1H26 Results: Good Progress in 1H Largely Offset By FY26 At Risk Implying Downgrade and Buyback Paused

Research evidence excerpt

1H26 Results: Good Progress in 1H Largely Offset By FY26 At Risk Implying Downgrade and Buyback Paused

UpdateMadjusted operating profit (+4% vs cons) and a 7.2% margin (cons at 7.0%), with

revenue up 6% and margin up 50bp. By activity, the main sales driver is Defence,

growing 14%, driven by the F-35, C-130 and NH90, while Civil declined 1% as higher

A350 revenue was offset by lower A320 activity due to customers consuming

inventory; business-jet revenue rose 2%. The underlying recovery therefore appears

intact, supported by a 12% reduction in the cost of poor quality, a three-percentage-

point productivity improvement and better output in the Netherlands, although

Garden Grove is now the dominant near-term execution risk.

FCF - Reassuring Improvement at +£13m (Cons at -£42m) With Lower Factoring

Effect: FCF at +£13m shows an improvement of £67m compared to last year (1H25: -

£54m) and stand well above consensus at -£42m. Factoring balance amounts £9m

lower at £387m (FY25: £396m). The company mentions it expected its factoring to

grow in line with the annual growth rate in Group revenue, before any translational

foreign exchange impacts. While we believe there is reassuring progress with the

first 1H free cash inflow ever, the focus today will be on the Garden Grove impact on

FY26 guidance.

Garden Grove - Material H2 Uncertainty Following Chemical Tank Incident: A

thermal incident involving one of three chemical tanks at Melrose’s Garden Grove

transparencies facility at the end of May resulted in the temporary closure of the

site and evacuation of the area. The facility is producing aerospace-grade acrylic and

transparencies for major civil and defence platforms, including the F-35, and

generated £136m of revenue in FY25. Partial production has resumed, but the site is