Dear shareholder,
The difficult trading environment we were experiencing when I wrote to you last year turned out to be more severe than anyone could have predicted. After a tough start, prospects of recovery were further damaged by the tragic events of September 11. The destruction of the World Trade Center Towers had a profound impact on us as human beings and I would like to express, on behalf of everyone at Invensys, our sincere sympathy to the families and friends of all the victims of that terrible event.

For the second successive year, sales fell in some of our most important businesses. Despite significant measures to reduce our costs and employee numbers, Group profits continued to drop sharply. Allen Yurko resigned as Chief Executive at the end of the first half. Rick Haythornthwaite succeeded him and, in the second half of the year, the Group's performance stabilised at the level of the first half.

Results summary and dividend
Group sales were down 11% at £6,972 million (2001: £7,863 million), driven principally by the US industrial recession and the severe downturn in global telecoms demand. Group operating profit before exceptional items and goodwill amortisation fell by 41% to £549 million (2001: £934 million). Corporate and operating exceptional items - including a write-off of goodwill associated with disposals of £479 million - have resulted in the Group recording a loss of £869 million for the year (2001: profit of £70 million). The underlying earnings per share were 7.7p (2001: 13.7p). Free cash flow of £266 million was a marked improvement on last year's outflow of £241 million. Net debt at the year end was down to £3.0 billion and this has been reduced further by the proceeds of post balance sheet disposals.

In the context of the Group's performance and the need to conserve cash and reduce our level of indebtedness, the Board is recommending a final dividend of 1.0p. Together with the interim dividend of 1.0p, this makes a total for the year of 2.0p (2001: 7.7p) and establishes the base from which to grow the dividend dependent on future performance.

Strategy review
In appointing Rick Haythornthwaite, your Board decided that a comprehensive and far-reaching review of the Group's activities was essential to establish a route back to profitable growth. The Board's objective for this process was to find the best option for creating shareholder value. In addition, we were determined that:

• any operational strategy must show a clear route for delivering returns comparable with the Group's international peers;
• we must reduce the span of businesses to those where the market growth potential is attractive and sector leadership is attainable;
• revenues must be driven more by the provision of solutions and services valued by customers than by the manufacture of products that are becoming increasingly commoditised;
• the strategy must achieve substantial debt reduction without destruction of shareholder value;
• the leadership team must put in place the talent and processes to ensure accountability and therefore delivery; and
• investors must be given transparency as to targets, progress and reporting of performance.

Full details of the outcome of the strategy review, its objectives and progress to date are included in the Chief Executive's review.

Acquisitions and disposals
Our focus during the year has been on disposals rather than acquisitions. Among the largest of these was the disposal of the Energy Storage business, completed in March 2002 for £287 million ($425 million). The same month we announced the disposal of Flow Control for £366 million ($535 million), which was completed in May 2002. As part of the strategy review, we identified further businesses for disposal, which now comprise the Industrial Components and Systems division. These businesses will be actively managed to ensure that performance is maintained and full value is realised. We remain confident that we can complete our disposal programme by the end of the current financial year and achieve, in total, at least £1.5 billion to reduce our debt levels.

Corporate governance
We are committed to maintaining the highest standards of corporate governance and much of the new legislation proposed by the UK Department of Trade and Industry, relating to directors' remuneration, reflects what we have previously adopted as best practice.

Sustainable development
Since Invensys was formed, we have continually increased our commitment to broader social responsibility and sustainability. In this year's Report we state our guiding principles, the Invensys Intent. Our new strategy, focused on increasing resource productivity, brings together our corporate commitment in this area and our ability to deliver it for our customers. By also ensuring that the long-term relationships we develop with our stakeholders are built on mutual respect and trust, the Invensys Intent will underpin our strategic goals.

Customers and suppliers
The global economic uncertainty has caused a turbulent time not only for our Group, but also for many of our customers and suppliers. I want to thank all our business partners for their continuing loyalty and to confirm that we are committed to creating ever stronger reciprocal relationships in the future.

Employees
The actions we have had to take in the face of the economic downturn have resulted in a substantial reduction in the number of our employees to 73,000 as at 31 March 2002. This undoubtedly weakened their confidence in the Group's future. We believe that the new strategy will bring greater stability and certainty and the Executive Team has put an immense effort into communicating the new vision and strategy for the Group to all our people. This communications programme will continue in order to ensure that our employees are supported through the present changes and kept fully informed of our progress towards achieving our goals. I thank our employees for their tenacity and loyalty during the past year and add my personal message of encouragement to them to contribute to our ambitious goals in the years ahead.

Board changes
Rick Haythornthwaite joined the Board last July and took over as Chief Executive in October 2001. Allen Yurko retired from his position as Chief Executive in September 2001 and from the Board in January 2002. We are very grateful to Allen for his energy and drive in the formative years of Invensys, as well as his enormous contribution to the growth and success of Siebe between 1989 and 1999.

In March 2002, Larry Farmer joined the Board as a non-executive director. He brings in-depth experience of the oil and gas industry and of project management. In the same month, Hugh Collum retired from the Board. I thank Hugh for his considerable contribution to Invensys and previously to Siebe. In May 2002, Paolo Scaroni joined the Board as a non-executive director. However, his subsequent appointment as Chief Executive of Enel, based in Rome, has required him to step down. We are sorry to lose his services. Bob Bauman will retire from the Board at the AGM in July 2002. I thank him for his very valuable contribution to both Invensys and BTR.

I should also like to record my appreciation to all my Board colleagues for their steadfast support during this year of tough decisions for Invensys. They have shown real determination to fulfil the original intent of the merger in creating a Group to achieve results compatible with the interests of shareholders.

US listing
Last year we announced that we would be seeking to list the Group on the New York Stock Exchange during 2002. Whilst listing remains our intention, we have decided to delay this in order to focus fully on the implementation of our new strategy and the completion of our disposal programme.

Outlook
Orders from automation and controls sectors, particularly in the US, are now increasing in several businesses within our two core divisions of Production Management and Energy Management. However, with the technology sectors remaining depressed, any economic recovery is fragile.

We expect the first benefits from our phased investment in new capabilities and processes to become apparent in the second half. Provided that economic conditions do not deteriorate, we aim to offset the dilutive effect of our recent disposals. At the same time, our net debt and therefore interest payments will continue to reduce with disposal proceeds.

We have set ourselves a bold vision and ambitious targets and the commitment among our employees and managers to these goals is growing day by day. We will continue to combine disciplined process with a systematic development of our talent base, in order to ensure that our strategy delivers the earnings progression of which your company is capable.

Lord Marshall of Knightsbridge, Chairman
14 June 2002