Sales:
£897 million (2001: £1,349 million)

Operating profit*:
£2 million (2001: £182 million)

Overview
Our Power Systems division saw revenues decline 34% (33% organically) as demand from the telecom and IT sectors virtually collapsed. This was most pronounced in the US and Japan although, by the third quarter, European markets were also showing weakness. Our Power Systems and Power Components businesses were first affected by these trends in the final quarter of the prior financial year, and the rate of decline sharpened rapidly throughout the year under review. Only service-based revenues in the Power Systems business continued to grow, and these are now 4% higher than a year ago.

The severe market conditions produced inevitable pricing pressures. These combined with the substantial reduction in volumes, particularly on higher margin product, and with customer bankruptcies, to cause profits in the division to drop to break even levels.

Key developments
Aggressive cost reductions were made throughout the year, but real profitability will only return with increased activity in the businesses' main markets. As yet there is no sign of this in the US, with order levels from telecoms and IT customers roughly half the level of a year ago and those in Japan and Brazil similarly weak. Although power supply design wins are running at twice last year's level, OEM customers continue to delay production schedules. However, orders at Teccor began to show some strength in March 2002 for semiconductor applications, traditionally a lead indicator for sector demand.

The Power Systems businesses continued to secure major contracts, despite the extremely competitive marketplace. Emphasising the strength of our offering, we were awarded the third phase of the US Air Force logistics contract for uninterruptible power supply (UPS) equipment and systems integration. This seven-year contract, which has an estimated total value of £54 million ($76 million), makes Invensys the largest UPS supplier to the US Government.

To ensure that we have the right offering for eventual market recovery, we worked closely with customers to develop new products that best meet their needs. Planned launches include key products in the high demand areas of telecom power systems and medium power uninterruptible power supplies.

We also integrated sales channels and worked to improve dispatch times in the US to deliver a more seamless and improved customer service.

To help reduce product cost, we continued to transfer manufacturing to lower cost countries, such as China, while applying more cost-effective techniques to existing factories. Some activities, including labour intensive manufacturing, were outsourced.

As part of the new Group strategy, the Energy Storage business, a leading supplier of batteries and chargers, was sold to EnerSys Inc. for £287 million ($425 million). The sale allows us to focus on our core sectors, while ensuring a protected supply of quality batteries from EnerSys.

As of 1 May 2002, the Power Systems business (now known as Powerware) became part of our new Energy Management division and Power Components moved into the new Development division.