Sales:

£1,380 million (2001: £1,326 million)

Operating profit*:

£10 million (2001: £43 million)

Overview
The reported sales increase of 4% actually represented an organic decline of 3% after the impact of acquisitions and currency translation. This reflected continuing softness in global capital spending for industrial automation, particularly in North America but also in Europe and Asia. However, Latin America had strong growth.

Most regions also began to benefit late in the year as actions to improve our capability to sell solutions produced several major orders from petrochemical, power and food and beverage customers, such as Rhodia and OCI Chemicals. Baan sales were up 3% despite weak IT markets, mainly driven by their software products for supply chain and product lifecycle management performing well.

Contract pricing and project management difficulties, together with lower sales of higher value added systems, contributed to a disappointing profit performance.

Operating profit for the division was £10 million, with the second half showing the first signs of recovery.

Key developments
The appointment in October 2001 of Leo Quinn as Division Chief Executive marked the start of a major drive to restore profitability and to limit cash leakage in loss-making projects and business units. Gross margins improved through tighter processes in bid approvals and project costing and management. The focus on discretionary spending produced a 9% drop in overheads for the fourth quarter from third quarter levels. Initiatives in cash management, training and awareness produced a 14% reduction in receivables.

At the same time, programmes were implemented in all regions to improve capability in tailoring solutions and service packages to specific customer needs. Delivery performance has been improved and customer satisfaction has risen. Product development was reviewed to ensure that new releases are delivered on time, including the recent HART module, as well as ProfiBus and the next generation software in the shape of the ArchestrA open platform, which is undergoing customer testing and will be launched in 2002/03. The ArchestrA system allows companies in all industries to stay competitive in a world where product life cycles are growing ever shorter and end user customers are demanding custom products that can be brought to market more quickly.

One of our key future differentiators will be our ability to support the entire customer supply chain, due to the complementary nature of our businesses and products. During the year, the integration of Baan and Wonderware technologies proceeded well. Baan began working with customers to develop new products and services around such in-demand areas as customer relationship management (CRM) and supply chain management (SCM).

All the Software Systems businesses transferred on 1 May 2002 to the new Production Management division.