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Mixed Results for Invensys in Q4 Sign Up to receive Daily News Alerts in your E-mail Inbox
Posted on Thursday, May 15, 2008 4:19:18 PM |
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British automation and engineering services vendor Invensys plc on Thursday reported lukewarm, 7% revenue growth for the fourth quarter, tallying £572 million, while operating profits jumped 13% to £80 million as the company strengthens its push into services. Although new orders declined overall by 10%, the company said that its emphasis on the energy sector, where booming oil and gas prices are generating investments, will help sustain growth.
For the year ended March 31, 2008, revenue grew 6% year over year to £2.1 billion, and profits jumped 19% to £254 million. Orders declined by 2% to £2 billion.
Despite the mixed results, CEO Ulf Henriksson declared on a conference call with analysts that Invensys’ turn toward integration and services has helped complete an about-face that began three years ago, when the company’s debt stood at a whopping £3 billion. Both he and CFO Steve Hare repeatedly boasted that Invensys now has a positive cash position of about £200 million, and that it is “effectively a debt-free company,’’ as it paid off £343 million of high yield bonds. Hare even described a “return to being a normal company.”
But Hare also acknowledged the 10% drop in new orders, saying, “One area where, on the face of it, you’d say we haven’t done so well is order intake.” He said difficulties in the Rail division and in Controls — the unit that sells heating and ventilation products to the battered U.S. housing market — accounted for the declines. Orders grew 6% in Process Systems.
In fact, Process Systems remained the largest contributor to revenue, accounting for 41% of sales in the quarter. The unit’s revenue was up 7% to £237 million, and profits surged 20% to £40 million. Process Systems sells automation products and services to approximately 100,000 plants worldwide, mainly in oil, gas, petrochemicals, and energy, and is benefiting from the high price of oil and gas. In its financial report, Invensys noted that oil and gas producers are building new sites in the Middle East and Asia, and improving existing sites in North America, creating a solid pipeline for orders of energy-related products such as the InFusion enterprise control system.
“Oil and gas, rail, and power, especially, will have a long and bright future,” CEO Henriksson told analysts on the call.
After a sluggish start, InFusion, which was introduced in 2006, is now selling at an annualized rate of £100 million, according to the company. Invensys identified a recent InFusion customer as PTT Polyethylene Co. Ltd., in Thailand. Earlier customer announcements included BP’s Bulwer Island refinery in Queensland, Australia, and ExxonMobil’s Port Allen Lubricants plan in Louisiana.
Invensys’ push into the energy sector also hinges on a vigorous attempt to sell services and integration, an initiative that is driving the company’s other business units as well.
“We have taken ourselves from primarily a product and applications company to an engineer solutions and services business,” Henriksson said. “We’re going from products and applications to integrated products and applications and toolkits, like InFusion.” Invensys is intent on integrating control rooms with ERP systems “to make ERP work as it was originally intended,” Henriksson said.
For the quarter, revenue at the Rail group grew 17% to £145 million, while profits reached £25 million, up 12% compared with the year-earlier period. Rail’s revenue grew 20% for the year to £539 million, and profit was up 19% to £93 million. But new orders plunged 42% for the three months to £76 million. CFO Hare shrugged off the free fall, noting, “Rail’s order intake is extremely uneven, so the decline was not a surprise.” He said Iberia was the key source of the decline and that a scrapped contract with the London Underground would not have generated revenue anyway until 2010 through 2014.
Revenue for the Control division fell 10% for the quarter to £158 million, but operating profits nudged up 1% to £21 million. For the year, Control revenue declined 5% to £624 million and profits rose 17% to £69 million.
Henriksson said he anticipated solid growth fueled by the emergence of a new middle class in emerging markets, which, he said, will help create opportunities over the next three years, even as he predicted that “GDP will decline from around 5 to possibly 4 or 3 ½% worldwide.” CFO Hare indicated that Invensys hopes to use its strengthened cash position to acquire companies, although Henriksson said, “We’re not buying market share.”
Invensys also announced that Chairman Martin Jay will retire next year, and that the company hopes to pay a dividend at the end of 2008-09.
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