Melrose PLC (MRO) - Interim Management Statement
RNS Number : 2813R
16 November 2012
16 November 2012
INTERIM MANAGEMENT STATEMENT
Melrose PLC today issues the following Interim Management Statement for the
period from 1 July 2012 to15November 2012.
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.
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
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
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.
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
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.
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
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
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.
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.
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.
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
IMSEANFSFLXAFFF -0- Nov/16/2012 07:00 GMT
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