Invensys PLC ISYS Proposed disposal of Invensys Rail
Invensys PLC (ISYS) - Proposed disposal of Invensys Rail
RNS Number : 2503S
Invensys PLC
28 November 2012
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN OR INTO
ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT
LAWS OF THAT JURISDICTION
London, 28 November 2012
Proposed disposal of Invensys's Rail Division for £1,742 million, agreement
with Trustee of Invensys's UK Pension Scheme, proposed £625 million return of
capital and strategy for the more focused continuing Group
Summary
· Invensys agrees to dispose of Invensys Rail to Siemens for £1,742
million
· Agreements with Trustee of Invensys's UK Pension Scheme to provide the
Company with a long term pension solution and increased financial flexibility:
o Up-front payment of £400 million, and
o Payment of £225 million to a trust
· Proposed return of cash to Shareholders of £625 million (approximately
76 pence per share)
· Creates a more focused industrial software, systems and control
equipment business with significant exposure to higher margin and higher
growth markets, and funds to invest in them
· Significant run-rate cost savings of £25 million per annum by the end
of FY2014 based on a simplified organisational structure
· Completion expected in second quarter of calendar 2013 conditional on
Invensys shareholder approval, UK Pensions Regulator approval, certain
anti-trust consents and lending bank approval
In view of its size, the proposed disposal constitutes a Class 1 transaction
for the purposes of the Financial Services Authority's Listing Rules and
therefore requires the approval of Invensys shareholders in order for it to be
implemented. A circular containing further details of the proposed disposal
and containing the notice convening the General Meetingwill be sent to
Invensys's Shareholders as soon as practicable.
Wayne Edmunds, Chief Executive of Invensys, commented:
"Following a strategic review which highlighted the likely consolidation in
the global rail signalling market and the limited scope to increase the size
of the Invensys Rail business, we have decided to refocus the Group around our
industrial software, systems and control equipment business and, accordingly,
to dispose of Invensys Rail.
"Invensys Rail has made significant strategic progress over the last five
years and this is reflected in the disposal price of £1.7 billion, which we
believe delivers attractive value for our Shareholders and also reflects
Siemens's ability to maximise the division's potential.
"As well as providing Shareholders with an immediate cash return, this
transaction enables the Group to create a long term pension solution and
therefore increased financial flexibility going forward. The agreements we
have reached with the Trustee of the Invensys UK Pension Scheme for the £400
million contribution and the £225 million Reservoir Trust will result in the
cessation of the current deficit reduction payments of £40-47 million per
annum and we anticipate that no further contributions will be payable into the
Scheme.
"This transaction creates a more focused industrial software, systems and
control equipment Group with a significant exposure to higher growth and
higher margin segments and the resources to invest in them. It also allows us
to make substantial cost savings through a simplified organisational
structure."
J.P. Morgan Cazenove and Ondra Partners are acting as Invensys's joint
financial advisers in relation to the disposal.
This summary should be read in conjunction with the full text of this
announcement.
Conference Call
A call for analysts and investors to discuss the disposal will be held at
5.15pm GMT today, 28 November 2012.
Dial-in details (please note that the confirmation code is required).
UK: +44 (0) 20 7136 2054
US: +1 646 254 3360
France: +33 (0) 1 70 48 01 66
Germany: +49 (0) 30 3001 90534
Italy: +39 064 521 7063
Spain: +34 91 453 3445
Confirmation Code: 7843732
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 Invensys Rail Disposal 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
Enquiries:
Invensys plc
Steve Devany
Tel: +44 (0)20 3155 1301
J.P. Morgan Cazenove (Financial Adviser, Sponsor and Corporate Broker)
Edmund Byers
Dwayne Lysaght
Richard Perelman
Tel: +44 (0)20 7742 4000
Ondra Partners (Financial Adviser)
Michael Tory
Tomas Hernanz
Tel: +44 (0)20 7082 8750
FTI Consulting (PR Adviser)
Richard Mountain
Andrew Lorenz
Tel: +44 (0)20 7269 7291
Notes to editors
1. About Invensys
Invensys is a global technology company that works in partnership with a broad
range of industrial and commercial customers, rail operators and appliance
manufacturers to design and supply advanced technologies that optimise their
operational performance and profitability. Invensys's market-leading software,
systems and equipment enable its customers to monitor, control and automate
their products and processes, thereby maximising safety, efficiency,
reliability and ease of use. Active in over 180 countries, Invensys employs
over 20,000 people across three divisions: Invensys Operations Management,
Invensys Rail and Invensys Controls. Further information is available on the
Internet at: http://www.invensys.com.
2. About Siemens
Siemens AG (Berlin and Munich) is a global powerhouse in electronics and
electrical engineering, operating in the fields of industry, energy and
healthcare as well as providing infrastructure solutions, primarily for cities
and metropolitan areas. For over 165 years, Siemens has stood for
technological excellence, innovation, quality, reliability and
internationality. The company is the world's largest provider of environmental
technologies. Around 40 percent of its total revenue stems from green products
and solutions. In fiscal 2012, which ended on September 30, 2012, revenue from
continuing operations was €78.3 billion and income from continuing operations
was €5.2 billion. At the end of September 2012, Siemens had around 370,000
employees worldwide on the basis of continuing operations. Further information
is available on the Internet at: http://www.siemens.com.
3. Cautionary Statement
J.P. Morgan Limited (which conducts its UK investment banking business as J.P.
Morgan Cazenove), which is authorised and regulated by the Financial Services
Authority in the United Kingdom, is acting exclusively for Invensys and for no
one else in connection with the matters described in this document and is not,
and will not be, responsible to anyone other than Invensys for providing the
protections afforded to clients of J.P. Morgan Cazenove, or for providing
advice in connection with the matters described in this document.
Ondra LLP (which conducts its business as Ondra Partners), which is authorised
and regulated by the Financial Services Authority in the United Kingdom, is
acting exclusively for Invensys and for no one else in connection with the
matters described in this document and is not, and will not be, responsible to
anyone other than Invensys for providing the protections afforded to clients
of Ondra Partners, or for providing advice in connection with the matters
described in this document.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This document includes statements that are, or may be deemed to be,
"forward-looking statements". These forward-looking statements can be
identified by the use of forward-looking terminology, including the terms
"believes", "estimates", "plans", "projects", "anticipates", "expects",
"intends", "may", "will", or "should" or, in each case, their negative or
other variations or comparable terminology, or by discussions of strategy,
plans, objectives, goals, future events or intentions. These forward-looking
statements include all matters that are not historical facts. They appear in a
number of places throughout this document and include, but are not limited to,
statements regarding the Invensys Group's intentions, beliefs or current
expectations concerning, among other things, the Invensys Group's results of
operations, financial position, prospects, growth, strategies and the industry
in which it operates. By their nature, forward-looking statements involve risk
and uncertainty because they relate to future events and circumstances.
Forward-looking statements are not guarantees of future performance and the
actual results of the Invensys Group's operations and financial position, and
the development of the markets and the industry in which the Invensys Group
operates, may differ materially from those described in, or suggested by, the
forward-looking statements contained in this document. In addition, even if
the results of operations, financial position and the development of the
markets and the industry in which the Invensys Group operates are consistent
with the forward-looking statements contained in this document, those results
or developments may not be indicative of results or developments in subsequent
periods. A number of factors could cause results and developments to differ
materially from those expressed or implied by the forward-looking statements
including, without limitation, general economic and business conditions,
industry trends, competition, changes in regulation, currency fluctuations,
changes in its business strategy, political and economic uncertainty and other
factors discussed in this announcement.
Forward-looking statements may, and often do, differ materially from actual
results. Any forward-looking statements in this document speak only as of
their respective dates, reflect Invensys's current view with respect to future
events and are subject to risks relating to future events and other risks,
uncertainties and assumptions relating to Invensys's operations, results of
operations and growth strategy. You should specifically consider the factors
identified in this document which could cause actual results to differ before
making any decision in relation to the Rail Disposal. Subject to the
requirements of the FSA, the London Stock Exchange, the Listing Rules and the
Disclosure and Transparency Rules (and / or any regulatory requirements) or
applicable law, Invensys explicitly disclaims any obligation or undertaking
publicly to release the result of any revisions to any forward-looking
statements in this document that may occur due to any change in the Company's
expectations or to reflect events or circumstances after the date of this
document.
No statement in this document is intended as a profit forecast or profit
estimate and no statement in this document should be interpreted to mean that
the earnings per share of the Invensys Group, as reduced by the disposal of
Invensys Rail, or Invensys Rail for the current or future financial periods
will necessarily match or exceed the historical or published earnings per
share of the Invensys Group or Invensys Rail.
Proposed disposal of Invensys's Rail Division for £1,742 million, agreement
with Trustee of Invensys's UK Pension Scheme, proposed £625 million return of
capital and strategy for the more focused continuing Group
1. Introduction
The Invensys Board has undertaken a strategic review of the Group's businesses
and made the decision to implement a strategy aimed at refocusing the Group
around its industrial software, systems and control equipment business and,
accordingly, to dispose of its Invensys Rail business. This disposal would
also provide funds to address the Group's UK pension position, enable a
capital return to Shareholders and provide funds for investment in the
Retained Group.
Disposal of Invensys Rail
Invensys (the "Company") has entered into an agreement (the "Sale Agreement")
with respect to the sale of Invensys Rail to Siemens for a cash and debt free
price of £1,742 million (the "Rail Disposal"). The principal terms of the Sale
Agreement are described in more detail in Section 4 of this announcement.
UK Pension Plan Arrangements
Conditional on the completion of the Rail Disposal ("Completion"), Invensys
has also entered into a number of agreements (the "Pension Agreements") with
the trustee of the Company's UK Pension Plan (the "Pension Trustee"), which
are intended to provide significantly improved security for the UK Pension
Plan and a high degree of clarity over future funding for both the Pension
Trustee and the Company, as well as significantly increasing the financial
flexibility of the Retained Group. These agreements, together with the
consent of the Pensions Regulator, are required to enable the Company to
proceed with both the Rail Disposal as well as the return of capital to
Shareholders (as described below). Under the Pension Agreements:
(a) Westinghouse Brake and Signal Holdings Limited ("Westinghouse"), one
of the companies being sold to Siemens (the "Target Companies"), will cease to
be an employer for all purposes in relation to the UK Pension Plan from
Completion;
(b) Westinghouse will contribute £400 million to the UK Pension Plan no
later than five business days following Completion (this amount is included in
the cash and debt free price of £1,742 million);
(c) Invensys will immediately following Completion pay an amount equal to
£225 million (less any amounts paid to the Pension Scheme between signing of
the Sale Agreement and Completion) (the "Reservoir Trust Amount") into a trust
(the "Reservoir Trust"), which will provide security in favour of the Pension
Trustee to cover any remaining deficit and act as a buffer for future
contingencies. The Reservoir Trust Deed contains a mechanism for future
payments to be made from the Reservoir Trust to either the Pension Trustee or
the Company dependent on the funding position of the Scheme, commencing in
2018; and
(d) the current deficit reduction payments of £40-47 million per annum to
the Scheme agreed to be paid until 2017 will cease on Completion of the Rail
Disposal, and it is anticipated that no further contributions will be payable
to the Scheme for the foreseeable future (until 2018 at the earliest).
The Reservoir Trust mechanism balances covenant protection for the UK Pension
Plan with flexibility for the Company. Hence, should market conditions
improve sufficiently such funds could be paid to the UK Pension Plan as part
of an overall pension solution thereby enabling the Company to better manage
its pensions liabilities by removing any future need for the Remaining
Employers to pay deficit reduction payments to the UK Pension Plan (again
depending on market conditions) or the Group could recover the Reservoir Trust
funds over time.
The Pension Agreements are conditional on Completion of the Rail Disposal and
are explained in more detail in Section 5 of this announcement.
The Company has applied to the UK Pensions Regulator for clearance in respect
of the Rail Disposal, the Pension Agreements and the Return of Capital.
Return of Capital to Shareholders
In addition, subject to Completion of the Rail Disposal, we intend to return
£625million (around 76.7 pence per share) to Invensys Shareholders (the
"Return of Capital"). Information on the Return of Capital will be set out
in a separate circular which is expected to be sent to Invensys Shareholders
shortly following Completion of the Rail Disposal. The Return of Capital is
likely to be subject to the further approval of Invensys Shareholders.
The Retained Group
Following Completion of the Rail Disposal, Invensys will be a focused
industrial and commercial software, systems and control equipment provider,
delivering value-added solutions to a broad range of industrial and commercial
customers.
In particular, the Board believes that Invensys's software, equipment,
commercial and wholesale businesses offer attractive margins, good long-term
growth prospects and excellent cash conversion. These businesses have good
market shares in their respective niches, industry leading brands and
long-term customer relationships. They delivered margins that were above the
average for the Invensys Group for both the year ended 31 March 2012 and the
six months to 30 September 2012.
The Retained Group is described in more detail in Section 6 of this
announcement.
In addition, the more focused and simplified structure of the Group following
Completion of the Rail Disposal will enable a reorganisation of the Group's
management structure leading to cost savings at an estimated annual run-rate
of £25 million. These savings are described in more detail in Section 7 of
this announcement.
Approvals and Clearances
The Rail Disposal constitutes a Class 1 transaction for Invensys under the
Listing Rules and is therefore conditional on the approval of Invensys
Shareholders. The Rail Disposal is also subject to approvals from relevant
regulatory authorities, the UK Pensions Regulator and the Majority Lenders
(being those members of the syndicate of lenders holding two thirds of the
total commitments under the Group's existing Facilities Agreement). These
approvals and hence Completion are expected to be obtained in the second
quarter of calendar year 2013. None of these approvals have been obtained as
of the date of this document.
2. Background to and Reasons for the Rail Disposal
The Group is a global technology company primarily focused on the development
and application of software, systems and equipment that enable customers to
optimise their operational performance and profitability. The Group supplies
advanced technologies to a broad range of end markets through three largely
independent businesses: Invensys Operations Management, Invensys Controls and
Invensys Rail.
Over recent years Invensys Rail has made significant progress executing a
strategy of expanding its business into new higher growth markets, while at
the same time consolidating its long standing position in the UK, Iberia,
Australia and North America. Invensys Rail has delivered significant contract
wins in these new markets such that they currently represent 64 per cent. of
Invensys Rail's existing order book, including the recent successes with the
£420 million Makkah‑Madinah contract in Saudi Arabia and the
£170 million Marmaray Project in Istanbul, Turkey.
However, the Board recognises that there is likely to be consolidation in the
global rail signalling sector. The Board also recognises that, in the longer
term, the Group will have limited scope to increase the size of the Invensys
Rail business. The Board believes that Siemens is better placed over the
medium to long term to maximise the potential value of the Invensys Rail
business as part of Siemens's broader rail customer offering. As a result of
this, the Board believes that there are clear benefits to being at the
forefront of the consolidation that is likely to occur in the markets in which
Invensys Rail operates.
In light of these factors, the Group's strategic review concluded that the
Group should refocus the Invensys Group around its industrial software,
systems and control equipment businesses. The Rail Disposal will also enable
the Board to meet its objectives of addressing the Group's pension liabilities
and delivering value for Invensys Shareholders both in terms of immediate
capital returns and enhancing the long-term growth prospects of the Group with
additional resources for investment.
The Board believes that the proposed price of £1,742 million on a cash and
debt free basis is an attractive value for the business, which fully
recognises Invensys Rail's leading positions in long term growth markets,
returns ahead of its peers and well invested technology. The cash and debt
free price of £1,742 million represents a multiple of 15 x OPBIT for the year
ended 31 March 2012.
3. Information on Invensys Rail
Invensys Rail is a multi‑national 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. Active in over 30 countries, the Invensys Rail business operates four
lines of business: mainline, mass transit, products and services, delivering
local execution across a broad range of systems and solutions developed
globally.
Mainline
Systems that automate train operation and protection for all types of mainline
operations including high speed lines, passenger, suburban and freight.
Solutions include European Rail Traffic Management System (ERTMS), Westlock
signalling technology, Positive Train Control (PTC), Westrace Mk2, control
centres and traffic management.
Mass Transit
Automation solutions for train operation and protection in some of the world's
leading cities. Invensys Rail's unique layered approach to introducing new
systems on top of legacy systems minimises disruption to both operators and
passengers alike. The Invensys Rail portfolio includes SIRIUS Communications
Based Train Control (CBTC), Distance‑to‑Go Radio (DTG‑R), Interlocking
(Westrace Mk2), Automatic Train Protection (ATP), Automatic Train Operation
(ATO), Automatic Train Supervision (ATS) and Integrated Supervisory Control
Systems (ISCS).
Products
Extensive range of trackside products including crossings, track circuits,
point machines, relays and signals, and a range of on-board locomotive
equipment.
Customer Services
Maintenance services and project and system engineering and design focused on
customer specific needs.
A summary of the trading results for Invensys Rail for the three years ended
31 March 2012 and the six months ended 30 September 2011 and 2012 (on an IFRS
basis) is set out below:
Year ended Half year ended 30 Half year ended
September 2011 30 September 2012
Year ended Year ended 31 March (unaudited) (unaudited)
2012
31 March 31 March
2010 2011
£m £m £m £m £m
Revenue 700 772 775 382 323
OPBIT^1 141 129 116 53 45
_________________
1 Operating profit before interest and taxation (before exceptional items)
As at 30 September 2012, Invensys Rail had gross assets of £499 million.
4. Summary of Terms of the Rail Disposal
A Sale Agreement between the Company, certain subsidiaries of the Company and
Siemens has been entered into, pursuant to which certain subsidiaries of the
Company have agreed to sell (and the Company has agreed to procure the sale
of) shares in the Target Companies engaged in the business of the Invensys
Rail division.
The Rail Disposal is conditional upon: (i) approval of Invensys Shareholders
of the ordinary resolution at the General Meeting; (ii) clearance from the UK
Pensions Regulator; (iii) the Pension Agreements taking effect such that no
liability shall attach to any of the Target Companies under Section 75 of the
Pensions Act 1995; (iv) clearance from the applicable regulatory authorities;
and (v) consent from the Majority Lenders.
5. Pension Agreements
Conditional upon the completion of the Rail Disposal, the Group has entered
into the Pension Agreements with the Pension Trustee setting out the revised
funding arrangements in respect of the UK Pension Plan. Under the Pension
Agreements, Westinghouse (one of the Target Companies being sold to Siemens as
part of the Rail Disposal) has agreed to make a contribution of £400 million
no later than five business days following Completion into the UK Pension
Plan. The Company has also agreed that it will immediately following
Completion pay £225 million (less any amounts paid to the Scheme between
signing of the Sale Agreement and Completion) into the Reservoir Trust.
The UK Pension Plan has a number of participating employers within the Rail
Group. On Completion of the Rail Disposal one of the participating employers
(Westinghouse) will cease to be a participating employer in the plan. On such
cessation a statutory debt would (absent the Pension Agreements) be payable by
Westinghouse to the Pension Trustee under section 75 of the Pensions Act
1995. Under the Pension Agreements, Westinghouse will be discharged from all
liability under the UK Pension Plan, including in relation to Section 75 of
the Pensions Act 1995. The Company (as founder of the UK Pension Plan) will
retain all of the liabilities and responsibilities of Westinghouse in relation
to the UK Pension Plan.
The actuarial valuation of the UK Pension Plan, as at 31 March 2011, revealed
a Technical Provisions deficit of £235 million. As at 30 September 2012 the
estimated Technical Provisions deficit for the UK Pension Plan had increased
to £570 million mainly as a result of the fall in UK gilt yields arising from
the Bank of England's policy on quantitative easing. The IAS 19 deficit of
the UK Pension Plan, as at 30 September 2012, was £181 million.
The proposed payment of the Reservoir Trust Amount into the Reservoir Trust
will provide the UK Pension Plan with security against the remaining deficit
in the UK Pension Plan after payment of the cash contribution and will provide
a buffer for future contingencies. Accordingly, the proposed cash
contribution and payment into the Reservoir Trust will address the current
estimated Technical Provisions deficit of £570 million for the UK Pension
Plan. As part of the terms of the Pension Agreements, the Pension Trustee has
agreed to carry out a new actuarial valuation of the UK Pension Plan as at 31
October 2012 (the "New Valuation"). The New Valuation has not been completed
as at the date of this document. It is anticipated that the Pension Trustee
would treat the Reservoir Trust as a contingent asset of the UK Pension Plan
for the purposes of preparing a Schedule of Contributions and Recovery Plan
under the New Valuation and in preparing such documents for the purposes of
the next valuation occurring after the New Valuation. Under the terms of the
Reservoir Trust Deed any deficit reduction contributions in respect of such
valuations would be met from the Reservoir Trust. The Company anticipates
that there should be no deficit reduction payments due from the Company or the
other Remaining Employers in the UK Pension Plan until 2018 and any payments
that may be required from 2018 will be met by the Reservoir Trust.
The Company remains committed to its obligations under the UK Pension Plan.
The Directors believe that the arrangements under the Pension Agreements
benefit all relevant stakeholders, with enhanced security for members of the
UK Pension Plan, as well as providing the Company with greater certainty and
financial flexibility to execute on its strategic development. The Pension
Agreements provide a high degree of certainty of funding for both members of
the UK Pension Plan and for the Company.
Under the terms of the Rail Disposal, Siemens will assume responsibility for
the Invensys Railways Pension Scheme, a defined benefit plan which under IAS
19 as at 31 March 2012 had a deficit of £39.4 million on gross liabilities of
£154.3 million.
6. Profile and Strategy for the Retained Group
6.1 Overview of the Retained Group
Following Completion of the Rail Disposal, Invensys will be a focused
industrial and commercial software, systems and control equipment provider,
delivering state-of-the-art, value added solutions to a broad range of
industrial and commercial customers.
In particular, the Board believes that Invensys's software, equipment,
commercial and wholesale businesses offer attractive margins, good long-term
growth prospects and excellent cash conversion. These businesses have good
market shares in their respective niches, industry leading brands and
long-term customer relationships. They delivered margins that were above the
average for the Invensys Group for both the year ended 31 March 2012 and the
six months to 30 September 2012.
Invensys Operations Management:
Invensys Operations Management, which will comprise 72 per cent. of the
Retained Group (based upon revenue for the year ended 31 March 2012), is one
of the world's leading suppliers to the global industrial automation market.
Its solutions are used in more than 200,000 plants and by more than 40,000
customers in around 180 countries, and enable 20 per cent. of the world's
electricity generation, 17 per cent. of the world's crude oil refining and 24
per cent. of the world's chemical production. Its operations are arranged in
three lines of business:
Software (Year ended 31 March 2012 revenue: £231 million)
The software line of business is by itself one of the world's largest
developers and suppliers of industrial software with leading positions in
areas such as real time operations management, simulation and asset
management. Its portfolio includes: (i) Wonderware, the world's leading
HMI/SCADA software which is used to monitor real time operations in factories;
(ii) SimSci Esscor, the world's second largest supplier of simulation and
training software; (iii) Avantis, a leading provider of asset management
software; and (iv) Skelta, a provider of business process management
software. Its SimSci Esscor offerings have recently been expanded by the
acquisition of Spiral Software, which specialises in integrated solutions for
the oil refining industry ranging from crude assay management to refinery
supply chain optimisation, enabling clients to maximise the profitability of
all aspects of their business.
Systems (Year ended 31 March 2012 revenue: £765 million)
The systems line of business is a global provider of integrated, distributed
control systems (DCS) and safety systems to customers operating some of the
world's largest and most complex industrial plants, such as oil refineries,
power stations (both fossil fuel and nuclear) and petrochemical plants. Its
Foxboro I/A DCS system has a top 3 global installed base in the industry and
its Triconex safety system is recognised as the world's leading safety system.
Equipment (Year ended 31 March 2012 revenue: £276 million)
The equipment line of business manufactures a range of high-precision
measurement and instrumentation products, controllers and recorders under the
Foxboro and Eurotherm brands. Its products and services include:
· Process control and temperature control solutions in life sciences,
heat treatment, plastics and glass, where reducing customers' cost of energy
is critical to their business success.
· Full range of pressure, flow and analytical instrumentation,
including level measurement technology.
· Data measurement,visualisationand control services for large
industrial, commercial and retail energy users, as well as full market
settlement services for managing wholesale electricity trading.
In an industry sector dominated by some large manufacturers, it has carved out
regional and product niches that enable it to compete well on a global scale.
Invensys Controls:
Invensys Controls, which will comprise 28 per cent. of the Retained Group
(based upon revenue for the year ended 31 March 2012), is one of the world's
leading suppliers of control equipment to a broad range of customers and
operates within three lines of business.
Commercial (Year ended 31 March 2012 revenue: £85 million)
The commercial line of business offers complete connected monitoring and
control retail solutions in commercial refrigeration, heating, ventilation and
air-conditioning, commercial cooking, level monitoring, water monitoring and
other Invensys energy monitoring products. Its major end markets are original
equipment manufacturers, large project installers and system integrators in
food preservation, food preparation and comfort sectors.
Wholesale (Year ended 31 March 2012 revenue: £116 million)
The wholesale line of business designs, develops, manufactures and distributes
heating controls, including room thermostats, time controls, thermostatic
radiator valves and under-floor heating controls, predominantly for use in
residential applications. It is also the supplier of choice for climate
controls in domestic and small commercial buildings, optimising energy
efficiency and environmental impact.
Appliance (Year ended 31 March 2012 revenue: £291 million)
The appliance line of business is the world's largest supplier of components
and systems that control the operation of appliances in both the residential
and commercial sectors. It has strong leadership positions across its key
products and supplies all of the world's top seven appliance manufacturers.
6.2 Retained Group Strategy and Investment Priorities
The future strategy for the Retained Group will be focused on directing
investment into those lines of business which have technologies, products and
market positioning that provide opportunities to achieve sustainable high
margins and revenue growth.
As described below, some of Invensys's lines of business will also seek to
supplement organic growth with selected acquisitions to broaden and enhance
their market positioning and offerings. Invensys continues to review a range
of potential opportunities however no acquisitions are currently in progress
or conditional upon the disposal. Acquisitions such as these are expected to
have characteristics similar to the Group's existing industrial software and
control equipment businesses, such as strong defensive niches, attractive long
term growth prospects and high returns on sales and on investment. The Board
has a set of defined strategic and financial criteria against which it will
consider potential acquisitions to ensure they create value for Shareholders.
Invensys Operations Management investment priorities:
Software
Many of Invensys's customers have invested large amounts of capital in their
industrial plants and, with little greenfield capacity (particularly in the
developed world in North America and Europe), their focus is upon maximising
the efficiency of their existing plants. The Company will be accelerating
levels of research and development expenditure in the software line of
business to capitalise on this growing demand for next generation automation
software and applications that drive productivity, energy management and
environmental performance.
In addition, the industrial software market is fragmented with many small to
medium sized companies providing specialist software products that would be
valuable additions to Company's portfolio. Invensys intend to be a
consolidator in this market, as evidenced by the recent acquisition of Spiral
Software which specialises in integrated solutions for the oil refining
industry ranging from crude assay management to refinery supply chain
optimisation, enabling clients to maximise the profitability of all aspects of
their business.
Systems
Invensys has the second largest installed base of DCS in the industry and many
of those systems will need to be replaced over the coming decade; it is the
Company's intention to invest further in its DCS and safety systems to ensure
that it maintains its market position through this process.
Equipment
The equipment line of business will be making investments in product
development to improve its niche market positions and enhance its margins.
The industrial equipment market includes a number of small to medium sized
companies providing specialist niche products and Invensys will be looking to
acquire those that would be valuable additions to the Company's portfolio.
Invensys Controls investment priorities:
Commercial
The commercial line of business will be investing to grow by continued
geographic expansion and new product introductions over the medium term. In
particular, it will focus on helping customers improve their energy efficiency
with wireless based solutions in areas such as refrigerated transportation.
Wholesale
The wholesale line of business will also be investing in continued geographic
expansion and new product introductions over the medium term. In particular,
it will be looking to offer a full range of energy monitoring and control
systems, in support of smart home and other smart applications.
Appliance
The appliance line of business has had significant investment in the past four
years to create a lean and efficient manufacturing footprint, predominately in
lower cost countries. Its markets are cyclical and have decreased
significantly during the investment period. It is now well prepared to react
as and when its markets begin to recover.
7. Reorganising the Group's Management Structure
The Rail Disposal is a transformational transaction for the Invensys Group and
will enable the Retained Group to reorganise its management structure such
that it is expected it can achieve annual run-rate cost reductions of
approximately £25 million by the end of March 2014. These cost reductions are
contingent on the Rail Disposal and could not be achieved independently.
The cost reductions will be primarily driven by a reduction in management
layers as a result of the simplification of the reporting structure. The
Board expects that approximately 75 per cent. of the reductions will be
associated with headcount reductions, with the remaining 25 per cent.
comprising reductions in third party professional fees and administrative
costs, resulting from operating through a leaner organisation structure.
Approximately 60 per cent. of the run-rate cost reductions should be secured
by the end of the first half of the financial year 2013/14, with 100 per cent.
run-rate of such cost reductions expected to be achieved by the end of the
financial year 2013/14.
The Board estimates that this restructuring will cost approximately £30
million, the vast majority of which will be incurred in the first financial
year post completion of the Rail Disposal, in order to achieve the run-rate
cost reductions described above by the end of March 2014.
The financial benefits described above reflect both the beneficial elements
and the relevant costs associated with this reorganisation.
8. Use of Proceeds and Financial Effects of the Rail Disposal
The cash and debt free price for the Rail Disposal is £1,742 million. The
consideration will be subject to customary adjustments for the amount of cash,
debt and working capital in the Target Companies at Completion.
This amount includes £400 million to be paid by Westinghouse (one of the
Target Companies to be sold to Siemens as part of the Rail Disposal) to the UK
Pension Plan following Completion. Under the Sale Agreement, Siemens has
agreed to procure that by no later than five business days following
Completion, Westinghouse will be put in sufficient funds so that when taken in
aggregate with any existing available funds of Westinghouse, it is sufficient
and in such a form as to allow Westinghouse to discharge in full such £400
million to be paid to the UK Pension Plan. Siemens has also agreed to
indemnify the Company for any breach of this obligation.
The cash and debt free price for the Rail Disposal also includes £40 million
in respect of the liabilities relating to the Invensys Railways Pension Scheme
(which sit with Westinghouse) that will transfer to Siemens with the Rail
Disposal. Following Completion, Invensys will have no obligations in relation
to the Invensys Railways Pension Scheme.
The cash proceeds of the Rail Disposal (on the basis of the estimated working
capital and debt) which will be received by Invensys on Completion are
estimated to be £1,302 million and are intended to be used as follows:
· approximately £625 million (around 76.7 pence per share) to be returned
to Shareholders (further details below);
· the Reservoir Trust Amount of £225 million (less any amounts paid to
the Scheme between signing of the Sale Agreement and Completion) will be paid
into the Reservoir Trust by Invensys;
· approximately £80 million in transaction fees and taxes payable; and
· approximately £372 million to be retained by the Group to accelerate
the strategic development of the Retained Group through investment in the
business and acquisitions.
Details regarding the Return of Capital will be communicated to Shareholders
following Completion of the Rail Disposal in a separate circular expected in
the second quarter of calendar year 2013. The Return of Capital is likely to
be subject to the further approval of Shareholders.
Following Completion of the Rail Disposal and the Pension Agreements, and the
proposed Return of Capital, the Group is expected to have net cash (excluding
the amounts under the Reservoir Trust) of approximately £548 million, based
upon the pro forma position as at 30 September 2012.
9. Expected timetable to completion
A circular containing further details on the Rail Disposal, the Board's
recommendation, and the notice of the General Meeting and the resolution
required to approve the Rail Disposal (the "Circular") will be sent to
Invensys's Shareholders as soon as practicable. Completion of the Rail
Disposal is expected to occur during the second quarter of calendar 2013.
10. Advisers
J.P. Morgan Cazenove is acting as Joint Financial Adviser, Sponsor and
Corporate Broker in relation to the Rail Disposal. Ondra Partners is acting as
Joint Financial Adviser, with Freshfields Bruckhaus Deringer LLP acting as
Legal Adviser.
Capitalised terms not otherwise defined in this announcement have the meanings
given to them in the Circular.
Enquiries:
Invensys plc
Steve Devany
Tel: +44 (0)20 3155 1301
J.P. Morgan Cazenove (Financial Adviser, Sponsor and Corporate Broker)
Edmund Byers
Dwayne Lysaght
Richard Perelman
Tel: +44 (0)20 7742 4000
Ondra Partners (Financial Adviser)
Michael Tory
Tomas Hernanz
Tel: +44 (0)20 7082 8750
FTI Consulting (PR Adviser)
Richard Mountain
Andrew Lorenz
Tel: +44 (0)20 7269 7291
The release, publication or distribution of this announcement in jurisdictions
other than the United Kingdom may be restricted by law and therefore any
persons who are subject to the laws of any jurisdiction other than the United
Kingdom should inform themselves about, and observe, any applicable
requirements. This announcement has been prepared for the purposes of
complying with the Listing Rules and the information disclosed may not be the
same as that which would have been disclosed if this announcement had been
prepared in accordance with the laws and regulations of any jurisdiction
outside of England.
This announcement is not intended to, and does not constitute, or form part
of, any offer to sell or an invitation to purchase or subscribe for any
securities or a solicitation of any vote or approval in any jurisdiction.
Invensys shareholders are advised to read carefully the formal documentation
in relation to the Rail Disposal once it has been despatched. Any response to
the proposals should be made only on the basis of the information in the
formal documentation to follow.
This information is provided by RNS
The company news service from the London Stock Exchange
END
MSCBLBDBLGDBGDI -0- Nov/28/2012 16:32 GMT
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