Standard and Poor's Raises Invensys To BB

Posted 12 June 2007

LONDON (Standard & Poor's) June 12, 2007-- Standard & Poor's Ratings Services said today it raised its long-term corporate credit rating on U.K.-based engineering company Invensys PLC to 'BB' from 'B+', reflecting stronger credit measures. The outlook is stable. At the same time, the issue ratings on Invensys' senior unsecured debt were raised to 'B+' from 'B-', two notches below the corporate credit rating, indicating the effective structural subordination of the bonds and the significant level of priority liabilities that would rank ahead for payment under a default scenario. All ratings have been removed from CreditWatch with positive implications, where they were placed on May 29, 2007.

"The upgrade reflects an improvement in Invensys' business and financial risk profiles, due to an improved capital structure and continued positive earnings and cash flow momentum," said Standard & Poor's credit analyst Louise Newey.

Invensys' performance during the fiscal year to March 31, 2007, has continued to show a positive trend, including an improved adjusted EBITDA margin to about 13.4%, from 10.1% year on year, driven by the company's good market positions within its Process Systems and Rail divisions. Stronger sales growth at these divisions has contributed to an improvement in overall profitability and cash flow performance.

The company generated funds from operations (FFO) of an estimated GBP197.5 million in fiscal 2007, compared with GBP103.8 million in fiscal 2006. Underlying cash flow from operations improved, reflecting a net reduction in working capital and a stronger income from continuing operations, particularly in the fourth quarter of fiscal 2007. A significant reduction in Invensys' debt burden during the year has lessened the company's interest obligations, improved free operating cash flow, and allowed for greater financial flexibility.

An improved capital structure after the refinancing undertaken in 2006 has resulted in reduced adjusted debt of about GBP1.1 billion at March 31, 2007, including an estimated GBP522 million of postretirement liabilities, about GBP164 million of operating leasing liabilities, about GBP95 million of legacy liabilities, and about GBP165 million of excess cash. This compares with GBP1.8 billion at March 31, 2006. This is a significant step in the improvement of Invensys' financial risk profile, taking the company's FFO-to-adjusted-debt ratio to about 18.1% in fiscal 2007 (compared with 5.8% in fiscal 2006), and total adjusted debt to EBITDA to about 3.2x (7.2x in 2006).

"Standard & Poor's considers that near-term risks have reduced due to the company's improved cash generation, enhanced trading prospects, and the wind-down of heavy restructuring activity and legacy items," Ms. Newey added.

At the 'BB' rating level, the group is expected to maintain FFO to debt at about 20%, which we expect to be achieved over the near term. This is based on our expectation of slower growth levels in the Controls and Rail divisions and stability in Process Systems for 2007 and beyond. Any negative deterioration beyond this level could place downward pressure on the ratings, depending on the reason for the deviation and Invensys' future prospects at the time. We consider any upside movement in the rating unlikely in the immediate term.

Ratings information is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com. It can also be found on Standard & Poor's public Web site at www.standardandpoors.com; under Ratings in the left navigation bar, select Credit Ratings Search. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office Hotline (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4017. Members of the media may also contact the European Press Office via e-mail on: media_europe@standardandpoors.com.

Primary Credit Analyst: Louise Newey, London (44) 20-7176-7226; louise_newey@standardandpoors.com

Secondary Credit Analyst: Andreas Zsiga, Stockholm (46) 8-440-5936; andreas_zsiga@standardandpoors.com

Additional Contact: Industrial Ratings Europe;
CorporateFinanceEurope@standardandpoors.com

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