New life beckons for Invensys

MAY seems to be the season for companies to come back from the dead. Yesterday, Marconi celebrated the first anniversary of its return to the stock market following a debt reconstruction.

Since then, it has seen the share price double as a raft of new investors came on board and the first stirrings of recovery were seen in its markets. With its assets now sensibly priced in the balance sheet, it looks reasonably well positioned for when telecoms equipment orders start to flow again - provided it does not take too long.

And today engineering group Invensys delivered a report which, for the first time in the three years since Rick Haythornthwaite took over as chief executive, also gives grounds for hope.

Against the odds, Haythornthwaite has managed to avoid defaulting on debt and wiping out shareholder funds. But the turning point was the £2.7bn of new equity capital raised a few months ago which allowed him to take care of a mass of inherited liabilities - the likes of tax on previous disposals, environmental issues and the pension fund deficit - and provide capital for new investment in businesses he felt had a future.

So today, while overall the group reports a loss of more than £300m after write-offs, operating profits were £217m, almost all from businesses he plans to keep.

Perhaps because it was created from two conglomerates built by acquisition, it took Haythornthwaite much longer than he anticipated to get fully to grips with the business.

Indeed, it was only when he started chasing the cash - tracking down the differences between the profits reported by companies and the massively lower amount of cash they were able to produce that he fully got a handle on all the liabilities and discovered money going out in all sorts of strange ways.

Those issues are now broadly resolved and provided for as legacy liabilities, the six businesses out of 24 he wants to keep have been stabilised, debt has been cut from £3.5bn to less than £1bn, head office costs have been slashed by 40% and the group is now in the logical shape that should allow its businesses - markets permitting - to go forward.

Three years have been spent clearing the jungle, he says, and now it is time for some intensive farming - growing the top line of the business for value.

Ironically, the biggest risk now is that people may expect too much too soon. The businesses still need investment, which will absorb cash, and key markets are still uncertain and fragile, so nothing will happen in a hurry. But Invensys has emerged from its dark age. It has moved from being a financial story to an industrial story.

Celltech lesson

THE takeover of Celltech, the company that was supposed to be the core of the British biotech industry, by a company from Belgium of which few people had heard, should not be passed off as anything other than a disaster. Yet again, Britain has pioneered in a new business, got its fair share of patents and inventions and failed to turn it into a profitable, world-leading business.

Britain needs industrial manufacturing capability. It may be in long-term decline as a proportion of gross national product, but it is in fact bigger than it has ever been.

It is growing, but slower than other parts of the economy. And it is where wealth is actually created, as opposed to service industries - including financial services - which simply rearrange its distribution.

The businesses we do well in - Rolls-Royce aero engines, or Glaxo-SmithKline and AstraZeneca in pharmaceuticals - are essentially industries which combine manufacturing skill with a huge in-built knowledge base. This makes them tough to displace.

Smaller firms do not have that scale and, if we are to succeed in new industries, they have to be built as clusters. It is no coincidence that Honeywell was located down the road from Harvard, nor that the Cambridge science park is the most successful in Britain, but what Celltech seems to suggest is that clusters on their own may not be enough. We need a business model that gives us a better chance of winning.

In the new technologies of emission control and green energy, for example, where Government is ready to spend heavily to get things going, perhaps all the funds should go to just one or two companies rather than encouraging hundreds of smaller ones by spreading it 'fairly'. The aim would be to enable those receiving the cash to get big quickly.

There may be other techniques but the point is we need to learn how to foster new industries and, unfashionable though it is to say so, the lead for that probably has to come from Government.