The investment column: The logic behind Invensys tie-up remains to be proved

LORD MARSHALL, chairman of Invensys, the engineering giant formed from February's merger of BTR and Siebe, yesterday said the group's first annual results demonstrated the "compelling industrial logic" of the tie-up.

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.

u

u

Merant

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
News
ebooksNow available in paperback
Life and Style
tech
News
The 67P/CG comet as seen from the Philae lander
scienceThe most important scientific breakthroughs of 2014
Arts and Entertainment
Ian McKellen as Gandalf in The Hobbit: The Battle Of The Five Armies
film
Arts and Entertainment
Sarah Koenig, creator of popular podcast Serial, which is to be broadcast by the BBC
tvReview: The secret to the programme's success is that it allows its audience to play detective
News
Ruby Wax has previously written about her mental health problems in her book Sane New World
people
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Marketing Services Manager - (communications, testing, DM)

£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

Guru Careers: Finance Account Manager

£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas