Invensys announces outcome of discussions concerning Metronet

• Cash settlement of £95m from Bombardier following rescoping of work on the London Underground

• Around £180 million of continuing work on Victoria and Sub Surface Lines and significant opportunity to win rescoped contract
• Rail Group double digit revenue growth outlook unchanged and margin outlook improved materially through to 2010

Summary
As part of the arrangements being put in place following Metronet entering into administration last year, London Underground Limited (LUL) has decided to rescope the new signalling work for the Sub Surface Lines (SSL).  This has resulted in a cash payment due today from Bombardier to Invensys of £95 million and a reduction in the Westinghouse Rail Systems Limited (WRSL) order book of £550 million in respect of work that would have been carried out mainly in the period 2010 to 2014.  This development has provided Invensys with a significant opportunity to win the rescoped contract when it is retendered in accordance with public procurement rules.  Invensys has the certified engineering capacity and the capabilities to meet LUL’s vision for the London Underground.  Invensys’ other signalling work on the SSL and the Victoria Line, representing around £180 million of revenue, is unaffected by this change.

Ulf Henriksson, Chief Executive of Invensys, commented:

“We view this development as a great opportunity to demonstrate our commitment to LUL and share a vision with LUL of developing an efficient solution that meets the needs of LUL and the people of London.  Our work so far on the SSL and Victoria Lines is on or ahead of schedule which demonstrates WRSL’s reputation for delivery.

“In addition to our ongoing involvement with LUL, I expect the Rail Group to make continued progress throughout its business with double digit revenue growth and materially improved margins over the next two years.

“For the Group as a whole, we have made further progress in the final quarter of our financial year and we remain confident that we have a sound platform for growth next year.”

Background and contractual changes
Following Metronet entering into PPP administration on 18 July 2007, Westinghouse Rail Systems Limited (WRSL), part of the Invensys Rail Group (IRG), has now reached a series of agreements in respect of all its contracts with Bombardier, a member of the Metronet consortium, for signalling on the London Underground.

WRSL’s existing contract with Bombardier for work to install new signalling on the Victoria Line will remain with Bombardier and is expected to be transferred intact as part of the statutory transfer of Metronet in Administration to ‘new’ Metronet.  Work remains on schedule for delivery of the planned performance upgrades in 2012.  WRSL’s signalling upgrade technology (Distance To Go – Radio) was successfully trialled during engineering hours on 7 February 2008 and is due to be trialled during passenger hours in summer 2008.

WRSL understands that, in order to reduce future maintenance and driver training, LUL has decided to rescope the new signalling work for SSL.  As a result WRSL’s existing contract with Bombardier for SSL signalling has been rescoped and LUL has asked WRSL only to continue to work on changes to SSL’s existing signalling system to allow new trains to operate on those lines.  WRSL’s existing contract with Bombardier will be novated to Metronet and amended to reflect the agreed rescoping, resulting in a cash settlement due today of £95 million from Bombardier.  The revised contract will then be recommended for transfer to “new” Metronet.  The new contract for the upgraded SSL signalling will be retendered in accordance with public procurement rules and WRSL fully intends to participate in the future retendering which LUL has strongly encouraged it to do.  

The ongoing contracts are subject to the successful implementation of the statutory transfer scheme being proposed by the Administrator of Metronet, including approval of the High Court.  LUL has agreed to recommend the proposed transfers and a copy of a joint LUL, Bombardier and WRSL press release is attached.

Tim O’Toole, Managing Director of London Underground, said:

“I look forward to the successful commissioning of WRSL’s new signalling system on the Victoria Line and to the completion of its work on the existing signalling system on SSL and hope WRSL will participate in the re-tender of the signalling system for SSL.”

Disposal
On 31 March 2008, IRG sold its North American rail logistics business Burco to a US company, Railroad Controls Limited, for $31 million.  Burco was not core to IRG’s signalling and related systems operations.  In the year ended 31 March 2007, Burco reported external revenue of $128 million and operating profit of $5 million.  Burco will be treated as a discontinued operation in the Group’s results.

Overall financial implications
The cash payment from Bombardier to WRSL of £95 million will be treated as operating exceptional income in the Group’s income statement.   However due to the rescoping of the planned new signalling work on SSL and prior to the retendering of this work, WRSL’s long term order book will be reduced by around £550 million in respect of work that would have mainly been carried out in the period from 2010 to 2014.  IRG’s order book remains strong at around £700 million and IRG believes that there is a significant opportunity to win the rescoped contract for the SSL signalling system.

IRG expects that these changes to its contractual arrangements will have no effect on its expectation of achieving double digit revenue growth from continuing operations in 2008/09 and 2009/10.   With the disposal of Burco and improved sales mix, IRG expects a material improvement in operating margin during this period.

 

Contact:
Invensys plc                  Steve Devany                             tel: +44 (0) 20 7821 3758

Financial Dynamics      

         Richard Mountain                        tel: +44 (0) 20 7269 7121

Notes to Editors

Westinghouse Rail Systems Limited (WRSL) is part of the Invensys Rail Group, which is a business unit of Invensys plc.

In 2003, WRSL contracted with Bombardier Transportation for the delivery of the signalling upgrade as part of the Metronet scope of works for the London Underground on both the BCV (Bakerloo, Central and Victoria Lines) and SSL Lines. SSL (Sub Surface Lines) covers the Circle, District, Hammersmith and City and Metropolitan Lines. The SSL contract was awarded in February 2003 with a contract value of £755m, and was due to deliver its performance upgrade commitment in 2017.  BCV  covers upgrade work only to the Victoria line and was also awarded  in February 2003 with a contract value of £135m, and is due to deliver its performance upgrade commitment in 2012. 

The scope of works in both contracts was to contribute to an improvement in Journey Time Capability (JTC), improving passenger journey times between stations amongst other things by an increase in the number and frequency of trains. 

Invensys Rail Group designs, manufactures, installs, tests and commissions safety-related rail signalling and control systems and other rail signalling products for mainline, metro and freight railways. It is made up of businesses based in Australia (Westinghouse Rail Systems Australia Pty Limited), Iberia (Dimetronic SA), North America (Safetran Systems Corp) and the UK (Westinghouse Rail Systems Limited). Invensys Rail Group employs around 3,500 people across its businesses.

Invensys plc is a global automation, controls and process solutions Group. Its products, service expertise and ongoing support enable intelligent systems to monitor and control processes in many different environments. Leading companies in a wide range of industries rely on Invensys to help them perform with greater efficiency, safety and cost-effectiveness.

The Invensys Group is made up of Process Systems, Eurotherm, Invensys Rail Group and Controls. The Group is headquartered in London and is listed on the London Stock Exchange, with around 23,000 employees working in around 60 countries.

Appendix - Joint announcement

Andie Harper, CEO of Metronet, released the following statement:

Metronet’s entry into Administration has caused a significant number of challenges for the planned modernisation programme for the London Underground network.  Metronet has made changes to the structure and timing of works, which has affected many of their suppliers and sub-suppliers.

Since Metronet entered into Administration, LUL has been seeking to agree with the Administrator the basis upon which the Metronet undertakings can be transferred to LUL nominee companies.

The result of those negotiations, among other things, is that the BCV programme, currently working to upgrade the Victoria Line with Bombardier’s new trains and Westinghouse’ Rail Systems’ (WRSL) new signalling system, will continue and complete its implementation as originally anticipated.

The Sub-Surface Line (SSL) upgrade programme, which is less advanced in its implementation, is being revisited in light of issues unique to those lines.  LUL will continue to install new Bombardier trains on SSL, and WRSL will continue to improve the existing signalling system to enable those trains to operate on those lines.  The signalling upgrade works will be re-tendered in accordance with procurement rules as a consequence of the successful transfer of Metronet from Administration.

Tim O’Toole, LUL Managing Director, said:

”I look forward to the successful commissioning of WRSL’s new signalling system on the Victoria Line and to the completion of its work on the existing signalling system on SSL and hope WRSL will participate in the re-tender of the signalling system for SSL.” 

James Drummond, CEO and President of Invensys Rail Group, which owns WRSL, said:

”We continue to support LUL through this difficult time and look forward to the successful completion of the BCV re-signalling programme.  In the longer term, as Metronet emerges from Administration, we will continue to work with LUL and utilise our signalling technologies to deliver the increase in safety, performance and capacity of the Tube network that London needs.”  

André Navarri, President of Bombardier Transportation said:

‘’Bombardier has always performed on its contracts to date and will continue to do so. We are committed to the successful completion of the BCV programme as planned and we look forward to the continuation of the delivery of our trains for the SSL lines.  Bombardier is fully committed to offer the best to the users of the London Underground.’’