Transforming Performance Annual Report and Accounts 2013 Contents What’s inside this report Overview 02 Performance Highlights Overview 04 Our Businesses at a Glance Performance highlights, a description of what we do and where we do it, 05 Our Global Footprint our key priorities and our outlook for the coming year 06 Chairman’s Statement 08 Chief Executive’s Statement 10 Our Business Model Business Review 16 Key Performance Indicators Business Review 18 Invensys Operations Management A review of our fi nancial performance, our fi nancial position 20 Invensys Controls and how we manage our business from a risk and sustainability viewpoint 21 Invensys Rail (discontinued) 22 Financial Review 27 Financial Policies 28 Corporate Responsibility 33 Risks and Uncertainties Governance 42 Our Board of Directors Governance 44 Corporate Governance Introducing the Board of directors and explaining our approach 57 Remuneration Report to governance and remuneration 7 3 Directors’ Report 76 Statement of Directors’ Responsibilities in Respect of the Preparation of the Accounts Group Financial Statements Group 7 7 Group Financial Statements Group Financial Statements 8 5 Notes to the Financial Statements Financial statements and notes to explain the details of our Group’s fi nancial performance for the year Parent Company Financial Statements Parent 1 39 Parent Company Financial Statements Parent Company Financial Statements 14 2 Notes to the Parent Company Financial statements and notes to explain the details of our Financial Statements Parent Company’s fi nancial performance for the year Other Information 15 4 Five Year Financial Summary Other Information 15 6 Principal Subsidiaries Other useful information for our shareholders 15 7 Shareholder Information 1 59 Glossary Invensys plc Annual Report and Accounts 2013 Transforming Performance Helping our customers to achieve operational excellence “The past year was transformational for Invensys. The disposal of Invensys Rail Overview for £1,742 million has enabled us to deal with our legacy UK pension issues, recommend a substantial return of cash to shareholders and provided us with signifi cant funds to invest in our future. It has also allowed us to carry out a reorganisation of the Group, removing our previous divisional structure and providing signifi cant cost savings of £25 million per annum by April 2014. “Invensys is now a focused supplier of industrial software, systems and control equipment, delivering state-of-the-art technologies to the world’s major industries. The lines of business structure we began to put in place last year has enabled us to concentrate upon those areas with the greatest opportunities for growth and profi tability. We now have signifi cant resources to invest in these businesses which we will do in a thoughtful and disciplined manner to enhance shareholder value.” Wayne Edmunds, Chief Executive Everything that we do is about We work with enhancing our customers’ • 23 of the top 25 petroleum companies productivity • 48 of the top 50 chemical companies From oil refi neries and power stations to • 18 of the top 20 pharmaceutical mining companies and appliance companies manufacturers, Invensys’ market-leading • 35 of the top 50 nuclear power plants software, systems and controls help to give our customers a competitive edge by • All of the top 10 mining companies speeding up their processes, improving • 7 of the top 10 appliance accuracy, saving time, cutting waste and manufacturers boosting their safety and sustainability performances. We enable Our long-term sustainable growth will continue to come from two key drivers: in the developed • 20% of the world’s electricity world we have a considerable base of generation customers who are continually seeking • 18% of the world’s crude oil refi ning to improve the effi ciency of their existing • 37% of the world’s nuclear energy plants, products and facilities; and in rapidly generation developing economies such as India and • 62% of the world’s liquefi ed natural China we are seeing greater demand for gas production our technologies from customers as a result of the urbanisation and industrialisation taking • 23% of the world’s chemical place there. production With a deep understanding of our customers’ industries and their business needs, together with an absolute commitment to safety and project execution excellence, Invensys is well-positioned to capitalise on markets with long-term structural growth prospects. Invensys plc Annual Report and Accounts 2013 www.invensys.com 01 Performance Highlights A transformational year for Invensys A full set of our fi nancial key performance indicators (KPIs) is included in the Key Performance Indicators section within our Business Review on pages 16 to 17. Our non-fi nancial KPIs are set out in the Corporate Responsibility section on pages 28 to 32. Financial performance for continuing operations1 The Group has performed well against a • Order intake was £1,700 million (2012: • Operating cash fl ow was strong at backdrop of fragile economic conditions £1,759 million), down 3% (down 2% at CER2) £136 million (2012: £124 million) and ended the year with £268 million of • Revenue was £1,792 million (2012: £1,764 • Net cash for the Group at year end (before net cash million), up 2% (up 3% at CER) receipt of Invensys Rail disposal proceeds) was £268 million (2012: £262 million) • Operating profi t3 rebounded to £131 million (2012: £93 million), up 41% (up 40% at CER) • Recommended fi nal dividend5 of 2.85p per share (2012: 2.75p per share); total • Underlying earnings per share (EPS)4 were dividends for the year of 4.6p per share 8.5p (2012: 5.3p), up 60% (2012: 4.4p per share), an increase of 5% Orders (£m) Order book (£m) Revenue (£m) m m m £1,700 £1,094 £1,792 2013 1,700 2013 1,094 2013 1,792 2012 1,759 2012 1,158 2012 1,764 2011 1,894 2011 1,183 2011 1,714 2010 1,656 2010 1,050 2010 1,543 Operating profi t (£m) Dividend (p) Net cash (£m) m p5 m £131 4.6 £268 2013 131 2013 4.6 2013 268 2012 93 2012 4.4 2012 262 2011 133 2011 4.0 2011 348 2010 107 2010 3.0 2010 363 1 All numbers relate to continuing operations. Continuing operations exclude Invensys Rail. Net cash includes amounts classifi ed as assets held for sale. 2 Unless otherwise stated, % change is measured as the change at constant exchange rates (CER) as a percentage of the 2012 adjusted base and is calculated based on underlying amounts in £000s. 3 Unless otherwise stated, references to operating profi t (OPBIT) are arrived at before exceptional items. 4 Calculated by reference to continuing operations before the exceptional Group reorganisation costs; exceptional pension settlement gain/loss; exceptional pension past service cost; and exceptional fi n a n c e c o s t s . 5 The amount of the fi nal dividend in pence per share will increase if the proposed share consolidation proceeds. Please see dividend paragraphs on page 7 for more details. 02 Invensys plc Annual Report and Accounts 2013 Overview Business and other highlights Invensys is now a focused supplier of • Disposal of Invensys Rail for £1,742 million • Reorganisation of Group underway industrial software, systems and control was completed on 2 May 2013 including the elimination of former equipment, delivering state-of-the-art divisional headquarters resulting in savings – Agreements with Trustee of UK Pension technologies to the world’s major in overheads of £25 million per annum Scheme implemented with contributions industries by April 2014 of £400 million to UK Pension Scheme and £225 million to a reservoir trust; • Improved transparency going forward with no further contributions are expected four new business segments – Software, to be made for the foreseeable future Industrial Automation, Energy Controls and Appliance – Subject to shareholder approval, the return of £625 million of cash to shareholders (amounting to around 76p per share) is to be implemented as soon as practicable Social and environmental performance6 In the last year, we exceeded our 2% • CO2 emissions within our manufacturing • Our Total Recordable Case Incident Rate environmental KPI reduction targets locations reduced by 3% in the year (TRCIR7) remained fl at at 0.18 this year; over at our manufacturing sites for energy the past four years, however, our TRCIR has • Energy consumption within our use, carbon emissions, water use and fallen by 14% manufacturing locations reduced by 3% waste generation in the year • Our Learning and Development Centre of Expertise delivered 119,153 hours of on line training CO2 emissions (tonnes) within Energy consumption (MWh) Total Recordable Case our manufacturing locations within our manufacturing locations Incident Rate % % % -3 -3 nil 2013 52,389 2013 143,897 2013 0.18 2012 53,990 2012 148,804 2012 0.18 2011 59,057 2011 162,426 2011 0.18 2010 56,552 2010 152,135 2010 0.21 6 All numbers are for the Total Group and include Invensys Rail. 7 The TRCIR is the injury/illness incident frequency rate in the workplace per 100 employees per annum. Invensys plc Annual Report and Accounts 2013 www.invensys.com 03 Our Businesses at a Glance Our new structure Invensys is a global technology company with four Breakdown of Group 1 business segments revenue and employees Revenue by sector (%) Consumer cyclical 23 Oil & gas 23 General industries 23 Utilities & power 11 Petrochemicals 4 Discrete manufacturing 3 Other 13 Software Industrial Automation Revenue by destination (%) 15% of Group1 revenue 53% of Group revenue UK 6 £260m revenue £948m revenue Rest of Europe 21 North America 35 Our Software business is one of the world’s Our Industrial Automation business is a global South America 8 leading developers and suppliers of industrial supplier of control systems, safety systems Asia Pacific 20 software with strong positions in process and instrumentation to customers operating Africa/Middle East 10 design, simulation and optimisation, some of the world’s largest and most complex real-time operations management and industrial plants, such as oil refi neries, power asset management.