INDEX MEMBERS GKN

A re-invented Company

GKN is one of the few UK engineering companies that have stayed the course

The history of the British engineering industry during the 20th century has been one of a slow but steady decline, as the UK, once the leading country in this field, found itself overtaken by more dynamic rivals.

However, GKN, which was formed as Guest Keen & Nettlewfields in 1902, is a rare example of a UK engineering company that has re-invented itself in the past 50 years by adapting to changing circumstances.

At the core of GKN’s transformation has been its global spread. What was in the 1907s a predominantly UK-based group selling to UK customers has turned into a business with three quarters of its sales outside the UK and just 22,000 employees (out of 52,000 worldwide) based in its home country.

Moreover, GKN, once one of the UK’s strongest companies in the old-style engineering fields of steelmaking and fasteners, is now a world leader in specific niches – including helicopters, powder metallurgy, specialised vehicle components and operating the world’s biggest pool of pallets for renting out to other industrial customers.

Its is one of the few large UK businesses to be run by an Asian – the Hong Kong–born Sir C.K. Chow, who took over as chief executive in 1997 having joined the company from the BOC gases group. An admirer of US corporate attitudes, Sir C.K. says he wants to bring more of the traditional can-do spirit of American managers into the GKN culture, as a means of making the company more entrepreneurial and growth-oriented.

With revenues in 1998 of £3.7bn, GKN is among a fairly small group of large UK engineering companies which have stayed the course over the past half century. Others include TI (formerly Tube Investments) and aero-engine supplies Rolls-Royce.

In the case of GKN, the foundations for the company’s current position – reflected in a healthy share price which against the trend of most UK engineering stocks has performed robustly over the past two years – were laid over the previous two decades by Sir C.K.’s two predecessors as chief executive. First, came Sir Trevor Holdsworth, a piano-playing accountant, who took over in 1980. He realised that GKN, which up to then had operated mainly as a supplier to the rapidly fading UK vehicle industry, had to internationalise by finding new technological niches.

Fortunately, GKN had the makings of one such business in the form of the Hardy Spicer constant velocity joint (CVJ), a key component for the axles of modern cars, and which had come into the company though the acquisition in the 1960s of Birfield, a UK industrial company. The seeds for globalising this operation were that Birfield was also a part owner of a German company in the same field.

By building on this expertise, Sir Trevor started the process which today makes GKN the world’s number one of supplier of CVJs, with a market share of nearly 40 per cent. It has plants operating around the world and has a particularly strong position in the US, where the market for these components is growing.

Sir Trevor was replaced in 1988 by Sir David Lees, who preceded Sir C.K. Sir David (who remains the company’s non-executive chairman) continued to develop the company’s business in specialised vehicle parts. He added a further dimension through the 1994 acquisition of Westland, the UK’s leading helicopter manufacturer. Under him GKN expanded its Chep pallets business – a subsidiary which it operates as a 50/50 joint venture with Brambles, as Australian industrial services company.

Sir David saw these businesses as having no direct link but being essentially complementary, through selling to entirely different customers. He argued that engineering companies frequently suffer from the cyclical nature of the industries to which they sold. Therefore, three core business, each operating according to different cycles, could help even out the flows of revenues and profits, and so offer a better return to shareholders.

The strategy has largely worked, and Sir C.K. has kept it in place, adding a growth element to the mixture through spending more than $1.6bn on acquisitions. Notably, he has built the company into the biggest operator internationally in powder metallurgy – a way of forming metal into strong and tough components.

Serving notice that he is keen on further global expansion in the next five years, Sir C.K. has also taken the unusual step of setting up inside GKN a £500,000 ”learning and innovation” fund. This hands out tranches of £5,000 (to pay for prototypes or market research) to divisions of the company which the manager in charge of the fund thinks have good ideas for business development.

Peter Marsh