Melrose on track as Engines growth underpins higher sales

Melrose Industries announced on Monday that it expects a significant improvement in its cash flow position, reaffirming its full-year guidance amid strong aftermarket performance.

Melrose on track as Engines growth underpins higher sales

The aerospace technology firm, based in Birmingham, England, confirmed its forecast for adjusted operating profit of between £550 million and £570 million for the year ending December 2024, with net debt also anticipated to align with current projections. This marks an increase from the £420 million adjusted operating profit reported in 2023.

Future outlook

Looking ahead to 2025, Melrose, which includes parts of the former GKN, expects to achieve an adjusted operating profit of £700 million, despite ongoing supply chain challenges. This growth is expected to be driven by strong aftermarket performance in its Engines division, offsetting constraints in original equipment (OE) volumes. The company also projected a significant enhancement in its cash flow next year, with expectations of generating substantial free cash flow by 2025. This improvement is attributed to the completion of restructuring programs, resolution of issues related to geared turbofan powder metal, cash generation from all risk and revenue-sharing partnerships, and continued profit growth.

Cash flow set to rise

Melrose indicated that cash flow is set to increase materially beyond 2025 as these initiatives take effect. The company plans to announce its longer-term financial targets for the period beyond 2025 alongside its full-year results on March 6, 2025. Revenue for the four months leading up to October 31 grew by 7% year-over-year, with the Engines division seeing a 17% increase driven by strong aftermarket sales, while the Structures division posted modest growth of 1%, impacted by reduced OE volumes and customer destocking.

Division figures

Within the Engines division, aftermarket sales increased by 32% year-on-year, particularly boosted by demand in the defense sector, although OE volume growth remains constrained by industry-wide supply chain issues. Melrose remains confident that the division is well-positioned to support the ongoing industry ramp-up, leveraging its established market presence and new technologies. In the Structures division, revenue continues to reflect the planned exit from non-core activities, customer inventory adjustments, and supply chain challenges affecting OE production rates. Melrose noted that its restructuring initiatives are progressing as planned, with completion expected soon, leading to a significant reduction in related cash expenses in 2025. Chief Executive Peter Dilnot commented: "It's encouraging that we remain on track to deliver on our full-year expectations, despite the industry-wide supply chain challenges."