In line with expectations is perhaps the best thing to say about GKN 2017 results published this morning and that they demonstrate that the company is performing pretty well across the board in all of its main areas of areas.
While GKN aerospace activities will no doubt be the centre of attention by investors today best that they should not ignore that the GKN Driveline component business which are also doing very well.
GKN Driveline may not be the most fashionable or even the highest margin activity within the huge international GKN portfolio but as the global leader in that particular field and in what is after all a massive international market, it may be worth reminding why GKN has reached the position of strength that it clearly has.
Put simply, the reason that GKN Driveline is in the position of strength that it is comes down to constant technology development in order to stay one step ahead, efficiency of operation and a long history of investing in the future.
My point is that having invested heavily in the next generation of driveline related products such as eDrive together with thinking ahead and expanding ‘All Wheel Drive’ and eDrive facilities in the US and elsewhere in order to meet what is a growth market and one that has truly fantastic future prospects, why on earth give GKN away at such a ridiculously low price to a loss-making, rag-tag break-up merchant come asset stripper that has no interest in the business or its future?
In Melrose hands would the GKN businesses grow? I very much doubt that they would under Melrose management because quite simply they will be starved of investment and cash and they also risk losing the trust of the customer. Just imagine the disruption that would be caused to the long term nature of the GKN business as the various business segments are sold off. Disruption is challenging enough for any management but remember that in a business like GKN disruption would have a very serious impact on future customer decisions in relation to whether they dare risk choosing GKN to work with as a future partner again!
Is the new generation of GKN management best placed to demonstrate that it understands what investors want and that it will deliver the goods without harming the potential of the business through separation plans and indeed, managing to further grow global market share whilst at the same time rewarding shareholders? Yes it is and don’t forget the promise of seeking to return £2.5 billion to shareholders over the next three years.
And what about Aerospace division? Yes, it is true that there was an unfortunate problem in relation to inventory that became apparent last year and that has required the company to take a massive hit. Bad show but no use crying over spilt milk now and rest assured that those to blame have gone.
Lessons have been learned from this but please don’t ignore the strength that GKN has achieved in aerospace and defence, particularly in the US, be this on the F-35 or a variety of Boeing commercial aircraft or in Europe and elsewhere through the range of excellent acquisitions the company has made over the years such as Volvo Aerospace and Fokker Aerospace. These acquisitions still have much to give yet and the prospects for medium and long term growth is huge. Best then that no one should understate the importance of GKN’s international aerospace activity grouping or the market positions that they now holds.
Of course, there’s another very interesting division that will no doubt be part of the internal breaking-up of the company, be this by GKN itself through ‘Project Boost’ or heaven forbid, should the company finds itself owned by Melrose, one that I personally regard as being a star of the GKN portfolio. I refer to GKN Powdered Metallurgy, an area of expertise that, just as it has done in all of its current business activities, grown from a seed to what is today a very important and not insignificant business.
Melrose would be very quick to dump GKN Powdered Metallurgy and has already said as much. This highlights to me why Melrose is, if it succeeds in buying GKN either at the current much undervalued offer price or the no-doubt higher offer price it will make in its attempt to gain its prey, the worst of all possible owners for a company like GKN.
My stance on this company all along has been firstly, that the Melrose bid seriously undervalues GKN and secondly, that in the manner that I would anticipate Melrose to go about butchering GKN, that within five years the global automotive driveline division would be owned most probably by the Chinese or Japanese and that the hugely important global aerospace activities will be sold to the US.
Make no mistake, Melrose will be ruthless and if, for instance, GKN Driveline was eventually to find itself sold by Melrose to say Chinese, Japanese, US or even the French, there would be no place for the UK activities. Quite frankly they just wouldn’t be needed any more.
The point is that we in the UK need every major business that we have got. We need to build them and invest in them for the future. GKN employs over 6,000 people in the UK – not as big as some granted – but important none the less.
Back to today – GKN’s underlying results performance for 2017 may not be that spectacular compared to some but neither was it bad. The point is that GKN is a fantastic group of businesses that have grown organically and that last year grew over and above growth in key markets.
Make no mistake, the new GKN management under Anne Stevens recognise the need to change the emphasis of the company to ensure that what the company has achieved in size and international scale delivers world class financial performance improvement and one that will have a renewed focus on strong margins and cash generation. The strangely named ‘Project Boost’ has been designed to achieve just that. Through detailed product segment strategies and an emphasis on manufacturing and functional excellence, the GKN plan for the future of its own independent development and separation looks sound enough to me.
Rather than a flock of Vultures who would simply tear GKN apart limb by limb with little or no care but for their own personal gain, I take the view that as GKN management know their industry, market and customers best and who know what they need to do, it is they that should be allowed to get on with the job.
CHW (London – 27th February 2018)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785