GKN Business Report FY2007

Business Highlights

Financial overview

in million pounds FY2007 FY2006 Rate of change(%) Factors and Issues
Sales (continuing businesses) 3,869 3,634 6.5% -
Trading profit 277 251 10.4% -
Automotive (Driveline and Other Automotive)
Sales 2,031 2,004 1.3% See (1) and (2) below
Trading profit 146 137 6.6%
Powder Metallurgy
Sales 602 582 3.4% See (3) below
Trading profit 29 31 6.5%

Financial overview by Division

(1)GKN Driveline

Drivelines subsidiaries' sales in the year totalled 1,922 million pounds compared with 1,884 million pounds in 2006. The negative impacts of currency translation and 2006 divestment were 47 million pounds and 5 million pounds respectively so that the underlying increase was 90 million pounds (5%). This increase arose in GKN Driveshafts in South America and Europe reflecting the high level of business wins over the past two years, in Torque Technology Group (TTG) where there was strong demand from Japanese customers and in other Driveline businesses where market conditions were favourable.

(2)Other Automotive
- Sales of subsidiaries in the year were 109 million pounds compared with 120 million pounds in 2006. Excluding Sheepbridge, sales of 87 million pounds were 6 million pounds (6%) below 2006.
- The share of sales of joint ventures increased from 92 million pounds to 120 million pounds with particularly strong growth in Emitec in Germany as a result of legislation enacted in 2006 requiring the retrofitting of particulate filters to diesel powered vehicles.

(3)Powder Metallurgy
- Sales in the year were 602 million pounds compared with 582 million pounds in 2006. The impact of currency on translation was 22 million pounds negative so that underlying growth was 42 million pounds (8%).
- Half of the improvement arose in GKN Sinter Metals in Europe where there was good demand from nonautomotive customers and a number of new automotive programmes came on stream towards the end of the year. There was also strong growth in GKN Sinter Metals in the emerging markets of South America and Asia, though from a smaller base. In North America the growth was slower with the benefit from new business more than offsetting the adverse impact of reduced US automotive production. The geographical mix of GKN Sinter Metals窶 business thus continued the trend away from North America towards other regions with 42% of sales being made in North America in 2007. Hoeganaes窶 sales improved by over 10%, with the increase predominantly reflecting higher surcharges to customers.

- In FY2007, the Company's new driveshaft for low cost vehicles is supplied to the new Tata Nano, and BMW are launching the X6, a new premium vehicle which utilises the Company's electronic torque vectoring technology.

- In July 2007, the Company announced that electronic torque vectoring hardware units, which allow individual wheel torque distribution, will be supplied to ZF for the 'Vector-Drive' rear axle. The system, which increases driving dynamics and safety reserves of all wheel drive and rear wheel drive vehicles, is planned for volume application in future BMW models.

- In August 2007, the Company announced that the new power transfer unit, which provides full-time or on-demand torque distribution for front wheel drive based all wheel drive vehicles, will be used on a sports utility model due for launch in 2009. The contract builds on the Company's existing commercial and engineering links with Chery, one of the world's fastest growing car manufacturers.

- In December 2007, the Company announced that GKN Driveline supplies lightweight, ultra low-cost driveshafts to the Tata Nano will sell for 100,000 rupees or 1,300 pounds. The Tata Group, one of India's leading automotive manufacturers, will initially produce about 250,000 Nanos and expects annual demand to reach one million cars.

Restructuring & Realignment

During 2007 the Company continued to deploy its strategic restructuring program, first announced in March 2004, that involves the migration of Driveline production capacity from high cost to low cost/high growth economies, actions in support of the recovery in Powder Metallurgy and the realignment and reduction of production capacity, overhead and infrastructure costs in other areas of the business.

- The closure of GKN Sheepbridge Stokes Ltd, the UK cylinder liner business was announced in January 2007 and production ceased at the end of the third quarter.


R&D Expenditure
Driveline Dvision:
- GKN Driveline spent 57 million pounds in the year on research and development.
- In GKN Driveshafts there has been continued development of crosstrack(TM) and countertrack(TM) technology for mature markets and low cost joints for specific applications (such as the Tata Nano, launched in India in early 2008) in emerging markets.

Powder Metallurgy:
- Research and development activities continued to be focused on increasing density and improving surface finish which has led to a number of new applications for gear components in diesel engines and transmissions. A number of potential applications are being explored with automotive VMs which will increase the powder metallurgy content of automatic transmissions.

Product Development
In GKN Driveshafts there has been continued development of crosstrack(TM); and countertrack(TM); technology for mature markets and low cost joints for specific applications (such as the Tata Nano, launched in India in early 2008) in emerging markets.

Countertrack(TM);, which is used in fixed CVJ applications, offers reduced size, weight and CO2 emissions. Firm agreements have been reached with seven vehicle manufacturers to supply countertrack邃「 joints for up to 4 million vehicles (at annualised rates) with the first of these entering production in 2008.
Crosstrack(TM); offers improved NVH (noise, vibration and harshness) characteristics as well as lower weight, and negotiations are at an advanced stage with a leading European vehicle manufacturer.

Technological Alliance
GKN Driveline announced on December 17 that it and ZF, a German auto parts production company, have agreed to jointly develop, manufacture, and market rear-axle torque vectoring systems for rear and all-wheel-drive vehicles. The first production application is planned for BMW and the two companies aim to win business from a wide range of customers leveraging this project. The basic system under development provides a high level of driving performance and safety technology. It includes two electrically-controlled torque vectoring units flanged to the final drive. The motors in the vectoring units are controlled by a central car electronic control unit. The Company will manufacture and supply torque vectoring hardware units to ZF, which is responsible for final system assembly, the supply of electric motors, and the testing of end-of-line units. (From a story in the Nikkan Jidosha Shimbun on Dec. 18 2007)

Investment Activities

Capital Expenditure

in million pounds FY2007 FY2006 FY2005 FY2004
Expenditure 192 197



-Capital expenditure (on tangible and intangible assets) totalled 192 million pounds(2006 - 230 million pounds). Of this, 172 million pounds(2006 - 197 million pounds) was on tangible assets representing property, plant and equipment and was 1.2 times (2006 - 1.4 times) the charge for depreciation. The ratio of capital expenditure to depreciation is expected to reduce slightly in 2008.

Overseas Investments


In May 2007, the Company announced that GKN Driveline is to expand its presence in India by building a new factory for the manufacture of sideshafts, including a state-of-the-art test center, near Chennai. GKN Driveline will invest nearly $27.9 million (14 million pounds Sterling) in the new plant that will go into production at the beginning of 2008 -- it will have a capacity of 600,000 vehicle sets. The new facility will expand GKN Driveline's capability in Southern India and position the company to meet the rapid growth of the Indian car market. GKN Driveline currently employs 450 people in three factories in India: Faridabad and Dharuhera, near Delhi in the north, and Gummidipoondi, near Chennai, in the south. (From a press release on May 9 2007)


In May 2007, Production of the first powdered metal components at GKN Sinter Metals窶 wholly owned operation in Danyang, near Shanghai, commenced. The new facility will support production for a series of new business wins in the region, including the manufacture of connecting rods on a new range of engines for Chery, China窶冱 largest independent car maker.

In July 2007, Work began on the construction of a new facility in Chivilcoy, near Buenos Aires, to support the anticipated high growth in demand for powder metal components in South America. The new plant, which will provide over 10,000 square metres of space, will help to position GKN Sinter Metals as a major player in the water/oil pump and powder metal shock absorber business and to become a key employer in the area.