Invensys dives on fresh profits alert

Shares in Invensys sank by a quarter yesterday after the troubled industrial conglomerate issued a fresh profits warning. The shares closed 15.25p down at 46.75p after the group reported a 7 per cent fall in first-half profits and said its performance in the second half would be flat. Its membership of the FTSE 100 index is now in jeopardy.

Rick Haythornthwaite, the chief executive brought in to streamline the former BTR-Siebe group, said: "Both our capital and consumer-end markets remain susceptible to the effects of further erosion in global confidence. In such an environment, we would expect our second half trading performance in the core group to remain at best flat with the first half."

Analysts said the 7 per cent fall in core operating profits to £143m was well below expectations. This outweighed the group's repeated commitment to key financial targets on margins, cash-flow, disposals and debt reduction.

Analysts also said investors were worried about the working capital outflow of £80m and free cash flow of only £9m. Mr Haythornthwaite admitted he was "very disappointed" with the cash-flow performance.

Invensys is seeking to improve operating margins from the 3.2 per cent in its production management division to 8-10 per cent by March 2004 and from 8.7 per cent in its energy management division to 12 per cent. Around 1,000 more jobs are to be cut to help achieve the target. Other aims are to improve free cash flow to 8 per cent of turnover, secure £1.8bn from disposals and cut debt to £1.5bn.

Though the company has failed on cash flow its disposal programme is ahead of target with £1.6bn achieved so far. The sale of the Fasco Motors division is expected to cut debts to the £1.5bn target.

Invensys recorded a loss of £58m in the six months to 30 September after losses on disposals and interest charges. Operating profits were down to £143m from £154m. At the divisional level, production management profits rose 44 per cent to £23m due to aggressive cost-cutting as spending by customers remained cautious. In energy management profits fell 232 per cent to £91m due partly to continued weakness in the IT and telecoms markets.

The company said that with no improvement in its main markets in sight it would have to rely on "self- help" to get the business back on track.