Melrose Industries H1 Earnings Call Highlights

Melrose Industries delivered strong first-half growth: Revenue increased 10% on a constant-currency basis, operating profit rose 16% to nearly £350 million, and margin expanded to 18.5%, driven mainly by Engines demand in civil aerospace and defense.

The Garden Grove incident created significant uncertainty: The California facility disruption reduced first-half revenue by £16 million and operating profit by £9 million, with further monthly impacts and £25 million–£30 million of expected exceptional costs in the second half.

Share buybacks were paused while guidance was maintained: Melrose suspended its £175 million buyback program after spending £12 million, but reiterated 2026 guidance excluding Garden Grove and remained confident in reaching £600 million of free cash flow by 2029.

Melrose Industries reported double-digit revenue and operating-profit growth for the first half of 2026, supported by demand in civil aerospace and defense, while an incident at its Garden Grove facility in California created uncertainty around production timing, exceptional costs and shareholder returns.

Group revenue rose 10% on a constant-currency basis, while operating profit increased 16% to nearly £350 million.

CFO Ross McCluskey said the company generated positive free cash flow of £13 million, a £67 million improvement from the prior-year period, despite a £50 million net cash outflow related to factoring.

Melrose said first-half margin increased 50 basis points to 18.5%, while earnings per share rose more than 20% year over year.

Net debt stood at £1.53 billion at the end of June, equal to 1.8 times EBITDA and within the company’s stated leverage policy of 1.5 to two times EBITDA.

The company’s results were affected by a thermal incident at its Garden Grove aerospace acrylic facility at the end of May.

The issue occurred in a storage tank containing methyl methacrylate, or MMA, a chemical used in acrylic production.

Melrose said production was halted immediately and nearby residents and businesses were evacuated.

The company said there were no reported injuries, contamination or leaks.

About 500 employees have returned to work on the manufacturing side of the site, producing aerospace transparencies using existing materials and third-party acrylic supplies, while the company works with regulators to restart base-acrylic production.

Garden Grove produces aerospace transparencies, including fighter-jet canopies and passenger-cabin windows.

Melrose said the site has proprietary acrylic-production technology and has received support from the U.S. government, including a $150 million expansion intended to double F-35 output.

The incident reduced first-half group revenue by £16 million and operating profit by £9 million, McCluskey said.

Excluding Garden Grove, the company said revenue would have increased 11% and operating profit would have risen 19%.

For the second half, Melrose expects the site to operate at about 50% of its normal monthly revenue level until full acrylic production resumes.

It estimated a resulting revenue, profit and cash impact of about £6 million per month, reflecting higher costs for bought-in acrylic and a shift in business mix toward repairs.

The company recorded £13 million of exceptional profit-and-loss costs related to the incident in the first half, including £5 million paid in cash.

It expects a further £25 million to £30 million of exceptional costs in the second half, excluding potential legal, regulatory, compensation-program and insurance effects.

McCluskey said all of the expected second-half exceptional costs were cash costs, although some payment terms could extend into 2027.