14 Jan 18. Our readers may have noticed the calm and measured GKN management approach to the hostile takeover launched by Melrose for GKN last Friday. (See: BATTLESPACE ALERT Vol.20 ISSUE 01, 12 January 2018, GKN rejection of unsolicited £7 billion Melrose proposal) This was followed by the usual flurry of press speculation about a counter bid from Carlyle and speculation about higher bids, break ups and reorganisation and accompanying industrial strategy comments from Vince Cable. Well, that’s how GKN handles such situations and has done since my family started J.S. Nettlefold in 1854 a screw making company, and was forced into a merger in 1902 with Lord Wimborne (Guest) (The Dowlais Iron Company) and Mr Keen (The Patent Nut & Bolt Company) to form GKN. The most important factor to note is that the Holding Company formed then is still the holding Company for GKN Plc. My forebears would be watching from on high seeing that the ethos formed then has not changed one bit. One only has to look at the strap line, ‘Engineering Which Moves The World.’
When I took my son to the GKN 250th Birthday Party at the Science Museum in 2009, I told him that he would never see such like again. In 2012 with the support of Eton and GKN we started the Joseph Henry Nettlefold Eton Engineering prize to bring that much needed talent into the industry which had been lacking in my time at Eton; it took me from 1977 to 1980 to get into engineering. In 2014 I gave a speech to the GKN Apprentices at their passing out dinner at Bristol. I had written my speech before I arrived but when I saw the intelligence of these young men, I tore it up and winged it and I think it worked! I described how I had started my career in a Land Rover Engineering Company, SMC Engineering in 1980, then joined a defence publishing Company, Whitton Press in Eton in 1982, started Defence Industry Digest in 1984, sold that, went into PR, 1984-1992 and then started BATTLESPACE in 1996, an oblique curve of a career but all engineering related, whether it be mechanical, publishing or the internet. That is what GKN is all about being ahead of the pack and waiting for the next moment to build the next engineering challenge into a global business.
My family started as coal merchants in Dorking, bought a screw making machine at the great Exhibition in 1851, migrated to Birmingham where they formed GKN a general engineering company with huge diversity. That is the point, GKN is not 50% an automotive engineer and 50% an aerospace engineer as it appears to the press and those who don’t understand the Company, it is an engineering company, pure and simple. That engineering company has interests in sinter metals, additive manufacturing, composites, drivelines, aerostructures, specialist metals, jet engines, wheels, chassis, rocket motors, nacelles, specialist glass and turbine blades. One only has to look back at what the company used to do, and got out at the right time, iron and steel, screws, tractor wheels, telephone boxes, nuts and bolts, military vehicles, helicopters, Chep pallets, the list goes on.
Look at that list and reflect on the two factors the press is focussing on, aerospace and automotive. Look at automotive first where the whole industry is undergoing a huge change to electric drive from the internal combustion engine. GKN’s product list centres on the internal combustion engine and one only has to look at the chassis of a Tesla, which I did in Washington DC two years ago, to see that there are very few moving parts, no constant velocity shafts, drivelines and associated equipment. Companies like GKN are developing a whole new range of components for this market, a very costly and time consuming exercise and one which requires a huge investment in R&D and production processes. In aerospace the competition for the composites market has been growing at a record pace and with China entering the market, margins are going to suffer.
The first sign of problems for GKN in this area was when Airbus brought some composite business back in house, the closure of the Yeovil plant and Brexit. In the defence market, where GKN supplied sub-assemblies for Warrior APCs including wheels, that market dried up when the Spanish Ascod vehicle was chosen for the British Army requirement, a Dutch company, already a supplier for the Ascod, won the wheels contract in preference to the GKN offering which seemed to tick all the boxes. GKN developed the Warrior AFV and expected to win significant work on the Warrior Capability Sustainment Programme (WCSP), the Programme is still in the trials, test and development stage and likely to remain so for some time, thus any olarge parts orders are several years away. In addition, the UK MoD Land System Programmes ground to a halt with no new Programmes expected until 2019 at the earliest, which resulted in the nascent GKN Land business being subsumed into a new Division. In the automotive structures market the death of the venerable Land Rover Defender, where GKN made the chassis and other parts, meant another loss of business.
The next problems to emerge in 2017 was two lawsuits in the USA from customers approaching $40 million and just when it couldn’t get worse CEO elect, Kevin Cummins was let go after it emerged that huge write offs would have to be made at GKN’s US plants; the company appeared rudderless.
GKN management saw this and took the company into a whole new area of business with the shrewd takeover of the Dutch Fokker Technologies business and Volvo AB which bulked up the composites business with F-35 parts, aero engines with Volvo and rocket motors for Arianespace. Another area which GKN has built up a global presence is Additive Manufacturing and Metal Powders for Additive manufacturing, very undersung parts of the business, but world leading all the same!
History of GKN
In July 2008 I interviewed Kevin Smith CEO of GKN (See: GKN – POLISHING UP THE FAMILY SILVER, By Julian Nettlefold)
2009 was the 250th Anniversary of the founding of GKN. From small beginnings this great Company has been steered through many wars including two World Wars numerous recessions, partial nationalisation, profits warnings and lay offs and has survived as a thriving part of the British economy, producing billions of pounds a year in revenue and tax for the Exchequer. But, this didn’t happen over night and it has taken patience, foresight and good stewardship to take GKN to the position it is in today and for the next 250 years. It is worth looking back on the formation of GKN by Mr Guest, Mr Keen and Mr Nettlefold in 1759.
The world was a very different place in 1759, called ‘The Year of Victories,’ the fourth year of the Seven Years War (1756-1763). Former British colonial army officer George Washington, now 26, married Virginia widow Martha Custis (née Dandridge), 27, January 6 at her estate in Kent County. Britain’s grain crop fails, raising prices and provoking demands that the government import grain. The British Museum opens January 15 at Montague House in London’s Bloomsbury section. County Kildare brewer Arthur Guinness, 34, acquires a neglected Dublin brewery at James’s Gate, signs a 9,000-year lease in September on an acre of property. John Harrison completes Number Four, the marine chronometer that will eventually win the British Board of Longitude’s prize for a practical way to find the longitude at sea.
Origins of GKN
GKN can trace its roots directly to the origins of the industrial revolution and the advent of powered flight.
The story of GKN began in 1759 when the Dowlais Iron Company was set up in the village of Dowlais in South Wales. The Guest family involvement began in 1767 when John Guest was appointed as manager of Dowlais. His grandson became sole owner in 1851. The Dowlais Iron Company was then the largest iron works in the world, operating 18 blast furnaces and employing 7,300 people. The business was the first licensee of the Bessemer process and in 1857 completed the construction of the world’s most powerful rolling mill.
In 1854 J. S. Nettlefold, a Birmingham screw manufacturer, had revolutionized his industry by introducing automated American machinery. Room was needed to house this; Nettlefold, joined by his brother-in-law Joseph Chamberlain, father of the statesman, established the Heath Street Works in Cranford Street, Smethwick. (fn. 38) The firm (until 1874 Nettlefold & Chamberlain and then Nettlefolds Ltd.) dominated the market by the mid 1860s. (fn. 39) Among those prominent in its development was the younger Joseph Chamberlain, who joined it in 1854 and soon afterwards took charge of the commercial side of the organization. He became a partner in 1869 and remained with the firm until 1874, when he retired to devote himself to politics. (fn. 40) The firm had by then begun to acquire additional premises. In 1869 it bought the Imperial Mills, which stood on the north side of Cranford Street, opposite the Heath Street Works.
By the outbreak of the First World War the new company produced over half the screws and about a quarter of the nuts and bolts made in the country.
The current company, GKN plc, was incorporated as Guest, Keen and Co Limited on 9th July 1900 on the merger of the Dowlais Iron Company with Arthur Keen’s Patent Nut and Bolt Company, a business which had been set up in 1856 in Smethwick, England. In 1900 the Company acquired Nettlefolds Limited, one of the world’s leading manufacturers of screws and fasteners, a business which had also been set up at Smethwick in 1854. Following the acquisition of Nettlefolds the Company changed its name to Guest, Keen and Nettlefolds Limited.
At that time Guest, Keen and Nettlefolds was one of the largest manufacturing businesses in the world, involved in every process from coal and ore extraction to iron and steel making and finally to finished products including the nuts, bolts, screws and fasteners for which it was then famous.
The business changed its focus over the last 25 years of the 20th century in response to fundamental shifts in its traditional markets. Nuts and bolts and screws and fasteners businesses were under significant pressure from low cost economies and the steel industry worldwide was in decline with massive overcapacity. In the UK, successive governments nationalised, then privatised and then partially re-nationalised the country’s steel industry.
In the early 1980’s GKN had decided that the time had come to exit steel. GKN also shed its forgings businesses and exited from the nuts and bolts and screws and fasteners companies which had once made it famous.
In 1966 the Group acquired Hardy Speicer in order to gain access to an automotive overdrive business and a competitor in propshafts. In doing so it also acquired a share in a German business with worldwide patents on a unique constant velocity joint system for front wheel drive cars. During the 1970’s and 1980’s car designers had lost interest in overdrive systems but moved decisively in favour of front wheel drive. GKN soon realised the potential of its CVJ business. It proceeded to take control of its German partner and on the back of a major contract from Ford established its first manufacturing presence in the US. The former world leader in steel rapidly became the new world leader in automotive driveline with manufacturing plants around the world and a 43% global market share in 2002.
During the 1990’s GKN embarked on a number of strategic initiatives which continued to re-shape the Group. Recognising the potential for components produced by powder metallurgy to substitute components produced using conventional forging or machining processes GKN decided in 1997 to build on its own small powder metallurgy business. Within five years turnover has grown from approximately $100 million to $1 billion. Through a series of acquisitions in Europe and North America, GKN has rapidly built the world leader in powder metallurgy.
In 1998 GKN sold its armoured vehicle business to Alvis and in 2003 GKN exited the armoured vehicle business when it sold its 29% shareholding to BAE Systems. In 2001 the Group merged its helicopter business – GKN Westland Helicopters – with Agusta of Italy. Also in 2001, in one of the most significant and complex transactions in its long history, GKN demerged its industrial services businesses. These businesses – principally CHEP, a global pallet pooling business and CLEANAWAY, a European waste disposal business – had grown significantly over a number of years as a joint venture with Brambles Industries of Australia. In August 2001 these businesses were merged with Brambles. GKN shareholders acquired a 43% interest in the new, enlarged Brambles Group which, through a dual listed companies structure, was listed on the London as well as the Sydney stock exchange.
In 1994 with the acquisition of The Westland Group, GKN brought one of the early pioneers of powered flight into the Group. GKN’s aerospace heritage originates in Saunders-Roe, founded in 1901 on the Isle of Wight off the south coast of England. Founder Sam Saunders was an innovator in the early use of composite materials and entered the aviation business in 1913. The business designed and produced flying boats, jet and rocket propelled fighters and satellite launchers. It also produced the world’s first hovercraft. Today the Isle of Wight site is one of the major engineering and manufacturing sites within GKN Aerospace Services.
An acquisition programme in the late 1990s began the transformation of GKN Aerospace Services into an international first tier supplier to the world’s major prime contractors with participation in some of the worlds most advanced programmes including the F/A-22 Raptor and Eurofighter and the Airbus A380 “Superjumbo”. In 2004 GKN completed the sale of it’s 50% shareholding in AgustaWestland to Finmeccanica for £1.063 billion.
GKN In 2018
An independent study has found that GKN contributed a total of £1.3 billion to the UK economy in 2015.
GKN’s UK operations directly contributed £328 million, and GKN and its employees paid £174 million in tax during the year, sufficient to fund over 5,000 nurses. GKN’s supply chains contributed a further £428 million with the Group purchasing more than £500 million in goods and services from UK suppliers. The remaining £526 million was contributed through employees spending their wages in the UK economy.
GKN’s commitment to research and development was also highlighted in the report which found our UK operations invested £85 million in R&D in the year, with nearly 650 employees working on R&D projects. It also estimated that since 2000 GKN has invested a total of £561 million in R&D in the UK alone. GKN today has 14 sites employing nearly 6,000 people in the country. In 2016 UK sales reached over £1 billion.
Chris Saunders, Director of Group External Relations, said, “GKN is today one of the world’s leading engineering groups and we are proud that our worldwide operations and workforce make such a substantial contribution to the UK economy.”
Oxford Economics used a modelling approach to capture how the Group’s global activities support economic activity in the UK in the report published in Q1 2017.
Thus, having exited steel and screws in the 80’s, in a period of over 30 years GKN has developed two new areas of business, aerospace and automotive to form an automotive business worth £4.2 billion and an aerospace business worth £3.4 billion (excluding the £1.063 billion gained from the sale of Westland, which Westland CEO, Richard Case told me was an offer they couldn’t refuse!), a total of £7.6 billion, a huge amount of money in anyone’s book.
So, what would you do if you were the GKN management with an offer of £7 billion on the table, likely to rise? I would push the price as high as I could get it, exit two mature businesses and use the money to develop a new engineering challenge for the next forty years, just like the original founders did all those years ago! Having met those young men in 2014, they would rise to the challenge with alacrity. As a shareholder, albeit on a minor scale, I would certainly relish investing in such a Company.
(Note: Julian Nettlefold is a shareholder of GKN)