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5. GKN Plc Business Report FY ended Dec. 2016

GKN Plc Business Report FY ended Dec. 2016

Financial Overview

(in million GBP)

Factors
1) Net Sales
-The Company’s sales in the fiscal year ended December 31, 2016, increased by 22.0% over the previous year to GBP 8,822 million. Primary drivers of the increase in sales came from positive currency translation effects as well as growth due to acquisitions. Overall, the Company also experienced organic growth of 2% compared to the previous year, with GKN Driveline and GKN Aerospace providing strong performances.

2)Operating Profit
-The Company had an operating profit of GBP 335 million in the fiscal year ended December 31, 2016, an increase of 3.7% over the previous year. Gains caused by positive currency translation effects and acquisitions were partially offset by a decrease in organic operating profit. The decrease in organic profit was primarily a result of a one-time company restructuring charge.

3)GKN Driveline sales
-In the fiscal year ended December 31, 2016, the Company’s GKN Driveline division had sales of GBP 4,216 million, an increase of 18.8% over the previous year. Sales in the division benefited from both an increase in organic sales as well as positive currency translation effects. The division had strong increases in sales in Europe, due to market share gains and strong sales to FCA, Volvo and Daimler. The division’s operations in North America also demonstrated growth due to strong AWD programs. These gains were partially offset by sales decreases in China, from lower exposure to domestic automakers and the prevalence of smaller vehicles.
-Sales by product group: CVJ Systems 61％, AWD Systems 32％, Transaxle solutions 6％, eDrive systems 1％
-Sales by region of origin: Europe 37％, North America 33％, China 12％, Japan 7％, South America 3％, India ２％
-Sales by customer: FCA 13%, VW Group 12%, Ford 11%, GM Group 10％, Renault Nissan 9％, Toyota Group 7％, Tata Group 5%, BMW Group 4%, Geely Group 4％, Other 25％

4) GKN Powder Metallurgy sales
-Sales of the GKN Powder Metallurgy division increased by 13.9% in the fiscal year ended December 31, 2016 to GBP 1,032 million. While organic sales in the division were flat, the division benefited from positive currency translation effects as well as the acquisition of a majority share in a powder manufacturer in China. The division achieved growth in China, Europe and Brazil, but sales in North America decreased due to weaker demand from the division’s largest automotive customer.
-Sales by Customer: Ford ９％, GM Group 8%, Shaeffler 5%, FCA 4%, Hilite 4%, ZF Group 4%, Linamar 3%, BorgWarner 3%, Bosch 2%, Others 58%

Contracts

-The Company won around GBP 1 billion new and replacement business in sideshafts and AWD products in 2016.

-The Company will supply eAxle technology for a plug-in hybrid version of the BMW X1 on the Chinese market. The system will be supplied from the Company’s facility in Bruneck, Italy, but application and development work for the technology was conducted by its operations in Shanghai, China.(From a press release on November 28, 2016)

-Rising global demand for vehicles with hybrid electric all-wheel drive (eAWD) has helped the GKN Driveline division's electric axle (eAxle) technology achieve a landmark production figure. More than 300,000 eAxle units have been produced at GKN's eDrive centers of excellence in Italy and Japan. Vehicles that feature GKN eDrive technology include the Volvo XC90 and S90, Mitsubishi Outlander, BMW 2 Series Active Tourer, BMW i8 and Porsche 918 Spyder. (From a press release on June 27, 2016)

-The GKN Driveline division has launched its new electric axle drive (eAxle) technology for C-segment vehicles to offer consumers the option of plug-in electric all-wheel drive capabilities. The Company has secured orders for a major global platform and production is now underway at the Company's production facility in Bruneck, Italy. The first application is the BMW 2 Series Active Tourer PHEV. The new electric axle drive has been optimized for compact car applications. The lightweight single-speed design has a transmission ratio of 12.5:1, reducing the electric motor speed in two stages. The system generates up to 2,000 Nm of additional torque and 70 kW of additional power. The entire unit weighs just 20.2 kg and has a length of 457 mm, a width of 229 mm and a height of 259 mm. (From a press release on May 24, 2016)

-The GKN Driveline division’s new lightweight VL3 constant velocity joint (CVJ) system, which enables rear-wheel drive platforms to save more than 4 kg of weight, has been selected by BMW to launch on the all-new 7 Series. The new VL3 constant velocity joint increases torque capacity by up to 27% with no increase in packaging size. Available in four sizes, automakers alternatively have the choice of maintaining torque capacity but reducing package size by approximately 10%. (From a press release on January 27, 2016)

R&D Expenditure

(in million GBP)

R&D Facilities

-The Company’s GKN Driveline division completed construction on a state-of-the-art research and development facility in Shanghai, China.

-The GKN Driveline division has four global technology centers and ten technology centers of excellence.

-GKN Powder Metallurgy has a central research and development center in Radevormwald, Germany. The center is supported by two regional facilities in the U.S., in Auburn Hills, Michigan, and Cinnaminson, New Jersey.

R&D Structure

-The Company will increase the number of engineers working on the development of its electric drive system (eDrive) by 50% to 100 by 2020. About 30% of the new engineers will be stationed in Japan, making it one of the Company's bases for electric drive technology development. The need for electric drive systems is growing globally as electric-powered vehicles are expected to gain widespread use. The Company will focus on development of eDrive Systems, which are projected to see growth in demand, as orders of these systems will promote sales of the Company's flagship constant velocity joints (CVJs). Japan has a key role in eDrive development as development of eTransmissions and other technologies take place in the country. (From an article in the Nikkan Jidosha Shimbun on March 22, 2016)

Product Development

Intelligent electromagnetic AWD couplings
-The Company is developing a new intelligent electromagnetic all-wheel drive (AWD) coupling for SUVs and crossovers that will help make AWD vehicles more responsive and controllable on low-friction surfaces in low temperatures. The fourth generation of the Company's Electro-Magnetic Control Device (EMCD) can generate 90% of the target torque in less than 100 milliseconds when slip reaches just 3 revolutions per minute. The technology is expected to enter production in 2018. (From a press release on October 25, 2016)

eAxle for C-segment vehicles
-The GKN Driveline division is transferring hybrid technology from sports cars such as the Porsche 918 Spyder and BMW i8 into affordable compact vehicles. The Company has developed an eAxle module that will enable C-segment vehicles to offer buyers a plug-in hybrid option with improved performance and a reduction in CO2 emissions of more than 50%. The new eAxle is an evolution of the system GKN designed for the Porsche 918 Spyder. A typical C-segment plug-in hybrid could now have an engine output of around 100 kW, with an eAxle supplying an additional 65 kW of electrical power. The eAxle can improve 0-100 kph acceleration times by several seconds, provide a useable pure electric range and reduce a vehicle's CO2 emission rating to less than 50 g/km. (From a press release on March 14, 2016)

New torque-vectoring electric drive system
-The Company announced that automakers are testing its new torque-vectoring electric drive system. The ‘eTwinster’ technology is part of a range of new hybrid electric technologies that the Company is showcasing to customers at its Wintertest proving ground in Arjeplog, Northern Sweden. The eTwinster is a plug-in hybrid module that makes it simpler for vehicle platforms to offer electric all-wheel drive and torque vectoring capabilities. (From a press release on February 18, 2016)

Capital Expenditure

(in million GBP)

Investments outside UK

-The Company’s GKN Driveline division announced it will invest USD 179 million to expand its manufacturing facilities in Alamance, Catawba, Lee and Person counties in North Carolina. The investment will occur over the next five years and create 302 jobs. The expansion will support growing AWD and eDrive business for several North American OEMs. North American AWD system annual sales are projected to reach more than 3 million units in 2020. (From a press release on December 20, 2016)

-The Company’s GKN Sinter Metals division announced plans to expand its operations in Indiana. The company will invest more than USD 6.9 million to update equipment and renovate its current 220,000-square-foot facility in Salem, Indiana. The new equipment will allow the company to increase production of its eight-speed and ten-speed transmissions for the automotive industry. The first round of new equipment was installed this year, with the second phase scheduled to begin in 2017. The Indiana facility produces automotive engine and transmission parts for Ford, General Motors, FCA, Allison Transmissions, Toyota, Honda, and Mazda. (from an Indiana Economic development release from August 17, 2016)

-The Company’s GKN Driveline division announced that its Chinese joint venture, Shanghai GKN HUAYU Driveline Systems (SDS), has added five new all-wheel drive (AWD) production lines across two of its facilities in Shanghai. The investment more than doubles the company's AWD production capacity in China, with the new lines focusing on the manufacture of power transfer units (PTU) and rear drive modules (RDM). The Company successfully localized production of PTUs and RDMs for Jaguar Land Rover models last year, including the Range Rover Evoque and Land Rover Discovery Sport, with a number of localization projects due to start production for a range of manufacturers over the next two years. (From a press release on July 27, 2016)

-Hoeganaes, part of GKN Powder Metallurgy, is starting production of high quality automotive-grade powders in China for the Asian market. Under the joint venture agreement with Chinese partner Bazhou Hongsheng Industrial Company Ltd, GKN Powder Metallurgy will have a majority share in the manufacturing facility located in Bazhou City, Hebei, China. The 24,600-square-meter plant has been in operation since 2009 and will expand its product line to produce GKN Hoeganaes international grade powders for use in automotive and industrial applications. (From a press release on April 25, 2016)

-The Company’s GKN Driveline division is set to commence production at a new facility in Olesnica, Poland. The new 14,280-square-meter facility is the first phase of a EUR 16.5 million investment program in Olesnica and effectively doubles the Company's footprint in Poland. It will help meet increasing demand in the region for more advanced sideshafts and propshafts. GKN Driveline Olesnica will supply driveline technologies to global platforms produced by Mercedes-Benz, Volkswagen Group, FCA, GM and Volvo, amongst others. When fully operational, the plant will have the capacity to produce over 10 million sideshafts and one million propshafts per year. A new engineering facility employing around 50 engineers at the site will also provide testing and application engineering support for customer programs. The Company currently employs around 1,000 people in Poland. As production increases in Olesnica, employment is expected to reach 1,400 employees over the next three to four years. Future expansion plans include the addition of new forging capacity. (From a press release on July 4, 2016)

-The Company’s GKN Driveline division announced that it has started production at its new manufacturing facility in Villagran in the state of Guanajuato, Mexico. The new USD 17.5 million facility will serve Mexico‘s automotive sector and the growing local and global demand for all-wheel drive (AWD) vehicles. The 12,000-square-meter site is GKN Driveline’s second plant in Villagran. The facility is producing a new type of higher performance propshaft, the GKN VLi. Customers include Audi, BMW, Fiat Chrysler Automobiles, Ford, Honda, Mazda, Nissan and Volkswagen. At full capacity, the plant will produce more than one million propshafts a year and will employ 380 people. It also houses new constant velocity joint machining facilities, as well as a new propshaft painting line. (From a press release on May 10, 2016)