GKN Powder Metallurgy has reported a ‘satisfactory’ first half of 2023, with improving trends throughout the period and adjusted revenues of £545 million, some 2% higher than 2022 on a constant currency basis. This reflected 1% lower year-on-year volumes, which were reportedly impacted by the accelerating EV transition, operational issues in the US, exiting poor margin business, and the closure of a facility in 2022. However, these were reportedly more than offset by price increases to recover from inflation.
In the period, adjusted operating profit was £50 million, with a margin of 9.2%, compared to 10.5% for the same period in 2022. The decline in margin is attributed, in part, to a positive one-off cost related to equipment downtime at a US plant, which has now been resolved.
From a commercial perspective, GKN Powder Metallurgy had a successful first half of the year, securing new business wins and forecasting a 36% year-on-year increase in peak annual revenues (which the company has stated that it considers to be the most suitable metric). These wins were valued at approximately 75% of propulsion-agnostic product groups, a significant increase from the prior year. This confirms that the new products developed over recent years are gaining commercial traction.
The business has made significant progress in transitioning to its EV portfolio. It has secured new contracts to supply several EV-specific products, including iron powder for use in lithium ferrophosphate (LFP) batteries and sintered metal gears for differentials used in EVs. The differential gears award represents the single largest order ever won by GKN Powder Metallurgy, with production due to commence in 2025.
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During 2023, Powder Metallurgy gained momentum in the development of permanent magnets for electric motors. The company achieved a significant milestone during this period by reaching its first commercial agreement for the production of magnets with a global Tier 1 automotive customer. As a key component of its strategy to manage the transition to electric vehicles, Powder Metallurgy’s growth in magnets continues to attract significant interest from multiple customers, including both OEMs and tier suppliers, who wish to de-risk their supply chains for these critical components. The company is currently in commercial negotiations and advanced technical qualifications with several other potential customers.
In addition, the business is said to have accelerated technical development and is well-positioned to gain a significant foothold in this rapidly growing market, with the recent agreement validating its approach. The company has established innovation centres for permanent magnets in both Europe and North America, with both facilities currently producing sample quantities of magnets for customers. Furthermore, a low-scale production line capable of producing up to 400 tons of permanent magnets per year is under construction and is expected to be operational in Q1 2025. Appropriate investment in full-scale production facilities will reportedly be considered when demand reaches the required threshold. The company is also establishing its supply chains for the raw materials and industrial equipment required for this new segment.
While mindful of the required financial returns, the company’s board views the longer-term outlook and potential shareholder returns as exciting, and will continue to assess this opportunity.
GKN Powder Metallurgy is expected to fully offset inflation this year, as it did in 2022. The company is also achieving significant growth in its order book and making important commercial progress in its transition to an EV portfolio. As inflationary pressures ease and energy and commodity prices normalize, surcharge revenue will adjust accordingly in the second half of the year. The business is highly focused on continuing its recent operational performance and accelerating its EV transition strategy. It has a clear pathway to long-term growth and margin expansion.