (2010: 7.1%). GKN Powder Metallurgy’s medium-term target margin range has now been increased to 9-11% (from 8-10%).

Capital expenditure on tangible fixed assets was £44 million (2010: £27 million). The ratio of capital expenditure to depreciation was 1.4 times (2010: 0.9 times). Return on average invested capital was 16.7% (2010: 13.2%), reflecting the improvement in profitability.

Increasing trends in industrial and automotive markets to improve fuel efficiency and reduce emissions, such as variable valve timing in engines, high performance gear sets in automatic transmissions and differential gears, are continuing to drive the demand for products made by powder metallurgy. During the year, more than £100 million (annualised sales) of new programme business was awarded and 48 technical days were hosted for existing and new customers, in order to promote powder metallurgy products and applications. New contracts include: