Invensys in a plunge on its profit warning

Shares in the engineering giant Invensys slumped 20 per cent yesterday after it warned that its profits this year will fall well below City expectations.

Problems on building nuclear reactors in China and a number of railway signalling contracts around the world mean that operating profits will be £60m less than expected at about £210m, down from last year's £262m.

Shares in the mid-cap company were the biggest fallers in the FTSE All-share yesterday, closing down 43.9p at 183.2p.

In China the group has had to do more engineering work than it had expected on the control and safety systems for four new nuclear power reactors on a contract worth £250m, mainly because they are among the first to use digital rather than analogue systems. This will hit operating profits by £40m.

In the rail division a "handful" of contracts have been reviewed and found to carry extra costs and delayed revenues. None is believed to be in the UK, where Invensys was yesterday awarded three large signalling contracts. Operating profits from the rail division will fall £20m short of management targets.

Taken together, analysts said the two divisions would knock £60m from their average profit forecast of £270m, and warned they could have a knock-on effect next year. "It has severely impacted my confidence in management to deliver the promised margins," Mark Wilson, an analyst at Collins Stewart, said.

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