Mr. Beresford: GKN is a focused global engineering group. We have sales of around £4.3 billion and employ around 55,000 people including those in joint ventures. We are a truly global business. We operate in over 30 countries and our largest automotive component business, which is our driveline business, actually manufactures throughout the world in 22 different territories; every major territory where people build cars, with the exception of Russia. What distinguishes GKN from a lot of its peers is the strength of the market positions that it enjoys in its four major businesses and the technology that underpins those.
TWST: Can we run through those business lines?
Mr. Beresford: Our driveline business manufactures constant velocity joints and drive shafts, or side shafts as they are also known, where we have a 42% global market share. The business splits 53% Europe, 30% Americas and 17% the rest of the world. We are the largest single player in the market for drive shafts and constant velocity joints. Our next largest independent competitor is NTN of Japan. Twenty six percent of the market is actually still in-house with the vehicle manufacturers. Our strategy for driveline is fundamentally an organic strategy. It’s essentially an organic growth business and that organic growth is being driven by a number of components. Firstly, the continued growth of four-wheel drive vehicles where the market is growing at about twice the rate of the global auto market. As the trend is for more and more sophisticated four-wheel drive vehicles, our content is sometimes nearly treble that for a conventional, front-wheel drive vehicle because in addition to more constant velocity jointed drive shafts we are also fitting constant velocity jointed propeller shafts. That’s a major source of growth for us.
The next source of growth is in emerging markets where our investment over a very long period, has established facilities in most of those markets. Our share of those markets is actually higher than our global norm and they are outgrowing the base global vehicle production market with growth rates of around 8% or 9% per annum. We benefit disproportionately from that growth.
A further source of growth is outsourcing where we have built something of a reputation and acquired the in-house driveline production of Fiat, Opel and Nissan which are now part and parcel of our business. That’s a process which we see continuing. It’s difficult to put a timeframe on that because the timing is very much in the vehicle manufacturer’s hands. If you ask most of them today then the majority would say that at some point in the future they believe their best interest would lie in outsourcing their in-house production. We think we’re well-placed to acquire that when it becomes available.
Then finally in the driveline business we have recently entered the torque management market in conjunction with Tochigi Fuji Sangyo – they’re known as TFS - of Japan. We acquired 33% of TFS with the right to take control at a later date. Together we are the leaders in torque management. We see the increasing application of torque management to the more high performance four-wheel drive vehicles.
So that’s the driveline business and that’s some 42% of the group by revenue.
Our next largest and the next most important automotive business is in powder metallurgy where again we are the world leader with a 16% market share. That 16% is the largest market share of what is a very fragmented market - the next largest player has around 4% - so we have a four to one relative advantage.
Powder metallurgy is a business that is driven essentially by substitution as the technology of powder metallurgy improves. We are unusual and probably the only major player who is involved both in powder production and in powder parts manufacture. We believe that our involvement in both areas will allow us to move that technology ahead further and faster than our competitors. The trick is to get closer and closer to the density and therefore, the strength and surface finished properties of solid cast or forged steel. As technology improves, so more and more components become capable of substitution with powder metal. The trick of powder metal is that it allows you to make, in one hit as it were, the near-finished shape of the final component. That market has been growing at 6% per annum for some time. We believe that it will continue to grow and as the market leader we should share in that growth if not outpace it. There may also be a little bit more consolidation to go for should we want to.
We then have another two or three smaller automotive businesses involved in markets such as off highway wheels and transmissions, automotive structures and cylinder liners.
We have two core businesses in aerospace. The first is AgustaWestland which we believe is now the world number one helicopter company by disclosed revenues. Boeing don’t actually published separate helicopter revenues, but we think that AgustaWestland is probably slightly ahead of them which could therefore make us the world’s largest. This is a joint venture with, Finmeccanica of Italy where we put together our two helicopter subsidiaries Westland and Agusta in early 2001. With that combination we now have a very broad product range at the professional end of the market. We don’t make anything under two tons and go right up to 15 ton utility and maritime helicopters. It’s a largely military business, something between 80% and 90% and we are looking at significant growth opportunities in the military field, particularly in the Unites States. We are also the front runners for a significant programme in Japan and there are a number of substantial European opportunities also ahead of us. We have a very strong order book of some £5 billion. We have a very good installed base of some 7000 helicopters in over 80 countries; again a really important global business with what looks like a favorable set of opportunities ahead of it.
We also have our wholly owned Aerospace Services which is an aerospace structures business where we focus on composites and light metal structures, again principally for the military sector. This year it is close to 70% military. In a year when the civil markets are stronger, it might be 60:40. But it is strongly focused on the military and strongly focused on the United States. As you may know we bought Boeing’s St. Louis structures plant and we have major plants in Alabama and California as well as other smaller facilities on the East and West coast. Our major activity is the design and manufacture of complex composite and titanium components for the majority of US fighter and transport programs. To give you a feel for what we do, we make some US4.5 million per copy on the F22 Raptor, US3 million on the F18, US2.5 million on the F15 and something like US6.5 million on the C17 Transport. So again that’s looking like quite a good business at the moment.
There are substantial organic growth opportunities, particularly in composites whose use is growing very rapidly in airframes. To go back a bit, the original Boeing 7 series airliner family started life at 5% or 6% composite content. Today their Airbus equivalents have perhaps 12% to 15% composite content and the A380 so called Super Jumbo will have a composite content of somewhere around 30%. The next generation of Boeing civil aircraft will I am sure have a composite content at that sort of level and of course a number of small business aircraft are already there. So that composite market is growing at around 8% or 9% per annum and therefore offers us some pretty exciting growth. The last point of growth in that structures’ business is that rather like automotive companies said 10-12 years ago, the aerospace companies are saying to themselves, “Hey, we don’t need or want to manage these very complex vertically integrated supply chains any longer. We need to outsource and we need to set up a strong set of tier one suppliers.” We see the Boeing outsourcing as very much the first signs of that process, and again it’s a significant growth opportunity for GKN.
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