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NEWS RELEASE
4 November 2010
RESULTS FOR HALF YEAR ENDED 30 SEPTEMBER 2010
Further progress in achieving sustainable growth particularly in emerging markets
Highlights
· Orders were £1,148 million (H1 09/10: £1,079 million), up 6% (3% at CER1)
· Order book was flat at CER at £2,232 million (FY 09/10: £2,307 million), providing good revenue cover for the second half and next year; emerging markets now represent 46% (FY 09/10: 40%)
· Revenue was up 9% (6% at CER) at £1,162 million (H1 09/10: £1,066 million), driven by order book conversion
· Operating profit2 was £100 million (H1 09/10: £102 million), down 2% (3% at CER) with good underlying performances in each of our divisions offset by additional contract implementation costs at Invensys Rail
· Underlying earnings per share3 were up 51% at 7.4p (H1 09/10: 4.9p), due to reductions in restructuring charges and IAS 19 finance charge
· Operating cash flow2 was £83 million (H1 09/10: £92 million) and operating cash conversion was 83% (H1 09/10: 90%)
· Interim dividend increased by 50% to 1.5p per share (H1 09/10: 1.0p per share) in line with the intent to make progressive increases in payout
· Maintained strong financial position with net cash totalling £336 million, leaving us well positioned to invest further in our businesses
· Outlook for the year remains unchanged
Contact:
Invensys plc Steve Devany tel: +44 (0) 20 3155 1301
Annabel Michie tel: +44 (0) 20 3155 1303
Financial Dynamics Andrew LorenzRichard Mountain tel: +44 (0) 20 7269 7291
Statement by Ulf Henriksson, Chief Executive
During the first half, we have successfully positioned Invensys to deliver sustainable growth through differentiated offerings, strategic partnerships and an emphasis upon emerging markets, which now represent nearly half our order book compared with 17% in March 2008.
Invensys Operations Management increased orders by 15% at CER as we continue to win large greenfield control and safety projects in emerging markets. Its order book is at record levels at £1.0 billion and its pipeline of current order prospects is around £4 billion. Revenue growth in the second half will increase as we convert recent large orders into revenue. We have also experienced a recovery in short-cycle equipment sales particularly in North America. Taken together these have contributed to a significant improvement in operating profit and another strong cash performance.
Invensys Rail has expanded further into new markets and we are encouraged by the prospects arising inside and outside China from our agreements with CSR Corporation Ltd (CSR). We have also been reassured by the recently announced commitment by the UK government to continued rail infrastructure investment for Network Rail, London Underground and Crossrail. Although we are incurring additional contract implementation costs for three mass transit contracts now amounting to £18 million which have affected first half results, Invensys Rail's underlying performance and prospects remain strong with an order book of £1.2 billion and a large pipeline of order prospects amounting to approximately £9 billion.
Invensys Controls improved its performance. Higher volumes across the division, in particular North America, combined with restructuring benefits resulted in higher revenue and profitability.
Looking ahead, the outlook remains unchanged and we continue to expect the Group to deliver improved performance in the current year helped by a large order book. Further out, we have built good momentum and we are optimistic about the prospects arising from our partnership arrangements with companies in China and other emerging markets to drive growth in global sectors such as rail and nuclear power.
Notes
1. Unless otherwise stated, % change is measured at constant exchange rates (CER) as a percentage of the H1 09/10 adjusted base and is calculated based upon underlying amounts in £'000s.
2. Unless otherwise stated, references to operating profit (OPBIT), operating margin and operating cash flow in this announcement are before exceptional items.
3. Underlying earnings per share is before exceptional US pension curtailment gain and PPP settlement credit in H1 09/10.
Presentation and conference call
Ulf Henriksson, CEO, and Wayne Edmunds, CFO, will be hosting a presentation and conference call for analysts and fund managers at 9.00 a.m. GMT this morning:
Venue: City Presentation Centre
4 Chiswell Street
London
EC1Y 4UP
Dial-in details (please note that the confirmation code is required).
UK: +44 (0)20 7806 1966
US: +1 718 247 0886
France: 0800 942 823
Germany: 0800 673 8352
Italy: 800 979 137
Spain: 900 974 419
Confirmation Code: 4820130 or "Invensys"
The presentation will be audio webcast live with slides, which can be accessed at:
A recording will be available at this address shortly after the completion of the call.
This announcement and the presentation materials are also available at http://www.invensys.com
Safe harbor
This announcement contains certain statements that are forward-looking. These statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Forward-looking statements are not guarantees of future performance. The Group's actual results of operations, financial condition and liquidity, and the development of the industries in which the Group operates, may differ materially from those made in or suggested by these statements and a number of factors could cause the results and developments to differ materially from those expressed or implied by these forward-looking statements.
BUSINESS REVIEW
Performance highlights
Half year ended 30 September
All data relates to continuing operations (other than free cash flow)
H1 10/11
H1 09/10
% Total change
% Change at CER1
Orders (£m)
1,148
1,079
6%
3%
Revenue (£m)
1,162
1,066
9%
6%
Operating profit2 (£m)
100
102
(2%)
(3%)
Operating margin2 (%)
8.6%
9.6%
Operating cash flow (£m)
83
92
(10%)
(13%)
Cash conversion (%)
83%
90%
Earnings per share - basic (p)
7.4p
9.6p
(23%)
Earnings per share - underlying4 (p)
7.4p
4.9p
51%
Free cash flow (£m)
13
16
(19%)
Return on operating capital3 (%)
38.7%
39.3%
1. % change is measured as the change at CER as a percentage of the H1 09/10 adjusted base and is calculated based on underlying amounts in £'000s.
2 All references to operating profit and operating margin are arrived at before exceptional items, unless otherwise stated.
3 Return on operating capital at CER is calculated as OPBIT divided by capital employed excluding goodwill, net pension liabilities, non-operating provisions and net taxation liabilities.
4. Before exceptional US pension curtailment gain and PPP settlement credit in H1 09/10
Dividend
The Board has declared an interim dividend of 1.5 pence per share (H1 09/10: 1.0 pence per share) payable on 10 December 2010 to shareholders on the register on 12 November 2010. The Board will be announcing a formal dividend policy when it publishes the preliminary results for the year in May 2011.
Outlook
We remain positive about the outlook for the Group in the second half of the year based upon our large order book which provides visibility of revenue.
Invensys Operations Management should build upon its successful first half with continued revenue improvements as several recent large orders convert to revenue and we expect further increases in demand for our short-cycle equipment and for advanced applications.
Invensys Rail should achieve good revenue growth in the second half driven by its large order book and we expect a return to margins in line with our medium term targets.
At Invensys Controls, we anticipate some moderation in the rate of growth of the North American market but the continued effects of recent restructuring and new product introductions should provide good momentum into the second half.
Overall the outlook is unchanged and we continue to expect the Group to deliver improved performance in the current year.
Invensys Operations Management
Half year ended 30 September
H1 10/11
H1 09/10
% Total change
% Change at CER
Orders (£m)
590
491
20%
15%
Revenue (£m)
521
474
10%
7%
Operating profit (£m)
45
33
36%
26%
Operating margin (%)
8.6%
7.0%
Operating cash flow (£m)
59
55
7%
4%
Operating cash conversion (%)
131%
167%
Invensys Operations Management is a leading global technology, software and consulting business that creates and applies advanced technologies to enable the safe and efficient operation of industrial and commercial operations such as oil refineries, fossil fuel and nuclear power plants, petrochemical works and other manufacturing sites. It is the product of the ongoing integration of several related businesses into a single division.
Our product offerings can be broadly divided into three areas: base control and safety systems (60% of revenue), advanced applications (20% of revenue) and equipment (20% of revenue). Our Enterprise Control System offering is embedded within both our control and safety and advanced applications offerings.
Markets
During the first half of the year, our markets in North America experienced a good recovery particularly in our short-cycle measurement and instrumentation and Eurotherm equipment, driven by increased expenditure by the integrated oil and gas companies. The Middle Eastern and Asian markets remained strong due to the significant number of large greenfield projects in the oil and gas and power sectors; however, the European market has so far lagged the growth seen elsewhere.
Across most industries, customers continue to look for partners to help in extending and improving their existing assets which has provided good opportunities to create additional recurring income in the form of consulting and service agreements, especially in the Middle East and Asia Pacific regions. Additionally, advanced applications which enable optimisation of the plants, as well as an increased focus on safety, are presenting significant opportunities in North America. North America is also benefitting from the continued nuclear renaissance in the region due to the increasing regulatory pressure for clean energy.
Developments
· Further strengthening our position in the global nuclear power market, we signed our second major agreement with China Nuclear Power Engineering Co. (CPNE) to provide safety and distributed control systems and solutions for two 650MW pressurised water reactors under construction on Hainan Island in China. We have now been awarded contracts for six reactors and are in negotiations for further contracts with CPNE.
· We also continue to have success with long-term modernisation and retrofitting projects in the nuclear power industry, particularly in North America. We have recently signed contracts to upgrade the distributed control system for a NextEra Energy plant in Seabrook, New Hampshire. Additionally, we have extended our agreement with Bruce Power in Canada. Invensys systems and solutions will replace Bruce Power's existing plant monitoring system, integrating with third-party equipment and an existing simulator. These new North American contracts are worth more than $12 million combined.
· Demonstrating our ability to help customers optimise their assets, we signed a five-year, multi-million dollar contract to deliver a comprehensive refinery-wide optimisation solution for Thai Oil Public Company Limited, one of Asia Pacific's leading refining and petrochemical companies. We will implement our SimSci-Esscor ROMeo® optimisation software to improve the real-time performance of Thai Oil's refinery operations.
· Helping our customers to meet their carbon reduction and CSR targets, IMServ, our leading carbon and energy consultancy, won its biggest ever contract with BT, the UK's largest telecoms provider. The five-year contract comprises the collection of electricity consumption data from half hourly and non half hourly automated meters, managing a portfolio of 20,000 meters throughout the UK.
Performance
Order intake in the first half was £590 million (H1 09/10: £491 million), up 15% at CER reflecting mainly the major contract for control and safety systems for the Hainan nuclear power plant in China, an increase in orders for advanced applications and the good improvement in North American demand for our Eurotherm and measurement and instrumentation products. The order book at 30 September 2010 was £1,015 million (31 March 2010: £972 million), an increase during the period of 9% at CER. In addition, the pipeline of order prospects remains strong at around £4 billion.
Revenue in the period was up 7% at CER to £521 million (H1 09/10: £474 million) due to initial revenues flowing from the recent large greenfield order wins and from increased volumes of our Eurotherm and measurement and instrumentation products.
Operating profit was up 26% at CER at £45 million (H1 09/10: £33 million) due to the increased revenue, changes in sales mix and control of overhead costs. Operating cash flow was again strong at £59 million (H1 09/10: £55 million) helped by good working capital management and some cash advances from customers, resulting in cash conversion for the half year of 131% (H1 09/10: 167%).
Invensys Rail
Half year ended 30 September
H1 10/11
H1 09/10
% Total change
% Change at CER
Orders (£m)
277
319
(13%)
(14%)
Revenue (£m)
352
335
5%
4%
Operating profit (£m)
51
73
(30%)
(29%)
Operating margin (%)
14.5%
21.8%
Operating cash flow (£m)
28
46
(39%)
(41%)
Operating cash conversion (%)
55%
63%
Invensys Rail is a multinational technology leader, providing state-of-the-art software-based signalling, communication and control systems that enable the operation of trains in mainline and mass transit networks across the world. Our aim is to deliver higher capacity safely and in many cases reduced travel times.
Rail control is an advanced technology, high added value market within the global rail market accounting for approximately 8% of annual expenditure on rail-related products.
Markets
Our markets in the UK, North America and Australia have remained robust as governments have focussed, amongst other areas, upon rail infrastructure to help maintain employment levels and to meet the need for increased passenger and freight capacity through greenfield and renewal projects.
In the UK, the government has recently announced the continuation of planned investment for mainline and London Underground upgrades and renewals including the funding for the vital Sub Surface Railways (the Circle, District, Hammersmith & City, and Metropolitan lines) supporting the work we are doing and bidding with Network Rail and London Underground. There was also a commitment to finance the £16 billion Crossrail project in London as well as a longer term commitment to high-speed rail. In Spain, the financing of existing work we are carrying out on the high-speed line network will continue although investments in other mainline and mass transit infrastructure have been deferred. Future high-speed-line and major mass transit projects are likely to be financed by public-private partnership ventures and planned projects are being delayed while these structures are put in place. In North America, the market for both signalling and rail crossings has strengthened and in Australia, the market has also been strong supported by investment in freight corridors for minerals.
Outside our core markets, we have continued to build our presence in selected countries and regions, where demand for rail control systems has remained strong in the first half. We now have around 44% of our order book in new markets and have increased our order pipeline, which should be further helped by our agreement with CSR Corporation Ltd (CSR). In particular we are currently bidding on several major contracts, some of which should be decided in the second half of the year.
Developments
During the first half, we made a major expansion of our new market presence by entering into significant agreements with a division of CSR, the leading Chinese manufacturer of rolling stock. We have a local manufacturing agreement with Zhuzhou CSR Times Electric co. Ltd., (TEG), CSR's train control and signalling company, and we have an agreement to work together with TEG to sell our broader train control and signalling solutions through TEG into the expanding Chinese domestic mass transit market, and are bidding on several projects. In addition, we have become CSR's exclusive signalling supplier on an agreed set of global projects that combine rolling stock and signalling solutions with initial projects in mass transit spanning the Middle East, India and South East Asia.
In the UK, we were awarded a £32 million contract for the Thameslink upgrade by Network Rail. We have been shortlisted by London Underground for the major resignalling contract of the Sub Surface Railways and expect a decision to be made early in 2011. In Australia, we were awarded a contract to provide signalling works on the Goonyella to Abbot Point Expansion Project, a critical transport scheme in Queensland's Newlands Coal System.
In Spain, our success in winning recent high-speed line projects continued with the award of a signalling and train control contract for the Orense to Santiago line.
Performance
Orders in the first six months were £277 million (H1 09/10: £319 million), down 14% at CER, and the order book at 30 September 2010 was £1,150 million (31 March 2010: £1,257 million), down 6% at CER; both movements reflect the uneven nature of the order intake in the division and should reverse in the second half. We have a large order pipeline amounting to around £9 billion.
On 28 July 2010, we announced that the first half performance at Invensys Rail would be impacted by provisions for additional implementation costs on three mass transit contracts. Since then, we have carried out further detailed reviews of those contracts to reassess costs to complete and the recoverability of those additional costs through variation orders which are currently being negotiated, resulting in an increase in the provisions from £13 million to £18 million. These provisions have led to delays in recognition of contract revenue amounting to £13 million, which is expected to reverse in the second half, and hence first half revenue was only 4% higher at CER at £352 million (H1 09/10: £335 million).
Operating profit was £51 million (H1 09/10: £73 million) and operating margin was 14.5% (H1 09/10: 21.8%). Operating profit was reduced by the amount of the provisions; excluding the effect of the provisions, operating margins were in line with our medium term target levels. We expect operating margins in the second half to be at least in line with those levels.
Operating cashflow was lower at £28 million (H1 09/10: £46 million) and cash conversion was 55% (H1 09/10: 63%).
Invensys Controls
Half year ended 30 September
H1 10/11
H1 09/10
% Total change
% Change at CER
Orders (£m)
281
269
4%
2%
Revenue (£m)
289
257
12%
9%
Operating profit (£m)
24
14
71%
66%
Operating margin (%)
8.3%
5.4%
Operating cash flow (£m)
25
21
19%
15%
Operating cash conversion (%)
104%
150%
Invensys Controls designs, engineers and manufactures products, components, systems and services used in appliances, heating, air conditioning/cooling and refrigeration products across a wide range of industries in residential and commercial markets.
Markets
Our markets in North America showed significant improvement in the first half with white goods shipments up around 6% compared with the first half of last year and good increases in demand for our commercial and aftermarket businesses. However, based upon recent customer comments, we expect these growth rates to moderate in the second half. South America saw a slowdown in white goods shipments following the expiry of tax incentives, Asia remained strong and we have seen some modest market improvement in Europe.
Developments
The division has been capturing the benefits of the restructuring activities that have taken place over the past three years so that the recovery in its markets has been reflected in a significant improvement in its financial performance. In particular it has been working with suppliers to alleviate some component shortages and actively manage raw material supply costs.
Restructuring benefits have been reinforced by the launch of a large number of new products, including the Hydra Water Valve for the global residential washing machine market and a series of environmentally optimised electronic controllers and monitoring system for refrigerated cabinets. New products accounted for 9% of revenue in the period.
Performance
Orders during the period were £281 million (H1 09/10: £269 million), up 2% at CER. Revenue was £289 million (H1 09/10: £257 million), a 9% increase at CER reflecting the improved market conditions in North America and Europe.
The improved revenue together with the benefit of cost savings arising from prior year restructuring produced an excellent financial performance. Operating profit was up 66% at CER to £24 million (H1 09/10: £14 million) with operating margins of 8.3% (H1 09/10: 5.4%). Operating cashflow was £25 million (H1 09/10: £21 million) with another period of strong cash conversion at 104% (H1 09/10: 150%).
Risks and uncertainties
This section provides a description of the principal risks and uncertainties for the remaining six months of the Group's financial year, as required by DTR 4.2.7R of the Disclosure and Transparency Rules.
As part of our routine procedures, the principal risks and uncertainties are kept under review. In particular we have considered developments in the world's economic situation and financial markets upon both the Group's financial position and that of its customers and suppliers. We have concluded that the principal risks and uncertainties remain as detailed on pages 28 to 30 of the 2010 Annual Report and Accounts, a copy of which is available on the Company's website at www.invensys.com. The principal risks are summarised as follows:
· Failure to maintain a competitive and technologically advanced product range could reduce margins and revenue growth.
· The timing and frequency of substantial contract awards are uneven.
· Undertaking large, long-term projects exposes the Group to risk of loss.
· The Group may be subject to liability as a result of product liability claims.
· The Group may be exposed to liability through the actions of joint venture partners, co-source partners or its supply chain.
· The Group may be exposed to additional liabilities with respect to its UK and US pension plans.
· The Group is subject to ongoing litigation and environmental liabilities.
The business review includes a commentary on the outlook for the business divisions and the Group for the remaining six months of the financial year.
Additional Financial Information
Orders
A summary of orders and changes at CER by division is set out below:
For the half year ended 30 September
H1
09/10Orders
£m
Exchange Movement £m
H1
09/10
at CER
£m
Change at CER
£m
H1
10/11Orders £m
%
Change
Invensys Operations Management
491
21
512
78
590
15%
Invensys Rail
319
3
322
(45)
277
(14%)
Invensys Controls
269
8
277
4
281
2%
Continuing operations
1,079
32
1,111
37
1,148
3%
The order book for continuing operations was £2,232 million at 30 September 2010 (31 March 2010: £2,307 million). This includes 46% of the order book in emerging markets.
Revenue
A summary of revenue and changes at CER by division is set out below:
For the half year ended 30 September
H1 09/10
Revenue
£m
Exchange Movement £m
H1
09/10
at CER
£m
Change at CER
£m
H1
10/11Revenue
£m
%
Change
Invensys Operations Management
474
15
489
32
521
7%
Invensys Rail
335
3
338
14
352
4%
Invensys Controls
257
7
264
25
289
9%
Continuing operations
1,066
25
1,091
71
1,162
6%
Operating profit
A summary of operating profit and changes at CER by division is set out below:
For the half year ended 30 September
H1 09/10
OPBIT
£m
Exchange Movement £m
H1 09/10
at CER
£m
Change at CER
£m
H1 10/11
OPBIT £m
%
Change
Invensys Operations Management
33
2
35
10
45
26%
Invensys Rail
73
(1)
72
(21)
51
(29%)
Invensys Controls
14
-
14
10
24
66%
Corporate
(18)
-
(18)
(2)
(20)
7%
Continuing operations
102
1
103
(3)
100
(3%)
Operating cash flow and cash conversion
A summary of operating cash flow and cash conversion by division is set out below:
For the half year ended
30 September
Operating Cash Flow
Cash Conversion
H1 10/11
£m
H1 09/10
£m
H1 10/11 %
H1 09/10
%
Invensys Operations Management
59
55
131%
167%
Invensys Rail
28
46
55%
63%
Invensys Controls
25
21
104%
150%
Corporate
(29)
(30)
-
-
Continuing operations
83
92
83%
90%
Exceptional items
The exceptional charge for the period totalled £15 million (H1 09/10: £9 million credit). This included restructuring costs of £11 million, £4 million of intangible asset impairments, and £1 million loss on the sale of property, plant and equipment, offset by £1 million of other operating exceptional items.
Restructuring costs comprise the integration of the North American and European Invensys Controls businesses, the Global HR service delivery project, and other rationalisation projects across the Group.
The comparative period included £21 million of restructuring costs and £6 million of asset impairments, predominantly property, plant and equipment, and £36 million gain arising from the curtailment of the US defined benefit pension plans.
Net finance costs
Net finance costs were £3 million in the period (H1 09/10: £4 million). This is due to improved returns on higher cash balances held by the Group.
Taxation
The tax charge for continuing operations was £14 million (H1 09/10: £9 million), which comprises a current year income tax charge of £17 million (H1 09/10: £17 million), offset by prior year credits of £1 million (H1 09/10: £5 million) which resulted from favourable resolution of historic tax disputes, and a deferred tax credit of £2 million (H1 09/10: £3 million). Invensys is subject to several factors which affect the tax charge including the levels and mix of profitability in different jurisdictions and the availability of tax losses.
Discontinued operations
The loss from discontinued operations of £2 million (H1 09/10: £nil) relates to a provision in respect of a prior year disposal.
Net profit
Net profit for the period was £59 million (H1 09/10: £79 million); the prior period included a gain of £36 million arising from the curtailment of the US defined benefit pension plans.
Earnings per share
Basic EPS from continuing operations were 7.4 pence per share (H1 09/10: 9.6 pence per share). Underlying earnings per share from continuing operations were also 7.4 pence per share (H1 09/10: 4.9 pence per share which excludes a £36 million exceptional curtailment gain on the closure of the US defined benefit pension plans and a £2 million exceptional tax credit in respect of the PPP settlement).
Free cash flow
Free cash flow for the period was £13 million (H1 09/10: £16 million). The reduced free cash flow was driven by lower operating cash flow and additional legacy contributions including £8 million to the US Pension Plan offset by reduced restructuring spend.
Financial position
Capital structure
The Group's capital structure is as follows:
30 September
2010
£m
30 September
2009
£m
31 March
2010
£m
Capital employed1
49
52
57
Cash and cash equivalents
342
277
364
Borrowings
(6)
(9)
(1)
Net cash
336
268
363
Total equity - funds
385
320
420
Comprising:
- Equity holders of parent
307
243
340
- Minority interests
78
77
80
385
320
420
1 Includes other current financial assets of £nil (30 September 2009: £22 million, 31 March 2010: £nil)
Total equity
Total equity decreased by £35 million, with net profit of £59 million being offset by the IAS 19 actuarial loss of £84 million, foreign exchange loss of £22 million and dividends paid of £17 million.
Non-controlling interests
The non-controlling interest balance is £78 million (31 March 2010: £80 million), the majority of which relates to the interests of the minority in Baan Company NV (in liquidation) (Baan). A provisional distribution of €48 million was made on 22 October 2010 in respect of the Baan minority stakeholders. Once legal formalities are completed, the non-controlling interest will be settled by a final distribution of €7 million, following which the liquidation of Baan will be finalised. At this time it is not known when the Group will be in the position to make the final distribution.
Net cash
Net cash was £336 million (31 March 2010: £363 million). This included borrowings of £6 million (31 March 2010: £1 million).
Capital employed
Capital employed decreased by £8 million to £49 million in the period, mainly attributable to the increase in the net pension liability by £12 million. Capital employed includes operating capital of £374 million (31 March 2010: £366 million) generating a return of 38.7% (30 September 2009: 39.3%, 31 March 2010: 48.6%).
Pension liabilities
The IAS 19 valuation of pension assets and liabilities has been updated as at 30 September 2010, resulting in a net pension liability of £593 million (31 March 2010: £581 million). The overall increase in the pension liability of £12 million is driven by an actuarial loss of £84 million as a result of a reduction in discount rates used for the actuarial valuation of pension liabilities.
Dividend
The Board has declared an interim dividend of 1.5 pence per share (30 September 2009: 1.0 pence per share). The total dividend is covered 4.9 times by underlying earnings.
Invensys plc
Consolidated income statement (unaudited)
For the half year ended 30 September 2010
Half year ended
30 September
2010
Half year ended
30 September
2009
Year ended
31 March
2010
Notes
£m
£m
£m
Continuing operations
Revenue
2
1,162
1,066
2,243
Operating expenses before exceptional items
(1,062)
(964)
(1,995)
Operating profit before exceptional items
2
100
102
248
Exceptional items
4
(15)
9
(25)
Operating profit
3
85
111
223
Foreign exchange on financial items
5
-
-
-
Finance costs
(4)
(6)
(10)
Finance income
1
2
3
Other finance charges - IAS 19
(7)
(19)
(37)
Profit before taxation
2
75
88
179
Taxation - UK
-
2
3
Taxation - overseas
(14)
(11)
(29)
Profit after taxation - continuing operations
61
79
153
Loss after taxation - discontinued operations
6
(2)
-
(2)
Profit for the period
59
79
151
Attributable to:
Equity holders of the parent
58
77
147
Non-controlling interests
1
2
4
59
79
151
Earnings/(loss) per share
Continuing operations
Earnings per share (basic)
7
7.4p
9.6p
18.5p
Earnings per share (diluted)
7
7.4p
9.5p
18.4p
Discontinued operations
Loss per share (basic)
7
(0.2)p
0.0p
(0.2)p
Loss per share (diluted)
7
(0.3)p
0.0p
(0.2)p
Total Group
Earnings per share (basic)
7
7.2p
9.6p
18.3p
Earnings per share (diluted)
7
7.1p
9.5p
18.1p
Invensys plc
Consolidated statement of comprehensive income (unaudited)
For the half year ended 30 September 2010
Half year ended
30 September
2010
Half year ended
30 September
2009
Year ended
31 March
2010
Note
£m
£m
£m
Profit for the period
59
79
151
Other comprehensive income/(loss)
Cash flow hedges:
Gains taken to equity
-
9
1
Income/(loss) transferred to the income statement - cost of sales
2
(3)
(3)
Exchange differences on translation of foreign operations
(22)
(32)
(7)
Actuarial loss recognised on defined benefit pension schemes
(84)
(439)
(389)
Movement in irrecoverable element of potential future pension surplus
9
27
86
56
Other comprehensive loss for the period, net of tax
(77)
(379)
(342)
Total comprehensive loss for the period
(18)
(300)
(191)
Attributable to:
Equity holders of the parent
(18)
(300)
(195)
Non-controlling interests
-
-
4
(18)
(300)
(191)
Invensys plc
Consolidated balance sheet (unaudited)
As at 30 September 2010
30 September
2010
30 September
2009
31 March
2010
Notes
£m
£m
£m
ASSETS
Non-current assets
Property, plant and equipment
254
270
274
Intangible assets - goodwill
292
289
301
Intangible assets - other
138
121
133
Deferred income tax assets
28
33
27
Other receivables
22
22
26
Other financial assets
-
1
1
734
736
762
Current assets
Inventories
159
150
157
Amounts due from contract customers
193
230
180
Trade and other receivables
507
485
510
Cash and cash equivalents
12
342
277
364
Income tax receivable
6
4
8
Other financial assets
12
-
22
-
Derivative financial instruments
3
9
3
1,210
1,177
1,222
Assets held for sale
10
7
2
6
TOTAL ASSETS
1,951
1,915
1,990
LIABILITIES
Non-current liabilities
Borrowings
12
(1)
(1)
(1)
Provisions
(85)
(107)
(100)
Income tax payable
(33)
(29)
(33)
Deferred income tax liabilities
(12)
(15)
(12)
Amounts due to contract customers
(12)
(38)
(40)
Other payables
(10)
(11)
(10)
Pension liabilities
9
(593)
(603)
(581)
(746)
(804)
(777)
Current liabilities
Trade and other payables
(524)
(472)
(529)
Amounts due to contract customers
(192)
(200)
(158)
Borrowings
12
(5)
(8)
-
Derivative financial instruments
(5)
(5)
(9)
Income tax payable
(20)
(33)
(18)
Provisions
(74)
(73)
(79)
(820)
(791)
(793)
TOTAL LIABILITIES
(1,566)
(1,595)
(1,570)
NET ASSETS
385
320
420
EQUITY
Capital and reserves
Equity share capital
81
80
81
Treasury shares
(2)
(1)
(2)
Other reserves
2,527
2,531
2,546
Retained earnings
(2,299)
(2,367)
(2,285)
Equity holders of the parent
307
243
340
Non-controlling interests
78
77
80
TOTAL EQUITY
385
320
420
Invensys plc
Consolidated statement of changes in equity (unaudited)
For the half year ended 30 September 2010
Other reserves
Issued
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
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
Balance at 1 April 2010
81
(2)
348
1,582
495
(6)
127
2,546
(2,285)
340
80
420
Profit for the period
-
-
-
-
-
-
-
-
58
58
1
59
Other comprehensive income/(loss) for the period
-
-
-
-
-
2
(21)
(19)
(57)
(76)
(1)
(77)
Total comprehensive income/(loss) for the period
-
-
-
-
-
2
(21)
(19)
1
(18)
-
(18)
Share-based payment
-
-
-
-
-
-
-
-
5
5
-
5
Purchase of own shares by Employee Share Trust
-
(3)
-
-
-
-
-
-
-
(3)
-
(3)
Distribution of own shares under share-based payment arrangements
-
3
-
-
-
-
-
-
(3)
-
-
-
Dividends paid to equity shareholders
-
-
-
-
-
-
-
-
(17)
(17)
-
(17)
Dividends paid to non-controlling interests
-
-
-
-
-
-
-
-
-
-
(2)
(2)
Balance at 30 September 2010
81
(2)
348
1,582
495
(4)
106
2,527
(2,299)
307
78
385
Balance at 1 April 2009
80
(1)
348
1,582
495
(4)
134
2,555
(2,081)
553
87
640
Profit for the period
-
-
-
-
-
-
-
-
77
77
2
79
Other comprehensive income/(loss) for the period
-
-
-
-
-
6
(30)
(24)
(353)
(377)
(2)
(379)
Total comprehensive income/(loss) for the period
-
-
-
-
-
6
(30)
(24)
(276)
(300)
-
(300)
Share-based payment
-
-
-
-
-
-
-
-
6
6
-
6
Purchase of own shares by Employee Share Trust
-
(4)
-
-
-
-
-
-
-
(4)
-
(4)
Distribution of own shares under share-based payment arrangements
-
4
-
-
-
-
-
-
(4)
-
-
-
Dividends paid to equity shareholders
-
-
-
-
-
-
-
-
(12)
(12)
(1)
(13)
Purchase of non-controlling interests
-
-
-
-
-
-
-
-
-
-
(9)
(9)
Balance at 30 September 2009
80
(1)
348
1,582
495
2
104
2,531
(2,367)
243
77
320
Balance at 1 April 2009
80
(1)
348
1,582
495
(4)
134
2,555
(2,081)
553
87
640
Profit for the year
-
-
-
-
-
-
-
-
147
147
4
151
Other comprehensive loss for the year
-
-
-
-
-
(2)
(7)
(9)
(333)
(342)
-
(342)
Total comprehensive loss for the year
-
-
-
-
-
(2)
(7)
(9)
(186)
(195)
4
(191)
Share-based payment
-
-
-
-
-
-
-
-
9
9
-
9
Purchase of own shares by Employee Share Trust
-
(8)
-
-
-
-
-
-
-
(8)
-
(8)
Distribution of own shares under share-based payment arrangements
-
7
-
-
-
-
-
-
(7)
-
-
-
Dividends paid to equity shareholders
-
-
-
-
-
-
-
-
(20)
(20)
-
(20)
Dividends paid to non-controlling interests
-
-
-
-
-
-
-
-
-
-
(2)
(2)
Purchase of non-controlling interests
-
-
-
-
-
-
-
-
-
-
(9)
(9)
Issue of share capital
1
-
-
-
-
-
-
-
-
1
-
1
Balance at 31 March 2010
81
(2)
348
1,582
495
(6)
127
2,546
(2,285)
340
80
420
Invensys plc
Consolidated cash flow statement (unaudited)
For the half year ended 30 September 2010
Half year ended
30 September
2010
Half year ended
30 September
2009
Year ended
31 March
2010
Notes
£m
£m
£m
Operating activities
Operating profit:
Continuing operations
3
85
111
223
Depreciation of property, plant and equipment
21
23
43
Amortisation of intangible assets - other
12
11
22
Provision for impairment charged to operating profit
4
4
6
10
Loss on sale of assets and operations
4
1
-
5
Sale of property, plant and equipment
-
1
1
Non-cash charge for share-based payment
5
6
9
(Increase)/decrease in inventories
(8)
5
5
(Increase)/decrease in receivables
(12)
17
6
Decrease in net amounts due to contract customers
(5)
(17)
(9)
(Decrease)/increase in payables and provisions
(3)
(35)
1
Difference between pension contributions paid and amounts recognised in operating profit
(37)
(66)
(100)
Cash generated from operating activities
63
62
216
Income taxes paid
(11)
(16)
(41)
Interest paid
(3)
(5)
(9)
Net cash flows from operating activities
49
41
166
Investing activities
Interest received
1
1
4
Purchase of property, plant and equipment
(12)
(11)
(34)
Expenditure on intangible assets - other
(25)
(15)
(36)
Sale of trade investments
1
-
-
Purchase of non-controlling interests
-
(9)
(9)
Purchase of subsidiaries
(7)
-
-
Sale of subsidiaries
(4)
(4)
(12)
Cash invested in financial assets
-
-
13
Cash payments on swap contracts
(3)
-
-
Net cash acquired on purchase of subsidiaries
1
-
-
Cash flows from investing activities
(48)
(38)
(74)
Financing activities
Purchase of Invensys plc shares
(3)
(4)
(8)
Transfers of treasury bonds to cash equivalents
-
-
8
Increase in/(repayment of) short-term borrowings
5
-
(8)
Dividends paid to equity holders of the parent
(17)
(12)
(19)
Dividends paid to non-controlling interests
(2)
(1)
(2)
Cash flows from financing activities
(17)
(17)
(29)
Net (decrease)/increase in cash and cash equivalents
(16)
(14)
63
Cash and cash equivalents at beginning of period
364
296
296
Net foreign exchange difference
(6)
(5)
5
Cash and cash equivalents at end of period
342
277
364
Invensys plc
Notes (unaudited)
1 Basis of preparation
Statement of compliance
The Group's condensed Consolidated Financial Statements for the six months ended 30 September 2010 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 2010 that are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.
Significant accounting policies
The accounting policies adopted in the preparation of the condensed Consolidated Financial Statements are consistent with those followed in the preparation of the Group's Annual Report and Accounts for the year ended 31 March 2010, except for the following new standards, amendments to existing standards and new interpretations which have been adopted by the Group for the half year:
IFRS 3 Business Combinations (revised)
IAS 27 Consolidated and Separate Financial Statements (amended)
Improvements to IFRS (annual improvements)
Amendments to IFRS 1 Additional Exemptions for First-time Adopters
Amendments to IFRS 2 Group Cash-settled Share-based Payment Transactions
Amendment to IAS 32 Classification of Rights Issues
Amendment to IAS 39 Eligible Hedged Items
IFRIC 17 Distributions of Non-cash Assets to Owners
IFRIC 18 Transfers of Assets from Customers
IFRS 3 (revised) applies to business combinations completed on or after 1 April 2010, and so has been applied to the acquisition of Skelta Software Private Limited (Skelta) (see Note 8). The revised standard continues to require the purchase method of accounting (now referred to as the acquisition method) to be applied to business combinations but introduces some changes to the accounting treatment, including the recognition of acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received rather than as part of the cost of the acquisition. The revised standard also contains new guidance on how to determine what constitutes consideration transferred for the acquiree. Among other things, this helps to clarify whether contingent payments to selling shareholders are contingent consideration in the business combination or are separate transactions, the distinction depending on the nature of the particular arrangements in place. In the case of Skelta, the amounts treated in accordance with this guidance as separate transactions rather than contingent consideration are disclosed in Note 8. The accounting for business combinations that occurred before 1 April 2010 was not required to be restated, so there is no effect on the Group's reported income or net assets on adoption.
The other standards and interpretations listed above have had no material impact on the Consolidated Financial Statements.
2 Segment information
For management purposes, the Group is organised into divisions based on their products and services and has three reportable operating segments as explained in the Business Review; Invensys Operations Management, Invensys Rail and Invensys Controls. The composition of the operating segments has not changed compared to the last annual financial statements for the year ended 31 March 2010. Operations presented as discontinued are explained in Note 6.
Management monitors the operating results of each of these divisions 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. The basis of measurement of segment profit or loss has not changed compared to the last annual financial statements.
Segment assets and liabilities are determined based on the operating assets and liabilities monitored by the chief operating decision maker on a segment basis.
The following tables set out the information relating to revenue, profit or loss, assets and liabilities employed for each operating segment that IAS 34 requires to be disclosed in the interim financial statements of an entity that applies IFRS 8 Operating Segments in its annual financial statements. Restructuring costs by operating segment are disclosed in Note 4.
2 Segment information (continued)
* Before exceptional items
3 Operating profit
Half year ended
30 September
2010
Half year ended
30 September
2009
Year ended
31 March
2010
£m
£m
£m
Revenue
1,162
1,066
2,243
Cost of sales
(782)
(700)
(1,459)
Gross profit
380
366
784
Distribution costs
(7)
(7)
(13)
Administrative costs
(226)
(211)
(427)
Research and development costs*
(47)
(46)
(96)
Operating profit before exceptional items
100
102
248
Exceptional items (note 4)
(15)
9
(25)
Operating profit
85
111
223
* The September 2009 comparatives have been reclassified to present research and development costs as a separate overhead cost, resulting in an increase in gross profit of £46 million. Operating profit before exceptional items remains unchanged. This presentation was adopted in the annual financial statements for the year ended 31 March 2010 as the directors consider it provides more meaningful analysis of gross profit and overhead costs.
4 Exceptional items
Half year ended
30 September
2010
Half year ended
30 September
2009
Year ended
31 March
2010
£m
£m
£m
Restructuring costs
(11)
(21)
(43)
Other operating exceptional items:
US pension curtailment gain*
-
36
36
Other operating exceptional items
1
-
(3)
Total other operating exceptional items
1
36
33
Impairment: property, plant and equipment**
-
(6)
(8)
Impairment: intangible assets - other***
(4)
-
(2)
Loss on sale of assets and operations
(1)
-
(5)
Exceptional items
(15)
9
(25)
Restructuring costs by business division:
Invensys Operations Management
(1)
(15)
(26)
Invensys Rail
(2)
(2)
(5)
Invensys Controls
(5)
(2)
(5)
Corporate
(3)
(2)
(7)
(11)
(21)
(43)
* The US pension curtailment gain in the prior year arose from the closure of the defined benefit portion of the Invensys US Pension Plans. Refer to Note 9.
** Impairment: property, plant and equipment in the prior year mainly related to property impairments in Invensys Controls as a result of market conditions.
*** Impairment: intangible assets - other relates to the impairment of development costs at Invensys Rail.
5 Foreign exchange on financial items
Foreign exchange on financial items are £nil (H1 09/10: £nil, FY 09/10: £nil). This includes £2 million (H1 09/10: £1 million, FY 09/10: £1 million) of foreign exchange losses relating to derivatives used in the management of the Group's cash, offset by £2 million (H1 09/10: £1 million, FY 09/10: £1 million) of foreign exchange gains on corresponding cash balances and intra-group loans which do not form part of the lenders' net investments in foreign operations.
6 Discontinued operations
No operations have been discontinued in the half years to 30 September 2010, 30 September 2009, or in the year ended 31 March 2010. In the half year ended 30 September 2010, net £2 million (H1 09/10: £nil, FY 09/10: £3 million) of additional costs were incurred in respect of prior year disposals against which there was a £nil (H1 09/10: £nil, FY 09/10: £1 million) tax credit.
7 Earnings/(loss) per share
Half year ended
30 September
2010
Half year ended
30 September
2009
Year ended
31 March
2010
Earnings/(loss) per share (pence)
Continuing operations
Basic
7.4p
9.6p
18.5p
Diluted
7.4p
9.5p
18.4p
Before exceptional US pension curtailment gain and PPP settlement credit
Basic
7.4p
4.9p
13.4p
Diluted
7.4p
4.8p
13.3p
Discontinued operations
Basic
(0.2)p
0.0p
(0.2)p
Diluted
(0.3)p
0.0p
(0.2)p
Total Group
Basic
7.2p
9.6p
18.3p
Diluted
7.1p
9.5p
18.1p
Weighted average number of shares (million)
Basic
808
803
805
Effect of dilution - share awards
7
6
6
Diluted
815
809
811
Earnings (£m)
Continuing Operations
Basic
60
77
149
Before exceptional US pension curtailment gain and PPP settlement credit
Operating profit
85
111
223
Exceptional curtailment gain
-
(36)
(36)
Finance costs
(4)
(6)
(10)
Finance income
1
2
3
Other finance charges - IAS 19
(7)
(19)
(37)
Operating profit less net finance costs
75
52
143
Taxation on operating profit less net finance costs*
(14)
(11)
(31)
Non-controlling interests
(1)
(2)
(4)
60
39
108
Discontinued operations
Basic
(2)
-
(2)
Total Group
Basic
58
77
147
* Includes £nil (H1 09/10: £2 million, FY 09/10: £5 million) for the reversal of the exceptional tax charge that arose from the recognition of the PPP settlement credit.
The basic earnings/(loss) per share for the half year has been calculated using 808 million shares (H1 09/10: 803 million, FY 09/10: 805 million), being the weighted average number of shares in issue during the half year and the profit after taxation and non-controlling interests for continuing operations, discontinued operations and total Group as shown above.
An additional earnings per share calculation for continuing operations has been included since the directors consider that this gives a useful additional indication of underlying performance. This is based on earnings before exceptional US pension curtailment gain and PPP settlement credit.
The diluted earnings/(loss) per share has been calculated in accordance with IAS 33 Earnings per Share without reference to adjustments in respect of certain share awards which are considered to be anti-dilutive.
8 Business combinations and business disposals
There were no disposals in the half years ended 30 September 2010, 30 September 2009 or the year ended 31 March 2010.
In the half year ended 30 September 2010, the Group acquired Skelta. Details of this business combination are shown below. There were no acquisitions in the half year ended 30 September 2009 or in the year ended 31 March 2010.
Acquisition of Skelta
On 21 April 2010, Invensys acquired 100% of the share capital of Skelta Software Private Limited (Skelta), a privately held software company headquartered in Bangalore, India, for cash consideration of £6.4 million. Skelta provides business process management (BPM) and advanced workflow software solutions. The acquisition has been accounted for using the acquisition method of accounting and the Consolidated Financial Statements include the results of Skelta from its date of acquisition to 30 September 2010.
The fair value of the identifiable assets and liabilities of Skelta at the date of acquisition was:
Fair value
recognised on acquisition
£m
Property, plant and equipment
0.2
Intangible assets - other*
2.9
Trade and other receivables
1.3
Cash and cash equivalents
0.6
Total assets
5.0
Trade and other payables
(0.1)
Amounts due to contract customers
(0.4)
Current tax payable and deferred income tax liability
(1.1)
Total liabilities
(1.6)
Total identifiable net assets at fair value
3.4
Goodwill arising on acquisition
3.0
Total purchase consideration transferred
6.4
Total purchase consideration transferred comprises:
Cash payment
6.4
6.4
Cash outflow on acquisition:
Cash paid
(6.4)
Net cash acquired with the subsidiary (included in cash flows from investing activities)
0.6
Net cash outflow
(5.8)
* The intangible assets acquired relate to development costs
Trade and other receivables includes trade receivables of £0.7 million. The gross contractual amount of trade receivables is £1.2 million. £0.5 million of the trade receivables have been impaired and it is expected that £0.7 million of the contractual amount can be collected.
The goodwill shown above is attributed to the expected synergies and other benefits arising from combining the assets and activities of Skelta with those of the Group.
Costs relating to the acquisition of Skelta of £0.3 million have been expensed in the half year ended 30 September 2010 and are included in exceptional items in the income statement.
Under the terms of the acquisition agreement, costs of up to £2.0 million will become payable to the former owners of Skelta dependent on the achievement of certain agreed performance targets subsequent to the acquisition of Skelta by the Group.
From the date of acquisition, Skelta has contributed a loss of £0.8 million to the net profit before tax of the Group and revenue of £1.0 million
9 Pensions and post-retirement benefits
Changes in the present value of the defined obligation for the half year ended 30 September 2010 were as follows:
Funded schemes
Unfunded schemes
Total
Total
Total
Invensys Pension
Scheme (UK)
Invensys Pension
Plan (US)
Other
US Healthcare
Other
Half year ended
30 September
2010
Half year ended
30 September
2009
Year ended
31 March
2010
£m
£m
£m
£m
£m
£m
£m
£m
Opening present value of defined benefit obligation
(4,056)
(982)
(283)
(29)
(120)
(5,470)
(4,848)
(4,848)
Current service cost
(5)
-
(4)
-
(1)
(10)
(10)
(18)
Contributions by employees
-
-
-
-
-
-
-
(1)
Benefit payments
112
30
3
1
4
150
150
303
Interest on plan liabilities
(108)
(28)
(7)
(1)
(3)
(147)
(151)
(300)
Actuarial losses
(208)
(93)
(4)
-
-
(305)
(667)
(678)
Transfers
-
(10)
10
-
-
-
-
-
Settlements
-
-
-
-
-
-
1
4
Curtailments
-
-
1
-
-
1
36
36
Exchange adjustments
-
54
5
2
4
65
104
32
Closing present value of defined benefit obligation
(4,265)
(1,029)
(279)
(27)
(116)
(5,716)
(5,385)
(5,470)
Changes in the fair value of plan assets for the half year ended 30 September 2010 were as follows:
Funded schemes
Total
Total
Total
Invensys Pension
Scheme (UK)
Invensys Pension
Plan (US)
Other
Half year ended
30 September
2010
Half year ended
30 September
2009
Year ended
31 March
2010
£m
£m
£m
£m
£m
£m
Opening fair value of plan assets
3,902
820
197
4,919
4,627
4,627
Expected return on plan assets
108
26
6
140
132
263
Contributions by employer
20
13
4
37
34
68
Contributions by employees
4
-
1
5
-
1
Benefit payments
(112)
(30)
(3)
(145)
(145)
(292)
Actuarial gains/(losses)
120
103
(2)
221
228
288
Transfers
-
9
(9)
-
-
-
Exchange adjustments
-
(46)
(5)
(51)
(93)
(36)
Closing fair value of plan assets
4,042
895
189
5,126
4,783
4,919
The Group is committed to make payments to the UK Main Scheme under a deficit funding plan agreed by the Trustees. Where the present value of the agreed funding payments exceeds the liability in respect of the Scheme as measured under IFRS, and would therefore, when paid, give rise to a surplus as measured under IFRS, a provision is recognised for any part of that surplus that would not be recoverable. Any surplus on the UK Main Scheme ultimately repaid by the Trustees would currently be subject to a 35% tax charge prior to being repaid, so a liability for this tax is recognised at the relevant balance sheet date. At 30 September 2010 the present value of the agreed funding payments exceeds the liability of the scheme under IFRS and consequently the irrecoverable element of the pension surplus is £3 million (30 September 2009: £nil, 31 March 2010: £30 million).
Total
Total
Total
Half year ended
30 September
2010
Half year ended
30 September
2009
Year ended
31 March
2010
£m
£m
£m
IAS 19 net defined benefit obligation
(223)
(271)
(154)
Future minimum funding requirements
231
252
239
Potential future pension surplus/(deficit)
8
(19)
85
Irrecoverable element of potential future pension surplus
(3)
-
(30)
Recoverable element of potential future pension surplus
5
-
55
Movement in irrecoverable element of potential future pension surplus
27
86
56
Reconciliation of assets and liabilities recognised in the balance sheet as at 30 September 2010:
Funded schemes
Unfunded schemes
Total
Total
Total
Invensys Pension Scheme (UK)
Invensys Pension
Plan (US)
Other
US Healthcare
Other
Half year ended
30 September
2010
Half year ended
30 September
2009
Year ended
31 March
2010
£m
£m
£m
£m
£m
£m
£m
£m
Present value of defined benefit obligation
(4,265)
(1,029)
(279)
(27)
(116)
(5,716)
(5,385)
(5,470)
Fair value of plan assets
4,042
895
189
-
-
5,126
4,783
4,919
Deficit in the plan
(223)
(134)
(90)
(27)
(116)
(590)
(602)
(551)
Restrictions of asset recognised
-
-
-
-
-
-
(1)
-
Irrecoverable element of potential future pension surplus
(3)
-
-
-
-
(3)
-
(30)
Net liability
(226)
(134)
(90)
(27)
(116)
(593)
(603)
(581)
Changes in key assumptions
The following assumptions have been updated for the Invensys Pension Scheme (UK):
The discount rate applied is 4.90% (30 September 2009: 5.40%, 31 March 2010: 5.50%). The inflation assumption has been assessed at 3.30% (30 September 2009: 3.30%, 31 March 2010: 3.70%). With regards to mortality tables, PA92 has been used projected by year of birth with medium cohort projections allowing for future improvements in life expectancy in line with medium cohort improvements subject to a 1.00% floor for males and 1.25% floor for females, and applying multipliers of 122% for males and 135% for females, consistent with the half year and full year 09/10.
The following assumptions have been updated for the Invensys Pension Plan (US):
The discount rate applied is 5.20% (30 September 2009: 5.75%, 31 March 2010: 5.95%). The inflation assumption has been assessed at 2.50% (30 September 2009: 2.50%, 31 March 2010: 2.50%).
10 Assets held for sale
At 30 September 2010, 30 September 2009 and 31 March 2010, assets held for sale relates to surplus freehold properties.
11 Reconciliation of cash flows
Half year ended
30 September
2010
Half year ended
30 September
2009
Year ended
31 March
2010
£m
£m
£m
Net cash flows from operating activities
49
41
166
Capital expenditure included within investing activities
(37)
(26)
(70)
Interest paid
3
5
9
Taxation paid
11
16
41
Restructuring
14
23
46
Legacy items:
Pension contributions
37
27
60
Other legacy payments
6
6
13
43
33
73
Operating cash flow
83
92
265
Restructuring
(14)
(23)
(46)
Net finance costs paid
(2)
(4)
(5)
Taxation paid
(11)
(16)
(41)
Legacy items
(43)
(33)
(73)
Free cash flow
13
16
100
Operating cash flow attributable to:
Continuing operations
83
92
265
Discontinued operations
-
-
-
83
92
265
The directors consider that the best measure of the Group's cash performance is free cash flow, as calculated above.
12 Net cash and deposits
Half year ended
30 September
2010
Half year ended
30 September
2009
Year ended
31 March
2010
£m
£m
£m
Cash and cash equivalents
342
277
364
Borrowings:
Non-current
(1)
(1)
(1)
Current
(5)
(8)
-
Deposits:
Current*
-
22
-
Net cash and deposits
336
290
363
* Current deposits are included in current other financial assets on the balance sheet.
As an international Group, Invensys 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 audited reserves. At 30 September 2010 restricted cash and cash equivalents held in such territories totalled £57 million (30 September 2009: £73 million, 31 March 2010: £68 million).
Cash and cash equivalents include £31 million (30 September 2009: £35 million, 31 March 2010: £37 million) of cash collateral held in the ordinary course of business to provide security for local bonding facilities.
12 Net cash and deposits (continued)
As at 30 September 2010, the committed syndicated loan facility available to the Group was a £400 million multicurrency credit facility with a term of five years from July 2008. The facility is available for drawdown as loans, letters of credit or guarantees. The available facility at 30 September 2010, 30 September 2009 and 31 March 2010 was £400 million of which £234 million was drawn at 30 September 2010 for the provision of bonds and guarantees (30 September 2009: £216 million, 31 March 2010: £240 million).
In addition, at 30 September 2010, the Group has bonds and guarantees totalling £199 million (30 September 2009: £223 million, 31 March 2010: £245 million) issued under uncommitted facilities. Of these, £31 million (30 September 2009: £35 million, 31 March 2010: £37 million) are supported by cash collateral and a further £20 million (30 September 2009: £20 million, 31 March 2010: £20 million) are supported by guarantees issued under the Group's committed syndicated loan facility.
Deposits at 30 September 2009 comprised £8 million of US treasury notes held to defease the covenants in the Group's remaining 144A bonds and £14 million of deposits held to secure bonding facilities. No equivalent deposits were held at 30 September 2010 or 31 March 2010.
13 Contingent liabilities
There have been no material changes in the Group's contingent liabilities since the last annual balance sheet date, 31 March 2010.
14 Related party disclosures
The key management comprises the executive directors as disclosed in the 2010 Annual Report and Accounts. There have been no changes to the Board of executive directors since the year end. Their remuneration consisted of short-term and other benefits for the half year of £0.9 million (H1 09/10: £0.9 million) and share based payments of £0.7 million (H1 09/10: £1.1 million).
There are no other related party transactions, or changes to related parties since the last Annual Report and Accounts for the year ended 31 March 2010, that have a material effect on the financial position or performance of the Group in the year.
As noted in Note 33 of the 2010 Annual Report and Accounts, in view of the double taxation suffered in relation to his US employment duties in 2008, Invensys Systems Inc. advanced £546,000 on 14 April 2009 to Mr Henriksson, being an amount equal to the expected refunds due from HMRC.
This refund was paid by HMRC on 28 June 2010 and Mr Henriksson subsequently repaid the loan within 5 days as required by the loan agreement.
A further loan of £312,691 was advanced on 29 June 2010 in respect of the double taxation suffered in respect of US employment duties in 2009. This loan 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.
15 Dividends paid and proposed
Half year ended
30 September
2010
Half year ended
30 September
2009
Year ended
31 March
2010
£m
£m
£m
Paid during the half-year/year
Equity dividends on ordinary shares:
Final dividend for the year ended 31 March 2010: 2.0p
(FY 08/09: 1.5p)
16
12
12
Interim dividend for the year ended 31 March 2010: 1.0p
-
-
8
16
12
20
Proposed
Equity dividends on ordinary shares:
Final dividend for the year ended 31 March 2010: 2.0p
-
-
16
Interim dividend for the year ending 31 March 2011: 1.5p
(FY 09/10: 1.0p)
12
8
-
12
8
16
The final dividend for the year ended 31 March 2010 was approved by shareholders on 28 July 2010 and paid on 6 August 2010.
The interim dividend for the year ending 31 March 2011 was declared by the Board on 3 November 2010 and will be paid to shareholders on 10 December 2010. This dividend will be accounted for as an appropriation of retained earnings in the second half of the financial year and is payable to all shareholders on the register of Members at the close of business on 12 November 2010.
The Invensys Employee Share Trust has waived its right to the interim dividends payable on the shares that it owns (749,884 at 30 September 2010). FY 09/10: The Trust also waived its rights to the final dividend payable on the 230,380 shares that it owned and the interim dividend payable on the 458,839 shares that it owned.
16 Events after the balance sheet date
Baan non-controlling interest
On 22 October 2010, the Group made an interim distribution of €48 million to the non-controlling shareholders of Baan Company NV (in liquidation) (Baan).
US healthcare defined benefit scheme - amendment of benefits
On 26 October 2010, the Group reached a decision to amend the benefits payable under the terms of its US healthcare defined benefit scheme. As a result of this change, the defined benefit liability of the scheme was reduced to approximately £10 million (30 September 2010: £27 million). The resulting gain is expected to be approximately £20 million and will be recognised as an exceptional item in the income statement in the six months ending 31 March 2011.
17 Exchange rates
Half year ended
30 September
2010
Half year ended
30 September
2009
Year ended
31 March
2010
Average
Average
Average
US$ to £1
1.52
1.57
1.59
Euro to £1
1.18
1.13
1.13
As at
30 September
2010
As at
30 September
2009
As at
31 March
2010
Closing
Closing
Closing
US$ to £1
1.58
1.60
1.50
Euro to £1
1.16
1.09
1.11
18 Financial information
This half yearly financial report was approved by a duly appointed and authorised committee of the Board of Directors on 3 November 2010. This statement does not comprise the statutory accounts of the Group, as defined in section 434 of the Companies Act 2006. The financial information for the half year ended 30 September 2010 is unaudited. The financial information for the balance sheet as at 31 March 2010 has been extracted from the statutory accounts published in the Annual Report and Accounts 2010.
The statutory accounts of Invensys plc for the year ended 31 March 2010 have been reported on by the Group's auditors, Ernst & Young LLP, and delivered to the Registrar of Companies. The report of the auditors was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report, and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
GOING CONCERN
A full description of the Group's business activities, financial position, cash flows, liquidity position and borrowing facilities together with the factors likely to affect its future development, performance and position are set out in the Business Review, Financial Review and Notes to the financial statements included in the Annual Report and Accounts for the year ended 31 March 2010, which is available from the Group's website, www.invensys.com. The Annual Report and Accounts also includes an explanation of the principal risks and uncertainties facing the Group, along with mitigating actions. This half yearly report provides updated information on the business activities for the six months to 30 September 2010, the financial position, cash flow and liquidity position at 30 September 2010, and the principal risks and uncertainties facing the Group for the remaining six months of the current financial year.
The Group remains generally in a sound financial position with net cash, a £400 million banking facility in place until 2013, and well-established relationships with key customers and suppliers.
The directors have a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the Consolidated Financial Statements.
DIRECTORS' RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
a) The condensed set of financial statements for the six months to 30 September 2010 have been prepared in accordance with IAS 34, as adopted by the EU;
b) This half yearly financial report includes a fair review of the information required by DTR 4.2.7R (being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements and a description of principal risks and uncertainties for the remaining six months of the financial year); and
c) This half yearly financial report includes a fair review of the information required by DTR 4.2.8R (being the disclosure of related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or the performance of the Group during that period, and any changes in the related party transactions described in the last Annual Report and Accounts for the year ended 31 March 2010 that could have a material effect on the financial position or performance of the Group within the first six months of the financial year).
By order of the Board
U C I Henriksson W Edmunds
Chief Executive Chief Financial Officer
3 November 2010
The directors of Invensys plc as at 31 March 2010 are listed on page 7 of the 2010 Annual Report and Accounts. There have been no changes to the Board of executive or non-executive directors since the year end.
This half yearly financial report contains certain statements that are forward-looking. These statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Forward-looking statements are not guarantees of future performance. The Group's actual results of operations, financial condition and liquidity, and the development of the industries in which the Group operates, may differ materially from those made in or suggested by these statements and a number of factors could cause the results and developments to differ materially from those expressed or implied by these forward-looking statements.
INDEPENDENT REVIEW REPORT TO INVENSYS PLC
Introduction
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2010 which comprises the consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in equity, consolidated cash flow statement and related notes 1 to 18. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2010 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
Ernst & Young LLP
London
3 November 2010
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