Review of Performance

Land Systems

  2010 2009 restated
Sales (£m) 699 593
Trading profit (£m) 37 (3)
Trading margin 5.3% (0.5)%

Following a very difficult second half of 2009 for Land Systems businesses, 2010 started more positively with the recovery continuing throughout the year, especially for mining, heavy construction and general industrial equipment and for automotive products.

In Europe, the strongest recovery occurred in construction and in the structures market, relating to new vehicle production. The Aftermarkets and Services business was not impacted by the recession to the same extent as other parts of Land Systems and therefore has seen a more modest improvement in sales as markets have recovered. The weakest recovery has been in European agricultural equipment markets which remained relatively soft during the first half but started to improve in the second half, supported by higher global commodity prices and some re-stocking within the supply chain.

In North America, agriculture, construction and mining markets all enjoyed good growth.

Against this background, sales in the period were £699 million, 18% higher than the prior year (2009 restated: £593 million). Excluding currency translation of £10 million negative, the underlying increase in sales was £116 million (20%) with all product areas and regions seeing an improvement.

The division reported trading profit of £37 million (2009 restated: £3 million trading loss). There was no net impact from currency translation. The trading margin was 5.3% compared with (0.5)% in 2009 (restated).

Restructuring actions during the year resulted in charges of £5 million (2009 restated: £20 million).

Capital expenditure on tangible fixed assets was £7 million (2009 restated: £11 million), 0.5 times (2009 restated: 0.7 times) depreciation.

Return on average invested capital increased to 15.8% (2009 restated: (1.1)%), reflecting the return to profitability of the division.

Good progress was made in winning new business. Specific areas of success included:

  • CVJ for 4x4 tractors – utilising our automotive driveline technology a CVJ shaft was developed for the agricultural tractor market, which is increasingly moving towards independent suspension. This innovative solution allows tractor designers to improve mobility, comfort, speed of operation and reduce running noise;
  • Rauch fertilising equipment – following the trend for precision farming a torque sensing device has been developed. The device is linked to a global positioning system (GPS) and allows farmers to fertilise the farm according to defined soil requirements in a repeatable and accurate way;
  • Combine hydro split drive – in order to improve further the efficiency of a combine harvester, the hydro split gearbox allows the transfer of power to the areas where it is most needed with infinite variable speed;
  • Specialist driveshafts for electric cars – the Aftermarkets and Services business secured further driveshaft business for the Fisker electric car, offering a highly efficient low weight driveshaft;
  • New wheels business in the fast growing South American market with a major original equipment manufacturer.

The requirement to make off highway vehicles more fuel efficient and with lower emissions will provide opportunities for Land Systems to utilise its own expertise and leverage technology from Driveline in making lighter components and increasing the efficiency of power management products. Furthermore, a strategic review identified a number of potential growth opportunities that could utilise GKN’s core skills and technologies. Examples include military vehicles requiring independent suspension and advanced driveline solutions to cope with more challenging terrain, increasing urbanisation leading to demand for high speed rail solutions and increasing use of renewable energy to meet lower carbon emission targets.

Looking forward to 2011, land systems markets are expected to continue to improve and we expect the division to make further progress in developing stronger positions in existing and new markets.