UPDATE 2-Melrose says will be hard to increase revenue in 2014

Wed Mar 5, 2014 7:07am EST

* Company sees negative forex impact of 5 percent in this year

* Particularly cautious on mining

* Full-year headline pre-tax profit almost doubles

* Shares fall as much as 8.8 pct

By Aashika Jain

March 5 (Reuters) - British investment firm Melrose Industries Plc said it would be difficult to achieve revenue growth this year because of the pound's strength and a slowdown in industries such as mining.

Melrose stock fell as much as 8.8 percent on Wednesday morning, making it the top percentage loser on FTSE-100 Index.

The company - which follows a private equity model of 'buy, improve and sell' - said that while the medium-term outlook was positive, weakness in some markets may limit short-term growth.

"Revenue (growth) is tough to achieve in all the end-markets," Finance Director Geoffrey Martin told Reuters.

"In particular we are cautious on mining, which is the worst end-market we have."

Martin said the only end-market showing growth was the gas meter business of the company's Elster division.

Elster Group, which Melrose bought in August 2012, generated two-thirds of the company's revenue of 1.73 billion pounds ($2.88 billion) in 2013. The company also makes meters to measure water and power consumption.

Elster's operating profit increased 37 percent in the first full year of ownership, Melrose said.

Melrose, which gets about 90 percent of its revenue from outside of the UK, said it expected the strong pound to remain a problem in 2014.

"We see a forex headwind of about 5 percent in 2014, which is in line with what other engineering companies are saying," Martin said.

Revenue in the company's Brush division, a manufacturer of electricity generating equipment, fell 5.7 percent to 350.1 million pounds due to a drop in orders for turbogenerators.

The company's Bridon division, which supplies ropes used in mines, was experiencing lower demand as miners cut spending. Revenue fell marginally to 266.4 million pounds in 2013.

PROFIT DOUBLES

Investec analyst Michael Blogg cited the strong pound as a reason for cutting his profit forecast.

"This year appears more difficult (with some weak market niches and forex headwinds), although we continue to expect margin progress," Blogg said in a note to clients.

Melrose's headline pretax profit rose to 226.1 million pounds from 117.9 million, reflecting the Elster acquisition. Revenue rose about 65 percent.

The company returned about 600 million pounds to shareholders on Feb. 28. An 11-for-13 share consolidation also took effect on that date.

Melrose sold five companies in 2013, for a total of 950 million pounds. In the biggest deal, U.S. lifting equipment makers Crosby Group and Acco Material Handling Solutions were sold to KKR & Co for 633 million pounds.

The company said it would pay an unchanged final dividend of 5 pence per share.

Melrose shares were down 6.9 percent at 305.3 pence at 1143 GMT on the London Stock Exchange.

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