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 to15November 2012. OVERVIEW Tradingfor the Groupis 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 acquisitionof theElsterGroup was completed successfully in the period andthe process of improving its performance is well underway. The Melrose Board remains confident about the prospects for delivering significant shareholder value over the medium termfromthisacquisition. Given that the acquisition of theElsterGroup 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 excludingElster. For these Melrose companies,revenue, at constant currencyhascontinued to grow in the periodcompared to the same time last year,by6% compared to 10% in the first half,givingayear 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 inTurbogeneratorsin the period is up17% on last yearand 13% year to date. Thebook to bill ratiowas 82%which points to OEM sales in 2013 being below this year in value but not in volume terms.This is caused in partbya move in mix toward smaller unitsbut there is alsoevidence of slower demand for turbines with the consequent effect onturbogenerators. 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 theLoughborough, 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 totwice 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. Marelliisexperiencingstrong momentum going into next year with revenue up6%in the periodon last year and order intake up18%.This growth is being driven by demand for generators and motors toward the top end of their range. LIFTING Crosby revenue is up14% year to date with order intake up8%. The pace ofrevenuegrowth has slowed in the period but it is stillhealthy 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. Bridonrevenue isflatin the periodas weaker construction and industrial marketshave balancedthe continued sales growth in Oil & Gasand Mining. Bridonhas seen significant investment in2012, whichis helping thispreviouslyunder 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 on15November and initial demand indications are encouraging. The new technologycentreinDoncasteropens 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 specificmarkets, whichare experiencing opposing market conditions. Truth operates in the US housing market, both new build and renovation, and continues to experiencemid 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 lastyear,however the company retains good operating margins. ELSTER Twelve weeks into theElsteracquisition our confidence in being able to improve theperformance of the businesses is high. As with previous acquisitions, restructuring the Group to create shareholder value is well underway. The operational restructuring announced byElsterat the start of 2012 is on track and is being extended along with the commencement of many other projects to improveperformance. Elsterhas 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 EuropeanElectricitySmart Meters still seems some way off. However, themedium term dynamics are still positive and the opportunities for cost reduction via extensive restructuring are larger than previously indicated. EXCHANGE RATES Historically the Group'sexchange risk has been mainly weighted tothe US Dollar. However,since the acquisition of Elsterthe exchange exposure is equally weighted between the Dollar andthe Euro. Each ten cent movement in theDollar or Euromoves profit by 2%. The weakening of the Euro during 2012 will havesome negative impact. DEBT Group net debt at 30 June 2012 was£306.5million. Post theElsteracquisition the leverage increased from 1.5xat June tojust over2.5x 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 arenot immune to any worsening ofmacro-economicconditions internationally, but they are positioned in the strong end markets of Energy and Oil & Gas whichshouldfare better than most over the medium term. In addition,the Group'sfive 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-marieWilkinson/AndrewBenbow +44 (0) 20 7920 2330 This information is provided by RNS The company news service from the London Stock Exchange END IMSEANFSFLXAFFF -0- Nov/16/2012 07:00 GMT
Melrose PLC MRO Interim Management Statement
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