Big rise in profits for Melrose despite currency headwinds

MANUFACTURING turnaround specialist Melrose Industries has announced a big increase in full year profits, with a strong performance from its principal operation.

For the year to December 31, 201, revenue from continuing businesses was £1,377.5m (2013: £1,466.4m) and headline pre-tax profit was £212.5m (2013: £191.5m), an increase of 21%.

The Alcester-based group said its Elster division continued to perform strongly in all three divisions with orders and sales in Gas, the largest division, in particular, showing increases in constant currency terms.  

It added that while the bulk of restructuring and product rationalisation was behind it, there was nevertheless an ongoing programme of efficiency gains which were expected to add to the substantial improvements already achieved in operating margins.

Investment in all divisions continues and the purchase of US-based Eclipse in October for $158m is said to be an “exciting addition” to Elster Gas. The business is expected to make a good contribution in its first full year, said the group.
 
In its Energy division, Brush is said to be continuing to experience difficult end markets with its OEM business.  Melrose said while it was pleasing to note that independent market research had shown Brush had more than maintained its market share, nevertheless the forces at play holding down OEM demand did not appear to be dissipating in the near term.  In the medium and long term, however, it said it had confidence that this market would recover.  In the meantime the Aftermarket and Switchgear divisions were both said to be performing well.
 
As with many other businesses operating on a global basis, Melrose said it had encountered foreign exchange headwinds during 2014 and while these had abated somewhat in recent months as regards the US Dollar, the further weakness in the Euro and the Rouble suggested a further 5% headwind in 2015 based on current exchange rates.
 
In outlook, it said the world economy continued to be geographically patchy.  Strength in the USA is mirrored by weakness in most of Continental and Central Europe – a situation which it said seemed unlikely to change in the near future.
 
“Adjusting for currency effects, our group is trading in line with management expectations for 2015 despite the expected downturn in the performance at Brush.  In our Elster businesses, we see the potential for good demand and growth prospects, as indeed we have seen in the second half of 2014,” it said in its results statement.

“This, together with the opportunity for further margin enhancement, and the possibility of a value creating acquisition, gives us confidence for the balance of 2015 and beyond.”

Christopher Miller, chairman of Melrose Industries, said: “We are delighted with Melrose’s performance in 2014 with profits up 21% in constant currencies.

“Elster has had another very successful year with profits up by two thirds since acquisition.

“Our strategy is working: for a net shareholder investment of £170m, and with a current market capitalisation of £3bn, we have created £2.8bn of shareholder value.

“We look forward to a further acquisition in due course to continue our success.”

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