| |
| $ million, unless otherwise stated |
2009 |
2008 |
 |
|
|
| Sales: |
|
|
| – Power Transmission |
1,763.4 |
2,125.2 |
| – Fluid Power |
588.7 |
832.3 |
| – Sensors & Valves |
313.6 |
421.0 |
| – Other Industrial & Automotive |
463.4 |
602.1 |
|
|
|
| |
3,129.1 |
3,980.6 |
|
|
|
| |
|
|
| Adjusted operating profit |
226.1 |
349.4 |
| Adjusted operating margin |
7.2% |
8.8% |
| Operating profit |
130.5 |
27.7 |
| Cash conversion |
177.6% |
109.0% |
| Net capital expenditure : depreciation |
0.7x |
0.9x |
|
|
|
Market background
The industrial markets accounted for 38% of I&A’s sales in 2009, with 18% to the industrial OE market and 20% to the industrial replacement market.
US industrial production, as measured by the US Federal Reserve Industrial Production index, was down on average 10% in 2009 compared with 2008. The industrial OE and industrial replacement markets were down around 25-35%, due to a combination of declining end customer demand and destocking. In the second half of the year, the markets began to stabilise, with some limited growth, particularly in the industrial replacement markets as demand improved and destocking eased. The European market followed a similar trend, with industrial production down 14%. Following a tough start to 2009, Asia continued to grow, particularly in China, where industrial production was up 12% in 2009. Japan performed poorly, with machine orders down 32% in 2009. Sales to the industrial markets in North America, Europe and Asia respectively accounted for 63%, 16% and 12% of I&A’s industrial sales in 2009.
The North American automotive aftermarket, which comprised 17% of I&A’s sales in 2009, remained broadly flat compared with 2008, assisted by lower gasoline prices in the US and marginally higher car usage (as measured by the US Department of Transport in terms of miles driven). A similar trend was seen in the European and Asian markets.
In the automotive OE market, which accounted for 30% of I&A’s sales, volumes in the first half of 2009 were affected by extended plant shutdowns and consumer concerns over the viability of some automotive companies, particularly General Motors and Chrysler, who both filed for Chapter 11 protection (the recoverability of the Group’s receivables due from these companies was not affected by these filings). Automotive production was down around 30% globally in the first half of 2009 compared to 2008, with volumes in North America down approximately 50% and volumes in Europe down around 34%. Government stimulus plans mitigated the impact of the decline, particularly in Europe and Asia, where the stimulus plans ran for the majority of 2009. In the second half the year, production levels increased compared with the first half, with global volumes up 26%, North American volumes up 46% and European volumes up 13% due to lower inventory levels and higher demand.
Power Transmission
| $ million, unless otherwise stated |
2009 |
2008 |
Change
% |
|
|
|
|
| Sales |
1,763.4 |
2,125.2 |
(17.0) |
| Adjusted operating profit |
212.4 |
228.1 |
(6.9) |
| Adjusted operating margin |
12.0% |
10.7% |
|
| Operating profit/(loss) |
143.0 |
(70.6) |
|
|
|
|
|
Sales were $1,763.4 million (2008: $2,125.2 million), a decline of 17.0%. Sales fell $150.6 million due to exchange rate changes. Sales declined by $211.2 million, or 10.7%, on an underlying basis. Sales fell principally as a result of lower volumes in most of Power Transmission’s end markets in the regions in which it operates. Notable exceptions were China, which performed well in the year, showing double digit percentage growth, and the Gates automotive aftermarket business (38% of Power Transmission’s sales in 2009), which continued to demonstrate its resilience. Sales to the industrial OE and replacement markets (23% of Power Transmission’s sales in 2009) declined by 28%.
Sales to the automotive OE market (39% of Power Transmission’s sales in 2009) were down by around 20%, driven by lower automotive production levels, particularly in North America and Europe.
Approximately 40% of Power Transmission’s sales in 2009 were to North America, 30% to Europe and 30% to the rest of the world.
Operating profit was $143.0 million (2008: loss of $70.6 million) and included restructuring costs of $75.6 million (2008: $13.8 million), impairments of $23.2 million (2008: $284.6 million) and, in 2009, a gain on the amendment of post-employment benefits of $29.7 million. Restructuring costs recognised in 2009 principally related to the cessation of Power Transmission’s manufacturing operations in Aachen, Germany, and the closures of its powder metal facility in Mississauga, Ontario, scheduled for 2010, its pulley and tensioner facility in London, Ontario, and FormFlo in the UK. In 2008, restructuring costs primarily related to the closure of the manufacturing facility in Moncks Corner, South Carolina. Impairments recognised in 2009 arose as a consequence of restructuring initiatives. Impairments recognised in 2008 principally related to the goodwill allocated to Stackpole ($157.2 million) and Gates Mectrol ($37.4 million), which was written off in its entirety, and Stackpole’s property, plant and equipment, which was written down by $65.9 million, and there were other impairments of property, plant and equipment totalling $24.1 million.
Adjusted operating profit was $212.4 million (2008: $228.1 million), a decline of 6.9%, which was largely due to exchange rate changes. Adjusted operating profit was $1.3 million, or 0.6%, lower on an underlying basis, mainly due to lower volumes in the first half of 2009. In the second half of the year, the increasing benefit from restructuring initiatives, combined with higher volumes in the automotive OE and industrial replacement markets enabled the adjusted operating margin to grow from 10.2% in the first half to 13.6% in the second half of 2009. Overall, the adjusted operating margin increased to 12.0% in 2009, compared with 10.7% in 2008.
In 2009, construction of a new oil pump and tensioner facility commenced in Turkey. The facility is expected to be in production in the second quarter of 2010.
Power Transmission’s restructuring initiatives associated with projects Eagle and Cheetah are substantially complete, with two remaining plants due for closure in 2010: one in Germany and the other in Canada. In 2009, four plants were closed: three in North America and one in Europe.
New contract wins in the automotive OE market totalled $84.9 million, with 62% of these relating to the Asian and European markets.
Fluid Power
| $ million, unless otherwise stated |
2009 |
2008 |
Change
% |
|
|
|
|
| Sales |
588.7 |
832.3 |
(29.3) |
| Adjusted operating (loss)/profit |
(11.8) |
46.2 |
(125.5) |
| Adjusted operating margin |
(2.0)% |
5.6% |
|
| Operating (loss)/profit |
(22.8) |
29.0 |
|
|
|
|
|
Sales were $588.7 million (2008: $832.3 million), a decline of 29.3%. Sales fell $34.1 million due to exchange rate changes but recent acquisitions in Gates E&S increased sales by $14.2 million compared with 2008. Sales were down $223.7 million, or 28.0%, on an underlying basis. Sales to the industrial OE market (27% of Fluid Power’s sales in 2009) were down 46% compared with 2008 due to continued destocking and lack of credit affecting end customer demand. Sales to the industrial replacement market were down 24%. Sales to the automotive aftermarket (23% of Fluid Power’s sales in 2009) were down 9%. Overall, sales increased by 8.8% in the second half of 2009 compared with the first half, due to more stable volumes and a reduction in customer destocking.
Approximately 60% of Fluid Power’s sales in 2009 were to North America, 15% to Europe and 25% to the rest of the world.
An operating loss of $22.8 million was incurred in 2009 (2008: profit of $29.0 million), which included restructuring costs of $26.0 million (2008: $1.9 million), impairments of $12.5 million (2008: $11.7 million) and, in 2009, a gain on the amendment of post-employment benefits of $31.4 million. Restructuring costs recognised in 2009 principally related to the cessation of Fluid Power’s hose manufacturing activities in Erembodegem, Belgium and the substantial closure of its assembly facility in St. Neots, UK. Impairments recognised in 2009 arose as a consequence of restructuring initiatives. Impairments recognised in 2008 related to the property, plant and equipment of certain of Fluid Power’s businesses in Europe. In 2009, the amortisation of intangible assets arising on acquisitions was $3.9 million (2008: $3.6 million).
Fluid Power’s adjusted operating loss was $11.8 million (2008: profit of $46.2 million), a decline of 125.5% due to the significant reduction in sales volumes and initiatives to reduce inventory levels, particularly in the first half of 2009. Fluid Power’s adjusted operating loss was $8.5 million in the first half of 2009, but only $3.3 million in the second half as a result of increased sales volumes and the benefits of our restructuring initiatives. In 2009, the adjusted operating margin was (2.0)% (2008: 5.6%).
Restructuring initiatives associated with projects Eagle and Cheetah were substantially completed during 2009, with three plants closed in North America and Europe. The closure of the plant in Rockford, Illinois, is planned for the second half of 2010. Fluid Power’s new plant in Changzhou, China, was completed in 2009 and is now operational, selling locally and also to the European market.
Our Gates E&S business, which serves mainly the oil and gas and marine sectors, was adversely impacted by the softening economy in the UAE, in particular Dubai, and weaker capital expenditure in the oil and gas sector across the Middle East. The acquisition of Hydrolink, which provides additional fluid engineering services capability, brings the total number of Gates E&S’s locations to 34 in 14 countries, with total annualised sales of approximately $100 million. A new service centre was opened in Turkey during 2009 and more are under development in the UAE, Brazil and China.
Sensors & Valves
| $ million, unless otherwise stated |
2009 |
2008 |
Change
% |
|
|
|
|
| Sales |
313.6 |
421.0 |
(25.5) |
| Adjusted operating profit |
0.1 |
29.6 |
(99.7) |
| Adjusted operating margin |
Nil |
7.0% |
|
| Operating (loss)/profit |
(3.5) |
27.7 |
|
|
|
|
|
Sensors & Valves includes the Schrader Electronics and Schrader International businesses.
Sales were $313.6 million (2008: $421.0 million), a decline of 25.5%. Sales fell by $42.8 million due to exchange rate changes. Sales were down $64.6 million, or 17.1%, on an underlying basis. Sales fell principally as a result of lower volumes in the automotive OE market (74% of Sensors & Valves’ sales in 2009). Schrader International’s industrial and automotive aftermarket business, which accounts for the remainder of Sensors & Valves’ sales, was affected by low customer demand and declined compared with 2008.
Approximately 60% of Sensors & Valves’ sales in 2009 were to the North American market.
Schrader Electronics won new business at Ford for TPMS, accounting for sales of around $20 million, and secured sole supplier status to Mercedes until 2016. Supply of TPMS to Mahindra & Mahindra commenced in the fourth quarter of 2009, extending Schrader Electronics’ sales in developing regions.
An operating loss of $3.5 million was incurred in 2009 (2008: profit of $27.7 million), which included restructuring costs of $3.2 million (2008: $0.2 million) and, in 2008, impairments of $1.1 million.
Adjusted operating profit was $0.1 million (2008: $29.6 million). Adjusted operating profit fell by $4.0 million due to exchange rate changes. Adjusted operating profit was $25.5 million, or 99.6%, lower on an underlying basis. Adjusted operating profit declined principally due to lower sales volumes. Rigorous expense management helped to mitigate some of this impact and, combined with higher sales volumes in the second half of the year, enabled the business to return to profit in the second half of the year and break even for 2009 as a whole on an adjusted basis. In 2009, the adjusted operating margin was nil (2008: 7.0%).
In Europe, legislation was passed that requires TPMS to be fitted on certain vehicles sold from 2014 and new models introduced from 2012, which is expected to double the size of the market for TPMS. Schrader Electronics is well-placed to take advantage of this opportunity and continues to work closely with European vehicle manufacturers. Further opportunities exist in Japan, Korea and China, where governments are exploring the possibility of introducing similar legislation.
Other Industrial & Automotive
| $ million, unless otherwise stated |
2009 |
2008 |
Change
% |
|
|
|
|
| Sales |
463.4 |
602.1 |
(23.0) |
| Adjusted operating profit |
25.4 |
45.5 |
(44.2) |
| Adjusted operating margin |
5.5% |
7.6% |
|
| Operating profit |
13.8 |
41.6 |
|
|
|
|
|
Other I&A includes the Dexter, Ideal and Plews businesses.
Sales were $463.4 million (2008: $602.1 million), a decline of 23.0%. Sales fell $4.5 million due to exchange rate changes. Sales were down $134.2 million, or 22.5%, on an underlying basis. The industrial and recreational vehicle markets (approximately 80% of Other I&A’s sales in 2009), continued to decline due to the low level of industrial activity, particularly at Dexter, where the utility trailer and recreational vehicle markets were down around 30% in 2009. Sales to the automotive aftermarket (19% of Other I&A’s sales in 2009) declined because of low customer demand for Plews’ products.
Operating profit was $13.8 million (2008: $41.6 million) including restructuring costs of $12.2 million (2008: $3.2 million) and, in 2009, impairments of $0.7 million and a gain on the amendment of post-employment benefits of $1.7 million. Restructuring costs recognised in 2009 principally related to the closure of Ideal’s manufacturing facility at St. Augustine, Florida and the rationalisation of Dexter’s manufacturing facilities.
Adjusted operating profit was $25.4 million (2008: $45.5 million), a decline of 44.2% due to significantly reduced sales volumes, particularly in the first half of the year, though this was partially offset by restructuring initiatives. In 2009, the adjusted operating margin was 5.5% (2008: 7.6%).
|
|
