Invensys PLC (ISYS) - Half Yearly Report RNS Number : 1691R Invensys PLC 15 November 2012 Invensys plc 15 November 2012 RESULTS FOR HALF YEAR ENDED 30 SEPTEMBER 2012 Business highlights · Overall the Group produced a good performance in an uncertain macro-economic environment · Invensys Operations Management continued to perform well in the first half with improvements in revenue, operating profit and operating margin driven by conversion of its large order book and strong growth in higher margin Software revenue · As expected, Invensys Rail had delays in mobilisation of some of the large contracts awarded in H2 last year and in the letting of contracts under the Network Rail framework agreements; material progress is expected in H2 · Invensys Controls experienced softening demand in Appliance; good progress is expected in Commercial and Wholesale in H2 Financial performance - continuing operations · Order intake was £1,044 million (H1 11/12: £1,086 million), down 2% at CER^1 due mainly to the timing of orders at Invensys Operations Management and Invensys Controls · Revenue was £1,200 million (H1 11/12: £1,244 million), down 2% at CER, with good growth in Invensys Operations Management more than offset by an expected decline at Invensys Rail · Operating profit^2 was £102 million (H1 11/12 £102 million), up 2% at CER, with an expected weaker performance from Invensys Rail offset by Invensys Operations Management · Underlying earnings per share^3 increased by 10% to 7.6p (H1 11/12: 6.9p) mainly due to a reduction in restructuring costs · Operating cash inflow was £27 million (H1 11/12: £11 million outflow) with operating cash conversion of 26% mainly due to the investment in working capital in our major projects ahead of payment milestones · Net cash was £175 million (31 March 2012: £262 million) with the reduction mainly due to working capital and pension payments · The IAS 19 pension liability was £490 million (31 March 2012: £426 million), in part reflecting continued low interest rates · Interim dividend increased by 6% to 1.75p per share (H1 11/12: 1.65p per share) Outlook · Subject to any significant changes to the global macro-economic environment, our good first half performance and strong order book supports our view that we will improve our performance for the year as a whole Contact: Invensys plc Steve Devany tel: +44 (0) 20 3155 1301 FTI Consulting Andrew Lorenz Richard Mountain tel: +44 (0) 20 7269 7291 Chief Executive's Statement We have produced a good performance in the first six months of the year, a period during which there have been increased levels of uncertainty in the global macro-economic environment. Invensys Operations Management continued to perform well with growth in revenue and operating margins. This was achieved through its strong order book and the diversity of its industry and geographic end markets. The execution of the three China Nuclear contracts is progressing in accordance with our revised plans. As expected, Invensys Rail had a slow start to the year due to the timing of orders from Network Rail and also the timing of mobilisation of some of our large export contracts. We expect material progress in the second half of the year. Invensys Controls experienced less volatility in demand within its Appliance business but was generally affected by the weaker economies in the US and Europe. Our financial position remains strong with net cash on the balance sheet of £175 million despite having made some large investments in working capital to support our major projects ahead of payment milestones; this working capital position is expected to unwind as we enter the next financial year. We have made two bolt-on acquisitions so far this year; PHW Inc., which expands Invensys Rail's positive train control product range to include onboard equipment, and Spiral Software, which strengthens our simulation and optimisation offerings for refinery customers in Invensys Operations Management. Looking ahead, subject to any significant changes to the global macro-economic environment, our good first half performance and strong order book supports our view that we will improve our performance for the year as a whole. Wayne Edmunds Notes 1. Unless otherwise stated, % change is measured at constant exchange rates (CER) as a percentage of the H1 11/12 adjusted base and is calculated based upon underlying amounts in £'000s. 2. All references to operating profit (OPBIT) and operating margin in this announcement are before exceptional items. 3. Underlying earnings per share is before exceptional post-retirement benefits - settlement loss; and exceptional finance costs. Presentation and conference call Wayne Edmunds, CEO, and David Thomas, CFO, will be hosting a presentation and conference call for analysts and investors at 9.00 a.m. London time 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 7784 1036 US: +1 646 254 3360 France: 0805 631 580 Germany: 0800 589 2673 Italy: 800 089 737 Spain: 800 600 526 Confirmation Code: 6642955 The presentation will also be available via audio webcast both live and for replay purposes. To access the audio webcast please go to http://www.invensys.com and follow the Half Year Results link. 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 % Total % Change at operations (other than free cash flow) H1 12/13 H1 11/12 change CER^1 Orders (£m) 1,044 1,086 (4%) (2%) Order book^4 (£m) ^ 2,148 2,360 (9%) (6%) Revenue (£m) 1,200 1,244 (4%) (2%) Operating profit^2 (£m) 102 102 - 2% Operating margin^2 (%) 8.5% 8.2% Operating cash flow - inflow/(outflow) (£m) 27 (11) nm^5 nm^5 Cash conversion (%) 26% (11%) Free cash flow - outflow (£m) (49) (103) 52% Earnings per share - basic (p) 7.6p 6.9p 10.2% Earnings per share - underlying (p) 7.6p 6.9p 10.2% Return on operating capital^3 (%) 33.5% 35.2% ^ 1. % change is measured as the change at CER as a percentage of the H1 11/12 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. Comparative is as at 31 March 2012. 5. nm - not meaningful. Dividend The Board has declared an interim dividend of 1.75 pence per share (H1 11/12: 1.65 pence per share) payable on 21 December 2012 to shareholders on the register on 23 November 2012. Outlook We expect Invensys Operations Management to continue to perform well in the second half underpinned by its large order book and significant exposure to emerging markets, many of which are expected to be less affected by the current uncertain macro-economic environment. Invensys Rail is expected to see improved order intake during the rest of the year, particularly from Network Rail, and revenue recovering as we begin mobilisation of the recently won large export contracts. Based upon customer comments, we expect Invensys Controls' major Appliance markets in North America and Europe to continue to be more stable in the secondhalf and we should see the traditional seasonal improvements in Commercial and Wholesale, supported by several key new product launches in Commercial. Subject to any significant changes to the global macro-economic environment, our good first half performance and strong order book supports our view that we will improve our performance for the year as a whole. Invensys Operations Management 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. Our product offerings can be broadly divided into three areas: Systems, formerly control and safety (61% of revenue), Software, formerly advanced applications (18% of revenue) and Equipment (21% of revenue). Our enterprise control offerings are delivered across all three product categories. Half year ended 30 September H1 12/13 H1 11/12 % Total change % Change at CER Orders (£m) 564 599 (6%) (5%) Order book^1 (£m) 970 1,088 (11%) (9%) Revenue (£m) 656 618 6% 7% Operating profit (£m) 64 54 19% 18% Operating margin (%) 9.8% 8.7% Operating cash flow (£m) 1 13 (92%) (90%) Operating cash conversion (%) 2% 24% Employees at period end (numbers) 9,767 9,309 5% 1. Comparative is as at 31 March 2012 Revenue by line of business Half year ended 30 September H1 12/13 H1 11/12 % Total change % Change at CER Systems 398 377 6% 6% Software 120 103 17% 16% Equipment 138 138 - 3% Revenue by sector Half year ended 30 September H1 12/13 H1 11/12 Oil and gas 29% 28% General industries 30% 26% Utilities and power 15% 17% Discrete manufacturing 7% 9% Petrochemicals 5% 6% Other 14% 14% Revenue by destination Half year ended 30 September H1 12/13 H1 11/12 UK 5% 5% Rest of Europe 20% 21% North America 31% 28% South America 6% 7% Asia Pacific 25% 25% Africa/Middle East 13% 14% Markets Invensys Operations Management continues to expect growth in the global industrial automation market driven by continued investment in oil and gas markets, as well as continued growth from servicing the installed base and smaller projects. However it has experienced some softening in the systems markets driven by macro-economic conditions in Europe and Asia and the timing of larger greenfield projects awards. While macro-economic conditions have been creating a slowing business environment over the last few months, the heavy process markets continue to be areas of investment, and there are no indications of a significant risk for contraction of the automation or industrial software markets. The main drivers of the automation and industrial software industries continue to be the expectation of growing demand for energy in emerging markets. This demand and the forecast for oil and gas prices continue to drive significant investment throughout the world in the energy markets. In emerging markets, the outlook for automation remains good based on growth in investment in energy, particularly in the Middle East, Brazil, India, and China. In the developed markets, ageing assets, new sources of energy, and our customers' strong cash positions continue to drive service, upgrade and migration business in Systems. The software markets have remained solid despite the economic uncertainty with good demand from customers for simulation software to enable them to optimise the performance of their plants; this business is being enhanced through the recent acquisition of Spiral Software which broadens its offerings in the refinery market (see below). The shorter-cycle equipment market continues to see better than expected conditions helped by a large order backlog and continued demand from the heavy process industries such as oil and gas. Although there has been some softening in demand from emerging markets such as China, the level of customer enquiries has risen in the recent months. Developments Since the period end, our simulation and optimisation offerings have been expanded by the £38 million acquisition of Spiral Software, a privately held company based in Cambridge, UK. Founded in 1998, Spiral Software provides integrated solutions ranging from crude assay management to refinery supply chain optimisation, enabling clients to make the best possible choices in trading and refining crude oil. It provides the only integrated refining-industry solution designed from the ground up, bringing together feedstock data management, planning and scheduling. This means that our offerings will now fully support and optimise the entire refining value chain, from crude trading to supply-chain distribution, including lifecycle modeling from design to start up to performance optimisation. Work on the three contracts to supply control and safety systems to eight nuclear reactors in China has continued in accordance with the revised project plans put in place in January 2012 and we are now making some good progress in project execution. Although we are having to invest heavily in working capital to progress these contracts, with the consequent adverse effect on operating cash flow, we expect to reach some key payment milestones in the second half of the year which will improve the division's cash conversion. We are continuing with our decision not to recognise any profits from the two later contracts until we have greater certainty of the final outcome; this has impacted operating margins in the division by around one percentage point. Performance Order intake in the first half was slightly down on the first half of last year mainly due to some orders being delayed into H2 for larger greenfield projects in the Systems business and softness in Equipment mainly due to weaker than expected economies in Europe and North America. Order intake was £564 million (H1 11/12: £599 million), down 5% at CER. The order book at 30 September 2012 was £970 million (31 March 2012: £1,088 million), a decrease during the period of 9% at CER. The pipeline of order prospects through to 31 March 2016 remains strong at around £3.5 billion. Revenue in the period was up 7% at CER to £656 million (H1 11/12: £618 million) with growth in each line of business driven by conversion of the division's large order book. There was strong growth in Software (up 16% at CER), helped by simulation and HMI across most regions, and Systems (up 6% at CER), helped by the execution of the large greenfield projects awarded in prior years. Operating profit was up 18% at CER at £64 million (H1 11/12: £54 million) and operating margin increased compared to the corresponding period last year to 9.8% (H1 11/12: 8.7%) despite the dilutive effect of revenue arising from the China Nuclear projects which are currently being traded at zero margin. Operating cash flow was £1 million (H1 11/12: £13 million) resulting in cash conversion for the half year of 2% (H1 11/12: 24%). The low level of operating cash conversion was due mainly to the need to invest in working capital in the large greenfield projects such as China Nuclear ahead of the incidence of payment milestones; this position is expected to improve significantly in the second half of the year. Invensys Rail Invensys Rail is a multinational provider of state-of-the-art software-based signalling, communication and control systems that enable the safe and efficient operation of trains in mainline and mass transit networks across the world. Our aim is to deliver higher capacity safely and reduced travel times. Half year ended 30 September % Change at H1 12/13 H1 11/12 % Total change CER Orders^1 (£m) 264 250 6% 6% Order book^2 (£m) 1,118 1,202 (7%) (4%) Revenue (£m) 323 382 (15%) (14%) Operating profit (£m) 45 53 (15%) (10%) Operating margin (%) 13.9% 13.9% Operating cash inflow/(outflow) (£m) 28 (1) nm^3 nm^3 Operating cash conversion (%) 62% (2%) Employees at period end (numbers) 3,700 4,013 (8%) 1. Orders and order book exclude framework agreements 2. Comparative is as at 31 March 2012 3. nm - not meaningful Revenue by line of business Half year ended 30 September H1 12/13 H1 11/12 Engineering and contracting 63% 76% Products 37% 24% Revenue by destination Half year ended 30 September H1 12/13 H1 11/12 UK 27% 26% Rest of Europe 17% 19% North America 31% 21% South America 6% 12% Asia Pacific 18% 22% Africa/Middle East 1% - Markets The market for rail signalling and train control remained strong in the first half of the year particularly in South America, the Middle East and Asia. Demand continues to be driven by industrialisation, urbanisation, increasing capacity needs and the recognition of rail as an environmentally sustainable and efficient means of transport. The UK market is supported by government commitments to continue to fund Network Rail and other rail infrastructure projects such as Crossrail and the second High Speed Line linking London and Birmingham. However, following our success in being awarded four of the nine regional framework agreements by Network Rail, the letting of contracts under those agreements has been slow in the first half but is expected to pick up significantly in the second half. In the US, the market for grade crossings remains robust and we have made some progress in penetrating the mass transit and mainline signalling markets. In Spain there has been a significant reduction in activity levels due to government austerity measures. Outside our traditional core markets, there is a significant level of rail infrastructure investment being made, as evidenced by our recent wins in Saudi Arabia and Turkey. Developments During the first half, Invensys Rail North America acquired the privately-held PHW Inc. for £12 million. Based in Pittsburgh, PHW is a leading manufacturer of cab signalling systems and other safety electronic train control systems for the North American mainline and mass transit industries. PHW's onboard Positive Train Control (PTC) products enhance our existing range of trackside PTC products, strengthening further our position in North America. PHW's onboard system is used on the North East Corridor by Amtrak and associated railroads as part of Amtrak's ACSES PTC system, which is the only PTC system to be approved so far for operation by the Federal Railroad Administration under the requirements of the Rail Safety Improvement Act of 2008. Since its acquisition in May 2012, PHW has been awarded its largest ever order, a sub-contract to install its PTC system onboard all the transit rail vehicles of the Southeastern Pennsylvania Transportation Authority (SEPTA). As part of its strategy to increase the level of equipment sales, our S60 level crossing barrier machine has received a Certificate of Acceptance from Network Rail. The S60 machine is a lightweight electro-mechanical product rather than a traditional hydraulic system, making it far simpler to operate and maintain. Also, it uses less power than conventional systems so reducing cable size and battery capacity. The Certificate of Acceptance covers the S60 barrier machine for use at all types of automatic half barrier and manually controlled barrier level crossings, including those that incorporate CCTV and object detection technology. Since the period end, aconsortium comprising Invensys Rail and Siemens plc has been awarded a £50 million contract by Crossrail Limited to deliver the signalling and train control solution for the core Crossrail area and for the integration with Network Rail infrastructure at its fringes. Crossrail will provide 21 kilometres of new railway under the heart of London in twin-bore tunnels. Up to 24 trains per hour will operate in the core central section area during the peak, with 200 million passengers annually using the Crossrail service. The consortium will deliver a Communications-Based Train Control (CBTC) solution and integration with Network Rail's European Rail Traffic Management System (ERTMS). This will enable Crossrail trains to travel on both the new central section and the existing rail network. The issues identified at a business within our Asia Pacific region, which gave rise to a provision of £20 million last year, have now been resolved with no changes needed to the level of the provision. The operation is now performing well under a new management team. Performance Orders in the first six months were up 6% at CER at £264 million (H1 11/12: £250 million) with a book-to-bill ratio below 1.0 mainly due to the delays in Network Rail orders in the UK. Our order book at 30 September 2012 was £1,118 million (31 March 2012: £1,202 million). Revenue in the period was down 14% at CER to £323 million (H1 11/12: £382 million) reflecting the timing of contract awards by Network Rail and the significant reduction in revenue in Spain which have not yet been offset by increased new market revenue due to the delays in mobilisation of the large new contracts awarded last year, which will now make a significant contribution to revenue in the second half. This was partially offset by significant growth in Product sales due to success with US grade crossings. Operating profit was down 10% at CER at £45 million (H1 11/12: £53 million) and operating margin was 13.9% (H1 11/12: 13.9%). Operating cash inflow was £28 million (H1 11/12: £1 million outflow) following the receipt of some upfront payments on contracts awarded last year. Operating cash conversion was 62% (H1 11/12: (2%)) and is expected to improve in the second half as we await a large receipt from one of the division's major South American customers. Invensys Controls Invensys Controls is a leading global engineering and technology provider that 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. Half year ended 30 September H1 12/13 H1 11/12 % Total change % Change at CER Orders (£m) 216 237 (9%) (5%) Order book^1 (£m) 60 70 (14%) (11%) Revenue (£m) 221 244 (9%) (6%) Operating profit (£m) 11 14 (21%) (23%) Operating margin (%) 5.0% 5.7% Operating cash flow (£m) 13 5 160% 170% Operating cash conversion (%) 118% 36% Employees at period end (numbers) 6,943 7,033 (1%) 1. Comparative is as at 31 March 2012 Revenue by line of business Half year ended 30 September H1 12/13 H1 11/12 Appliance 59% 60% Wholesale 23% 22% Commercial 18% 18% Revenue by destination Half year ended 30 September H1 12/13 H1 11/12 UK 9% 7% Rest of Europe 24% 27% North America 47% 44% South America 12% 13% Asia Pacific 7% 7% Africa/Middle East 1% 2% Markets Overall Invensys Controls markets remained weak in the first half of the year. The Appliance market in North America demonstrated greater stability in the first half compared to last year but the recent signs of improvements in the US housing market are not yet translating into increased shipments of appliances. As a result, the North American appliance manufacturers are now expecting a small decline in total appliance shipments in the calendar year 2012. The European Appliance market continues to suffer from the region's economic problems with some of our customers limiting factory operations by as much as one week per month to manage capacity and inventory. Growth in Asia has shown signs of slowing with China production being affected by both reduced export and domestic demand. In South America, the Brazilian government's economic stimulus package and extended tax incentives should continue to help our business during the remainder of the year. The Wholesale markets in North America and Europe were also generally weak in the first half and improvement in the second half will be dependent upon more normal winter weather to drive increased heating and thermostat demand. The Commercial markets held up well but our performance was affected in particular by delays in orders for new products, which represent a significant part of this business. Developments The continued weakness in the European Appliance market led to the decision being made in the period to close the Belluno factory in Italy and move manufacturing to other plants. The investment in new product development continued with new products representing 14% of the division's revenue in the first half compared with 13% in FY 2011/12, despite some delays within Commercial. Following its success with Thermo King in applying wireless and remote monitoring technologies to refrigerated transportation, Invensys Controls has been working with Verizon to create a new application for our Centeron^® tank monitoring system. The new solution, which can be used across multiple industries, including petroleum, agriculture and telecommunications, uses radio and sensor technology to remotely track fuel levels in a company's tanks, including the fuel tanks that power generators at many Verizon cell sites across the US.Combined with data centres, advanced productivity software and monitoring reports, the system helps prevent outages by ensuring fuel levels remain at optimum levels. Performance Orders during the period were £216 million (H1 11/12: £237 million), down 5% at CER reflecting continuing challenges faced by our end markets. Revenue was £221 million (H1 11/12: £244 million), a 6% decrease at CER. Our order book at 30 September 2012 was £60 million (31 March 2012: £70 million). Although gross margin improved as a result of restructuring and continued focus on cost reduction, operating profit was down 23% at CER to £11 million (H1 11/12: £14 million) due to the reduced revenue. Operating margin was 5.0% (H1 11/12: 5.7%). Despite the reduced operating performance, operating cash flow was strong at £13 million (H1 11/12: £5 million) with cash conversion at 118% (H1 11/12: 36%). Risks and uncertainties As part of our routine procedures, the principal risks and uncertainties of the Group 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 for the remaining six months of the financial year remain as detailed on pages 37-44 of the 2012 Annual Report and Accounts, a copy of which is available from www.invensys.com. The principal risks are summarised below as required by DTR 4.27R of the Disclosure and Transparency Rules: Risk Description Failure to maintain a Invensys operates in highly competitive markets competitive and and the Group's products and services are technologically advanced characterised by continually evolving industry product range could reduce standards and rapidly changing technology, margins and revenue growth driven by the demands of the Group's customers. As illustrations of this, Invensys Rail continues to invest in the development of the European Rail Traffic Management System (ERTMS) and Communication Based Train Control (CBTC) which are becoming globally adopted standards of signalling and train control. Invensys Operations Management continues to invest in enhancements to its systems, advanced software applications and enterprise control offerings to optimise plant performance for our global customers. The timing and frequency of The revenue of Invensys Rail depends on a small substantial contract awards number of large railway operators, both in our are uneven traditional core markets in the UK, Iberia, North America and Australia and in new markets. New contract awards are often associated with major transport infrastructure upgrades, and as a result are by nature large and infrequent. Invensys Operations Management is associated with the supply of technology, software and consulting to the oil and gas, chemical and nuclear industries. Capital expenditure requirements from customers in these industries are often highly cyclical and linked to the international supply, demand and pricing of hydrocarbons. Also the timing of new contract awards in the nuclear industry may be impacted if certain nuclear programmes are subject to delay or cancellation. Undertaking large, long-term A significant amount of the Group's business projects exposes the Group to involves long-term projects that can take many risk of loss months or even years to complete. These projects may be subject to delays and cost overruns due to delays in technology development, equipment deliveries, engineering problems, work stoppages, unanticipated cost increases, shortages of materials or skilled labour or other unforeseen problems inherent in the nature of such projects. The Group may be subject to Errors and defects in the Group's products, financial loss and/or damage systems or applications, which may be used in to its reputation as a result safety-critical applications, could cause injury of product liability claims to persons or damage to property and equipment or be the subject of product recalls. The Group may be exposed to The business activities of the Group are often liability through the actions conducted with consortia, with joint and several of consortium partners, liability between consortium partners, and/or cosource partners or its with cosource partners whose day-to-day supply chain management actions are outside of the control of the Group. A significant element of the Group's risk profile is the delivery performance of its supply chain. These partnerships exist across our businesses. For example, Invensys Rail often undertakes contracts with consortium partners in traditional core markets and in new or developing markets. The Group may be exposed to The Group has a large level of gross liabilities additional liabilities with in respect of its major pension plans relative respect to its UK and US to its market capitalisation. pension plans The Group is subject to As a consequence of the past disposal of a ongoing litigation and significant number of businesses, the Group has, environmental liabilities or may incur, certain liabilities in relation to environmental claims (including the cost associated with the remediation of contaminated sites no longer owned by the Group), disputed taxes, litigation (including personal injury claims arising from alleged exposure to asbestos and silica), indemnity claims and other disposal costs relating to the disposed businesses. These risks have receded over time as warranties and indemnities in relation to past disposals have expired, existing disputes have been settled and remediation work on contaminated sites has been completed. The Group also has environmental liabilities in relation to the remediation of vacant sites which it owns. Additional Financial Information Orders and order book A summary of orders and movements at CER by division is set out below: For the half year H1 2011/12 H1 H1 ended 30 2012/13 September Orders Exchange 2011/12 Change at Change at movement £m CER Orders £m CER^1 % £m at CER £m £m Invensys Operations 599 (7) 592 (28) 564 (5%) Management Invensys Rail 250 (2) 248 16 264 6% Invensys Controls 237 (9) 228 (12) 216 (5%) Continuing 1,086 (18) 1,068 (24) 1,044 (2%) operations The order book for continuing operations was £2,148 million at 30 September 2012 (31 March 2012: £2,360 million). This includes 47% in emerging markets. Revenue A summary of revenue and movements at CER by division is set out below: For the half year H1 2011/12 H1 H1 2012/13 ended 30 September Revenue Exchange 2011/12 Change Revenue£m Change at movement £m at CER CER^1 % £m at CER £m £m Invensys Operations 618 (7) 611 45 656 7% Management Invensys Rail 382 (8) 374 (51) 323 (14%) Invensys Controls 244 (9) 235 (14) 221 (6%) Continuing 1,244 (24) 1,220 (20) 1,200 (2%) operations Operating profit A summary of operating profit and movements at CER by division is set out below: For the half year H1 2011/12 H1 H1 ended 30 September 2012/13 OPBIT Exchange 2011/12 Change at Change at movement £m CER OPBIT £m CER^1 % £m at CER £m £m Invensys Operations 54 - 54 10 64 18% Management Invensys Rail 53 (3) 50 (5) 45 (10%) Invensys Controls 14 - 14 (3) 11 (23%) Corporate (19) - (19) 1 (18) 2% Continuing 102 (3) 99 3 102 2% operations 1 % change is measured as the change at CER as a percentage of the H1 2011/12 adjusted base and is calculated based on underlying amounts in £'000s. Operating cash flow and cash conversion A summary of operating cash flow and cash conversion by division is set out below: For the half year ended Operating cash flow Cash conversion H1 2012/13 H1 2011/12 H1 2012/13 H1 2011/12 30 September £m £m % % Invensys Operations Management 1 13 2% 24% Invensys Rail 28 (1) 62% (2%) Invensys Controls 13 5 118% 36% Corporate (15) (28) - - Continuing operations 27 (11) 26% (11%) Exceptional items The exceptionals charge for the period totalled £9 million (H1 2011/12: £24 million). This included restructuring costs of £11 million and £1 million of intangible asset impairments; offset by a £2 million profit on the sale of property and a £1 million credit on other operating exceptional items. Restructuring costs included a plant shutdown in Invensys Controls. The comparative period included restructuring costs of £20 million and £4 million of other operating exceptional items. Net finance costs Net finance costs were £7 million in the period (H1 2011/12: £4 million), this was driven by higher bonding costs. Other finance charges - IAS 19 IAS 19 finance charges increased to £9 million (H1 2011/12: £1 million) mainly as a result of a greater reduction in the expected return on plan assets compared to the interest on pension liabilities arising from lower discount rates. Taxation The tax charge for continuing operations was £14 million (H1 2011/12: £16 million), which comprised a current year income tax charge of £18 million (H1 2011/12: £23 million), offset by prior year credits of £2 million (H1 2011/12: £2 million) and a deferred tax credit of £2 million (H1 2011/12: £5 million). The Group 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. The effective tax rate for the Group was 18% (H1 2011/12: 22%). Discontinued operations There was £nil profit from discontinued operations (H1 2011/12: loss of £2 million). Net profit Net profit for the period was £63 million (H1 2011/12: £55 million), due to a decrease in exceptional items of £15 million, offset by an increase in the IAS 19 finance charge of £8 million. Earnings per share Basic EPS from continuing operations was 7.6 pence per share (H1 2011/12: 6.9 pence per share). Underlying EPS was also 7.6 pence per share (H1 2011/12: 6.9 pence per share). Free cash flow Free cash flow for the period was a £49 million outflow (H1 2011/12: £103 million outflow). The improvement in free cash flow was driven by better operating cash flow and lower legacy spend with reduced pension contributions to the US Pension Plan under local regulations. Financial position Capital structure The Group's capital structure is as follows: 30 September 30 September 31 March 2012 2011 2012 £m £m £m Capital employed 321 481 314 Cash and cash equivalents 176 194 263 Borrowings (1) (2) (1) Net cash 175 192 262 Total equity - funds 496 673 576 Comprising: - Equity holders of parent 475 652 556 - Non-controlling interests 21 21 20 496 673 576 Total equity Total equity decreased by £80 million, principally driven by the IAS 19 actuarial losses of £134 million and the final dividend paid of £22 million, offset by the net profit of £63 million. Non-controlling interests The non-controlling interests balance was £21 million (31 March 2012: £20 million), the majority of which relates to Ranco Japan Limited, an Invensys Controls business. Net cash Net cash was £175 million (31 March 2012: £262 million). The reduction in net cash was primarily due to the free cash outflow of £49 million, dividend payments of £22 million and the acquisition cost of £12 million for PHW Inc, an Invensys Rail business. Capital employed Capital employed increased by £7 million to £321 million in the period, mainly attributable to increased working capital, offset by the increased pension liabilities of £64 million. Capital employed includes operating capital of £514 million (31 March 2012: £440 million), generating a return of 33.3% (30 September 2011: 35.2%, 31 March 2012: 35.5%). Pension liabilities and funding The IAS 19 valuation of pension assets and liabilities as at 30 September 2012 resulted in a net pension liability of £490 million (31 March 2012: £426 million). The overall increase of £64 million is driven by an actuarial loss of £134 million offset by contributions of £45 million. Dividend The Board has declared an interim dividend of 1.75 pence per share (30 September 2011: 1.65 pence per share). Invensys plc Consolidated income statement (unaudited) For the half year ended 30 September 2012 Half year ended Half year ended Year ended 30 September 30 September 31 March 2012 2011 2012 Notes £m £m £m Continuing operations Revenue 2 1,200 1,244 2,539 Operating expenses before (1,098) (1,142) (2,330) exceptional items Operating profit before exceptional 2 102 102 209 items Exceptional items 3 (9) (24) (56) Operating profit 3 93 78 153 Finance costs (7) (5) (13) Finance income - 1 3 Other finance charges - IAS 19 (9) (1) (3) Profit before taxation 2 77 73 140 Taxation - UK - - (4) Taxation - overseas (14) (16) (31) Profit after taxation - continuing 63 57 105 operations Loss after taxation - discontinued 4 - (2) (6) operations Profit for the period 63 55 99 Attributable to: Profit after taxation - continuing operations - Equity holders of the parent 62 56 104 - Non-controlling interests 1 1 1 63 57 105 Loss after taxation - discontinued operations - Equity holders of the parent - (2) (6) Profit for the period - Equity holders of the parent 62 54 98 - Non-controlling interests 1 1 1 63 55 99 Earnings/(loss) per share Continuing operations Earnings per share (basic) 5 7.6p 6.9p 12.8p Earnings per share (diluted) 5 7.6p 6.9p 12.8p Discontinued operations Loss per share (basic) 5 - (0.2)p (0.7)p Loss per share (diluted) 5 - (0.3)p (0.8)p Total Group Earnings per share (basic) 5 7.6p 6.7p 12.1p Earnings per share (diluted) 5 7.6p 6.6p 12.0p Invensys plc Consolidated statement of comprehensive income (unaudited) For the half year ended 30 September 2012 Half year ended Half year ended Year ended 30 September 30 September 31 March 2012 2011 2012 Note £m £m £m Profit for the period 63 55 99 Other comprehensive (loss)/income Cash flow hedges: Losses taken to equity (3) (2) - Transferred to the income 3 1 - statement - cost of sales Exchange differences on (23) 2 (12) translation of foreign operations Actuarial (loss)/gain recognised (134) 147 (31) on defined benefit pension schemes Movement in irrecoverable element of potential future pension 9 34 (51) (4) surplus Taxation on components of other (4) 7 21 comprehensive income Other comprehensive (loss)/income (127) 104 (26) for the period, net of tax Total comprehensive (loss)/income (64) 159 73 for the period Attributable to: Equity holders of the parent (66) 156 71 Non-controlling interests 2 3 2 (64) 159 73 Invensys plc Consolidated balance sheet (unaudited) As at 30 September 2012 30 September 30 September 31 March 2012 2011 2012 Notes £m £m £m ASSETS Non-current assets Property, plant and equipment 224 235 227 Intangible assets - goodwill 285 295 289 Intangible assets - other 174 173 168 Deferred income tax assets 67 53 70 Amounts due from contract 14 - 11 customers Trade and other receivables 26 24 26 790 780 791 Current assets Inventories 156 168 145 Amounts due from contract 331 305 273 customers Trade and other receivables 469 506 500 Cash and cash equivalents 7 176 194 263 Income tax receivable 6 7 10 Derivative financial 2 2 3 instruments 1,140 1,182 1,194 Assets held for sale 8 7 10 10 TOTAL ASSETS 1,937 1,972 1,995 LIABILITIES Non-current liabilities Provisions (69) (76) (74) Income tax payable (15) (32) (15) Deferred income tax (15) (17) (15) liabilities Amounts due to contract (19) (8) (23) customers Trade and other payables (11) (9) (10) Pension liabilities 9 (490) (327) (426) (619) (469) (563) Current liabilities Trade and other payables (525) (501) (533) Amounts due to contract (199) (222) (205) customers Borrowings 7 (1) (2) (1) Derivative financial (3) (4) (3) instruments Income tax payable (38) (27) (49) Provisions (56) (74) (65) (822) (830) (856) TOTAL LIABILITIES (1,441) (1,299) (1,419) NET ASSETS 496 673 576 EQUITY Capital and reserves Equity share capital 82 81 81 Treasury shares (1) (1) (1) Other reserves 2,493 2,526 2,515 Retained earnings (2,099) (1,954) (2,039) Equity holders of the parent 475 652 556 The story has been Non-controlling interests 21 truncated, [TRUNCATED]
Invensys PLC ISYS Half Yearly Report
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