Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Melrose Industries has raised its annual profit forecast even after doubling earnings last year as the FTSE 100 aerospace group rides the global rebound in aviation.
The company, which has pivoted away from turning around underperforming industrials businesses to concentrate on aerospace, upgraded its profit guidance by 6 per cent for this financial year on Thursday.
Melrose is now expecting to make adjusted operating profit of between £550mn and £570mn in 2024. The higher forecast came even as the group, which spun off its automotive division last year, boosted operating profits from its continuing operations to £420mn for the year to end December 2023, up from £186mn the previous year.
Revenues rose from £2.9bn to £3.3bn, ahead of analysts’ expectations. Melrose said it expected revenues this year of £3.6bn to £3.75bn but warned that growth would be “tempered by ongoing sector-wide supply chain issues”.
Shares in the company, which have soared more than 85 per cent over the past 12 months, fell 4 per cent on Thursday.
Melrose’s GKN aerospace business is a leading supplier of airframe structures for Airbus and Boeing, as well as of components to engine manufacturers.
The group originally listed on London’s Aim in 2003 to turn around industrial businesses under a “buy, improve, sell” approach, but last year abandoned that strategy to concentrate on its growing aerospace business.
The company’s founders, including chief executive Simon Peckham, last year announced their intention to step down in 2024. Melrose on Thursday confirmed that Peckham had stepped down as chief executive earlier this week. Peter Dilnot, who was chief operating officer, has taken over as CEO.
Dilnot said the group was profiting “not just from a rising tide” amid the global rebound in aviation but there was “also a huge amount of work going on under the hood”.
The company has restructured the business, reducing its number of sites, while also investing in new initiatives, including in its engines business which makes components for, among others, GE Aerospace and Pratt & Whitney. The engines business is on track to achieve its 2025 operating margin target of 28 per cent one year early.
“It’s a really broad-based structural improvement in our earnings,” Dilnot said.
However Melrose warned of continuing headwinds from industry-wide supply chain challenges and the “well-publicised issues with the Boeing 737 Max”. The US aircraft maker has been forced to put on hold the planned production increase of its best-selling model as federal investigators probe the mid-flight blowout of a door panel on a 737 Max operated by Alaska Airlines.
Melrose’s exposure to the Max was “relatively light” compared with other programmes, said Dilnot. The company’s work is weighted towards Airbus and widebody aircraft.
It also makes components for Pratt & Whitney’s geared turbofan engines, some of which have been recalled for early reinspection. Dilnot said Melrose had limited revenue exposure to the engine programme, noting that it was “a challenge that is increasingly contained”.
