Melrose profit drops on Garden Grove incident despite revenue growth

Melrose Industries PLC on Friday reported a sharp fall in statutory first-half profit after being hit by foreign exchange losses and costs related to an incident at its Garden Grove facility.

The Birmingham, England-based aerospace and defence company maintained its underlying full-year guidance despite the setback.

Pretax profit fell to £89 million in the six months ended June 30 from £379 million a year earlier, while diluted earnings per share dropped to 6.0 pence from 22.2p.

Revenue increased 10% to £1.87 billion from £1.72 billion, while adjusted operating profit rose 16% to £347 million and adjusted operating margin improved to 18.5% from 18.0%.

Statutory operating profit fell to £154 million from £441 million, primarily reflecting unrealised losses on foreign exchange derivative contracts.

The company increased its interim dividend by 13% to 2.7p per share from 2.4p.

Chief Executive Peter Dilnot said Melrose delivered a "good performance" in the first half, with operational improvements and strong commercial momentum supporting higher profit and free cash flow.

The Garden Grove chemical tank incident in May reduced first-half revenue by £16 million and adjusted operating profit by £9 million. Melrose said the site has resumed partial production and is expected to operate at around half of its normal capacity until full production resumes.

The company expects to incur a further £25 million to £30 million of exceptional costs in the second half related to the incident. It has paused its £175 million share buyback programme pending greater clarity on the financial impact, including regulatory and legal proceedings.

Excluding the impact of the Garden Grove incident, Melrose left its full-year guidance unchanged, continuing to expect revenue of £3.75 billion to £3.95 billion and adjusted operating profit of £700 million to £750 million.

Shares in Melrose were down 2.7% at 462.50 pence in London on Friday morning.

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