The investment column: The logic behind Invensys tie-up remains to be proved
Thursday 03 June 1999
Quite a claim, given that the accounts contain just seven weeks of the combined companies' figures. The results confirm the merger's cost savings, but its logic remains to be proved.
Siebe and BTR were struggling to deliver organic growth in mature and competitive markets. Talk of consolidation was already in the air when the Asian crisis prompted the merger.
Last year, all of the Invensys divisions experienced declining or flat organic growth - a 2 per cent drop in organic sales overall - evidence that if you merge two poorly performing companies you end up with, initially, one big poor performing company.
So Invensys is struggling to boost margins through cost-cutting. Six thousand people have gone. A further 5,000 face the chop. Fifty offices and plants have closed; another 100 are to go. The drive helped lift pre- tax profits 12 per cent to pounds 998m. The target is to cut costs by pounds 300m annually. But soon it will be impossible to take costs down further.
No surprise then that its chief executive Allen Yurko is emphasising Invensys' intention to boost by acquisition its electronics and software activities from 35 to 47 per cent of the business. These growth markets are a sensible route for the group's pounds 3bn firepower for acquisitions. Invensys' purchases in this area have performed well.
Less compelling is the suggestion that Invensys will be re-rated just by switching, as it intends, to the electronics sector. And if this is where the action is, why did Siebe storm in and buy BTR, a controls group? Moreover, Invensys will have to complete its pounds 1.8bn disposal programme to widen its options.
In the last year, Invensys' largest divisions, intelligent automation and controls, experienced weak markets. Going forward, all divisions are sure of healthy markets only in the US. Yet Invensys emphasises that it is a global business and assumes it can deliver 5 per cent organic growth if its markets recover.
On analysts' forecasts of pounds 995m post-exceptional pre-tax profits and earnings of 18.1p per share this year, rising to pounds 1092m and 21.5p in 2001, the shares are on a forward price-earnings ratio of 17. For a company mid-way through restructuring which can guarantee growth only by acquisition, such a rating is more than fair.
- 2 David De Gea: Manchester United goalkeeper's £29m move to Real Madrid off - because paperwork 'not done in time'
- 3 Pansexual: What is it - and when did the term gain popularity?
- 4 A Chinese journalist has appeared on state television 'confessing' to causing the stock market chaos
Miley Cyrus calls out hypocrisy of women’s nipples being taboo
The man who sold Minecraft to Microsoft for £2.5 billion says it's made him miserable
Nazi 'gold train': Fire engulfs suspected location of vehicle in Poland
Blood Moon and Supermoon: September to bring brightest – and dimmest – full Moon of the year on same night
Isis releases graphic video showing four Shia 'spies' being burned alive in Anbar, Iraq
Climate change: 2015 will be the hottest year on record 'by a mile', experts say
Jeremy Corbyn calls Osama bin Laden's killing a 'tragedy' - but was it taken out of context?
Tony Blair attacks Jeremy Corbyn's 'Alice In Wonderland' politics
Theresa May says migrants should be banned from entering the UK unless they have jobs lined up
Iain Duncan Smith 'should resign over disability benefit death figures', says Jeremy Corbyn
UN investigating British Government over human rights abuses caused by IDS welfare reforms
iJobs Money & Business
£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...
£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...
£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...
£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...