Melrose Industries PLC on Monday predicted a significant improvement in its cash flow position as it backed annual guidance amid a strong aftermarket performance.
Melrose said full-year expectations are unchanged with adjusted operating profit forecast of £550 million to £570 million in the year to December 2024. Net debt is also anticipated to end the year in line with current expectations. In 2023, the company reported adjusted operating profit of £420 million.
In 2025, despite continued supply chain challenges, the Birmingham, England-based aerospace technology firm composed of parts of the former GKN, said it expects to deliver an adjusted operating profit of £700 million.
This is expected to be led by the strong aftermarket performance in the Engines division offsetting original equipment volume constraints.
Of note, Melrose expects its cash flow position to improve significantly next year and to deliver substantial free cash flow in 2025.
Cash flow is poised to grow materially beyond this as a result of the completion of restructuring programmes, the resolution of the geared turbofan powder metal issue, all risk and revenue sharing partnerships generating cash and the continuing growth of the group’s profits, Melrose said.
Longer term financial targets for the period beyond 2025 will be provided alongside full year results on March 6, 2025, the company added.
In response, shares in Melrose rose 8.6% to 531.42 pence each in London on Monday morning. It was the best performing stock on the FTSE 100 which was up 0.1%.
Revenue was up 7% in the four months to October 31 from a year prior, with Engines, up 17%, showing strong progress driven by aftermarket revenues, and Structures growing at 1%, impacted by original equipment volume reductions and customer destocking.
In Engines, Melrose said aftermarket sales were 32% higher on-year, with a particularly strong contribution from defence. But OE volume growth remains constrained by industry-wide supply chain issues. Looking ahead, the division is well placed to meet the ongoing industry ramp-up from its established positions as well as through new technologies, Melrose said.
In Structures, revenue continues to reflect the planned exit of non-core work, customer destocking and industry-wide supply chain challenges affecting OE production rates. Here, Melrose said that restructuring programmes are on track and nearing completion, which will result in a significant reduction in associated cash spend in 2025.
Chief Executive Peter Dilnot said: ‘It’s encouraging that we remain on track to deliver on our full year expectations, despite the industry-wide supply chain challenges.’
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