2013 sales outlook clouds over at Melrose

A red flag has been raised at industrial turnaround specialist Melrose, with the group saying some of its businesses have seen a slow-down in business in recent weeks.

Notwithstanding the above, the group is trading in line with expectations. Stripping out the contribution from the recently acquired Elster Group, revenues from Melrose companies at constant exchange rates since July 1st have been up 6% year-on-year, which represents a slow-down from the 10% growth rate in the first half of 2012. For the year to date, underlying revenue is up 8%.

The overall weekly rate of order intake in the second half of the year has been 8% lower than the first half , but Melrose said it is too early to tell how this will affect 2013, and in any case the order intake rate is varying on a business by business basis.

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As for the new acquisition, Elster, there is mixed news in that management have identified larger than expected cost savings, but there have been signs of revenue trends slowing down while the boost from European Electricity Smart Meters looks like being delayed.

Largely as a result of the Elster acquisition, group debt has risen result in the gearing ratio rising from 1.5 time equity at the end of June to just over 2.5, where it is expected to remain for the rest of the year. Significant capital expenditure at around twice the level of depreciation continues to be made.

The revenue trends highlighted in the interim management statement are naturally a concern, leaving the sales outlook for 2013 more cloudy, but management believes that the group's positions in the strong end-markets of Energy and Oil & Gas mean the company should fare better than most over the medium term, on top of which, the group has a five-month order book to fall back on.

"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," the statement concluded.

JH