Troubled Invensys tumbles £3bn

By ROBERT LINDSAY
Updated:

 

Giant automation and control group Invensys lost a third of its market value - £3bn - in the first few minutes of trading as it issued a devastating profits warning only days after it completed its acquisition of troubled Dutch software group Baan.

Chief executive Allen Yurko said up to 3,000 jobs - 2% to 3% of total staff - and several plants in the US and Mexico would have to go, on top of the 1,000 already shed from Baan as sales of the group's industrial controls and environmental control systems for private homes slumped in July and August.

He insisted the problems had nothing to do with Baan, whose acquisition has already driven Invensys's share price close to a 12-month low. 'Most of the problem is the market in North America,' he said, where new house building had ground to a halt in the past couple of months.

Invensys, created from the merger of Siebe and BTR 18 months ago, has also been hit by the strength of the pound against the euro and by the fact that an expected recovery in the oil and gas industry which Invensys supplies had not materialised.

Yurko said first half profits from the software systems division, which now includes Baan, will be significantly below last year, while profits would be flat from both the automation systems division - whose sales to industry have still not recovered - and the control systems division. Only the power systems division, which supplies the fast-growing telecoms sector, was showing growth.

Yurko said part of the problem was an increase in raw materials, including oil and the price of semi-conductors. This would be passed on to customers in time for the second half, so he expected some improvement over the dismal first half.

But he added that it was 'too early to say' whether the year as a whole will be better. He cited a string of profit warnings from household equipment suppliers such as Whirlpool as evidence that the 11% fall in the US housing market was hurting everyone.

He said Baan's integration was on target but the group would have to write an extra £30m off profits in its first half results and another £35m in the second half as it changed its accounting policy to take software development costs up front rather than capitalising them on the balance sheet.

Baan's acquisition has already angered some investors, with many believing the group was biting off more than it could chew. It acquired it in the teeth of opposition from some Baan shareholders and investors holding 25% of Baan have refused to sell their stake.

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