GKN plc has confirmed that it will look to divest GKN Powder Metallurgy, comprising GKN Sinter Metals and Hoeganaes, within the next 12-18 months as part of its new business strategy to transform the company, including the sale of non-core segments. The new strategy announcement comes in response to Melrose PLC’s widely-reported takeover bid in January 2018. After an initial proposal from Melrose to acquire GKN was rejected by GKN’s Board, both companies have launched campaigns to convince GKN shareholders of their respective plans for the group.
GKN stated that there are three components to its new strategy: the company plans to deliver distinct strategies for different product segments through rigorous capital allocation and focused performance targets; establish a delivery culture based on greater accountability, capability and pace, supported by aligned incentives; and separate operationally now and formally when it maximizes shareholder value – with the operational separation of GKN Aerospace and Driveline already underway.
As part of a plan to divest non-core segments, GKN group will also look to sell GKN Driveline’s Wheels, Cylinder Liners and Off-Highway Powertrain businesses, while identifying plans to grow Driveline China and further develop its eDrive Systems business. GKN Aero Additive Manufacturing was also identified as a product segment positioned for growth.
The Board stated that it is targeting up to 2.5 billion pounds cash return to shareholders over the next three years, with a significant portion of this expected to come from divestments executed in the first 12-18 months, including the sale of Powder Metallurgy. The group will also enact a ‘progressive dividend policy’ targeting an average pay-out of 50 percent of free cash flow to its shareholders over the period of 2018-2020.
Anne Stevens, chief executive of GKN, said, “The new strategy brings clarity, accountability and focus to GKN’s world-class businesses and will allow the group to attain world-class financial performance. GKN has great technologies and great people. We have strong market positions and have delivered good growth, with management revenues last year of over 10 billion pounds.”
“But too often we pursued growth at the expense of returns,” she said. “This will no longer be the case. The new strategy brings discipline, both financial and operational.” Stevens said the company expects the new strategy to generate significant cash for shareholders in the short term, and meaningful sustainable cash flows over the mid- to long-term. “We expect to deliver 340 million pounds of recurring annual cash benefit from the end of 2020,” she said.