Invensys shares plunge 45% on profits warning

Shares in the engineering company Invensys collapsed by almost a half yesterday after the process controls group warned that its full-year profits would be about £50m lower than expected.

The warning sent Invensys shares down by 45 per cent, wiping £560m from its stock market valuation and putting at risk its position in the FTSE 100 index of leading companies.

The profits alert was all the more unsettling for investors because only a week ago Invensys reassured the market that it was not planning to give any trading update.

Rick Haythornthwaite, who took over as chief executive a year ago after the ousting of Allan Yurko, told analysts: "Clearly this is a blow to our credibility. We don't like failing to meet expectations." The profit warning, he added, was "extremely disappointing".

Invensys is chaired by Lord Marshall of Knightsbridge and was created out of the merger between BTR and Siebe in 1999. Since then its shares have lost 95 per cent of their value, closing last night at an all-time low of 20p. Despite a massive restructuring programme which has seen the workforce halved to 55,000 and £4bn worth of businesses sold off, the company has consistently failed to meet performance targets. The group blamed continuing problems with its Dutch software business Baan, which the previous management bought for £500m, and a poor performance in its climate controls division for the latest setback. Second-half profits are now expected to be 25 per cent lower than first-half profits of £143m when the market had been told they would be broadly flat.

Together with a £10m hit from exchange rate movements, this is expected to lower full-year profits to about £270m, wiping out the £50m in performance improvements targeted by the company.

Mr Haythornthwaite said that 80 per cent of the business was performing according to plan. But at Baan, the group now expects a second-half loss of about £12m – "materially worse" than its forecast at the interim results stage last November.

Invensys denied that it had misled investors over whether or not it was likely to warn on profits, arguing that it was only aware of the true extent of the problems in its Baan and climate controls divisions on Thursday afternoon. "If we felt we should have put out a notice before now, we would have done so," Mr Haythornthwaite told analysts. "We are dealing here with a balance of probabilities in a very uncertain market."