Adoption of International Financial Reporting Standards (IFRS) Presentation - 20 May 2005

Contents
1. Overview 2. Financial presentation under IFRS 3. Summary of accounting policy differences

1. Overview

IFRS headlines
No material impact on cash resources Banking covenants not affected Main adjustments are:
- accounting for goodwill on disposals and goodwill amortisation (IFRS 1 and 3) - capitalisation of development costs (IAS 38) - foreign currency movements related to debt (IAS 21)

IFRS 5, IAS 39 adopted from 1 April 2005 Financial impact 2004/05

- increase reported earnings by 378m - increase operating profit by 9m - increase equity at March 2005 by 34m

IFRS summary of financial impact

Restatement of profit for 2004/05
million Profit/(loss) for year under UK GAAP Adjustments: Reversal of goodwill amortisation (IFRS 3) Reversal of goodwill charged on sale of subsidiary (IFRS 1) Capitalisation of development costs - additions - depreciation - net (IAS 38) Foreign exchange gain on net debt (IAS 21) Foreign exchange loss on sale of subsidiaries (IAS 21) Taxation (IAS 12) Other Profit/(loss) for year under IFRS 16 (8) 8 1 184 28 331 16 (8) 8 16 (3) (1) (1) (95) Operating profit(1) 175 Net profit for year (473)

Notes: 1. Before exceptional items, goodwill amortisation, goodwill impairment and foreign exchange gains/(losses).

IFRS IAS 21 Foreign currency gains/(losses)

(1) Average relevant external Currency of net debt net debt(2) m US$ Euro Yen (430) (220) (110) Movement in exchange rates 2004/05 % 2.7 (3.3) 5.8 Impact P&L gain/(loss) m 12 (7) 7 12 Intra-group balances and other currencies Total gain 2004/05 4 16

Notes: 1. This analysis has been prepared to illustrate the impact of currency movements and includes a number of approximations. 2. Relevant external net debt is debt held in Group companies with a funtional currency different from the debt.

IFRS - OPBIT by segment 2004/05

Bridge UK GAAP to IFRS
million UK GAAP Process Systems Eurotherm APV Rail Systems Controls Corporate costs Retained businesses Businesses for sale Continuing operations Discontinued operations Total group 47 17 6 56 89 (46) 169 9 178 (3) 175 16 (8) 2 (1) 16 (8) 2 (1) 16 (8) 2 (1) 12 (7) 1 (1) Intangible assets Capitalisation 4 Amortisation (1) Leases 1 Employee benefits IFRS 51 17 5 61 90 (46) 178 9 187 (3) 184

IFRS summary of financial impact

Restatement of equity as at 31 March 2004 and 2005
million 31 Mar 04 31 Mar 05

Equity deficit under UK GAAP

(304)

(510)

Adjustments: Capitalisation of development costs (IAS 38) Goodwill (IFRS 3) Leases (IAS 17) Employee benefits (IAS 19) Taxation (IAS 12) Equity deficit under IFRS 48 (10) (20) (15) (301) 56 25 (10) (21) (16) (476)

2. Financial presentation under IFRS

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IFRS Income statement Full year 2004/05

million

Bridge UK GAAP to IFRS

Intangible assets UK GAAP 2,803 120 2,923 Goodwill - Continuing - Discontinued

Employee benefits

Foreign exchange Taxation

Leases

Discontinue d operations

IFRS 2,803

Sales

(120) (120)

2,803

OPBIT

- Continuing - Discontinued

178 (3) 175

(1) 3

187 187

(1)

Restructuring costs Transition costs Refinancing costs Fixed asset impairment Product recall costs Goodwill amortisation Goodwill impairment PBIT pre corporate exceptionals

(58) (17) (63) (30) (28) (27) (48) 8 28 (1) 27 2 (1) 3

(58) (17) (63) (30) (28) (9)

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IFRS Income statement 2004/05 quarterly phasing

million Sales: Continuing FY 2,803 Q4 729 Q3 682 Q2 713 Q1 679

OPBIT:

Continuing

187

71

46

51

19

Restructuring costs Transition costs Refinancing costs Fixed asset impairment Product recall costs Goodwill amortisation Goodwill impairment PBIT pre corporate exceptionals

(58) (17) (63) (30) (28) (9)

(17) (2) 52

(13) (3) 30

(18) (8) (63) (30) (68)

(10) (4) (28) (23)

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IFRS Income statement Full year 2004/05

million

Bridge UK GAAP to IFRS

Intangible assets UK GAAP (48) 170 (468) (3) (349) (136) (15) (500) 16 (484) (484) 8 358 8 358 8 358 8 358 331 Goodwill 27 8

Employee benefits (1)

Foreign exchange (3) Taxation -

Leases 2

Discontinue d operations 3 (167) 137

IFRS (9) (3)

PBIT pre corporate exceptionals Profit on sale/closure Goodwill write off Loss on sale of fixed assets PBIT Foreign exchange gains Interest FRS 17/IAS 19 finance charges PBT Taxation Loss - continuing Profit - discontinued Loss for the year

(1)

(3) 16

(27)

(12) 16 (137) (15)

(1)

(1)

13

(1)

(27) 1 (26) 26

(148) 16 (132) 26 (106)

(1)

13

(1)

(1)

13

(1)

Attributable to: Equity holders Minority interests (473) (11) (484) 8 358 1 (1) 13 (1) 8 358 1 (1) 13 (1) (95) (11) (106)

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IFRS Income statement 2004/05 quarterly phasing

million PBIT pre corporate exceptionals Loss on sale of fixed assets PBIT Foreign exchange gains/(losses) Interest FRS 17/IAS 19 finance charges PBT Taxation Loss continuing Profit/(loss) - discontinued Loss for the year Attributable to: Equity holders Minority interests EPS basic total Group before exceptional items, goodwill impairment and IAS 21 Average number of shares FY (9) (3) (12) 16 (137) (15) (148) 16 (132) 26 (106) Q4 52 (2) 50 (2) (35) (4) 9 35 44 (13) 31 Q3 30 30 25 (32) (3) 20 (7) 13 13 Q2 (68) (1) (69) (2) (33) (4) (108) (8) (116) 8 (108) Q1 (23) (23) (5) (37) (4) (69) (4) (73) 31 (42)

(95) (11) (106) (1.7)p 0.3p 5,687m

30 1 31 0.5p 0.4p 5,687m

12 1 13 0.2p 0.1p 5,687m

(94) (14) (108) (1.6)p 0.4p 5,687m

(43) 1 (42) (0.8)p (0.6)p 5,687m

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IFRS Segmental analysis 2004/05

million FY Process Systems Eurotherm APV Rail Systems Controls Corporate costs Retained businesses Businesses for sale Continuing operations Discontinued operations Total Group 709 122 360 412 921 2,524 279 2,803 120 2,923 Q4 190 31 99 105 230 655 74 729 3 732 Sales Q3 174 31 87 100 227 619 63 682 2 684 Q2 178 32 92 103 236 641 72 713 5 718 Q1 167 28 82 104 228 609 70 679 110 789 FY 51 17 5 61 90 (46) 178 9 187 (3) 184 Operating Profit(1) Q4 22 6 6 16 25 (10) 65 6 71 71 Q3 10 4 7 16 19 (10) 46 46 46 Q2 15 4 14 28 (12) 49 2 51 51 Q1 4 3 (8) 15 18 (14) 18 1 19 (3) 16

Note: 1. Before exceptional items, goodwill impairment and foreign exchange gains/(losses).

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Free cash flow Full year 2004/05

Bridge UK GAAP to IFRS
million UK GAAP Operating profit Depreciation/amortisation Share-based payments FRS 17 pension cost Working capital movement Environmental & litigation settlements Restructuring costs Transition costs Refinancing costs Product recall costs Capital expenditure - expenditure - receipts Pension contributions Operating cash flow Interest paid Taxation paid Free cash flow 175 73 2 48 51 (34) (45) (24) (8) (4) (62) 4 (131) 45 (112) (76) (143) 1 2 (1) (16) (1) 1 Leases 2 1 Intangible assets 8 8 Employee benefits (1) IFRS 184 82 2 48 51 (34) (45) (24) (8) (4) (78) 4 (131) 47 (113) (76) (142)

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Balance sheet 31 March 2004

Bridge UK GAAP to IFRS
million UK GAAP Tangible assets Intangible assets - goodwill Intangible assets - other Net trading assets Deferred taxation Net pension liability 660 478 1,138 156 (6) (606) 682 Share capital and reserves Minority interests Total equity interests Net debt (469) 165 (304) 986 682 48 48 (10) 11 1 (20) (15) (20) (15) 48 48 1 (10) (20) (20) (15) (15) 75 59 (11) 9 (8) (20) (15) Intangible assets (16) Leases 9 Employee benefits Taxation IFRS 653 478 75 1,206 117 (21) (606) 696 (466) 165 (301) 997 696

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Balance sheet 31 March 2005

Bridge UK GAAP to IFRS
million
UK GAAP Intangible assets Leases Employee benefits Taxation Goodwill IFRS

Tangible assets Intangible assets - goodwill Intangible assets - other Net trading assets Deferred taxation Net pension liability

442 285 727 124 5 (574) 282

(16) 83 67 (11)

8 25 8 (8) (21) (16) 25

434 310 83 827 84 (11) (574) 25 25 25 25 326 (609) 133 (476) 802 (21) (16) 326

56 56 56 56

(10) (10) 10 -

(21) (21) (21)

(16) (16) (16)

Share capital and reserves Minority interests Total equity interests Net debt

(643) 133 (510) 792 282

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Movement in net debt

Bridge UK GAAP to IFRS
million Opening net debt Free cash flow Dividends paid Acquisition costs Net divestment proceeds(1)(2) Transfer of facility fees from prepayments Amortisation of facility fees within debt Currency movement Closing net debt - operating - legacy UK GAAP (986) 38 (181) (14) (2) 352 2 (7) 6 (792) Leases (11) 1 (10) IFRS (997) 39 (181) (14) (2) 352 2 (7) 6 (802)

Notes: 1. Including net cash divested 18m. 2. Including pre-disposal working capital movement (11)m.

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IFRS Debt financing at 31 March 05 comprised

Maturity
(1)

Effective Rate Cash(2)

Drawn Cash

Drawn

Undrawn million

(years)

non-cash

million 663 1 106 24 262 363 25 34 1,478 (10) (27) 1,441 (309) (26) (111) (193) (639) 802

million

High Yield 144A 144A EMTN 2nd Lien Term Loan B RCF Bonding Other debt Total gross debt (before costs & discount) High yield discount Debt issuance costs Total gross debt (after costs & discount) Escrow account EMTN deposit Cash collateral Other cash Total cash Net debt
Notes: 1. Excluding scheduled repayments. 2. L+ = margin over LIBOR. 3. Cash subject to escrow restrictions on usage.
(3)

6.0 1.8 4.8 0.1 4.8 4.5 4.0 4.0

9.875% 7.125% 6.500% 5.500% L + 4.75% L + 3.5% L + 3.0% L + 3.0%

197 213 213 151 348

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IFRS Movement in legacy liabilities

million Taxation At 31 March 2003 At 31 March 2004 At 30 June 2004 At 30 Sept 2004 At 31 Dec 2004 Cash payments Charge/(credit)(1) Disposals Market movements(3) Exchange At 31 Mar 2005 256 134 129 129 125 (37) (29) (1) 58 Litigation/ Environmenta l 140 107 104 75 71 71 Transition 100 64 48 47 45 (5) 40 Discounting 204 Pensions(2) 931 606 582 600 596 (37) 13 3 (1) 574

Notes: 1. The pension charge comprises service cost, finance charge and settlement/curtailments for defined benefit schemes only. 2. Represents the Groups defined benefit pension deficit. 3. Changes in value of investments and liabilities.

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FRS 17/IAS 19
million (Deficit) at 31 March 2004 Return on assets less interest cost on liabilities Contributions and unfunded benefit payments less service cost Experience gains, settlements and disposals Exchange (Deficit) at 30 September 2004 Return on assets less interest cost on liabilities Contributions and unfunded benefit payments less service cost Experience gains, settlements and disposals Change in discount rate Exchange (Deficit) at 31 March 2005 (606) (64) 54 20 (4) (600) 81 28 1 (91) 7 (574)

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3. Summary of accounting policy differences

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Significant accounting differences

Intangibles IAS 38 Business combinations and goodwill IFRS 3 Foreign exchange IAS 21 Financial instruments IAS 39 Share-based payment IFRS 2 Leases IAS 17 Taxation IAS 12 Employee benefits IAS 19

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Intangible assets IAS 38

Principal differences Requirement to capitalise qualifying development costs as intangible assets

Income statement impact Increase in operating profit of 8m in 2004/05

Balance sheet impact Capitalisation of hardware and software development costs at Rail Systems & Process Systems. No basis for capitalisation of costs at other business groups Capitalisation of separable development spend from point of technical & commercial feasibility of product. No capitalisation of stand-alone software development costs

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Business combinations and goodwill IFRS 3

Principal differences Amended calculation of profit/loss on disposal of businesses as goodwill previously written-off to reserves is no longer recycled through profit and loss account No amortisation of goodwill under IFRS, but annual impairment testing

Income statement impact Loss on disposal of businesses changes by 331m Reversal of 28m amortisation charge

IFRS 1 Exemption Business combinations before 1 April 2004 are not restated

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Foreign exchange IAS 21

FX gains/losses on non qualifying net investment hedges Principal difference FX gains/losses on foreign currency denominated borrowings are charged through the income statement rather than reserves to the extent that the borrowings exceed hedged assets held in equivalent foreign currency Under IFRS goodwill written off to reserves is not recognised as an asset and can not be included in the hedge determination

Income statement impact - 16m FX gain Cumulative FX differences on disposal of foreign operations Principal difference On disposal of foreign operations the cumulative FX differences deferred in a separate component of equity are recognised in the income statement (3m loss)

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Financial instruments IAS 32/39

IFRS 1 exemption taken to implement IAS 32 and 39 from 1 April 2005 without restatement of comparative data; no impact on 2004/05 accounts and transition balance sheet Hedge accounting Cashflow hedges (future cashflows) will be fair valued on balance sheet and gains and losses transferred to equity and recycled through the income statement at the same time as the underlying hedged item is accounted for through the income statement Unhedged derivatives will be fair valued and gains and losses reflected in the income statement

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Share-based payment IFRS 2

Principal differences Currently recognise expense for share options (except SAYE schemes), based on intrinsic value under UITF 17 Under IFRS, expense recognised for awards of options based on fair value using option pricing modules

Impact No effect on Group operating profit as share option schemes are not extensively used and impact of SAYE schemes is minimal Balance sheet impact minimal

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Other standards
Leases IAS 17 More specific guidance on finance lease criteria has resulted in reclassification of two property operating leases as finance leases and a few equipment leases Balance sheet impact decrease in net assets of 10m from reclassification from operating to finance leases Income statement impact minimal

Taxation IAS 12 Reflects mainly impact of tax on undistributed overseas retained earnings and tax impact of IAS 38 adjustments Balance sheet impact increase in liabilities of 15m at March 2004 Income statement impact minimal

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Other standards
Employee benefits IAS 19 No impact on accounting for pensions as Invensys applied FRS 17 at March 2004 Change reflects increased accruals for accumulating compensated absences Balance sheet impact 20m at March 2004 Income statement impact minimal

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IAS 39/IFRS 5 implementation

Effective 1 April 2005 IFRS 5 Non-current Assets Held for Sale and Discontinued Operations and IAS 39 Financial Instruments Recognition and Measurement will be implemented prospectively IFRS 5 - Lambda, a business held for sale, will be reclassified to Held for Sale/Discontinued and its assets and liabilities will be segregated from the remainder of the Group IAS 39 impact on opening equity at 1 April 2005 is minimal