Melrose Industries shares slid more than 10 per cent on Thursday as the aerospace parts supplier forecast lower than expected sales, despite shrugging off supply chain challenges to report higher profits for 2024 and flagging an expected boost from higher defence spending.
While the GKN Aerospace owner and defence parts specialist set new ambitious five-year targets, shares in the company, which hit an all-time high of 680p on Wednesday, were trading at 605p late in the morning on Thursday.
Chief executive Peter Dilnot said an expected rise in defence spending as geopolitical tensions rose was “clearly a tailwind for our business”.
Melrose provides parts to some of the world’s biggest defence programmes, including F-35 fighter jets and Chinook and NH90 helicopters. Defence makes up about a third of its business, which is split between the US and Europe.
The FTSE 100 group is also a leading supplier of airframe structures for Airbus and Boeing, as well as of components to engine manufacturers. Although supply chain constraints that have hit the large plane makers remain a challenge, Melrose has benefited from growing demand for after-market services as airlines have been forced to continue to fly older aircraft.
Dilnot said he expected the supply chain issues to “remain a bit sticky for the next two years and in some cases potentially a bit beyond”.
Melrose did not factor any potential trade tariffs in its forecasts but Dilnot said any impact, while uncertain, would not be “that material” for the company given its size and expected operating profit of £700mn.
The group has an operating base in Mexico that exports parts to Europe but also the US, and which could be hit by tariffs imposed by President Donald Trump’s new administration.
Tariffs are “not going to derail us”, Dilnot said, noting that Melrose also had some contractual protection.
The company reported adjusted operating profit rose 42 per cent to £540mn on revenue of £3.47bn for the year to end of December. It expects 2025 revenues of up to £3.7bn, slightly shy of analysts’ consensus of £3.77bn.
The group is targeting annual revenue growth in the high single digits over a five-year period and revenues of about £5bn in 2029.
