SEALING SOLUTIONS
SEALING SOLUTIONS IS A WORLD LEADER IN THE DESIGN OF HIGH-PERFORMANCE MECHANICAL AND POLYMER SEALS FOR A WIDE RANGE OF APPLICATIONS, INCLUDING OIL AND GAS, PETROCHEMICAL, PROCESSING PLANTS, MOBILE HYDRAULIC MACHINERY AND PULP AND PAPER.

For Sealing Solutions, 2002 was a year of considerable achievement in the face of weakening demand in several key markets. Strong management action achieved savings which increased margins, so creating a lasting improvement in profitability.

While sales fell 8% to £822m, operating profit declined by just 4% to £100m. Once again, cash generation was strong, with a profit-to-cash conversion ratio of 100%.

Within John Crane, the business unit that makes mechanical seals, sales held up relatively well. By contrast, Polymer Sealing Solutions' sales fell significantly, reflecting the downturn in the European market for capital goods and equipment.

The division sold a number of non-core businesses. The biggest was John Crane-Lips, the marine seals specialist, which Finland's Wärtsilä Corporation bought for £235m. John Crane-Lips is included in the discontinued line of our accounts.

Accelerated cost cutting
The post-TI restructuring programme was brought forward and expanded during the year. At the time of the merger, we anticipated achieving a £30m a year saving by 2003. As a result of actions taken in 2002, however, savings will amount to £33m.

In addition to the restructuring, a sharp fall in activity in some parts of our Polymer business unit caused us to adjust production capacity, bringing employment worldwide down to around 6,000.

We have also made considerable performance gains through better supply chain management and various lean initiatives. We have reorganised our supply chain, with significant financial benefits resulting from factors such as a reduction in inventory. Furthermore, e-business solutions continued to be introduced to allow our customers to order on-line, realising efficiency and financial gains.

Business wins
There were some notable business wins. John Crane forged a $20m five-year alliance with Textron, the US conglomerate, to be its sole supplier of open specification sealing solutions. Additionally, we agreed to supply mechanical seals and power transmission couplings for the $4bn Nanhai petrochemical project in south-east China, which will be one of the world's biggest petrochemical plants. Also, our polymer seals were used in the UK's prestigious Falkirk Millennium Lock.

As with our other divisions, product development is vital for Sealing Solutions. The LaserFace mechanical seal was a major step forward. This new seal reduces interface friction, so allowing compressors to pump more while minimising leakage levels.

Outlook – Sealing Solutions
During 2003, we plan to build on this year's achievements. Improvements in sales and marketing combined with the introduction of new technologies should generate higher sales. At the same time, cost reductions and other efficiency gains should feed through to profit as restructuring benefits are experienced over a full 12 months.