The Power of Powder
“ Metal powder offers entirely new possibilities to create more effective , lighter products with a reduced environmental impact”
H ö g an äs A B A nn ua l R ep or t 2 00 8
Höganäs AB (publ)
263 83 Höganäs, Sweden Tel +46 (0)42 33 80 00
Fax +46 (0)42 33 83 60
www.hoganas.com
The Power of Höganäs
Our vision We will push the limits of powder metallurgy.
Our strategy We will act innovatively to create new business opportunities.
We will be effective and goal oriented in efforts to increase our productivity.
We will create value by delivering solutions that make our customers, the world around us and ourselves winners.
Our soul We work actively on enhancing our skills.
We are courageous and conduct ourselves with integrity.
We show consideration in every dimension.
This is Höganäs 2
CEO's statement 4
The Power of Powder 6
Group summary 8
Sustainable development 10
The industry 13
Components business area 14
Case: Toyota 16
Case: SEM 17
Consumables business area 18
Human resources 20
Risk management 21
The share 24
Corporate governance 26
Board of Directors 28
Corporate Management 32
Financial information 35
Directors' Report 36
Appropriation of profits 40
Accounts and notes 41
Audit Report 85
Five-year summary,
quarterly data and definitions 86
Addresses 87
Agents 88
Contents
The year in brief
• First half-year—all-time high for sales volumes and earnings.
• Automatic redemption procedure results in a total of MSEK 740 including dividends being transferred to shareholders.
• Acquisition of Kobelco's iron powder business in North America.
• Consolidation of Brazilian operation—all activities co-located at the Mogi das Cruzes facility.
• Robust volume growth until the third quarter in Asia and South America, but sharp volume downturn across all regions in the fourth quarter.
• Personnel reduced by some 160 people to adapt production capacity and organisational resources to declining demand on the global market.
Group key indicators
2006 2007 2008
Net sales, MSEK 5,123 5,838 6,103
Operating margin, % 11.8 10.4 8.6
Income before tax, MSEK 525 562 483
Income after tax, MSEK 402 431 394
Equity/assets ratio, % 51.5 53.3 42.6
Return on capital employed, % 15.5 15.9 12.8
Earnings per share, SEK 11.54 12.39 11.31
Dividends, SEK 6.25 6.25 3.00
Average number of employees 1,579 1,563 1,589 Turnover and sales volume
MSEK Tons
0 1,750 3,500 5,250 7,000
2008 2007
2006 2005
2004 0
125,000 250,000 375,000 500,000
Turnover, MSEK Sales volumes, tons
T H i S i S H ö G A n ä S
From local coalminer to the world leader in metal powder
Höganäs AB was founded in 1797 to extract coal. In the early years, interest was focused on a clay bi-product, and the Company became a major Scandinavian producer of firebricks. In the early 20th century, Höganäs started to reduce iron ore into raw iron for foundries. In the post-war era, this product was refined into iron powder for component and welding electrode production. Now, Höganäs focuses exclusively on metal powder and its applications. By adopting an active role in development, Höganäs has succeeded in creating a world-leading position.
The core of our business
We make metal powder particles with a diameter of 0.1 mm—the thick- ness of a hair. We make them in different shapes, densities and sizes, and can coat their surfaces with nano-particles of plastic, ceramics or metals. This enables us to control their characteristics and tailor them for a range of applications.
Iron ore or scrap
Höganäs' refining processes
POWER OF POWDER Iron powder and high alloys EXCHANGE OF BEST PRACTICE
PARTNERSHIP
Value chain
Sophisticated production
Höganäs uses two main processes to produce metal powder.
The first uses direct reduction of iron ore, yielding iron sponge powder that is more porous than other metal powder. This is known as the Höganäs process, and is only conducted by very few producers worldwide. The powder has a broad application base: components , welding electrodes, toner carrier for photocopiers and as a food supplement .
The second process is based on metal scrap that is smelted. A jet of smelt is pulverised using gas or liquid injected at high pressure.
Depending on the alloy included, the process can yield anything from iron powder to low-alloy steel, to pure cobalt powder. This type of powder is used in a raft of applications like components, surface coatings and brazing.
Division of group turnover Components/Consumables
27%
73%
Components Consumables
Average number of employees by region
976 438
175
Europe Americas Asia
T H i S i S H ö G A n ä S
POWER OF POWDER
The powder is pressed by component manufacturers or used in powder form for surface coatings, water treatment, etc.
EXCHANGE OF BEST PRACTICE PARTNERSHIP
Lighter auto components, more efficient and environmental
engines , cheaper water filters, more efficient brazing
What is Höganäs' metal powder used for?
One of Höganäs' strengths is the extremely consistent quality and high performance of its metal powder. It is used in two main applications.
In the most common applications, the powder is pressed and moulded under high pressure into complete components used in engines, gearboxes, electric tools, household appliances, locks, lawnmowers and sewing machines.
Powder can also be utilised in powder form, in applications like additives for brazing or welding, as surface coatings or for water and air treatment.
Höganäs in figures
• 1,400 customers in 65 countries
• 500 patents in force
• Turnover: MSEK 6,103
• Income before tax: MSEK 483
• 1,589 employees
• Listed on NASDAQ OMX Stockholm Exchange since 1994
Höganäs around the world
Höganäs has 11 production units in 8 coun- tries across 4 continents, and sales offices and agents in 29 countries. Total production capacity is nearly half a million tons.
Division of sales
Automotive/other industries
42% 58%
Automotive Other industries
Sales by region
MSEK 2,396 MSEK 1,979
MSEK 1,728
Europe Americas Asia
C E O ’ S S TAT E M E n T
Höganäs in the value chain
Consumer
We are advancing our positions
2008 was a year of extremes—a record first half-year transformed into a record downturn in the fourth quarter. But for Höganäs, the year also brought significant advancement in our strategy of moving forward in the value chain.
Höganäs has been intensifying its work on advancing through the value chain for several years. Höganäs' future is not only about being a world leader in metal powder.
We also want to take on the role as the driver at the leading edge of advancing and extending the application of metal powder.
Un-tapped potential
We think metal powder has massive un- tapped potential, partly because powder technology itself remains fairly unknown, notably among designers. It is also linked to the fact that our sector is fairly small, with a lot of players that have been unable to work their way forward through the value chain with enough aggression. Many applications are also new, and early in their life-cycles.
Powder technology definitely deserves more prominent status as a creative aid to address the challenges many industries are struggling with. This should be viewed against the background of metal powder's characteristics as completely consistent with the accelerating 'green' trend now evident in nearly every sector.
From vision to reality
Höganäs has a clear vision about where and how metal powder can play a key role in the near future–and obviously, in the longer term. To realise this vision, and exploit business opportunities, Höganäs must assume a far clearer role in the value chain.
We aim to be the hub and force-field at the core of advancements in powder technology .
This requires us generally playing a more active role. In partnership with other players, we are mapping the opportuni- ties for new, promising and value-creating solutions based on powder metallurgy. We
can produce prototypes quickly that can be used to test and verify that solutions actu- ally work in practice.
This working method does not conflict with the current structure of our sector. If anything, we think that the closer and more concrete our collaborations with players right through the value chain, the more profitable deals are created, and thus, also profitable growth.
Breakthroughs that show the way We have been running a number of projects through several partnerships with far- sighted customers for a number of years, which are now starting to actualize successfully. 2008 saw breakthroughs on several of these projects.
We developed a high-strength powder material with a low content of the costly alloy metals, nickel and molybdenum.
Another project produced effective lubri- cants without zinc stearate additives, which emit heavy metals into nature when sintered.
In 2008, Hitachi introduced its new range of motors based on SMC technology, where Somaloy powder has very favour- able characteristics. The development work was based on a motor concept presented by Höganäs. These motors will be used both in Hitachi's own products and sold externally to other users.
Obviously, these successes reinforce our view that this working method is a route to success, and is reflected in the new busi- ness concept we have formulated that we will use to take Höganäs forward alongside our employees.
Highlights of 2008
We took a decisive decision last year to start a new application centre in Höganäs,
Value cr eation
Managing value OEM System vendors Customers
Höganäs Materials suppliers
“ We aim to be the hub
and force-field at the
core of advancements
in powder metallurgy.”
C E O ’ S S TAT E M E n T
Sweden. Called the Power of Powder Centre, it will integrate our expertise in a number of segments that we think have high development potential. The PoP Centre will also give us unique opportuni- ties to test new ideas and push the limits of powder metallurgy. The centre will be complete in spring 2009, and the necessary state-of-the-art equipment is already in place. We are convinced that with the PoP Centre, we will be able to help our custom- ers, and their customers, to develop new, promising applications that create value for everyone involved.
We reached an agreement with Kobelco, a subsidiary of Kobe Steel in the US, to take over its operations through our US subsidiary in mid-year. We have taken over Kobelco's product sales to its customers.
In tandem, we have also progressively mi- grated production to our facility, replacing Kobelco’s products with our iron powder offerings. This process went completely as planned and will conclude in spring 2009.
Accordingly, Höganäs will become a sup- plier of Kobelco's Japanese and American customers in the US, which further ad- vances our position on the US market.
We maintained our focus on the Brazilian market, co-locating all operations to our unit at Mogi das Cruzes near Sao Paulo in a new plant with higher capacity, housing all our production, technical support and sales. The aim is to achieve cost and production efficiency, and to be able to address the high growth in this region. We have a unique position in this continent, and are the only supplier with a full-range offering and resources at the leading edge of progress.
A year with an economic upturn and a downturn
Höganäs had a very strong first half- year 2008, with healthy volume growth, especially in Asia and North and South America. Combined with the impact of price increases, this contributed to Höganäs posting the best earnings in the Company's history in the first two quarters.
Despite an incipient recession that became clear after the summer, in the third quarter, Höganäs still succeeded in posting increased net sales and volume growth.
Third-quarter earnings were also high–up
17% for the quarter, in year-on-year terms.
In the fourth quarter, the recession became really clear, exacerbated by the simultaneous financial crisis and credit tightening. Höganäs chose to adapt its staffing and plants in the light of a highly uncertain market situation. We agreed to re- duce personnel by over 10% of the number of employees, and continued working to identify more cost savings for 2009.
I can hardly overstate how 2008 was a year of extremes. Even if many commenta- tors did expect a recession, its speed took everyone by surprise. At the time of writing, there are no signs that the situation will improve in the short term.
We are focusing on using the prevailing situation to fine-tune our resources. We are adapting our capacity to the business cycle and cutting costs, while also creating a new platform so we are well prepared when the recovery comes.
Earnings for the year
Operating income for the year was MSEK 527 (607), mainly the result of weaker gross income.
The reason gross income was down on the previous year was that sales volumes fell drastically in the fourth quarter. We also took MSEK 35 of costs for imple- menting our personnel reductions. We expect this measure to cut yearly operating
expenses by some MSEK 70 with its full effect from April 2009 onwards.
Metal prices and exchange rates fluctu- ated sharply in 2008, and are expected to remain volatile, which will affect Höganäs' earnings performance in the short term.
Höganäs, Sweden, 4 February 2009 Alrik Danielson
CEO and President
T H E P O w E R O F P O w D E R
Höganäs' vision is to push the limits of powder metallurgy. We are driven by the understanding that metal powder creates near-infinite possibilities to develop better or completely new products across most segments. This is what we call “The Power of Powder”.
The Power of Powder
Powder metallurgy is a young technology.
The first applications emerged a few years before the Second World War. Höganäs was one of the pioneers of this process, opening its first iron powder plant in 1946. Opera- tions gathered pace in the 1960s, when the automotive industry started to understand the benefits of designing components using metal powder. Applications then extended progressively, with Höganäs being a leader of this process. Now, Höganäs is the world's largest producer of metal powder.
Powder metallurgy creates savings Powder metallurgy has clear benefits over traditional technologies. By designing with metal powder, materials savings of 20-30%
are usually achievable. The result is lighter components, in turn reducing overall envi- ronmental impact. Metal powder techno- logy also usually means faster production turnarounds. A component made of metal powder usually needs no or minimal ma- chining, saving time, resources, materials and money. Finally, powder metallurgy is energy efficient, cutting energy consump- tion in component production by up to 50%. Two-thirds of Höganäs' production is from recycled scrap. This recycling reduces the consumption of resources and environ- mental impact.
The Power of Powder Centre pushes the limits
Metal powder also makes completely new things possible, or takes existing products to a new performance level. To further stimulate development, Höganäs is now focusing sharply on introducing metal powder into a number of forward-looking segments, all of which, it thinks, have high potential growth.
By creating the Power of Powder Centre (PoP Centre), Höganäs intends to become a driving force in the advancement of new powder applications and develop existing ones. Höganäs will conduct these activities in close collaboration with our stakeholders for the benefit of everyone involved. All participants share an interest in establish- ing powder metallurgy as an innovative technology that offers new possibilities.
Höganäs intends to secure leadership of this process, completely consistent with its vision–to push the limits of powder metallurgy.
At our PoP Centre, our best experts in various applications will work closely alongside customers to cut lead-times and take visions to reality. To help them, they will have equipment at the absolute leading-edge of technology. This will enable rapid prototyping for testing that theories and ideas really work in practice.
The new PoP Centre will be complete in spring 2009 and play a key role in Höganäs ' onward progress.
Green drive
Work at the PoP Centre will be conducted by six Global Development Teams, each focusing on a specific segment, bringing dedicated expertise to each application segment. The Teams will work on short and long term projects. Short-term projects will focus on increasing the usage of powder technology in existing segments. Step by step, the more forward-looking projects are intended to pave the way for powder technology in applications where intensive development is already underway, such as hybrid vehicles and various forms of purification process.
The common denominator is that powder
T H E P O w E R O F P O w D E R
technology offers major cost and environ- mental benefits over existing technologies . Today's–and even more tomorrow's–prod- ucts will need completely new thinking in terms of the environment and powder tech- nology more than satisfies these demands.
Höganäs is using its PoP Centre to position itself as the obvious collaboration partner in development work underway, for the short and long term.
The car of the future
The current crisis in the automotive indus- try is another reflection of the environmen- tal demands the authorities and public are putting on modern vehicles, which is why the development of hybrid engines and fuel cell-driven vehicles is going at full speed.
Höganäs has already made a lot of progress here in its collaboration projects with end- users. Höganäs has also produced a series of prototype electric motors for bicycles, which will be rigorously tested by potential customers in Europe and China. Experience Höganäs has accumulated from developing these motors will be the basis of focuses across a raft of other segments, including the automotive industry.
There will still be a pause before the next generation of cars gets into mass production. Now, the automotive industry's immediate focus is mainly on modifying and improving existing petrol and diesel engines and gearboxes. Höganäs has developed a new type of gear-wheel for gearboxes and engines that offers signifi- cant weight savings, enabling lower energy consumption.
For the short term, efforts centre on modifying vehicles so they can use renew- able fuels like ethanol and bio-diesel, and Höganäs is also active in this development work, producing the new heat-resistant materials needed in valve systems. Höganäs is also working on various types of electro- mechanical material for electrical systems intended to improve fuel-efficiency.
A cleaner world
Another segment where powder metallurgy may play an important role in the more
sustainable society we are working to create is as a purification medium. Here, powder is used in its powder form. By 'loading' it in different ways, it can be used to remove unwanted substances.
A large-scale and successful test pro- gram was conducted with a US partner in December, where iron powder was used to decontaminate polluted water. The powder is kept in tanks, where water passes through and is purified from contaminants.
Water contaminated with heavy metals can also be treated using the same method.
Metal powder can also be used to clean smoke. On a small scale, soot and other particles can be removed from diesel engine exhausts. On a larger scale, metal powder can be used to remove particles and sulphur from smoke, thus replacing far more costly technologies.
Powder is also used for surface coating of critical design components involving laser technology. Höganäs has invested in a sophisticated laser machine to develop this segment quickly and effectively at its PoP Centre. Injection moulding is another method where Höganäs' PoP Centre will map the possibilities presented by powder metallurgy.
The future today
Höganäs' PoP Centre will be market-driven and consistently focused on creating extra sales of metal powder. We are com-
pletely convinced that this technology has massive un-tapped potential. Accordingly, specialists at our PoP Centre will work on a down-to-earth basis to bridge current and future applications.
We are not waiting for the future to arrive–we're helping create it.
PM Components
New powder materials and processes to create new types of components with new characteristics.
SMC Components
Specially developed powders for soft- magnetic components that replace steel laminates in electric motors, inductors, injector cores, etc.
Metal Injection Moulding, MIM Powder for injection-moulded compo- nents, that can achieve more complex
geometry.
Surface Coating, SCO
Powder for thermal coating applications, using laser and plasma, for example, to improve wear and corrosion resistance.
Brazing
High-temperature brazing alloy for more effective brazing and welding of heat exchangers, exhausts coolers, etc.
Filter
Filters for purifying furnace gases, or diesel particle filters in the automotive industry.
Höganäs' forward-looking segments—Global Development Teams
G R O u P O v E R v i E w
Höganäs AB is one of the world's leading producers of metal powder, used in a raft of components and as consumables.
Group overview
Customers and brand
The most usual application for metal pow- der is component production. In the PM (powder metallurgy) component industry and the SMC (soft magnetic) component industry, powder is used as a raw mate- rial for component production in both these segments. This type of powder sales make up Höganäs' Components business area. The greatest benefits of powder are achieved on high-volume component production, and on complex geometries.
The usage of metal powder requires tools to shape the powder component, which involve an investment from SEK 20,000 to several million Swedish kronor, so runs of less than 10,000 components are often not an option. The most usual applications for metal powder components are found in vehicles, electric tools, air conditioning plant and compressors.
Metal powder is also used in brazing, welding, food supplements and surface coatings, as well as in the chemical and metallurgy process industries. Using metal powder to purify water and exhaust is an
increasingly attractive segment. These powder sales make up Höganäs' Consum- ables business area.
Sales to component manufacturers were 73% of total sales in the year. The automo- tive industry was the largest customer segment, with some 60% of sales.
Alloyed metal powders are sold under the Astaloy and Distaloy brands. High al- loys are sold under the SurfIt and BrazeLet brands. Iron powder that has been refined is typically sold under the Somaloy and Hipaloy brands.
Products and production
Höganäs mainly produces iron powder, which is sold pure, with a range of additives or alloys to achieve different characteristics.
Alloyed means that the iron smelt is com- bined with other metals like nickel, chrome and molybdenum. Metal powder with at least 95% iron content is regarded as iron powder from a production perspective.
Metal powders with less than 95% iron content are called high alloy, and may include other metals such as cobalt. Some
high alloys do not contain any iron.
Often, both types of metal powder are re- fined using sophisticated mixing processes, surface coatings, agglomerations and heat treatments. The consistent aim is to give customers an advanced product exactly matching their needs.
Höganäs' sales are divided between the Components and Consumables business areas. Traditionally, most of Components consists of iron powder. Consumables in- cludes iron powder and high alloys. As cus- tomer relations deepen and metal powder is used for more specialised applications, the demand for specialist powder mixes rises. This trend benefits Höganäs because greater refining also lifts margins, and this applies to Components and Consumables.
Iron powder with differing alloy contents are produced in Sweden, the US, Brazil and India. High alloys are only produced in the UK, Belgium and the US. Various types of powder refining is conducted at all produc- tion sites.
Over 400,000 tons of metal powder was produced in 2008, mostly iron powder.
Sales
Consumables/Components
MSEK
0 1,500 3,000 4,500 6,000
2008 2007 2006 2005
Consumables, MSEK Components, MSEK
I R O N P O W D E R H I G H a l l O y s
95% Iron Copper
100% Iron
Molybdenum Nickel
Chrome Silicon
Molybdenum Chrome
0% Iron
Vanadium Nickel Manganese
Cobalt
G R O u P O v E R v i E w
Höganäs produces metal powder at 11 plants worldwide. Its raw materials are dressed ore, carbon and coke powder, scrap iron and various types of alloy metals and other additives. By applying advanced processing, Höganäs refines these raw ma- terials into various types of metal powder, completely tailored to specific applications.
Apart from developing new applications for powder, Höganäs possesses skills in producing powder with the right physical and stability characteristics year after year, which safeguards performance and produc- tivity for customers and users.
Turnover
Net sales were MSEK 6,103 (5,838) for 2008, corresponding to an increase of 4.5%. Sales volumes reduced by 3.3%.
The sales gains were mainly due to price increases and higher metal price surcharges on scrap.
The progress of Höganäs' volumes was strong in Asia and South America up to and including the third quarter, but the sharp volume downturn across all regions in the fourth quarter resulted in negative full-year volume growth for the group.
Earnings
Operating income was MSEK 527 (607) for 2008, mainly because of weaker operat- ing income compared to the previous year.
Gross income was down on the previous year because sales volumes contracted sharply in the fourth quarter. Apart from the loss of margins, the volume downturn com- bined with sharp price falls on metals re- sulted in inventory losses and write-downs
on the metals where effective hedging is unavailable. MSEK 35 was also expensed for implementing personnel reductions.
Highlights of 2008
Acquisition of Kobelco's business operations in the US
In July, Höganäs reached an agreement to acquire Kobe Steel of Japan's North Ameri- can iron powder operation. This resulted in Kobelco Metal Powder of America Inc., a subsidiary of Kobe Steel Ltd. USA transferring production and marketing to North American Höganäs. In August, Höganäs took over invoicing of Kobelco's customers. Kobelco will also shut down production at its plant in Indiana, scheduled for spring 2009. The acquisition strength- ens Höganäs' market position in North America.
Consolidation in Brazil
In February 2008, Höganäs diverted its plant at Jacarei, São Paulo, and co-located all operations in Brazil at Mogi das Cruzes.
Production, tech support and the sales office were relocated, and the new facility came into production as planned. These measures improve efficiency, cut costs and reduce capital employed.
Personnel reductions in the Höganäs group
To address a rapidly deteriorating busi- ness cycle and declining demand on the global market, Höganäs decided to modify production capacity and its organisational resources in November. Personnel reduc- tions affected 160 employees, 116 of them
in Sweden, the remaining downsizing affected the group's operations in Belgium, the US, Brazil and China.
These measures are expected to reduce yearly operating expenses by some MSEK 70 from April 2009 onwards. The non- recurring expense for personnel reductions was MSEK 35, which was charged fully to earnings for the fourth quarter 2008.
New regional managers
Per Engdahl became head of Höganäs Asia, including the Japanese, Chinese, Taiwanese, South Korean subsidiaries and the South-East Asian markets, in January.
At the same time, Srini V. Srinivasan was appointed President of Höganäs India Ltd.
On 1 September 2008, Mikael Carleson started as head of Höganäs’ European business.
Turnover
MSEK
0 1,000 2,000 3,000 4,000 5,000 6,000
2008 2007 2006 2005 2004
Return on capital employed
%
0 5 10 15 20
2008 2007 2006 2005 2004
Net income and operating margin
MSEK %
0 100 200 300 400 500
2008 2007 2006 2005
2004 0
5 10 15 20
Net income, MSEK Operating margin, %
Financial goals
• Operating margin of 15%
• Return on capital employed of 20%
• Yearly growth of 6 to 8% over a
business cycle
S u S TA i n A b l E D E v E l O P M E n T
Höganäs contributes to sustainable development in several ways. Partly, the Company's products generate substantial environmental gains in various ways for customers, and partly, the Company strives constantly to reduce the environmental impact of its production processes.
Part of a more efficient value chain
A combination of environmental savings and sound finances
Höganäs bases its product development on the principle of "everything we do should affect the environment less". Working from this principle, the Company has focused on reducing amounts of materials like nickel, molybdenum and copper in its metal powder. These elements often occur in low concentrations in the earth's crust, which makes them expensive from cost, environmental and extraction perspectives.
In some cases, Höganäs has completely eliminated these materials, replacing them with chrome or silicon, for example. The result is lower costs for the customer and a reduced adverse environmental impact.
The customer is part of the development process
Höganäs conducts proprietary and sector- wide research in powder metallurgy to continue developing technology and po- tential applications that utilise the qualities of metal powder. Höganäs also uses close collaborations with customers as a link in developing tailored products with good en- vironmental characteristics. One example is its collaboration with Toyota, described on page 16, where Höganäs products helped the Company take another step towards its vision of zero materials losses.
Over-arching environmental efforts Good environmental performances are a condition of Höganäs' long-term success and a competitive edge in its offering to customers. The effective utilisation of raw materials, energy and minimising waste are in focus in its environmental work.
Höganäs' environmental policy demands continuous improvement in the segment, Retained performance with more
efficient consumption of resources Höganäs has prepared sophisticated design programs that optimise the consumption of resources in component design. One example is the production of gear-wheels, where sophisticated modelling results in the minimum volume, and where apertures can be located to reduce weight and materi- als consumption. The result is a gear-wheel with optimal consumption of resources from an environmental standpoint, and retained strength in product characteristics.
By reducing the weight of the gear-wheel, kinetic energy is also saved, in applications like gearboxes.
Shorter processes save time and energy
Customers can cut production lead-times by using Höganäs products, because fewer steps are necessary to achieve a complete product. This provides more sustainable development overall. An example is machin ability additives that streamline machine cutting of metal components.
By simplifying selected production stages, production gets faster, consumes less energy and gives customers better overall finances. Automotive components and hand tools are some of the end-products where this is successfully applied.
Sintering is another process that helps cut overall costs. Components are hard- ened straight after sintering with the aid of forced cooling in a cooling zone, eliminat- ing a separate hardening stage. This is more efficient and simpler than the traditional process, where products must be heated further to harden.
SO
2emissions per ton produced
SO2 kg/ton prod.
0.00 0.05 0.10 0.15 0.20 0.25
08 07 06 05 04 03 02 01 00 99 98 97 96 95
NO
Xemissions per ton produced
NOX kg/ton prod.
0.00 0.07 0.14 0.21 0.28 0.35
08 07 06 05 04 03 02 01 00 99 98 97 96 95
CO
2emissions per ton produced
CO2 kg/ton prod.
0.0 0.2 0.4 0.6 0.8 1.0
08 07 06 05 04 03 02 01 00 99 98 97 96 95
S u S TA i n A b l E D E v E l O P M E n T
and there is a direct link between environ- mental activities and financial outcomes.
More efficient consumption of resources and energy generate savings for the short and long-term.
Systematic environmental activities create a long-term pay-off for Höganäs.
Other conditions for achieving improve- ment are undisrupted, consistent produc- tion, as well as reliable decontamination equipment. This sets high standards for employees' technical skills, as well as their understanding of the environmental impact of operations.
Höganäs works according to the ISO 14001 environmental management system and all production plants are certified and regularly inspected by a third party.
This generates the continuous improve- ment of processes and staff environmental knowledge. The Company also evaluates its suppliers' environmental activities, encouraging them to implement certified environmental management systems.
Consumption of resources Höganäs endeavours to reduce the con- sumption of resources, and thus its environ- mental impact. Some two-thirds of produc-
tion is based on recycled material, scrap iron. The remainder is based on virgin iron ore. Virgin iron ore is still necessary in some products with the characteristics and qualities customers need.
Höganäs is particularly active in the Swedish Steel Producers’ Association, in a number of segments that are highly rele- vant to the Company. One of these projects is in recycling slag, a residual product from iron smelting, as a construction material, for example. This may further streamline the consumption of resources.
Reduced emissions
Emissions of carbon dioxide are inevitable in the production of iron and steel, due to the usage of carbon in the production process . Höganäs pursues continuous efforts to reduce its airborne emission volumes. Emissions per ton of material produced have reduced progressively since the mid-1980s.
Trading in emission rights
The EU trading system for emission rights currently covers carbon dioxide. Trading began in 2005 with the aim of reducing emissions. For trading in 2008–2012,
energy -intensive industries will continue to be granted free emission rights based on historical data and estimated needs.
The steel industry is one of these energy- intensive industries, which many com- mentators regard as disfavoured by global competition while the trading system only covers the EU. This is significant for Hö- ganäs, whose main competitors are outside the EU.
Höganäs has been granted emission rights for its plants in Halmstad and Höganäs, and granting for 2008–2012 is considered sufficient.
Energy housekeeping benefiting the local community By using excess heat from its industrial processes, Höganäs has covered much of the heating needs of its own plants in Höganäs for several decades. Instead of adding more emissions, emissions of greenhouse gases are reduced by replacing oil and natural gas with district heating as an energy source.
The Company has also been supplying
local district heating provider Höganäs
Fjärrvärme AB’s local network with energy
from its excess heat for a few years.
S u S TA i n A b l E D E v E l O P M E n T
Environmental improvements In 2008, Höganäs’ environmen- tal activities featured efforts to streamline facilities, mainly in terms of energy and raw materials con- sumption. Activities conducted or underway at Höganäs’ facilities are as follows:
Höganäs (Sweden)
• Installation of frequency inverters for four smoke fans in the sponge works could achieve a potential 30% saving in power consumption at the plant.
• Installation of an excess heat boiler, enabling surplus heat from exhaust gases to be utilised to increase district heat production by some 5 MW during scheduled production.
Halmstad (Sweden)
• Installation of a silencer has helped reduce noise in the surroundings.
Mogi das Cruzes (Brazil)
• Production capacity has been co- located to a single site, reducing internal transports between the previous two locations by about half a million ton kilometres of truck transports per year.
Ahmednagar (India)
• New smoke extractors and filter instal- lations further reduce dust emissions.
• New plant for recovering excess heat from the belt furnace process replacing a boiler for vaporizing LPG, reducing LPG needs by 1% yearly.
Stony Creek (US)
• Installation of oxyfuel technology in the arc furnace is increasing the energy efficiency of the smelting process and reducing CO
2and NO
Xemissions.
Johnstown (US)
• Investments to further improve dust extraction system in several produc- tion phases, streamlining the collec- tion of dust and reducing emissions.
In 2008, Höganäs delivered some 35 GWh to the local population centre, achieving a reduction in carbon dioxide emissions of some 10,000 tonnes.
Sector-wide research supplements Höganäs’ internal energy initiatives, including an energy research programme conducted by the Swedish Steel Producers ’ Association designed to reduce energy consumption in arc furnaces.
Conditions applying to operations In all countries where Höganäs has produc- tion, permits are required for producing metal powder. These permits primarily regulate production volumes, airborne and waterborne emissions, noise and waste.
The permits are for a predetermined period or until further notice and Höganäs has them for all production facilities.
A new environmental permit was issued in Brazil in 2008, enabling the co- location of production at a single location as opposed to two previously. Höganäs has applied for, and expects to secure, increased production permits for its Indian operation in 2009.
The Company is conducting an in-depth audit of the incidence of land contamina- tion at its Swedish operations at Höganäs
and Halmstad in consultation with the regulatory authorities. The Company has received no demand to decontaminate or take other measures for contaminated land resulting from this.
REACH in 2008
Höganäs is well prepared for the new European regulations governing the handling of environmentally hazardous materials–REACH (Registration, Evalua- tion and Authorisation of Chemicals) that came into effect in 2007. REACH applies Europe wide and sets new standards for all parts of the supply chain. In practical terms, it means that all chemical com- pounds produced in, or imported to, the EU in volumes of over 1 ton yearly must be registered with the new regulatory body in Helsinki, Finland.
The Company is completing its strategy
to adapt its global operations to REACH,
and in the year, conducted advance
registration of the chemical compounds
the Company imports to, or produces in,
Europe . Höganäs is a member of a number
of consortiums and other collaborative
forums to share the costs and required
information for forthcoming registration
processes.
T H E i n D u S T R y
The estimated volume of the global metal powder industry is 1,300,000 tons with a value of some MSEK 20,000.
The industry
Products are based partly on iron powder and partly high alloys. Iron powder’s main application is for component production in welding electrodes and in a wide range of smaller segments such as iron supple- ments in food. High alloys include nickel, chrome, cobalt and molybdenum.
The market is subject to extensive com- petition and overcapacity.
Höganäs is the world’s largest producer of metal powder.
Höganäs and Hoeganaes Corporation of the US (in which Höganäs had holdings until 1999, but is now independent) are the only players that produce both iron powder and high alloys. The other major producers specialize in iron or high alloys.
Apart from Höganäs, there are ten major metal powder producers, eight produc- ing metal powder for Components and Consumables. Several of them are owned by raw materials producers with pure-play production strategies, with improving skills at enhancing the quality of their products.
Five of these companies are American, four
are Japanese and one is Canadian. Höganäs is the major European producer of metal powder, but there are some small players, mainly in Eastern Europe.
There are another 40 or so small-scale metal powder producers worldwide, a large number in China. Of these, some 30 supply component manufacturers and about 20 are active in Consumables.
Höganäs’ production
Höganäs has yearly production capacity of 500,000 tons. The automotive industry provided nearly 60% of Höganäs’ turnover of MSEK 6,103 in 2008, a share that has been fairly stable over the past five years.
Accordingly, the progress of the automo- tive industry is highly significant to the group. Other major sectors are the welding industry, with over 10% of group sales.
No single customer generates over 5% of group turnover, and the 10 largest custom- ers provide a total of 20% of revenues.
Höganäs’ largest geographical market is Europe with 39% of sales. North America
The largest metal powder producers
Company Country Market Products Types of powder
Höganäs AB Sweden Europe, Americas, Asia Components/Consumables Iron powders
and high alloys
Hoeganaes Corp US Europe, Americas, Asia Components/Consumables Iron powders
and high alloys
Kobelco Japan Asia Components/Consumables Iron powders
JFE Steel Corp Japan Asia Components/Consumables Iron powders
Ametek US Americas Components High alloys
Daido Japan Asia Components/Consumables High alloys
QMP Canada Europe, Americas, Asia Components Iron powders
Dowa Japan Asia Consumables Iron powders
Wall Colmonoy US Europe, Americas Consumables High alloys
Deloro Stellite US Europe, Americas, Asia Consumables High alloys
Carpenter US Europe, Americas Components/Consumables High alloys
represents 22%. The acquisition of Kobel- co’s business operations in the US means that Höganäs has advanced its positioning further. South America, which has grown robustly in recent years, provided 6% of turnover. India has progressed positively, and now provides 4% of sales. The rest of Asia has also expanded briskly, to 29%
of turnover.
C O M P O n E n T S
The Components business area produces and markets metal powders for producing a range of mechanical and electrical components. Customers are component manu- facturers in the powder metallurgy (PM) industry that deliver to product and system producers or direct to original equipment manufacturers (OEMs).
Components
Products are mainly used in the automotive industry, which represents 70% of business area turnover. The second major applica- tion of powder components is products used in and around the home, which repre- sent some 20% of business area revenues.
Höganäs is a world leader in high-quality metal powders for component production and is represented on all the major markets.
Market
The global PM industry delivered one mil- lion tons of components worth an estimated USD 10 billion in 2008. The market for powder components has traced average yearly growth of 5% over the past 20 years.
Growth is determined by demand from the global automotive industry and the devel- opment of new applications. Powder-based components are common in a wide range of sectors, but there are other segments where metal powder has excellent prospects of increasing market shares. Compared to components produced through machining, forging or casting, the PM industry remains small. The total steel industry is about 1,000 times larger than the metal powder industry, implying substantial growth potential for powder.
Using powder is cheaper, better and more efficient
Components are produced by filling tools with powder and applying high pressure.
The pressed components are then heat- treated (sintered) at about 1‚100 °C. There is far less need for post-processing such as milling and grinding than in conventional production methods like casting and forg- ing. Complete or near-net components can be produced with tight tolerances using powder with better utilisation of materials,
less waste and lower energy and labour costs. Overall, this generates substantial cost and environmental savings.
By using powder components in their products, customers gain important com- petitive edge. Powder is a substitute tech- nology across many segments, enabling the manufacture of high-quality products with the same or better performance than other production technologies for a lower cost. The savings are often 20–50%. But the technology also offers substantial opportunities to enhance appearance and create new characteristics. One prerequisite for producing powder-based components is long production runs, because the initial cost of press tools is high.
Consistent quality of metal powder is important for component manufacturers, on every delivery. This reduces press tool maintenance, and gives final products more durability and quality.
Manufacturers also want to achieve more consistent, faster and controlled powder filling in press tools. The better the filling, the more homogeneous characteristics a component attains. Höganäs’ competitive edge is that the Company produces metal powder of extremely consistent quality, and has unique skills in mixing technology and binding agents, so the customer can achieve the best possible mixing and filling characteristics, and flow.
The automotive industry is the largest user
The automotive industry is an early adopter of powder-manufactured components.
Demands to produce more fuel-efficient and environmental vehicles with better safety for a lower cost are key drivers. Powder components are cheaper and lighter, and Turnover
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C O M P O n E n T S
lower vehicle weights improve fuel con- sumption.
Metal powder is mainly used in transmis- sion components such as certain gears, syn- chromesh clutch hubs and gearbox rings, for valve control in engines, turbochargers, management systems, shock absorbers and brakes. Gear-wheels in gearboxes are a segment with high growth potential.
Here, Höganäs has developed a new type of lighter gear-wheel for gearboxes that improves fuel consumption. Iron powder is mainly used in component manufacture, and in some cases, the more expensive, alloy metal powders.
Höganäs is driving market development
Höganäs is also conducting wide-ranging work to develop new applications for powder-based components. Apart from developing new mixes and additives, Höganäs is running collaboration projects with customers, and their customers, to produce new solutions and applications with better characteristics for a lower cost.
Starmix Boost–a new generation of mix- es for greater precision–was launched in 2008. Productivity gains of up to 30% have been achieved in customer tests. Material losses also reduce–Toyota achieved 95%, resulting in total material losses of 0.05%.
SMC powders
Soft Magnetic Composites (SMC) powders is an application with high development potential. By utilising the three-dimension- ality of powder particles, and coating their surfaces with plastic or ceramic nano- particles, a range of electromechanical characteristics can be attained. The material can be used to make electric motors smaller and more powerful for a lower overall cost.
Höganäs is a leader in SMC powder materials, and after many years of develop- ment work, has accumulated unique know- how in the segment. Höganäs thinks SMC has high growth potential, because there are so many feasible applications that have yet to be addressed. Höganäs’ SMC brand is Somaloy.
SMC components are used in the automotive industry to run peripherals such as ABS, fuel injection management and emissions systems. The technology
can also be applied to produce electric motors for scooters, motorcycles and cars.
Höganäs is also participating in a series of development projects relating to the hybrid and fuel cell-driven vehicles of the future through Somaly technology. It has produced ten new electric bicycle motor prototypes for customer testing.
There is also very substantial potential for SMC components in electric motors for hand tools, lawnmowers, snow blowers, chainsaws and air conditioning compres- sors. Motors in white goods, sewing machines, printers and computers are also promising applications. But because these motors are smaller and there are less of them than in cars, volumes in this segment are also lower.
Advanced positions in North America In July 2008, Höganäs reached an agree- ment to take over Kobelco Metal Powder of North America’s US operation. This deal means Höganäs advances its positioning on the North American market, by taking over production, marketing and customer deliveries from Kobelco, which will close down its own production in spring 2009.
North America is one of the world’s biggest markets for metal powder-based compo- nents, with some 35% of the total market.
Sales and earnings
Net sales for 2008 were MSEK 4,465 (4,264), a 4.7% increase year on year.
Sales volumes fell by 4.9%.
Market progress in North America and Europe slowed progressively quarter by quarter in the year, compared to the previous year. Market progress in South America and Asia was positive up to and including the third quarter. Demand fell very sharply across all regions in the fourth quarter. The need for inventory adjustments grew increasingly, and by the end of the
fourth quarter, many component producers were opting for temporary production shut- downs lasting several weeks. This exerted a very pronounced effect on Höganäs’ sales in November and December.
Operating income was MSEK 402 (354).
Very positive progress up to and including the third quarter, driven primarily by price increases, deteriorated in the fourth quarter due to an unprecedented market downturn.
Costs for redundancies and contracted pen- sions related to personnel reduction were also charged to fourth-quarter earnings.
Business area key indicators
MSEK 2008 2007
Net sales, MSEK 4,465 4,264
Operating income, MSEK 402 354
Operating margin, % 9.0 8.3
Assets, MSEK 3,818 3,799
Investments, MSEK 249 130
Components Market segments PM components SMC components Applications
Synchromesh clutch hubs in manual gearboxes
Gear-wheels for auto camshaft systems Gear-wheels in electric hand tools (Stator) components in electric motors Production sites
Höganäs, Sweden
Ath, Belgium
Tonbridge, UK
Stony Creek, US
Niagara Falls, US
Johnstown, US
Mogi das Cruzes, Brazil
Ahmednagar, India
Shanghai, China
Saitama, Japan
C A S E : T O y O TA C A S E : T O y O TA
Toyota has succeeded in cutting material losses to 0.05% when producing synchromesh clutch hubs in gearboxes using Höganäs’ powder technology.
Höganäs helps Toyota approach its vision of zero material losses
Toyota is synonymous with the lean pro- duction concept, and constantly endeavours to make all production processes as flexible as possible so Toyota always produces exactly what is needed, when it is needed.
With fast and frequent realignments, minimizing material losses is even more important.
Toyota had already made a lot of progress in reducing these losses before it started collaborating with Höganäs.
Specifically, it wanted to improve the production of a synchromesh clutch hub in a gearbox. Toyota wanted the final product to have a better surface finish, to reduce post-processing as much as possible, thus cutting waste. This required components being pressed with less variation in final dimensions and with minimal weight differences between units.
Höganäs’ response to this challenge was an innovative approach to binding agents and processing powder during pressing.
The concept was based on a new mixing concept, Starmix Boost, thanks to Höganäs’
leading-edge PM resources.
The new powder mix has resulted in a new synchromesh clutch hub that is extremely stable in terms of density and weight. Waste is reduced, and the other- wise-frequent adjustment of press settings has been eliminated, saving time. Material losses have been reduced to a twentieth of traditional methods and materials. Thus a sharp reduction in post-processing opera- tions has been achieved.
This collaboration has benefited both
parties. Toyota has been able to take
another step towards its vision of zero
materials losses, while Höganäs has pushed
the limits of powder metallurgy further.
C a s e s e M C a s e s e M
Truck maker Scania can now satisfy the EU’s new exhaust directive better than competitors thanks to SEM’s skills and Höganäs’ SMC powder.
Höganäs Somaloy secures
SEM a major order from Scania
Scania has followed its own path towards satisfying new EU and US truck emission directives. Instead of cleaning emissions on their way out from engines using various types of catalytic converter, the Company chose to build a new engine that uses fuel more efficiently, generating less emissions in the ignition process.
To succeed, a new approach and several new design features were necessary, espe- cially in the actual fuel injection process.
Scania developed a new fuel injection system in collaboration with one of the world’s leading truck engine manufactur- ers, Cummins of North America. Briefly, the solution injects fuel faster, more often and at higher pressure than before.
To achieve this, one precondition was to
create a new type of stator, the component that opens the engine inlet valve. SEM in Sweden secured this assignment, and brought completely new qualities to a sta- tor. The only way to attain the right mag- netic characteristics was to use Höganäs’
Somaloy SMC powder.
“This is a very significant order for us,”
commented Andreas Johansson, SEM’s Project Manager, “we wouldn’t have got it if we had been unable to achieve the mag- netic characteristics that Höganäs Somaloy makes possible.”
SEM’s collaboration with Burgess- Norton in the US, which presses the pow- der, was an important part of its success.
Burgess-Norton has long-term experience of pressing magnetic powder, and has made substantial investments in developing the skills and tools for high-performance SMC powder components.
“Thanks to our collaboration with Höganäs, and their Somaloy powder, we can now press stator components with far higher densities than previously, and with extremely consistent quality. This gives them improved magnetic characteristics, so they respond to electrical impulses faster and more strongly. The result is better valve performance,” added Ted Baker, Director of Soft Magnetics at Burgess-Norton.
Scania and Cummins also appear to be satisfied with the stator–after just a year, they doubled their order levels. The Euro 5 emissions directive comes into effect in October 2009, when Scania will be the only truck manufacturer that can offer engines that do not use exhaust cleaning systems that take up room and need maintenance.
Scania’s solution also enables lower fuel
consumption, which is good for the envi-
ronment and total cost of ownership.
C o n s u M a b l e s b u s i n e s s a r e a
Höganäs is a leader in metal powder for consumables. The business area provides 27% of group revenues.
Consumables
Metal powder can be used in consumables, as additives in welding, brazing and surface coating of components to give them specific characteristics. Other applications are filters for purifying liquids and gases, toner carriers in printers and photocopiers, friction mate- rial for brake pads and additives in metallur- gical and chemical processes. Iron powder is an important ingredient in foods and animal feed to counteract iron deficiency.
Customers across many sectors Consumables has customers across a whole range of sectors, the prominent ones being producers of welding, filter and brake coat- ings, users of brazing, cutting and surface coating technology and the food and animal feed industries. The automotive industry also buys metal powder, but there is far lower dependence on this sector than in the Components business area. Customers are OEMs and their suppliers.
Market
Over the past 20 years, the market for refined powder additives has grown by an average of 4% per year. Demand is largely dependent on GDP growth, but primarily, investments in infrastructure and manufac- turing.
Welding is one of the biggest applications of metal powder. By adding iron powder to welding electrodes, welding characteristics and quality improve, while productivity rises. The continued expansion of infra- structure in Asia, especially China and India, but also Europe, has contributed to positive demand. Nickel, or now iron-based, powder is used in high-temperature brazing of stainless steel components such as radia- tors and heat exchangers. Demand for these additives progressed positively in 2008.
The metallurgical industry is another con- sumer of very pure metal powders, used in applications such as producing special steel grades. Global demand for steel was strong, with price increases continuing in the first half-year 2008, which then fell. Höganäs’
deliveries of metal powder increased by 2.1% in the year.
Metal powder improves durability The surface coating industry is a growing customer segment. Use of high alloys is becoming more widespread to increase the hardness of exposed components.
Useful lives can be extended by coating a product’s surface with a thin layer of anti-abrasive alloy, while it is not neces- sary to make the whole product from costly alloy metals. The useful life of a rail wheel coated with Höganäs’ gas-atomised powder from Höganäs can be trebled, and noise levels simultaneously halved. Growth in the surface coating industry remained healthy in 2008. Höganäs is retaining its expectation of continued future expansion.
Components exposed to corrosion in exhaust systems and elsewhere are an- other important metal powder application.
Exhaust systems are becoming an increas- ingly important application as emission standards become more stringent. Höganäs mainly works on diesel engine applica- tions, including diesel particle filters that reduce the levels of soot particles, thus helping alleviate environmental impact.
Replacing cylinder liners in aluminium blocks is another environmental applica- tion. High alloys, with better resistance and anti-corrosive qualities than iron powder, are used here.
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