Shock profits warning at Invensys wipes £3.3bn off company's value

Invensys, the automation and control systems group, yesterday saw £3.3bn wiped off its value, after it confirmed the worst fears of investors with news that profits would be hit by weakness in its core markets.

Invensys, the automation and control systems group, yesterday saw £3.3bn wiped off its value, after it confirmed the worst fears of investors with news that profits would be hit by weakness in its core markets.

The company, formed last year from the merger of BTR and Siebe, had already been struggling to convince a sceptical City that its recent £474m acquisition of the bankrupt Dutch software group, Baan, was a sound move. Yesterday's profits warning undermined the credibility of its established businesses, analysts said.

Invensys shares plummeted 36 per cent to 167.75p, on massive turnover of 283 million shares, after it said that first- half performance would be down on last year. In order to cut costs, Invensys is to shed 3,000 jobs worldwide, including around 200 in the UK. Allen Yurko, chief executive, described this as the "first wave" of workforce reductions. They follow the 10,000 job cuts as a result of the BTR-Siebe merger, and the 1,000 workers shed at Baan.

Mr Yurko said: "Obviously I don't have a happy investor group right now. But the share price reaction is something that I can't explain. This is just a short-term problem."

Mr Yurko, who yesterday bought 20,000 Invensys shares at 170p each, said the second half of the year would see an improvement on the first half, but it was too early to say whether it would better the second half of last year.

The company said its software and automation divisions continued to be hit by weak demand. Capital expenditure in the oil and gas sector, which provides 15 per cent of Invensys' sales, had not picked up, while the level of US housebuilding was down 11 per cent on last year. The company makes devices, such as air conditioning controls for new homes. It added that these factors coincided with an increase in costs, from oil and electronic components prices.

Analysts said the problems at Invensys ran much deeper than a short-term downturn in its markets, and that was why there was such heavy selling.

One analyst said: "The merger of BTR and Siebe was like putting rotten apples together with rotten oranges. Baan, on top of that, is a basket case. This company is a house of cards that was just waiting to come down. Fund managers only wake up when a company admits something is wrong. But, for the last three years, it has been clear that it is not as profitable as it claims to be." The analyst, who asked not to be named, said Invensys has focused on growing earnings per share by making acquisitions, taking attention away from profitability and cashflow.

A fund manager at one of Invensys' leading shareholders said: "The status quo is not an option. There is a lack of faith in the management and its [financial] figures. Either there is a bid for the company or a management change." The source said pressure would fall upon Invensys' finance director, Kathleen O'Donovan, in particular.

A bid, likely to lead to a break-up, is seen coming from the US, both from venture capitalists and competitors such as Honeywell, Emerson and GE.

Deutsche Bank yesterday said it was cutting its 2000 and 2001 earnings per share forecasts for Invensys by 20 per cent and 10 per cent respectively.