Melrose Industries (LON:MRO) reported what executives described as a “transformational year” in 2025, highlighted by higher profit, a return to positive free cash flow, and the completion of a multi-year restructuring program. Management said demand remains strong across civil aerospace and defense markets, positioning the company to benefit from production ramp-ups and a growing aftermarket opportunity, particularly in engines.
2025 results: profit growth and a free cash flow inflection
On the call, executives said 2025 performance was driven by continued commercial and operational progress, with group revenue up 8% on a like-for-like basis. Group operating profit rose 23% to GBP 647 million, while operating margin increased 240 basis points to 18%. Earnings per share grew 25% to 32.1 pence.
The board proposed a final dividend of 4.8 pence per share, taking the full-year dividend to 7.2 pence, up 20% year-over-year, which executives said aligns with the company’s capital allocation policy.
Division performance: Engines leads; Airframes constrained by supply chain
Management said both divisions delivered revenue growth, with performance led by Engines. The company also noted it has renamed its “Structures” division to Airframes to reflect a broader mix including wiring and transparencies.
- Engines: revenue up 15%; operating profit up 27% to GBP 520 million; margin 31.9%.
- Airframes: revenue up 3%; operating profit up 10% to GBP 156 million; margin improved from 7.2% to 8%.
In Engines, management said growth was balanced between original equipment (OE) and aftermarket. OE revenue rose 16%, supported by higher GEnx and GTF volumes and a higher spare engines ratio, and executives highlighted that underlying OE growth in the second half was “well into the teens” even after accounting for the unwind of first-half tariff effects.
Aftermarket revenue increased 14% for the year. Revenue from risk and revenue sharing partnerships (RSP) grew 20% and included GBP 324 million of variable consideration. Executives said the “core” RSP portfolio grew 19%. The company also cited a return to growth in its aftermarket repair business in the second half (up 24%), after first-half tariff disruption.
In Airframes, defense revenue rose 15%, while civil revenue declined 2%. Management said the civil side continues to be affected by supply chain constraints that are holding back OEM production rates. The division also faced a productivity issue at a manufacturing site in the Netherlands; management described the profitability impact as “mid-low single digits” and said a plan to resolve the issue in 2026 is already underway.
Commercial wins and technology focus: repairs, uncrewed military, and additive fabrication
Executives cited a number of contract and partnership announcements made during the year. In Engines aftermarket repair, management said the company won a contract with Rolls-Royce to be the sole external supplier of fan blade repairs on three engines, secured work with Boeing for C-17 fan blades, and signed a five-year contract extension with Pratt & Whitney for critical fan blade repairs.
On the defense side, the company discussed developments tied to the “rapidly emerging” uncrewed market. Management said it was awarded a contract with Sweden’s FMV to develop an uncrewed aerial vehicle demonstrator within 18 months and also signed an agreement with FMV to explore propulsion requirements for future fighter systems. In Airframes defense, the company signed an agreement with Anduril Industries to collaborate on next-generation uncrewed aerial vehicle solutions initially targeting U.K. programs, and it secured two follow-on contracts for C-130J and Typhoon transparencies.
Melrose also reiterated its focus on additive fabrication, describing it as proprietary software- and robotics-enabled technology that can produce near-final structural components and potentially ease industry constraints in forgings and castings. Management reaffirmed its expectation that additive fabrication will contribute GBP 50 million of operating profit in 2029, said it has contracts in place, and noted it is working with multiple OEMs, but declined to provide margins for the technology.
Cash flow details, factoring, and capital allocation
Management said 2025 cash performance included GBP 68 million of cash costs related to the powder metal issue (in line with guidance) and capital expenditures of GBP 94 million. Restructuring cash costs were GBP 31 million and, with the restructuring program now concluded, executives said there will be “no significant” restructuring cash costs in 2026.
Net financing costs were GBP 132 million, largely reflecting interest on bank loans with an average cost of 5.3%. Net debt ended the year at GBP 1.4 billion, with leverage at 1.8x net debt to EBITDA, within the company’s targeted range of 1.5x–2x.
Executives addressed an investor question about receivables factoring, saying the company has long-standing factoring programs tied to specific programs and confirmed it will not enter new factoring programs. Management said the factoring balance rose with business activity and indicated a proxy for future factoring growth could be revenue growth, while emphasizing that factoring is about the timing of receivables rather than being a “source” of cash flow.
2026 outlook and buybacks: growth, margin expansion, and higher cash flow guidance
For 2026, Melrose guided to revenue of GBP 3.75 billion to GBP 3.95 billion (around 10% like-for-like growth at the midpoint) and operating profit of GBP 700 million to GBP 750 million, implying a midpoint margin of around 19%. The company expects Engines to maintain double-digit growth, weighted to aftermarket, with operating profit guidance of GBP 565 million to GBP 595 million and margins around 33%. Airframes is expected to deliver high single-digit revenue growth and operating profit of GBP 170 million to GBP 190 million, with a targeted 9% margin.
Free cash flow (post-interest and tax) is expected to be GBP 150 million to GBP 200 million in 2026, which management said will remain heavily second-half weighted. The company also guided to cash interest of around GBP 130 million, an effective tax rate of 21%–22%, and an increase in CapEx to about 1.2x owned asset depreciation and amortization, tied to strategic growth investments.
On tariffs, management said swift actions in the second quarter meant tariffs did not have a material impact on 2025 results, but it cautioned that recent announcements could cause further disruptions.
Melrose said it returned GBP 173 million to shareholders in 2025 under a GBP 250 million buyback program announced in 2024, with a further GBP 60 million to complete the program in the first quarter of 2026. The company also announced a new GBP 175 million share buyback program to run over 12 months, beginning after the current program completes at the end of March.
Management reiterated confidence in its 2029 targets, including GBP 5 billion of revenue, operating margin of 24%+, operating profit of GBP 1.2 billion, and GBP 600 million of free cash flow, with the step-up supported by production ramp-ups, increasing RSP cash returns, and an expected GTF cash inflection in 2028 following completion of the PMI inspection program in 2027 and reduced development costs.
About Melrose Industries (LON:MRO)
Melrose Industries PLC, together with its subsidiaries, provides aerospace components and systems to civil and defence markets in the United Kingdom, rest of Europe, North America, and internationally. The company operates through two segments, Engines and Structures. The Engines segment offers structural engineered components; parts repair; and commercial and aftermarket contracts to engines original equipment manufacturers. The Structures segment provides civil and defence air frames, including lightweight composite and metallic structures; and electrical distribution systems and components to airframe original equipment manufacturers.
