"...US slowdown caused a pause in growth..."

Stephen O'Shea, Chief Executive

This year has seen a pause in our tradition of delivering record profit each year. The scale of the short-term slowdown in the USA has exceeded the rate of growth achieved in Europe and elsewhere. The Group's results are therefore slightly below last year, as indicated in our April trading statement. We made profit before tax and goodwill amortisation of £48.3 million (2001: £49.7 million) on sales at the same level as last year.

Overall our operating companies continue to provide a high return on sales together with an exceptionally good return on capital employed. This has meant that not only were we fully self-funded but also increased our cash balances to record levels by the end of the year. Such a consistent performance across our businesses is underpinned by continual innovation in production methods, systems and new products. We have also continued to increase our R&D spend to record levels, a key element in ensuring future growth.

Efforts to reduce material costs and increase productivity have continued throughout the year and are expected to show through in increased profits in 2002/03. The powerful positions we have built up over many years in safety-related growth markets have provided considerable resilience in the Group results.

The USA has been a significant source of growth in sales and profits over a considerable period. The difficulties in this market inevitably affected this year's performance. Profits from the USA in 1999/00 were £12.3 million, in 2000/01 were £16.3 million and this year were £13.8 million. Sales show a similar pattern of reduction from last year's peak but growth over the previous record. This characteristic is widespread across our six sectors. Only in our water sector did sales grow in the USA as a result of effective selling into our niche areas of the growing US water market. The US market is showing signs of improvement. Recovery in America should lead into a recovery in profits from this region in the second half of the coming year.

In the Fire and Gas sector management was successful in growing sales into mainland Europe to such an extent that declines in the USA and UK were fully offset. Profit remained steady at last year's record level. Our success in developing added value products through our commitment to R&D and our successes in growing market shares and reducing costs have allowed margins to be held at the former satisfactory levels.

A substantial proportion of the world's elevator industry is based on the USA. New York represents 20% of their national market. There has been therefore a significant effect on our Elevator Electronics sector as a result of the disaster of 11 September and from broader US economic effects. Although worldwide sales equalled last year, profit margins were reduced. Some of our biggest customers have been buying some of our smaller ones. This leads to a degree of pricing pressure. Exports of emergency telecommunication equipment and displays for elevators are growing to become a more significant part of our operations. This should allow us to grow sales in other parts of the world further assisted by a strong pipeline of new products.

Right across the world our Process Safety products protect life and health at work. Reductions in sales to the USA were more than offset by increased sales into Europe and the Far East. Our machine guarding and interlocking activities moved ahead well. Recently we have introduced a range of highly sensitive pressure relief sensors that are the most reliable and predictable in the industry according to independent tests. However in the year we earned less from our emergency pressure relief operations. Total profits were close to last year's level. We are working to increase our geographical coverage and bring a wider range of products to each of our customers.

Within our Water business Ultrapure water systems for the semiconductor industry declined to a low level but we increased sales into the more competitive municipal water cleansing market in the USA. We occupy a niche, medium pressure closed systems, in this growing market and increased sales to the USA by £3 million. The change in product mix caused a reduction in margins and profit for the year.

We are the world leaders in the high power Resistor market. This is a diverse market and we supply products into telecoms, internet providers, transport, power generation, heavy industry and mining. All of these industries have been affected in the USA leading to a reduction in US sales of over £3 million. This was only partially offset in other territories where sales grew by less than £1 million. Action was taken during the year to reduce staffing levels and cut some costs. This is however still a highly successful sector and on a medium-term growth track. Despite this the profit made in this sector has been exceeded only once and that was last year. There are early signs of useful growth in our earth-fault control business. This is an area of increasing technology offering valuable operating advantages to customers.

Profits were increased in our Optics & Specialist sector. This was achieved by selling an improved mix of products that earn higher margins. The division increased its return on sales from 14.7% last year to 15.4% this year. One new product that contributed to the improvement is a new automatic instrument for measuring the fluid pressure inside the eye. This is an important diagnostic aid in several forms of eye disease.

It takes special people to create and develop market-leading businesses. Our management team continuously achieves this and at the same time delivers an extraordinarily consistent record of high return on sales and high return on capital employed. Much of this talent is developed within the Group and I would like to endorse the Chairman's words of thanks to Clive Summerhayes, who demonstrated an exceptional ability to recognise, recruit and coach high quality managers during his many years with the Group. Clive will be greatly missed as a valued colleague, but his legacy remains with each of us who benefited from his skills.

There is no disguising the fact that this has been a challenging year for our Executives in each subsidiary. However, once again, they have demonstrated their talent by making the necessary decisions and implementing them successfully. As a result, we have leaner, more productive companies. I would like to thank all our employees for their efforts. As a result of their work, we have continued to create wealth for our shareholders who will deservedly reap the rewards as we return to our remarkable long-term growth track.

In each of our chosen sectors there are long-term growth opportunities. We have considerably improved our sales into Europe and have taken management actions to reduce costs. These factors will assist future operating results, particularly in the second half of the year ending in March 2003. We have substantial resources available to acquire complementary operations that extend our market share or give us access to new or emerging technologies with strong growth potential. Taken together with the fruits of our own R&D, these opportunities provide a strong platform from which to return to our normal pattern of record sales and record profits.