REG - Melrose Industries - FINAL RESULTS
06/03/2025 07:15
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RNS Number : 5494Z Melrose Industries PLC 06 March 2025
6 March 2025
MELROSE INDUSTRIES PLC
AUDITED RESULTS
FOR THE YEAR ENDED 31 DECEMBER 2024
Strong 2024 performance, 2025 guidance confirmed, new five-year targets
launched
Melrose Industries PLC ("Melrose", the "Company" or the "Group"), the
aerospace technology group, today announces its audited results for the year
ended 31 December 2024.
· Strong 2024 performance with profit at the top end of expectations
despite industry-wide supply chain issues
· Guidance for 2025 confirmed with continued profit growth, completion
of transformational restructuring and substantial positive free cash flow(1)
· New five-year targets launched, with high single digit ("HSD")
revenue CAGR to c.£5 billion, adjusted operating profit(1) of £1.2 billion+
and free cash flow(1) (after interest and tax) of £600 million
· Targets deliver >20% adjusted diluted EPS(1) CAGR from 2024 to
2029, with free cash flow(1) set to more than quadruple from 2025 to 2029.
Adjusted(1) results Growth(2) Statutory results
2024 2023 2024 2023
Continuing operations £m £m % £m £m
Revenue 3,468 3,350 11% 3,468 3,350
Aerospace operating profit 566 420 38% 177 17
Operating profit/(loss) (post-PLC costs(3)) 540 390 42% (4) 57
Profit/(loss) before tax 438 331 36% (106) (8)
Diluted earnings per share (p) 26.4 18.7 45% (3.7) 0.1
Dividend per share (p) 6.0 5.0 20% 6.0 5.0
Net debt(1) 1,321 572 n/a n/a
Leverage(1) 1.9x 1.1x n/a n/a
Peter Dilnot, Chief Executive Officer of Melrose Industries PLC, today said:
"Melrose delivered a strong 2024 performance driven by robust industry demand,
ongoing aftermarket growth and the impact of extensive business improvement
actions. This was achieved against the backdrop of ongoing industry-wide
supply chain issues.
We are well positioned for further progress in 2025, including the expected
delivery of substantial free cash flow, despite ongoing industry challenges.
We are also excited to launch our five-year targets that include more than 20%
annual EPS growth through the period and free cash flow generation of £600
million in 2029. Our confidence in future growth is underpinned by market
leading technologies and established positions on all the world's major
aircraft."
Highlights(2)
· Revenue of £3.47 billion, 11% like-for-like growth on the prior year
(6% including exited businesses)
· Adjusted operating profit(1) (pre-PLC costs(3)) up 38% at £566
million (2023: £420 million), at top end of expectations
· Adjusted diluted EPS(1) up 45% at 26.4p compared to 18.7p in 2023.
Statutory diluted EPS of (3.7)p (2023: 0.1p)
· Net debt(1) of £1.32 billion, representing leverage(1) of 1.9x, in
line with our expectations and within our target range of 1.5-2.0x. The Group
generated £71 million of positive free cash flow(1) (after interest and tax)
in the second half of the year.
· Final dividend of 4.0 pence per share proposed, an increase of 14% on
the prior year, with a total dividend of 6.0 pence, up 20% on 2023
· Strong operational progress with further improvements delivered in
safety, customer quality and commercial contracts.
Divisional highlights(2)
Engines
· Revenue growth of 26% to £1.46 billion with adjusted operating
profit(1) up 40% to £422 million and adjusted operating margin(1) up to 28.9%
· Adjusted operating profit(1) included £274 million of total variable
consideration from our leading portfolio of engine risk and revenue sharing
partnership ("RRSP") contracts(4), in line with our expectations
· Engines performance driven by strong aftermarket growth of 32%,
especially in defence and repairs, plus the positive impact of ongoing
business improvement initiatives
· Pratt & Whitney GTF fleet management plans on track with growing
partner confidence on long-term position and programme performance
· Additive fabrication operational scale-up and commercial discussions
with all engine OEMs progressing at pace; ongoing investment as previously
announced provides excellent long-term growth opportunities.
Structures
· Revenue growth of 3% to £2.01 billion (down 5% including exited
businesses), reflecting defence growth offset by previously highlighted civil
destocking and lower than expected OE production rates
· Adjusted operating profit(1) of £144 million with margins increasing
to 7.2% from 5.1% in 2023; driven by benefits from restructuring and business
improvements
· Good commercial progress including three non-core disposals and
defence repricing 61% complete (on track for 85% target by the end of 2025)
· Strong operational step up, with zero lost time accidents in our
civil business and quality escapes reduced by 18% across our core Structures
division.
Guidance for 2025 full year(5)
· Revenue range of £3.55 billion to £3.70 billion, with growth
moderated by ongoing industry-wide supply chain issues with greater impact on
Structures
· Adjusted operating profit(1) (pre-PLC costs(3) of £30 million)
guidance maintained at the midpoint of £700 million(6) (range £680 million
to £720 million), reflecting an adjusted operating margin(1) of >19%
· Our guidance includes variable consideration of between £320 million
and £360 million depending mainly on OEM build rates of certain engine
programmes
· Substantial free cash flow(1) generation of >£100 million (after
interest and tax) expected, representing an important inflection point as our
transformational restructuring programme nears completion
· In line with historical and industry seasonality, profit and cash
will be second half weighted.
Five year targets(5, 7)
· Group revenue of c.£5.0 billion in 2029, reflecting HSD CAGR based
on: current customer build rate assumptions being met by 2029; industry flying
hours forecasts; and FX at US $1.25
· Adjusted operating profit(1) of £1.2 billion+ at Group level
(post-PLC costs) at a margin of 24%+, including c.£500 million of variable
consideration; adjusted diluted EPS(1) CAGR of >20%
· Group free cash flow(1) of £600 million (after interest and tax) to
be generated in 2029, driven by adjusted operating profit(1) growth, maturing
portfolio of 19 RRSPs, the resolution of the GTF powder metal issue, the
completion of restructuring and ongoing business improvements
· Leverage(1) to remain below 2x during the period, with increasing
headroom providing capital allocation optionality, including potential future
share buybacks(7).
Enquiries:
Investor Relations:
Chris Dyett: +44 (0) 7974 974 690,
ir@melroseplc.net (mailto:ir@melroseplc.net)
Media:
Andy Porter / Brunswick: +44 (0) 207 404 5959,
melrose@brunswickgroup.com (mailto:melrose@brunswickgroup.com)
( )
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( )
( )
(Melrose Industries PLC)
(Melrose is an industry-leading global aerospace technology business, listed
in the UK, with more than 30 manufacturing sites across 12 countries. We are
a 'Super-Tier 1' partner to all airframe and engine OEMs, with design-led
solutions on-board 100,000 flights a day, across all of today's high-volume
aircraft. We operate through two market-leading divisions, Engines and
Structures, across both original equipment and the aftermarket, covering the
civil and defence markets. Every day we deliver flight-critical components
including full engine systems and structures; major airframe components such
as wings and empennages; and full aircraft electrical wiring systems. We
have an excellent track record of delivering value for both customers and
shareholders, and have set out an exciting growth plan ahead.)
(Notes)
(1. Described in the glossary to the Preliminary Announcement and
considered by the Board to be a key measure of performance)
(2. ) (Like-for-like growth is calculated at constant currency against
2023 results and, for revenue, excludes exited businesses)
(3. ) (PLC costs are also referred to as corporate costs (see note 3 to
the Preliminary Announcement))
(4. ) (More information on our risk and revenue sharing partnerships can
be found in our) (RRSP booklet
(https://www.melroseplc.net/media/p23g1rby/melrose-rrsp-booklet-digital.pdf) )
(5. ) (Assuming US$ = 1.25 average exchange rate)
(6. Guidance does not include any impact from potential tariffs or trade
restrictions)
(7. ) (No further share buybacks, beyond the completion of our existing
commitments, are assumed within the 2029 targets)
CHAIRMAN'S STATEMENT
I am pleased to report our second set of annual results since Melrose's
transformation into a world-leading aerospace technology business.
CALENDAR YEAR 2024
The Group enjoyed another strong year in 2024, delivering profits at the top
end of expectations. We achieved revenue for the Group of £3,468 million
(2023: £3,350 million), with an adjusted operating profit of
£540 million, up 42% versus 2023.
With our strategy now established as a long-term global aerospace technology
business, our extensive restructuring set to complete in 2025, and a strong,
experienced senior management team in place, your Board is confident that
Melrose is on track to realise its full potential. This includes the
continued commercialisation of our leading technology and capitalising on the
aerospace sector's strong structural and market fundamentals, including
through our Engines aftermarket business, and leading platform positions in
Structures.
These results demonstrate the Group's trajectory to achieving its 2025
financial targets, and today we are pleased to publish our new five-year
targets. Further details are contained in the Chief Executive Officer's
review and Chief Financial Officer's review. I would like to thank all
employees for their efforts this year.
PURPOSE, STRATEGY AND SUSTAINABILITY
Our strategy remains underpinned by the principles on which Melrose was
founded, namely a sharp focus on value creation, driven by operational and
financial improvement over the longer-term. Our positive trajectory is built
upon leading positions on all of the world's major aircraft platforms, strong
organic growth prospects, and attractive opportunities to differentiate our
business further through cutting‑edge proprietary technology that is already
shaping the future of flight.
The long-term decarbonisation of the aerospace sector remains a priority, and
we continue to deploy our innovation and technology leadership to deliver
commercial solutions that ultimately contribute to cleaner air travel and
generate superior financial returns for our shareholders. Further
information about the commercial and technological opportunities being
generated by our market-leading additive fabrication capabilities can be found
in our Chief Executive Officer's review and Engines divisional review. Our
sustainability performance continues to be recognised by several key
benchmarking agencies, including: MSCI which upgraded our ESG rating to 'AA'
making us a leader among our aerospace and defence industry peers; CDP which
ranks us 'B' for Climate Change and Water Security; and Sustainalytics, ISS
and EcoVadis which each rank Melrose among the top decile of aerospace
businesses.
DIVIDEND AND SHARE BUYBACKS
In line with our policy to grow dividends, the Board proposes to pay a final
dividend of 4.0 pence per share for 2024, making a total dividend for the year
of 6.0 pence per share. The final dividend will be paid on 9 May 2025 to
those shareholders on the register at 28 March 2025.
During the year, the Company completed its £500 million share buyback
programme, and commenced a further £250 million share buyback programme that
is due to complete in March 2026.
BOARD MATTERS
Having served your Board as Non-executive Director since 2011, this is my
final statement as Non-executive Chairman before I step down from the Board on
31 March 2025 as previously announced. I am pleased to have worked closely
alongside my successor, Chris Grigg, since his appointment as Non-executive
Director and Chair designate on 1 October 2024, to ensure an orderly
transition to his appointment as Non-executive Chairman of the Board on 30
March 2025. I am confident that under Chris's oversight the Company and its
management team will continue to thrive, and that the business will benefit
from his seasoned FTSE 100 executive and non-executive experience, including
his aerospace sector experience as Non-executive Director and Senior
Independent Director of BAE Systems. Chris also has a strong track record in
promoting diversity and inclusion at Board and senior management level, and
serves as a member of the FTSE Women Leaders Review's independent steering
body. Under Chris's leadership, your Board will continue to bolster, support
and challenge management in delivering on stakeholders' expectations, and in
pursuing the business's ambition to be its customers' most trusted and
sustainable partner.
To facilitate completion of the Non-executive Chairman succession process,
continued succession planning and the development of a diverse Board, the
Nomination Committee and the Board have approved a short extension to David
Lis's tenure as Senior Independent Director up to the end of 2025.
In addition to Chris Grigg, Ian Barkshire joined the Board as Non-executive
Director on 1 October 2024. Ian brings a strong science and technology
background and a track record of value creation and executive leadership
having previously served as Chief Executive Officer of Oxford Instruments plc.
I would like to thank my fellow Directors, both past and present, and the
senior management teams with whom I have had the privilege of working. Melrose
has created significant value for shareholders and successfully transformed
its strategy to enable the Group's current and future success as a
world-leading aerospace business.
Justin Dowley
Non‑executive Chairman
6 March 2025
CHIEF EXECUTIVE OFFICER'S REVIEW
OVERVIEW
Melrose delivered a strong performance in 2024. During the year, we continued
our growth trajectory as a focused aerospace technology business while
building the foundations for future value creation.
Our full year profits for 2024 were at the top end of expectations, despite
industry supply chain issues that constrained aircraft production. The
Engines division outperformed with continued strong aftermarket growth, and
the Structures division made good progress with its extensive improvement
actions reading through. Across the Group, our relentless focus on safety
and quality delivered an 80% reduction in lost time accidents. We also
progressed with our proprietary technology developments, most notably with
additive fabrication which is now in demand from all engine OEMs.
We have good momentum going into 2025 and are confirming our guidance to
deliver the £700 million adjusted operating profit target we set in May 2023,
notwithstanding the ongoing industry supply chain challenges. We expect
margins to continue to increase above the target range driven by positive
aftermarket mix and the full year benefits of business improvements completed
in 2024. In the year ahead we will complete our transformational multi-year
restructuring programme and expect to reach an important inflection point in
cash generation, with our guidance for substantial free cash flow after
interest and tax.
Looking forward, we are pleased to announce new five-year targets. These
targets are built on our strategy to deliver organic growth, primarily from
well established positions on the world's leading aircraft and engines. Our
transformation programme has focused Melrose where we have proprietary
technology and high quality of earnings, and we are also now serving our
global customers from a leaner operating base. This position, coupled with
structural aftermarket growth and record order backlogs for new aircraft,
gives us confidence to target high single digit annual top line growth leading
to c.£5 billion of revenue in 2029 with expanding margins delivering £1.2
billion+ of adjusted operating profit. Our cash generation is set to
increase dramatically over the period, to £600 million (after interest and
tax) in 2029, due to profit growth, increasing aftermarket cash flows and
current one-time costs falling away.
Overall, we are well placed with a unique position in a structurally growing
market and with a clear strategy to deliver significant value. Our focus is
therefore on executing our plan while navigating what are likely to remain
turbulent times in our industry and more widely.
RESULTS(2)
Overall Group revenue rose 6% in 2024 to £3,468 million, with like-for-like
sales up 11% taking into account exited businesses. This was principally
driven by strong Engines growth of 26%, especially across parts repair,
defence aftermarket and our RRSP portfolio. Structures revenue growth of 3%,
on a like-for-like basis, was achieved against a backdrop of industry-wide
supply constraints and the previously announced customer destocking. Group
revenue would have been £66 million higher if foreign exchange rates had been
at our guided US $1.25 in 2024.
Group adjusted operating profit rose 42% to £540 million, with margins up
4.0ppts to 15.6%, driven by revenue growth, business improvements and
aftermarket mix. At a divisional level, Engines delivered margins of 28.9%,
exceeding its original 2025 margin target of 28% a year ahead of plan, with
Structures on track at 7.2% despite lower than expected OEM build rates.
Group adjusted operating profit would have been £12 million higher if
foreign exchange rates had been at our guided US $1.25 in 2024.
The Group achieved positive free cash flow in the second half of 2024 with
full year cash flow and net debt in line with expectations. Net debt stood at
£1,321 million at 31 December 2024. This reflected leverage of 1.9x after
funding growth, restructuring, dividends and share buybacks. The share
buybacks in 2024 included completing the £500 million programme announced in
September 2023 and starting the £250 million programme announced in August
2024.
HIGHLIGHTS
Melrose is a 'Super-Tier 1' partner with design-led solutions deeply embedded
in our customers' aircraft and engines, often for the life of the programme.
We have an excellent track record of value creation and in 2024 we set out a
clear strategy to continue this by delivering growth from existing platforms,
expanding in new targeted opportunities, and contributing to next-generation
aircraft. We made encouraging progress in all these areas.
Our Engines business continued to deliver profitable growth from both the
civil and defence aftermarket as flight hours for in service engines
increased. In the civil engine repair business, we expanded both our LEAP
fan blade and our Geared Turbofan ("GTF") repair capabilities, and opened our
new San Diego repair facility to increase capacity for the growing demand.
Engines also signed a decade-long OE production contract with Safran to supply
LEAP-1A shafts from Norway and support the ongoing global ramp-up. In
Structures, new commercial agreements were secured with Lockheed Martin to
double our F-35 canopy production capacity by 2027, largely funded by the
customer, as well as a multi-year contract renewal with Airbus to deliver the
full A220 electrical wiring package. In parallel, long-running commercial
negotiations with Boeing were successfully concluded with the sale of both our
Orangeburg and St. Louis operations, and we also divested our non-core Fuel
Systems business at the beginning of the year. With our defence repricing
work well advanced, Structures is now a stronger, design-led business with a
promising growth trajectory.
Our future technology development is focused primarily on our world-leading
additive fabrication solutions, which is in demand from all major engine OEMs.
We have commenced our investment of up to £300 million over five years to
industrialise this breakthrough technology and our first dedicated factory is
already building out its early production capacity. This is a highly
differentiated capability, providing our customers with an alternative
manufacturing solution for large-scale, flight-critical components offering
much lower lead times, higher quality and less waste. We reached a landmark
in 2024 by delivering the first demonstrator case produced wholly by additive
fabrication for testing within the next-generation CFMI RISE technology
programme. Elsewhere, long-term production contracts have been secured with
Pratt & Whitney, with FAA approval secured and flight-critical additive
fabrication component deliveries now well underway, and with GE Aerospace,
where development work is progressing well. Our Global Technology Centres
continue to explore the potential for additive fabrication across large-scale
aerostructures in the future.
In parallel we worked closely with our customers to ensure our participation
on aircraft platforms of the future. In Engines, we signed an agreement with
the Swedish Defence Materiel Administration ("FMV") to explore future fighter
propulsion systems, while also progressing work on the next-generation GTF
technology development programme with Pratt & Whitney. In Structures, we
continued our partnership with Airbus on future wing development with
Sustainable Wings ("SusWingS"), the successor to the Wing of Tomorrow
programme.
We also delivered further operational gains in 2024. Safety and quality
performance both improved, with 80% fewer lost time accidents and 14%
reduction in cost of poor quality versus 2023. Our customer deliveries also
stayed largely on track, despite the industry-wide supply chain issues. We
improved productivity through the year, but progress was hampered by industry
supplier shortages. Inventory levels were also higher due to our businesses
holding more safety stock and work-in-progress to protect customer deliveries.
MARKET UPDATE
Melrose has embedded positions on all leading commercial narrowbody and
widebody aircraft, as well as on many of the world's leading defence
platforms. Our Engines portfolio covers all major OEMs and in Structures we
have significantly more content with Airbus than Boeing. Group revenues are
split 72% civil to 28% defence work.
Our Engines business leads the industry in the fabrication of advanced engine
structures, cases and frames. We are a risk and revenue sharing partner on
19 engine programmes, covering around 70% of major civil aircraft flight hours
globally. We also operate at an OEM level, holding the military type
certificate for the RM12 engine, powering the Gripen fighter jet. In
Structures, we have design-to-build expertise in metallic and lightweight
composite components, as well as electrical wiring interconnection systems
("EWIS") and transparencies for both civil and defence aircraft.
Market demand remained strong in 2024, with the commercial aircraft order
backlog and global flight hours continuing to rise. Domestic and
international passenger air traffic sales were also up, while passenger load
factors climbed towards 85%, with several record months in the year. Total
flight hours finished the year 8% above 2023 levels, while flight hours across
our RRSP portfolio increased by 5% versus the same period.
Industry-wide operational challenges persisted in 2024. Production capacity
and raw material shortages continued to restrict new aircraft deliveries, with
Airbus lowering build rates during the year and Boeing also facing quality and
industrial relations challenges. The continued constraints on new aircraft
production fuelled record order backlogs, which now stand at around a decade
for narrowbody aircraft and six years for widebody. These dynamics, while
challenging on the original equipment side, will continue to boost our Engines
aftermarket performance, as existing aircraft fly for longer, requiring
additional engine shop visits and more spares. In the longer-term, an
expected continuation of flying hour increases coupled with order backlogs
stretching into the 2030s underpins Melrose's growth for many years to come.
During 2024, we continued to work closely with Pratt & Whitney and other
partners to manage the powder metal issue impacting some GTF engines. Solid
progress has been made, with off-wing inspections and Block D upgrades
delivered in line with Pratt & Whitney's global fleet management plan.
The GTF remains fundamentally an excellent engine and its fuel consumption
and durability will be enhanced further by the Advantage upgrade, planned for
launch in 2025.
Within defence, global tensions and conflict have continued to drive up
military spending. In the US, the National Defence Industry Strategy has set
out its path to increase security through a more resilient supply chain.
Across Europe many countries have pledged to increase defence spending to 2.5%
of GDP, with some countries calling for this to be pushed to as much as 5%. We
are well-placed to support this trend with our established footprint both in
the US and across Europe, in the UK, Sweden, the Netherlands and Germany.
CAPITAL ALLOCATION
At our half year results announcement in August 2024, we set out Melrose's
capital allocation approach in support of our long-term growth strategy.
This policy is focused on two key principles: delivering sustained
profitable and cash generative organic growth, while rewarding shareholders
through capital returns.
During the year we accelerated our investment to increase operational capacity
and automation, especially within our high-margin Engines business. This
will enable us to deliver the OEM ramp-up and capture the strong growth in our
current markets. We will also direct capital into new business opportunities
where our proprietary technologies can deliver an internal rate of return
above 20%. We have already begun investing up to £300 million over five
years specifically into our industry-leading additive fabrication
capabilities, with the associated revenue building progressively and a target
of more than £50 million incremental annual profit by the end of the decade.
We will also continue to grow our business in other targeted areas where we
have technology leadership and strong demand. Often these opportunities can
be pursued with a 'capital light' approach through customer funding, with
recent examples including the F-35 canopy ramp up, eVTOL development and civil
expansion in China. A leverage target ratio between 1.5 to two times will
provide flexibility for future opportunities.
Alongside our organic investments, the £500 million share buyback programme
announced in September 2023 concluded in September 2024 and was extended by a
further £250 million programme through to March 2026, thereby aligning
programme timing with full year results announcements. These programmes
highlight the Board's confidence in the future growth and cash generation
prospects of the Group.
Our technology-led growth strategy, combined with our disciplined approach to
capital allocation, offer attractive returns for many years to come.
SUSTAINABILITY
During the year we announced a new set of 2025 sustainability targets for the
Group, after achieving the majority of our original goals ahead of schedule.
The ambitious new targets focus on three key areas: reducing emissions from
our business; conserving the planet's natural resources; and supporting
aviation's route to Net Zero by 2050. Detailed updates on our performance
can be found in our upcoming Group Sustainability Report.
Melrose's progress was recognised externally in 2024, with our MSCI ESG rating
upgraded from A to AA. Our 2025 Group sustainability targets and our Net
Zero 2050 targets have been validated by the Science-Based Targets initiative
("SBTi"). In addition EcoVadis, a global leader in sustainability
assessments rated us among the top 10% of businesses in 2024.
As a Super-Tier 1 partner, we recognise that the greatest impact we can have
on aviation's path to reduce emissions is by developing breakthrough
technologies for more sustainable flight. This work continued across all our
businesses in 2024. For example, in Engines our optimised intermediate
compressor case was successfully ground-tested as part of Rolls-Royce's full
power UltraFan™ trial, which ran on 100% sustainable aviation fuel. In
Structures, we also reached milestones in the electrically powered advanced
air mobility sector, delivering the first complete composite wings and booms
for Supernal's SA-2 eVTOL, while strengthening our partnership with Joby on
thermoplastic structures. Our lightweight composite expertise was also
recognised with an Aerospace Technology Institute award for the collaborative
ASCEND project, to develop high-rate and sustainable aerostructures for civil
aircraft. Finally, our ground-breaking work on hydrogen aircraft propulsion
continued at pace, with the world's first cryogenically cooled hydrogen
electric motor demonstrator delivered for testing and plans for a 2MW
propulsion system.
OUTLOOK
As a result of our transformational multi-year restructuring programme,
Melrose is increasingly focused on design-led technology where we have
established proprietary or market-leading positions on the world's leading
aircraft. With structural demand from record order backlogs and increasing
aftermarket requirements set to continue, we are well placed to deliver
further profitable growth and a step change in cash generation in the years
ahead.
For 2025 we are confirming our guidance of £700 million adjusted operating
profit (pre-PLC costs), consistent with our May 2023 targets. Our adjusted
operating margin is expected to exceed 19%, driven by positive aftermarket mix
in Engines, ongoing operational improvements, and the full year impact of low
margin disposals in 2024. The Group free cash flow is set to increase to
>£100 million (after interest and tax) driven by higher profits, lower
restructuring costs and improvements in trade working capital efficiency. As
usual we expect cash generation will be second half weighted. Our 2025
guidance does not factor in the impact from trade restrictions or tariffs.
Given our momentum and the strong demand outlook, we are pleased to announce
new five-year targets. These are underpinned by our clear growth strategy
which centres on delivering the ramp up in volumes expected on our existing
platforms. Our targets include sustained high single digit top-line growth
to c.£5 billion of revenue in 2029, delivering £1.2 billion+ of adjusted
operating profit. The corresponding 5ppts uplift in operating margins to
24%+ is driven by operational leverage from higher volumes, positive portfolio
mix (especially in Engines) and continued business improvements through the
period. We expect cash generation from the Group to be transformed with
£600 million of free cash flow (after interest and tax) in 2029. The
building blocks for this increased cash flow are growing profits, the end of
substantial restructuring costs in 2025, the GTF powder metal inspection
programme completing in 2027 and the GTF programmes turning cash positive in
2028. The free cash flow generation will also be driven by working capital
efficiencies, tightly managed capital expenditure and ongoing reductions in
other cash flow items.
We have a clear path to delivering these targets based on the expected ramp up
in production rates to publicised levels and our positive improvement
trajectory. Overall, we are excited about the future prospects for Melrose
and focused on delivering value for the benefit of all stakeholders in the
years ahead.
Peter Dilnot
Chief Executive Officer
6 March 2025
DIVISIONAL REVIEW
ENGINES
Our industry-leading Engines division is a trusted technology partner to all
global engine manufacturers, with differentiated products helping power around
90% of the world's major aircraft. It has significant diversification, across
both civil and defence and original equipment and aftermarket. Its technology
leadership, especially in additive fabrication, has earned it a unique
position on both next-generation engine development programmes. Engines'
revenue is well balanced across four core markets: long-term risk and revenue
sharing partnerships (RRSPs); non-RRSP commercial contracts; repair; and
government partnerships.
2024 2023
Engines adjusted results £m £m
Revenue 1,459 1,193
Operating profit 422 310
Operating profit margin 28.9% 26.0%
The Engines division delivered excellent results in 2024. Revenue was up 26%
to £1,459 million supported by favourable end market dynamics, with
aftermarket rising by 32% versus the prior year. Increasing shop visits and
spare parts demand fuelled our engine repair performance, with strong defence
aftermarket also driving growth. Our unique portfolio of 19 RRSPs continued
to mature delivering profit growth and increased cash generation. During the
year, the GTF inspection programme related to powder metal production issues
gained traction and the programme partners, led by Pratt & Whitney, have
retained previous guidance on the associated costs. There was also growth on
the OE side, despite the industry's supply chain issues, with revenues up 19%
versus 2023.
Adjusted operating profit was £422 million in the year, up from £310 million
in the prior year. This resulted in an adjusted operating margin of 28.9% in
2024, ahead of our 2025 margin target of 28% and therefore delivered a year
ahead of plan. Encouragingly, second half profitability replicated the record
first half performance and was ahead of our guidance at the interim results in
August 2024.
The division made significant commercial progress in 2024, most notably
agreeing a decade-long agreement with Safran to supply both new shafts and
spare parts for the LEAP 1A engine variant, which powers the industry-leading
Airbus A320 family. The first components were successfully delivered from
our Centre of Excellence in Norway in Q4 2024. The commercial agreement is
expected to be extended in 2025 to cover the LEAP 1B engine, in support of
CFMI's total future order book of 10,000 LEAP engines. On the governmental
side, we signed a multi-year contract with Sweden's FMV to explore the
propulsion requirements for future fighter systems, while continuing to
develop the product support capability for both Gripen C/D (RM12 engine) -
where we hold the military type certificate - and Gripen E (RM16 engine).
This key part of the division performed very strongly in 2024. Our advanced
technology also helped propel the Ariane 6 rocket during its inaugural launch
in July.
Our engine parts repair business grew strongly again in 2024, as demand for
maintenance, repair and overhaul (MRO) services increased. We achieved a
series of milestones in the year as we brought additional capacity online to
support this growing market. In the US we opened a flagship 15,000m(2)
production site in San Diego, California, to repair both civil and military
engine components for more than 400 customers. The facility features
state-of-the-art automation and robotics for reduced turnaround time and
increased reliability, including for the industry-leading CFMI LEAP and Pratt
& Whitney Geared Turbofan (GTF) engines. In Johor, Malaysia, we added
LEAP 1A and 1B fan blade repair certifications to our portfolio, as well as
broadening our GTF capabilities with Pratt & Whitney. The facility,
which supports the growing market in Asia, also halved its turnaround time in
2024, increasing customer demand and market share while supporting the global
need for increased capacity.
Engines is a technology-driven business, with differentiated design-and-build
capability and proprietary additive fabrication technology for large-scale
engine structures. In 2024 we continued to invest to strengthen this
position, commencing up to £300 million of investment over five years to
accelerate the growth of our ground-breaking additive fabrication solutions.
The first wave of this expansion is underway with a £50 million project to
extend our capacity in Trollhättan, supported by £12 million from the
Swedish Energy Agency. This investment initially supports the ramp up of
flight-critical additive components for Pratt & Whitney, with key
insertion activities for GE Aerospace now also underway. Future tranches of
capital expenditure will further increase production rates, as well as
enabling expansion as new commercial partnerships reach serial production.
Additive fabrication is already helping to reduce lead times, material waste
and emissions in manufacture, and importantly, helping to strengthen supply
chains that are strained and struggling to meet demand. We see this as an
area of significant growth and huge potential in the years ahead.
Operationally, 2024 was another year of good progress for Engines. Our Lean
implementation continued to embed a strong safety and quality culture, with
lost time accidents reducing by 90% and cost of poor quality 20% better than
in 2023. This progress was underpinned by our commitment to continuous
improvement, including the ongoing roll-out of our in-house developed
digitalisation programme to enhance the use of data and increase machine
uptime in our sites. We also invested in additional operational capacity and
the latest digital factory processes to maximise efficiency at our facility in
Trollhättan, Sweden.
OUTLOOK
Our Engines division is well placed for continued strong growth, margin
expansion and increasing cash flow. The division has an enviable combination
of OEM‑level capability, proprietary technology positions, strategic
partnerships with all major engine OEMs, and the most diverse RRSP portfolio
in the industry. This provides the foundation for significant value creation
in the years ahead.
In 2025, Engines is expected to deliver further profitable growth through
increasing RRSP portfolio contributions, growing demand in repairs and
defence, and through ongoing business improvement activities. We expect the
buoyant aftermarket dynamics to continue and are confident that Engines will
deliver >32% margins and increased free cash flow in 2025.
For the longer-term we are announcing five-year targets for the division of
annual revenue growth of high single digits CAGR with an adjusted operating
margin in the mid-to-high 30s percent.
STRUCTURES
Our design-led Structures division is a leading independent Tier 1 supplier to
all aircraft OEMs, with embedded positions on all today's major aircraft. It
delivers flight critical structures, such as wing spars and empennages;
electrical distribution systems; and aircraft windows and canopies from a
global industrial footprint. Its differentiated technology means it is well
placed for the next-generation of aircraft across the civil and defence
markets.
2024 2023
Structures adjusted results £m £m
Revenue 2,009 2,157
Operating profit 144 110
Operating profit margin 7.2% 5.1%
Structures delivered a robust performance in 2024 amid a challenging operating
environment. Divisional progress was underpinned by the positive impact of
our extensive business improvement actions, which are reading through largely
as expected. The multi-year transformational restructuring programme will
conclude on plan during 2025. From here increasing profit will be driven by
the civil production ramp-up and strong defence market, compounded by our
improved portfolio and commercial position.
Market dynamics remained complex in the year. On the civil side, flight
hours continued to rise above pre-pandemic levels, fuelling airlines' demand
for newer, more efficient aircraft. This helped drive record order backlogs
higher, now well into the 2030s, and underpins planned production ramp ups in
the years ahead. Against this backdrop, ongoing industry-wide supply chain
challenges persisted, constraining in-year aircraft deliveries. On the defence
side, global spending commitments continued to rise due to geo-political
tensions and increasing uncertainty, reinforcing strong demand. Current
market dynamics will be an area of close management focus in 2025, and we are
well placed to adapt with our global footprint providing regional and national
supply, including in the USA, Europe, UK, Mexico and Asia.
During 2024, Structures' revenue was up 3% on a like-for-like basis at £2,009
million. Reported civil revenue was tempered by a softer in-year ramp up in
OE volumes than initially expected and strategic site disposals, while defence
revenue was up 7% reflecting stronger demand and improved commercial terms.
Adjusted operating profit was up 32% to £144 million, driven by progress
across our business improvement actions, including commercial renegotiations,
operational gains and portfolio transition. This performance lifted adjusted
operating margins by 2.1ppts to 7.2%.
The Structures division made commercial progress in 2024, improving current
terms with customers and securing new business. Significant negotiations
were concluded with key customers covering a range of programmes, including
new commercial terms, work package transfers and non-core exits. Our defence
business has repriced 61% of its core contracts and remains on track to reach
its 85% sustainable pricing target by the end of 2025. New agreements were
reached, including securing over £100 million of customer investment to
double our F-35 canopy production capacity in Garden Grove, California,
extending our participation into the 2030s. We secured a contract renewal
with Airbus for the full wiring package for the A220 and production is now
well underway at our newly certified EWIS centre of excellence in Chihuahua,
Mexico. In the advanced air mobility ("AAM") sector, our wing design and
EWIS expertise also led to customer-funded contracts with both Supernal and
Archer, while on the defence side we signed further customer agreements to
explore technologies for the UK's future combat air capability, most notably
the sixth generation Tempest demonstrator.
Further progress was made in China, an important market that is set to
represent more than 20% of global civil aerospace demand by the 2040s. Our
strategy remains to supply this market from a dedicated domestic local China
presence, which includes three factories manufacturing wings, EWIS and
transparencies. During 2024 we signed a design collaboration Memorandum of
Understanding ("MoU") with joint venture partner COMAC for the composite rear
wing spar and fixed trailing edge for the C929 widebody aircraft. The team
also secured a contract to supply Airbus' final assembly line in China with
EWIS from our in-country centre of excellence, in Langfang.
Operational gains were delivered in 2024. We delivered another year with
zero lost time accidents in our civil business reflecting the continued focus
on safety as our top priority. Production quality also improved, with
escapes (issues reaching the customer) in our core sites down 18% across the
division, and the cost of poor quality improved by 11%. This was achieved in
parallel to our strategic footprint repositioning work, which was
substantially completed in 2024. In the first half of the year we
successfully concluded negotiations with Boeing over the sale of our St. Louis
and Orangeburg operations, and we separately divested our non-core Fuel
Systems business. In December, we also ended production at our Amityville
facility, in New York, to further focus Structures on differentiated
proprietary technologies where we have the design responsibility. As part of
our restructuring programme, we completed a series of internal work package
movements to refocus our electrical wiring business into cost-efficient,
regional hubs in Asia, Europe and the Americas. These centres of excellence
will accelerate the longer-term profitable growth of this industry-leading
business.
Like our Engines business, Structures also made good progress enhancing
proprietary technology positions during 2024. The US global technology
centre secured several development contracts with defence primes to explore
laser wire deposition additive manufacturing for large-scale titanium
aerostructures. In the UK, we followed-up our Wing of Tomorrow development
work by joining Airbus' next generation technology programme SusWingS
(Sustainable Wings). In the AAM sector, the first composite wings were
delivered for Supernal's SA-2 electric demonstrator aircraft, while a
technology agreement was also signed with Joby to develop innovative
lightweight thermoplastic structures. The EWIS team delivered all-new wiring
harnesses for Pratt & Whitney Canada's hybrid-electric flight
demonstrator, which is targeting 30% improvement in fuel efficiency, while
continuing to push the boundaries of high voltage EWIS technology for the
future. Finally, our hydrogen team completed a world first in 2024,
successfully testing an electric motor at cryogenic temperatures in order to
explore the potential for more efficient, zero-emission flight. These
developments in proprietary technology are targeted where we have competitive
advantage and they will underpin our long-term growth.
OUTLOOK
Structures is a design-to-build partner on the world's highest volume
platforms today and is a partner of choice for emerging and next-generation
aircraft. It is well-positioned to take advantage of the ongoing civil ramp
up and defence market growth, as well as the shift to more sustainable
aviation over time. With strong underlying dynamics in both markets, and our
business improvement actions now substantially complete, we expect to deliver
further profitable growth as production rates increase through the next five
years.
In 2025, we expect Structures to achieve low-to-mid single digit reported
revenue growth. This is driven by production ramp-ups, offset by the ongoing
industry supply chain issues and OEM destocking, alongside the full year
impact of our business exits in 2024. We remain on track to deliver our 2025
commitment of 9% operating margins despite lower revenue than originally
assumed due to constrained OEM production rates.
Beyond this, our five-year target for the Structures division is to deliver
revenue growth of mid single digit CAGR and expand operating margins to the
low-teens level. This encouraging long-term growth trajectory is based on our
repositioned and design-led business ramping up to deliver the industry's
expected increase in production rates.
CHIEF FINANCIAL OFFICER'S REVIEW
The year ended 31 December 2024 has been a strong year for the Group.
Additionally, the Group is setting out its 2025 guidance and is launching its
new five-year targets for which the key assumptions are set out later in this
review.
MELROSE GROUP RESULTS
Statutory results:
The statutory IFRS results for continuing operations show revenue of £3,468
million (2023: £3,350 million), an operating loss of £4 million (2023:
profit of £57 million) and a loss before tax of £106 million (2023: £8
million). The diluted earnings per share ("EPS"), calculated using the
diluted weighted average number of shares during the year of 1,324 million
(2023: 1,405 million), were a loss of 3.7 pence (2023: earnings of 0.1 pence).
Adjusted results:
The adjusted results exclude certain items which are significant in size or
volatility or by nature are non-trading or non-recurring, or any net change in
fair value items booked on an acquisition. It is the Group's accounting
policy to exclude these items from the adjusted results, which are used as an
Alternative Performance Measure ("APM") as described by the European
Securities and Markets Authority ("ESMA"). APMs used by the Group are
defined in the glossary to the Consolidated Financial Statements.
The Melrose Board considers the adjusted results to be an important measure
used to monitor how the business is performing as they achieve consistency and
comparability between reporting periods when all businesses are held for the
complete reporting period.
The adjusted results for the year ended 31 December 2024 show revenue of
£3,468 million (2023: £3,350 million), an operating profit of £540 million
(2023: £390 million) and a profit before tax of £438 million (2023: £331
million). Adjusted diluted EPS, calculated using the diluted weighted
average number of shares in the year of 1,324 million (2023: 1,405 million),
were 26.4 pence (2023: 18.7 pence).
The following table shows the adjusted results for the year ended 31 December
2024 split by reporting segment:
Engines Structures Aerospace Corporate Total
£m £m £m £m £m
Revenue 1,459 2,009 3,468 - 3,468
Operating profit/(loss) 422 144 566 (26) 540
Operating margin 28.9% 7.2% 16.3% n/a 15.6%
Revenue for Engines of £1,459 million (2023: £1,193 million) shows constant
currency growth of 26% over 2023, with adjusted operating profit of £422
million (2023: £310 million) giving an operating margin of 28.9% (2023:
26.0%), an increase of 2.9 percentage points.
Revenue for Structures of £2,009 million (2023: £2,157 million) shows
like-for-like constant currency growth of 3% over 2023, with adjusted
operating profit of £144 million (2023: £110 million) giving an operating
margin of 7.2% (2023: 5.1%), an increase of 2.1 percentage points.
Corporate costs of £26 million (2023: £30 million) included £25 million
(2023: £30 million) of operating costs and £1 million (2023: £nil) of costs
in respect of a new Performance Share Plan for certain senior managers in the
Group.
The performance of each reporting segment is discussed in the Chief Executive
Officer's review.
RECONCILIATION OF STATUTORY RESULTS TO ADJUSTED RESULTS
The following table reconciles the Group statutory operating (loss)/profit to
adjusted operating profit:
Continuing operations: 2024 2023
£m £m
Statutory operating (loss)/profit (4) 57
Adjusting items:
Amortisation of intangible assets acquired in business combinations 255 260
Currency movements in derivatives and movements in associated financial assets 112 (114)
and liabilities
Restructuring costs 111 149
Acquisition and disposal related gains and losses 44 3
Melrose equity-settled compensation scheme charges 14 38
Net changes in fair value items 8 (3)
Adjustments to statutory operating (loss)/profit 544 333
Adjusted operating profit 540 390
Adjusting items to statutory operating (loss)/profit are consistent with prior
years and include:
· The amortisation charge on intangible assets acquired in business
combinations of £255 million (2023: £260 million), which is excluded from
adjusted results due to its non-trading nature and to enable comparison with
companies that grow organically. However, where intangible assets are
trading in nature, such as computer software and development costs, the
amortisation is not excluded from adjusted results.
· Movements in the fair value of derivative financial instruments
(primarily forward foreign currency exchange contracts), where hedge
accounting is not applied, along with foreign exchange movements on the
associated financial assets and liabilities, entered into within the
businesses to mitigate the potential volatility of future cash flows on
long-term foreign currency customer and supplier contracts. This totalled a
charge of £112 million (2023: credit of £114 million) in the year, and is
shown as an adjusting item because of its volatility and size.
· Restructuring and other associated costs in the year which totalled
£111 million (2023: £149 million), including £1 million (2023: £59
million) of losses incurred in closing businesses within the Group. These are
shown as adjusting items due to their size and non-trading nature and during
the year ended 31 December 2024 these included:
- A charge of £90 million (2023: £137 million) primarily relating to
the continuation, and finalisation in many cases, of significant restructuring
projects across sites in the Engines and Structures divisions comprising three
significant ongoing multi-year restructuring programmes, covering European
footprint consolidations which commenced in 2021, and a significant
restructuring programme in North America which commenced in 2020. These
programmes incurred a combined charge of £64 million in the year (2023: £62
million). Since commencement, the cumulative charge on these three
restructuring programmes to 31 December 2024 has been £281 million (31
December 2023: £217 million). As at 31 December 2024, £12 million is
included in restructuring provisions in relation to the multi-year programmes
which will be substantially settled in cash during 2025.
The North American multi-site restructuring was accelerated by the disposal of
two businesses during the first half of the year and is substantially
complete, with costs expected to continue at a much reduced level into 2025.
The European programmes have continued to progress with one of the two
programmes now complete. The other European multi-site restructuring programme
completed the closure of all intended sites by the end of 2023, with
integration expected to conclude in 2025.
- A charge of £21 million (2023: £12 million) within the Corporate
cost centre in relation to actions taken to merge the Melrose corporate
function with the previously separate Aerospace division head office team.
These restructuring actions reshape the Corporate cost centre to support an
ongoing pureplay aerospace business.
· Acquisition and disposal related net losses of £44 million (2023:
£3 million) which are inclusive of a loss of £43 million on the disposal of
three non-core businesses in the Structures segment. The loss of £43 million
includes a net liability of £25 million that crystallised on disposal
relating to the withdrawal from a multi-employer post-retirement pension
scheme. Consideration is £25 million which is net of a deferred payable of
£39 million and costs of £1 million. The net loss is recorded as an
adjusting item due to its non-trading nature. One of the three businesses
divested was loss-making and was purchased by a customer. The resulting amount
payable for the sale reflects the fair value of assets and programmes
transferred including the resolution of all contractual matters.
· A charge for the Melrose equity-settled compensation schemes of £14
million (2023: £38 million), which includes a charge to the accrual for
employer's tax payable of £14 million (2023: £28 million). This is
excluded from adjusted results due to its size and volatility. During the
year, the Group recognised a charge of £1 million (2023: £nil) in adjusted
operating profit in respect of the new Group Performance Share Plan.
· The net changes in fair value items in the year which totalled a
charge of £8 million (2023: credit of £3 million) and are shown an adjusting
item, due to their size and volatility.
The following table shows the allocation of adjusting items, described above,
by reporting segment:
Engines Structures Corporate Total
£m £m £m £m
Statutory operating profit/(loss) 283 (106) (181) (4)
Adjusting items 139 250 155 544
Adjusted operating profit/(loss) 422 144 (26) 540
FINANCE COSTS AND INCOME
Statutory results:
Net finance costs for the year ended 31 December 2024 were £102 million
(2023: £65 million).
Adjusted results:
Net finance costs in the adjusted results in the year ended 31 December 2024
were £102 million (2023: £59 million), which included net interest on
external bank loans, bonds, overdrafts, factoring facilities and cash balances
of £88 million (2023: £48 million).
Net finance costs in adjusted results also included: a £4 million (2023: £4
million) amortisation charge relating to the arrangement costs of raising the
Group's current bank facility; an interest charge on net pension liabilities
of £4 million (2023: £1 million); a charge on lease liabilities of £6
million (2023: £5 million); and a charge for the unwind of discounting on
long-term provisions of £nil (2023: £1 million).
Adjusting items:
There are no adjusting items within finance costs and income in the year
(2023: net charge of £6 million).
In the previous year these included a £13 million gain following the
settlement of a portion of the 2032 bond, acquired with GKN, a £17 million
charge in respect of the proportion of the Group's net debt strategically
allocated to Dowlais at the start of the year and a £2 million charge in
respect of the write off of unamortised bank fees when the existing bank
facilities at the time of the demerger were repaid.
TAX
The statutory results show a tax credit of £57 million (2023: £9 million)
which arises on a statutory loss before tax of £106 million (2023: £8
million), resulting in a statutory tax rate of 54% (2023: 113%). The effective
tax rate on adjusted profit before tax for the year ended 31 December 2024 was
20.1% (2023: 20.5%).
The statutory tax rate is higher than the adjusted tax rate because the
intangible asset amortisation and certain other adjusting items generate
adjusting tax credits at rates higher than 20%.
The Group has £868 million (31 December 2023: £747 million) of deferred tax
assets on tax losses, retirement benefit obligations and other temporary
differences. These are offset by deferred tax liabilities on intangible
assets of £423 million (31 December 2023: £479 million) and £311 million
(31 December 2023: £223 million) of other deferred tax liabilities. In
certain cases (typically where they arise in the same territory or tax group),
deferred tax assets and liabilities must be offset, resulting in deferred tax
assets of £651 million (31 December 2023: £527 million) and deferred tax
liabilities of £517 million (31 December 2023: £482 million) being shown on
the Balance Sheet at 31 December 2024. Most of the tax losses and other
deferred tax assets will generate future cash tax savings. The deferred tax
liabilities on intangible assets are not expected to give rise to cash tax
payments.
Net cash tax paid in the year ended 31 December 2024 was £10 million (2023:
£17 million), 2.3% (2023: 5.1%) of adjusted profit before tax.
SHARE BUYBACK PROGRAMMES AND NUMBER OF SHARES IN ISSUE
The Group commenced a £500 million share buyback programme on 2 October 2023
and a further £250 million share buyback programme on 1 October 2024 making
market purchases of existing ordinary shares in the Company. During the year
ended 31 December 2024, 75,141,072 ordinary shares were purchased at an
average price per share of 566 pence. These ordinary shares are being held
in treasury. Additionally, 28,848,071 shares were transferred from treasury
shares to participants of the Melrose equity-settled share plan. The number
of ordinary shares in issue, excluding treasury shares, has reduced by 4% from
1,333 million at 31 December 2023 to 1,286 million at 31 December 2024.
The weighted average number of shares used for basic earnings per share
calculations in the year ended 31 December 2024 was 1,307 million (2023: 1,349
million), and when including the number of shares expected to be issued from
the Melrose equity-settled share plans, the weighted average number of shares
used for diluted earnings per share was 1,324 million (2023: 1,405 million).
During the year, the Group made tax related payments directly to the relevant
tax authorities of £198 million on behalf of both current and former
directors and senior management of the Group connected with the Melrose
equity-settled share plan. This included £157 million in lieu of 25,498,465
shares which would otherwise have been issued, and subsequently sold, to
fulfil consequential tax liabilities of the scheme participants.
CASH GENERATION AND MANAGEMENT
Adjusted free cash flow in the year ended 31 December 2024 was an inflow of
£52 million (2023: £113 million), after net interest and tax spend of £97
million (2023: £82 million), but before restructuring spend of £126 million
(2023: £125 million).
Free cash flow was an outflow of £74 million (2023: £12 million). An
analysis of free cash flow is shown in the table below:
2024 2023
£m £m
Continuing operations:
Adjusted operating profit 540 390
Depreciation and amortisation 142 142
Lease obligation payments (32) (32)
Positive non-cash impact from loss-making contracts (23) (23)
Working capital movements:
Inventory (71) (10)
Receivables and payables 51 37
Unbilled work done (309) (173)
Adjusted operating cash flow (pre-capex) 298 331
Net capital expenditure (123) (102)
Defined benefit pension contributions (20) (22)
Restructuring (126) (125)
Net other (6) (12)
Free cash flow pre-interest and tax 23 70
Net interest and net tax paid (97) (82)
Free cash flow (74) (12)
Adjusted free cash flow 52 113
Working capital movements excluding unbilled work done totalled an outflow of
£20 million (2023: inflow of £27 million) for the year ended 31 December
2024 being an outflow of £71 million (2023: £10 million) in inventory
partially offset by a £51 million inflow (2023: £37 million) from
receivables and payables. Inventory increased during the year due to a
combination of supply chain issues and to support customer build rates.
As anticipated, working capital inflows from receivables and payables were
strong in the second half of the year reflecting the typical seasonality of
the Group.
Unbilled work done, excluding exchange adjustments, has increased in the year
ended 31 December 2024 by £309 million in accordance with the development
anticipated in our Risk and Revenue Sharing Partnership booklet and includes
£35 million of obligations settled in connection with powder metal issues on
certain Pratt & Whitney engines and other RRSP matters.
Net capital expenditure in the year ended 31 December 2024 was £123 million
(2023: £102 million). Net capital expenditure represented 1.1x (2023: 0.9x)
depreciation of owned assets.
Restructuring spend in the year was £126 million (2023: £125 million).
Net interest paid in the year was £87 million (2023: £65 million), net tax
payments were £10 million (2023: £17 million) and ongoing contributions to
defined benefit pension schemes were £20 million (2023: £22 million).
The movement in net debt is summarised as follows:
£m
Opening net debt (572)
Free cash flow (74)
Amounts paid to shareholders including associated costs (503)
Melrose equity settled compensation scheme related payments (198)
Disposal of businesses, net of cash disposed 55
FX and other non-cash movements (22)
Other (7)
Net debt at 31 December 2024 at closing exchange rates (1,321)
Group net debt at 31 December 2024, translated at closing exchange rates
(being US $1.25 and €1.21), was £1,321 million (31 December 2023: £572
million), after a free cash outflow from the Group of £74 million, described
above. Movements in Group net debt also included dividends paid to
shareholders of £72 million, £431 million spent buying back shares in the
market, £198 million in respect of the settlement of tax on the Melrose
equity-settled compensation scheme, £55 million inflow from disposal of
businesses net of cash disposed and net unfavourable foreign exchange and
other non-cash movements of £22 million.
Group leverage at 31 December 2024 was 1.9x EBITDA (2023: 1.1x EBITDA).
ASSETS AND LIABILITIES AND IMPAIRMENT REVIEW
The summarised Melrose Group assets and liabilities are shown below:
2024 2023
£m £m
Goodwill and intangible assets acquired with business combinations 2,878 3,106
Tangible fixed assets, computer software and development costs 1,037 1,022
Net working capital 699 475
Retirement benefit obligations (59) (99)
Provisions (184) (286)
Deferred tax and current tax 119 31
Lease obligations (237) (192)
Net other (88) 82
Total 4,165 4,139
The Group's goodwill has been tested for impairment in accordance with IAS 36
"Impairment of assets" and the Board is comfortable that no impairment is
required as at 31 December 2024.
During the year, the Group has changed its presentation of inventories, trade
and other receivables and trade and other payables within the Balance Sheet.
The change related to contract balances for certain programmes. The Group was
previously netting certain amounts under these arrangements, however, it was
determined that the appropriate current and prior year presentation should be
on a gross basis in line with the requirements of IFRS 15: Revenue from
Contracts with Customers. Prior year comparatives have been restated
accordingly. The impact of this change on the Balance Sheet at 31 December
2023 was to increase inventories by £3 million, non-current other receivables
by £70 million, current trade and other receivables by £102 million, current
trade and other payables by £107 million and non-current other payables £68
million. The impact of this change on the Balance Sheet at 31 December 2022
was to increase inventories by £3 million, non-current other receivables by
£75 million, current trade and other receivables by £114 million, current
trade and other payables by £116 million and non-current other payables by
£76 million.
The assets and liabilities shown above are funded by:
( )
2024 2023
£m £m
Net debt (1,321) (572)
Equity (2,844) (3,567)
Total (4,165) (4,139)
( )
Net debt shown in the table above is defined in the glossary to the
Consolidated Financial Statements.
PROVISIONS
Total provisions at 31 December 2024 were £184 million (31 December 2023:
£286 million).
The following table details the movement in provisions in the year:
Total
£m
Provisions at 1 January 2024 286
Net charge in the year 116
Spend against provisions (143)
Utilisation of loss-making contract provision (23)
Disposal of businesses (20)
Transfers (31)
Exchange adjustments (1)
Provisions at 31 December 2024 184
The net charge to the Income Statement in the year was £116 million, and
included £85 million relating to restructuring activities and a £12 million
loss-making contract provision charge.
During the year, £23 million was utilised against loss-making contract
provisions and £143 million of cash was spent against provisions with £118
million relating to restructuring activities.
Net provision movements relating to property, environmental and litigation and
warranty were not material in the year.
Transfers of £31 million relate to employer tax on equity-settled
compensation schemes following certainty surrounding the timing and value of
payments.
PENSIONS AND POST-EMPLOYMENT OBLIGATIONS
Melrose operates a number of defined benefit pension schemes and retiree
medical plans across the Group, accounted for using IAS 19 Revised: "Employee
Benefits".
The values of the Group plans were updated at 31 December 2024 by independent
actuaries to reflect the latest key assumptions and are summarised as follows:
Liabilities Accounting deficit
Assets £m £m
£m
GKN UK Group pension scheme - Number 1 577 (599) (22)
GKN UK Group pension scheme - Number 4 378 (378) -
Other Group pension schemes 31 (68) (37)
Total Group pension schemes 986 (1,045) (59)
At 31 December 2024, the total plan assets of Melrose Group's defined benefit
pension plans was £986 million (31 December 2023: £1,118 million) and total
plan liabilities were £1,045 million (31 December 2023: £1,217 million), a
deficit of £59 million (31 December 2023: £99 million).
The GKN UK Group Pension Schemes (Numbers 1 and 4) are the most significant
pension plans in the Group, and are closed to new members and to the accrual
of future benefits for current members.
At 31 December 2024, the GKN UK Group Pension Scheme Number 1 had gross assets
of £577 million (31 December 2023: £632 million), gross liabilities of £599
million (31 December 2023: £692 million) and a net deficit of £22 million
(31 December 2023: £60 million).
During the year ended 31 December 2023, the Group commenced a process to
buy-out the GKN UK Group Pension Scheme Number 4, which is expected to
complete in 2025, when the scheme assets and liabilities will leave the Group
and cease being shown on the Group's Balance Sheet.
Other pension schemes in the Group include US pension plans which are
generally funded and closed to new members. At 31 December 2024, these US
pension plans had a net deficit of £23 million (31 December 2023: £25
million).
In total, contributions to the Group defined benefit pension plans and
post-employment medical plans in the year ended 31 December 2024 were £20
million and are expected to be approximately £27 million in 2025.
A summary of the assumptions used are shown in note 12 to this Preliminary
Announcement.
FINANCIAL RISK MANAGEMENT
The Group continuously assesses its financial risks and implements policies to
manage them effectively. The most significant financial risks are considered
to relate to liquidity, finance costs, foreign exchange rates, contract and
warranties and commodities, each of which is discussed below.
Liquidity risk management
The Group's net debt position at 31 December 2024 was £1,321 million (31
December 2023: £572 million). The Group increased and amended certain terms
of its committed bank facilities during the year resulting in facilities
consisting of US$1,639 million, €400 million and £300 million at 31
December 2024. These facilities all mature in April 2026, but with the
potential to be extended for two additional one-year periods at the Group's
option. Details of the facilities and amounts borrowed as at 31 December 2024
are shown below:
Local currency £m
Size Drawn Headroom Headroom
Term loan:
USD 549 549 - -
EUR 100 100 - -
Revolving credit facility:
USD 1,090 867 223 177
GBP 300 16 284 284
EUR 300 216 84 70
Total (GBP) 1,940 1,409 531
In addition to the headroom of £531 million on committed facilities, there
are a number of uncommitted overdraft, guarantee and borrowing facilities made
available to the Group. As at 31 December 2024 there were cash and cash
equivalents, net of overdrafts, totalling £80 million (31 December 2023: £57
million).
At the start of the year the Group held capital market borrowings with an
outstanding nominal value of £10 million from an original £300 million bond
issued in May 2017 and due to mature in May 2032. During the year, an
agreement was reached with remaining bondholders that resulted in the
outstanding nominal value being bought back and cancelled for a total cost of
£10 million.
The committed bank funding has two financial covenants, being a net debt to
adjusted EBITDA covenant ("banking covenant leverage") and an interest cover
covenant, both of which are tested half-yearly in June and December.
Both covenants have comfortable headroom with the banking covenant leverage
test level set at 3.5x and as at 31 December 2024 it was 2.1x. The interest
cover test is set at 4.0x, and as at 31 December 2024, the Group interest
cover was 7.4x.
A limited number of Group trade receivables are subject to non-recourse
factoring and customer supply chain finance arrangements. As at 31 December
2024, these amounted to £338 million (31 December 2023: £268 million). No
new schemes were added during the year and the increase in the amount factored
represents year over year revenue growth and the reversion of terms to
pre-COVID levels for one key customer.
Finance cost risk management
The Group uses financial derivatives to fix a portion of the interest cost on
its committed bank facilities.
The maximum weighted average rates, excluding the bank margin, the Group will
pay on the fixed portions of its US Dollar and Euro bank debt are 3.8% and
2.7% respectively.
The margin on the bank facilities depends on the banking covenant leverage and
were as follows:
31 Dec 2024 31 Dec 2023
Facility: Margin Range Margin Range
Term Loan 1.40% 1.0%-2.3% 1.30% 0.9%-2.2%
Revolving Credit Facilities 1.40%-1.55% 1.0%-2.4% 1.30%-1.55% 0.9%-2.4%
The Group's cost of drawn debt for the next 12 months is currently expected to
be approximately 5.4%.
Exchange rate risk management
The Group trades in various countries around the world and is exposed to
movements in a number of foreign currencies.
The Group carries exchange rate risk that can be categorised into two types:
transaction and translation risk, as described in the paragraphs below. The
Group's policy is designed to protect against the majority of the cash risks
but not the non-cash risks.
The most common exchange rate risk is the transaction risk the Group takes
when it invoices a customer or purchases from suppliers in a different
currency to the underlying functional currency of the relevant business. The
Group's policy is to review transactional foreign exchange exposures and place
necessary hedging contracts on a rolling quarterly basis. To the extent the
cash flows associated with a transactional foreign exchange risk are
committed, the Group will hedge 100% at the time the cash flow becomes
committed. For forecast and variable cash flows, the Group hedges a proportion
of the expected cash flows, with the percentage being hedged lowering as the
time horizon lengthens. The Group hedges on a sliding scale, typically hedging
around 90% of foreign exchange exposures expected over the next twelve months,
with the percentage decreasing by approximately 10 percentage points for each
subsequent year. This policy does not eliminate the cash risk but does bring
some certainty to it.
The translation rate risk is the effect on the Group results in the period due
to the movement of exchange rates used to translate foreign results into
Sterling from one period to the next. No specific exchange instruments are
used to protect against the translation risk because it is a non-cash risk to
the Group, until foreign currency is subsequently converted to Sterling.
However, the Group utilises its multi-currency banking facilities, where
relevant, to maintain an appropriate mix of debt in each currency. The hedge
of having debt drawn in these currencies funding the trading units with US
Dollars or Euro functional currencies protects against some of the Balance
Sheet and banking covenant translation risk.
Exchange rates for currencies most relevant to the Group in the year were:
Closing rate
Average rate
US Dollar
2024 1.28 1.25
2023 1.24 1.28
Euro
2024 1.18 1.21
2023 1.15 1.15
A 10 percent strengthening of the major currencies within the Group, if this
were to happen in isolation against all other currencies, would have the
following impact on the re-translation of adjusted operating profit into
Sterling:
USD EUR
Increase in adjusted operating profit - £ million 47 1
% impact on adjusted operating profit 9% -%
The impact from transactional foreign exchange exposures is not material in
the short term due to hedge coverage being approximately 90%.
A 10 percent strengthening in either the US Dollar or Euro would have the
following impact on debt as at 31 December 2024:
USD EUR
Increase in gross debt - £ million 113 25
Increase in gross debt 8% 2%
Contract and warranty risk management
A suitable bid and contract management process exists in the businesses, which
includes thorough reviews of contract terms and conditions, contract-specific
risk assessments and clear delegation of authority for approvals. These
processes aim to ensure effective management of risks associated with complex
contracts. The financial risks connected with contracts and warranties
include the consideration of commercial, legal and warranty terms and their
duration, which are all considered carefully by the businesses and Group
management before being entered into.
Commodity cost risk management
The cumulative expenditure on commodities is important to the Group and the
risk of base commodity costs increasing is mitigated, wherever possible, by
passing on the cost increases to customers, by the use of customer directed
suppliers under common agreements, or by having suitable purchase agreements
with suppliers which fix the price over a certain period. These risks are
also managed through sourcing policies, including the use of multiple
suppliers, where possible, and procurement contracts where prices are agreed
in advance to limit exposure to price volatility. The Group selectively uses
financial derivatives where changes in commodity costs cannot be passed on to
customers or fixed with suppliers.
GOING CONCERN
As part of their consideration of going concern, the Directors have reviewed
the Group's future cash forecasts and projections, which are based on both
market and internal data and recent past experience.
The Directors recognise the challenges in the current economic environment,
including challenges in supply chains and geopolitical risks. The Group is
actively managing the associated impacts on trading through a sharp focus on
pricing, productivity and costs. In addition, the Group's cash flow forecasts
consider any impacts from further economic factors such as high interest
rates.
The Group has modelled a severe but plausible downside case against these
future cash forecasts and throughout this scenario the Group would not breach
any financial covenants and would not require any additional sources of
financing.
The macroeconomic environment remains uncertain and volatile and the impacts
of the economic factors such as inflation, high interest rates, geopolitical
conflict and challenges in supply chains could be more prolonged or severe
than that which the Directors have considered in the Group's severe but
plausible downside case.
Considering the Group's current committed bank facility headroom, its access
to liquidity, and the level of bank covenants in place with lending banks, the
Directors consider it appropriate that the Group can manage its business risks
successfully and adopt a going concern basis in preparing these Consolidated
Financial Statements.
2025 GUIDANCE
We set out below our 2025 guidance:
£m
Revenue 3,550 - 3,700
Aerospace operating profit (pre-PLC costs) 680 - 720
Aerospace operating margin >19%
Divisional adjusted operating profit
Engines 515 - 545
Structures 165 -175
Free cash flow (after interest and tax) 100+
Our guidance includes expected variable consideration of £320 million to
£360 million. PLC costs to be £30 million.
The Group's free cash flow is underpinned by continued operational
improvements, reduced restructuring cash spend as our multi-year programmes
near completion, continued investment in capital expenditure and cash outflows
connected with the Pratt and Whitney GTF powder metal issue. Specifically,
the Group's 2025 guidance assumes:
· Trade working capital as a percentage of sales of 13%
· Restructuring cash outflows of £40 million to £50 million
· Capital expenditure of 1.0x - 1.1x depreciation including investment
in additive manufacturing
· £70 million of cash impact connected with the Pratt & Whitney
GTF powder metal issue
FIVE-YEAR TARGETS
The Group's new five-year targets for 2029 are revenue of c.£5 billion,
adjusted operating profit of £1.2 billion+ and free cash flow after interest
and tax of £600 million. These targets are translated assuming USD:GBP of
1.25:1. The key assumptions that underpin the revenue target are:
· 90% of revenue comes from existing programmes
· OEM target build rates are met by 2029
· Flying hours grow in line with current industry forecasts
· Continuation of a favourable revenue mix, with strong aftermarket
It is assumed that these revenue drivers will drop through into adjusted
operating profit and coupled with ongoing operational efficiency and
commercial excellence deliver an expanded adjusted operating profit margin of
24%+. Adjusted operating profit assumes variable consideration of c.£500
million for the year ended 31 December 2029 growing in accordance with the
accounting described in our RRSP booklet. At a divisional level this
translates to targets of:
· Engines: Revenue growth of high single digits and adjusted operating
profit margin of mid to high 30%
· Structures: Revenue growth of mid-single digits and adjusted
operating profit margin in the low teens
Free cash flow (after interest and tax) of £600 million is driven by the
increase in cash profits and benefits from all RRSPs having become cash
positive, the resolution of the GTF powder metal issue, the completion of the
Group's restructuring and ongoing business improvements.
Compound annual growth in earnings per share is targeted to exceed 20% in the
five year period. No further share buybacks are assumed beyond those
already announced.
Matthew Gregory
Chief Financial Officer
6 March 2025
CAUTIONARY STATEMENT
This announcement contains statements that are, or may be deemed to be
"forward-looking statements". These forward-looking statements may be
identified by the use of forward-looking terminology, including the terms
"believes", "estimates", "plans", "projects", "anticipates", "potential",
"predicts", "expects", "intends", "may", "will", "can", "likely" or "should"
or, in each case, their negative or other variations or comparable
terminology, or by discussions of strategy, plans, objectives, goals, future
events or intentions. Forward-looking statements may and often do differ
materially from actual results. Any forward-looking statements reflect the
Company's current view with respect to future events and are subject to risks
relating to future events and other risks, uncertainties and assumptions
relating to the business, results of operations, financial position,
liquidity, prospects, growth and strategies of the Group. Forward-looking
statements speak only as of the date they are made. In light of these risks,
uncertainties and assumptions, the events in the forward-looking statements
may not occur or the Company's or the Group's actual results, performance or
achievements of the Company might be materially different from the expected
results, performance or achievements expressed or implied by such
forward-looking statements. Forward-looking statements contained in this
announcement speak only as at the date of this announcement. The Company
expressly disclaims any obligation or undertaking to update these
forward-looking statements contained in this announcement to reflect any
change in their expectations or any change in events, conditions, or
circumstances on which such statements are based unless required to do so by
applicable law, the UK Listing Rules and the Disclosure Guidance and
Transparency Rules of the FCA or Regulation (EU) 596/2014 as it forms part of
the domestic law of the United Kingdom by virtue of the European Union
(Withdrawal) Act 2018.
Consolidated Income Statement
Continuing operations Notes Year ended Year ended
31 December
31 December
2024
2023
£m
£m
Revenue 3 3,468 3,350
Cost of sales (2,646) (2,696)
Gross profit 822 654
Operating expenses (826) (597)
Operating (loss)/profit 3, 4 (4) 57
Finance costs (105) (79)
Finance income 3 14
Loss before tax 5 (106) (8)
Tax 57 9
(Loss)/profit after tax for the year from continuing operations (49) 1
Discontinued operations 8 -
Loss for the year from discontinued operations (1,020)
Loss after tax for the year attributable to owners of the parent (49) (1,019)
7 (3.7)p 0.1p
Earnings per share 7 (3.7)p 0.1p
Continuing operations
- Basic
- Diluted
7 (3.7)p (75.5)p
Continuing and discontinued operations 7 (3.7)p (75.5)p
- Basic
- Diluted
Adjusted(1) results from continuing operations
Adjusted operating profit 3, 4 540 390
Adjusted profit before tax 4 438 331
Adjusted profit after tax 4 350 263
Adjusted basic earnings per share 7 26.8p 19.5p
Adjusted diluted earnings per share 7 26.4p 18.7p
(1) Defined in note 2.
Consolidated Statement of Comprehensive Income
Notes Year ended Year ended
31 December
31 December
2024
2023
£m
£m
Loss after tax for the year (49) (1,019)
27 (119)
Items that will not be reclassified subsequently to the Income Statement: (47) 35
Net remeasurement gain/(loss) on retirement benefit obligations 5 (4) 29
Fair value (loss)/gain on investments in equity instruments
Income tax (charge)/credit relating to items that will not be reclassified
Items that may be reclassified subsequently to the Income Statement: (24) (55)
Currency translation on net investments
Share of other comprehensive expense from equity accounted investments 8 17 (195)
Transfer to Income Statement from equity of cumulative translation differences - (12)
on disposal of foreign operations
5
Derivative gains on hedge relationships
(6) (152)
Income tax charge relating to items that may be reclassified
3 2
(1) (8)
13 (365)
Other comprehensive expense for the year (11) (420)
Total comprehensive expense for the year attributable to owners of the parent (60) (1,439)
Consolidated Statement of Cash Flows
Notes Year ended Year ended
31 December
31 December
2024
2023
£m
£m
Operating activities 13 (121) (7)
Net cash used in operating activities from continuing operations 13 - 36
Net cash from operating activities from discontinued operations
Net cash (used in)/from operating activities (121) 29
55 (320)
Investing activities 8 - 1,205
Disposal of businesses, net of cash disposed (108) (95)
Settlement receipt from loans held with demerged entities - 4
Purchase of property, plant and equipment (15) (11)
Proceeds from disposal of property, plant and equipment - 3
Purchase of computer software and capitalised development costs (3) -
Disposal of equity accounted investments 3 2
Equity accounted investment additions
Interest received
Net cash (used in)/from investing activities from continuing operations 13 (68) 788
Net cash used in investing activities from discontinued operations - (67)
Net cash (used in)/from investing activities (68) 721
(10)
Financing activities 767 (1,371)
Repayment of borrowings (3) 628
Drawings on borrowing facilities (32) (11)
Costs of raising debt finance (431) (32)
Repayment of principal under lease obligations 6 (72) (93)
Purchase of own shares, including associated costs 6 (81)
Dividends paid to owners of the parent
Net cash from/(used in) financing activities from continuing operations 13 219 (960)
Net cash used in financing activities from discontinued operations - (6)
Net cash from/(used in) financing activities 219 (966)
13 30 (216)
Net increase/(decrease) in cash and cash equivalents, net of bank overdrafts 13 57 292
Cash and cash equivalents, net of bank overdrafts at the beginning of the year (7) (19)
Effect of foreign exchange rate changes
Cash and cash equivalents, net of bank overdrafts at the end of the year 13 80 57
As at 31 December 2024, the Group had net debt of £1,321 million (31 December
2023: £572 million). A definition and reconciliation of the movement in net
debt is shown in note 13.
Consolidated Balance Sheet
Notes 31 December Restated((1)) Restated((1))
2024
£m 31 December 31 December
2023
2022
£m
£m
Non-current assets 3,094 3,351 6,846
Goodwill and other intangible assets 821 777 2,599
Property, plant and equipment 69 114 62
Investments 8 7 435
Interests in equity accounted investments 651 527 373
Deferred tax assets 12 46 36
Derivative financial assets 9 1,201 859 745
Other receivables - - 93
Retirement benefit surplus
5,856 5,681 11,189
Current assets 528 513 1,028
Inventories 9 949 815 1,540
Trade and other receivables 10 13 38
Derivative financial assets 5 6 29
Current tax assets 88 58 355
Cash and cash equivalents - 18 -
Assets classified as held for sale
1,580 1,423 2,990
Total assets 3 7,436 7,104 14,179
Current liabilities 10 1,510
Trade and other payables 8 1,286 2,463
Interest-bearing loans and borrowings 33 54 63
Lease obligations 72 40 60
Derivative financial liabilities 20 42 86
Current tax liabilities 11 108 20 141
Provisions - 188 281
Liabilities associated with assets held for sale 10 -
1,751 1,640 3,094
Net current liabilities (171) (217) (104)
Non-current liabilities 10 469 426 507
Other payables 1,401 576 1,433
Interest-bearing loans and borrowings 204 152 306
Lease obligations 115 64 141
Derivative financial liabilities 517 482 619
Deferred tax liabilities 12 59 99 581
Retirement benefit obligations 11 76 98 330
Provisions
2,841 1,897 3,917
Total liabilities 3 4,592 3,537 7,011
Net assets 2,844 3,567 7,168
Equity 1 309 309
Issued share capital 1,000 3,271 3,271
Share premium account 109 109 109
Merger reserve - 753 753
Capital redemption reserve (2,330) (2,330) (2,330)
Other reserves 286 273 638
Translation and hedging reserve 3,778 1,182 4,379
Retained earnings
Equity attributable to owners of the parent 2,844 3,567 7,129
Non-controlling interests - - 39
Total equity 2,844 3,567 7,168
(1) Inventories, trade and other receivables and trade and other payables have
been restated (see note 1).
The Financial Statements were approved and authorised for issue by the Board
of Directors on 6 March 2025 and were signed on its behalf by:
Matthew Gregory
Peter Dilnot
Chief Financial Officer
Chief Executive Officer
6 March 2025
6 March 2025
Consolidated Statement of Changes in Equity
Issued share capital Share premium account Merger reserve Other reserves Translation and hedging reserve Retained earnings Equity attributable to owners Non-controlling interests Total
of the parent
equity
£m £m £m Capital redemption reserve £m £m £m
£m
£m £m
£m
At 1 January 2023 309 3,271 109 753 (2,330) 638 4,379 7,129 39 7,168
Loss for the year - - - - - - (1,019) (1,019) - (1,019)
Other comprehensive expense - - - - - (365) (55) (420) - (420)
Total comprehensive expense - - - - - (365) (1,074) (1,439) - (1,439)
Purchase of own shares(1) - - - - - - (93) (93) - (93)
Dividends paid (note 6) - - - - - - (81) (81) - (81)
Demerger distribution (note 8) - - - - - - (1,973) (1,973) - (1,973)
Derecognition of non-controlling interests on demerger
Equity-settled share-based payments - - - - - - - - (39) (39)
Deferred tax on equity-settled share-based payments (note 5) - - - - - - 2 2 - 2
- - - - - - 22 22 - 22
At 31 December 2023 309 3,271 109 753 (2,330) 273 1,182 3,567 - 3,567
Loss for the year - - - - - - (49) (49) - (49)
Other comprehensive income/(expense) - - - - - 13 (24) (11) - (11)
Total comprehensive income/(expense) - - - - - 13 (73) (60) - (60)
Purchase of own shares(1) - - - - - - (449) (449) - (449)
Dividends paid (note 6) - - - - - - (72) (72) - (72)
Capital reduction(1) (308) (2,271) - (753) - - 3,332 - - -
Equity-settled incentive scheme related(1) - - - - - - (157) (157) - (157)
Equity-settled share-based payments - - - - - - 1 1 - 1
Deferred tax on equity-settled share-based payments (note 5)
- - - - - - 14 14 - 14
At 31 December 2024 1 1,000 109 - (2,330) 286 3,778 2,844 - 2,844
(1) Further information is set out in note 1.
Notes to the Consolidated Financial Statements
1. Corporate information
The financial information included within this Preliminary Announcement does
not constitute the Company's statutory Financial Statements for the years
ended 31 December 2024 or 31 December 2023 within the meaning of s435 of the
Companies Act 2006, but is derived from those Financial Statements. Statutory
Financial Statements for the year ended 31 December 2023 have been delivered
to the Registrar of Companies and those for the year ended 31 December 2024
will be delivered to the Registrar of Companies during April 2025. The auditor
has reported on those Financial Statements; their reports were unqualified,
did not draw attention to any matters by way of emphasis and did not contain
statements under s498(2) or (3) of the Companies Act 2006. While the financial
information included in this Preliminary Announcement has been prepared in
accordance with the recognition and measurement criteria of International
Financial Reporting Standards ("IFRSs") adopted pursuant to IFRSs as issued by
the IASB, this announcement does not itself contain sufficient information to
comply with IFRSs. The Company expects to publish full Financial Statements
that comply with IFRSs during April 2025.
Corporate structure
Capital structure
On 2 October 2023, the Group commenced a £500 million share buyback programme
which completed in September 2024. During the year ended 31 December 2024,
70,967,661 shares (2023: 18,761,840 shares) were purchased at an average price
of 571 pence (2023: 494 pence) per share with cash spent of £411 million
(2023: £93 million), inclusive of costs of £5 million (2023: £1 million).
These are held as treasury shares and the total costs of the purchase have
been recognised in retained earnings.
On 1 October 2024, the Group commenced a £250 million share buyback programme
which is expected to complete by the end of March 2026. During the year ended
31 December 2024, 4,173,411 shares were purchased at an average price of 484
pence per share for total consideration of £20 million, inclusive of costs of
£nil. These are held as treasury shares and the total costs of the purchase
have been recognised in retained earnings. A liability of £18 million has
also been recognised in respect of the shares expected to be purchased under
the share buyback programme during the close period, as there was an
irrevocable instruction to contracted financial institutions to complete
purchases at 31 December 2024.
On 3 June 2024, the Melrose Employee Share Plan ("MESP") crystallised. Of the
54,346,536 shares awarded, 25,498,465 were withheld by the Company in exchange
for a cash payment sufficient to allow holders to meet their income tax and
employee national insurance liabilities in respect of the MESP. In accordance
with IFRS 2: Share-based Payment, £157 million has been recognised in
retained earnings.
Following approval from shareholders on 2 May 2024, the Group undertook a
capital reduction on 11 July 2024. This reduced share capital by £308
million, the share premium account by £2,271 million and the capital
redemption reserve by £753 million.
Disposals and discontinued operations
On 1 March 2024, the Group disposed of its Fuel Systems business, the assets
and liabilities of which were classified as held for sale at 31 December 2023.
On 25 April 2024, the Group disposed of its St. Louis operation.
On 28 June 2024, the Group disposed of its Orangeburg operation.
All disposals represented non-core parts of the Structures segment.
On 20 April 2023, the Group completed the demerger of the GKN Automotive, GKN
Powder Metallurgy and GKN Hydrogen businesses through the flotation of Dowlais
Group plc ("Dowlais") on the London Stock Exchange. The results of the Dowlais
businesses were classified within discontinued operations for the year ended
31 December 2023.
See note 8 for further detail.
Prior year restatement of inventories, trade and other receivables and trade
and other payables
During the year, the Group has changed its presentation of inventories, trade
and other receivables and trade and other payables within the Balance
Sheet. The change related to contract balances for certain programmes. The
Group was previously netting certain amounts under these arrangements,
however, it was determined that the appropriate current and prior year
presentation should be on a gross basis in line with the requirements of IFRS
15: Revenue from Contracts with Customers. Prior year comparatives have been
restated accordingly. The impact of this change on the Balance Sheet at 31
December 2023 was to increase inventories by £3 million, non-current other
receivables by £70 million, current trade and other receivables by £102
million, current trade and other payables by £107 million and non-current
other payables £68 million. The impact of this change on the Balance Sheet
at 31 December 2022 was to increase inventories by £3 million, non-current
other receivables by £75 million, current trade and other receivables by
£114 million, current trade and other payables by £116 million and
non-current other payables by £76 million.
Going concern
The Consolidated Financial Statements have been prepared on a going concern
basis as the Directors consider that adequate resources exist for the Company
to continue in operational existence for the foreseeable future, being 12
months from the date of this report (the relevant period).
The Group's liquidity and funding arrangements are described in the Chief
Financial Officer's Review. There is significant liquidity headroom
of £0.5 billion at 31 December 2024 and sufficient headroom throughout the
going concern forecast period. Forecast covenant compliance is considered
further below.
Covenants
The Group's banking facility has two financial covenants being a net debt to
adjusted EBITDA covenant and an interest cover covenant, both of which are
tested half yearly in June and December. Covenant calculations are detailed in
the glossary to these Consolidated Financial Statements.
The financial covenants during the period of assessment for going concern are
as follows:
31 December 30 June 31 December
2024 2025 2025
Net debt to adjusted EBITDA (banking covenant leverage) 3.5x 3.5x 3.5x
Interest cover 4.0x 4.0x 4.0x
Testing
The Group has modelled two scenarios in its assessment of going concern. A
base case and a severe but plausible downside case.
The base case takes into account end markets and operational factors,
including supply chain challenges, throughout the going concern period and has
been monitored against the actual results and cash generation in the period
since 1 January 2025. Climate scenario analysis was used to model the impact
of climate change on the Group's cash flow position. Climate change is deemed
to not have a material impact over the period of 12 months for the assessment
of going concern or 36 months for assessment of viability of the Group.
The severe but plausible downside case models more conservative revenue
assumptions for 2025 and the first half of 2026. The sensitised assumptions
are specific to each business taking into account their markets, but on
average represents a c.10% reduction to the Group's forecast revenue in 2025,
and a c.5% reduction in the first half of 2026. The sensitised revenues have
had a consequential impact on profit and cash flow, along with a further
downside sensitivity applied to increase working capital by approximately 2%
of revenue. Given that there is liquidity headroom of £0.5 billion and the
Group's banking covenant leverage was 2.1x, comfortably below the covenant
test at 31 December 2024, no further sensitivity detail is provided.
Under the severe but plausible downside case, even with significant
reductions, no covenant is breached at the forecast testing dates being
30 June 2025 and 31 December 2025. Testing at 30 June 2026 is also
favourable, assuming arrangements similar in nature with existing agreements.
2. Alternative performance measures
The Group presents Alternative Performance Measures ("APMs") in addition to
the statutory results of the Group. These are presented in accordance with the
Guidelines on APMs issued by the European Securities and Markets Authority
("ESMA").
APMs used by the Group are set out in the glossary to these Financial
Statements and the reconciling items between statutory and adjusted results
are listed below and described in more detail in note 4.
Adjusted profit measures exclude items which are significant in size or
volatility or by nature are non-trading or non-recurring or any net change in
fair value items booked on an acquisition.
On this basis, the following are the principal items included within adjusting
items impacting operating profit:
· Amortisation of intangible assets that are acquired in a business
combination, excluding computer software and development costs;
· Significant restructuring project costs and other associated costs,
including losses incurred following the announcement of closure for identified
businesses, arising from significant strategy changes that are not considered
by the Group to be part of the normal operating costs of the business;
· Acquisition and disposal related gains and losses;
· Impairment charges that are considered to be significant in nature
and/or value to the trading performance of the business;
· Movement in derivative financial instruments not designated in
hedging relationships, including revaluation of associated financial assets
and liabilities;
· The charge for the previous Melrose equity-settled compensation
scheme, including its associated employer's tax charge; and
· The net change in fair value items booked on acquisitions.
Further to the adjusting items above, adjusting items impacting profit before
tax include:
· Acceleration of unamortised debt issue costs written off as a
consequence of Group refinancing;
· Significant settlement gains and losses associated with debt
instruments including interest rate swaps following acquisition or disposal
related activity or non-trading transactions, which are not considered by the
Group to be part of normal financing costs; and
· Finance costs in respect of the Group's net debt strategically
allocated to a demerger group of businesses and subsequently settled on
demerger.
In addition to the items above, adjusting items impacting profit after tax
include:
· The net effect on tax of significant restructuring from strategy
changes that are not considered by the Group to be part of the normal
operating costs of the business;
· The net effect of significant new tax legislation; and
· The tax effects of adjustments to profit before tax, described
above.
The Board considers the adjusted results to be an important measure used to
monitor how the businesses are performing, as this provides a meaningful
reflection of how the businesses are managed and measured on a day-to-day
basis and achieves consistency and comparability between reporting periods,
when all businesses are held for a complete reporting period.
The adjusted measures are used to partly determine the variable element of
remuneration of senior management throughout the Group and are also in
alignment with performance measures used by certain external stakeholders.
Adjusted profit is not a defined term under IFRS and may not be comparable
with similarly titled profit measures reported by other companies. It is not
intended to be a substitute for, or superior to, GAAP measures. All APMs
relate to the current year results and comparative periods where provided.
3. Segment information
Segment information is presented in accordance with IFRS 8: Operating
Segments, which requires operating segments to be identified on the basis of
internal reports about components of the Group that are regularly reported to
the Group's Chief Operating Decision Maker ("CODM"), which has been deemed to
be the Group's Board, in order to allocate resources to the segments and
assess their performance.
The operating segments are as follows:
Engines - An industry leading global tier one supplier to the aerospace
engines market, including structural engineered components; parts repair;
commercial and aftermarket contracts.
Structures - A multi-technology global tier one supplier of both civil and
defence air frames, including lightweight composite and metallic structures;
electrical distribution systems and components.
In addition, there is a corporate cost centre which is also reported to the
Board. The corporate cost centre contains the Melrose Group head office costs
and charges related to certain of the Group's senior management long-term
incentive plans.
Reportable segment results include items directly attributable to a segment as
well as those which can be allocated on a reasonable basis. Inter-segment
pricing is determined on an arm's length basis in a manner similar to
transactions with third parties.
The Group's geographical segments are determined by the location of the
Group's non-current assets and, for revenue, the location of external
customers. Inter-segment sales are not material and have not been disclosed.
The following tables present the results and certain asset and liability
information regarding the Group's operating segments and corporate cost centre
for the year ended 31 December 2024.
a) Segment revenues
The Group derives its revenue from the transfer of goods and services over
time and at a point in time. The Group has assessed that the disaggregation of
revenue recognised from contracts with customers by operating segment is
appropriate as this is the information regularly reviewed by the CODM in
evaluating financial performance. The Group also believes that presenting this
disaggregation of revenue based on the timing of transfer of goods or
services provides useful information as to the nature and timing of revenue
from contracts with customers.
Year ended 31 December 2024 Engines Structures Total
Continuing operations £m £m £m
Timing of revenue recognition 1,136 1,316 2,452
At a point in time 323 693 1,016
Over time
Revenue 1,459 2,009 3,468
Year ended 31 December 2023 Engines Structures Total
Continuing operations £m £m £m
Timing of revenue recognition 931 1,457 2,388
At a point in time 262 700 962
Over time
Revenue 1,193 2,157 3,350
b) Segment operating profit
Year ended 31 December 2024 Engines Structures Corporate((1)) Total
Continuing operations £m £m £m £m
Adjusted operating profit/(loss) 422 144 (26) 540
Items not included in adjusted operating profit(2): (131) (124) - (255)
Amortisation of intangible assets acquired in business combinations 7 - (119) (112)
Movement in derivatives and associated financial assets and liabilities (15) (75) (21) (111)
Restructuring costs - (43) (1) (44)
Acquisition and disposal related gains and losses - - (14) (14)
Melrose equity-settled compensation scheme charges - (8) - (8)
Net changes in fair value items
Operating profit/(loss) 283 (106) (181) (4)
Finance costs (105)
Finance income 3
Loss before tax (106)
Tax 57
Loss after tax for the year from continuing operations (49)
Year ended 31 December 2023 Engines Structures Corporate((1)) Total
Continuing operations £m £m £m £m
Adjusted operating profit/(loss) 310 110 (30) 390
Items not included in adjusted operating profit(2): (125) - (260)
Amortisation of intangible assets acquired in business combinations (135) (111) (12) (149)
Restructuring costs (26) - (38) (38)
Melrose equity-settled compensation scheme charges - - (3) (3)
Acquisition and disposal related gains and losses - (6) 123 114
Movement in derivatives and associated financial assets and liabilities (3) 2 - 3
Net changes in fair value items 1
Operating profit/(loss) 147 (130) 40 57
Finance costs (79)
Finance income 14
Loss before tax (8)
Tax 9
Profit after tax for the year from continuing operations 1
(1) Corporate adjusted operating loss of £26 million (2023:
£30 million), includes a charge of £1 million (2023: £nil) in respect of a
new Performance Share Plan for certain senior managers in the Group.
(2) Further details on adjusting items are discussed in note
4.
c) Segment total assets and liabilities
Total assets Total liabilities
31 December Restated((1)) 31 December Restated((1))
2024 31 December 2024 31 December
£m
2023 £m 2023
£m £m
Engines 4,595 4,082 1,757 1,521
Structures 2,284 2,438 1,134 1,149
Corporate 557 584 1,701 867
Total 7,436 7,104 4,592 3,537
(1) Inventories, trade and other receivables and trade and other payables have
been restated (see note 1).
d) Segment capital expenditure and depreciation
Capital expenditure((1)) Depreciation of Depreciation of
owned assets((1))
leased assets
Year ended Year ended Year ended Year ended Year ended Year ended
31 December 31 December 31 December 31 December 31 December 31 December
2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m
Engines 63 55 43 43 7 7
Structures 54 63 74 74 17 17
Corporate 1 - - - 1 1
Continuing operations 118 118 117 117 25 25
Discontinued operations - 51 - 43 - 6
Total 118 169 117 160 25 31
(1) Including computer software and development costs.
Capital expenditure excludes lease additions.
e) Geographical information
The Group operates in various geographical areas around the world. The parent
company's country of domicile is the UK and the Group's revenues and
non-current assets in the rest of Europe and North America are also considered
to be material.
The Group's revenue from external customers and information about its segment
assets (non-current assets excluding deferred tax assets,
non-current derivative financial assets and non-current other receivables) by
geographical location are detailed below:
Revenue((1)) from Segment assets
external customers
Year ended Year ended 31 December 31 December
31 December 31 December 2024 2023
2024 2023 £m £m
£m £m
UK 569 579 739 882
Rest of Europe 567 540 2,061 2,166
North America 2,232 2,138 1,145 1,179
Other 100 93 47 22
Continuing operations 3,468 3,350 3,992 4,249
Discontinued operations - 1,582 - -
Total 3,468 4,932 3,992 4,249
(1) Revenue is presented by destination.
4. Reconciliation of adjusted profit measures
As described in note 2, adjusted profit measures are an alternative
performance measure used by the Board to monitor the operating performance of
the Group.
a) Operating profit
Continuing operations Notes Year ended Year ended
31 December 31 December
2024 2023
£m £m
Operating (loss)/profit (4) 57
Amortisation of intangible assets acquired in business combinations a 255
Movement in derivatives and associated financial assets and liabilities b 112 260
Restructuring costs c 111 (114)
Acquisition and disposal related gains and losses d 44 149
Melrose equity-settled compensation scheme charges e 14 3
Net changes in fair value items f 8 38
(3)
Total adjustments to operating (loss)/profit 544 333
Adjusted operating profit 540 390
a. The amortisation charge on intangible assets acquired in business
combinations of £255 million (2023: £260 million) is excluded from adjusted
results due to its non-trading nature and to enable comparison with companies
that grow organically. However, where intangible assets are trading in nature,
such as computer software and development costs, the amortisation is not
excluded from adjusted results.
b. Movements in the fair value of derivative financial instruments
(primarily forward foreign currency exchange contracts where hedge accounting
is not applied) entered into to mitigate the potential volatility of future
cash flows, on long-term foreign currency customer and supplier contracts,
including foreign exchange movements on the associated financial assets and
liabilities are shown as an adjusting item because of volatility and size.
This totalled a charge of £112 million (2023: credit of £114 million) in the
year.
c. Restructuring and other associated costs in the year totalled £111
million (2023: £149 million), including £1 million (2023: £59 million) of
losses incurred in closing businesses within the Group. These are shown as
adjusting items due to their size and non-trading nature and during the year
ended 31 December 2024 these included:
· A charge of £90 million (2023: £137 million) primarily relating
to the continuation, and finalisation in many cases, of significant
restructuring projects across sites in the Engines and Structures divisions.
This included three significant ongoing multi-year restructuring programmes,
covering European footprint consolidations which commenced in 2021, and a
significant restructuring programme in North America which commenced in 2020.
These programmes incurred a combined charge of £64 million in the year (2023:
£62 million). Since commencement, the cumulative charge on these three
restructuring programmes to 31 December 2024 has been £281 million (31
December 2023: £217 million). As at 31 December 2024, £12 million is
included in restructuring provisions in relation to the multi-year programmes
which will be substantially settled in cash in 2025.
The North American multi-site restructuring was accelerated by the disposal of
two businesses during the first half of the year and is substantially
complete, with costs expected to continue at a much reduced level into 2025.
The European programmes have continued to progress with one of the two
programmes now complete. The other European multi-site restructuring programme
completed the closure of all intended sites by the end of 2023, with
integration expected to conclude in 2025.
· A charge of £21 million (2023: £12 million) within the Corporate
cost centre in relation to actions taken to merge the Melrose corporate
function with the previously separate Aerospace division head office team.
These restructuring actions reshape the Corporate cost centre to serve as an
ongoing pureplay aerospace business.
d. Acquisition and disposal related net losses of £44 million (2023: £3
million) are inclusive of a loss of £43 million on the disposal of three
non-core businesses in the Structures segment (see note 8). The loss of £43
million includes a net liability of £25 million that crystallised on disposal
relating to the withdrawal from a multi-employer post-retirement pension
scheme. Consideration is £25 million which is net of a deferred payable of
£39 million and costs of £1 million. The net loss is recorded as an
adjusting item due to its non-trading nature.
One of the three businesses divested was loss-making and was
purchased by a customer. The resulting amount payable for the sale reflects
the fair value of assets and programmes transferred including the resolution
of all contractual matters.
e. The Melrose equity-settled Employee Share Plan matured during the year.
The charge of £14 million (2023: £38 million), which includes a charge for
employer's tax payable of £14 million (2023: £28 million), is excluded from
adjusted results due to its size and volatility.
f. The net changes in fair value items in the year totalled a charge of
£8 million (2023: credit of £3 million) and are shown as an adjusting item
due to their size and volatility.
b) Profit before tax
Continuing operations Notes Year ended Year ended
31 December 31 December
2024 2023
£m £m
Loss before tax (106) (8)
Adjustments to operating (loss)/profit as above g 544 333
Finance costs on demerger settled net debt h - 17
Accelerated unamortised debt issue costs i - 2
Bond redemption gains - (13)
Total adjustments to loss before tax 544 339
Adjusted profit before tax 438 331
g. Finance costs in respect of the proportion of the Group's net debt
strategically allocated to the demerger group of businesses at the start of
the previous year and subsequently settled on demerger were excluded from
adjusted results to ensure the finance costs of the continuing Group were
appropriately shown alongside the trading performance of the continuing
business.
h. In the previous year, following the demerger of the GKN Automotive, GKN
Powder Metallurgy and GKN Hydrogen businesses, the existing bank facilities at
that time were repaid and all unamortised bank fees were written off. This was
shown as an adjusting item due to its non-trading nature.
i. The Group repurchased £10 million (2023: £120 million) of the 2032
£300 million bond, on which a gain of £nil (2023: £13 million) was
realised. This is shown as an adjusting item due to its non-trading nature.
c) Profit after tax
Continuing operations Note Year ended Year ended
31 December 31 December
2024 2023
£m £m
(Loss)/profit after tax (49) 1
Adjustments to loss before tax as above 544 339
Tax effect of adjustments to loss before tax 5 (128) (77)
Tax effect of significant restructuring 5 (17) -
Total adjustments to (loss)/profit after tax 399 262
Adjusted profit after tax 350 263
5. Tax
Continuing operations Year ended Year ended
31 December 31 December
2024 2023
£m £m
Analysis of tax (credit)/charge in the year:
Current tax
Current year tax charge 15 19
Adjustments in respect of prior years - 4
Total current tax charge 15 23
Deferred tax (32)
Origination and reversal of temporary differences (9) (61)
Adjustments in respect of prior years (30) (3)
Tax on the change in value of derivative financial instruments - 29
Adjustments to deferred tax attributable to changes in tax rates 2 (1)
Non-recognition of deferred tax (3) 4
Recognition of previously unrecognised deferred tax -
Total deferred tax credit (72) (32)
Tax credit on continuing operations (57) (9)
Tax charge on discontinued operations - 28
Total tax (credit)/charge for the year (57) 19
£m £m
Analysis of tax credit on continuing operations in the year:
Tax charge in respect of adjusted profit before tax 88 68
Tax credit recognised as an adjusting item (145) (77)
Tax credit on continuing operations (57) (9)
The tax charge of £88 million (2023: £68 million) arising on adjusted profit
before tax of £438 million (2023: £331 million), results in an effective tax
rate of 20.1% (2023: 20.5%).
The £145 million (2023: £77 million) tax credit recognised as an adjusting
item includes a credit of £128 million (2023: £77 million) in respect of
adjustments to loss before tax of £544 million (2023: £339 million) and a
credit of £17 million (2023: £nil) in respect of internal Group
restructuring.
The tax (credit)/charge for the year for continuing and discontinued
operations can be reconciled to the (loss)/profit before tax per the Income
Statement as follows:
Year ended Year ended
31 December 31 December
2024 2023
£m £m
(Loss)/profit before tax: (106) (8)
Continuing operations - 25
Discontinued operations (note 8)
(106) 17
Tax (credit)/charge on (loss)/profit before tax at 25.0% (2023: 23.5%) (27) 4
Tax effect of:
Disallowable expenses and other permanent differences within adjusted profit 8 (9)
Disallowable items included within adjusting items 8 8
Temporary differences not recognised in deferred tax 2 5
Recognition of previously unrecognised deferred tax (3) -
Tax credits and withholding taxes 2 3
Adjustments in respect of prior years (9) 13
Tax charge classified within adjusting items (20) -
Effect of changes in tax rates - (2)
Effect of rate differences between UK and overseas rates (18) (3)
Total tax (credit)/charge for the year (57) 19
The reconciliation has been performed at a tax rate of 25.0% (2023: 23.5%).
The reconciliation rate usually represents the weighted average of the tax
rates applying to profits and losses in the jurisdictions in which those
results arose in the year. However, for 2023 and 2024 this rate was not
representative due to offsetting profits and losses in the relevant
jurisdictions and as such the UK corporation tax rate was used.
Tax charges/(credits) included in other comprehensive income are as follows:
Year ended Year ended
31 December 31 December
2024 2023
£m £m
Deferred tax movements on retirement benefit obligations 4 (29)
Deferred tax movements on hedge relationship gains and losses 1 8
Total charge/(credit) for the year 5 (21)
There is also a tax credit of £14 million (2023: £22 million) recognised
directly in the Statement of Changes in Equity in respect of deferred tax on
equity-settled share-based payments.
6. Dividends
Year ended Year ended
31 December 31 December
2024 2023
£m
£m
Interim dividend for the year ended 31 December 2024 of 2.0p 26 -
Final dividend for the year ended 31 December 2023 of 3.5p 46 -
Interim dividend for the year ended 31 December 2023 of 1.5p - 20
Second interim dividend for the year ended 31 December 2022 of 1.5p (4.5p)(1) - 61
72 81
(1) Adjusted to include the effects of the one for three share consolidation
that took place on 19 April 2023.
A final dividend for the year ended 31 December 2024 of 4.0p per share
totalling an expected £51 million is declared by the Board. The final
dividend of 4.0p per share was declared by the Board on 6 March 2025 and in
accordance with IAS 10: Events after the reporting period, has not been
included as a liability in the Consolidated Financial Statements.
During the year, the Group completed a £500 million share buyback programme,
which commenced on 2 October 2023, with £411 million of cash spent, inclusive
of costs of £5 million (see note 1). In the prior year, the Group spent cash
of £93 million, inclusive of costs of £1 million on this programme.
On 1 October 2024, the Group commenced a £250 million share buyback
programme, with £20 million of cash spent, inclusive of costs of £nil.
7. Earnings per share
Earnings attributable to owners of the parent Year ended Year ended
31 December 31 December
2024 2023
£m £m
Earnings for basis of earnings per share (49) (1,019)
Less: loss from discontinued operations (note 8) - 1,020
Earnings for basis of earnings per share from continuing operations (49) 1
Year ended Year ended
31 December 31 December
2024 2023
Number Number
Weighted average number of ordinary shares for the purposes of basic earnings 1,307 1,349
per share (million)
17 56
Further shares for the purposes of diluted earnings per share (million)
Weighted average number of ordinary shares for the purposes of diluted 1,324 1,405
earnings per share (million)
On 1 October 2024, the Group commenced a £250 million share buyback
programme, with 4,173,411 shares repurchased by 31 December 2024. These are
held as treasury shares and are excluded from the number of shares for the
purposes of calculating earnings per share.
On 2 October 2023, the Group commenced a £500 million share buyback
programme, with 70,967,661 shares repurchased during the year ended 31
December 2024 (2023: 18,761,840 shares).
Earnings per share Year ended Year ended
31 December 31 December
2024 2023
pence
pence
Basic earnings per share
From continuing and discontinued operations (3.7) (75.5)
From continuing operations (3.7) 0.1
From discontinued operations - (75.6)
Diluted earnings per share
From continuing and discontinued operations (3.7) (75.5)
From continuing operations (3.7) 0.1
From discontinued operations - (75.6)
Adjusted earnings from continued operations Year ended Year ended
31 December 31 December
2024 2023
£m
£m
Adjusted earnings for the basis of adjusted earnings per share 350 263
Adjusted earnings per share from continuing operations:
Year ended Year ended
31 December 31 December
2024 2023
pence pence
Adjusted basic earnings per share 26.8 19.5
Adjusted diluted earnings per share 26.4 18.7
8. Disposals and discontinued operations
On 1 March 2024, the Group completed the disposal of its Fuel Systems
business, which was previously classified as held for sale, for consideration
of £50 million. The costs charged to the Income Statement associated with the
disposal were £4 million and were recognised during the prior year, but paid
during the year. Net assets disposed were £11 million and the profit on
disposal in the year was £39 million after the recycling of cumulative
translational gains of £nil.
On 25 April 2024, the Group completed the disposal of its St. Louis operation
with total consideration payable of £58 million, of which £39 million
remains outstanding at 31 December 2024. The costs charged to the Income
Statement associated with the disposal were £1 million and an additional net
liability of £25 million was crystallised relating to the withdrawal from a
multi-employer post-retirement pension scheme. Net assets disposed were £9
million and the loss on disposal was £90 million after the recycling of
cumulative translational gains of £3 million.
On 28 June 2024, the Group completed the disposal of its Orangeburg operation
for consideration of £34 million. The costs charged to the Income Statement
associated with the disposal were £nil. Net assets disposed were £29 million
and the profit on disposal was £8 million after the recycling of cumulative
translational gains of £3 million.
The results of the three non-core businesses disposed during the year are not
classified within discontinued operations as they do not meet the criteria of
being a major separate line of business.
On 30 March 2023, shareholders approved the demerger of the GKN Automotive,
GKN Powder Metallurgy and GKN Hydrogen businesses through the flotation of
Dowlais Group plc ("Dowlais") on the London Stock Exchange. On 20 April 2023,
the Group completed the demerger of Dowlais and its results were classified
within discontinued operations. A demerger distribution of £1,973 million was
measured at fair value. Total demerger costs were £64 million.
Classes of assets and liabilities disposed of during the year were as follows:
£m
Property, plant and equipment 32
Inventories 56
Trade and other receivables 5
Assets classified as held for sale 21
Total assets 114
Trade and other payables 22
Current and deferred tax 13
Provisions 20
Liabilities associated with assets held for sale 10
Total liabilities 65
Net assets 49
Consideration, net of costs(1) 25
Liabilities crystallised on disposal (25)
Cumulative translation difference recycled on disposal 6
Loss on disposal of businesses (43)
Net cash inflow arising on disposal 60
Consideration received in cash and cash equivalents, net of costs(2) (5)
Less: cash and cash equivalents disposed(3)
55
(1) Consideration of £26 million net of £1 million of disposal costs.
Included within consideration is a deferred amount payable of £39 million
accrued at 31 December 2024, with the cash outflow expected in two equal
instalments in the years ending 31 December 2025 and 31 December 2026
respectively.
(2) Cash consideration of £65 million net of £5 million of disposal costs
paid in the year, of which £4 million were accrued at 31 December 2023.
(3) Included within assets classified as held for sale.
Financial performance of discontinued operations:
Year ended Year ended
31 December 31 December
2024 2023
£m £m
Revenue - 1,582
Operating costs - (1,550)
Operating profit - 32
Net finance costs - (7)
Profit before tax - 25
Tax - (28)
Loss after tax - (3)
Loss on disposal of net assets of discontinued operations, net of recycled
cumulative translation differences but before transaction costs
- (978)
Demerger transaction costs(1)
- (39)
Loss for the year from discontinued operations attributable to owners of the - (1,020)
parent
(1) Demerger transaction costs of £39 million comprised total cash costs
incurred of £58 million, offset by a non-cash contribution from Dowlais of
£19 million.
Cash flow information relating to discontinued operations is shown in note 13.
9. Trade and other receivables
Current 31 December Restated((1))
2024 31 December
£m 2023
£m
Trade receivables 407 430
Allowance for expected credit loss (7) (10)
Other receivables 255 162
Prepayments 33 33
Contract assets 261 200
949 815
(1) Contract assets have been restated (see note 1).
Trade receivables are non interest-bearing. Credit terms offered to customers
vary upon the country of operation but are generally between 30 and 90 days.
Non-current 31 December Restated((1))
2024 31 December
£m 2023
£m
Other receivables 8 21
Contract assets 1,193 838
1,201 859
(1) Contract assets have been restated (see note 1).
The Group's contract assets comprise the following:
Participation fees Unbilled receivables Unbilled work done Other Total
£m £m £m £m £m
At 1 January 2023 (restated)(1) 204 232 450 85 971
Additions 8 962 193 - 1,163
Utilised (17) (983) (20) (12) (1,032)
Disposal of businesses(2) (9) - - (10) (19)
Transfer to held for sale(3) - (1) - - (1)
Exchange adjustments (10) (4) (28) (2) (44)
At 31 December 2023 (restated)(1) 176 206 595 61 1,038
Additions 8 1,016 298 5 1,327
Utilised (11) (935) (24) (1) (971)
Settlements(4) - - 35 - 35
Exchange adjustments 3 4 18 - 25
At 31 December 2024 176 291 922 65 1,454
(1) Unbilled receivables and other contract assets have been
restated (see note 1).
(2) Disposal of businesses in 2023 related to the demerger of the GKN
Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses (see note 1).
(3) Transfer to held for sale in 2023 related to the
contractually agreed sale of a non-core business in the Structures segment.
(4) Settlements principally relate to utilisation of provision balances
held, as commercial matters are resolved.
Risk and revenue sharing partnerships
The amount of revenue recognised from RRSP contracts during the year was £859
million (2023: £680 million), which included an increase in the unbilled
work done contract asset of £274 million (2023: £173 million). Within this,
there is revenue from the delivery of product which is recognised at a point
in time of £802 million (2023: £629 million) and revenue from provision of
service which is recognised over time of £57 million (2023: £51 million).
Due to the nature of certain of these RRSP arrangements, there is an
associated unbilled work done contract asset.
During the year, £50 million (2023: £30 million) of revenue has been
recognised relating to performance obligations satisfied by the Group in
previous years as risks have reduced and the constraint reassessed. There has
been a further £41 million (2023: £27 million) of revenue recognised from
changes in assumptions which will also impact the revenue allocation between
future years. Assumption changes were made following operational progress by
engine manufacturers with their customers, providing more certainty over
future costs and volumes for the RRSP partners.
10. Trade and other payables
Current 31 December Restated((1))
2024 31 December
£m 2023
£m
Trade payables 580 501
Other payables 81 110
Customer advances and contract liabilities 509 353
Other taxes and social security 51 56
Government refundable advances 6 5
Funded development costs 80 64
Accruals 190 183
Deferred government grants 13 14
1,510 1,286
(1) Customer advances and contract liabilities have been restated (see note
1).
Non-current 31 December Restated((1))
2024 31 December
£m 2023
£m
Other payables 51 -
Customer advances and contract liabilities 316 293
Other taxes and social security 2 1
Government refundable advances 45 44
Funded development costs 17 49
Accruals 18 16
Deferred government grants 20 23
469 426
(1) Customer advances and contract liabilities have been restated (see note
1).
The Group's Customer advances and contract liabilities comprise the following:
31 December Restated((1))
2024 31 December
£m 2023
£m
Customer cash advances 211 132
Material rights given 23 30
RRSP related obligations 591 484
825 646
(1) Customer cash advances and RRSP related obligations have been restated
(see note 1).
11. Provisions
Loss-making Property Environmental and litigation Warranty Restructuring Other Total
contracts related costs £m related costs £m £m £m
£m £m £m
At 1 January 2024 58 23 54 27 59 65 286
Utilised (23) - (10) (4) (118) (11) (166)
Charge to operating profit(1) 12 3 18 3 86 8 130
Release to operating profit(2) - (1) (10) (1) (1) (1) (14)
Disposal of businesses(3) (18) - (2) - - - (20)
Transfers(4) - - - - - (31) (31)
Exchange adjustments (1) - - (1) 1 - (1)
At 31 December 2024 28 25 50 24 27 30 184
Current 15 9 25 11 25 23 108
Non-current 13 16 25 13 2 7 76
28 25 50 24 27 30 184
(1) Includes £96 million of adjusting items and £34 million recognised in
adjusted operating profit.
(2) Includes £3 million of adjusting items and £11 million recognised in
adjusted operating profit.
(3) Disposal of businesses relates to the sale of non-core businesses in the
Structures segment (see note 1).
(4) Transfer to accruals following certainty of the timing and value of
employer tax on equity-settled compensation schemes.
Loss-making contracts
Provisions for loss-making contracts are considered to exist where the Group
has a contract under which the unavoidable costs of meeting the obligations
exceed the economic benefits expected to be received under it. This obligation
has been discounted and will be utilised over the period of the respective
contracts, which is up to 15 years.
Calculation of loss-making contract provisions is based on contract
documentation and delivery expectations, along with an estimate of directly
attributable costs and represents management's best estimate of the
unavoidable costs of fulfilling the contract.
Utilisation in continuing operations during the year of £23 million has
benefitted adjusted operating profit. In addition, £12 million has been
charged (2023: £21 million) on a net basis, of which £10 million (2023: £21
million) is shown as an adjusting item (see note 4).
Property related costs
The provision for property related costs represents dilapidation costs for
ongoing leases and is expected to result in cash expenditure over the next
eight years. Calculation of dilapidation obligations are based on lease
agreements with landlords and external quotes, or in the absence of specific
documentation, management's best estimate of the costs required to fulfil
obligations.
Environmental and litigation
There are environmental provisions amounting to £8 million (31 December 2023:
£7 million) relating to the estimated remediation costs of pollution, soil
and groundwater contamination at certain sites and estimated future costs and
settlements in relation to legal claims and associated insurance obligations
amounting to £42 million (31 December 2023: £47 million). Liabilities for
environmental costs are recognised when environmental assessments are probable
and the associated costs can be reasonably estimated. The Group has on
occasion been required to take legal or other actions to defend itself against
proceedings brought by other parties. Provisions are made for the expected
costs associated with such matters, based on past experience of similar items
and other known factors, considering professional advice received. This
represents management's best estimate of the likely outcome. The timing of
utilisation of these provisions is frequently uncertain, reflecting the
complexity of issues and the outcome of various court proceedings and
negotiations. Contractual and other provisions represent management's best
estimate of the cost of settling future obligations and reflect management's
assessment of the likely settlement method, which may change over time.
However, no provision is made for proceedings which have been, or might be,
brought by other parties against Group companies unless management,
considering professional advice received, assess that it is more likely than
not that such proceedings may be successful.
Warranty related costs
Provisions for the expected cost of warranty obligations under local sale of
goods legislation are recognised at the date of sale of the relevant products
and subsequently updated for changes in estimates as necessary. The provision
for warranty related costs represents the best estimate of the expenditure
required to settle the Group's obligations, based on past experience, recent
claims and current estimates of costs relating to specific claims. Warranty
terms are, on average, between one and five years.
Restructuring
Restructuring provisions relate to committed costs in respect of restructuring
programmes, as described in note 4, usually resulting in cash spend within one
to two years. A restructuring provision is recognised when the Group has
developed a detailed formal plan for the restructuring and has raised a valid
expectation in those affected that it will carry out the restructuring by
either starting to implement the plan or by announcing its main features to
those affected by it. The measurement of a restructuring provision includes
only the direct expenditures arising from the restructuring, which are those
amounts that are necessarily entailed by the restructuring programmes.
Other
Other provisions include indemnities and the employer tax on equity-settled
incentive schemes which are expected to result in cash expenditure during the
next two years.
Where appropriate, provisions have been discounted using discount rates
between 0% and 5% (31 December 2023: 0% and 7%) depending on the territory in
which the provision resides and the length of its expected utilisation.
12. Retirement benefit obligations
Defined benefit plans
The Group sponsors defined benefit plans for qualifying employees of certain
subsidiaries. The funded defined benefit plans are administered by separate
funds that are legally separated from the Group. The Trustees of the funds are
required by law to act in the interest of the fund and of all relevant
stakeholders in the plans. The Trustees of the pension funds are responsible
for the investment policy with regard to the assets of the fund.
Contributions
The Group contributed £20 million (2023: £72 million) to defined benefit
pension plans and post-employment plans in the year ended 31 December 2024.
The Group expects to contribute approximately £27 million in 2025.
Actuarial assumptions
The major assumptions used by the actuaries in calculating the Group's pension
liabilities are as set out below:
Rate of increase Discount rate Price inflation
of pensions in payment
% (RPI/CPI)
% per annum
%
31 December 2024
GKN Group Pension Schemes (Numbers 1 and 4) 2.7 5.5 3.0/2.6
GKN US plans n/a 5.5 n/a
31 December 2023
GKN Group Pension Schemes (Numbers 1 and 4) 2.6 4.5 2.9/2.5
GKN US plans n/a 4.8 n/a
Balance Sheet disclosures
The amounts recognised in the Consolidated Balance Sheet in respect of defined
benefit plans were as follows:
31 December 31 December
2024 2023
£m £m
Present value of funded defined benefit obligations (1,022) (1,193)
Fair value of plan assets 986 1,118
Funded status (36) (75)
Present value of unfunded defined benefit obligations (23) (24)
Net liabilities (59) (99)
The plan assets and liabilities at 31 December 2024 were as follows:
UK US Other Total
Plans
Plans
Plans(1)
£m
£m £m
£m
Plan assets 955 31 - 986
Plan liabilities (983) (54) (8) (1,045)
Net liabilities (28) (23) (8) (59)
(1) Includes a liability in respect of the GKN post-employment medical plans
of £6 million and a net deficit in respect of the GKN Group Pension Scheme
(Numbers 1 and 4) of £22 million.
13. Cash flow statement
Notes Year ended Restated((1))
31 December
2024 Year ended
£m
31 December
2023
£m
Reconciliation of operating (loss)/profit to net cash used in operating
activities generated by
continuing operations
Operating (loss)/profit (4) 57
Adjusting items 4 544 333
Adjusted operating profit 4 540 390
Adjustments for:
Depreciation of property, plant and equipment 101 100
Amortisation of computer software and development costs 41 42
Restructuring costs paid and movements in provisions (135) (160)
Defined benefit pension contributions paid(2) (20) (67)
Change in inventories (71) (10)
Change in receivables(3) (449) (123)
Change in payables 191 (13)
Tax paid (10) (17)
Interest paid on loans and borrowings(4) (84) (79)
Interest paid on lease obligations (6) (5)
Acquisition and disposal costs (1) (65)
Divisional management incentive scheme related payments (20) -
Melrose equity-settled compensation scheme related payments (198) -
Net cash used in operating activities (121) (7)
(1) Inventories, trade and other receivables and trade and other payables
have been restated (see note 1).
(2) The year ended 31 December 2023 included £45 million for the purchase of
a buy-in policy for GKN Group Pension Scheme Number 4.
(3) Change in receivables includes increases to unbilled work done contract
assets of £309 million (2023: £173 million).
(4) The year ended 31 December 2023 included £17 million of finance costs
on the proportion of the Group's net debt strategically allocated to demerged
businesses and settled on demerger (see note 4).
Reconciliation of cash and cash equivalents, net of bank overdrafts 31 December 31 December
2024
2023
£m
£m
Cash and cash equivalents per Balance Sheet 88 58
Bank overdrafts included within current interest-bearing loans and borrowings (8) (1)
Cash and cash equivalents, net of bank overdrafts per Statement of Cash Flows 80 57
Cash flow information relating to discontinued operations is as follows:
Cash flow from discontinued operations Year ended Year ended
31 December
31 December
2024 2023
£m
£m
Net cash from discontinued operations - 54
Defined benefit pension contributions paid - (5)
Tax paid - (8)
Interest paid on lease obligations - (3)
Interest paid on loans and borrowings - (2)
Net cash from operating activities from discontinued operations - 36
Purchase of property, plant and equipment - (62)
Purchase of computer software and capitalised development costs - (5)
Net cash used in investing activities from discontinued operations - (67)
Repayment of principal under lease obligations - (6)
Net cash used in financing activities from discontinued operations - (6)
Net debt reconciliation
Net debt consists of interest-bearing loans and borrowings and cash and
cash equivalents.
Net debt is considered to be an alternative performance measure as it is not
defined in IFRS. The most directly comparable IFRS measure is the aggregate
of interest-bearing loans and borrowings (current and non-current) and cash
and cash equivalents. A reconciliation from the most directly comparable IFRS
measure to net debt, used as a basis for banking covenant calculations, is
given below:
31 December 31 December
2024
2023
£m
£m
Interest-bearing loans and borrowings - due within one year (8) (54)
Interest-bearing loans and borrowings - due after one year (1,401) (576)
External debt (1,409) (630)
Less:
Cash and cash equivalents 88 58
Net debt (1,321) (572)
The table below shows the key components of the movement in net debt:
At Cash flow Acquisitions Other non-cash movements Effect of foreign exchange At
1 January
£m
and disposals
£m
£m
31 December
2024
£m
2024
£m
£m
External debt (excluding bank overdrafts) (629) (757) - (1) (14) (1,401)
Cash and cash equivalents, net of bank overdrafts 57 (21) 51 - (7) 80
Net debt (572) (778) 51 (1) (21) (1,321)
Glossary
Alternative Performance Measures ("APMs")
In accordance with the Guidelines on APMs issued by the European Securities
and Markets Authority ("ESMA"), additional information is provided on the APMs
used by the Group below.
In the reporting of financial information, the Group uses certain measures
that are not required under IFRS. These additional measures (commonly referred
to as APMs) provide additional information on the performance of the business
and trends to stakeholders. These measures are consistent with those used
internally, and are considered important to understanding the financial
performance and financial health of the Group. APMs are considered to be an
important measure to monitor how the businesses are performing because this
provides a meaningful comparison of how the business is managed and measured
on a day-to-day basis and achieves consistency and comparability between
reporting periods.
These APMs may not be directly comparable with similarly titled measures
reported by other companies and they are not intended to be a substitute for,
or superior to, IFRS measures. All Income Statement and cash flow measures are
provided for continuing operations unless otherwise stated.
Income Statement Measures
APM
Adjusting items
Closest equivalent statutory measure
None
Reconciling items to statutory measure
Adjusting items (note 4)
Definition and purpose
Those items which the Group excludes from its adjusted profit metrics in order
to present a further measure of the Group's performance.
These include items which are significant in size or volatility or by nature
are non-trading or non-recurring or the net change in fair value items booked
on an acquisition.
This provides a meaningful comparison of how the business is managed and
measured on a day-to-day basis and provides consistency and comparability
between reporting periods.
APM
Adjusted operating profit
Closest equivalent statutory measure
Operating (loss)/profit(1)
Reconciling items to statutory measure
Adjusting items (note 4)
Definition and purpose
The Group uses adjusted profit measures to provide a useful and more
comparable measure of the ongoing performance of the Group. Adjusted measures
are reconciled to statutory measures by removing adjusting items, the nature
of which are disclosed above and further detailed in note 4.
Adjusted operating profit Year ended Year ended
31 December
31 December
2024 2023
£m
£m
Operating (loss)/profit (4) 57
Adjusting items to operating (loss)/profit (note 4) 544 333
Adjusted operating profit 540 390
APM
Adjusted operating margin
Closest equivalent statutory measure
Operating margin(2)
Reconciling items to statutory measure
Adjusting items (note 4)
Definition and purpose
Adjusted operating margin represents Adjusted operating profit as a percentage
of revenue. The Group uses adjusted profit measures to provide a useful and
more comparable measure of the ongoing performance of the Group.
APM
Adjusted profit before tax
Closest equivalent statutory measure
Loss before tax
Reconciling items to statutory measure
Adjusting items (note 4)
Definition and purpose
Loss before the impact of adjusting items and tax. As discussed above,
adjusted profit measures are used to provide a useful and more comparable
measure of the ongoing performance of the Group. Adjusted measures are
reconciled to statutory measures by removing adjusting items, the nature of
which are disclosed above and further detailed in note 4.
Adjusted profit before tax Year ended Year ended
31 December
31 December
2024 2023
£m
£m
Loss before tax (106) (8)
Adjusting items to loss before tax (note 4) 544 339
Adjusted profit before tax 438 331
APM
Adjusted profit after tax
Closest equivalent statutory measure
(Loss)/profit after tax
Reconciling items to statutory measure
Adjusting items (note 4)
Definition and purpose
(Loss)/profit after tax but before the impact of adjusting items. As discussed
above, adjusted profit measures are used to provide a useful and more
comparable measure of the ongoing performance of the Group. Adjusted measures
are reconciled to statutory measures by removing adjusting items, the nature
of which are disclosed above and further detailed in note 4.
Adjusted profit after tax Year ended Year ended
31 December
31 December
2024 2023
£m
£m
(Loss)/profit after tax (49) 1
Adjusting items to (loss)/profit after tax (note 4) 399 262
Adjusted profit after tax 350 263
APM
Constant currency
Closest equivalent statutory measure
Income Statement, which is reported using actual average foreign exchange
rates
Reconciling items to statutory measure
Constant currency foreign exchange rates
Definition and purpose
The Group uses GBP based constant currency models to measure performance.
These are calculated by applying 2024 average exchange rates to local currency
reported results for the current and prior year. This gives a GBP denominated
Income Statement which excludes any variances attributable to foreign exchange
rate movements.
APM
Adjusted EBITDA and Adjusted EBITDA for banking covenant leverage purposes
Closest equivalent statutory measure
Operating (loss)/profit(1)
Reconciling items to statutory measure
Adjusting items (note 4), depreciation of property, plant and equipment and
amortisation of computer software and development costs. Adjusted EBITDA for
banking covenant leverage purposes also includes an imputed lease charge and
other adjustments required for banking covenant leverage purposes(3)
Definition and purpose
Adjusted operating profit for 12 months prior to the reporting date, before
depreciation of property, plant and equipment and before the amortisation of
computer software and development costs.
Adjusted EBITDA and Adjusted EBITDA for banking covenant leverage purposes are
measures used by external stakeholders to measure performance.
Adjusted EBITDA and Adjusted EBITDA for banking covenant leverage purposes Year ended Year ended
31 December
31 December
2024 2023
£m
£m
Adjusted operating profit 540 390
Depreciation of property, plant and equipment and amortisation of computer 142 142
software and development costs
Adjusted EBITDA 682 532
Imputed lease charge (38) (37)
Other adjustments required for banking covenant leverage purposes(3) (15) 20
Adjusted EBITDA for banking covenant leverage purposes 629 515
APM
Adjusted tax rate
Closest equivalent statutory measure
Effective tax rate
Reconciling items to statutory measure
Adjusting items, adjusting tax items and the tax impact of adjusting items
(note 4 and note 5)
Definition and purpose
The income tax charge for the Group excluding adjusting tax items, and the tax
impact of adjusting items, divided by adjusted profit before tax.
This measure is a useful indicator of the ongoing tax rate for the Group.
Adjusted tax rate Year ended Year ended
31 December
31 December
2024 2023
£m
£m
Tax credit per Income Statement 57 9
Adjusted for:
Tax impact of adjusting items (128) (77)
Tax impact of significant restructuring (17) -
Adjusted tax charge (88) (68)
Adjusted profit before tax 438 331
Adjusted tax rate 20.1% 20.5%
APM
Adjusted basic earnings per share
Closest equivalent statutory measure
Basic earnings per share
Reconciling items to statutory measure
Adjusting items (note 4 and note 7)
Definition and purpose
Profit after tax attributable to owners of the parent and before the impact of
adjusting items, divided by the weighted average number of ordinary shares in
issue during the financial year.
The Board considers this to be a key measure of performance when all
businesses are held for the complete reporting period.
APM
Adjusted diluted earnings per share
Closest equivalent statutory measure
Diluted earnings per share
Reconciling items to statutory measure
Adjusting items (note 4 and note 7)
Definition and purpose
Profit after tax attributable to owners of the parent and before the impact of
adjusting items, divided by the weighted average number of ordinary shares in
issue during the financial year adjusted for the effects of any potentially
dilutive options.
The Board considers this to be a key measure of performance when all
businesses are held for the complete reporting period.
APM
Interest cover
Closest equivalent statutory measure
None
Reconciling items to statutory measure
Not applicable
Definition and purpose
Adjusted EBITDA calculated for banking covenant leverage purposes (including
adjusted EBITDA from businesses disposed) as a multiple of net interest
payable on bank loans and overdrafts.
This measure is used for bank covenant testing.
Interest cover Year ended
31 December
2024
£m
Adjusted EBITDA for banking covenant leverage purposes 629
Adjusted EBITDA from businesses disposed in the year 20
Adjusted EBITDA for interest cover 649
Interest on bank loans and overdrafts 91
Finance income (3)
Net finance charges for covenant purposes 88
Interest cover 7.4x
Balance Sheet Measures
APM
Working capital
Closest equivalent statutory measure
Inventories, trade and other receivables less trade and other payables
Reconciling items to statutory measure
Not applicable
Definition and purpose
Working capital comprises inventories, current trade and other receivables,
non-current other receivables, current trade and other payables and
non-current other payables.
This measure provides additional information in respect of working capital
management.
APM
Net debt
Closest equivalent statutory measure
Cash and cash equivalents less interest-bearing loans and borrowings
Reconciling items to statutory measure
Reconciliation of net debt (note 13)
Definition and purpose
Net debt comprises cash and cash equivalents and interest-bearing loans and
borrowings.
Net debt is one measure that could be used to indicate the strength of the
Group's Balance Sheet position and is a useful measure of the indebtedness of
the Group.
APM
Bank covenant definition of net debt at average rates and banking covenant
leverage
Closest equivalent statutory measure
Cash and cash equivalents less interest-bearing loans and borrowings
Reconciling items to statutory measure
Impact of foreign exchange
Definition and purpose
Net debt (as above) is presented in the Balance Sheet translated at year end
exchange rates.
For bank covenant testing purposes net debt is converted using average
exchange rates for the previous 12 months.
Leverage is calculated as the bank covenant definition of net debt divided by
adjusted EBITDA for banking covenant leverage purposes. This measure is used
for bank covenant testing.
Bank covenant definition of net debt at average rates and banking covenant 31 December 31 December
leverage
2024 2023
£m
£m
Net debt at closing rates (note 13) 1,321 572
Impact of foreign exchange (16) 12
Bank covenant definition of net debt at average rates 1,305 584
Banking covenant leverage 2.1x 1.1x
APM
Leverage
Closest equivalent statutory measure
Cash and cash equivalents less interest-bearing loans and borrowings
Reconciling items to statutory measure
None
Definition and purpose
Leverage is calculated as net debt at average rates (as above) divided by
adjusted EBITDA.
This measure is used by external stakeholders to assess the financial
stability of the Group.
Leverage 31 December 31 December
2024 2023
£m
£m
Leverage 1.9x 1.1x
Cash Flow Measures
APM
Adjusted operating cash flow (pre-capex)
Closest equivalent statutory measure
Net cash (used in)/from operating activities
Reconciling items to statutory measure
Non-working capital items (note 13)
Definition and purpose
Adjusted operating cash flow (pre-capex) is calculated as net cash from
operating activities before net cash from operating activities from
discontinued operations, restructuring costs paid and movements in provisions,
defined benefit pension contributions paid, tax paid, interest paid on loans
and borrowings, interest paid on lease obligations, acquisition and disposal
costs, divisional management incentive scheme related payments, Melrose
equity-settled compensation scheme related payments and the repayment of
principal under lease obligations.
This measure provides additional useful information in respect of cash
generation and is consistent with how business performance is
measured internally.
Adjusted operating cash flow (pre-capex) Year ended Year ended
31 December
31 December
2024 2023
£m
£m
Net cash (used in)/from operating activities (121) 29
Operating activities:
Net cash from operating activities from discontinued operations - (36)
Restructuring costs paid and movements in provisions(4) 112 137
Defined benefit pension contributions paid 20 67
Tax paid 10 17
Interest paid on loans and borrowings 84 79
Interest paid on lease obligations 6 5
Acquisition and disposal costs 1 65
Divisional management incentive scheme related payments 20 -
Melrose equity-settled compensation scheme related payments 198 -
Debt related:
Repayment of principal under lease obligations (32) (32)
Adjusted operating cash flow (pre-capex) 298 331
APM
Free cash flow
Closest equivalent statutory measure
Net increase/decrease in cash and cash equivalents (net of bank overdrafts)
Reconciling items to statutory measure
Acquisition and disposal related cash flows, dividends paid to owners of the
parent, transactions in own shares, payments made in respect of equity-settled
compensation schemes and movements on borrowing facilities
Definition and purpose
Free cash flow represents cash generated after all trading costs including
restructuring, pension contributions, tax and interest payments.
This measure provides additional useful information in respect of cash
generation and is consistent with how business performance is
measured internally.
Free cash flow Year ended Year ended
31 December
31 December
2024 2023
£m
£m
Net increase/(decrease) in cash and cash equivalents (net of bank overdrafts) 30 (216)
Debt related:
Repayment of borrowings 10 1,371
Drawings on borrowing facilities (767) (628)
Costs of raising debt finance 3 11
Equity related:
Dividends paid to owners of the parent 72 81
Purchase of own shares, including associated costs 431 93
Melrose equity-settled compensation scheme related payments 198 -
Acquisition and disposal related:
Disposal of businesses, net of cash disposed (55) 320
Settlement receipt from loans held with demerged entities - (1,205)
Equity accounted investments additions 3 -
Disposal of equity accounted investments - (3)
Cash flows from discontinued operations - 37
Acquisition and disposal costs 1 65
Finance costs on demerger settled net debt - 17
GKN UK pension plan buy-in - 45
Free cash flow (74) (12)
APM
Adjusted free cash flow
Closest equivalent statutory measure
Net increase/(decrease) in cash and cash equivalents (net of bank overdrafts)
Reconciling items to statutory measure
Free cash flow, as defined above, adjusted for restructuring cash flows
Definition and purpose
Adjusted free cash flow represents free cash flow adjusted for restructuring
cash flows.
This measure provides additional useful information in respect of cash
generation and is consistent with how business performance is
measured internally.
Adjusted free cash flow Year ended Year ended
31 December
31 December
2024 2023
£m
£m
Free cash flow (74) (12)
Restructuring costs paid 126 125
Adjusted free cash flow 52 113
APM
Free cash flow pre-interest and tax
Closest equivalent statutory measure
Net increase/(decrease) in cash and cash equivalents (net of bank overdrafts)
Reconciling items to statutory measure
Free cash flow, as defined above, adjusted for interest and tax cash flows
excluding finance costs on demerger settled net debt
Definition and purpose
Free cash flow pre-interest and tax represents free cash flow adjusted for
interest and tax and excluding finance costs on demerger settled net debt.
This measure provides additional useful information in respect of cash
generation and is consistent with how business performance is
measured internally.
Free cash flow pre-interest and tax Year ended Year ended
31 December
31 December
2024 2023
£m
£m
Free cash flow (74) (12)
Tax paid 10 17
Interest paid on loans and borrowings 84 79
Interest paid on lease obligations 6 5
Interest received (3) (2)
Finance costs on demerger settled net debt - (17)
Free cash flow pre-interest and tax 23 70
APM
Capital expenditure (capex)
Closest equivalent statutory measure
None
Reconciling items to statutory measure
Not applicable
Definition and purpose
Calculated as the purchase of owned property, plant and equipment and computer
software and expenditure on capitalised development costs during the year,
excluding any assets acquired as part of a business combination.
Net capital expenditure is capital expenditure net of proceeds from disposal
of property, plant and equipment.
APM
Capital expenditure to depreciation ratio
Closest equivalent statutory measure
None
Reconciling items to statutory measure
Not applicable
Definition and purpose
Net capital expenditure divided by depreciation of owned property, plant and
equipment and amortisation of computer software and development costs.
APM
Dividend per share
Closest equivalent statutory measure
Dividend per share
Reconciling items to statutory measure
Not applicable
Definition and purpose
Amounts payable by way of dividends in terms of pence per share.
(1) Operating (loss)/profit is not defined within IFRS but is a widely
accepted profit measure being (loss)/profit before finance costs, finance
income and tax.
(2) Operating margin is not defined within IFRS but is a widely accepted
profit measure being derived from operating (loss)/profit(1) divided by
revenue.
(3) Included within other adjustments required for banking covenant leverage
purposes in the year ended 31 December 2024 are unrealised annual savings from
spend incurred in the year on restructuring projects of £5 million (2023:
£20 million) offset by the elimination of EBITDA from sites disposed in the
year of £20 million (2023: £nil).
(4) Excludes non-cash utilisation of loss-making contract provisions of £23
million (2023: £23 million).
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