2007/08 Third Quarter Results
Posted 07 February 2008
Invensys PLC
07 February 2008
NEWS RELEASE
7 February 2008
2007/08 THIRD QUARTER RESULTS
FOR THE THREE MONTHS ENDED 31 DECEMBER 2007
A quarter of good overall performance
Redemption of High Yield Bonds to improve efficiency of capital structure
Highlights
Continuing operations1
? Orders were up 6% at constant exchange rates (CER) at £540 million (Q3
2006/07: £508 million) with improvements at Process Systems and Rail Group
reflecting the increased emphasis upon sales and marketing
? Revenue was up 5% at CER at £545 million (Q3 2006/07: £521 million) with
good performances at Process Systems, up 9%, and Rail Group, up 13%, partly
offset by the anticipated reduction at Controls
? Operating profit2 was up 26% at CER at £67 million (Q3 2006/07: £53 million)
with strong performances at Process Systems and Rail Group together with
maintained profitability at Controls
? Operating margin2 increased to 12.3% (Q3 2006/07: 10.2%) with each of our
three major business groups reporting double digit margins
? Operating cash flow was up 36% at CER at £72 million (Q3 2006/07: £54
million) due mainly to anticipated improvements at Process Systems
? Earnings per share before exceptional finance costs and foreign exchange
gains and losses were 4.2p (Q3 2006/07: 3.8p)
Total Group3
? Free cash flow, after accelerated legacy pension payments of £28 million
relating to the APV disposal, was £21 million (Q3 2006/07: £41 million), our
fifth consecutive quarter of free cash inflow
? Net cash was £55 million (30 September 2007: £187 million net debt)
following the receipt of £275 million for the disposals of APV, Safety and
Reversing Valve businesses and payments totalling £70 million out of the APV
proceeds to the UK main pension scheme
? Redemption of the remaining £343 million of High Yield Bonds on 17 March
2008 using existing cash resources will result in a significant reduction in
future finance charges (see separate announcement)
Contact:
Invensys plc Steve Devany tel: +44 (0) 20 7821 3758
Kate Elliott tel: +44 (0) 20 7821 2121
Financial Dynamics Andrew Lorenz
Richard Mountain tel: +44 (0) 20 7269 7121
Ulf Henriksson, Chief Executive Officer of Invensys plc, commented:
"I am pleased to report another good operational and financial performance in
the quarter. Each of our three major business groups reported double digit
margins and, as expected, we achieved a much improved operating cash conversion.
We are continuing to invest in our businesses to enhance profitability as we
work to become a high performing, sustainable and cohesive company.
"Process Systems' order intake improved following its increased emphasis upon
sales and marketing, with a double digit increase in North America. Rail Group
produced a strong quarter and Controls maintained profitability despite the
anticipated revenue decline.
"We completed the disposals of three lower margin businesses, APV, Safety and
Reversing Valves which, together with our good cash performance in the quarter,
placed the Group into a net cash position. We have therefore today called the
remaining £343 million of High Yield Bonds, which will result in a significant
reduction on our future finance charges. We are reviewing our other debt
financing with a view to further optimising our capital structure. We have
also started a project to put the Group into a position where the Board can, in
future years and in suitable circumstances, recommend payment of a dividend.
"Following the recent disposals, around 70% of our revenue comes from Process
Systems and Rail Group. These businesses operate in markets such as global
energy and infrastructure which are expected to continue to exhibit growth,
despite some uncertainty about the future direction of the world's economies.
Revenue growth is supported by the large order books in these businesses which
total £1.8 billion. The combination of these strong end markets and the actions
we are taking to maintain profitability at Controls gives us confidence that we
will make further progress in the final quarter of the financial year and they
also provide a sound platform for growth next year."
Notes
1. Continuing operations are Process Systems, Eurotherm, Rail Group and
Controls. Discontinued operations comprise APV, Reversing Valves and Safety
businesses in both periods and Invensys Building Systems in the US and Asia
Pacific 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 conference call
for analysts and fund managers at 8.00 a.m. GMT this morning:
UK: +44 (0) 800-032-3808
US (Toll-free): +1-866-850-2201
No passcode is required.
2. The presentation will be audio webcast live with slides, which can be
accessed by following the link at the following address:
http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=79275&eventID=1746829
A recording will be available at this address shortly after the completion
of the call.
3. This announcement and the presentation materials for the conference call are
also available at:
http://www.invensys.com
Safe harbor
This announcement contains certain statements that are forward-looking. These
statements involve risk and uncertainty because they relate to events and depend
on circumstances that will occur in the future. Forward-looking statements are
not guarantees of future performance. The Group's actual results of operations,
financial condition and liquidity, and the development of the industries in
which the Group operates, may differ materially from those made in or suggested
by these statements and a number of factors could cause the results and
developments to differ materially from those expressed or implied by these
forward-looking statements.
BUSINESS REVIEW
Process Systems
For the quarter ended 31 December Q3 2007/08 Q3 2006/07 % Change at % Total
CER change
Orders (£m) 227 218 6% 4%
Revenue (£m) 214 200 9% 7%
Operating profit (£m) 31 28 14% 11%
Operating margin (%) 14.5% 14.0%
Operating cash flow (£m) 37 14 182% 164%
Employees at period end (numbers) 7,685 7,081 9%
Developments
Our major end markets within the oil and gas, petrochemical, refining and power
sectors remain strong and order growth is improving following the recent
increased emphasis upon sales and marketing and research and development.
InFusionTM, the world's first enterprise control system, has gained further
traction over the last few months, particularly with some of our larger
customers; order intake is currently running at an annualised rate of around
£100 million. We recently implemented a comprehensive InFusion installation at
ExxonMobil's Port Allen Lubricants plant in Louisiana and have received an
InFusion order for BP's Bulwer Island refinery in Queensland, Australia. Our
drive to expand our related consulting services also saw success including a
contract to deliver cyber security protection services to Husky Energy's
Upgrader plant in Saskatchewan, Canada.
Performance
Order intake in the quarter increased by 6% at CER to £227 million (Q3 2006/07:
£218 million) with a particularly strong improvement in North America, up 15% at
CER. This was partly offset by a slower performance in EMEA, where we have
experienced some delays in the formal award of certain contracts due to civil
engineering capacity constraints and political debates in some jurisdictions
between governments and oil companies over the share of revenue, which have
affected the industry in general.
Revenue in the quarter was up 9% at CER at £214 million (Q3 2006/07: £200
million) with good growth in Asia Pacific, up 22% at CER, and in North America,
up 12% at CER, and flat revenue in EMEA.
Operating profit was up 14% at CER at £31 million (Q3 2006/07: £28 million) and
the operating margin rose to 14.5% (Q3 2006/07: 14.0%), with lower overheads
despite higher investment in sales and marketing and research and development.
As expected, operating cash flow improved with £37 million generated during the
quarter (Q3 2006/07: £14 million) due mainly to the collection of outstanding
receivables from earlier quarters. This resulted in cash conversion for the
quarter of 119%.
Outlook
The outlook for Process Systems' global markets remains strong, particularly in
oil and gas and power, and the pipeline of order prospects continues to
demonstrate significant growth opportunities. Our order intake should
increasingly benefit from the ongoing investment in sales and marketing and
research and development.
Eurotherm
For the quarter ended 31 December Q3 2007/08 Q3 2006/07 % Change at % Total
CER change
Orders (£m) 30 28 9% 7%
Revenue (£m) 29 27 7% 7%
Operating profit (£m) 2 2 (3)% -
Operating margin (%) 6.9% 7.4%
Operating cash flow (£m) - 2 (87)% (100)%
Employees at period end (numbers) 1,119 1,122 -
Developments
The restructuring programme, involving the migration of manufacturing from
Western Europe both into the supply chain and to new facilities in Poland and
China, is progressing on its revised schedule for completion at the end of March
2008. We are also continuing to execute our strategy to capture the expected
growth in the key vertical markets of life sciences, glass and heat treatment,
and in the Eastern European and Asia Pacific regions.
Performance
Orders for the quarter rose 9% at CER to £30 million (Q3 2006/07: £28 million)
with good increases in solutions. The greatest geographic impact was seen in
Asia Pacific where order growth rose 61% at CER, while the three key verticals
saw order growth of around 20%. Revenue was £29 million (Q3 2006/07: £27
million), 7% higher at CER, principally due to good revenue growth in the
European and Asia Pacific regions.
Operating profit was flat at £2 million (Q3 2006/07: £2 million) and operating
margin was 6.9% (Q3 2006/07: 7.4%). Operating cash flow was £nil (Q3 2006/07:
£2 million), due mainly to lower customer collections.
Outlook
Eurotherm's end markets remain good and, with the transfer of manufacturing
reaching a conclusion, we expect improvements in revenue and margins.
Rail Group
For the quarter ended 31 December Q3 2007/08 Q3 2006/07 % Change at % Total
CER change
Orders (£m) 139 112 20% 24%
Revenue (£m) 150 131 13% 15%
Operating profit (£m) 26 18 36% 44%
Operating margin (%) 17.3% 13.7%
Operating cash flow (£m) 25 27 (8)% (8)%
Employees at period end (numbers) 3,498 3,074 14%
Developments
The Rail Group's core markets of the UK, Iberia and Australia remained robust
during the quarter, with high levels of demand in both mainline and mass transit
infrastructure projects. The US, our other core market, continues to be flat as
we still await increased spending by the railroad companies on rail crossings;
this is despite the increased level of federal funding contained in the
Transportation Bill. We also continue to actively address a very significant
pipeline of major prospects in export markets, totalling in excess of £1 billion
for orders expected to be placed during the next five years.
In the UK, order intake from Network Rail under the Category A framework
agreements further strengthened our order book and we successfully completed all
of our commissioning works during the Christmas period on time, including
several major mainline and mass transit projects. Our current work on the
London Underground PPP contract has continued unaffected although there are
ongoing discussions in relation to the future of Metronet, which is currently in
PPP administration.
Performance
Orders in the quarter were up 20% at CER to £139 million (Q3 2006/07: £112
million) reflecting continued strength in mainline orders particularly in the
UK.
Revenue was 13% higher at CER at £150 million (Q3 2006/07: £131 million),
reflecting strong growth in all core markets except the US.
Operating profit rose to £26 million (Q3 2006/07: £18 million), an increase of
36% at CER reflecting the substantial increase in activity. Operating margin
improved to 17.3% (Q3 2006/07: 13.7%) due to a number of favourable contract
completions during the quarter.
Operating cash flow was £25 million (Q3 2006/07: £27 million) giving cash
conversion of 96%.
Outlook
The markets in the UK, Iberia and Australia are expected to remain robust but
the US is likely to remain flat. We continue to work on our prospects in new
export markets through focussed marketing and investment in engineering
resources and product development.
Controls
For the quarter ended 31 December Q3 2007/08 Q3 2006/07 % Change at % Total
CER change
Orders (£m) 144 150 (5)% (4)%
Revenue (£m) 152 163 (8)% (7)%
Operating profit (£m) 16 14 3% 14%
Operating margin (%) 10.5% 8.6%
Operating cash flow (£m) 18 24 (22)% (25)%
Employees at period end (numbers) 10,391 11,684 (11)%
Note: Comparatives restated following reclassification of Safety and Reversing
Valves to discontinued operations
Developments
During the previous financial year, we organised Controls' operations along end
markets and supply chain, which has enabled us to measure the performance of
each operation and allowed increased focus upon performance improvement. We are
focused upon maintaining the operating profit and cash performance of the
business despite softening in some of its end markets. We are achieving this
through pricing for value, supply chain savings, restructuring, productivity
gains and the disposal of underperforming operations.
On restructuring, we have continued with projects only where we see a compelling
financial return. In the quarter, we announced that we would be closing our
Long Beach plant in California and consolidating all North American gas valve
production into our Mexicali plant in Mexico. Since the end of the quarter, we
have entered into discussions with employee representatives about the proposed
reduction in workforce due to declining demand for electromechanical timers
affecting a plant in Belluno, Italy.
We completed the disposal of the Reversing Valve business and also announced and
completed the sale of the Firex Safety Division to the UTC Fire & Security
Division of United Technologies Corporation (UTC) for a cash consideration of
US$44 million. The disposal of these businesses have reduced Controls revenue
exposure to the US new residential construction market from around 10% to 6%,
and to 2% for the Group's continuing operations.
Performance
Orders for the quarter were £144 million (Q3 2006/07: £150 million), down 5% at
CER while revenue in the quarter was £152 million (Q3 2006/07: £163 million), an
8% decrease at CER. The reductions in orders and revenue were mainly due to
some softening of demand in the US and the termination of a major customer
contract in the water heating business following price increases previously
implemented in order to ensure an economic return in that business. The other
major businesses within Controls reported broadly flat revenue.
Operating profit rose to £16 million (Q3 2006/07: £14 million), an increase of
3% at CER. Pricing actions, plant productivity improvements and restructuring
benefits contributed to the improved profit levels and increased the operating
margin to 10.5% (Q3 2006/07: 8.6%).
The Controls business showed good operating cash performance with an inflow of
£18 million for the quarter (Q3 2006/07: £24 million) resulting in 113% cash
conversion; excluding payments in respect of restructuring, cash conversion was
144%.
Outlook
Despite weak trading conditions in some markets, we have built a stronger
foundation for Controls which we believe will enable us to achieve our aim of
maintaining its operating profit and cash performance.
ADDITIONAL FINANCIAL INFORMATION
Group key performance indicators (KPIs)
The KPIs for the quarter, which relate to continuing operations (other than free
cash flow), are as follows:
For the quarter ended 31 Q3 2007/08 Q3 2006/07 % change at % total
December CER change
Orders (£m) 540 508 6% 6%
Revenue (£m) 545 521 5% 5%
Operating profit (£m) 67 53 26% 26%
Operating margin (%) 12.3% 10.2% - -
Net finance costs cover (times) 6.1 4.4 - -
Earnings per share* (p) 4.2 3.8 - 11%
Operating cash flow (£m) 72 54 36% 33%
Free cash flow (£m) 21 41 - (49)%
* Earnings per share before exceptional finance costs and foreign exchange gains
and losses for continuing operations
Orders, revenue and operating profit at CER
Reported orders, revenue and operating profit are affected by changes in foreign
exchange rates, particularly the strengthening of the Euro and the weakening of
the US dollar. The following tables summarise these translation effects by
business group:
Orders
For the quarter ended 31 Q3 2006/07 Q3 2006/07 Change at Q3 2007/08
December Orders Exchange at CER CER Orders Change1
£m £m £m £m £m %
Process Systems 218 (4) 214 13 227 6%
Eurotherm 28 (1) 27 3 30 9%
Rail Group 112 4 116 23 139 20%
Controls 150 2 152 (8) 144 (5)%
Continuing operations 508 1 509 31 540 6%
Revenue
For the quarter ended 31 Q3 2006/07 Q3 2006/07 Change at Q3 2007/08
December Revenue Exchange at CER CER Revenue Change1
£m £m £m £m £m %
Process Systems 200 (3) 197 17 214 9%
Eurotherm 27 - 27 2 29 7%
Rail Group 131 3 134 16 150 13%
Controls 163 1 164 (12) 152 (8)%
Continuing operations 521 1 522 23 545 5%
Operating profit
For the quarter ended 31 Q3 2006/07 Q3 2006/07 Change at Q3 2007/08
December OPBIT Exchange at CER CER OPBIT Change1
£m £m £m £m £m %
Process Systems 28 (1) 27 4 31 14%
Eurotherm 2 - 2 - 2 (3)%
Rail Group 18 1 19 7 26 36%
Controls 14 1 15 1 16 3%
Corporate (9) - (9) 1 (8) 27%
Continuing operations 53 1 54 13 67 26%
1 % change is measured as the change at CER as a percentage of the Q3 2006
/07 adjusted base and is calculated based on underlying amounts in £'000s.
Order book
The order book for continuing operations at 31 December 2007 was £1,875 million
(30 September 2007: £1,844 million), including £803 million relating to Rail
Group's PPP contract for the London Underground.
Exceptional items
Exceptional items in the quarter ended 31 December 2007 totalled £11 million (Q3
2006/07: £1 million credit), comprising restructuring costs totalling £9 million
(Q3 2006/07: £nil) and property, plant and equipment impairment of £1 million
(Q3 2006/07: £nil). These principally relate to the North American Controls and
Process Systems EMEA business. In addition there was a £1 million loss on the
sale of assets and operations (Q3 2006/07: £1 million gain).
Foreign exchange (losses)/gains
Foreign exchange losses in the quarter ended 31 December 2007 of £8 million (Q3
2006/07: £12 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, £6 million arose on net
euro borrowings and £2 million arose on net other currency borrowings.
Net finance costs and cover
Net finance costs were £11 million for the quarter (Q3 2006/07: £12 million).
The comparative quarter also included £12 million for exceptional finance costs
following the partial redemption of the High Yield Bonds in November 2006. The
reduction in net finance costs together with improved operating profit led to an
increase in net finance costs cover from 4.4 times to 6.1 times.
Profit before tax
Profit before tax for the quarter ended 31 December 2007 was £33 million (Q3
2006/07: £38 million) with the improved operating profit and absence of
exceptional finance costs offset by higher exceptional items and foreign
exchange losses.
Taxation
The tax charge for the quarter ended 31 December 2007 was £8 million (Q3 2006/
07: £7 million), based on an allocation of the estimated full year tax charge.
Profit from discontinued operations
Profit from discontinued operations in the quarter ended 31 December 2007
comprises the operating results of the APV, Safety and Reversing Valves
businesses, the disposals of which were completed in the quarter, together with
a gain on these disposals of £168 million.
Net profit
Net profit for the quarter ended 31 December 2007 was £184 million (Q3 2006/07:
£42 million), including the £168 million gain on sale of discontinued
operations.
Earnings per share
Earnings per share before exceptional finance costs and foreign exchange gains
and losses for continuing operations were 4.2p for the quarter (Q3 2006/07:
3.8p).
Basic earnings per share for continuing operations were 3.1p for the quarter (Q3
2006/07: 3.8p), due mainly to higher exceptional items and foreign exchange
losses offset by the absence of exceptional finance costs.
Cash flow
Operating cash flow from continuing operations in the quarter was £72 million
(Q3 2006/07: £54 million) resulting in an operating cash conversion for the
quarter of 107% (Q3 2006/07: 102%).
Free cash flow for the total Group for the quarter was £21 million (Q3 2006/07:
£41 million), after pension deficit reduction payments of £28 million to the UK
pension scheme, accelerated from March and September 2008 following the APV
disposal.
Net cash
Net cash at 31 December 2007 was £55 million (30 September 2007: £187 million
net debt) following the receipt of £275 million for the disposal of the APV,
Safety and Reversing Valves businesses and the payment of £70 million out of the
APV proceeds to the UK main pension scheme.
Pensions
Net pension liabilities have reduced by £64 million in the quarter to £237
million at 31 December 2007 (30 September 2007: £301 million). The decrease is
mainly attributable to the additional contributions made to the UK main pension
scheme of £70 million following the disposal of APV, including the accelerated
pension deficit reduction payments of £28 million.
In accordance with our normal practice there has been no update to the IAS 19
pension valuation at the end of this quarter and therefore the closing liability
does not reflect any updated short term market movements since 30 September
2007.
Equity
Equity attributable to the holders of the parent increased by £195 million in
the quarter to £266 million (30 September 2007: £71 million) due mainly to the
net profit of £184 million in the quarter.
GROUP OUTLOOK
Following the recent disposals, around 70% of our revenue comes from Process
Systems and Rail Group. These businesses operate in markets such as global
energy and infrastructure which are expected to continue to exhibit growth,
despite some uncertainty about the future direction of the world's economies.
Revenue growth is supported by the large order books in these businesses which
total £1.8 billion. The combination of these strong end markets and the actions
we are taking to maintain profitability at Controls gives us confidence that we
will make further progress in the final quarter of the financial year and they
also provide a sound platform for growth next year.
Invensys plc
Consolidated income statement (unaudited)
For the quarter ended 31 December 2007
Quarter ended Quarter Nine months Nine months
ended ended ended
31 December 31 December 31 December 31 December
2007 2006 2007 2006
Notes £m £m £m £m
Continuing operations
Revenue 1 545 521 1,585 1,516
Operating expenses before exceptional (478) (468) (1,409) (1,369)
items
Operating profit before exceptional items 1 67 53 176 147
Exceptional items 3 (11) 1 (23) (14)
Operating profit 2 56 54 153 133
Foreign exchange (losses)/gains 4 (8) 12 (13) 39
Exceptional finance costs - (12) - (67)
Finance costs (14) (14) (45) (68)
Total finance costs (14) (26) (45) (135)
Finance income 3 2 10 13
Other finance charges - IAS 19 (4) (4) (12) (8)
Profit before taxation 33 38 93 42
Taxation - UK - - 2 -
Taxation - overseas (8) (7) (19) (14)
Profit from continuing operations 25 31 76 28
Profit from discontinued operations 5 159 11 164 145
Profit for the period 184 42 240 173
Attributable to:
Equity holders of the parent 184 41 238 172
Minority interests - 1 2 1
184 42 240 173
Earnings per share
Continuing operations
Earnings per share (basic) 6 3.1p 3.8p 9.4p 3.8p
Earnings per share (diluted) 6 3.1p 3.7p 9.3p 3.7p
Discontinued operations
Earnings per share (basic) 6 20.0p 1.4p 20.5p 20.3p
Earnings per share (diluted) 6 19.6p 1.3p 20.1p 19.8p
Earnings per share for continuing 6 4.2p 3.8p 11.1p 7.7p
operations before exceptional finance
costs and foreign exchange gains and
losses (basic)
Invensys plc
Consolidated balance sheet (unaudited)
As at 31 December 2007
31 December 31 March 31 December
2007 2007 2006
Notes £m £m £m
ASSETS
Non-current assets
Property, plant and equipment 274 314 312
Intangible assets - goodwill 212 206 206
Intangible assets - other 90 90 82
Deferred income tax assets 17 17 8
Amounts due from contract customers 10 8 7
Other receivables 42 39 37
Other financial assets 7 7 16
Pension asset 1 3 5
653 684 673
Current assets
Inventories 169 229 224
Amounts due from contract customers 140 196 197
Trade and other receivables 524 565 592
Cash and cash equivalents 546 307 222
Income tax receivable 2 2 2
Derivative financial instruments 9 2 4
1,390 1,301 1,241
Assets held for sale 7 1 3 4
TOTAL ASSETS 2,044 1,988 1,918
LIABILITIES
Non-current liabilities
Borrowings (490) (472) (469)
Provisions (87) (93) (69)
Income tax payable (22) (22) (29)
Deferred income tax liabilities (16) (16) (12)
Amounts due to contract customers (14) (37) (38)
Other payables (16) (16) (18)
Pension liabilities (238) (525) (581)
(883) (1,181) (1,216)
Current liabilities
Trade and other payables (488) (615) (575)
Amounts due to contract customers (238) (223) (234)
Borrowings (1) (1) (2)
Derivative financial instruments (2) (1) (1)
Income tax payable (36) (34) (19)
Provisions (66) (73) (90)
(831) (947) (921)
TOTAL LIABILITIES (1,714) (2,128) (2,137)
NET ASSETS/(LIABILITIES) 330 (140) (219)
Capital and reserves
Equity share capital 80 80 80
Other reserves 4,176 4,158 4,156
Retained earnings (3,990) (4,438) (4,516)
Equity holders of the parent 266 (200) (280)
Minority interests 64 60 61
TOTAL EQUITY 8 330 (140) (219)
Invensys plc
Consolidated cash flow statement (unaudited)
For the quarter ended 31 December 2007
Quarter ended Quarter Nine months Nine months
ended ended ended
31 December 31 December 31 December 31 December
2007 2006 2007 2006
Notes £m £m £m £m
Operating activities
Operating profit:
Continuing operations 2 56 54 153 133
Discontinued operations 5 (1) 2 5 18
Depreciation of property, plant and 11 13 36 39
equipment
Amortisation of intangible assets - 5 3 14 10
other
Provision for impairment/write down of assets 1 - 3 -
charged to operating profit
Gain on sale of assets and operations - (1) - (4)
Sale of property, plant and equipment 1 - 1 4
Sale of subsidiaries - continuing - - - 6
operations
Non-cash charge for share-based payment 1 4 6 7
Increase in inventories (2) (4) (7) (31)
Increase in receivables (39) (51) (39) (57)
Increase in net amounts due to contract customers 49 19 30 64
(Decrease)/increase in payables and provisions - 29 (42) (14)
Difference between pension contributions paid and (71) 3 (80) 7
amounts recognised in operating profit
Cash generated from operations 11 71 80 182
Income taxes paid (15) (10) (29) (18)
Interest paid (3) (1) (29) (70)
Exceptional finance costs - (9) - (38)
Net cash flows from operating activities (7) 51 22 56
Investing activities
Interest received 2 1 9 14
Purchase of property, plant and (10) (11) (26) (35)
equipment
Expenditure on intangible assets - other (6) (3) (15) (14)
Purchase of minority interests - (1) - (1)
Sale of financial assets - 3 - 3
Sale of subsidiaries 289 (4) 285 146
Net cash disposed of on sale of (15) - (19) (2)
subsidiaries
Cash flows from investing activities 260 (15) 234 111
Financing activities
Issue of ordinary share capital - - - 342
Share issue expenses - - - (19)
Acquisition costs - - (12) -
Purchase of Invensys plc shares by Employee Share - - (9) -
Trust
Purchase of shares on vested share - - (4) -
awards
Facility fees - - - (19)
Increase in long-term borrowings - - - 155
Repayment of long-term borrowings - (94) (4) (831)
Capital element of finance lease - - - (1)
repayments
Dividends paid to minority interests - (1) (1) (2)
Cash flows from financing activities - (95) (30) (375)
Net increase/(decrease) in cash and cash 253 (59) 226 (208)
equivalents
Cash and cash equivalents at beginning of period 284 287 307 450
Net foreign exchange difference 9 (6) 13 (20)
Cash and cash equivalents at end of 546 222 546 222
period
Invensys plc
Consolidated statement of recognised income and expense (unaudited)
For the quarter ended 31 December 2007
Quarter Quarter Nine months Nine months
ended ended ended ended
31 December 31 December 31 December 31 December
2007 2006 2007 2006
£m £m £m £m
Income and expense recognised directly in equity
Gains on valuation of available-for-sale investments:
Transferred to income statement for the period - (1) - (1)
Gains on cash flow hedges:
Gains taken to equity 1 1 1 1
Transferred to the income statement for the period (1) (1) (1) (3)
Exchange differences on translation of foreign 14 (11) 23 (27)
operations
Foreign exchange gain transferred on disposal of (1) - (1) (1)
operations
Actuarial gain/(loss) recognised on defined benefit - - 217 (96)
pension schemes
Net income/(expense) recognised directly in equity 13 (12) 239 (127)
Profit for the period 184 42 240 173
Total recognised income for the period 197 30 479 46
Attributable to:
Equity holders of the parent 194 30 473 49
Minority interests 3 - 6 (3)
197 30 479 46
Invensys plc
Notes (unaudited)
1 Segmental analysis (continued)
Quarter Quarter Quarter Quarter Nine months Nine months Nine months Nine months
ended ended ended ended ended ended ended ended
31 31 31 December 31 December 31 December 31 December 31 December 31 December
December December
2007 2006 2007 2006 2007 2006 2007 2006
£m £m £m £m £m £m £m £m
Operating Operating Operating Operating
Revenue Revenue profit/ profit/ Revenue Revenue profit/ profit/
(loss) * (loss) * (loss) * (loss) *
£m £m £m £m £m £m £m £m
Business
Process Systems 214 200 31 28 593 563 77 71
Eurotherm 29 27 2 2 83 80 6 8
Rail Group 150 131 26 18 443 379 70 57
Controls 152 163 16 14 466 494 48 38
Corporate - - (8) (9) - - (25) (27)
Continuing 545 521 67 53 1,585 1,516 176 147
operations
Geographical
analysis by
origin
United Kingdom 107 92 19 13 289 250 43 38
Rest of Europe 144 135 19 17 414 389 49 39
North America 179 190 24 18 564 595 76 62
South America 28 26 4 4 76 71 10 8
Asia Pacific 76 63 8 8 211 175 23 24
Africa and 11 15 1 2 31 36 - 3
Middle East
Corporate - - (8) (9) - - (25) (27)
Continuing 545 521 67 53 1,585 1,516 176 147
operations
Geographical analysis of revenue by destination
United Kingdom 93 88 262 232
Rest of Europe 152 141 431 404
North America 163 175 520 554
South America 30 27 82 76
Asia Pacific 68 66 206 186
Africa and 39 24 84 64
Middle East
Continuing 545 521 1,585 1,516
operations
Geographical analysis of discontinued operations by origin
United Kingdom 4 11 (2) (3) 13 16 (5) (8)
Rest of Europe 51 47 1 2 148 137 4 6
North America 23 29 1 5 76 113 5 18
South America 4 2 - - 10 9 1 (1)
Asia Pacific 21 19 1 (1) 69 79 4 2
Africa and 9 8 2 - 24 22 3 2
Middle East
Discontinued 112 116 3 3 340 376 12 19
operations
2 Operating profit
Quarter Quarter Nine months Nine months
ended ended ended ended
31 December 31 December 31 December 31 December
2007 2006 2007 2006
£m £m £m £m
Revenue 545 521 1,585 1,516
Cost of sales (388) (368) (1,130) (1,075)
Gross profit 157 153 455 441
Distribution costs (3) (3) (9) (8)
Administrative costs (87) (97) (270) (286)
Operating profit before exceptional items 67 53 176 147
Exceptional items (note 3) (11) 1 (23) (14)
Operating profit 56 54 153 133
Segmental analysis of operating profit:
Business
Process Systems 28 28 74 70
Eurotherm 2 2 6 8
Rail Group 26 18 70 57
Controls 10 15 31 42
Corporate (10) (9) (28) (44)
Operating profit 56 54 153 133
3 Exceptional items
Quarter Quarter Nine months Nine months
ended ended ended ended
31 December 31 December 31 December 31 December
2007 2006 2007 2006
£m £m £m £m
Restructuring costs (9) - (19) (4)
Impairment: property, plant and equipment (1) - (3) -
(Loss)/gain on sale of assets and operations (1) 1 (1) 2
Other exceptional items - - - (12)
Exceptional items (11) 1 (23) (14)
Restructuring costs by business:
Process Systems (3) - (3) (1)
Controls (4) - (13) (3)
Corporate (2) - (3) -
(9) - (19) (4)
4 Foreign exchange (losses)/gains
Foreign exchange losses in the quarter of £8 million (Q3 2006/07: £12 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. These are principally attributable to exchange differences on the Group's
non-sterling denominated currency borrowings held in companies whose functional currency is sterling.
In the quarter, £6 million arose on net euro borrowings and £2 million arose on other borrowings.
These foreign currency borrowings are held as an economic hedge by reference to the Group's underlying cash
generation by currency. However, they are not accounted for as net investment hedges under IAS 39 and
consequently exchange differences arising on these borrowings are recorded in the income statement.
5 Profit from discontinued operations
Discontinued operations comprise APV, Safety and Reversing Valves businesses in 2007/08. In addition, the prior
periods include Invensys Building Systems in the US and Asia Pacific.
Quarter Quarter Nine Nine months
ended ended months ended
ended
31 December 31 December 31 31 December
December
2007 2006 2007 2006
£m £m £m £m
Profit from discontinued operations comprises the
following:
Revenue 112 116 340 376
Operating expenses before exceptional items (109) (113) (328) (357)
Operating profit before exceptional items 3 3 12 19
Exceptional items* (4) (1) (7) (1)
Operating profit (1) 2 5 18
Profit on assets divested 174 - 174 126
Charge of associated goodwill (7) - (7) (7)
Foreign exchange gain transferred on disposal of 1 - 1 1
operations
Profit on sale of business 168 - 168 120
Profit before tax from discontinued operations 167 2 173 138
Taxation on discontinued operations 1 9 - 7
Taxation on gain on sale of operations (9) - (9) -
Taxation (8) 9 (9) 7
Profit from discontinued operations 159 11 164 145
Net cash flows incurred by discontinued operations
Operating activities - 5 (16) 8
Investing activities 273 (3) 270 146
273 2 254 154
* Exceptional items comprise restructuring costs of £4 million in the quarter (Q3 2006/07: £1 million) and £7
million for the nine months (9M 2006/07: £3 million). The prior nine months also includes a £2 million gain on the
sale of assets.
6 Earnings per share
Quarter ended Quarter ended Nine months Nine months
ended ended
31 December 31 December 31 December 31 December
2007 2006 2007 2006
Earnings per share (pence)
Continuing operations
Basic 3.1 p 3.8 p 9.4 p 3.8 p
Diluted 3.1 p 3.7 p 9.3 p 3.7 p
Before exceptional finance costs and foreign 4.2 p 3.8 p 11.1 p 7.7 p
exchange gains and losses (basic)
Before exceptional items, exceptional finance 5.5 p 3.6 p 14.0 p 9.0 p
costs and foreign exchange gains and losses
(basic)
Discontinued operations
Basic 20.0 p 1.4 p 20.5 p 20.3 p
Diluted 19.6 p 1.3 p 20.1 p 19.8 p
Total Group
Basic 23.1 p 5.2 p 29.9 p 24.1 p
Diluted 22.7 p 5.0 p 29.4 p 23.5 p
Weighted average number of shares (million)
Basic 795 796 795 713
Effect of dilution - share options 15 19 15 18
Diluted 810 815 810 731
Earnings (£m)
Continuing operations
Basic 25 30 75 27
Before exceptional finance costs and foreign
exchange gains and losses
Operating profit 56 54 153 133
Finance costs (14) (14) (45) (68)
Finance income 3 2 10 13
Other finance charges - IAS 19 (4) (4) (12) (8)
Operating profit less net finance costs 41 38 106 70
Taxation on operating profit less net finance (8) (7) (17) (14)
costs
Minority interests - (1) (1) (1)
33 30 88 55
Before exceptional items, exceptional finance
costs and foreign exchange gains and losses
Operating profit before exceptional items 67 53 176 147
Finance costs (14) (14) (45) (68)
Finance income 3 2 10 13
Other finance charges - IAS 19 (4) (4) (12) (8)
Operating profit less net finance costs 52 37 129 84
Taxation on operating profit less net finance (8) (7) (17) (19)
costs
Minority interests - (1) (1) (1)
44 29 111 64
Discontinued operations
Basic 159 11 163 145
Total Group
Basic 184 41 238 172
The basic earnings per share for the quarter and the nine months has been calculated using 795 million shares
(Q3 2006/07: 796 million, 9M 2006/07: 713 million), being the weighted average number of shares in issue during
the quarter and in the nine months, excluding those held as Treasury shares which are treated as cancelled, and
the profit after taxation and minority interests for continuing operations, discontinued operations and total
Group as shown above.
Two additional earnings per share calculations have been included since the directors consider that they both
give useful additional indications of underlying performance. These are:
Earnings before exceptional finance costs and foreign exchange gains and losses with an underlying tax
charge of £8 million for the quarter and £17 million for the nine months (Q3 2006/07: £7 million, 9M
2006/07: £14 million).
Earnings before exceptional items, exceptional finance costs and foreign exchange gains and losses with
an underlying tax charge of £8 million for the quarter and £17 million for the half year (Q3 2006/07: £7
million, 9M 2006/07: £19 million).
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.
7 Assets held for sale
Assets held for sale consist of the Group's surplus freehold property
portfolio.
8 Reconciliation of movements in equity
Quarter Quarter Nine months Nine months
ended ended ended ended
31 December 31 December 31 December 31 December
2007 2006 2007 2006
£m £m £m £m
Opening equity 133 (251) (140) (593)
Total recognised income for the period 197 30 479 46
Share-based payment 1 3 (7) 7
Disposal of minority interests (1) - (1) -
Dividends paid to minority interests - (1) (1) (2)
Issue of share capital - - - 342
Share issue expenses - - - (19)
At end of period 330 (219) 330 (219)
Attributable to:
Equity holders of the parent 266 (280) 266 (280)
Minority interests 64 61 64 61
330 (219) 330 (219)
9 Reconciliation of cash flows
Quarter Quarter Nine months Nine months
ended ended ended ended
31 December 31 31 December 31 December
December
2007 2006 2007 2006
£m £m £m £m
Net cash flows from operating activities (7) 51 22 56
Capital expenditure included within investing (16) (14) (41) (49)
activities
Interest paid 3 1 29 70
Exceptional finance costs - 9 - 38
Pension contributions on disposal of 42 - 42 18
operations
Disposal of continuing operations -