Melrose defies tariffs and supply woes to beat profit forecast
Operating profits at Melrose, the owner of GKN Aerospace, were £310 million for the six months ended June 30, compared with a company-compiled analysts' consensus of £299 million.
Revenue rose 6 per cent to £1.7 billion, driven by a particularly strong performance from Melrose's engines division, which supplies parts to the likes of Rolls-Royce and the US-based Pratt & Whitney.
The performance sent shares up more than 5 per cent on a day that markets were backed into a retreat as Trump introduced a slew of fresh tariffs.
Melrose was buoyed last week by news that the US-EU trade deal had granted a tariff exemption for aircraft and aviation parts, although it said on Friday it had successfully mitigated the 'direct impact' of the current levies on its half-year bottom line.
The FTSE 100 group has a significant presence in the US, which makes up nearly two thirds of its sales, and it recently opened a multimillion-pound factory in San Diego. It does, however, run an operation in Mexico, which exports to both Europe and the United States.
'We delivered a strong performance in the first half with a 29 per cent improvement in profit and cashflow significantly stronger than last year despite the backdrop of supply chain and tariff disruptions,' Peter Dilnot, chief executive, said.
• One-sided trade deal suggests outsider status has benefited Britain
Melrose has benefited from a twin boom in defence and aviation. Conflict in Ukraine and the Middle East has led to governments increasing military spending budgets, while travel demand has soared in the post-pandemic era, leading to record order backlogs for new aircraft.
It has, however, faced hurdles from wider supply chain issues affecting the aerospace industry, which have fuelled problems at the planemakers Boeing and Airbus. Those difficulties were further compounded by the additional complexity of Trump's trade levies.
Dilnot said he was confident of delivering sustained increases in profit and cashflow in the years ahead and a £600 million free cashflow target by 2029.
Melrose has managed to offset some of the impact from supply chain snarl-ups thanks to increasing demand for its aftermarket services, as companies look to get more life out of older aircraft. Dilnot said that despite lower growth forecasts for global air travel, 'constrained build rates' for new aircraft coupled with record order backlogs had forced airlines to make better use of their fleets, 'fuelling' aftermarket growth.
• North Sea oil is a 'treasure chest' for the UK, says Donald Trump
Operating profit at Melrose's engines division grew by more than a quarter to £261 million over the half-year period, alongside a 6 per cent rise in engine flying hours. Revenue increased 11 per cent to £781 million.
Its structures division reported a near-third rise in operating profit to £63 million, with a strong 10 per cent revenue growth in defence. The company supplies parts for some of the largest defence programmes in the world, including Chinook helicopters and F-35 fighter jets. Recent contract awards include the extension of a six-year tie-up with BAE Systems to provide parts for its Eurofighter Typhoon jet, and a five-year deal with the US defence giant Lockheed Martin.
Melrose's board has set an interim dividend of 2.4 pence per share for 2025, up 20 per cent year-on-year. The company is currently £91 million through a £250 million, 18-month, share buyback programme.
Founded in 2003 by Christopher Miller, David Roper and Simon Peckham, Melrose floated on London's Aim market the same year. After rising to the FTSE 100, its market capitalisation now sits at about £6.87 billion.
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