Profit Increase: 42% increase to GBP540 million in 2024. Revenue Growth: 11% like-for-like increase, led by the engines division. Operating Margin: Increased by 400 basis points to 15.6%. Earnings Per Share (EPS): Grew 45% to 26.4p. Engines Division Revenue Growth: 26% increase, driven by aftermarket performance. Aftermarket Revenue Growth: 32% increase, with Swedish military business up 74%. Operating Profit (Engines Division): Grew 40% to GBP422 million, with margins at 28.9%. Structures Division Revenue Growth: 3% increase, with defense revenue up 7%. Operating Profit (Structures Division): Grew 32% to GBP144 million, with margins increasing to 7.2%. Free Cash Flow (2024): GBP23 million before interest and tax. Net Debt: GBP1.321 billion, with leverage at 1.9 times. 2025 Revenue Guidance: GBP3.550 billion to GBP3.700 billion, with 7% like-for-like growth. 2025 Operating Profit Guidance: GBP680 million to GBP720 million, with margins exceeding 19%. Free Cash Flow Guidance (2025): In excess of GBP100 million post interest and tax.

Warning! GuruFocus has detected 9 Warning Signs with MLSPF.

Release Date: March 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Melrose Industries PLC (MLSPF) delivered a strong performance in 2024 with a 42% increase in profit to GBP540 million, despite lower-than-expected revenue growth. The company achieved an 80% reduction in lost time accidents and further improvements in quality, highlighting a strong focus on safety and operational excellence. Melrose Industries PLC (MLSPF) completed the sale of three noncore businesses, including two to Boeing, as part of its ongoing portfolio rationalization. The Engines division showed robust revenue growth of 26%, driven by strong aftermarket performance and good OE growth. The company is targeting high single-digit CAGR in revenue, leading to GBP5 billion of revenue by 2029, with significant margin expansion and cash generation.

Negative Points

The Structures division's growth was dampened by ongoing supply chain challenges and specific customer destocking and production rate changes. Overall revenue fell slightly short of expectations due to a weaker dollar impact of around GBP70 million. The company is tempering its revenue guidance for 2025 due to continued supply chain challenges affecting the aerospace industry. Melrose Industries PLC (MLSPF) faces higher tariffs on imports into the USA, particularly from Mexico, which could impact costs. The GTF program is currently consuming cash, with the program expected to turn cash positive only in 2028.

Story Continues

Q & A Highlights

Q: As we think about the growth of free cash flow from 2025 to 2029, should we expect the relative divergence between profit and cash driven predominantly by that variable consideration to progressively narrow? A: Matthew Gregory, Group Finance Director, explained that the gap is expected to narrow as cash grows faster than the buildup of the under work on asset over time. Peter Dilnot, CEO, added that they are confident in their targets and have a clear line of sight to achieve them, emphasizing the control over restructuring and the GTF powder metallurgy issue.

Q: Can you provide more details on the aerostructures margin guidance, which seems stronger than many aerostructures companies? A: Peter Dilnot highlighted that Melrose has repositioned its structures business to focus on design leadership, exiting noncore and unprofitable businesses. The company owns design rights and invests significantly to embed its technology on customer platforms, with repricing efforts in defense contributing to margin improvements.

Q: Regarding the GTF RRSP in 2028, what magnitude of delta are we going to see on that program? A: Matthew Gregory stated that while they cannot disclose specific levels of development spend due to commercial sensitivity, they are confident that the GTF will move into positive cash in 2028. The inflection point for the GTF becoming cash positive was always around 2028, with the depth of investment being somewhat higher but the shape remaining intact.

Q: Can you clarify your CapEx commentary, particularly regarding the additive manufacturing CapEx? A: Matthew Gregory clarified that the CapEx guidance of 1 to 1.2 times includes additive fabrication expenditure. They have updated their view on costs and are receiving subsidies and grants, allowing them to absorb these costs within the guidance.

Q: How confident are you in achieving the GBP600 million free cash flow target by 2029, and what assumptions are included? A: Matthew Gregory explained that the GBP600 million free cash flow target includes assumptions of low cash tax, working capital efficiency, and interest cost reductions. The target does not include any buybacks beyond the current program, and they are confident in achieving it based on current visibility and assumptions.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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