MELROSE INDUSTRIES PLC

INTERIM MANAGEMENT STATEMENT

Melrose Industries PLC issues the following Interim Management Statement for the Period from 1 July 2014 to today (the "Period").

EXECUTIVE SUMMARY

Trading is in line with expectations.  This has been a busy period for transactions.

On 31 October 2014 Elster Gas acquired Eclipse, Inc. ("Eclipse"), a US based specialist in the complementary field of low-temperature combustion technology, for £99 million, creating an opportunity to strengthen the Elster Gas business and enhance shareholder value. 

On 12 November 2014 the sale of Bridon was completed for an enterprise value of £365 million, 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.

ELSTER

Elster Gas revenue is up 4% in the Period compared to the same period last year, matched by a very similar rise in order intake.  This rate of growth is consistent with the longer term trends expected in its markets and the strategy to improve the profit margin achieved on these sales continues to meet expectations.

Elster Electricity is a business with very high seasonality towards the last quarter of the calendar year.  It is pleasing to note that sales are up 5% in the Period compared to the same period last year and order activity is consistent with expectations for the year. Management is fully focused on turning orders into sales.

Of the Elster businesses, Elster Water has seen the most significant increase to headline operating margins since acquisition and its second half margins are in line with expectations.

BRUSH

As discussed in previous trading statements Brush continues to experience slower turbogenerator sales offset, in part, by improved aftermarket performance. The longer term future for 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.

  EXCHANGE

Where relevant all numbers and percentages quoted in this Statement are calculated at constant currency. Consistent with the first half of the year an adverse currency effect of approximately 7% is expected for the full year assuming exchange rates remain at levels they have been recently.

CASH GENERATION AND NET DEBT

The underlying cash generation of the Group remains good.  After the purchase of Eclipse and the sale of Bridon, leverage at the end of the year is expected to be below 2x EBITDA¹.

RETURN OF CAPITAL

Early next year the Board of Melrose expects to recommend a return of capital to shareholders. The exact amount is yet to be decided but it is expected to be approximately £200 million.

OUTLOOK

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.  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.

¹ EBITDA - headline earnings before interest, tax, depreciation and amortisation

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