Fitch Rates UK's Invensys 'BB-'/'B'; Outlook Stable

Fitch Rates UK's Invensys 'BB-'/'B'; Outlook Stable

Fitch Ratings-London/Paris-14 September 2006: Fitch Ratings has today assigned UK-based

Invensys plc ("Invensys") and Invensys International Holding Ltd Issuer Default ratings of
'BB-' (BB minus) and Short-term ratings of 'B'. The Outlooks are Stable. At the same time,
Fitch has assigned Invensys' senior notes a 'B+' rating and Invensys International Holding
Ltd's senior secured loan a 'BB+' rating.

Over the past two years, the engineering group's financial structure has been markedly
bolstered by several asset disposals and two refinancing packages in 2004 and 2006. In March
2004, Invensys raised GBP470 million in ordinary shares and GBP2.3 billion in high-yield bonds
and senior credit facilities. In May 2006, it completed a GBP1bn refinancing package,
including a GBP341m capital increase and a new senior credit facility of around GBP700m
maturing in December 2010. This improved the debt maturity profile by around one and a half
years on average. Since 2004, the group has also made a number of disposals, generating gross
proceeds of approximately GBP900m including the May 2006 divestment of Invensys Building
Systems ("IBS") to Schneider Electric for GBP157m.

As a result, financial flexibility improved materially as net financial debt declined to
GBP752m at 31 March 2006 ("FYE06") from GBP802m at FYE05 and GBP986m at FYE04. Adjusted for
the 2006 rights issue and IBS disposal, net debt stood at GBP298m at 30 June 2006.
Consequently, financial ratios have significantly improved with net adjusted debt/EBITDAR
falling to 3.5x at FYE06 (0.9x pro-forma for the 2006 right issue and IBS disposal) from 3.8x
at FYE05.

The ratings are constrained by Fitch's concerns that cash flow generation will remain weak in
the next couple of years. Free cash flows ("FCF") have been negative as a result of legacy
payments and declining earnings at the controls and APV divisions, although Fitch notes that
FCF are on an improving trend and were positive in the past two years when excluding legacy
liabilities. These liabilities are expected to diminish in the next five years but will
nonetheless weigh on cash generation. In addition, restructuring at controls, the group's
largest division, have not been sufficient so far to tackle margin erosion while APV's
operating margins continued to decline in FY06. Fitch views that competition, pricing pressure
and legacy issues will continue to put pressure on Invensys' cash flow generation ability.
However, Fitch is confident that the new refinancing will enable the company to focus on
operations, improve its commercial position, thanks to increased consumer confidence, and
mitigate the abovementioned challenges. Successful restructuring of the controls division will
act as a catalyst for an overall strengthening of Invensys' credit profile. Conversely, the
inability to address the issues at the controls division would put renewed pressure on the
ratings.

The 'BB+' rating on the senior secured debt reflects the superior recovery prospects for this
instrument upon default based on its ranking, security package and low senior leverage. This
translates into a substantial buffer underneath provided by subordinated debt and equity
value. The 'B+' rating on the senior notes reflects its structural subordination and the lack
of upstream guarantees and therefore the more limited recoveries anticipated for this
instrument.

Invensys is the holding company for a group of businesses producing and selling a variety of
products including motors, electronic drives, sensors, power transmission products, remote
monitoring systems. Invensys operates five main divisions: controls (31% of revenues in FY06),
process systems (30%), rail systems (18%), APV (16%) and Eurotherm (5%). Invensys
International Holding Ltd is an intermediate holding company between Invensys and its
operating companies.

Contact: Emmanuel Bulle, Paris, Tel: +33 1 44 29 91 84; Pablo Mazzini, London, +44 20 7417
3540.

Media Relations: Jon Laycock, London, Tel: +44 20 7417 4327.

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from the 'Code of Conduct' section of this site. The ratings above have been initiated by
Fitch as a service to investors. The issuer did not participate in the rating process other
than through the medium of its public disclosure.