Results for the six months ended 30 June 2013

RNS Number : 6938M

Melrose Industries PLC

29 August 2013

MELROSE INDUSTRIES PLC

UNAUDITED RESULTS

FOR THE SIX MONTHS ENDED 30 JUNE 2013

Melrose Industries PLC today announces its interim results, which are reported under IFRS, for the six months ended 30 June 2013.

Highlights¹

§ Headline² results

- revenue of £1,022.2 million (2012: £466.2 million)

- operating profit of £165.0 million (2012: £75.8 million)

- Profit before tax of £139.4 million (2012 : £65.9 million)

- Diluted earnings per share from continuing and discontinued operations of 8.6p (2012: 8.2p), up 5%

§ Results after exceptional items and intangible asset amortisation

- Profit before tax of £92.5 million (2012: £31.2 million)

- Diluted earnings per share of 5.1p (2012: 3.1p)

§ Net debt of £1,060 million equal to 2.6x EBITDA^3,4 excluding any disposal proceeds

§ Interim dividend increased by 6% to 2.75p per share (2012: 2.6p)

§ Elster² acquisition performing very well

- operating profit of £91.2 million up by over one third on last year

- operating margin of 16.0% (2012: 11.1%), achieving the acquisition target two years ahead of plan

- profit conversion to cash of 93%

- All three sectors, Gas, Electricity and Water have improved profitability

§ New agreement to supply Brush turbogenerators in China to Huadian GE Aero Gas Turbine Equipment Company LTD

§ Truth and Marelli sold, since the half year ended, for a combined price of £312 million which multiplies the original equity investment in these companies by four times

¹ continuing operations only unless otherwise stated

² before exceptional costs, exceptional income and intangible asset amortisation

³ per bank facility covenant

⁴ headline² operating profit before depreciation and amortisation

Christopher Miller, Chairman of Melrose Industries PLC, today said:

"Elster is fast proving to be another great acquisition with profit already up by over a third. We have achieved our original target for improving margin two years quicker than expected and more plans are underway. With the excellent progress achieved at Elster and substantial shareholder value being created from disposals, 2013 is looking like it could be a very successful year."

An Analysts' meeting will be held today at 11.00 am at Investec, 2 Gresham Street, London EC2V 7QP

Enquiries :

CTF Corporate & Financial:

Charlotte McMullen/Kate Ruck Keene +44 (0) 203 540 6460

CHAIRMAN'S STATEMENT

I am pleased to report Melrose's interim results for the six month period to 30 June 2013.

RESULTS FOR THE GROUP

Revenue for the continuing businesses in the period was £1,022.2 million (2012: £466.2 million) and headline profit before tax (before exceptional costs and intangible asset amortisation) increased to £139.4 million (2012: £65.9 million).

The comparative period for 2012 does not include results from Elster which was acquired on 23 August 2012.

Truth, our window and door hardware business, was sold on 3 July 2013 for £134.6 million. Marelli Motori, a manufacturer of industrial electrical motors and smaller generators, was sold on 1 August 2013 for £176.9 million. The income and cash flows from these two businesses are shown as discontinued in the period.

Headline diluted earnings per share ("EPS") on continuing and discontinued businesses was 8.6p (2012: 8.2p) an increase of 5%.

Further details of these results are contained in the Finance Director's Review.

DIVIDEND

Your Board has declared an interim dividend of 2.75p per share (2012: 2.6p) an increase of 6%. The dividend will be paid on 17 October 2013 to shareholders on the register at close of business on 20 September 2013.

TRADING

In current economic conditions revenue growth remains challenging and order books are still reflecting the uncertainty of the last few years. However, we are seeing early signs of improvement in 2014 and, in the meantime, we continue to focus on operational improvement. Operating margins have increased in nearly all of our businesses this year.

It is a year since our acquisition of Elster and I can report excellent progress. Our initial target of improving margins by 3 percentage points over three years has been achieved in a single year. We have re-set our sights and we are confident there is more to come. Demand for Elster's products remains good and revenue for the largest division, Gas, is up 4% over the same period last year. Restructuring projects, particularly in the Electricity and Water divisions, have yielded substantial early results and while these projects are now virtually complete we expect the benefit from them to accrue over the next few years. The outlook for Elster is exciting.

We continue to invest in our businesses which reflects our confidence in their prospects. Of particular note is a £30 million project to build a new Brush factory in Shanghai to supply Huadian GE Aero Gas Turbine Equipment Company LTD. The factory is expected to be operational in late 2015.

Cash generation continues to be strong with tight control of working capital an ongoing focus.

More detail on trading is included in the Chief Executive's Review.

STRATEGY

Our strategy of buying businesses, improving them and realising their value at the appropriate time - together with associated returns of capital - is now well recognised. We have been focusing on improving all of our businesses and in particular, Elster, our latest acquisition, but not ignoring the other elements of the Melrose model. After the period end, as mentioned earlier, we sold Truth and Marelli Motori. In addition a process for the potential sale of Crosby has begun and is proceeding well. It is our intention after a successful conclusion of the Crosby process, to consider a return of capital for a meaningful part of the combined proceeds. At that stage, we will begin actively looking for another acquisition to start another cycle of value creation. As usual, we will be highly selective and so no precise time frame can be attached to it.

OUTLOOK

As noted previously, order books and sales in certain of our 'FKI' businesses have not been as strong as we would wish in recent periods, largely due to financial and economic uncertainty in parts of the world. We see conditions slowly improving in this respect and we expect 2014 to be a better year. Elster has made a much better than expected contribution to the Group in its first year with more to come. Demand for its products remains good and, combined with further margin enhancements, this gives us confidence for the balance of 2013 and 2014.

Christopher Miller

Chairman

29 August 2013

CHIEF EXECUTIVE'S REVIEW

ELSTER

Each of the three Elster divisions of Gas, Electricity and Water made excellent progress during the first half of 2013, following their acquisition by Melrose in August 2012. The reorganisation of Elster into three distinct global businesses has driven significant operational improvements. This will enable Elster to exploit the projected long term growth in the various end markets in which the Elster businesses operate.

ELSTER GAS

Period ended 30 June	2013
£m
Revenue	348.1
Headline Operating Profit	76.1

Revenue within Elster Gas increased by more than 4 per cent when compared to the same pre-acquisition period last year. This was driven by strong sales of standard residential gas meters both in Europe and the US. Demand was particularly strong in Eastern Europe and Russia due to a number of replacement programmes for life expired meters, while in Western Europe the much publicised delay in the roll out of Smart gas meters has temporarily increased requirements for standard meters. In the US, the major East Coast utilities have all begun infrastructure replacement projects following the extensive damage caused by Hurricane Sandy last year; Elster Gas has benefited in this area from its significant share of the worldwide gas residential meter and connections market.

As a result of the various margin improvement actions, coupled with strong operational control, headline operating profit increased by 9 per cent when compared to the comparative period pre-acquisition last year.

During June 2013, Smart gas meter deliveries began in the UK as part of the foundation phase of the residential Smart meter programme. The UK represents the largest gas meter market in Western Europe.

In Italy, Elster Gas has launched its unique Themis Plus commercial and industrial gas meter, which is the first commercial and industrial diaphragm meter in the world to automatically compensate for both gas pressure and temperature; this allows for the standard volume to be remotely read. Until now, these functions have been carried out by separate devices and the Italian regulatory authorities have indicated that 400,000 meters will be replaced by 2016.

During the first half of 2013, Elster Gas acquired the remaining 41 per cent minority interest in its Russian joint venture company, GasElectronica, at a cost of £9.8 million. Russia is the largest gas meter market outside the US, with 27 million meter points and GasElectronica is the leading player in both residential and commercial & industrial sectors. In the last two years revenue from this company has increased by 50 per cent. With a state led meter replacement programme due to commence shortly, coupled with initial trials of Smart gas meters underway in Moscow, we are confident that GasElectronica is well positioned to benefit from these growth markets.

The healthy order intake for residential meters in the first half of the year, combined with an increase in Smart meter volumes and an improving process heat control equipment order book, means Elster Gas is well placed for a good second half performance.

ELSTER ELECTRICITY

Period ended 30 June		2013
£m
Revenue		117.9
Headline Operating Profit		6.2

Initiatives to further strengthen and improve operational efficiency within the Elster Electricity division are progressing well. The refocusing of the Elster Electricity business in North America has now largely been completed, which includes enlarging the production facility in Mexico. Consolidation of the international footprint is also well underway. In Europe, certain manufacturing processes have successfully been relocated to a central European manufacturing centre based in Romania. In Brazil and China operations have been streamlined. These changes have contributed to a significant increase in operating profit when compared to the first half of last year.

The key focus for the Elster Electricity business throughout the world has been to ensure that sales, engineering and administration functions are organised to deliver greater customer satisfaction. Investment is being made available for Elster Electricity to continue with its strategy to develop its automated production capacity, together with product engineering to create meters with greater performance and lower costs. As part of this approach, a new software suite called Callisto was launched during the first half of 2013, which integrates applications from external providers and makes it easier for utilities to implement and run a Smart meter system. Elster Electricity has also launched Enacto in the first half of 2013, a software system that improves energy management. In close cooperation with important Central European customers Elster Electricity has implemented a Smart meter pilot with the new G3-PLC standard, which delivers the highest security standards seen to date in the market.

As part of its engagement in Smart metering projects around the world, Elster Electricity is active in industry and government bodies to define meter data communication standards to meet the requirements of consumer organisations, as well as regulators, in particular delivering low total operating costs and a high level of data security.

Elster Electricity has secured several significant Smart meter pilot projects in countries including Russia, France, Germany, Spain, Canada, Mexico and the US. With the EU countries committed to installing Smart meters in all households by 2022, and further focus on optimising the electricity grid in North and South America, the Elster Electricity business is well positioned for future profitable growth.

ELSTER WATER

Period ended 30 June		2013
£m
Revenue		103.2
Headline Operating Profit		10.5

Elster Water delivered a very good "year-on-year" operating improvement during the first half of 2013. This followed its recent product line and facility restructuring programme, which was commenced in 2012 and continued through the first half of 2013. All current restructuring programmes are expected to be completed during the third quarter of this year, with additional benefits being achieved from the second half of this year. Elster Water will then be in a strong position to exploit growth opportunities with its core products in key markets.

Elster Water revenue was down by 13 per cent compared to the same period last year, mainly as a consequence of deliberate cessation of unprofitable sales. However, the decision to close under-performing businesses in Italy, Poland and Colombia, along with the rationalisation of product lines in Germany and the cessation of mechanical meter manufacturing in North America, improved profitability dramatically. Operating profit increased by more than 100 per cent as the benefits of business restructuring, production efficiency, price-mix improvement and material cost reduction initiatives were realised.

Alongside this restructuring, Elster Water renewed its focus on innovative, high accuracy, advanced mechanical and electronic meters, which are providing customers with enhanced metering solutions, thus supporting both optimised revenue collection and conservation objectives.

Significant capital expenditure was also approved during the period in order to increase the capacity of polymer bodied meter production. This investment will be made during the second half of the year.

In North America Elster Water has been very successful in developing its sales of electronic meters in conjunction with its customers and business partners. With positive feedback from the market to date, Elster Water expects a high level of future growth from these products.

The variable aspects of the business, such as commodity cost volatility, are not expected to give rise to major risks in the short to medium term. The revenue outlook in key markets remains positive for 2013 and Elster Water expects to sustain its improved performance into the second half in order to end its first full year under Melrose ownership with a transformed business performance.

ENERGY

Period ended 30 June	2013	2012¹
£m
Revenue	167.4	174.6
Headline Operating Profit	35.8	36.1

¹Restated to include the results of Marelli within discontinued operations

BRUSH

Brush performed well during the first half of 2013 within a challenging environment. Operating profit was similar to the levels achieved in the same period last year, with revenue slightly lower.

As indicated in previous announcements, within the Turbogenerators business, macro-economic factors typically take time to impact new machine order intake, due to the 'late cycle' nature of the industry. The Eurozone crisis and its global repercussions served to create delays in the level of funding approvals and uncertainty in investment decisions. This had a negative effect on order intake levels from Brush's Turbine OEM customers and is expected to continue through to the first half of 2014.

Whilst the overall turbine market is believed to be down by approximately 40 per cent, the Brush Turbogenerators business has managed to deliver superior performance with generator revenue down by just 6 per cent during the first half of 2013. This performance has included a higher than normal proportion of smaller machines.

Brush continued to make efficiency gains in order to mitigate the difficult economic conditions. Investment is also being made to update production machinery and facilities, together with a restructuring of its operations in the Netherlands.

A new investment is being made within Brush to build a factory in the Shanghai area of China, which will require a £30 million investment over the next 2-3 years. As part of this investment Huadian GE Aero Gas Turbine Equipment Company LTD has agreed to purchase 90% of its generator requirement during the period from 2015 through 2020 from the new factory. When this new development is operational it will serve the domestic Chinese market and support Brush's key Turbine OEM customers in order to satisfy the growing market for gas turbine driven power generation. It is anticipated that the Chinese factory will enter production during the second half of 2015.

Considerable investment and resources are being applied to the continuous development of the Brush generator product range. Significant success is being achieved in increasing the efficiency and power outputs of the trusted DAX range. Such developments will ensure that Brush continues to remain at the forefront of technology, in order to maintain and expand its market leading position.

The first air cooled 200MW 2-pole generator was developed last year. This new product is in its final stages of manufacture, with first deliveries due to be made to customers towards the end of 2013.

The growth and development of the Aftermarket business continues to be a key priority, in order to capitalise on the significant fleet of Brush machines in the global market. During the first half of 2013, the decision was made to create a new global division for the Aftermarket business, in order to focus on growth and allow for workshop facilities and service engineers to be managed more efficiently as one global operating division. The Aftermarket business in the US will also benefit from a significant capital investment, which is in the process of being made, in order to increase both efficiency and capacity. Order intake within the Aftermarket business is up by 19 per cent on the previous year as a result of these various initiatives.

Revenue within the Brush Transformers business increased by 13 per cent on last year. An investment programme to reorganise the production process and value engineer the product is nearing completion and has resulted in significant margin improvements. Additional capabilities are also being developed to design and manufacture high voltage 132kV transformers, in order to support distribution customers in the UK and open up increased export potential for these products.

The Hawker Siddeley Switchgear ("HSS") business is experiencing another strong year. Although revenue during the first half was only marginally higher than the same period last year, operating profit was up by 40 per cent. The HSS business was able to benefit from a restructuring programme carried out in 2012, together with a capital investment project to upgrade factory production lines, which is nearly complete. New product development remains a key priority for HSS, as the second half outlook remains positive for this business.

Overall, the Brush division remains well positioned for growth, due to the medium and long term growth prospects in power generation markets and in particular the aero-derivative gas turbine sector, where Brush has a strong leading market position. Entry into the Chinese market will also allow for additional growth opportunities, as will a continued focus on operational improvements, development of the Aftermarket business, further reorganisations, product development and capital investment.

LIFTING

Period ended 30 June	2013	2012
£m
Revenue	266.7	266.3
Headline Operating Profit	50.4	47.2

BRIDON

Revenue within Bridon was comparable with the same period of last year. However, operating profit increased due to continued productivity gains in the business, improved efficiencies and a continued focus on higher margin products despite increased price pressures.

There was a mixed performance during the period from Bridon's key end-user markets. Within the Oil & Gas sector, Bridon's largest end-user market, activity and customer order books remained strong, with projects continuing despite economic uncertainty. Bridon has continued to experience a high level of customer enquiries and quotation requests from its customers in the Oil & Gas industry, although final order placement on a number of key projects has been slower than expected.

Customer demand from Offshore activity continued to be strong with a number of new projects identified. Demand for drill lines and riser tensioners is well ahead of last year. Bridon's ability to supply high quality, reliable and safe rope solutions in demanding conditions is key to winning business from oil companies, in order to help them meet the challenges of increasingly difficult operating environments, particularly in deep-water exploration and production.

Customer orders within the mining market have been weaker than expected, as there has been some destocking within the supply chain, particularly in North America and Russia. The recent strikes in South Africa have affected a large number of mines; this has impacted demand creating excess capacity in the market.

Growth within the Brazilian market has continued, due to both the development of the Oil & Gas market and the establishment of a Bridon service centre; customer orders from these new emerging markets are being satisfied by Bridon's European and North American factories.

Bridon's new Neptune facility, based on the deep-water port of the river Tyne in Newcastle, is now fully operational and will continue to focus on production of the larger and heavier ropes. Early orders are now being received and customer reaction has been very encouraging. The Wire Mill in Doncaster, UK, continues to perform well. The new Technology Centre, also based in Doncaster, was opened in February 2013, following a £4.5 million investment and has already been used for complex investigations and customer testing; and will assist Bridon in further developing rope performance.

Although order intake during the first half of 2013 was weaker than anticipated, the underlying markets and quotation activity remain strong. Bridon has a leading market position in sectors with favourable prospects, such as Oil & Gas and mining, so longer term prospects remain good.

CROSBY

Crosby experienced a good start to the year. Performance was driven by several growth and profit initiatives which were launched in late 2012 and early 2013, the benefits of which are now being realised.

Construction markets in North America are showing signs of improvement and prospects within the Oil & Gas industry remain steady and ready for growth as global economic conditions improve. Crosby remains well positioned to take advantage of this.

An increased focus has been placed on developing growth opportunities in locations such as China, Latin America and the Pacific Rim. Brazil and China continue to be priority markets for Crosby, as their respective offshore energy sectors continue to show high growth potential. Crosby is also exploring promising growth opportunities in Chile, Mexico, Peru, South Korea and Japan.

In China, the expansion of Crosby's Block and Sheave Centre has now been completed, which will nearly double the size of the facility. Efforts are ongoing to expand production capabilities in terms of both volume and product range. The Hangzhou facility achieved both its API Q1/8C and key OEM customer certifications last year; as a result of this it is expected that mobile crane and land-based and offshore rig OEM companies will continue to increase the number of orders that can be satisfied within China.

Several large capital investment projects are in the process of being implemented within Crosby's facilities in the US and Canada, designed to improve operational performance. These investments include new machinery such as a large forging hammer, induction heaters and expansion of powder coat/paint lines, as well as a modernised galvanizing facility. This investment will assist Crosby in improving quality, reducing cost and providing the necessary production growth capacity.

In keeping with its long history of developing innovative new products, Crosby released a new ultra cold temperature swivel hoist ring line during the first half of 2013, at the request of global energy equipment manufacturers. This product will initially be used for handling subsea well control equipment and is approved for working load limits up to 28,000 lbs.

The current strength of Crosby's order book and the predicted strength of oil prices should enable Crosby to perform above the levels achieved in 2012. The business is focusing on operational excellence and supply chain management in order to ensure it can continue to deliver future growth.

ACCO

Acco performed extremely well during the first half of 2013 from a profitability perspective, with operating profit up on the prior year. This was achieved due to a favourable product mix and a continued focus on achieving labour efficiencies.

By focusing on supplying specialty markets the outlook remains positive for this business for both the remainder of this year and into 2014.

OTHER INDUSTRIAL

Period ended 30 June	2013	2012¹
£m
Revenue	18.9	25.3
Headline Operating Profit	0.7	2.2

¹Restated to include the results of Truth within discontinued operations

HARRIS

Both revenue and orders for Harris decreased during the first half of 2013, as demand for scrap waste recycling machines fell. Consequently, this has also had a negative effect on operating profit.

During the year, Harris continued to implement customer strategies in order to strengthen its position within the scrap and waste recycling industries. This included a focus on site equipment evaluations and technical training, together with an expansion of the Harris distribution network by adding three new distributors in the Southwest, Mid Atlantic and Southeast regions of the US. The business also continued to expand its presence in Latin America in order to get a foothold within the growing recycling industry.

Despite these efforts it is expected that economic conditions will remain difficult for Harris, as the slowdown in key scrap generation markets is expected to continue for the remainder of 2013.

Simon Peckham

Chief Executive

29 August 2013

FINANCE DIRECTOR'S REVIEW

CONTINUING AND DISCONTINUED OPERATIONS

The continuing operations at 30 June 2013 consist of four divisions, namely Elster, Energy, Lifting and Other Industrial. Elster was acquired on 23 August 2012 and so distorts the comparisons to last year.

In addition two businesses, Truth and Marelli, are shown on the Balance Sheet as held for sale at 30 June 2013 and their income and cash flows are shown as discontinued in all periods. Both of these businesses have been sold since the half year.

TRADING RESULTS - CONTINUING OPERATIONS

To help understand the results of the continuing operations the term 'headline' has been used. This refers to results calculated before exceptional items and intangible asset amortisation as this is considered by the Board to be the best measure of performance.

For continuing operations, revenue for the six months ended 30 June 2013 was £1,022.2 million (2012: £466.2 million). Headline operating profit was £165.0 million (2012: £75.8 million) and the Group headline operating margin (defined as headline operating profit as a percentage of revenue) for the six months was 16.1% (2012: 16.3%). Headline profit before tax for the Group was £139.4 million (2012: £65.9 million).

After exceptional items and intangible asset amortisation, operating profit was £118.1 million (2012: £50.1 million) and profit before tax was £92.5 million (2012: £31.2 million).

TRADING BY DIVISION - CONTINUING OPERATIONS

A split of revenue and headline operating profit by division is shown in the table below. The performance of these trading divisions is discussed in the Chief Executive's review.

	2013			2012
	Revenue £m	Headline operating profit/(loss) £m	Headline operating margin %	Revenue £m	Headline operating profit/(loss) £m	Headline operating margin %
Elster	569.2	91.2	16.0	-	-	-
Energy	167.4	35.8	21.4	174.6	36.1	20.7
Lifting	266.7	50.4	18.9	266.3	47.2	17.7
Other Industrial	18.9	0.7	3.7	25.3	2.2	8.7
Central - corporate	-	(6.1)	-	-	(5.7)	-
Central - LTIPs⁽¹⁾	-	(7.0)	-	-	(4.0)	-
Continuing Group	1,022.2	165.0	16.1	466.2	75.8	16.3

⁽¹⁾long term incentive plans

Central costs comprise £6.1 million (2012: £5.7 million) for corporate costs, £2.0 million (2012: £1.5 million) for the Melrose share-based Incentive Scheme and £5.0 million (2012: £2.5 million) for the cash based incentive schemes for the senior operational management within the businesses, including Elster for 2013 only.

EXCEPTIONAL ITEMS

In the six months to 30 June 2013 the Group incurred exceptional operating costs of £11.3 million (2012: £14.8 million) which relate to further restructuring programmes within the Elster businesses totalling £9.0 million and £2.3 million of disposal costs primarily relating to Truth and Marelli.

The charge for amortisation of intangible assets in the period was £35.6 million (2012: £10.9 million) with the increase relating to Elster.

FAIR VALUE EXERCISE

Following the Elster acquisition in August 2012, the extensive review of the Elster assets, liabilities and accounting policies in accordance with IFRS 3 "Business Combinations" has now been completed.

Since the year end this review has resulted in goodwill increasing by £29.3 million with corresponding increases to provisions of £32.9 million, deferred tax assets of £5.2 million, and other payables of £0.9 million. In addition inventory and property, plant & equipment reduced by £0.6 million and £0.1 million respectively.

A summary of the total provisions now being held is included later in this review.

EARNINGS PER SHARE ("EPS")

The EPS numbers have been restated in each period for the classification of Truth and Marelli as discontinued operations and for the adoption of IAS19 (revised) "Employee benefits", discussed in the pensions section of this review.

Truth and Marelli were both owned for the entirety of the period and therefore the headline diluted EPS for both continuing and discontinued operations is considered to be the most accurate reflection of performance for the first half of 2013. On this basis the headline diluted EPS was 8.6p which is up 5% compared to last year.

In addition to the headline numbers, in accordance with IAS 33, two sets of basic and diluted EPS numbers are disclosed on the face of the Income Statement, one for continuing operations and one that also includes discontinued operations. In the six months ended 30 June 2013 the diluted EPS for continuing operations was 5.1p (2012: 3.1p) and for continuing and discontinued operations was 5.9p (2012: 4.5p). These are calculated after exceptional costs and amortisation of intangible assets.

TAX

The Group Income Statement headline tax rate for continuing businesses in the period was 28% (2012: 25%). This rate has increased due to the addition of Elster which has a tax rate above the Group average. After exceptional items the tax rate in the period was 28% (2012: 27%).

The continuing Group paid £21.6 million of tax in the period which equates to a rate of 15% on headline profit before tax.

CASH GENERATION AND NET DEBT

During the first six months of 2013 the operating cash generated before capital expenditure as a percentage of the relevant profit measure was 86% (2012: 82%). An analysis of the cash generation performance for the six months to 30 June 2013 is shown in the table below:

Cash flow from trading (after all costs including tax)	Six months ended 30 June 2013 £m
Headline operating profit	165.0
Depreciation and amortisation of computer software and development costs	23.6
Working capital movement	(25.5)
Headline operating cash flow (pre capex)	163.1
Headline EBITDA conversion to cash (pre capex) %	86%
Net capital expenditure	(26.0)
Net interest and net tax paid	(34.7)
Defined benefit pension contributions	(16.0)
Net other (including discontinued operations)	(23.2)
Cash inflow from trading (after all costs including tax)	63.2
Movement in net debt	£m
Opening net debt	(997.7)
Cash flow from trading (after all costs including tax)	63.2
Net cash flow from acquisitions and disposals	(20.0)
Amount paid to shareholders	(63.3)
Foreign exchange and other non-cash movements	(42.6)
Closing net debt	(1,060.4)

Total cash inflow from trading after all costs in the period was strong at £63.2 million. The increase in net debt in the period of £62.7 million includes a £40.3 million adverse foreign exchange impact and significant restructuring costs and spend on provisions in the period of £42.5 million. Despite this, the increase in net debt has been kept to a minimum.

The net debt at 30 June 2013 of £1,060.4 million does not include the net proceeds from the disposal of Truth on 3 July 2013 or Marelli on 1 August 2013 which totalled approximately £300 million. These disposals are discussed in the Post Balance Sheet section of this review.

CAPITAL EXPENDITURE

The net capital expenditure to depreciation ratio was 1.1x in the six months to 30 June 2013. Whilst this ratio is below the long term average for Melrose of 1.3x, it was 1.6x for the non-Elster businesses and was particularly high in the Energy division. The ratio for Elster was 0.7x while the Board assesses strategies for these businesses but this is expected to increase in the second half of 2013.

The net capital expenditure and depreciation by division for the period was as follows:

	Elster	Energy	Lifting	Other Industrial	Central	Total
Net capital expenditure £m	9.8	7.9	7.9	0.2	0.2	26.0
Depreciation £m	13.4	3.0	6.4	0.5	0.3	23.6
Net capital expenditure to depreciation ratio	0.7x	2.6x	1.2x	0.4x	0.7x	1.1x

PROVISIONS

Total provisions as at 30 June 2013 were £266.6 million (31 December 2012 restated: £287.2 million) the largest elements of which relate to environmental, legal and warranty provisions of £171.5 million. The following table details the movement in provisions in the period and shows that the cash spend in the period was balanced by the extra provisions identified in Elster following the completion of the fair value review along with the new restructuring programmes signed off in the period.

The table also shows that the net charge to headline operating profit in the period was £8.7 million which included £5.0 million of divisional LTIP charge along with normal warranty expense in the period.

		Total £m
At 31 December 2012 ⁽¹⁾		287.2
Utilised - cash spend		(42.5)
Utilised - non cash spend		(5.2)
Net charge to headline operating profit		8.7
Net charge to exceptional costs		9.0
Other (including foreign exchange)		9.4
At 30 June 2013		266.6

⁽¹⁾ restated to reflect the £32.9 million of provisions identified from the completion of the acquisition accounting of Elster

During the six months to June 2013 the cash spend on provisions was £42.5 million which included £29.1 million for the restructuring programmes and fair value provisions set up following the acquisition of Elster. The remaining net cash spend relates to the non-Elster businesses and includes £1.6 million for the Crosby Forge France restructuring programme announced in 2012 and a £3.4 million divisional management LTIP payment.

As discussed in the exceptional items section of this review, further restructuring has been announced in the Elster businesses in the period totalling £9.0 million. This is mostly expected to be spent in the second half of 2013.

The other movements on provisions in the period relate to the net effect of the unwind of discounting on long term provisions, the reclassification of a provision as held for sale and the foreign exchange impact in the period.

LEVERAGE AND INTEREST COVER

Leverage for banking purposes, being the net debt to headline EBITDA ratio calculated using average rates, was 2.60x at 30 June 2013 (31 December 2012: 2.64x). The covenant test at 30 June 2013 was 3.50x and so sufficient headroom existed.

The calculation of EBITDA for the last twelve months includes the results of the Elster businesses for the period despite being under previous ownership for the first seven weeks of that time. The pre-ownership period is adjusted to approximate the impact of the transition to IFRS and the impact of the fair value review in this period.

The interest cover at 30 June 2013 was 10.2x (31 December 2012: 9.1x) and is therefore comfortable against the interest cover covenant test of 4.0x.

PENSIONS

The Group has a number of defined benefit and defined contribution pension plans.

On 1 January 2013 IAS19 (revised) "Employee benefits" was adopted which increased the pre-tax pension expense in the period by £3.5 million compared to what it would have been under the previous IAS19 guidance. The comparative period has been restated to reflect these new rules which has reduced headline operating profit by £0.9 million and increased interest expense by £1.2 million in the six month period to 30 June 2012.

The most significant pension plans in the Group are the FKI UK Pension Plan, the FKI US Pension Plans, The McKechnie UK Pension Plan and the Elster US Pension Plans. These plans represented 91% of the Group's defined benefit plan obligations and 98% of the Group's defined benefit plan assets as at 31 December 2012. The valuation of these Plans was updated as at 30 June 2013 by independent actuaries to reflect updated key assumptions.

The accounting deficits relating to these Plans totalled £97.0 million (31 December 2012: £158.0 million). These Plans had assets at 30 June 2013 of £1,088.9 million (31 December 2012: £1,025.3 million) and liabilities of £1,185.9 million (31 December 2012: £1,183.3 million).

The two main reasons for the reduction in the deficit on these plans were due to the US discount rate increasing from 3.9% to 4.6%, which reduced the value placed on liabilities by £21.5 million, and also due to good asset returns on all pension plans, which resulted in gains of £39.2 million.

Total assets and liabilities in the Group's defined benefit plans have also been updated to reflect the £16.0 million of contributions made by the employer companies and the benefits earned during the period to 30 June 2013.

The Melrose Group contributes £20.0 million to the FKI UK Pension Plan and £5.2 million to the McKechnie UK Pension Plan per annum.

EXCHANGE

Exchange rates used in the periods included in this interim report were:

	Average rate	Closing rate
US Dollar:
Six months to June 2013	1.54	1.52
Twelve months to December 2012	1.59	1.62
Nineteen weeks to December 2012 used for the Elster businesses	1.61	1.62
Six months to June 2012	1.58	1.57
Euro:
Six months to June 2013	1.18	1.17
Twelve months to December 2012	1.23	1.23
Nineteen weeks to December 2012 used for the Elster businesses	1.24	1.23
Six months to June 2012	1.22	1.24

The main exposures to foreign currencies within the Group are the US Dollar and the Euro.

Overall the translation effect on the Group results for the six months to 30 June 2013 was to increase both continuing Group revenue and headline operating profit by 2%.

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks and uncertainties faced by the Group have not changed from 2012. In summary the financial risks include liquidity risk, finance cost risk, exchange rate risk, contract and warranty risk, commodity cost risk and pension risk. These risks have the potential to affect the Group's results and financial position during the remainder of 2013. A more detailed explanation of risks and uncertainties is set out on pages 37 to 39 of the Annual Report for the year ended 31 December 2012, a copy of which is available on the Company's website, www.melroseplc.net.

POST BALANCE SHEET EVENTS - COMPLETION OF THE DISPOSALS OF TRUTH AND MARELLI

On 3 July 2013 Truth, a business previously shown within the Other Industrial division, was sold for £134.6 million ($204.7 million). The costs relating to this disposal were £3.3 million and Truth had net assets of £39.3 million at 30 June 2013.

On 1 August 2013 Marelli, a business previously shown within the Energy division, was sold for £176.9 million (€207.0 million). The costs relating to this disposal were £6.7 million and Marelli had net assets of £100.0 million at 30 June 2013.

Geoffrey Martin

Group Finance Director

29 August 2013

RESPONSIBILITY STATEMENT

We confirm that to the best of our knowledge:

a) the condensed set of financial statements has been prepared in accordance with IAS 34: "Interim Financial Reporting";

b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

By order of the Board

Simon Peckham Geoffrey Martin

Chief Executive Group Finance Director

29 August 2013 29 August 2013

INDEPENDENT REVIEW REPORT TO MELROSE INDUSTRIES PLC

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 which comprises the Condensed Consolidated Income Statement, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Cashflows, the Condensed Consolidated Balance Sheet, the Condensed Consolidated Statement of Changes in Equity and related notes 1 to 15. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditor

London, UK

29 August 2013

Melrose Industries PLC

Condensed Consolidated Income Statement

	Notes	6 months ended 30 June 2013 Unaudited £m		Restated⁽¹⁾ 6 months ended 30 June 2012 Unaudited £m	Restated⁽¹⁾ year ended 31 December 2012 £m
Continuing operations
Revenue	3	1,022.2		466.2	1,350.4
Cost of sales		(667.0)		(314.0)	(918.7)

Gross profit		355.2		152.2	431.7

Headline⁽²⁾ operating expenses		(192.5)		(76.1)	(219.9)
Share of results of joint ventures		2.3		(0.3)	0.8
Intangible asset amortisation		(35.6)		(10.9)	(37.2)
Exceptional operating costs	5	(11.3)		(14.8)	(73.9)
Exceptional operating income	5	-		-	7.0

Total operating expenses	4	(237.1)		(102.1)	(323.2)

Operating profit		118.1		50.1	108.5

Headline⁽²⁾ operating profit	3	165.0		75.8	212.6

Headline⁽²⁾ finance costs		(37.0)		(12.8)	(42.4)
Exceptional finance costs	5	-		(9.0)	(16.3)

Total finance costs		(37.0)		(21.8)	(58.7)
Finance income		11.4		2.9	11.0
Profit before tax		92.5		31.2	60.8

Headline⁽²⁾ profit before tax		139.4		65.9	181.2

Headline⁽²⁾ tax		(39.0)		(16.7)	(48.2)
Exceptional tax⁽³⁾		13.1		8.2	8.0

Total tax	6	(25.9)		(8.5)	(40.2)

Profit for the period from continuing operations		66.6		22.7	20.6

Headline⁽²⁾ profit for the period from continuing operations			100.4	49.2	133.0


Discontinued operations
Profit for the period from discontinued operations	10	10.6		10.5	20.2

Profit for the period		77.2		33.2	40.8


Attributable to:
Owners of the parent		75.8		33.2	39.1
Non-controlling interests		1.4		-	1.7

		77.2		33.2	40.8


Earnings per share
From continuing operations
- Basic	7	5.2p		3.2p	2.0p
- Diluted	7	5.1p		3.1p	2.0p
From continuing and discontinued operations
- Basic	7	6.0p		4.7p	4.1p
- Diluted	7	5.9p		4.5p	4.1p
- Headline⁽²⁾ diluted	7	8.6p		8.2p	16.0p

⁽¹⁾ restated to include the results of Truth and Marelli within discontinued operations and for the adoption of IAS 19 (revised) "Employee benefits"

⁽²⁾ before exceptional costs, exceptional income and intangible asset amortisation

⁽³⁾ includes exceptional tax and tax on exceptional items and intangible asset amortisation

Melrose Industries PLC

Condensed Consolidated Statement of Comprehensive Income

	6 months ended 30 June 2013 Unaudited £m		Restated⁽¹⁾ 6 months ended 30 June 2012 Unaudited £m	Restated⁽¹⁾ year ended 31 December 2012 £m

Profit for the period	77.2		33.2	40.8

Items that will not be reclassified subsequently to the Income Statement:
Remeasurement of net retirement benefit obligations	55.4		(29.0)	(59.0)
Income tax relating to items that will not be reclassified	-		1.5	3.5

	55.4		(27.5)	(55.5)

Items that may be reclassified subsequently to the Income Statement:
Currency translation on net investments	88.9		(11.4)	(1.2)
Currency translation on non-controlling interests	0.1		-	0.2
Gains/(losses) on cash flow hedges	8.9		(4.3)	(6.2)
Transfer to Income Statement on cash flow hedges	0.3		9.4	11.9
Income tax relating to items that may be reclassified		0.2	(0.4)	(2.2)

	98.4		(6.7)	2.5

Other comprehensive income/(expense) after tax	153.8		(34.2)	(53.0)

Total comprehensive income/(expense) for the period	231.0		(1.0)	(12.2)


Attributable to:
Owners of the parent	229.5		(1.0)	(14.1)
Non-controlling interests	1.5		-	1.9

	231.0		(1.0)	(12.2)

⁽¹⁾ restated for the adoption of IAS 19 (revised) "Employee benefits" and IAS 1 "Presentation of items of other comprehensive income"

Melrose Industries PLC

Condensed Consolidated Statement of Cash Flows

	Notes		6 months ended 30 June 2013 Unaudited £m			Restated⁽¹⁾ 6 months ended 30 June 2012 Unaudited £m	Restated⁽¹⁾ year ended 31 December 2012 £m
Net cash from operating activities from continuing operations		14	69.6			6.2	16.2
Net cash from operating activities from discontinued operations		14	9.6			8.7	26.3

Net cash from operating activities			79.2			14.9	42.5


Investing activities
Disposal of businesses			0.7			30.7	30.7
Net cash disposed			-			(1.2)	(1.2)
Acquisition of subsidiaries and non-controlling interests			(11.0)			-	(1,500.4)
Acquisition and disposal costs			(9.7)			(2.4)	(27.6)
Purchase of property, plant and equipment			(25.6)			(20.7)	(47.0)
Proceeds from disposal of property, plant and equipment			1.8			0.3	1.4
Purchase of computer software and development costs			(2.2)			(0.3)	(2.1)
Dividends received from joint ventures			2.3			-	0.3
Interest received			11.4			2.9	11.0
Cash acquired on acquisition of Elster			-			-	105.6
Dividends paid to non-controlling interests			-			(0.1)	(0.1)

Net cash (used in)/from investing activities from continuing operations					(32.3)	9.2	(1,429.4)
Net cash used in investing activities from discontinued operations		14	(3.7)			(3.8)	(7.0)

Net cash (used in)/from investing activities			(36.0)			5.4	(1,436.4)


Financing activities
Return of capital			-			(1.1)	(1.1)
Repayment of borrowings			(26.0)			(483.2)	(1,176.9)
Net proceeds from Rights Issue			-			-	1,168.1
New bank loans raised			-			423.6	1,467.1
Costs of raising finance			-			(3.2)	(33.1)
Dividends paid	9		(63.3)			(32.8)	(65.7)

Net cash (used in)/from financing activities from continuing operations			(89.3)			(96.7)	1,358.4
Net cash used in financing activities from discontinued operations		14	-			-	-

Net cash (used in)/from financing activities			(89.3)			(96.7)	1,358.4


Net decrease in cash and cash equivalents			(46.1)			(76.4)	(35.5)
Cash and cash equivalents at the beginning of the period			156.5			195.6	195.6
Effect of foreign exchange rate changes			3.3			(2.5)	(3.6)

Cash and cash equivalents at the end of the period				113.7		116.7	156.5


Cash classified as held for sale			(9.2)			-	-

Cash and cash equivalents in continuing Group at end of period				104.5		116.7	156.5

⁽¹⁾ restated to include the cash flows of Truth and Marelli within discontinued operations

As at 30 June 2013, the Group's net debt was £1,060.4 million (30 June 2012: £306.5 million, 31 December 2012: £997.7 million). A reconciliation of the movement in net debt is shown in note 14.

Melrose Industries PLC

Condensed Consolidated Balance Sheet

	Notes	30 June 2013 Unaudited £m	30 June 2012 Unaudited £m	31 December 2012 Restated⁽¹⁾ £m
Non-current assets
Goodwill and other intangible assets		3,092.2	879.0	3,048.8
Property, plant and equipment		293.3	208.3	318.8
Interests in joint ventures		13.2	-	12.4
Derivative financial assets	13	2.9	-	-
Deferred tax assets		149.2	49.2	150.3
Trade and other receivables		0.5	0.6	0.3

		3,551.3	1,137.1	3,530.6
Current assets
Inventories		336.0	218.0	375.5
Trade and other receivables		351.9	215.2	384.1
Derivative financial assets	13	3.0	1.6	3.3
Cash and cash equivalents		104.5	116.7	156.5
Assets held for sale		206.8	-	-

		1,002.2	551.5	919.4

Total assets	3	4,553.5	1,688.6	4,450.0


Current liabilities
Trade and other payables		480.5	273.8	540.3
Interest-bearing loans and borrowings		6.2	-	6.2
Derivative financial liabilities	13	4.2	8.4	7.0
Current tax liabilities		48.6	27.1	41.0
Provisions	11	80.6	45.7	101.8
Liabilities held for sale⁽²⁾		67.5	-	-

		687.6	355.0	696.3

Net current assets		314.6	196.5	223.1


Non-current liabilities
Trade and other payables		3.5	1.6	2.6
Interest-bearing loans and borrowings		1,167.9	423.2	1,148.0
Derivative financial liabilities	13	-	2.5	3.5
Deferred tax liabilities		411.8	95.6	411.2
Retirement benefit obligations	12	201.6	131.4	261.3
Provisions	11	186.0	63.3	185.4

		1,970.8	717.6	2,012.0

Total liabilities	3	2,658.4	1,072.6	2,708.3


Net assets		1,895.1	616.0	1,741.7


Equity
Issued share capital		1.3	469.2	1.3
Merger reserve		1,190.6	1,190.6	1,190.6
Other reserves		(757.1)	(874.4)	(757.1)
Hedging and translation reserves		98.6	(9.3)	0.3
Retained earnings		1,358.5	(160.1)	1,299.5

Equity attributable to owners of the parent		1,891.9	616.0	1,734.6

Non-controlling interests		3.2	-	7.1

Total equity		1,895.1	616.0	1,741.7

⁽¹⁾ restated to reflect the completion of the acquisition accounting of Elster

⁽²⁾ liabilities directly associated with assets classified as held for sale

Melrose Industries PLC

Condensed Consolidated Statement of Changes in Equity

	Issued share capital £m				Merger reserve £m	Other reserves £m	Capital redemption reserve £m	Hedging and translation reserves £m	Retained earnings £m	Equity attributable to owners of the parent £m	Non-controlling interests £m	Total equity £m
At 1 January 2012 (audited)	494.9				1,190.6	(874.4)	(26.8)	(2.6)	(133.4)	648.3	0.1	648.4

Profit for the period	-				-	-	-	-	33.2	33.2	-	33.2
Other comprehensive expense	-				-	-	-	(6.7)	(27.5)	(34.2)	-	(34.2)

Total comprehensive (expense)/income				-	-	-	-	(6.7)	5.7	(1.0)	-	(1.0)

Preference C shares redeemed	(25.7)				-	-	26.8	-	(1.1)	-	-	-
Dividends paid	-				-	-	-	-	(32.8)	(32.8)	(0.1)	(32.9)
Credit to equity for equity-settled share-based payments	-				-	-	-	-	1.5	1.5	-	1.5

At 30 June 2012 (unaudited)	469.2				1,190.6	(874.4)	-	(9.3)	(160.1)	616.0	-	616.0

Profit for the period	-				-	-	-	-	5.9	5.9	1.7	7.6
Other comprehensive income/(expense)				-	-	-	-	9.6	(28.6)	(19.0)	0.2	(18.8)

Total comprehensive income/(expense)				-	-	-	-	9.6	(22.7)	(13.1)	1.9	(11.2)

Issue of new shares	1,050.8				-	117.3	-	-	-	1,168.1	-	1,168.1
Acquisition of Elster	-				-	-	-	-	-	-	6.1	6.1
Purchase of non-controlling interests			-		-	-	-	-	(5.5)	(5.5)	(0.9)	(6.4)
Dividends paid	-				-	-	-	-	(32.9)	(32.9)	-	(32.9)
Credit to equity for equity-settled share-based payments	-				-	-	-	-	2.0	2.0	-	2.0
Capital reduction		(1,518.7)			-	-	-	-	1,518.7	-	-	-

At 31 December 2012 (audited)	1.3				1,190.6	(757.1)	-	0.3	1,299.5	1,734.6	7.1	1,741.7

Profit for the period	-				-	-	-	-	75.8	75.8	1.4	77.2
Other comprehensive income	-				-	-	-	98.3	55.4	153.7	0.1	153.8

Total comprehensive income	-				-	-	-	98.3	131.2	229.5	1.5	231.0

Purchase of non-controlling interests			-		-	-	-	-	(10.9)	(10.9)	(0.1)	(11.0)
Dividends paid	-				-	-	-	-	(63.3)	(63.3)	(5.3)	(68.6)
Credit to equity for equity-settled share-based payments	-				-	-	-	-	2.0	2.0	-	2.0

At 30 June 2013 (unaudited)	1.3				1,190.6	(757.1)	-	98.6	1,358.5	1,891.9	3.2	1,895.1

Notes to the condensed financial statements

1. Corporate information

The interim financial information for the six months ended 30 June 2013 has been reviewed by the auditor, but not audited. The information for the year ended 31 December 2012 shown in this report does not constitute statutory accounts for that year as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor has reported on those accounts. Their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The comparative information in these interim financial statements has been restated to include the results and cash flows of Truth, previously disclosed within the Other Industrial segment, and Marelli, previously disclosed within the Energy segment, within discontinued operations, and exclude them from continuing operations as these businesses have been classified as held for sale at 30 June 2013. The comparative information has also been restated in accordance with the adoption of IAS 19 (revised) "Employee benefits". The Balance Sheet at 31 December 2012 has been restated to reflect the completion of the acquisition accounting of Elster.

2. Summary of significant accounting policies

The interim financial information for the six months ended 30 June 2013, which has been approved by a committee of the Board of Directors on 29 August 2013, has been prepared on the basis of the accounting policies set out in the Group's 2012 Annual Report and financial statements on pages 77 to 84, other than for the adoption of the new accounting standards noted below. The Group's 2012 Annual Report and financial statements can be found on the Group's website www.melroseplc.net. This Interim Statement should therefore be read in conjunction with the 2012 information. The accounting policies used in the preparation of the interim financial information have been consistently applied to all periods presented. The annual financial statements are prepared in accordance with IFRS as adopted by the European Union. This Interim Statement has been prepared in accordance with IAS 34: "Interim Financial Reporting" as adopted by the European Union.

Adoption of new accounting standards

In the current financial year, the Group has adopted the amendments to IAS 1 "Presentation of items of other comprehensive income", IAS 19 (revised) "Employee benefits" and IFRS 13 "Fair value measurement".

The amendments to IAS 1 require items of other comprehensive income to be grouped by those items that will be reclassified subsequently to profit or loss and those that will never be reclassified, together with their associated income tax. The amendments have been applied retrospectively, and hence the presentation of items of comprehensive income have been restated to reflect the change. The effect of these changes is evident from the Condensed Consolidated Statement of Comprehensive Income.

The adoption of IAS 19 (revised) "Employee benefits" impacts the measurement of the various components representing movements in the defined benefit pension obligation and associated disclosures but not the total obligation itself. The impact on the current period in adopting the revised standard has been to increase headline operating expenses by £1.3 million and finance costs by £2.2 million whilst reducing taxation expense by £1.0 million and increasing other comprehensive income by £2.5 million. In accordance with IAS 19 (revised) "Employee benefits", the comparative periods have been restated as if the new standard was effective from 1 January 2012. The impact has been to increase headline operating expenses in 2012 by £2.1 million (period to 30 June 2012: £0.9 million), increase finance costs in 2012 by £2.7 million (period to 30 June 2012: £1.2 million), whilst reducing taxation expense by £1.4 million (period to 30 June 2012: £0.7 million) and reducing other comprehensive expense in 2012 by £3.4 million (period to 30 June 2012: £1.4 million).

The adoption of IFRS 13 "Fair value measurement" has introduced new disclosures, as set out in note 13.

Going concern

The Group's business activities in the period, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive's review.

The Group's principal risks and uncertainties are unchanged from 2012 and are discussed in the Finance Director's review. These are set out in more detail on pages 37 to 39 in the Group's Annual Report for the year ended 31 December 2012.

After making appropriate enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing these Interim Statements.

3. Segment information

Segment information is presented in accordance with IFRS 8: "Operating segments" which requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reported to the Group's Board in order to allocate resources to the segments and assess their performance. The Group's reportable operating segments under IFRS 8 are as follows:

· Elster (Gas, Electricity, Water)

· Energy

· Lifting

· Other Industrial

The Elster segments of Gas, Electricity and Water serve residential and industrial metering and utilisation markets whilst providing related communications, networking and software solutions. The Energy segment incorporates the Brush business, specialist suppliers of energy industrial products to the global market. The Lifting segment consists of the businesses of Bridon, Crosby and Acco, serving oil & gas production, mining, petrochemical, alternative energy and general construction markets. The Other Industrial segment consists primarily of the Harris business, serving the steel recycling markets.

There are two central cost centres which are also separately reported to the Board:

· Central - corporate

· Central - LTIPs⁽¹⁾

⁽¹⁾ long term incentive plans

The Central corporate cost centre contains the Melrose Group head office costs whilst the Central LTIPs cost centre contains the costs associated with the five-year 2012 Melrose Incentive Scheme (granted on 11 April 2012) and the divisional management LTIP schemes that are in operation across the Group.

The discontinued operations incorporate the Truth and Marelli businesses, classified as held for sale at 30 June 2013, and the MPC business which was disposed in June 2012.

The comparative information for the year ended 31 December 2012 includes the results of Elster for the nineteen week period from 23 August 2012 to 31 December 2012.

Transfer prices between business units are set on an arm's length basis in a manner similar to transactions with third parties.

The Group's geographical segments are determined by the location of the Group's non-current assets and, for revenue, the location of external customers. Inter-segment sales are not material and have not been included in the segment information.

The following tables present revenue, profit and certain asset and liability information regarding the Group's operating segments for the six month period ended 30 June 2013 and comparative periods:

Segment revenues and results

		Segment revenue from external customers
	Note	6 months ended 30 June 2013 £m	Restated⁽¹⁾ 6 months ended 30 June 2012 £m	Restated⁽¹⁾ year ended 31 December 2012 £m
Continuing operations
Elster⁽²⁾		569.2	-	411.1
Energy		167.4	174.6	365.8
Lifting		266.7	266.3	524.4
Other Industrial		18.9	25.3	49.1

Total continuing operations		1,022.2	466.2	1,350.4

Discontinued operations	10	114.1	134.3	236.9

Total revenue		1,136.3	600.5	1,587.3

⁽¹⁾	restated to include the results of Truth and Marelli within discontinued operations
⁽²⁾	Elster revenue comprises: Gas £348.1 million (year ended 31 December 2012: £236.9 million), Electricity £117.9 million (year ended 31 December 2012: £106.8 million) and Water £103.2 million (year ended 31 December 2012: £67.4 million)

			Segment result
	Notes		6 months ended 30 June 2013 £m	Restated⁽¹⁾ 6 months ended 30 June 2012 £m	Restated⁽¹⁾ year ended 31 December 2012 £m
Continuing operations
Elster⁽²⁾			91.2	-	57.8
Energy			35.8	36.1	78.1
Lifting			50.4	47.2	95.2
Other Industrial			0.7	2.2	3.9
Central - corporate			(6.1)	(5.7)	(13.9)
Central - LTIPs⁽³⁾			(7.0)	(4.0)	(8.5)

Headline⁽⁴⁾operating profit			165.0	75.8	212.6

Intangible asset amortisation			(35.6)	(10.9)	(37.2)
Exceptional costs - operating	5		(11.3)	(14.8)	(73.9)
Exceptional income - operating	5		-	-	7.0

Operating profit			118.1	50.1	108.5

Finance costs - headline⁽⁴⁾			(37.0)	(12.8)	(42.4)
Finance costs - exceptional	5		-	(9.0)	(16.3)
Finance income			11.4	2.9	11.0

Profit before tax			92.5	31.2	60.8
Tax	6		(25.9)	(8.5)	(40.2)
Profit for the period from discontinued operations		10	10.6	10.5	20.2

Profit for the period			77.2	33.2	40.8

⁽¹⁾	restated to include the results of Truth and Marelli within discontinued operations and for the adoption of IAS 19 (revised) "Employee benefits"
⁽²⁾	Elster headline⁽⁴⁾operating profit comprises: Gas £76.1 million (year ended 31 December 2012: £46.7 million), Electricity £6.2 million (year ended 31 December 2012: £12.6 million), Water £10.5 million (year ended 31 December 2012: £1.4 million) and Elster central costs £1.6 million (year ended 31 December 2012: £2.9 million)
⁽³⁾	long term incentive plans
⁽⁴⁾	as defined on the Income Statement

	Total assets			Total liabilities
	30 June 2013 £m	Restated⁽¹⁾ 30 June 2012 £m	Restated⁽²⁾ 31 December 2012 £m	30 June 2013 £m	Restated⁽¹⁾ 30 June 2012 £m	Restated⁽²⁾ 31 December 2012 £m
Continuing operations
Elster⁽³⁾	2,832.4	-	2,762.0	928.3	-	948.8
Energy	501.4	502.0	495.8	147.8	201.7	183.5
Lifting	811.7	783.6	769.6	200.8	246.5	206.7
Other Industrial	34.7	31.4	34.6	9.1	13.2	10.1
Central - corporate	166.5	183.4	209.9	1,283.0	536.1	1,281.3
Central - LTIPs⁽⁴⁾	-	-	-	21.9	17.8	20.3

Total continuing operations	4,346.7	1,500.4	4,271.9	2,590.9	1,015.3	2,650.7

Discontinued operations	206.8	188.2	178.1	67.5	57.3	57.6

Total	4,553.5	1,688.6	4,450.0	2,658.4	1,072.6	2,708.3

⁽¹⁾	restated to include the total assets and total liabilities of Truth and Marelli within discontinued operations
⁽²⁾	restated to include the total assets and total liabilities of Truth and Marelli within discontinued operations and for the completion of the acquisition accounting of Elster
⁽³⁾	Elster total assets comprises: Gas £2,227.2 million (31 December 2012: £2,134.0 million), Electricity £354.1 million (31 December 2012: £345.7 million), Water £238.9 million (31 December 2012: £257.3 million) and Elster central £12.2 million (31 December 2012: £25.0 million). Elster total liabilities comprises: Gas £577.9 million (31 December 2012: £600.9 million), Electricity £120.3 million (31 December 2012: £128.2 million), Water £153.7 million (31 December 2012: £171.9 million) and Elster central £76.4 million (31 December 2012: £47.8 million)
⁽⁴⁾	long term incentive plans

	Capital expenditure⁽¹⁾			Depreciation⁽¹⁾
	6 months ended 30 June 2013 £m	Restated⁽²⁾ 6 months ended 30 June 2012 £m	Restated⁽²⁾ year ended 31 December 2012 £m	6 months ended 30 June 2013 £m	Restated⁽²⁾ 6 months ended 30 June 2012 £m	Restated⁽²⁾ year ended 31 December 2012 £m
Continuing operations
Elster⁽³⁾	11.4	-	9.0	13.4	-	9.1
Energy	7.9	4.3	8.3	3.0	2.6	4.9
Lifting	7.7	15.4	30.4	6.4	5.1	9.9
Other Industrial	0.2	0.8	1.0	0.5	0.5	1.0
Central - corporate	0.2	0.8	0.9	0.3	0.3	0.6

Total continuing operations	27.4	21.3	49.6	23.6	8.5	25.5

Discontinued operations	4.3	3.8	7.1	2.5	3.6	5.9

Total	31.7	25.1	56.7	26.1	12.1	31.4

⁽¹⁾	including computer software and development costs
⁽²⁾	restated to include the capital expenditure⁽¹⁾ and depreciation⁽¹⁾ of Truth and Marelli within discontinued operations
⁽³⁾	Elster capital expenditure comprises: Gas £6.5 million (year ended 31 December 2012: £5.5 million), Electricity £3.1 million (year ended 31 December 2012: £1.5 million) and Water £1.8 million (year ended 31 December 2012: £2.0 million). Elster depreciation comprises: Gas £7.6 million (year ended 31 December 2012: £5.1 million), Electricity £3.4 million (year ended 31 December 2012: £2.0 million) and Water £2.4 million (year ended 31 December 2012: £2.0 million)

Geographical information

The Group operates in various geographical areas around the world. The Group's country of domicile is the UK and the Group's revenues and non-current assets in Europe and North America are also considered to be material.

The Group's revenue from external customers and information about its segment assets (non-current assets excluding interests in joint ventures, derivative financial assets, deferred tax assets and non-current trade and other receivables) by geographical location are detailed below:

	Revenue⁽¹⁾from external customers			Non-current assets
	6 months ended 30 June 2013 £m	Restated⁽²⁾ 6 months ended 30 June 2012 £m	Restated⁽²⁾ year ended 31 December 2012 £m	30 June 2013 £m	Restated⁽²⁾ 30 June 2012 £m	Restated⁽³⁾ 31 December 2012 £m
UK	95.9	52.0	136.1	415.9	354.0	418.2
Europe	303.0	87.3	356.5	1,730.5	243.2	1,670.4
North America	399.3	217.1	570.5	1,156.1	389.1	1,100.1
Other	224.0	109.8	287.3	83.0	8.9	87.2

Total continuing operations	1,022.2	466.2	1,350.4	3,385.5	995.2	3,275.9


Discontinued operations	114.1	134.3	236.9	-	92.1	91.7

Total	1,136.3	600.5	1,587.3	3,385.5	1,087.3	3,367.6

⁽¹⁾	revenue is presented by destination
⁽²⁾	restated to include the revenue from external customers and non-current assets of Truth and Marelli within discontinued operations
⁽³⁾	restated to include the non-current assets of Truth and Marelli within discontinued operations and to reflect the completion of the acquisition accounting of Elster

4. Operating expenses

Operating expenses comprise:	6 months ended 30 June 2013 £m	Restated⁽¹⁾ 6 months ended 30 June 2012 £m	Restated⁽¹⁾ year ended 31 December 2012 £m
Continuing operations
Selling and distribution costs	86.2	35.3	101.1
Administration expenses	141.9	51.7	156.0
Share of results of joint ventures	(2.3)	0.3	(0.8)
Other operating costs - exceptional	11.3	14.8	73.9
Other operating income - exceptional	-	-	(7.0)

Total operating expenses from continuing operations	237.1	102.1	323.2

Total operating expenses from discontinued operations	13.4	14.3	27.7

Total operating expenses	250.5	116.4	350.9

⁽¹⁾ restated to include the results of Truth and Marelli within discontinued operations and for the adoption of IAS 19 (revised) "Employee benefits"

5. Exceptional costs

Exceptional costs	6 months ended 30 June 2013 £m	6 months ended 30 June 2012 £m	Year ended 31 December 2012 £m
Continuing operations
Restructuring costs	9.0	1.9	54.4
Acquisition, disposal and financing costs
- operating	2.3	12.9	19.5
- financing	-	9.0	16.3

Total exceptional costs	11.3	23.8	90.2


Total exceptional costs - operating	11.3	14.8	73.9
Total exceptional costs - financing	-	9.0	16.3

Total exceptional costs	11.3	23.8	90.2

During the six months to 30 June 2013 further restructuring programmes have been announced at each of the three businesses within Elster resulting in a restructuring charge for the period of £9.0 million (2012: £1.9 million relating to non-Elster businesses).

Disposal costs of £2.3 million were committed at 30 June 2013 primarily in respect of the disposals of the Truth and Marelli businesses. In the period to 30 June 2012, the acquisition costs of £12.9 million related to the acquisition of Elster and the refinancing costs of £9.0 million related to interest rate swap close-out costs and accelerated amortisation of arrangement fees.

Exceptional income	6 months ended 30 June 2013 £m	6 months ended 30 June 2012 £m	Year ended 31 December 2012 £m
Continuing operations
Pension curtailment gain	-	-	7.0

Total exceptional income	-	-	7.0

During 2012, a number of amendments were made to Elster retirement medical benefits and retirement life insurance benefits in the US. These removed £7.0 million of liabilities resulting in a curtailment gain on these plans.

6. Tax

Analysis of the charge in the period:	6 months ended 30 June 2013 £m	Restated⁽¹⁾ 6 months ended 30 June 2012 £m	Restated⁽¹⁾ year ended 31 December 2012 £m
Continuing operations
Current tax	27.1	18.7	36.9
Deferred tax	(1.2)	(10.2)	3.3

Total income tax charge from continuing operations	25.9	8.5	40.2

Discontinued operations
Current tax	6.0	3.5	7.0
Deferred tax	(0.4)	0.9	1.1

Total income tax charge from discontinued operations	5.6	4.4	8.1

Total income tax charge	31.5	12.9	48.3

⁽¹⁾ restated to include the results of Marelli and Truth within discontinued operations and for the adoption of IAS 19 (revised) "Employee benefits"

The effective tax rate in respect of headline profit before tax on continuing activities for the year is expected to be 28.0% (period to 30 June 2012: 25.3%). The headline tax charge on continuing activities has been calculated by applying the expected rate to the headline profit before tax of £139.4 million (period to 30 June 2012: £65.9 million), giving a headline tax charge of £39.0 million (period to 30 June 2012: £16.7 million).

The headline tax charge on continuing activities of £39.0 million (period to 30 June 2012: £16.7 million) has been reduced by a tax credit on exceptional items and intangible asset amortisation of £13.1 million (period to 30 June 2012: £8.2 million) to give a total tax charge on continuing activities of £25.9 million (period to 30 June 2012: £8.5 million). The tax credit on exceptional items includes a deferred tax credit on the amortisation of intangible assets of £10.4 million (period to 30 June 2012: £6.0 million) and a current tax credit of £2.7 million (period to 30 June 2012: £2.2 million) in respect of reorganisation costs recognised as exceptional.

In addition to the amount charged to the Income Statement, a credit of £0.2 million (period to 30 June 2012: £1.1 million) has been recognised directly in the Statement of Comprehensive Income. This represents a tax credit of £0.2 million (period to 30 June 2012: tax charge of £0.4 million) in respect of movements on cash flow hedges and a tax credit of £nil (period to 30 June 2012: £1.5 million) in respect of the remeasurement of net retirement benefit obligations.

7. Earnings per share

Earnings attributable to owners of the parent		6 months ended 30 June 2013 £m	Restated⁽¹⁾ 6 months ended 30 June 2012 £m	Restated⁽¹⁾ year ended 31 December 2012 £m
Profit for the purposes of earnings per share		75.8	33.2	39.1
Less: profit for the period from discontinued operations (note 10)		(10.6)	(10.5)	(20.2)
Earnings for basis of earnings per share from continuing operations		65.2	22.7	18.9

Continuing operations:
Intangible asset amortisation		35.6	10.9	37.2
Exceptional costs (note 5) - operating		11.3	14.8	73.9
Exceptional costs (note 5) - financing		-	9.0	16.3
Exceptional income (note 5) - operating		-	-	(7.0)
Exceptional tax⁽²⁾		(13.1)	(8.2)	(8.0)

Earnings for basis of headline⁽²⁾earnings per share from continuing operations	99.0		49.2	131.3

Discontinued operations:
Profit for the period from discontinued operations (note 10)	10.6		10.5	20.2
Loss on disposal of businesses	-		0.6	0.6
Intangible asset amortisation	0.9		0.9	1.9
Tax on intangible asset amortisation	(0.4)		(0.2)	(0.7)

Earnings for basis of headline⁽²⁾ earnings per share from continuing and discontinued operations	110.1		61.0	153.3

⁽¹⁾ restated to include the results of Truth and Marelli within discontinued operations and for the adoption of IAS 19 (revised) "Employee benefits"

⁽²⁾as defined on the Income Statement

	6 months ended 30 June 2013	6 months ended 30 June 2012	Year ended 31 December 2012
	Number	Number	Number
Weighted average number of Ordinary Shares for the purposes of basic earnings per share (million)	1,266.6	710.2	945.4
Further shares for the purposes of diluted earnings per share (million)	7.4	30.7	15.3

Weighted average number of Ordinary Shares for the purposes of diluted earnings per share (million)	1,274.0	740.9	960.7

Earnings per share	6 months ended 30 June 2013 pence	Restated⁽¹⁾ 6 months ended 30 June 2012 pence	Restated⁽¹⁾ year ended 31 December 2012 Pence
Basic earnings per share
From continuing and discontinued operations	6.0	4.7	4.1
From continuing operations	5.2	3.2	2.0
From discontinued operations	0.8	1.5	2.1

Diluted earnings per share
From continuing and discontinued operations	5.9	4.5	4.1
From continuing operations	5.1	3.1	2.0
From discontinued operations	0.8	1.4	2.1

Headline⁽²⁾ diluted earnings per share
From continuing and discontinued operations	8.6	8.2	16.0

⁽¹⁾ restated to include the results of Truth and Marelli within discontinued operations and for the adoption of IAS 19 (revised) "Employee benefits"

⁽²⁾ as defined on the Income Statement

8. Goodwill and other intangible assets

During the period, the Group has completed its review of the assets and liabilities acquired following the Elster acquisition on 23 August 2012. As a result the Group has recorded its final adjustments to the opening balance sheet of Elster. In accordance with IFRS 3 "Business combinations" the Balance Sheet at 31 December 2012 has been restated to reflect this. These adjustments increase provisions by £32.9 million, deferred tax assets by £5.2 million, other payables by £0.9 million and reduce inventory and property, plant and equipment by £0.6 million and £0.1 million respectively. The corresponding adjustment is to increase goodwill by £29.3 million.

9. Dividends

		6 months ended 30 June 2013 £m	6 months ended 30 June 2012 £m	Year ended 31 December 2012 £m
Final dividend for the year ended 31 December 2011 paid of 8.4p (4.8p)⁽¹⁾	-		32.8	32.8
Interim dividend for the year ended 31 December 2012 paid of 2.6p		-	-	32.9
Final dividend for the year ended 31 December 2012 paid of 5.0p	63.3		-	-

Total dividends paid		63.3	32.8	65.7

Proposed interim dividend for the period ended 30 June 2013 of 2.75p		34.8	-	-

⁽¹⁾adjusted to include the effects of the Rights Issue as reported in the 2012 Annual Report

A proposed 2013 interim dividend of 2.75p per Ordinary Share was approved by the Board on 29 August 2013 and, in accordance with IAS 10, has not been included as a liability as at 30 June 2013.

10. Discontinued operations

The comparative information in these interim financial statements has been restated to exclude the results and cash flows of Truth and Marelli from continuing operations and include them as discontinued operations.

Discontinued operations in 2012 also contain the results and cash flows of the MPC business disposed on 25 June 2012.

Financial performance of discontinued operations:

	6 months ended 30 June 2013 Unaudited £m	Restated⁽¹⁾ 6 months ended 30 June 2012 Unaudited £m	Restated⁽¹⁾ year ended 31 December 2012 £m
Revenue	114.1	134.3	236.9
Operating costs	(97.0)	(117.8)	(206.0)

Headline⁽²⁾ operating profit	17.1	16.5	30.9
Intangible asset amortisation	(0.9)	(0.9)	(1.9)
Net finance expenses	-	(0.1)	(0.1)

Profit before tax	16.2	15.5	28.9
Headline⁽²⁾tax	(6.0)	(4.6)	(8.8)
Tax on intangible asset amortisation	0.4	0.2	0.7

Profit after tax	10.6	11.1	20.8
Loss on disposal of net assets of discontinued operations	-	(0.6)	(0.6)

Profit for the period from discontinued operations	10.6	10.5	20.2


Attributable to:
Owners of the parent	10.6	10.5	20.2

	10.6	10.5	20.2

⁽¹⁾restated to include the results of Truth and Marelli within discontinued operations

⁽²⁾as defined on the Income Statement

Assets held for sale

The Truth and Marelli businesses were classified as held for sale at 30 June 2013 and the assets and liabilities of these businesses are presented separately in the Balance Sheet at 30 June 2013. The Truth operation was disposed on 3 July 2013 and the Marelli operation disposed on 1 August 2013.

11. Provisions

	Surplus leasehold property costs £m	Environmental and legal costs £m	Incentive scheme related £m	Warranty related costs £m	Other £m	Total £m
At 1 January 2013 restated⁽¹⁾	31.5	68.7	20.3	102.5	64.2	287.2
Utilised	(5.5)	(3.1)	(3.4)	(5.3)	(30.4)	(47.7)
Arising in the period	-	3.3	5.0	0.2	9.2	17.7
Unwinding of discount	0.3	0.2	-	-	-	0.5
Amounts reclassified as held for sale	-	(0.4)	-	-	-	(0.4)
Exchange differences	0.7	1.7	-	3.7	3.2	9.3

At 30 June 2013	27.0	70.4	21.9	101.1	46.2	266.6


Current	7.2	10.7	-	20.2	42.5	80.6
Non-current	19.8	59.7	21.9	80.9	3.7	186.0

	27.0	70.4	21.9	101.1	46.2	266.6

⁽¹⁾ restated to reflect the completion of the acquisition accounting of Elster

The provision for surplus leasehold property costs represents the estimated net rentals payable over the term of the leases together with any dilapidation costs.

Environmental and legal costs provisions relate to the estimated remediation costs of pollution, soil and groundwater contamination at certain sites and estimated future costs and settlements in relation to legal claims.

Incentive scheme related provisions are in respect of long term incentive plans for divisional senior management.

The provision for warranty related costs represents the best estimate of the expenditure required to settle the Group's obligations. Warranty terms are, on average, between one and five years.

Other provisions relate primarily to costs that will be incurred in respect of restructuring programmes and contractual obligations.

12. Retirement benefit obligations

The defined benefit obligation at 30 June 2013 of £201.6 million (31 December 2012: £261.3 million) is estimated based on the latest full actuarial valuations at 31 December 2011 for UK and US plans. The valuations of the four most significant plans, namely, the FKI UK Pension Plan, the FKI US Pension Plans, the McKechnie UK Pension Plan and the Elster US Pension Plans have been updated at 30 June 2013 by independent actuaries to reflect updated assumptions regarding discount rates, inflation rates and asset values. These assumptions were as follows:

	30 June 2013
	FKI UK plan	McKechnie UK plan	FKI US plans	Elster US plans
	%pa	%pa	%pa	%pa
Rate of increase in salaries	N/A	3.90%⁽¹⁾	N/A	4.00%
Rate of increase in pensions in payment	3.20%	3.20%	N/A	N/A
Discount rate	4.60%	4.60%	4.60%	4.60%
RPI inflation assumptions	3.40%	3.40%	N/A	N/A

	31 December 2012
	FKI UK plan	McKechnie UK plan	FKI US plans	Elster US plans
	%pa	%pa	%pa	%pa
Rate of increase in salaries	N/A	3.50%⁽¹⁾	N/A	4.00%
Rate of increase in pensions in payment	2.90%	3.00%	N/A	N/A
Discount rate	4.50%	4.50%	3.90%	3.90%
RPI inflation assumptions	3.00%	3.00%	N/A	N/A

⁽¹⁾ closed to the accrual of future benefits but active members' benefits are linked to current salaries

In addition, the defined benefit plan assets and liabilities have been updated to reflect the £16.0 million of contributions made to the defined benefit plans during the period and the benefits earned during the period to 30 June 2013.

13. Financial instruments

The table below sets out the Group's accounting classification of each category of financial assets and liabilities and their fair values at 30 June 2013 and 31 December 2012:

		Total £m
30 June 2013
Financial assets
Cash and cash equivalents⁽¹⁾		104.5
Net trade receivables		284.8
Derivative financial assets		5.9
Financial liabilities
Interest-bearing loans and borrowings		(1,174.1)
Derivative financial liabilities		(4.2)
Other financial liabilities		(465.5)

31 December 2012
Financial assets
Cash and cash equivalents		156.5
Net trade receivables		321.5
Derivative financial assets		3.3
Financial liabilities
Interest-bearing loans and borrowings		(1,154.2)
Derivative financial liabilities		(10.5)
Other financial liabilities		(523.1)

⁽¹⁾in addition £9.2 million of cash and cash equivalents is classified as held for sale as at 30 June 2013

Maturity of financial liabilities

The maturity profile of anticipated future cash flows including interest in relation to the Group's financial liabilities, on an undiscounted basis and which, therefore, differs from both the carrying value and fair value is shown in the table below. Interest on floating rate debt is based on the relevant LIBOR curve for US Dollar and Sterling balances and the EURIBOR curve for Euro balances. Interest on hedging interest rate swaps is based on the relevant forward LIBOR curves for US Dollar and Sterling amounts and EURIBOR curve for Euro amounts and is illustrated as a net cash flow.

	Interest-bearing loans and borrowings £m	Derivative financial liabilities £m	Other financial liabilities £m	Total financial liabilities £m
Within one year	37.8	4.2	462.0	504.0
In one to two years	59.9	-	3.5	63.4
In two to five years	1,248.7	-	-	1,248.7
Effect of financing rates	(172.3)	-	-	(172.3)

30 June 2013	1,174.1	4.2	465.5	1,643.8



Within one year	33.3	7.0	520.5	560.8
In one to two years	28.2	3.8	2.6	34.6
In two to five years	1,252.9	(0.3)	-	1,252.6
Effect of financing rates	(160.2)	-	-	(160.2)

31 December 2012	1,154.2	10.5	523.1	1,687.8

Fair value measurements recognised in the Balance Sheet

Foreign currency forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching the maturities of the contracts.

Commodity swaps are measured using quoted forward commodity prices.

Interest rate swap contracts are measured using yield curves derived from quoted interest rates.

The fair values are shown below:

	30 June 2013 Current £m	30 June 2013 Non-current £m	30 June 2013 Total £m	31 December 2012 Current £m	31 December 2012 Non-current £m	31 December 2012 Total £m
Derivative financial assets
Foreign currency forward contracts	3.0	-	3.0	3.2	-	3.2
Commodity swaps	-	-	-	0.1	-	0.1
Interest rate swaps	-	2.9	2.9	-	-	-

	3.0	2.9	5.9	3.3	-	3.3

Derivative financial liabilities
Foreign currency forward contracts	(4.2)	-	(4.2)	(2.4)	-	(2.4)
Interest rate swaps	-	-	-	(4.6)	(3.5)	(8.1)

	(4.2)	-	(4.2)	(7.0)	(3.5)	(10.5)

The fair value of these financial instruments are derived from inputs other than quoted prices that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) and they therefore are categorised within level 2 of the fair value hierarchy set out in IFRS 7 "Financial instruments disclosures".

14. Notes to the Cash Flow Statement

	6 months ended 30 June 2013 £m	Restated⁽¹⁾ 6 months ended 30 June 2012 £m	Restated⁽¹⁾ year ended 31 December 2012 £m
Reconciliation of headline⁽²⁾ operating profit to cash generated by continuing operations
Headline⁽²⁾ operating profit from continuing operations	165.0	75.8	212.6
Adjustments for:
Depreciation of property, plant and equipment	20.8	8.2	23.3
Amortisation of computer software and development costs	2.8	0.3	2.2
Restructuring costs paid and movements in other provisions	(31.4)	(9.6)	(59.7)

Operating cash flows before movements in working capital	157.2	74.7	178.4
Decrease/(increase) in inventories	6.2	(15.1)	2.2
Decrease/(increase) in receivables	3.4	(10.7)	(4.6)
(Decrease)/increase in payables	(35.1)	10.8	(38.2)

Cash generated by operations	131.7	59.7	137.8
Tax paid	(21.6)	(8.9)	(45.3)
Interest paid	(24.5)	(20.8)	(42.8)
Swap close-out costs	-	(5.6)	-
Defined benefit pension contributions paid	(16.0)	(18.2)	(33.5)

Net cash from operating activities from continuing operations	69.6	6.2	16.2

⁽¹⁾ restated to include the cash flows of Truth and Marelli within discontinued operations and for the adoption of IAS 19 (revised) "Employee

benefits"

⁽²⁾ as defined on the Income Statement

Cash flow from discontinued operations		6 months ended 30 June 2013 £m	Restated⁽¹⁾ 6 months ended 30 June 2012 £m	Restated⁽¹⁾ year ended 31 December 2012 £m

Cash generated from discontinued operations		10.6	11.2	30.6
Tax paid		(0.9)	(2.4)	(4.1)
Defined benefit pension contributions paid		(0.1)	(0.1)	(0.2)

Net cash from operating activities from discontinued operations	9.6		8.7	26.3


Purchase of property, plant and equipment		(3.7)	(3.7)	(6.9)
Purchase of computer software		-	(0.1)	(0.1)

Net cash used in investing activities from discontinued operations	(3.7)		(3.8)	(7.0)


Net cash used in financing activities from discontinued operations	-		-	-

⁽¹⁾ restated to include the cash flows of Truth and Marelli within discontinued operations

Net debt reconciliation

		At 31 December 2012	Cash flow	Acquisitions	Disposals	Other non-cash movements	Effect of foreign exchange	At 30 June 2013
		£m	£m	£m	£m	£m	£m	£m
Cash⁽¹⁾		156.5	(26.1)	(20.7)	0.7	-	3.3	113.7
Debt due within one year	(6.2)		-	-	-	-	-	(6.2)
Debt due after one year	(1,148.0)		26.0	-	-	(2.3)	(43.6)	(1,167.9)

Net debt		(997.7)	(0.1)	(20.7)	0.7	(2.3)	(40.3)	(1,060.4)

⁽¹⁾ includes £9.2 million of cash shown in assets held for sale at 30 June 2013

15. Post Balance Sheet events

On 3 July 2013, the Truth business, a business previously shown within the Other Industrial division, was disposed for gross consideration of £134.6 million ($204.7 million). The costs relating to this disposal were £3.3 million and Truth had net assets of £39.3 million at 30 June 2013.

On 1 August 2013, the Marelli business, a business previously shown within the Energy division, was disposed for gross consideration of £176.9 million (€207.0 million). The costs relating to this disposal were £6.7 million and Marelli had net assets of £100.0 million at 30 June 2013.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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