Melrose PLC MRO Interim Management Statement

  Melrose PLC (MRO) - 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.

 

                                    -ends-

 

 

Enquiries: 

 

M:Communications 

Nick Miles/Ann-marie Wilkinson/Andrew Benbow                           +44 (0)
20 7920 2330

                     This information is provided by RNS
           The company news service from the London Stock Exchange
 
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IMSEANFSFLXAFFF -0- Nov/16/2012 07:00 GMT