28th Jul 2015 11:45
LONDON (Alliance News) - Melrose Industries PLC on Tuesday said it has sold its Elster energy-metering business to US industrial conglomerate Honeywell International Inc for GBP3.3 billion in cash, leaving it with only its Brush electricity-generation equipment business, which swung to a loss in the half.
FTSE 250-listed Melrose said that in addition to the cash consideration, Honeywell will assume its FKI UK defined-benefit scheme and the McKechnie defined benefit pension plan, along with Elster's pension obligations, which together comprise the majority of the pension schemes on Melrose's books.
Melrose is planning to use the consideration for the Elster businesses to return more than GBP2 billion to its shareholders and for general corporate purposes, including paying down its debt obligations.
"The disposal of Elster represents an excellent outcome for Melrose shareholders and another milestone in our track record. Through investing heavily and improving operational performance we have created substantial value for shareholders, more than doubling their money in three years," said Chairman Christopher Miller.
Melrose added that it is still on the lookout for a new acquisition and said that the sale of the Elster businesses will not influence the size of deal it will seek to pursue in the future.
Investec said the deal looked an "excellent turn-out" for Melrose and investors appeared to be in agreement, with Melrose shares rising 10% to 280.7 pence to be one of the best performers in the FTSE 250 midday Tuesday.
The news of the disposal came as Melrose posted its results for the six months to the end of June, with a pretax loss of GBP13.4 million compared to a GBP13.2 million profit a year earlier, as revenue for the group dropped to GBP117.7 million from GBP164.5 million. The results include only Melrose's Brush division, as it is now its only continuing business.
The company said it will pay an interim dividend of 2.8 pence per share for the half.
The sale of the Elster businesses leaves Melrose with Brush, the group's electricity generation business, which struggled against "extremely challenging" markets in the first half, driving its total revenue down by 26%. Melrose is in the process of reorganising the business in order to streamline capacity and expects this to result in an improvement in the second half of 2015 and to translate to a much better performance for the business in 2016.
Melrose said that while the brunt of the adverse market conditions hit Brush's new-build generator sales, which fell 52% in the half, its aftermarket business was not immune. The severe cuts to repair, maintenance and replacement budgets, particularly in the US and primarily in the utility and oil and gas sectors, hammered these sales too, though Melrose said Brush's sales pipeline remains strong.
Current trading conditions for Brush remain challenging, Melrose said, but it does expect an improvement in the second half and remains confident on the outlook for the business.
The Elster businesses Melrose has sold, however, mostly performed well in the half, with higher revenue in the gas and electricity businesses offsetting a decline in the water business. The gas business was boosted by the acquisition of Eclipse, which was bought in October last year, and by continued strong demand in the US for residential and commercial gas meters.
Revenue in the electricity business also increased, driven by the roll-out of smart meters in Europe and the Middle East and better sales in the US. The water business saw revenue decline, however, due to the timing of contracts year-on-year, though Melrose said it expects this to reverse in the second half.
By Sam Unsted; [email protected]; @SamUAtAlliance
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