Interim Results
Posted 08 November 2007
Invensys PLC
08 November 2007
NEWS RELEASE
8 November 2007
HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007
Q2 RESULTS FOR THE THREE MONTHS ENDED 30 SEPTEMBER 2007
Half year highlights
Continuing operations (excluding APV)1
? Revenue was up 7% at constant exchange rates (CER) at £1,063 million
(H1 2006/07: £1,036 million)
? Operating profit2 was up 19% at CER at £111 million (H1 2006/07: £98
million)
? Operating margin2 increased to 10.4% (H1 2006/07: 9.5%)
? Orders were down 4% at CER to £1,047 million (H1 2006/07: £1,134
million)
? Earnings per share before exceptional finance costs and foreign
exchange gains and losses were 7.2p (H1 2006/07: 4.3p)
? Operating cash flow was down 17% at CER to £77 million (H1 2006/07:
£94 million)
Total Group3
? Net profit was £56 million (H1 2006/07: £131 million - after
crediting £120 million gain on the IBS1 disposal)
? Free cash flow was £11 million (H1 2006/07: £38 million outflow)
? Net debt was £187 million (31 March 2007: £166 million)
Second quarter highlights
Continuing operations (excluding APV)
? Revenue was up 5% at CER to £543 million (Q2 2006/07: £534 million)
? Operating profit was up 10% at CER to £59 million (Q2 2006/07: £56
million)
? Operating margin increased to 10.9% (Q2 2006/07: 10.5%)
? Earnings per share before exceptional finance costs and foreign
exchange gains and losses were 4.4p (Q2 2006/07: 4.7p)
? Operating cash flow was down 34% at CER to £40 million (Q2 2006/07:
£61 million)
Total Group
? Net profit was £28 million (Q2 2006/07: £165 million - after
crediting £120 million gain on the IBS disposal)
? Free cash flow was £2 million (Q2 2006/07: £60 million outflow)
? Disposal of APV for £250 million announced on 31 October 2007
Contact:
Invensys plc Steve Devany tel: +44 (0) 20 7821 3758
Kate Elliott tel: +44 (0) 20 7821 2121
Financial Dynamics Andrew Lorenz tel: +44 (0) 20 7269 7121
Richard Mountain
Ulf Henriksson, Chief Executive Officer of Invensys plc, commented:
"I am pleased to report another encouraging first half performance, with
operating profit from continuing operations of £111 million and operating margin
improving to 10.4%. Process Systems and Rail Group have continued to make good
progress and, despite difficult market conditions, Controls produced another
satisfactory operating performance. We have also seen shareholders' funds
become positive for the first time since 2002.
"The sale of APV will strengthen our financial position further and enables us
to focus management attention more on our other operations as we seek to become
a more sustainable, higher performing and cohesive business. In Process Systems
and Rail Group, we have continued to increase investment in sales and marketing,
research and development and engineering resources to enable us to capture the
growth in many of our markets and continue to deliver efficient project
execution. We have also decided to continue the level of investment in
operational restructuring when there is a compelling financial return,
particularly in Controls.
"Following this encouraging first half performance, the Board remains confident
that the Group will continue to make progress in the current financial year."
Notes
1. Continuing operations are Process Systems, Eurotherm, Rail Group and
Controls. Discontinued operations comprise APV in both periods and Invensys
Building Systems in the US and Asia Pacific (IBS) in 2006/07.
2. All references to operating profit (OPBIT) and operating margin in
this announcement are before exceptional items.
3. Total Group comprises continuing and discontinued operations.
Conference call
1. Ulf Henriksson, CEO, and Steve Hare, CFO, will be hosting a
presentation to analysts and fund managers at 9.00 am (GMT) this morning at:
JPMorgan Cazenove Auditorium,
1st Floor,
20 Moorgate,
London EC2R 6DA
2. This presentation will be available via a telephone conference call:
UK: +44-20-3023-4457
US (Toll-free): +1-866-966-5335
No passcode is required
3. The presentation will be audio webcast live with slides, which can be
accessed by following the link at:
http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=79275&eventID=1674497
A recording will be available at this address shortly after the completion of
the call.
4. This announcement, the presentation materials for the conference call
and the half-yearly financial report are available on the Invensys.com website
at:
http://www.invensys.com/isys/default.asp?top_nav_id=4&nav_id=4
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.
CEO OVERVIEW
We have reported an encouraging first half performance and continue to take a
range of actions to transform the Group. We are continuing to lay the
foundations for future growth and enhanced cash generation and we are also
improving the quality of the group's businesses, its returns and its earnings.
We are doing this in a number of ways:
? by continuously reviewing the quality of our portfolio through an analysis
of the value of each of our businesses - most notably, we have recently
announced the sale of APV;
? by investing in our businesses - in Process Systems and Rail Group, we
have recently increased our investment in sales and marketing by taking on
additional staff and we are investing in further research and development
and engineering capacity to ensure we achieve technological leadership and
enhanced delivery capability in these businesses;
? by re-organising our businesses, where appropriate, to remove unnecessary
costs - in Controls we have reconfigured the business based upon the end
markets thereby removing a layer of global management;
? by focusing on high-quality business undertaken at appropriate margins
rather than for volume - in Controls, we have deliberately sought to enhance
margins even at the expense of reduced volumes on certain product lines;
? by entering into business restructuring in underperforming businesses
where we are convinced a compelling return is achievable - we have taken £9
million of restructuring costs in the first half to achieve benefits in our
European and North American Controls businesses; and
? by investing in complementary acquisitions - in Process Systems, we
acquired Cimnet in July 2007.
We will continue to drive these actions to maximise value for shareholders.
BUSINESS REVIEW
For the half year Revenue Operating Operating Operating cash in Orders received
ended 30 September profit/(loss) margin % /(out) flow
£m £m £m £m
H1 H1 H1 H1 H1 H1 H1 2007 H1 2006 H1 H1
2007/08 2006/07 2007/08 2006/07 2007/08 2006/07 /08 /07 2007/08 2006/07
Process Systems 379 363 46 43 12.1% 11.8% 11 25 407 410
Eurotherm 54 53 4 6 7.4% 11.3% 3 7 57 55
Rail Group 293 248 44 39 15.0% 15.7% 53 88 251 285
Controls 337 372 34 28 10.1% 7.5% 26 (2) 332 384
Corporate - - (17) (18) - - (16) (24) - -
Continuing 1,063 1,036 111 98 10.4% 9.5% 77 94 1,047 1,134
operations
For the quarter Revenue Operating Operating Operating cash Orders received
ended 30 September profit/(loss) margin % in/(out) flow
£m £m £m £m
Q2 Q2 Q2 Q2 Q2 Q2 Q2 2007 Q2 2006 Q2 Q2
2007/08 2006/07 2007/08 2006/07 2007/08 2006/07 /08 /07 2007/08 2006/07
Process Systems 205 190 26 23 12.7% 12.1% 25 23 200 205
Eurotherm 27 27 2 3 7.4% 11.1% 3 3 29 27
Rail Group 146 127 22 22 15.1% 17.3% 12 48 117 106
Controls 165 190 17 17 10.3% 8.9% 14 1 160 192
Corporate - - (8) (9) - - (14) (14) - -
Continuing 543 534 59 56 10.9% 10.5% 40 61 506 530
operations
Revenue
Revenue in the half year ended 30 September 2007 was £1,063 million (H1 2006/07:
£1,036 million), an increase of 7% at CER. The global nature of the Group means
it has a significant exposure to movements in foreign exchange rates and in
particular to the US dollar and euro. The translation effect of foreign exchange
rates on the half year was a decrease in revenue of £42 million or 4%. A
summary of revenue and movements at CER by business is set out below:
For the half year ended 30 H1 H1 H1
September 2006/07 2006/07 Change at 2007/08
Revenue Exchange at CER CER Revenue Change1
£m £m £m £m £m %
Process Systems 363 (19) 344 35 379 10%
Eurotherm 53 (2) 51 3 54 5%
Rail Group 248 (6) 242 51 293 21%
Controls 372 (15) 357 (20) 337 (6)%
Continuing operations 1,036 (42) 994 69 1,063 7%
1 % change is measured as the change at CER as a percentage of the H1
2006/07 adjusted base and is calculated based on underlying amounts in £'000s.
Operating profit and margin
Operating profit before exceptional items was £111 million in the half year
ended 30 September 2007 (H1 2006/07: £98 million), which represents an increase
of 19% at CER. The translation effect of foreign exchange rates on the half year
was a decrease in operating profit of £5 million or 5%. A one cent movement in
the US dollar exchange rate will have an annualised impact of approximately £0.5
million. Operating margin increased to 10.4% (H1 2006/07: 9.5%). A summary of
operating profit and movements at CER by business is set out below:
For the half year ended 30 H1 H1 H1
September 2006/07 2006/07 Change at 2007/08
OPBIT Exchange at CER CER OPBIT Change1
£m £m £m £m £m %
Process Systems 43 (3) 40 6 46 15%
Eurotherm 6 - 6 (2) 4 (26)%
Rail Group 39 (1) 38 6 44 15%
Controls 28 (1) 27 7 34 25%
Corporate (18) - (18) 1 (17) 3%
Continuing operations 98 (5) 93 18 111 19%
1 % change is measured as the change at CER as a percentage of the H1
2006/07 adjusted base and is calculated based on underlying amounts in £'000s.
Orders
Orders received in the half year ended 30 September 2007 were £1,047 million (H1
2006/07: £1,134 million), a decrease of 4% at CER. A summary of orders and
movements at CER by business is set out below:
For the half year ended 30 H1 H1 H1
September 2006/07 2006/07 Change at 2007/08
Orders Exchange at CER CER Orders Change1
£m £m £m £m £m %
Process Systems 410 (21) 389 18 407 5%
Eurotherm 55 (1) 54 3 57 6%
Rail Group 285 (5) 280 (29) 251 (10)%
Controls 384 (15) 369 (37) 332 (10)%
Continuing operations 1,134 (42) 1,092 (45) 1,047 (4)%
1 % change is measured as the change at CER as a percentage of the H1
2006/07 adjusted base and is calculated based on underlying amounts in £'000s.
The order book for continuing operations at 30 September 2007 was £1,844 million
(31 March 2007: £1,872 million).
Exceptional items
Exceptional items in the half year ended 30 September 2007 totalled £12 million
(H1 2006/07: £15 million), comprising restructuring costs totalling £10 million
(H1 2006/07: £4 million) and property, plant and equipment impairment of £2
million (H1 2006/07: £nil), both relating mainly to the European and North
American Controls businesses. The comparative period also included a £17
million charge relating to the augmentation of members' benefits in the Invensys
Australian Superannuation Fund, partially offset by a £5 million credit relating
to the release of product recall provisions in Controls and a gain on the sale
of assets and operations of £1 million.
For the quarter, exceptional items totalled £6 million (Q2 2006/07: £1 million
credit). This related to £5 million of restructuring costs (Q2 2006/07: £3
million) and £1 million of property, plant and equipment impairment (Q2 2006/07:
£nil), mainly in the Controls business. The comparative quarter also included a
£3 million net credit to other operating exceptionals and a £1 million gain on
sale of operations.
Foreign exchange (losses)/gains
Foreign exchange losses in the half year ended 30 September 2007 of £5 million
(H1 2006/07: £27 million gains) relate to exchange differences arising on the
translation of unhedged foreign currency monetary items used in the financing of
the Group and its subsidiaries. Of the exchange losses, £8 million arose on net
euro borrowings and £2 million arose on net other borrowings, offset by gains of
£5 million on net US dollar borrowings.
In the quarter, £9 million was recorded for foreign exchange losses (Q2 2006/07:
£7 million gains). This was driven by a £10 million loss on net euro borrowings
as the euro strengthened by 3% in the quarter.
Net finance costs and cover
Net finance costs reduced to £24 million (H1 2006/07: £43 million) reflecting
the benefits of the 2006 Refinancing and lower net debt. The reduction in net
finance costs together with improved operating profit led to an increase in net
finance costs cover from 2.3 times to 4.6 times.
For the quarter, net finance costs were £13 million (Q2 2006/07: £15 million).
Profit before tax
The improved operating profit and reduced finance costs resulted in a profit
before tax for the half year ended 30 September 2007 of £62 million (H1 2006/07:
£8 million after charging £55 million relating to the 2006 Refinancing and after
crediting a foreign exchange gain of £27 million).
Profit before tax for the quarter was £27 million (Q2 2006/07: £48 million). The
decrease was driven by a £16 million adverse change in the foreign exchange
gains and losses and an increase in exceptional items charged.
Taxation
The tax charge for the half year ended 30 September 2007 was £9 million (H1
2006/07: £7 million), based on a £14 million allocation of the estimated full
year tax charge, offset by a £5 million tax credit relating to settlement of
some historic tax disputes in the UK and US. The comparative period included a
deferred tax credit of £5 million arising from the exceptional charge relating
to the Invensys Australian Superannuation Fund.
The quarter charge was £1 million (Q2 2006/07: £6 million) comprising a £6
million allocation of the estimated full year tax charge offset by the £5
million prior year tax credit.
Profit from discontinued operations
Profit from discontinued operations in the current half year and quarter
comprised APV. The comparative periods also included the IBS business.
Net profit
Net profit for the half year ended 30 September 2007 was £56 million (H1 2006/
07: £131 million, which included a £120 million gain on the IBS disposal).
Net profit for the quarter was £28 million (Q2 2006/07: £165 million, which also
included the £120 million gain on the IBS disposal).
Earnings per share
Earnings per share before exceptional finance costs and foreign exchange gains
and losses for continuing operations were 7.2p for the half year (H1 2006/07:
4.3p) and 4.4p for the quarter (Q2 2006/07: 4.7p).
Basic earnings per share for continuing operations were 6.5p for the half year
(H1 2006/07: 0.1p) and 3.3p for the quarter (Q2 2006/07: 5.6p).
Cash flow
Operating cash flow from continuing operations in the half year was £77 million
(H1 2006/07: £94 million) resulting in an operating cash conversion for the half
year of 69% (H1 2006/07: 96%). The lower conversion was driven by working
capital outflows in Process Systems. The free cash flow for the total Group for
the half year was £11 million (H1 2006/07: £38 million outflow) after interest
payments of £19 million, taxation payments of £14 million, legacy payments of
£14 million and an operating cash outflow at APV of £19 million. The prior half
year was impacted by exceptional finance cash costs of £44 million for the 2006
Refinancing.
For the quarter, operating cash flow from continuing operations was £40 million
(Q2 2006/07: £61 million) resulting in a cash conversion of 68% (Q2 2006/07:
109%). This reduction was principally driven by the phasing of long term
contract receipts in Rail Group and the fact that Process Systems did not fully
recover its Q1 cash flow. Free cash flow for the total Group was £2 million (Q2
2006/07: £60 million outflow) following a biannual interest payment of £17
million and the scheduled £10 million pension deficit reduction payment to the
UK main scheme. The improvement against the prior quarter reflects the benefits
of the 2006 Refinancing and lower net debt.
Net debt
Net debt at 30 September 2007 was £187 million (31 March 2007: £166 million).
The free cash flow of £11 million was principally offset by the £12 million
payment for the acquisition of Cimnet, Inc and £13 million of share purchases
relating to share based payment plans, which included £4 million purchase of
shares on vested share awards and £9 million purchase of shares for future
awards.
Pensions
Pension liabilities reduced by £221 million to £301 million (31 March 2007: £522
million) following an IAS 19 half year valuation. The decrease was driven by
actuarial gains on the UK main scheme of £166 million and US main scheme of £35
million, attributable to short-term market volatility in long-term discount
rates. The quarter also included the £10 million deficit reduction payment to
the UK main scheme in accordance with the agreed funding plan.
As part of the arrangements for the sale of APV we have agreed to contribute £70
million of the proceeds to the UK main scheme on completion, of which £28
million relates to early payment of the next two instalments due under the
funding plan agreed last year with the Trustees, and £10 million to the US main
scheme. The effect of this additional contribution to the UK main scheme upon
the payment schedule announced last year will be evaluated as part of the
triennial actuarial review of that scheme as at 31 March 2008.
Equity
Equity attributable to the holders of the parent increased by £271 million in
the half year to a surplus of £71 million (31 March 2007: £200 million deficit).
This was driven by the actuarial gain of £217 million made on the net pension
liabilities and retained profit of £54 million.
Outlook
Following this encouraging first half performance, the Board remains confident
that the Group will continue to make progress in the current financial year.
Process Systems
For the half year ended 30 September H1 2007/08 H1 2006/07 % Change at % Total
CER change
Revenue (£m) 379 363 10% 4%
Operating profit (£m) 46 43 15% 7%
Operating margin (%) 12.1% 11.8%
Operating cash flow (£m) 11 25 (53)% (56)%
Orders (£m) 407 410 5% (1)%
Employees at period end (numbers) 7,570 6,931 9%
For the quarter ended 30 September Q2 2007/08 Q2 2006/07 % Change at % Total
CER change
Revenue (£m) 205 190 13% 8%
Operating profit (£m) 26 23 23% 13%
Operating margin (%) 12.7% 12.1%
Operating cash flow (£m) 25 23 15% 9%
Orders (£m) 200 205 3% (2)%
Developments
Process Systems' markets continued to exhibit good growth in automation driven
by strong regional demand in emerging markets, such as Asia Pacific. Key
sectors, such as upstream oil and gas, also exhibited strong growth. Our
InFusionTM product continues to gain traction including the recent award of a
contract to implement an InFusion based plant information management system for
a refining and petrochemical complex located in Rabigh, Saudi Arabia. The July
2007 acquisition of Cimnet has been well received by customers and is proceeding
as planned with the release of the first Cimnet products under the Wonderware
brand.
We have continued to implement changes which strengthen Process Systems' ability
to sell high value solutions to our customers. We have recruited additional
expertise in our sales and marketing team to drive the solutions offering and to
ensure that Invensys is considered an integral partner of our customers. Our
new regional executive team will maintain those relationships and seek to
broaden the portfolio pick-up and we now have one global delivery organisation
with a central research and development function. As part of this, we have been
investing in strengthening our sales and marketing, engineering and research and
development teams with a 9% headcount increase during the past twelve months.
Performance
During the first half of this year, Process Systems generated revenue of £379
million (H1 2006/07: £363 million), a 10% increase at CER over the prior year
period. The revenue growth was driven by Asia Pacific, up 30% at CER, and North
America, up 8% at CER. The substantial growth in Asia Pacific mainly came from
India and Singapore. Growth in North America was driven by good backlog
conversion.
Operating profit rose to £46 million for the half year (H1 2006/07: £43
million), a 15% increase at CER, with the operating margin increasing to 12.1%
(H1 2006/07: 11.8%). The increase was primarily driven by incremental gross
profit from volume growth offset by selective investment in overheads. An
operating cash flow of £11 million was generated (H1 2006/07: £25 million); the
reduction was mainly due to delayed collections.
Orders for the half year were up 5% at CER to £407 million (H1 2006/07: £410
million) with strong growth in Asia Pacific, where orders grew 14% at CER.
Revenue during the quarter was £205 million (Q2 2006/07: £190 million) an
increase of 13% at CER, driven by Asia Pacific, up 31%, and North America, up
15% at CER. Operating profit rose to £26 million (Q2 2006/07: £23 million), a
23% increase at CER, and the operating margin improved to 12.7% (Q2 2006/07:
12.1%) predominantly due to revenue growth offset by selective investment in
overheads. An operating cash flow of £25 million was generated (Q2 2006/07: £23
million). Orders for the quarter totalled £200 million (Q2 2006/07: £205
million), up only 3% at CER, due to some delays in the signing of some larger
contracts.
Outlook
Our core markets of upstream oil and gas, petrochemicals, refining and power are
expected to continue to show good growth for the foreseeable future driven by
the high price of oil and gas and the energy needs for the emerging economies.
We have a large pipeline of potential orders and we expect its conversion to
contribute to an improved level of order intake in the second half of the year.
Eurotherm
For the half year ended 30 September H1 2007/08 H1 2006/07 % Change at % Total
CER change
Revenue (£m) 54 53 5% 2%
Operating profit (£m) 4 6 (26)% (33)%
Operating margin (%) 7.4% 11.3%
Operating cash flow (£m) 3 7 (57)% (57)%
Orders (£m) 57 55 6% 4%
Employees at period end (numbers) 1,110 1,116 (1)%
For the quarter ended 30 September Q2 2007/08 Q2 2006/07 % Change at % Total
CER change
Revenue (£m) 27 27 2% -
Operating profit (£m) 2 3 (41)% (33)%
Operating margin (%) 7.4% 11.1%
Operating cash flow (£m) 3 3 (10)% -
Orders (£m) 29 27 8% 7%
Developments
Eurotherm continues to implement its restructuring programme with the transfer
of component production to the supply chain, the creation of assembly and
calibration plants in Poland and China and a strong focus on developing our
niche markets through projects and solutions. We are also investing in our
solutions offering for our main markets and in a new sales model.
Performance
For the half year, revenue rose 5% at CER to £54 million (H1 2006/07: £53
million). The majority of the rise can be attributed to increases in the
solutions business, up 28% at CER. Products revenue was broadly flat with
double digit growth in Heat Treatment and the Asia Pacific region offset by
weaker US markets.
Operating profit for the half year was down 26% at CER to £4 million (H1 2006/
07: £6 million). This decrease arose mainly due to additional overheads in
sales and infrastructure, temporary parallel running costs and changes to the
sales mix. The operating margin was 7.4% for the half year to September 2007
versus 11.3% in the prior comparable period. Operating cash flow was £3 million
compared to £7 million in H1 2006/07. Orders were up 6% at CER to £57 million
(H1 2006/07: £55 million) with solutions up 19% at CER.
For the quarter, revenue was £27 million (Q2 2006/07: £27 million), a 2% rise at
CER, due to an increase in solutions revenue offset by lower products revenue.
The operating profit fell to £2 million (Q2 2006/07: £3 million), a decrease of
41% at CER. The decrease resulted from a combination of lower gross margins and
additional overhead investments. The operating margin fell to 7.4% (Q2 2006/07:
11.1%) due to the reasons noted above. An operating cash flow of £3 million was
generated (Q2 2006/07: £3 million). Orders for the quarter were £29 million, an
increase of 8% at CER (Q2 2006/07: £27 million) principally driven by solutions.
Outlook
We expect to see continued growth in our key markets and increasing benefits
from the changes we are making to our manufacturing operations.
Rail Group
For the half year ended 30 September H1 2007/08 H1 2006/07 % Change at % Total
CER change
Revenue (£m) 293 248 21% 18%
Operating profit (£m) 44 39 15% 13%
Operating margin (%) 15.0% 15.7%
Operating cash flow (£m) 53 88 (40)% (40)%
Orders (£m) 251 285 (10)% (12)%
Employees at period end (numbers) 3,498 3,072 14%
For the quarter ended 30 September Q2 2007/08 Q2 2006/07 % Change at % Total
CER change
Revenue (£m) 146 127 17% 15%
Operating profit (£m) 22 22 4% -
Operating margin (%) 15.1% 17.3%
Operating cash flow (£m) 12 48 (76)% (75)%
Orders (£m) 117 106 13% 10%
Developments
Within Rail Group's core markets in the UK and Iberia, demand remained strong
with high levels of infrastructure spending for both mainline and mass transit.
The US market for level crossings remained flat ahead of an expected increase in
spending by the railroad companies. We are continuing to work to exploit the
strong pipeline of major opportunities in export markets.
Our investment in the business is focussed on three areas - in sales and
marketing to ensure that we capture the potential in export markets, in research
and development to maintain a leading position in rail signalling technology and
in engineering to ensure that we have the capacity to execute the higher levels
of activity. This is reflected in the 14% increase in employee numbers during
the past twelve months.
We have continued to see a strong level of activity in the half year on our PPP
contracts to provide the signalling and control upgrades on the Victoria and
sub-surface lines of the London Underground. Despite Metronet's financial
difficulties, the progress of work and contract receipts are currently
continuing unaffected and we await the outcome of the company's PPP
administration.
Performance
Revenue for the half year was up 21% at CER to £293 million (H1 2006/07: £248
million), reflecting increased activity in all regions. Revenue growth has been
most pronounced in the UK and Spain, driven by the substantial order book of
long term contracts in those markets. Operating profit rose to £44 million for
the half year (H1 2006/07: £39 million), an increase of 15% at CER driven by
increased activity partially offset by continued investment in sales and
marketing and research and development. The operating margin was 15.0% (H1
2006/07: 15.7%), which is in line with our expectations.
An operating cash flow of £53 million was generated during the six month period
(H1 2006/07: £88 million), resulting in a 120% cash conversion. Orders for the
half year were £251 million (H1 2006/07: £285 million), down 10% at CER,
reflecting the variable nature of large order receipts following a strong order
intake in Q1 2006/07.
For the quarter revenue was £146 million (Q2 2006/07: £127 million), 17% higher
at CER, reflecting strong growth in the UK and Spain. Revenue in North America
was only slightly ahead of the prior year as major railroads continued to focus
investment into capacity enhancement rather than level crossings. Operating
profit was broadly flat at £22 million (Q2 2006/07: £22 million), an increase of
4% at CER and the operating margin was 15.1% (Q2 2006/07: 17.3%), consistent
with our expected returns. An operating cash flow of £12 million was generated,
compared to £48 million in Q2 2006/07 when the business had particularly strong
receipts on long term contracts. Orders for the quarter rose to £117 million
(Q2 2006/07: £106 million), up 13% with the UK business securing a good level of
new orders with Network Rail.
Outlook
We expect the UK, Iberian and Australian markets to maintain the current strong
levels of revenue, although the future of Metronet in the UK remains uncertain.
The North American market appears likely to remain flat until the emphasis of
spending switches from capacity to level crossings.
Our growth potential remains in the export markets, where we are investing to
ensure that we capture some of the significant opportunities arising from the
global increase in infrastructure spending.
Controls
For the half year ended 30 September H1 2007/08 H1 2006/07 % Change at % Total
CER change
Revenue (£m) 337 372 (6)% (9)%
Operating profit (£m) 34 28 25% 21%
Operating margin (%) 10.1% 7.5%
Operating cash flow (£m) 26 (2) n/a n/a
Orders (£m) 332 384 (10)% (14)%
Employees at period end (numbers) 12,001 13,668 (12)%
For the quarter ended 30 September Q2 2007/08 Q2 2006/07 % Change at % Total
CER change
Revenue (£m) 165 190 (10)% (13)%
Operating profit (£m) 17 17 3% -
Operating margin (%) 10.3% 8.9%
Operating cash flow (£m) 14 1 n/a n/a
Orders (£m) 160 192 (14)% (17)%
Developments
Controls continued to improve its operational and financial performance in the
first half with further actions being taken to address the need to make this
improvement sustainable.
The US new residential construction market, which accounts for around 10% of
Controls' revenue, remained weak during the first half of the year. Material
cost inflation was volatile and our selling price actions have continued to
offset this effect. However with some product lines, customer reactions to the
price increases required to make an economic return has resulted in some lost
business and hence lower volumes.
Given the overall enhanced performance of Controls, we have decided to increase
the level of cash investment for plant improvements in order to further increase
productivity, quality and delivery and thus continue to expand margins. We will
also selectively increase spending on restructuring in those areas which are
still underperforming or which are experiencing reduced volumes as a result of
our pricing actions, provided such expenditure yields a compelling financial
return. In particular, we will be closing the Long Beach facility in the US and
consolidating gas valve production in the Mexicali plant in Mexico.
During the last financial year, the business was reorganised based upon end
markets and supply chain, which has enabled clearer visibility of product
performance and prospects. This reorganisation has now allowed us to remove the
Controls global management layer with resultant cost savings going forward.
In September, we signed a definitive agreement to sell our operation that makes
reversing valves for refrigeration units to Sanhua Holding Group Company Limited
for £7 million. This business has annual revenues of approximately £20 million.
Completion is expected to take place during November 2007.
Performance
Revenue for the half year fell to £337 million (H1 2006/07: £372 million), 6%
lower at CER, primarily due to the exit from and reduced volumes in certain low
margin market segments and the effect of the US new residential construction
market, partially offset by price increases. Operating profit rose to £34
million (H1 2006/07: £28 million), an increase of 25% at CER driven by price
increases and plant productivity improvements with the operating margin
improving to 10.1% (H1 2006/07: 7.5%).
An operating cash inflow of £26 million was generated during the period (H1
2006/07: £2 million outflow). Improved working capital due to changes in
customer payment terms and improved profitability were the primary drivers.
Orders for the half year fell to £332 million (H1 2006/07: £384 million), down
10% at CER, impacted by some market share losses in low margin business in
reaction to our pricing initiatives and also by the US new residential
construction market.
For the quarter, revenue of £165 million (Q2 2006/07: £190 million) was 10%
lower at CER. This was driven primarily due to the exit from and reduced
volumes in certain low margin market segments and the effect of the US new
residential construction market, partially offset by price increases. Operating
profit was flat at £17 million (Q2 2006/07: £17 million), but was a slight
increase of 3% at CER. The operating margin improved to 10.3% (Q2 2006/07:
8.9%). An operating cash flow of £14 million was generated (Q2 2006/07: £1
million). Orders for the quarter were £160 million (Q2 2006/07: £192 million),
down 14% at CER, impacted by some market share losses in low margin business in
reaction to our pricing initiatives and also by the US new residential
construction market.
Outlook
The outlook for Controls remains uncertain with continued weakness in the US new
residential construction market and concerns over the effect of the issues in
the sub-prime credit markets on global economic activity. However, with the
improved overall financial performance, we are increasing our investment in the
business to optimise operational performance and mitigate the effects of reduced
volumes.
Invensys plc
Consolidated income statement (unaudited)
For the half year ended 30 September 2007
Quarter ended Quarter Half year Half year
* ended* ended ended
30 September 30 September 30 September 30 September
2007 2006 2007 2006
Notes £m £m £m £m
Continuing operations
Revenue 2
543 534 1,063 1,036
Operating expenses before exceptional (484) (478) (952) (938)
items
Operating profit before exceptional items 2 59 56 111 98
Exceptional items 4 (6) 1 (12) (15)
Operating profit 3 53 57 99 83
Foreign exchange (losses)/gains 5 (9) 7 (5) 27
Exceptional finance costs - - - (55)
Finance costs (16) (19) (31) (54)
Total finance costs (16) (19) (31) (109)
Finance income 3 4 7 11
Other finance charges - IAS 19 (4) (1) (8) (4)
Profit before taxation 27 48 62 8
Taxation - UK 2 - 2 -
Taxation - overseas (3) (6) (11) (7)
Profit from continuing operations 26 42 53 1
Profit from discontinued operations 6 2 123 3 130
Profit for the period 28 165 56 131
Attributable to:
Equity holders of the parent 27 166 54 131
Minority interests 1 (1) 2 -
28 165 56 131
Earnings per share
Continuing operations
Earnings per share (basic) 7 3.3p 5.6p 6.5p 0.1p
Earnings per share (diluted) 7 3.2p 5.5p 6.4p 0.1p
Discontinued operations
Earnings per share (basic) 7 0.1p 15.8p 0.3p 19.4p
Earnings per share (diluted) 7 0.1p 15.6p 0.3p 19.1p
Earnings per share for continuing 7 4.4p 4.7p 7.2p 4.3p
operations before exceptional finance
costs and foreign exchange gains and
losses (basic)
Invensys plc
Consolidated balance sheet (unaudited)
As at 30 September 2007
30 September 31 March 30 September
2007 2007 2006
Notes £m £m £m
ASSETS
Non-current assets
Property, plant and equipment 271 314 323
Intangible assets - goodwill 208 206 211
Intangible assets - other 88 90 83
Deferred income tax assets 17 17 8
Amounts due from contract customers 5 8 5
Other receivables 40 39 36
Other financial assets 7 7 19
Pension asset 1 3 8
637 684 693
Current assets
Inventories 169 229 227
Amounts due from contract customers 154 196 176
Trade and other receivables 481 565 557
Cash and cash equivalents 284 307 287
Income tax receivable 2 2 3
Derivative financial instruments 2 2 3
1,092 1,301 1,253
Assets held for sale 9 234 3 6
TOTAL ASSETS 1,963 1,988 1,952
LIABILITIES
Non-current liabilities
Borrowings (470) (472) (576)
Provisions (89) (93) (72)
Income tax payable (21) (22) (29)
Deferred income tax liabilities (16) (16) (12)
Amounts due to contract customers (24) (37) (38)
Other payables (15) (16) (17)
Pension liabilities (302) (525) (586)
(937) (1,181) (1,330)
Current liabilities
Trade and other payables (448) (615) (549)
Amounts due to contract customers (207) (223) (190)
Borrowings (1) (1) (2)
Derivative financial instruments (1) (1) (1)
Income tax payable (31) (34) (34)
Provisions (62) (73) (97)
(750) (947) (873)
Liabilities held for sale 9 (143) - -
TOTAL LIABILITIES (1,830) (2,128) (2,203)
NET ASSETS/(LIABILITIES) 133 (140) (251)
Capital and reserves
Equity share capital 80 80 80
Other reserves 4,372 4,158 4,166
Retained earnings (4,381) (4,438) (4,559)
Equity holders of the parent 71 (200) (313)
Minority interests 62 60 62
TOTAL EQUITY 10 133 (140) (251)
Invensys plc
Consolidated cash flow statement (unaudited)
For the half year ended 30 September 2007
Quarter ended Quarter ended Half year Half year
* * ended ended
30 September 30 September 30 September 30 September
2007 2006 2007 2006
Notes £m £m £m £m
Operating activities
Operating profit:
Continuing operations 3 53 57 99 83
Discontinued operations 6 3 4 4 12
Depreciation of property, plant and
equipment 12 13 25 26
Amortisation of intangible assets -
other 5 4 9 7
Provision for impairment/write down of
assets charged to operating profit 1 - 2 -
Gain on sale of assets and operations - (1) - (3)
Sale of property, plant and equipment - 1 - 4
Sale of subsidiaries - continuing
operations - 6 - 6
Non-cash charge for share-based payment 2 2 5 3
Decrease/(increase) in inventories 5 (5) (5) (27)
Decrease/(increase) in receivables 12 (2) - (6)
(Decrease)/increase in net amounts due
to contract customers (12) 28 (19) 45
Decrease in payables and provisions (29) (34) (42) (43)
Difference between pension contributions
paid and amounts recognised in operating
profit (11) (28) (9) 4
Cash generated from operations 41 45 69 111
Income taxes paid (8) (3) (14) (8)
Interest paid (22) (52) (26) (69)
Exceptional finance costs - (29) - (29)
Net cash flows from operating activities 11 (39) 29 5
Investing activities
Interest received 4 6 7 13
Purchase of property, plant and
equipment (9) (13) (16) (24)
Expenditure on intangible assets - other (4) (6) (9) (11)
Sale of subsidiaries (3) 156 (4) 150
Net cash disposed of on sale of
subsidiaries (4) - (4) (2)
Cash flows from investing activities (16) 143 (26) 126
Financing activities
Issue of ordinary share capital - 339 - 342
Share issue expenses - (18) - (19)
Acquisition costs (12) - (12) -
Purchase of Invensys plc shares by
Employee Share Trust - - (9) -
Purchase of shares on vested share
awards - - (4) -
Facility fees - (6) - (19)
Increase in long-term borrowings - 155 - 155
Repayment of long-term borrowings (4) (731) (4) (737)
Capital element of finance lease
repayments - - - (1)
Dividends paid to minority interests - (1) (1) (1)
Cash flows from financing activities (16) (262) (30) (280)
Net decrease in cash and cash
equivalents (21) (158) (27) (149)
Cash and cash equivalents at beginning of period 301 441 307 450
Net foreign exchange difference 4 4 4 (14)
Cash and cash equivalents at end of
period 284 287 284 287
Invensys plc
Consolidated statement of recognised income and expense (unaudited)
For the half year ended 30 September 2007
Quarter ended Quarter Half year Half year
* ended* ended ended
30 September 30 September 30 September 30 September
2007 2006 2007 2006
£m £m £m £m
Income and expense recognised directly in equity
Gains on cash flow hedges transferred to income
statement for the period - (2) - (2)
Exchange differences on translation of foreign
operations 9 (3) 9 (16)
Foreign exchange gain transferred on disposal of
operations - (1) - (1)
Actuarial gain/(loss) recognised on defined benefit
pension schemes 217 (96) 217 (96)
Net income/(expense) recognised directly in equity 226 (102) 226 (115)
Profit for the period 28 165 56 131
Total recognised income for the period 254 63 282 16
Attributable to:
Equity holders of the parent 251 65 279 19
Minority interests 3 (2) 3 (3)
254 63 282 16
Invensys plc
Notes (unaudited)
1 Basis of preparation
The Group's condensed Consolidated financial statements for the six months ended 30 September 2007 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 2007, that are prepared in
accordance with IFRS as adopted by the EU.
The summarised financial information presented for the quarter to 30 September 2007 does not form part of
the condensed Consolidated financial statements. The financial information presented in respect of the
quarter to 30 September 2007 has been prepared in accordance with the accounting policies expected to be
used in preparing the Annual report and accounts for the year ending 31 March 2008, which do not differ
significantly from those used for the most recent Annual report and accounts.
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 2007, except for the adoption of new Interpretations, noted below.
- IFRIC 8 Scope of IFRS 2
- IFRIC 9 Reassessment of Embedded Derivatives
- IFRIC 10 Interim Financial Reporting and Impairment
- IFRIC 11 IFRS 2: Group and Treasury Share Transactions
Adoption of these Interpretations did not have any material effect on the financial position or performance
of the Group.
Changes in accounting policy
In the current financial year, the Group will adopt IFRS 7 Financial Instruments: Disclosures for the first
time and IAS 1 Amendment - Presentation of Financial Statements: Capital Disclosures. As these are both
disclosure standards, there is no impact of these changes on the condensed Consolidated financial
statements.
2 Segmental analysis
Operating Operating Operating Operating
Half year ended 30 September Revenue Revenue profit/ profit/ profit/ profit/
(loss) * (loss) * (loss) (loss)
2007 2006 2007 2006 2007 2006
£m £m £m £m £m £m
Business
Process Systems 379 363 46 43 46 42
Eurotherm 54 53 4 6 4 6
Rail Group 293 248 44 39 44 39
Controls 337 372 34 28 23 31
Corporate - - (17) (18) (18) (35)
Continuing operations 1,063 1,036 111 98 99 83
Foreign exchanges (losses)/gains (5) 27
Exceptional finance costs - (55)
Finance costs (31) (54)
Finance income 7 11
Other finance charges - IAS 19 (8) (4)
Taxation (9) (7)
Profit for the period from continuing
operations 53 1
APV 4 8
Controls - IBS - 124
Taxation (1) (2)
Discontinued operations 3 130
Total Group 56 131
Operating Operating Operating Operating
Quarter ended 30 September Revenue Revenue profit/ profit/ profit/ profit/
(loss) * (loss) * (loss) (loss)
2007 2006 2007 2006 2007 2006
£m £m £m £m £m £m
Business £m £m £m £m £m £m
Process Systems 205 190 26 23 26 23
Eurotherm 27 27 2 3 2 3
Rail Group 146 127 22 22 22 22
Controls 165 190 17 17 12 20
Corporate - - (8) (9) (9) (11)
Continuing operations 543 534 59 56 53 57
Foreign exchanges (losses)/gains (9) 7
Finance costs (16) (19)
Finance income 3 4
Other finance charges - IAS 19 (4) (1)
Taxation (1) (6)
Profit for the period from continuing
operations 26 42
APV 3 4
Controls - IBS - 120
Taxation (1) (1)
Discontinued operations 2 123
Total Group 28 165
Quarter Quarter ended Half year Half year
ended ended ended
30 September 30 September 30 September 30 September
2007 2006 2007 2006
£m £m £m £m
Geographical analysis by origin - Revenue
United Kingdom 95 84 184 159
Rest of Europe 137 133 270 255
North America 202 218 402 434
South America 26 24 48 45
Asia Pacific 70 64