The Thing Is: Two years, three plans, £2.7bn needed

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Friday was not a good day for Rick Haythornthwaite. Only 24 hours after unveiling an audacious £2.7bn rescue plan for Invensys, the ailing engineer's chief executive was digesting a chorus of adverse comments from the City - and a falling share price.

"My feeling is Invensys will be capable of doing little more than tread water," said Raymond Greaves at Merrill Lynch. "We do not see an uplift in value," argued Swantje Conrad at JP Morgan Securities. Michael Hagmann at UBS said "Questions remain as to how good is the underlying quality of Invensys's businesses."

And Charles Burrows at Goldman Sachs said: "Invensys has commented that trading is satisfactory, which does not sound too promising to us."

Contemplating these criticisms on Friday, Haythornthwaite sighed. "We have to spend some time explaining the issues," he said. "We've burdened the analysts with the complexity of our finances."

The restructuring announced on Thursday is the third rescue plan put forward by the former BP and Blue Circle high-flyer in just over two years at the helm of Invensys. Plan one, announced in early 2002, was a debt-reduction plan. Plan two, which was unveiled a year later when the first plan faltered, was a disposal programme, only part of which was completed before plan three was deployed. This involves retaining two of the businesses it had hoped to sell - appliance controls and climate controls - raising £450m through a share placing, £625m from a junk bond issue and £1.6bn from new banking facilities.

Haythornthwaite explains his new U-turn saying: "When we put the businesses on the market we had no choice. As we have moved through the year, new possibilities have emerged." In the circular sent to shareholders he was bolder: "The board believes that the refinancing plan currently represents the only viable route to secure a stable financial platform for the group in the longer term."

Ironically, the two businesses taken off the block might yet end up being sold. "We view them as sustainable management plays which we may realise through disposals or from cash flow." Roll on plan four.

This new plan does not come cheaply. In addition to having to pay more for its new borrowings than the ones replaced, Invensys will have to pay its bankers and advisers up to £108m in fees. Haythornthwaite defends the costs. "It is immaterial if it is a big number. Is this reasonable pricing? Is this the right decision for the group?" The answer, he argues, is "yes" to both.

It is clear that Invensys was much more of a mess than Haythornthwaite realised when he replaced Allen Yurko, the aggressive American who had led the merger of Siebe and BTR to create the group. He admits to setting targets that could not be achieved - "I am human" - and argues he could have produced better figures if he had stopped investment in some of the more exciting new technologies Invensys was developing.

The picture he paints of Invensys is of a financial mess. "We flushed out accounting issues in far-flung places," he admits. According to analysts at JP Morgan "only under the current finance director, Adrian Hennah, did the company embark on a serious effort to understand its cash flow generation".

Haythornthwaite avoids criticising former finance director Kathleen O'Donovan. But he did say: "bank statements [from subsidiaries], and what they were telling us did not fit in with what we were seeing". There seemed to be a time lag between the reconciliation of cash flows and it appeared that at the same time as Invensys was improving operating working capital in some places, cash was draining out elsewhere.

The City has been critical of Haythornthwaite's communication about the cash position. But he hits back. "It is unreasonable to claim that we are obfuscating and not being clear."

Analysts are also bemused by the sudden departure of Leo Quinn, whom Haythornthwaite brought in to sort out the group's production management division, potentially the main money earner. "Leo's real strength is repair," says Haythornthwaite. "He's done a good job of that but the next stage is growth and it needs a different type of management."

The only good fortune Invensys has had has come from the misfortune of others. Three of its main competitors - ABB, Tyco and Honeywell - have also been through the mill.

Despite the City's sniffy reaction - which sent Invensys shares down 2.25p to 24.25p on Friday - Haythornthwaite feels more positive than at any time at Invensys. "It is difficult to overestimate and overstate the positive effect this will have on our customers and employees."

And, hopefully, on its shareholders.