Overview
Industrial Controls supplies automation and control products for the discrete manufacturing industries. Our products provide identification and tracking solutions during the manufacturing process, displays for process monitoring and control, and data interfaces for a broad range of manufacturing industries. Sales are made indirectly to end users via distributors as well as directly to original equipment manufacturers, with a significant proportion of repeat business. The operating companies in this segment are Microscan and Red Lion Controls.

Market drivers
Manufacturing automation is growing in importance as customers compete in an increasingly global environment where improving efficiency and reducing unit costs are key to survival. Another significant factor driving automation and control equipment is the demand for increased operational data regarding product manufacture, and the need to improve processes to reduce rework and scrap, for example by tracking products through the manufacturing process and beyond so that they can be traced in the event of a product recall. In some industries, such as the aerospace and pharmaceutical industries, product tracking by means of barcodes is a regulatory requirement.

Segment performance
Sales in Industrial Controls decreased by 2% to £44.6 million (down 16% at constant currencies). Operating profit was down from £8.4 million to £4.4 million. Operating margins were 9.9% compared with 18.4% in 2008. Around one-third of the reduction in operating margins relates to the organic volume decline, with the remainder attributable to the effects of foreign exchange and the costs for restructuring and post-acquisition integration activities.

Although the electronics and general manufacturing sectors started the year with weak conditions, capacity utilisation began to improve towards the end of the year. Microscan completed the integration of the Siemens Machine Vision Business (SMVB) acquired in 2008. The vision products acquired have brought world-class decoding algorithms, vision knowledge and protected intellectual property to Microscan and enabled the company to secure a number of large projects in markets which were not previously accessible. During the year, the company launched eleven new products, the majority of which were developed following the acquisition of SMVB, expanding its portfolio of solutions for the electronics, pharmaceutical packaging, life sciences, and automotive industries. These included the Visionscape GigE product, launched in the first half, which was well received, particularly in Asia where there is a growing trend and acceptance of track, trace and control solutions in the electronics manufacturing sector. Microscan also re-launched the NerLITE machine lighting business, which was part of SMVB. This comprises a range of coloured lights and focal configurations which help to illuminate images or barcode surfaces in conditions which are difficult to read, for example direct part marks on low contrast, curved surface or dirty parts. These accessories are critical for a number of industrial applications, and Microscan is one of the few suppliers able to offer lighting together with its vision-based products.

Although activity in the industrial controls and machine building markets remained depressed in China in the first half, the market returned to growth in the second half and Red Lion Controls secured a number of important orders. Growth was also good in India, with sales in the second half of the year more than doubling compared with the second half of 2008. Sales via catalogue channels were much more resilient throughout the downturn. Red Lion’s interface products performed well, with increasing success in marine, offshore and oil and gas markets. The marine industry is now adopting Human Machine Interfaces (HMIs) to replace the buttons and dials that still make up the typical control panel and with multiple sub-systems that need to be both monitored and controlled, the ability to communicate with many devices is a valuable differentiator for Red Lion’s products.

Outlook
The second half of the year saw a slight recovery in demand from the general manufacturing sector, which we expect to continue. We anticipate that our portfolio of track, trace and control solutions will continue to find opportunities across a number of industrial controls sectors.