Most of Linamar Corp.’s sales growth in 2018 came from its nonautomotive business, a sign that the global parts supplier’s diversification strategy could be paying off.
“Diversification is really to give us additional avenues in which to grow our business by [leveraging] off of our strengths in manufacturing, purchasing, lean manufacturing [and] metal,” Linamar CEO Linda Hasenfratz told Automotive News Canada.
“It wasn’t born out of a desire to whittle down the automotive. I’d love to see all of them grow. And if one of them starts to grow faster than the other, OK, let’s do that.”
In March, the Guelph, Ont.-based manufacturer reported that its industrial division, which includes agricultural equipment and aerial work platforms, more than doubled operating earnings to $346.2 million while sales surged 70 per cent to $1.89 billion. Linamar attributed the increases to the 2017 acquisition of harvesting-equipment supplier MacDon and “strong market share gains for scissors [lifts].”
Meanwhile, operating earnings in the company’s automotive division fell 13 per cent to $473.7 million, while sales rose 5.6 per cent to $5.73 billion. The company attributed the decline to slumping markets in Asia and in Europe, as automakers there struggle to adapt to new emissions regulations.
Linamar ranked No. 62 on sibling publication Automotive News’ 2018 list of the top 100 global suppliers, with US $3.8 billion in sales to automakers in 2017.
A HEDGE AGAINST AUTO SLUMP
Diversifying products beyond the auto industry is a strategy several suppliers have undertaken globally to stabilize earnings when the auto market dips or becomes unstable.
In Canada, Linamar’s diversification strategy is a prime example of that: As the company feels the effects of declining European and Asian markets and braces for a shrinking North American market, it has seen revenue and earnings explode elsewhere.
Linamar remains interested in acquiring more nonautomotive businesses, Hasenfratz said. It did just that in December 2017 when it announced the MacDon acquisition.
The strategy has been playing out over several years under Hasenfratz, as evidenced by Linamar’s 2002 acquisition of boom and scissor-lift manufacturer Skyjack, which remains important to the supplier.
“We see a lot of opportunity to grow each one of those businesses just based on further global expansion, diversifying the product lineup and continuing to invest in innovation,” Hasenfratz said.
Linamar’s method of diversifying is unusual, in that it does not simply buy businesses and leave them to operate on their own, Hasenfratz said. The automotive and agricultural-equipment businesses, for instance, can learn from each other’s processes in purchasing, design or manufacturing, she said.
“I think that has allowed us to unlock some significant value in these businesses in a really meaningful way,” Hasenfratz said. “Our traditional automotive business got stronger thanks to Skyjack and MacDon, and Skyjack and MacDon have gotten stronger thanks to the other components.
“They may appear unconnected, but in fact, they are quite deeply connected. And they are, after all, all manufacturing businesses based on metallic products. There’s commonality around processing in each one.”