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Invensys plc
15 November 2012
RESULTS FOR HALF YEAR ENDED 30 SEPTEMBER 2012
Business highlights
· Overall the Group produced a good performance in an uncertain macro-economic environment
· Invensys Operations Management continued to perform well in the first half with improvements in revenue, operating profit and operating margin driven by conversion of its large order book and strong growth in higher margin Software revenue
· As expected, Invensys Rail had delays in mobilisation of some of the large contracts awarded in H2 last year and in the letting of contracts under the Network Rail framework agreements; material progress is expected in H2
· Invensys Controls experienced softening demand in Appliance; good progress is expected in Commercial and Wholesale in H2
Financial performance - continuing operations
· Order intake was £1,044 million (H1 11/12: £1,086 million), down 2% at CER1 due mainly to the timing of orders at Invensys Operations Management and Invensys Controls
· Revenue was £1,200 million (H1 11/12: £1,244 million), down 2% at CER, with good growth in Invensys Operations Management more than offset by an expected decline at Invensys Rail
· Operating profit2 was £102 million (H1 11/12 £102 million), up 2% at CER, with an expected weaker performance from Invensys Rail offset by Invensys Operations Management
· Underlying earnings per share3 increased by 10% to 7.6p (H1 11/12: 6.9p) mainly due to a reduction in restructuring costs
· Operating cash inflow was £27 million (H1 11/12: £11 million outflow) with operating cash conversion of 26% mainly due to the investment in working capital in our major projects ahead of payment milestones
· Net cash was £175 million (31 March 2012: £262 million) with the reduction mainly due to working capital and pension payments
· The IAS 19 pension liability was £490 million (31 March 2012: £426 million), in part reflecting continued low interest rates
· Interim dividend increased by 6% to 1.75p per share (H1 11/12: 1.65p per share)
Outlook
· Subject to any significant changes to the global macro-economic environment, our good first half performance and strong order book supports our view that we will improve our performance for the year as a whole
Contact:
Invensys plc Steve Devany tel: +44 (0) 20 3155 1301
FTI Consulting Andrew Lorenz
Richard Mountain tel: +44 (0) 20 7269 7291
Chief Executive's Statement
We have produced a good performance in the first six months of the year, a period during which there have been increased levels of uncertainty in the global macro-economic environment.
Invensys Operations Management continued to perform well with growth in revenue and operating margins. This was achieved through its strong order book and the diversity of its industry and geographic end markets. The execution of the three China Nuclear contracts is progressing in accordance with our revised plans.
As expected, Invensys Rail had a slow start to the year due to the timing of orders from Network Rail and also the timing of mobilisation of some of our large export contracts. We expect material progress in the second half of the year.
Invensys Controls experienced less volatility in demand within its Appliance business but was generally affected by the weaker economies in the US and Europe.
Our financial position remains strong with net cash on the balance sheet of £175 million despite having made some large investments in working capital to support our major projects ahead of payment milestones; this working capital position is expected to unwind as we enter the next financial year.
We have made two bolt-on acquisitions so far this year; PHW Inc., which expands Invensys Rail's positive train control product range to include onboard equipment, and Spiral Software, which strengthens our simulation and optimisation offerings for refinery customers in Invensys Operations Management.
Looking ahead, subject to any significant changes to the global macro-economic environment, our good first half performance and strong order book supports our view that we will improve our performance for the year as a whole.
Wayne Edmunds
Notes
1. Unless otherwise stated, % change is measured at constant exchange rates (CER) as a percentage of the H1 11/12 adjusted base and is calculated based upon underlying amounts in £'000s.
2. All references to operating profit (OPBIT) and operating margin in this announcement are before exceptional items.
3. Underlying earnings per share is before exceptional post-retirement benefits - settlement loss; and exceptional finance costs.
Presentation and conference call
Wayne Edmunds, CEO, and David Thomas, CFO, will be hosting a presentation and conference call for analysts and investors at 9.00 a.m. London time this morning:
Venue: City Presentation Centre
4 Chiswell Street
London
EC1Y 4UP
Dial-in details (please note that the confirmation code is required).
UK:
+44(0)20 7784 1036
US:
+1 646 254 3360
France:
0805 631 580
Germany:
0800 589 2673
Italy:
800 089 737
Spain:
800 600 526
Confirmation Code:
6642955
The presentation will also be available via audio webcast both live and for replay purposes. To access the audio webcast please go to http://www.invensys.com and follow the Half Year Results link.
A recording will be available at this address shortly after the completion of the call. This announcement and the presentation materials are also available at http://www.invensys.com
Safe harbor
This announcement contains certain statements that are forward-looking. These statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Forward-looking statements are not guarantees of future performance. The Group's actual results of operations, financial condition and liquidity, and the development of the industries in which the Group operates, may differ materially from those made in or suggested by these statements and a number of factors could cause the results and developments to differ materially from those expressed or implied by these forward-looking statements.
Business Review
Performance highlights
Half year ended 30 September
All data relates to continuing operations (other than free cash flow)
H1 12/13
H1 11/12
% Total change
% Change at CER1
Orders (£m)
1,044
1,086
(4%)
(2%)
Order book4 (£m)
2,148
2,360
(9%)
(6%)
Revenue (£m)
1,200
1,244
(4%)
(2%)
Operating profit2 (£m)
102
102
-
2%
Operating margin2 (%)
8.5%
8.2%
Operating cash flow - inflow/(outflow) (£m)
27
(11)
nm5
nm5
Cash conversion (%)
26%
(11%)
Free cash flow - outflow (£m)
(49)
(103)
52%
Earnings per share - basic (p)
7.6p
6.9p
10.2%
Earnings per share - underlying (p)
7.6p
6.9p
10.2%
Return on operating capital3 (%)
33.5%
35.2%
1. % change is measured as the change at CER as a percentage of the H1 11/12 adjusted base and is calculated based on underlying amounts in £'000s.
2. All references to operating profit and operating margin are arrived at before exceptional items, unless otherwise stated.
3. Return on operating capital at CER is calculated as OPBIT divided by capital employed excluding goodwill, net pension liabilities, non-operating provisions and net taxation liabilities.
4. Comparative is as at 31 March 2012.
5. nm - not meaningful.
Dividend
The Board has declared an interim dividend of 1.75 pence per share (H1 11/12: 1.65 pence per share) payable on 21 December 2012 to shareholders on the register on 23 November 2012.
Outlook
We expect Invensys Operations Management to continue to perform well in the second half underpinned by its large order book and significant exposure to emerging markets, many of which are expected to be less affected by the current uncertain macro-economic environment.
Invensys Rail is expected to see improved order intake during the rest of the year, particularly from Network Rail, and revenue recovering as we begin mobilisation of the recently won large export contracts.
Based upon customer comments, we expect Invensys Controls' major Appliance markets in North America and Europe to continue to be more stable in the secondhalf and we should see the traditional seasonal improvements in Commercial and Wholesale, supported by several key new product launches in Commercial.
Subject to any significant changes to the global macro-economic environment, our good first half performance and strong order book supports our view that we will improve our performance for the year as a whole.
Invensys Operations Management
Invensys Operations Management is a leading global technology, software and consulting business that creates and applies advanced technologies to enable the safe and efficient operation of industrial and commercial operations such as oil refineries, fossil fuel and nuclear power plants, petrochemical works and other manufacturing sites.
Our product offerings can be broadly divided into three areas: Systems, formerly control and safety (61% of revenue), Software, formerly advanced applications (18% of revenue) and Equipment (21% of revenue). Our enterprise control offerings are delivered across all three product categories.
Half year ended 30 September
H1 12/13
H1 11/12
% Total change
% Change at CER
Orders (£m)
564
599
(6%)
(5%)
Order book1 (£m)
970
1,088
(11%)
(9%)
Revenue (£m)
656
618
6%
7%
Operating profit (£m)
64
54
19%
18%
Operating margin (%)
9.8%
8.7%
Operating cash flow (£m)
1
13
(92%)
(90%)
Operating cash conversion (%)
2%
24%
Employees at period end (numbers)
9,767
9,309
5%
1. Comparative is as at 31 March 2012
Revenue by line of business
Half year ended 30 September
H1 12/13
H1 11/12
% Total change
% Change at CER
Systems
398
377
6%
6%
Software
120
103
17%
16%
Equipment
138
138
-
3%
Revenue by sector
Half year ended 30 September
H1 12/13
H1 11/12
Oil and gas
29%
28%
General industries
30%
26%
Utilities and power
15%
17%
Discrete manufacturing
7%
9%
Petrochemicals
5%
6%
Other
14%
14%
Revenue by destination
Half year ended 30 September
H1 12/13
H1 11/12
UK
5%
5%
Rest of Europe
20%
21%
North America
31%
28%
South America
6%
7%
Asia Pacific
25%
25%
Africa/Middle East
13%
14%
Markets
Invensys Operations Management continues to expect growth in the global industrial automation market driven by continued investment in oil and gas markets, as well as continued growth from servicing the installed base and smaller projects. However it has experienced some softening in the systems markets driven by macro-economic conditions in Europe and Asia and the timing of larger greenfield projects awards.
While macro-economic conditions have been creating a slowing business environment over the last few months, the heavy process markets continue to be areas of investment, and there are no indications of a significant risk for contraction of the automation or industrial software markets.
The main drivers of the automation and industrial software industries continue to be the expectation of growing demand for energy in emerging markets. This demand and the forecast for oil and gas prices continue to drive significant investment throughout the world in the energy markets. In emerging markets, the outlook for automation remains good based on growth in investment in energy, particularly in the Middle East, Brazil, India, and China. In the developed markets, ageing assets, new sources of energy, and our customers' strong cash positions continue to drive service, upgrade and migration business in Systems.
The software markets have remained solid despite the economic uncertainty with good demand from customers for simulation software to enable them to optimise the performance of their plants; this business is being enhanced through the recent acquisition of Spiral Software which broadens its offerings in the refinery market (see below).
The shorter-cycle equipment market continues to see better than expected conditions helped by a large order backlog and continued demand from the heavy process industries such as oil and gas. Although there has been some softening in demand from emerging markets such as China, the level of customer enquiries has risen in the recent months.
Developments
Since the period end, our simulation and optimisation offerings have been expanded by the £38 million acquisition of Spiral Software, a privately held company based in Cambridge, UK. Founded in 1998, Spiral Software provides integrated solutions ranging from crude assay management to refinery supply chain optimisation, enabling clients to make the best possible choices in trading and refining crude oil. It provides the only integrated refining-industry solution designed from the ground up, bringing together feedstock data management, planning and scheduling. This means that our offerings will now fully support and optimise the entire refining value chain, from crude trading to supply-chain distribution, including lifecycle modeling from design to start up to performance optimisation.
Work on the three contracts to supply control and safety systems to eight nuclear reactors in China has continued in accordance with the revised project plans put in place in January 2012 and we are now making some good progress in project execution. Although we are having to invest heavily in working capital to progress these contracts, with the consequent adverse effect on operating cash flow, we expect to reach some key payment milestones in the second half of the year which will improve the division's cash conversion. We are continuing with our decision not to recognise any profits from the two later contracts until we have greater certainty of the final outcome; this has impacted operating margins in the division by around one percentage point.
Performance
Order intake in the first half was slightly down on the first half of last year mainly due to some orders being delayed into H2 for larger greenfield projects in the Systems business and softness in Equipment mainly due to weaker than expected economies in Europe and North America. Order intake was £564 million (H1 11/12: £599 million), down 5% at CER. The order book at 30 September 2012 was £970 million (31 March 2012: £1,088 million), a decrease during the period of 9% at CER. The pipeline of order prospects through to 31 March 2016 remains strong at around £3.5 billion.
Revenue in the period was up 7% at CER to £656 million (H1 11/12: £618 million) with growth in each line of business driven by conversion of the division's large order book. There was strong growth in Software (up 16% at CER), helped by simulation and HMI across most regions, and Systems (up 6% at CER), helped by the execution of the large greenfield projects awarded in prior years.
Operating profit was up 18% at CER at £64 million (H1 11/12: £54 million) and operating margin increased compared to the corresponding period last year to 9.8% (H1 11/12: 8.7%) despite the dilutive effect of revenue arising from the China Nuclear projects which are currently being traded at zero margin.
Operating cash flow was £1 million (H1 11/12: £13 million) resulting in cash conversion for the half year of 2% (H1 11/12: 24%). The low level of operating cash conversion was due mainly to the need to invest in working capital in the large greenfield projects such as China Nuclear ahead of the incidence of payment milestones; this position is expected to improve significantly in the second half of the year.
Invensys Rail
Invensys Rail is a multinational provider of state-of-the-art software-based signalling, communication and control systems that enable the safe and efficient operation of trains in mainline and mass transit networks across the world. Our aim is to deliver higher capacity safely and reduced travel times.
Half year ended 30 September
H1 12/13
H1 11/12
% Total change
% Change at CER
Orders1 (£m)
264
250
6%
6%
Order book2 (£m)
1,118
1,202
(7%)
(4%)
Revenue (£m)
323
382
(15%)
(14%)
Operating profit (£m)
45
53
(15%)
(10%)
Operating margin (%)
13.9%
13.9%
Operating cash inflow/(outflow) (£m)
28
(1)
nm3
nm3
Operating cash conversion (%)
62%
(2%)
Employees at period end (numbers)
3,700
4,013
(8%)
1. Orders and order book exclude framework agreements
2. Comparative is as at 31 March 2012
3. nm - not meaningful
Revenue by line of business
Half year ended 30 September
H1 12/13
H1 11/12
Engineering and contracting
63%
76%
Products
37%
24%
Revenue by destination
Half year ended 30 September
H1 12/13
H1 11/12
UK
27%
26%
Rest of Europe
17%
19%
North America
31%
21%
South America
6%
12%
Asia Pacific
18%
22%
Africa/Middle East
1%
-
Markets
The market for rail signalling and train control remained strong in the first half of the year particularly in South America, the Middle East and Asia. Demand continues to be driven by industrialisation, urbanisation, increasing capacity needs and the recognition of rail as an environmentally sustainable and efficient means of transport.
The UK market is supported by government commitments to continue to fund Network Rail and other rail infrastructure projects such as Crossrail and the second High Speed Line linking London and Birmingham. However, following our success in being awarded four of the nine regional framework agreements by Network Rail, the letting of contracts under those agreements has been slow in the first half but is expected to pick up significantly in the second half.
In the US, the market for grade crossings remains robust and we have made some progress in penetrating the mass transit and mainline signalling markets. In Spain there has been a significant reduction in activity levels due to government austerity measures.
Outside our traditional core markets, there is a significant level of rail infrastructure investment being made, as evidenced by our recent wins in Saudi Arabia and Turkey.
Developments
During the first half, Invensys Rail North America acquired the privately-held PHW Inc. for £12 million. Based in Pittsburgh, PHW is a leading manufacturer of cab signalling systems and other safety electronic train control systems for the North American mainline and mass transit industries. PHW's onboard Positive Train Control (PTC) products enhance our existing range of trackside PTC products, strengthening further our position in North America. PHW's onboard system is used on the North East Corridor by Amtrak and associated railroads as part of Amtrak's ACSES PTC system, which is the only PTC system to be approved so far for operation by the Federal Railroad Administration under the requirements of the Rail Safety Improvement Act of 2008. Since its acquisition in May 2012, PHW has been awarded its largest ever order, a sub-contract to install its PTC system onboard all the transit rail vehicles of the Southeastern Pennsylvania Transportation Authority (SEPTA).
As part of its strategy to increase the level of equipment sales, our S60 level crossing barrier machine has received a Certificate of Acceptance from Network Rail. The S60 machine is a lightweight electro-mechanical product rather than a traditional hydraulic system, making it far simpler to operate and maintain. Also, it uses less power than conventional systems so reducing cable size and battery capacity. The Certificate of Acceptance covers the S60 barrier machine for use at all types of automatic half barrier and manually controlled barrier level crossings, including those that incorporate CCTV and object detection technology.
Since the period end, aconsortium comprising Invensys Rail and Siemens plc has been awarded a £50 million contract by Crossrail Limited to deliver the signalling and train control solution for the core Crossrail area and for the integration with Network Rail infrastructure at its fringes. Crossrail will provide 21 kilometres of new railway under the heart of London in twin-bore tunnels. Up to 24 trains per hour will operate in the core central section area during the peak, with 200 million passengers annually using the Crossrail service. The consortium will deliver a Communications-Based Train Control (CBTC) solution and integration with Network Rail's European Rail Traffic Management System (ERTMS). This will enable Crossrail trains to travel on both the new central section and the existing rail network.
The issues identified at a business within our Asia Pacific region, which gave rise to a provision of £20 million last year, have now been resolved with no changes needed to the level of the provision. The operation is now performing well under a new management team.
Performance
Orders in the first six months were up 6% at CER at £264 million (H1 11/12: £250 million) with a book-to-bill ratio below 1.0 mainly due to the delays in Network Rail orders in the UK. Our order book at 30 September 2012 was £1,118 million (31 March 2012: £1,202 million).
Revenue in the period was down 14% at CER to £323 million (H1 11/12: £382 million) reflecting the timing of contract awards by Network Rail and the significant reduction in revenue in Spain which have not yet been offset by increased new market revenue due to the delays in mobilisation of the large new contracts awarded last year, which will now make a significant contribution to revenue in the second half. This was partially offset by significant growth in Product sales due to success with US grade crossings.
Operating profit was down 10% at CER at £45 million (H1 11/12: £53 million) and operating margin was 13.9% (H1 11/12: 13.9%). Operating cash inflow was £28 million (H1 11/12: £1 million outflow) following the receipt of some upfront payments on contracts awarded last year. Operating cash conversion was 62% (H1 11/12: (2%)) and is expected to improve in the second half as we await a large receipt from one of the division's major South American customers.
Invensys Controls
Invensys Controls is a leading global engineering and technology provider that designs, engineers and manufactures products, components, systems and services used in appliances, heating, air conditioning/cooling and refrigeration products across a wide range of industries in residential and commercial markets.
Half year ended 30 September
H1 12/13
H1 11/12
% Total change
% Change at CER
Orders (£m)
216
237
(9%)
(5%)
Order book1 (£m)
60
70
(14%)
(11%)
Revenue (£m)
221
244
(9%)
(6%)
Operating profit (£m)
11
14
(21%)
(23%)
Operating margin (%)
5.0%
5.7%
Operating cash flow (£m)
13
5
160%
170%
Operating cash conversion (%)
118%
36%
Employees at period end (numbers)
6,943
7,033
(1%)
1. Comparative is as at 31 March 2012
Revenue by line of business
Half year ended 30 September
H1 12/13
H1 11/12
Appliance
59%
60%
Wholesale
23%
22%
Commercial
18%
18%
Revenue by destination
Half year ended 30 September
H1 12/13
H1 11/12
UK
9%
7%
Rest of Europe
24%
27%
North America
47%
44%
South America
12%
13%
Asia Pacific
7%
7%
Africa/Middle East
1%
2%
Markets
Overall Invensys Controls markets remained weak in the first half of the year. The Appliance market in North America demonstrated greater stability in the first half compared to last year but the recent signs of improvements in the US housing market are not yet translating into increased shipments of appliances. As a result, the North American appliance manufacturers are now expecting a small decline in total appliance shipments in the calendar year 2012.
The European Appliance market continues to suffer from the region's economic problems with some of our customers limiting factory operations by as much as one week per month to manage capacity and inventory. Growth in Asia has shown signs of slowing with China production being affected by both reduced export and domestic demand. In South America, the Brazilian government's economic stimulus package and extended tax incentives should continue to help our business during the remainder of the year.
The Wholesale markets in North America and Europe were also generally weak in the first half and improvement in the second half will be dependent upon more normal winter weather to drive increased heating and thermostat demand.
The Commercial markets held up well but our performance was affected in particular by delays in orders for new products, which represent a significant part of this business.
Developments
The continued weakness in the European Appliance market led to the decision being made in the period to close the Belluno factory in Italy and move manufacturing to other plants.
The investment in new product development continued with new products representing 14% of the division's revenue in the first half compared with 13% in FY 2011/12, despite some delays within Commercial.
Following its success with Thermo King in applying wireless and remote monitoring technologies to refrigerated transportation, Invensys Controls has been working with Verizon to create a new application for our Centeron® tank monitoring system. The new solution, which can be used across multiple industries, including petroleum, agriculture and telecommunications, uses radio and sensor technology to remotely track fuel levels in a company's tanks, including the fuel tanks that power generators at many Verizon cell sites across the US. Combined with data centres, advanced productivity software and monitoring reports, the system helps prevent outages by ensuring fuel levels remain at optimum levels.
Performance
Orders during the period were £216 million (H1 11/12: £237 million), down 5% at CER reflecting continuing challenges faced by our end markets.
Revenue was £221 million (H1 11/12: £244 million), a 6% decrease at CER. Our order book at 30 September 2012 was £60 million (31 March 2012: £70 million).
Although gross margin improved as a result of restructuring and continued focus on cost reduction, operating profit was down 23% at CER to £11 million (H1 11/12: £14 million) due to the reduced revenue.
Operating margin was 5.0% (H1 11/12: 5.7%). Despite the reduced operating performance, operating cash flow was strong at £13 million (H1 11/12: £5 million) with cash conversion at 118% (H1 11/12: 36%).
Risks and uncertainties
As part of our routine procedures, the principal risks and uncertainties of the Group are kept under review. In particular we have considered developments in the world's economic situation and financial markets upon both the Group's financial position and that of its customers and suppliers. We have concluded that the principal risks and uncertainties for the remaining six months of the financial year remain as detailed on pages 37-44 of the 2012 Annual Report and Accounts, a copy of which is available from www.invensys.com. The principal risks are summarised below as required by DTR 4.27R of the Disclosure and Transparency Rules:
Risk
Description
Failure to maintain a competitive and technologically advanced product range could reduce margins and revenue growth
Invensys operates in highly competitive markets and the Group's products and services are characterised by continually evolving industry standards and rapidly changing technology, driven by the demands of the Group's customers. As illustrations of this, Invensys Rail continues to invest in the development of the European Rail Traffic Management System (ERTMS) and Communication Based Train Control (CBTC) which are becoming globally adopted standards of signalling and train control. Invensys Operations Management continues to invest in enhancements to its systems, advanced software applications and enterprise control offerings to optimise plant performance for our global customers.
The timing and frequency of substantial contract awards are uneven
The revenue of Invensys Rail depends on a small number of large railway operators, both in our traditional core markets in the UK, Iberia, North America and Australia and in new markets. New contract awards are often associated with major transport infrastructure upgrades, and as a result are by nature large and infrequent.
Invensys Operations Management is associated with the supply of technology, software and consulting to the oil and gas, chemical and nuclear industries. Capital expenditure requirements from customers in these industries are often highly cyclical and linked to the international supply, demand and pricing of hydrocarbons. Also the timing of new contract awards in the nuclear industry may be impacted if certain nuclear programmes are subject to delay or cancellation.
Undertaking large, long-term projects exposes the Group to risk of loss
A significant amount of the Group's business involves long-term projects that can take many months or even years to complete. These projects may be subject to delays and cost overruns due to delays in technology development, equipment deliveries, engineering problems, work stoppages, unanticipated cost increases, shortages of materials or skilled labour or other unforeseen problems inherent in the nature of such projects.
The Group may be subject to financial loss and/or damage to its reputation as a result of product liability claims
Errors and defects in the Group's products, systems or applications, which may be used in safety-critical applications, could cause injury to persons or damage to property and equipment or be the subject of product recalls.
The Group may be exposed to liability through the actions of consortium partners, cosource partners or its supply chain
The business activities of the Group are often conducted with consortia, with joint and several liability between consortium partners, and/or with cosource partners whose day-to-day management actions are outside of the control of the Group. A significant element of the Group's risk profile is the delivery performance of its supply chain. These partnerships exist across our businesses. For example, Invensys Rail often undertakes contracts with consortium partners in traditional core markets and in new or developing markets.
The Group may be exposed to additional liabilities with respect to its UK and US pension plans
The Group has a large level of gross liabilities in respect of its major pension plans relative to its market capitalisation.
The Group is subject to ongoing litigation and environmental liabilities
As a consequence of the past disposal of a significant number of businesses, the Group has, or may incur, certain liabilities in relation to environmental claims (including the cost associated with the remediation of contaminated sites no longer owned by the Group), disputed taxes, litigation (including personal injury claims arising from alleged exposure to asbestos and silica), indemnity claims and other disposal costs relating to the disposed businesses. These risks have receded over time as warranties and indemnities in relation to past disposals have expired, existing disputes have been settled and remediation work on contaminated sites has been completed. The Group also has environmental liabilities in relation to the remediation of vacant sites which it owns.
Additional Financial Information
Orders and order book
A summary of orders and movements at CER by division is set out below:
For the half year ended 30 September
H1 2011/12
Orders
£m
Exchange movement £m
H1
2011/12
at CER
£m
Change at CER
£m
H1 2012/13
Orders £m
Change at CER1 %
Invensys Operations Management
599
(7)
592
(28)
564
(5%)
Invensys Rail
250
(2)
248
16
264
6%
Invensys Controls
237
(9)
228
(12)
216
(5%)
Continuing operations
1,086
(18)
1,068
(24)
1,044
(2%)
The order book for continuing operations was £2,148 million at 30 September 2012 (31 March 2012: £2,360 million). This includes 47% in emerging markets.
Revenue
A summary of revenue and movements at CER by division is set out below:
For the half year ended 30 September
H1 2011/12
Revenue
£m
Exchange movement £m
H1
2011/12
at CER
£m
Change at CER
£m
H1 2012/13
Revenue£m
Change at CER1 %
Invensys Operations Management
618
(7)
611
45
656
7%
Invensys Rail
382
(8)
374
(51)
323
(14%)
Invensys Controls
244
(9)
235
(14)
221
(6%)
Continuing operations
1,244
(24)
1,220
(20)
1,200
(2%)
Operating profit
A summary of operating profit and movements at CER by division is set out below:
For the half year ended 30 September
H1 2011/12
OPBIT
£m
Exchange movement £m
H1
2011/12
at CER
£m
Change at CER
£m
H1 2012/13
OPBIT £m
Change at CER1 %
Invensys Operations Management
54
-
54
10
64
18%
Invensys Rail
53
(3)
50
(5)
45
(10%)
Invensys Controls
14
-
14
(3)
11
(23%)
Corporate
(19)
-
(19)
1
(18)
2%
Continuing operations
102
(3)
99
3
102
2%
1 % change is measured as the change at CER as a percentage of the H1 2011/12 adjusted base and
is calculated based on underlying amounts in £'000s.
Operating cash flow and cash conversion
A summary of operating cash flow and cash conversion by division is set out below:
For the half year ended
30 September
Operating cash flow
Cash conversion
H1 2012/13
£m
H1 2011/12
£m
H1 2012/13
%
H1 2011/12
%
Invensys Operations Management
1
13
2%
24%
Invensys Rail
28
(1)
62%
(2%)
Invensys Controls
13
5
118%
36%
Corporate
(15)
(28)
-
-
Continuing operations
27
(11)
26%
(11%)
Exceptional items
The exceptionals charge for the period totalled £9 million (H1 2011/12: £24 million). This included restructuring costs of £11 million and £1 million of intangible asset impairments; offset by a £2 million profit on the sale of property and a £1 million credit on other operating exceptional items.
Restructuring costs included a plant shutdown in Invensys Controls.
The comparative period included restructuring costs of £20 million and £4 million of other operating exceptional items.
Net finance costs
Net finance costs were £7 million in the period (H1 2011/12: £4 million), this was driven by higher bonding costs.
Other finance charges - IAS 19
IAS 19 finance charges increased to £9 million (H1 2011/12: £1 million) mainly as a result of a greater reduction in the expected return on plan assets compared to the interest on pension liabilities arising from lower discount rates.
Taxation
The tax charge for continuing operations was £14 million (H1 2011/12: £16 million), which comprised a current year income tax charge of £18 million (H1 2011/12: £23 million), offset by prior year credits of £2 million (H1 2011/12: £2 million) and a deferred tax credit of £2 million (H1 2011/12: £5 million). The Group is subject to several factors which affect the tax charge including the levels and mix of profitability in different jurisdictions and the availability of tax losses. The effective tax rate for the Group was 18% (H1 2011/12: 22%).
Discontinued operations
There was £nil profit from discontinued operations (H1 2011/12: loss of £2 million).
Net profit
Net profit for the period was £63 million (H1 2011/12: £55 million), due to a decrease in exceptional items of £15 million, offset by an increase in the IAS 19 finance charge of £8 million.
Earnings per share
Basic EPS from continuing operations was 7.6 pence per share (H1 2011/12: 6.9 pence per share). Underlying EPS was also 7.6 pence per share (H1 2011/12: 6.9 pence per share).
Free cash flow
Free cash flow for the period was a £49 million outflow (H1 2011/12: £103 million outflow). The improvement in free cash flow was driven by better operating cash flow and lower legacy spend with reduced pension contributions to the US Pension Plan under local regulations.
Financial position
Capital structure
The Group's capital structure is as follows:
30 September
2012
£m
30 September
2011
£m
31 March
2012
£m
Capital employed
321
481
314
Cash and cash equivalents
176
194
263
Borrowings
(1)
(2)
(1)
Net cash
175
192
262
Total equity - funds
496
673
576
Comprising:
- Equity holders of parent
475
652
556
- Non-controlling interests
21
21
20
496
673
576
Total equity
Total equity decreased by £80 million, principally driven by the IAS 19 actuarial losses of £134 million and the final dividend paid of £22 million, offset by the net profit of £63 million.
Non-controlling interests
The non-controlling interests balance was £21 million (31 March 2012: £20 million), the majority of which relates to Ranco Japan Limited, an Invensys Controls business.
Net cash
Net cash was £175 million (31 March 2012: £262 million). The reduction in net cash was primarily due to the free cash outflow of £49 million, dividend payments of £22 million and the acquisition cost of £12 million for PHW Inc, an Invensys Rail business.
Capital employed
Capital employed increased by £7 million to £321 million in the period, mainly attributable to increased working capital, offset by the increased pension liabilities of £64 million. Capital employed includes operating capital of £514 million (31 March 2012: £440 million), generating a return of 33.3% (30 September 2011: 35.2%, 31 March 2012: 35.5%).
Pension liabilities and funding
The IAS 19 valuation of pension assets and liabilities as at 30 September 2012 resulted in a net pension liability of £490 million (31 March 2012: £426 million). The overall increase of £64 million is driven by an actuarial loss of £134 million offset by contributions of £45 million.
Dividend
The Board has declared an interim dividend of 1.75 pence per share (30 September 2011: 1.65 pence per share).
Invensys plc
Consolidated income statement (unaudited)
For the half year ended 30 September 2012
Half year ended
30 September
2012
Half year ended
30 September
2011
Year ended
31 March
2012
Notes
£m
£m
£m
Continuing operations
Revenue
2
1,200
1,244
2,539
Operating expenses before exceptional items
(1,098)
(1,142)
(2,330)
Operating profit before exceptional items
2
102
102
209
Exceptional items
3
(9)
(24)
(56)
Operating profit
3
93
78
153
Finance costs
(7)
(5)
(13)
Finance income
-
1
3
Other finance charges - IAS 19
(9)
(1)
(3)
Profit before taxation
2
77
73
140
Taxation - UK
-
-
(4)
Taxation - overseas
(14)
(16)
(31)
Profit after taxation - continuing operations
63
57
105
Loss after taxation - discontinued operations
4
-
(2)
(6)
Profit for the period
63
55
99
Attributable to:
Profit after taxation - continuing operations
- Equity holders of the parent
62
56
104
- Non-controlling interests
1
1
1
63
57
105
Loss after taxation - discontinued operations
- Equity holders of the parent
-
(2)
(6)
Profit for the period
- Equity holders of the parent
62
54
98
- Non-controlling interests
1
1
1
63
55
99
Earnings/(loss) per share
Continuing operations
Earnings per share (basic)
5
7.6p
6.9p
12.8p
Earnings per share (diluted)
5
7.6p
6.9p
12.8p
Discontinued operations
Loss per share (basic)
5
-
(0.2)p
(0.7)p
Loss per share (diluted)
5
-
(0.3)p
(0.8)p
Total Group
Earnings per share (basic)
5
7.6p
6.7p
12.1p
Earnings per share (diluted)
5
7.6p
6.6p
12.0p
Invensys plc
Consolidated statement of comprehensive income (unaudited)
For the half year ended 30 September 2012
Half year ended
30 September
2012
Half year ended
30 September
2011
Year ended
31 March
2012
Note
£m
£m
£m
Profit for the period
63
55
99
Other comprehensive (loss)/income
Cash flow hedges:
Losses taken to equity
(3)
(2)
-
Transferred to the income statement - cost of sales
3
1
-
Exchange differences on translation of foreign operations
(23)
2
(12)
Actuarial (loss)/gain recognised on defined benefit pension schemes
(134)
147
(31)
Movement in irrecoverable element of potential future pension surplus
9
34
(51)
(4)
Taxation on components of other comprehensive income
(4)
7
21
Other comprehensive (loss)/income for the period, net of tax
(127)
104
(26)
Total comprehensive (loss)/income for the period
(64)
159
73
Attributable to:
Equity holders of the parent
(66)
156
71
Non-controlling interests
2
3
2
(64)
159
73
Invensys plc
Consolidated balance sheet (unaudited)
As at 30 September 2012
30 September
2012
30 September
2011
31 March
2012
Notes
£m
£m
£m
ASSETS
Non-current assets
Property, plant and equipment
224
235
227
Intangible assets - goodwill
285
295
289
Intangible assets - other
174
173
168
Deferred income tax assets
67
53
70
Amounts due from contract customers
14
-
11
Trade and other receivables
26
24
26
790
780
791
Current assets
Inventories
156
168
145
Amounts due from contract customers
331
305
273
Trade and other receivables
469
506
500
Cash and cash equivalents
7
176
194
263
Income tax receivable
6
7
10
Derivative financial instruments
2
2
3
1,140
1,182
1,194
Assets held for sale
8
7
10
10
TOTAL ASSETS
1,937
1,972
1,995
LIABILITIES
Non-current liabilities
Provisions
(69)
(76)
(74)
Income tax payable
(15)
(32)
(15)
Deferred income tax liabilities
(15)
(17)
(15)
Amounts due to contract customers
(19)
(8)
(23)
Trade and other payables
(11)
(9)
(10)
Pension liabilities
9
(490)
(327)
(426)
(619)
(469)
(563)
Current liabilities
Trade and other payables
(525)
(501)
(533)
Amounts due to contract customers
(199)
(222)
(205)
Borrowings
7
(1)
(2)
(1)
Derivative financial instruments
(3)
(4)
(3)
Income tax payable
(38)
(27)
(49)
Provisions
(56)
(74)
(65)
(822)
(830)
(856)
TOTAL LIABILITIES
(1,441)
(1,299)
(1,419)
NET ASSETS
496
673
576
EQUITY
Capital and reserves
Equity share capital
82
81
81
Treasury shares
(1)
(1)
(1)
Other reserves
2,493
2,526
2,515
Retained earnings
(2,099)
(1,954)
(2,039)
Equity holders of the parent
475
652
556
Non-controlling interests
21
21
20
TOTAL EQUITY
496
673
576
Invensys plc
Consolidated statement of changes in equity (unaudited)
For the half year ended 30 September 2012
Other reserves
Issued
share
capital
Treasury
shares
Share
premium
account
Capital
reserve
Special
reserve
Cash flow
hedge
reserve
Foreign
exchange
reserve
Total
other
reserves
Retained
earnings
Attributable to
equity holders
of the parent
Non-controlling
interests
Total
Equity
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
Balance at 1 April 2012
81
(1)
349
1,582
495
(8)
97
2,515
(2,039)
556
20
576
Profit for the period
-
-
-
-
-
-
-
-
62
62
1
63
Other comprehensive (loss)/income for the period
-
-
-
-
-
-
(24)
(24)
(104)
(128)
1
(127)
Total comprehensive (loss)/income for the period
-
-
-
-
-
-
(24)
(24)
(42)
(66)
2
(64)
Share-based payments
-
-
-
-
-
-
-
-
4
4
-
4
Issue of shares
1
-
2
-
-
-
-
2
-
3
-
3
Dividends paid to equity shareholders
-
-
-
-
-
-
-
-
(22)
(22)
-
(22)
Dividends paid to non-controlling interests
-
-
-
-
-
-
-
-
-
-
(1)
(1)
Balance at 30 September 2012
82
(1)
351
1,582
495
(8)
73
2,493
(2,099)
475
21
496
Balance at 1 April 2011
81
(2)
348
1,582
495
(8)
110
2,527
(2,092)
514
35
549
Profit for the period
-
-
-
-
-
-
-
-
54
54
1
55
Other comprehensive (loss)/income for the period
-
-
-
-
-
(1)
-
(1)
103
102
2
104
Total comprehensive (loss)/income for the period
-
-
-
-
-
(1)
-
(1)
157
156
3
159
Share-based payments
-
-
-
-
-
-
-
-
3
3
-
3
Purchase of own shares by Employee Share Trust
-
(1)
-
-
-
-
-
-
-
(1)
-
(1)
Distribution of own shares under share-based payment arrangements
-
2
-
-
-
-
-
-
(2)
-
-
-
Dividends paid to equity shareholders
-
-
-
-
-
-
-
-
(20)
(20)
-
(20)
Dividends paid to non-controlling interests
-
-
-
-
-
-
-
-
-
-
(1)
(1)
Disposal of non-controlling interests1
-
-
-
-
-
-
-
-
-
-
(6)
(6)
Purchase of non-controlling interests
-
-
-
-
-
-
-
-
-
-
(10)
(10)
Balance at 30 September 2011
81
(1)
348
1,582
495
(9)
110
2,526
(1,954)
652
21
673
Balance at 1 April 2011
81
(2)
348
1,582
495
(8)
110
2,527
(2,092)
514
35
549
Profit for the year
-
-
-
-
-
-
-
-
98
98
1
99
Other comprehensive (loss)/income for the year
-
-
-
-
-
-
(13)
(13)
(14)
(27)
1
(26)
Total comprehensive (loss)/income for the year
-
-
-
-
-
-
(13)
(13)
84
71
2
73
Share-based payments
-
-
-
-
-
-
-
-
4
4
-
4
Issue of shares
-
-
1
-
-
-
-
1
-
1
-
1
Purchase of own shares by Employee Share Trust
-
(1)
-
-
-
-
-
-
-
(1)
-
(1)
Distribution of own shares under share-based payment arrangements
-
2
-
-
-
-
-
-
(2)
-
-
-
Dividends paid to equity shareholders
-
-
-
-
-
-
-
-
(33)
(33)
-
(33)
Dividends paid to non-controlling interests
-
-
-
-
-
-
-
-
-
-
(1)
(1)
Disposal of non-controlling interests1
-
-
-
-
-
-
-
-
-
-
(6)
(6)
Purchase of non-controlling interests
-
-
-
-
-
-
-
-
-
-
(10)
(10)
Balance at 31 March 2012
81
(1)
349
1,582
495
(8)
97
2,515
(2,039)
556
20
576
1 Final distribution to the non-controlling shareholders of Baan
Invensys plc
Consolidated cash flow statement (unaudited)
For the half year ended 30 September 2012
Half year ended
30 September
2012
Half year ended
30 September
2011
Year ended
31 March
2012
Notes
£m
£m
£m
Operating activities
Operating profit:
Continuing operations
3
93
78
153
Depreciation of property, plant and equipment
17
19
37
Amortisation of intangible assets - other
18
15
31
Provision for impairment charged to operating profit
3
1
-
15
(Profit)/loss on sale of assets and operations
3
(2)
-
1
Non-cash charge for share-based payment
4
3
4
Cash payments on swap contracts
-
(1)
-
(Increase)/decrease in inventories
(13)
(13)
8
Decrease in receivables
17
19
5
Decrease in net amounts due to contract customers
(73)
(55)
(30)
Decrease in payables and provisions
(6)
(69)
(33)
Difference between pension contributions paid and amounts recognised in operating profit
(37)
(49)
(77)
Cash generated from operating activities
19
(53)
114
Income taxes paid
(22)
(15)
(34)
Interest paid
(7)
(4)
(10)
Facility fees paid
-
-
(5)
Net cash flows from operating activities
(10)
(72)
65
Investing activities
Interest received
1
1
3
Purchase of property, plant and equipment
(20)
(16)
(38)
Sale of property, plant and equipment
4
-
-
Expenditure on intangible assets - other
(24)
(27)
(51)
Purchase/disposal of non-controlling interests
-
(16)
(16)
Purchase of subsidiaries
(12)
-
-
Net cash flow arising on disposal of operations
(1)
(4)
(7)
Cash payments on swap contracts
-
-
(1)
Net cash acquired on purchase of subsidiaries
3
-
-
Cash flows from investing activities
(49)
(62)
(110)
Financing activities
Purchase of Invensys plc shares
-
(1)
(1)
Proceeds from exercise of share options
-
-
1
Dividends paid to equity holders of the parent
(22)
(20)
(33)
Dividends paid to non-controlling interests
(1)
(1)
(1)
Cash flows from financing activities
(23)
(22)
(34)
Net decrease in cash and cash equivalents
(82)
(156)
(79)
Cash and cash equivalents at beginning of period
263
349
349
Net foreign exchange difference
(5)
1
(7)
Cash and cash equivalents at end of period
176
194
263
Invensys plc
Notes (unaudited)
1 Basis of preparation
Statement of compliance
The Group's condensed Consolidated Financial Statements for the six months ended 30 September 2012 have been prepared in accordance with IAS 34 Interim Financial Reporting, as adopted by the European Union (EU). They do not include all the information and disclosures required in the Annual Report and Accounts, and should be read in conjunction with the Group's Annual Report and Accounts as at 31 March 2012 that are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.
Significant accounting policies
The accounting policies adopted in the preparation of the condensed Consolidated Financial Statements are consistent with those followed in the preparation of the Group's Annual Report and Accounts for the year ended 31 March 2012, except for the following new standards, amendments to existing standards and new interpretations which have been adopted by the Group for the half year:
Amendments to IFRS 1 Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters
Amendments to IFRS 7 Disclosures: Transfers of Financial Assets
Amendments to IAS 12 Deferred Tax: Recovery of Underlying Assets
The amendments to IFRS 7 have been endorsed by the EU and are effective for the financial year beginning 1 April 2012. The amendments to IFRS 1 and IAS 12 are expected to be endorsed by the EU before the end of the financial year and as a result, in accordance with IAS 34, the Group has applied these amendments in these Financial Statements. These amendments have had no material impact on the Consolidated Financial Statements.
2 Operating segment information
For management purposes, the Group is organised into divisions based on their products and services and has three reportable operating segments: Invensys Operations Management, Invensys Rail and Invensys Controls. There have been no changes to the composition of these operating segments during the half year. Descriptions of the products and services provided by these divisions are set out in the Our Business Model section of the 2012 Annual Report and Accounts. Operations presented as discontinued are explained in note 4 of this preliminary announcement.
Operating results of each of these divisions are monitored separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated primarily on operating profit or loss before exceptional items as identified in the consolidated income statement. Restructuring costs and impairment losses on operating assets, which are reported in the consolidated income statement as exceptional items, are also monitored at the segment level. Other exceptional items together with foreign exchange gains or losses, finance costs, finance income, finance charges relating to pension arrangements under IAS 19 Employee Benefitsand income tax are managed on a Group basis and are not allocated to operating segments.
Segment net assets/(liabilities) comprise amounts considered to be net operating assets/(liabilities) used for operating performance assessment; items not included in these net operating assets/(liabilities) are identified in the reconciliation on page 23 of this report.
These segments are monitored by divisional chief executives and reviewed by the Chief Executive and Chief Financial Officer.
Invensys plc
Notes (unaudited)
2 Operating segment information (continued)
Operating segments
Half year ended
30 September
2012
Half year ended
30 September
2012
Half year ended
30 September
2012
Half year ended
30 September
2011
Half year ended
30 September
2011
Half year ended
30 September
2011
Year ended
31 March
2012
Year ended
31 March
2012
Year ended
31 March
2012
£m
£m
£m
£m
£m
£m
£m
£m
£m
Segment revenues
Total
revenue
Inter-company
revenue1
External
revenue
Total
revenue
Inter-company
revenue1
External
revenue
Total
revenue
Inter-company
revenue1
External
revenue
Division
Invensys Operations Management
662
6
656
623
5
618
1,283
11
1,272
Invensys Rail
323
-
323
382
-
382
775
-
775
Invensys Controls
221
-
221
244
-
244
493
1
492
Eliminations
(6)
(6)
-
(5)
(5)
-
(12)
(12)
-
Total Group
1,200
-
1,200
1,244
-
1,244
2,539
-
2,539
Segment profit
Operating
profit/(loss)2
Operating
profit/(loss)3
Operating
profit/(loss)2
Operating
profit/(loss)3
Operating
Profit/(loss)2
Operating
profit/(loss)3
Division
Invensys Operations Management
64
62
54
49
96
90
Invensys Rail
45
44
53
43
116
93
Invensys Controls
11
4
14
13
35
25
Total segment
120
110
121
105
247
208
Corporate
(18)
(17)
(19)
(27)
(38)
(55)
Total Group
102
93
102
78
209
153
Reconciliation to profit before taxation:
Finance costs
(7)
(5)
(13)
Finance income
-
1
3
Other finance charges - IAS 19
(9)
(1)
(3)
Profit before taxation - continuing operations
77
73
140
1 Inter-company revenue is invoiced at market prices
2 Before exceptional items
3 After exceptional items
Invensys plc
Notes (unaudited)
2 Operating segment information (continued)
Half year ended
30 September
2012
Half year ended
30 September
2011
Year ended
31 March
2012
£m
£m
£m
Geographical analysis by destination
External
revenue
External
revenue
External
revenue
United Kingdom
138
147
309
Other regions:
Rest of Europe
240
270
573
United States
337
300
629
North America - other
68
58
129
South America
88
125
217
Asia Pacific
246
256
507
Africa and Middle East
83
88
175
1,062
1,097
2,230
Total revenue
1,200
1,244
2,539
Segment net assets/(liabilities)
Net assets/
(liabilities)
Net assets/
(liabilities)
Net assets/
(liabilities)
Division
Invensys Operations Management
245
256
189
Invensys Rail
206
166
183
Invensys Controls
146
190
157
Total segment net assets
597
612
529
Corporate
(76)
(83)
(79)
Total Group
521
529
450
Reconciliation to total net assets/(liabilities):
Intangible assets - goodwill
285
295
289
Cash and cash equivalents
176
194
263
Pension liabilities
(490)
(327)
(426)
Other (borrowings, current and deferred income tax assets/(liabilities))
4
(18)
-
Total net assets
496
673
576
Invensys plc
Notes (unaudited)
3 Operating profit
Half year ended
30 September
2012
Half year ended
30 September
2011
Year ended
31 March
2012
£m
£m
£m
Revenue
1,200
1,244
2,539
Cost of sales
(817)
(859)
(1,766)
Gross profit
383
385
773
Distribution costs
(5)
(6)
(10)
Administrative costs
(227)
(224)
(455)
Research and development costs
(49)
(53)
(99)
Operating profit before exceptional items
102
102
209
Restructuring costs
(11)
(20)
(31)
Other operating exceptional items:
Settlement loss on post-retirement benefits
-
-
(3)
Other operating exceptional items
1
(4)
(6)
Total other operating exceptional items
1
(4)
(9)
Impairment: property, plant and equipment
-
-
(5)
Impairment: intangible assets - other
(1)
-
(10)
Profit/(loss) on sale of assets and operations
2
-
(1)
Exceptional items
(9)
(24)
(56)
Operating profit
93
78
153
Restructuring costs by business division:
Invensys Operations Management
(2)
(5)
(6)
Invensys Rail
-
(10)
(13)
Invensys Controls
(8)
(1)
(6)
Corporate
(1)
(4)
(6)
(11)
(20)
(31)
4 Discontinued operations
No operations have been discontinued in the half years ended 30 September 2012, 30 September 2011, or in the year ended 31 March 2012. In the half year ended 30 September 2012 there was a net charge of £nil (H1 2011/12: £2 million, FY 2011/12: £6 million).
Invensys plc
Notes (unaudited)
5 Earnings/(loss) per share
Half year ended
30 September
2012
Half year ended
30 September
2011
Year ended
31 March
2012
Earnings/(loss) per share (pence)
Continuing operations
Basic
7.6p
6.9p
12.8p
Diluted
7.6p
6.9p
12.8p
Before exceptional post-retirement benefits - settlement loss;
and exceptional finance costs
Basic
7.6p
6.9p
13.4p
Diluted
7.6p
6.9p
13.4p
Discontinued operations
Basic
-
(0.2)p
(0.7)p
Diluted
-
(0.3)p
(0.8)p
Total Group
Basic
7.6p
6.7p
12.1p
Diluted
7.6p
6.6p
12.0p
Weighted average number of shares (million)
Basic
813
811
812
Effect of dilution - share awards
2
6
2
Diluted
815
817
814
Earnings (£m)
Continuing Operations
Basic
62
56
104
Before exceptional post-retirement benefits - settlement loss;
and exceptional finance costs
- Exceptional settlement loss
-
-
3
- Exceptional finance costs
-
-
2
Underlying
62
56
109
Discontinued operations
Basic
-
(2)
(6)
Total Group
Basic
62
54
98
The basic earnings/(loss) per share for the half year has been calculated using 813 million shares (H1 2011/12: 811 million, FY 2011/12: 812 million), being the weighted average number of shares in issue during the half year and the profit after taxation and non-controlling interests for continuing operations, discontinued operations and total Group as shown above.
An additional earnings per share calculation for continuing operations has been included since the directors consider that this gives a useful additional indication of underlying performance.
The diluted earnings/(loss) per share has been calculated in accordance with IAS 33 Earnings per Share without reference to adjustments in respect of certain share awards which are considered to be anti-dilutive.
Invensys plc
Notes (unaudited)
6 Business combinations and business disposals
In the half year ended 30 September 2012, the Group acquired PHW Inc. Details of this business combination are shown below.
There were no disposals in the half year ended 30 September 2012, and no acquisitions or disposals in the half year ended 30 September 2011 or the full year ended 31 March 2012.
Acquisition of PHW Inc.
On 10 May 2012, Invensys acquired 100% of the share capital of PHW Inc. (PHW), a privately held manufacturer of cab signalling systems and other safety electronic train control systems for the North American mainline and mass transit industries for a cash consideration of £12 million. The Group acquired PHW as part of the continuing process to broaden the range of technologies and solutions that Invensys Rail is able to sell to its global customer base. PHW provides complementary Positive Train Control (PTC) onboard products. The acquisition has been accounted for using the acquisition method of accounting and the Group Financial Statements include the results of PHW from its date of acquisition to 30 September 2012.
The provisional fair value of the identifiable assets and liabilities of the acquired business at the date of acquisition was:
Provisional fair value
recognised
on acquisition
£m
Intangible assets - other1
5
Inventory
2
Trade and other receivables
1
Amounts due from contract customers
1
Cash and cash equivalents
3
Total assets
12
Total liabilities
-
Total identifiable net assets at fair value
12
Goodwill arising on acquisition
-
Total purchase consideration transferred
12
Total purchase consideration transferred comprises
- Cash payment
12
Cash outflow on acquisition:
- cash paid
12
- net cash acquired with the subsidiary (included in cash flows from
investing activities)
(3)
Net cash outflow
9
1 The intangible assets acquired represent the technology in respect of the existing product range.
Trade and other receivables include trade receivables of £1 million. The gross contractual amount of trade receivables is £2 million. £1 million of the trade receivables has been impaired and it is expected that £1 million of the contractual amount can be collected.
Costs relating to the acquisition are negligible and have been expensed through operating profit in the half year ended 30 September 2012.
Under the terms of the acquisition agreement, costs of up to £6 million will become payable to the former owners of PHW dependent on the attainment of certain agreed performance targets subsequent to the acquisition of PHW by the Group.
Invensys plc
Notes (unaudited)
6 Business combinations and business disposals(continued)
From the date of acquisition, PHW has contributed £3 million revenue and £nil to the net profit before tax of the Group. These amounts are included in the Consolidated Financial Statements for the half year ended 30 September 2012. Had PHW been part of the Group for the whole of the half year ended 30 September 2012, the revenue and profit of the Group would not have been materially different from the amounts shown in the Consolidated Financial Statements.
7 Net cash and deposits
Half year ended
30 September
2012
Half year ended
30 September
2011
Year ended
31 March
2012
£m
£m
£m
Cash and cash equivalents
176
194
263
Borrowings: current
(1)
(2)
(1)
Net cash and deposits
175
192
262
The Group has operations in a number of territories including Brazil, China and India which place restrictions on the ability of subsidiaries to lend money to other Group entities outside those territories. However, distributions to the Group are permitted from audited reserves. At 30 September 2012 restricted cash and cash equivalents held in such territories totalled £42 million (30 September 2011: £46 million, 31 March 2012: £58 million).
Cash and cash equivalents include £26 million (30 September 2011: £31 million, 31 March 2012: £29 million) of collateral held in the ordinary course of business to provide security for local bonding facilities.
The Group has two five-year bank facilities totalling £600 million, comprising a £350 million multi-currency bonding and guarantee facility and a £250 million revolving credit facility. As at 30 September 2012, the amount drawn on the multi-currency bonding and guarantee facility was £214 million and the amount drawn on the revolving credit facility was £nil. Under the previous £400 million multi-currency facility £258 million was drawn at 30 September 2011 for the provision of bonds and guarantees (31 March 2012: £253 million).
In addition, at 30 September 2012, the Group has bonds and guarantees totalling £248 million (30 September 2011: £218 million, 31 March 2012: £227 million) issued under uncommitted facilities. Of these, £26 million (30 September 2011: £31 million, 31 March 2012: £29 million) are supported by cash collateral, as above, and a further £14 million (30 September 2011: £17 million, 31 March 2012: £14 million) are supported by guarantees issued under the Group's committed syndicated loan facility.
8 Assets held for sale
At 30 September 2012, 30 September 2011 and 31 March 2012, assets held for sale relate to surplus freehold properties that are vacant, no longer in use for operational purposes and are being actively marketed for sale. These properties are expected to be sold within a year of the date of their classification as held for sale.
Invensys plc
Notes (unaudited)
9 Pensions and post-retirement benefits
Changes in the present value of the defined benefit obligation for the half year ended 30 September 2012 were as follows:
Funded schemes
Unfunded
schemes
Total
Total
Total
Invensys Pension
Scheme (UK)
Invensys Pension
Plan (US)
Other
Half year ended
30 September
Half year ended
30 September
2011
Year ended
31 March
2012
Other
2012
£m
£m
£m
£m
£m
£m
£m
Opening present value of defined benefit obligation
(4,326)
(1,070)
(274)
(131)
(5,801)
(5,461)
(5,461)
Current service cost
(4)
-
(3)
(1)
(8)
(9)
(18)
Contributions by employees
-
-
-
-
-
(1)
(1)
Benefit payments
121
31
6
6
164
157
317
Interest on plan liabilities
(99)
(23)
(6)
(2)
(130)
(141)
(284)
Actuarial (losses)/gains
(173)
(80)
3
-
(250)
2
(351)
Settlements
-
59
-
-
59
-
(3)
Exchange adjustments
-
14
3
3
20
(33)
-
Closing present value of defined benefit obligation
(4,481)
(1,069)
(271)
(125)
(5,946)
(5,486)
(5,801)
Changes in the fair value of plan assets for the half year ended 30 September 2012 were as follows:
Funded schemes
Total
Total
Total
Invensys Pension
Scheme (UK)
Invensys Pension
Plan (US)
Other
Half year ended
30 September
2012
Half year ended
30 September
2011
Year ended
31 March
2012
£m
£m
£m
£m
£m
£m
Opening fair value of plan assets
4,233
972
204
5,409
5,024
5,024
Expected return on plan assets
89
26
6
121
140
281
Contributions by employer
25
10
4
39
54
88
Contributions by employees
-
-
-
-
1
1
Benefit payments
(121)
(31)
(6)
(158)
(153)
(308)
Actuarial gains/(losses)
74
45
(3)
116
145
320
Settlements
-
(59)
-
(59)
-
-
Exchange adjustments
-
(12)
-
(12)
29
3
Closing fair value of plan assets
4,300
951
205
5,456
5,240
5,409
The Group is committed to make payments to the Invensys Pension Scheme (UK) under a deficit funding contribution schedule agreed with the trustees. Where the present value of the agreed funding payments exceeds the liability in respect of the scheme as measured under IFRS, and would therefore, when paid, give rise to a surplus as measured under IFRS, a provision is recognised for any part of that surplus that would not be recoverable. Any surplus on the Invensys Pension Scheme (UK) ultimately repaid by the trustees would currently be subject to a 35% tax charge prior to being repaid, so a liability for this tax is recognised at the relevant balance sheet date. At 30 September 2012 the present value of the agreed funding payments is less than the liability of the scheme under IFRS and consequently the irrecoverable element of the pension surplus/(deficit) is £nil (30 September 2011: £81 million, 31 March 2012: £34 million). The settlement payments in the Invensys Pension Plan (US) relate to the payment of lump sums paid to deferred vested members, who accepted offers to exchange rights to a future pension for an immediate lump sum. There is no income statement effect from this exercise as this was recognised at the time when the offers were accepted by individuals, which fell during the year ended 31 March 2012.
Half year ended
30 September
2012
Half year ended
30 September
2011
Year ended
31 March
2012
£m
£m
£m
(Deficit)/surplus in the scheme
(181)
29
(93)
Future minimum funding requirements
177
202
190
Potential future pension (deficit)/surplus
(4)
231
97
Irrecoverable element of potential future pension surplus/(deficit)
-
(81)
(34)
Recoverable element of potential future pension (deficit)/surplus
(4)
150
63
Movement in irrecoverable element of potential future pension surplus/(deficit)
34
(51)
(4)
Reconciliation of assets and liabilities recognised in the balance sheet as at 30 September 2012:
Funded schemes
Unfunded schemes
Total
Total
Total
Invensys Pension
Scheme (UK)
Invensys Pension
Plan (US)
Other
Half year ended
30 September
Half year ended
30 September
2011
Year ended
31 March
2012
Other
2012
£m
£m
£m
£m
£m
£m
£m
Present value of defined benefit obligation
(4,481)
(1,069)
(271)
(125)
(5,946)
(5,486)
(5,801)
Fair value of plan assets
4,300
951
205
-
5,456
5,240
5,409
Deficit in the plan
(181)
(118)
(66)
(125)
(490)
(246)
(392)
Irrecoverable element of potential future pension surplus
-
-
-
-
-
(81)
(34)
Net liability
(181)
(118)
(66)
(125)
(490)
(327)
(426)
Changes in key assumptions
Invensys Pension Scheme (UK):
The discount rate applied is 4.10% (30 September 2011: 5.10%, 31 March 2012: 4.70%). The RPI inflation assumption has been assessed at 2.90% (30 September 2011: 3.30%, 31 March 2012: 3.50%). The CPI inflation assumption has been assessed as 1.90% (30 September 2011: 2.55%, 31 March 2012: 2.50%). With regards to mortality tables, standard SAPS actuarial mortality tables S1PA were adopted. Based on Scheme experience, the probability of death at each age was multiplied by 103% for males and 113% for females. Future improvements in life expectancy have been allowed for in line with the standard CMI model projections subject to a long term trend of 1.00% for males and females.
Invensys Pension Plan (US):
The discount rate applied is 3.85% (30 September 2011: 4.95%, 31 March 2012: 4.55%)
Invensys plc
Notes (unaudited)
10 Reconciliation of cash flows
Half year ended
30 September
2012
Half year ended
30 September
2011
Year ended
31 March
2012
£m
£m
£m
Net cash flows from operating activities - (outflow)/inflow
(10)
(72)
65
Capital expenditure included within investing activities
(44)
(43)
(89)
Proceeds from sale of property, plant and equipment
4
-
-
Interest paid
7
4
10
Cash payments on swap contracts
-
1
-
Taxation paid (operating)
22
15
34
Restructuring
11
13
27
Other operating exceptional item: costs to settle legal case
-
10
10
Facility fees paid
-
-
5
Legacy items:
Pension contributions
37
49
80
Other legacy payments
-
12
17
37
61
97
Operating cash flow - inflow/(outflow)
27
(11)
159
Restructuring
(11)
(13)
(27)
Net finance costs paid
(6)
(3)
(7)
Facility fees paid
-
-
(5)
Taxation paid (operating)
(22)
(15)
(34)
Legacy items
(37)
(61)
(97)
Free cash flow - outflow
(49)
(103)
(11)
Operating cash flow attributable to:
Continuing operations
27
(11)
159
27
(11)
159
The directors consider that the best measure of the Group's cash performance is free cash flow, as calculated above.
11 Dividends paid and proposed
Half year ended
30 September
2012
Half year ended
30 September
2011
Year ended
31 March
2012
£m
£m
£m
Paid during the half-year/year
Equity dividends on ordinary shares:
Final dividend for the year ended 31 March 2012: 2.75p
(FY 2010/11: 2.5p)
22
20
20
Interim dividend for the year ended 31 March 2012: 1.65p
-
-
13
22
20
33
Proposed
Equity dividends on ordinary shares:
Final dividend for the year ended 31 March 2012: 2.75p
-
-
22
Interim dividend for the year ending 31 March 2013: 1.75p
(FY 2011/12: 1.65p)
14
13
-
14
13
22
The final dividend for the year ended 31 March 2012 was approved by shareholders on 13 July 2012 and paid on 3 August 2012.
The interim dividend for the year ending 31 March 2013 was declared by the Board on 14 November 2012 and will be paid to shareholders on 21 December 2012. This dividend will be accounted for as an appropriation of retained earnings in the second half of the financial year and is payable to all shareholders on the register of Members at the close of business on 23 November 2012.
Invensys plc
Notes (unaudited)
11 Dividends paid and proposed (continued)
The Invensys Employee Share Trust has waived its right to the interim dividend payable on the 106,608 shares that it owns. The Trust also waived its rights in 2011/12 to the final dividend payable on the 391,218 shares that it owned and the interim dividend payable on the 240,350 shares that it owned.
12 Contingent liabilities
There have been no material changes in the Group's contingent liabilities since the last annual balance sheet date, 31 March 2012.
13 Related party disclosures
The key management comprises the Group Leadership Team and the non-executive directors. This represents a change from previous periods, when key management was considered to only comprise the directors. The Group has changed its conclusion on the composition of key management as a result of the increased contribution to decision making made by those members of the Group Leadership Team who are not also directors. The membership of the Group Leadership Team and the non-executive directors are disclosed in the 2012 Annual Report and Accounts. The total remuneration of key management who served during the half year was £2.6 million (H1 2011/12: £1.0 million), consisting of short-term and other benefits of £1.9 million (H1 2011/12: £0.6 million) and share based payments of £0.7 million (H1 2011/12: £0.4 million).
There are no other related party transactions, or changes to related parties since the last Annual Report and Accounts for the year ended 31 March 2012, that have a material effect on the financial position or performance of the Group in the year.
As disclosed in Note 33 of the 2012 Annual Report and Accounts, during the year ended 31 March 2011, a loan was made to Mr Henriksson while he was a director of the Company in view of the double taxation suffered in relation to his US employment duties in 2009/10. Mr Henriksson left the Company on 24 March 2011. Invensys Systems Inc. advanced £312,691 on 29 June 2010 to Mr Henriksson, being an amount equal to the expected refunds due from HMRC. As at 30 September 2012 this loan remains outstanding, is free of any interest, and will be repayable within five business days from the date of HMRC making the expected refund to Mr Henriksson. Mr Henriksson's repayment obligations are not affected by the termination of his employment with the company.
A further loan has been advanced to Mr Edmunds during the half-year ended 30 September 2012 in view of the double taxation suffered in relation to his US employment duties in 2010/11 and 2011/12. Invensys Systems Inc. advanced £78,498 on 24 May 2012 to Mr Edmunds, being an amount equal to the expected refunds due from HMRC. As at 30 September 2012 an amount of £78,498 remains outstanding, is free of any interest, and will be repayable within five business days from the date of HMRC making the expected refund to Mr Edmunds. An amount of £12,966 was repaid on 15 October 2012.
No further loans have been advanced to any director during the year ended 31 March 2012 or the half-year ended 30 September 2012.
14 Events after the balance sheet date
On 15 October 2012 Invensys Operations Management acquired 100% of the share capital of Spiral Software, a privately held company based in Cambridge, United Kingdom, for cash consideration of £38 million. Spiral Software provides integrated solutions ranging from crude assay management to refinery supply chain optimisation. The acquisition will be accounted for in the year ending 31 March 2013 using the purchase method of accounting.
Invensys plc
Notes (unaudited)
15 Exchange rates
Half year ended
30 September
2012
Half year ended
30 September
2011
Year ended
31 March
2012
Average
Average
Average
US dollars to £1
1.58
1.62
1.60
Euro to £1
1.25
1.14
1.16
As at
30 September
2012
As at
30 September
2011
As at
31 March
2012
Closing
Closing
Closing
US dollars to £1
1.62
1.56
1.60
Euro to £1
1.26
1.15
1.20
16 Financial information
This half yearly financial report was approved by a duly appointed and authorised committee of the Board of Directors on 14 November 2012. This statement does not comprise the statutory accounts of the Group, as defined in section 434 of the Companies Act 2006. The financial information for the half year ended 30 September 2012 is unaudited. The financial information for the balance sheet as at 31 March 2012 has been extracted from the statutory accounts published in the Annual Report and Accounts 2012.
The statutory accounts of Invensys plc for the year ended 31 March 2012 have been reported on by the Group's auditors, Ernst & Young LLP, and delivered to the Registrar of Companies. The report of the auditors was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report, and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
Invensys plc
Notes (unaudited)
GOING CONCERN
A full description of the Group's business activities, financial position, cash flows, liquidity position and borrowing facilities together with the factors likely to affect its future development, performance and position are set out in the Business Review, Financial Review and Notes to the financial statements included in the Annual Report and Accounts for the year ended 31 March 2012, which is available from the Group's website, www.invensys.com. The Annual Report and Accounts also includes an explanation of the principal risks and uncertainties facing the Group, along with mitigating actions. This half yearly report provides updated information on the business activities for the six months to 30 September 2012, the financial position, cash flow and liquidity position at 30 September 2012, and the principal risks and uncertainties facing the Group for the remaining six months of the current financial year.
The Group remains generally in a sound financial position with net cash of £175 million, £600 million of banking facilities in place until 2017, and well-established relationships with key customers and suppliers.
The directors have a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the Consolidated Financial Statements.
DIRECTORS' RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
a) The condensed set of financial statements for the six months to 30 September 2012 has been prepared in accordance with IAS 34, as adopted by the EU;
b) This half yearly financial report includes a fair review of the information required by DTR 4.2.7R (being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements and a description of principal risks and uncertainties for the remaining six months of the financial year); and
c) This half yearly financial report includes a fair review of the information required by DTR 4.2.8R (being the disclosure of related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or the performance of the Group during that period, and any changes in the related party transactions described in the last Annual Report and Accounts for the year ended 31 March 2012 that could have a material effect on the financial position or performance of the Group within the first six months of the financial year).
By order of the Board
Wayne Edmunds David Thomas
Chief Executive Chief Financial Officer
14 November 2012
The directors of Invensys plc as at 30 September 2012 are listed on pages 46 and 47 of the 2012 Annual Report and Accounts. No changes have taken place to the Board of Directors since the publication of the 2012 Annual Report and Accounts.
This half yearly financial report contains certain statements that are forward-looking. These statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Forward-looking statements are not guarantees of future performance. The Group's actual results of operations, financial condition and liquidity, and the development of the industries in which the Group operates, may differ materially from those made in or suggested by these statements and a number of factors could cause the results and developments to differ materially from those expressed or implied by these forward-looking statements.
INDEPENDENT REVIEW REPORT TO INVENSYS PLC
Introduction
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2012 which comprises the consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in equity, consolidated cash flow statement and related notes 1 to 16. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
Ernst & Young LLP
London
14 November 2012
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