Invensys half year results.

Invensys plc recently published half year results to the end of September 2011, with some comments from the ceo Wayne Edmunds. While the Invensys Operations Management (IOM) position was discussed with IOM president and ceo Sudipta Bhattacharya at the OpsManage11 event in Paris from 2-4 November, as reported in the INSIDER Industrial Automation newsletter for November, it is interesting to look at some of the other financial details in the published group report.

The major items of interest surround the factors that were discussed extensively last winter, when there was speculation about a JV or take-over of some or all of Invensys, possibly from China, sponsored by the China Nuclear Corporation, or the Chinese rail industry, or both.

Nuclear power plant business

Significant orders were received in H1 2011, ie the previous year, from China Nuclear, for IOM work on nuclear plants under construction in China, which boosted order intake figures and led to the later speculation. This year we are told that non-nuclear order intake, ie excluding these Chinese orders last year, grew 20%, to the £599m figure. A simple bit of maths shows the Chinese orders in the first half of last year must have totalled £91m.

A second measure of the nuclear business is the statement in the recent results that it represented 9% of IOM revenue this half, ie 9% of £618m, or £55.6m.

Inevitably my conclusion is that the nuclear business is worth £100 – 120m to IOM, which at a likely total divisional turnover of approx £1250m (US$2Bn) is just under 10% of this business. Assuming this is classed in the “Utilities and Power” industry sector, which was declared at 17% of the IOM business, it leaves 8% for other activity in power industry control and automation, which only serves to stress that at 28% the “Oil and Gas” sector is particularly important, since also “Petrochemicals” adds another 6%.

However, the nuclear business has significant future market prospects currently, not just in China. So IOM has decided to split this business off into a separate operation (still within IOM). The statement says: “Recognising the significance of the nuclear industry to the division, with a number of contracts being executed and bid for in China and the potential elsewhere in the world, we have formed a separate nuclear business within Invensys Operations Management.  This business will be responsible for the global nuclear business, including business strategy, all commercial activities and the operational delivery of major nuclear projects around the world.”

That will be handy, if a nuclear JV does arise with another party in the industry to enable combined bids on future business. Such a JV with the right partner might also discourage a full Invensys group take-over by some of the potential purchasers.

Business in China

Another bit of sorting out occurred in China in this half-year too, stated as “During the period, we acquired the 30% minority interest in our Chinese subsidiary, Shanghai Foxboro Company Limited for £10 million.  This company will now become the focus of all the division’s business development activities in China.”

While this is not a lot of money, it will mean a lot to the ex-JV partner, and might imply an interest in expanding the activities in China from what might have been solely a Foxboro product operation to one that covers other business development plans too.  But having separated the nuclear business out in the rest of IOM, it would not seem to be right to add the Triconex and other spares and service for the China Nuclear business too closely into this operation in China.

The geographical business split for IOM can be expanded to give figures as: North America 28%, UK and Europe 26%, Africa/Middle East 14%, South America 7%, China Nuclear 9%, Asia/Pacific 16%. So there is significant business in that area.

That’s a good move, in sorting out their operations in a significant market area.

Other areas of business

The IOM strength is perhaps reflected in the industry sectors presented for the revenue percentages in the half-year report. With oil and gas and petrochemicals taking 34%, and China Nuclear 9% plus power and utilities 8%, the total of general industries, discrete manufacturing and “Other” is 49%, reflecting the spread of the Invensys software applications across most industries.

The only other figures available are quoted for their business revenue split by product offering, which gives control and safety systems 61%, advanced applications 19% and equipment 20%. This leads to their comment that “The advanced applications business is seeing faster than expected recovery in areas such as optimisation, Human Machine Interface (HMI) and Manufacturing Execution Systems (MES) as users continue to improve the efficiency of existing assets.”

Other good news

Invensys Rail reported fairly poor order intake for the first six months of this FY, at £250m, 10% (or £27m) down on last year. But then, frustratingly for the financial whizzkids, in October they received two orders totalling between them £590m, so the 7 month order book would have been 203% up on the previous year H1. Not only does this guarantee a record order book for this FY is already achieved for Invensys Rail, it suggests the rail business has emerged from the bad period experienced last year.

Then another apparent bit of good news: the pension fund deficit was reduced by £140m, it is now down to £327m: but none of this money was provided from the existing business. The reduction “reflects the success of our strategy to minimise the impact of market volatility on our balance sheet”. What happened apparently was that they achieved an actuarial gain of £147m by a “reduction in discount rates used for the actuarial valuation of pension liabilities and a reduction in inflation assumptions”. It sounds like the review and advice that saved them £147m on paper only cost £7m.

That’s all very handy: for their pensioners and for anyone looking at buying the whole group, that is.

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One Response

  1. […] Invensys half year results (Nick Denbow’s Blog 12.11.2011) […]

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