20 May 2004

1
2004 Preliminary Results Operational Update

• 20 May 2004

2
Introduction and financial highlights

• Rick Haythornthwaite, CEO

3
Agenda

• Rick Haythornthwaite
• Introduction and financial highlights
• Adrian Hennah
• Principal schedules
• Analysis by area of activity
• Quarterly reporting
• Rick Haythornthwaite
• Operational strategy
• Performance of individual businesses
• Summary
• Questions answers

4
Results Overview

• Corporate costs down 44 to 66m
• Net debt reduced to 986m
• 2.7bn refinancing plan completed March 04
• Sale of Powerware and Hansen announced
• Customer confidence returning

Note1. All references to operating profit
throughout are stated before exceptional items,
goodwill amortisation and goodwill impairment
5
Principal schedulesAnalysis by area of
activityQuarterly reportingAdrian Hennah, CFO
6
This presentation comprises the following
sections

• Principal schedules
• Movement in debt
• Analysis by area of activity
• Six retained businesses
• Businesses for sale
• Liability management programme
• Quarterly reporting

7
Profit and loss account
Note1. Cash costs only
8
Profit and loss account
9
Balance sheet
Note1. Restated for FRS 5 FY 02/03 23m and
H1 03/04 23m
10
Free cash flow
Note1. In prior presentations, operating cash
flow was shown before capital expenditure and
restructuring costs
11
Movement in net debt
Notes1. Including 10m net cash divested FY
03/042. Including FY 03/04 (29)m, H1 03/04
(8)m, H2 03/04 (21)m, FY 02/03 (114)m
pre-disposal working capital movement
12
Debt financing at 31 March 04 comprised
Notes 1. Excluding scheduled repayments
(principally Term Loan A) 2. L margin over
LIBOR 3. Certain rates still subject to market
flex
13
The escrow account balance and legacy liabilities
at 31 March were
14
Analysis by area of activity
15
Segmental analysis - Sales, operating profit(1)
Note1. Before exceptional items, goodwill
amortisation and goodwill impairment
16
Corporate costs
17
Movement in legacy liabilities
Notes 1. Equity market, plus changes in pension
assumptions 2. The Pension PL charge comprises
service cost, finance charge and
settlements/curtailments
18
FRS 17 pension charge

• The FRS 17 charge for the 12 months to 31 March
  04 is

Note 1. Includes defined contribution charge of
FY 03/04 12m FY 02/03 11m
19
UK/US Pension Fund contributions

• UK defined benefit fund
• No contribution is required by MFR rules
• Intend to pay 20 of pensionable salary plus 30m
  p.a. to April 06
• US defined benefit fund
• Ongoing contributions in 03/04 28m
• Agreement reached with PBGC
• 125m (68m) paid in March 2004
• 25m (14m) payable in June 2004
• 4 of net disposal proceeds payable to US defined
  benefit pension fund, with minimum 25m (14m)
  payment by September 2004
• Contributions required by the legislative
  formulae in 04/05 unlikely to exceed 20m

20
Quarterly reporting
21
03/04 Sales and profit phasing by quarter
22
Communication with the capital market

• Immediate move to full quarterly reporting
• Q1 on 26 August 04 announcement followed by
  conference call
• Interims in November 04 presentation and
  roadshow for equity/bond audiences
• Q3 in February 05 announcement followed by
  conference call
• Prelims in May 05 presentation and roadshow
  for equity/bond audiences
• Continuing Transparency
• same level of reporting detail at Q1/Q3 as
  interim
• Trading updates will cease
• Programme of site visits and management briefings
• introduce operational management
• explain technologies, markets, drivers

23
In conclusion
24
Strategy and business overviewRick
Haythornthwaite, CEO
25
Retained(1) businesses
Key financials
FY 03/04 Sales By business
By geography
Sales 2,742m Operating profit
191m Operating profit margin
7.0 Employees 31,000
Appliance 14
Rail Systems 16
Process Systems 28
Climate 24
Eurotherm 4
APV 14
Invensys
Appliance Controls
ClimateControls
APV
Eurotherm
Process Systems
Rail Systems
Note 1. Appliance Controls, Climate Controls,
APV, Eurotherm, Process Systems, Rail Systems,
26
Operational strategy

• Continuing emphasis on turnaround plus
  sustainability
• Revenue generation
• Customer segmentation and key account management
  salesforce productivity
• Establish regular revenues from installed base
  with new solutions and service offerings
• Further develop presence in emerging markets and
  key segments
• Operational execution
• Process improvement to drive out cost and
  increase reliability
• Tight control on project tendering and management
• Low cost engineering, manufacturing and
  outsourcing
• Improve quality and delivery efficiency
• Simplify organisation structure and
  incentivisation
• Investment for sustainability
• Build management capability
• Accelerate development of multiple technologies
  and extend products to new geographies

27
Appliance Controls overview
Sales 376m Operating profit 54m
Leading supplier of controls-related systems in
the appliance industry.
FY 03/04 sales
by geography
by activity

• Industry dynamics
• Globalisation of customer base
• Strong consumption growth in emerging markets
• Some shift from electromechanical to electronic
  controls
• Industry consolidation and pricing pressures

• Key strengths
• Market leading positions and strong customer
  relationships
• One of broadest product offerings in
  industry
• Global sales, manufacturing and technology
  network
• Demonstrated ability to cut costs

28
Appliance Controls 03/04 trading overview
FY 03/04 Sales 376m (FY 02/03 394m)

• Weak Q1 sales
• Qs 2-4 recovered
• Overhang of disposal process
• Europe -4, North America -3, South America
  11 (CER)

FY 03/04 Operating profit 54m (FY 02/03
61m)

• Continual pricing pressure
• Resilient margin (14)
• Cost reductions through value engineering and
  low cost sourcing

29
Appliance Controls outlook

• Robust order book
• strong Q4 2003/04 carried into Q1 2004/05
• Positive customer response to retention within
  Invensys
• Continued value engineering and efficient
  sourcing and manufacturing to maintain margins
• Market and cost opportunities through Chinese
  expansion and niche sectors

30
Climate Controls overview
Sales 647m Operating profit 73m
Leading global provider of components, systems
and services used to control comfort and safety
of commercial and residential living environments
FY 03/04 sales
by geography
by activity
by end market

• Key strengths
• Global presence with large installed base
• Product portfolio with potential
• Significant stability from replacement sales
• Established brands broad product portfolio
  with potential to expand

• Industry dynamics
• Commercial building investment and new housing
  starts
• Replacement repair cycle
• Legislation residential safety/energy
  efficiency

31
Climate Controls 03/04 trading overview
FY 03/04 Sales 647m (FY 02/03 743m)

• Year on year decline mainly due to continued
  exit from low margin contracting businesses in
  building management
• Reversing valves - continued competition from
  China
• Residential safety need to strengthen retail
  channels
• Heating modest growth in North America
  constant sales in Europe

FY 03/04 Operating profit 73m (FY 02/03
74m)

• Operating profit maintained and margin improved
• Benefits of European restructuring
• Continued exit from contracting businesses in
  North America

32
Climate Controls outlook

• Rate of future growth will depend on initiatives
  for
• New product introductions - commercial
  refrigeration, residential safety, heating
• Expansion in retail and wholesale outlets
  residential safety
• Penetration of new markets heating, commercial
  refrigeration, residential safety
• Exploiting legislative pressure/energy efficiency
  residential safety, commercial refrigeration
• Margin improvement later in year will depend on
• Speed of transfer to reversing valve production
  in China - cooling
• Complete exit from contracting business in
  building management

33
APV overview
Sales 387m Operating profit 18m
Industry leader in process know-how and domain
expertise, providing process equipment, turnkey
solutions and asset services.
FY 03/04 sales
by geography
by activity
by end market
management estimates

• Industry dynamics
• Developed markets operational performance,
  supply chain pressure regulatory pressure and
  customer safety concerns
• Emerging markets greenfield investment, high
  consumption growth rates, financing and
  availability of raw materials

• Key strengths
• Well-established brand reputation for quality
  and applications know-how
• Global sales and engineering platform
• Broad product portfolio and complete solutions

34
APV 03/04 trading overview
FY 03/04 Sales 387m (FY 02/03 372m)

• Recovery in H1 (year on year)
• Increasing product sales through new channels
• Dairy sector weakened in H2

FY 03/04 Operating profit 18m (FY 02/03
20m)

• Process improvements including more rigorous
  project management
• surfacing issues with profit impact
• resolution of prior period accounting issues in
  Japan during H2 (5m)

35
APV outlook

• Q4 2003/04 order deferrals likely to benefit
  early part of 04/05
• Programme to improve manufacturing and supply
  chain efficiency, project management and
  engineering productivity Fix the past and
  build the future likely to show first
  benefits in latter part of the year

36
Eurotherm overview
Sales 122m Operating profit 17m
Eurotherm is the leading supplier of control and
measurement instrumentation solutions and
services to the global industrial and process
markets.
FY 03/04 sales
by geography
by activity

• Key strengths
• Large, long-established installed base in all
  major economies
• Strong reputation and brand recognition
• High re-use of intellectual property in
  development and engineering

• Industry dynamics
• Underlying growth in automation and control
• Cyclicality driven by capacity utilisation
• Pressure from programmable logic controllers in
  loop control and distributed control systems

37
Eurotherm 03/04 trading overview
FY 03/04 Sales 122m (FY 02/03 119m)

• Strong growth in sales in APAC offset by lower
  sales in North America and Europe
• New initiatives in target sectors and services

FY 03/04 Operating profit 17m (FY 02/03
19m)

• Q4 - APAC sales at lower margin
• Excellent cash conversion

38
Eurotherm Outlook

• Signs of some market pickup in North America
• Increased proportion of lower margin sales in
  Asia Pacific expected to continue
• Move to increase sourcing in China

39
Process Systems overview
Sales 768m Operating profit 33m
Leading provider of hardware, software and
services for automation, regulation and
optimisation of plant operations
FY 03/04 sales
by geography
by activity
by end market
management estimates

• Key strengths
• Top 3 supplier with global brands
• Depth in product, application and industry
  specific solutions
• Installed base in over 50,000 plants
• Technology gaps filled and innovations - i.e.
  ArchestrA, Digital Coriolis DolpHin

• Industry dynamics
• Developed markets substantive growth driven
  by expansion, upgrades and increasing emphasis
  on economic improvement services
• Emerging markets greenfield opportunities and
  importance of environmental protection

40
Process Systems 03/04 trading overview
FY 03/04 Sales 768m (FY 02/03 768m)

• Slight market growth
• Small increases in EMEA and Latin America
• Offset by decreases in North America and APAC

FY 03/04 Operating profit 33m (FY 02/03
43m)

• Q1 margins impacted by prior period accounting
  issue in Asia
• Continued investment in ArchestrA and solutions

41
Process Systems outlook

• Increased customer confidence and improvement in
  some key markets
• Strong Q4 2003/04 orders pick-up carried on to
  Q1 2004/05
• 70 week process improvement underway
• Significant reduction in overheads
• Programme cost recovery later in year

42
Rail Systems overview
Sales 442m Operating profit 62m

• A global leader in design, manufacture, supply,
  installation, testing and commissioning of safety
  related rail signalling and control systems for
  mainline, metro and freight railways

FY 03/04 sales
by geography
by activity

• Industry dynamics
• Underlying growth driven by urban congestion,
  safety renewals, high speed lines and
  operational improvements
• Markets/technologies national not global
• High barriers to entry and long technology
  cycle
• Concentrated customer base

• Key strengths
• Leadership position in specific markets
• Technology and engineering
• Strong project and contract management

43
Rail Systems 03/04 trading overview
FY 03/04 Sales 442m (FY 02/03 404m)

• Strong sales growth (11 at CER)
• Higher Dimetronic sales in Spain
• Initial revenue from London Underground PPP

FY 03/04 Operating profit 62m (FY 02/03
55m)

• Strong operating profit growth (13 of CER)
• Excellent cash flow

44
Rail Systems outlook

• Potential short-term order delays in UK and USA
• Increased bonding and insurance costs
• Market fundamentals remain positive

45
Summary

• First benefits from refinancing
• Customer confidence feeding through to orders
• Powerware and Hansen disposals
• Group stabilised
• Retained businesses
• Sales remained flat at CER
• Operating margins increased to 7.0
• Corporate costs down 44
• Continued management of legacy liabilities
• First signs of recovery in key sectors

46
Appendices
47
Exceptional items
48
Profit/loss on sale/closure
49
Interest charge and interest paid 03/04
50
Tax charge
51
Update on tax liabilities
Note 1. Comprises deferred tax 6m, tax relating
to trading activities 21m, tax relating to
recent disposals and similar 26m
52
Reconciliation of free cash flow toFRS 1 net
cash flow from operating activities
53
Reconciliation of former to current segmental
analysis
Sales 12 months to 31 March 04
54
Reconciliation of former to current segmental
analysis
OPBIT 12 months to 31 March 04
55
Currency of net debt, interest rate fixing
56
Financial covenants in borrowing agreements(Term
A, Term B, 2nd lien, RCF, bonding facility)

• Invensys borrowings are subject to the following
  financial covenants
• Minimum EBITDA / interest cover
• Maximum senior debt / EBITDA tested every six
  months (first test Sep 04)
• Maximum total borrowings / EBITDA
• Minimum cash flow / debt service cost tested
  every six months (first test Mar 05)
• Maximum net capital expenditure tested annually
  (first test Mar 05)

The six-monthly covenants are measured on a
rolling twelve months basis, with the exception
of September 2004, when transitional arrangements
apply
57
Process Systems
58
Eurotherm
59
APV
60
Rail Systems
61
Climate Controls
62
Appliance Controls
63
Businesses for Sale and Discontinued 12 months
to 31 March 04
Notes 1. Before exceptional items, goodwill
amortisation and goodwill impairment 2. Gross
proceeds 3. Contract signed but not yet
completed proceeds converted at y/e rates
64
Pension and related liabilities
65
Exchange rates
66
Lambda/Hansen/Baker (LHB) overview
Sales 387m Operating profit (12m)
FY 03/04 sales by geography
Hansen
Lambda
Baker
LambdaDesigns, manufactures and sells standard
and modified power supply solutions for the
global industrial automation test and measurement
and telecom markets
Hansen Leading gearbox and drive-train
manufacturer with history of technological
leadership. Focused on fast growing wind turbine
generator sector and other industrial segments of
large enclosed gearbox market
Baker Leading supplier of equipment, services and
complete process solutions to the bakery,
biscuit, confectionery, cereal and snack sectors
of the food industry
67
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