£950m boost as Invensys soars

By THIS IS MONEY
Updated:

 

INVESTORS bought into Invensys - adding nearly £950m to its market value - as the City shrugged off bleak trading news amid relief that the engineering and systems group was bringing its battered finances under control.

Invensys suffered a sharp fall in first-half profits and warned trading was set to worsen in the second half. It's also facing further charges of up to £200m to pay for its restructuring, and more job losses.

But new chief executive Rick Haythornthwaite insisted Invensys was in no danger of breaching its banking covenants. The firm also surprised the City by paying an interim dividend, though well down on last year.

The shares rose 34% or 27p to 106p. They traded at 187 3/4p last year. The shares 'moved up on relief,' said one analyst. Invensys had 'reiterated the fact that they don't believe they'll be in breach of covenant at the year end and the net debt's been kept in control.'

Operating profits fell 40% to £281m for the six months ended September, as its business suffered from a slump in its key US market. That figure was broadly in line with forecasts. The firm sustained a pre-tax loss of £64m, compared with a profit of £111m a year earlier.

Invensys said its power systems business, whose customers in the telecoms and internet industry have been slashing investments, was hardest hit by the economic slowdown. 'In the current fragile economic environment, (group) trading in the second half is more likely to decline than improve on the first half.'

Invensys slashed the dividend to 1p a share from 2.5p. Future payouts would depend on the outcome of the group's strategic review, due to finish in February.

Haythornthwaite said Invensys was likely to write off some of the value of its assets, contract values and inventory in that review. The company was also likely to axe more staff, though cuts would be limited, he said. Invensys has slashed 6,300 jobs this year, with the last batch - 3,500 - announced in June.

Invensys needed a 'radically changed shape and approach', Haythornthwaite said. 'The problems which the group must overcome stem as much from its sheer complexity and failure to address operational basics as from the need for an effective strategy.' Some parts of Invensys are already being marketed but decisions will be taken in the light of performance following the completion of the review.

The cut in dividend is a policy that Haythornthwaite, six weeks into the job, admitted follows a 'need to conserve cash and reduce indebtedness'. But Invensys was not in danger of breaking its banking covenants, he added. Net debt stood at £3.28bn at the end of the period with interest cover a comfortable 3.3. That cover should rise with the latest cost-cutting measures.

Between 80% and 85% of its debt is at variable interest rates, which enables it to benefit swiftly from recent interest rate cuts. In the six months ended September the interest charge was £101m. It will fall to £70m in the second half.

Haythornthwaite said reducing debt remained a key priority, but declined to provide a target for the year-end debt level.

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