Tough markets continue to offer scope for Melrose growth

WARWICKSHIRE-based manufacturing turnaround specialist, Melrose Industries has said   tough global trading conditions continue to offer scope to expand the business.

In an interim management statement the Alcester company said it continued to look for opportunities to add value to the business.

“World economies continue to be difficult to forecast with any degree of certainty.  However, Melrose is well placed in its end markets and has further opportunities to improve its businesses to create shareholder value,” it said.

“Continuing tough market conditions would also position Melrose well for the next stage of its development providing the opportunity to create further shareholder value through acquisition.”

The company, which said trading continued to be in line with expectations, has had a busy few months with acquisitions and disposals.

Last month, its Elster Gas subsidiary acquired Eclipse Inc, a US-based specialist in the complementary field of low-temperature combustion technology, for £99m. The acquisition creates an opportunity to strengthen the Elster Gas business and enhance shareholder value.  

Earlier this month it completed the sale of wire manufacturer Bridon for an enterprise value of £365m, meaning the original equity investment by Melrose more than doubled.

“Together these transactions are illustrations of the successful and continuing implementation of our ‘buy, improve and sell’ business model,” it said.

Among its other subsidiaries, Elster Gas saw revenue rise 4% in the period from July 1, 2014 to October 31, compared to the same period last year. This was matched by a very similar rise in order intake.  The rate of growth was said to be consistent with the longer term trends expected in its markets and the strategy to improve profit margins achieved on those sales continued to meet expectations.

Elster Electricity, a business with very high seasonality towards the last quarter of the calendar year, has seen sales rise 5% in the period compared to the same period last year and order activity is consistent with expectations for the year. Melrose said management was fully focused on turning orders into sales.
 
Of all the Elster businesses, Elster Water saw the most significant increase to headline operating margins since acquisition and its second half margins were said to be in line with expectations.
 
Elsewhere, it said Brush continued to experience slower turbogenerator sales although this had been offset, in part, by improved aftermarket performance. The longer term future for the Brush remains positive as the business is well placed in its stronger end markets. The new China factory, which is due to open towards the end of 2015, remains on time and on budget.

In common with other companies with global footprints, Melrose said it had been impacted by adverse currency fluctuations, with approximately 7% being felt for the full year assuming exchange rates remain at recent levels.

Despite this, Melrose said it expected to recommend a return of capital to shareholders. The exact amount is yet to be decided but it is expected to be approximately £200m