British engineer Invensys said full-year profit would be hit by higher costs for work on control and safety systems in nuclear reactors being built in China and in its rail signalling division, sending its stock diving to a 33-month low.

Invensys, which had been targeting an improved performance in its 2011/12 year, said on Friday operating profit for the year to end-March would now be significantly below last year's 262 million pounds.

Its shares were down 20 percent to 181.6 pence at 1:40 p.m.

Chief executive Wayne Edmunds said overruns of 40 million pounds in nuclear and 20 million in a handful of rail contracts were disappointing.

The first of three Chinese nuclear contracts, involving groundbreaking work at four nuclear reactors and worth about $250 million (162.98 million pounds), would now be unprofitable, he said.

The other two contracts for the remaining four reactors will be profitable, he said on a conference call with analysts.

Invensys, whose products include controls for central heating systems and washing machines, competes with ABB , Honeywell and Siemens .

Analysts said the warning raised questions about Edmunds, the former finance director who replaced Ulf Henriksson as CEO last 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 is difficult to be bullish on the shares.

Morgan Stanley noted it was the second profit warning in the sector this week after Dutch group Philips
on Tuesday, and said it would likely trigger a 20-25 percent reduction in its operating profit target for Invensys.

Given the complexity of the China project, we are not especially surprised, Morgan Stanley said.

Invensys also said its appliance controls business was continuing to suffer from weak consumer demand in Europe and north America, partially offset by stronger commercial and wholesale markets.

The group was formed from the merger of engineering businesses BTR and Siebe in a 1999 deal that left it 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 the 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 costs would rise as he invested in growth.

(Editing by Helen Massy-Beresford and Dan Lalor)