Key Takeaways:
Melrose H1 revenue rose 10 percent to £1.87 billion, operating profit up 16 percent, as Garden Grove incident adds £30 million in costs.
"We are managing the situation at our Garden Grove transparencies site following the incident in May," Chief Executive Peter Dilnot said. "Partial production has since resumed, and we will continue to work closely with customers, regulators and other authorities to safely restore the site to full production in the second half."
The incident at the California facility, which produces aerospace transparencies including fighter-jet canopies and passenger-cabin windows, reduced first-half revenue by £16 million and adjusted operating profit by £9 million. The company expects the site to operate at about 50 percent of normal monthly revenue until full acrylic production resumes, with a resulting revenue, profit and cash impact of about £6 million per month. Melrose recorded £13 million of exceptional costs in the first half and expects a further £25 million to £30 million in the second half, excluding potential legal, regulatory and insurance effects.
Shares fell 3.5 percent to 458.8 pence. The company paused its £175 million share buyback program after spending £12 million under that authorization, while maintaining full-year guidance of £3.75 billion to £3.95 billion in revenue and £700 million to £750 million in adjusted operating profit. Melrose reiterated confidence in reaching £600 million of free cash flow by 2029.
Adjusted pretax profit rose 18 percent to £282 million, while earnings per share climbed more than 20 percent. Adjusted operating margin expanded 50 basis points to 18.5 percent, and free cash flow improved by £67 million to an inflow of £13 million. Net debt stood at £1.53 billion at the end of June, equal to 1.8 times EBITDA and within the company's stated leverage policy of 1.5 to two times.
The Engines division delivered revenue growth of 19 percent, with original-equipment revenue up 23 percent and aftermarket revenue continuing at mid-teen rates. Operating profit in the division rose 21 percent, while margin expanded 40 basis points. Civil risk-and-revenue-sharing programs grew 18 percent, with growth on the GTF, GEnx and V2500 platforms. Government partnership revenue increased 29 percent, driven primarily by work on the RM12 engine for the Gripen fighter, including delivery of the first upgraded engine to the Swedish Armed Forces.
Airframes revenue rose 4 percent on a reported basis, while profit declined 1 percent. Excluding Garden Grove, revenue growth would have been 6 percent and profit growth 13 percent. Defense revenue in Airframes increased 14 percent, led by F-35, C-130 and NH90 work, while civil revenue was down marginally on lower customer inventory on the Airbus A320 platform.
The company said Airbus and Boeing recorded more than 1,300 new orders combined in the first half, with both manufacturers posting double-digit delivery increases, pointing to a gradual easing of supply-chain constraints.
The Garden Grove disruption creates near-term uncertainty around production timing and shareholder returns, with the buyback pause reflecting management's caution until the full financial impact is known. Investors will watch for the site's return to full production in the second half and the resumption of the buyback program as key catalysts.
This article is for informational purposes only and does not constitute investment advice.
