Melrose beats first-half forecasts but warns of supply challenges

Aerospace group Melrose Industries reported a strong set of first-half results on Thursday, ahead of its expectations, with adjusted operating profit up 62% to £247m, although it adjusted its 2025 revenue targets amid “industry-wide” supply chain challenges.

The FTSE 100 company’s revenue for the six months ended 30 June reached £1.74bn, marking a 12% increase year-on-year, driven by strong performance in its engines and structures divisions.

It said the engines division saw a 21% rise in revenue to £720m, with adjusted operating profit surging 46% to £212m, resulting in an operating margin of 29.4%.

That performance was bolstered by growth in the lucrative aftermarket sector, including repairs and defence.

Meanwhile, the structures division achieved 6% revenue growth to £1.02bn, with operating profit up 89% to £48m and margins improving to 4.7%, reflecting successful business improvement actions and portfolio changes.

Melrose's adjusted operating margin at the aerospace level improved by 420 basis points to 14.9%, underscoring the company's progress despite ongoing industry-wide supply chain challenges.

The company said it remained on track to meet its 2024 guidance, and adjusted its 2025 revenue target to £3.8bn to account for supply chain issues and recent disposals.

However, it increased its operating margin guidance for 2025 to over 18%.

In line with its strategic focus on long-term growth and improving cash flows, Melrose announced a new £250m share buyback programme over the next 18 months.

That followed £246m in share buybacks completed in 2024, part of a broader £500m buyback initiative.

Its net debt stood at £976m, representing a leverage ratio of 1.7x.

Melrose said its operational progress included advancements in safety, customer quality, and productivity, alongside growing interest in its proprietary additive fabrication technology.

The company said it was also investing in new facilities, including a new engines repair centre in California and a £50m additive fabrication capacity in Sweden.

It declared an interim dividend of 2p per share, a 33% increase from last year, reflecting its confidence in future growth prospects.

Melrose also maintained its full-year guidance for 2024, with expected revenue between £3.6bn and £3.75bn, and adjusted EBITDA of between £710m and £730m.

Looking ahead, Melrose anticipated increasing free cash flow from 2025 onwards, driven by its restructuring efforts and ongoing growth in key areas.

Additionally, the company announced the appointment of Chris Grigg as the new chair designate, effective 1 October, with a planned transition period before he succeeds Justin Dowley as non-executive chairman in March.

“We have made strong progress in the first half, driven by Engines aftermarket performance and business improvement actions, despite industry-wide supply chain challenges,” said chief executive officer Peter Dilnot.

“We remain confident of delivering on our 2024 and 2025 guidance; our positive outlook and disciplined capital allocation enables us to invest more in attractive organic growth opportunities, as well as continue shareholder returns through our growing dividend and the further share buyback programme announced today.

“We have positive momentum, a clear strategy and excellent growth opportunities ahead.”

At 1006 BST, shares in Melrose Industries were down 7.27% at 545.6p.

Reporting by Josh White for Sharecast.com.