GKN to deliver 'significant' value to shareholders under new strategy
GKN announced further details of its new strategy and transformation plan along with its cash improvement initiative titled ‘Project Boost’ on Wednesday, and outlined the financial performance targets for the group to the end of the 2020 financial year.
The FTSE 100 firm had commenced a wide-ranging strategic and operational review of its business in January.
It said on Wednesday that GKN already had “world class” businesses and technology, and now intended to move towards world class financial performance.
The board said GKN had a new strategy, new leadership team and new execution engine, with three components to the new strategy.
It explained that the first component was to deliver “distinct strategies” for different product segments, with rigorous capital allocation and focused performance targets.
Second, the company would establish a delivery culture based on greater accountability, capability and pace, supported by aligned incentives.
Finally, the company was to separate operationally now and formally when it maximises shareholder value, with operational separation of the aerospace and driveline divisions already started.
The board said it expected Project Boost to deliver a recurring annual cash benefit of £340m from the end of 2020.
It said it was targeting up to £2.5bn cash return to shareholders over the next three years, with a significant part expected to come from divestments executed within the first 12-to-18 months, including the sale of Powder Metallurgy.
GKN's progressive dividend policy would be to target an average payout of 50% of free cash flow over the period of 2018-2020, with the board expecting to distribute surplus cash to shareholders, subject to maintaining an investment grade credit rating.
“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,” said chief executive Anne Stevens.
“GKN has great technologies and great people.
“We have strong market positions and have delivered good growth, with management revenues last year of over £10bn.”
However, Stevens said that too often the company had pursued growth at the expense of returns, and that would no longer be the case.
She said the new strategy would bring discipline, both financial and operational.
“We are bringing clarity to our objectives through distinct strategies for different product segments, with rigorous capital allocation and focused performance targets.
“We are establishing a delivery culture based on greater accountability, with incentives aligned to specific team targets.
“And we are bringing greater focus, with our divisions now being run as separate operations.”
The strategy was expected to generate “significant” cash for shareholders in the short term and meaningful sustainable cash flows over the mid to long term,” Stevens explained.
“We expect to deliver £340m of recurring annual cash benefit from the end of 20202 and are targeting a return of up to £2.5bn to our shareholders over the next three years, with a significant part expected to come from divestments executed within the first 12-18 months.
“We have a plan and we are dedicated to delivering it,” Stevens concluded.