Invensys shifting attention towards services business; will keep controls division; Siemens rumor unlikely, source says

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Invensys, the listed UK engineering company, is shifting its attention to focus on its services business, a company source said. Last year, a source familiar with the company said Invensys was reviewing its controls division, which had revenues of EUR 1.2bn. At that time, Invensys was thinking of either abandoning production in Europe and moving it to low labour cost countries or selling parts of it if offers were presented. The source said that there were already some interested players, but that no decision had been made yet.

Today, the source said, the division had shown an improvement and Invensys has reorganized it giving it a more simple structure. A sale of the division is unlikely at this stage.

The company is shifting its focus towards the services sector in order to deliver more value-added innovative engineering solutions and services with the objective of giving our customers greater efficiency and success.

At present, the company has three main divisions namely rail; controls and process which account each for one third of the total turnover of GBP 621m (EUR 912.7m) as per Q1 2007. The services operations alone, part of the process division, accounts for some 20% of turnover. The source said that in the next few years, those operations will contribute some 50%.

Earlier this year, there were rumors that Siemens could be targeting Invensys. The source said that he had also heard the rumor, but thought that it was unlikely to happen. He added that there are only a few players in the field and that everyone talks to everyone, but he does not foresee much consolidation at the moment. Meanwhile, Invensys is looking at emerging markets.

Evolution Securities engineering analyst Harry Philips said Invensys’s recovered financial situation meant that acquisitions would make sense for the company. But he pointed out that covenants on the company’s debt prevent it from spending more than USD 20m a year on acquisitions. Invensys has acquired CIMNET for USD 23.2m at the beginning of May.

Philips added that Invensys would most likely use the redemption of a large chunk of high-yield debt next year to break free from the straight jacket that has prevented it from making significant deals. But, he said, it remained unlikely that the company would look for transactions larger than USD 50m to USD 100m. UBS analyst Niranjan Aiyagari agreed with Philips’ assessment but added that a strong expected cash flow in the next 12 to 18 months would stand Invensys in good stead if it decided to go back on the acquisition trail.

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