At the time of our interim results in November, there were clear indications that our transformation programme was starting to work in areas where management had focused its resource. Since then, our disposal of designated non-core businesses has been completed, banking covenants have been consistently met and margin improvement has been achieved in a number of businesses, most notably in Production Management. However, a minority of under-performing businesses have reported disappointing results with trading conditions continuing to weaken. As a consequence, your Board recognises the need to secure a greater level of financial stability for the Group.

In April, we announced that we will be disposing of further businesses and focusing on Production Management. We will also continue to develop our Rail Systems business. The remaining businesses in the Group will be divested, either partially or wholly, by seeking suitable equity partners or new owners, as appropriate to the development needs of each business. A structured and phased process to achieve this is already underway. Proceeds raised from asset sales will be used to satisfy the cash requirements of the Group, including reduction of indebtedness and funding of pension schemes, as well as the investment required to grow market share in Production Management and Rail Systems and return the Group to overall profitability and earnings per share growth.

On completion of these actions, your Board believes that Invensys will offer investors a smaller Group possessing higher quality growth prospects and leading competitive positions, financed by a stronger balance sheet. In seeking to create value for shareholders, the priority will be to establish stability, to provide assurance for customers and employees and to achieve margin improvement. More information on the new structure of the Group going forward is provided in the Chief Executive’s review.

Results summary and dividend
Group sales were down 28% at £5,018 million (2002 £6,972 million), principally due to the sale of non-core businesses that last year contributed sales of £2,349 million. Group operating profit before exceptional items, goodwill amortisation and goodwill impairment fell by 40% to £330 million (2002 £549 million). Corporate and operating exceptional items, including a write off of goodwill associated with disposals of £1,321 million and goodwill impairment of £585 million, have resulted in the Group recording a loss of £1,442 million for the year (2002 loss of £869 million). The underlying earnings per share for continuing operations were 2.2p (2002 2.8p). Free cash flow of £87 million was £179 million lower than the previous year, mainly due to a reduction in operating profit of £219 million. Net debt at the year end was down to £1,556 million.

In the context of the Group’s performance, the Board is recommending that no final dividend be paid. Given the interim dividend of 1.0p, this makes a total for the year of 1.0p (2002 2.0p).