Interim Management Statement

RNS Number : 2813R

Melrose PLC

16 November 2012

 



16 November 2012

MELROSE PLC

INTERIM MANAGEMENT STATEMENT

Melrose PLC today issues the following Interim Management Statement for the period from 1 July 2012 to 15 November 2012.

OVERVIEW

Trading for the Group is in line with expectations for 2012.  However, especially in the last few weeks, slower trends for certain businesses are noticeable compared to those seen in the first half of the year.  The acquisition of the Elster Group was completed successfully in the period and the process of improving its performance is well underway.  The Melrose Board remains confident about the prospects for delivering significant shareholder value over the medium term from this acquisition.

Given that the acquisition of the Elster Group happened part way through the period on 23 August this year, comparisons of trading results within the period and to last year are not consistent.  The most meaningful comparisons can be made for Melrose companies excluding Elster.

For these Melrose companies, revenue, at constant currency has continued to grow in the period compared to the same time last year, by 6% compared to 10% in the first half, giving a year to date revenue growth of 8%.

The overall weekly rate of order intake in the period is 8% lower than the first half of the year but it is too early to tell how this will affect 2013, and it will vary by business.

We have already made significant changes to Elster, and identified larger than expected cost savings.  It is early days to draw meaningful conclusions about the current trends in trading, but initial indications point to current revenue trends having slowed and the boost from European Electricity Smart Meters being delayed.

ENERGY

Revenue in Turbogenerators in the period is up 17% on last year and 13% year to date. The book to bill ratio was 82% which points to OEM sales in 2013 being below this year in value but not in volume terms. This is caused in part by a move in mix toward smaller units but there is also evidence of slower demand for turbines with the consequent effect on turbogenerators.  Despite this, the Board has confidence that any reduction in OEM sales will be largely, if not entirely, mitigated by a number of other positive opportunities.

The new rotor machine, a significant investment in Brush approved last year, is undergoing final testing before being commissioned at the Loughborough, UK factory.  This will improve manufacturing efficiencies, as will the completed restructuring of the Dutch Brush operation and Hawker Siddeley Switchgear.  Indeed substantial capital expenditure has been made in Brush this year, equivalent to twice the level of depreciation and this, along with further identified investment, will be beneficial to margins. The continuing growth of the aftermarket business will also position Brush well for next year.

Marelli is experiencing strong momentum going into next year with revenue up 6% in the period on last year and order intake up 18%.  This growth is being driven by demand for generators and motors toward the top end of their range.

LIFTING

Crosby revenue is up 14% year to date with order intake up 8%.  The pace of revenue growth has slowed in the period but it is still healthy at 6%, although order intake in October and November was trending lower.

Crosby has the ability to benefit from both the demand for oil and the demand for gas, and has the advantage of growing with whichever demand curve is strongest at each point in the cycle.  Crosby has outperformed recent cycles due to its gain in market share, and it has an excellent presence in its market where it is a clear market leader.

Bridon revenue is flat in the period as weaker construction and industrial markets have balanced the continued sales growth in Oil & Gas and Mining.

Bridon has seen significant investment in 2012, which is helping this previously under invested business to be revitalised.  The brand new, leading edge factory supplying the offshore Oil & Gas industry opened on time, and on budget, in Newcastle, UK on 15 November and initial demand indications are encouraging.  The new technology centre in Doncaster opens early next year.  All these actions will help improve the performance of Bridon.

OTHER INDUSTRIAL

The two businesses within the Other Industrial division operate in very specific markets, which are experiencing opposing market conditions.

Truth operates in the US housing market, both new build and renovation, and continues to experience mid single-digit revenue growth and improving margins. Truth will gain from any further recovery in the US housing market into 2013.

Harris is exposed to the US scrap steel cycle which is experiencing difficult market conditions. Revenue and orders are significantly down on last year, however the company retains good operating margins.

ELSTER

Twelve weeks into the Elster acquisition our confidence in being able to improve the performance of the businesses is high.

As with previous acquisitions, restructuring the Group to create shareholder value is well underway.  The operational restructuring announced by Elster at the start of 2012 is on track and is being extended along with the commencement of many other projects to improve performance.

Elster has been streamlined from five divisions into three - Gas, Electricity and Water and management teams are now in place for each division. This means a clear management structure is in place to create accountability and better focus.

Current revenue trends have slowed with deferral of orders into 2013 and the long-awaited growth in European Electricity Smart Meters still seems some way off.  However, the medium term dynamics are still positive and the opportunities for cost reduction via extensive restructuring are larger than previously indicated.

EXCHANGE RATES

Historically the Group's exchange risk has been mainly weighted to the US Dollar.  However, since the acquisition of Elster the exchange exposure is equally weighted between the Dollar and the Euro.  Each ten cent movement in the Dollar or Euro moves profit by 2%.  The weakening of the Euro during 2012 will have some negative impact.

DEBT

Group net debt at 30 June 2012 was £306.5 million.  Post the Elster acquisition the leverage increased from 1.5x at June to just over 2.5x in the enlarged Group.  The outlook for the year end is consistent with this.  Significant capital expenditure at approximately twice the level of depreciation continues to be made.

OUTLOOK

The Melrose businesses are not immune to any worsening of macro-economic conditions internationally, but they are positioned in the strong end markets of Energy and Oil & Gas which should fare better than most over the medium term.  In addition, the Group's five month order book gives protection to the short term outlook.

Trading is in line with expectations for 2012, although revenue trends have slowed, and recently the sales outlook for 2013 has become more uncertain.  Opportunities to improve the Group exist including those arising from the acquisition of Elster and this gives the Board confidence that Melrose will continue to prosper.

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Enquiries: 

M:Communications 

Nick Miles/Ann-marie Wilkinson/Andrew Benbow                           [phone]

 

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