Melrose Industries PLC

Melrose reported H1 revenue up 10% on a constant currency basis and operating profit up 16% to GBP 347 million; H1 margin improved 50 basis points to 18.5%, EPS rose by over 20%, and free cash flow was GBP 13 million. Excluding the Garden Grove incident, revenue growth would have been 11% and operating profit growth 19%. Garden Grove reduced group revenue by GBP 16 million and profit by GBP 9 million in H1. Full-year 2026 guidance was reiterated, excluding Garden Grove: revenue of GBP 3.75 billion to GBP 3.95 billion, operating profit of GBP 700 million to GBP 750 million, and underlying cash flow of GBP 150 million to GBP 200 million. Management also said H2 Garden Grove exceptional costs are expected to be GBP 25 million to GBP 30 million, with the site likely running at around 50% of normal monthly revenue until full acrylic production restarts.

Peter Dilnot struck an upbeat but cautious tone, saying the business has maintained positive momentum amid strong civil and defense demand and that the core strategy remains on track. He emphasized that Melrose is focused on executing its three-wave growth plan: existing platform growth, targeted new opportunities like uncrewed vehicles and additive fabrication, and next-generation programs. At the same time, he was clear that Garden Grove adds uncertainty and that the company is working carefully with regulators, customers, the U.S. government, and the local community to restart operations safely.

Ross McCluskey highlighted a solid H1 financial performance with 10% revenue growth, GBP 347 million operating profit, 18.5% margin, and GBP 13 million of free cash flow, despite a GBP 15 million factoring outflow and GBP 5 million of Garden Grove cash costs in the half. He said the H1 impact from Garden Grove was GBP 16 million of revenue and GBP 9 million of profit, and that H2 exceptional costs are expected to be GBP 25 million to GBP 30 million, all of which he described as cash costs, though some payment timing may slip into 2027. He also confirmed capital spending guidance of GBP 120 million to GBP 140 million, GTF payments of GBP 27 million in H1 in line with a full-year GBP 50 million guide, net debt of GBP 1.53 billion, and leverage of 1.8x EBITDA; the buyback has been paused, not canceled, until there is more clarity.

Analysts focused heavily on Garden Grove, asking about insurance, regulator approvals, compensation exposure, and why the GBP 175 million buyback was paused. Management said the site is dealing with multiple regulators at federal, state, and local levels, that insurance is still under review, and that H2 Garden Grove exceptionals are expected to be cash costs rather than write-downs, while compensation and legal/regulatory outcomes remain uncertain. Questions also targeted factoring and the GBP 600 million free cash flow target for 2029; Ross said the factoring clarification was not a change in the plan and does not alter the 2026 or 2029 cash guidance, while Peter said the 2029 cash target remains intact because profit growth, RRSP cash generation, and the GTF inflection are still expected to drive it.