Currency fluctuations hamper Melrose performance but H1 profits still up

WARWICKSHIRE-based turnaround specialist, Melrose Industries, has seen half year profits rise following a strong performance from its German smart metering operation.

However, currency fluctuations have continued to erode the group’s performance, as it has with many businesses with European interests.

The Alcester group said profits at metering business Elster were up 50% since acquisition and investment in the business was still creating value for shareholders.

Revenue for the continuing businesses during the half year was £780.9m (2013: £875.3m), a fall of 11% – 5% at constant exchange rates.  Headline pre-tax profit was £109.9m (2013: £107.4m) a rise of 2% – 10% at constant exchange rates.

Diluted earnings per share on continuing businesses was 7.3p (2013: 7.1p), an increase of 3%.  However, this rose to 11% at constant currency.

The board has declared an interim dividend of 2.8p (2013: 2.75p).  The dividend will be paid on October 16, 2014 to shareholders on the register at the close of business on September 19, 2014.

Headline operating margins at Elster increased in all three of its businesses to a combined 18.9% on sales meaning profitability has improved by nearly 50% since acquisition in the summer of 2012.

The group said a period of repositioning, restructuring and the elimination of low margin businesses was now largely complete and with orders improving, Elster’s prospects looked exciting.

It said the two remaining FKI businesses of Brush and Bridon had found revenue growth harder to come by in recent periods due mainly to weakness in specific market areas, principally mining.  However, enquiries and orders are also beginning to improve in these businesses.

Investment in its businesses continues at a high level, represented by capital expenditure running at one and a half times depreciation in the period.  Cash generation remains strong.  After a capital repayment in February, net debt levels have risen as expected to £751m.

Commenting, Melrose chairman Christopher Miller said: “With profits up almost 50% since acquisition, the investment and operational improvements in Elster continue to create shareholder value on a scale which has surpassed our expectations at acquisition. Elster is on track to being our most successful acquisition to date.

“Melrose buys good businesses with scope to improve performance and deliver strong rewards for shareholders. Our search for our next acquisition continues with patience and rigour.”