Melrose Industries Stock

Hello, everyone, and welcome to Melrose half year results for 2026. The last 6 months have been a busy and an important period for the group as we've continued to execute our growth strategy as a leading global aerospace technology business. We've maintained our positive momentum against the backdrop of strong civil and defense demand.

Now before we get started, I'd like to welcome Ross McCluskey to his first set of results as Melrose CFO. We're delighted to have Ross on board and leading strongly right from the start.

We delivered a good first half performance with continued growth in revenue and profit. We also maintained our increasing cash trajectory with a strong year-on-year improvement in free cash flow. The markets we serve continue to evolve and the underlying demand story remains compelling. On the civil side, order backlogs are at record levels with production ramping up and the aftermarket continues to perform strongly. In defense, ongoing conflicts and geopolitical uncertainty is driving up spending commitments and stimulating the rapid development of emerging technologies.

In May, we had an incident at our Garden Grove facility in California. This site is a global market leader in the production of aerospace acrylic products and the issue involved the storage of an associated chemical. And most importantly, the incident was managed carefully with no reported injuries or contamination, and we're working hard with regulators now and our customers to resume full production in a safe and timely manner. I'll come back to this in more detail later.

More broadly, I'm encouraged by the progress we're making in the areas we're investing for future growth. We've identified target opportunities where we have proprietary technology and a clear opportunity to win, particularly in engines additive and in defense uncrewed vehicles. So stepping back, our technology is in demand, both from existing positions and emerging opportunities. We are navigating challenges along the way, but we have a clear path to unlocking value within Melrose. It's about execution, and this is where our focus remains.

Let's turn now to some highlights from the first half. From a financial perspective, we delivered a 10% increase in revenue, and that top line growth translated into a 16% improvement in operating profit to nearly GBP 350 million. We also generated a GBP 67 million year-on-year improvement in free cash flow relative to last year. Operationally, our priority is always to keep our people, the flying public and our armed forces safe. In the first half, we had a 25% reduction in total incident rate, and this means safety incidents are now down over 65% over the last 3 years. As we've said previously, our inventory levels are higher than we would like due to supply chain issues, and we're addressing this systematically. In the first half, we reduced DIO by 7 days. And finally, we improved productivity by a further 230 basis points in the first half.

Our operational improvements are being driven by our lean operating model that we call the brilliant basics. This model is becoming increasingly embedded across our business and is central to delivering production ramp-up successfully and profitably. And I'll give some examples of this in action shortly.

From a commercial perspective, we've had a busy first half. This includes expanding our engine fan blade repair business in San Diego, which is serving a growing installed fleet. This builds on our recent investments and reinforces our position in an attractive and growing aftermarket. In defense, we're participating broadly across a range of emerging uncrewed programs. This includes BAE Systems Collaborative Combat Aircraft, Brontanax, that was unveiled at the Farnborough International Air Show last week and where we're deeply involved in both design and production.

And finally, additive fabrication, our breakthrough technology that helps address forging and casting constraints within the industry. And here, we've continued to make good progress, including development work with Pratt & Whitney on the F135 program.

Before we get further into the H1 results, it's important that we cover the incident at Garden Grove. For context, our Garden Grove facility is a global leader in the production of aerospace transparencies, including fighter jet canopies and passenger cabin windows for civil aircraft. We have proprietary technology and know-how built up over 60 years, and we produce a significant proportion of the world's aerospace-grade acrylic. We've invested significantly in the site alongside the U.S. government who've underpinned this with a $150 million expansion to double our F-35 output.

Now at the end of May, we had a thermal incident within one of the storage tanks for the MMA chemical we use in our acrylic production process. To ensure safety, production was immediately halted and the local emergency services evacuated nearby residents and businesses. Over the course of 5 days, we worked alongside local agencies to contain the risks, and I'm released to say there were no reported injuries, contamination or leaks.

As the diagram at the bottom of this slide shows, our Garden Grove site operates in 2 connected parts. First, we make the base acrylic using MMA and our proprietary production technology. We then take that base acrylic and form, laminate, coat and assemble it into canopies and windows. We've been working very closely with regulators and with the full support of our customers and the U.S. government to restore operations safely.

The manufacturing site reopened in July with now around 500 employees back at work producing transparencies for customers using existing material and third-party sourced acrylic. In parallel with this, we're working hard to restart the base acrylic production, and we have some important weeks ahead. Our work here is being done in close cooperation with the regulators as well as customers and the U.S. government who recognize the strategic importance of the site's production within the U.S. industrial base. Beyond the formal regulatory approvals required, we'll give the local community safety reassurance, and we're also exploring some form of compensation for the disruption caused by the evacuation. We're also addressing a range of ongoing legal cases regarding the incident.

Now we're making progress here with managing the situation across multiple stakeholders. However, there are still uncertainties about the timing of acrylic production restarting, wider regulatory and legal costs and our insurance coverage is under review. So with all this in mind, we have paused the current share buyback until the situation is clearer.

So let me now hand over to Ross to take us through our H1 results in more detail.

Thanks, Peter, and good morning. I'm delighted to have the opportunity to talk about my first set of interim results as Melrose CFO, having joined the group in early May.

We have delivered a good set of results in the first half with revenue, profit and cash in line with our expectations pre the impact of Garden Grove. Group revenue grew by 10% on a constant currency basis, led by a strong performance in the Engines division. Group operating profit was up 16% to GBP 347 million, driven by positive revenue growth and the continued focus on operational and efficiency improvements underpinned by our Brilliant Basics program. This enabled us to deliver a 50 basis points increase in H1 margin to 18.5%, while EPS improved by over 20% versus the same period last year.

We delivered positive free cash flow in the first half of GBP 30 million, resulting in the maintenance of our leverage ratio at 1.8x EBITDA. This positive cash position was achieved despite a net cash outflow from factoring in the first half. Our results in H1 were impacted by the Garden Grove incident in late May. Group revenue and profit was GBP 16 million and GBP 9 million lower, respectively. But adjusting for this impact, we would have delivered revenue growth of 11% and operating profit growth of 19%.

Turning to Slide 7 and focusing on our Engines division. We are pleased by the performance of engines in H1 with broad-based growth across the product lines. Revenue was up 19% with OE accelerating to 23% and aftermarket continuing at the mid-teen levels we saw in 2025. As you can see, we provided some additional clarity on the drivers of our revenue growth. Our civil RRSPs grew by 18% with notable growth in the GTF, GenX and V2500 platforms. Within this, variable consideration increased to GBP 206 million, in line with our full year expectations of GBP 340 million to GBP 380 million.

We have continued to make commercial progress in our RRSPs as seen with the recent agreement with Pratt & Whitney to include low-pressure compressor wings on the 1,500 and 1,900 engine platforms. Government partnership growth of 29% was strong, primarily driven by work on the RM12 engine for the Gripen, including the delivery of the first upgraded engine to the Swedish Armed Forces as part of the enhanced performance program. This reinforces our position as a core strategic partner for the FMB.

Repairs continues to perform well with growth of 27%, supported by higher fan blade volumes and with the recent contracts announced with Rolls-Royce and Pratt & Whitney, providing additional opportunities to grow share. Our site in Johor, Malaysia delivered a particularly strong H1, while our San Diego site completed its first repair of a highly engineered blisk component, demonstrating its strong technical capability. It should be noted that we are lapping a period of tariff disruption for our repairs business in H1 2025. We delivered positive operational leverage in the first half with profit growth of 21% and margin expansion of 40 basis points, up 100 basis points, excluding variable consideration. So overall, a strong performance from the Engines division.

Turning to Airframes on Slide 8. Reported revenue grew by 4%, while profit declined by 1%. Adjusting for Garden Grove, growth would have been 6% and 13%, respectively. Defense grew strongly, up 14%, driven by the F-35, C-130 and NH90 and the benefits of work done to ensure the portfolio is sustainably priced. Defense continues to develop commercial opportunities underpinned by positive momentum in NATO members spending commitments. And later in the presentation, Peter will talk about opportunities we are developing across both our Engines and Airframes business for uncrewed vehicles where we continue to work with a number of partners.

On the civil side of the business, revenue was marginally lower than 1%. This was primarily driven by a reduction in customer inventory, notably on the A320 platform. Growth in wide-body benefited from good momentum from the A350, while business jet revenue was solid despite ongoing supply chain challenges. We also made progress securing additional aftermarket opportunities, particularly in U.S. Margins for airframes demonstrated solid progress on an underlying basis, improving by 50 basis points, excluding Garden Grove. And again, our Brilliant Basics program has contributed to margin expansion as evidenced by our H1 productivity improvement of 3 percentage points and 12% improvement in the cost of quality.

We've also made progress in improving the productivity at one of our Netherlands manufacturing sites. Overall, end market demand remains buoyant with Airbus and Boeing recording over 1,300 new orders in the first half. And we are also encouraged by the double-digit percentage increases in H1 deliveries from both, demonstrating some gradual easing of the broader supply chain challenges. This bodes well for an improved civil outlook into H2 2026 and beyond as the volume ramp builds.

Let's move on to our cash performance for H1 on Slide 9. We are pleased to report a positive free cash flow performance in H1 of GBP 13 million, representing a GBP 67 million improvement versus the same period in prior year. Importantly, this was achieved despite a reduction in our factoring balance, which resulted in a net cash outflow of GBP 15 million in H1. Pre-factoring, our cash flow in the period would have been positive GBP 28 million, and I will come back to our approach to factoring shortly.

Our year-on-year improvement in cash was driven by a number of key factors, namely improvements in underlying profit generation, the anticipated reductions in GTF, PMI payment and restructuring cash spend and a net neutral working capital position versus outflow in H1 prior year. It should be noted that we did benefit from an unexpected timing acceleration of some customer receipts at the end of June worth about GBP 20 million to GBP 25 million.

Within H1, we incurred exceptional cash costs of GBP 5 million in relation to the Garden Grove incident. On a net basis, our cash impact resulting from Garden Grove was actually a net positive GBP 7 million with an operational working capital unwind more than offsetting the incurred cash costs. And I'll come back to our outlook for H2 for Garden Grove shortly.

Capital expenditure was up slightly versus prior year to GBP 52 million, and we continue to anticipate an acceleration of spend in H2 on CapEx, in line with the full year guidance of GBP 120 million to GBP 140 million. Net interest and tax increased by around GBP 7 million versus prior year due to higher cash interest costs. And the GTF payment of GBP 27 million was in line with our full year guidance of GBP 50 million, and we continue to expect to resolve this issue within the GBP 200 million envelope advised to us by Pratt & Whitney. And just as a reminder, our underlying cash generation is seasonally weighted towards H2.

Turning to Page 10. You can see the bridge to our net debt number of GBP 1.53 billion as of the end of June, equivalent to 1.8x net debt to EBITDA, which is down from 2x at this time last year. Our period-end leverage sits well within our stated leverage policy of 1.5x to 2x EBITDA. And during the first half, we have returned around GBP 130 million to shareholders, GBP 60 million of which was dividends with the rest coming from our share buyback programs. The previous GBP 250 million program was completed in Q1 and GBP 12 million of the current GBP 175 million program has been spent. As communicated in our announcement this morning, we have paused the GBP 175 million program until we achieve greater clarity on the impact of Garden Grove.

And as I mentioned, I'd like to take the opportunity to address our approach to factoring. Importantly, we continue to believe it represents an efficient source of capital for the group. In terms of future guidance, we are clarifying that we will cap the growth in our year-end balance to be no more than the growth in group annual revenue, excluding the impact of FX. To aid understanding, we are now providing a guidance range of our full year expected balance based upon the group's growth outlook. And to enhance our disclosure clarity, our cash flow presentation will now split out movements pre and post factoring, and you saw this on our previous slide. I've also included an additional slide in the appendix, which provides a further bridge of our factoring balance between cash and FX.

Now turning our attention to the Garden Grove incident. Peter has already spent some time discussing what has happened, and I will now address the financial split between operational and exceptional impacts. Operationally, our H1 impact was a negative GBP 16 million on revenue, GBP 9 million on profit and positive GBP 12 million on cash. Now given the uncertainty regarding the timing for full resumption of site acrylic production, we are guiding to a monthly run rate impact for H2. Based on anticipated levels of activity, we expect the site to deliver at around about 50% of its normal monthly revenue, which will impact top line by around about GBP 6 million per month. We expect this to fully flow to profit and cash given we are operating with higher production costs from bought in acrylic and a change in business mix towards repair. The actual site level cash impact for H2 will depend upon the timing of full production opening and the rebuild of [indiscernible] and working capital.

From an exceptional perspective, we incurred GBP 13 million of P&L costs in H1 from the initial response, recovery and advisory costs, GBP 5 million of which was paid in cash in H1. For H2, we currently anticipate additional exceptional costs of between GBP 25 million and GBP 30 million. This excludes the impact of any potential legal, regulatory or compensation scheme processes, nor does it include the potential for any insurance-related recoverability. We are closely monitoring the situation, but given the uncertainty that persists, we have made the appropriate decision to pause our current buyback program until we have greater clarity. We will, of course, provide further updates as appropriate.

Turning to our outlook for 2026 on Page 12. At a group level, we are reiterating our full year guidance for the current year, excluding the impact of Garden Grove I just outlined. We continue to expect robust revenue growth in 2026, driven by OE volume ramp and the strength of the aftermarket. We are guiding to revenue from between GBP 3.75 billion to GBP 3.95 billion, which at the midpoint represents like-for-like revenue growth of circa 10%, in line with our H1 performance. This revenue growth continues to be weighted towards engines.

We are guiding to a pre-Garden Grove operating profit of between GBP 700 million and GBP 750 million. And at the midpoint, this represents profit growth of 16%, again, in line with our H1 delivery. Underlying cash flow is expected to be in the GBP 150 million to GBP 200 million range.

So to wrap up, we have delivered a good performance in H1 while managing through the Garden Grove situation from May. Revenue and profit both grew by double-digit percentages with margin expansion and positive free cash flow. While the precise impact of Garden Grove are difficult to quantify at this stage, we have taken steps to provide additional financial flexibility.

And with that, I will hand back to Peter.

Thanks, Ross. I'll now talk about the longer-term outlook and the progress we're making executing our growth strategy. Let's start by briefly touching on our markets. The headline message here is that the structural growth drivers remain very strong. Indeed, the challenge for the industry is not demand, but supply. On Civil OE side, backlogs have continued to grow in H1 with encouraging orders for widebodies as well as the A220. The major OEMs are now targeting strong build rate increases every year to the end of the decade, and this will drive growth in both our civil airframes and engines businesses. Engine flight hours, which drive our aftermarket business and our RSP portfolio have also remained strong.

The conflict in Iran and increasing jet fuel prices has raised concerns about potential aftermarket reductions in 2027 and beyond. However, flying activity has been resilient and the outlook remains positive, especially given constrained shop visit capacity. Our RRSPs give us good exposure here as we have an aftermarket entitlement on over 70% of global flying hours.

Defense largely speaks for itself. We're continuing to see increasing commitments across NATO, particularly with a greater proportion of European nations GDP being allocated as well as further investment in the U.S. This is benefiting our existing platform positions such as the F-35 and Gripen, both in OE and the aftermarket as well as driving rapid developments in uncrewed vehicles and missiles, which are attractive growth markets for us going forward.

So stepping back, demand is our friend, and our focus is on executing our strategy to capitalize on our position in these growing markets. As many of you know, we have a clear and consistent growth strategy, which is built around the 3 waves shown on this slide.

The first is delivering growth from our existing platform positions. We have embedded technology on all the world's leading aircraft. And as production rates increase and the aftermarket continues to expand, we will grow alongside our customers. Around 90% of the value we'll create over the next few years will come from these existing positions.

The second wave is expanding in targeted new opportunities where we have differentiated technology and a clear right to win. We're deploying capital selectively in these areas, such as additive fabrication and around 10% of our financial plan to 2029 is driven by these opportunities.

The third wave is positioning the business for the next generation of aircraft. Here, our technology continues to be in demand in both civil and defense programs, creating opportunities for growth over the longer term. So 3 clear ways to create value.

Let's now turn to the first and most important of these, delivering growth from our existing platform positions, starting with engines. Engines strong performance in the first half was driven by continued growth on our core programs, including the GTF, GenX and XWB, together with the ongoing cash contribution from our portfolio of 19 RRSPs. In H1, we expanded our scope within the GTF program. And more broadly, we're encouraged by the reduction in GTF AOGs, the GTF Advantage entering service and progress with the Hot Section+ upgrades. We remain confident that the GTF program will become cash positive for us in 2028.

We've continued to strengthen the business operationally and commercially, including new multiyear repair agreements with both Rolls-Royce and Pratt & Whitney, and we're expanding our blade manufacturing capacity in North Charleston to support future growth in advanced engine components. We're facing significant demand growth in engines, and it's essential that we deliver the ramp-up successfully for all stakeholders. And the key to this is our lean operating model, which we call the Brilliant Basics. This focuses on the core elements of operational excellence, daily management, breakthrough delivery and problem solving. Our approach is gaining traction and is driving improvements in quality, delivery, inventory and productivity.

And we're also applying the Brilliant Basics in cooperation with our customers and supply chain partners. A great example of this is working alongside GE at our Tallassee facility, where we manufacture GEnx fan cases for Boeing 787. We ran 3 Kaizen events at the heart of the operation, and these delivered a 90% reduction in inspection times, improved yield in the core composites workflow and a road map for increased autoclave throughput. You can see us in the photo in front of one of them here. This event underpins the planned production ramp-up from around 5 cases per week today to around 10 cases per week in the years ahead. More broadly, we're investing heavily in production capacity and automation to increase our build rates for the GEnx, XWB and GTF, ensuring we're ready to support the strong OE ramp-up of these important engines.

Going forward, we'll therefore benefit from increasing engine production rates, growing aftermarket activity and higher RRSP cash generation from newer engines entering shop visits where we have a greater share.

Let's turn now to Airframes. The story here is similar in many respects. Unprecedented civil and defense backlogs provide a long runway for future growth, especially as we're now the world's largest independent airframes business. Industry production rates are increasing, although they're still constrained by supply chain issues. In the first half, we continued to invest in capability, capacity and automation across our full portfolio of aero structures, wiring transparencies, landing gear and ice protection systems.

We're increasingly leveraging our global footprint to serve customers locally and cost effectively, too. For example, in the first half, we progressed our global hub for wiring in Mexico, we started producing glass windows in China for the aftermarket. Operationally, I'm encouraged by the progress we've made in the Netherlands in recent months. Following the production transfers we discussed at the full year results, output and productivity have improved significantly.

As with engines, these improvements are being driven by Brilliant Basics. And a good example here is Hoogeveen, where we've applied our lean tools to supplier quality management. By working systematically with our problem-solving approach, we've achieved an 80% reduction in customer issues linked to supplier parts, driving both better delivery performance and lower costs.

Looking beyond the first half, the opportunity remains clear. Our focus is on converting record order backlogs into profitable growth and increasing cash flow, expanding our participation in the aftermarket and continuing to drive operational improvements through lean, digitalization and AI.

Now alongside this existing platform growth, we're also progressing the second wave of our strategy, investing in targeted new opportunities. So let's now turn to that. A good example of our new opportunities is the defense uncrewed aerial vehicle market, or DUAVs. This is a rapidly evolving market given the changing nature of war fighting that we've seen in Ukraine and Iran. It's a dynamic and growing market, and it's attractive for us as we have 3 distinct routes to market that leverage GKN Aerospace capabilities.

The first is on the airframe side, where we're building on our established strength in advanced composites and structures. We're participating across a range of national programs and platform sizes with a combination of deep engineering design capability and our production capabilities in key NATO sovereign nations, including U.K., U.S., Netherlands, Sweden, Norway and Germany. Examples here include Anduril's Thunder program and BAE's Brontanax program, which I mentioned earlier.

The second part is on the engine side. Here, we're developing a range of engines for uncrewed applications, starting at the lower end of the thrust range and building on our established capability as the engines OEM for the European Gripen fleet.

Now in the center of this slide is what is effectively a new market for us, combining our airframes and engines capabilities to deliver integrated systems and establish us as an integrated OEM player in this field. The flagship development here is our work with the Swedish FMV to bring our one-way effector platform to market. This vehicle will take flight next year. So put together, we're addressing a range of sophisticated operational needs by leveraging GKN's technologies and capabilities.

Another example of where we're investing significantly is engines additive fabrication. At its core, this proprietary technology is about creating a new way of manufacturing structural components for gas turbine engines, both in aerospace and in industrial gas turbines. The availability of large-scale, sophisticated forgings and castings is an industry constraint, and we've developed a proprietary manufacturing capability that provides an alternative approach for a range of components. Put simply, we're able to manufacture and assemble complex structural components in new ways.

As part of the solution, we use our patented laser wire deposition technology, which is attracting substantial interest across the industry. Here, we print structural components using robots and lasers to melt titanium or super alloy wire in inert gas chambers. We produce near final form parts, which are then machined to use with very high buy-to-fly ratios. Today, we're the only company with a certified additive manufactured structural part on commercial aircraft engines, namely the GTF Fan Case Mount Rings. We're now working on expanding the portfolio by gaining more certifications and with some good momentum in the pipeline in H1.

We're also now producing 100% of that GTF Fan Case Mount Rings using additive, and we're working on improving productivity, reducing cost and proving repeatability at scale. We're exploring a modular factory approach that would enable us to rapidly scale production wherever it's needed to. Now this is technology that is in demand today and will become increasingly important for the future. It strengthens our position on existing platforms, expands our scope with customers and creates attractive opportunities for the longer term.

And this brings me to the final wave of growth, next generation. This slide shows that we're already deeply embedded across many of the programs that will shape the future of flight within both civil and defense. On the civil airframe side, we're working closely with customers on the next generation of single-aisle aircraft. This builds on our expertise in advanced composite structures where we already manufacture some of the world's largest load-bearing components. Programs such as the Wing of Tomorrow and SuSWINGS are defining future aircraft design with developments such as folding wings, coupled with new materials and manufacturing methods.

In civil engines, we're the only design partner positioned on both current next-generation single-aisle engine development programs. That's the CFM RISE and Next-Gen GTF. We're also involved with the Rolls-Royce UltraFan plus longer-term EU projects in hydrogen electric propulsion. Across these programs, we're leveraging our expertise in advanced composites, lightweight structural component design and, of course, additive fabrication.

On the defense side, we're involved in the next generation of combat aircraft through programs such as GCAP alongside opportunities in missiles and canister systems. In defense engines, we're building on our established position supporting the Gripen fighter fleet while also developing propulsion technologies for the next generation of own crew platforms and future combat aircraft with partners, including Pratt & Whitney and GE. So we are playing an influential role across our markets. And we're doing this as a design-led Tier 1 partner alongside our customers and also often with government support. These next-generation opportunities are important for long-term growth.

So this covers the 3 waves of our strategy, and I'd now like to turn to how all this contributes to growing cash flow. As we've said before, there are 3 key drivers of our free cash flow. These are clear and consistent. The first is growing operating profit. You've heard us talk about the production ramp, the continued growth of the aftermarket, our operational improvement programs and our expansion into new areas. Growing profit in our core business, combined with strong cash conversion remains a foundation of our free cash flow story.

The second is our RSP portfolio. Today, 17 of our 19 RSP programs are cash generative. And as those engine fleets continue to mature and move further into their aftermarket phase, the associated cash generation will continue to increase.

And the third is the GTF. As we've discussed, the program remains in its investment phase today, but we expect it to become cash positive in 2028. As the fleet matures and GTF Advantage penetration increases, the program will become an increasingly important cash contributor.

It's also worth stepping back and looking at what drives the RSP cash generation more broadly. In the near term, we'll benefit from continued growth of our newer engine programs, the GTF, GEnx and XWB. As those fleets grow and shop visit volumes increase, our higher program shares on these engines will provide a growing contribution to aftermarket cash flows. At the same time, the mature engine fleets continue to generate valuable aftermarket cash flows through extended in-service lives before slowly declining late in the decade. We're already investing in the next-generation engines and expect this to ramp up steadily in the early 2030s, pending any decisions we make on future RSPs. All of these drivers underpin our confidence in the path to GBP 600 million of free cash flow in 2029, with cash generation continuing to grow thereafter.

So in closing, it's fair to say it's been a busy and important first half for us. We've maintained positive momentum with our financial performance, particularly with improved H1 operating cash flow. The incident at Garden Grove has been challenging. And while we've made progress, there are uncertainties for us to navigate carefully from here. That said, we have a clear strategy to capture market growth and expand our technologies. We're, therefore, confident of unlocking value from Melrose, and our focus remains on executing our plan with grip and determination.

And with that, we'll open to questions.

Good morning, everyone, and welcome to the Melrose Half Year Results call. [Operator Instructions] The first question today comes from Sam Burgess of Goldman Sachs.

Firstly, for Peter, thanks for the update and talking about the next generation of engines. I think I'm right in saying you're on the demonstrator for the next generation. How confident do you feel on the prospect of those being RSP structures? And then secondly, for Ross, if that's okay, of the additional GBP 25 million to GBP 30 million of exceptional costs expected in the second half, how much is likely to be cash paid in FY '26 rather than later periods, if you've got any sense of visibility on that?

Sam, thanks for the questions. And I think next-gen is a pretty exciting development for us. As you suggested, we're on both the current next-gen development programs, which is the Next-Gen GTF and CFM RISE. And we also have been historically involved with the UltraFan. And indeed, there's some discussion about exactly what might happen with that going forward as it relates to single aisle as well. So from our perspective, we're involved, we're in demand, and we're uniquely placed across all of those platforms. I think what's going to happen as we go forward is clearly, there's an intersection with those engines and the airframes that they sit on. And the key thing for us is that we're involved in all of them.

I think there's a question mark also about, as you mentioned, which is whether or not they're going to be RFPs? And I think we need to make a decision when the time comes about whether or not we want to be involved in the RFPs, at what extent on a number of engines or go harder on one. The key thing is we're involved, we're shaping it and our technology is very much in demand. So choices to come, I think, and right now, getting going, supporting the customers with those developments in an evolving market.

And Sam, just to pick up your second question in terms of exceptional costs, just to be clear, all of these costs in terms of exceptionals are cash costs. So there's no asset write-downs or anything of that nature in that GBP 25 million to GBP 30 million worth of guidance. And in essence, I would expect all of that to be a cash cost in H2. There will be a bit of payment terms that manifested itself into 2027. But of course, you've got the unwind of the cash cost versus the P&L charge for the exceptionals in the first half of the year. I mean, more generally, we would expect to have some exceptional costs for Garden Grove in 2027. We're not providing any particular guidance on that at this stage, but we will, in due course, of course, come back to that particular point.

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

Welcome, Ross. So the first question I have is on payables, please. Could you just help us understand the driver behind the significant increase that we see in the first half of this year, the GBP 89 million cash inflow that we see from receivables and payables. Was there an underlying driver behind that?

The second question is on the buyback. So you highlight Garden Grove as a GBP 30 million to GBP 65 million cash issue for this year. Why does that mean that you have to fully cancel the GBP 175 million buyback that the scale of the 2 things seems a little different there? Maybe you can help me square that difference.

And thirdly, on factoring, can I just confirm with this clarification in your plan here, does that reflect a change in the plan itself? Or are you just helping us understand better what your original plan was? And within the 2029 guidance, should we assume something like GBP 75 million of factoring in that GBP 600 million number?

Okay. I think -- all right. Thanks, Ian. So let me deal with the buyback question first, if I can. So look, what we thought to do today in terms of clarifying and quantifying the impact of Garden Grove, you can see our H1 and H2 impact. As we mentioned in the statement today as well, the impact of any potential regulatory investigations or indeed civil litigation is uncertain, right? And as a result, given that, we're taking the appropriate decision to pause and pause is the appropriate word rather than cancellation, Ian. And once we have got clear clarity, we'll come back and revisit that at the right time.

Secondly, if I come back to factoring. Look, I think there was potentially some ambiguity about how we've guided in the past. And I just wanted to be very, very clear in terms of how we're going to approach it and how I want to guide to it going forward. So in essence, our factoring balance at the year-end will grow by no more than the revenue growth of the business. Implicitly, that was within the financial guidance that the team had given already for 2026. So there's no change to the GBP 150 million to GBP 200 million range off the back of that clarification, nor indeed, is there any change to the impact that, that would have on the 2029 cash guidance either.

I think the number you put out there for GBP 75 million for 2029, of course, that will depend upon the revenue growth that you see in your model in a particular year. So I'll leave that to you to assess. But effectively, the growth in '29 would be commensurate to the growth in revenue that you put into your model for that particular year.

As for payables, there's no particular change in strategy on that. It's a timing point as ever, big cash flows within the, particularly at the half year-end. So it has been very much business as usual interpretation on that movement in payables.

And apologies for using the wrong word. I should have said pause as you say.

The next question is from David Perry of JPMorgan.

I've got 3 questions, please. First one, just on Garden Grove, if either of you wants to take this. Just the insurance, I know you're probably in negotiations is probably sensitive, but is there any color you can give on what a typical insurance policy covers, which elements of the various costs you may incur?

Second one is for Ross. I mean, I know you've only been there 2 months, and frankly, you've probably been firefighting a bit on Garden Grove. But just curious, any first impressions you've got on the finance function, anything you think you could do differently or improve?

And then for you, Peter, please, the organic growth was very strong in both -- in defense in both engines and airframes. Can you just speak to that a little bit in each division, just pull out which specific things are driving that level of organic growth and the sustainability in each division?

Do you want to go first?

Yes, sure, I will go first. Yes, thanks, David, first of all, for the question. And as you say, it's been a pretty active first -- not even quite yet 3 months actually within the business. So look, what I would say is very much what I've seen since I've been here has absolutely validated the choice that I made to join the company through the course of 2025. It's a great team. It's a fantastic business. We've got 2 very strong subcomponents of the Melrose business, which really are in very attractive market and spaces with plenty of runway and road map ahead of themselves.

And look, as you heard from Peter already, the drivers of growth that we see are very much intact as we push forward to accelerating over the course of the coming years. Candidly, from a finance perspective, I'm actually really delighted by the team that I've inherited from Matthew with a lot of very strong people technically within the central team as well as within my divisional resource as well. So as ever, there's opportunities for us to get better, but it's a very strong solid foundation in our finance team.

One thing I think we have sought to do, hopefully, as part of today's presentation is just be clearer on a few areas and just be more precise. So what we're doing clearly on the cash flow reporting and spreading out factoring -- it's just a small example, and we're looking to try and refine and hopefully improve on that going forward as well. So that's what I would say on that.

[indiscernible] insurance as well.

So David, look, you kind of mentioned it already, clearly, a very active and dynamic situation within Garden Grove. As a multi-jurisdictional business in multiple markets, we have a range of different insurance policies that are in place that cover a number of different exposures. All of our insurance companies and providers have been notified of the incident, and we're working with them. As you'd expect me to say at this stage until we've got full clarity in the situation, our insurance remains under review, which is exactly what we've said today.

Defense?

David, just on the defense side, you're right, it's very strong and encouraging performance in both businesses. I think the key thing is it's broad-based and it's on our existing platforms. So specifically on airframe, that's obviously the F-35 as well as the European platforms coming through. It's partly volume, but also, as you know, we've been working very hard on getting this portfolio where it needs to be. So there's some impact of price reading through as well on that.

And on the engine side, it is the continuation of supporting, in particular, the Gripen jet. As you may recall, we are the sole provider for the Gripen fleet in terms of propulsion. So we look after that as it runs not only in terms of the new production, but also in terms of what is a very busy aftermarket for obvious reasons, given what's happening to the East of the continent right here.

So the other point I'd say about the defense business in engines is we've got a heavy position on the F-135 with Pratt & Whitney, and you've heard some news about that as well as actually the DUCs business where we make a whole range of structural components, frankly, for pretty much all of the world's fighter fleet. So broad-based, very much right now, the existing platforms reading through with increased demand. And I think as we see going forward, we'll get more of a mix shift towards some of these new developments, which we touched on today. And of course, you've seen more broadly, we're very rapidly developing technologies, particularly around uncrewed, and we're excited about the role we'll play in that.

The next question is from Aymeric Poulain of Kepler Cheuvreux.

It also relates to the pause on the buyback program. When would you think you'll be in a position to know if you are able to resume that buyback program? Or looking at the various growth initiatives that you highlighted, are you also thinking about a change of capital allocation priorities, maybe more geared to reinvestment behind this new growth initiative rather than financial engineering, if I can call it like that. And looking at the '29 target and beyond, you mentioned also your interest in participating in all the major next-generation aircraft and engines. What would be the size of the R&D development investments requirements beyond the 2029 on those, please?

Do you want to get the first one on next-gen?

Yes, sure. So just first of all, in terms of capital allocation policy and prioritization. So if we think about prioritization, the way we first look at is investment in the business, ordinary returns to shareholders, share buyback. So that's the kind of the priorities as we look at it. Certainly, from -- as we sit here today as management, the guidance that we've given for capital spend this year is between GBP 120 million and GBP 140 million. That will be a good acceleration versus what we spent in prior years. And we're very much open to making sure we're spending the right amount of money in the right place, both from a maintenance perspective as well as supporting the future growth in the business as well. So that is and will always remain our top priority.

In terms of the buyback itself and timing of that, look, very much TBD. Part of that may depend in terms of the status of the compensation funds. What I would say is that the extent to which litigation does happen in the U.S. does tend to be a relatively midterm issue for companies to deal with. But of course, as we go through, things will become clearer and I can give as much guidance to that in due course.

Great. So specifically on the next-gen point around future RSPs and investment, I mean, I'll go back really to the first question that Sam asked around the development here. We're really very much in demand in next generation. We're pleased to be playing a role in all of the current programs, which again Next-Gen GTF, CFM RISE and they're involved also with the UltraFan and have been historically. So we're broad-based, and we're very unusual in that respect being the market leader in lightweight structural components in pretty much all the flying fleet.

So the starting point is that our technology is in demand. The market and the next-generation single-aisle architecture is very much in debate at the moment in the industry, as you know. And of course, there's intersection between airframes as well, particularly if you go for the open fan rotor. And that will evolve. The key thing for us is that we are on all of the engine programs that matter. We're pleased to be leaning in. We are investing right now in maintaining that position and working with those customers. And it will evolve.

And I think what will happen is by the time we get to the 2029, '30 time frame, there will be greater clarity. And then we will decide as Melrose as to where we play based on the market at the time and also based on whether or not we want to go, as I said, deep on one engine, perhaps do 2 engines and at what percentage share as well. So I think we've got great optionality. Our technology is in demand, and we will do what is in the interest of our shareholders at the time of the market evolves. But we're in a great position on Next-Gen and are excited to play our role. And I would also say actually that we're playing a role on the airframe side as well in terms of Next-Gen, which we talked about. So all to follow, but all to play for.

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

I've got a few. First of all, Peter, could you talk a little bit about the A350, where you are on production, how you're seeing that play out into the second half? And you probably saw that last week, Airbus commented they were considering raising production. I think they'll end up doing it. But what would that mean for you? How much investment do you think you would have to put in to get to [ 16, 17, 18 ] a month on the A350 and how we could think about that?

Secondly, you talked about the geared turbofan -- sorry, the GTF program turning positive from a free cash flow perspective in '28. Could you frame that a little bit? How negative is it now? Could you help us size a little bit that inflection?

And then a lot of the kind of questions that we've had from people this morning have been around '29 and that $600 million. And I think there was clearly some concerns that, that would come under pressure. Can you talk a little bit about your conviction on that and how are the big building blocks of getting that?

So firstly, on the A350, I think it's a good story, isn't it? I mean the production rates have been constrained by supply chain. Airbus have themselves talked about, particularly the center fuselage and some of the challenges coming out of [indiscernible]. And so I mean it's great that the demand is there, but we're starting to see read through in production. And we've got a long way to go in terms of building into those rates with what we're at about 6 or so today, aren't we? So the first step is to make sure that we step up to the initial rate, which was rate 12 was the original guidance. We're absolutely ready to do that and well positioned to support Airbus with that, looking forward to doing so.

I think much above rate 12, 13, those sorts of rates is going to require further investment in terms of our facilities. And I think that holds true across the the broader industrial base. And as we move towards those targets towards the back end of the decade, we'll obviously be working very closely with Airbus to make sure we're ready. But it's a positive story on A350, an important platform for us going forward. And as you know, we have a deep composite technology on that platform.

In terms of the GTF, I mean, the first thing I'd say about the GTF is that we're seeing some really encouraging progress. You probably picked up the AOGs as a result of the PMI issue. They're down 25% year-on-year, and that's a function of the variability of spare parts as well as turnaround times as well. So that part of the program is going well. And as you know, we've given guidance specifically to effectively the cost of that program, the -- effectively putting the PMI right, those tailing away into next year.

More broadly than that, the program is still in a phase of development. We've got the GTF Advantage now coming into service. The first of those engines going to Airbus as we speak and the Hot Section+ will also upgrade the performance. In fact, the target here is to double the time on the wing with a combination of those 2 things. So as we play forward on the GTF, you're getting a number of factors. You're getting the AOG costs coming down, you're getting the development costs come down. But most importantly, you're also getting paid for shop visits by the program being replaced by cash generative and profitable shop visits being paid for by customers.

So that inflection of all those drivers is coming through as we'd expect, and I'd say we're ahead of where we expected on the AOG in particular. So that inflection point happens in 2028. As you know, we've never guided to that and nor should we do so given the fact we're a program share partner. But the GTF is encouraging for us and an important part of our future cash flows going forward.

And then finally, on the GBP 600 million, Ben, I just -- I think the key thing here, as I said in the presentation a few minutes ago, is that the underlying drivers for that free cash flow increase, a significant increase from where we are, are absolutely intact. So that's the growing operating profits, the RSPs and the GTF that we've touched on. I think it's fair to say that the -- there are some moving pieces within that relative to what we originally set out a couple of years ago. We've clearly got some headwind around FX as we sit here today. The build rates have been sticky. But on the other side, you've obviously got defense demand. And clearly, we've had some encouraging news on the aftermarket from our OEM customers recently. So in the round, we can see absolutely those drivers coming through and are confident of that GBP 600 million free cash flow target.

The next question comes from Stephan Klepp of BNP Paribas.

I'm going to be boring. I have 3 follow-ups on things that we just discussed a little bit before. Let's go to Garden Grove and the operational impact. I mean, you have been the primary source, not a sole supplier. Do you see that the second source of canopy, particularly for the F-35 is taking market share? And do you think that -- if that's the case, would that be temporary and you can win that back?

Second question would be with regards to the free cash flow and the target of EUR 600 million. I mean, can you help us a little bit with the direction of travel over the next years? I mean, we understand the drivers, I think, but can you help us as well with a quantification of the direction of travel for what you expect '27, '28, '29? Is it V-shaped, U-shaped, S-shaped, linear? I don't know, I'll leave that to you.

And then the last point, I mean, if I look at your balance sheet and your cash generation in the last 2 years, can you remind us why you had share buybacks in the first place, please?

Maybe I'll start with the last question, if I may, because in terms of the share buyback, it's historic, but your question there. Look, at the end of the day, we have been very clear and confident and we remain so about the cash generation of this business. And if you think about staying within the guidance range of the leverage that we have, we stepped forward with a share buyback to demonstrate real confidence of the cash coming through. And we retain that confidence. We have the balance sheet to do it. We believe it was a good use of our capital to do that and a very good signal about, as I say, that confidence in our cash trajectory. So that remains absolutely the case.

And I think what Ross has outlined here is an appropriate decision just to put that on to pause pending what we've talked about in Garden Grove. But let's be clear, we've got a capital allocation policy, which we've again reinforced today, first and foremost, investing in the business; secondly, ordinary returns and then the share buyback. And so if cash is a bit under pressure with uncertainty as we've got with Garden Grove, it's a natural place and a sensible place for us to pause that buyback. But -- so that hopefully gives you the context.

I think as it relates to the GBP 600 million, again, I'll sort of give a view then, and you may or may not want to sort of add to that, Ross. But in terms of the shape, what we've said is that we're going to get consistent operating profit growth. That's going to come through as we see. We talked about the build rates, the aftermarket going through and the RSPs will also -- there'll be more of an uptick as we get the new engines coming through.

The big inflection point is the one that we've just talked about and Ben asked about, which is the GTF. And that means that it is back-end loaded because you go from being effectively cash negative in 2027 to being cash positive and then increasingly cash positive going forward. So beyond that, it's a sort of linear progression from here, steady growth in our cash flows with that step-up as the GTF comes across. I mean the only other factor, of course, is what we've got with -- as it relates to Garden Grove, which we'll come back and guide on that.

And then finally, on the Garden Grove side, look, we are a cornerstone provider to the F-35. I think that's evident from the fact that the U.S. government have invested $150 million alongside us to double our capacity. We've got proprietary capability, which includes in particularly not just the acrylic production, but also coating. And what we're doing right now is working very closely hand in glove with the U.S. government and the [indiscernible] to make sure that we're able to support the fleet. That doesn't mean we're doing more repairs, but we are the cornerstone provider for that with our proprietary technology, and we're very much in demand. So the key thing is how we get this site up and running again safely and in a timely manner. And frankly, the U.S. government are providing outstanding support with us in that regard.

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

First one is on Garden Grove. And does restarting full production there, does that require a single approval from the various regulators who are working together? Or do you need separate sign-offs effectively from each regulator individually, so the local health care agency as well as the Environmental Protection Agency, for example?

And then my second question is on aftermarket growth within engines, which was 15%. And I believe that engine OEMs have reported growth a little bit higher than that in the first half of this year. So sort of 20% to 30% is what we've seen elsewhere. Are there any particular reasons why that H1 growth might be a little softer at Melrose and within engines?

So I think on the Garden Grove one, it's a fairly straightforward answer. There are multiple regulators involved here at a federal state and at the local level, and we're working very closely with all of them. I have to say the intensity and the operational grip and focus of the team has been very strong and will remain so to make sure we're managing all stakeholders, but it is multifaceted to be straightforward about it. We're working with them all. And frankly, that's one of the reasons why we can't be more specific about the start-up timing.

The point about the aftermarket, I think, is interesting. Clearly, we are an RSP partner. And therefore, the cash flow sometimes are not exactly aligned with the timing of the -- of our customers in terms of their performance. And we're obviously going to see continued progression in the second half.

I think the other thing I would say just very specifically is that clearly, we have a broad portfolio, but the one engine that we're not on from an aftermarket perspective is the LEAP, which I think had a particularly strong performance in the first half, if you look at GE and Safran's results. But what we can say clearly is we've got embedded positions on all of these engines and the aftermarket growing and performing strongly in terms of shop visits, scope and profitability is good news for Melrose, and it will come through.

The next question is from Charles Armitage of Citi.

Garden Grove, again. Can I just sort of make sure I've got it right? And what I'm trying to do is work out what the bucket of contingent cost might be. So it was 5 days. There were no leaks, no contamination, no injury. Presumably, there was an exclusion zone around. Any idea how big that was or how many people were involved? And it seems to me that the potential buckets of contingent costs would be compensation for 5 days of being mucked around lost earnings or something, required extra oversight, potentially penalties for letting it happen in the first place. But I'm I'm trying to figure out whether there's a path to anyone can claim long-term harm. Any comments on any of that?

Sure. Let me take that. Look, in terms of the incident itself, so if you take the market report at the time, the estimate is somewhere between 50,000 and 60,000 people were evacuated from the vicinity of the facility over the Memorial Day weekend period. So that, in essence, is the disruption that has been caused by the incident. And as far as the compensation program that we are considering and debating is very much around making sure that we have to put the community right for some of the costs in which were incurred as part of that. So one example, for instance, would be individuals who took out a hotel during that period of evacuation, obviously, they've incurred out-of-pocket expenses.

And as Peter said, we've been operating within the Garden Grove community for decades. We're an important part of that community. We employ over 500 people on the site as well, and we want to be doing the right thing for there, not just for today, but for tomorrow and the many years thereafter as well. I'm not going to go through the specific parts of potential kind of compensation program or indeed litigation because they are live, complex and multifaceted. But some of the points that you raised are perfectly valid to be considering as part of the overall situation as we look to resolve it.

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

I've got another one on Garden Grove, please, but it's a slightly different angle. Are there any kind of longer-term strategic, I guess, takeaways from this issue? Is there a review of other facilities to make sure that something similar couldn't happen there? And does this have implications to the CapEx budget going forward?

Ian, thanks for your additional question here, and I welcome the opportunity to address it actually. The first thing is, as we've outlined, the most important priority for us is safety and ensuring that we operate the right way. And indeed, we're pleased with the performance we've had and the improvements we've driven in this regard demonstrably over the last few years.

The other piece I'd say is from a CapEx perspective, our first priority is always investing in the business and a good chunk of our CapEx every year is related to maintenance. And specifically in Garden Grove, actually, we've invested fairly heavily in this site, over GBP 25 million over the last few years.

So the point is that we've had an incident here. We need to step back and look at it and learn from it. And indeed, as you'd expect, what we've done immediately is have a review of our processes, anything that's similar across our global estate. That work is complete, and -- but we will redouble our efforts, making sure that we're staying right on top of this. As we sit here today, what we can say is that we don't expect any major uplift in our capital programs as a result of this incident because we operate safely in line with the law and the regulation. This is an unfortunate incident. We can, of course, learn from it, and we will learn from it. But I don't think it takes us off course or indeed raises questions more broadly about what we've invested in and the business that we build and how we run it.

The next question is from Mark Fielding of RBC.

Sorry to -- I feel actually awful just laboring with another Garden Grove question, but I just wanted a couple of clarifications. First one, when we think about the future cash profile, the implication is with the comments you made on the first half cash that there was about a GBP 20 million working capital unwind benefit. I assume we have to model that reversing as you restart production just to check that we get in the right place in the future.

Yes, that's correct, yes. So there will be a rebuild of [ WIP ] and also typically, the canopies in particular that we produce for the F-35 are multi-month, right? So as we get back into a full kind of new canopy production model, there will be a build back again of working capital, yes.

Perfect. And then in terms of the acrylic, is there any issue in the wider market? I mean you say you're a key provider around acrylic availability. And I suppose in that context, in the GBP 6 million per month cost, can you give some sense of the scale of how overhead recovery is? I assume the big part of that, but how big is the sort of impact of having to buy an acrylic?

So just in terms of the acrylic market overall, I think it's fair to say in the supply chain in aerospace overall at the moment, things are tight. I think we all know that and it's actually constraining production, not specifically around acrylic, but around many, many factors. So the whole industry is in across defense and civil is clearly needing to ramp up. And therefore, straightforwardly, acrylic does fall into that category of where there is a shortage of capacity if something happens like this. And we are a very significant producer of acrylic to the global market.

So what we're doing right now is in conjunction with our customers, and we're working very closely with them, if there is acrylic available in the market, we're sourcing that or they are sourcing it and then we are processing that and we're up and running, shipping transparency to our customers now using inventory that we've either got in -- or we've got in our own facilities. Of course, we do this at [indiscernible] as well here or where we can do is we buy it from third sources. And that will continue.

But the key thing is in order to make the volumes that we want to and need to for our customers, we do need to get the main facility of making the acrylic in Garden Grove up and running. And that's been our focus. We are working very closely with the regulators. We've got a path forward to do that safely and in a timely manner. And we need to do that in order to meet customer demand. We support many different aircraft here, and that's our responsibility going forward. But by the way, we're confident that we'll be able to do that and resume production. It's a question of when.

Yes. And look, when we think about the financial impact in the GBP 6 million for the second half of the year, monthly based upon the timing of production resumption. There's a few factors going on there. First of all, as you said, from an overhead perspective, we have kept all of our team, right, within the site for a number of reasons. One is the right thing to do. And two, it means that we are able to respond very, very quickly as soon as we get MMA production back up and running to get back going again. So that's an important consideration.

In terms of why we're seeing the full drop-through into profit from the GBP 6 million impact on revenue, there's 2 drivers there, one of which is the increased costs associated with buying in acrylic from elsewhere. The second aspect is because the mix that we're doing as well in the business is changing, of course. As we mentioned, we're moving away from producing new canopies to repairing existing canopies that have been damaged in the past through its life of use. And both of those drivers are having an impact on the GBP 6 million. You can imagine commercially, I'm not going to go into the split between the 2 of those, but that's the key drivers.

If I could just ask one longer-term question, which is in terms of, obviously, it's very encouraging for you that you're basically on all 2 -- 3, if we include Rolls-Royce Next-Gen platforms. I just suppose about a comment on the sustainability of being on all 3, both from a competitive standpoint of whether those partners are happy with that. And secondly, in the end for you a financial requirement that would be needed at the point that we get to the development of that next-generation engine.

Indeed, I mean, as we said, the market is evolving, and we're not exactly sure -- I don't think anyone is exactly sure what the shape will be, whether it be 2 or 3 engines that will ultimately come to market. The key thing for us is that our technology is in demand. So we're the global market leader in lightweight structural components and on pretty much all engines that are out there today. And I think our additive fabrication is something that is particularly interesting to our OEM partners here because it's not only about security of supply and moving away, in some cases, away from forgings and castings, but frankly, you can design components differently if you use additive fabrication. And that's very much part of the development discussion.

I think in terms of the competitive position between the platforms, that's not for me, obviously, to discuss here, but I think it's driven by technology. And if we're providing something that is important to each of those programs, that's a good place to be.

I think the final point is it comes back really to almost the original question about what does this mean for us going forward. I imagine that we're going to have a decision to make or a series of decisions to make at Melrose about what next-generation single aisles we get into and on what basis, whether that be with RSPs, whether that be more on a more traditional kind of straightforward supply basis. And we will play that as it comes forward. Right now, there's very much demand for our technology, and we'll make decisions as the market evolves with shareholders' interest at the center of that. And those decisions, I think, will need to be made towards the back end of this decade. But the key thing, I'll come back to again is we're around the table, more than that. We've got our sleeves rolled up, working on next-gen single aisle and excited about the developments, whether that be open fan rotor, ducted, 2 or 3 engines in whichever way the market evolves. We will be involved.

And the last question today comes from Cameron Ogilvie of Morgan Stanley.

I'm sorry, I will come back just on the Garden Grove. Just a few clarification on my side. I do understand that the timing is very uncertain because of regulatory approval, but do you have any visibility about like meeting date with authority and regulators that could lead to clearing the production side and so to restart the production. If you can give any detail about where are you in your negotiation? And is there any milestone that you can share with us just to improve the visibility? So that's the first question.

The second one is -- just I would like to come back on the potential impact on guidance and the EUR 6 million monthly impact on operating profit and cash. Do you see any mitigating action that could offset the impact on the guidance? Or should we take this EUR 6 million monthly impact as the case?

And the last question is just on the additive fabrication progress. Do you have any color on your CapEx plan? Is this still in line with your initial expectation? And do you see any room to move forward the industrialization phase?

So in terms of the regulator, look, we can't give any further guidance here. This is -- we're involved in these processes. What I can tell you is that we've got clear path plans to basically start production again by making some adjustments to some additional safety and protocols, et cetera. We're working through. We're confident we've got some plans that will enable us to start. But at the same time, they need to go through the regulator, and there's obviously legal processes going on as well. So I'm sure you'll understand that we can't give any more detail in terms of the timing.

What we've tried to do today is explain the impact, say we're working at pace. And as soon as we get anything more from the regulator in terms of certainty of when we can start, we will come back and discuss that with the market and obviously update the market. So not much more we can say on that particular point, except to say we're all over it, safety first, but it is dependent clearly on wider processes.

Do you want to get the guidance one?

Yes, I would. Look, in terms of the guidance and the EUR 6 million, that is our net number, i.e., taking into consideration all of the dynamics that are at play at the moment, including our mitigants as well as how we're redeploying the team as well. So that's our net number for the monthly run rate.

And then we just finished on additive fabrication, and I'm pleased to have the opportunity to talk about it because this is a technology. I've alluded to it as it relates to next-gen single aisle, but it's actually also in demand, not only in terms of aerospace, but increasingly actually in industrial gas turbines, which are obviously very much in demand because of the data center market, amongst other things. So this is a technology which has the potential as indeed already, in some cases, displacing traditional forgings and castings, which is a very constrained market and in many ways, is gating production. And we are undergoing the further development of this technology in terms of its certification and in terms of its industrialization, and I touched on that.

Relative to the economics of this, there's no great change to what we said before. We have made a commitment that this is something that will generate net positive impact of GBP 50 million in 2029, and we're on track with that. And that impact will come from penetration of the technology. So that's new business for us using this technology as well as actually savings as we in-source components that we're currently buying in a constrained market. So no change to the guidance, but some very encouraging progress as we've announced today and in recent press releases.

Thank you. And with that, this concludes today's Melrose half year results call. Thank you all for joining. Have a great weekend, and you may now disconnect your lines.

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.