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Invensys plc
16 May 2013
RESULTS FOR THE YEAR ENDED 31 MARCH 20131
A transformational year for Invensys
Business highlights
· Disposal of Invensys Rail for £1,742 million was completed on 2 May 2013
- Agreements with Trustee of UK Pension Scheme implemented with contributions of £400 million to UK Pension Scheme and £225 million to a reservoir trust; no further contributions are expected to be made for the foreseeable future
- Subject to shareholder approval, return of £625 million of cash to shareholders (amounting to around 76 pence per share) to be implemented as soon as practicable
· Invensys is now a focused supplier of industrial software, systems and control equipment, delivering state-of-the-art technologies to the world's major industries
· Reorganisation of Group underway including the elimination of former divisional headquarters resulting in savings in overheads of £25 million per annum by April 2014
· Improved transparency going forward with four new business segments - Software, Industrial Automation, Energy Controls and Appliance
Financial highlights for continuing operations2
· Order intake was £1,700 million (2012: £1,759 million), down 3% (down 2% at CER3); Invensys Operations Management improved in the second half to produce orders in line with last year but Invensys Controls experienced a further market-led decline
· Revenue was £1,792 million (2012: £1,764 million), up 2% (up 3% at CER), driven by order book conversion at Invensys Operations Management more than offsetting the decline at Invensys Controls
· Operating profit4 rebounded to £131 million (2012: £93 million), up 41% (up 40% at CER) with our China Nuclear contracts stabilised
· Underlying earnings per share5 were 8.5p (2012: 5.3p), up 60%
· Operating cash flow was £136 million (2012: £124 million) and operating cash conversion was 104% (2012: 133%); net cash at year end (before receipt of Invensys Rail disposal proceeds) was £268 million (2012: £262 million)
· Recommended final dividend6 of 2.85p per share (2012: 2.75p per share); total dividends for the year of 4.6p per share (2012: 4.4p per share), an increase of 5%
Wayne Edmunds, Chief Executive of Invensys, commented:
"The past year was transformational for Invensys. The disposal of Invensys Rail for £1,742 million has enabled us to deal with our legacy UK pension issues, recommend a substantial return of cash to shareholders and provided us with significant funds to invest in our future. It has also allowed us to carry out a reorganisation of the Group, removing our previous divisional structure and providing significant cost savings of £25 million per annum by April 2014.
"Invensys is now a focused supplier of industrial software, systems and control equipment, delivering state-of-the-art technologies to the world's major industries. The lines of business structure we began to put in place last year has enabled us to concentrate upon those areas with the greatest opportunities for growth and profitability. We now have significant resources to invest in these businesses which we will do in a thoughtful and disciplined manner to enhance shareholder value.
"In order to give the market greater insight into the performances of our businesses and their value, we have now changed our operating model and financial reporting with the lines of business grouped into four new business segments - Software, Industrial Automation, Energy Controls and Appliance.
"Looking ahead, we do not expect any significant changes to general market conditions in the near term but anticipate an improved performance due to continued growth in our higher-margin segments, especially Software, and the benefits of the Group reorganisation."
Contact:
Invensys plc
Steve Devany
tel: +44 (0) 20 3155 1301
Annabel Michie
tel: +44 (0) 20 3155 1303
FTI Consulting
Andrew Lorenz
Richard Mountain
tel: +44 (0) 20 7269 7291
Notes
1. The financial information for the year ended 31 March 2013 is audited and has been prepared under the Group's accounting policies for the year ended 31 March 2013. There are no significant differences between the Group's accounting policies for the year ended 31 March 2013 and those contained in the Annual Report and Accounts 2012, as explained in Note 1 of the Financial Statements "Basis of preparation".
2. Continuing operations exclude Invensys Rail. Net cash includes amounts classified as assets held for sale.
3. Unless otherwise stated, % change is measured at constant exchange rates (CER) as a percentage of the 2012 adjusted base and is calculated based upon underlying amounts in £'000s.
4. Unless otherwise stated, all references to operating profit (OPBIT) and operating margin in this announcement are before exceptional items.
5. Calculated by reference to continuing operations before the exceptional Group reorganisation costs; exceptional pension settlement gain/loss; exceptional pension past service cost; and exceptional finance costs.
6. The amount of the final dividend in pence per share will increase if the proposed share consolidation proceeds. See dividend paragraphs on page 9 for more details.
Presentation and conference call
Wayne Edmunds, Chief Executive, and David Thomas, Chief Financial Officer, will be hosting a presentation and conference call for analysts and investors at our offices at 9.00am (BST) this morning:
Venue:
Invensys plc
3rd Floor
40 Grosvenor Place
London
SW1X 7AW
Dial-in details (please note that the confirmation code is required).
UK:
+44 (0)20 3478 5300
US:
+1 646 254 3362
France:
0805 631 580
Germany:
0800 589 2673
Italy:
800 089 737
Spain:
800 600 526
Confirmation Code:
4781580
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 Full Year Results link. A recording will be available at this address shortly after the end of the call. This announcement and 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.
Chief Executive's Statement
The past year was transformational for Invensys. The disposal of Invensys Rail for £1,742 million has enabled us to deal with our legacy UK pension issues, recommend a substantial return of cash to shareholders and provided us with significant funds to invest in our future. It has also allowed us to carry out a reorganisation of the Group, removing our previous divisional structure and providing significant cost savings of £25 million per annum by April 2014.
Invensys is now a focused supplier of industrial software, systems and control equipment, delivering state-of-the-art technologies to the world's major industries. The lines of business structure we began to put in place last year has enabled us to concentrate upon those areas with the greatest opportunities for growth and profitability. We now have significant resources to invest in these businesses which we will do in a thoughtful and disciplined manner to enhance shareholder value.
Disposal of Invensys Rail
Following a strategic review which highlighted the likely consolidation in the global rail signalling market and the limited scope to increase the size of the Invensys Rail division, we decided to refocus the Group around our industrial software, systems and control equipment businesses and, accordingly, to dispose of Invensys Rail. On 28 November 2012, we announced that we had reached agreement to sell the business to Siemens for £1,742 million on a cash and debt free basis. That price represented an attractive value for the business and fully recognised Invensys Rail's leading positions in long-term growth markets with returns ahead of its peers and well-invested technology. The disposal was completed on 2 May 2013 and therefore the results of Invensys Rail have been included in discontinued operations with comparatives restated accordingly.
Following completion, a contribution of £400 million has been made to the UK Pension Scheme and a further payment of £225 million has been made into a reservoir trust. As a result of these payments, the previous deficit reduction payments of £40 - 47 million per annum have ceased and it is anticipated that no further contributions will be payable into the Scheme for the foreseeable future. More details of the pension arrangements are contained in the Additional Financial Information.
As previously announced, we now intend to return £625 million of cash to shareholders and information on the return of cash will be set out in a circular to shareholders which will be issued as soon as practicable. The return of cash is subject to the approval of Invensys shareholders at a General Meeting which is expected to take place in June 2013. It is intended that shareholders will be able to elect to receive their cash as income, capital or deferred capital or a combination of the three. Following the return of cash, we are proposing a share capital consolidation that, subject to market fluctuations, will result in the share price being returned to approximately the same level as before the return of cash.
Reorganisation and revised business segment reporting
Following last year's creation of individual lines of business within our divisions to bring additional focus upon our leading brands and technologies, the disposal of Invensys Rail has enabled us to take the further step of removing our former divisional structure. This reorganisation will give rise to significant savings of around £25 million per annum by April 2014.
As a result, we have changed our external reporting from 1 April 2013 to reflect the new basis on which information will be reported internally. We will group our lines of business into four new business segments. This grouping brings together businesses with similar economic characteristics, operating margins, market drivers and technologies as well as providing greater transparency as to the true value of our market-leading businesses:
· Software which consists of the software businesses previously within Invensys Operations Management (IOM) and includes our Wonderware®, SimSciTM and Avantis® brands.
· Industrial Automation which consists of the systems businesses of our Foxboro® distributed control systems (DCS) and Triconex® safety systems with the addition of the Foxboro measurement and instrumentation products previously within the equipment business of IOM.
· Energy Controls which consists of the Eurotherm® and IMServ® businesses previously included within the equipment business of IOM, together with the residential heating and commercial businesses that were formerly part of Invensys Controls.
· Appliance which consists of the Appliance controls line of business previously within Invensys Controls, together with the appliance replacement parts business formerly within Wholesale, also part of the former Invensys Controls.
Although the commentary on the past year's performance contained in this announcement is based upon the previous reporting structure, we will be using these new business segments for future reporting. The past year's performance by previous structure and new business segment, together with an estimate of the allocation of cost savings from the Group reorganisation, is as follows:
2013
£ million
Invensys Operations Management
Invensys
Controls
Corporate
Continuing Operations
2014 Estimated savings
2015 Estimated savings
Revenue
OPBIT
Revenue
OPBIT
OPBIT
Revenue
OPBIT
OPBIT
OPBIT
Software
260
62
-
-
-
260
62
1
1
Industrial Automation
948
72
-
-
-
948
72
5
8
Energy Controls
127
17
126
19
-
253
36
1
1
Appliance
-
-
331
8
-
331
8
3
3
Corporate
-
(5)
-
-
(42)
-
(47)
10
12
1,355
146
457
27
(42)
1,792
131
20
25
Our strategy
We will now be focusing our investment on growing the lines of business within our Software, Industrial Automation and Energy Controls business segments, which offer attractive long-term growth prospects with high returns on investment and excellent cash conversion. Our long-term sustainable growth will therefore be driven by:
· Growth in software
We will be focusing on expanding the breadth and depth of our higher-margin software businesses, which represent a major engine of future growth. We will achieve this through acquisitions and additional investment in research and development.
· Maintaining and developing leading technologies
As a leading technology company, research and development is fundamental to what we do so we will continue to invest in our state-of-the-art technologies to ensure that they remain 'best in class' and are evolving to meet the needs of our customers in both the developed world and in rapidly developing economies, such as China and India. During the year, we invested 4.5% of continuing operations revenue on research and development (2012: 4.2%); in Software, the investment was 19.3% of segment revenue.
· Project and commercial execution excellence
Project and commercial execution excellence sits at the heart of our long-term sustainable growth strategy and it will continue to drive our reputation as a partner of choice. We will therefore be continuing to invest in employing the best people for each project and providing them with the delivery support they need to achieve consistently high levels of customer satisfaction.
· Developing our portfolio through acquisition
We will supplement our organic growth by pursuing an active but disciplined programme of bolt-on acquisitions designed to broaden and enhance our market positions and product ranges, predominantly in our Software and Energy Controls business segments.
· Supporting and expanding our customer base
We have a considerable base of customers whose prime focus is on maximising the reliability and efficiency of their existing plants and facilities. As a result, the opportunities for upgrading or replacing their control and safety technologies are significant and we will continue to provide them with outstanding service and support in order to capitalise on this. We will also continue to secure new greenfield contracts to expand our base of installed technologies and provide further opportunities for selling other products. In addition, we will seek to expand into new industry sectors. Currently, 39% of our revenue from continuing operations comes from the oil & gas, petrochemicals and utilities & power sectors. Our aim is to acquire strong positions in new sectors by broadening our Software product range.
In our Appliance segment, which is the leading supplier of controls to the domestic appliance market, we will be looking to build upon the significant investments that we have made in restructuring and product development during the past five years. Demand in its markets remains subdued but our investments will ensure that its operating performance will improve significantly as the appliance market recovers.
Performance during the year
For the year ended 31 March
All data relates to continuing operations (other than free cash flow)
2013
2012
% total change
% change at CER
Orders (£m)
1,700
1,759
(3%)
(2%)
Order book (£m)
1,094
1,158
(6%)
(9%)
Revenue (£m)
1,792
1,764
2%
3%
Operating profit2 (£m)
131
93
41%
40%
Operating margin2 (%)
7.3%
5.3%
Operating cash flow (£m)
136
124
10%
12%
Cash conversion (%)
104%
133%
Free cash flow (£m)
106
(11)
nm5
Earnings per share - underlying3 (p)
8.5p
5.3p
60%
Earnings per share - basic (p)
0.1p
4.7p
(98%)
Return on operating capital4 (%)
32.1%
22.0%
1 % change is measured as the change at CER as a percentage of the 2012 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 Calculated by reference to continuing operations before the exceptional Group reorganisation costs; exceptional pension settlement gain/loss; exceptional pension past service cost; and exceptional finance costs.
4 Return on operating capital at CER is calculated as OPBIT divided by average capital employed excluding goodwill, net pension liabilities, non-operating provisions and net taxation liabilities.
5 nm - not meaningful
Invensys Operations Management produced a good performance against a challenging macroeconomic background with low levels of industrial investment in Europe. Our software businesses again grew strongly offsetting the effects of delays in the award of contracts for large process automation projects. The issues that we had last year with our China Nuclear contracts have largely been addressed and we are now making good progress in working towards the commissioning of the first reactor.
Invensys Controls had to cope with another year of further declines in the global appliance market, compounded by delays in new product introductions in both its Appliance and Commercial lines of business. Despite these issues, it remained profitable with good cash conversion.
In its final full year as part of the Group, Invensys Rail reported operating margins of 16.5% as we resolved the issues that had affected performance in the prior year. The division had another excellent order intake following on from last year's near record levels, with several large orders from Network Rail and in export markets.
Outlook
Looking ahead, we do not expect any significant changes to general market conditions in the near term but anticipate an improved performance due to continued growth in our higher-margin segments, especially Software, and the benefits of the Group reorganisation.
We expect our Software segment to show good growth supported by our customers' requirements for optimisation, efficiency and productivity. The Industrial Automation segment is likely to see continued strength in its brownfield revenue stream which will be offset by an anticipated decline in revenue from large greenfield projects such as China Nuclear; however, margins should improve due to the improved sales mix. Energy Controls is likely to be stable as management works to consolidate the range of businesses and drive market and technology synergies. Appliance is expected to see modest growth helped by somewhat improved conditions in North America.
Wayne Edmunds
Corporate
The Board
There were no changes to the membership of the Board during the year.
Francesco Caio and Pat Zito have informed the Board that they do not intend to seek re-election at the Annual General Meeting (AGM) and accordingly will be retiring from the Board at the close of that meeting. Given the smaller size of the Group following the disposal of Invensys Rail, it has been decided that they will not be replaced and the future Board will now consist of the Chairman, three executive directors and five non-executive directors.
The Board would like to thank Francesco and Pat for their contributions to the Board and wish them well for the future.
Dividend and dividend policy
The Board has recommended a final dividend of 2.85 pence per share, amounting to £23 million, which brings the total dividends payable in respect of the year ended 31 March 2013 to 4.6 pence per share (2012: 4.4 pence per share), an increase of 5%. The amount paid per share could increase dependent upon the share capital consolidation as detailed below.
If the return of cash to shareholders and subsequent share capital consolidation are approved by shareholders and take place as planned, the Board has recommended that the total amount of the final dividend will remain the same, £23 million, but will be paid on the smaller number of shares in issue resulting from the share consolidation. Therefore the amount paid per share would increase and details of these changes will be set out in the circular to shareholders to be issued regarding the return of cash.
Subject to approval by shareholders at the AGM on 25 July 2013, the final dividend will be paid on 2 August 2013 to shareholders on the register at 21 June 2013. A dividend reinvestment plan (DRIP) is available for this final dividend, which will enable shareholders to reinvest their dividends directly into Invensys shares.
The Board remains committed to a progressive dividend policy with future dividend growth reflecting the long-term sustainable trend in underlying earnings per share and free cash flow.
Business Review - Continuing Operations
We are reporting our performance for the year ended 31 March 2013 on the basis of the Group management structure during that year. From 1 April 2013, we have changed the Group management structure and our future reporting of performance will reflect the four new business segments, namely Software, Industrial Automation, Energy Controls and Appliance.
Invensys Operations Management
Year ended 31 March
2013
2012
% change
at CER1
% total change
Orders (£m)
1,254
1,266
-
(1%)
Order book (£m)
1,037
1,088
(8%)
(5%)
Revenue (£m)
1,335
1,272
6%
5%
Operating profit2 (£m)
146
96
51%
52%
Operating margin2 (%)
10.9%
7.5%
Operating cash flow (£m)
132
123
8%
7%
Operating cash conversion (%)
90%
128%
Employees at year end (numbers)
9,808
9,544
3%
1 % change is measured as the change at CER as a percentage of the 2012 adjusted base and is calculated on underlying amounts in £000s.
2 All references to operating profit and operating margin are arrived at before exceptional items, unless otherwise stated.
Revenue by sector
Year ended 31 March
2013
2012
Oil and gas
32%
33%
General industries
30%
27%
Utilities and power
15%
14%
Petrochemicals
5%
5%
Discrete manufacturing
4%
7%
Other
14%
14%
Revenue by destination
Year ended 31 March
2013
2012
UK
5%
4%
Rest of Europe
20%
22%
North America
31%
29%
South America
7%
7%
Asia Pacific
25%
24%
Africa/Middle East
12%
14%
Revenue by line of business1
Year ended 31 March
2013
2012
Software
20%
18%
Systems
60%
60%
Equipment
20%
22%
1 Our enterprise control offerings are spread across all three product categories.
Markets
Despite the continued macroeconomic uncertainty in Europe, the outlook for the global industrial automation and software markets was unchanged in the year. Demand is being driven in emerging markets by greenfield investment for capacity expansion in the energy sectors and brownfield investment in increased efficiency in a broad range of markets elsewhere.
In Systems, the ever-increasing demands for energy in the Middle East, Brazil, India and China should make them the strongest growth markets with signs that the recent delays we have seen in the award of larger greenfield projects are coming to an end. In developed markets, ageing assets, new sources of energy and our customers' strong cash positions continue to drive service, upgrade and migration business.
The industrial software markets have not been affected by economic uncertainty with strong demand for simulation and optimisation software to improve the reliability and performance of existing assets. This is a significant area of focus and investment as the markets show strong resilience and high returns on investment, as demonstrated by our recent acquisition of Spiral Software.
Our equipment markets have seen some slight reductions in demand, particularly resulting from the economic difficulties in Europe which have affected sales of Eurotherm products.
Developments
The delivery of 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. On each of the three contracts, we are making good progress with no further significant issues identified. Although we are continuing to invest in working capital to progress these contracts, with the consequent adverse effect on operating cash flow, we did reach some key payment milestones in the second half of the year which contributed to the improvement in the division's cash conversion in the second half. We are continuing with our decision not to recognise any profits from the two later contracts until we have achieved key milestones on the first reactor.
During the year, we acquired Spiral Software, a privately held company based in Cambridge, UK, which expanded our simulation and optimisation offerings. 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 modelling from design to start-up to performance optimisation.
Performance
Following a decline in orders in the first half caused primarily by the absence of large greenfield project awards, order intake improved in the second half so that overall orders for the year were in line with last year at £1,254 million (2012: £1,266 million).
Revenue in the year was up 6% at CER to £1,335 million (2012: £1,272 million). Software had another strong year with revenue up 15%. Systems revenue rose 6% at CER helped by the execution of large projects which accounted for 16% of divisional revenue. Equipment revenue declined by 2% mainly due to a shortfall at Eurotherm in Europe and North America.
Operating profit showed a significant recovery compared to the prior year which was affected by the £40 million additional costs in respect of our nuclear projects in China. Operating profit was up 51% at CER at £146 million (2012: £96 million) and operating margin was 10.9% (2012: 7.5%); our decision not to recognise any profits on the second and third China Nuclear contracts diluted divisional margins by around 50 basis points.
Operating cash flow remained robust at £132 million (2012: £123 million) notwithstanding some further net outflows on the China Nuclear projects ahead of the achievement of payment milestones. Cash conversion for the year was 90% (2012: 128%).
Invensys Controls
Year ended 31 March
2013
2012
% change at CER1
% total change
Orders (£m)
446
493
(7%)
(10%)
Order book (£m)
57
70
(21%)
(19%)
Revenue (£m)
457
492
(5%)
(7%)
Operating profit2 (£m)
27
35
(21%)
(23%)
Operating margin2 (%)
5.9%
7.1%
Operating cash flow (£m)
31
49
(33%)
(37%)
Operating cash conversion (%)
115%
140%
Employees at year end (numbers)
6,745
7,209
(6%)
1 % change is measured as the change at CER as a percentage of the 2012 adjusted base and is calculated on underlying amounts in £000s.
2 All references to operating profit and operating margin are arrived at before exceptional items, unless otherwise stated.
Revenue by line of business
Year ended 31 March
2013
2012
Appliance
57%
59%
Wholesale
25%
24%
Commercial
18%
17%
Revenue by destination
Year ended 31 March
2013
2012
UK
10%
8%
Rest of Europe
23%
26%
North America
46%
45%
South America
12%
13%
Asia Pacific
7%
7%
Africa/Middle East
2%
1%
Markets
The North American appliance market was more stable during the year than in previous periods but remained weak with little or no recovery despite early signs of improving sentiment within residential markets, particularly in the US. This improved sentiment is focused upon the new residential market which has little impact upon our target market of mid- to higher-end appliances. In Europe and Asia, the appliance market remained weak with few signs of any recovery in the short term but South America held up well due in part to government tax incentives in Brazil which are due to expire in June 2013.
The commercial markets in North America and Europe improved but our performance was affected by the knock-on effect of delays in new product launches by some customers. Our wholesale markets saw some improving conditions as the year progressed but were generally held back by lower demand in the heating season.
Looking forward, based upon customer comments, we expect the appliance markets in North America to see some modest improvements and in Europe to be stable or slightly declining. In Commercial and Wholesale, we expect further improvement supported by several key new product launches in the commercial business delayed beyond our year end.
Developments
The continued weakness in the appliance markets has led us to take further actions to mitigate costs and improve efficiency. In Europe, we took the decision to close the Belluno factory in Italy and move manufacturing to other plants. Elsewhere we have been reducing the size of certain facilities and investing in high-speed electronic production capabilities which will reduce unit cost and improve quality.
The investment in new product development resulted in new products representing 13% of the division's revenue in the year which is in line with the prior year, despite some delays within Commercial and Appliance.
We have continued our focus on innovation and, following our work with Thermo King in applying wireless and remote monitoring technologies to refrigerated transportation, Invensys Controls has worked with Verizon to create a new application for our CenteronTM tank monitoring system, using radio and sensor technology to remotely track fuel levels in a company's tanks.
Performance
Orders during the year were £446 million (2012: £493 million), down 7% at CER reflecting the continued downturn in end markets and the effect of delays in new product introductions in Commercial and Appliance. Revenue was £457 million (2012: £492 million), a 5% decrease at CER and the order book at 31 March 2013 was £57 million (31 March 2012: £70 million).
Operating profit was down 21% at CER to £27 million (2012: £35 million) with the effect of the reduced revenue and the lower than expected new product revenue in Commercial and Appliance partially offset by tight control of operating costs and overheads. Operating margin was 5.9% (2012: 7.1%). Operating cash flow was £31 million (2012: £49 million) with cash conversion at 115% (2012: 140%).
Business Review - Discontinued Operations
Invensys Rail
Year ended 31 March
2013
2012
% change at CER1
% total change
Orders2 (£m)
905
991
(6%)
(9%)
Order book2 (£m)
1,374
1,202
12%
14%
Revenue (£m)
757
775
(1%)
(2%)
Operating profit3 (£m)
125
116
12%
8%
Operating margin3 (%)
16.5%
15.0%
Operating cash flow (£m)
108
35
213%
209%
Operating cash conversion (%)
86%
30%
Employees at year end (numbers)
4,049
3,960
2%
1 % change is measured as the change at CER as a percentage of the 2012 adjusted base and is calculated on underlying amounts in £000s.
2 Orders and order book exclude framework agreements.
3 All references to operating profit and operating margin are arrived at before exceptional items, unless otherwise stated.
Revenue by sector
Year ended 31 March
2013
2012
Mainline engineering and contracting
42%
44%
Mass transit engineering and contracting
25%
32%
Products and customer service
33%
24%
Revenue by destination
Year ended 31 March
2013
2012
UK
26%
27%
Rest of Europe
16%
22%
North America
26%
22%
South America
8%
8%
Asia Pacific
21%
21%
Africa/Middle East
3%
0%
Performance
Following the near record level of orders in the prior year, which included major awards in Saudi Arabia and Turkey, order intake during the year continued at high levels at £905 million (2012: £991 million). As a consequence, the order book at 31 March 2013 increased to £1,374 million (31 March 2012: £1,202 million).
Revenue in the period was down 1% at CER at £757 million (2012: £775 million) with good growth in products sales in North America offset by a further reduction in Spain due to government austerity measures and the expected delays in mobilisation on some of the large new market contracts won last year.
Operating profit was up 12% at CER at £125 million (2012: £116 million) and operating margin was 16.5% (2012: 15.0%).
Operating cash flow improved to £108 million (2012: £35 million) and operating cash conversion returned to more normal levels at 86% (2012: 30%).
Additional Financial Information
Orders and order book
A summary of orders and movements at CER by division is set out below:
Year ended 31 March
2012
Orders
£m
Exchange
movement
£m
2012
CER
£m
Change at CER
£m
2013
Orders
£m
Change
at CER1
%%
Invensys Operations Management
1,266
(9)
1,257
(3)
1,254
-
Invensys Controls
493
(13)
480
(34)
446
(7%)
Continuing operations
1,759
(22)
1,737
(37)
1,700
(2)%
The order book for continuing operations was £1,094 million at 31 March 2013 (2012: £1,158 million). This includes 47% in emerging markets.
Revenue
A summary of revenue and movements at CER by division is set out below:
Year ended 31 March
2012
Revenue
£m
Exchange
movement
£m
2012
CER
£m
Change at CER
£m
2013
Revenue
£m
Change
at CER
%
Invensys Operations Management
1,272
(10)
1,262
73
1,335
6%
Invensys Controls
492
(13)
479
(22)
457
(5%)
Continuing operations
1,764
(23)
1,741
51
1,792
3%
Operating profit
A summary of operating profit and movements at CER by division is set out below:
Year ended 31 March
2012
OPBIT
£m
Exchange
movement
£m
2012
CER
£m
Change at CER
£m
2013
OPBIT
£m
Change
at CER
%
Invensys Operations Management
96
-
96
50
146
51%
Invensys Controls
35
-
35
(8)
27
(21%)
Corporate
(38)
-
(38)
(4)
(42)
(13%)
Continuing operations
93
-
93
38
131
40%
1. % change is measured as the change at CER as a percentage of the FY 2012 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:
Year ended 31 March
Operating cash flow
Cash conversion
2013
£m
2012
£m
2013
%
2012
%
Invensys Operations Management
132
123
90%
128%
Invensys Controls
31
49
115%
140%
Corporate
(27)
(48)
-
-
Continuing operations
136
124
104%
133%
Exceptional items
A summary of exceptional items is set out below:
Year ended 31 March
2013
2012
Group reorganisation
£m
Other
£m
Total
£m
Total
£m
Restructuring
32
16
48
18
Other operating exceptional items:
- Settlement (gain)/loss on
pension benefits
-
(10)
(10)
3
- Past service cost on pension
benefits
-
3
3
-
- Environmental provisions
18
5
23
6
- Surplus property provisions
13
1
14
-
- Other
-
1
1
-
Total
31
-
31
9
Impairment: property, plant and equipment
3
-
3
5
Impairment: intangible assets
9
-
9
-
(Profit)/loss on sale of assets and operations
-
(3)
(3)
1
Total exceptional items
75
13
88
33
The exceptional charge for the year totalled £88 million (2012: £33 million) comprising £75 million in respect of the Group reorganisation and £13 million of other items.
The £75 million charge for the Group reorganisation included restructuring costs of £32 million, assets impairments of £12 million (intangible assets of £9 million and property, plant and equipment of £3 million) and other operating exceptional items of £31 million relating to additional environmental and surplus property provisions following a detailed review of our facilities portfolio.
Other exceptional items of £13 million included £16 million of restructuring (the closure of Invensys Controls' Belluno facility in Italy and a number of other rationalisation projects across the Group) and a past service cost of £3 million relating to the closure of a Canadian pension plan, offset by a settlement gain of £10 million relating to the Invensys Pension Plan (US) and a gain on some asset sales.
The comparative period included restructuring costs of £18 million; £5 million of property, plant and equipment impairment; and £9 million of other operating exceptional items, including a £3 million settlement loss relating to the Invensys Pension Plan (US).
Net finance costs
Net finance costs remained flat at £9 million (2012: £9 million). Lower finance income reflected reduced cash balances during the year. 2012 included the write-off of unamortised facility fees of £2 million.
Other finance charges - IAS 19
IAS 19 finance charges increased to £19 million as anticipated (2012: £4 million). The expected return on assets fell further than the discount rate, mainly due to falls in bond yields.
The changes to the accounting standard IAS 19, Employee Benefits (Revised) will apply from 2013/14. We estimate that our operating profit will be reduced by approximately £10 million as a result of this change; this is a non-cash item.
Taxation
The tax charge for continuing operations was £11 million (2012: £8 million), which comprised a current year income tax charge of £31 million (2012: £37 million), offset by prior year credits of £6 million (2012: £nil) and a deferred tax credit of £14 million (2012: £29 million). The Group is subject to several factors that affect the tax charge including the levels and mix of profitability in different jurisdictions and the availability of tax losses. The effective tax rate has been impacted by the Group reorganisation costs and tax implications of the disposal of Invensys Rail. The underlying effective tax rate for the Group, after excluding the £75 million of Group reorganisation costs and the £48 million deferred tax credit arising on the expected gain on sale, was 20% (2012: 25%). The prior year included the impact of the profit adjustment on our nuclear projects in China.
Discontinued operations
The profit from discontinued operations of £124 million (2012: £60 million) represents the results of Invensys Rail, with the increase in net earnings reflecting the improved performance of the business and a deferred tax credit of £48 million arising on the expected utilisation of tax losses on the gain on sale.
Net profit
Net profit increased to £128 million (2012: £99 million) arising from an increase in operating profit before exceptional items of £38 million and an increase in profit from discontinued operations of £64 million (including a £48 million deferred tax credit), offset by higher exceptional items of £55 million as a result of Group reorganisation costs and an increase in the IAS 19 finance charge of £15 million.
Earnings per share
Basic EPS from continuing operations was 0.1 pence per share (2012: 4.7 pence per share). Underlying EPS was 8.5 pence per share (2012: 5.3 pence per share).
Free cash flow
Free cash flow for the Group was £106 million (2012: £11 million outflow). The increased free cash flow was driven by higher operating cash flow, lower pension contributions into the Invensys Pension Plan (US), and lower legacy item costs.
Financial position
Capital structure
The Group's capital structure is as follows:
As at 31 March
2013
£m
2012
£m
Capital employed
337
314
Cash and cash equivalents
247
263
Cash and cash equivalents classified as assets held for sale
22
-
Borrowings
(1)
(1)
Net cash
268
262
Total equity - funds
605
576
Comprising:
- Equity holders of parent
585
556
- Non-controlling interests
20
20
605
576
Capital is managed under the Group's treasury policy. The policy sets out a strategy for the long-term funding of the Group, with the objective of ensuring the Group has access to appropriate sources of funding to support its business, as and when required. The Group's bank facilities expire in March 2017. Following completion of the sale of Invensys Rail on 2 May 2013, the Group's revolving credit facility was reduced by £100 million to £150 million. The Group's guarantee facility remains at £350 million.
Total equity
Total equity increased by £29 million, principally due to net profit of £128 million, offset by IAS 19 actuarial losses of £97 million and dividends paid to equity shareholders of £37 million.
Non-controlling interests
The non-controlling interests balance was £20 million (2012: £20 million), the majority of which relates to Ranco Japan Limited.
Net cash
Net cash was £268 million (2012: £262 million) with the cost of acquisitions and dividends paid covered by free cash flow.
Capital employed
Capital employed increased by £23 million to £337 million in the year, mainly attributable to the profit in the year of £128 million and foreign exchange gain of £18 million, partially offset by the pension scheme losses of £97 million. Capital employed for continuing operations of £162 million (2012: £314 million) includes operating capital of £214 million (2012: £259 million), generating a return of 32.1% (2012: 22.0%).
Pension liabilities and funding
The IAS 19 valuation of pension assets and liabilities as at 31 March 2013 resulted in a net pension liability of £477 million (2012: £426 million). Of this, £50 million has been classified as assets held for sale. The overall increase is the result of net actuarial losses of £127 million, partially offset by deficit reduction payments made throughout the year of £62 million.
Agreements with the Trustee of the UK Pension Scheme have been implemented with payments of £225 million made to a reservoir trust on 2 May 2013 and £400 million made to the UK Pension Scheme on 3 May 2013. No further deficit reduction payments are expected to be made in the foreseeable future.
In the Invensys Pension Plan (US), we have reached a further settlement with a number of deferred plan members in addition to that disclosed last year. These taken together have resulted in settlement payments during the year totalling £123 million, of which £60 million is in respect of the settlement agreed last year. Both payments have been made from scheme assets. This year's settlement gave rise to an exceptional gain of £10 million (2012: exceptional loss of £3 million). In addition, a number of smaller schemes were closed during the year and are in the process of being wound up.
As part of the requirements of the Invensys Rail disposal, a funding valuation of the Invensys Pension Scheme (UK) was undertaken effective 31 October 2012. This has been finalised at a deficit of £478 million, well within the funding provisions of the Scheme.
Dividend
Subject to the share capital consolidation as detailed below, the Board is recommending a final dividend of 2.85 pence per share (2012: 2.75 pence per share), resulting in total dividends for the year of 4.6 pence per share (2012: 4.4 pence per share).
If the return of cash to shareholders and subsequent share capital consolidation are approved by shareholders and take place as planned, the Board has recommended that the total amount of the final dividend will remain the same, £23 million, but will be paid on the smaller number of shares in issue resulting from the share consolidation. Therefore, the amount paid per share would increase and details of these changes will be set out in the circular to shareholders to be issued regarding the return of cash.
Invensys plc
Consolidated income statement
For the year ended 31 March 2013
2013
2012
Notes
£m
£m
Continuing operations
Revenue
2, 3
1,792
1,764
Operating expenses before exceptional items
(1,661)
(1,671)
Operating profit before exceptional items
2, 3
131
93
Exceptional items
3
(88)
(33)
Operating profit
3
43
60
Exceptional finance costs
-
(2)
Finance costs
(10)
(10)
Total finance costs
(10)
(12)
Finance income
1
3
Other finance charges - IAS 19
(19)
(4)
Profit before taxation
2
15
47
Taxation - UK
1
(1)
Taxation - overseas
(12)
(7)
Profit after taxation - continuing operations
4
39
Profit after taxation - discontinued operations
4
124
60
Profit for the year
128
99
Attributable to:
Profit after taxation - continuing operations
- Equity holders of the parent
1
38
- Non-controlling interests
3
1
4
39
Profit after taxation - discontinued operations
- Equity holders of the parent
124
60
Profit for the year
- Equity holders of the parent
125
98
- Non-controlling interests
3
1
128
99
Earnings per share
Continuing operations
Earnings per share (basic)
5
0.1 p
4.7 p
Earnings per share (diluted)
5
0.1 p
4.7 p
Discontinued operations
Earnings per share (basic)
5
15.3 p
7.4 p
Earnings per share (diluted)
5
15.2 p
7.3 p
Total Group
Earnings per share (basic)
5
15.4 p
12.1 p
Earnings per share (diluted)
5
15.3 p
12.0 p
Invensys plc
Consolidated statement of comprehensive income
For the year ended 31 March 2013
2013
2012
Notes
£m
£m
Profit for the year
128
99
Other comprehensive income
Cash flow hedges:
- Losses taken to equity
(1)
-
- Transferred to income statement for the year - profit from discontinued
operations
8
-
Exchange differences on translation of foreign operations
18
(12)
Actuarial loss recognised on defined benefit pension schemes
(127)
(31)
Movement in irrecoverable element of potential future pension surplus
6
30
(4)
Taxation on components of other comprehensive income
(2)
21
Other comprehensive loss for the year, net of tax
(74)
(26)
Total comprehensive income for the year
54
73
Attributable to:
Equity holders of the parent
53
71
Non-controlling interests
1
2
54
73
Invensys plc
Consolidated balance sheet
At 31 March
2013
2012
Notes
£m
£m
ASSETS
Non-current assets
Intangible assets - goodwill
297
289
Intangible assets - other
78
168
Property, plant and equipment
194
227
Trade and other receivables
10
26
Amounts due from contract customers
5
11
Deferred income tax assets
109
70
693
791
Current assets
Inventories
111
145
Trade and other receivables
389
500
Amounts due from contract customers
172
273
Income tax receivable
11
10
Derivative financial instruments
1
3
Cash and cash equivalents
10
247
263
931
1,194
Assets held for sale
7
599
10
TOTAL ASSETS
2,223
1,995
LIABILITIES
Current liabilities
Trade and other payables
(391)
(533)
Amounts due to contract customers
(140)
(205)
Provisions
(88)
(65)
Income tax payable
(28)
(49)
Derivative financial instruments
(5)
(3)
Borrowings
10
(1)
(1)
(653)
(856)
Non-current liabilities
Trade and other payables
(12)
(10)
Amounts due to contract customers
(16)
(23)
Provisions
(98)
(74)
Income tax payable
(24)
(15)
Deferred income tax liabilities
-
(15)
Pension liabilities
6
(427)
(426)
(577)
(563)
Liabilities held for sale
7
(388)
-
TOTAL LIABILITIES
(1,618)
(1,419)
NET ASSETS
605
576
EQUITY
Capital and reserves
Equity share capital
82
81
Treasury shares
(1)
(1)
Other reserves
2,545
2,515
Retained earnings
(2,041)
(2,039)
Equity holders of the parent
585
556
Non-controlling interests
20
20
TOTAL EQUITY
605
576
Invensys plc
Consolidated statement of changes in equity
For the year ended 31 March 2013
Other reserves
Notes
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
2013
£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 year
-
-
-
-
-
-
-
-
125
125
3
128
Other comprehensive income/(loss) for the year
-
-
-
-
-
7
20
27
(99)
(72)
(2)
(74)
Total comprehensive income for the year
-
-
-
-
-
7
20
27
26
53
1
54
Share-based payment expense
-
-
-
-
-
-
-
-
10
10
-
10
Issue of shares
1
-
3
-
-
-
-
3
-
4
-
4
Purchase of own shares by Employee Share Trust
-
(1)
-
-
-
-
-
-
-
(1)
-
(1)
Distribution of own shares under share-based payment arrangements
-
1
-
-
-
-
-
-
(1)
-
-
-
Dividends paid to equity shareholders
13
-
-
-
-
-
-
-
-
(37)
(37)
-
(37)
Dividends paid to non-controlling interests
-
-
-
-
-
-
-
-
-
-
(1)
(1)
Balance at 31 March 2013
82
(1)
352
1,582
495
(1)
117
2,545
(2,041)
585
20
605
2012
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 payment expense
-
-
-
-
-
-
-
-
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
13
-
-
-
-
-
-
-
-
(33)
(33)
-
(33)
Dividends paid to non-controlling interests
-
-
-
-
-
-
-
-
-
-
(1)
(1)
Disposal of non-controlling interests
-
-
-
-
-
-
-
-
-
-
(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
Invensys plc
Consolidated cash flow statement
For the year ended 31 March 2013
2013
2012
Notes
£m
£m
Operating activities
Operating profit:
- Continuing operations
2, 3
43
60
- Discontinuing operations
2, 4
125
93
Depreciation of property, plant and equipment
34
37
Amortisation of intangible assets
31
31
Provision for impairment charged to operating profit
3, 7
13
15
(Profit)/loss on sale of assets and operations
(3)
1
Non-cash charge for share-based payment
10
4
Decrease in inventories
7
8
Decrease in receivables
22
5
Increase in net amounts due from contract customers
(120)
(30)
Increase/(decrease) in payables and provisions
143
(33)
Difference between pension contributions paid and amounts recognised in
operating profit
(70)
(77)
Cash generated from operations
235
114
Income taxes paid
(44)
(34)
Interest paid
(12)
(10)
Facility fees paid
-
(5)
Net cash flows from operating activities
179
65
Investing activities
Interest received
1
3
Purchase of property, plant and equipment
(35)
(38)
Proceeds from sale of property, plant, and equipment
5
-
Proceeds from sale of intangible assets
1
-
Expenditure on intangible assets
(44)
(51)
Purchase of non-controlling interests
-
(16)
Acquisitions
9
(50)
-
Acquisition costs
(1)
-
Net cash acquired on acquisition
3
-
Net cash flow arising on disposal of operations
(11)
(7)
Cash payments on swap contracts
(1)
(1)
Cash flows from investing activities
(132)
(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
(37)
(33)
Dividends paid to non-controlling interests
(1)
(1)
Cash flows from financing activities
(39)
(34)
Net increase/(decrease) in cash and cash equivalents
8
(79)
Cash and cash equivalents at beginning of year
263
349
Net foreign exchange difference
(2)
(7)
Cash and cash equivalents at end of year
10
269
263
Invensys plc
Notes
1 Basis of preparation
The financial information presented in this preliminary announcement has been prepared in accordance with the Disclosure and Transparency Rules of the UK Financial Services Authority, International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretation Committee (IFRIC) interpretations, as adopted by the European Union (EU) and in accordance with the provisions of the Companies Act 2006. The accounting policies applied do not differ significantly from those used for the financial statements for the year ended 31 March 2012.
Going concern
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 Financial Statements.
2 Operating segment information
For management purposes, in the year ended 31 March 2013 the Group was organised into divisions based on their products and services and had three reportable segments; Invensys Operations Management, Invensys Rail and Invensys Controls. There have been no changes to the composition of these operating segments during the year; however, Invensys Rail has been classified as a discontinued operation and was sold subsequent to the year end date.
Descriptions of the products and services provided by these divisions will be set out in the Business Review section of the 2013 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 Benefits and 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. These segments are monitored by divisional chief executives and reviewed by the Chief Executive and the Chief Financial Officer.
Invensys plc
Notes (continued)
2 Operating segment information(continued)
2013
2013
2013
2012
2012
2012
£m
£m
£m
£m
£m
£m
Inter-
Inter-
Total
company
External
Total
company
External
revenue
revenue 1
revenue
revenue
revenue 1
revenue
Segment revenues
Division
Invensys Operations Management
1,344
9
1,335
1,283
11
1,272
Invensys Controls
458
1
457
493
1
492
Eliminations
(10)
(10)
-
(12)
(12)
-
Continuing operations
1,792
-
1,792
1,764
-
1,764
Invensys Rail
757
-
757
775
-
775
Discontinued operations
757
-
757
775
-
775
Total Group
2,549
-
2,549
2,539
-
2,539
Operating profit/(loss) 2
Operating profit/(loss) 3
Operating profit/(loss) 2
Operating profit/(loss) 3
Segment profit
Division
Invensys Operations Management
146
103
96
90
Invensys Controls
27
5
35
25
Total segment
173
108
131
115
Corporate
(42)
(65)
(38)
(55)
Continuing operations
131
43
93
60
Invensys Rail
125
125
116
93
Discontinued operations
125
125
116
93
Total Group
256
168
209
153
Reconciliation to profit before taxation:
Finance costs
(10)
(12)
Finance income
1
3
Other finance charges - IAS 19
(19)
(4)
Profit from discontinued operations
(125)
(93)
Profit before taxation - continuing operations
15
47
Segment net assets/(liabilities)
Net assets/
(liabilities)
Net assets/
(liabilities)
Division
Invensys Operations Management
240
189
Invensys Controls
144
157
Total segment net assets
384
346
Corporate
(156)
(79)
Continuing operations
228
267
Invensys Rail
221
183
Discontinued operations
221
183
Total Group
449
450
Reconciliation to total net assets/(liabilities):
Intangible assets - goodwill
297
289
Cash and cash equivalents
247
263
Pension liabilities
(427)
(426)
Net assets held for sale - Invensys Rail
(24)
-
Other (borrowings, current and deferred income tax
assets/(liabilities) and derivative financial instruments)
63
-
Total net assets
605
576
Geographical analysis by destination
External revenue
External
revenue
United Kingdom
110
100
Other regions:
Rest of Europe
376
402
United States
515
489
North America - other
109
103
South America
146
153
Asia Pacific
360
342
Africa and Middle East
176
175
1,682
1,664
Total revenue
1,792
1,764
1 Inter-company revenue is invoiced at prevailing market prices.
2 Before exceptional items.
3 After exceptional items.
Invensys plc
Notes (continued)
3 Operating profit
2013
2012
£m
£m
Revenue
1,792
1,764
Cost of sales
(1,174)
(1,192)
Gross profit
618
572
Distribution costs
(9)
(10)
Administrative costs
(403)
(402)
Research and development costs
(75)
(67)
Operating profit before exceptional items
131
93
Restructuring costs
(48)
(18)
Other operating exceptional items:
- Settlement gain/(loss) on pension benefits
10
(3)
- Past service cost on pension benefits
(3)
-
- Environmental provisions
(23)
(6)
- Surplus property provisions
(14)
-
- Other
(1)
-
Total other operating exceptional items
(31)
(9)
Impairment: property, plant and equipment
(3)
(5)
Impairment: intangible assets - other
(9)
-
Profit/(loss) on sale of assets and operations
3
(1)
Exceptional items
(88)
(33)
Operating profit
43
60
Restructuring costs by division:
- Invensys Operations Management
(19)
(6)
- Invensys Controls
(21)
(6)
- Corporate
(8)
(6)
(48)
(18)
4 Discontinued operations
On 28 November 2012, the Board announced that it had entered into an agreement with respect to the sale of Invensys Rail to Siemens. This followed a strategic review by the Board of the Group's businesses which resulted in a decision to implement a strategy aimed at refocusing the Group around its industrial software, systems and control equipment business and, accordingly, to dispose of its Invensys Rail business. The disposal would also provide funds to address the Group's UK pension position, enable a capital return to shareholders and provide funds for investment in the retained group. Invensys Rail was classified as a disposal group held for sale at 28 November 2012, at which date the group was available for immediate sale subject to completion of the terms of the sale agreement, and the sale was considered to be highly probable. With effect from that date, no depreciation or amortisation has been charged on the non-current assets of Invensys Rail and those assets have been measured at the lower of their carrying amount and their fair value less costs to sell. The sale of Invensys Rail was completed subsequent to the year end, and the group is presented as a discontinued operation and disposal group held for sale in the financial statements.
Invensys plc
Notes (continued)
5 Earnings per share
2013
2012
Earnings per share (pence)
Continuing operations
Basic
0.1 p
4.7 p
Diluted
0.1 p
4.7 p
Before exceptional Group reorganisation costs; exceptional pension settlement gain/loss;
exceptional pension past service cost; and exceptional finance costs
Basic
8.5 p
5.3 p
Diluted
8.4 p
5.3 p
Discontinued operations
Basic
15.3 p
7.4 p
Diluted
15.2 p
7.3 p
Total Group
Basic
15.4 p
12.1 p
Diluted
15.3 p
12.0 p
Weighted average number of shares (million)
Basic
814
812
Effect of dilution - share options
5
2
Diluted
819
814
Earnings (£m)
Continuing Operations
Basic
1
38
Before exceptional Group reorganisation costs; exceptional pension settlement gain/loss;
exceptional pension past service cost; and exceptional finance costs
- Exceptional pension settlement (gain)/loss
(10)
3
- Exceptional pension past service cost
3
-
- Exceptional Group reorganisation costs
75
-
- Exceptional finance costs
-
2
Underlying
69
43
Discontinued operations
Basic
124
60
Total Group
Basic
125
98
The basic earnings per share for the year has been calculated using 814 million shares (2011: 812 million), being the weighted average number of shares in issue during the year, excluding those held as treasury shares which are treated as cancelled, 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 per share has been calculated in accordance with IAS 33, Earnings per Share without reference to adjustments in respect of certain share options which are considered to be anti-dilutive.
Invensys plc
Notes (continued)
6 Pensions and post-retirement benefits
Changes in the present value of the defined benefit obligation for the year ended 31 March 2013 were as follows:
Funded schemes
Unfunded schemes
Total
Total
Invensys
Invensys
Pension Scheme (UK)
Pension Plan (US)
Other
Other
2013
2012
£m
£m
£m
£m
£m
£m
Opening present value of defined benefit obligation
(4,326)
(1,070)
(274)
(131)
(5,801)
(5,461)
Current service cost
(10)
-
(4)
(3)
(17)
(18)
Past service cost
-
-
(3)
-
(3)
-
Contributions by employees
-
-
(1)
-
(1)
(1)
Benefit payments
243
66
12
10
331
317
Interest on plan liabilities
(198)
(44)
(13)
(5)
(260)
(284)
Actuarial losses
(337)
(65)
(23)
(11)
(436)
(351)
Settlements
-
133
3
-
136
(3)
Exchange adjustments
-
(53)
(2)
(1)
(56)
-
Closing present value of defined benefit obligation
(4,628)
(1,033)
(305)
(141)
(6,107)
(5,801)
Changes in the fair value of plan assets for the year ended 31 March 2013 were as follows:
Funded schemes
Total
Total
Invensys
Invensys
Pension Scheme (UK)
Pension Plan (US)
Other
2013
2012
£m
£m
£m
£m
£m
Opening fair value of plan assets
4,233
972
204
5,409
5,024
Expected return on plan assets
178
51
13
242
281
Contributions by employer
49
10
11
70
88
Contributions by employees
-
-
1
1
1
Benefit payments
(243)
(66)
(12)
(321)
(308)
Actuarial gains
261
43
5
309
320
Settlements
-
(123)
(3)
(126)
-
Exchange adjustments
-
49
1
50
3
Closing fair value of plan assets
4,478
936
220
5,634
5,409
During the year, the Group was 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 exceeded the liability in respect of the Scheme as measured under IFRSs, and would therefore, when paid, have given rise to a surplus as measured under IFRSs, a provision was 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 31 March 2013, the present value of the agreed funding payments exceeded the liability of the Scheme under IFRSs and consequently the irrecoverable element of the pension surplus is £4 million (2012: £34 million).
2013
2012
£m
£m
Deficit in the scheme
(150)
(93)
Future minimum funding requirements
161
190
Potential future pension surplus
11
97
Irrecoverable element of potential future pension surplus
(4)
(34)
Recoverable element of potential future pension surplus
7
63
Movement in irrecoverable element of potential future pension surplus
30
(4)
Reconciliation of assets and liabilities recognised in the balance sheet as at 31 March 2013:
Funded schemes
Unfunded schemes
Total
Total
Invensys
Invensys
Pension Scheme (UK)
Pension Plan (US)
Other
Other
2013
2012
£m
£m
£m
£m
£m
£m
Present value of defined benefit obligation
(4,628)
(1,033)
(305)
(141)
(6,107)
(5,801)
Fair value of plan assets
4,478
936
220
-
5,634
5,409
Deficit in the plan
(150)
(97)
(85)
(141)
(473)
(392)
Irrecoverable element of potential future pension surplus
(4)
-
-
-
(4)
(34)
Net liability
(154)
(97)
(85)
(141)
(477)
(426)
Analysed as:
Non-current pension liability
(154)
(97)
(35)
(141)
(427)
(426)
Liabilities held for sale
-
-
(50)
-
(50)
-
Major assumptions
Invensys Pension Scheme (UK):
The discount rate applied is 4.20% (2012: 4.70%). The inflation rate is based on RPI and has been assessed at 3.50% (2012: 3.50%). An additional inflation rate assumption for CPI is required to reflect the UK Government's change of the inflation measure used to determine minimum pension increases which impacts on some of the pension increases within these schemes. This has been assessed as 2.50% (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 4.00% (2012: 4.55%).
Invensys plc
Notes (continued)
7 Net assets held for sale
Assets and liabilities held for sale at 31 March 2013 consisted of the assets and liabilities of Invensys Rail and the Group's surplus freehold properties (2012: surplus freehold properties). Invensys Rail has been classified as a discontinued operation and disposal group held for sale, as set out in Note 4. Surplus freehold properties are properties that are vacant, no longer used for operational purposes and are being actively marketed for sale. They are expected to be sold within a year of the date of their classification as held for sale and are included in Corporate in the operating segment analysis in Note 2.
8 Reconciliation of cash flows
2013
2012
£m
£m
Net cash flows from operating activities
179
65
Capital expenditure included within investing activities
(79)
(89)
Proceeds from sale of property, plant and equipment
5
-
Interest paid
12
10
Taxation paid (operating)
44
34
Restructuring
21
27
Other operating exceptional item: costs to settle legal case
-
10
Facility fees paid
-
5
Legacy items:
- Pension contributions
62
80
- Other legacy payments
-
17
62
97
Operating cash flow
244
159
Restructuring
(21)
(27)
Net finance costs paid
(11)
(7)
Facility fees paid
-
(5)
Taxation paid (operating)
(44)
(34)
Legacy items
(62)
(97)
Free cash flow
106
(11)
Operating cash flow attributable to:
Continuing operations
136
124
Discontinued operations
108
35
244
159
The directors use two KPI measures of the Group's cash performance, operating cash flow and free cash flow. Both measures are reconciled above.
9 Analysis of business combinations and business disposals
On 10 May 2012, Invensys Rail 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.
On 15 October 2012, Invensys Operations Management acquired 100% of the share capital of Spiral Software (Spiral), 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 of Spiral strengthens Invensys Operations Management's position in the hydrocarbon processing industry and extends the refinery optimization solutions that it offer to its customers.
Invensys plc
Notes (continued)
10 Net cash and deposits
2013
2012
£m
£m
Cash and cash equivalents
247
263
Borrowings: current
(1)
(1)
Net cash
246
262
2013 net cash for the Group is £268 million; £22 million of net cash related to Invensys Rail has been classified as assets held for sale in the balance sheet.
The Group has operations in a number of territories including China, Brazil 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 realised reserves. At 31 March 2013, restricted cash and cash equivalents held in such territories totalled £51 million (2012: £58 million).
Cash and cash equivalents include £10 million (2012: £12 million) of collateral held in the ordinary course of business to provide security for local bonding facilities.
In addition, at 31 March 2013, bonds and guarantees totalling £47 million were held in continuing operations (2012: £59 million) issued under uncommitted facilities. Of these, £10 million (2012: £12 million) are supported by cash collateral and a further £6 million (2012: £7 million) are supported by guarantees issued under the Group's committed multi-currency bonding and guarantee facility.
In relation to discontinued operations at 31 March 2013, £266 million (2012: £168 million) was issued under uncommitted facilities. Of these £12 million (2012: £17 million) are supported by cash collateral and a further £nil (2012: £7 million) are supported by guarantees issued under the Group's committed multi-currency bonding and guarantee facility.
11 Contingent liabilities
Group companies have given performance guarantees to certain subsidiaries (and certain former subsidiaries prior to disposal) in the normal course of business. Counter-indemnities have been received from purchasers in the case of guarantees given in favour of former subsidiaries. At the balance sheet date, the directors are not aware of any circumstances that may give rise to a liability to the Group under these performance guarantees.
No member of the Group is engaged in nor (so far as the directors are aware) has pending, or is threatened by, or has against it any legal or arbitration proceedings which may have a significant effect on the financial position of the Group, other than those already disclosed.
12 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 year was £9 million (2012: £2 million), consisting of short-term and other benefits for the year of £8 million (2012: £2 million) and share-based payments of £1 million (2012: £nil).
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 31 March 2013, 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.
Invensys plc
Notes (continued)
12 Related party disclosures (continued)
A further loan has been advanced to Mr Edmunds during the year ended 31 March 2013 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 31 March 2013, an amount of £65,532 remained outstanding, with the balance being repaid to Invensys Systems Inc. on 13 May 2013 following HRMC refunding the amount to Mr Edmunds.
No further loans have been advanced to any director during the year ended 31 March 2013 or the year ended 31 March 2012.
There are no other related party transactions that have a material effect on the financial position or performance of the Group in the year (2012: none).
13 Dividends paid and proposed
2013
2012
£m
£m
Paid during the year
Equity dividends on ordinary shares:
- Interim dividend for the year ended 31 March 2013: 1.75p (2012: 1.65p)
15
13
- Final dividend for the year ended 31 March 2012: 2.75p (2011: 2.50p)
22
20
37
33
Proposed for approval by shareholders at the AGM
Equity dividends on ordinary shares:
- Final dividend for the year ended 31 March 2013: 2.85p (2012: 2.75p)1
23
22
23
22
1. Subject to the share consolidation as detailed on page 9
The interim dividend for the year ended 31 March 2013 was declared by the Board on 14 November 2012 and paid on 21 December 2012.
The final dividend for the year ended 31 March 2012 was approved by shareholders on 13 July 2012 and paid on 3 August 2012.
Subject to approval by shareholders at the AGM on 25 July 2013, the proposed final dividend for the year ended 31 March 2013 will be paid on 2 August 2013 to shareholders on the register at 21 June 2013, and will be accounted for as an appropriation of retained earnings in the year ending 31 March 2014.
The Invensys Employee Share Trust has waived its right to the final dividend for the year ended 31 March 2013 payable on the 317,553 shares that it owns (2012: 391,218 shares). The Trust also waived its right to the interim dividend for the year ended 31 March 2013 payable on the 106,338 shares that it owned.
14 Events after the balance sheet date
Sale of Invensys Rail
On 28 November 2012, Invensys signed an agreement to sell Invensys Rail to Siemens for a gross cash consideration of £1.7 billion. The consideration comprised £1.3 billion in exchange for the shares of Invensys Rail and £0.4 billion paid to Invensys's UK Pension Scheme. The transaction completed on 2 May 2013 and will be accounted for in the year ending 31 March 2014.
Payment to reservoir trust in favour of Invensys's UK Pension Scheme
On 2 May 2013 on receipt of proceeds from the sale of Invensys Rail, Invensys paid £225 million into a reservoir trust in favour of Invensys's UK Pension Scheme. The Reservoir Trust Deed contains a mechanism for future payments to be made from the reservoir trust to either the pension trustee or the Company dependent on the funding position of the Scheme, commencing in 2018. Following this payment, and the receipt by the UK Pension Scheme of the £400 million payment on the sale of Invensys Rail, the deficit reduction payments of £40 - 47 million per annum previously agreed with the trustees ceased. It is anticipated that no further contributions will be payable into the Scheme for the foreseeable future.
Invensys plc
Notes (continued)
14 Events after the balance sheet date (continued)
Return of cash
The Group proposes to return cash to shareholders of £625 million (around 76 pence per share) from the proceeds of the sale, subject to the approval of Invensys shareholders at a General Meeting which is expected to take place in June 2013. It is proposed that the return of cash will be followed by a share capital consolidation. The return of cash will be accounted for in the year ending 31 March 2014 as a reduction in retained earnings.
Bank facilities
Following the completion of the sale of Invensys Rail on 2 May 2013, the Group's revolving credit facility was reduced by £100 million to £150 million. The Group's guarantee facility remains at £350 million.
15 Exchange rates
2013
2012
average
average
US dollar to £1
1.58
1.60
Euro to £1
1.22
1.16
2013
2012
closing
closing
US dollar to £1
1.52
1.60
Euro to £1
1.19
1.20
16 Financial information
This preliminary announcement ('statement') was approved by a duly appointed and authorised committee of the Board of directors on 15 May 2013. The financial information contained in this statement does not comprise the statutory accounts of the Group, as defined in section 434 of the Companies Act 2006, for the years ended 31 March 2013 or 31 March 2012. 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 have been delivered to the Registrar of Companies. The accounts for the year ended 31 March 2013 will be delivered in due course. The reports of the auditors on both the years ended 31 March 2012 and 31 March 2013 were unqualified; did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their reports; and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
This information is provided by RNSThe company news service from the London Stock ExchangeENDFR BELLFXEFLBBQ