Melrose Industries upgrades expectations for 2025

The company, which said last week that it was repositioning itself as a pure-play aerospace group, now expects aerospace adjusted operating margin of between 17% and 18%, up from 14% previously.

It comes as the group will report in two divisions, with the adjusted operating margin for the engines arm seen at 28%, and the margin for Structures at 9%.

Total aerospace revenue for 2025 is expected to be £4bn, up from £3.4bn in 2023, while operating profit is seen at £700m, versus £350m. Melrose, which last month spun out its automotive business into Dowlais, set guidance for EBITDA at £870m, up from £505m in 2023, and for EBITDA margin of 22% versus 15%.

The company said aerospace profits are increasingly coming from Engines, with over 85% of this being from aftermarket activities by 2025. In addition, lifetime net cash inflows, from RRSP engines contracts, being approximately half the Engines business today, are expected to total £20bn, with a net present value of £5.5bn.

Free cash flow margin is expected to reach 12% in 2025 and long-term 15% rising to greater than 20%.

From 2024 onwards, this will allow Melrose to buy back between 5% and 10% of its market capitalisation a year, in addition to paying a progressive annual dividend.

Chief executive Simon Peckham said: "We are making clear today that after 5 years hard work, Aerospace is now positioned to fulfil the potential it had at acquisition, with a highly enviable aftermarket presence and predictable strong cashflows.

"This is a great business in a very attractive global aerospace sector and is being deliberately focused to produce both top level equity performance and very significant cash returns. We are totally focused on completing, over the next 12 months, the work we need to do to maximise returns for shareholders."

At 1350 BST, the shares were up 4.5% at 488.30p.