On Wednesday, the FTSE 100 global engineer unveiled details of its strategy and transformation plan titled Project Boost, which include a progressive dividend policy and a promise to distribute surplus cash to shareholders.
A significant portion of the £2.5bn cash return is expected to come from parts of the business it intends to shed over the next 12 to 18 months, including the sale of its powder metallurgy business.
According to the firm, Project Boost will deliver £340m in annual cash benefits from the end of 2020 and allow the group to grow its profit margins by 10.5% or more within the next three years.
It also vowed to pay out an average of 50% of free cashflow in dividends between 2018 and 2020.
“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,” explained GKN’s chief executive Anne Stevens.
“We have strong market positions and have delivered good growth, with management revenues last year of over £10bn,” she added, “but too often we pursued growth at the expense of returns; this will no longer be the case. The new strategy brings discipline, both financial and operational.”
The updates from GKN form part of the transformation programme it promised back in January, as a means of appeasing shareholders for turning down a £7bn hostile bid from turnaround specialist Melrose Industries.
Last month, GKN received a “preliminary and unsolicited proposal from Melrose” valuing the business at 405p per share, a 24% premium to its closing price on 5 January of 326p. It promptly rejected the bid from Melrose and announced it would be splitting out its aerospace and automotive divisions into two separate companies.
GKN’s rebuff sent its shares soaring by 20% to 420p on the day and in the following days, its share price rose to 447p. However, shares in the firm have fallen by about 9% over the last month.
After GKN’s latest update, its shares rose to 404p during early Wednesday trading, but had fallen back down to 400p by mid-morning.
The restructuring is expected to cost GKN around £450m, 32% of which will be incurred this year and 44% in 2019.
Ultimately, the firm believes the changes it puts in place will “substantially improve cash flow and shareholder value”.
Stevens said: “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.
“We have a plan and we are dedicated to delivering it.”
