Review of performance.

GKN Land Systems.

GKN Land Systems is a leading supplier of technology differentiated power management solutions and services. It designs, manufactures and supplies products and services for the agricultural, construction, mining and industrial machinery markets. In addition, it provides global aftermarket distribution and through-life support.

Information on trends in, and the outlook for, land systems markets is given in our markets.

Sales in GKN Land Systems were strongly ahead of the prior year and reflected a solid performance against a continued broad market recovery. All regions and sectors enjoyed good growth, especially agriculture and heavy construction equipment in Europe and North America.

The key financial results for the year are as follows:

  2011 2010 Change
          Headline Underlying
  GKN Land
Systems
Stromag Total   £ % £ %
Sales (£m) 847 38 885 699 186 27 148 21
Trading profit* (£m) 68 (1) 67 37 30 81 31 84
Trading margin 8.0%   7.6% 5.3%        
ROIC 29.5%     15.8%        

(*) Stromag trading profit includes acquisition related charges of £5 million.

Against this background, sales in the period were £885 million, 27% higher than the prior year (2010: £699 million). There was no net impact from currency translation and excluding the £38 million of sales in Stromag, the acquisition that completed in September, the underlying increase in sales was £148 million (21%) with all product areas and regions seeing an improvement.

GKN Land Systems reported trading profit of £67 million (2010: £37 million). Underlying trading profit increased by £31 million, with Stromag reducing profit by £1 million, due to acquisition costs and inventory fair value adjustment of £5 million. The trading margin excluding Stromag was 8.0% compared with 5.3% in 2010, reflecting the strong increase in profitability of the division. GKN Land System’s medium-term target margin range has now been increased to 8-11% (from 7-10%).

Capital expenditure on tangible fixed assets was £18 million (2010: £7 million), 1.3 times (2010: 0.5 times) depreciation.

Return on average invested capital, excluding the Stromag acquisition, increased to 29.5% (2010: 15.8%), reflecting the strong increase in profitability driven by operational process improvements.

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

In addition to achieving strong organic growth and new business wins, on 5 September 2011, GKN Land Systems completed the £170 million acquisition of Stromag.

Stromag is a market leading engineer of industrial power management components. Its core products include hydraulic clutches, electro-magnetic brakes and flexible couplings serving end-markets including renewable energy, agricultural equipment, construction and mining machinery and the metal processing industry. The acquisition is an important step in the implementation of the GKN Land Systems’ strategy to build a global leader in industrial power management, extending its capability in electro-mechanical power management components and systems. In combination with the existing business, it provides a strong platform to accelerate growth in existing markets, together with access to a number of new customers and industrial segments, including renewable energy.