Hexagon - Annual Report 2005

Hexagon Polymers Advancing Market Position through Product Development The Hexagon Polymers business area is active in the product areas of gaskets for plate heat exchangers, plastic and rubber wheels, and rubber compounds as semi-finished products. 19HEXAGONANNUALREPORT20052004 MSEK 2005 (IFRS) 2003Order intake 2,213 1,669 889Net sales 2,205 1,615 873EBITA operating earnings 258 228 99Margin, % 12 14 11Average number of employees 1,691 1,542 1,076LarsOlofsson,PresidentofHexagonPolymersNetsalesin2005wereMSEK2,205,withanoperatingmarginof12percent. Hexagon Polymers is active in three product areas, gaskets for plate heat exchangers (PHE), plastic and rubber wheels, and rubber compounds. Primarily, its customers are major multi- national groups in Europe and North America. Hexagon Polymers also exports across most of the rest of the world, notably to Japan, Australia and India. Hexagon estimates that the business area is the world lead- er in the PHE product area, with two production facilities lo- cated in Sweden and Sri Lanka. Within plastic and rubber wheels, the business area is one of the world’s largest suppliers of wheels for truck and track drive applications. Production is at three facilities located in Sweden, the US and Sri Lanka. Hexagon also estimates that Hexagon Polymers is a world leader in the rubber compounds product area, with total an- nual capacity of 134,000 tons of rubber. Production is at six facilities in Sweden, Belgium, Germany, the Czech Republic, the US and Canada. MarketThe market for PHEs, wheels and rubber compounds product areas is global. Hexagon Polymers has chosen to focus on those geographical markets where it is strategically correct and possible to achieve market leadership. Being number one or two on the market in its three product areas is a prerequi- site for being able to develop long-term profitability and sus- tainable competitiveness. Progress on most geographical mar- kets was positive in 2005. Overall, demand in the year was at a high level. Gaskets (PHE) Demand in the PHE product area, when normally, the market expands by 4–5 per cent over a business cycle, exhibited stable demand with a robust increase in the need for larger plate heat exchangers. Hexagon Polymers’ strategy of combining volume produc- tion of gaskets in Sri Lanka and specialized production of high-cost material types such as silicon, hydrated nitrile and medium-volume runs in Sweden, is a cost-efficient and still- winning concept. Market leadership enables further develop- ment of the concept of closer customer collaborations within technology and logistics. In the PHE product area, there is a small cluster of estab- lished players in Europe and North America. WheelsDemand for wheels for indoor trucks was firm in the year. Market growth can now be considered as consistent with the healthy levels prevailing in the late 1990s, i.e. 5–6 per cent. In the rubber wheels segment, growth rates in the year were more restricted, primarily because of customers’ continued reloca- tion of production to China. In the Wheels product area, competition is still primarily from family businesses. Hexagon Polymers is one of the world’s largest players focusing exclusively on wheel produc- tion. Through its acquisition of the wheels division of Trostel SEG in the US, wheels are now being produced on three conti- nents: Sri Lanka in Asia, Sweden in Europe and Wisconsin, US in North America. The business area plans to start up in China in 2007, co-locating with the compounding plant currently under construction. Rubber CompoundsHexagon estimates that growth on the total global market for rubber compounds matched GDP in 2005, i.e. at 2–4 per cent. However, Hexagon Polymers’ market grew at a far higher rate thanks to its customers continuing to outsource production of rubber compounds in the year. Two trends were particularly clear in the Rubber Compounds product area: very sharp raw materials price-hikes and continued relocation of production to low-cost countries. Hexagon’s ability to offer a global concept is a great strength against local or regional competitors, reflected par- ticularly in customer wishes for further expansion in countries like Mexico and India. Competition in the rubber compounds product area con- sists of other rubber compounding companies, but first and foremost, Hexagon’s customers’ own compounding opera- tions. Ther - rubber com