Interim Management Statement

RNS Number : 3435T

Melrose Industries PLC

19 November 2013

 



19 November 2013

MELROSE INDUSTRIES PLC

INTERIM MANAGEMENT STATEMENT

Melrose Industries PLC issues the following Interim Management Statement for the Period from 1 July 2013 to today (the "Period").

 

EXECUTIVE SUMMARY

 

Trading for this year is in line with expectations with Elster continuing to perform strongly and the remaining FKI businesses trading as planned.

 

This year has seen the realisation of value from approximately half of the FKI businesses, representing a quarter of the Melrose Group headline operating profit in 2012. Marelli and Truth have been sold and the Crosby and Acco disposal is expected to complete shortly. In total these four businesses will have delivered more than a tripling of shareholder value during the five years of Melrose's ownership.

 

On completion of the sale of Crosby and Acco, the three Elster businesses will form two thirds of the revenue of the continuing Group and the Board remains confident it can achieve further improvement in each of their operating performances next year.

 

ELSTER¹

 

After adjusting for the market closures in the Water business, Elster's sales and orders were 4% and 2% up respectively against the comparable period last year. Many improvements and changes have been implemented in Elster and the headline operating profit has continued to improve as planned.

 

Each of the businesses has performed in line with expectations with the most marked increase in performance coming from the Water business which is close to completing its restructuring programme and has more than doubled headline operating profit.

 

The Electricity business is well-placed to gain from the European roll out of Smart metering which is beginning to pick up pace. Order intake was up by 14% in Electricity in the Period.

 

The Gas business is expected to be the source of most value creation in Elster over the medium term and the strategy is now in place to benefit from the growth in Gas usage around the world and also from some Smart metering developments. Sales in the Period were 8% up in the Gas business.

 

ENERGY

 

The Energy division is trading in line with expectations. This division has seen a difficult sales environment for some time now but there are early signs of improvement in the market with customer enquiries increasing. Order intake in the Period has increased although care must be taken in extrapolating too much from what is a relatively short period in the Energy cycle.

LIFTING

 

Following the sale of Crosby and Acco, Bridon will be the only trading company in this division.

 

Bridon accounted for half of the Lifting division's sales at the half year and should maintain that level of sales in the second half at a margin similar to the 13% it made last year. The negative effect on this year for Bridon, as discussed at the half year, is a slowdown in mining orders which make up around 20% of Bridon's sales. The medium term prospects remain good in its high end technical sales particularly in deep water offshore oil & gas. The new factory, in Newcastle upon Tyne, which opened this time last year is performing well and is expected to make a small profit this year. This factory will be a contributor to the expected improvement in Bridon's performance over the next couple of years.  Order intake in Bridon was up in the Period.

 

EXCHANGE

 

At the moment exchange rates are in a range which allow the Group to trade in line with expectations for this year but do cause a headwind of approximately 2% to profit for next year.

 

Current exchange rates also cause an adverse movement this year to net debt of approximately £30 million.

 

CASH GENERATION AND NET DEBT

 

The underlying cash generation from the businesses remains strong although this year we will spend approximately £60 million of cash, largely on restructuring Elster.

 

The biggest movement in net debt this year is due to the disposals which should raise a net total of approximately £900 million. This cash should all be received by the end of the year and if so net debt should be approximately equal to half of the continuing Group's EBITDA for the year.

 

RETURN OF CAPITAL TO SHAREHOLDERS

 

Assuming the disposal of Crosby and Acco completes as expected, your Board intends to return capital to shareholders in the early part of next year. Your Board is contemplating a return of capital in the region of £600 million although the precise quantum of this has not yet been decided.

 

OUTLOOK

 

The outlook for Elster is encouraging with the improvement in operating margins set to continue into 2014. We also expect further improvement in performance from Brush and Bridon in 2014. Revenue growth across the Group still remains hard to find but there are some early signs that 2014 could also be a better sales environment.

 

We are pleased with the way the Group is trading this year and with the substantial shareholder value created.

 

 

¹ Elster comparative numbers include a period prior to its acquisition by Melrose and were prepared under previous ownership and under US GAAP

 

-ends-

 

Enquiries:

CTF Corporate & Financial:

Charlotte McMullen / Kate Ruck Keene                                                [phone]

 

END

 

 

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