Review of Invensys Strategy.Business Editors LONDON--(BUSINESS WIRE)--Feb. 19, 2002 Invensys Invensys plc is a British engineering company, headquartered in London, England. It was formed by the merger of Siebe and BTR in 1999. The company is multinational with operations in over 60 countries, employing over 35,000 employees. plc: Key Features - Tactical actions and early focus on the four key areas for operational improvement will rapidly improve margins net of restructuring costs. - As our level of integration increases, we will be better able to take maximum advantage of recovery in cyclical markets over the mid-term. - As we strengthen our relationships with customers in high-growth markets, the tangible benefits we provide to them will position the Group for sustainable long-term growth. Chief Executive Rick Haythornthwaite commented: "After a rigorous examination of our businesses and opportunities, we now have a clear understanding of today's smarter customers, tougher competitors and the risks and rewards before us. "We were determined to challenge and fundamentally change our existing shape. What we have carved carve v. carved, carv·ing, carves v.tr. 1. a. To divide into pieces by cutting; slice: carved a roast. b. out is a more compact Group capable of both rapid rebound rebound (rē´bownd), n/v 1. a recovery from illness. n 2. an outbreak of fresh reflex activity after withdrawal of a stimulus rebound adjective and sustainable long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. growth. "This route delivers a substantial premium on value creation over all other options we examined." Background The early findings from our strategy review in November November: see month. 2001 showed a good core of brands, products and people on which to build, backed by a large installed customer base. In certain sectors, these customers place a particularly high value on our deep understanding of their needs and our ability to apply our technology to deliver innovative solutions. At the same time, they cite poor execution as the main barrier to our becoming the partner they seek. And, whilst our businesses are mostly sound, our spread and complexity as a Group has hindered our transfer of knowledge and best practice, resulting in under-performance relative to our global peers. Strategic objectives Throughout this review, the Board's objective has been to find the best option for creating shareholder value. Any operational strategy would have to show a clear route for delivering returns favourable in comparison with the Group's international peers. This would involve reducing the span of businesses to those where the market growth potential is attractive and sector leadership is attainable at·tain v. at·tained, at·tain·ing, at·tains v.tr. 1. To gain as an objective; achieve: attain a diploma by hard work. 2. . Revenues would have to be driven more by the provision of solutions and services valued by customers than by the manufacture of products that are increasingly commoditised. Financially, the strategy would need to achieve substantial debt reduction without destruction of shareholder value. Above all, the leadership team must put in place the management and systems to ensure accountability and therefore delivery. Investors must be given transparency (1) The quality of being able to see through a material. The terms transparency and translucency are often used synonymously; however, transparent would technically mean "seeing through clear glass," while translucent would mean "seeing through frosted glass." See alpha blending. as to targets, progress and reporting of performance going forward. With these objectives in mind, the Executive team tested a number of strategic alternatives for their fit with customers' needs, their potential for rapid recovery and their long-term options for shareholder value. We now have a clear operational strategy with plans for both immediate upside Upside The potential dollar amount by which the market or a stock could rise. Notes: This is basically an educated guess on how high a stock could go in the near future. See also: Bull, Downside and attractive growth over the next three to five years. By organising around those benefits which our customers will value and which we can deliver, we will build leadership in specific markets with substantial opportunity for high-quality returns. Strategy A key finding of the review was that customers confirm an urgent need to get ever more performance out of their businesses. With the cost of failure, limitation and waste increasingly unacceptable, those companies able to provide greater reliability and capacity and measurable increases to productivity will become indispensable partners in their clients' future. These are powerful drivers for growth. For instance, expenditure on performance management services for the oil and gas sector is expected to show 45%(b) compound annual growth over the next five years. For facilities management The management of a user's computer installation by an outside organization. All operations including systems, programming and the datacenter can be performed by the facilities management organization on the user's premises. and energy information services See Information Systems. , the rate is forecast at 20%(b) per year, with mounting pressure from global and national initiatives likely to take this higher. Our review of the Group's strengths reveals that today we possess the industry knowledge, installed customer base and technology to build a commanding position in two specific areas - Tactical actions and early focus on the four key areas for operational improvement will rapidly improve margins net of restructuring costs. - As our level of integration increases, we will be better able to take maximum advantage of recovery in cyclical markets over the mid-term. - As we strengthen our relationships with customers in high-growth markets, the tangible benefits we provide to them will position the Group for sustainable long-term growth. The Production and Energy Management Divisions thus address related customer needs and require excellence in similar skill sets. Together they enable customers to extract maximum return from minimum investment - whether in the effective performance of their own assets or the efficient management of rising costs, finite finite - compact resources and environmental pressures. The businesses in our Development Division (sales 0.7bn Pounds Sterling (a)) - Rail Systems, Wind Power (Hansen Han·sen , Gerhard Henrik Armauer 1746-1845. Norwegian physician and bacteriologist who discovered (1869) the leprosy bacillus. ) and Power Components - enjoy strong positions in markets with high-growth potential. Despite serving different customers, they represent substantial options for our shareholders through their standalone stand·a·lone adj. Self-contained and usually independently operating: a standalone computer terminal. strategies and will benefit from our support and investment. Each faces significant milestones in the near future which will clarify their ability to add value to the core Group over time. The Industrial Components and Systems Division (total sales of 2.3bn Pounds Sterling(a)) consists of Rexnord, Flow Control, Fasco Motors, Sensor Systems, Drive Systems, BAE Automated au·to·mate v. au·to·mat·ed, au·to·mat·ing, au·to·mates v.tr. 1. To convert to automatic operation: automate a factory. 2. Systems, Energy Storage and CompAir CompAir is an engineering and manufacturing company specialising in compressed air and gas systems. CompAir was acquired by Alchemy from Invensys, which retained a small minority shareholding. Alchemy has invested £41. . Whilst these are good businesses, they fall outside the scope of the strategy and operate in consolidating markets. They will be managed separately through to disposal to ensure that shareholder value is protected in the process. Performance recovery and strategy implementation The reshaped Group offers substantial potential for recovery not only from cyclical cyclical Of or relating to a variable, such as housing starts, car sales, or the price of a certain stock, that is subject to regular or irregular up-and-down movements. upturn but more immediately through improvement of our operational performance. We know from our customers that for Invensys to transform itself from a provider of products and systems to the status of preferred partner we must - Tactical actions and early focus on the four key areas for operational improvement will rapidly improve margins net of restructuring costs. - As our level of integration increases, we will be better able to take maximum advantage of recovery in cyclical markets over the mid-term. - As we strengthen our relationships with customers in high-growth markets, the tangible benefits we provide to them will position the Group for sustainable long-term growth. The Executive team has been substantially restructured to deliver the strategy. Each division will be led by a Chief Operating Officer Chief Operating Officer (COO) The officer of a firm responsible for day-to-day management, usually the president or an executive vice-president. (COO (Cell Of Origin) See mobile positioning. ). Leo Leo, in astronomy Leo [Lat.,=the lion], northern constellation lying S of Ursa Major and on the ecliptic (apparent path of the sun through the heavens) between Cancer and Virgo; it is one of the constellations of the zodiac. Quinn is appointed COO of the Production Management division and Bob Hitt as COO of Industrial Components and Systems. Recruitment is underway for leaders of the Energy Management and Development divisions. Six new Executive positions have been created in addition to the existing functions of Finance, Legal, Corporate Marketing & Communication and Group Services/HR. A corporate development role has been set up to provide greater process for strategic planning Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. , performance management and technology consistency. Rod Powell has been appointed to head up this function. Our four key areas to support operational improvement - Customer Development, Services Delivery, Project Management and Lean Supply Chain - will each be led by a member of the Executive team. Working with the businesses, they will establish networks and support systems to raise Group performance standards to external benchmarks, building where possible on our existing best practices. - Tactical actions and early focus on the four key areas for operational improvement will rapidly improve margins net of restructuring costs. - As our level of integration increases, we will be better able to take maximum advantage of recovery in cyclical markets over the mid-term. - As we strengthen our relationships with customers in high-growth markets, the tangible benefits we provide to them will position the Group for sustainable long-term growth. Shelley Stewart was appointed in November 2001 to head up our Lean Supply Chain. The other positions are being actively recruited, both internally and externally. Finally, the change management office has been set up under the leadership of Alex Tregellas to ensure that the issues around change are carefully considered and addressed as our people and businesses move toward our new approach. The new Group structure and related changes in responsibility will take effect from 1 May 2002. Performance and risk management As part of the review, we have carefully assessed the risks inherent in our plans. We are particularly alert to the need for effective early warning and fast reaction to any further short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. declines in our markets in order to mitigate mit·i·gate v. To moderate in force or intensity. mit  i·ga tion n. their financial impact.Probably our greatest challenge during this transition will lie in our ability to re-instil confidence in our people, clear away for them the current organisational barriers and develop the talent we will require, in step with our plans. In recognition of these factors, we are introducing a new performance management system which will include - Tactical actions and early focus on the four key areas for operational improvement will rapidly improve margins net of restructuring costs. - As our level of integration increases, we will be better able to take maximum advantage of recovery in cyclical markets over the mid-term. - As we strengthen our relationships with customers in high-growth markets, the tangible benefits we provide to them will position the Group for sustainable long-term growth. all tied into formal processes for leadership development, career structure and succession planning Management Succession Planning In organizational development, succession planning is the process of identifying and preparing suitable employees through mentoring, training and job rotation, to replace key players — such as the chief executive officer (CEO) — . Performance milestones Our objective is to provide our investors with returns favourable in comparison with our international peers, characterised by - Tactical actions and early focus on the four key areas for operational improvement will rapidly improve margins net of restructuring costs. - As our level of integration increases, we will be better able to take maximum advantage of recovery in cyclical markets over the mid-term. - As we strengthen our relationships with customers in high-growth markets, the tangible benefits we provide to them will position the Group for sustainable long-term growth. These targets will be underpinned by individual metrics metrics Managed care A popular term for standards by which the quality of a product, service, or outcome of a particular form of Pt management is evaluated. See TQM. for our key capabilities set at levels consistent with best performance, regardless of sector. Areas to be benchmarked will include customer satisfaction and lifetime value, share of market and customer, project success rates, inventory turns, procurement The fancy word for "purchasing." The procurement department within an organization manages all the major purchases. costs, service response times and personnel utilisation. These metrics form a critical element of our 2002/03 planning process, which is nearing completion. We expect our progress to have three phases: - Tactical actions and early focus on the four key areas for operational improvement will rapidly improve margins net of restructuring costs. - As our level of integration increases, we will be better able to take maximum advantage of recovery in cyclical markets over the mid-term. - As we strengthen our relationships with customers in high-growth markets, the tangible benefits we provide to them will position the Group for sustainable long-term growth. Recovery In the year to 30 September 2001, the Group's operating margins Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: fell from 13% to 8%. This was caused in part by market conditions, which were particularly severe in the telecom and IT sectors for Power Systems, the consumer end-markets for Controls Systems and from the US industrial downturn Downturn The transition point between a rising, expanding economy to a falling, contracting one. downturn A decline in security prices or economic activity following a period of rising or stable prices or activity. for Automation Systems. However, this was exacerbated by internal issues within Software Systems, where low-value contracts and poor project control resulted in loss-making business. Although overheads have been reduced in all divisions during the downturn, our high operational gearing means that - with certain markets experiencing double-digit sales declines - it was impossible to avoid margin reduction at the gross contribution level without cancelling essential activities. During this period, 11,000 jobs were removed. The issues in Software Systems are also being addressed systematically under new leadership with high-calibre sales and project executives. These actions will have primed our sales and cost base for a better performance as the market recovers, reinforced by our new performance initiatives. The latter will, for the first time, embed em·bed also im·bed v. em·bed·ded, em·bed·ding, em·beds v.tr. 1. To fix firmly in a surrounding mass: embed a post in concrete; fossils embedded in shale. the disciplines of managing our customers, services, projects and supply chain into our operations with proper resource and skilled executives. In particular, a very structured rollout of pricing policies and levels of authority will ensure that at all times we attain the appropriate market price for our products, systems and services. This combination of market recovery, reduced cost base and applied pricing, together with a proper infrastructure of relevant skills, will ensure that we maximise our performance in any upturn. Restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). and impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. Ongoing restructuring activity will be limited in order to allow renewed outward focus on our customers. The focus going forward will be on enabling processes - rather than large plant closures and relocations - and on correct skills placement, rather than wholesale job reductions. In the short term, we expect annual operating restructuring costs of about 2% of sales, reducing to around 1% in the medium term. In November we stated that assets might be impaired as a consequence of the changes in strategic direction. We have assessed the write-down Write-Down Reducing the book value of an asset because it is overvalued compared to the market value. Notes: This is usually reflected in the company's income statement as an expense, thereby reducing net income. required to reflect the fundamental reorganisation Noun 1. reorganisation - the imposition of a new organization; organizing differently (often involving extensive and drastic changes); "a committee was appointed to oversee the reorganization of the curriculum"; "top officials were forced out in the cabinet and refocusing Noun 1. refocusing - focusing again focalisation, focalization, focusing - the act of bringing into focus of the Group's activities, as well as the impact of the extreme market downturn experienced by certain of our operations. Together these asset write-downs will amount to approximately 240m Pounds Sterling, representing impairments relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc fixed and long-term assets Long-Term Assets 1. Reported on the balance sheet, it's the value of a company's property, equipment and other capital assets, less depreciation. 2. A stock, bond or other asset that you plan on holding in your portfolio for a lengthy period of time. 125m Pounds Sterling, inventory 55m Pounds Sterling, trade and contract receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed 40m Pounds Sterling and other current assets Other Current Assets A balance sheet item that includes the value of non-cash assets due within one year. Notes: Examples are things like prepaid expenses and accounts receivable. 20m Pounds Sterling. These write-downs have no cash impact and will be reported in the results for the period ending 31 March 2002, to be announced To be announced (TBA) A contract for the purchase or sale of an MBS to be delivered at an agreed-upon future date but does not include a specified pool number and number of pools or precise amount to be delivered. in May. Financing Reduction of the Group's indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. is and will remain a major focus. We will continue to drive cash generation by localising our cash action teams, by addressing both loss-making units and projects on a systematic basis, and through disposal of substantial non-strategic assets. The strategy has identified a substantial group of assets that will not form part of our core and will be disposed dis·pose v. dis·posed, dis·pos·ing, dis·pos·es v.tr. 1. To place or set in a particular order; arrange. 2. of during the next financial year. The proceeds from these disposals should enable a reduction in debt of 1.5bn Pounds Sterling on completion. Additionally, the Group intends to diversify diversify To acquire a variety of assets that do not tend to change in value at the same time. To diversify a securities portfolio is to purchase different types of securities in different companies in unrelated industries. its sources of finance by issuing in the debt capital markets during 2002/03. This is not contingent on Adj. 1. contingent on - determined by conditions or circumstances that follow; "arms sales contingent on the approval of congress" contingent upon, dependant on, dependant upon, dependent on, dependent upon, depending on, contingent the Group retaining its investment grade credit ratings. The Group communicates regularly with its relationship banks and has their support regarding its strategy and financing plans. The final dividend will be determined in the context of performance for the second half and the prospects for the year ahead. Current trading and outlook Trading in the second half has been mixed, with early signs of recovery in appliance A stand-alone hardware device or software environment dedicated to a specific task. See hardware appliance and software appliance. and climate controls offset by continued weakness in telecoms and IT. The results for the period are heavily dependent on the quarter-end trading; but the Board remains confident that the Group will exceed the requirement of its banking interest covenant at year-end. Conclusion This strategy will result in a fundamentally changed Invensys. As a Group, we now have unambiguous goals. We will reshape our businesses to deliver clear benefits to our customers in order to transition our relationships from those of product supplier to lifetime partner. Our first focus will be to achieve excellence in basic processes to restore financial performance. This will enable us to regain market share aggressively in cyclical recovery. Meanwhile, we will invest in and exploit Group strengths to build our businesses into leading players in markets with sustainable high growth. With this strategy, Invensys is confident of delivering value to our shareholders well above that possible from the alternatives of immediate break-up or sale. At the same time, it will preserve and enhance their options, enabling them - through the phasing of expected performance improvement - to assess our progress clearly. A presentation and webcast of the Group's strategy will take place at 09.00 am today at Vinopolis, No1 Bank End, SE1. All details of the announcement, presentation and webcast are available on www.invensys.com, or www.cantos.com together with a video interview with Chief Executive, Rick Haythornthwaite. Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. The information communicated in this documentation with respect to the Invensys financial outlook is forward looking and subject to risks and uncertainties. For this statement Invensys claims the protection of the safe harbor for forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. contained in the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. Notes Invensys plc, the international production technology and energy management group, specialises in helping companies to improve efficiency, performance and profitability. With close to 76,000 employees, Invensys is headquartered in London, England. Our Production Management businesses work closely with customers in order to drive up performance of their production assets and maximise the return on investments in product technologies. The division includes Foxboro, Wonderware, Triconex, APV APV See: Adjusted Present Value , Eurotherm and Baan and it addresses the oil, gas, and chemicals; food beverage and personal healthcare; and discrete and hybrid manufacturing sectors. Our Energy Management businesses actively work with clients involved in both the supply and consumption of energy, developing systems using innovative technologies that improve the reliability and security of power supplies. The division includes Energy Solutions, Metering Systems, Appliance and Climate Controls and Power Systems and focuses on markets connected with power and energy infrastructure and commercial and residential buildings.
FY 2000-01 SALES Software Automation Power Control Disposal/ Total
m Pounds Sterling Systems Systems Systems Systems Discont.
Production
Management 1,320 240 1,560
Energy Management 850 1,780 2,630
Development 415 500 915
Industrial Components
& Systems 20 1,025 475 555 390 2,465
Discontinued 290 290
Total 1,340 1,680 1,825 2,335 680 7,860
FY 2000-01 PBIT Software Automation Power Control Disposal Total
m Pounds Sterling Systems Systems Systems Systems Discont.
Production
Management 45 25 70
Energy Management 95 280 375
Development 50 90 140
Industrial Components
& Systems - 175 65 105 - 345
Discontinued 5 5
Total 45 250 250 385 5 935
Rounded to the nearest 5m Pounds Sterling
H1 01/02 SALES Software Automation Power Control Disposal/ Total
m Pounds Sterling Systems Systems Systems Systems Discont.
Production
Management 665 105 770
Energy Management 345 875 1,220
Development 210 145 355
Industrial Components
& Systems 10 495 220 260 165 1,150
Discontinued 75 75
Total 675 810 710 1,135 240 3,570
H1 01/02 PBIT Software Automation Power Control Disposal Total
m Pounds Sterling Systems Systems Systems Systems Discont.
Production
Management 5 10 15
Energy Management 15 105 120
Development 25 (5) 20
Industrial Components
& Systems - 70 20 35 - 125
Discontinued (5) (5)
Total 5 105 30 140 (5) 275
Rounded to the nearest 5m Pounds Sterling
(a) Estimated for year ending 31 March 2002 by annualising results for first half to 30 September 2001. (b) Source: Parthenon |
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