Howard Wheeldon cheers GKN's announcement today that it is creating a new division.
Just as it has successfully done so often in the past, GKN is once again setting out to exploit new opportunities. There is never a dull moment in this company! Linked to the vast experience the company has in its well established global automotive driveline, industrial products, highly specialist off-highway product base, aerostructures and the interesting specialist powder metallurgy product arena, a fourth division to be called Land Systems has been formed. This brings together Off-Highway, GKN Aerostructures plus GKN Industrial and Distribution units. The new unit is designed to exploit growth opportunities in areas including high speed rail, military vehicle equipment markets and UK offshore wind-power and to open new doors in providing through-life support by the potential upgrade of existing large engineering product equipment, making use of recent new GKN technology and innovation plus the availability of new lighter materials. The company is looking to more than double current annualised divisional sales of £700m within five years.
Perhaps the most interesting aspect of the new division is that it is designed to exploit next generation technology either already developed by the company or that will likely evolve in the future. It is a great idea and should allow a useful degree of organic expansion for the Redditch, Worcestershire based company as well as opening new engineering doors and opportunities. Equally important to me is that the decision makes use of existing engineering investment and motivates others to exploit this for other purposes. Thus, we see this as seeking to better exploit each and every conceptual engineering idea that the company has more recently been involved in, ensuring that no possible opportunities are lost. Clearly there is ample scope to exploit existing Off-Highway mining and agricultural equipment within the new division and with pressure from all side to develop more efficient and lighter weight products we see this as an excellent time for GKN to position itself to exploit engineering based opportunities wherever they arise.
The new division will primarily focus on two key technology product areas: Power Management and High Performance Structures in which customers are frequently under pressure to find more engineering sophisticated solutions utilising lighter weight materials.
With the long developed expertise in agricultural, mining and construction vehicles (Off-Highway Product) and GKN Driveline technology which accounts for an ever increasing percentage proportion of the actual product today, we would see potential for the company to exploit many new product based activities. Amongst these would be high speed rail which although often pushed back on the basis of cost will inevitably be an increasing feature of future national infrastructure investment. In addition, there are potential opportunities in heavy military vehicles such as the armoured car market (it’s worth noting that back in the late 1980’s GKN Sankey built 1,000 plus Warrior Armoured Personnel Carriers for the British Army – hugely successful vehicles that it is hoped will shortly undergo significant upgrading) for which the UK government is already committed to various developments under the FRES (Future Rapid Effects System) exercise. Low carbon emission projects are also on the increase and we would note here that off-shore wind-power is yet another very fast growing area of engineering expertise in which GKN is very well placed to add substantial value in the years ahead.
As a highly successful UK engineering company and one that has stood the test of time by continually adapting and changing to meet new requirements, what GKN has announced in the formation of a new division today will be seen by some as just continuation of existing strategy. However, it is more than that in our view – it is at the very least showing confidence in the future by investing in new ideas. It is also based primarily on the principle of organic based growth, although I have no doubt that acquisitions will be an eventual additional feature. A potentially very good long term move then and one that ultimately will I am sure benefit GKN shareholders.
Howard Wheeldon is the Senior Strategist at BGC Partners
