Race to reinvent Invensys

RICK Haythornthwaite, the new boss of Invensys, is racing ahead with his programme to revive the troubled engineer.

Brought in after former chief executive Allen Yurko fell on his sword last summer, Haythornthwaite is approaching his first anniversary in the hot seat, having made an energetic stab at turning around the heavily-indebted business.

His latest move is the sale of the group's Sensor Systems operation to US manufacturer Honeywell for £256m cash. The disposal, announced while Haythornthwaite is sunning himself on holiday, is part of his master plan to restructure the company and to halve its £3bn debt burden by March. He is on track to hit his £1.5bn debt reduction target. Once the money from this and earlier sales arrives, almost £1bn will be knocked off borrowings.

Analysts reckon Invensys might raise up to £600m more from car parts subsidiary Rexnord, now being groomed for sale, and a further £200m for its Fasco motors

So far, Haythornthwaite and finance director Kathleen O'Donovan, who has somehow kept her job despite last year's three profit warnings, are making good progress on the asset sales.

The pair need to push through the rest of the disposals if the group is to have its credit rating upgraded from junk status to investment grade, which would massively cut the cost of servicing its remaining debt.

Invensys, up 7p to 68 1/2p, still has plenty to prove, however.

Ringing up a string of sales in a horrible market looks impressive, but has made cynics wonder if Haythornthwaite is flogging the family jewels on the cheap. Invensys says the sales are part of a strategy to reinvent itself as a business that focuses on customers, not technology, by, for example, providing 'smart' buildings that maximise energy efficiency.

It sounds grand, but as the company itself freely admits, the hard bit is actually executing that strategy. The group is also very vulnerable to further shocks from the US, where it makes half its sales.

Haythornthwaite has had a decent first year. But his biggest shareholders, Californian value investors Brandes, who ploughed into Marks & Spencer before its recovery, will be breathing down his neck to carry on delivering.

Pensions poser
THE sparring match over the size of BT's pension fund deficit shows how absurdly difficult it is to know where you are with company retirement schemes.

In the red corner, Goldman Sachs reckons that, after the recent dives in the stock market, the deficit has ballooned to around £5.8bn. UBS Warburg has weighed in with just under £6bn, while other senior industry figures believe it may be as high as £7bn.

In the blue corner, BT and its actuary Watson Wyatt say the shortfall is unchanged at 'only' £1.6bn.

The reason for such differing numbers is that the analysts are working out their sums taking account of short-term stock market movements, while BT and Watson Wyatt are making an actuarial valuation, which takes a longer term view of the value of the assets.

Unfortunately, actuarial valuations are opaque. We do not have a clear idea of the assumptions used, so it is impossible to assess whether the figures are reasonable.

BT's pension scheme is one of the biggest in the UK, covering 376,000 people and their dependants, so this confusion is a pretty poor show.

Investors are also beginning to digest the fact that pension deficits are a serious issue. If BT does need to make additional contributions above its existing £200m annual top-up payments, it will clearly be a drain on profits.

Who to believe: the analysts or BT and its actuaries? Despite its supposed acumen, Watson Wyatt has managed to run up a hole in its own staff pension scheme. Go figure.

Tough for toffs
THESE are tricky times for the City's oldest - and snootiest - institutions. Coutts, which prides itself on having a cashpoint in Buckingham Palace for Royals who run short of readies, is trying to beat the squeeze on traditional private banking by expanding up North.

Cazenove, the Queen's stockbroker, is contemplating saving tax bills by listing on minnows' market Aim instead of the main market - the equivalent of shopping at Kwik Save instead of Fortnum & Mason.

Speaking of Her Majesty's grocer, Fortnum's - where City chaps normally buy their Christmas pud - is also having to tighten its belt after suffering a drop in corporate clients and the tourist trade.

Dark days indeed!