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Invensys shares crash on profit warning

Engineering company’s shares fall 26% after it warns that higher costs in Chinese nuclear and rail divisions will hit profits

Engineering company Invensys saw its shares crash by up to 26% after announcing that its profit for the year would be hit by higher costs with work on control and safety systems in eight nuclear reactors under construction in China and in its rail signalling division.

The group said profits for the year to end of March would be significantly below last year’s £262m as a result of the operational issues.

The company, which also makes controls for washing machines, had been targeting an improved performance this year but thinks the problems could wipe £60m off its profits.

Shares in Invensys, which competes with ABB, Honeywell Intl and Siemens, plunged as much as 26% to a more than two-year low. In lunchtime trading they were 20% lower at 181p, the worse performing stock in the mid-cap index.

Analysts said the warning raised questions about chief executive Wayne Edmunds, the group’s former finance director who replaced Ulf Henriksson in the top job in March 2011, pledging an “increased focus on execution”.

Mark Wilson at Collins Stewart said: “It has severely impacted my confidence in management’s ability to deliver the promised margins from what has actually been quite a positive order intake. Without that confidence it’s difficult to be bullish on the shares.”

Invensys said on Friday that delays and extra engineering in China would cost it an additional £40m, while additional costs in rail contracts would hit performance by about £20m.

Its appliance controls business was continuing to suffer from weak consumer demand in North America and Europe, it also said, although it was partially offset by stronger commercial and wholesale markets.

Invensys was formed from the merger of engineering businesses Siebe and BTR in 1999 in a deal that left the group saddled with debt.

In recent years it has turned to emerging markets, winning contracts in oil and gas, as well as rail signalling deals in Saudi Arabia and Turkey and nuclear power work in China, as demand in western economies remained muted.

The push into new territory, however, had already hit margins in the rail business, with Edmunds saying in May that costs would rise as he invested in growth.

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