GKN in new move to underline case for independence
Engineering group lifts forecasts in fast-growing electric driveline business
GKN sought to underline its potential as an independent company in the face of a hostile, largely share-based £7bn offer from Melrose Industries by significantly lifting its forecast for growth in the electric driveline business.
The FTSE engineering group said it expected sales in 2020 from the unit, which turns out the parts that send battery power to car wheels, to be £275m by 2020, 36 per cent better than the £200m previously forecast and up from £33m in 2017, the company said in a statement on Sunday. Turnover would hit £500m by 2022, thanks to recent big contract wins.
GKN also announced that the order book for electric driveline — a small part of its business that is rapidly growing — hit a record £2bn at the end of 2017. This reflects a series of significant programme wins for the unit, otherwise known as eDrive, with major global automakers.
GKN last reported its divisional breakdown of sales and orders in August. Sunday’s uplift was possible due to a series of important contract wins since then, a person close to the company said.
The boost in sales targets comes as GKN attempts to convince investors to reject the hostile cash-and-shares offer from Melrose.
The bid has come at a difficult time for GKN, left without a successor to former chief executive Nigel Stein and in the wake of two profit warnings.
However, the company has argued that Melrose’s offer, 80 per cent in shares and 20 per cent in cash, significantly undervalues the group.
Melrose said in a statement: “Research and development is a key part of the Melrose equation and today’s [GKN] announcement is part of the justification of the premium that we are offering to GKN shareholders as we seek to create a £11bn value powerhouse by merging our two businesses.”
The GKN team — led by Anne Stevens, the former non-executive who has been promoted to chief executive in the face of the Melrose bid — argues that accepting the offer would hand a significant share in the future benefits of growth to the bidders’ shareholders.
Ms Stevens has said she intends to reverse the company’s poor record on cash and margins with a restructuring plan and by better supporting growing businesses such as eDrive.
GKN makes parts and systems for roughly half the world’s passenger cars. However, the shift to hybrid electric vehicles could threaten that position. GKN has been investing heavily for years in electric technology.
In 2017, the research and development hit to profits was £36m, with total investment of more than £123m over the past six years, GKN said.
But the company said this was now paying off. “Whilst impacting near-term financial performance, this investment is now delivering strong sales and order book growth,” the group said in a statement.
Among the recent major wins that have contributed to the £2bn order book, GKN cited: a multimode etransmission system due to launch on a Chinese manufacturing platform across a number of vehicle models from 2018; a semi-integrated electric driveline unit from 2019 for a new vehicle launched by a premium European automaker; and an integrated edrive system for a European global manufacturing programme that is expected to be first launched in China from next year.