Melrose Industries Aktie

Hello, everyone, and welcome to Melero's results for 2025. We appreciate you joining us to reflect on a transformational year and to talk through the exciting path we have for the future. We have lots of value to unlock, especially given strong demand and what we've done over the last few years to reposition our business. The key message today is that we're executing our plan. We've got a clear strategy to create shareholder value, and we're getting on with it.

We delivered a strong performance in 2025. There's no doubt that we're operating in a complex and dynamic global environment, and against this backdrop, our operating profit was up, driven particularly by Engines and Defense. We also delivered our cash target with positive free cash flow of GBP 125 million and this represents a really important inflection point in our journey. Good commercial and operational progress continue to be made and we also completed a multiyear transformation program.

So this all gives us some very positive growth momentum, which is underpinned by the market where there's strong demand across both Civil and Defense. Indeed, in all parts of our business, demand is very definitely on our side. We have established positions on all the world's leading aircraft and their engines, and this positions us squarely to benefit from strong future production ramp-up and the aftermarket, most notably in engines.

Beyond this, the differentiated GKN technologies that we've prioritized are being actively sought out by leading OEMs. So we're nicely on track. We've got a clear path to delivering growth, margin expansion and increasing cash. This will deliver ongoing shareholder returns. And on that note, we're pleased to announce today a new share buyback program, reflecting our confidence in hitting the 2029 targets.

So I'll just say a few words on these 2 themes covered here. Starting with 2025 performance. In 2025, we delivered financially, commercially and operationally. Sales were up 8%. Margins were up 240 basis points as I've said already, cash came through positively. On the commercial side, we continue to make good progress, particularly in our target areas, such as winning contracts in our aftermarket blade repair business and a rapidly emerging military uncrewed market. Now from an operational perspective, we delivered further improvements in safety, quality and productivity. And I'm going to talk more about this in the second half of the presentation because clearly, operational execution is important here as we ramp up.

Turning now to our positive growth momentum. At the highest level, there are 2 aspects to this. The strong market and the plan we're executing to unlock our potential. On the market side, our unique Tier 1 portfolio is embedded on all the world's leading aircraft. So the demand for our products and our technologies is at record levels. We have several order backlogs going into the 2030s, structural aftermarket demand growth, and the turbulent world is driving an unprecedented increase in defense spending. And then there's the next generation of aircraft where our technology is being actively sought out for future developments.

Turning to the execution side. The last few years have been about transformation. We've focused GKN Aerospace on where we can win with design-led positions. We've exited noncore or cash negative businesses, and we've repriced lots of work where we needed to get sustainable returns. In parallel, we've rationalized our footprint from 50 to around 30 sites. Back in 2023, we were operating at 12% margin, and we were cash flow negative. We've just announced results today with a 600 basis point improvement in margin to 18%, and the cash is nicely positive. So quite some changes, and we now have a great foundation for further gains.

Going forward, it's a different type of growth because the restructuring is complete. Given the expected sales increase, we're going to see operating leverage from the ramp-ups, further productivity improvements from our improved cost base as well as the gains coming through from our operational and commercial actions. So we are well positioned, and we know the levers to pull. This gives us confidence in delivering 24% plus operating margin and GBP 600 million of free cash flow by 2029. We'll return to this in the latter part of the presentation.

But for now, let me hand over to Matthew to talk in more detail about 2025 performance.

Thanks, Peter, and good morning. It's a pleasure to talk about the business' strong performance in 2025 with profit and free cash flow in line with our expectations. Group revenue grew 8% on a like-for-like basis, led again by the engines division. Group operating profit took another significant stride forward growing 23% to GBP 647 million due to the revenue growth and the further impact of our business improvement programs. Margins also continued to grow, up 240 basis points to 18% and EPS grew significantly, up 25% to 32.1p per share. These are a strong set of results with continued profit growth and a major milestone achieved delivering positive free cash flow in line with our commitments.

Turning to Slide 7, breaking this down by division. Both divisions delivered revenue growth and our performance continues to be driven by the ongoing strong performance of the Engines business, up 15%. You'll notice that we've changed the name of our structures division to airframes. And Peter is going to explain more about that later on. So airframes saw growth of 3%, with the strong performance of defense constrained as expected by the ongoing supply chain challenges being experienced in the sector, which is holding back civil OEM production rates. Margins continue to grow in each division due to the buoyant engines aftermarket as well as the benefit of our business improvement programs, and both divisions are making progress towards our 2029 targets. So digging deeper into each division.

Turning to Engines on Slide 8. Revenue growth was robust at 15% up, with both OE and aftermarket contributing almost equally. OE grew 16%, and this was driven by higher GenX and GTF volumes and the higher spare engines ratio as well as good growth in our non-SP commercial contracts, including our military DUCs business. It was good to see the strong growth for OE in H2. Whilst some of this resulted from the unwind H1 tariff impact, the underlying OE growth in the second half was still well into the teens. This reflects the volume ramp and bodes well for future OE growth.

Turning to aftermarket. This revenue was up 14% in the year. RSP revenue performed well with growth of 20%, and that revenue included GBP 324 million of variable consideration, which grew by 22%, meaning the core RSP portfolio grew at 19%. As expected, due to a strong comparator, our Swedish military business declined 7%. But it was good to see, though, a return to growth in the second half, up 7%. We continue to deepen our relationship with the Swedish FMV and have been awarded a contract to develop an uncrewed aerial vehicle demonstrator within 18 months.

In addition, this business signed an agreement with the FNB to explore the propulsion requirements for future fighter systems. And we also signed an agreement to supply several mission-critical components for the Ariane 6 launch vehicle. After a challenging first half caused by tariff disruption, our aftermarket repair business returned to growth of 24% in the second half. Overall, the business grew 12% in the year. We continue to make good commercial progress in repair, winning a contract with Rolls-Royce to be the sole external supplier of fan blade repairs on 3 of their engines and with Boeing for C-17 fan blades. We also entered into a 5-year contract extension with Pratt & Whitney for critical fan blade repairs.

Operating profit for the division grew by 27% to GBP 520 million and margins of 31.9% continue to rise. The strong margin reflects the growth in the highly profitable aftermarket business as well as continuing improvements in productivity and quality in this division. So a very strong performance from the Engines division, despite tariffs and supply chain challenges with further growth and improvement to come.

Turning to Airframes on Slide 9. This division delivered 3% like-for-like revenue growth. This was driven by defense, which was up 15%, where increased build rates and improved commercial terms read through in the year. At the half year, we confirmed that we have met our target of 85% of the portfolio being sustainably priced, and this rose to over 90% by the year-end. Defense continues to develop commercial opportunities, signing an agreement with Anderol Industries to collaborate on next-generation uncrude aerial vehicle solutions. The partnership with Anderol which includes advanced composite aerostructures, wiring, a ground-based demonstrator and advanced flight testing will initially target the U.K. government's upcoming land autonomous collaborative platform and the British Army's project mix. Elsewhere, the defense business has secured 2 follow-on contracts for C-130J and Typhoon transparencies.

On the Civil side of the business, revenue was marginally lower, down 2% as a result of modest growth in our key narrow-body and wide-body platforms, which is still impacted by continued supply chain issues affecting OEM production rates offset by declines in business jets and other platforms. Commercially, we signed an agreement with Archer to expand engagement on the midnight eVTOL platform which is being selected as the official air taxi provider for the 2028 Los Angeles Olympic Games. Margins for airframes continue to improve despite the slower ramp-up with the impact of pricing, business improvement, restructuring and the sale of lower-margin businesses all dropping through. Margin progress, however, was constrained by lower civil volumes as well as lower productivity of 1 of our manufacturing sites in the Netherlands.

Our plan to resolve this issue during 2026 is already well underway. Operating profit grew by 10% to GBP 156 million, and margins grew from 7.2% to 8%. So despite the volume and supply chain challenges, the Airframe division continued to deliver profit and margin growth with more improvement to come when the ramp-up impacts our volumes.

So let's now talk about the numbers below operating profit on Slide 10. We put the details of adjustments to operating profit in the appendix. From that, you will see that now we finished our restructuring programs, the size of that adjustment is much reduced. Net financing costs are GBP 132 million, which largely reflects the interest on bank loans with an average cost of 5.3%. The ETR for the year ended lower than expectations at 20.4%, and this was due to the recognition of certain tax assets in Malaysia and Sweden. A combination of all of the above and the steadily reducing share count shows EPS of 32.1p, growth of 25%. And as a result of the strong performance in the year, a final dividend of 4.8p per share is proposed, increasing the full year dividend to a total of 7.2p per share, up 20% from last year, and this is in line with our capital allocation policy.

So now let me turn to our cash performance for 2025 on Slide 11. We were pleased that we hit our cash targets, delivering positive free cash flow in excess of GBP 100 million. Free cash flow, post interest and tax was GBP 125 million, with GBP 200 million more than last year. Moving into a little more detail. We have split out the movement in variable consideration. -- continuing to give transparency as to how this affects our results. And at GBP 324 million, this was very much in line with guidance. As expected, trade working capital performance in the second half of the year was strong reflecting the seasonality of the business and the sector augmented by certain customer settlements, which we expect to continue.

For those of you that want it in the appendices, you will be able to see our factoring position, which ended the year at GBP 396 million. This reflects growth in the existing programs and the ramp up in the last quarter. Just to confirm, no new factoring programs have been or will be entered into. With respect to the powder metal issue, we saw GBP 68 million cash cost coming through in 2025, in line with our guidance. CapEx was GBP 94 million and represents 0.9x owned asset depreciation and amortization. This reflects continued investment in strategic growth initiatives but also the capital expenditure on major restructuring projects was completed last year. And I'm pleased to confirm that our restructuring programs have now concluded. From a cash perspective, the cost was GBP 31 million, which is below our guide. And to confirm, there will be no significant cash cost in 2026.

Moving on to the share buyback program. During 2025, we returned GBP 173 million to shareholders from the GBP 250 million program announced in 2024. In the first quarter of 2026, there is a further GBP 60 million to be spent to complete this program. Net debt ended the year at GBP 1.4 billion and leverage at 1.8x net debt to EBITDA. This was in line with our expectations and our capital allocation policies leverage target range of 1.5 to 2x net debt to EBITDA. So having talked about 2025, let me now give you our guidance for 2026. All of this guidance is given at $1.37 to the pound.

First, the P&L on Slide 12. Given the expected OE volume ramp-up and the strength of aftermarket in the sector, we expect to see continued robust revenue growth in 2026. This is despite the persistent supply chain challenges that are affecting the whole aerospace industry. We are guiding to revenue from GBP 3.750 billion to GBP 3.950 billion, which at the midpoint, represents like-for-like growth of around 10%. And this revenue growth continues to be weighted towards engines. Given The strength of our aftermarket business and our margin improvement plans, we're guiding to operating profit between GBP 700 million and GBP 750 million. At the midpoint, this represents profit growth of around 16%, and the midpoint margin is around 19%.

At a divisional level, we expect Engines to maintain strong growth rates in double-digit territory, with growth weighted to the aftermarket. Operating profit guidance is GBP 565 million to GBP 595 million, and this includes variable consideration of around GBP 360 million at the midpoint, and we expect margins to be around 33%.

The Airframes division is expected to show high single-digit revenue growth on a like-for-like basis. This reflects an element of civil ramp-up alongside continued growth in defense. Operating profit is guided at GBP 170 million to GBP 190 million. We expect to hit 9% margins this year through growth and improving airframes operating performance. Plc costs are expected to be GBP 35 million this year, including around GBP 3 million of noncash LTIP cost.

Now I had hope not to mention tariffs today but events in the last few days has the potential to cause further disruptions. We continue to caveat our guidance for any new tariffs, and we wait to see how the recent announcements are actually processed in the U.S. custom system. I can confirm, though, as a result of the swift and firm action on this subject during Q2 and tariffs have not had a material impact on our results in 2025.

Moving down the P&L for 2026. I expect absolute net interest cost to increase, reflecting the continuation of the share buyback and the fact that the cash generation will continue to be back-end loaded. For 2026, the interest rate for gross bank debt is expected to be around 5.3%. Guidance for ETR is 21% to 22%, and this is still very much weighted towards a Swedish tax rate but will depend on the precise balance of profits during the year. So from a P&L perspective, we're guiding to continued strong growth in the business with top line and operating profit moving forward significantly.

Turning to our cash guidance for 2026. We introduced formal cash guidance in 2025 with our commitment to deliver GBP 100 million plus of free cash flow. We now intend to guide a range for cash flow, like our sector peers do. The overall guidance for free cash flow post interest and tax is GBP 150 million to GBP 200 million, which is GBP 175 million at the midpoint, with the range reflecting the size of the group.

Let me work through some specific guidance to help your modeling. I've just given P&L guidance as well as the guide for noncash variable consideration. Whilst we are still experiencing supply chain disruption, we would hope that this starts to turn a corner by the end of the year. As such, we do not anticipate significant growth in trade working capital, and we do expect further customer settlements in the year. Resolution of the powder metal issue is expected to have around a GBP 50 million impact in 2026, and we remain confident that the total cost of Melrose are resolving this issue will be within the GBP 200 million advised by Pratt & Whitney at the outset.

We expect CapEx for 2026 to be around 1.2x owned asset depreciation and amortization. This is higher than prior years and reflects our commitment to strategic growth initiatives. I'm going to give you more color on this on the next slide. Whilst historically, we have left you to estimate cash interest, we are now guiding to the 2026 interest cash cost being around GBP 130 million. Cash tax costs will increase in absolute terms of 2026 but will still be low compared to the P&L, around 4% of the adjusted profit before tax. When you combine all of this with the fact that there will be no material restructuring cash costs in 2026, we expect leverage to continue to be below 2x EBITDA within our capital allocation policy. So to repeat, free cash flow after interest and tax is guided at GBP 150 million to GBP 200 million. And this cash flow will continue to be heavily weighted to the second half of the year, in line with historic Melrose and sector seasonality.

My final slide, Slide 14 reiterates our capital allocation policy. We are now a business that generates positive free cash flow which will increase each year to our 2029 target of GBP 600 million free cash flow. We will look to allocate that capital in a disciplined manner in 3 ways. Firstly, we continue to invest in the business both from maintenance projects as well as investing in business expansion opportunities. In 2025, we invested in our additive fabrication expansion in Sweden and Norway, we also completed our new repair facility in California and set up a new wiring facility in Mexico.

In 2026, investment will grow to 1.2x owned asset depreciation and amortization and will include further investment in additive fabrication and expanded building in 1 of our U.S. facilities as well as investment in capacity for the OE ramp-up in Engines. From a balance sheet perspective, we intend to be efficient by maintaining leverage of between 1.5x to 2x net debt to EBITDA, with a view to obtaining investment-grade metrics over time. Provided the first 2 pillars of our policy are satisfied, we will then look to return cash to shareholders. And we'll do this in 2 ways.

Firstly, we will continue to grow our annual ordinary dividend, and you've seen that we've announced a final dividend that represents 20% annual growth. We will then make share buybacks considering free cash flow delivery and leverage targets. It's worth noting that once the current GBP 250 million program is completed, Melrose will have returned more than GBP 1 billion to shareholders in dividends and buybacks over the last 3 years.

Taking all of this into account, today, we announced a new GBP 175 million 12-month share buyback program, which will commence once the existing program completes at the end of March. As previously announced, our share buybacks will be considered annually to tie into our year-end reporting process. We believe that our capital allocation policy reflects our intention to invest in the business, a disciplined approach to leverage and make sensible returns to shareholders.

So to conclude, the business has performed well in 2025. And despite tariff disruption and supply chain challenges, we expect to deliver robust growth and margin improvements in 2026. We have passed the inflection point for free cash flow, and we will build on that good momentum as we progress towards our 2029 targets.

And with that, I'll hand back to Peter.

Thanks, Matthew, as you say, let's now talk further about our growth outlook. To start with, I think it's worth just recapping what Melrose is today. We have a unique Tier 1 portfolio that we've repositioned to deliver value for the future. It starts with 2 end markets, civil and defense. And serving these markets, we have an Airframes business and an Engines business, both of which play in the OE side and the aftermarket. So there's a number of dimensions to our business.

In Civil engines, we have an RSP portfolio that gives us an entitlement on 70% of global flying hours, plus an increasing network of parts, repairs facilities. In civil airframes, we have design positions on all the world's major aircraft. We serve Airbus, Boeing and increasingly COMAC, and we have a good position on leading business jets. In defense engines, we partner with all Engine OEMs as the leader in military ducts as well as technology on the Pratt & Whitney F135 engine and supporting the Gripen fleet.

In Defense airframes, we have embedded positions on all the major rotary and fixed wing platforms, particularly the F-35, and we're also on key European platforms. So it's fair to say we have real breadth in aerospace and defense, and our positions are typically sole source. And against that backdrop, we all know there is strong demand growth, so I won't dwell on this slide. But I do want to reinforce on the civil side, we've got record backlogs going out into the 2030s. And in the last year, we've seen a big increase in wide-body orders which is good news for us given our positions on the A350, the Boeing 787 GenX and XWB. There's also increasing shop visits as flying hours go up.

On the Defense side, it's clear that there's a generational uplift in NATO spending going forward, both in Europe and also likely in the U.S. And then there's this new opportunity with uncrewed aerial vehicles and our development teams are hard at work here. So suffice to say, demand is strong, reassuring and underpins our business.

Now I'll turn to each of our businesses in turn, starting with our engines business, which is unusual because it serves all of the OEMs. At its heart is our RSP business. And here, we provide load-bearing components on all the world's leading engines where such partnerships exist. And what this means is every time 1 of those engines is shipped, then we have a lifetime entitlement to the aftermarket revenue and profit. And of course, that generates significant cash for decades to come. Our government partnerships business is where, among other things, we support the Gripen fighter jet with the provider of aftermarket support globally. And of course, this is certainly a growing fleet. As in the last year, again, we've seen more nations buying more planes.

Then we have our repair business, where we have invested and built new highly automated sites to meet demand in growth areas such as blades, blisks and disks. It's a purely aftermarket business, serving growing global market needs. And then to round out the portfolio, the commercial contract side where we have long-term agreements on all the engines that are out there even when we don't have an -- and this effectively gives us some balance. It's an OE business giving us exposure to all production ramp-ups.

Now the final thing I'd say on Engines is we shouldn't lose sight of our breakthrough additive fabrication technology which is in demand from all the OEMs now and for the future generation. And I'll talk more about that shortly. Engines is an exceptional business.

So now on to our design-led airframes business. This is a business that has global reach and also local presence. As Matthew mentioned earlier, you'll notice that we've used the word air frames here. Historically, we've called this our structures business. But as this slide shows, our technologies and products span beyond structures, including our leading wiring business and also transparency. On the composite side, we have leadership in terms of design and advanced manufacturing methods. We made major components for aircraft like the Boeing 787, the A350, F-35 and Black Hawk and we have deep capability through our global design technology centers. This is an OE business facing significant ramp-up with existing and next-generation aircraft.

Turning to EWIS now. We're 1 of the top 3 global players in wiring. Here, we supply defense aircraft such as the F-35 and a broad fleet of civil aircraft. We have proprietary design capability and a global footprint covering North America, Europe, India and China. And again, this is in demand with more electrification and higher voltage requirements going forward. In transparencies, we're effectively the sole high-volume provider of canopies for the F-35 fleet. We make Boeing's passenger caving windows and have breakthrough technologies to bring forward for the next generation.

And finally, metallics, which is a core and differentiated part of the business that's at the heart of the world's high-volume aircraft such as the A320. This is a broad portfolio and it's important to reiterate that what differentiates us is the combination of design and cutting-edge production capabilities. So across Engines and Airframes, we have established positions in all the world's leading civil and defense aircraft. And this really is the cornerstone of our strategy. Many of you have seen this slide before and no apologies for sharing it again as it's central to the value Melrose will generate in the future.

There are 3 waves to our strategy. First, 90% of the value that we will unlock is delivering growth in existing platforms from production ramp-ups, RSPs and engine repairs and of course, in everything we do, operational excellence. Second, beyond the existing platforms, we've identified target areas very selectively where our breakthrough proprietary technology is most in demand from our customers and our customers' customers. Most notably, this is in additive fabrication, military on crude aircraft and advanced air mobility. And thirdly, actively participating in the next generation of aircraft. This includes being the only engines player to have a position on both current next-generation single-aisle engines programs as well as working on the sixth generation fighters such as GCAP.

So I'll now talk about our progress in each of these 3 ways, starting with existing platforms. Aircraft production has clearly been constrained by the supply chain over the last few years. And in some areas, this is still the case but the ramp is coming given the demand backdrop. There's ongoing and live discussions about what rate will come through and when but production is going to increase over time. On civil airframes, we have a weighting towards widebody in Airbus. And on the Engine side, each new aircraft needs 2 engines, and we're involved in all of them. On the defense production ramp-up, this is driven by increased spending, and this is evident from material increases in recent orders that will need to be built with existing fleets, for example, F-35s, Gripens and typhoons.

NATO's ambition is for these aircraft and new UAVs to be built swiftly given the threat environment. We, of course, need to make sure we can deliver the ramp, and to start with, our operations are positioned around technology centers of excellence. We're investing in capacity, automation, robotics and AI. And we've also got an industrial plan, which we're working on to scale up for defense over the longer term. So the supply chain is gradually easing, production is ramping up, and we're positioned ready to serve our customers.

Our next area of growth from existing platforms is the engines aftermarket. Let's start with our RSP portfolio. Now it's important to recognize that we do have legacy engine RSPs generating cash, particularly on programs such as the CFM56 and the V2500. These engines are flying longer and that benefits us in the short to medium term. But as those engines do retire, they're replaced by new engines, in particular, the GTF, XWB and GenX, where we have an RSP program share, which is much greater than the legacy engines. So as those legacy engines get replaced by new engines, we're set to benefit on 2 counts. Firstly, there are more engines flying. And secondly, our program share on those engines is greater. So we have a significant compounding impact with more returns from the engines aftermarket.

Now I should also touch on the importance of a GTF here. Right now, the 2 GTF variants are the only engines out of our portfolio of 19 RSPs that are not cash generative. There are still net cash outflows associated with GTF. These are the PMI inspection program, which is set to complete in 2027 and further investments in the final stages of engine development. The promising GTF advantage is now starting to come into service, and we expect the overall program to become cash positive for GKN in 2028. This will have a major impact for us, which further compounds the RSP growth story and its embedded value.

Beyond RSPs, we have our engine repair capability where we're building on our legacy position with 2 new state-of-the-art facilities in California and in Malaysia. Our repair service is very much in demand as older engines are flying longer and of course, more sophisticated repairs are needed as newer engines take to the skies often in harsher environments. Now all of this needs to be delivered in a way that serves our customers well and generates financial returns. And to do this, we're increasingly embedding an operational excellence approach, which we call the 3 brilliant basics.

This is centered on lean principles and a continuous improvement model that involves 3 levers: Daily management systems; Problem-solving; and Breakthroughs. But what does this really mean? If you cut it all the way through, we have key metrics for operational performance, which are cascaded from the shop floor, so literally from Tier 1 team leaders level up through every management layer to the boardroom. Each level has measures that it controls and we strive for improved performance every day. It all adds up. Now we've been at this for the last couple of years. It's delivered some benefits to date but there is much more to come, especially now our restructuring is complete.

The core measures are executed or safety, quality, delivery, inventory and productivity. In 2025, we saw further gains in safety, which was 32% better, and I'm proud to report this results in 80% less accidents over the last 3 years. Quality and productivity also both improved in 2025 and as this chart shows. At the same time, we've had some challenges along the way. These include the operational issues at 1 of our Dutch sites, which Matthew mentioned earlier, and here, we're well underway with addressing the root causes, including with our supply chain partners. Our arrears are also not where we want them to be on all programs with inventory, we've increased our levels. And frankly, we've had to track some cash in doing that to protect customer delivery.

As for the future, our aspirational target is to have 0 harm, no escapes and no overdues. We'll also reduce our inventory carefully over time, and we will drive further productivity gains, including from operating leverage as the ramp comes. We know how this needs to be done. It requires granular and focused work throughout our global enterprise but we have the toolkit and the operational excellence approach to deliver our potential.

Beyond delivering growth from existing platforms, we're expanding and targeted new opportunities where we're advantaged, and we have a right to win. I'll highlight 2 such ongoing opportunities today. First, additive fabrication. This is a breakthrough technology, which has the potential to replace structural forgings and castings, which continue to constrain engine production rates today. This technology is not a new idea. It's in full cereal production on the fan case mounting on the GTF. We're not just using established additive manufacturing methods but instead using our proprietary software in robotics to guide lasers deposit titanium and alloys into near final form structural components.

We have an encouraging pipeline of parts from OEMs and are working to certify them to expand this technology's reach, impact and value. Beyond the certification, we're industrializing the production process so that we can manufacture at high volume and low cost. This technology is in demand, not just because it's a smart, efficient and sustainable way to make parts but because it can support engine OEMs in a concentrated and challenging supply environment.

The second opportunity here is minute uncrude vehicles. This is a new market and an evolving 1 due to the nature of conflict and ongoing global tensions. We're in demand here, particularly as NATO nations typically want to have their own sovereign capabilities. The development cycles are shorter here to, and we're working across a range of countries to build new platforms at pace. We've already mentioned a couple of projects in the public domain with the FMB in Sweden and our partnership with Andre in the U.K. We're glad to tell you more about these breakthrough opportunities through investor kitchens later this year.

Now finally, I want to mention, we think it's important to deliver our growth sustainably, and we're taking focused steps to ensure that this is the case. From an environmental perspective, we beat our 2025 targets comfortably, and we're just issuing new ones for 2030. These are aligned with protecting the environment and doing our part in terms of how we're operating the business.

From a social perspective, I've already touched on our ongoing safety improvements, and we're also investing in terms of diversity and our people engagement. And in governance, we transitioned our business and our Board to reflect our aerospace and defense business model. With a combination of new nets and new chair with deep global A&D experience. So as we've grown the business, we're aiming to do so in the right way and with the right team.

As I wrap up here, I want to reiterate our confidence in delivering the 2029 targets. Just to recap on these, top line growth to GBP 5 billion of revenue, 60 basis points of margin expansion, GBP 1.2 billion of operating profit and GBP 600 million of free cash flow. Just like other parts of our business -- we have momentum on free cash. We've gone from the performance in 2024, which was negative to a GBP 200 million swing this year. We'll see incremental improvements in 2026 with the guide Matthew has already taken you through and this will then step up further to GBP 600 million in 2029.

Now let's be clear. We know what the levers are, and we also know what the trajectory is here. Essentially, there are 3 core drivers for this step up. The first is the growth in EBITDA from the ramp-up that I have just described. The demand is there, we're well positioned to generate more profit, which converts efficiently to cash. The second is increasing cash returns from our extensive RSP portfolio. And again, we have a locked in position here. And this is all about the engines going into their shop visits and that's capturing our entitlement as they do so.

And then finally and importantly, the GTF, which is set to turn cash positive for us. This is a function of both the completion of the PMI inspection program in 2027 and then the development cost reducing and being more than offset by cash-generative shop visits from the flying GTF fleet in 2028. So simply put, our assumptions, our market-based forecast, combining together with our execution to deliver the GBP 600 million of free cash flow.

So with that, I'll close and return to the message I started with. We know what we need to do and we're executing our plan. We've delivered strongly in 2025, and we've got great momentum for the future. This gives us confidence about delivering our exciting potential in the years ahead.

And with that, I'll open to questions.

[Operator Instructions] Our first question today comes from Mark Davies strong from Stifel.

I had a few sort of unrelated ones, if I may. Can I just start with GTF? We love to talk about that. But can you make any comments on the dispute between Airbus and Pratt at the moment? Is there any risk of financial penalties or additional costs that impact your free cash flow assumptions around that program? That would be the first one. Should we start on that?

Yes. Clearly, a very public discussion between Airbus and Pratt & Whitney, and these are both important customers for us. Obviously, Airbus facing strong demand, record backlogs want to ramp up as much as possible, and therefore, demand on the engine side. And then at the same time, you got Pratt who are dealing with a situation, which is not only to support the OE side, but also to support the shop visits and make sure that the flying fleet is in good shape. And there's a balance there, which Pratt as the overall owner of that program is best placed to judge. And clearly, that debate is going on between the OE and the aftermarket side. We're ready to support our customers on both. And of course, our guidance is very much in line with that.

Relative to the cost of any issues. I think relative to the GTF, we're just reiterating the whole PMI costs and those are very much in line with expectations and specifically on any dispute between Airbus and Pratt, we think an agreement will be read. So nothing more to say on that 1 for now.

Okay. And then could you give us a bit more detail about what's going on in the facility in the Netherlands and the sort of scale of any impact there in terms of its impact on profitability. And then the final one was just on the defense outlook, particularly the Swedish business. Obviously, transitional gear and '25, would you expect that to be back in good growth in .

Yes. I mean specifically on the Netherlands side, this is a productivity issue that relates to actually moving production from 1 facility to another and also some supply chain issues. And these supply chain issues we're dealing with, but they have had also an impact in terms of our first pass yield. In terms of the impact of that, it's a mid low single digits but we believe it's important to call these things out. And critically, the key thing here is that we have taken the steps to rectify this as we continue to deliver productivity but amongst the global business, we've moved things around. Most things actually gone very well and our restructuring program has read through very nicely, in fact, ahead of expectations. This is just 1 particular issue that we've had to deal with. So contained. We know what we need to do but we're also straightforward about it being an issue.

I think you then asked about I think Swedish defense. I think what I'd just step back and talk about defense, I just have on the presentation, which overall is a rising tide, if you will, for existing fleets and the Swedish opportunity is actually in the new and emerging market of uncrewed aerial vehicles, which is driven I think, firstly, by the nature of war fighting, but also the need and the desire for NATO sovereign countries to have their own capability. And in doing that, bringing those things together, uncrewed vehicles can be developed quickly locally, and we're very much at the sophisticated end of this, and with the F&B, which is 1 that's the only project believes in the public domain, we're very busy actually more broadly than the FMV, but with them specifically, it's a demonstrated program funded by the Swedish government to have an uncrewed vehicle, would deploy alongside their forces.

And I think what's really exciting about this for us is that it builds on our legacy position in terms of composites and our airframes business, coupled with our clear leadership in propulsion with our engines business. So the combination of those 2 things, meeting a need for customers. And we expect this market to continue to grow and to develop. We're very well placed to do that. And again, there's other areas that you've seen and we've talked about, including here in the U.K. and also some activity in the U.S.

And just to add to that, Mark. I think you saw in the presentation, we're pleased to see that return to growth in the second half. So that bodes well for 2026.

Our next question comes from Sam Beres with Goldman Sachs.

First one, just on the structure again and some of those headwinds you had this year. If you could just help with the level of confidence that you have on that bouncing back and becoming a tailwind to growth maybe through 26? Or is that something that more materializes in 2017? Any visibility there? And even by customer or program would be very helpful.

And then secondly, trade working capital performance in H2 looked reasonably strong. You referred to certain customer settlements in the report. If you could just give some visibility there and if that's one-off or recurring, that would be helpful?

Thanks,. I'll take the first 1 and Matthew can pick up on the working capital point. Look, on structures, we're repositioning this business now so that it's focused in the right areas and with the right operating footprint. And the trajectory that we've got on, I think it's worth just stepping back for a moment because we set out with some targets in our 2023 capital markets to get significant margin expansion. Indeed, we've over delivered against the areas of our repricing activity and also in terms of business improvement. So we're up 500 basis points over the last couple of years. So clearly positive trajectory. The one area and you're right to put it out, and indeed, it's reflected in both our results and our guide is that the volume isn't quite coming through as we would have hoped back then, indeed, it's about 10% lower than we expected because of the supply chain issues. This is clearly well known and flagged by our customers, including Airbus.

So that's where we are today. I think the important thing, reading forward is our confidence about how the margins because we we're up at 8% margins despite much, much lower volume. So as that volume comes in and it will come in, I mean, the backlog is there, we will see that drop through. So we're as confident as ever that we've got the right positions, and we're well placed to deliver that ramp up the pace of that ramp-up is clearly guided by our customers themselves but we'll see continued margin progression this year, and that's consistent with the guide that we've given but beyond that, we absolutely stand by our pathway to get this business to low teens by 2029. So actually underneath the volume, the other things that we've done, we've actually outperformed to drive this margin expansion. So when the volume comes in and it will over time, that will read through nicely in terms of our structures business.

Yes. And to talk about the trade working capital, yes, absolutely, this business will always have a very strong working capital performance in the second half. That's just the seasonality of the business. And we talked about this at the half year that we expected that performance to be stronger, and that's how it turned out. In terms of customer settlements, yes, we said that there were some customer settlements coming through in 2025. We can't really talk about the details of those. It really reflects sort of conversations and negotiations we have with our customers. we did say earlier in the year that they would continue and look specifically as part of our guide for trade working capital for 2026, we're expecting a sort of similar level to come through in the working capital and the cash flow.

Our next question comes from Ian Douglas-Pennant with UBS.

Ian Douglas at UBS. So the first is on your receivable factoring, please, that was a lot higher than I was expecting in 5 million. What is the pound number that we should expect in 2026? What is contained within your GBP 150 million to GBP 200 million for receivable fracturing? That's my first question.

The second question is on the buyback. Can you help us understand the -- why are you doing GBP 175 million buyback? You generated GBP 66 million of free cash flow before factoring in 2025. You've got interest costs of GBP 130 million. Wouldn't that cash be better used to be paying down debt?

Yes. Well, let me take both those pieces. So firstly, on the factoring, look, let me step back a little bit and sort of talk about factoring. We've been very transparent about the factoring that we do, and these have been in place for many years, historic with the business and is very -- relates to very specific programs. We've also been very clear that we're not going to enter into any new programs on the factoring side, and that's exactly what I've confirmed. So the reality is the growth in the factoring relates specifically to the growth in the program that we have factoring on. And I want to be clear that factoring is not driving our cash flow. I know that's how some people like to put the stuff into their models, what's driving the cash flow is the manufacturer product, the shipment of the product, the invoicing of the product and then we get paid immediately for that through our factoring programs.

So it's really the operational performance that's driving the cash flow, not the factoring. So that's really what I'd say about the factoring. When you look at next year, we're not going to guide specifically on the programs. We're not going to get into that level of detail. We are suggesting that a proxy for the factoring would be the growth in our revenue, which we're saying is going to be around 10%.

Now what we can't do is say specifically, when those programs grow when the product gets shipped when the invoices happen. And 1 of the reasons why the factoring at 17% growth is slightly higher than the revenue growth, although it's close to the engines growth because our Engine programs have performed really well, and they performed really well in the last quarter. I mean for me, the good thing to get from this is that we are driving growth in the business, growth in EBITDA and we're getting paid for that very quickly.

In terms of the share buyback, look, it's a good question, and I think a lot of people have lots of different views on this. Our -- we have a very clear capital allocation policy that says we are going to grow our cash flow, the sources of cash we're going to invest in the business, and you can see that our CapEx is growing in 2026 on our maintenance and our growth initiatives. And then we're going to maintain leverage between 1.5 to 2x. And if those 2 things are in place, then we will look to return cash to shareholders in a sensible and disciplined way. We have a dividend, and then we had the share buyback that we looked at.

I would suggest to you, though, we did deliver GBP 125 million of cash, you can cut it in many different ways. We delivered GBP 125 million of cash -- free cash flow, as we said we would. And I think we take that into account. We take the market into account. We take the fact that we've got our aftermarket coming towards us into account when we consider our share buyback decision. And that's where we've got to. We're very pleased to announce GBP 175 million 12-month buyback program. And we're comfortable with that because it meets our capital allocation policy.

I think the other thing I might add just to that, Matthew, is I think the share buyback is also a sign of confidence. Our free cash flow to GBP 125 million this year, GBP 600 million, we're continuing to guide to that and very confident that we can grow into that. So our cash flow is increasing, and as a sign of that conference, we have the ability to demonstrate that aligned with our capital allocation policy with a continued buyback. So it's the policy and then overlaying that is continued confidence that we know what we're doing. We've got the right demand, the right positions, and we will generate cash but we have a balance sheet to be able to in a position to be able to share some of that with our shareholders.

The next question comes from Aymeric Poulain from Kepler Cheuvreux.

To follow up on this question on factoring. I mean, for the GBP 600 million, 29 target, should we assume a continued growth up to that point for factoring. And given the current exchange rate, why didn't you revise the exchange rate used for the 2029 free cash flow guidance. That would be my main question.

If I take those 2 first, and then maybe you can add to that too. So yes, look, Eric, on the factoring side, look, we're very clear. We have these historic programs in line with the industry. They will grow in line with the programs. And therefore, everything else being equal, and we don't know what's going to -- what exactly is going to be happening in 2019. You would expect the factoring -- the balance sheet factoring position to increase. Again, I come back at this point, driven by activity deliveries and shipments to customers. In terms of the 2029 targets, you've asked a very specific question about foreign exchange.

Look, Peter has been very clear that we've set out our 2029 targets with a very clear set of assumptions and bases beneath that. We are seeing ahead of us, the civil ramp-up we're seeing ahead of us, the growth in the aftermarket as it pertains to us and more broadly. We're seeing the GTF turning to cash positive in 2028, and we're seeing the PMI issue being resolved, and we at the end of the restructuring of that, those key assumptions are what drives our GBP 600 million target. Now yet you've highlighted there is an element of headwind as it relates to foreign exchange. I don't know what the foreign exchange rate is but there are also tailwinds related to that. We talked about defense. We talked about continuing growth of the aftermarket.

So from our perspective, we are committed to delivering that GBP 600 million. we are committed that all the assumptions behind that are still absolutely valid and if not, sort of slightly better. And that's why we keep on driving forward with GBP 600 million.

Do you add anything to that, Peter?

No, I think -- I mean the factorings come up twice I'd just make another point from an operational perspective, which is we're not entering anything more programs. As we said, this is really about the timing of receivables, which is a question whether or not we get paid directly from a customer or accelerated by those programs. And it's a well-established piece. So I think actually guiding to what the factoring balance might be in 2029, frankly, I think is more to do with the timing of shipments in that year. It is a source of cash to us. It's just a function of how we operate and run the business. And I think that's really important in terms of factoring. It is not a source of cash. It's about the timing of the receivables.

And then specifically on 2020, I think you said it very well. The underlying drivers are there. FX will move backwards and forwards. But there were also that being a headwind. There are also some tailwinds that we're not factoring in at this stage or putting in should I say it's probably better use of the word is -- and that is around potential upside around Defense and also a stronger Engine aftermarket. So rather than move that target every time we do a set of results or half year results, GBP 600 million is the target. You make your own assumptions around FX. We're doing what we need to do to deliver that number, and we'll hit it.

Our next question comes from Ben Heelan with Bank of America.

So the first question, Peter, back to the slide that you had talking about the growth drivers on cash through to 2029. Is there any kind of ranges that you can give us? What are the biggest drivers? How can we put a little bit more color around some of the building blocks and your guys' confidence to that GBP 600 million is the big swing back to the EBITDA growth? Is it GTS inflection. Could you just give us a little bit more color around that.

Second question, the range that you've given for free cash flow, the GBP 150 million to GBP 200 million. Could you just give us a little bit of color what means that you would enter the bottom of that range towards the top of that range? That would be great.

Third question, have talked about M&A. Is M&A on the agenda? Is that something that you're thinking about? I remember back the Capital Markets Day, you talked a lot about repair and the potential to grow that business. Is that sort of thing that is on the agenda.

Great. Can we do the middle one first because it's closer in 2026.

Yes, absolutely. So look, we like everyone in our sector provide a range of cash flow. And what I can be very clear about is our range is absolutely focused around the midpoint, which is GBP 175 million. So when you ask a question, well, what can make it 10 million, what can make it 200 million? Well, the vast majority of that range is really around trading, okay? We give a range around our trading profitability and that obviously largely would flow through to the cash flow. Also, we're a GBP 4 billion multinational aerospace company, aerospace and defense company. that's very, very weighted towards the last quarter of the year, and you see that across the sector.

So is there a possibility that a payment we're expecting of GBP 20 million arrives on the third of January, so 29th of January, Yes. So That's why we put a range in. But what I can be absolutely clear is we are absolutely confident we'll deliver the GBP 175 million. There is potential for upside on that. And I think if you look at our track record, we have delivered our cash flow projections for the last 3 or 4 years. So I think it's really about the midpoint 175 million everybody will guide a bit of a range. We're not signaling anything negative around that. That's what everyone will do. But we're absolutely confident we're going GBP 175 million

Good. So let's say on the free cash, Ben, is in terms of the drivers. And as you say and as I described, there are really 3 core things here. The first is the growth in EBITDA from the production ramp-up. I think we can see that just steadily increasing, and that will go together with the rates. It's not just, of course, linked to the civil side, but also defense as well. So that's going to be a relatively progressive straightforward line as we go forward linked. But of course, as that volume comes in, we get a very nice drop through from that as well as we've already talked.

And then the aftermarket returns, of course, what's happening here is, as we've got a new engines being shipped into and come in to, should I say, the aftermarket phase. Our share on those engines is greater. And so we're getting a greater proportion of cash returns from the RSPs. And as we know, the aftermarket has been particularly strong. But again, that's contributing through and as we've seen with the legacy engines continuing to contribute as well. So that's going to be, again, steady progression.

The one that is slightly sort of less linear, if you will, is the 1 around the GTF. And that is the 2 parts to that. One is the parametalgy issue, which we guided to again for this year. It looks like actually Pratt are actually saying TX is saying it may drop away completely in 2027. We'll wait and see what they guide and we'll follow that. But that certainly contains. So it's dropping away this year potentially to nothing, and it will certainly drop to nothing by '27. And then the swing factor is the GTF going from being a cash absorbing in terms of the development costs that were as a program team putting into that around the GTF advantage, that actually is overtaken by the cash-generative shop visits, and that inflection point is in 2028.

And that's important, of course, because it goes from being a cash drag, if you will, to a source of cash. And so what we're going to see here. And I mean I think the first 2, you can actually model. The second one, obviously, is relatively commercially sensitive around the GTF. But what you can see is it's not a massive hockey stick. We've got continued cash flow progression over the next few years. And then as the GTF kicks in, it will then move us up to that GBP 600 million mark.

So hopefully, that gives you some color as to the drivers. But again, it's going to be progressive from here. And everything that we see sitting here today more confident than ever around the underlying drivers from this from a market, from an operational and from a delivery perspective.

So that's on, do you want to add anything?

Yes, just to be very clear about the powder metal just sort of talk the absolute numbers. So when we talked before, we said that for P25, it will cost us GBP 70 million it would cost us GBP 70 million, and then '27, we said it would cost about GBP 25 million, and that would get us to the end of the program. What we're seeing now is that we're guiding for 2026 we're guiding at GBP 50 million. So it's GBP 20 million lower than we originally thought. And that's driven by the partners telling us that's what's going to happen. As Peter said, you'll all read the wording in the RTX and the MTU sort of announcements that they think it will be completed by the end of this year. The reality is for us because we're more of a junior partner, we get sort of the impact of that sort of later than they do. So we're still holding on to the potentially GBP 25 million in 2027. So we're not asking you to change our models for 2027 but it was very positive that by reducing in 2026. It seems to be sort of giving confidence that it's progressing very well.

Good. And then Ben your last question, which is around M&A. And I think what hopefully comes across clearly is that we've got amount of value to unlock here in terms of profitable growth and cash generation from an organic basis. We've repositioned the business, both on the airframe side and on the engine side, and we're now well placed to fulfill that potential and to deliver value organically. That said, anything that is consistent with that around those areas of opportunity, and particularly around our technology, actually, I would say, if there's an opportunity to tuck things that will accelerate what we are doing in a relatively small scale. And actually, it's below the radar but we have done a software acquisition we did a couple of years ago to support additive fabrication.

We're advancing what we're doing in additive fabrication with advances in sort of forgings and castings, which is not particularly large scale but they just reinforce our position here, and that's within the range of what we do, we will do those things if it makes sense. But overall, this is an organic growth story.

And I think the other point I would say is in terms of the shape of the portfolio now. We have, over the last few years, exited businesses that are noncore. We've got a business that's well placed and that we see strong demand growth for. And so from a disposal point of view, we're done on that basis as well. So the core of this is just delivering the promise. And of course, as we do that, the value will come back to our shareholders.

The next question comes from Joe Orchard with Rothschild Co & Redburn.

A One couple, if I may. On airframes -- airframe structures, the midpoint of your FY '26 guidance implies a margin of 8.6%, which I think is basically the landing spot that consensus was expecting for this year. Are you still confident that 2029 is the right time frame where you can get to your low teens margin target for that division.

And then secondly, a couple of questions on the moving parts of free cash flow. On CapEx, as a step down in H2 versus H1, please give you a comment on why that was and whether that's a seasonal trend you expect to continue? And then also the GBP 28 million generated from the sale and leaseback? Are there any other facilities in your footprint where you plan on doing this? Or was that very much a unique set of circumstances.

Joe, I'll get the first 1 and hand over to Matthew on the cash. Look, I think we sort of touched on this a bit already in terms of where we are in airframes, which is we've seen very good margin progression from where we were, which is a function of some volume growth and also our business improvement actions reading through. And so we have clearly continue to increase margins. If you look at the volume that we were expecting and you would apply that effectively to the performance that we've got, if you put the volume back in and a reasonable drop-through we would actually be well ahead of our plans.

So volume continues to be the constraint here. What we can see going forward is that production ramp-up will come, you've seen Airbus guide to the fact that it's gone out a little bit in terms of their 875, for example, but those targets are absolutely out there, and we're growing into those.

And as that volume comes through, we're very confident that the margins will as well. So volume is the missing ingredient, if you will, from the story at the moment. But there's no question about demand. It's about associating that. But again, we very confident and comfortable with our guidance of low teens for structures over time. And I'll just add into that, because we do talk about structured airframe, we do talk very much focused on the civil side, but we have, of course, got the defense business, which is growing well. and outperforming as well.

So that, again, underpins if you will, the fact that this is a quality business that will continue to expand its margins and throw off cash. So I think hope that covers the sort of volume and confidence around the airframe side. Do you want to do the cash.

Yes, the cat Yes. So on the CapEx side, there's nothing particular around the seasonality there. It's really -- in the first half, we just had some sort of carryover from the restructuring that was absolutely finalizing, particularly around our repair facility in California. But no, we are absolutely sort of pushing ahead with all the CapEx projects we need to. And as you can see, for 2016, we signaled that we're putting more into that.

On the sales, I mean, they're all unique circumstances, and we consider them. So with this particular 1 in Norway, it was a strange 1 where we actually owned half of it and leased half of it. And then we did the restructuring. So we're not using half of it as well. So we came together with the owner, and we were able to get a sort of a beneficial lease to do that because we've got to reduce print. There probably are only a couple of other sites that we might consider that kind of thing from again, we're trying to -- we're saying we're disciplined with capital and we will be disciplined. There are a couple of other sites that have been affected by a restructuring that we might look to either sell or sale and leaseback or do something with, but it's about sort of utilizing the asset base as best as possible.

The next question comes from Marion Bridge with Morgan Stanley.

8 I have a couple of questions on free cash flow and some on additive fabrication. The first 1 is more a clarification on payments linked to Ben question. Can you just help me understand why we should not assume GBP 45 million impact in 2017 instead GBP 45 million impact in '27 instead of '25, even if you confirm the total cost of GBP 200 million. So that's the first one. The second one is, can you help us to understand how much engines will contribute to your free cash flow versus airframe, if not for '26 if you can give us a bit of color for '25. And lastly, on free cash flow, is there any reason to believe that with the new CFO coming in May and probably your softer progress than expected in '26 that your '29 guidance can be under review or is it at risk?

I will start with free cash flow, and I will go to additive Fabrication after. So on the GTF, as I said before, we are sort of led by the main partners on that. What we're saying is it will be within GBP 200 million, and we're trying sort of not to be very specific in writing. As I said, both MTU and RTX have said that the compensation payments will finish during 2026 and have told us that our contribution in '26 will be GBP 50 million, which is what we're guiding to. We -- because of the timing of that, we still think there will be some costs in 2027 to us, and therefore, the GBP 25 million is still valid. Now what that means is that overall, the cost will be about GBP 180 from what we know now. And so that's the way that we're guiding you specifically.

I'm afraid we don't give cash flow split between engines and airframes. So all we do say is that airframes is as -- once the restructuring finishes becomes a very sort of cash-generative business, normal cash generation and the non-VC elements of engines are also cash generative. But yes, sorry, we don't give that split. I'm not going to comment on the new CFO, maybe to ...

Let me answer question 2 ways. So first thing I'm going to take a bit of an issue with you saying progress is not in line with expectations on cash. I would disagree with you there. We've delivered against our original target of GBP 100 million, which is an FX rate, what we've delivered today. is 135. So I think that is meeting, I think, expectations or perhaps even beating them. But we then also are guiding towards the range, which is absolutely in line with consensus. So I think we're on track with our free cash flow projections from here. So that's the first thing. And then as it relates to 29, let me be clear, the underlying drivers there in terms of all the things we just talked about, the production ramp-up, the earnings coming through, the RSPs stronger than expected aftermarket and the all of those drivers are very much in play and working through as we'd expect. So we're nicely on track on those.

We do have some FX headwinds and you can plug that as you will. But we also have, frankly, some tailwinds, which is -- the defense market is stronger than we expected when we put those targets last year. And also, we have the engines aftermarket, which is quite strong as well. So we're not going to move the target backwards and forwards on FX and these things each time we stand up and do results. What I can tell you is we're absolutely confident about that GBP 600 million.

Ross is going to be joining us for shortly. -- he's close to the business already and will get closer -- and so I don't expect any great movements we're here with a consistent plan, and it's on track.

Very clear. Just on additive fabrication, you announced last year that it will generate GBP 15 million of operating profit in 2029. But I can no longer see it in your presentation. So sorry, I missed it. But my first question is that do you still confirm contribution. And if yes, do you already have a contract signed giving you confidence on this? And what's the level of margin that we can expect from additive fabrication?

Mary I'm pleased to talk about this because it's an important part of what we're doing. The first thing is, yes, we're absolutely on track with the GBP 50 million. It is part of the overall path to 2029. And we do we have contracts in place? Yes. Are we working with a range of customers on building out the pipeline and the opportunities. Yes, we're talking to all the across this. We've obviously got some work we're doing. We have Pratt & Whitney specifically. And I won't go through them. It wouldn't be appropriate to go through, but we're talking to all the OEMs. And the reason for this, let me be clear, is what is gating production at the moment across the industry at large.

One of the key things is forgings and castings. And this is a breakthrough technology, which can replace some of those structural forgings and castings by using our proprietary robotics and lasers to basically print parts in a proprietary way to effectively offset some of the need for forgings and castings. It won't replace the whole GBP 20 billion plus market but absolutely, it's in demand. It's a good way of making products. But the most important thing about it is, is that it takes some pressure off a very constrained supply environment. It's in demand our challenge and our opportunity is to make sure we commercialize it.

We bring it in and it's absolutely on track. There is more momentum about additive fabrication than there has been at any stage, partly because as we see the market continues to be constrained in terms of engine production. So we commit to numbers. And 1 of the things we will do is we're going to do an investor teach-in together with this and our defense technology play during the course of 2026.

And just on the level of margins, if I may.

I understand why you're asking about that I'm not going to give you a margin as you'd expect because that would be an appropriate rate relative to our customers. What I can tell you it is not a cost-plus model. We are pricing this as an alternative to other methods. And therefore, you'd expect the margins to be reasonably healthy. But I'm not going to give the margins. We deliberately didn't. The other part is, I would say is some of it is straight drop-through because in some areas, what we're doing is instead of buying forging some castings and what we're doing is we're actually making the material ourselves. So if we save the cost there, it's difficult to sort of call what the margin impact is. It's a GBP 50 million contribution to operating profit in.

Thank you. There are no further questions at this time. And so I'll hand back to Peter for closing remarks. .

Thanks very much for joining us this morning, and we look forward to talking to many of you in the days ahead. Thanks.

Hello, everyone, and welcome to our Melrose First Half 2025 Results Presentation. It's certainly been a busy and important 6 months for us, and I'm pleased with the progress that's been made. In the first half, we've delivered a strong financial performance, which includes substantial improvements in both profit and free cash flow versus last year. These results have been delivered against the backdrop of the ongoing industry-wide supply chain issues and the recent tariff disruption. We've also moved further forward with our multiyear transformation program, which completes this year. So we're firmly on track to deliver our full year guidance at constant currency.

Looking forward, our path to value creation is both clear and compelling. Aerospace and defense markets are growing structurally with record order backlogs and an expanding aftermarket. In particular, the outlook for defense has changed significantly in recent months with a step change in European and NATO spending commitments.

Over the last few years, we've repositioned Melrose to focus where our design-led positions are deeply embedded in the world's leading aircraft. This has resulted in a unique portfolio that locks in growth from OE ramp-up and aftermarket growth in the years to come. Our differentiated and proprietary technology is also meeting evolving market needs and gaining commercial traction.

At this point, we're entering a phase of accelerated cash flow generation, which is underpinned by growing earnings and onetime cost sending. We're therefore well positioned and confident about delivering our recently announced 5-year targets. I'll come back to our growth outlook, but for now, let's return to our progress in the first half.

On the financials, revenue was up 6% and coupled with further margin expansion, this led to a 29% increase in operating profit. Our free cash flow was GBP 91 million better than prior year, primarily due to increased earnings and lower restructuring costs. On the commercial side, we had some encouraging wins. In structures, this included contracts with BAE Systems on the Typhoon and a new agreement with Archer. There was also good progress in engines, including with our breakthrough additive fabrication.

Safety will always be our top priority, and our total incident rate reduced by a further 14% in the first half, reinforcing the excellent progress last year. On the wider operational front, customer quality escapes were down by 22% and productivity improved by 3 percentage points. This is particularly encouraging given our manufacturing processes have been disrupted by industry supply chain shortages in recent months.

We are seeing the benefits of all our transformation work reading through in our results, and there's more to come as we complete the program by year-end. Now as part of this, we set a target 3 years ago to have 85% of our defense portfolio sustainably repriced by the end of 2025. And I'm pleased to report that this was achieved in June, so 6 months ahead of schedule.

So in summary, we've had a strong first half with good momentum going into H2.

With that, I'll now hand over to Matthew to go through the financials in more detail before I return to talk further about our growth outlook.

Thanks, Peter, and good morning, everyone. It's a pleasure to talk about the business' performance in the first half with continued strong progress being made on all key financial metrics.

At a headline level, group revenue has grown 6% on a like-for-like basis, and this has again been led by the performance of the engine division. Group operating profit has taken another significant step forward, growing 29% to GBP 310 million as a result of the revenue growth and the ongoing benefit of our transformation program. Margins continue to improve in each division with group margin up 380 basis points to 18%. And this, in turn, drives an improvement in EPS of 30%. Finally, our free cash flow performance has improved substantially by GBP 91 million compared to the prior year, with the cash outflow in the half reduced to GBP 54 million, slightly better than we'd expected.

So despite operating in a somewhat turbulent trading environment, we have delivered another strong set of results with progress being made in both profit and free cash flow.

Turning to Slide 7. I do have a slide for each division coming up. But at a headline level, you can see that while both divisions delivered revenue growth, our performance is very much driven by the Engines business, which was up 11%. Structures growth was boosted by defense, but as expected, continues to be dampened by the ongoing supply chain challenges being experienced in the sector, which is holding back customer production rates. However, margins continue to grow robustly in each division due to the aftermarket in engines as well as the impact of our business improvement programs in both divisions. This progress gives us confidence in delivering our full year margin guidance.

So let's dig a little deeper into the performance of each division. Turning first to engines. Revenue growth was strong at 11% up, driven primarily by the aftermarket as well as the continued OE growth. OE growth of 7% in the period reflects good growth in wide-body engines, a higher spare engine ratio on the GTF and better performance from our military ducts business. This was partially offset by lower Swedish military government partnership OE sales, which faced a strong comparator last year. The performance is commendable given the disruption introduced by tariffs in Q2 and continued supply chain challenges in the sector.

Aftermarket revenue was up 15% in the period. RRSP revenue performed very well in the period, up 25%. Within this, variable consideration was GBP 182 million, up 17%. So clearly, the nonvariable consideration RRSP portfolio performed even better than this. However, as expected and in line with a very strong comparator last year, our government partnerships aftermarket business declined in the half.

We continue to be the key partner with the FMV in Sweden, and we broadened our relationship with investment in engine assembly, test and MRO repair capability for the RM16 Gripen E engine. We were also pleased to announce an agreement with the ArianeGroup to supply several mission-critical components for the Ariane 6 launch vehicle.

Our aftermarket repair business was affected by the introduction of tariffs for imports into the U.S. in Q2. As a result, this business saw flat revenue for the half. We've now implemented a temporary importation on the bond process to restore product flow in this area and are confident in the positive outlook for this business. To this end, we've secured further contracts from existing OEMs, including a 5-year extension with Pratt & Whitney for a fan blade repair and a 3-year contract with Boeing Defense for fan blade repairs on the C-17 Globemaster.

Operating profit grew by 26% to GBP 261 million and margins at 33.4% have grown by 400 basis points. This margin reflects the growth in the highly profitable aftermarket business, the improvements in productivity and quality as well as the read-through from business improvements in this division. And it's worth highlighting that the Engines division has traditionally had higher margins in H1, and so margin guidance for greater than 32% for the full year remains intact.

So a strong performance from engines despite the supply chain challenges and tariff disruption in the sector. Turning to structures. After taking account of the businesses that were sold or closed last year, the division delivered revenue growth of 3%. As expected, the civil side of the business was flat in the period. A strong performance for business jets was offset by continued production rate challenges at a major customer.

On the commercial side, we signed an agreement with Archer to further expand engagement on the midnight eVTOL to platform to cover electrical systems and wing structures. This platform has been selected as the official air taxi provider for the 2028 Los Angeles Olympics. And in line with our capital allocation policy, this development is being funded on a capital-light basis. Revenue was higher in defense, up 10%, where increased build rates and improved commercial terms read through in the period.

As Peter said earlier, we are very pleased that the defense business has now reached its target of 85% of the portfolio being sustainably priced 6 months early. And this benefit will read through over the coming years.

Commercially, Defense signed a 5-year follow-on contract with Lockheed Martin for continued manufacture of C-130J Nacelles and a 6-year follow-on with BAE Systems to continue the manufacture of Typhoon transparencies. Margins for structures continue to improve despite the slower ramp-up with the impact of pricing and business improvement and restructuring dropping through. Structures margins also benefited from the exit of lower-margin businesses during 2024.

Operating profit grew by 32% to GBP 63 million, and margins grew from 4.7% to 6.7%, an increase of 200 basis points. As we've noted a number of times, seasonality in the structures market is very much weighted to the second half, but a 200 basis point increase in the first half is absolutely in line with our overall expectation for margin improvement for the year.

So despite the volume and supply chain challenges, the business continued to grow profit and margins well in the period with good momentum towards our 2025 margin target of around 9%. In addition, the fact that the expected ramp has not yet arrived gives us confidence in our long-term margin target. While we're talking about operational performance, it's worth giving an update on tariffs on Slide 10.

Melrose is a global business with a complex supply chain. On the introduction of U.S. tariffs, the business worked quickly to identify exposure and put in place mitigation measures. The group has around GBP 1.1 billion of revenue that is manufactured outside of the U.S. and sold into the U.S. Through a variety of measures, the group has been able to largely mitigate its current direct exposure to U.S. tariffs. Now these measures included utilizing exemptions such as DFARS in defense, USMCA and the U.K.-U.S. trade agreement, existing contractual protection, whereby Melrose is not responsible for duties, working with customers to either change supply chain trading terms or change supply chain structure, utilizing existing mechanisms such as drawback or temporary importation on the bond and then also just straight commercial negotiation.

We're comfortable that we've largely mitigated the current tariff situation and the proposed EU-U.S. deal looks likely to be good news. However, we remain watchful for any further developments over the coming days and months.

Having talked about the divisions, let's now talk about the numbers below operating profit on Slide 11. As always, we put the details of our adjustments to operating profit in the appendix. Net financing costs are GBP 62 million, which largely reflects higher net debt levels driven by shareholder returns. The average cost of bank interest has been 5.2% in the half. And during the period, we added GBP 385 million of bank facilities to further strengthen our balance sheet.

The ETR for the half is coming through at 21.8%, in line with our previous guidance. A combination of all of the above and the steadily reducing share count shows EPS at 15.1p, growth of 30%. And as a result of the strong progress in the year, an interim dividend of 2.4p per share is proposed, growth of 20%.

Now let me turn to our cash performance for the half, which is GBP 91 million better than last year. As you can see, operationally, this business is generating cash even when financial performance is weighted to the second half. Working down the table, you can see that we've broken out variable consideration again to give full transparency to the cash flow. Operating cash before CapEx and the PMI cost was GBP 118 million, GBP 58 million higher than last year, driven by the increase in EBITDA, offset by the expected seasonal working capital outflow in the half. CapEx is slightly lower than last year at GBP 50 million, and this is as a result of the reduction in restructuring CapEx that was spent as part of our relocation projects last year.

We continue to invest in our business as required and in particular, the exciting additive fabrication operation in engines, which Peter will talk about later. CapEx represents 1x depreciation, in line with guidance. Restructuring expenditure has reduced significantly from GBP 85 million to GBP 17 million in the half as our business improvement programs come to an end. And to confirm, these programs will complete this year. Our guidance remains that the completion of these restructuring projects will cost a total of around GBP 40 million to GBP 50 million in 2025. The cost of resolving the GTF powder metal issue is coming through as expected, with GBP 37 million being settled in the half. We expect the full year spend to be around GBP 70 million, in line with prior guidance. After these one-off items, free cash flow before interest and tax was an inflow of GBP 10 million and after interest and tax was an outflow of GBP 54 million.

Moving below free cash flow and on to the share buyback program, we continue with the GBP 250 million program, which is due to be completed by March 2026. During the half, we spent GBP 71 million on buying back shares, and we have around GBP 150 million to go. Net debt ended the period at GBP 1.4 billion and leverage at 2x net debt to EBITDA. This was in line with our expectations.

To summarize, free cash flow performance was slightly better than our expectations and was a substantial increase versus prior year. And both of these facts give us increased confidence that we will achieve free cash flow of GBP 100 million plus for the year.

So let me finish off with a slide which updates our full year guidance for 2025. Let's talk about the P&L first. We laid out our guidance back in March 2025 at a rate of USD 1.25 to the pound. Our guidance excluded the impact of any tariffs at that point. Having reviewed our half year performance and also having been able to largely mitigate the current impact of tariffs on the business, we are reconfirming our prior guidance at constant currency. However, as a result of the strength of sterling, we do need to update our guidance for actual rates. The average rate for the U.S. dollar for the first half was 1.30, and our assumption for the second half is 1.37. And this gives us a blended rate of USD 1.335 to the pound, which is the rate that we've used to restate our guidance.

Revenue guidance changes to a range of GBP 3.425 billion to GBP 3.575 billion with the midpoint like-for-like growth rate remaining at 7%. As a result of the changed FX rate, our guidance for variable consideration reduces to a range of GBP 310 million to GBP 340 million. You'll note that we've tightened the range of this guidance since we've completed our risk assessment on variable consideration in the first half.

Aerospace operating profit has been updated to a range of GBP 650 million to GBP 680 million. And at the midpoint, this continues to represent profit growth of around 25%. The divisional guidance levels have been reduced accordingly, but you'll note that our guided margins of greater than 32% for engines and around 9% for structures have not changed. With no change to our guidance for central costs, the group operating profit guidance has been updated to a range of GBP 620 million to GBP 650 million. There's no change to our guidance for interest costs or the ETR, which remains at 21% to 22%.

Now turning to cash. Our guidance for free cash flow remains at GBP 100 million plus even at the new FX rate. Now you may be thinking that it's odd that we've changed the profit guidance, but aren't changing the free cash flow guidance. This is because foreign exchange also impacts variable consideration, which is not cash in 2025 and because we had a conservative starting point. So we're pleased to maintain our free cash flow guidance at the new rates.

And I'd like to take this opportunity to reiterate our confidence in delivering GBP 100 million plus of free cash flow in 2025. There are 3 key factors that will drive the step-up in free cash flow.

Firstly, there will be a continued second half improvement in our non-VC EBITDA, and you can work this out from our guidance. Secondly, restructuring cash costs will be lower than the prior year. And thirdly, we'll have a working capital inflow in the second half, reflecting seasonal inflows, the unwind of some temporary tariff-related inventory as well as customer settlements, which we have clear line of sight of and are very much part of the industry. So we had a clear plan back in March, and that plan remains in place. We are very confident in delivering GBP 100 million plus cash in 2025.

As a final point on guidance, whilst we've been successful in largely mitigating the impact of current tariffs, our guidance continues to exclude the direct or indirect impact of any new or changed tariffs. So to conclude from my side, the business has performed very well in the first half. Despite continued supply chain challenges and the tariff disruption, we expect the business to deliver continued progress for the full year, and our guidance at constant currency is maintained. 2025 will be the year that substantial cash will be generated, an important inflection point on our way to our longer-term targets.

Let me now hand back to Peter.

Thanks, Matthew. Let's now turn to our growth outlook. To start with, our end markets are benefiting from strong structural demand in both civil and defense. On the civil side, backlogs for high-volume aircraft have now reached around 8 to 9 years. Wide-body orders were particularly strong in the first half with a book-to-bill of over 4x. Flight hours are also set to grow at 6% in the years ahead, driving the aftermarket with increased shop visits.

Now an important side effect of the OE backlogs is that mature engines such as the narrow-body V2500 and the CFM56 are flying longer, requiring sustained maintenance. And at the same time, the fleets of the Rolls-Royce XWB and the GEnx powering the world's wide-body aircraft are progressing further into their aftermarket phase.

On the defense side, the ongoing geopolitical conflicts and tensions have led to increasing demand, particularly in Europe with higher spending commitments. This is reading through in 3 ways. First, the existing European fleets of U.S.-led aircraft such as the F-35 are set to increase. For example, recent further orders from the U.K. and Belgium. Second, European platforms are increasing production and not just from continental demand, but from new global orders for platforms such as the Typhoon and Gripen. And finally, it's clear that the nature of war fighting has changed with the proliferation of uncrewed air vehicles. As a result, there are many development programs being progressed in the U.S., in Europe and here in the U.K. and Melrose is set to benefit from all of the trends that I've just covered.

Indeed, our unique portfolio locks in future growth as we already have design-led positions embedded on the world's leading aircraft. This includes civil and defense aircraft with established positions through both our structures and our engines businesses. On the Civil side, we have extensive structures content with Airbus and Boeing plus a growing partnership with COMAC. We also have significant content with leading business jets. Our civil engines business has an unmatched portfolio of 19 RRSPs, which cover all the OEMs and gives us an entitlement on 70% of the global flying hours currently. This is complemented by our extensive non-RRSP business, which includes a global network of engine repair facilities serving the aftermarket.

On the defense side, we've got long-term agreements for structures on all major rotary and fixed wing platforms with high-value content on U.S. aircraft such as the F-35, C-130, Black Hawk and Apache. We also have presence on European key platforms such as the Typhoon and the NH90 helicopter. In defense engines, we're the leading global supplier of fighter jet ducts to all the major OEMs. And we have proprietary technology on the F135 engine and system-wide responsibility on the RM engines that power the Gripen fighter jet. So in summary, our design-led portfolio is broad-based across both civil and defense with over 70% of revenue coming from sole-source positions.

To capitalize on the opportunities ahead, we're executing our growth strategy that's centered around 3 core levers. First and most important, this is delivering growth from the existing platform positions I've just described. This represents 90% of the revenue that we've included in our 5-year plan. This involves production ramp-up to deliver the record order backlogs and aftermarket expansion, and it will be reinforced by ongoing operational and commercial excellence.

The second lever is expansion in new target opportunities. We're deliberately focused where our technology is differentiated and where we can create and capture most value. And we're already well underway with commercializing our technologies such as engines additive fabrication, and I'll come back to more on that later.

And thirdly, we're participating in the future of flight, including next-generation single-aisle engines and airframes, sixth-generation fighters and Hydrogen flight. This is a straightforward strategy, which will deliver growth and returns in the short and long term.

So let's look a bit further into each of our businesses now, starting with Structures. Our Structures division is now the world's largest independent aerostructures business, but it's the quality that matters as our business is built around design capability, which is embedded onto all the world's high-volume aircraft.

Our design-led capability includes sophisticated composite and metallic structures, advanced wiring systems and transparencies. And this technology is established on all major narrow-body, wide-body and business jets on the civil side as well as key U.S. and European defense platforms, as you can see on this slide. Now recent progress here includes further repricing and commercial wins, particularly in defense. Our operations have been prepared for the single-aisle ramp-up as well as recovery in wide-body volumes as supply chains ease.

The Structures division has both global reach and local presence, and we have an operating footprint that spans the West Coast of the U.S. and Mexico through Europe, India and China. Our local presence has served us well with managing through the recent tariff situation. And in the first half, we further expanded our business in best cost country regions, which retain competitiveness and can serve our regional customers well.

And in China, we have a local-for-local approach through our growing joint venture with COMAC. So put simply, after many years of restructuring and repositioning, our Structures division is now a great business generating high-quality earnings and strong cash flow. And there are significant further gains to come as industry volumes ramp up and the benefits of our restructuring and ongoing operational improvements read through in the years ahead.

Let's now turn to engines. Our Engines division is unmatched in that it partners all the leading OEMs. We have 4 technology-led businesses, RRSPs, commercial OE contracts, parts repair serving the aftermarket and governmental covering defense and space. We're the global market leader in structural load-bearing solutions. At the heart of engines is our 19 RSPs. These are life of program contracts, which provide an entitlement to our share of the lifetime aftermarket cash. Six of these engines drive 90% of the future value of our RRSP portfolio. That's the mature V2500 and the CFM56, the new wide-body GEnx and XWB engines and the 2 GTF variants.

Now on the left-hand side of this chart, we have highlighted our shares and the growth in fleet sizes of each of these core engines. And as you can see, we have a higher share on the newer engines where growth over the next 20 years plus is set to be significant. So over time, as mature engines where we have a lower share are gradually replaced, we'll benefit from a greater proportion of the lucrative aftermarket for decades to come.

Within the RRSPs, we have an important position on the GTF, which is fundamentally an excellent engine given its differentiated gear technology and greater fuel efficiency. The well-publicized PMI issues are being addressed as planned and the new variant, the GTF advantage was certified by the FAA in February. This latest variant is based on extensive knowledge of the legacy fleet through the increased inspections, and it's a much improved engine in terms of both durability and fuel economy.

It's also good to see strong GTF demand with over 1,000 new orders in H1. More widely, our engines business is preparing for the OEM ramp. We've gained some good wins in our repair portfolio, albeit as Matthew has said, growth was somewhat tempered by tariffs in Q2. Our defense business continues to expand and deepen globally, including recent gains on the Gripen E fighter.

So put together, this is a uniquely placed business, which will deliver strong profitable OE and aftermarket growth and with decades of cash from our aftermarket entitlement to come. Underpinning both our structures and Engines businesses is ongoing momentum with operational and commercial excellence. This has contributed to margins increasing from around 12% in 2023 to a targeted 18% plus in 2025 with a path to 24% plus in 2029.

These margin gains are being primarily driven by our multiyear transformation program, which has fundamentally repositioned the legacy GKN Aerospace business. We've taken the global footprint from 52 sites down to 32 with our operations now concentrated in centers of excellence. We've also successfully exited businesses that are noncore. There's been extensive repricing, and we focused capital investment on capacity expansion to meet the OEM ramp. In other words, we've created the foundations to leverage upcoming market growth. Our focus going forward will be to profitably deliver the OE and aftermarket ramp-up with productivity gains coming from our restructured operating base.

We're also continuing to work on commercial levers across the portfolio, and there's work to do on unlocking working capital, particularly as we have excess inventory in the business at the moment due to the ongoing industry-wide supply chain issues. As these ease and with the implementation of our brilliant basics lean approach, we're confident that further efficiencies will be delivered, resulting in margin expansion and improving cash flow. And we're not starting from scratch here. This is about maintaining momentum with continuous improvement.

So having talked about our existing platforms, now let's turn to where we're successfully commercializing our technology with targeted new opportunities. The most important area here is engines additive fabrication technology, where we're focusing effort and direct investment. This is a breakthrough manufacturing method that provides an alternative to forgings and castings for certain components. The technology is an increasing demand from all OEMs, and our challenge now is to certify the large number of components we have in our pipeline and to industrialize the manufacturing process.

The good news is that we're already well underway with the world's first and only certified component, the fan case mounting for the GTF, moving to 100% additive fabrication by the end of this year. There are many other parts to come on existing engines. And excitingly, we're also working on an engine case for the next-generation program with the CFM rise. This proprietary GKN technology has many benefits, including shorter lead times, but the real driver here is it's helping to address some of the supply chain constraints in the aero engines industry today.

Beyond additive fabrication, we're pushing forward with a range of exciting technology insertions in targeted areas such as uncrewed military aircraft and China expansion. Our growth in structures is typically capital-light with funding largely coming from governments, customers or partners, but we're deploying our own capital into engines and particularly on additive fabrication. Looking further out, we're helping to shape the future of flight. Our work here includes the next generation of engines, where we are the only partner on both technology programs today and advanced composite developments, for example, where we're working with Airbus on folding wings for the next generation of single aisle.

So stepping back, what we've gone through today in terms of both recent H1 progress and our clear future growth plan gives us real confidence and conviction in delivering our 2025 numbers and our recently announced 2029 targets. The 5-year targets include high single-digit revenue growth to GBP 5 billion by 2029, coupled with further margin expansion, leading to GBP 1.2 billion plus of operating profit. Most significantly, we have a clear path to generating GBP 600 million of free cash flow and further increases beyond that. And just to reiterate, 90% of all this is derived directly from the existing positions we have today. Effectively, as the market expands, then we get returns from our repositioned business.

Now before I close, let me just spend a bit more time on cash given its significance and the step changes ahead. I'm going to describe this relative to the business that we've been through today. In structures, the increased cash flow comes from primarily the drop-through of increasing OE production on our portfolio, plus ongoing efficiencies from our operational and commercial levers. The increased earnings have good cash conversion and the recent restructuring cash outflows end in 2025 as well. The Engines business that is not linked to RRSPs will also grow profitably and all the associated businesses here have good cash conversion dynamics, too.

Finally, our engines RRSP portfolio will generate more inflows from the 17 engines that are already in the cash-generative phase. The GTF is obviously an important part of the story here and the PMI headwinds that cost around GBP 70 million this year and next will fall away in 2027. And the program itself will also turn cash positive for us from 2028 onwards after years of heavy investment in its development.

And finally, as I've mentioned, we'll improve trade working capital efficiency as supply chains ease and productivity increases. So our assumptions that underpin the GBP 600 million target are based on engine OEMs projected aftermarket cash flows for the respective engines, and we've assumed that the current OEM target build rates will be achieved by 2029. So while there's work to do here, we have a clear line of sight to GBP 600 million of free cash flow based on market growth, embedded positions and the established dynamics of our business.

So let me now wrap up. We've had a good first half on our journey to unlocking Melrose's exciting potential. We know what we need to do. We have good momentum, and we're confident on the path from here.

And with that, let's open to questions.

[Operator Instructions] The first question comes from Mark Davies Jones of Stifel.

Can I start with a sort of big picture question about the place of structures in the portfolio? Because I think at the time of demerger, the suggestion was the priority was to fix that business before considering strategic options. But obviously, the 2 businesses are very different. We've recently seen here get surprisingly generous payment for its Structures business. Are you considering options now that, that repricing is done and the performance is getting pretty close to target?

Mark, so the first thing is, just to be clear that the Melrose Board is always focused on value creation in all its forms, including the shape of the portfolio. Specifically to your question, look, where we are right now is we've got 2 great businesses that are poised as we've gone through today for significant upticks in both profit, but of course, cash as well. And then specifically on structures, we are coming to a point where actually all the restructuring work is about to finish. We're not done yet, but it will be done by the end of the year.

We've got then the margin benefits to come through from that. And of course, the Civil ramp-up as well as further defense growth as well. So the business is really poised for a period of sustained improvement. And our focus is on both sides of the business to unlock that potential, and we think that's the best path for our shareholders to deliver our organic plans.

And of course, we'll always maintain an open eye in terms of ways that we can unlock value. But right now, it's very clear it's delivering the plan we've just gone through today.

Fantastic. And then can I just get a clarification on the engine repair business. can you explain exactly what's going on in the tariffs and the remediation you put in place there because I didn't quite follow Matthew's description.

Should I cover that one off. Yes. So look, just to be clear, across the broader business, we have largely mitigated the impact of tariffs. And you saw the slide on that. A lot of work has gone on with that. I think the engine repair business is unfortunate that we have this business, a very good business in America that was affected by the tariffs being applied on the actual blades themselves coming into the factory and then having to go out again. So it's a short-term impact. We've reacted very quickly. We've put in place a temporary importation on the bond scheme, which effectively allows people to bring the product in and take the product out without attracting any tariffs. So that takes that risk away. That's already in place, and we're expecting that business to get back on track and continue its very strong growth in the second half and thereafter.

The next question comes from Ben Heelan of Bank of America.

First one was, as we look into 2026, you'd given some color about the kind of medium-term growth trajectory around cash, but are there any more specific comments you can make around '26. Appreciate you're not going to give us a number. It's still early days, but what are the high-level building blocks that we need to be thinking about. Second question, a follow-on around the repair situation. From memory, the Capital Markets Day in 2023, this was outlined as an area with the repair business that you could consider doing M&A and building that inorganically. Is there any update there? Has that improved in outlook, deteriorated in outlook?

And then final question for me on the A350. Obviously, the Spirit deal from an Airbus perspective, still hasn't closed. That's been pushed to the right, Q4 now. How are you seeing the situation on the 350 within the supply chain? And how are you thinking about managing the production ramp or kind of managing that cost situation given this continues to get pushed to the right?

Shall I do the first one, Peter, and then you take the next 2. So yes, thanks, Ben, for those. Looking into 2026, we will give guidance on that in 2026. Our focus is absolutely on delivering this inflection year of positive cash flow in 2025. But when you look at the building blocks, we set that out at the full year results. So what things will happen in 2026.

So firstly, we will continue to grow. We are growing and we will continue to grow. Margins will continue to grow. So the base business will continue to grow. We then have the -- some of these sort of drag aspects sort of being considered. What's great about the half year results is that the restructuring cost has reduced by about GBP 68 million. So we said that was one of the drags that was going to go away, and it is starting to go away. So next year, that will have gone effectively.

We'll still have the PMI costs coming through. We all know about that until 2020 -- through '26 and into 2027. And then we have the broader GTF development costs, which are -- will be improving. But I think the way I'd characterize it is we're going to deliver the GBP 100 million this year, and then the business will continue to grow and the anchors will continue to fall away. And we will continue to grow towards our GBP 600 million cash target for 2029.

Great. Well, I'll pick up the next 2. So just on repairs, just stepping back for a moment, you're right to say this is an area of significant investment and focus for us. And it's a great business because we have got capability to repair in the aftermarket, blades, but increasingly blisks and disks and structural components. And of course, with the aftermarket going very strongly, those services are very much in demand. We've built over the last couple of years, a flagship site in the U.S., which is the one we've talked about already, which has got a specific kind and short-term issue on tariffs, but also a site in Malaysia to serve the Asian market to build on what we have in Europe. So it's a business that is well positioned.

We're actually the market leader or certainly one of them outside of the OEMs themselves. And those services are in demand. One of the key things that we do is we have very fast turnaround times, which is helpful. And it's a good market and a position where we have got some great capability. So the outlook here is very strong. To your point about organic versus inorganic, the reality is we've got these new sites, which are highly productive, much more automated, and we've got quite a lot of capacity that we can use to ramp up to meet that demand. And because we have got this capability, if there's an opportunity to partner with others or to look at how we can exploit that further, of course, we will. But all the numbers we've gone through today and our focus right now is just to make sure we're leveraging the capability that we have, and there's more growth to come from what we've got at the moment.

So that's it on the repair side and an important part of the non-RRSP part of our engines aftermarket business. On the 350, yes, you're right. It's been a bit of a challenge, I think, for Airbus. And of course, we, together with others in the industry, have previously adjusted our guidance based on that. What is clear is that the demand is strong, and Airbus has a plan to go from what the rate is today just below 6%, up to 12%. They reiterated that yesterday and have reiterated this and to the supply chain more broadly. And we're ready to do that with a facility actually that is geared up for that sort of volume. So there may be some challenges, short-term challenges. We work very closely with Airbus to make sure that we are always there and able to supply the line as they want and to make sure that we're ready for the ramp. And so we'll work through that.

And of course, the other thing, as you know, Ben, is we are tending to be ahead of their production schedules anyway because what we do is typically 6 months in advance of the final assembly line. So it's all in our guidance, and we're very confident actually, there's no supply chain heroics needed to meet our second half guidance and to deliver the year that we've set out.

The next question comes from Ian Douglas-Pennant of UBS.

With apologies, I was dropped from the call for 5 minutes. So if a question has been asked already, do you feel free to tell me. I'll just read the transcript.

Firstly, could you help us understand the strong cash flow or the stronger than you let us believe cash flow that we've seen in H1 is great to see. Can you help us understand what is the cash generating ability of engines and structures at the moment? How does that split between the 2 relative cash absorption.

And then my second question, could you just give us an update, please, on the non-engine RRSP business? In particular, I'm thinking of the additive manufacturing business. I think I recall in the second half of last year, you had some challenges here, which I believe were short term in nature. Perhaps you could give us an update there on how that has been performing in the first half of the year and how the outlook looks.

Sure. Well, let me take the cash one. Not -- perhaps we'll do -- you do the second one. So yes, on the cash flow, Ian, we don't actually disclose the split between the engines and structures cash flow. That's not disclosure that we give. What I can say is that the businesses are performing and generating cash in line with our expectations. And we've always said that the structures business is a business that is a sort of a normal industrial business. It generates -- it will be generating sort of 85% sort of cash conversion and that will be growing. And the Engines business, if you leave aside the variable consideration piece, is also a good cash-generating business. But to be honest, we don't give that split between the divisions.

On the second point around the non-RRSP business, I'm not sure we recognized that there were problems with additive fabrication. Maybe we can come back offline on that one because that's a business that's just going from strength to strength. But Peter, maybe you want to say a bit more.

Yes. I think I'll just talk more broadly about this non-RRSP Engines business because it is an important part of the portfolio. And as we've already emphasized, it's got actually great cash dynamics as well. There are 3 parts of it. I think we talked about repairs already with the question we had from Ben. So the other parts of this are the OE side of the business where we supply actually into military jets, and I think it's an important theme from today, but also OE contracts such as into the LEAP engine. And then the other side of it, the third element of it is government, which is a pure defense business, which actually, to be fair, had a very strong first half last year and has provided a tougher comp in this first half.

But all 3 of those businesses are growing strongly. They're profitable, highly cash generative and a very important part of our broader engines portfolio. I'll take the opportunity to talk about additive fabrication and Gripen had we've had no hiccups here at all. And I'd say just a couple of things, and we talked a bit about it in the presentation, didn't we?

But the first thing is that the demand for our additive fabrication technology, which is an alternative manufacturing method to forgings and castings is increasing demand. All the conversations we have throughout the organization, including actually at the CEO level of what can we do to go faster with additive fabrication. It's a better way of manufacturing things, but it's also, as we say, an alternative route of supply on something that's a bit of a constraint at the moment.

We've got 2 challenges. One is industrialization and the news you heard is that we're now moving to 100% on the first and only certified part in the world. But the other thing is the certification. And we've got a long pipeline, a growing pipeline of parts that we need to certify. It's a long process and importantly so, these are life of aircraft parts. And we've got a long pipeline of parts that need to be certified that we're working through, and that covers all OEMs. So additive fabrication straightforwardly goes from strength to strength and is an important part of our story over the longer term as well as what we're doing in the short term.

The next question comes from Joe Orchard of Rothschild & Co. Redburn.

First one, strong margin performance in the Engines division. And you pointed out that H1 normally comes in stronger than H2. I mean even if there's a slight dip in the second half of the year, do you still expect that H2 margin to come in north of the 32% mark that you've guided towards. And then the second question is on the RRSP risk assessment, the catch-up. And that appears to be what's driven the kind of, I guess, the overall higher variable consideration year-on-year rather than the VC number itself, which looks flat. I mean is that the trend we should expect to see going forward of an absolute increase or an increase in absolute terms? Or are there any specific reasons for that higher catch-up in H1.

Thanks, Joe. And good to speak to you. I think it's the first time we've spoken to you on these calls. So I'll cover both of those off if that's okay. Look, on the engines margin, we've given our guidance for the full year of greater than 32%. We do just have this slight seasonal weighting in the first half versus the second half. And you could see that if you go to last year's numbers, you can see a similar thing. Our engines business, there's a holiday impact to that. And it's not quite as weighted towards the second half as the structures business is because you don't have that sort of that build push towards the fourth quarter quite so much. So just to be clear, we are very comfortable with our guidance on that and the greater than 32% is what we're expecting.

In terms of the RRSP risk assessment, yes, we have seen growth in that. Now you will see growth in the risk assessment each year because what we're doing here, as we've laid out very clearly in our sort of RRSP booklet is each year, we have to assess the risk on the overall aftermarket income that we're expecting. And we have to then apply that back to past engines. So that goes back to about 2022. So every year we go forward, there's going to be just more engines being sort of caught up by this risk assessment. And that's logical because every year it goes that goes forward, and you can see this across the industry, the engines are becoming more reliable. We see things like the GTF advantage, for example, that's been certified in the first half.

And all of these risks that we're very prudently taking into account sort of unfortunately sort of fall away, and that's why this risk assessment has to increase. So no issue with that at all. I mean the variable consideration guidance has been maintained. From our perspective, everything is in line with -- as we expected and also as we laid out in our Aide Memoire in the first half. But happy to talk afterwards about that if you want sort of further information on that one.

[Operator Instructions] The next question comes from Belinda Kearns of Barclays.

I have 2, please. GE recent upward revision to its 2028 guidance was driven by stronger-than-expected shop visit on CFM56 and the GE90 engine, both on which you participate as a risk and revenue sharing partner. Does your internal planning framework incorporate a similar uplift or such scenario will represent an upside relative to your 5-year plan that you presented early March? And then my second question relates to the A330 program. Airbus is now planning to reach rate of 5 by 2029. Could you remind us what is your exposure to this program, please?

Shall I take the first one, Peter, and you take the second one. Thanks, Belinda, for those questions. Yes, it's interesting that GE are updating their guidance on those particular programs. Look, I think we should step back and think about how we look at this. So we've got this very broad portfolio of 19 RRSP with a huge amount of upside coming as the engines go through the shop visits. We have a model that works out what we think the overall RRSP income is going to be, and we sort of update that every year. There are always going to be puts and takes around this, and we also apply our sort of industry knowledge around this.

So it may be that there's some upside here. But going out to 2028, we will do our regular reviews each year to see how their aftermarket is looking. And -- but we're comfortable with the guidance that we've given on the overall move to GBP 600 million cash for 2029. Hopefully, that answers that question, and Peter can talk about A330.

Yes. The A330, obviously, a smaller program overall and relatively speaking, not that significant for us. I think we've touched on our build rates already. I think the key thing for us with Airbus is readiness for the A320 ramp and the restructured cost base. We've got -- takes into account the capacity, and we've also talked about the 350. And it's about, I think, around GBP 2 million per ship set that we've got very specifically on the 330. But as I say, it's very low volumes, as you know.

We currently have no further questions. So I hand back to Peter for any final or closing remarks.

Well, thanks all for joining us this morning, and I wish you all a good weekend when you get there. Thank you.