AEROSPACE EXPERTISE
MELROSE INDUSTRIES PLC — ANNUAL REPORT 2024
CAUTIONARY STATEMENT
The Strategic Report and certain other sections of this Annual Report and financial statements contain statements that are, or may be deemed to be
“forward‑looking statements”. These forward‑looking statements may be identified by the use of forward‑looking terminology, including the terms “believes”,
“estimates”, “plans”, “projects”, “anticipates”, “potential”, “predicts”, “expects”, “intends”, “may”, “will”, “can”, “likely” or “should” or, in each case, their negative
or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. Forward‑looking statements
may and often do differ materially from actual results. Any forward‑looking statements reflect the Company’s current view with respect to future events and are
subject to risks relating to future events and other risks, uncertainties and assumptions relating to the business, results of operations, financial position, liquidity,
prospects, growth and strategies of the Group. Forward‑looking statements speak only as of the date they are made.
In light of these risks, uncertainties and assumptions, the events in the forward‑looking statements may not occur or the Company’s or the Group’s actual
results, performance or achievements of the Company might be materially different from the expected results, performance or achievements expressed or
implied by such forward‑looking statements. Forward‑looking statements contained in this Annual Report speak only as at the date of this Annual Report. The
Company expressly disclaims any obligation or undertaking to update these forward‑looking statements contained in this Annual Report to reflect any change
in their expectations or any change in events, conditions, or circumstances on which such statements are based unless required to do so by applicable law, the
UK Listing Rules and the Disclosure Guidance and Transparency Rules of the FCA or Regulation (EU) 596/2014 as it forms part of the domestic law of the United
Kingdom by virtue of the European Union (Withdrawal) Act 2018. Some financial and other numerical data in this Annual Report and financial statements has
been rounded and, as a result, the numerical figures shown as totals may vary slightly from the exact arithmetic aggregation of the figures that precede them.
A world‑leading aerospace
business, with established
positions on all the world’s
major aircraft and engines
Melrose continues to build on its strong track record
of generating outstanding returns for shareholders
Find out more on our website
www.melroseplc.net
CHIEF EXECUTIVE
OFFICER’S REVIEW
Read about our 2024
results and our strategic
priorities for 2025
and beyond.
Chief Executive
Officer’s review
page 8
OUR BUSINESS
MODEL
Read about our growth
strategy as an aerospace
technology business,
creating long‑term value for
our shareholders,
employees and customers.
Our business model
page 14
SUSTAINABILITY
REVIEW
Investing in sustainable
technology to shape the
future of flight
Sustainability review
page 51
STRATEGIC REPORT
2
At a glance
4
Investment case
6
Chairman’s statement
8
Chief Executive Officer’s review
12
Market trends
14
Our business model and strategy
16
Divisional review – Engines
20
Divisional review – Structures
24
Key performance indicators
26
Chief Financial Officer’s review
33
Longer‑term viability statement
34
Risk management
37
Risks and uncertainties
45
Section 172 statement
51
Sustainability review
100
Non‑financial and sustainability information statement
GOVERNANCE
103
Governance overview
108
Board of Directors
110
Directors’ report
115
Corporate governance report
124
Audit Committee report
132
Nomination Committee report
136
Directors’ Remuneration report
156
Statement of Directors’ responsibilities
FINANCIAL STATEMENTS
158
Independent auditors’ report to the
members of Melrose Industries PLC
168
Consolidated Income Statement
169
Consolidated Statement of Comprehensive Income
170
Consolidated Statement of Cash Flows
171
Consolidated Balance Sheet
172
Consolidated Statement of Changes in Equity
173
Notes to the Financial Statements
226
Company Balance Sheet for Melrose Industries PLC
227
Company Statement of Changes in Equity
228
Notes to the Company Balance Sheet
237
Glossary
ADDITIONAL INFORMATION
245
Notice of Annual General Meeting
253
Company and shareholder information
Note: Throughout this Annual Report like‑for‑like growth versus 2023 is calculated at
constant currency and, for revenue, excludes businesses exited during 2024.
Contents
1
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
AT A GLANCE
Melrose is an industry‑leading
global aerospace technology business
TWO INDUSTRY‑LEADING DIVISIONS
ENGINES
DIVISION
1
2
STRUCTURES
DIVISION
1
2
ENGINES
We are a trusted technology partner to all global engine
manufacturers. Our structural engine components feature
on 90% of major civil aircraft today, with long‑term
partnerships built on differentiated products, processes
and intellectual property. We also hold an OEM position on
the RM12 engine.
Customers
GE Aerospace, Pratt & Whitney, Safran, Rolls‑Royce and
other engine OEMs
Product solutions
Engine mount structures; fan cases and turbine cases;
shafts and rotating components; parts repair and
aftermarket services
Technology
Engineered metallic structure design and manufacture;
advanced welding capability; industry‑leading additive
fabrication
STRUCTURES
We deliver cutting‑edge airframe technology and
electrical distribution systems from a global industrial
footprint. We have embedded customer positions on all
today’s major aircraft, and our design‑led solutions are
well placed for the next generation of aircraft, across
both the civil and defence markets.
Customers
Airbus, Boeing, COMAC and other airframe OEMs
Product solutions
Wing structures, empennage, fuselage, electrical
wiring interconnection systems (“EWIS”) and advanced
aircraft transparencies
Technology
Lightweight composite and metallic structure design
and manufacture; EWIS design and components;
proprietary coating solutions
2024 REVENUE BY MARKET
2024 REVENUE BY MARKET
1
Civil
76%
2
Defence
24%
1
Civil
69%
2
Defence
31%
Read more about our Engines division
page 16
Read more about our Structures division
page 20
2
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
1
3
2
4
Fort Worth, US
Bristol, UK
Hoogeveen, Netherlands
Trollhättan, Sweden
Key
Global technology & Innovation centres (4)
Countries with manufacturing locations (12)
1
2
3
4
OUR 2024 RESULTS
OUR GLOBAL PRESENCE
32
Manufacturing sites
4
Technology & Innovation
centres
3
Engine repair centres of
excellence
12
Countries of operation
Revenue
£3,468m
£3,468m
£3,350m
2024
2023
Statutory operating profit/(loss)
£(4)m
£(4)m
£57m
2024
2023
Full year dividend
6.0p
6.0p
5.0p
2024
2023
Adjusted operating profit
£540m
£390m
2024
2023
£540m
3
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
01
02
03
04
05
06
Well positioned in structurally
growing civil and defence
aerospace markets
Proven track record of
continuous business
improvement
Unique portfolio of 19 engine
RRSPs giving entitlement to
long‑term aftermarket growth
and cash
New growth opportunities
from proprietary technology
such as Engines’ additive
fabrication
Key partner for next generation
aircraft; only player on both
next generation engines
Established presence on
all of the world’s leading
aircraft and engines
INVESTMENT CASE
We are focused on continuous operational and financial improvement
over the longer term. Our positive trajectory is underpinned by the
strong organic growth prospects within the aerospace sector, our
embedded positions on major aircraft and engines, and our exceptional
technology portfolio.
Melrose is a UK‑listed global aerospace
technology business with a record of delivering
significant value to shareholders
BUSINESS ATTRIBUTES
Ongoing sales and EPS growth with sustained increase
in cash generation
Group revenue of
c.£5bn
Adjusted operating profit of
£1.2bn+
Free cash flow(1) of
£600m
(after tax and interest)
Earnings per share annual growth(2) of
>20%
Cash returns for shareholders
SHAREHOLDER RETURNS
5‑YEAR TARGETS
LONG‑TERM
(1) In 2029.
(2) 2024‑2029 CAGR.
INVESTMENT CASE
Margin of
24%+
4
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
01
Well positioned in
structurally growing civil
and defence aerospace
markets
The aerospace market is characterised by
long‑term structural growth, including record
aircraft order books, increasing engine flight
hours and rising defence spend. Melrose
continues to benefit both from the production
ramp‑up of new aircraft, as well as the strongly
growing engine aftermarket.
>14,000
aircraft order backlog across Airbus
and Boeing
04
Proven track record of
continuous business
improvement
We drive continuous business improvement to
ensure Melrose remains a vibrant and trusted
business for all stakeholders. We are focused
on operational excellence and delivery for our
global customers, and achieving progressive
financial results.
£100m+
cash generation forecast in 2025, which is
forecast to more than quadruple by 2029
02
Established presence on
all of the world’s leading
aircraft and engines
Melrose has embedded positions on today’s
leading commercial narrowbody and widebody
aircraft, business jets, as well as the world’s
major defence platforms. We have technology
on‑board around 100,000 flights a day. We are
well balanced across the major OEMs within
the engines and structures civil and defence
markets, fulfilling original equipment and
aftermarket activity.
>70%
revenue generated from sole source positions
05
New growth opportunities
from proprietary technology
such as Engines’ additive
fabrication
Melrose is a trusted design partner to
our customers, delivering breakthrough
technologies and creating high‑quality,
precision‑engineered components.
Our differentiated technology, including
world‑leading additive fabrication capability,
enables us to strengthen our existing positions
and take advantage of new opportunities.
Proprietary
additive fabrication technology in demand
from all engine OEMs
03
Unique portfolio of 19 engine
RRSPs giving entitlement
to long‑term aftermarket
growth and cash
We have a uniquely wide portfolio of engine
risk and revenue sharing partnerships (“RRSPs”).
All 19 of these programmes are set to be cash
positive in 2028, delivering substantial free cash
inflow in the years ahead.
£22bn
of cash to be generated by our RRSP portfolio
06
Key partner for next
generation aircraft; only
player on both next
generation engines
Melrose is the only partner on both future
single‑aisle engine technology programmes:
the CFMI RISE and Pratt & Whitney’s next
generation GTF. We have also been a
wing partner with Airbus for 25 years. Our
design‑led partnerships mean we are well
placed to participate in the next generation
of aircraft and engines.
Partner
on both next generation engine technology
development programmes
5
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
CHAIRMAN’S STATEMENT
PURPOSE, STRATEGY
AND SUSTAINABILITY
Our strategy remains underpinned by the
principles on which Melrose was founded,
namely a sharp focus on value creation,
driven by operational and financial
improvement over the longer term. Our
positive trajectory is built upon leading
positions on all of the world’s major aircraft
platforms, strong organic growth prospects,
and attractive opportunities to differentiate
our business further through cutting‑edge
proprietary technology that is already
shaping the future of flight.
The long‑term decarbonisation of the
aerospace sector remains a priority, and we
continue to deploy our innovation and
technology leadership to deliver commercial
solutions that ultimately contribute to cleaner
air travel and generate superior financial
returns for our shareholders. Further
information about the commercial and
technological opportunities being generated
by our market‑leading additive fabrication
capabilities can be found in our Chief
Executive Officer’s review and Engines
divisional review. Our sustainability
performance continues to be recognised by
several key benchmarking agencies,
including: MSCI which upgraded our ESG
rating to ‘AA’ making us a leader among our
aerospace and defence industry peers; CDP
which ranks us ‘B’ for Climate Change and
Water Security; and Sustainalytics, ISS and
EcoVadis which each rank Melrose among
the top decile of aerospace businesses.
I am pleased to report our second set of annual
results since Melrose’s transformation into a
world‑leading aerospace technology business.
CALENDAR YEAR 2024
The Group enjoyed another strong year in
2024, delivering profits at the top end of
expectations. We achieved revenue for the
Group of £3,468 million (2023: £3,350 million),
with an adjusted operating profit of
£540 million, up 42% versus 2023.
With our strategy now established as a
long‑term global aerospace technology
business, our extensive restructuring set to
complete in 2025, and a strong, experienced
senior management team in place, your
Board is confident that Melrose is on track to
realise its full potential. This includes the
continued commercialisation of our leading
technology and capitalising on the aerospace
sector’s strong structural and market
fundamentals, including through our Engines
aftermarket business, and leading platform
positions in Structures.
These results demonstrate the Group’s
trajectory to achieving its 2025 financial
targets, and today we are pleased to publish
our new five‑year targets. Further details are
contained in the Chief Executive Officer’s
review and Chief Financial Officer’s review. I
would like to thank all employees for their
efforts this year.
Our positive trajectory is built upon
leading positions on all the world’s
major aircraft platforms”
Justin Dowley
Non‑executive Chairman
Strong performance
in 2024
6
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
DIVIDEND AND
SHARE BUYBACKS
In line with our policy to grow dividends, the
Board proposes to pay a final dividend of
4.0 pence per share for 2024, making a total
dividend for the year of 6.0 pence per share.
The final dividend will be paid on 9 May 2025
to those shareholders on the register at
28 March 2025.
During the year, the Company completed its
£500 million share buyback programme, and
commenced a further £250 million share
buyback programme that is due to complete
in March 2026.
BOARD MATTERS
Having served your Board as a Non‑executive
Director since 2011, this is my final statement
as Non‑executive Chairman before I step
down from the Board on 31 March 2025 as
previously announced. I am pleased to have
worked closely alongside my successor,
Chris Grigg, since his appointment as
Non‑executive Director and Chair designate
on 1 October 2024, to ensure an orderly
transition to his appointment as Non‑executive
Chairman of the Board on 30 March 2025.
I am confident that under Chris’s oversight
the Company and its management team will
continue to thrive, and that the business will
benefit from his seasoned FTSE 100
executive and non‑executive experience,
including his aerospace sector experience as
Non‑executive Director and Senior
Independent Director of BAE Systems. Chris
also has a strong track record in promoting
diversity and inclusion at Board and senior
management level, and serves as a member
of the FTSE Women Leaders Review’s
independent steering body. Under Chris’s
leadership, your Board will continue to
bolster, support and challenge management
in delivering on stakeholders’ expectations,
and in pursuing the business’s ambition to be
its customers’ most trusted and
sustainable partner.
To facilitate completion of the Non‑executive
Chairman succession process, continued
succession planning and the development of
a diverse Board, the Nomination Committee
and the Board have approved a short
extension to David Lis’s tenure as Senior
Independent Director up to the end of 2025.
In addition to Chris Grigg, Ian Barkshire
joined the Board as Non‑executive Director
on 1 October 2024. Ian brings a strong
science and technology background and a
track record of value creation and executive
leadership having previously served as Chief
Executive Officer of Oxford Instruments plc.
I would like to thank my fellow Directors,
both past and present, and the senior
management teams with whom I have
had the privilege of working. Melrose has
created significant value for shareholders
and successfully transformed its strategy
to enable the Group’s current and future
success as a world‑leading
aerospace business.
Justin Dowley
Non‑executive Chairman
6 March 2025
OUR SUSTAINABILITY PERFORMANCE
RECOGNITION
Our 2024 ESG scores
AA
MSCI ESG Rating of AA
(2023: A)
B
CDP Climate Change score
(2023: B)
B
CDP Water Security score
(2023: C)
7
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
CHIEF EXECUTIVE OFFICER’S REVIEW
Looking forward, we are pleased to
announce new five‑year targets. These
targets are built on our strategy to deliver
organic growth, primarily from well
established positions on the world’s leading
aircraft and engines. Our transformation
programme has focused Melrose where we
have proprietary technology and high quality
of earnings, and we are also now serving our
global customers from a leaner operating
base. This position, coupled with structural
aftermarket growth and record order
backlogs for new aircraft, gives us
confidence to target high single digit annual
top line growth leading to c.£5 billion of
revenue in 2029 with expanding margins
delivering £1.2 billion+ of adjusted operating
profit. Our cash generation is set to increase
dramatically over the period, to £600 million
(after interest and tax) in 2029, due to profit
growth, increasing aftermarket cash flows
and current one‑time costs falling away.
Overall, we are well placed with a unique
position in a structurally growing market and
with a clear strategy to deliver significant
value. Our focus is therefore on executing our
plan while navigating what are likely to remain
turbulent times in our industry and more
widely.
OVERVIEW
Melrose delivered a strong performance in
2024. During the year, we continued our
growth trajectory as a focused aerospace
technology business while building the
foundations for future value creation.
Our full year profits for 2024 were at the top
end of expectations, despite industry supply
chain issues that constrained aircraft
production. The Engines division
outperformed with continued strong
aftermarket growth, and the Structures
division made good progress with its
extensive improvement actions reading
through. Across the Group, our relentless
focus on safety and quality delivered an 80%
reduction in lost time accidents. We also
progressed with our proprietary technology
developments, most notably with additive
fabrication which is now in demand from all
engine OEMs.
We have good momentum going into 2025
and are confirming our guidance to deliver
the £700 million adjusted operating profit
target we set in May 2023, notwithstanding
the ongoing industry supply chain
challenges. We expect margins to continue
to increase above the target range driven by
positive aftermarket mix and the full year
benefits of business improvements
completed in 2024. In the year ahead we will
complete our transformational multi‑year
restructuring programme and expect to
reach an important inflection point in cash
generation, with our guidance for substantial
free cash flow after interest and tax.
We are well placed to deliver
further profitable growth
and a step change in cash
generation in the years ahead.”
Peter Dilnot
Chief Executive Officer
Strong growth trajectory
as a focused aerospace business
8
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
RESULTS
Overall Group revenue rose 6% in 2024 to
£3,468 million, with like‑for‑like sales up 11%
taking into account exited businesses. This
was principally driven by strong Engines
growth of 26%, especially across parts repair,
defence aftermarket and our RRSP portfolio.
Structures revenue growth of 3%, on a
like‑for‑like basis, was achieved against a
backdrop of industry‑wide supply constraints
and the previously announced customer
destocking. Group revenue would have been
£66 million higher if foreign exchange rates
had been at our guided US $1.25 in 2024.
Group adjusted operating profit rose 42% to
£540 million, with margins up 4.0ppts to
15.6%, driven by revenue growth, business
improvements and aftermarket mix. At a
divisional level, Engines delivered margins of
28.9%, exceeding its original 2025 margin
target of 28% a year ahead of plan, with
Structures on track at 7.2% despite lower
than expected OEM build rates. Group
adjusted operating profit would have been
£12 million higher if foreign exchange rates
had been at our guided US $1.25 in 2024.
The Group achieved positive free cash flow in
the second half of 2024 with full year cash
flow and net debt in line with expectations.
Net debt stood at £1,321 million at
31 December 2024. This reflected leverage of
1.9x after funding growth, restructuring,
dividends and share buybacks. The share
buybacks in 2024 included completing the
£500 million programme announced in
September 2023 and starting the £250 million
programme announced in August 2024.
HIGHLIGHTS
Melrose is a ‘Super‑Tier 1’ partner with
design‑led solutions deeply embedded in our
customers’ aircraft and engines, often for the
life of the programme. We have an excellent
track record of value creation and in 2024 we
set out a clear strategy to continue this by
delivering growth from existing platforms,
expanding in new targeted opportunities, and
contributing to next‑generation aircraft. We
made encouraging progress in all these areas.
Our Engines business continued to deliver
profitable growth from both the civil and
defence aftermarket as flight hours for in‑flight
engines increased. In the civil engine repair
business, we expanded both our LEAP fan
blade and our Geared Turbofan (“GTF”) repair
capabilities, and opened our new San Diego
repair facility to increase capacity for the
growing demand. Engines also signed a
decade‑long OE production contract with
Safran to supply LEAP‑1A shafts from Norway
and support the ongoing global ramp‑up. In
Structures, new commercial agreements were
secured with Lockheed Martin to double our
F‑35 canopy production capacity by 2027,
largely funded by the customer, as well as a
multi‑year contract renewal with Airbus to
deliver the full A220 electrical wiring package.
In parallel, long‑running commercial
negotiations with Boeing were successfully
concluded with the sale of both our
Orangeburg and St. Louis operations, and we
also divested our non‑core Fuel Systems
business at the beginning of the year. With our
defence repricing work well advanced,
Structures is now a stronger, design‑led
business with a promising growth trajectory.
Our future technology development is
focused primarily on our world‑leading
additive fabrication solutions, which is in
demand from all major engine OEMs. We
have commenced our investment of up to
£300 million over five years to industrialise
this breakthrough technology and our first
dedicated factory is already building out its
early production capacity. This is a highly
differentiated capability, providing our
customers with an alternative manufacturing
solution for large‑scale, flight‑critical
components offering much lower lead times,
higher quality and less waste. We reached a
landmark in 2024 by delivering the first
demonstrator case produced wholly by
additive fabrication for testing within the
next‑generation CFMI RISE technology
programme. Elsewhere, long‑term
production contracts have been secured with
Pratt & Whitney, with FAA approval secured
and flight‑critical additive fabrication
component deliveries now well underway,
and with GE Aerospace, where development
work is progressing well. Our Global
Technology Centres continue to explore the
potential for additive fabrication across
large‑scale aerostructures in the future.
OUR STRATEGY
IN 2024 WE SET OUT OUR CLEAR GROWTH STRATEGY:
• Deliver growth from existing platforms
• Expand in targeted new opportunities
• Participate in next generation aircraft
Business model and strategy
page 14
Our new five‑year targets:
c.£5bn
revenue
£1.2bn+
adjusted operating profit
£600m
free cash flow
24%+
operating margin
9
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Continued
CHIEF EXECUTIVE OFFICER’S REVIEW
CAPITAL ALLOCATION
At our half year results announcement in
August 2024, we set out Melrose’s capital
allocation approach in support of our
long‑term growth strategy. This policy is
focused on two key principles: delivering
sustained profitable and cash generative
organic growth, while rewarding shareholders
through capital returns.
During the year we accelerated our
investment to increase operational capacity
and automation, especially within our
high‑margin Engines business. This will
enable us to deliver the OEM ramp‑up and
capture the strong growth in our current
markets. We will also direct capital into new
business opportunities where our proprietary
technologies can deliver an internal rate of
return above 20%. We have already begun
investing up to £300 million over five years
specifically into our industry‑leading additive
fabrication capabilities, with the associated
revenue building progressively and a target of
more than £50 million incremental annual
profit by the end of the decade. We will also
continue to grow our business in other
targeted areas where we have technology
leadership and strong demand. Often these
opportunities can be pursued with a ‘capital
light’ approach through customer funding,
with recent examples including the F‑35
canopy ramp up, eVTOL development and
civil expansion in China. A leverage target
ratio between 1.5 to two times will provide
flexibility for future opportunities.
Alongside our organic investments, the
£500 million share buyback programme
announced in September 2023 concluded in
September 2024 and was extended by a
further £250 million programme through to
March 2026, thereby aligning programme
timing with full year results announcements.
These programmes highlight the Board’s
confidence in the future growth and cash
generation prospects of the Group.
Our technology‑led growth strategy,
combined with our disciplined approach to
capital allocation, offer attractive returns for
many years to come.
Market demand remained strong in 2024,
with the commercial aircraft order backlog
and global flight hours continuing to rise.
Domestic and international passenger air
traffic sales were also up, while passenger
load factors climbed towards 85%, with
several record months in the year. Total flight
hours finished the year 8% above 2023 levels,
while flight hours across our RRSP portfolio
increased by 5% versus the same period.
Industry‑wide operational challenges
persisted in 2024. Production capacity and
raw material shortages continued to restrict
new aircraft deliveries, with Airbus lowering
build rates during the year and Boeing also
facing quality and industrial relations
challenges. The continued constraints on
new aircraft production fuelled record order
backlogs, which now stand at around a
decade for narrowbody aircraft and six years
for widebody. These dynamics, while
challenging on the original equipment side,
will continue to boost our Engines
aftermarket performance, as existing aircraft
fly for longer, requiring additional engine shop
visits and more spares. In the longer term, an
expected continuation of flying hour
increases coupled with order backlogs
stretching into the 2030s underpins Melrose’s
growth for many years to come.
During 2024, we continued to work closely
with Pratt & Whitney and other partners to
manage the powder metal issue impacting
some GTF engines. Solid progress has been
made, with off‑wing inspections and Block D
upgrades delivered in line with Pratt &
Whitney’s global fleet management plan. The
GTF remains fundamentally an excellent
engine and its fuel consumption and durability
will be enhanced further by the Advantage
upgrade, planned for launch in 2025.
Within defence, global tensions and conflict
have continued to drive up military spending.
In the US, the National Defence Industry
Strategy has set out its path to increase
security through a more resilient supply
chain. Across Europe many countries have
pledged to increase defence spending to
2.5% of GDP, with some countries calling for
this to be pushed to as much as 5%. We are
well‑placed to support this trend with our
established footprint both in the US and
across Europe, in the UK, Sweden, the
Netherlands and Germany.
In parallel we worked closely with our
customers to ensure our participation on
aircraft platforms of the future. In Engines, we
signed an agreement with the Swedish
Defence Materiel Administration (“FMV”) to
explore future fighter propulsion systems,
while also progressing work on the
next‑generation GTF technology
development programme with Pratt &
Whitney. In Structures, we continued our
partnership with Airbus on future wing
development with Sustainable Wings
(“SusWingS”), the successor to the Wing of
Tomorrow programme.
We also delivered further operational gains in
2024. Safety and quality performance both
improved, with 80% fewer lost time accidents
and 14% reduction in cost of poor quality
versus 2023. Our customer deliveries also
stayed largely on track, despite the
industry‑wide supply chain issues. We
improved productivity through the year, but
progress was hampered by industry supplier
shortages. Inventory levels were also higher
due to our businesses holding more safety
stock and work‑in‑progress to protect
customer deliveries.
MARKET UPDATE
Melrose has embedded positions on all
leading commercial narrowbody and
widebody aircraft, as well as on many of the
world’s leading defence platforms. Our
Engines portfolio covers all major OEMs and in
Structures we have significantly more content
with Airbus than Boeing. Group revenues are
split 72% civil to 28% defence work.
Our Engines business leads the industry in
the fabrication of advanced engine
structures, cases and frames. We are a risk
and revenue sharing partner on 19 engine
programmes, covering around 70% of major
civil aircraft flight hours globally. We also
operate at an OEM level, holding the military
type certificate for the RM12 engine,
powering the Gripen fighter jet. In Structures,
we have design‑to‑build expertise in metallic
and lightweight composite components, as
well as electrical wiring interconnection
systems (“EWIS”) and transparencies for both
civil and defence aircraft.
Continued
10
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
OUTLOOK
As a result of our transformational multi‑year
restructuring programme, Melrose is
increasingly focused on design‑led
technology where we have established
proprietary or market‑leading positions on
the world’s leading aircraft. With structural
demand from record order backlogs and
increasing aftermarket requirements set to
continue, we are well placed to deliver further
profitable growth and a step change in cash
generation in the years ahead.
For 2025 we are confirming our guidance of
£700 million adjusted operating profit
(pre‑PLC costs), consistent with our May
2023 targets. Our adjusted operating margin
is expected to exceed 19%, driven by positive
aftermarket mix in Engines, ongoing
operational improvements, and the full year
impact of low margin disposals in 2024. The
Group free cash flow is set to increase to
>£100 million (after interest and tax) driven by
higher profits, lower restructuring costs and
improvements in trade working capital
efficiency. As usual we expect cash
generation will be second half weighted. Our
2025 guidance does not factor in the impact
from trade restrictions or tariffs.
Given our momentum and the strong
demand outlook, we are pleased to
announce new five‑year targets. These are
underpinned by our clear growth strategy
which centres on delivering the ramp up in
volumes expected on our existing platforms.
Our targets include sustained high single digit
top‑line growth to c.£5 billion of revenue in
2029, delivering £1.2 billion+ of adjusted
operating profit. The corresponding 5ppts
uplift in operating margins to 24%+ is driven
by operational leverage from higher volumes,
positive portfolio mix (especially in Engines)
and continued business improvements
through the period. We expect cash
generation from the Group to be transformed
with £600 million of free cash flow (after
interest and tax) in 2029. The building blocks
for this increased cash flow are growing
profits, the end of substantial restructuring
costs in 2025, the GTF powder metal
inspection programme completing in 2027
and the GTF programmes turning cash
positive in 2028. The free cash flow
generation will also be driven by working
capital efficiencies, tightly managed capital
expenditure and ongoing reductions in other
cash flow items.
We have a clear path to delivering these targets
based on the expected ramp up in production
rates to publicised levels and our positive
improvement trajectory. Overall, we are
excited about the future prospects for
Melrose and focused on delivering value for the
benefit of all stakeholders in the years ahead.
Peter Dilnot
Chief Executive Officer
6 March 2025
SUSTAINABILITY
During the year we announced a new set of
2025 sustainability targets for the Group,
after achieving the majority of our original
goals ahead of schedule. The ambitious new
targets focus on three key areas: reducing
emissions from our business; conserving the
planet’s natural resources; and supporting
aviation’s route to Net Zero by 2050. Detailed
updates on our performance can be found in
our Group Sustainability Report.
Melrose’s progress was recognised externally
in 2024, with our MSCI ESG rating upgraded
from A to AA. Our 2025 Group sustainability
targets and our Net Zero 2050 targets have
been validated by the Science‑Based Targets
initiative (“SBTi”). In addition EcoVadis, a global
leader in sustainability assessments rated us
among the top 10% of businesses in 2024.
As a Super‑Tier 1 partner, we recognise that
the greatest impact we can have on aviation’s
path to reduce emissions is by developing
breakthrough technologies for more
sustainable flight. This work continued across
all our businesses in 2024. For example, in
Engines our optimised intermediate
compressor case was successfully
ground‑tested as part of Rolls‑Royce’s full
power UltraFan™ trial, which ran on 100%
sustainable aviation fuel. In Structures, we
also reached milestones in the electrically
powered advanced air mobility sector,
delivering the first complete composite wings
and booms for Supernal’s SA‑2 eVTOL, while
strengthening our partnership with Joby on
thermoplastic structures. Our lightweight
composite expertise was also recognised
with an Aerospace Technology Institute
award for the collaborative ASCEND project,
to develop high‑rate and sustainable
aerostructures for civil aircraft. Finally, our
ground‑breaking work on hydrogen aircraft
propulsion continued at pace, with the
world’s first cryogenically cooled hydrogen
electric motor demonstrator delivered for
testing and plans for a 2MW propulsion
system.
As a result of our
transformational multi‑year
restructuring programme,
Melrose is increasingly
focused on design‑led
technology where we have
established proprietary or
market‑leading positions on
the world’s leading aircraft.”
11
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Global aircraft backlogs hit record levels in 2024, with demand
for widebody aircraft now reaching the end of the decade and
the single‑aisle backlog now into the 2030s. On the supply side,
aircraft deliveries were lower than prior year for the first time
since 2020. Airbus deliveries were lower than expected due to
the persistent supply chain constraints, while Boeing was
restricted by supply challenges and a series of quality and labour
issues in the year. This hindered the civil ramp‑up and, with
orders exceeding deliveries in 2024, further extended the
global order backlog.
Strong market demand provides
basis for future growth
MARKET TRENDS 2024
Global flight hours in 2024 were above pre‑COVID levels, as
global demand for air travel continued to grow. With new aircraft
deliveries constrained by supply chain issues, 2024 saw airlines
delay aircraft retirements in order to maintain fleet capacity,
which increased demand for engine maintenance. This trend
was accentuated by the powder metal issue impacting some
GTF engines, which required additional off‑wing inspections,
maintenance and upgrades. Strong aftermarket demand is
expected to continue.
Geopolitical instability continued to drive up demand for key
military platforms, with allied defence spending increasing
substantially in the year. European budgets, in particular, rose in
2024 as EU countries stepped up to meet their defence
commitments, most notably in response to the ongoing conflict
in Ukraine. The F‑35 ramp‑up continued, with plans for future
sixth‑generation fighters in the US and Europe progressing.
Planning for a new generation of unmanned collaborative
combat aircraft increased, focused on low cost, high volume
solutions.
Tackling climate change continued as a priority for policy
makers, investors and the aerospace industry. This trend
gathered pace in 2024 with more than 50%(1) more aerospace
companies committed to science‑based sustainability targets
compared to 2023. Investment in more sustainable technology
also increased, with a focus on sustainable aviation fuel,
lightweight structures and all‑new propulsion systems among
those solutions focusing on achieving net zero in‑flight emissions
by 2050.
2024 progress
Melrose launched a clear strategy (see pages 14 and 15) to
capture the structural growth within our markets and position our
business for new opportunities ahead. This strategy is built upon
differentiated technology leadership, reliable delivery to our
customers, and ongoing improvement in all areas. In 2024
Melrose deployed £50 million in capital expenditure as part of a
commitment of up to £300 million of future investment to grow
our world‑leading additive fabrication business. We also delivered
significant improvements in safety and quality across our sites.
2024 progress
Our unique portfolio of 19 risk and revenue sharing partnerships
continued to mature in 2024, moving further into the cash
generative aftermarket phase. Melrose continued to invest in its
industry‑leading repair business, with its largest and most
advanced centre of excellence opened in San Diego, California.
With cutting edge facilities in the US, Asia and Europe, the repair
business is now globally positioned to support the world’s
leading engines, such as the LEAP and Geared Turbofan.
2024 progress
Significant improvement actions continued to strengthen our
defence business and position it to take advantage of future
growth. Commercially, we refocused on higher quality
‘design‑to‑build’ contracts and repricing activities. By the end of
2024, 61% of core defence work was sustainably priced, on
track for our 2025 commitment. We also progressed our
portfolio restructuring programme, divesting non‑core,
build‑to‑print businesses to create a more focused,
technology‑driven business.
2024 progress
Melrose announced a new set of Group sustainability targets in
2024. Our ESG rating was upgraded to AA by MSCI and our
2025 goals and 2050 net‑zero targets were validated by the
Science‑Based Targets initiative. Melrose was also awarded a
silver medal for its progress by EcoVadis. The Group continued
to focus its technology leadership towards delivering more
sustainable solutions to our customers.
01
CIVIL RAMP‑UP
SLOWED, STRONG
DEMAND
02
STRONG
AFTERMARKET
03
DEFENCE
GROWTH
04
SUSTAINABILITY
FOCUS
(1) Science‑Based Targets initiative target dashboard.
12
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
2031
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2030
2.5
2.0
1.5
1.0
0.5
0
NATO defence spend ($ trillions)
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
300
250
200
150
100
50
0
Engine flight hours (millions)
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
3,000
2,500
2,000
1,500
1,000
500
0
OEM deliveries
• NATO and allies’ defence spending
increased 11% in the year in continued
response to ongoing conflicts.
• Significant rise in European budgets, with
countries acting to meet commitment of
2.5% of GDP on defence spending.
• US spends more on defence than the next
nine largest countries combined.
• F‑35 continues to dominate military aircraft
market, making up more than half of US
delivery revenue into the 2030s.
• Uncrewed platforms and collaborative
combat aircraft expected to increase in
years ahead.
• Passenger demand continued to rise with
flight hours 8% above pre‑COVID levels.
• International traffic in Europe reached
record highs in the year, with strong
performance maintained in North America
and Asia Pacific.
• Increasing flights helped drive global
engine shop visits up ~15% in 2024 versus
prior year.
• Global air cargo traffic rose every month
throughout 2024, finishing the year up
11.3% versus 2023.
• Airbus deliveries increased by 4% in 2024
versus 2023, with 766 new aircraft billed
against 735 a year earlier.
• Boeing deliveries significantly hampered
by supply chain, quality and labour issues.
• Across the industry, total new aircraft
deliveries below prior year for first time
since 2020.
• Airbus and Boeing’s total aircraft backlog
remains at record levels >14,000.
Narrow body
Wide body
Source: Teal
Source: NATO and Global Data
Chart relates to spending from NATO, Australia, India, Israel, Japan, Saudi Arabia & South Korea
Narrow body
Wide body
Source: Aviation Week Intelligence Network (AWIN)
13
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
WHAT WE DO
We design and deliver advanced aerospace components for the
world’s leading aircraft, and push to continuously improve our business.
These pillars form the basis of our business model.
MAXIMISING VALUE FOR OUR STAKEHOLDERS
We design
We deliver
We improve
Industry‑leading solutions
>785
global patents granted
Essential products for OEMs
c.90%
technology on board almost all major
aircraft today
Health and safety
>80%
fewer lost time accidents in 2024
versus 2023
Route to Net Zero
World first
all‑additive engine case designed and delivered
within CFMI RISE project
Strong financial performance
16.3%
adjusted operating profit margin in 2024
Quality
14%
reduction in cost of poor quality
in 2024 versus 2023
Melrose is committed to delivering long‑term,
sustainable value for our stakeholders
OUR BUSINESS MODEL AND STRATEGY
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
14
5 YEAR PLAN TO 2029
Ongoing returns
~90%(1)
Deliver growth from
existing platforms
• Production ramp‑up
• Increasing returns from RRSPs
• Engines repair expansion
• Operational and commercial
excellence
Record aircraft
order backlogs
>10yrs
single‑aisle aircraft backlog
Maturing RRSP
portfolio
17
out of our 19 RRSPs are
cash generative today
Strong repair
growth
>400
Repair Solutions customers globally
after strategic expansion
Near‑term returns
~10%(1)
Expand in targeted
new opportunities
• Engines additive fabrication
• Advanced Air Mobility
• Military uncrewed
• China growth
Industrialising
additive fabrication
Up to
£300m
capex committed to grow
production capability
Additive fabrication
progress
9
customer programmes
ongoing today
Design collaboration with
COMAC
C929
MoU signed for widebody wings
in China
HOW WE WIN
Underpinning this model is a clear growth strategy. This sets out
how we win in the competitive global aerospace market.
See our market trends
pages 12 and 13
2030+
Long‑term returns
Participate in next
generation aircraft
• Next generation engines
• Future single aisle
• Sixth generation fighters
• Hydrogen flight
Technology design partner
Only
partner on both RISE and next generation
GTF programmes
Embedded positions
25 years
wing partnership with Airbus continues
on SusWingS
Hydrogen research
World first
cryogenically cooled hydrogen electric
motor demonstrator
(1) 2029 revenue
15
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
DIVISIONAL REVIEW
2024 revenue
1
2
1 Original equipment
47%
2 Aftermarket
53%
The Engines division delivered excellent
results in 2024. Revenue was up 26% to
£1,459 million supported by favourable end
market dynamics, with aftermarket rising by
32% versus the prior year. Increasing shop
visits and spare parts demand fuelled our
engine repair performance, with a strong
defence aftermarket also driving growth. Our
unique portfolio of 19 RRSPs continued to
mature, delivering profit growth and
increased cash generation. During the year,
the GTF inspection programme related to
powder metal production issues gained
traction and the programme partners, led by
Pratt & Whitney, have retained previous
guidance on the associated costs. There was
also growth on the OE side, despite the
industry’s supply chain issues, with revenues
up 19% versus 2023.
Adjusted operating profit was £422 million in
the year, up from £310 million in the prior
year. This resulted in an adjusted operating
margin of 28.9% in 2024, ahead of our 2025
margin target of 28% and therefore delivered
a year ahead of plan. Encouragingly, second
half profitability replicated the record first half
performance and was ahead of our guidance
at the interim results in August 2024.
The division made significant commercial
progress in 2024, most notably agreeing a
decade‑long agreement with Safran to
supply both new shafts and spare parts for
the LEAP 1A engine variant, which powers
the industry‑leading Airbus A320 family. The
first components were successfully delivered
from our centre of excellence in Norway in
Q4 2024. The commercial agreement is
expected to be extended in 2025 to cover the
LEAP 1B engine, in support of CFMI’s total
future order book of 10,000 LEAP engines.
On the governmental side, we signed a
multi‑year contract with Sweden’s FMV to
explore the propulsion requirements for
future fighter systems, while continuing to
develop the product support capability for
both Gripen C/D (RM12 engine) – where we
hold the military type certificate – and
Gripen E (RM16 engine). This key part of the
division performed very strongly in 2024. Our
advanced technology also helped propel the
Ariane 6 rocket during its inaugural launch
in July.
ENGINES
Well placed for continued
strong growth
Our industry‑leading Engines division
is a trusted technology partner to all
global engine manufacturers, with
differentiated products helping power
around 90% of the world’s major
aircraft. It has significant diversification,
across both civil and defence and
original equipment and aftermarket.
Its technology leadership, especially
in additive fabrication, has earned it a
unique position on both next generation
engine development programmes.
Engines’ revenue is well balanced
across four core markets: long‑term risk
and revenue sharing partnerships
(“RRSPs”); non‑RRSP commercial
contracts; repair; and government
partnerships.
£1,459m
Revenue (2023: £1,193m)
£422m
Adjusted operating profit (2023: £310m)
28.9%
Adjusted operating profit margin
(2023: 26.0%)
16
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Our engine parts repair business grew
strongly again in 2024, as demand for
maintenance, repair and overhaul (“MRO”)
services increased. We achieved a series of
milestones in the year as we brought
additional capacity online to support this
growing market. In the US we opened a
flagship 15,000m2 production site in San
Diego, California, to repair both civil and
military engine components for more than
400 customers. The facility features
state‑of‑the‑art automation and robotics for
reduced turnaround time and increased
reliability, including for the industry‑leading
CFMI LEAP and Pratt & Whitney Geared
Turbofan (“GTF”) engines. In Johor, Malaysia,
we added LEAP 1A and 1B fan blade repair
certifications to our portfolio, as well as
broadening our GTF capabilities with Pratt &
Whitney. The facility, which supports the
growing market in Asia, also halved its
turnaround time in 2024, increasing customer
demand and market share while supporting
the global need for increased capacity.
Engines is a technology‑driven business, with
differentiated design‑and‑build capability and
proprietary additive fabrication technology for
large‑scale engine structures. In 2024 we
continued to invest to strengthen this
position, commencing up to £300 million of
investment over five years to accelerate the
growth of our ground‑breaking additive
fabrication solutions. The first wave of this
expansion is underway with a £50 million
project to extend our capacity in Trollhättan,
supported by £12 million from the Swedish
Energy Agency. This investment initially
supports the ramp up of flight‑critical additive
components for Pratt & Whitney, with key
insertion activities for GE Aerospace now
also underway. Future tranches of capital
expenditure will further increase production
rates, as well as enabling expansion as new
commercial partnerships reach serial
production. Additive fabrication is already
helping to reduce lead times, material waste
and emissions in manufacture, and
importantly, helping to strengthen supply
chains that are strained and struggling to
meet demand. We see this as an area of
significant growth and huge potential in the
years ahead.
CASE STUDY /
40%
reduction in material waste
and CO2 emission per
component today
Engine fan case mount ring,
Trollhättan
FULLY CERTIFIED,
LOAD‑BEARING ADDITIVE
COMPONENTS FLYING TODAY
Melrose’s additive fabrication leadership is
underpinned by decades of complex welding and
additive manufacturing experience. Today, our
combination of product and manufacturing
process knowledge, and additive system design, is
unique and truly differentiates the business. Now in
serial production, we are currently seeing material
waste reduction of 40% per component versus
traditional manufacturing methods. In future we
expect to achieve between 70% and 95% material
waste reduction and anticipate cutting end‑to‑end
lead times from nine months to just four weeks.
In 2024 we achieved several landmarks, including
FAA approval for our first additively manufactured
critical structural component as well as delivering
our largest ever all‑additive component for the
CFMI RISE technology demonstrator programme.
The case was created using fully automated
deposition of titanium and demonstrated the
design and build possibilities of large scale engine
cases. The structure was our largest direct energy
deposition component and was delivered at
casting quality equivalency.
TRANSFORMATIVE
ADDITIVE
FABRICATION
CAPABILITY
17
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Operationally, 2024 was another year of good
progress for Engines. Our Lean implementation
continued to embed a strong safety and
quality culture, with lost time accidents
reducing by 90% and cost of poor quality
20% better than in 2023. This progress was
underpinned by our commitment to
continuous improvement, including the
ongoing rollout of our in‑house developed
digitalisation programme to enhance the use
of data and increase machine uptime in our
sites. We also invested in additional
operational capacity and the latest digital
factory processes to maximise efficiency at
our facility in Trollhättan, Sweden.
OUTLOOK
Our Engines division is well placed for
continued strong growth, margin expansion
and increasing cash flow. The division has an
enviable combination of OEM‑level capability,
proprietary technology positions, strategic
partnerships with all major engine OEMs, and
the most diverse RRSP portfolio in the
industry. This provides the foundation for
significant value creation in the years ahead.
In 2025, Engines is expected to deliver
further profitable growth through increasing
RRSP portfolio contributions, growing
demand in repairs and defence, and through
ongoing business improvement activities. We
expect the buoyant aftermarket dynamics to
continue and are confident that Engines will
deliver >32% margins and increased free
cash flow in 2025.
For the longer term we are announcing
five‑year targets for the division of annual
revenue growth of high single digits CAGR
with an adjusted operating margin in the
mid‑to‑high 30s percent.
Engines continued
DIVISIONAL REVIEW
CASE STUDY /
EXPANDING
REPAIR
SOLUTIONS
BUSINESS
A RECOGNISED
WORLD LEADER IN
FAN BLADE REPAIR
The MRO market is forecast to grow by 68%(1) over
the coming decade and Melrose’s industry‑leading
repair business is well‑positioned to take
advantage of this trend. The business operates
globally, with centres of excellence in San Diego,
USA, Trollhättan, Sweden, and Johor, Malaysia,
supporting more than 400 customers a year
across the Americas, Europe and the key growth
market in Asia. Melrose is a recognised
world‑leader in fan blade repair, overhauling
around 54,000 blades each year, with additional
repair expertise in fan disks, blisks, outer guide
vanes, engine cases and large structures. The
business repairs components for the world’s most
used single‑aisle engines, including the V2500,
CFM56, GTF and LEAP, as well as supporting
widebody and military engine programmes.
2024 was a breakthrough year for the business,
opening its new and largest repair facility in
California, adding new customers and certifications
in Malaysia, and generating record sales and
margin globally.
Growing business
54,000
fan blades overhauled per year
Global partner
400+
customers a year across the
Americas, Europe and Asia
Market growth
68%
engine MRO market growth over
next decade(1)
Newly opened fan blade repair
site, San Diego
(1) Aviation Week.
18
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
4
2
3
1
5
6
19
RRSPs built up over
many decades
17
RRSPs are in the cash
generation phase
c.70%
of current global flight hours
covered by Melrose’s RRSPs
Risk and revenue sharing partnerships, or
RRSPs, are life‑of‑programme agreements
between engine manufacturers and a handful
of strategic partners to develop, manufacture
and maintain an aero‑engine. Melrose is
among just half‑a‑dozen or so companies in
the world who have the technology,
manufacturing capability, customer
relationships and strong financial base to
partner with OEMs over the 50‑year lifespan
of an engine programme.
Melrose has an enviable portfolio of
19 civil‑led RRSPs of varying maturities,
covering all major engine OEMs. These
partnerships provide aftermarket exposure
across c.70% of global narrowbody/regional
flight hours and c.70% of global widebody
flight hours.
As a result, the aftermarket is expected to
represent c.55% of Engines’ revenue in 2025
and generate more than 85% of divisional
operating profit.
In total, Melrose’s RRSP portfolio provides
contractual entitlement to cash generation
estimated at £22 billion over the next 40
years and beyond.
Within each RRSP we provide a range of
product solutions, with our primary focus on
the design, manufacture and support of
engine mount structures and turbine cases.
These components typically last the life of the
engine with limited future work required after
the engine is delivered. We also make rotating
components for a number of programmes.
1 Rear engine mount structures
2 Forward engine mount structures
3 Rotating components
4 Fan cases
5 Turbine cases
6 Shafts
RRSP brochure
www.melroseplc.net/media/p23g1rby/melrose-
rrsp-booklet-digital.pdf
SPECIALIST MANUFACTURER OF CRITICAL COMPONENTS
Unique risk and revenue sharing partnerships
19
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
£2,009m
Revenue (2023: £2,157m)
£144m
Adjusted operating profit (2023: £110m)
7.2%
Adjusted operating profit margin (2023: 5.1%)
Good progress with
encouraging growth trajectory
DIVISIONAL REVIEW
Structures delivered a robust performance
in 2024 amid a challenging operating
environment. Divisional progress was
underpinned by the positive impact of our
extensive business improvement actions,
which are reading through largely as
expected. The multi‑year transformational
restructuring programme will conclude on
plan during 2025. From here, increasing
profit will be driven by the civil production
ramp‑up and strong defence market,
compounded by our improved portfolio
and commercial position.
Market dynamics remained complex in the
year. On the civil side, flight hours continued
to rise above pre‑pandemic levels, fuelling
airlines’ demand for newer, more efficient
aircraft. This helped drive record order
backlogs higher, now well into the 2030s,
and underpins planned production ramp ups
in the years ahead. Against this backdrop,
ongoing industry‑wide supply chain
challenges persisted, constraining in‑year
aircraft deliveries. On the defence side, global
spending commitments continued to rise due
to geopolitical tensions and increasing
uncertainty, reinforcing strong demand.
Current market dynamics will be an area of
close management focus in 2025, and we
are well placed to adapt with our global
footprint providing regional and national
supply, including in the USA, Europe, UK,
Mexico and Asia.
During 2024, Structures’ revenue was up 3%
on a like‑for‑like basis at £2,009 million.
Reported civil revenue was tempered by a
softer in‑year ramp up in OE volumes than
initially expected and strategic site disposals,
while defence revenue was up 7% reflecting
stronger demand and improved commercial
terms. Adjusted operating profit was up 32%
to £144 million, driven by progress across our
business improvement actions, including
commercial renegotiations, operational gains
and portfolio transition. This performance lifted
adjusted operating margins by 2.1ppts to 7.2%.
STRUCTURES
Our design‑led Structures division is a
leading independent Tier 1 supplier to
all aircraft OEMs, with embedded
positions on all today’s major aircraft. It
delivers flight critical structures, such as
wing spars and empennages; electrical
distribution systems; and aircraft
windows and canopies from a global
industrial footprint. Its differentiated
technology means it is well placed for
the next generation of aircraft across
the civil and defence markets.
2024 revenue
1
2
1 Civil
69%
2 Defence
31%
20
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
CASE STUDY /
The Structures division made commercial
progress in 2024, improving current terms
with customers and securing new business.
Significant negotiations were concluded with
key customers covering a range of
programmes, including new commercial
terms, work package transfers and non‑core
exits. Our defence business has repriced
61% of its core contracts and remains on
track to reach its 85% sustainable pricing
target by the end of 2025. New agreements
were reached, including securing over
£100 million of customer investment to
double our F‑35 canopy production capacity
in Garden Grove, California, extending our
participation into the 2030s. We secured a
contract renewal with Airbus for the full wiring
package for the A220 and production is now
well underway at our newly certified EWIS
centre of excellence in Chihuahua, Mexico. In
the advanced air mobility (“AAM”) sector, our
wing design and EWIS expertise also led to
customer‑funded contracts with both
Supernal and Archer, while on the defence
side we signed further customer agreements
to explore technologies for the UK’s future
combat air capability, most notably the sixth
generation Tempest demonstrator.
Further progress was made in China, an
important market that is set to represent
more than 20% of global civil aerospace
demand by the 2040s. Our strategy remains
to supply this market from a dedicated
domestic local China presence, which
includes three factories manufacturing wings,
EWIS and transparencies. During 2024 we
signed a design collaboration Memorandum
of Understanding (“MoU”) with joint venture
partner COMAC for the composite rear wing
spar and fixed trailing edge for the C929
widebody aircraft. The team also secured a
contract to supply Airbus’ final assembly line
in China with EWIS from our in‑country
centre of excellence, in Langfang.
Operational gains were delivered in 2024.
We delivered another year with zero lost time
accidents in our civil business reflecting the
continued focus on safety as our top priority.
Production quality also improved, with
escapes (issues reaching the customer) in
our core sites down 18% across the division,
and the cost of poor quality improved by
11%. This was achieved in parallel to our
strategic footprint repositioning work, which
was substantially completed in 2024. In the
first half of the year we successfully
concluded negotiations with Boeing over the
sale of our St. Louis and Orangeburg
operations, and we separately divested our
non‑core Fuel Systems business.
>£100m
customer investment in tools
and equipment
Lockheed Martin F‑35A
Lightning II in flight
ADVANCED
CANOPY
PRODUCTION
EXPANSION
CUSTOMER‑FUNDED
GROWTH
Melrose secured a landmark commercial
agreement with Lockheed Martin in 2024 to double
F‑35 canopy production at its cutting‑edge facility
in Garden Grove, California. An additional
production line will be built thanks to more than
£100 million of customer investment in tools and
equipment, helping meet demand for the F‑35
Lightning II over the next decade. The expansion
will be complete by the end of 2026, with the
additional capacity supporting both original
equipment production and aftermarket.
Since the start of the programme, Melrose
has provided the F‑35 with cockpit canopies,
critical engine components, electrical wiring
interconnection systems and advanced composite
aerostructures. We also hold contracts to deliver
the in‑flight opening doors, flaperons and the
arresting gear for the flagship fifth generation
fighter jet.
21
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
agreement was also signed with Joby to
develop innovative lightweight thermoplastic
structures. The EWIS team delivered all‑new
wiring harnesses for Pratt & Whitney
Canada’s hybrid‑electric flight demonstrator,
which is targeting 30% improvement in fuel
efficiency, while continuing to push the
boundaries of high voltage EWIS technology
for the future. Finally, our hydrogen team
completed a world first in 2024, successfully
testing an electric motor at cryogenic
temperatures in order to explore the potential
for more efficient, zero‑emission flight. These
developments in proprietary technology are
targeted where we have competitive
advantage and they will underpin our
long‑term growth.
OUTLOOK
Structures is a design‑to‑build partner on the
world’s highest volume platforms today and
is a partner of choice for emerging and next
generation aircraft. It is well‑positioned to
take advantage of the ongoing civil ramp up
and defence market growth, as well as the
shift to more sustainable aviation over time.
With strong underlying dynamics in both
markets, and our business improvement
actions now substantially complete, we
expect to deliver further profitable growth as
production rates increase through the next
five years.
In 2025, we expect Structures to achieve
low‑to‑mid single digit reported revenue
growth. This is driven by production
ramp‑ups, offset by the ongoing industry
supply chain issues and OEM destocking,
alongside the full year impact of our business
exits in 2024. We remain on track to deliver
our 2025 commitment of a 9% operating
margin despite lower revenue than originally
assumed due to constrained OEM
production rates.
Beyond this, our five‑year target for the
Structures division is to deliver revenue
growth of mid single digit CAGR and expand
operating margins to the low‑teens level. This
encouraging long‑term growth trajectory is
based on our repositioned and design‑led
business ramping up to deliver the industry’s
expected increase in production rates.
Structures continued
DIVISIONAL REVIEW
In December, we also ended production at our
Amityville facility in New York, to further focus
Structures on differentiated proprietary
technologies where we have the design
responsibility. As part of our restructuring
programme, we completed a series of internal
work package movements to refocus our
electrical wiring business into cost‑efficient,
regional hubs in Asia, Europe and the
Americas. These centres of excellence will
accelerate the longer‑term profitable growth of
this industry‑leading business.
Like our Engines business, Structures also
made good progress enhancing proprietary
technology positions during 2024. The US
global technology centre secured several
development contracts with defence primes
to explore laser wire deposition additive
manufacturing for large‑scale titanium
aerostructures. In the UK, we followed‑up our
Wing of Tomorrow development work by
joining Airbus’ next generation technology
programme SusWingS (Sustainable Wings).
In the AAM sector, the first composite wings
were delivered for Supernal’s SA‑2 electric
demonstrator aircraft, while a technology
1
2
3
5
4
6
1
2
3
5
4
1
2
3
5
4
Structures is a Super‑Tier One partner to aircraft OEMs, with embedded positions on all the world’s high
volume aircraft. It is a global technology leader, specialising in major airframe components, including wing
structures, empennages, electrical wiring systems, windows and landing gear.
1 Transparency
2 Landing gear
3 Electrical distribution
4 Skins and doors
5 Flaperons
1 Electrical distribution
2 Cockpit and cabin windows
3 Fuselage
4 Primary wing structures
5 Winglets
6 Empennage
CIVIL AIRCRAFT
FIGHTER JET
ROTORCRAFT
1 Electrical distribution
2 Landing gear
3 Empennage
4 Anti‑icing systems
5 Doors and other major
structures
STRUCTURES TECHNOLOGY
22
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
CASE STUDY /
25 years
wing partnership with Airbus
SusWingS development at
GKN Aerospace’s UK global
technology centre, Bristol
NEXT GENERATION
WING DEVELOPMENT
SUSTAINABLE WINGS
Melrose’s Structures division has been a
wing partner with Airbus since 1999,
working across multiple programmes and
platforms, from the A330, A380 and
A400M to today’s industry‑leading A320
and A220 aircraft. This 25‑year
partnership was strengthened in 2024
when Melrose joined the £15 million
Sustainable Wings (“SusWingS”)
development programme.
SusWingS is the successor to Wing of
Tomorrow (“WoT”) and is focused on the
next generation of advanced wing
technologies. During WoT, Melrose
manufactured three composite fixed
trailing edges using resin transfer
moulding techniques on a ground‑breaking
scale. SusWingS is aiming to take both the
product and process technology a step
further for more sustainable, high‑rate
wing manufacturing. Specific priorities
include simplifying wing assembly by
replacing two‑piece fasteners with a
single‑sided solution, advancing carbon
fibre composite materials, and using
state‑of‑the‑art numerical analysis models
for predicting structural behaviour.
By integrating this novel technology into
future wing components, SusWingS will
also help monitor and address key
environmental metrics, including CO2
emissions, material waste, water and
energy use in production.
By collaborating in the UK eco‑system
with Airbus, Cranfield University and the
University of Manchester, we are jointly
pushing the boundaries of aerodynamics,
structures and materials to shape a
sustainable future of flight.
23
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Measuring our performance
In order to support the Group’s strategy and to monitor performance, the Board
uses a number of financial and non‑financial key performance indicators (“KPIs”).
KEY PERFORMANCE INDICATORS
Additional business‑level KPIs are also used, which are relevant to their particular circumstances. Further detail on these KPIs is disclosed in
the glossary to the financial statements and further information regarding the performance of the Group against its financial KPIs is included in
the Chief Financial Officer’s review.
(1) Described in the glossary to the financial statements on pages 237 to 244.
(2) A final dividend for 2024 of 4.0 pence per share will be paid on 9 May 2025. For 2022, a second interim dividend of 4.5 pence per share(3) was paid on 11 April 2023 in place of the final dividend.
(3) Dividends per share have been adjusted for 2022 to include the effects of the one for three share consolidation that took place on 19 April 2023.
(4) Operating profit before depreciation of property, plant and equipment and amortisation of computer software and development costs.
FINANCIAL KPIs
Method of calculation
Strategic objective
Adjusted operating profit(1)
£390m
£540m
2023
2022
2024
£147m
£540m
Adjusted operating profit(1) for
continuing operations for the year
ended 31 December 2024.
To improve profitability of Group
operations.
Adjusted operating profit margin(1)
11.6%
15.6%
2023
2022
2024
5.0%
15.6%
Adjusted operating profit(1) as a
percentage of revenue, for continuing
operations for the year ended
31 December 2024.
To improve profitability of Group
operations.
Adjusted diluted earnings per share(1)
18.7p
26.4p
2023
2022
2024
4.1p
26.4p
Group adjusted profit after tax(1) of
continuing operations, attributable
to owners of the parent, for the year
ended 31 December 2024, divided by
the weighted average number of diluted
ordinary shares in issue.
To create consistent and long‑term value
for shareholders.
Final dividend per share(2)(3)
3.5p
4.0p
2023
2022
2024
4.5p
4.0p
Amount declared as payable by way of
dividends in terms of pence per share.
To operate a growing dividend policy
whenever the financial position of the
Company, in the opinion of the Board,
justifies the payment. For discussions on
the dividend, please refer to the Chairman’s
statement on pages 6 and 7.
Adjusted free cash flow(1)
£113m
£52m
£(35)m
2023
2022
2024
£52m
Total cash generated from trading after
all costs, excluding restructuring and
one‑off payments to defined benefit
pension schemes.
To ensure our businesses are suitably
cash‑generative in order to have adequate
cash reserves for the effective running
of the Group and for significant capital
investment where required.
Free cash flow pre-interest and tax(1)
£70m
£23m
2023
2022
2024
£1m
£23m
Free cash flow pre‑interest and tax(1)
represents free cash flow(1) adjusted for
interest and tax and excluding finance
costs on demerger settled net debt.
To ensure our businesses are suitably
cash‑generative in order to have adequate
cash reserves for the effective running
of the Group and for significant capital
investment where required.
1.1x
1.9x
2023
2022
2024
1.3x
Leverage(1)
1.9x
Net debt(1) to adjusted EBITDA(4),
being net debt at average exchange
rates, divided by adjusted EBITDA for
continuing operations in existence
at each balance sheet date. This
updated measure of balance sheet
strength reflects the approach taken
by stakeholders.
To ensure the Group has suitable amounts
of debt.
24
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
NON‑FINANCIAL KPIs
HEALTH AND SAFETY
Each business line within the Group is
responsible for implementing and maintaining
health and safety excellence across their
respective operations. To provide visibility and
oversight for the Board, information is collated
and presented on a quarterly basis on three
KPIs – Major Accident Frequency Rate, Lost
Time Accident Frequency Rate, and Accident
Severity Rate (each as defined below) – for
the entire Group and covering all sites(1)(2). This
is supplemented with qualitative analysis of
any key incidents or drivers behind
performance, and any material improvement
programmes that are taking place. A variety
of additional health and safety KPIs are used
by the Group from time to time, which are
specific to the exact nature of operations and
associated risks. Although responsibility for
health and safety rests with the business
lines, in the unfortunate circumstance of a
very serious incident, the Group’s senior
management team will engage directly with
the executive leadership of the relevant
business line and report the actions taken to
the Board.
Strategic objective
The Group is committed to the goal of
eliminating all preventable accidents.
Performance metrics(1)(2)
Major Accident Frequency Rate(1)(2)
This indicator tracks the average number of
major lost time accidents, defined as those
resulting in more than three days off work,
per 200,000 hours worked.
0.038
0.000
2023
2022
2024
0.033
Lost Time Accident Frequency Rate(1)(2)
This indicator records the total number of lost
time accidents, both major and minor, per
200,000 hours worked.
0.051
0.006
2023
2022
2024
0.040
Accident Severity Rate(1)(2)
This indicator measures the average number
of days an employee is absent from work
following a workplace accident.
37.750
2.000
2023
2022
2024
6.500
The Group’s Safety and Corporate
Compliance function continues to elevate
health and safety awareness and accelerate
improvement actions across operations. This
is approached from the top‑down in addition
to bottom‑up reporting, including via
proactive in‑person senior management and
subject matter expert safety tours of sites.
Those attending engage directly with people
at the site level while validating compliance to
the Health and Safety Executive (“HSE”) rules
and behaviours as well as ensuring local
management maintain awareness and
accountability for health and safety risks.
In 2024, particular focus was placed on
strengthening the risk assessments and risk
controls in line with the Group’s Golden
Safety Rules.
In 2024, the Group’s Major Accident
Frequency Rate was 0.000(1)(2), and its Lost
Time Accident Frequency Rate was 0.006(1)(2).
The Group has increased each business
line’s focus on compliance with the Group’s
Golden Safety Rules and safety governance
in order to drive physical safety
improvements on the shop floor, and
redoubled communications around safety
measures and risk assessments. This
resulted in a proactive, targeted drive to
enhance risk management education
throughout the organisation.
Each incident is promptly and fully
investigated using, and responded to
through, robust measures to increase health
and safety awareness within specific and
similar areas relevant to those incidents.
These measures are also used to reinforce
the correct policies and procedures, and to
review the relevant working environments to
identify continuous improvement actions
where necessary.
The Group’s focus on minimising preventable
accidents continues, and our business lines
continue to uphold and further develop high
standards of health and safety performance.
As the Group embarks upon 2025, the Group
and each business line continues to drive for
safety excellence.
ENVIRONMENT
Method of calculation
Data is provided for relevant environmental
indicators, including energy consumption,
CO2 emissions, water withdrawal, waste
disposal, solid waste generation, and
recycling. The Group has used the UK
Government Environmental Reporting
Guidelines, including the UK’s Streamlined
Energy and Carbon Reporting guidance
dated March 2019 and the GHG Protocol
Corporate Accounting and Reporting
Standard (revised edition 2004). For more
information on our environmental KPIs,
please see the Sustainability review section
on pages 51 to 99.
Strategic objective
GKN Aerospace’s long‑standing mission is to
become the most trusted and sustainable
partner in the sky. In practice, this includes
driving significant progress to support the
Net Zero agenda through decarbonising our
own operations and driving impact
throughout the value chain. We are fully
committed to making efficiency
improvements where possible and to run our
operations with minimum possible adverse
effect on the environment.
Performance
Information in relation to the various
environmental initiatives undertaken by the
Group during 2024 can be found within the
Sustainability review on pages 51 to 99. The
Group is required to disclose its Greenhouse
gas emissions and certain energy use data
for the year ended 31 December 2024. Such
data can be found within the Sustainability
review on page 83.
OTHER NON‑FINANCIAL KPIs
Operational management KPIs are
instrumental in driving business performance
and managing risk, covering key areas such
as operations, quality, commercial
performance, and human resource
measures. Further information regarding
some of the Group’s recent initiatives in these
areas can be found within the Sustainability
review on pages 51 to 99.
(1) All health and safety (“H&S”) metrics exclude data relating to contractors, and for the purposes of this report the definition of employees includes the following categories of
employment: “Regular”, “Temporary”, “Apprentice”, and “Intern/Co‑op”, and excludes “Agency” workers.
(2) All data across the above KPIs, including H&S KPIs, has been restated to only include Melrose and GKN Aerospace performance and excludes data relating to sites that have been
sold. The 2022 and 2023 metrics have been restated to exclude data relating to sites sold during the year, in order to enable like‑for‑like comparison with the 2024 data.
25
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
MELROSE GROUP RESULTS
Statutory results:
The statutory IFRS results for continuing operations show revenue of
£3,468 million (2023: £3,350 million), an operating loss of £4 million
(2023: profit of £57 million) and a loss before tax of £106 million
(2023: £8 million). The diluted earnings per share (“EPS”), calculated
using the diluted weighted average number of shares during the year
of 1,324 million (2023: 1,405 million), were a loss of 3.7 pence
(2023: earnings of 0.1 pence).
Adjusted results:
The adjusted results exclude certain items which are significant in
size or volatility or by nature are non‑trading or non‑recurring, or any
net change in fair value items booked on an acquisition. It is the
Group’s accounting policy to exclude these items from the adjusted
results, which are used as an Alternative Performance Measure
(“APM”) as described by the European Securities and Markets
Authority (“ESMA”). APMs used by the Group are defined in the
glossary to the Consolidated Financial Statements.
The Melrose Board considers the adjusted results to be an important
measure used to monitor how the business is performing as they
achieve consistency and comparability between reporting periods
when all businesses are held for the complete reporting period.
The adjusted results for the year ended 31 December 2024 show
revenue of £3,468 million (2023: £3,350 million), an operating profit of
£540 million (2023: £390 million) and a profit before tax of £438 million
(2023: £331 million). Adjusted diluted EPS, calculated using the
diluted weighted average number of shares in the year of 1,324 million
(2023: 1,405 million), were 26.4 pence (2023: 18.7 pence).
The year ended 31 December 2024
has been a strong year for the
Group. Additionally, the Group is
setting out its 2025 guidance and is
launching its new five‑year targets
for which the key assumptions are
set out later in this review.”
Matthew Gregory
Chief Financial Officer
CHIEF FINANCIAL OFFICER’S REVIEW
26
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
The following table shows the adjusted results for the year ended
31 December 2024 split by reporting segment:
Engines
£m
Structures
£m
Aerospace
£m
Corporate
£m
Total
£m
Revenue
1,459
2,009
3,468
–
3,468
Operating profit/(loss)
422
144
566
(26)
540
Operating margin
28.9%
7.2%
16.3%
n/a
15.6%
Revenue for Engines of £1,459 million (2023: £1,193 million) shows
constant currency growth of 26% over 2023, with adjusted operating
profit of £422 million (2023: £310 million) giving an operating margin of
28.9% (2023: 26.0%), an increase of 2.9 percentage points.
Revenue for Structures of £2,009 million (2023: £2,157 million) shows
like‑for‑like constant currency growth of 3% over 2023, with adjusted
operating profit of £144 million (2023: £110 million) giving an operating
margin of 7.2% (2023: 5.1%), an increase of 2.1 percentage points.
Corporate costs of £26 million (2023: £30 million) included £25 million
(2023: £30 million) of operating costs and £1 million (2023: £nil) of
costs in respect of a new Performance Share Plan for certain senior
managers in the Group.
The performance of each reporting segment is discussed in the Chief
Executive Officer’s review.
RECONCILIATION OF STATUTORY RESULTS
TO ADJUSTED RESULTS
The following table reconciles the Group statutory operating (loss)/
profit to adjusted operating profit:
Continuing operations:
2024
£m
2023
£m
Statutory operating (loss)/profit
(4)
57
Adjusting items:
Amortisation of intangible assets acquired in business
combinations
255
260
Currency movements in derivatives and movements in
associated financial assets and liabilities
112
(114)
Restructuring costs
111
149
Acquisition and disposal related gains and losses
44
3
Melrose equity‑settled compensation scheme charges
14
38
Net changes in fair value items
8
(3)
Adjustments to statutory operating (loss)/profit
544
333
Adjusted operating profit
540
390
Adjusting items to statutory operating (loss)/profit are consistent with
prior years and include:
• The amortisation charge on intangible assets acquired in business
combinations of £255 million (2023: £260 million), which is
excluded from adjusted results due to its non‑trading nature and to
enable comparison with companies that grow organically.
However, where intangible assets are trading in nature, such as
computer software and development costs, the amortisation is not
excluded from adjusted results.
• Movements in the fair value of derivative financial instruments
(primarily forward foreign currency exchange contracts), where
hedge accounting is not applied, along with foreign exchange
movements on the associated financial assets and liabilities,
entered into within the businesses to mitigate the potential volatility
of future cash flows on long‑term foreign currency customer and
supplier contracts. This totalled a charge of £112 million (2023:
credit of £114 million) in the year, and is shown as an adjusting item
because of its volatility and size.
• Restructuring and other associated costs in the year which totalled
£111 million (2023: £149 million), including £1 million (2023:
£59 million) of losses incurred in closing businesses within the
Group. These are shown as adjusting items due to their size and
non‑trading nature and during the year ended 31 December 2024
these included:
– A charge of £90 million (2023: £137 million) primarily relating to
the continuation, and finalisation in many cases, of significant
restructuring projects across sites in the Engines and Structures
divisions comprising three significant ongoing multi‑year
restructuring programmes, covering European footprint
consolidations which commenced in 2021, and a significant
restructuring programme in North America which commenced
in 2020. These programmes incurred a combined charge of
£64 million in the year (2023: £62 million). Since commencement,
the cumulative charge on these three restructuring programmes
to 31 December 2024 has been £281 million (31 December 2023:
£217 million). As at 31 December 2024, £12 million is included in
restructuring provisions in relation to the multi‑year programmes
which will be substantially settled in cash during 2025.
The North American multi‑site restructuring was accelerated by
the disposal of two businesses during the first half of the year
and is substantially complete, with costs expected to continue at
a much reduced level into 2025. The European programmes
have continued to progress with one of the two programmes
now complete. The other European multi‑site restructuring
programme completed the closure of all intended sites by the
end of 2023, with integration expected to conclude in 2025.
– A charge of £21 million (2023: £12 million) within the Corporate
cost centre in relation to actions taken to merge the Melrose
corporate function with the previously separate Aerospace
division head office team. These restructuring actions reshape
the Corporate cost centre to support an ongoing pureplay
aerospace business.
27
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
TAX
The statutory results show a tax credit of £57 million (2023: £9 million)
which arises on a statutory loss before tax of £106 million (2023:
£8 million), resulting in a statutory tax rate of 54% (2023: 113%). The
effective tax rate on adjusted profit before tax for the year ended
31 December 2024 was 20.1% (2023: 20.5%).
The statutory tax rate is higher than the adjusted tax rate because the
intangible asset amortisation and certain other adjusting items
generate adjusting tax credits at rates higher than 20%.
The Group has £868 million (31 December 2023: £747 million) of
deferred tax assets on tax losses, retirement benefit obligations and
other temporary differences. These are offset by deferred tax
liabilities on intangible assets of £423 million (31 December 2023:
£479 million) and £311 million (31 December 2023: £223 million) of
other deferred tax liabilities. In certain cases (typically where they
arise in the same territory or tax group), deferred tax assets and
liabilities must be offset, resulting in deferred tax assets of
£651 million (31 December 2023: £527 million) and deferred tax
liabilities of £517 million (31 December 2023: £482 million) being
shown on the Balance Sheet at 31 December 2024. Most of the tax
losses and other deferred tax assets will generate future cash tax
savings. The deferred tax liabilities on intangible assets are not
expected to give rise to cash tax payments.
Net cash tax paid in the year ended 31 December 2024 was
£10 million (2023: £17 million), 2.3% (2023: 5.1%) of adjusted profit
before tax.
SHARE BUYBACK PROGRAMMES
AND NUMBER OF SHARES IN ISSUE
The Group commenced a £500 million share buyback programme on
2 October 2023 and a further £250 million share buyback programme
on 1 October 2024 making market purchases of existing ordinary
shares in the Company. During the year ended 31 December 2024,
75,141,072 ordinary shares were purchased at an average price per
share of 566 pence. These ordinary shares are being held in treasury.
Additionally, 28,848,071 shares were transferred from treasury shares
to participants of the Melrose equity‑settled share plan. The number
of ordinary shares in issue, excluding treasury shares, has reduced by
4% from 1,333 million at 31 December 2023 to 1,286 million at
31 December 2024.
The weighted average number of shares used for basic earnings per
share calculations in the year ended 31 December 2024 was
1,307 million (2023: 1,349 million), and when including the number of
shares expected to be issued from the Melrose equity‑settled share
plans, the weighted average number of shares used for diluted
earnings per share was 1,324 million (2023: 1,405 million).
During the year, the Group made tax related payments directly to the
relevant tax authorities of £198 million on behalf of both current and
former directors and senior management of the Group connected
with the Melrose equity‑settled share plan. This included £157 million
in lieu of 25,498,465 shares which would otherwise have been
issued, and subsequently sold, to fulfil consequential tax liabilities of
the scheme participants.
• Acquisition and disposal related net losses of £44 million (2023:
£3 million) which are inclusive of a loss of £43 million on the disposal
of three non‑core businesses in the Structures segment. The loss of
£43 million includes a net liability of £25 million that crystallised on
disposal relating to the withdrawal from a multi‑employer
post‑retirement pension scheme. Consideration is £25 million which
is net of a deferred payable of £39 million and costs of £1 million.
The net loss is recorded as an adjusting item due to its non‑trading
nature. One of the three businesses divested was loss‑making and
was purchased by a customer. The resulting amount payable for the
sale reflects the fair value of assets and programmes transferred
including the resolution of all contractual matters.
• A charge for the Melrose equity‑settled compensation schemes of
£14 million (2023: £38 million), which includes a charge to the
accrual for employer’s tax payable of £14 million (2023: £28 million).
This is excluded from adjusted results due to its size and volatility.
During the year, the Group recognised a charge of £1 million
(2023: £nil) in adjusted operating profit in respect of the new Group
Performance Share Plan.
• The net changes in fair value items in the year which totalled a
charge of £8 million (2023: credit of £3 million) and are shown as an
adjusting item, due to their size and volatility.
The following table shows the allocation of adjusting items, described
above, by reporting segment:
Engines
£m
Structures
£m
Corporate
£m
Total
£m
Statutory operating profit/(loss)
283
(106)
(181)
(4)
Adjusting items
139
250
155
544
Adjusted operating profit/(loss)
422
144
(26)
540
FINANCE COSTS AND INCOME
Statutory results:
Net finance costs for the year ended 31 December 2024 were
£102 million (2023: £65 million).
Adjusted results:
Net finance costs in the adjusted results in the year ended
31 December 2024 were £102 million (2023: £59 million), which
included net interest on external bank loans, bonds, overdrafts,
factoring facilities and cash balances of £88 million (2023:
£48 million).
Net finance costs in adjusted results also included: a £4 million (2023:
£4 million) amortisation charge relating to the arrangement costs of
raising the Group’s current bank facility; an interest charge on net
pension liabilities of £4 million (2023: £1 million); a charge on lease
liabilities of £6 million (2023: £5 million); and a charge for the unwind
of discounting on long‑term provisions of £nil (2023: £1 million).
Adjusting items:
There are no adjusting items within finance costs and income in the
year (2023: net charge of £6 million).
In the previous year these included a £13 million gain following the
settlement of a portion of the 2032 bond, acquired with GKN, a
£17 million charge in respect of the proportion of the Group’s net
debt strategically allocated to Dowlais at the start of the year and
a £2 million charge in respect of the write off of unamortised bank
fees when the existing bank facilities at the time of the demerger
were repaid.
Continued
CHIEF FINANCIAL OFFICER’S REVIEW
28
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
CASH GENERATION AND MANAGEMENT
Adjusted free cash flow in the year ended 31 December 2024 was an
inflow of £52 million (2023: £113 million), after net interest and tax
spend of £97 million (2023: £82 million), but before restructuring
spend of £126 million (2023: £125 million).
Free cash flow was an outflow of £74 million (2023: £12 million). An
analysis of free cash flow is shown in the table below:
2024
£m
2023
£m
Continuing operations:
Adjusted operating profit
540
390
Depreciation and amortisation
142
142
Lease obligation payments
(32)
(32)
Positive non‑cash impact from loss‑making contracts
(23)
(23)
Working capital movements:
Inventory
(71)
(10)
Receivables and payables
51
37
Unbilled work done
(309)
(173)
Adjusted operating cash flow (pre‑capex)
298
331
Net capital expenditure
(123)
(102)
Defined benefit pension contributions
(20)
(22)
Restructuring
(126)
(125)
Net other
(6)
(12)
Free cash flow pre‑interest and tax
23
70
Net interest and net tax paid
(97)
(82)
Free cash flow
(74)
(12)
Adjusted free cash flow
52
113
Working capital movements excluding unbilled work done totalled an
outflow of £20 million (2023: inflow of £27 million) for the year ended
31 December 2024 being an outflow of £71 million (2023: £10 million)
in inventory partially offset by a £51 million inflow (2023: £37 million)
from receivables and payables. Inventory increased during the year
due to a combination of supply chain issues and to support customer
build rates.
As anticipated, working capital inflows from receivables and payables
were strong in the second half of the year reflecting the typical
seasonality of the Group.
Unbilled work done, excluding exchange adjustments, has increased
in the year ended 31 December 2024 by £309 million in accordance
with the development anticipated in our Risk and Revenue Sharing
Partnership booklet and includes £35 million of obligations settled in
connection with powder metal issues on certain Pratt & Whitney
engines and other Risk and Revenue Sharing Partnership
(“RRSP”) matters.
Net capital expenditure in the year ended 31 December 2024 was
£123 million (2023: £102 million). Net capital expenditure represented
1.1x (2023: 0.9x) depreciation of owned assets.
Restructuring spend in the year was £126 million (2023: £125 million).
Net interest paid in the year was £87 million (2023: £65 million), net
tax payments were £10 million (2023: £17 million) and ongoing
contributions to defined benefit pension schemes were £20 million
(2023: £22 million).
The movement in net debt is summarised as follows:
£m
Opening net debt
(572)
Free cash flow
(74)
Amounts paid to shareholders including associated costs
(503)
Melrose equity settled compensation scheme related payments
(198)
Disposal of businesses, net of cash disposed
55
FX and other non‑cash movements
(22)
Other
(7)
Net debt at 31 December 2024 at closing exchange rates
(1,321)
Group net debt at 31 December 2024, translated at closing exchange
rates (being US$1.25 and €1.21), was £1,321 million (31 December 2023:
£572 million), after a free cash outflow from the Group of £74 million,
described above. Movements in Group net debt also included dividends
paid to shareholders of £72 million, £431 million spent buying back
shares in the market, £198 million in respect of the settlement of tax on
the Melrose equity‑settled compensation scheme, £55 million inflow
from disposal of businesses net of cash disposed and net unfavourable
foreign exchange and other non‑cash movements of £22 million.
Group leverage at 31 December 2024 was 1.9x EBITDA
(2023: 1.1x EBITDA).
ASSETS AND LIABILITIES
AND IMPAIRMENT REVIEW
The summarised Melrose Group assets and liabilities are shown below:
2024
£m
2023
£m
Goodwill and intangible assets acquired
with business combinations
2,878
3,106
Tangible fixed assets, computer software
and development costs
1,037
1,022
Net working capital
699
475
Retirement benefit obligations
(59)
(99)
Provisions
(184)
(286)
Deferred tax and current tax
119
31
Lease obligations
(237)
(192)
Net other
(88)
82
Total
4,165
4,139
The Group’s goodwill has been tested for impairment in accordance
with IAS 36 Impairment of assets and the Board is comfortable that
no impairment is required as at 31 December 2024.
29
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
PENSIONS AND
POST‑EMPLOYMENT OBLIGATIONS
Melrose operates a number of defined benefit pension schemes and
retiree medical plans across the Group, accounted for using IAS 19
Revised: Employee Benefits.
The values of the Group plans were updated at 31 December 2024
by independent actuaries to reflect the latest key assumptions and
are summarised as follows:
Assets
£m
Liabilities
£m
Accounting
deficit
£m
GKN UK Group pension scheme – Number 1
577
(599)
(22)
GKN UK Group pension scheme – Number 4
378
(378)
–
Other Group pension schemes
31
(68)
(37)
Total Group pension schemes
986
(1,045)
(59)
At 31 December 2024, the total plan assets of Melrose Group’s
defined benefit pension plans was £986 million (31 December 2023:
£1,118 million) and total plan liabilities were £1,045 million
(31 December 2023: £1,217 million), a deficit of £59 million
(31 December 2023: £99 million).
The GKN UK Group Pension Schemes (Numbers 1 and 4) are the
most significant pension plans in the Group, and are closed to new
members and to the accrual of future benefits for current members.
At 31 December 2024, the GKN UK Group Pension Scheme Number
1 had gross assets of £577 million (31 December 2023: £632 million),
gross liabilities of £599 million (31 December 2023: £692 million) and
a net deficit of £22 million (31 December 2023: £60 million).
During the year ended 31 December 2023, the Group commenced a
process to buy‑out the GKN UK Group Pension Scheme Number 4,
which is expected to complete in 2025, when the scheme assets and
liabilities will leave the Group and cease being shown on the Group’s
Balance Sheet.
Other pension schemes in the Group include US pension plans which
are generally funded and closed to new members. At 31 December
2024, these US pension plans had a net deficit of £23 million
(31 December 2023: £25 million).
In total, contributions to the Group defined benefit pension plans
and post‑employment medical plans in the year ended
31 December 2024 were £20 million and are expected to be
approximately £27 million in 2025.
A summary of the assumptions used is shown in note 24 to the
Consolidated Financial Statements.
FINANCIAL RISK MANAGEMENT
The Group continuously assesses its financial risks and implements
policies to manage them effectively. The most significant financial
risks are considered to relate to liquidity, finance costs, foreign
exchange rates, contract and warranties and commodities, each of
which is discussed below.
During the year, the Group changed its presentation of inventories,
trade and other receivables and trade and other payables within the
Balance Sheet. The change related to contract balances for certain
programmes. The Group was previously netting certain amounts
under these arrangements, however, it was determined that the
appropriate current and prior year presentation should be on a gross
basis in line with the requirements of IFRS 15: Revenue from
Contracts with Customers. Prior year comparatives have been
restated accordingly. The impact of this change on the Balance Sheet
at 31 December 2023 was to increase inventories by £3 million,
non‑current other receivables by £70 million, current trade and other
receivables by £102 million, current trade and other payables by
£107 million and non‑current other payables £68 million. The impact
of this change on the Balance Sheet at 31 December 2022 was to
increase inventories by £3 million, non‑current other receivables by
£75 million, current trade and other receivables by £114 million,
current trade and other payables by £116 million and non‑current
other payables by £76 million.
The assets and liabilities shown above are funded by:
2024
£m
2023
£m
Net debt
(1,321)
(572)
Equity
(2,844)
(3,567)
Total
(4,165)
(4,139)
Net debt shown in the table above is defined in the glossary to the
Consolidated Financial Statements.
PROVISIONS
Total provisions at 31 December 2024 were £184 million
(31 December 2023: £286 million).
The following table details the movement in provisions in the year:
Total
£m
Provisions at 1 January 2024
286
Net charge in the year
116
Spend against provisions
(143)
Utilisation of loss‑making contract provision
(23)
Disposal of businesses
(20)
Transfers
(31)
Exchange adjustments
(1)
Provisions at 31 December 2024
184
The net charge to the Income Statement in the year was £116 million,
and included £85 million relating to restructuring activities and a
£12 million loss‑making contract provision charge.
During the year, £23 million was utilised against loss‑making contract
provisions and £143 million of cash was spent against provisions with
£118 million relating to restructuring activities.
Net provision movements relating to property, environmental and
litigation and warranty were not material in the year.
Transfers of £31 million relate to employer tax on equity‑settled
compensation schemes following certainty surrounding the timing
and value of payments.
Continued
CHIEF FINANCIAL OFFICER’S REVIEW
30
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Liquidity risk management
The Group’s net debt position at 31 December 2024 was
£1,321 million (31 December 2023: £572 million). The Group
increased and amended certain terms of its committed bank facilities
during the year resulting in facilities consisting of US$1,639 million,
€400 million and £300 million at 31 December 2024. These facilities
all mature in April 2026, but with the potential to be extended for two
additional one‑year periods at the Group’s option. Details of the
facilities and amounts borrowed as at 31 December 2024 are shown
below:
Local currency
£m
Size Drawn Headroom
Headroom
Term loan:
USD
549
549
–
–
EUR
100
100
–
–
Revolving credit facility:
USD
1,090
867
223
177
GBP
300
16
284
284
EUR
300
216
84
70
Total (GBP)
1,940 1,409
531
In addition to the headroom of £531 million on committed facilities,
there are a number of uncommitted overdraft, guarantee and
borrowing facilities made available to the Group. As at
31 December 2024 there were cash and cash equivalents, net of
overdrafts, totalling £80 million (31 December 2023: £57 million).
At the start of the year the Group held capital market borrowings with
an outstanding nominal value of £10 million from an original
£300 million bond issued in May 2017 and due to mature in May
2032. During the year, an agreement was reached with remaining
bondholders that resulted in the outstanding nominal value being
bought back and cancelled for a total cost of £10 million.
The committed bank funding has two financial covenants, being a net
debt to adjusted EBITDA covenant (‘banking covenant leverage’) and
an interest cover covenant, both of which are tested half‑yearly in
June and December.
Both covenants have comfortable headroom with the banking
covenant leverage test level set at 3.5x and as at 31 December 2024
it was 2.1x. The interest cover test is set at 4.0x, and as at
31 December 2024, the Group interest cover was 7.4x.
A limited number of Group trade receivables are subject to
non‑recourse factoring and customer supply chain finance
arrangements. As at 31 December 2024, these amounted to
£338 million (31 December 2023: £268 million). No new schemes
were added during the year and the increase in the amount factored
represents year‑over‑year revenue growth and the reversion of terms
to pre‑COVID levels for one key customer.
Finance cost risk management
The Group uses financial derivatives to fix a portion of the interest
cost on its committed bank facilities.
The maximum weighted average rates, excluding the bank margin,
the Group will pay on the fixed portions of its US dollar and Euro bank
debt are 3.8% and 2.7% respectively.
The margins on the bank facilities depend on the banking covenant
leverage and were as follows:
31 Dec 2024
31 Dec 2023
Facility:
Margin
Range
Margin
Range
Term Loan
1.40%
1.0%‑2.3%
1.30% 0.9%‑2.2%
Revolving Credit
Facilities
1.40%‑1.55%
1.0%‑2.4%
1.30%‑1.55%
0.9%‑2.4%
The Group’s cost of drawn debt for the next 12 months is currently
expected to be approximately 5.4%.
Exchange rate risk management
The Group trades in various countries around the world and is
exposed to movements in a number of foreign currencies.
The Group carries exchange rate risk that can be categorised into
two types: transaction and translation risk, as described in the
paragraphs below. The Group’s policy is designed to protect against
the majority of the cash risks but not the non‑cash risks.
The most common exchange rate risk is the transaction risk the
Group takes when it invoices a customer or purchases from suppliers
in a different currency to the underlying functional currency of the
relevant business. The Group’s policy is to review transactional
foreign exchange exposures and place necessary hedging contracts
on a rolling quarterly basis. To the extent the cash flows associated
with a transactional foreign exchange risk are committed, the Group
will hedge 100% at the time the cash flow becomes committed. For
forecast and variable cash flows, the Group hedges a proportion of
the expected cash flows, with the percentage being hedged lowering
as the time horizon lengthens. The Group hedges on a sliding scale,
typically hedging around 90% of foreign exchange exposures
expected over the next 12 months, with the percentage decreasing
by approximately 10 percentage points for each subsequent year.
This policy does not eliminate the cash risk but does bring some
certainty to it.
The translation rate risk is the effect on the Group results in the period
due to the movement of exchange rates used to translate foreign
results into Sterling from one period to the next. No specific exchange
instruments are used to protect against the translation risk because it
is a non‑cash risk to the Group, until foreign currency is subsequently
converted to Sterling. However, the Group utilises its multi‑currency
banking facilities, where relevant, to maintain an appropriate mix of
debt in each currency. The hedge of having debt drawn in these
currencies funding the trading units with US dollars or Euro functional
currencies protects against some of the Balance Sheet and banking
covenant translation risk.
31
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
GOING CONCERN
As part of their consideration of going concern, the Directors have
reviewed the Group’s future cash forecasts and projections, which
are based on both market and internal data and recent
past experience.
The Directors recognise the challenges in the current economic
environment, including challenges in supply chains and geopolitical
risks. The Group is actively managing the associated impacts on
trading through a sharp focus on pricing, productivity and costs. In
addition, the Group’s cash flow forecasts consider any impacts from
further economic factors such as high interest rates.
The Group has modelled a severe but plausible downside case
against these future cash forecasts and throughout this scenario the
Group would not breach any financial covenants and would not
require any additional sources of financing.
The macroeconomic environment remains uncertain and volatile and
the impacts of the economic factors such as inflation, high interest
rates, geopolitical conflict and challenges in supply chains could be
more prolonged or severe than that which the Directors have
considered in the Group’s severe but plausible downside case.
Considering the Group’s current committed bank facility headroom,
its access to liquidity, and the level of bank covenants in place with
lending banks, the Directors consider it appropriate that the Group
can manage its business risks successfully and adopt a going
concern basis in preparing these Consolidated Financial Statements.
2025 GUIDANCE
We set out below our 2025 guidance:
£m
Revenue
3,550 – 3,700
Aerospace operating profit (pre‑PLC costs)
680 – 720
Aerospace operating margin
>19%
Divisional adjusted operating profit
Engines
515 – 545
Structures
165 –175
Free cash flow (after interest and tax)
100+
Our guidance includes expected variable consideration of £320 million
to £360 million. PLC costs are expected to be £30 million.
The Group’s free cash flow is underpinned by continued operational
improvements, reduced restructuring cash spend as our multi‑year
programmes near completion, continued investment in capital
expenditure and cash outflows connected with the Pratt & Whitney
GTF powder metal issue. Specifically, the Group’s 2025
guidance assumes:
• Trade working capital as a percentage of sales of 13%;
• Restructuring cash outflows of £40 million to £50 million;
• Capital expenditure of 1.0x – 1.1x depreciation including investment
in additive manufacturing; and
• £70 million of cash impact connected with the Pratt & Whitney GTF
powder metal issue.
Exchange rates for currencies most relevant to the Group in the
year were:
Average
rate
Closing
rate
US dollar
2024
1.28
1.25
2023
1.24
1.28
Euro
2024
1.18
1.21
2023
1.15
1.15
A 10 percent strengthening of the major currencies within the Group,
if this were to happen in isolation against all other currencies, would
have the following impact on the re‑translation of adjusted operating
profit into Sterling:
USD
EUR
Increase in adjusted operating profit – £ million
47
1
% impact on adjusted operating profit
9%
‑%
The impact from transactional foreign exchange exposures is not
material in the short term due to hedge coverage being
approximately 90%.
A 10 percent strengthening in either the US dollar or Euro would have
the following impact on debt as at 31 December 2024:
USD
EUR
Increase in gross debt – £ million
113
25
Increase in gross debt – %
8%
2%
Contract and warranty risk management
A suitable bid and contract management process exists in the
businesses, which includes thorough reviews of contract terms and
conditions, contract‑specific risk assessments and clear delegation
of authority for approvals. These processes aim to ensure effective
management of risks associated with complex contracts. The
financial risks connected with contracts and warranties include the
consideration of commercial, legal and warranty terms and their
duration, which are all considered carefully by the businesses and
Group management before being entered into.
Commodity cost risk management
The cumulative expenditure on commodities is important to the
Group and the risk of base commodity costs increasing is mitigated,
wherever possible, by passing on the cost increases to customers, by
the use of customer directed suppliers under common agreements,
or by having suitable purchase agreements with suppliers which fix
the price over a certain period. These risks are also managed through
sourcing policies, including the use of multiple suppliers, where
possible, and procurement contracts where prices are agreed in
advance to limit exposure to price volatility. The Group selectively
uses financial derivatives where changes in commodity costs cannot
be passed on to customers or fixed with suppliers.
Continued
CHIEF FINANCIAL OFFICER’S REVIEW
32
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FIVE‑YEAR TARGETS
The Group’s new five‑year targets for 2029 are revenue of c.£5 billion,
adjusted operating profit of £1.2 billion+ and free cash flow after
interest and tax of £600 million. These targets are translated
assuming USD:GBP of 1.25:1. The key assumptions that underpin the
revenue target are:
• 90% of revenue comes from existing programmes;
• OEM target build rates are met by 2029;
• Flying hours grow in line with current industry forecasts; and
• Continuation of a favourable revenue mix, with strong aftermarket.
It is assumed that these revenue drivers will drop through into
adjusted operating profit and coupled with ongoing operational
efficiency and commercial excellence deliver an expanded adjusted
operating profit margin of 24%+. Adjusted operating profit assumes
variable consideration of c.£500 million for the year ended
31 December 2029 growing in accordance with the accounting
described in our RRSP booklet. At a divisional level this translates to
targets of:
• Engines: Revenue growth of high single digits and adjusted
operating profit margin of mid‑to‑high 30s percent; and
• Structures: Revenue growth of mid single digits and adjusted
operating profit margin in the low teens.
Free cash flow (after interest and tax) of £600 million is driven by the
increase in cash profits and benefits from all RRSPs having become
cash positive, the resolution of the GTF powder metal issue, the
completion of the Group’s restructuring and ongoing
business improvements.
Compound annual growth in earnings per share is targeted to exceed
20% in the five year period. No further share buybacks are assumed
beyond those already announced.
Matthew Gregory
Chief Financial Officer
6 March 2025
A period of three years is believed to continue to be appropriate for
this assessment since this is consistent with the Group’s financing
cycle, whereby on average the Group has refinanced debt in line with
this timescale. The Group’s debt facilities consist of a multi‑currency
denominated term loan and multi‑currency denominated revolving
credit facilities that mature in April 2026, with options for the Group to
extend for up to two one‑year periods. This provides the Group with
good visibility for when it is appropriate to refinance. The Group uses
a period of five years for impairment testing of its two groups of cash
generating units due to the long‑term nature of cash flows within the
aerospace industry, but this is not necessarily reflective of financing
arrangements offered by lenders.
The Directors confirm that they have a reasonable expectation that
the Group will continue in operation and meet its liabilities, as they fall
due, up to December 2027.
The Directors’ assessment has been made by reference to the
Group’s financial position as at 31 December 2024, its prospects, the
Group’s strategy, the Board’s risk appetite and the Group’s principal
risks and their management, all of which are described in the
Strategic Report.
The Directors’ assessment of the Group’s viability is underpinned by
a paper prepared by management. The paper is supported by
comprehensive and detailed analysis and modelling. The model
underpinning this statement is stress‑tested, proven and is frequently
used by management when determining working capital
requirements for contractual obligations, transactions and corporate
restructuring. The main assumptions included in the model relate to
forecast revenue, operating margin and cash generation taking into
account the Group’s share buyback programme. The model includes
forecast data from the Group’s business assets and incorporates
agreed sensitivities for economic and operational risk (impacting
revenue, by 10% in the first year and 5% for each subsequent year,
and margins to reduce the rate of growth currently being forecast),
foreign exchange risk (impacting net debt and assuming adverse
movements in foreign exchange rates) and liquidity risk (impacting net
debt and assuming a deterioration in working capital of 2% in the first
year with no subsequent recovery), each of which have been
considered both individually and in combination by the Board,
together with expected achievable mitigating actions from working
capital to create severe, but plausible, downside scenarios. These
scenarios sensitise the main assumptions noted above, considering a
medium‑term impact of continued supply chain disruptions.
In preparing this statement, the following qualifications and
assumptions are made:
(i) the viability model is based on the Group as at the date of this
statement, 6 March 2025, with no consideration of any further
acquisitions or future disposals of continuing businesses. We note
future acquisitions would be based on the same proven business
model applied previously, with related bank debt and equity raised
to support the acquisition with sufficient headroom to cover
business risks; and
(ii) financing arrangements, including those which became effective
during 2024 and 2025, and bank covenant testing, are committed
for much of the period under review and have sufficient headroom
for liquidity and covenant compliance to continue in operation.
In accordance with the UK Corporate
Governance Code, the Directors have
assessed the prospects of the Company
over a longer period than the 12 months
required by the ‘Going Concern’ provision.
LONGER‑TERM VIABILITY STATEMENT
33
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
The Board recognises that operating in a dynamic and rapidly evolving commercial
environment requires a pragmatic, robust and responsive risk management framework
comprising policies, visibility and controls that evolve with the business and provide
management with a comprehensive view of the Group’s risk profile at any given time,
enabling risk to be identified, assessed and managed.
RISK MANAGEMENT
RISK MANAGEMENT STRATEGY
AND FRAMEWORK
The objectives of the Board and senior management include
safeguarding and increasing the value of the business and assets of
the Group for stakeholders as a whole. Achievement of these
objectives requires the development of policies and appropriate
internal control frameworks to ensure the Group’s resources are
managed properly, and for key risks to be identified and mitigated
where possible.
The Board recognises that it is ultimately responsible for determining
the nature and extent of the principal risks it is willing to take in the
pursuit of its strategic objectives. It also recognises the need to define
a risk appetite for the Group, to maintain sound risk management and
internal control systems, and to monitor its risk exposures and
mitigation measures to ensure that the nature and extent of risks
taken by the Group are aligned with, and proportionate to, its
strategic objectives.
The Board has established an organisational structure with clear
reporting procedures, lines of responsibility and delegated authority,
with risk management responsibilities as depicted in the diagram
above. Consistent with this, the Group operates a top‑down,
bottom‑up approach to risk management, comprising Board and
senior management oversight coupled with bottom‑up risk
management embedded in the day‑to‑day activities of the business.
The Board, having overall responsibility for risk management, has approved a formalised but pragmatic
Group risk management framework.
BOARD
Overall responsibility for risk
management
• Agrees the Group’s risk management strategy and defines its risk
appetite
• Reviews reports and recommendations from the senior management
team and the Audit Committee on risk governance and risk processes
and controls
• Determines the nature and extent of the Group’s principal risks and
regularly discusses and assesses them throughout the year with the
senior management team to determine the likelihood of those risks
materialising and how they should be managed or mitigated
• Maintains oversight of principal risks, emerging risks and mitigation
plans including cyber security and fraud risk
TOP‑DOWN
At the Group level,
risk oversight and assessment
AUDIT COMMITTEE
Monitors the Group’s internal
financial control processes
• Monitors the Group’s internal financial control processes
• Monitors, oversees and reviews the effectiveness of the Group’s
internal controls and risk management systems and processes
• Supports the Board in monitoring risk exposure against risk appetite
SENIOR MANAGEMENT
• Sets the risk management processes and controls
• Agrees how the principal risks should be managed or mitigated to
reduce the likelihood of their incidence or impact
• Considers actual and emerging risks
• Oversees and challenges risk mitigation plans and supports the legal
and compliance teams within the business
• Promotes an appropriate risk management culture within the Group in
order to maintain sound risk management and internal control systems
BOTTOM‑UP
Risk exposure identification and
assessment at the business line
and functional level
OPERATIONAL
MANAGERS AND
SITE CONTROLLERS
• Risk identification, assessment and monitoring at a local level
• Implementing, reviewing and continually monitoring compliance with
risk mitigation plans and controls
• Embedding risk awareness and culture throughout the business
The Board’s view of the Group’s principal risks and uncertainties
is detailed in the table on page 37.
RISK MANAGEMENT RESPONSIBILITIES
34
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
RISK MANAGEMENT FRAMEWORK
IDENTIFICATION
Financial and non‑financial risks recorded
in controlled risk registers
EVALUATION
Risk exposure reviewed and risks prioritised
MITIGATION
Risk owners identified and action plans implemented
ANALYSIS
Risks analysed for impact and probability to determine
net exposure after factoring in controls and mitigation
REVIEW AND MONITORING
Robust mitigation strategy subject to regular
and rigorous review
The Board confirms that there is an ongoing process for identifying,
evaluating, tracking and managing the principal risks faced by the
Group and that these systems, which are subject to regular monitoring
and review, have been in place for the year under review up to the date
of approval of this Annual Report and financial statements.
The Audit Committee monitors, oversees and reviews the effectiveness
of the risk management and internal control processes implemented
across the Group, through regular updates and discussions with senior
management and a review of the key findings presented by the external
and internal auditors. The Board is responsible for considering the
Audit Committee’s recommendations and ensuring implementation by
senior management of those recommendations it deems appropriate
for the business. A description of the Audit Committee’s activities
during the year on risk management can be found on page 129.
The executive committee comprising functional and business line
leaders, as informed by their operational, functional and site‑level
senior managers, is responsible for monitoring business‑level risk and
implementing and maintaining an effective risk and control
environment as part of day‑to‑day operations, in line with the Group
risk management framework and internal control systems. Risks are
reported into senior management and are reviewed and assessed by
the executive committee, with support from the legal team, the
financial compliance and assurance team and other members of
senior management. In turn, they are reported to the Audit
Committee biannually through interim and annual risk management
reports that follow the executive committee’s risk management
reviews. The Audit Committee also receives regular updates from the
executive committee and other members of the senior management
team on material items that arise relating to principal Group risks.
Following the Company’s change in strategy during 2023 to operating
as a long‑term aerospace technology business, Ernst & Young
supported the risk management process by analysing the Group’s
principal risk profile against other aerospace and defence companies
based on public disclosures. Senior management conducted a
similar analysis during 2024.
With 2024 being the first full calendar year of a combined Melrose/
GKN Aerospace executive committee, the legal team and financial
compliance and assurance team spent additional time reviewing the
business’s material risks directly with risk owners to duly challenge
and ensure continued alignment with the Company’s principal risks.
The Audit Committee reviewed and challenged the Group’s risk
management process and also reviewed and challenged the interim
and annual risk management reports prepared by senior
management relating to the Group’s principal risks profile. These
reports guided the Board and Audit Committee on relevant updates
relating to the development of the Group’s principal risks (including in
respect of risk trends and mitigation activities) as reported in the
Risks and uncertainties section on pages 37 to 44. They also aided
the Audit Committee’s discussions with the Board on risk appetite, as
detailed further below. During the year under review, in accordance
with provisions 28 and 29 of the 2018 UK Corporate Governance
Code (the “Code”), the Board continued to assess the Group’s
principal and emerging risks and to monitor and review the
effectiveness of the Group’s risk management and internal control
systems. The Board concluded that the Group’s risk management
and internal control systems and processes were effective.
RISK APPETITE
In conjunction with the annual risk management review process in
2024, the Board undertook an exercise to consider its risk appetite
across a number of key business risk areas by assessing its current
and optimal level of risk appetite for each of the Group’s principal
risks. The results of this review indicated the relative appetite of the
Board across the Group’s principal risk areas at that point in time.
The results of the risk appetite review demonstrated that the Board
has an open risk appetite regarding commercial risk, a balanced
appetite regarding operational and loss of key management and
capabilities risks, with a cautious appetite regarding economic and
political, climate change and treasury risks. The Board seeks to
minimise health and safety, legal and regulatory, and information
security and cyber threats risks.
The results of the risk appetite review will support the Board’s
decision‑making processes during 2025. The Board reviews its risk
appetite at least annually.
35
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Continued
RISK MANAGEMENT
RISK MANAGEMENT ACTIONS
During 2024, the Board continued to drive management to deliver on
the key management priorities identified during the previous year, and
iterate its assessment of the Group’s risk profile in light of changing
internal and external factors. Risk owners continued to take steps to
mitigate the risk exposures across the Group, supported by specific
actions undertaken to improve enterprise risk management across
the Group during the year, as follows:
• reviewing the composition of the Group’s principal risks in light of
the Company’s strategy and business model, including monitoring
the Group’s defined risk profile as compared to other aerospace
and defence companies;
• reviewing and re‑setting the Board’s risk appetite based on the
optimal and current risk appetite of the Board for each principal
Group risk;
• monitoring the implementation of risk governance within the
business, including the identification, evaluation, prioritisation,
recording, review and reporting of risks and their management or
mitigation throughout the Group;
• enhancing the effectiveness of the Group’s top‑down, bottom‑up
risk management process following changes to senior
management structures and the composition of the Group’s
executive committee; and
• continuing to review and improve the Group’s processes for the
identification and consolidation of, and trend analysis around, the
Group’s principal risks and the ongoing monitoring and reporting of
the Group’s risk management performance.
ASSESSMENT OF PRINCIPAL RISKS
During the year, as informed by the executive committee and other
members of senior management, the Board reviewed and updated its
assessment of the emerging and principal risks facing the Group and
specifically those that might threaten the delivery of its strategic
business model, its future performance, solvency or liquidity. As part
of the assessment, the Board reviewed the Group’s principal risk
categories and was satisfied that they remained appropriate.
A summary of the principal risks and uncertainties that could impact
the Group’s performance is shown on pages 37 to 44. Further
information detailing the internal control and risk management
policies and procedures operated within the Group is shown on
pages 121 and 122 of the Corporate Governance report.
RISK MANAGEMENT PRIORITIES FOR 2025
While improvements were made to the Group’s risk management
processes during 2024, the Board recognises that risk management
is a continual process and that Melrose cannot be complacent. In
2025, senior management will continue to review the risk
management and internal control framework to ensure that this
remains aligned with the Group’s business strategy.
The Board notes the changes introduced by Provision 29 of the 2024
UK Corporate Governance Code (the “2024 Code”) for financial years
commencing on or after 1 January 2026 in relation to the monitoring
and review of the effectiveness of companies’ risk management and
internal controls frameworks and the disclosures that will be required
to be made in relation to the same. Preparations are underway to
ensure the Company is well‑positioned to make the first disclosure
under the 2024 Code’s revised Provision 29 in the 2026 Annual
Report. Steering and working committees have been established and
are operating during the year. A roadmap has been developed with
work in progress to assess current financial, operational, reporting
and compliance controls and to identify and implement appropriate
enhancements to existing control processes.
Additional resources will be devoted to supporting the identification
and, where necessary, implementation of improvements to Melrose’s
material financial, operational, reporting and compliance controls and
the review of their effectiveness.
36
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
4
5
9
6
7
8
1
3
2
Likelihood
High
Low
Impact
High
Low
No. Risk title
Risk trend since
last Annual Report
2020
2021
2022
2023
2024
1
Operations
No change
n/a
2
Commercial
No change
3
Economic and political
Increase
4
Loss of key management
and capabilities
No change
5
Health and safety
Decrease
n/a
n/a
n/a
6 Legal and regulatory
No change
7 Climate change
No change
n/a
8
Information security
and cyber threats
Increase
9 Treasury
Decrease
n/a
n/a
n/a
STRATEGIC RISK
PROFILE
A risk management and internal
controls framework is in place
within the Group, which is
continually reviewed and adapted
where necessary to reflect the risk
profile of the Group and to
continue to ensure that such risks
and uncertainties can be identified
and appropriately managed.
Each business line and each
central function maintains a risk
register which is aggregated into
a Group‑wide risk register to
facilitate review by the executive
committee, the Audit Committee,
and the Board.
Strategic risk profile
Our updated view of the
Group’s strategic risk profile
is shown opposite.
The residual risk scores have
been calculated on a
post‑mitigation basis.
Risk trend
Increase
No change
Decrease
Realigned risk
RISKS AND UNCERTAINTIES
37
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
RISKS AND UNCERTAINTIES
OPERATIONAL RISKS
RISK 1 – OPERATIONS
Description and impact
Major disruption within the Group’s operations may adversely affect the
financial performance of the Group. As a global aerospace technology
business, Melrose is susceptible to industry specific issues that may
arise from interdependencies within and its reliance on complex global
supply chains. In particular, disruption to its supply chains may put strain
on our operations, and could result in the Group failing to meet customer
commitments, which could result in contractual penalties, as well as impact
the Group’s competitiveness when seeking to win future orders from affected
customers. The Group is dependent on the timely delivery of materials and
components by its suppliers and subcontractors who may be impacted by
their own economic and geographic environments (such as pricing pressures,
tariffs, and availability issues). In addition, the Group is susceptible to sector
specific demand dynamics, informed by a concentrated customer base and
customer‑determined adjustments to aircraft build rates. These factors, among
others, can materially impact the Group’s ability to forecast and manage
efficient supplies, inventory and production capacity, and therefore its ability to
manufacture and supply products, or to deliver them in a timely manner.
Mitigation
• The Group continues to invest in equipment and capacity within its existing
facilities, as well as identifying dual source suppliers and alternative
materials where available, including through investment in alternative
production methods.
• Weekly and monthly management reviews of supply chain and demand
issues are undertaken in order to assess the Group’s OEM supplier order
book as well as maintaining OEM aircraft build rates, and to confirm
commitments over specified timeframes.
• Contingency plans are developed with respect to potential shortages
of key materials or production inputs which may arise as a result of
geopolitical events.
• Strategic reviews of business line supply chains are ongoing to assess
opportunities for supplier development and support and alternative sourcing
and to identify opportunities for vertical integration and for OEM support in
terms of exercising their supply chain leverage where appropriate.
• The Group continues to engage with OEMs on a regular basis in respect
of supply chain forecasting and stewardship, and build rates.
• The senior management team of each business line continues to actively
engage with supply contracts to assess commercial terms to mitigate
operational risk to the Group and ensure that strategic decisions are taken
where possible. Those management teams have continued to implement
and direct a series of operational change management programmes to
mitigate identified risks, including enterprise‑wide promotion and top‑down
deployment of leading lean operations management problem‑solving
tools to identify, assess and remedy production flow inhibitors across the
business on a continuous basis.
Trend commentary
Operational risks remained high throughout 2024, with pressure on supply
chains continuing to affect all of the Group’s business lines and customers
significantly. The key civil aerospace OEMs, Airbus and Boeing, both reduced
their production rates during 2024, with customer supply chain issues
expected to persist within the industry through 2025. The Group’s ability to
diversify its own sources of supply is limited where customers require the
use of particular suppliers or where alternative supplier options are limited.
Geopolitical events continued to impact on the Group as well as the aerospace
industry as a whole, causing operational risks to remain high. The conflict in the
Middle East continued, with attacks on key cities in the affected regions, and a
threat of attacks on merchant ships in the Red Sea corridor which continued to
disrupt global shipping routes. The war in Ukraine remained entrenched during
the year, and with continuing tension between China and Taiwan, resulted in
continued supply constraints of the raw materials and products needed in the
Group’s manufacturing processes and supply chains. Recent de‑escalation
of the conflict in the Middle East and the possibility of peace negotiations
regarding the Ukraine conflict could reduce pressures on supply chains in
2025 should these eventuate.
Melrose seeks to actively identify and track strategic operational improvements
together with operational risks which may impact on such improvements.
Furthermore, Melrose seeks to identify, and take advantage of, benefits
from supply chain interdependencies. In particular, supply chain issues may
result in legacy engines flying for longer, which is beneficial to the Group’s
aftermarket business.
Responsibility
The executive committee
and senior management are
responsible for our principal risks.
Risk trend
Increase
No change
Decrease
Realigned risk
Strategic priorities
Design
Deliver
Improve
Continued
38
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
RISK 2 – COMMERCIAL
Description and impact
The Group operates in competitive markets throughout the world and is
diversified across a variety of production and sales geographies. This provides
a degree of Group‑level impact mitigation from the commercial challenges and
market disruptions that face the sector. However, the widespread disruption
caused by geopolitical events, including those identified at Risks 1 and 3, could
heighten the Group’s exposure to end‑market commercial risk.
Product quality also drives certain commercial risks. Quality issues involving
products manufactured or supplied by the Group could lead to product recalls,
financial penalties, reputational damage and, in the worst case, could put
consumer health and safety at risk.
Other commercial risk areas that may have an adverse impact on the Group
include those related to customer concentration and uncertainties related to
future customer demand, onerous customer and supplier contracts, the impact
of increased competitive pressures on the maintenance or improvement
of market share, technological innovation and market disruption, and the
performance and management of programme partners.
Mitigation
• The senior management team keeps track of the Group’s commercial
risks through a number of mediums including by conducting reviews of the
Group’s risk register which aggregates and highlights the key commercial
and other risks and relevant risk trends across the Group.
• The Group actively invests in research and development activities
to augment its platforms for future product expansion, drive quality
improvements, enhance customer alignment and achieve further operational
efficiencies. These activities are subject to lifecycle technical reviews on an
annual basis. These research and development activities are underpinned
by a global technology strategy, while the technology team regularly review
the technical landscape. Details about some of the Group’s research
and development activities are provided in the Sustainability review on
pages 51 to 99.
• Management maintains a close focus on delivery management supported
by their regular review of the Group’s customer and supplier contracts in
order to identify ways, including through contract renegotiations, to improve
the Group’s profitability.
• Management continues to focus on managing costs closely to protect and
enhance margin.
• The Group has a diverse portfolio of risk and revenue sharing partnership
(“RRSP”) contracts across a number of leading global OEMs, retaining
relatively small shares in any single programme. Melrose has mitigated
against commercial risks associated with such arrangements by using
conservative financial assumptions for all of its RRSP programmes.
• The Group operates robust quality assurance and management
procedures led by an independent internal quality team including
adherence to documented management systems and external auditing to
internationally‑recognised quality and airworthiness standards.
Trend commentary
The risk trend for commercial risk remained broadly the same during
the year, with macroeconomic events continuing to cause fluctuations in
commodity pricing, in addition to wider inflationary pressures. While aerospace
sector‑specific hyperinflation and the rising costs of skilled labour have
continued to put pressure on the Group’s supply chain and margins, the
Group continues to drive operational efficiencies in its business lines, including
through investing in alternative production methods, and to protect and
improve margin through ongoing strategic review of pricing and supply chains.
As noted above, the key civil aerospace OEMs, Airbus and Boeing,
each adjusted their build rates downwards during 2024. Further material
downgrades to current and future production rates by key OEMs in 2025 would
likely put increased pressure on the Group. While the Group remains confident
of inherent supply and demand dynamics in the sector over the medium and
long term, management continues to focus on commercial improvements and
cost management to mitigate any potential near‑term impact.
The Group continues to be exposed to commercial risks arising within the
aerospace industry, including the shift to new technologies and markets,
such as electric and hydrogen powered aircraft. While the introduction of
new technologies in the aerospace sector does pose a commercial risk to
the Group, the highly regulated nature of the sector and the long certification
process that emerging technologies would be subjected to, would mean
that an extended period of time would pass before new developments would
be in a position to threaten the Group’s current and emerging technological
capabilities and impact on its earnings. Strategic plans have been put in
place across the Group to ensure targeted development of current and future
technological capabilities in order to position the Group to capitalise on
technological advances in the sector.
The senior management team continues to actively and regularly track, monitor
and support strategic planning activities and impact mitigation assessments in
respect of ongoing commercial risks.
39
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
RISK 3 – ECONOMIC AND POLITICAL
Description and impact
The Group operates through manufacturing and/or sales facilities in numerous
countries and is affected by global economic and political conditions.
Growing levels of globalisation, urbanisation, travel, and tourism create
sectoral and market growth opportunities for the Group but, there is a risk
that geopolitical events may offset those growth opportunities and adversely
impact the Group’s operations, particularly those that involve major trading
partners or blocs. For example, geopolitical events may result in explicit trade
protectionism, the potential for conflict or broader international political issues,
as well as the introduction of new tariffs and/or taxes which could adversely
affect the financial performance of the Group or the delivery of its global
strategy. Moreover, global economic and political events may cause sudden
and unanticipated disruption to the Group’s operations and supply chains.
Fluctuation in commodity prices and high inflation may materially and adversely
affect the Group’s operational performance and financial condition. Further,
these factors may materially affect customers, suppliers, and other parties with
which the Group does business. High inflation levels may result in increased
Group costs both in terms of the operation of plants and the manufacturing of
products, which in turn may be passed on to customers. More generally, adverse
economic and financial market conditions may cause customers to terminate
existing orders, to reduce their purchases from the Group, or to be unable to
meet their obligations to pay outstanding debts to the Group. These market
conditions may also cause suppliers to be unable to meet their commitments to
the Group or to change the credit terms they extend to the Group.
Mitigation
• The Group has a diversified global footprint mainly across Europe, the US
and Asia, and its commercial split across both the civil and defence markets
helps to mitigate against geopolitical shocks. Management continues to
review opportunities to regionalise supply chains to improve resilience.
• Order books including OEM’s aircraft build rates, cash performance, cost
control and other leading indicators are regularly monitored to ensure
that the Group and both of its divisions can respond quickly to adverse
trading conditions. This includes the identification of cost reduction and
efficiency measures.
• Bank financing is readily available to the Group from its supportive banking
syndicate. This support has proven to be available to the Group even during
periods of unprecedented turmoil, including during the global pandemic.
• The Group fosters strong customer relationships which are often long‑term
partnerships, built on technical excellence and quality, and often with plants
in close proximity to customers where feasible and commercially necessary.
• The Group closely monitors global political, economic, and social trends
through an annual strategic review process which supports the Group’s plan
to conduct horizon scanning in respect of any other potential conflicts which
have not already been identified or are under review.
• The Group monitors its commercial terms and seeks to improve them
where opportunities arise. This includes negotiating favourable International
Commercial Terms to mitigate the potential impact of tariff increases
where possible.
Trend commentary
Geopolitical and economic instability and associated risks worsened throughout
2024. The continuation of the entrenched war in Ukraine and the war in the
Middle East, the continued threat of attacks on merchant ships in the Middle
East, and rising tensions between China and Taiwan, remained key factors in
such uncertainty exacerbated by the uncertainty associated with the change in
the US Presidency, including potential tariffs. While Melrose promptly assessed
the risks associated with these events by conducting an analysis of their
impact on the Group’s trading relationships and supply chains, a further rise in
geopolitical tensions or the escalation of existing conflicts or outbreak of new
conflicts could adversely affect the Group’s business. Continued geopolitical
tensions also contribute to an increased risk of cyber attack by state‑sponsored
actors. Recent de‑escalation of the conflict in the Middle East and the
possibility of peace negotiations regarding the Ukraine conflict may signal
towards a less unstable global environment. However, the expected rise in US
economic protectionism is expected to create further trade uncertainty through
tariffs, although potential opportunities could arise from increased pressure on
European allies to increase their defence spending and NATO contributions.
The Group’s diversified global footprint, and its commercial split across the
civil and defence markets, provide a degree of natural mitigation in the event
of regionalised geopolitical shocks. Senior management closely monitors
economic and political events alongside its dedicated export control team in
order to best react to any associated risks as early as practicable. However,
the susceptibility of aerospace supply chains to disruption and the difficulties in
adapting to them are significant headwinds.
RISK 4 – LOSS OF KEY MANAGEMENT AND CAPABILITIES
Description and impact
The success of the Group is built upon a strong management team. The loss
of key personnel, or an inability to identify, attract and retain key personnel,
could impact the ability of the Group to deliver its business strategy. As a
result, the loss of key personnel could have a significant impact on the Group’s
performance, at least for a time. The loss of key personnel or the failure to plan
adequately for succession or develop new talent may impact the reputation of
the Group or lead to a disruption in the leadership of the business. Competition
for appropriately skilled, qualified and experienced personnel within the sector
is intense and the Group may not be successful in attracting or retaining such
personnel, particularly engineering professionals.
Mitigation
• Succession planning at Board level is coordinated via the Nomination
Committee in conjunction with the Board. While the Chief Executive Officer
is responsible for the appointment of executive committee members, the
Nomination Committee is also engaged in reviewing talent management and
succession planning for senior management.
• Recent non‑executive appointments to the Board have been made
to bolster its aerospace‑specific and industrial capabilities, as well as
seasoned FTSE 100 board experience.
• Succession planning for key roles is a core focus, with the Chief Executive
Officer having undertaken a talent management and succession planning
review of all business line and functional teams’ succession plans with the
relevant executive committee members.
• Regular employee engagement surveys are undertaken and action plans
developed for lower scoring teams.
• Remuneration packages and incentive arrangements are regularly reviewed
throughout the business to ensure competitiveness.
• Melrose recognises that, as with most businesses, particularly those
operating within a technical field, appointments are dependent on Directors
and employees with particular managerial, engineering or technical skills.
Appropriate remuneration packages and long‑term incentive arrangements
are offered in an effort to attract and retain such individuals.
Trend commentary
In light of the change in Melrose’s business strategy to operating as a long‑term
aerospace technology business, Board succession planning was a key focus
for the Nomination Committee and the Board in 2024. Following the changes in
executive leadership made in the first half of 2024, the Board, with the support
of the Nomination Committee, approved the appointment of Mr Chris Grigg
as a Non‑executive Director and Chair designate on 1 October 2024. Mr Grigg
succeeds Mr Justin Dowley as Chairman with effect from 30 March 2025
and brings considerable executive and non‑executive FTSE 100 board
experience to the Board in addition to sector‑specific experience having
previously served as the Senior Independent Director of BAE Systems plc. The
Nomination Committee also approved the appointment of Dr Ian Barkshire as
a Non‑executive Director on 1 October 2024, bringing science and technology
experience alongside his extensive FTSE executive experience as the former
Chief Executive Officer of Oxford Instruments plc. For further details please
refer to the Nomination Committee report on pages 132 to 135.
Competition for people, particularly engineers, with the specialised skills,
qualifications and experience to work in the aerospace sector and other
adjacent sectors continues to be intense.
Continued
RISKS AND UNCERTAINTIES
40
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
RISK 5 – HEALTH AND SAFETY
Description and impact
The Group employs approximately 13,750 people with many operations often
involving risks related, but not limited, to heavy duty machinery, chemical use,
movement of parts such as lifting or transportation, as well as energy, such as
electricity and pressurised systems. A serious accident in the workplace could
have a major impact on employees as well as their families, colleagues, and
communities. Such an incident could also result in legal claims, reputational
damage, and financial loss.
Mitigation
• The Group has dedicated corporate and site level Health and Safety (“H&S”)
teams, which have rolled out a comprehensive H&S programme across
all sites. The corporate H&S team has led business‑wide training on risk
management for all operational leaders and an awareness campaign around
GKN Aerospace’s Golden Safety Rules. All sites are required to self‑certify
compliance with the Golden Safety Rules, which is validated through an
internal audit programme throughout the year.
• Production tasks are risk assessed and the business has invested in
providing the appropriate personal protective equipment and appropriate
safety equipment. Risk assessments are communicated to employees, to
provide them with the knowledge and skills necessary to perform their roles
safely. All employees are required to use the safety equipment provided and
adhere to any safety training and instructions given.
• As of 31 December 2024, 29 sites within the Group were certified to the
ISO 45001 international standard, with additional relevant sites progressing
towards accreditation. Third‑party auditing on a three‑year certification cycle
is required to maintain ISO accreditation, with Health and Safety Executive
internal annual surveillance audits taking place in between on a rotation or
risk basis to ensure minimum standards are being maintained.
• Senior management take an active role through engaging in safety tours, in
conjunction with H&S experts, validating the effectiveness of H&S controls
on our sites. In 2024, particular focus was placed on strengthening risk
assessments and risk controls.
• The Board is provided with visibility and oversight on H&S risks through the
form of quarterly reports, which consolidate Group performance for all sites
based on management’s key performance indicators.
Trend commentary
Health and safety continues to be of fundamental importance to Melrose.
The overall risk rating reduced during 2024, with significant continuous
improvement measures having been implemented and a continued focus
on ensuring compliance with the Golden Safety Rules resulting in an improved
H&S performance. While there will always be an inherent H&S risk due to the
nature of the Group’s business, management is encouraged by the reduction
in Lost Time Accidents (“LTA”) with only one LTA having occurred during
2024 (2023: 11).
The senior management team continues to promote H&S as a key priority
within the Group, focusing on compliance with the Golden Safety Rules, the
creation of a proactive culture of adherence across the organisation and
continued rigorous investigation and review of incidents and near‑misses
that occur. Furthermore, Melrose has a Group target to achieve and maintain
an annual LTA frequency rate of below 0.1 per 200,000 hours worked. This
underpins our overarching commitment to stop all accidents from occurring,
through the promotion of safe behaviours across all locations, and an
enhanced focus on hazard identification and awareness. During 2024, we
continued to maintain an LTA Frequency Rate of below 0.1, and continued
to prioritise continuous health and safety improvements in the push for
the LTA Frequency Rate of zero. Please refer to pages 24 and 90 of the
Strategic Report for further details.
COMPLIANCE AND ETHICAL RISKS
RISK 6 – LEGAL AND REGULATORY
Description and impact
The Group operates in a highly regulated environment across multiple
jurisdictions. The Group’s operations are subject to anti‑bribery and corruption,
anti‑money laundering, competition, anti‑trust and trade compliance laws and
regulations. Failure to comply with certain regulations may result in significant
financial penalties, debarment from government contracts and/or reputational
damage, and may impact the Group’s ability to pursue its business strategy.
Considering the breadth, scale and complexity of the Group, there is a risk that
the Group may not always be in complete compliance with applicable laws,
regulations or permits. The Group could be held responsible for liabilities and
consequences arising from: (i) failure to comply with sanctions, export controls
and customs requirements, which can result in fines, criminal penalties,
adverse publicity, payment of back duties and suspension or revocation of the
Group’s import or export privileges; (ii) product liability claims, which can result
in significant total liability or remedial costs, particularly for products supplied
to large volume global production programmes spanning multiple years; and
(iii) employee matters including liability for employee accidents in the workplace
or consequences of environmental liabilities, which may be susceptible to
class action law suits, particularly but not exclusively with respect to Group
businesses operating in North America.
Mitigation
• Regular monitoring of legal and regulatory matters takes place across
the Group. Consultation with external advisors is also undertaken where
necessary.
• Group‑wide standard and enhanced application to trade authorisation
procedures are in place and regularly reviewed against the ever‑changing
global trade compliance landscape, supported by a dedicated internal
export compliance team, access to external trade compliance, legal and
regulatory specialists and electronic counterparty screening systems.
• A robust control framework is in place, underpinned by comprehensive
corporate governance and compliance policies and procedures, including
utilisation of third‑party verification providers, training of applicable employees
on policies and procedures, and regular reviews of relevant Group policies in
light of legal and regulatory changes, as well as best practice.
• Melrose operates a Group‑wide whistleblowing platform whereby all
employees have access to a multi‑lingual online portal, together with local
hotline telephone numbers that are available 24/7, in order to allow employees
to raise concerns on possible wrongdoing in any aspect of the business.
Trend commentary
As a result of the geopolitical tensions and the associated sanctions and
restrictions noted above, the Group continued to proactively monitor the
changing regulations surrounding export controls, sanctions and tariffs to
ensure that the Group observes the relevant requirements and has the relevant
licences needed in order to operate. The Group continued to have a fully
developed legal function, supported by external advisors where necessary or
helpful to ensure ongoing compliance in the jurisdictions in which the business
operates across the globe.
The change of US President has resulted in increased uncertainty in respect
of US trade policy, with the prospect of increased US protectionism potentially
adversely impacting parts of the Group’s business. Potential reduction in US
support for its allies’ national defence is likely to lead to an increase in defence
spending in the UK, the EU and the rest of the world. The likelihood and level of
impact of such potential risks remains unknown.
41
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Continued
RISK 7 – CLIMATE CHANGE
Description and impact
Increased frequency in extreme weather and climate‑related natural disasters
may lead to physical damage at the Group’s sites in addition to disruption to
the already pressured supply chains on which the Group relies. Additionally,
new legislation, regulations and reporting requirements, may require additional
investment from the Group, restrict commercial flexibility and business
strategies, suppress aviation demand, and introduce additional costs and
liabilities for the Group. Changing demand patterns influenced by climate change
concerns create risks for the sustainability of the Group’s products and solutions.
Climate change has been identified as a standalone Group principal risk since
2021 and is incorporated in the Group’s risk management process comprising
a combination of transition and physical risks. These risks relate to the Group’s
exposure to carbon pricing mechanisms, raw material availability, replacement
of carbon intensive machinery, and successful entry of new technologies to the
market. The physical risk assessment sought to identify current and potential
future physical climate risks facing the Group’s global facilities and key
suppliers, with consideration of revenue and property value of each facility, to
determine the materiality of identified risks. The most material of the identified
risks were found to relate to flooding and storm events, together with potential
disruptions to key suppliers caused by extreme weather events. Throughout
2024, GKN Aerospace continued to refine and review its climate‑related risks
and opportunities which were reported to the Group in order to inform the
assessment of climate change as a principal risk.
Mitigation
• The Group has developed a coordinated approach to tackling climate
change across the business which provides goals and monitors progress in
three key areas: (i) reducing emissions as a business generally; (ii) reducing
consumption of natural resources; and (iii) enabling the aviation sector’s
route to Net Zero.
• The Group seeks to integrate climate considerations, such as energy and
climate management efforts in countries where we operate and sell our
products, expectations of our value chains, and the various commitments
to achieve the goals of the Paris Agreement, into strategic decisions and
operational management.
• The framework developed for identifying, understanding, quantifying,
where possible, and, ultimately, managing climate‑related challenges and
opportunities continues to be used which enables the Group to better
understand and plan for the effects of climate change. This framework
covers government and international policy, emissions regulations, energy
costs, physical impacts, access to capital, risks relating to permits, product
demand and litigation risks.
• The Group sustainability function, overseen by the Chief Technology Officer,
continues to set out the responsibilities for delivering the Group’s climate
strategy and addressing progress against the Group’s climate commitments.
• The Group’s near‑ and long‑term carbon emission targets have been validated
by the Science Based Targets initiative and are used to manage operational
and supply chain emissions, as well as track the Group’s emissions, energy,
and other climate‑related sustainability targets. Performance is reported
annually within Melrose’s Annual and Sustainability Reports, Task Force
on Climate‑related Financial Disclosures (“TCFD”) report, and through the
Climate Disclosure Project (“CDP”) Climate Change disclosures.
• In 2024, the Group received a silver medal in its first assessment by
EcoVadis, one of the leading global CSR rating companies, evidencing a
strong sustainability performance amongst industry peers and an ability for
close collaboration with value chain partners.
• The Group’s Transition Plan, developed in 2023, continues to help the
Group deliver its ambition of Net Zero by 2050. The Transition Plan
was prepared in line with the TCFD recommendations and the new UK
Transition Plan Taskforce’s guidance. It is available on Melrose’s website
at www.melroseplc.net/sustainability.
• As part of the assessment of climate transition risks, mitigation and
adaptation opportunities have been identified related to the development
of new technologies, such as hydrogen, battery electric and sustainable
aviation fuels, as well as improving inflight efficiencies by lightweighting
components and energy efficiency of engines to ensure continued
motivation to be the most sustainable partner in the sky. Further details can
be found in the Sustainability review on pages 51 to 84.
• Members of the senior management team actively participate in key
government forums and seek to help shape policy and investment in a way
which benefits sustainable growth in aviation.
Trend commentary
The overall risk presented to the Group by climate change remains
multi‑faceted. Recent years have shown the frequency and severity of
climate‑related events are increasing and the transition to low‑carbon
technology is a growing focus area for governments, investors, and the entire
aerospace sector. As such, the Group continued to give climate change
significant focus addressed through various strategic and tactical workstreams
within the Group. It continues to be an important consideration across the
Group’s business strategy, including in terms of investment decisions and
product development. Further, it continues to be a key strategic concern for the
Group’s stakeholders, who are keen to understand how Melrose is managing
climate‑related risk.
Going into 2025, the Group will continue to look to balance where possible
the risks associated with climate change against potential opportunities for
the Group. Furthermore, the Group continues to align its climate‑related risk
assessments to the new EU Corporate Sustainability Reporting Directive
standards and principles to ensure consistent reporting of climate related risks
and opportunities, and our progress in achieving the Group’s Net Zero ambition.
RISKS AND UNCERTAINTIES
42
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
RISK 8 – INFORMATION SECURITY AND CYBER THREATS
Description and impact
The Group is exposed to information security and cyber threats due to the
nature of its operations within the aerospace industry specifically, and generally
due to the size and public facing nature of the Group. There is an inherent
information security threat within the Group where data is held in relation to
civil aerospace technology and controlled military contracts in airframe and
engines. Given the nature of the industry in which the Group operates, the
Group is also subject to compliance with more stringent security requirements
in particular areas and failure to comply could result in reputational damage
and lead to the loss of existing business or failure to secure future business.
The potential consequences for the Group associated with information security
and cyber threats are far reaching. Failure to protect the availability and
integrity of information technology systems and data from deliberate attempts
to cause harm may result in disruption to our business operations and to our
ability to service customers, as well as to loss of business and direct financial
costs. The Group may also suffer business disruption as a result of such
attacks within the Group’s wider supply chain.
Mitigation
• The Group’s cyber security team works with the Group’s external security
consultants, Ernst & Young, and other specialist security service providers
to assess the Group’s increased exposure to cyber security risk and to
ensure appropriate mitigation measures are in place for the Group.
• During the year, management continued to monitor and enhance its
information security strategy and risk‑based governance framework within
the Company. A multi‑layered approach is taken to identify and address
information security risks focusing on people, process and technology,
including employee screening and training, supplier and vendor checks,
advanced threat detection and response, security compliance monitoring,
penetration testing, IT asset compliance reviews and threat intelligence.
• The framework follows both the UK Government’s National Cyber Security
Centre recommended steps on cyber security and US NIST Cyber Security
Framework, as well as incorporating Dutch MIVD and Swedish ISM controls.
This strategic management approach has delivered risk profiling capabilities
for aerospace and defence, and enabled the development of mitigation
plans to reduce the Group’s exposure to cyber risk.
• The progress of the Group against our information security strategy is
measured every quarter. Our review is supported by Ernst & Young who
conduct separate cyber assurance reviews throughout the year at certain
of our key strategic locations. We perform regular internal site assessments
based on our mandatory controls framework. This comprehensive approach
ensures we maintain robust information security across the Group.
• The Group has obtained appropriate insurance policies in respect of the
threats posed by the increasing risk trend of information security and
cyber threats.
• The Group has worked to establish comprehensive and tested response
plans in the event of a material threat to information security and/or a
cyber threat more generally.
• Education and awareness initiatives are considered vital to the management
of information security and cyber threat risks. Initiatives are undertaken
throughout the year to maintain employee vigilance, including phishing
exercises, to help maintain high levels of awareness of and responsiveness
to these risks.
Trend commentary
Information security and cyber threats against commercial businesses,
particularly those which operate in key sectors such as aerospace, continue
to increase generally as a result of the unstable geopolitical situation and
pervasive cyber crime generally. Addressing such threats continues to be a
high priority, and the Group remains on high alert. To counter these risks, the
Group has worked, and continues to work, with external security companies to
monitor, improve and refine its Group‑wide strategy to support the prevention,
identification, and mitigation of current and future threats.
43
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Continued
FINANCIAL RISKS
RISK 9 – TREASURY
Description and impact
The Group is exposed to a number of treasury‑related risks, including those
related to liquidity, foreign exchange, and pensions. The ability to raise debt or
to refinance existing borrowings in the bank or capital markets is dependent
on market conditions and the proper functioning of financial markets as well
as on the Group’s financial performance. As set out in more detail in the Chief
Financial Officer’s review on page 31, as at 31 December 2024 term loan
facilities and multicurrency revolving credit facilities were in place; such facilities
totalling, in aggregate, approximately £1,940 million with an initial maturity
date of April 2026, with the ability to be extended for two additional one‑year
periods at the Company’s option.
Due to the global nature of the Group’s operations, it is susceptible to the
volatility inherent in the foreign exchange market in addition to exchange rate
fluctuations. The Group is primarily exposed to two types of currency risk:
transaction risk and translation risk.
Furthermore, any shortfall in the Group’s defined benefit pension schemes
may require additional funding. As at 31 December 2024, the Group’s pension
schemes had an aggregate deficit, on an accounting basis, of £59 million
(2023: £99 million). Changes in discount rates, inflation, asset values or
mortality assumptions could lead to a materially higher deficit. Further, there is
a risk that the plans’ assets, such as investments in equity and debt securities,
will not be sufficient to cover the value of the retirement benefits to be provided
under the plans. The implications of a higher pension deficit include a direct
impact on valuation, implied credit rating and potential additional funding
requirements at subsequent triennial reviews.
Mitigation
• The Group operates a conservative level of headroom for liquidity purposes
and across its financial covenants, conducting regular reviews of its cash
forecast, which is designed to avoid the need for any unplanned refinancing.
• The Group operates cash management mechanisms, including cash
pooling across the Group and maintenance of RCFs and certain
uncommitted facilities to mitigate the risk of any liquidity issues.
• During 2024 the Group negotiated an increase in its existing US dollar debt
facilities equal to approximately £320 million and secured the ability to
extend the final maturity date of all committed bank facilities outstanding as
at 31 December 2024 to April 2028.
• Subsequent to 31 December 2024, the Group has secured additional
committed multi‑currency bank facilities with a select number of its existing
lenders totalling approximately £400 million to provide additional flexibility
and headroom.
• The Group’s policy is to mitigate transactional foreign exchange risk
affecting cash by hedging such risks with financial instruments.
• The Group utilises its multi‑currency banking facilities and cross‑currency
swaps, where relevant, to maintain an appropriate mix of debt in US dollars,
Euros and Sterling. The hedge of having debt drawn in US dollars and Euros
protects against some of the balance sheet and banking covenant foreign
exchange risk.
• The Group is protected against being over‑hedged due to short to
medium‑term reductions in forecasts, as the percentage of hedges compared
to forecast foreign exchange exposures tapers over future periods.
• The GKN UK Group Pension Schemes (Numbers 1 and 4) are the most
significant pension plans remaining in the Group and are closed to new
members and to the accrual of future benefits for current members. The
Group commenced a process to buy‑out the GKN UK Group Pension
Scheme Number 4 in 2023, this was ongoing throughout 2024 and is
expected to complete during 2025.
• Melrose actively engages with the Trustees on pension plan asset
allocations and strategies.
Trend commentary
The Group has maintained its strong cash controls and forecasting processes,
and senior management has implemented measures to increase the accuracy
of cash flow information and the robustness of cash controls. The increases
in the Group’s debt facilities secured during the year and the ability to extend
the final maturity date for all committed bank facilities outstanding as at
31 December 2024 to April 2028 and the additional multi‑currency bank
facilities arranged following 31 December 2024 have ensured that the Group
has adequate resources available to put the Group in a strong position for
growth. The Group also utilised its usual controls to manage foreign exchange
risk during the year and to provide protection for future years. For further details
on the Group’s bank facilities, cash management and financial risk management
please refer to the Chief Financial Officer’s review on pages 26 to 33.
RISKS AND UNCERTAINTIES
44
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
SECTION 172 STATEMENT
Board stakeholder engagement
and decision‑making
The Board is responsible for the long‑term
success of the Company, for setting
and overseeing its culture, and for
the Company’s purpose, strategy and
values. The Board’s understanding of
the Company’s stakeholders and their
respective interests is central to these
responsibilities and informs key aspects
of its decision‑making.
SECTION 172 STATEMENT
In accordance with the Companies Act 2006, the Directors provide
this statement describing how they have had regard to the matters
set out in section 172(1) of the Companies Act 2006 when performing
their duty to promote the success of the Company under section 172.
MELROSE’S PURPOSE, STRATEGY AND VALUES
Our strategy remains focused on value creation driven by operational
and financial improvement over the longer term. Our positive
trajectory is underpinned by leading positions on the world’s major
aircraft platforms, strong organic growth prospects within the
aerospace sector, and attractive opportunities to further differentiate
our business through cutting‑edge proprietary technology that is
already shaping the future of flight.
The Company’s purpose and strategy remain underpinned by the
principles and values on which it was founded. We operate with
integrity, honesty, transparency and decisiveness, and believe in a
lean operating model, high productivity and sustainable business
practices. We see the decarbonisation of the aerospace sector as a
priority, and indeed a central tenet of GKN Aerospace’s mission to be
‘The Most Trusted and Sustainable Partner in the Sky’. Whilst the
sector and our customers provide many opportunities for further
progress towards cleaner air travel through our innovation and
technology leadership, we see no reason why this priority cannot be
achieved at the same time as generating superior financial returns for
our shareholders.
The Board is ultimately accountable to the Company’s
shareholders for setting the Group’s strategy, for overseeing the
Group’s financial and operational performance in line with
Melrose’s strategic objectives, and for taking into account the
principal risks facing the Group. Implementation of the Group’s
strategic objectives, as determined and overseen by the Board, is
delegated to the senior management team led by the executive
committee, with operational strategy and management delegated
to the divisional teams. The Board has established an
organisational structure with clear reporting procedures, lines of
responsibility and delegated authority, in line with the Group’s
governance framework, which the Board reviews regularly to
ensure it continues to align with applicable legal requirements and
corporate governance best practice.
The Board recognises that culture, values and standards are key
contributors to how a company creates and sustains value over the
long term. High standards of business conduct guide and assist
the Board’s decision‑making, and in doing so, help promote the
Company’s success, recognising, amongst other things, the likely
consequences of any decision in the long term and wider
stakeholder considerations. The standards set by the Board
mandate certain requirements and behaviours with regards to the
activities of the Directors, our employees and others associated
with the Group.
The Group has a number of compliance policies, including a Code
of Ethics, which are implemented across the business. The Board
continues to play an active role in overseeing how the business
manages compliance, with adherence to the compliance framework
being fed back to the Board, to guide and assist in its
decision‑making, and to ensure that the business practices of the
Group remain aligned with Melrose’s purpose. The Board considers
it to be of the utmost importance that the business continues to
uphold high standards of business conduct and strives for
continuous improvement in this area. Further detail on the Group’s
compliance policies and framework, and reporting to the Board,
can be found on pages 51 to 99 of the Sustainability review.
45
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Continued
SECTION 172 STATEMENT
OUR KEY STAKEHOLDERS
OUR PEOPLE
Our approach
We recognise that a capable, engaged and passionate workforce is
central to the Group’s performance and ultimately its success. Our
people are an important stakeholder group, and we foster a culture of
effective engagement with employees in order to encourage open
dialogue where employees feel confident that their views are taken
into consideration.
Engagement activities and consideration
• The executive Directors conduct regular site tours throughout the
year, engaging directly with employees across multiple sites on a
regular basis. Quarterly interactive leadership update video
conferences, and biennial in‑person leadership conferences are
hosted by the Chief Executive Officer to engage directly with
operational and functional leaders across the Group.
• Melrose operates a Workforce Advisory Panel (“WAP”) in order to
promote effective engagement with, and encourage participation
from, its workforce. The WAP met twice during 2024 and the
outcomes, together with key workforce views, were fed back to the
Board accordingly.
• Employees have an opportunity to raise concerns confidentially
and anonymously through the Group‑wide whistleblowing platform.
The platform has a multi‑lingual online portal, and local hotline
numbers that are available 24/7. The Audit Committee receives
regular reports on whistleblowing activity, and they report to the
Board accordingly.
• An annual all‑employee engagement survey is undertaken across
the Group in order to collate the views of employees and identify
areas of strength and those in need of development. The Board
receives a summary of these results and is provided with feedback
on how employees’ views are taken into account in executive
decision‑making. An initiative was launched in 2024 to strengthen
the focus on continuous improvement action planning with respect
to the most material issues to each team.
• A large number of employees are covered by collective bargaining
units, national collective agreements and union agreements.
Engagement with employee representative bodies remains a focus,
enabling discussion of ordinary course matters as well as specific
events. We understand that some of the decisions we take to
improve our businesses for the long‑term benefit of all
stakeholders, such as restructuring, can have a material impact on
our people. We do not take these difficult decisions lightly, and
where appropriate we seek to understand through event‑driven
consultation and engagement activities with relevant stakeholders
to ensure that the decisions we take are based on a well‑informed
view of the potential impact that those decisions may have on
those stakeholders. We always endeavour to achieve positive
outcomes for the workforce in such circumstances.
• The Board conducts regular site visits at least annually; and
holds a Board meeting and business review at an operating site
at least annually.
• The Board receives regular health and safety reports and periodic
updates on the Group’s pension arrangements.
• The Nomination Committee, together with the Board, is focused on
promoting diversity and inclusion within the Group(1). The Group’s
diversity policies are reviewed on an annual basis to ensure that the
importance of having a diverse and inclusive culture is understood
and embraced throughout the Group. Our global Employee
Resource Groups (“ERGs”) are open to all employees and provide
opportunities for collaboration and learning. Further detail in respect
of the ERGs can be found in the Sustainability review.
Sustainability review
pages 51 to 99
KEY STAKEHOLDER ENGAGEMENT IN 2024
The Board cultivates strong relationships with the Group’s key stakeholders so that it
is well placed and sufficiently informed to take their considerations into account when
making decisions, where appropriate, in order to discharge their duties under section
172 and to pursue the Company’s strategic objectives. Stakeholder engagement is on
the Board’s agenda to enable the Board to assess whether the Company’s principal
stakeholders and their priorities have changed, and whether the Board has sufficient
engagement with each key stakeholder group.
Set out below and on the following pages are details of our key stakeholders, how we engaged with them during the year, and the outcomes
of these processes.
(1) All Diversity, Inclusion, and Belonging initiatives and activities referenced throughout this report are applicable only within the scope of legally permitted jurisdictions.
46
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
SHAREHOLDERS
Our approach
We provide a consistent and transparent flow of information and
management insight to shareholders and to the wider investment
community, taking a clear and open approach to investor relations
and communications. We recognise that analysts require robust
information in order to inform the research and analysis that they
provide to investors, and investors benefit from disclosure in line with
regulatory requirements, as well as enhanced disclosure on topics
that are material to the Company, to inform their independent
investment decisions.
Engagement activities and consideration
• Melrose has an annual programme of key information publications
and engagement activities including presentations following annual
and interim results announcements, regular trading updates, open
agenda meetings for key shareholders attended by the Chairman
and/or the Senior Independent Director with the Company
Secretary, where requested, and a live Q&A forum for shareholders
at Melrose’s Annual General Meeting.
• Following the success of a similar event at Trollhättan, Sweden, in
2023, the Group hosted a technology day for investors and
analysts who were invited to attend the Group’s sites in Bristol, UK,
focusing on the Structures division.
• The Company published a detailed booklet on its risk and revenue
sharing partnerships (“RRSPs”) accompanied by a short video
presented by the Chief Financial Officer and the President of the
Engines division, to provide further information in respect of the
Group’s RRSP programmes to investors, analysts and other
stakeholders to assist their understanding of the financial and
accounting dynamics of these complex partnerships. Further
details relating to the RRSP programmes are set out at page 49.
• The Chief Executive Officer and Chief Financial Officer met with key
investors in the US, attending in‑person meetings on both the East
and West Coast, as well as attending meetings in Canada, the UK
and Germany.
• The Group Company Secretariat engaged with, and facilitated
discussions involving members of the Board with, the responsible
stewardship and sustainability representatives of key investors on a
variety of topics including the proposed revision of the Directors’
remuneration policy.
• The Chair designate wrote to the Company’s largest investors to
meet with them in January and February 2025 in advance of his
appointment as Non‑executive Chairman in March 2025.
Explaining our RRSP model
page 49
CUSTOMERS AND SUPPLIERS
Our approach
The relationships that we have with our customers and suppliers are
key to our success, and we foster positive and open business
relationships with them. We continue to work hard to build upon and
strengthen these relationships where possible, and 2024 saw a
significant amount of commercial and collaborative discussions with
our network. The Board recognises the importance of these
relationships and encourages regular and meaningful engagement
throughout the business with these key stakeholder groups.
Engagement activities and consideration
• The Board holds regular business reviews with the Chief Executive
Officer, Chief Financial Officer, Group General Counsel and the
Presidents of each of our business lines. As part of these reviews,
management shares feedback on key customer and supplier
initiatives and views, as well as on supplier performance and
supply chain challenges.
• Directors and management attend major aerospace industry
events, including the Paris Air Show and the Farnborough
International Airshow, which promote an open dialogue with
customers, suppliers, and other industry players. In addition,
business division leaders attend key shows specific to their
strategic growth, including the Maintenance Repair and Overhaul
Shows in Europe, America and Asia, and leading composite
technology shows within Europe. The Chief Executive Officer
provides consolidated feedback to the Board on material matters
arising from these market interactions.
• The Group continues to focus on helping our customers deliver
their sustainability agendas by working with them to find ways to
make products more sustainable.
• Melrose developed a supplier engagement project to prepare
GKN Aerospace’s procurement teams to build and execute
roadmaps to engage 70% of suppliers by 2028, enabling them to
set science‑based emission targets. This project focuses on
internal training, supplier analysis and working with our business
lines to develop long‑term engagement roadmaps.
• Aligned with our Scope 3 Science Based Targets Initiative (“SBTi”)
supplier engagement target, we have expanded the coverage of our
supplier monitoring and engagement tool, helping enable the
business to better assess our suppliers’ environmental footprint and
allowing us to prioritise which suppliers to engage with. Our online
supplier collaboration and compliance portal offers the opportunity
to unify our approach to supply chain compliance monitoring and
data capture across our key suppliers. Key regulations and ESG
due diligence are covered in the portal providing the opportunity to
run sophisticated, business‑wide supply chain survey campaigns.
Sustainability review
pages 51 to 99
47
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Continued
SECTION 172 STATEMENT
ENVIRONMENT AND COMMUNITIES
Our approach
In 2024, contributing to the decarbonisation of the aviation sector
remained one of our top priorities as we continued to focus on
reducing our own emissions through energy efficiency initiatives and
renewable energy installations as well as working towards increased
supplier engagement. We also began preparing for the new EU
Corporate Sustainability Reporting Directive (“CSRD”) reporting
standards and the underlying European Sustainability Reporting
Standards (“ESRS”) which involved significant work across the
business. The Board as a whole takes responsibility for sustainability
and climate change, and sustainability remains a Board meeting
agenda item, providing a platform for the Chief Executive Officer to
update the Board on progress and targets.
Engagement activities and consideration
• In 2024 we implemented a number of actions to align our
sustainability reporting with the new CSRD standards. This
included conducting a value chain mapping exercise, refining our
Double Materiality Assessment to align with the ESRS Standards
and the European Financial Reporting Advisory Group
implementation guidance, and completing an externally facilitated
sustainability data pre‑assurance project.
• Our near‑ and long‑term emissions targets were successfully validated
by the SBTi in 2024. These targets form part of our overall
Transition Plan to reach net zero across the value chain by 2050.
• An internal project has been launched to prepare GKN Aerospace
procurement teams across our business lines for further engagement
with suppliers. This forms part of our work towards our Scope 3
SBTi‑approved engagement target of 70% of GKN Aerospace
suppliers by spend having set SBTi targets by 2028.
• The Group has made progress in its engagement and performance
with ESG benchmarking agencies. The Group’s MSCI score was
upgraded to ‘AA’ in June 2024, it received a ‘B’ and a ‘B’ in its CDP
Climate Change and Water Security respectively, and scored 70
(industry average was 52) in its first EcoVadis evaluation.
• We recognise the importance of local communities to the effective
operations of our business. Page 96 of our Sustainability review
provides more detail in respect of the actions we took in 2024 to
engage with local communities.
Sustainability review
pages 51 to 99
Additive fabrication technology
page 49
LENDERS
Our approach
In addition to ensuring the long‑term funding requirements of the
Group are provided for, we may need to move quickly to secure
funding for the opportunities that we feel will be critical to Melrose’s
success. As part of this, we regularly engage with our supportive
banking syndicate to discuss funding strategy, and maintaining strong
banking relationships has proven to be vital at times where we have
needed to act quickly and decisively.
Engagement activities and consideration
During the year, we actively engaged with our existing lenders
to negotiate an increase to our debt facilities of approximately
£320 million and options to extend the final maturity date to April 2028
for all committed bank facilities outstanding at 31 December 2024,
ensuring the Company has the financial resources available to position
it for growth. In addition, following the year‑end date we successfully
negotiated additional committed bank facilities totalling approximately
£400 million with a select number of our existing lenders, reflecting
our proactive approach to securing long‑term financial support and
the strong relationships maintained with our financial partners.
Chief Financial Officer’s review
pages 26 to 33
GOVERNMENT BODIES, REGULATORS
AND INDEPENDENT BODIES
Our approach
We interact with government bodies and regulators in a number of
jurisdictions across the world, many of which are of strategic
importance to the Group and our long‑term success. It is important
that we maintain open dialogue with such stakeholders to allow our
businesses to operate effectively. Through these interactions, we
focus on communicating our strategic priorities and ensuring our
businesses can succeed in their respective markets. These
interactions cover broad themes such as sustainable aviation, skills
and workforce issues, the integration of advanced manufacturing into
our operations and the adoption of both incremental and disruptive
aerospace technologies, including hydrogen propulsion for zero
emissions flight. We maintain a practical and focused approach to
these relationships, engaging on matters that directly affect our
operations and strategy. Furthermore, we invest significant time in
speaking regularly to key corporate governance agencies and proxy
advisors regarding certain aspects of corporate governance that we
and our investors consider to be of long‑term strategic importance.
Engagement activities and consideration
• We maintain regular dialogue with national governments,
politicians, funding bodies, trade and industry associations, and
other industrial organisations on a range of topics related to our
business. These include the Department for Business and Trade,
the Ministry of Defence and the Department for Energy Security
and Net Zero in the UK, as well as the Department of Defense in
the US. In the Netherlands we regularly interact with Government
ministries including Economic Affairs, Defence and Infrastructure &
Water Management, as well as the Netherlands’ Armed Forces and
Netherlands Enterprise Agency RVO, while in Sweden we maintain
close dialogue with several of the Government Ministries as well as
the Swedish Armed Forces, the Defence Materiel Administration
FMV, the National Space Agency and the Innovation Agency,
Vinnova. In a European context, GKN Aerospace is an active
member of ASD Europe, the association focusing on Aerospace,
Security & Defence, and GKN Aerospace works with partners to
advocate on the topics mentioned previously.
48
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
• GKN Aerospace is also an active participant in the Jet Zero
Taskforce (previously the Jet Zero Council), bringing together
industry, academia and government to provide strategic leadership
and system approach to support innovation, economic growth and
the decarbonisation of the UK aviation sector. More recently, our
Chief Technology Officer became the new Chair of the Hydrogen in
Aviation Alliance, championing the development of hydrogen
propulsion technologies and the enabling infrastructure needed to
make zero CO2 emissions flight a reality in the UK.
• We continued to engage with independent reporting bodies
supported by the UK Government where relevant, including the
FTSE Women Leaders Review and the Parker Review.
• Significant time and effort was also placed on engaging with
various stakeholders on sustainability‑related topics, which has
included sustainability analysts, reporting organisations and rating
agencies such as MSCI, Sustainalytics, V.E., FTSE Russell, S&P
CSA and CDP.
KEY BOARD DECISIONS AND
STAKEHOLDER ENGAGEMENT
EXPLAINING OUR RISK AND
REVENUE SHARING PARTNERSHIP MODEL
• Our people
• Shareholders
• Customers and suppliers
A key element of our investment case is our industry‑leading
Engines business and its portfolio of 19 risk and revenue sharing
partnerships (“RRSPs”).
In October 2024, we provided our most comprehensive and detailed
RRSP communication to date in the form of a booklet. This document
laid out in detail: what is an RRSP, how Melrose’s portfolio looks today,
what cash is forecast to be received and how the business accounts
for these partnerships. It also contained a full list of all 19 engine
partnerships, including the percentage share of each programme
owned, to ensure complete transparency across the portfolio.
The booklet was accompanied by a video presented by our Chief
Financial Officer and the President of our Engines division, which
provided further detail of the financial and accounting dynamics of
our RRSP portfolio. This communication was supported by regular
investor relations engagements throughout the year, to ensure open
dialogue with shareholders was maintained and any questions could
be answered.
ADDITIVE FABRICATION TECHNOLOGY
AND ENVIRONMENTAL IMPACTS
• Engagement with stakeholders
• Sustainability
• Technology
We have been at the forefront of additive fabrication (“AF”) for nearly
two decades, with research and technology centres in Sweden, the
UK and the US actively integrating this technology into our operations.
Our AF components are already in use today on multiple engine and
aircraft platforms, including serial production on the Pratt & Whitney
GTF engines on the Airbus A220 and Embraer E195 aircraft.
AF has significant environmental impacts for the aerospace and
aviation sectors. AF allows complex parts to be directly produced
from digital models, reducing waste, energy consumption, and
material usage compared to traditional manufacturing methods.
When combined with design leadership and overall engine
capabilities, the use of AF enables more efficient solutions which help
to reduce weight whilst improving functionality and performance,
reducing in‑flight emissions through overall engine and aircraft fuel
efficiency and contributing to the aviation sector’s route to Net Zero.
By using AF, which builds parts layer by layer through the use of
technologies such as Directed Energy Deposition, we are able to
consume only the material required for a component versus
traditional manufacturing methods which can often generate a
significant amount of scrap metal. This precision results in less
material wastage, contributing to more efficient use of raw materials,
reducing energy consumption in production and reducing the need
for new resources. AF technology utilises minerals up to 10 times
more effectively than conventional processes bringing potential
buy‑to‑fly ratios down from 11:1 to 2:1.
With a ‘design for the environment’ approach, we assess the
environmental impact of our existing products throughout their
lifecycle, focusing on material usage, waste, energy consumption,
and CO2 emissions in production. By leveraging AF technologies, we
aim to reduce negative environmental impacts across various stages
of our product development and production.
We reaffirmed our commitment to sustainable manufacturing in 2024
with a £50 million investment in cutting‑edge AF technology in
Trollhättan, Sweden, of which £12 million was funded by the Swedish
Energy Agency. This investment enabled the opening of a new AF
production centre in October 2024, one of the world’s first
commercial facilities for manufacturing of aircraft engine components
using AF.
Our technology is already being deployed on existing engines
programmes, such as the Fan Case Mount Ring, an important
component of both the PW1500 and PW1900 GTF engines,
manufactured using Laser Metal Deposition. The use of AF in
production was scaled up throughout 2024 and by November 2024
we reached the milestone of producing 100 Fabricated Fan Case
Mount Rings.
AF technologies have helped us to mitigate the impact of traditional
manufacturing processes, which use more material with associated
energy and CO2 emissions, and enabled us to focus on reducing our
environmental footprint. The use of AF is expected to contribute
towards a reduction in our emissions per unit product, supporting our
targets to achieve net‑zero greenhouse gas emissions by 2050.
49
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Continued
SECTION 172 STATEMENT
INSPIRING FUTURE ENGINEERS THROUGH
STEM AND DIVERSITY INITIATIVES
• Engagement with young people
• Diversity and inclusion
• STEM
GKN Aerospace continues to inspire the next generation of future
engineers and the broader Aerospace workforce through STEM and
D&I initiatives, and outreach to schools and colleges. Through these
initiatives, GKN Aerospace volunteers and STEM Ambassadors
engaged with upwards of 7,000 young people during 2024. Our
sponsorship of the national Primary Engineer ‘if you were an engineer
what would you do?’ competition for school children of all ages was a
particular highlight, with 80,000 entries in 2024 alone. As well as
hosting several Primary Engineer activities at our UK Global
Technology Centre (“UK GTC”), a team of our UK GTC‑based young
engineers, interns and apprentices brought one of the participant’s
designs (Clean Water Access BOT) to life through a prototyping,
design and build project. Throughout this project, the enthusiasm of
our young STEM volunteers was inspiring and the collaboration with
the individuals and their schools was outstanding. As well as helping
to inspire the next generation of engineers, this project also
supported the development of our young engineers and was an
excellent example of collaboration, teamwork and project execution.
The tremendous work of all involved was recognised by the award of
the Primary Engineer MacRobert Medal Gold Award to the project,
winning against 23 other prototypes from industry and academia.
CREATIVE TUITION AND GKN AEROSPACE
Creating an inclusive workforce is of great importance to
GKN Aerospace. Giving young people the opportunity to find out
about and access careers in the aerospace industry without
being limited by their own personal circumstances or
socioeconomic background is something that we are proud to
support. To help meet this aim, GKN Aerospace partners with
Creative Tuition, a Bristol based organisation which specialises in
providing career support, learning, and guidance to
under‑represented communities. With support from the UK GTC
team, Creative Tuition run an annual work experience week at
our UK GTC. Approximately 50 young people were invited to join
this week‑long work experience in April 2024, of whom 50%
were female and 50% were of ethnic minority backgrounds.
Various fun and engaging engineering and team‑building
challenges were set by the team which were worked on during
the course of the week by the students. As well as giving the
students new insights into aerospace engineering careers, this
work experience week also had a positive impact on the
development of important team working, communication, and
collaboration skills. By the end of this week 60% of the students
felt more confident in applying to universities or apprenticeship
positions, 80% of students had a far greater appreciation of
aerospace engineering careers and 90% would recommend the
work experience week to a friend.
These initiatives at the UK GTC are just some of many examples
of the impactful work being done across GKN Aerospace. Our
commitment to inspiring the next generation of engineers and
fostering a diverse and inclusive workforce extends throughout
our organisation. From local outreach programmes to global
partnerships, we are dedicated to making a positive difference in
the communities we serve and the future of the aerospace industry.
50
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
SUSTAINABILITY
REVIEW
IN THIS SECTION
52
Overview of 2024
54
Group sustainability targets and commitments
56
2024 Sustainability Highlights
58
Outlook for 2025
59
Sustainability framework at Melrose
61
Environmental Impact
62
Climate Change
85
Water
86
Biodiversity and ecosystems
87
Resource use and circular economy
88
Social Impact
90
Own workforce
95
Workers in the value chain
96
Affected Communities
96
Consumers and end users
97
Governance
97
Business Conduct
51
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
GKN Aerospace’s mission is to become the most trusted and sustainable partner
in the sky. Contributing to the decarbonisation of the aerospace sector remains
one of our top priorities and presents great opportunities to deploy our innovation
and technology leadership to create and commercialise world‑leading solutions for
cleaner air travel. This is achieved through strong collaboration with our customers,
partners and key stakeholders, and includes efforts towards increasing efficiency on
the next generation of SAF‑enabled engines, developing aircraft structures that are
more weight efficient, and developing ground‑breaking solutions to enable the next
generation of electric and hydrogen powered flight.
In 2024, GKN Aerospace’s near‑ and long‑term carbon emission
targets were validated by the Science Based Targets initiative
(“SBTi”). The decarbonisation of our own operations through energy
efficiency initiatives and renewable energy installations remained a
strategic priority, as we seek to reduce our own carbon footprint.
A 1.2MW solar farm was completed at the GKN Aerospace
Cowes site which is expected to generate 1,150,000 kWh of
electricity annually, supplying 20% of the site’s energy needs.
Beyond our own operations, we have made good progress on
supplier engagement, both in relation to our Scope 3 SBTi‑approved
engagement target and supplier due diligence. An internal supplier
engagement project was launched and included the implementation
of a supplier collaboration and compliance portal at a number of
GKN Aerospace sites, to assess suppliers for topics such as
climate impact, human rights, and diversity.
Promoting diversity and inclusion, prioritising the safety and
wellbeing of our people, and investing in their development is
instrumental to the success of our business. Having completed
our commitment in relation to the Melrose Skills Fund in 2023,
investing £10 million across the Melrose portfolio over a period of
five years to promote engineering skills across the UK, this fund
was relaunched in 2024. The new Global Skills Fund covers all
functions and locations in GKN Aerospace and provides our
employees with funding support to learn new skills and to learn
(1) All Diversity, Inclusion, and Belonging initiatives and activities referenced throughout
this report are applicable only within the scope of legally permitted jurisdictions.
collaboratively across the business. The investment culminates
into our commitment to invest at least £5 million annually on skills
development. Diversity, Inclusion, and Belonging (“DIB”) are core
pillars of our success, and moving into 2025, we are refreshing
our DIB Strategy and associated action plan.(1)
Our work on inclusion, development and wellbeing are all part of
our drive to create a highly engaged workforce. In 2024 our
engagement surveys were consolidated and completed in
partnership with Gallup. The response rate was 84%, an increase
from 2023, and showed meaningful improvement in topics such as
Mission and Purpose, Recognition, and Materials and Equipment.
In response to the feedback received, an organisation‑wide
initiative was launched to ensure continuous improvement actions
are being undertaken with respect to the most material issues
arising from the engagement survey for each team.
We are pleased that our sustainability performance continues to be
recognised by several key benchmarking agencies, including MSCI
which upgraded our Environmental, Social and Governance
(“ESG”) rating to ‘AA’ making us a leader among our aerospace
and defence industry peers. Melrose was assessed to be within
the top decile of Aerospace businesses through external ratings
agencies Sustainalytics, ISS and EcoVadis. Our ISS Corporate
score was upgraded to C+, Prime (2023: C, Non‑Prime) and
GKN Aerospace’s first evaluation of operational sustainability
practices was completed with EcoVadis, receiving a silver medal
with a score of 70 out of 100 for the first disclosure year. CDP
Ratings of B were achieved for Climate Change and Water Security.
Overview of 2024
Purpose, strategy and sustainability in action
SUSTAINABILITY REVIEW
EXAMPLES OF OUR INNOVATION AND TECHNOLOGY LEADERSHIP
H2GEAR
Continuing our ground‑breaking work on hydrogen aircraft
propulsion, including the successful test of the world’s first
cryogenically cooled hydrogen electric motor demonstrator.
eVTOL
Delivery of the first complete composite wings and booms for
Supernal’s first electric vertical take‑off and landing (“eVTOL”)
demonstrator aircraft, underscoring our role as a key partner
in the project.
52
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
CDP Water Security score
B
Water Security 2024: B (2023: C)
Recognition
OUR CURRENT ESG SCORES
CDP Climate Change score
B
Climate Change 2024: B (2023: B)
EcoVadis Sustainability Rating
70
Overall score: 70 (well above air and
spacecraft manufacturing industry
average of 52)
‘Silver medal’
Sustainalytics(2)
ESG risk rating improved to
26.1
(Medium) from 27.8
Ranked 11th out of 133 Industrial
Conglomerates (2023: 12th out of 124
in Industrial Conglomerates Category)
ESG Risk Management score improved
to 65.9 (Strong) from 62.5 in 2023
(1) As of June 2024, Melrose Industries plc received an MSCI ESG Rating of AA.
(2) As of October 2024, Melrose Industries plc received an ESG Risk Rating of 26.1 from Morningstar Sustainalytics and was assessed to be at Medium risk of experiencing
material financial impacts from ESG factors. In no event shall the ESG Risk Rating be construed as investment advice or expert opinion as defined by the applicable legislation.
MSCI(1)
‘AA’
ESG Rating: AA
(2023: A)
ISS Corporate Score
C+
Prime with a decile ranking of 1
(2023: C, Non‑Prime with
a decile ranking of 4)
53
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Group sustainability targets
and commitments
SUSTAINABILITY REVIEW
PERFORMANCE AGAINST MELROSE’S EXISTING
SHORT‑ AND MEDIUM‑TERM SUSTAINABILITY
TARGETS AND COMMITMENTS
Our Group sustainability targets and commitments are designed to
uphold our sustainability principles, and to directly address the most
pertinent sustainability issues that our industry is facing. By keeping
our targets and commitments aligned with the United Nations
Sustainable Development Goals (“UN SDGs”), our sustainability
principles remain connected with those of society at large.
In 2023 we expanded our 2025 targets, reflecting the progress we
had already made, with a number of targets achieved early. The
original set of 2025 targets were initially defined in 2020 based on
what was known and deemed possible at that time. In the
subsequent years, increasing focus on sustainability with our
leadership team and our employees helped to identify additional
opportunities to push beyond those targets, leading to a desire to
extend those targets further.
In 2024, GKN Aerospace’s near‑ and long‑term carbon emission
targets were validated by the SBTi. SBTi has determined that our
Scope 1 and 2 near‑term target ambition is in line with a 1.5°C
trajectory, while the Scope 1, 2, and 3 long‑term target ambition has
been recognised to be aligned with the SBTi’s 1.5°C mitigation
pathways for reaching Net Zero by 2050 or sooner. GKN Aerospace
has committed to reach net zero Greenhouse Gases (“GHG”)
emissions across the value chain by 2050.
Our reduction in absolute Scope 1 and 2 GHG emissions, as
validated by the SBTi, is currently on track with our Net Zero
Transition pathway. Emissions are tracked quarterly and assessed
against a linear reduction trajectory, with the last three measurements
all falling below (ahead) of the trajectory. This progress is driven
through our optimisation of operations and sites, including equipment
and machinery, energy reduction initiatives, and increasing our share
of renewable energy.
The SBTi validation includes an engagement target to ensure that 70%
of suppliers by spend covering purchased goods and services, have
science‑based targets by 2028. Currently, 12% of GKN Aerospace
suppliers (by spend) are known to have targets that have been
validated by SBTi. The status represents responses from 24% of
suppliers (by spend). During 2025, we intend to execute engagement
roadmaps in order to increase our suppliers’ response rate and our
understanding of their sustainability targets and commitments.
Our Scope 3 target was validated by the SBTi last year, and we are
still in the early stages of implementing our decarbonisation roadmap,
with our 2030 target. After a re‑statement of our target base year, we
have achieved a 2.7% overall reduction relative to 2022, which we
recognise is currently below target trajectory. However, we continue
to implement the emissions reduction initiatives outlined in our
Transition Plan and understand that the improved data we have used
in our re‑stated Scope 3 target will enable us to better see emission
reduction initiatives year‑on‑year.
During 2024, the Group demonstrated strong progress on our 2025
targets and commitments. These include targeted reductions in
Scope 1 and 2 emissions intensity, water withdrawal intensity,
absolute Scope 1 and 2 emissions (as validated by the SBTi), reducing
our waste as well as maintaining diversity across the business, and
maintaining a Lost Time Accident frequency rate of less than 0.1.
Our medium‑ and long‑term targets are progressively reviewed each
year to reflect our double materiality assessments. We also ensure
our targets fully align with regulatory changes as well as with our
strategic priorities to tackle climate change and other environmental
challenges, build stronger communities and a more diverse
workforce, and to further embed sustainability across our governance
systems. Where targets are met early, new targets are considered to
drive continuous improvement.
Our performance against our existing sustainability targets is set
out opposite.
54
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
SDG and Sustainability
principle
Measure
Target
Baseline
year
2024
performance
Target
maturity
Progress
against target
Respect and protect the
environment
Reduction in Scope 1 and 2 GHG emissions intensity(1)
50%
2020(2)
44%
2025
On Track
% of global electricity sourced from renewable sources(3)
50%
2020
43%
2025
On Track
% of our solid waste diverted from landfill(4)
95%
2020
90%
2025
On Track
Reduction in water withdrawal intensity(1)
40%
2021(5)
30%
2025
On Track
Reduction in absolute Scope 1 and 2 GHG emissions
(SBTi Validated)
50%
2020(6)
19%
2030
On Track
Reduction in absolute Scope 3 GHG emissions
(SBTi Validated)(7)
25%
2022(8)
3%
2030
Below Target
Trajectory
Continue to invest in and support
development of products
and services aligned with a
net zero future
% of total R&D expenditure on climate‑related
R&D annually to contribute to the decarbonisation
of aerospace
80%
2020
80%
2025
Achieved
% of new products which contribute to the
decarbonisation of aerospace
100%
–
100%
2025
Achieved
Prioritise health and safety,
promote diversity and nurture the
wellbeing and skills development
of employees, and support the
communities that they are part of
Protect our employees(9) from injury and maintain our
lost time accidents (“LTA”) frequency rate(10)
<0.1
2020
0.006
–
Achieved
Invest £5 million on skills development per year
–
–
£5.7 million
–
On Track
Ensure that all employees receive regular (annual)
performance reviews(11)
–
–
75%
–
On Track
% female Board membership
40%
–
33%
Maintain
See
explanation
on page 93
At least one member of an ethnic minority background
on the Board
1
–
Yes
Maintain
Achieved/On
Track
% of women in senior leadership(12) positions by 2025(13)
40%
–
35%
2025
See
explanation
on page 93
% of ethnic minorities in the executive committee and its
direct reports by 2027 (UK only)(14)
13%
2024
8%
2027
New Target
Exercise robust governance, risk
management and compliance
Compliance of all employees, suppliers and contractors
with our Code of Ethics, conducting business with
integrity and in a responsible, ethical and sustainable
manner
–
2020
–
–
On Track
(1) The Group’s chosen intensity ratio is energy consumption, emissions and water withdrawal reported above normalised megawatts usage (“MWh”), tonnes of CO2e, or m3 per £1,000
of turnover. The data has been standardised from the source units in which it was initially collected. The turnover figures used to calculate the intensity ratio include continuing
operations under operational control only.
(2) Base year emissions data has been restated to reflect divestments. Scope 1 and 2 emissions intensity in 2020 was 0.046.
(3) Where renewable electricity is commercially and reasonably available in the relevant jurisdiction.
(4) Excluding hazardous waste.
(5) Base year water withdrawal data has been restated to reflect divestments. Water withdrawal intensity in 2021 was 0.275 m3 per £1,000 of turnover.
(6) Base year emissions data has been restated to reflect divestments. Absolute Scope 1 and 2 GHG emissions in 2020 was 108,411 tCO2.
(7) Target includes Scope 3 emissions from Category 3: Fuel‑ and energy‑related activities, Category 4: Upstream transportation and distribution, Category 5: Waste generated in
operations, Category 6: Business travel and Category 7: Employee commuting.
(8) Base year emissions data has been restated to reflect divestments and improvements in methodology. Absolute Scope 3 GHG emissions in 2022 were 1,152,330 tCO2e. Scope 3
GHG emissions covered by our absolute SBTi target in 2022 were 82,100 tCO2e.
(9) Throughout this Sustainability review the definition of employees includes the following categories of employment: “Regular”, “Temporary”, “Apprentice”, and “Intern/Co‑op”, but
excludes “Agency” workers.
(10) The target does not include contractors.
(11) Where permitted by local laws and employee representative bodies.
(12) Senior Leadership roles defined as Executive Committee and Executive Committee ‑1.
(13) Applicable only within the scope of legally permitted jurisdictions.
(14) Applicable only within the scope of legally permitted jurisdictions.
55
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
2024 Sustainability Highlights
In 2024, we continued to focus on improving the key sustainability matters that
impact our business and are of most concern to key stakeholders.
SUSTAINABILITY REVIEW
CLIMATE AND ENVIRONMENT
• In line with our commitment relating to the setting of science‑based
emissions targets, GKN Aerospace’s near‑ and long‑term targets were
validated by the SBTi in 2024.
• GKN Aerospace was invited to join the new UK Government’s refreshed
‘Jet Zero’ and ‘Hydrogen Propulsion Manufacturing’ task forces, to
support the development of their industrial strategy and enable the UK
to take a globally leading role in the future of sustainable flight.
• We continued to evolve the Group’s assessment of biodiversity factors.
Specifically, we completed a deeper assessment of our sites’ exposure
to water risks in their locations and analysed associated biodiversity risks.
• We continued to improve circularity in the aerospace industry by
transforming one of our sites to focus on repair capabilities, reducing
value chain emissions, material consumption and waste.
DECARBONISATION OF THE
AVIATION SECTOR
• This year, GKN Aerospace continued to make significant investment
in world leading technologies to enable aviation’s route to net zero
carbon emissions by 2050.
• The most immediate focus for GKN Aerospace is to enable our
customers to deliver the world’s most efficient aircraft and engines, to
replenish fleets around the world and reduce the environmental impact
of flight. Our support extends to further improvements on existing
platforms, such as our involvement in the Geared Turbofan (“GTF”)
Advantage performance improvement programme, which is expected
to deliver improved fuel burn and reduced emissions, and has also
been successfully testing for 100% Sustainable Aviation Fuel (“SAF”).
Our role specifically has been to reduce weight on the Turbine Exit
Case (“TEC”) compared to the GTF base configuration.
• GKN Aerospace is collaborating with the world’s leading aircraft and
engine manufacturers, to apply our design leadership and technology
innovation to enable our customers to launch the next generation of
highly efficient aircraft, which will be designed from the outset to be
ready for sustainable aviation fuels. Collaboration continued with the
GE/Safran CFM RISE engine demonstrator, with Pratt & Whitney on
the next generation GTF engine, and with Airbus in preparation for their
next generation aircraft.
• Our ground‑breaking work on hydrogen aircraft propulsion continued,
with our ‘H2GEAR’ programme successfully testing the world’s first
cryogenically cooled hydrogen electric motor demonstrator and our
‘H2FLYGHT’ programme looking to scale capabilities to a 2MW scale,
ready for flight test.
Find out more page 63
• Work also continued with our partners on the ‘HyFIVE’ technology
collaboration programme, which aims to demonstrate liquid hydrogen
fuel systems for zero‑emission aviation.
• The Group reached milestones in the advanced air mobility sector,
delivering the first complete composite wings and booms for
Supernal’s SA‑2 eVTOL, while strengthening our partnerships on
thermoplastic structures.
VALUE CHAIN ENGAGEMENT
BEYOND OUR OPERATIONS
• We continued to collaborate with customers, governments, and
other key stakeholders to actively influence and shape the future of
sustainable flight.
• GKN Aerospace is collaborating with customers and other manufacturers
to deliver sustainability‑related improvements in the industry.
• A supplier engagement project was developed to prepare
GKN Aerospace’s procurement teams to build and execute roadmaps
to engage 70% of suppliers (by spend) by 2028, encouraging them
to set science‑based emission targets. This, in turn, links to our own
Scope 3 supplier engagement SBTi target.
• We have also expanded the coverage of our supplier monitoring,
helping to assess our suppliers’ footprint and allowing us to prioritise
which suppliers to engage with.
Over
£80m
invested in climate‑related R&D programmes
(2023: £48m)
56
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
OPERATIONAL IMPROVEMENTS
• GKN Aerospace boosted its commitment to sustainable
manufacturing, investing in cutting‑edge additive fabrication
technology in Trollhättan, Sweden. This technology offers the potential
to revolutionise production methods, and is expected to reduce energy
consumption by up to 50% and raw material usage by up to 70%.
• We delivered a wide range of initiatives globally, aimed at reducing
energy consumption in our facilities as well as increasing our on‑site
renewable energy generation through installations such as the solar
farm at our Cowes site.
• In line with the recommendations of the Parker Review for FTSE
350 companies, we have set a new target to achieve 13% of senior
management positions in the UK to be held by ethnic minorities by
December 2027, which would reflect a 4% point rise from the baseline
position as at end of June 2024.
• An improved response rate was achieved for the Melrose and
GKN Aerospace engagement surveys of 84%. Meaningful improvement
was seen in topics such as Missions and Purpose, Recognition, and
Materials and Equipment.
• With the completion of the Melrose Skills Fund target in 2023, it was
re‑launched as the Global Skills Fund, expanding to cover all functions
and locations in GKN Aerospace and setting the commitment to
invest up to £1 million annually on new skills development aligned to
GKN Aerospace’s strategic objectives. The fund provides our employees
and apprentices the opportunity for external training in spaces such as
digital skills, robot programming, safety assessment of aircraft systems,
model based systems engineering, and composites training.
• We improved our Safety Management System (“SMS”) awareness
to ensure that we meet the European Union Aviation Safety Agency
(“EASA”) Part 21 and Part 145 regulatory requirements with respect to
business systems and personnel competencies.
• ESG remained integrated into executive remuneration as an element of
the 2024 performance share plan.
• We further advanced our internal sustainability data management
and reporting to improve data governance in how we track quarterly
performance against our targets. This has helped to bolster regular
engagement and focused action planning.
PREPARING FOR NEW SUSTAINABILITY
REPORTING REQUIREMENTS
• The new EU Corporate Sustainability Reporting Directive (“CSRD”)
and the underlying European Sustainability Reporting Standards
(“ESRS”) aim to ensure more transparent and consistent reporting
of sustainability information.
• We have chosen to follow a consolidated reporting approach
regarding the incoming regulation, meaning all entities within our
operational control, regardless of location, will be included in our future
CSRD‑aligned reports.
• In preparation, we have undertaken a number of actions to ensure our
processes, material issues, data and disclosures will be compliant with
the requirements of CSRD, including a value chain mapping exercise,
refining our Double Materiality Assessment (“DMA”) and completing an
externally facilitated sustainability pre‑assurance project.
For more information on our preparation for
CSRD regulation page 59
EXTERNAL RECOGNITION
• MSCI ESG Rating was upgraded to ‘AA’ making us a leader among the
aerospace and defence industry.
• The ISS Corporate Score was upgraded to C+, Prime with Melrose
achieving the highest decile ranking among aerospace and defence peers.
• The 2024 CDP Climate Change submission achieved a ‘B’, maintaining
the 2023 score of a ‘B’. CDP Water Security achieved a ‘B’, improving
on the 2023 score of a ‘C’.
• GKN Aerospace received a silver medal and an overall score of 70/100
in its first assessment by EcoVadis.
• Led by GKN Aerospace, ‘ASCEND’ is a cross‑sector programme,
designed to enable the UK aerospace and automotive industries to
meet future high‑rate production demands, whilst reducing emissions
and material consumption. ASCEND has been recognised by the
UK Aerospace Technology Institute (“ATI”) with the Team Award for
Successful Collaboration and Partnership, honouring its groundbreaking
progress in composite technology and supply chain development.
84%
response rate was achieved for the Melrose
and GKN Aerospace engagement surveys
57
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
SUSTAINABILITY REVIEW
We are committed to remaining at the forefront of advancing aircraft
efficiency and pioneering the development of sustainable aircraft for
the future. This endeavour is underpinned by a steadfast commitment
to technological innovation, design leadership, advanced processes,
and the pursuit of engineering excellence.
We recognise that the global civil aviation commitments to net zero
carbon emissions by 2050 will require improvements in aircraft and
engine efficiency, improved flight management, the use of sustainable
aviation fuels, and investment in innovative alternative energy
solutions to minimise the need for market based measures or out of
sector actions to address residual emissions. GKN Aerospace will
continue to leverage its strong market position to harness the
advantages of newly established partnerships with industry leaders in
these dynamic and emerging markets, contributing towards the
decarbonisation of the aviation industry.
We will continue to encourage our employees to support our
corporate and operational sustainability efforts, as we work with our
suppliers and customers globally to ensure responsible business
practices. We also aim to uphold the highest standards of
governance across all levels of our organisation, ensuring compliance
with current and future regulations.
Outlook for 2025
In 2025, we will continue to oversee and
enhance our sustainability performance in
the following key areas of focus:
• Actively manage and mitigate the risks, and pursue appropriate
opportunities, identified in the latest climate scenario analysis
and TCFD related considerations.
• Identify and drive improvements in line with agreed short‑ and
medium‑term targets and across our material topics as
identified by our Double Materiality Assessment, which will be
finalised in 2025.
• Continue to improve our reporting, aligning with CSRD
requirements as well as driving improvements to commence our
journey towards our 2030 targets.
• Further advance CSRD implementation in our FY25 disclosure
cycle through improving sustainability data quality and
reporting, ensuring preparedness for external assurance in line
with the new regulatory requirements.
• Continue to drive down business emissions and further implement
our decarbonisation roadmap in line with our Transition Plan
(www.melroseplc.net/sustainability/reports-and-data-centre/)
and the recently validated Science Based Targets, in our own
operations and across our value chain, through our internal
business and supplier engagement roadmaps.
• Continue to invest and collaborate in the research and
development of low carbon technologies to support the
decarbonisation of the aviation sector through programmes
such as RISE, ASCEND and H2GEAR, with support of the UK
Aerospace Technology Institute, Netherlands Luchtvaart in
Transitie, and EU Clean Aviation.
• With a number of GKN Aerospace sites having implemented the
‘Assent’ supplier collaboration and compliance portal by the
end of 2024, the remaining sites will do so in the first half of
2025 ensuring complete utilisation of the portal.
• Continue to invest in new skills opportunities through the Global
Skills Fund.
• Continue to promote diversity and inclusion across all levels of
the business as we refresh our Diversity, Inclusion and
Belonging Strategy, and associated action plan and Steering
Committee, in compliance with local laws.
58
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Sustainability framework at Melrose
SUSTAINABILITY GOVERNANCE
Our sustainability and climate change governance framework
supports our ambitions by addressing material topics, assessing and
managing risks and opportunities, and setting targets under Board
oversight. In 2024, matters discussed by the Board included
performance against targets, material topics, alignment with CSRD,
and ESG ratings. Sustainability‑related opportunities such as
investment in significant projects are typically presented to and
discussed by the Board for sign‑off where appropriate.
The Audit Committee is responsible for risk management and
reviewing the principal risks, including sustainability risks. The
Nomination Committee ensures Board diversity and succession
planning, while the Remuneration Committee is responsible for
sustainability considerations in executive pay.
The Chief Technology Officer leads the Group Sustainability Function
as part of the Melrose senior management team, ensuring
sustainability and climate‑related risks and opportunities are
embedded in strategy and governance. This function manages
priorities, tracks performance against targets on a quarterly basis,
and oversees sustainability strategy implementation. It is also works
in collaboration with divisional sustainability teams and has reporting
protocols to ensure the business lines’ management are accountable
for achieving progress on sustainability related matters.
THE EU CORPORATE SUSTAINABILITY
REPORTING DIRECTIVE
The new EU Corporate Sustainability Reporting Directive (“CSRD”),
the underlying European Sustainability Reporting Standards (“ESRS”)
and the requirements of the Commission Delegated Regulation (EU)
2023/2772 of 31 July 2023 aim to ensure more transparent and
consistent reporting of sustainability information. With a number of
our European sites falling within the scope of CSRD, we have chosen
a consolidated approach to CSRD reporting meaning we will report at
the Group‑level. The timing and requirements of the first year of
reporting are subject to the adoption of the ‘Omnibus’ legislative
proposals to the European Parliament and Council.
In preparation for this, we have undertaken a number of actions to
ensure our processes, material issues, data and disclosures will be
compliant with the requirements of CSRD and ready for external
assurance. As such, in 2024, a value chain mapping exercise was
commenced in order to gain a better understanding of the entire value
chain and to enable the assessment and identification of material
impacts, risks and opportunities (“IROs”). Internal governance
structures and capacity building have also been introduced.
A key element of the CSRD requirements, is to perform a Double
Materiality Assessment (“DMA”) to identify the material sustainability
IROs to the business. The ESRS requires that sustainability
information related to the material IROs is reported through a
sustainability statement, therefore a DMA must be conducted first to
determine which topics are material for reporting.
59
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Sustainability framework at Melrose continued
SUSTAINABILITY REVIEW
MATERIAL SUSTAINABILITY TOPICS
In 2024, we refined our Double Materiality Assessment, which was
conducted for the first time in 2023. The assessment identified our
material sustainability topics, developing an understanding of their
financial and impact materiality in line with CSRD. During the year, we
sought to adopt the requirements of the CSRD framework and
determine which ESRS topics are material to Melrose requiring
reporting under the ESRS standards. This year’s DMA was therefore
updated with reference to the ESRS July 2023 standards and applied
the European Financial Reporting Advisory Group (“EFRAG”)
implementation guidance: EFRAG IG 1 Materiality Assessment and
EFRAG IG 2 Value Chain. The assessment outcomes are yet to be
finalised, but this will be completed in 2025.
The key goal of the 2024 DMA process was to identify and assess both
the risks and opportunities that could financially impact the Group and
the implementation of the Group’s strategy and identify and assess the
Group’s impacts on people and the environment. The identification and
assessment of impacts, risks, and opportunities (“IROs”), encompassed
both our own operations and the upstream and downstream value
chain, including any other business relationships that our operations
could affect or be affected by.
To ensure these assessments are comprehensive, key Melrose
functions and internal experts were consulted to obtain their views.
External stakeholders were also engaged in a series of consultations,
either as an affected stakeholder themselves (investor, supplier,
customer) or as a representative of affected stakeholders (academic,
local council). The insights gained from stakeholder engagements were
taken into account when assessing the IROs together with relevant
industry research and documentation. If an IRO in relation to a
sustainability topic was determined to be material from either a financial
or impact perspective or both, the topic was deemed to be material.
The DMA prepares us for CSRD‑aligned reporting and guides our
sustainability strategy and investments to help tackle the most
relevant risk exposures to society and the environment, and further
integrates sustainability into our broader business strategy. We also
tailor activities, policies, targets, and commitments based on our
DMA. Our journey towards an integrated, holistic approach to
sustainability management reflects our commitment to supporting
GKN Aerospace in its ambition to become the most trusted and
sustainable partner in the sky. Aligned with existing business reviews,
our material topics will be reviewed annually in the preparation of the
Annual and Sustainability Reports, with a full double materiality
assessment carried out every three years.
For 2023 DMA results see 2023 Annual Report
page 47
60
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Environmental Impact
Environmental Impact Highlight
30
sites certified to ISO 14001 in 2024
Our strategic sustainability priority is to
respect and protect the environment.
We do so by working to avoid harmful
impact on the air, water and soil as far
as possible.
The purpose of our environmental strategy is twofold: we seek to
address environmental impact from an operational perspective,
backed by ambitious sustainability targets; and we seek to help
our customers address their environmental impact and to
contribute to the decarbonisation of the aviation sector. Our
Group environmental policy, as approved by the Board,
demonstrates our commitment towards driving sustainable
production methods and infrastructure, and minimising the
potentially negative impact we may have on the environment over
the longer term. The policy, which applies to all individuals
working across our business, can be found on our website. As of
31 December 2024, 30 sites (65%) across GKN Aerospace were
certified to ISO 14001 standard (2023: 34 sites, 68%) and five
sites 11% had ISO 50001 certification (2023: five sites, 10%),
which provides strong criteria for responsible management of
environmental impact. GKN Aerospace’s manufacturing sites
(unless agreed with HSE Directors) must achieve, or be working
towards, the ISO 14001 certification.
Read more
www.melroseplc.net/governance/documents-and-policies/
61
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Environmental Impact continued
SUSTAINABILITY REVIEW
CLIMATE CHANGE
ENABLING A SUSTAINABLE TRANSITION
TO NET ZERO
Our Transition Plan outlines our objectives, priorities, detailed plans,
and projects to reach our science‑based emissions reduction targets(1),
which have been validated by the SBTi in 2024. Progress against
these targets is reported annually in our Annual and Sustainability
Reports and within our CDP Climate Change responses as applicable
(please see pages 54 and 55 in this report).
Opportunity for change
The major manufacturers in the aerospace sector need to collaborate
with all parts of the supply chain to innovate and deliver solutions that
accelerate the path to Net Zero. Manufacturers need to scale up
production of the world’s most efficient aircraft in a sustainable
manner, while developing the future aircraft that will reduce and
ultimately eliminate the climate impact of aviation. Central to tackling
this challenge successfully, is industry‑wide collaboration given the
hugely complex aerospace supply chains, and cumulative support
delivered through cross‑sector partnerships, investment in renewable
energy sources, and enabling the required infrastructure.
Strategic ambition
GKN Aerospace’s long‑standing mission is to become the most
trusted and sustainable partner in the sky. In practice, this means
driving significant progress to support the net zero agenda through
decarbonising our own operations and driving impact throughout the
value chain.
We engage regularly with national governments, funding bodies,
trade and industry associations, and other industrial organisations
on a range of topics related to sustainability. These engagement
activities cover broad themes, such as sustainable aviation, skills and
workforce issues, the integration of advanced manufacturing into our
operations and the adoption of both incremental and disruptive
aerospace technologies, including hydrogen propulsion for zero
emissions flight. We perform key influencing roles in a number of UK,
EU and US bodies to ensure that the plan for Net Zero can be met
alongside the projected sectoral growth.
Within the UK, we work within the Jet Zero Taskforce, the Aerospace
Technology Institute, the Hydrogen in Aviation Alliance, and the
Aerospace Growth Partnership, where GKN Aerospace plays a key
role in developing the policy to support aviation’s transition to Net Zero
and the development of hydrogen‑fuelled aircraft. GKN Aerospace
was among the first companies to sign up to the UK’s new Defence
Aviation Net Zero Strategy, which serves as a comprehensive pathway
to achieve net zero in Defence aviation.
In a European context, GKN Aerospace is an active member of ASD
Europe, the association focusing on Aerospace, Security and Defence,
and works with partners to advocate on the topics mentioned
previously. Moreover, GKN Aerospace is a signatory to the Joint
Declaration of European Aviation stakeholders related to Clean Aviation
in Horizon Europe, committing to a European Partnership towards
achieving the goals of the Paris Agreement. We believe that industry
and trade organisations are better positioned to influence policy law or
regulations impacting climate change as they bring the depth and
widest representation of industry views and best practices and
therefore the contribution is more efficient.
With our market‑leading positions driven by technological innovation,
advanced processes and engineering excellence that help aircraft fly
safely and more sustainably, GKN Aerospace’s operational
excellence, high‑volume production and smart industry capabilities
are contributing towards lower energy consumption, reduced material
waste and higher performance, resulting in shorter production lead
times and more affordability for its global customers. To read more
about our targets and commitments, and the roadmap for achieving
them, please see our 2024 Sustainability Report.
Please refer to our group website to visit our Transition Plan
www.melroseplc.net/media/wm3bc11s/melrose-transition-
plan-2023.pdf
(1) Scope 1 and 2 targets are aligned with the ambition and emissions reduction trajectory required to curb global temperature rise to 1.5ºC. Scope 3 target is aligned with the carbon
emission reductions needed to curb global temperature rise to well below 2ºC and is a significant step towards our net zero ambition by 2050.
62
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Industry leadership
Our investment in technologies and products contribute towards the
decarbonisation of the aviation industry, from improving efficiency
through to cutting edge transformational solutions. However, critical to
our success and that of our partners will be ensuring that regulatory
frameworks and economic policies enable the most environmentally
sustainable solutions to also be economically viable. Participation in
major aerospace sustainability think tanks, task forces, regulatory
bodies and collaboration forums, aims to increase overall industry
focus on climate friendly solutions for much greater impact.
GKN Aerospace is an active player in the leading industry and
collaboration platforms, which places it at the forefront of the latest
breakthrough aerospace trends in both technology, R&D and
innovation, and sustainability. Set out below are some examples of the
way we engage with the industry globally and across the countries
where we operate.
Low carbon fuels and electrification (Structures)
• In the rapidly developing advanced air mobility sector, GKN Aerospace
signed a series of design‑and‑build contracts with emerging
companies in 2024; VÆRIDION and H55. These relationships
combine with existing partnerships – for example Eviation, Vertical
Aerospace, Supernal, and Joby – to accelerate the future of
battery‑electric‑powered, zero emission flight.
• In the same sector, GKN Aerospace partnered with Pratt & Whitney
Canada on its hybrid‑electric flight demonstrator project, in which it
will develop, construct and install the electrical wiring
interconnection system for the demonstrator, targeting a 30%
improvement in fuel efficiency and reduced CO2 emissions
compared to today’s most advanced regional turboprop aircraft.
• Work continued under the H2GEAR programme to develop
technology for zero emissions hydrogen‑powered aircraft.
Subsystem testing started in 2024 for power generation, cryogenic
distribution and cryogenic motors, which will be integrated into
1MW system level testing in 2025 due for final completion in 2026.
Towards the end of 2024, GKN Aerospace launched the
H2FLYGHT programme which looks to scale the propulsion system
to 2MW and mature the technologies towards flight testing.
• A new hydrogen fuel systems programme HyFIVE was launched in
partnership with Marshalls and Parker Aerospace, which expands
GKN Aerospace’s hydrogen system capability to liquid hydrogen
fuel systems for zero emission aircraft. Progress has already seen
the delivery of a liquid hydrogen storage tank test capability, to
support tank and system design and verification.
Next generation/ultra efficient engine development (Engines)
• GKN Aerospace’s Engines division is a partner in both of today’s
sustainable future civil engine technology development programmes:
the SWITCH consortium – alongside Pratt & Whitney, Airbus, MTU
and Collins Aerospace – to develop the next‑generation of GTF
engine, and the CFM Revolutionary Innovation for Sustainable
Engines (“RISE”) programme.
• Project OFELIA, funded by Clean Aviation, is a project aimed at
demonstrating the benefits of open fan architecture for small‑medium
range aircraft engines, aiming to support the achievement of the
industry target of climate neutral aviation by 2050. GKN Aerospace
plays a key role in the design and manufacture of load carrying
structures in the engine, as well as using our expertise in lightweight
multifunctional design of critical structures.
Next generation/ultra efficient aircraft development (Structures)
• Within the Structures division, development work continued as a
key partner with Airbus on the Wing of Tomorrow project. The
project, jointly funded by the UK Aerospace Technology Institute,
aims to provide technologies for a composite single‑aisle wing to
improve aerodynamic performance, reduce weight and reduce CO2
emissions. The technology deployed sees a move away from
traditional, pre‑impregnated resin material to dry composite fibres
that are injected with thermoset resin co‑cured within a highly
controlled out of autoclave manufacturing process. This enables
overall weight reduction, whilst reducing manufacturing process
steps and significantly reducing energy consumption.
• The Wing of Tomorrow programme has also enabled the testing of
more sustainable out‑of‑autoclave thermoplastic production
processes. Initial tests have demonstrated significant
environmental benefits, including an 80% lower production time
compared to conventional autoclave technology, as well as an 80%
decrease in energy use and therefore emissions.
• The GKN Aerospace led Clean Sky 2 STUNNING programme
ended in 2024 and resulted in a successful manufacture of one of
the world’s largest thermoplastic components – an 8m x 4m
half‑fuselage made from novel thermoplastic manufacturing and
joining technologies. The project demonstrated the benefits of
thermoplastic composites by welding the majority of the structure,
reducing weight and improving the potential for material
recyclability. The project was part of the Multi‑Functional Fuselage
Demonstrator, led by Airbus. The aim to reduce fuselage weight by
1 tonne (10%), and as a result, substantially reduce in‑flight
emissions, was achieved.
Addressing manufacturing emissions (Engines)
• GKN Aerospace has boosted its commitment to sustainable
manufacturing, with significant investment in its cutting‑edge
additive fabrication technology in Trollhättan, Sweden, supported
by the Swedish Energy Agency’s Industriklivet initiative, which will
help to revolutionise production methods by reducing raw material
usage by up to 70%.
• In Engines, GKN Aerospace’s Material Solutions business
continued to support business growth while transforming its supply
chain by offering material solutions that reduce value chain
emissions compared to current alternatives available on the
market. It is expected to reduce supply chain and production
emissions compared to conventional forged or cast solutions as
well as reduce in‑flight emissions through enabling improved
product performance. Our first product using Additive Fabrication
with Laser Wire Deposition material is the fabricated fan case
mount ring for Pratt & Whitney’s PW1000G GTF Engine, saving an
estimated 24 tonnes of titanium already this year, translating to a
saving of 395 tCO2e in 2024.
63
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Environmental Impact continued
SUSTAINABILITY REVIEW
Addressing manufacturing emissions (Structures)
• Led by GKN Aerospace, ASCEND is a cross‑sector programme,
designed to enable the UK aerospace and automotive industries to
meet future high‑rate production demands. It focuses on
automation, design for manufacture, and skills development. The
programme is committed to delivering sustainable technologies
that reduce manufacturing costs and carbon footprints while
enhancing production capabilities. In 2024 the programme was
recognised by the Aerospace Technology Institute (“ATI”) with the
Team Award for Successful Collaboration and Partnership,
honouring its groundbreaking progress in composite technology
and supply chain development.
• The ASCEND programme placed particular focus on process
automation technologies with particular focus on the Resin Transfer
Moulding (“RTM”) process for composite structures. These
technologies aim to reduce energy utilisation by up to 80%, for
example, by using much more targeted heat application compared
to conventional autoclave processes. Other benefits include
reducing material utilisation both in the manufactured parts as well
as the elimination of auxiliary materials such as bagging films.
Within the RTM process we are currently looking at shape memory
polymers (“SMPs”) to act as mandrels, replacing the use of metallic
mandrels. This should help in reducing cleaning chemicals as well
as reducing the amount of energy used in crane operations, since
one person can lift SMPs by hand.
Supply chain engagement
In 2024, Melrose continued to participate in the CDP Supply Chain
engagement initiative, in order to provide an insight into our suppliers’
environmental data and enable efficient tracking of their alignment
with Net Zero. This third year of engagement has provided further
insights on suppliers’ environmental data, their energy consumption,
emissions reduction initiatives and climate targets alongside other
environmental data. The selected organisations were reflective of
GKN Aerospace’s largest suppliers by spend, and engagement with
them was therefore important for pinpointing risks and identifying
emissions reduction opportunities.
Our Supplier Engagement Project focused on internal training,
supplier analysis and business line engagement roadmap
development. The roadmaps include multiple engagement strategies
from letters and notifications to dedicated sustainability reviews and
the eventual structural integration of sustainability into the standard
business review agenda. The roadmaps also include key milestones
where expectations have been set for the GKN Aerospace supply
chain, ultimately offering sufficient opportunity for suppliers to
establish science‑based emission targets before the end of 2028.
The ‘Assent’ collaboration and compliance portal offers the
opportunity to unify the approach to supply chain compliance
monitoring and data capture across key suppliers to GKN Aerospace.
Key regulations and ESG due diligence are covered in the portal
providing the opportunity to run sophisticated, business‑wide supply
chain survey campaigns. This increase in sophistication leads to the
possibility of better analysis and insights into the GKN Aerospace
supply chain. In alignment with our Scope 3 SBTi supplier
engagement target, we are utilising the portal to monitor and assess
our supplier footprint.
24%
of supplier spend monitored
During 2025, we intend to execute engagement
roadmaps in order to increase our suppliers’
response rate and our understanding of their
sustainability targets and commitments.
64
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
TCFD AND CFD CONSISTENCY
For clarity around consistency of the following information with the TCFD framework, the TCFD All Sector Guidance(1) and the requirements
arising from UK Listing Rule 6.6.6(8), we consider our disclosure to be consistent with all TCFD recommendations and recommended
disclosures and with the climate‑related financial disclosure requirements under the Companies (Strategic Report) (Climate‑related Financial
Disclosure) Regulations 2022, as shown in the TCFD cross‑reference and disclosure consistency summary below. The information in the
report below contains all relevant information that supports our consistency with the TCFD. Where references have been made to external
reports and documents, this is only in a complementary nature.
Recommendation
Recommended disclosures
Page reference
CA 414CB(2)
Governance
Disclose the organisation’s
governance around
climate‑related risks and
opportunities.
a) Describe the Board’s oversight of climate‑related risks and opportunities
Page 66
(a)
b) Describe management’s role in assessing and managing climate‑related risks and
opportunities
(a)
Strategy
Disclose the actual and potential
impacts of climate‑related
risks and opportunities on the
organisation’s businesses,
strategy, and financial planning
where such information is material.
a) Describe the climate‑related risks and opportunities the organisation has identified
over the short, medium, and long term
Page 68
(d)
b) Describe the impact of climate‑related risks and opportunities on the organisation’s
businesses, strategy, and financial planning
(e)
c) Describe the resilience of the organisation’s strategy, taking into consideration
different climate‑related scenarios, including a 2°C or lower scenario
(f)
Risk Management
Disclose how the organisation
identifies, assesses, and
manages climate‑related risks.
a) Describe the organisation’s processes for identifying and assessing
climate‑related risks
Page 67
(b)
b) Describe the organisation’s processes for managing climate‑related risks
(b)
c) Describe how processes for identifying, assessing, and managing climate‑related
risks are integrated into the organisation’s overall risk management
(c)
Metrics and Targets
Disclose the metrics and targets
used to assess and manage
relevant climate‑related risks
and opportunities where such
information is material.
a) Disclose the metrics used by the organisation to assess climate‑related risks and
opportunities in line with its strategy and risk management process
Page 82
(h)
b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (“GHG”)
emissions, and the related risks
(h)
c) Describe the targets used by the organisation to manage climate‑related risks
and opportunities and performance against targets
(g)
(1) assets.bbhub.io/company/sites/60/2021/07/2021-TCFD-Implementing_Guidance.pdf
(2) Reference to consistency with The Companies (Strategic Report) (Climate‑related Financial Disclosure) Regulations 2022
65
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Environmental Impact continued
SUSTAINABILITY REVIEW
GOVERNANCE
Board oversight of climate change
The Melrose Board, supported by the Melrose senior management
team as informed by the Chief Technology Officer (“CTO”)‑led Group
Sustainability Function, has oversight of and ultimate responsibility for
Melrose’s sustainability strategy (including climate change), targets,
disclosures, and reporting. The Board assesses climate‑related risks
and opportunities among other sustainability and environmental
material topics and monitors performance against targets.
Climate‑related opportunities, such as investment in significant
projects, are presented to the Board where appropriate. The Board
also oversees our alignment with the TCFD recommendations,
compliance with the Climate‑related Financial Disclosure (“CFD”), and
our sustainability and climate commitments and disclosures on the
advice of the CTO.
The Board receives training and updates on key sustainability and
climate‑related matters that impact Melrose and GKN Aerospace,
and on the specific measures that need to be implemented to
improve performance. Where required, the Board considers
climate‑related matters when reviewing and guiding strategy and
overseeing its implementation through oversight of divisional financial
and operational performance and quarterly Board meetings.
Progress in addressing climate‑related matters is monitored by the
CTO‑led Group Sustainability Function and reported to the Melrose
senior management team, for the Board’s onward review, challenge
and discussion where required. This includes the tracking of
company climate targets, such as reduction in emissions, increase in
spend on R&D programmes focused on decarbonisation, the number
of new products contributing to the decarbonisation of aerospace
and other innovation initiatives, as well as other key metrics such as
energy consumption.
The Audit Committee updates the Board on climate risk management
by monitoring and reviewing the effectiveness of the risk management
processes, including the review of our principal risks of which climate
change risk is one. The Remuneration Committee implements the
Directors’ remuneration policy (“Directors’ Remuneration Policy”) and
as part of the recent renewal of the Directors’ Remuneration Policy,
we have integrated an ESG metric into executive remuneration as an
element of the 2024 performance share plan. Please see the
Directors’ Remuneration report on pages 136 to 155 for more details.
Management oversight of climate change
The CTO‑led Group Sustainability Function plays a key role in
managing material sustainability issues, including climate risks and
opportunities, on behalf of the Melrose senior management team.
The team ensures that the implications of these issues are
considered within the Board’s agenda, governance framework,
business strategy, and, where relevant, financial plans to address
climate‑related risks and pursue opportunities. The sustainability
function meets with relevant members of the executive team on a
regular basis to track identified climate‑related risks and
opportunities. More information on how we determine the materiality
of climate‑related risks, and their financial impact can be found in the
Strategy b) section on page 68.
The CTO‑led Group Sustainability Function is responsible for the
identification, design, implementation, monitoring and continuous
evolution of improvement actions and performance towards achieving
our climate targets, and incorporation of the TCFD and CFD
recommendations to improve our disclosures.
Climate‑related risks and opportunities are discussed regularly within
GKN Aerospace and in decision‑making that relates to setting
strategy to mitigate identified risks or capitalise on opportunities.
Where relevant, the Melrose senior management team engages with
the business line senior management teams when reviewing and
guiding strategy, which can include the approval of major capital
expenditure. The CTO‑led Group Sustainability Function is
responsible for coordinating key stakeholders across the business to
ensure that required controls are in place for appropriate risk
mitigation and management, and that the assessment and
management of sustainability and climate‑related risks and
opportunities are integrated across the business.
The Board assesses climate‑related
risks and opportunities among other
sustainability and environmental
material topics and monitors
performance against targets
66
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
RISK MANAGEMENT
Identifying and assessing risk
As a principal risk, climate change risk undergoes continuous
assessment through the established Melrose risk management
processes of identification, evaluation, mitigation, analysis, review and
monitoring, as is the case with other principal risks. For further details
on our approach to assessing principal risks, please see the Risk
Management and Risks and Uncertainties section of the Strategic
Report on pages 37 to 44. In 2024, we have reviewed and refined our
climate‑related risks and opportunities we identified as part of our
previous climate scenario analysis in 2023. This has ensured we are
aware of any new climate‑related risks and opportunities that have
become relevant to Melrose throughout the year. Specific
climate‑related risks and opportunities are identified within
GKN Aerospace and are reported up to Melrose to inform the
assessment of the climate change principal risk. Our climate scenario
analysis will be renewed at least every three years to ensure up‑to‑date
alignment with relevant information. To prepare for CSRD requirements
we have also assessed our climate‑related impacts, risks and
opportunities as part of undertaking our double materiality process.
The Melrose senior management team oversees the identification of
climate‑related risks and opportunities as informed by the CTO‑led
Group Sustainability Function, who identify, monitor, and manage the
specific risks relevant to the GKN Aerospace business lines’
operating activities and ensure that required controls are in place for
appropriate mitigation and management.
The identification and assessment of climate‑related risks and
opportunities also includes horizon scanning as part of our key
positions in influential industry bodies, in order to monitor key
developments and risks, and to engage with policy makers to mitigate
their impact on the business. We also rely on the support of advisors
where appropriate, who contribute to the awareness and analysis of
climate‑related risks and opportunities that are relevant to the
Company. By engaging in this multifaceted approach, we gained
valuable insights into the potential risks associated with climate
change, as well as the opportunities that might appear in the context
of emerging regulatory landscapes.
Climate‑related risks were assessed alongside climate‑related
opportunities, based on the same criteria that was used to determine
and rate the other company risks and their relative significance in
comparison to other non‑climate‑related risks. This allowed for their
integration into the overall risk management framework. Our risks and
opportunities were ranked on a five‑point scale for both likelihood (the
probability of the risk occurring) and impact (the financial and
reputational outcome of the risk occurring). Likelihood and impact
scales were multiplied together, resulting in a combined risk or
opportunity exposure score of low‑, moderate‑ or high for each time
horizon and scenario (listed on pages 68 and 69). The likelihood and
impact criteria allow the materiality of risks to be determined as defined
in the table below, meaning that we can prioritise the management of
the most material risks. Material climate risks are defined as those that
have a likelihood and impact score of 15 or above. These are defined
as risks and opportunities with high exposure.
Risk and opportunity likelihood and impact scale
1 Rare
2 Unlikely
3 Possible
4 Likely
5 Almost certain
Likelihood
Highly unlikely, but the
risk event may occur in
exceptional
circumstances. The
risk event could
happen, but probably
never will.
Not expected, but
there's a slight
possibility the risk
event may occur at
some time.
The risk event might
occur at some time as
there is a history of
casual occurrence.
There is a strong
possibility the risk
event will occur as
there is a history of
frequent occurrence.
The risk event is
expected to occur in
most circumstances as
there is a history of
regular occurrence.
1 Minimal
<£1m
2 Low
£1m‑£5m
3 Medium
£5m‑£10m
4 High
£10m‑£50m
5 Very high
>£50m
Impact
Inconvenience, but not
impact on ability to
achieve objectives.
Disruption to activities
but limited to the
immediate term. No
longer‑term impact on
ability to achieve
objectives.
Considerable issue
but short term. Only
relatively minor
concern about
longer‑term business
prospects.
Significant impact.
Casts significant doubt
on the ability to meet
objectives and places
the future of the
business in peril.
Failure of the business.
Unable to achieve
corporate objectives.
Regulator is aware, but
no impact. ‘Slap on the
wrist’. Not in the public
domain.
Small fines or written
warnings. Customers
aware.
Large fines and written
judgements. Public
awareness but limited
long‑term impact on
reputation.
Significant adverse
regulatory judgement
and/or fines. National
press coverage and
significantly tarnished
reputation.
Loss of licence or
ability to operate. Very
significant fines or
criminal proceedings.
67
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Environmental Impact continued
SUSTAINABILITY REVIEW
Management of risk
The CTO‑led Group Sustainability Function is responsible for
reviewing and considering climate‑related risks on a regular basis,
including their impact on business strategy and the effectiveness of
management and mitigation controls. The decision to tolerate,
transfer or treat a risk is partially determined by the risk impact and
likelihood criteria outlined in the table above. Risks with higher scores
will need to be managed appropriately to bring the risk exposure
back in line with an appropriate risk appetite. Action plans are
developed for higher scoring risks which detail existing controls and
descriptions of response actions needed to mitigate the risk.
Responsibility for specific risks is also assigned to relevant
stakeholders to ensure appropriate implementation and
management. For more information on how we manage each
identified climate‑related risk, please refer to pages 70 to 79.
Integrating climate into existing risk management
Due to the increased frequency of extreme weather and climate‑related
disasters, coupled with tightening legislation and regulations, climate
change has been identified as a standalone principal risk since 2021
and is incorporated into Melrose’s Group risk management processes.
The climate change principal risk comprises a combination of
transition and physical risks as identified in our climate scenario
analysis on pages 70 to 79. These risks undergo annual review at
corporate level and by the Executive Committee and are presented to
the Audit Committee as a combined principal climate risk for
consideration alongside the other principal risks on a biannual basis
in the form of reports prepared by the Melrose senior management
team. The Chair of the Audit Committee updates the Board to inform
the Board’s review, challenge and setting of Melrose’s appetite for
each principal risk including climate change. The Board’s assessment
of each of the principal risks and their management, are disclosed on
pages 37 to 44 of the Strategic Report which shows the relative
significance of climate‑related risks compared to other principal risks.
The output from the climate change risks assessment is considered
in our strategic business planning as relevant.
STRATEGY
Melrose’s commitment to net zero emissions by 2050, poses
climate‑related risks and opportunities. The roadmap for achieving
our targets through operational decarbonisation, products and services
and engagement with our value chain, and the approach for addressing
our risks and opportunities, is detailed in our Transition Plan.
This year, we have reviewed and updated our risks and opportunities
that we identified during our climate scenario analysis in 2023. This
scenario analysis outlined the risk and opportunity exposure, the
timeframe to which the impact of the risk and opportunities will
manifest, and also which scenario is likely to have the greater
likelihood of impact. Where possible, we have also undertaken
high‑level quantitative assessments for our risks and opportunities.
The results are shown in the risks and opportunities tables below
(pages 70 to 79). These assessments show the gross impact before
any action which Melrose might take to respond. However, due to the
nature of climate change and the uncertainties associated with some
of the data and assumptions, it is not possible to quantify all risks and
opportunities. These quantifications do not represent any type of
financial forecast and thus are not directly incorporated into any
projections of long‑term cash flows. In addition, for each risk and
opportunity a potential financial impact band has been disclosed
which corresponds to our risk management framework. The potential
financial impact is based on the potential short‑term financial impact.
Several risks and opportunities have minimal to low financial impact in
the short term. In aggregate, informed by our scenario analysis, we
conclude that our overall climate risk exposure is moderate, and our
business is financially and operationally resilient and strategically
robust to climate risks in the short to medium term within the bounds
of our ‘business as usual’ operations, considering that many of the
risks are already being addressed through existing or planned
mitigation or adaptation activities and provisions. In addition,
significant focus and investment, such as our R&D programmes, is
ongoing to support realisation of a number of related climate focused
business opportunities.
Transition risks and opportunities
The speed at which the economy decarbonises will determine the
severity and impact of climate transition risks, as well as the ability to
capitalise on the opportunities related to the transition to a low
carbon economy. The TCFD framework defines transition risks in four
categories, (Policy and Legal, Market, Technology, and Reputation)
and transition opportunities in five categories (Resource Efficiency,
Energy Source, Products and Services, Markets, and Resilience). As
part of our transitional climate scenario analysis, we considered risks
and opportunities within these nine categories and ranked them on
their impact and likelihood to Melrose. Several other risks and
opportunities were considered and analysed but only those with the
greatest potential exposure have been disclosed. For the purpose of
our transitional estimate scenario analysis, assessment of risks and
opportunities was carried out at a gross level, meaning the impacts of
the risks and opportunities assumed no mitigating actions are already
in place.
To understand our business resilience to future climate scenarios, in
line with the TCFD guidance, we used International Energy Agency’s
(“IEA”)(1) Net Zero Emissions by 2050 Scenario (“NZE”)(2) and Stated
Policies (“STEPS”)(3) climate scenarios to model transition risks and
opportunities, and the Intergovernmental Panel on Climate Change
(“IPCC”) framework recommended scenarios. These scenarios have
been used to help us guide our strategy and identify any potential
new opportunities or risks climate may pose. The climate scenarios
we use are kept under review to ensure they remain viable, plausible
and stretching.
(1) IEA (2024), Global Energy and Climate Model, IEA, Paris www.iea.org/reports/world-energy-outlook-2024
(2) NZE outlies a pathway for the global energy sector to achieve net zero CO2 emissions by 2050, which limits the global temperature rises to 1.5°C by 2100, with 50% probability. This
scenario is included as it informs decarbonisation pathways used by the SBTi.
(3) STEPS outlines a combination of physical and transition risk impacts as temperatures rise by 2.5°C by 2100, with 50% probability. This scenario is included as it represents a midway
path with the trajectory implied by today’s policy settings.
68
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Climate‑related impacts
In addition to climate‑related risks and opportunities Melrose has also assessed the potential impacts that we could have in our value chain.
The following climate‑related impacts are those that have been identified:
Impact description
Positive or Negative Impact
Failure to contribute to the fight against climate change due to the increase in emissions deriving from lack of investment in
reducing energy intensity in own operations, limited engagement with suppliers on their climate focused activities, as well as
R&D contributing to decarbonisation and products contributing to a low carbon economy
Negative
Enabling society to benefit from air travel without a negative environmental impact, through the delivery of zero emission technologies.
Positive
Contribution to the achievement of international and national goals to achieve a zero‑emission global economy and society
and to limit the increase in the global average temperature (1.5°C–2°C)
Positive
Reduction of emissions from sites, strategic suppliers, products transportation and end products supplied for aircraft,
as well as aftermarket service and GKN Aerospace’s maintenance, repair and operation (“MRO”) services.
Positive
In our assessment, we considered the short‑, medium‑ and long‑term impacts of climate change when examining the identified transition
climate‑related risks (and opportunities) and their actual and potential business impacts (including on strategy and financial planning).
Three‑time horizons were used to identify and assess specific transitional climate‑related issues. These time horizons allowed us to consider
the lifespan of our assets and infrastructure as well as any longer‑term regulatory changes.
Time horizons
Rationale
Short
(2024‑2026)
In line with short‑term specific business planning
Medium
(2026‑2030)
Encompasses Melrose’s near‑term emissions targets
Long
(2030‑2050)
Encompasses Melrose and the UK Government’s Net Zero by 2050 target and other long‑term policy trends.
69
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
SUSTAINABILITY REVIEW
Transition Risks continued
Risk type
Description
Mitigation
KPI
EXPOSURE TO CARBON PRICING MECHANISMS
Policy
and Legal
Market‑based carbon pricing
Increased market‑based exposure to carbon pricing mechanisms,
such as the ReFuel EU, EU Emissions Trading System, and
Carbon Offsetting and Reduction Scheme for International
Aviation (“CORSIA”). The impact is likely to be felt through potential
increases in airline ticketing prices.
Supply chain carbon pricing
Increased supply chain exposure to carbon pricing mechanisms
such as the EU’s upcoming UK Carbon Border Adjustment
Mechanisms (“CBAM”) applied through raw materials, such as
aluminium, imported into our EU operations. The impact is likely to be
felt through potential increased cost of raw materials from suppliers.
The ultimate impact of both carbon pricing risks are increased
prices is a dampening of growth in air traffic, leading to a reduction
in future potential sales. Over time the adoption of carbon pricing
instruments will increase, driving the price levels of all carbon
pricing systems and therefore the overall risk exposure. NZE
scenario predicts an increased number and ambition of carbon
pricing mechanisms, meaning a higher exposure than in STEPS.
• GKN Aerospace’s supplier engagement target
which will reduce exposure to carbon pricing in
our value chain.
• GKN Aerospace’s SBTi submission and the
Melrose Net Zero Transition Plan sets out ways
in which we will decarbonise our operations
and supply chain, reducing our emissions and
therefore reducing our exposure to carbon pricing
mechanisms.
• GKN Aerospace monitors exposure to potential
future carbon price increases through the IEA
World Energy Outlooks carbon prices.
• GKN Aerospace is an active member of the IAEG
and receives regular updates through a newsletter
on global environmental and chemical regulations,
policies, and standards that are shared with key
stakeholders.
Scope 1, 2 and 3
emissions
Carbon pricing
market signals
Quantification:
Potential Financial
Impact: Low
Gross Percentage
Operating
Profit Impact:
2026: 0%
2030: ‑1%
2050: ‑1%
Potential
impact
Risk
exposure
Timeframe
Scenario sensitivity
Short
Medium
Long
NZE
STEPS
Higher
costs
High
REGULATORY CHANGES TO FLIGHT TIME AND ROUTES
Policy
and Legal
The risk of an increased number of regulations that prohibit short
haul flights and airport growth generally could impact the number
of conventional aircraft and components for conventional aircraft
that are sold. This risk links closely to the increase in carbon
pricing mechanisms discussed above. NZE scenario assumes
more ambitious sustainable aviation regulations, that could reduce
certain flight routes, are brought in indicating a higher risk exposure
than under STEPS. The regulatory changes affect both domestic
and international travel.
• R&D investment in low carbon technologies,
such as battery electric and hydrogen, can
provide us with avenues to offset potential losses
from conventionally powered aircrafts e.g.,
H2FlyGHT programme, a collaborative initiative
that will develop a 2‑megawatt (MW) cryogenic
hydrogen‑electric propulsion system.
• Melrose’s targets for climate‑related R&D and new
products contributing to the low carbon economy
drive continued investment and efforts to become
the most sustainable partner in the sky.
• Membership in industry bodies, such as the
International Aerospace Environmental Group
(“IAEG”), helps GKN Aerospace stay aware of any
incoming regulatory changes.
• Melrose also carried out specific policy advocacy
to directly fund the development of net zero
technologies.
Number of
regulatory changes
to flight times and
routes
Quantification:
Potential Financial
Impact: Minimal
Gross Percentage
Operating
Profit Impact:
2026: n/a
2030: ‑1%
2050: ‑1%
Potential
impact
Risk
exposure
Timeframe
Scenario sensitivity
Short
Medium
Long
NZE
STEPS
Decreased
revenue
Moderate
Key
Anticipated onset of risks and opportunities
Low likelihood
Low‑medium likelihood
Estimated full impact of risks and opportunities
Medium‑high likelihood
High likelihood
Environmental Impact continued
70
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Transition Risks continued
Risk type
Description
Mitigation
KPI
DECLINING DEMAND IN AIR TRAVEL DUE TO CONCERNS ABOUT CLIMATE CHANGE
Market
Changes to societal expectation and behaviour due to concerns
about climate change may impact overall demand for air
transportation and decrease demand for conventional products.
If GKN Aerospace cannot improve alternative technologies, such
as electric or hydrogen aviation at the required rate, there may be
a demand curtailment of current products. NZE predicts a faster
rollout of lower carbon technologies meaning a greater exposure of
risk than under STEPS.
• To retain value in GKN Aerospace core products,
investment in sustainable aviation fuels is a key
priority. GKN Aerospace is actively engaged in key
industry and government forums, such as the UK
government Jet Zero Taskforce, in order to build a
clear strategy to deliver SAF at the scale required
to retain this market value.
• A decrease in demand for conventionally powered
aircraft will be offset by an increased demand in
lower carbon technologies that Melrose is investing
in through R&D and new product development.
• Engagement to ensure low carbon aviation is at the
forefront of regulators and governments minds to
ensure sustainable growth in the aviation market.
Aviation market
growth predictions
Quantification:
Potential Financial
Impact: Minimal
Gross Percentage
Operating
Profit Impact:
2026: n/a
2030: ‑1%
2050: ‑1%
Potential
impact
Risk
exposure
Timeframe
Scenario sensitivity
Short
Medium
Long
NZE
STEPS
Decreased
revenue
Moderate
RAW MATERIAL AVAILABILITY
Technology
An increased focus on developing lower carbon aviation (battery
and hybrid electric propulsion systems) causes demand in materials
needed in these technologies to increase (Rare Earth Materials
(“REM”), composites and titanium). Increased global conflict in
areas where these materials are geographically concentrated could
impact availability. NZE sees a greater demand for REM and other
materials associated with lower carbon aviation, indicating a greater
exposure of risk compared to STEPS.
• Ensure reliable supply from alternative
non‑sanctioned markets.
• Increased focus on resource efficiency by
recycling raw materials and therefore reducing the
amount of virgin materials. For example, there is
an increased use of recycled metals like aluminium
being used in manufactured aerostructures.
• Increasing additive technologies being developed
by GKN Aerospace with a capital investment plan
in Sweden, as well as in the UK and the US.
• Enhanced stock control oversight on key materials
to ensure a reliable supply.
• Increased investment in resource efficiency
technologies such as nesting and additive
manufacturing e.g., the Texas additive
manufacturing centre of excellence for
large‑scale titanium aerostructures.
• Investment in composite recycling.
Percentage of raw
materials recycled
Quantification:
Potential Financial
Impact: Minimal
Gross Percentage
Operating
Profit Impact:
2026: n/a
2030: ‑6%
2050: ‑5%
Potential
impact
Risk
exposure
Timeframe
Scenario sensitivity
Short
Medium
Long
NZE
STEPS
Increased
costs
High
Key
Anticipated onset of risks and opportunities
Low likelihood
Low‑medium likelihood
Estimated full impact of risks and opportunities
Medium‑high likelihood
High likelihood
71
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
SUSTAINABILITY REVIEW
Transition Risks continued
Risk type
Description
Mitigation
KPI
SUCCESSFUL ENTRY INTO SERVICE OF NEW TECHNOLOGIES
Technology
A lack of certification of aircraft with new technologies, such as
hydrogen and battery electric, could impact the rate to which
production demand is met. Certifying organisations, including
the CAA and EASA, amongst others, have historically wanted
to make decisions based on significant amounts of data but
with new technologies, data availability is lacking. The lack of
successful entry of lower carbon aviation could impact our ability
to benefit from the transition to a lower carbon economy and
more sustainable aviation. Under NZE, the rate of new technology
certification will need to be high and delays in certification could
cause a bottle neck in production, causing a high risk exposure.
• Collaboration with certification bodies is a key
mitigation factor to reduce the potential delay in
certification of new technologies. Certifiers are
regularly invited to new aircraft testing.
• Extensive use of both ground and flight validation
of technologies is a critical step both in educating
airworthiness authorities as well as building clarity
of what will be required to be proven in full scale
development programmes. GKN Aerospace is
planning a series of research tests with strong
engagement with regulators in order to enable this.
Certification times of
components used in
low carbon aviation
Quantification:
Potential Financial
Impact: Minimal
Gross Percentage
Operating
Profit Impact:
2026: n/a
2030: ‑2%
2050: ‑2%
Potential
impact
Risk
exposure
Timeframe
Scenario sensitivity
Short
Medium
Long
NZE
STEPS
Reduced
revenue
Moderate
REPLACEMENT OF CARBON INTENSIVE MACHINERY
Technology
Risks associated with decarbonising of manufacturing processes and
machinery that are carbon intensive to electric and energy efficient
machinery will increase investment of capital. Currently, existing
technology to electrify carbon intensive processes either do not exist
or are expensive. NZE expects a faster decarbonisation pathway,
meaning carbon intensive assets will need to be replaced quicker.
• Electrification of carbon intensive manufacturing
processes e.g., furnaces electrification.
• Policies to replace older plant machinery with
electric machinery and more efficient machinery.
• Focus on additive manufacturing to reduce
weight, lead times, tooling and inventory, and
reduce CO2 emissions by 70% compared with
conventional manufacturing processes.
• Out of autoclave composite technologies (such
as RTM) have the potential to reduce energy
consumption by up to 80% as well as the potential
to eliminate carbon intensive energy supply.
Spend on new
electrified machinery
Quantification:
Potential Financial
Impact: Minimal
Gross Percentage
Operating
Profit Impact:
2026: n/a
2030: ‑5%
2050: ‑10%
Potential
impact
Risk
exposure
Timeframe
Scenario sensitivity
Short
Medium
Long
NZE
STEPS
Increased
costs
Moderate
Key
Anticipated onset of risks and opportunities
Low likelihood
Low‑medium likelihood
Estimated full impact of risks and opportunities
Medium‑high likelihood
High likelihood
Environmental Impact continued
72
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Transition Risks continued
Risk type
Description
Mitigation
KPI
RISKS OF NOT MEETING NET ZERO TARGETS
Reputation
The ability to meet our net zero targets is partially reliant on third
parties within our supply chain and technologies that are yet to
be developed. Our Scope 1 and 2 targets are more certain due to
the current availability of existing technologies, such as renewable
energy. However, there may be uncertainties in the availability of,
and/or cost of renewable energy contracts as global pressures
to reach net zero increase the demand for renewable energy.
Both our absolute and supplier engagement Scope 3 targets
carry more risk due to the inherent lack of control of Scope 3 and
complexity around engaging suppliers. Under STEPS a lower rate
of technological development would hinder the achievements of our
net zero targets.
• Carrying out training sessions with the
procurement teams to upskill on climate‑related
information.
• Developing a supplier engagement plan that
targets our key and most impactful suppliers.
• Carrying out supplier education and engagement
days.
• Implementing emissions reduction initiatives
across our logistics emissions.
• Improving emissions calculation methodologies.
Progress on our
SBTi’s
Quantification:
Potential Financial
Impact: Minimal
Gross Percentage
Operating
Profit Impact:
2026: n/a
2030: ‑5%
2050: ‑5%
Potential
impact
Risk
exposure
Timeframe
Scenario sensitivity
Short
Medium
Long
NZE
STEPS
Lower profit
margins through
increased costs
and decreased
revenue
High
Key
Anticipated onset of risks and opportunities
Low likelihood
Low‑medium likelihood
Estimated full impact of risks and opportunities
Medium‑high likelihood
High likelihood
73
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
SUSTAINABILITY REVIEW
Transition Opportunities continued
Opportunity
type
Description
Strategy to capitalise
KPI
OPERATIONAL EFFICIENCY IN WATER, WASTE AND ENERGY
Resource
efficiency
Actions to reduce waste, water and energy consumption and
improve efficiency will provide incremental improvements
to Melrose’s emissions profile at limited cost to implement.
Replacement of older and less efficient machinery with newer, more
efficient, models as well as improved insulation in certain sites will
provide opportunities to reduce emissions and costs.
Energy
• Company‑wide energy intensity reduction target.
• Employee engagement to reduce energy
consumption, such as the Project Orville scheme
that encourages employees to make individual
efforts to reduce energy consumption.
• Energy efficiency measures, such as LED lighting
installations, insulation of sites and booster
systems to increase the energy efficiency of
machines using compressed air.
• Transition to additive manufacturing processes
will electrify hard metal manufacturing as well as
significantly reduce net energy consumption.
• Transition of composite material manufacturing to
out of autoclave will reduce energy consumption
significantly e.g., ASCEND programme reduces
energy consumption by 80% with out of autoclave
technologies.
Waste
• Target to divert 95% of solid non‑hazardous waste
from landfill by 2025.
• Reduction and recycling of packaging, such as
the adoption of new cardboard shredders to
reduce use of plastic at the Trollhättan site.
Water
• 40% reduction in water withdrawal intensity by
2025.
• Water efficiency improvements at sites, such as
irrigation system leak identification at El Cajon.
Energy, waste and
water consumption
Quantification:
Potential Financial
Impact: Low
Gross Percentage
Operating
Profit Impact:
2026: 0%
2030: 0%
2050: 0%
Potential
impact
Opportunity
exposure
Timeframe
Scenario sensitivity
Short
Medium
Long
NZE
STEPS
Reduces
costs
Low
MATERIAL EFFICIENCY IMPROVEMENTS OF RAW MATERIALS
Resource
efficiency
Improved recycling of raw materials and investment in R&D relating
to technologies, such as additive manufacturing and nesting,
provides opportunities to reduce energy, emissions, waste
and associated costs. Raw material costs will also be reduced.
Improved efficiency of raw materials specifically provides us with
the opportunity to reduce our Scope 3 emissions associated with
our purchased goods as it means less raw materials are purchased.
It also leads to shorter supply chains with a reduced reliance on
certain sets of suppliers e.g., forging suppliers. NZE sees greater
focus and investment in life cycle sustainability, meaning a greater
exposure to technology that can improve material efficiency
compared to STEPS.
• Nesting technology enables the reduction of
scrap raw material produced during cutting and
optimises production.
• Additive manufacturing investments such as the
Permanova acquisition, the additive manufacturing
centre of excellence in Texas and collaboration
with Northrop Grumman delivers additively
manufactured alternatives to conventional
forgings and castings, meaning reduced waste
and consumables, and reduced impact of
transportation through vertical integration.
• Recycling of virgin metals, such as aluminium
and titanium, means raw materials stay within
the aerospace industry, significantly reducing the
amount of embedded carbon in raw materials
consumed.
• R&D investment in composite recycling.
Percentage of raw
materials recycled
Quantification:
Potential Financial
Impact: Medium
Gross Percentage
Operating
Profit Impact:
2026: 1%
2030: 3%
2050: 5%
Potential
impact
Opportunity
exposure
Timeframe
Scenario sensitivity
Short
Medium
Long
NZE
STEPS
Reduces
costs
High
Key
Anticipated onset of risks and opportunities
Low likelihood
Low‑medium likelihood
Estimated full impact of risks and opportunities
Medium‑high likelihood
High likelihood
Environmental Impact continued
74
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Transition Opportunities continued
Opportunity
type
Description
Strategy to capitalise
KPI
RENEWABLE ENERGY (PPAS AND INSTALLATION)
Energy
source
The purchase of renewable electricity contracts or PPAs will
allow for the reduction of emissions without the capital spend
associated with onsite renewable energy installation. Electricity
purchase agreements deliver real world GHG emissions reductions
by displacing fossil energy sources in the grid systems where we
consume electricity. Our US and European sites have access to
renewable electricity contracts and whilst the cost of electricity
under PPAs is variable, contracts can provide fixed costs over
several year and reduce Scope 2 emissions to potentially zero. The
Group is exploring options to install solar self‑generation where
possible. Solar installations will reduce reliance on the local grid,
reduce GKN Aerospace’s emissions and may provide operating
cost savings. NZE sees more rapid scaling of renewable energy and
grid electrification compared to STEPS.
• Target to procure 50% of electricity from
renewable sources by 2025.
• In the shorter term Melrose will purchase Energy
Attribute Certificates (“EACs”) with the medium‑
and longer‑term goal being the use of VPPAs,
PPAs and self‑generation of electricity.
• Several sites have submitted requested for
installation of solar arrays and additional sites are
exploring options for self‑generation.
• A 1.2MW solar farm was completed at the
GKN Aerospace Cowes site which will generate
1,150,000 kWh of electricity annually, supplying
20% of the site’s energy needs.
Percentage of
renewable electricity
Quantification:
Potential Financial
Impact: Minimal
Gross Percentage
Operating
Profit Impact:
2026: 0%
2030: 0%
2050: n/a
Potential
impact
Opportunity
exposure
Timeframe
Scenario sensitivity
Short
Medium
Long
NZE
STEPS
Reduces
costs
Moderate
IN FLIGHT EFFICIENCY
Products
and
Services
The use of advanced materials and engineering methods provides
an opportunity for components to provide the same, or enhanced,
performance while using less or lighter material and improving flight
fuel efficiency. This can be through the use of composite materials
or bonding technologies. Improving the fuel efficiency of engines
also provides an opportunity to reduce fuel burn and increase
flight efficiency. Increased demand for these technologies and
heightened expectations to reduce emissions associated with flying
will increase the exposure of this opportunity under NZE compared
to STEPS.
GKN Aerospace has an extensive portfolio of
research programmes exploring new design
concepts, materials and manufacturing processes
aimed at increasing air travel efficiency and reducing
fuel burn. These include additive fabrication, resin
transfer moulding, metallic and composite bonding
and electrification of systems. The majority of these
programmes are performed collaboratively with our
airframe and engine customers and within funded
multi partner research programmes.
R&D Horizon 1 & 2
programmes
Quantification:
Potential Financial
Impact: Minimal
Grpss Percentage
Operating
Profit Impact:
2026: n/a
2030: 14%
2050: 36%
Potential
impact
Opportunity
exposure
Timeframe
Scenario sensitivity
Short
Medium
Long
NZE
STEPS
Reduces
costs
High
Key
Anticipated onset of risks and opportunities
Low likelihood
Low‑medium likelihood
Estimated full impact of risks and opportunities
Medium‑high likelihood
High likelihood
75
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
SUSTAINABILITY REVIEW
Transition Opportunities continued
Opportunity
type
Description
Strategy to capitalise
KPI
ACCESS TO NEW MARKETS THROUGH LOW CARBON AVIATION
Markets
Both battery electric and hydrogen technologies provide potential
new markets for GKN Aerospace. Electric technology opens up
the potential of the commuter market (up to 400 nautical miles) as
well as other regional routes. eVOTLs development also offers new
markets in urban mobility that are low carbon, cheaper and quieter
than current options. Hydrogen technologies can also offset the
potential reduction in market share from conventionally powered
engines as well as opening up the potential for a fragmentation of
regional routes and an overall growth in regional aviation. NZE sees
scaled investment in hydrogen and battery electric technologies
resulting in a greater exposure compared to STEPS.
• Continued work as main partner in industry
associations, such as the Jet Zero Taskforce,
the Aerospace Technology Institute, Swedish
Aerospace Industries, Swedish Air Transport
Society, the Dutch National Sustainable
Aerospace Funding Programme (“LIT”), and
the Aerospace Growth Partnership, where
GKN Aerospace plays a key role in developing
policy to support aviation’s transition to Net Zero
and the development of hydrogen‑powered
aircraft, and leads on various policy topics such as
the roadmap to fossil‑free aviation.
• Continued investment in hydrogen propulsion
technologies and the development of routes
to exploitation e.g., H2FlyGHT, a collaborative
initiative that will develop a 2‑megawatt (MW)
cryogenic hydrogen‑electric propulsion system.
• Global partnerships with electric aircraft
manufacturers such as Joby, Eviation, and
Supernal to work on experimental eVTOL and
electric aircraft development.
Revenue from
products that
contribute to
low‑carbon
economy
Quantification:
Potential Financial
Impact: Minimal
Gross Percentage
Operating
Profit Impact:
2026: n/a
2030: 14%
2050: 36%
Potential
impact
Opportunity
exposure
Timeframe
Scenario sensitivity
Short
Medium
Long
NZE
STEPS
Increased
revenue
High
Key
Anticipated onset of risks and opportunities
Low likelihood
Low‑medium likelihood
Estimated full impact of risks and opportunities
Medium‑high likelihood
High likelihood
Environmental Impact continued
76
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Transition Opportunities continued
Opportunity
type
Description
Strategy to capitalise
KPI
TECHNOLOGICAL SOLUTIONS FOR CLIMATE CHANGE MITIGATION
Products
and
Services
Hydrogen technology
Hydrogen technology has potential to reduce the aviation
industry’s impact on climate through an increased demand for
hydrogen powered aircraft in both hydrogen electric and hydrogen
combustion technologies. Hydrogen electric is seen as the most
likely candidate for an earlier entry into service while hydrogen
combustion provides an opportunity as it enables us to offset
potential revenue losses from a decrease in conventionally powered
aircraft. NZE sees scaled investment in hydrogen technologies
resulting in a greater exposure compared to STEPS.
Battery electric technology
Using batteries to power aircraft produces no in flight emissions
at all and offers fully net zero travel if renewable electricity is
used. Power density limits the payload and range potential of this
technology. Battery electric flight is likely to have only a small role
in reducing aviation’s impact on global warming, however, this new
market area will be born green and offers the ability to develop
capabilities with wider exploitation such as in commuter markets.
NZE sees greater progression in battery electric technology
than STEPS.
Advanced Air Mobility (“AAM”)
With our technology leadership in electrification, lightweight
composites, hydrogen propulsion and smart engine systems, we
are at the forefront of enabling eVTOL platforms to thrive in the
Advanced Air Mobility market. NZE sees greater progression in
AAM technology than STEPS.
Improved engine efficiency
By focusing on efficient engine technologies, such as advanced
materials, lightweight components, and innovative propulsion
systems, GKN Aerospace can help minimise fuel consumption
and emissions, enhancing both operational sustainability and
cost‑effectiveness for customers.
• GKN Aerospace is involved in several R&D
initiatives relating to liquid hydrogen fuel systems,
fuel cell power generation and distribution and
hydrogen combustion through the H2GEAR,
HyFIVE and H2FLYGHT programmes.
• GKN Aerospace also works within the Jet Zero
Taskforce, the Aerospace Technology Institute
and the Aerospace Growth Partnership to develop
policy to support aviation’s transition to Net Zero
and the development of hydrogen fuelled aircraft.
• Global partnerships with electric aircraft
manufacturers such as Joby, Eviation and
Supernal to work on experimental eVTOL and
electric aircraft development.
• GKN Aerospace is actively engaged with
both customers and regulators to ensure low
carbon aviation is at the forefront of regulators
and governments.
• Vertical Aero’s VX4 and Supernal SA1 all utilise
GKN Aerospace technology and contribute to a
cleaner and more connected world.
• Partnerships with companies such as Supernal on
the design and build of major aerostructures and
Electrical Wiring Interconnection System (“EWIS”)
for Supernal’s electric vertical takeoff and landing
(eVTOL) vehicle.
• Contributing to programmes such as RISE that
facilitates the development of open rotor engines
which can reduce fuel consumption by 20%
compared to conventional gas turbine engines.
• Collaboration with other aerospace companies
on water‑enhanced turbofan technology (“WET”)
which has the potential to reduce aircraft CO2
emissions by up to 25% compared to today’s
state‑of‑the‑art propulsion systems for short‑ and
medium‑range aircraft.
R&D investment
in hydrogen and
battery electric
technologies
In‑flight
decarbonisation
potential of products
Quantification:
Potential Financial
Impact: Minimal
Gross Percentage
Operating
Profit Impact:
2026: n/a
2030: 14%
2050: 36%
Potential
impact
Opportunity
exposure
Timeframe
Scenario sensitivity
Short
Medium
Long
NZE
STEPS
Increased
revenue
Hydrogen
technology
High
Battery electric
technology
Moderate
AAM
High
Improved
engine efficiency
Key
Anticipated onset of risks and opportunities
Low likelihood
Low‑medium likelihood
Estimated full impact of risks and opportunities
Medium‑high likelihood
High likelihood
77
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
SUSTAINABILITY REVIEW
Physical Risks
As global temperatures rise, the frequency and severity of extreme weather events are expected to increase, resulting in a higher likelihood of
disruptions to our global operations and supply chain. Our physical risk assessment has been carried out by a third‑party consultant using a
location risk tool. It has been used to assess current and potential future physical climate‑related risks facing GKN Aerospace’s global facilities
and key suppliers. We have assessed potential physical risks, both acute and chronic, at all GKN Aerospace sites including potential material
risks such as drought stress, tornados, storms, sea‑level rise and flooding events among other hazards, while heat stress and fire stress were
considered but were not deemed material for our operations. The revenue and property value of each site was considered to determine the
materiality of identified risks to specific sites. During the year we had no insurance claims that were climate‑related.
For the risks assessed we have chosen to use the best‑case and worst‑case scenarios as described below:
• RCP 2.6 (approximately 1.8°C warming by 2100). A scenario in line with the United Nations Climate Change Agreement of 2015. According
to the IPCC, it requires that GHG emissions start declining immediately and go to zero by 2100. This relies on global implementation of
stringent climate policies; and
• RCP 8.5 (approximately 4.4°C warming by 2100). A ‘business as usual’ high‑emissions scenario. This scenario is consistent with no major
policy changes or industry moves to reduce emissions globally leading to high atmospheric GHG concentrations.
We have considered three time horizons: 2030 (short term), 2050 (medium term) and 2100 (long term). This differs from our time horizons used
for our transitional risk assessment as there are limited predicted material physical climate risks up to 2030 due to the delayed nature of
modelled climate impacts.
Risk type
Description
Mitigation
KPI
FLOODING (STORM SURGE, RIVERINE AND FLASH FLOOD)
Acute
Risk associated with either coastal or riverine flooding can cause
damage to site infrastructure, products and equipment stored at
sites. Floods can also cause disruptions to manufacturing output
and delay production times. Riverine flooding in particular poses
a risk to five sites, which are currently located in a 50‑year return
period zone. One additional site is projected to also be in a 50‑year
return period zone by 2030 under RCP 8.5. Two sites have been
identified as being at extreme risk of sea level rise under both
scenarios by 2100.
• Collaboration with local environment agencies
and councils on flooding defences and prior
flooding events.
• Alternative suppliers are in place to replace key
infrastructure that might be damaged.
• Flood management plans include the training of
teams to deploy flood barriers and raise at risk
machinery above where flood waters could reach.
• Safety reports take into account the impact of
flooding at our at risk sites.
• Property damage and business interruption
insurance specific to natural hazards.
Number of days
operations are
disrupted due to
flooding events
Quantification:
Potential Financial
Impact: Medium
Gross Percentage
Operating
Profit Impact:
2026: ‑1%
2030: ‑2%
2050: ‑5%
Potential
impact
Risk
exposure
Timeframe
Scenario sensitivity
Short
Medium
Long
RCP 2.6
RCP 8.5
Increased costs
and decreased
revenue
Moderate
Key
Anticipated onset of risks and opportunities
Low likelihood
Low‑medium likelihood
Estimated full impact of risks and opportunities
Medium‑high likelihood
High likelihood
Environmental Impact continued
78
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Physical Risks continued
Risk type
Description
Mitigation
KPI
STORM
Acute
Increased exposure to extreme weather events, such as tornados,
hailstorms and extratropical storms, have the potential to impact
the Company’s operations and production processes through
power outages as well as impacting access to sites through
damage to local roads and infrastructure. 17% of sites have been
identified as having a high exposure to storm risk. However, these
sites collectively only account for 5% of revenue.
• Alternative suppliers in place to replace key
infrastructure that might be damaged.
• Incident Commander outlines approach to dealing
with storm events such as internal emergency
communication system for employees to be
notified of hazards.
• Tornado shelters are available for employee safety
at impacted sites.
• Use of semi generators for storms that are
anticipated to cause power outages of more than
24 hours.
• Subscribing to countrywide emergency alert
systems and its standard operating procedure to
shelter under desks during storms where relevant
and available.
• Property damage and business interruption
insurance specific to natural hazards.
Number of days
operations are
disrupted due to
storm events
Quantification:
Potential Financial
Impact: High
Gross Percentage
Operating
Profit Impact:
2026: ‑2%
2030: ‑3%
2050: ‑6%
Potential
impact
Risk
exposure
Timeframe
Scenario sensitivity
Short
Medium
Long
RCP 2.6
RCP 8.5
Increased costs
and decreased
revenue
Low
SUPPLIER DISRUPTION FROM EXTREME WEATHER
Acute
Increased extreme weather events such as flooding and storms
cause supply chain disruptions or site shutdowns. This can impact
the ability of suppliers to provide us with appropriate raw materials
and other services needed to manufacture our products. However,
at this stage, impacts have typically been limited.
• Buffer stocks to protect manufacturing process
from short interruptions.
• Supplier business continuity plans that include
specific climate‑related plans.
• Ability to switch to alternative suppliers in the
event of an extreme weather event.
Number of days
suppliers are
disrupted due to
extreme weather
events
Quantification:
Potential Financial
Impact: High
Gross Percentage
Operating
Profit Impact:
2026: ‑2%
2030: ‑3%
2050: ‑7%
Potential
impact
Risk
exposure
Timeframe
Scenario sensitivity
Short
Medium
Long
RCP 2.6
RCP 8.5
Loss in
revenue
Moderate
Key
Anticipated onset of risks and opportunities
Low likelihood
Low‑medium likelihood
Estimated full impact of risks and opportunities
Medium‑high likelihood
High likelihood
79
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Environmental Impact continued
SUSTAINABILITY REVIEW
80
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Impact on strategy and financial planning
Climate change has a direct impact on product strategy, development
and financial planning across Melrose. Our ambition is to produce
long‑term sustainable growth for the coming years through continued
innovation and product quality across our engines and structures
solutions, with fully integrated emissions reduction activities. In the
short‑term horizon, we do not anticipate any material changes in
resource allocation or operational and capital investment to achieve
our plans and targets.
Our greatest impact on the value chain comes from reducing
emissions through product design and manufacturing. We focus on
lowering embodied carbon in materials, cutting emissions in
operations, optimising energy use, minimising waste, and recycling
materials. These efforts align with our business targets and are
integrated into our operations and innovation pipelines.
In 2024, Melrose invested over £80 million on climate‑related R&D
programmes that primarily aim to develop technologies that help our
customers improve energy efficiency and reduce GHG emissions
compared with conventional technologies. This continued investment
in climate‑related R&D enables Melrose to adapt our business model
and strategy to any potential new climate‑related technologies and
opportunities. For Scope 1 and 2 emissions reductions, our focus in
the near term is on implementing our existing or developing new
strategies to minimise emissions in operations that represent
hard‑to‑abate, carbon‑intensive, be it through the replacement of old
equipment and machinery, energy efficiency programmes or certain
upgrades to our existing procedures at plants. The impact of climate
change on our supply chain has been considered as part of SBTi
validated emissions targets. A supplier engagement action plan has
been developed which outlines how climate change considerations
should be incorporated into procurement policies and encourages
suppliers to have science‑based targets. We have commenced
supplier engagement as part of our efforts towards climate‑conscious
procurement in mitigating climate change which reflects the growing
recognition of the environmental impact of supply chains in the global
business landscape.
In the short to medium term (present to 2030), resourcing for the
implementation of our net zero commitment is incorporated into
capex and spending plans where reasonably foreseeable. We believe
that the actions we will directly take to reduce emissions in the short
to medium term will result in costs or impacts on revenues that are in
line with those already in our strategy and growth projections.
Resilience of the organisation’s strategy to climate change
Melrose has invested in reducing its carbon footprint and embraced
renewable energy sources, improving energy efficiency, and investing
in low carbon products for its customers. While acknowledging the
risks posed by climate change, our strategy is resilient to climate
change with appropriate mitigating plans in play for identified risks
and opportunities. We will continue to develop our analysis as new
data becomes available, both internally and externally, and we will
continue to monitor our climate exposures and action plans.
Our scenario analysis posed key questions on how different physical
and transitional scenarios would impact future revenue, production
costs and the life of current assets.
The limitations of the scenario analysis we carried out are:
• scenarios often only provide high‑level global and regional forecasts;
• not all risks are easily subject to scenario analysis;
• scenario analysis requires analysis of specific factors and modelling
them with fixed assumptions;
• impacts are to be considered in the context of the current financial
performance and prices;
• gross impacts are assumed to occur without the Company
responding with any mitigation actions, which would reduce the
impact of risks;
• impacts are modelled to occur in a linear fashion, when in practice,
dramatic climate‑related impacts may occur suddenly after tipping
points are breached;
• the analysis considers each risk and scenario in isolation, when in
practice, climate‑related risks may occur in parallel as part of wider
set of potential global impacts; and
• carbon pricing is informed by the Global Energy Outlook 2024 report
from the International Energy Agency (“IEA”).
81
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Environmental Impact continued
SUSTAINABILITY REVIEW
METRICS AND TARGETS
Climate‑related metrics
We disclose a wide range of metrics associated with climate change,
including GHG emissions by type, energy consumption by type, as well
as renewable electricity consumption, water withdrawal and waste
generation. Specific metrics used to track each risk and opportunity
are identified on pages 70 to 79 within the risk and opportunity tables.
Our energy consumption and emissions data, the statement of
alignment with the GHG Protocol and statement on The Streamlined
Energy and Carbon Reporting Regulation (“SECR”) disclosures can be
found on page 83. We currently disclose Scopes 1 and 2 and
applicable Scope 3 GHG emissions in line with the GHG Protocol
methodology, representing a breakdown of the Group’s emissions by
type and intensity measurement. We review our GHG inventory on an
annual basis and will restate our data and/or recalculate our
science‑based targets when required, to reflect significant changes to
our company structure, methodology changes or errors.
Scope 1 emissions are emissions from sources that we own or control
directly, and Scope 2 emissions are those that we cause indirectly as
they come from where the energy is purchased and produced.
• Scope 1 emissions are primarily driven by our use of natural gas
used in manufacturing processes and heating.
• Scope 2 emissions are tied to the electricity we use in our
manufacturing processes, for example autoclaves.
Our Scope 3 emissions represent emissions outside of our direct
operations and that occur in our value chains. In line with the
Greenhouse Gas Protocol’s ‘Corporate Value Chain (Scope 3)
Accounting and Reporting Standard’, we evaluate GHG emissions
from all 15 categories but report only on categories that are relevant
and material to the Company. Aligned with the rest of the aerospace
manufacturing sector, Category 11: Use of Sold Products is estimated
to be our largest category of Scope 3 emissions from our initial
calculations. Category 11 emissions associated with the use of
Melrose products are currently being estimated so are not included in
our emissions footprint. As part of our SBTi submission and validation
it was deemed that Category 11 emissions did not need to be
included in our target emissions inventory. We are currently evolving
our calculation methodology and aspire to report on our updated
Category 11 emissions next year. In line with SBTi requirements we
will also update our validated targets if necessary. All other
downstream categories have been screened and deemed either
negligible or not applicable to Melrose’s value chain emissions.
The GHG emissions for Melrose, broken down by Scope 1, Scope 2
and select Scope 3 emissions, for 2023 and 2024, are set out in the
table on page 83. In 2024, operational energy consumption
decreased 3% in absolute terms and 14% in associated intensity ratio
terms compared to 2023. This is reflective of both revenue increasing
and consumption decreasing, driven by one‑off fuel consumption
activities in 2023. This led to a 17% reduction in Scope 1 emissions
also. The decrease in Scope 2 market‑based emissions are due to
more sites procuring renewable electricity, however the underlying
electricity consumption increased slightly year‑on‑year by 2%. The
Group’s chosen intensity ratio is energy consumption and emissions
reported above normalised megawatts usage (“MWh”) and tonnes of
CO2e per £1,000 of revenue, which we believe remains the most
appropriate intensity ratio for Melrose.
Total Scope 3 emissions decreased 5% versus 2023, largely due to a
decrease in Capital Goods emissions as a result of less capex
expenditure throughout the year. Fuel and Energy Related Activities
emissions have also decreased year‑on‑year due to our increased
procurement of renewable electricity. The Scope 3 categories
covered by our SBTi(1) have decreased 1% versus 2023 and 13%
relative to the 2022 base year, highlighting we are on track to meet
this target by 2030. We do still expect Scope 3 emissions to fluctuate
in future years as the quality of our reporting improves.
This section has been prepared for the reporting period of
1 January 2024 to 31 December 2024. We report on all of the material
emission sources in line with an operational control approach method,
as required in Part 7 under the Companies Act 2006 (Strategic Report
and Directors’ Reports) Regulations 2013 and under the UK’s SECR
requirements. These emission sources fall within our Consolidated
Financial Statements. We do not have responsibility for any emission
sources that are not included in our Consolidated Financial Statements.
Our energy consumption and emissions data is reported in
accordance with the reporting requirements of the Greenhouse Gas
Protocol (“GHG Protocol”), Revised Edition 2004 and the
Environmental Reporting Guidelines, including the SECR guidance
dated March 2019. The GHG Protocol standard covers the
accounting and reporting of seven Greenhouse gases covered by the
Kyoto Protocol. We currently disclose Scopes 1 and 2 and select
Scope 3 GHG emissions, representing a breakdown of the Group’s
emissions by type and intensity measurement. Emission factors from
the UK Government’s GHG Conversion Factors for Company
Reporting 2024 (the Department for Energy Security and Net Zero
(“DESNZ”) factors) have been used to calculate Scope 1 emissions.
Scope 2 emissions associated with the GHG Protocol
“Location‑Based” method have been calculated using International
Energy Agency (“IEA”) country‑specific emission factors. Scope 2
emissions associated with the GHG Protocol “Market‑Based” method
have been calculated using residual mix emission factors from
Association of Issuing Bodies 2023 where applicable. In the absence
of residual mix emission factor availability, IEA country specific
emissions factors have been used in line with the GHG Protocol
guidance. If sites generate their own renewable electricity or
purchase electricity backed by contractual instruments (such as
Renewable Energy Guarantee Origin), this has been taken into
consideration within the calculations. For Scope 3 emissions, we
reported in accordance with the GHG Protocol Corporate Value
Chain (Scope 3) Accounting and Reporting Standard and the GHG
Protocol Technical Guidance.
Emissions factors from DESNZ and the International Areospace
Environmental Group (“IAEG”) Industry Tool for Calculating Scope 3
GHG emissions have been used to calculate Scope 3 emissions. A
Scope 3 inventory was carried out and the relevant categories were
calculated using a combination of spend based and average
data‑based methodologies. Due to recognised inherent uncertainties
in calculating Scope 3, we have adopted a continuous improvement
approach. We will continue to review our processes and disclose in a
timely and transparent manner.
(1) Target includes Scope 3 emissions from Category 3: Fuel‑ and energy‑related activities, Category 4: Upstream transportation and distribution, Category 5: Waste generated in
operations, Category 6: Business travel and Category 7: Employee commuting.
82
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Total energy consumption and GHG emissions for the period 1 January 2024 to 31 December 2024
Energy consumption (MWh)
UK
2024
Global
(excl. UK)
2024
Total
2024
UK
2023
Global
(excl. UK)
2023
Total
2023
Change
(2024/23)
Total operational energy consumption
78,504
375,744
454,248
83,922
386,224
470,146
‑3%
Total renewable energy consumption
129,743
122,349
6%
Share of renewable electricity in total electricity mix
43%
41%
2p.p.
Energy consumption intensity(1)
0.131
0.152
‑14%
Fuels
Total fuels consumption
27,051
85,669
112,720
32,062
102,838
134,900
‑16%
Non‑renewable fuels consumption
27,051
85,669
112,720
32,062
102,838
134,900
‑16%
Renewable fuels consumption
0
0
0
0
0
0
0
Electricity
Total electricity consumption
51,453
252,584
304,037
51,859
246,689
298,548
2%
Renewable electricity consumption (self‑generated, purchased or acquired)
171
129,572
129,743
8.7
122,340
122,349
6%
Non‑renewable electricity consumption (purchased or acquired)
51,282
123,012
174,294
51,850
124,349
176,199
‑1%
Steam
Steam consumption (purchased or acquired)
0
37,490
37,490
0
36,697
36,697
2%
Operational emissions (tCO2e)(1)
Scope 1: Direct GHG emissions(2)
4,965
16,278
21,245
5,880
19,810
25,691
‑17%
Scope 2: Indirect GHG emissions (Location‑based)(3)
9,051
63,902
72,953
9,151
61,787
70,938
3%
– Total purchased electricity
9,051
57,167
66,218
9,151
55,195
64,346
3%
– Steam (purchased or acquired)
0
6,735
6,735
0
6,592
6,592
2%
Scope 2: Indirect GHG emissions (Market‑based)
19,918
46,537
66,455
20,139
46,926
67,065
‑1%
– Total purchased electricity
19,918
39,802
59,720
20,139
40,334
60,473
‑1%
– Steam (purchased or acquired)
0
6,735
6,735
0
6,592
6,592
2%
Total Scope 1 and Scope 2 emissions (Location‑based)
94,198
96,629
‑3%
Total Scope 1 and Scope 2 emissions (Market‑based)
87,700
92,756
‑5%
Emissions intensity(4) (Market‑based)
0.025
0.029
‑14%
Scope 3 emissions (tCO2e)
Category 1: Purchased Goods & Services
1,122,941
1,109,438
1%
Category 2: Capital Goods
31,854
107,198
‑70%
Category 3: Fuel and Energy Related Activities
21,151
27,125
‑22%
Category 4: Upstream Transportation and Distribution
31,279
25,431
23%
Category 5: Waste Generated in Operations
1,364
1,477
‑8%
Category 6: Business Travel
11,909
12,551
‑5%
Category 7: Employee Commuting
14,166
14,032
1%
Total Scope 3 emissions(5)
1,234,665
1,297,252
‑5%
Total emissions (tCO2e)
Total Scope 1, Scope 2 (Location‑based) and Scope 3 emissions
1,328,863
1,393,881
‑5%
Total Scope 1, Scope 2 (Market‑based) and Scope 3 emissions
1,322,365
1,390,008
‑5%
(1) CO2e – carbon dioxide equivalent, this figure includes GHGs in addition to carbon dioxide.
(2) Scope 1 figures include emissions from fuel used on premises, transport emissions from owned or controlled vehicles, losses of refrigerant, and process and fugitive emission.
(3) Scope 2 figures include emissions from electricity and heat purchased.
(4) Company’s chosen intensity measurement: emissions reported above normalised tonnes CO2e per £1,000 revenue. The data has been standardised from the source units in which it
was initially collected. The revenue figures used to calculate the intensity ratio include continuing operations under operational control only.
(5) Target base year (2022) emissions data has been restated to reflect divestments and improvements in methodology. Absolute Scope 3 GHG emissions in 2022 were 1,152,330 tCO2e.
Scope 3 GHG emissions covered by our absolute SBTi target in 2022 were 82,100 tCO2e.
83
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Environmental Impact continued
SUSTAINABILITY REVIEW
GKN Aerospace has set near‑ and long‑term science‑based emissions
reduction targets which were validated by the SBTi in 2024.
These targets will help us manage our material climate‑related impacts, risks and opportunities. The SBTi
stipulates that targets shall be reviewed, and if necessary, recalculated and revalidated every five years at
a minimum. Emissions data is reported quarterly as part of our internal system which enables us to
monitor and assess performance against our targets. Revisions of targets will be conducted as and when
necessary and updates on progress towards achieving them will be reported on at least an annual basis
within our Annual and Sustainability Reports.
Progress against targets is reported on
pages 54 and 55
CLIMATE‑RELATED TARGETS
Our Group climate‑related targets are:
Additional SBTi validated targets are:
(1) Target includes Scope 3 emissions from Category 3: Fuel‑ and energy‑related activities, Category 4: Upstream transportation and distribution, Category 5: Waste generated in
operations, Category 6: Business travel and Category 7: Employee commuting.
50%
reduce Scope 1 and 2 emissions intensity by
50% by 2025 from a 2020 base year
50%
source at least 50% of our electricity
from renewable sources by 2025 from
a 2020 base year
80%
maintain 80% of total R&D expenditure on
climate‑related R&D per year to contribute
to aerospace decarbonisation by 2025 from
a 2020 base year
100%
achieve 100% of new products which
contribute to aerospace decarbonisation
by 2025 from a 2020 base year
95%
divert 95% of our solid non‑hazardous waste
from landfill by 2025 from a 2020 base year
40%
reduce water withdrawal by 40%
by 2025 from a 2021 base year
70%
encourage 70% of suppliers by spend,
covering purchased goods and services,
to have science‑based targets by 2028
Net Zero
reach net zero GHG emissions across
the value chain by 2050
25%
reduce absolute Scope 3 GHG emissions
by 25% by 2030 from a 2022 base year(1)
50%
Reduce absolute Scope 1 and 2
GHG emissions by 50% by 2030
from a 2020 base year
84
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
WATER
As a manufacturing business, water is used in certain production
processes within GKN Aerospace. However, our reliance on clean
and fresh water is minimal due to the industrial nature of our
operations. It is acknowledged though that water scarcity is a global
challenge and that water conservation is an increasingly important
topic for our stakeholders. We therefore have a responsibility to
ensure careful and conscientious use. Our Water policy is centred
around the key principles of ensuring that we remain resilient to any
risks associated with water; minimising potential impacts on water
availability and quality and facilitating business contributions to
improving water management practices.
Group Water policy
www.melroseplc.net/governance/documents-and-policies/
We seek to limit our water withdrawal through increased recycling
and reuse. Our Group‑level target is a 40% reduction in water
withdrawal intensity by 2025 (reported above normalised m3 per
£1,000 of turnover).
Water withdrawal data is presented in the table below, showing a
decrease in total water withdrawn by the business in 2024 compared
to 2023. In 2024, the largest proportion of our water is withdrawn in
North America (2023: North America). The decrease in the water
intensity is reflective of an increase in overall revenue and due to
several water withdrawal reduction strategies that are in place,
especially in North America where particular success was noted
during the reporting period.
Melrose Group water withdrawal(1) data for the period
1 January 2024 to 31 December 2024
Cubic metres
2024
2023
Change
(2024/23)
Water withdrawal (m3) in operations
647,192
664,831
‑2.7%
North America
301,193 299,309
+0.6%
Rest of Europe
194,634
195,735
‑0.6%
UK
118,395
137,205
‑13.7%
Asia
32,970
32,582
+1.2%
Company’s chosen intensity measurement:
Water withdrawal (m3) per £1,000 turnover(2)
0.188
0.214
‑12.1%
Our operations use water in the production processes to dilute
coolant used in machining as well as cleaning and chemical
treatment processes. Water is also required for staff hydration and
hygiene. To date, GKN Aerospace has not been subject to conditions
where water scarcity had led to interruptions in operations, however
we are aware of the possibility of operational interruption such as the
potential of interrupted supply of products to our customers or the
downstream supply of products to GKN Aerospace in the case of a
severe localised water shortage.
In preparation for upcoming regulations, we continued the analysis of
our operations in water‑stressed areas to improve our understanding
of associated risks and opportunities. Our manufacturing and office
sites were reviewed to identify operations in areas of ‘high’
(40%‑80%) or ‘extremely high’ (>80%) baseline water stress,
according to the WRI Aqueduct Water Risk Atlas tool. Areas of ‘high’
and ‘extremely high’ water stress, according to the WRI definition, are
areas where human demand for water exceeds 40% of resources.
We identified that 9% (2023: 26%) of our current sites are located in
areas of ‘extremely high’ water stress, and a further 22% (2023: 13%)
are currently located in areas of ‘high’ water stress. GKN Aerospace
sites have already started to explore initiatives using the results of the
analysis. For example, in California the team is working on a
wastewater and storm water reclamation project that will clean and
re‑use process water from the grind and polish machines.
(1) For these purposes, water withdrawal is defined as the sum of all water drawn into the boundaries of the organisation (or facility) from all sources or any use over the course of the
reporting period.
(2) The Group’s chosen intensity ratio is water withdrawal reported above normalised m3 per £1,000 of turnover. The data has been standardised from the source units in which it was
initially collected. The turnover figures used to calculate the intensity ratio include continuing operations under operational control only.
(3) riskfilter.org/
85
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
SUSTAINABILITY REVIEW
BIODIVERSITY AND ECOSYSTEMS
We recognise the importance of biodiversity and how fundamental it
is to our society and therefore aim to preserve biodiversity to ensure
future generations can enjoy its benefits. Our Biodiversity policy sets
out the foundational principles in promoting the growth of the natural
world and enhancing ecosystems.
With upcoming regulations and new frameworks, such as the
Taskforce for Nature Related Financial Disclosures (“TNFD”), and
associated risk assessment recommendations for biodiversity,
Melrose is working to further understand its impact on biodiversity. In
2024, we undertook a deeper assessment of our biodiversity‑related
risks using the WWF biodiversity risk filter(3) to identify and account for
the physical risks associated with our operational sites, namely the
ways in which our operations depend on and impact nature and
surrounding ecosystems.
The analysis showed the operational sites, based on their location
and industry specifics, with the highest risk of direct pressures on
biodiversity. Of 29 industrial sites (2023: 30 sites), three have a high
physical risk score (2023: five) and 18 have a medium physical risk
score (2023: 25). The analysis also indicated that pollution, risk of
natural disasters and protected areas are other relevant impact
indicators to our operations.
GKN Aerospace’s sites are mostly located in industrial zones and
operate under general binding rules. The permits (or where permits
are not required, general binding rules or equivalent) ensure that the
sites have the necessary processes, monitoring and reporting
balances in place for the effective treatment of production materials
prior to reuse, recycling or disposal of materials. Permitting
processes, which review the impact of our emissions on the
environment and set limits to prevent harm, provide the necessary
safeguards against extreme natural events. Through this, we ensure
that our sites do not adversely affect the integrity of a geographic
area or local communities, or change its ecological features and
functions, meaning that the operation of our sites should not
contribute to any net loss in biodiversity.
Group Biodiversity policy
www.melroseplc.net/governance/documents-and-policies/
• To support our commitment to biodiversity and ecosystems,
GKN Aerospace celebrated World Animal Day. We engaged
with colleagues to draw attention to animal rights and
animal protection.
• Some of our sites have also been taking action within their
own local area, with the introduction of bug boxes and
wildflower areas on GKN Aerospace sites to promote
biodiversity and ecosystem protection.
We recognise the importance of
biodiversity and how fundamental it is to
our society and therefore aim to preserve
biodiversity to ensure future generations
can enjoy its benefits.
Environmental Impact continued
86
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
RESOURCE USE AND CIRCULAR ECONOMY
Product Lifecycle Management and Circular Economy
Business processes for technology selection, new product
development and supplier selection are regularly reviewed and
updated where relevant to incorporate sustainability requirements
and ensure that the lifecycle implications are understood as part of
any selection decision. We assess the impact of our products on the
environment in terms of material type, source and usage, energy usage
and CO2 emissions and waste, throughout each product life cycle.
By increasingly incorporating circular economy principles into design
and manufacturing processes, we are reducing our environmental
impact and deliver products to end‑markets with increased durability
and longevity, reduced emissions and waste. For example, our
additive manufacturing technologies enable a significant improvement
in material utilisation, reducing the quantity of procured metal billets
that are removed in the production process down to c.20% from
traditional rates of over 80%, therefore significantly reducing the ‘buy
to fly’ ratio. Additionally, in line with the circular economy principles,
GKN Aerospace’s maintenance, repair and operation services aim to
turn waste into a resource by reintroducing it into the production cycle
and thereby extending product lifetime. This approach will gradually
lead us to a shift from quantitative‑based concept of ‘expansion of
recycling industry’ to the pursuit of optimum resource recovery quality
through ‘waste as resource’.
Operational Waste Management
In 2024, GKN Aerospace continued to make an active effort to reduce
the amount of waste generated and to divert waste from landfill. To
support this, we have a target to divert 95% of solid non‑hazardous
waste from landfill by 2025(1).
GKN Aerospace’s waste generation data for 2024 shows an overall
decrease in the solid waste generated compared to 2023. There have
also been decreases in the total waste to landfill and the proportion of
non‑hazardous waste per revenue that is sent to landfill.
Significant operational improvements are being made to reduce the
impact of our waste and associated emissions in transportation of waste
contents. This includes among other programmes, various recycling
initiatives and modifications to equipment such as diverting solid
non‑hazardous waste from landfill and converting it into energy. Waste
reduction training is also provided across all divisions of the business.
Waste audits are performed regularly to identify opportunities for
improving waste management that are actioned through our waste
programmes. Specific waste management, recycling and chemical
waste management programmes are implemented at site level and
are complemented by waste management (hazardous material
management) training provided to all site employees regularly.
Melrose waste generation data for the period 1 January 2024 to 31 December 2024
Tonnes
2024
2023
Change
(2024/23)
Total solid waste
17,146
17,580
‑2.5%
thereof non‑hazardous waste
15,308
13,887
+10.2%
thereof non‑hazardous waste to landfill
1,559
1,597
‑2.4%
thereof non‑hazardous waste for recycling/reused
11,042
9,903
+11.5%
thereof non‑hazardous waste incinerated
166
311
‑46.6%
thereof non‑hazardous waste incinerated with energy recovery
2,540
2,077
+22.3%
thereof hazardous waste
1,838
3,693
‑50.2%
thereof hazardous waste to landfill
803
951
‑15.6%
thereof hazardous waste for recycling/reused
456
1,112
‑59.0%
thereof hazardous waste incinerated
162
210
‑22.9%
thereof hazardous waste incinerated with energy recovery
417
1,421
‑70.7%
Solid waste to landfill (hazardous and non‑hazardous)
2,362
2,548
‑7.3%
Solid waste diverted from landfill (hazardous and non‑hazardous)
14,783
15,033
‑1.7%
Solid non‑hazardous waste diverted from landfill
13,748
12,290
+11.9%
Solid non‑hazardous waste diverted from landfill rate
90%
89%
+1.1%
Company’s chosen intensity measurement(2):
Tonnes of solid waste per £1,000 turnover
0,0044
0,0045
‑2.2%
(1) Excluding hazardous waste.
(2) The turnover figures used to calculate the intensity ratio include continuing assets under operational control only.
90%
solid non‑hazardous waste diverted from landfill
in 2024 against the 95% target by 2025 (2023: 89%)
87
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Social Impact
SUSTAINABILITY REVIEW
PEOPLE
Promoting diversity, prioritising and nurturing the wellbeing and
skills development of our employees, and contributing to the
communities that we are part of, is instrumental to the success
of our business and our impact in the regions where we operate.
The Melrose Code of Ethics reinforces our sustainability principles
and provides clear guidance as to how the Board and the Melrose
senior management team expect business to be conducted, and
the consequences of non‑compliance. The Code of Ethics
summarises Melrose’s policies and positions to drive best practice
in health and safety, wellbeing and training, and to promote
diversity and inclusion throughout our business. The Code was
approved by the Board and last updated in December 2024.
Group Code of Ethics
www.melroseplc.net/governance/documents-and-policies/
To perform well and achieve our potential, it is important to
nurture an engaged, capable and enthusiastic workforce.
We want to create an environment that enables people to
enjoy the work they do, where safety and wellbeing is a
priority. We value and champion diversity in its broadest
sense and encourage working environments that encourage
employees to grow and act with integrity(1).
Social impact highlights:
£5.7m
invested in workforce training
during 2024. (>£5m: 2023)
84%
average response rate for employee
engagement surveys in 2024.
(83%: 2023)
(1) All Diversity, Inclusion, and Belonging initiatives and activities referenced throughout
this report are applicable only within the scope of legally permitted jurisdictions.
88
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
EMPLOYEE ENGAGEMENT
Engaging with employees in a meaningful way includes supporting
their development and ensuring that we provide a positive working
environment. Consultations with staff are held regularly to ensure that
concerns are addressed in a mutually beneficial way. In 2024, the
Group engagement surveys were consolidated and completed in
partnership with Gallup. The all‑employee engagement survey
conducted in March 2024 received a response rate of 84%
(2023: 83%). Questions relating to materials and equipment,
recognition, mission and purpose, progress, and learn and grow
themes improved meaningfully but action planning was identified as
an area to improve.
The results are shared with the executive management teams of
GKN Aerospace’s business lines, site directors, HR teams and other
people leaders, and are then further analysed at a team level.
As in previous years, we have continued to monitor whether
employees felt as though their feedback from engagement surveys
had been listened to and acted upon. This has been measured on a
regular basis through Pulse surveys. Positive efforts have been made
by line managers to improve team engagement, as signalled by a
meaningful improvement in the Accountability Index.
The Workforce Advisory Panel (“WAP”) enables key views of the
Group‑wide workforce to be heard and considered by the Group’s
senior management team, ensuring that the views of the workforce
are appropriately considered in decision‑making. The WAP reports to
the Board on an annual basis to provide visibility and oversight of key
workforce views, which are then discussed and considered at Board
meetings. The WAP is chaired by the Chief Human Resources Officer
with other members being the Human Resources Director (or
equivalent role) from each business line and the Group General
Counsel and Company Secretary. Each member of the WAP is
responsible for promoting workforce engagement, disseminating
information, collating the voice of their workforce and communicating
it to the WAP. They are also responsible for demonstrating how key
workforce views are fed into senior management decisions within their
respective business lines, as well as ensuring this is communicated to
the workforce so they are aware of their impact on such decisions.
Key workforce views in 2024 related to ’Recognition’ and ‘Progress’.
Please refer to the Talent and career management section on
pages 91 and 92 for examples of how this has been addressed.
We are committed to safeguarding the contractual and statutory
employment rights of their employees through constructive
relationships with employee representative bodies, including unions
and works councils.
Group employees as at 31 December 2024
2024
2023
Permanent employees of which:
13,032
12,990
Full‑time employees
12,291
12,257
Part‑time employees
741
733
Temporary employees
396
417
Apprentices
272
208
Intern/Co‑op
37
59
Total
13,737
13,675
As of 31 December 2024 Melrose had 1,962 ‘Agency’ workers (2023: 2,225).
The rights of workers to participate in collective bargaining and their
freedom of association are respected across the business. Workers
are entitled to join or form trade unions of their own choosing and to
bargain collectively where legally permissible within their jurisdiction.
Workers’ representatives are not discriminated against and have
access to carry out their representative functions in the workplace.
Trade union membership fluctuates year‑on‑year depending on the
Group composition.
Melrose and GKN Aerospace continue to pay all their respective UK
employees at least the national living wage save for Apprentices,
Interns and year‑in industry students, who are paid in accordance
with the national minimum wage rates for their age group.
Additionally, all employees in the UK are offered the opportunity to
work for at least 15 hours per week.
89
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Social Impact continued
SUSTAINABILITY REVIEW
OWN WORKFORCE
SAFETY
The health, safety, and wellbeing of all our employees, contractors,
and visitors is paramount. We understand the challenges and
responsibilities within our industry, and we are unwavering in our
commitment to maintaining the highest safety standards across our
business. In the past year, we have continued to make significant
strides in ensuring the safety of our operations and the wellbeing of
our workforce. We launched a new Safety Management System that
covers both our business systems through our reporting framework
as well as personal competencies through training.
Our culture of prioritising safety is ingrained in every aspect of our
business. We have strong governance principles, robust policies and
rigorous safety protocols, and invest in state‑of‑the‑art safety equipment
whilst ensuring employees are equipped with the knowledge and skills
necessary to perform their roles safely. We adopt a comprehensive
approach to employee wellness, safeguarding their physical and
mental health, supporting their social wellbeing, and upholding their
human rights. This extends to fostering a positive workplace culture
that attracts and retains a talented and skilled workforce.
We have a Group target to achieve and maintain an annual LTA
Frequency Rate of below 0.1. This underpins our overarching
commitment to prevent all accidents from occurring, through the
promotion of safe behaviours across all locations, and an enhanced
focus on hazard identification and awareness. Health and safety
management systems are supported by internal health and safety
effectiveness audits, with regular oversight and challenge by the Melrose
senior management team, quarterly reporting to the Board, and further
regular oversight over any material incidents or issues that arise.
GKN Aerospace’s manufacturing sites (unless agreed with HSE
Directors) must achieve or be working towards the ISO 45001
certification. As at 31 December 2024, 29 sites (63%) within the
Group were certified to the ISO 45001:2018 international standard
(2023: 33 sites, 66%), with additional relevant sites progressing
towards certification. Third‑party auditing on a three‑year cycle is
required to maintain ISO certification, with annual surveillance audits
taking place in between to ensure standards are being maintained.
Health and safety performance
We are focused on cultivating a strong safety culture within our
business through emphasising the importance of preventing incidents
and implementing near miss reporting, which requires an enhanced
focus on hazard identification and awareness. Behaviour‑based
programmes and continuous training and awareness campaigns
remain central to the approach in improving safety performance.
In 2024, we maintained an LTA Frequency Rate of below 0.1, and
continued to prioritise continuous health and safety improvements in
the push for the LTA Frequency Rate of zero. Please refer to the
Health and Safety section of our Non‑Financial KPIs on page 25 of
the Annual Report.
<0.1
LTA Frequency Rate
29
sites within the Group were certified to
the ISO 45001:2018 international standard
90
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Training and Development
39
average training hours per employee in
2024 (2023: 36)
£418
average training spend per employee
in 2024 (2023: £360)
531,624
total number of training hours in 2024
(2023: 500,838)
£5.72m
total annual spend on workforce
training in 2024 (2023: £5.04m)
TALENT AND CAREER MANAGEMENT
Skills development
Melrose is committed to fostering the professional growth and
life‑long learning of its employees. A proactive approach to
anticipating both short‑ and long‑term workforce requirements and
skill prerequisites, is essential in ensuring our workforce remains at
the forefront of innovation. Enhancing productivity lies at the core of
Melrose’s strategy for enhancing performance, with a strong
emphasis on providing training opportunities that are accessible and
actively promoted to employees at all career stages.
Leadership training is an integral part of ensuring the workforce
remains engaged and innovative. Annual talent reviews help identify
individuals who have the ability and aspiration to grow into more
stretching roles and assist us to develop a diverse pipeline of
successors for key leadership positions.
GKN Aerospace delivers a wide variety of flexible training
programmes through a combination of online and in‑person training.
In 2024, 88% (2023: 89%) of employees received training during the
year. Set out below is the average training time per GKN Aerospace’s
employee and the total number of hours spent on workforce
training. Although the percentage of employees receiving training
marginally decreased during the year, the average training time per
employee increased between 2023 and 2024, with increased
average spend per employee as well.
91
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Social Impact continued
SUSTAINABILITY REVIEW
Reward and recognition
Our policies and protocols for recruitment, talent development and
succession planning are supported by robust training programmes
and effective management to ensure that relevant opportunities are in
place for employees to pursue career development. We also
encourage internal applications for open positions, and in 2024, 17%
of open positions were filled by internal candidates (2023: 14%).
Where permitted by local laws and employee representative bodies,
performance evaluations are undertaken across the business, with
75% of employees receiving a performance appraisal in 2024
(2023: 72%). At the time of writing, performance evaluations for
2024 were ongoing.
Annual salary reviews are aligned with performance evaluations
where applicable to ensure that employees are paid fairly and
correctly for the position they hold.
Apprenticeships and graduate programmes
Apprenticeship and graduate programmes assist with training a new
generation of employees and help to ensure that knowledge is
retained within the business. In 2024, over 272 (2023: >200)
apprenticeships were in place at GKN Aerospace, providing a mix of
on‑the‑job and classroom training. In turn, in 2024 GKN Aerospace’s
Global Graduate Development Programme enrolled a further 25
(2023: 32) graduates onto the programme, bringing the total number
of graduates in the programme to 67.
In addition to apprenticeships and graduate programmes,
GKN Aerospace also runs a number of internship and cooperative
education programmes, whereby students complement their studies
with paid periods of work over the course of their degree. These
programmes give students the opportunity to gain valuable industry
experience that helps broaden their skillsets, whilst helping us
develop a talented and diverse recruitment pool.
Global Skills Fund
Following on from the achievements of the Melrose Skills Fund, where
£10 million was invested to promote engineering skills across the UK
over five years, we have expanded our commitment to skills
development. The Global Skills Fund was introduced to offer the
same targeted skills development opportunities but now covers all
functions and locations in GKN Aerospace.
In 2024, training has focused on the following topics: robot
programming, additive manufacturing process development and
simulation, safety assessment of aircraft systems, safety
management systems regulatory requirements, model based systems
engineering, and composites training.
More information relating to specific projects on skills development
can be found in our 2024 Sustainability Report.
DIVERSITY, EQUITY AND INCLUSION(1)
At Melrose we believe that creating an inclusive culture is critical to
our success. Driving and maintaining a diverse, inclusive and safe
environment is a priority for us. We recognise the importance of
diversity in building a high‑calibre workforce and are committed to
championing diversity in the broadest sense.
We recognise that some of our colleagues face different challenges
and may need a little extra help and support in line with local laws,
either to get their voices heard or to put their ideas into practice. Our
ERGs are open to all employees to join and provide support and
networking opportunities across the organisation in six areas:
• Connected Women;
• Future GKN;
• LGBTQIA+;
• African Black Caribbean Professionals;
• Mastering Neurodiverse Strengths; and
• Veterans and Reservists.
Our ERGs have brought together our employees providing them with
opportunities to collaborate, educate others about the challenges
they face, or ways they can help the organisation and help to drive a
real sense of belonging.
We have a strong Diversity, Inclusion and Belonging learning
curriculum, bringing together learning, storytelling and
communication to build the foundation for sustainable change. Our
e‑learning library is also constantly evolving, with new content added
regularly to disrupt bias and discrimination, improving the employee
experience for all. Throughout 2024, we have run events such as
‘Menopause Awareness’, ‘World Mental Health Day’, ‘Neurodiversity
Celebration Week’, ‘Mental Health in the African, Black and
Caribbean Community’ and many more.
Our Code of Ethics highlights the importance of diversity and
inclusion and is supported by our Board of Directors’ Diversity policy
and our Melrose Diversity, Equity and Inclusion policy, both of which
are reviewed, updated where relevant, and approved each year by
our Nomination Committee.
Our diversity and inclusion targets keep us focused on building a
positive workplace and we have initiatives throughout our people
processes from candidate sourcing to recruitment, career
progression and succession in line with local laws. We strive to
ensure that everyone has the opportunity to fulfil their potential and
realise their aspirations.
(1) All Diversity, Inclusion, and Belonging initiatives and activities referenced throughout
this report are applicable only within the scope of legally permitted jurisdictions.
92
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Promoting diversity at all levels
A key focus for us is increasing the number of women and those of
ethnic minorities in senior leadership roles(1). We are aiming to achieve
40% women in senior leadership positions by December 2025 and
have set a target of 13% ethnic minority diversity in UK senior
leadership positions by December 2027.
At the end of 2024, our position was 35% women and 8% ethnic
diversity (UK only) in senior leadership.
Since the 2023 FTSE Women Leaders Review submission, our
transition to a long‑term aerospace business has resulted in
consequential movement in our senior leadership population;
combining the relevant Melrose and GKN Aerospace senior
management teams increased the relevant number of people from 27
to 75. The effect of this includes a significant accumulation of
operational roles.
As a signatory of the Women in Aerospace and Aviation Charter, our
efforts to improve the number of women we have in leadership roles
are focused on driving towards a robust pipeline of female talent. We
have meaningfully increased our representation of women in senior
leadership since our transition and strive to continue this progress.
Board diversity
The FCA Listing Rules, FTSE Women Leaders Review and the Parker
Review sets out a number of requirements for Board diversity:
• at least 40% of the board are women (including those self‑identifying
as a woman);
• at least one senior board position, being that of Chair of the Board,
Senior Independent Director (SID), Chief Executive Officer (CEO),
or Chief Financial Officer (CFO) to be held by a woman; and
• at least one director from an ethnic minority background.
The Nomination Committee recognises that Melrose does not
currently meet all of these requirements and whilst the last five out of
seven Non‑executive Director appointments have been women, and
both the Chair of the Audit Committee and the Chair of the
Nomination Committee, are held by women, as noted in the
Nomination Committee report on pages 132 to 135 this is being kept
under review for future improvement. The Nomination Committee is
committed to furthering diversity and is responsible for ensuring the
membership of the Board and the pipeline for succession planning
purposes reflects diversity as well as including experience and
knowledge needed to perform the role and ensure a well‑rounded
overall Board composition.
Gender diversity as at 31 December 2024
Number of Board
members
Percentage of
Board members
Number of senior
positions on the
Board (CEO, CFO,
SID and Chair)
Number in
executive
management
Percentage
of executive
management
Men
6
67%
4
7
78%
Women
3
33%
0
2
22%
Not specified/prefer not to say
0
0%
0
0
0%
UK Ethnic diversity as at 31 December 2024
Number of Board
members
Percentage of
Board members
Number in
executive
management
Percentage
of executive
management
White British or White (including minority white groups)
8
89%
7
78%
Ethnic Minority
1
11%
2
22%
Not specified/prefer not to say
0
0%
0
0%
The above tables provide a breakdown of gender and ethnic diversity at a Board and executive management level as at 31 December 2024.
This information was collected by asking both the Board and executive management team to complete the same voluntary questionnaire. This
questionnaire sets out questions related to gender and ethnic diversity, as extracted from ACAS’s equality and diversity monitoring form
template. In advance of circulating the questionnaire, Melrose engaged external legal advisors to ensure that the processes and procedures
related to such data collection were compliant with applicable data protection laws and best practice.
(1) Applicable only within the scope of legally permitted jurisdictions.
93
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Social Impact continued
SUSTAINABILITY REVIEW
HUMAN RIGHTS, MODERN SLAVERY
AND HUMAN TRAFFICKING
Modern slavery and human trafficking
The Group has a zero‑tolerance approach to any form of modern slavery,
as set out in the Melrose Anti‑Slavery and Human Trafficking policy.
Group Anti‑Slavery and Human Trafficking policy
www.melroseplc.net/governance/documents-and-policies/
In accordance with the Modern Slavery Act 2015, Melrose publishes
its own Modern Slavery Statement, which is approved by the Board
annually and the latest statement can be found on our website.
GKN Aerospace also is responsible for publishing its own Modern
Slavery Statement in accordance with the requirements under the
Modern Slavery Act 2015.
Modern Slavery Statement
www.melroseplc.net/media/nmzfy0g2/melrose-modern-slavery-
statement-fy2023-final-signed.pdf
This approach ensures that those senior managers closest to the
business operations devise appropriate measures to ensure that
slavery is not present within supply chains.
Melrose implements employee training with respect to anti‑slavery
and human trafficking, to ensure that all employees understand the
risks and are prepared to take the required action if they suspect that
modern slavery is happening internally or within the supply chain.
Group permanent employee gender diversity at
31 December 2024
1
2
3
Total Group permanent employees
1 Male
9,420
72%
2 Female
3,551
27%
3 Not specified/
prefer not to say
61
1%
Total
13,032
Group senior manager diversity at 31 December 2024
Senior managers (section 414C of the Companies Act 2006)
1
2
Employees in senior management positions
1 Male
7
78%
2 Female
2
22%
Total
9
1
2
Directors of Group undertakings,
excluding the above
1 Male
37
71%
2 Female
15
29%
Total
52
1
2
Total senior managers
1 Male
44
72%
2 Female
17
28%
Total
61
94
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Human rights
We are committed to acting in an ethical manner with integrity and
transparency in all business dealings, and to create effective systems
and controls across the Group to safeguard against adverse human
rights impacts. The Group has a strong culture of ethics, which
encompasses key human rights considerations, as set out in our
Human Rights policy, in support of the principles set out in the
Universal Declaration of Human Rights.
Group Human Rights policy
www.melroseplc.net/governance/documents-and-policies/
GKN Aerospace also implements effective and proportionate
measures to identify, assess and mitigate potential labour and human
rights abuses across their operations and supply chains. These
include training, anti‑slavery and human trafficking policies, employee
handbooks and business‑specific policies. All GKN Aerospace
policies are reviewed locally within each business in order to ensure
compliance with local laws and standards as a minimum.
There have been no violations on human rights in 2024 or in the
previous two years.
WORKERS IN THE VALUE CHAIN
Supply chain management
We participate responsibly and sustainably within our supply chains
and seek to mitigate the supply chain risk on our business by at a
minimum, procuring raw materials from trusted and verified sources.
We encourage our suppliers to respect, protect and minimise their
impact on the environment, respect their employees’ human rights
and provide good and safe working conditions across their
operations. In practice, this means that we require suppliers to
respect and protect the environment in compliance with the
applicable legislation relating to energy use, waste, emissions, water
and resource consumption and management, to treat their staff
equally, to pay their employees a fair wage that meets or exceeds the
minimum standards or prevailing industry standard, to eliminate
excessive working hours for all workers, and protect their workers’
health and safety rights at work.
Implementing supplier qualification processes where relevant
including through various risk assessments helps identify and
appropriately manage the risks associated with the environmental
and social sustainability of their operations. Through Melrose’s
Supply Chain policy and GKN Aerospace’s Supplier Code of
Conduct, we set our ambitions to safeguard both human rights and
the natural environment globally and all suppliers are required to
comply with the policy and the Code.
Group Supply Chain policy
www.melroseplc.net/governance/documents-and-policies
Conflict Minerals
As set out in the Group Conflict Minerals policy, we have strict
procedures in place in respect of sourcing products or raw materials
containing 3TG minerals to the extent required by applicable laws or
customer expectations, and to seek to identify whether 3TG minerals
are sourced responsibly and from conflict‑free geographies. We also
work with our supply chain partners to ensure compliance with all
applicable laws and regulations. At a minimum, relevant suppliers are
required to perform due diligence to ascertain whether any 3TG
minerals in products are conflict‑free and complete the Responsible
Minerals Initiative reporting. All employees are required to complete
mandatory conflict mineral training to ensure they are fully aware of
the procedures in place.
Group Conflict Minerals policy
www.melroseplc.net/governance/documents-and-policies
The Group has a strong culture of ethics,
which encompasses key human rights
considerations, as set out in our Human
Rights policy.
95
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Social Impact continued
SUSTAINABILITY REVIEW
AFFECTED COMMUNITIES
Community impact
At Melrose, we firmly believe that our responsibility extends beyond
our core business operations. Our commitment to the communities
where we operate is an integral part of our corporate ethos. In 2024,
we continued to contribute to local charitable and community
initiatives, both in terms of volunteering time and material resources,
that create a positive and lasting impact on the communities we serve.
In 2024, GKN Aerospace undertook community initiatives and
invested over £161,000 (2023: £160,000) in a mix of donations,
sponsorships and employee’s volunteering their time to help others
and charitable causes globally. GKN Aerospace also made cash
donations to non‑profit charitable organisations in the excess of
£61,000 (2023: £58,000), giving a total contributed of more than
£220,000 (2023: £218,000) to support charities and its local
communities(1). Community investment is led by sites who are
required to comply with the Anti‑Bribery and Corruption policy.
CONSUMERS AND END USERS
Ensuring the highest standards
of product quality and safety
We are committed to ensuring the highest standards of product
quality, reliability and safety. Recognising the importance of
protecting the wellbeing of the ultimate end users of our products, we
follow structured product design and development procedures to
ensure precise delivery to customer specification. As we develop new
designs or update existing designs, we seek opportunities to
enhance quality and safety performance. Every site has active plans
and targets to reduce the risk of non‑conformance and to reduce the
cost of poor quality.
The Group takes a preventative approach to product responsibility
through instilling effective controls and processes around social
factors such as safety and quality assurance, including crisis
management procedures and processes including, but not limited to,
potential recall programmes. Our new Safety Management System
that covers operations, products and services complies with the
regulatory requirements of EASA Part 21 and Part 145.
In 2024, 97% (2023: 96%) of the Group’s product portfolio (by
revenue) was certified to a recognised international quality
management standard of ISO 9001, or EN/AS9100. The relevant
certifying bodies audit the manufacturing facilities and support
functions at least annually undertaking surveillance audits and each
site is recertified once every three years. In addition, a number of
GKN Aerospace certified entities also have additional regulatory
approvals including EASA, FAA, and EMAR covering design,
production and repair.
In 2024
97%
of the Group’s product portfolio (by revenue)
was certified to a recognised international
quality management standard of ISO 9001,
or EN/AS9100 (2023: 96%)
£222,000
total contributions to support charities
and local communities (2023: £218,000)
(1) Restated to reflect sold sites as well as improvements in data collection and methodology.
96
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Governance
BUSINESS CONDUCT
Ethics and compliance
Sound business ethics and integrity, and effective and transparent
governance, are core to the Group’s values and fundamental for the
success of our strategy. Melrose is a premium listed company with
strong, established financial and non‑financial controls that are
continually assessed, tested and reviewed.
The Melrose Board oversees our governance framework and is
supported by independent internal audit and risk functions, regular
public disclosure and financial reporting, external audits, public
accountability and conformance with leading benchmarks set by the
UK Corporate Governance Code (the “Code”). The framework is
also supported by direct engagement with investors, corporate
governance and proxy advisors, and the Group’s wider stakeholders
to ensure best market practice is being implemented.
Group Code of Ethics and Compliance Policies
Our commitment to maintaining a responsible and ethical corporate
environment is underscored by a comprehensive framework that
includes robust financial and non‑financial controls. This framework is
further reinforced by a strong governance structure that is subject to
regular internal reviews and, when necessary, external assessments
to ensure compliance at every level of the Group.
Our people are obliged to uphold the highest standards of conduct. This
includes strict adherence to Melrose’s Code of Ethics and compliance
policies, which are continually refined to reflect the latest industry best
practices and to uphold the principles of corporate citizenship.
The Group company secretariat conducted a review and update of
the Group Code of Ethics and associated policies during 2024 to
reflect the Group’s strategic transition to a long‑term aerospace
business and its revised management structures. The review included
input from relevant subject matter experts as well as external counsel
where appropriate, and the updated Code of Ethics and associated
policies were subsequently approved by the Board.
Each business line is tasked with the responsibility of complying with
our Code of Ethics and compliance policies and promoting and
embedding them within their day‑to‑day operations. This approach
ensures that every facet of our business is conducted with integrity,
responsibility, and sustainability at its core, reinforcing our
commitment to ethical and responsible corporate practices.
The Code of Ethics and compliance policies, as approved by the
Board, cover best practice with respect to anti‑bribery and
corruption, anti‑money laundering, anti‑facilitation of tax evasion,
competition, conflict minerals, trade compliance, data privacy,
whistleblowing, treasury and financial controls, anti‑slavery and
human trafficking, document retention, joint ventures, diversity and
inclusion, environmental, human rights, supply chain, biodiversity
and water.
Implementation of the Group Code of Ethics and compliance policies
is supported by risk assessments, audits and reviews and annual
compliance certifications. Melrose strongly believes that policies and
procedures are only as effective as the people who implement them.
To that end, all of the above measures are backed by investment,
resources and training.
Anti‑bribery and corruption
We take a zero‑tolerance approach to bribery, corruption and
other unethical or illegal practices, and are committed to acting
professionally, fairly and with integrity in all business dealings and
relationships, within all jurisdictions in which we operate. Melrose
adopts high governance standards, to ensure that the Group
conducts business responsibly, sustainably, and in the pursuit of
long‑term success for the collective benefit of stakeholders. This is
outlined in our Anti‑Bribery and Corruption policy, which is
implemented and administered throughout the Group.
Group Anti‑Bribery and Corruption policy
www.melroseplc.net/governance/documents-and-policies/
Although the policy prohibits party political donations, it does
however recognise that from time to time, business representatives
within our Group may engage in policy debate and advocacy
activities on subjects of legitimate concern to their respective
industries and key stakeholders, including their staff and the
communities in which they operate. There were no political donations
made during the year ended 31 December 2024: £0 (2023: £0).
Whistleblowing
Melrose runs a Group‑wide whistleblowing platform, which is
overseen by the Audit Committee and supported by the Melrose
senior management team, and ultimately reported to the Board. The
platform is monitored by the legal, compliance and HR functions, with
support from the Melrose senior management team. All employees
have access to a multi‑lingual online portal, together with local hotline
numbers that are available 24/7, in order to raise concerns,
confidentially and anonymously, about possible wrongdoing in any
aspect of their business, including financial and non‑financial matters.
GKN Aerospace takes a number of actions to raise employees’
awareness of the whistleblowing platform, using online and offline
media as appropriate.
Employees who come forward with a genuine concern are treated
with respect and dignity and do not face retaliation. During 2024, 76
whistleblowing cases were recorded through the platform (2023: 84).
This highlights the effectiveness of awareness campaigns together
with the trust placed by employees in the whistleblowing programme.
Each case is investigated confidentially by the business with
appropriate response measures taken. The Audit Committee receives
regular reports on whistleblowing activities across the Group.
97
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Governance continued
SUSTAINABILITY REVIEW
Paying tax responsibly
Melrose is committed to paying taxes that are due, complying with all
applicable laws, and engaging with all applicable tax authorities in an
open and cooperative manner. The Group does not engage in
aggressive tax planning. The Group’s Tax Strategy is reviewed,
discussed and approved by the Board annually. The Audit Committee
periodically reviews the Group’s tax affairs and risks.
The Group has adopted a policy in respect of the prevention of the
facilitation of tax evasion which has been implemented by the
businesses, with guidance on undertaking risk assessments and
training to employees in relevant roles.
The Group does not operate in countries considered as partially
compliant or non‑compliant according to the OECD tax transparency
report, or in any countries blacklisted by the EU, for the purposes of
tax avoidance and/or harmful tax practices, per the lists released as
at 18 February 2025.
OECD tax transparency report
https://web-archive.oecd.org/temp/2024-04-15/388908-
exchange-of-information-on-request-ratings.htm
Sustainability and Climate Change Risk Management
Sustainability risks are integrated into the Company‑wide risk
management process and the same criteria are applied for
identifying, assessing and managing these risks. Climate change, in
particular, forms part of the principal risks suite and is subject to the
annual review by the Melrose senior management team, the Audit
Committee and the Board. Climate change has been reported as one
of the Group’s principal risks since 2021. Its management and internal
controls are overseen by the Board in alignment with the internal
control guidance for Directors set out in the FRC’s Guidance on Risk
Management, Internal Control and Related Financial and Business
Reporting. The Board with the support of the Melrose senior
management team is responsible for ensuring an appropriate culture
has been embedded throughout the organisation to ensure
appropriate principal risk management.
Sustainability risks including climate change are integrated into the
Company‑wide risk management framework which serves as the
foundation of the Group’s risk management process. The process
includes identification of relevant risks, risk scoring, development and
assignment of appropriate response actions, monitoring the
effectiveness of key mitigating controls and reporting of the risk trend
to the Audit Committee and the Board. During 2024, the
multi‑disciplinary team including finance, sustainability, operations,
legal and compliance re‑assessed the climate‑related risks, taking
into account the evolving landscape associated with climate change
in the areas of existing and expected legislation, supplier and
consumer preferences, government policies and commitments, as
well as changes in climatic patterns. With upcoming regulations and
new frameworks, such as the Taskforce for Nature Related Financial
Disclosures (“TNFD”), mandating risk assessment requirements for a
wider scope of environmental and social topics, Melrose is working to
further understand its impact. During 2024, further progress has been
made in the assessment and understanding of potential water and
biodiversity risks that sites can be exposed to. This year, we refined
and reviewed our climate‑related risks and opportunities which we
had identified as part of our 2023 comprehensive climate scenario
analysis. Risks are typically assessed for likelihood, magnitude of
impact and their strategic impact on the business with a view to
develop mitigating action plans for risks where the risk scoring
exceeds the Group’s tolerance levels. We have also assessed the
climate‑related impacts that Melrose has as part of this review. This
has ensured we are aware of any new climate‑related risks and
opportunities that have become relevant to Melrose throughout the
year. For more information on governance and management of climate
risks, please refer to our TCFD report on pages 65 to 79. For more
information on our approach to management of principal risks, please
see the Risks and uncertainties section on pages 37 to 44.
Internal controls and reporting
The identification and oversight of material controls over the ESG data
is the responsibility of the Chief Technology Officer (“CTO”) and the
Group Sustainability Function, which runs an established yet evolving
programme of regular monitoring and review (at least quarterly) of
processes that are consistently robust across the Group. This is
complemented by reporting protocols to ensure the business lines’
management are accountable for achieving progress on sustainability
and climate‑related matters. The quality and accuracy of ESG data is
continually improved against relevant guidance from prominent
international regulatory frameworks and is tailored for our chosen
metrics and targets. Site‑level data owners are responsible for
collating and entering the required information which is then reviewed
by the data approvers at the business line or functional level. It is the
approvers responsibility to consult the data owners on unusual
entries and trends, then approve in the local system, once satisfied
with the robustness of the information. The master data managers are
available to support the functions and business lines with their
submissions and approvals and a business intelligence team
supports the data warehouse and dashboard infrastructure. The CTO
signs off the consolidated numbers. In 2024, we completed a
sustainability data pre‑assurance project in preparation for formal
limited assurance in the coming years. The project, facilitated by an
external third party, included an assessment of our data management
process as well as a sample of site visits. As a result, we have further
improved our sustainability data management systems to ensure
future compliance.
98
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
The Audit Committee monitors the effectiveness of the internal
control process implemented across the Group through a review
of the key findings presented by the internal and external auditors,
and the output from the Group’s risk identification and mitigation
process. The Melrose senior management team is responsible for
ensuring that the Audit Committee’s recommendations in respect of
internal controls and risk management are implemented.
Information security and data privacy
Melrose places a high priority on privacy, striving to minimise the
collection of personal data and ensuring robust, segregated storage
for any data held. Recognising the increasing importance of
information security and cyber threats across all industries, Melrose is
committed to protecting the Group from potential exposures,
especially given its scale, reach, complexity, public‑facing nature, and
the sensitivity of data related to civil aerospace technology and
controlled defence contracts.
The senior management team at Melrose collaborates regularly with
business line management and external cyber security risk
consultants to review the Group’s information security and cyber
threat risk profile, a principal risk area. This collaboration helps
monitor and track the Group’s exposure to cyber security risks, drive
continuous improvement actions, and ensure compliance with the
General Data Protection Regulation (“GDPR”).
Melrose’s information security strategy and risk‑based governance
framework align with both UK and US government recommendations
on cyber security. This strategy has facilitated the development of risk
profiling and mitigation plans to reduce exposure to cyber risks,
ensuring clarity and consistency in IT and cyber security
assessments. Progress is measured quarterly against the information
security strategy.
To mitigate the impact of external cyber attacks, the Melrose senior
management team works with executive management teams of each
business line and external cyber security risk consultants. The results
of this ongoing review programme are reported to the Board quarterly.
The Board, supported by the Melrose senior management team,
oversees the Group’s cyber security risk profile and mandates that
each business function protects commercial and personal information,
ensuring safe and appropriate IT system usage by employees.
Regular internal and external perimeter defence testing, including
penetration testing, is conducted to ensure appropriate threat
monitoring systems are in place. Melrose works towards national and
international business accreditations in various aspects of cyber
management, relevant to its business activities, including the UK’s
National Cyber Security Strategy (“NCSS”) and industry‑specific
National Institute of Standards and Technology (“NIST”) 800‑171
controls. In 2024, 100% of operational sites met their specific
requirements of the UK Cyber Essentials, NIST 800‑171 standard, or
similar international standards.
As part of Melrose’s overall information security strategy, 12 modules
of IT security awareness training were delivered across the business,
achieving a 100% completion target.
ABOUT THIS REPORT
Reporting standards
This report has been prepared with reference to the following
frameworks, standards and guidelines:
• Group sustainability targets and commitments have been
aligned to the United Nations Sustainability Development Goals
(“UN SDGs”).
• Additional disclosure on our sustainability performance has been
prepared in line with the Sustainability Accounting Standards
Board (“SASB”) requirements for Aerospace and Defence sector
standards.
• Energy and emissions reporting has been prepared in accordance
with the principles and requirements of the Greenhouse Gas
(“GHG”) Protocol Revised Edition 2004, ISO 14064‑1 Part 1 and
the Environmental Reporting Guidelines, including the Streamlined
Energy and Carbon Reporting guidance dated March 2019. The
GHG Protocol standard covers the accounting and reporting of
seven Greenhouse gases covered by the Kyoto Protocol.
Reporting boundaries, scope and basis of preparation
Unless otherwise stated, our sustainability reporting including data
covers the entire Group where it has operational control. Data from
entities disposed of during the reporting period (i.e., disposed of
before 31 December 2024) are not accounted for in this section in
respect of the FY 2024 data, target base years and most recent
comparator year. Unless stated otherwise, the data incorporates
newly acquired entities once the necessary processes and systems
are in place to ensure consistent data collection and consolidation at
the Melrose Group level.
In contrast to financial accounting standards, there are currently no
industry norms or globally recognised practices for measuring and
assessing data of this nature. As these practices continue to develop,
we will disclose our methodology and approach to make sure it
incorporates suitable estimates and assumptions for our
performance data.
Throughout the Sustainability review the definition of employees
includes the following categories of employment: “Regular”,
“Temporary”, “Apprentice”, and “Intern/Co‑op”, but excludes
“Agency” workers (contractors).
Internal data controls
All reported figures represent the latest available internal data, unless
otherwise specified. Some of the totals presented may reflect the
rounding down or up of subtotals. Melrose has a central internal
reporting system which captures and records the ESG data alongside
financial and operational metrics, used in this report. All data is
subject to quarterly internal reviews by subject matter experts at
business lines level.
99
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
NON FINANCIAL AND SUSTAINABILITY INFORMATION STATEMENT
Our efforts to improve non‑financial and sustainability performance are supported by a foundation of robust governance, risk management
and compliance, and we continue to engage with key internal and external stakeholders to ensure we deliver upon their expectations.
This section of the Strategic Report constitutes the Group’s Non‑Financial and Sustainability Information Statement for the purposes of
sections 414CA and 414CB of the Companies Act 2006. The information listed is incorporated by reference.
Reporting
requirement
Policies and standards that govern our approach
Principal
Group Risk
Where you can
find more
Stakeholders
Melrose is a publicly listed UK based industry‑leading global aerospace technology
business, with a strong track record of delivering value for both its customers and
shareholders. The Board understands and takes into account the interests of its
different stakeholders when taking decisions and undertakes in‑depth event‑driven
consultations with relevant stakeholders. This ensures that the decisions it takes
are based on a fully informed view of the potential impact of the decision on those
stakeholders.
• n/a
2024 Annual Report
• Investment case
• Our business model
• Board stakeholder
engagement and
decision‑making
(Section 172 statement)
• Sustainability review
Environmental
matters
The Sustainability review on pages 51 to 99 sets out our approach in respect of the
environment and climate change, and provides examples of the actions we are taking
to contribute to the decarbonisation of the aerospace sector, to promote energy
efficiency, decarbonise our operations and supply chain, and to reduce waste and water
consumption.
As we transition to a net zero economy by 2050, we are working towards our short‑ and
medium‑term sustainability targets and commitments that focus on immediate tangible
improvements. These targets are supported by our four overarching sustainability
principles, being aligned with our new material sustainability targets. Please see
pages 54 and 55 of the Sustainability review for further details.
In 2024, our near‑ and long‑term targets were validated by Science Based Targets
initiative. Our published Transition Plan sets out the actions we are taking towards
climate transition, how we plan to achieve our interim‑ and long‑term emissions
reduction targets, and how we plan to achieve Net Zero by 2050.
As part of our fourth year of reporting against TCFD, we have refined and reviewed the
climate‑related risks and opportunities that we identified as part of the comprehensive
climate scenario analysis we performed in 2023. We have also assessed the
climate‑related impacts that the Group has as part of this review which has made us
aware of any new climate‑related risks and opportunities that have become relevant to
the Group throughout the year.
Information on the climate‑related financial disclosures can be found throughout our
TCFD Report and are referenced in the table on page 65.
• Climate
change
• Legal and
regulatory
2024 Annual Report
• Board stakeholder
engagement and
decision‑making
(Section 172 statement)
• Sustainability review
• Melrose Group Task
Force on Climate‑related
Financial Disclosures
(“TCFD”)
Group Policies
• Conflict Minerals policy
• Environmental policy
• Biodiversity policy
• Water policy
• Supply Chain policy
Employees
At Melrose, we promote diversity and prioritise and nurture the wellbeing and skills
development of employees and the communities that they are part of. Our Sustainability
review on pages 51 to 99 sets out our approach and the policies that support it. We
recognise the increasing importance of taking a holistic approach to employee wellness
by protecting physical health, mental health and social wellbeing. This helps to foster a
positive workplace, and to attract and retain a highly‑skilled workforce.
We are committed to building an inclusive workforce at all levels where everyone can
thrive. Our Sustainability review on pages 51 to 99 sets out how we are doing this, and
further information on our policies to promote diversity and inclusion, covering relevant
jurisdictions, can be found in the Nomination Committee report on pages 132 to 135.
Investment in people is a key driver of commercial success throughout the Group,
underpinned by employee engagement and a firmly integrated culture of employee
development and inclusion. By providing a safe, inclusive working environment
and ensuring all our employees have access to training and career development
opportunities, we will continue to attract and retain the best talent.
Our Workforce Advisory Panel provides an important, ongoing forum for direct
engagement and consultation between the workforce and divisional executive teams.
An annual all‑employee engagement survey is undertaken across the Group in order
to collate the views of employees and identify areas of strength and those in need of
development. The Board receives a summary of these results and is provided with
feedback on how employees’ views are taken into account in executive decision‑making.
• Operations
• Loss of key
management
and
capabilities
• Legal and
regulatory
2024 Annual Report
• Board stakeholder
engagement and
decision‑making; our
people (Section 172
statement)
• Sustainability review
• Nomination Committee
report
Group Policies
• Code of Ethics
• Whistleblowing policy
• Anti‑slavery and Human
Trafficking policy
• Melrose Board of Directors
Diversity policy
• Melrose Diversity, Equity
and Inclusion policy
• Human Rights policy
In addition to the operational and financial improvements that we implement within
our business, we recognise our responsibility to improve our non‑financial performance,
focusing on long‑term sustainable value creation for the aerospace sector and all of
our stakeholders.
100
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Reporting
requirement
Policies and standards that govern our approach
Principal
Group Risk
Where you can
find more
Respect for
human rights
We are committed to acting in an ethical manner with integrity and transparency in all
business dealings, and to creating effective systems and controls across the Group to
safeguard against adverse human rights impacts. The Group has a strong culture of
ethics, which encompasses key human rights considerations, and which is set out in
our Human Rights policy which drives the implementation of effective and proportionate
measures to identify, assess and mitigate potential labour and human rights abuses
across our operations and supply chain. The Group supports the principles set out in
the UN Declaration of Human Rights.
We take a zero‑tolerance approach to any form of modern slavery or human trafficking
and are committed to investing in effective systems and controls throughout the Group
to safeguard against any form of modern slavery taking place within it or its supply
chains. You can read more on our approach and the policies in place to support it in the
Sustainability review on pages 94 and 95.
• Legal and
regulatory
2024 Annual Report
• Sustainability review
Group Policies
• Modern Slavery Statement
• Whistleblowing policy
• Anti‑slavery and Human
Trafficking policy
• Human Rights policy
• Supply Chain policy
Social matters
and communities
Our Sustainability review details our approach to supporting communities. There you
can find out more information on our policies, schemes, charity programmes and
initiatives that support it.
• n/a
2024 Annual Report
• Sustainability review
Group Policies
• Code of Ethics
• Anti‑Bribery and
Corruption policy
• Conflict Minerals policy
• Whistleblowing policy
• Anti‑slavery and Human
Trafficking policy
• Environmental policy
• Human Rights policy
• Supply Chain policy
• Biodiversity policy
• Water policy
Anti‑corruption
and anti‑bribery
We take a zero‑tolerance approach to bribery, corruption and other unethical or illegal
practices, and are committed to acting professionally, fairly and with integrity in all
business dealings and relationships, within all jurisdictions in which we operate.
Melrose follows high governance standards to ensure that the Group conducts business
responsibly, sustainably, and in the pursuit of long‑term success for the collective
benefit of stakeholders. This is outlined in our Anti‑Bribery and Corruption policy, which
is implemented and administered throughout the Group.
• Legal and
regulatory
2024 Annual Report
• Sustainability review
Group Policies
• Code of Ethics
• Anti‑Bribery and
Corruption policy
All Group policies referred to in the table above, as well as additional information in relation to the areas discussed above, are available on our
website at www.melroseplc.net/governance/documents-and-policies/.
Additional information
Where you can find more
Description of principal Group risks and impact of business activity
Risk management
Risks and uncertainties
Pages 34 to 36
Pages 37 to 44
Description of the business model
Our business model
Investment case
Pages 14 and 15
Pages 4 and 5
Financial and non‑financial KPIs
Key performance indicators
Pages 24 and 25
The Strategic Report, as set out on pages 2 to 101, has been approved by the Board.
On behalf of the Board:
Peter Dilnot
Chief Executive Officer
6 March 2025
101
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
STRATEGIC REPORT
GOVERNANCE
IN THIS SECTION
103
Governance overview
108
Board of Directors
110
Directors’ report
115
Corporate Governance report
124
Audit Committee report
132
Nomination Committee report
136
Directors’ Remuneration report
156
Statement of Directors’ responsibilities
GOVERNANCE
102
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE OVERVIEW
The Board is committed to maintaining the high standards of corporate governance
required to ensure that the Company can continue to deliver on its strategic goals,
and to achieve long‑term success for the benefit of its stakeholders.
As part of this approach, the Board has
applied the principles and complied with
the provisions of corporate governance
contained in the 2018 UK Corporate
Governance Code (the “Code”) issued by the
Financial Reporting Council (the “FRC”) and
available to view on the FRC’s website at:
www.frc.org.uk.
In support of this commitment, the Board
carried out a number of key governance
activities during 2024 designed to ensure
that Melrose remains compliant with
the provisions of the Code and to enable
continuous improvement in line with best
practice corporate governance guidelines.
SUCCESSION PLANNING
Succession planning continued to be a key area of focus for Melrose
throughout 2024. The Nomination Committee and the Board
considered the present and future leadership requirements of the
business, as the Group completed its transition to a global aerospace
technology business, as well as the skills, experience and diversity
required at Board level going forward to facilitate delivery of the
Group’s new business model and strategic objectives. We recognise
that succession planning is an ongoing process and is critical to
maintaining an effective and high‑quality Board and ensuring that its
composition continues to best support the business.
Mr Peter Dilnot and Mr Matthew Gregory were appointed as Chief
Executive Officer and Chief Financial Officer on 6 and 7 March 2024
respectively, and collectively they provide strong FTSE plc executive
and aerospace sector experience in addition to Melrose and
GKN Aerospace executive management continuity. Mr Dilnot
previously served as Melrose Chief Operating Officer, and as Chief
Executive Officer of GKN Aerospace for periods during his tenure as
an executive Director of Melrose, while Mr Gregory previously served
as Chief Finance Officer of GKN Aerospace, and prior to that served
as the Chief Financial Officer and latterly Chief Executive Officer of
FirstGroup plc.
Mr Dilnot and Mr Gregory succeeded Mr Simon Peckham and
Mr Geoffrey Martin who stepped down on 6 and 7 March 2024,
respectively. Mr Christopher Miller stepped down as Executive
Vice‑Chairman on 7 March 2024 and Ms Victoria Jarman,
Non‑executive Director, stepped down from the Board at the
Annual General Meeting on 2 May 2024.
As previously announced, having led the Board through the Group’s
recent strategic transition, I will be stepping down from the Board on
31 March 2025. During 2024, the Board, led by our Senior
Independent Director Mr David Lis, completed its search for my
successor as Chairman. The Board was delighted to appoint
Mr Chris Grigg as Non‑executive Director and Chairman designate on
1 October 2024 following a thorough recruitment process conducted
by Stonehaven International, an external recruitment consultancy firm
unconnected with the Company and its Directors. Mr Grigg will
succeed me as Chairman on 30 March 2025. Mr Grigg has extensive
senior executive experience as a former FTSE Chief Executive Officer
as well as 10 years’ experience as Non‑executive Director of BAE
Systems plc, latterly serving as its Senior Independent Director.
Justin Dowley
Non‑executive Chairman
103
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
GOVERNANCE OVERVIEW
Continued
The Board also appointed Dr Ian Barkshire as a Non‑executive
Director on 1 October 2024. Dr Barkshire was the CEO of Oxford
Instruments plc between 2016 and 2023, spending over 20 years at
the company including as Chief Operating Officer and Group
Technical Director.
Mr Lis, Senior Independent Director, will have served as
Non‑executive Director of the Company for nine years in May 2025
and as such his tenure was due to expire at that point. However, the
Nomination Committee and the Board have approved an extension to
Mr Lis’s tenure as Senior Independent Director up to 31 December
2025 to facilitate and implement the effective succession of Mr Grigg
as Chairman, to assist with succession planning for key Board roles
and the development of a diverse Board thereafter, including the
appointment of a successor Senior Independent Director. It will also
assist in continuing to build the Board’s sector‑specific and senior
FTSE plc experience to ensure continued rigorous oversight of
Melrose under its new strategy and business model as a global
aerospace technology business. Mr Lis will therefore be standing for
re‑election at the 2025 AGM.
The Nomination Committee report on pages 132 to 135 contains
further details on how succession planning arrangements for the
Board and the Melrose senior management team were reviewed and
considered during 2024.
EXECUTIVE COMMITTEE
The executive committee operates under the direction of and is
chaired by the Chief Executive Officer. It comprises the Chief
Executive Officer, the Chief Financial Officer, the Group General
Counsel, the Chief Human Resources Officer, the Chief Technology
Officer, the Chief of Staff, and the Presidents of each of the Engines,
Civil and Defence business lines. Its key role is to ensure that there is
full coordination between the Melrose corporate functions and the
GKN Aerospace business lines, including in respect of the Group’s
key strategic, corporate, commercial and operational projects, as well
as to oversee strategic management of the business, to ensure that
the appropriate resource is being devoted to resolve any issues,
mitigate material risks, implement effective financial and non‑financial
controls and ensure that actions being taken are supportive of the
Group’s strategic goals and culture.
REMUNERATION
The Directors’ Remuneration report, comprising the annual statement
from the Chairman of the Remuneration Committee and the Annual
Report on Remuneration, is available on pages 136 to 155.
The 2024 Directors’ Remuneration Policy rebalanced the Company’s
remuneration structure to support Melrose’s change in strategy to
operating as a global aerospace technology business by aligning
executive remuneration with its FTSE 100 peers. The 2024 Directors’
Remuneration Policy adopted a structure and mechanics that are
more reflective of the majority of FTSE 100 companies, including the
introduction of a Performance Share Plan. Following engagement
with a wide variety of stakeholders, including key shareholders, the
2024 Directors’ Remuneration Policy received strong shareholder
support with 96.84% of votes cast in favour of the relevant resolution
at the 2024 AGM.
Melrose’s overarching remuneration philosophy remains unchanged:
in order to align senior management with shareholders, executive
remuneration should be simple, transparent, support value creation
and pay only for performance.
SUSTAINABILITY
The Board is mindful of its responsibilities regarding climate change
and sustainability, which are an important part of implementing the
Company’s purpose and strategy. In particular, the Board assesses
the basis on which the Company generates and preserves value over
the long term, including reviewing opportunities and risks, and the
sustainability of the Company’s business model. Further details on
this can be found in the Sustainability review on pages 51 to 99. The
Company has carefully considered how it can strategically address
matters relating to sustainability in the most efficient and appropriate
way. The Board, supported by the senior management team as
informed by the Group Sustainability Function, led by the Chief
Technology Officer, oversees and retains ultimate responsibility for
the Group’s sustainability strategy (including climate change), targets,
disclosures, and reporting, in order to continue to improve the
Group’s sustainability performance. The Board receives training and
updates on key sustainability and climate‑related matters that impact
the Group, and on the specific measures that are required to be
implemented to drive improved sustainability performance over the
longer term, for the benefit of all stakeholders. Where required, the
Board considers climate‑related matters when reviewing and guiding
strategy and overseeing implementation through oversight of
divisional financial and operational performance and quarterly
Board meetings.
Having integrated Environmental, Social and Governance (“ESG”)
metrics into executive remuneration as part of the implementation of
the long‑term incentive plan within the 2024 Directors’ Remuneration
Policy, during 2024 awards were granted to the executive Directors
under the Melrose 2024 Performance Share Plan with a proportion of
those awards subject to the achievement of ESG targets over a
three‑year performance period. Please see the Directors’
Remuneration report on pages 136 to 155 for further details.
104
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Diversity and skills overview(2)
1
2
3
4
5
Board Skills
1 Accounting, Finance
& Investment
8
2 Aerospace &
Aviation
6
3 Industrial &
Technology
5
4 Legal & Corporate
Governance
9
5 Sustainability
5
1
2
Board gender diversity
1 Male
67%
2 Female
33%
1
2
Board ethnic diversity
1 White
89%
2 Ethnically diverse 11%
1
2
Executive Committee
1 Male
78%
2 Female
22%
1
2
Executive Committee
and direct reports
1 Male
65%
2 Female
35%
(1) Please refer to page 133 for details of changes to the Melrose Board.
(2) Diversity data as at 31 December 2024.
The main responsibilities of the Board are to:
• effectively manage and control the Company via a formal schedule of
matters reserved for its decision;
• define the Group’s purpose, determine and review Group strategy and
policy to deliver that purpose, and provide strategic leadership to the
Group;
• set the Group’s values and behaviours that shape its culture and
the way it conducts business, ensure that the Company’s culture is
aligned with those principles, and monitor the way those values and
behaviours impact on the Group’s culture;
• review financial and trading performance in line with the Group’s
strategic objectives;
• ensure that adequate funding and personnel are in place;
• engage with stakeholders and key shareholders on issues that are
most important to the long‑term success of the Company, and to
understand their views on governance and performance against the
Group’s strategy;
• oversee the effective operation of the Workforce Advisory Panel
(“WAP”) in ensuring the views of the workforce are considered in its
discussions and decision‑making, and review their engagement with
the WAP on a regular basis;
• report to shareholders and give consideration to all significant financial
matters in order to present a fair, balanced and understandable
assessment of the Group’s position and prospects;
• agree Board succession plans in a way that promotes diversity, inclusion
and equal opportunity in compliance with local laws, and consider the
evaluation of the Board’s performance over the preceding year;
• oversee and assess the Group’s risk management and internal control
systems, and review their effectiveness;
• determine the nature and extent of the risks the Group is willing to take,
and conduct an assessment of the Group’s emerging and principal risks;
• agree the Company’s Governance Framework and approve Company
compliance policies;
• monitor, assess and review cyber security and fraud risk for the Group;
• consider acquisitions, disposals and requests for major capital
expenditure;
• delegate and oversee responsibility for entrepreneurial leadership and
strategic management of the Group to the Group senior executives;
• challenge, review and exercise robust managerial oversight across key
decisions, actions and processes within the Group;
• promote the long‑term success of the Group for the benefit of
shareholders as a whole, having regard to a range of other key
stakeholders and interests; and
• oversee and retain ultimate responsibility for the Group’s enhanced
sustainability and climate‑related initiatives, disclosure and reporting in
respect of improving the sustainability performance of its businesses.
Main responsibilities of the Board
Non‑executive Chairman
Executive Directors
Non‑executive Directors
Audit Committee page 124
Nomination Committee page 132
Remuneration Committee page 136
GOVERNANCE STRUCTURE(1)
105
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
GOVERNANCE OVERVIEW
RISK MANAGEMENT AND INTERNAL CONTROL
Melrose operates a Group Enterprise Risk Management programme,
with complementary processes and procedures. During 2024, the
Audit Committee continued to keep the Company’s internal financial
controls systems that identify, assess, manage and monitor financial
risks and other internal control and risk management systems, and
the effectiveness of the Group’s risk management system, under
review through regular updates from management as well as from the
Group’s internal auditors. This included regular reviews of the key
findings presented by the internal auditors having agreed the scope,
mandate and review schedule in advance as well as reviews with the
external auditors.
The executive committee, with support from the Melrose legal team,
financial compliance and assurance team and other members of
senior management, led the Group‑wide risk review and reporting
process through the year. The top‑down, bottom‑up risk review
process involves multiple rounds of direct engagement with the
Group’s key risk owners who either sit on or report to members of the
Group’s executive committee as well as other key senior risk owners,
integrated with bottom‑up divisional risk register reporting. This
supports the Audit Committee’s oversight of developing risk areas,
mitigations, controls and trends. Furthermore, it has helped to guide
the Audit Committee on relevant updates to the Group’s principal
risks (including assessing, for discussion by the Board in exercising
its oversight over the material controls, and new and/or emerging
principal Group risks), as reported in the Risks and uncertainties
section on pages 37 to 44.
Full details on the Group’s approach to risk management can be
found in the Risk management section on pages 34 to 36, and in the
Audit Committee report on pages 124 to 131.
ETHICS AND COMPLIANCE
Our Code of Ethics reinforces our values and provides guidance
for all employees, contractors and business associates so that
they are aware of what is expected of them, their responsibilities
and the consequences of non‑compliance. The principles
outlined in our Code of Ethics (which can be found at
www.melroseplc.net/governance/documents-and-policies/) are
embedded within the Group, and mechanisms and policies are in
place for anyone to whom the Code of Ethics applies to seek
guidance on interpreting its principles, where required.
The Code of Ethics is supported by Company compliance policies
covering best practice with respect to anti‑bribery and corruption,
anti‑money laundering, anti‑facilitation of tax evasion, competition,
conflict minerals, trade compliance, data privacy, whistleblowing,
treasury and financial controls, anti‑slavery and human trafficking,
document retention, joint ventures, diversity and inclusion,
environmental, human rights, supply chain, biodiversity and water.
The implementation of the Code of Ethics and Company compliance
policies are supported by a combination of risk assessment
requirements, training and ongoing monitoring to ensure their
effectiveness for the Group. Taken together, these initiatives ensure
continued focus on enhancing our business’s effectiveness at
identifying and managing risks, and promoting and embedding a
risk‑aware culture. Further details on the Group’s management of risk
can be found in the Risk management section on pages 34 to 36.
Melrose’s reputation for acting responsibly plays a critical role in its
success as a business and its ability to generate shareholder value. We
maintain high standards of ethical conduct and take a zero‑tolerance
approach to bribery, corruption, modern slavery and human trafficking
and any other unethical or illegal practice. We are committed to acting
professionally, fairly and with integrity in all business dealings and
relationships, within all jurisdictions in which we operate. Further details
of the Group’s stance and focus on ensuring effective stewardship in
respect of key ESG matters are set out in the Sustainability review on
pages 51 to 99. Supporting our compliance policies are a
comprehensive online training platform, an industry‑leading
whistleblowing reporting facility and a top‑down, bottom‑up risk
management process providing risk management visibility and trend
analysis to senior management and the Audit Committee. The
integrity of the compliance framework is further reinforced by the use
of independent compliance reviews where required.
Continued
106
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
ENGAGEMENT WITH STAKEHOLDERS
In 2024, the Company continued to run engagement initiatives with
key shareholders and governance bodies on key topics including
diversity, sustainability and remuneration. Members of the Board also
made themselves available to discuss issues with key investors and
other stakeholders on an ad‑hoc basis upon request.
In particular, the Company engaged with a wide variety of
stakeholders in relation to proposed changes to the executive
remuneration structure to introduce a new structure more closely
resembling that of the Company’s FTSE 100 peers, held a technology
day for investors and analysts in November 2024, and published a
brochure in relation to risk and revenue sharing partnerships (“RRSPs”)
in October 2024 to help investors and analysts better understand the
Group’s portfolio of RRSPs. The executive Directors also engaged
with key investors in the UK, Germany, the US and Canada as part of
the investor roadshow programme.
Melrose also continued with a variety of workforce engagement
initiatives, including regular employee engagement surveys,
business line led activities at site, regional and global levels both
in‑person and online, leadership safety tours, and through the WAP,
which met twice in 2024. The purpose of the WAP is to promote
effective engagement with, and encourage participation from, the
Group’s workforce. The WAP is chaired by the Chief Human
Resources Officer with other members comprising the Group General
Counsel and Company Secretary, and members of the divisional
Human Resources leadership teams. Each member of the WAP is
responsible for promoting workforce engagement, disseminating
information and collating the voice of their workforce. The Board
remains of the view that this structure is the most appropriate and
effective method of ensuring that workforce voices are heard.
The Board and the Company intends to continue with our programme
of stakeholder engagement in 2025. Full details of how the Board
engages with all of its stakeholders and considers them in its
decision‑making is set out in our Section 172 statement on
pages 45 to 50.
Justin Dowley
Non‑executive Chairman
6 March 2025
107
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
BOARD OF DIRECTORS
Justin Dowley
Independent
Non‑executive Chairman
Year appointed
Appointed as Chairman on 1 January 2019, having previously served as a Non‑executive
Director from 1 September 2011, and as the Senior Independent Director from 11 May
2017 to 31 December 2018. Mr Dowley will step down from his position as Chairman on
30 March 2025 and will step down from the Board on 31 March 2025. Mr Dowley will be
succeeded as Chairman by Mr Grigg, who joined the Board as a Non‑executive Director
and Chair designate on 1 October 2024.
Skills and experience
Mr Dowley has extensive experience with over 35 years spent within the banking,
investment and asset management sectors. A chartered accountant, Mr Dowley qualified
with Price Waterhouse and was latterly Vice Chairman of Nomura International PLC’s
EMEA Investment Banking division. He was also a founder partner of Tricorn Partners,
Head of Investment Banking at Merrill Lynch Europe and a director of Morgan Grenfell.
Board meetings attended(1)
4
Business reviews attended
4
Other significant appointments
• Chair of Scottish Mortgage Investment
Trust PLC
• Chair of Rosebank Industries plc
• Deputy Chairman of The Panel on
Takeovers and Mergers
• Director of a number of private companies
Committee membership
• Nomination • Remuneration
Independent
Yes
Tenure(2)
13 years
Peter Dilnot
Chief Executive Officer
Year appointed
Appointed as an executive Director on 1 January 2021, having served as Chief Operating
Officer since April 2019. Mr Dilnot was appointed as Chief Executive Officer on
6 March 2024.
Skills and experience
Mr Dilnot has considerable public company and industrial business experience. Mr Dilnot
joined Melrose in April 2019, serving as an executive Director and Chief Operating Officer
during that time in addition to fulfilling the role of Chief Executive Officer of GKN Aerospace
for periods during his tenure. In parallel, Mr Dilnot served as a Non‑executive Director at
Rotork plc for seven years, including three years as Senior Independent Director until he
left the board in December 2023. Mr Dilnot was previously the Chief Executive Officer of
international recycling company Renewi PLC (formerly Shanks Group PLC) and a senior
executive at Danaher Corporation. He also spent seven years at the Boston Consulting
Group in London and Chicago, working primarily with industrial businesses. Mr Dilnot has
an engineering and aviation background, and started his career as a helicopter pilot in the
British Armed Forces. He also holds a degree in Mechanical Engineering.
Board meetings attended(1)
4
Business reviews attended
4
Other significant appointments
• Trustee of Autistica
Independent
Not applicable
Tenure(2)
Not applicable
Matthew Gregory
Chief Financial Officer
Year appointed
Mr Gregory was appointed as an executive Director and Chief Financial Officer on
7 March 2024.
Skills and experience
Mr Gregory has extensive knowledge of GKN Aerospace, having served as Chief Financial
Officer of GKN Aerospace since September 2022. He is a seasoned Chief Financial Officer
with considerable public company leadership experience, having served as both Chief
Executive Officer and Chief Financial Officer of FirstGroup plc and Chief Financial Officer
of Essentra plc. Mr Gregory has strong strategic and operational expertise, including in
driving strategy and operational turnaround in complex multinational listed manufacturing
and transportation companies, alongside international and corporate development
experience. Mr Gregory is a qualified chartered accountant having started his career at
Ernst & Young, working in London and Milan.
Board meetings attended(1)(3)
3
Business reviews attended(3)
3
Other significant appointments
• Trustee of Britten Pears Arts
Independent
Not applicable
Tenure(2)
Not applicable
David Lis
Senior Independent
Director
Year appointed
Appointed as the Senior Independent Director on 5 May 2022, having previously served
as a Non‑executive Director from 12 May 2016, and as Chair of the Remuneration
Committee from 1 January 2019. While Mr Lis will have served on the Board for nine years
in May 2025, the Nomination Committee and the Board have approved an extension of
Mr Lis’s tenure up to 31 December 2025 in order to facilitate and implement the effective
succession of the Non‑executive Chairman, to assist with succession planning of key
Board roles thereafter (including a successor Senior Independent Director), and for
continuity purposes as the Company emerges from a strategically transformational period.
Skills and experience
Mr Lis has held several senior roles in investment and fund management, as well as
other board appointments. He brings extensive financial experience to the Board. Mr Lis
commenced his career at NatWest, and held positions at J Rothschild Investment
Management and Morgan Grenfell after which Mr Lis founded Windsor Investment
Management. Mr Lis joined Norwich Union Investment Management in 1997 (later merging
to form Aviva Investors), before becoming Head of Equities in 2012 and latterly Chief
Investment Officer, Equities and Multi Assets, until his retirement in March 2016.
Board meetings attended(1)
4
Business reviews attended
4
Other significant appointments
• Chairman of Windar Photonics Plc
• Director of a number of private companies
Committee membership
• Audit • Nomination
• Remuneration (Chair)
Independent
Yes
Tenure(2)
8 years
(1) Meetings attended refers to scheduled meetings.
(2) Tenure runs from the date of appointment until 31 December 2024 and is based on full years only.
(3) Mr Gregory was appointed to the Board on 7 March 2024. He has attended all Board meetings and business review meetings following his appointment.
(4) Mrs Lawrence was also a Non‑executive Director of Coats Group PLC until 31 March 2023.
(5) Ms Elcock was also a Non‑executive Director of CFA UK until she stepped down from her role in November 2024, following the expiry of her six‑year term.
(6) Mr Grigg was appointed to the Board on 1 October 2024. He has attended all Board and applicable meetings and business review meetings following his appointment. He will stand for
election for the first time at the 2025 AGM.
(7) Dr Barkshire was appointed to the Board on 1 October 2024. He has attended all Board and applicable meetings and business reviews since his appointment. He will stand for election
for the first time at the 2025 AGM.
108
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Charlotte Twyning
Independent
Non‑executive Director
Year appointed
Appointed as a Non‑executive Director on 1 October 2018 and Chair of the Nomination
Committee on 1 January 2022.
Skills and experience
Ms Twyning brings a diverse range of experience and commercial acumen to the Board.
After a successful legal career in the City specialising in competition and M&A law, she
held various senior positions across a number of sectors, most recently in aviation and
transportation. Ms Twyning has proven executive leadership and operational skills in
large, complex organisations and has consistently succeeded in driving performance,
leading large‑scale sustainable transformations and building the foundations for growth
throughout her career. She now enjoys a portfolio career, combining a number of
non‑executive, trustee and advisory roles.
Board meetings attended(1)
4
Business reviews attended
4
Other significant appointments
• Governor of the Museum of London
Committee membership
• Audit • Nomination (Chair)
• Remuneration
Independent
Yes
Tenure(2)
6 years
Heather Lawrence
Independent
Non‑executive Director
Year appointed
Appointed as a Non‑executive Director on 1 June 2021 and Chair of the Audit Committee
on 5 May 2022.
Skills and experience
Mrs Lawrence originally qualified as a chartered accountant and subsequently spent well
over a decade working in senior roles within corporate finance and investment banking,
where she honed her experience across industrials and transportation businesses.
Mrs Lawrence has significant non‑executive directorship experience, including as a
Non‑executive Director of Antofagasta PLC.(4)
Board meetings attended(1)
4
Business reviews attended
4
Other significant appointments
• Non‑executive Director of
Antofagasta PLC
Committee membership
• Audit (Chair)
Independent
Yes
Tenure(2)
3 years
Gillian Elcock
Independent
Non‑executive Director
Year appointed
Appointed as a Non‑executive Director on 21 June 2023.
Skills and experience
Ms Elcock has extensive asset management and investment research experience,
including covering the aerospace and defence sector. Ms Elcock is the founder and
former Managing Director of Denny Ellison, an independent investment research and
training company. Prior to this, she worked as an equity research analyst for several
years at Putnam Investments and Insight Investment. She also brings insight gained
from several non‑executive director roles. Ms Elcock has two engineering degrees
from MIT and an MBA from the Harvard Business School.
Board meetings attended(1)
4
Business reviews attended
4
Other significant appointments(5)
• Non‑executive Director of International
Biotechnology Trust Plc
• Non‑executive Director of STS Global
Income & Growth Trust plc (Chair of the
Management Engagement Committee)
• Non‑executive Director of Octopus
Apollo VCT plc
• Non‑executive Director of 25x25 Limited
Committee membership
• Audit • Nomination • Remuneration
Independent
Yes
Tenure(2)
1 year
Chris Grigg
Independent
Non‑executive Director
Year appointed
Appointed as a Non‑executive Director and as Chair designate on 1 October 2024.
Mr Grigg will succeed Mr Dowley as Chairman on 30 March 2025. Mr Grigg will stand
for election for the first time at the 2025 AGM.
Skills and experience
Mr Grigg has extensive senior executive experience as a former FTSE Chief Executive
Officer, and within the aerospace and defence sector. Mr Grigg was a Non‑executive
Director of BAE Systems plc for 10 years until December 2023, latterly serving as its
Senior Independent Director. Mr Grigg now serves as the Chair of the National Wealth
Fund and of Evelyn Partners, as well as serving as a member of the FTSE Women
Leaders Review’s independent steering body. During his executive career, Mr Grigg was
Chief Executive of British Land from January 2009 and left the board in December 2020.
Earlier in his career, Mr Grigg was Chief Executive of Barclays Commercial Bank, and
Treasurer of Barclays Bank plc. Prior to Barclays, Mr Grigg spent 20 years at Goldman
Sachs, latterly as a partner, having started his career at Morgan Grenfell.
Board meetings attended(1)(6)
2
Business reviews attended(6)
1
Other significant appointments
• Chair of the National Wealth Fund
(formerly known as the UK Infrastructure
Bank) and its nomination committee
• Chair of Evelyn Partners
• Member of the Industrial Strategy
Advisory Council (ISAC)
• Member of the FTSE Women Leaders
Review’s independent steering body
Committee membership
• Nomination • Remuneration
Independent
Yes
Tenure(2)
0 years
Ian Barkshire
Independent
Non‑executive Director
Year appointed
Appointed as a Non‑executive Director on 1 October 2024. Dr Barkshire will stand for
election for the first time at the 2025 AGM.
Skills and experience
Dr Barkshire brings a wealth of executive experience to the Board, having spent most
of his career driving the development, commercialisation and delivery of innovative
technologies and specialised products to the world’s leading industrial companies.
Dr Barkshire was the Chief Executive Officer of Oxford Instruments plc between 2016
and 2023, spending over 20 years at the company in a number of leadership positions,
including Chief Operating Officer, Group Technical Director and Divisional Head. Earlier
in his career Dr Barkshire was a Senior Principal Scientist at GEC‑Marconi Materials.
Dr Barkshire is Chair of Illumion Limited, a technology start‑up company, and is a fellow of
the Royal Academy of Engineering.
Board meetings attended(1)(7)
2
Business reviews attended(7)
1
Other significant appointments
• Member of the Strategic Advisory Board
of the UK National Quantum Technologies
Programme
• Chair of Illumion Limited (a University of
Cambridge technology start‑up company)
Committee membership
• Audit • Nomination • Remuneration
Independent
Yes
Tenure(2)
0 years
109
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
DIRECTORS’ REPORT
INCORPORATED INFORMATION
The Corporate Governance report set out on pages 115 to 123, the
Chief Financial Officer’s review on pages 26 to 33, and the
Sustainability review on pages 51 to 99 are each incorporated by
reference into this Directors’ report.
Disclosures elsewhere in the Annual Report are cross‑referenced
where appropriate. Taken together, they fulfil the combined
requirements of the Companies Act 2006 (the “Act”) and of the
Disclosure Guidance and Transparency Rules and the Listing Rules of
the Financial Conduct Authority (the “FCA”).
AGM
The Annual General Meeting (“AGM”) of the Company will be held at
12.00 pm on Wednesday 30 April 2025 at The Royal Aeronautical
Society, 4 Hamilton Place, London W1J 7BQ. A detailed explanation
of each item of business to be considered at the AGM is included
with the Notice of Annual General Meeting. The notice convening the
meeting is shown on pages 245 to 252 and includes full details of the
resolutions to be proposed, together with explanatory notes in
relation to such resolutions (the “AGM Notice”).
DIRECTORS
The Directors of the Company as at the date of this Annual Report,
together with their biographies, can be found on pages 108 and 109.
Changes to the Board during the year are set out in the Governance
overview on pages 103 to 107 and the Corporate Governance report
on pages 115 to 123. Details of Directors’ service contracts are set
out in the Directors’ Remuneration report on pages 136 to 155.
The Statement of Directors’ responsibilities in relation to the
consolidated financial statements is set out on page 156, which is
incorporated into this Directors’ report by reference.
APPOINTMENT AND REMOVAL OF
DIRECTORS AND THEIR POWERS
The Company’s articles of association (the “Articles”) give the
Directors the power to appoint and replace other Directors. Under the
terms of reference of the Nomination Committee, any appointment
must be recommended by the Nomination Committee for approval
by the Board.
Pursuant to the Articles and in line with the UK Corporate Governance
Code 2018 (the “Code”), all of the Directors of the Company are
required to stand for re‑election on an annual basis. As explained on
pages 103 and 104 of the Governance overview, Mr Justin Dowley
will not stand for re‑election by shareholders at this year’s AGM. With
the exception of Mr Chris Grigg and Dr Ian Barkshire, who are
standing for election for the first time, all of the remaining Directors of
the Company will be standing for re‑election by shareholders at the
forthcoming AGM, and in each case, an ordinary resolution will
need to be passed to approve such (re‑)election.
The Directors are responsible for managing the business of the
Company and exercise their powers in accordance with the Articles,
directions given by special resolution, and any relevant statutes
and regulations.
INSURANCE AND INDEMNITIES
In accordance with the Articles and the indemnity provisions of the
Act, the Directors have the benefit of an indemnity from the Company
in respect of any liabilities incurred as a result of their office. This
indemnity is provided both within the Articles and through a separate
deed of indemnity between the Company and each of the Directors.
The Company has taken out an insurance policy in respect of those
liabilities for which the Directors may not be indemnified. Neither the
indemnities nor the insurance provide cover in the event that a
Director is proved to have acted dishonestly or fraudulently.
POST BALANCE SHEET EVENTS
There are no post balance sheet events which require disclosure.
CAPITAL STRUCTURE
During the year, the Company reduced its share premium account,
cancelled its capital redemption reserve, and decreased the nominal
value of each fully paid‑up ordinary share by way of a capital
reduction. Consequently, the nominal value of each ordinary share
was reduced from 160/7 pence to £0.001 per share.
The capital reduction was approved by shareholders of the Company
at the Annual General Meeting held on 2 May 2024 and became
effective on 11 July 2024.
The Company commenced a £500 million share buyback programme
on 2 October 2023, which was conducted throughout 2023 and 2024
and completed on 30 September 2024. In accordance with the
Company’s general authority to repurchase ordinary shares in the
Company granted by its shareholders at the Annual General Meeting
held on 8 June 2023, the share buyback programme was limited to
202,586,150 ordinary shares in the Company and was further limited
to a maximum aggregate consideration payable by the Company of
£500 million.
On 1 October 2024, the Company commenced a further £250 million
buyback programme. In accordance with the Company’s general
authority to repurchase ordinary shares in the Company granted by
its shareholders at the Annual General Meeting held on 2 May 2024,
the current share buyback programme is limited to 197,373,991
ordinary shares in the Company (as reduced by the Company’s share
repurchase activity since 2 May 2024) and was further limited to a
maximum aggregate consideration payable by the Company of
£250 million. The continuation of the share buyback programme
beyond the conclusion of this year’s AGM is subject to the Company
obtaining approval for a new general authority from shareholders at
this year’s AGM.
The ordinary shares in the Company repurchased as part of the above
share buyback programmes are intended to be either held in treasury
or cancelled. During 2024, 75,141,072 ordinary shares were repurchased,
of which 65,054,841 remained in treasury as at 31 December 2024.
The Company had 1,351,475,321 ordinary shares in issue as at
31 December 2024, inclusive of the 65,054,841 shares held in treasury.
The Directors of Melrose Industries PLC present the Annual Report and financial
statements of the Group for the year ended 31 December 2024.
110
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
As set out in the Directors’ Remuneration report, the 2020 Melrose
Employee Share Plan (“MESP”) crystallised on 31 May 2024 and
participants in the plan became entitled to receive ordinary shares.
In satisfaction of those entitlements, a total of 28,848,071 treasury
shares were transferred to participants on 3 June 2024. Further
details in respect of the 2020 MESP crystallisation are set out on
pages 142 and 143 of the Directors’ Remuneration report.
The table below shows details of the Company’s issued share capital
as at 31 December 2023; and as at 31 December 2024 (in each case,
inclusive of treasury shares) following the implementation of the
capital reduction and the share buyback programmes.
Share class
31 December
2023
31 December
2024
Ordinary shares of 160/7 pence each
1,351,475,321
N/A
Ordinary shares of £0.001 pence each
N/A 1,351,475,321
The Company’s sole class of ordinary shares is admitted to the Equity
Shares (Commercial Companies) segment of the official list.
SHAREHOLDERS’ VOTING RIGHTS
Subject to any special rights or restrictions as to voting attached to
any class of shares by or in accordance with the Articles, at a general
meeting of the Company, each member who holds ordinary shares in
the Company and who is present (in person or by proxy) at such
meeting is entitled to:
• on a show of hands, one vote; and
• on a poll, one vote for every ordinary share held by them.
There are currently no special rights or restrictions as to voting or
control of the Company attached to any class of shares.
The Company is not aware of any agreements between shareholders
that restrict voting rights attached to the ordinary shares in the Company.
Where any call or other amount due and payable in respect of an
ordinary share remains unpaid, the holder of such shares shall not be
entitled to vote at or attend any general meeting of the Company in
respect of those shares. As at 6 March 2025, all ordinary shares
issued by the Company are fully paid.
Details of the deadlines for exercising voting rights in respect of the
resolutions to be considered at the 2025 AGM are set out in the AGM
Notice on pages 245 to 252.
Shareholders whose combined shareholdings amount to at least 5%
of the issued voting share capital (excluding treasury shares) may,
pursuant to section 303 of the Act, request that the Directors call a
general meeting of the Company. Shareholders whose combined
shareholdings amount to at least 5% of the issued share capital
entitled to vote can also request that the Company introduces a
resolution to be voted on at an AGM.
RESTRICTIONS ON TRANSFER OF SECURITIES
The Articles do not contain any restrictions on the transfer of ordinary
shares in the Company, aside from the usual restrictions applicable
where shares are not fully paid up or shares on which the Company
has a lien, if entitled to do so under the Uncertificated Securities
Regulations 2001, where the transfer instrument does not comply
with the requirements of the Articles or in exceptional circumstances
approved by the relevant investment exchange, provided such refusal
would not disturb the market in such shares. Restrictions may also be
imposed by laws and regulations (such as insider trading and market
abuse provisions). Directors and certain senior employees of the
Group may also be subject to internal approvals before dealing in
ordinary shares of the Company and minimum shareholding
requirements. The Company does not have any anti‑takeover devices
in place, including devices that would limit share ownership.
The Company is not aware of any agreements between shareholders
that restrict the transfer of ordinary shares in the Company.
ARTICLES OF ASSOCIATION
The Articles may only be amended by a special resolution at a general
meeting of the shareholders of the Company. There are no amendments
proposed to be made to the Articles at the forthcoming AGM.
SUBSTANTIAL SHAREHOLDINGS
As at 31 December 2024, the following voting interests in the ordinary
share capital of the Company, disclosable under Chapter 5 of the
FCA’s Disclosure Guidance and Transparency Rules, had been
notified to the Directors:
Shareholder
Shareholding(1)
% of ordinary
share capital as at
31 December
2024(1)
The Capital Group Companies, Inc.
271,263,414
21.01%
BlackRock Inc
94,720,155
7.00%
Select Equity Group Inc
67,196,570
4.97%
Norges Bank
78,336,933
5.98%
Aviva plc
118,577,085
2.92%
Bank of America Corporation
131,232,533
3.24%
Permian Investment Partners, LP
39,570,362
3.07%
(1) The number of shares and percentage of ordinary share capital is as notified to the
Company as at 31 December 2024 and has not been restated to reflect purchases of
shares made by the Company since the relevant notification pursuant to the share
buyback programmes.
111
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
DIRECTORS’ REPORT
SHAREHOLDER DIVIDEND
The Directors are pleased to recommend the payment of a final
dividend of 4.0 pence per share (2023: final dividend of 3.5 pence per
share) to be paid on 9 May 2025 to ordinary shareholders on the
register of members of the Company at the close of trading on
28 March 2025. This dividend recommendation will be put to
shareholders at the forthcoming AGM of the Company, to be held on
30 April 2025. Subject to shareholder approval being obtained at the
AGM for the final dividend, this will mean a full year 2024 dividend of
6.0 pence per share (2023: 5.0 pence).
For discussion on the Board’s intentions with regard to the Company’s
dividend policy, please see the Chairman’s statement on pages 6 and 7,
which is incorporated into this Directors’ report by reference.
The Company offers a Dividend Reinvestment Plan (“DRIP”), which
gives shareholders the opportunity to use their dividend payments to
purchase further ordinary shares in the Company. Further details
about the DRIP and its terms and conditions can be found within the
Investors section of the Company’s website at www.melroseplc.net.
HISTORICAL DIVIDENDS
Equiniti, the Company’s registrar, administers the unclaimed
dividends of the former GKN plc (now GKN Limited). Pursuant to law
and its articles of association, GKN Limited is obliged to pay such
unclaimed dividends for a period of 12 years from the date on which
they were declared or became due for payment. As at
31 December 2024, the total amount of dividends of GKN Limited
remaining unclaimed for more than 12 years was £276,428.92. If the
unclaimed dividends are not claimed by 30 June 2025, the Company
will look to donate the funds to charity.
ABILITY TO PURCHASE OWN SHARES
Pursuant to sections 693 and 701 of the Act and a special resolution
passed at the Annual General Meeting of the Company held on 2 May
2024, the Company is authorised to make market purchases of up to
197,373,991 of its ordinary shares, representing approximately
14.99% of the current issued ordinary share capital of the Company
(excluding treasury shares). The Company has made purchases of its
own shares pursuant to this authority. As described on page 110, the
Company commenced the share buyback programmes on 2 October
2023 and 1 October 2024 respectively. The first share buyback
programme completed on 30 September 2024, and the second share
buyback programme remains ongoing. As at 31 December 2024,
93,902,912 ordinary shares of the Company had been repurchased
since 2 October 2023 pursuant to, and in compliance with, the
buyback authorities, of which 75,141,072 were repurchased during
2024. The remainder of the authority in respect of the current share
buyback programme will expire at the end of this year’s AGM.
At the 2025 AGM, the Company is seeking approval to make market
purchases of up to 191,662,555 of its ordinary shares, being
approximately 14.99% of the issued ordinary share capital of the
Company (excluding treasury shares) as at the latest practicable date
prior to notice of AGM, thereby renewing the authority. The
continuation of the current share buyback programme beyond the
conclusion of this year’s AGM is therefore subject to this authority
being renewed. The full text of the resolution, together with minimum
and maximum price requirements, is set out in the AGM Notice on
pages 245 to 252.
FINANCIAL INSTRUMENTS
The disclosures required in relation to the use of financial instruments by
the Company, including the financial risk management objectives and
policies (including in relation to hedging) of the Company and the
exposure of the Company to price risk, credit risk, liquidity risk, cash
flow risk, exchange rate risk, contract and warranty risk and commodity
cost risk, can be found in the Chief Financial Officer’s review on
pages 26 to 33, the Risks and uncertainties section of the Strategic
Report on pages 37 to 44, and in note 25 to the financial statements,
which are incorporated by reference into this Directors’ report.
RESEARCH AND DEVELOPMENT ACTIVITIES
The aerospace industry is highly competitive and as such the Group
researches and develops new and innovative product lines and
processes to meet customer demands in an ever‑evolving
environment and to support its sustainability goals.
As detailed in the Sustainability review on pages 51 to 99, which is
incorporated by reference into this Directors’ report, investment into
research and development activities continued throughout 2024.
GKN Aerospace is a technology leader in aerostructures, engine
structures and wiring systems. Its lightweight composites, additive
manufacturing, innovative engine systems and smart transparencies
help to reduce emissions and weight and enhance passenger
comfort, pushing the boundaries for the next generation of aircraft.
GKN Aerospace is at the forefront of many research and development
partnerships and industry collaboration programmes. For example,
the further development and integration of additive technologies into
multiple major engine components, initially reducing manufacturing
emissions and being applied within next generation engine
development programmes to lower in‑flight emissions. Additionally,
the continued development of out‑of‑autoclave ‘Resin Transfer
Moulding’ technology enhances the efficiency and in‑flight emission
benefits of composite structures while significantly reducing material
consumption, manufacturing emissions, and capital investment
requirements. In the world of advanced air mobility, work on
thermoplastic composites and high‑power electrical systems
integration continued, supporting innovators in demonstrating the
capability of these platforms to deliver zero emission short range flight.
BUSINESS REVIEW AND RISKS
A review of the Group’s performance, the key risks and uncertainties
facing the Group and details on the likely developments of the Group
can be found in the Strategic Report on pages 2 to 101 of this Annual
Report (including the Longer‑term viability statement on page 33 and
the Risks and uncertainties section on pages 37 to 44), which are
incorporated into this Directors’ report by reference.
Continued
112
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
EMPLOYEE ENGAGEMENT
The Company operates a Workforce Advisory Panel (the “WAP”) as its
chosen method of complying with the requirements of the Code on
employee engagement. The WAP is chaired by the Chief Human
Resources Officer with other members comprising the Group General
Counsel and Company Secretary, and members of the divisional Human
Resources leadership teams. The WAP meets at least twice per year.
The WAP is responsible for ensuring and enabling ongoing
engagement with the views and interests of the workforce. The WAP
adheres to its own terms of reference which have been approved by
the Board, and each member of the WAP is required to report at each
meeting in respect of how they have engaged with the workforce, any
recurring items identified during that engagement, and how the
feedback from the workforce has been considered and applied.
Further details in relation to the WAP, employment policies, employee
involvement, consultation and development, together with details of
some of the human resource improvement initiatives implemented
during 2024, are highlighted in the Sustainability review on
pages 51 to 99 and in the Section 172 statement set out in the
Strategic Report on pages 45 to 50, both of which are incorporated by
reference into this Directors’ report.
The Company also operates an externally hosted whistleblowing
portal which is readily available to all Group employees. This is
supported by regularly updated policies, procedures, and awareness
campaigns to create an environment in which the workforce feels it is
safe to raise concerns in confidence without fear of retaliation, and to
foster an ethical and supportive Group culture. The Board and the
Audit Committee are provided with updates on material
whistleblowing events as they are reported from time to time to the
Group’s senior management team, and the Audit Committee is
provided with reports on whistleblowing activity on a quarterly basis
as well as an annual report, each of which highlight whistleblowing
activity across the Group, together with a summary of the
whistleblowing processes and awareness activities undertaken
during the year; this is then fed back to the Board.
DIVERSITY POLICIES(1)
The Company acknowledges that diversity, equity and inclusion
is a changing landscape, and the Nomination Committee reviews
its diversity policies on an annual basis, with any recommendations
for amendments being approved by the Board. The policies,
which can be viewed on the Company’s website at
www.melroseplc.net/governance/documents-and-policies/ include
a Board of Directors’ Diversity policy and a Melrose Diversity, Equity
and Inclusion policy. The Board of Directors’ Diversity policy sets out
the Nomination Committee’s commitment to ensuring that Board
membership and pipeline for succession remains diverse, which is
equally applicable to each of the Board’s committees. It also sets out
the Company’s diversity targets for the Board. The Melrose Diversity,
Equity and Inclusion policy, which is applicable to all Melrose
employees, sets out the Company’s position on diversity, equity and
inclusion in its workforce. Further details can be found in the
Nomination Committee report on pages 132 to 135.
(1) Applicable only within the scope of legally permitted jurisdictions.
We are committed to creating an inclusive workplace where all
employees, including those with disabilities, can thrive. We give full
and fair consideration to all job applications, promote career
development and provide reasonable adjustments to enable
employees to perform their roles effectively, while ensuring their
safety and the safety of others. This includes those who acquire
disabilities during their employment with us, providing appropriate
support and training to enable them to continue working effectively.
BUSINESS RELATIONSHIPS
Details of our business’s clients and suppliers and how we work and
engage with them are described in the Divisional reviews on
pages 16 to 23, in the Section 172 statement on pages 45 to 50 and
in the Sustainability review on pages 51 to 99, each in the Strategic
Report, and all of which are incorporated by reference into this
Directors’ report.
ENVIRONMENTAL
Details of the sustainability initiatives across the Group, and the
Group’s Greenhouse Gas emissions, waste, water usage and other
energy consumption (including energy efficiency action), as well as
the methodology used to calculate such emissions and consumption,
are set out in the Sustainability review on pages 51 to 99, which is
incorporated by reference into this Directors’ report.
In 2024, GKN Aerospace’s near and long‑term emission targets were
validated by the Science Based Targets Initiative (“SBTi”). These
targets related to Scopes 1, 2 and 3, and form part of the Group’s
overall transition to Net Zero. Actual performance against our targets
can be found on page 55.
To prepare ourselves for new Corporate Sustainability Reporting
Directive (“CSRD”) reporting standards, we conducted a value chain
mapping exercise, updated the Double Materiality Assessment which
was conducted in 2023 and updated in 2024, and completed an
externally facilitated sustainability pre‑assurance project. We also
worked on aligning our sustainability reporting more closely with CSRD
guidelines in order to prepare ourselves for the incoming regulations.
GKN Aerospace also partnered with industry peers and government
bodies to research and develop new technologies which contribute to
a more sustainable future. More information on these initiatives can
be found on pages 62 to 64 of the Sustainability review.
113
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
DIRECTORS’ REPORT
POLITICAL DONATIONS
The Group’s policy is not to make any political donations and
there were no political donations made during the year ended
31 December 2024 (2023: nil).
BRANCHES
The Melrose Group and its business operates across various
jurisdictions. The Group, through its various subsidiaries, has
established branches in a number of different countries in which the
business operates.
DISCLOSURES REQUIRED UNDER
UK LISTING RULE LR6.6
Other than the following, no further information is required to be
disclosed by the Company in respect of UK Listing Rule 6.6:
• GKN had historically operated employee share option plan trusts to
satisfy the vesting and exercise of awards of ordinary shares made
under GKN’s share‑based incentive arrangements. On the
acquisition of GKN, these shares were converted into Melrose
shares. A dividend waiver is in place on the shareholdings in
respect of relevant trusts in part, or in full, in accordance with the
provisions of the relevant trust deeds.
SIGNIFICANT AGREEMENTS AND CHANGE OF
CONTROL
With the exception of the Group’s banking facilities, the Melrose
Performance Share Plan, and the Melrose Automotive Share Plan,
there are no other Company agreements that would take effect, alter
or terminate, upon a change of control of Melrose Industries PLC as
at 6 March 2025.
The Group’s committed bank facilities were increased during the year,
resulting in term loan facilities and multicurrency revolving credit facilities,
such facilities totalling, in aggregate, approximately £1,940 million. The
facilities are scheduled to mature in April 2026 but can be extended
at the Company’s option, for two additional one‑year periods.
Following the year‑end date, additional committed bank facilities have
been arranged to provide additional headroom through 2025 and
2026. Details of these facilities are provided in the Chief Financial
Officer’s review on page 26 and note 20 to the financial statements.
In the event of a change of control of the Company following a
takeover bid, the Company and lenders under the bank facilities are
obliged to enter into negotiations to determine whether, and if so how,
to continue with the facilities. There is no obligation for the lenders to
either fund new loans requested during the 30‑day period following a
change of control, or to continue to make the facilities available
following such 30‑day period if no agreement is reached. Failure to
reach agreement on any revised terms requested by the lenders
could require an acquirer to put in place replacement facilities.
In the event of a change of control of the Company, the Remuneration
Committee may determine that awards granted under the Melrose
Performance Share Plan may vest. If the change of control of the
Company occurs during the vesting period, the vested number of
ordinary shares will normally be determined by the Remuneration
Committee pro‑rata to the elapsed proportion of the normal vesting
period (with the Remuneration Committee having discretion to party
or fully waive any pro‑rating). Where relevant, the extent of vesting will
also reflect the extent to which a performance condition has (or is
expected to be) satisfied.
In the event of a takeover of the Company, awards granted under the
Melrose Automotive Share Plan would crystallise, giving participants
a right to receive ordinary shares in Dowlais Group plc (“Dowlais”).
The number of Dowlais shares to which participants would be entitled
is based upon the amount of increase in shareholder value in Dowlais
created above an initial invested capital of £3,525,237,530, as
calculated based on the average market capitalisation of Dowlais for
the 40 business days prior to (but excluding) the date of the change
of control of the Company, subject to certain adjustments and a
minimum level of crystallisation.
AUDITOR
So far as each Director is aware, there is no relevant audit information
(being information that is needed by the Company’s auditor to prepare
its report) of which the Company’s auditor is unaware. Each Director
has taken all the steps that he or she ought to have taken as a Director
to make him or her aware of any relevant audit information and to
establish that the Company’s auditor is aware of that information.
This confirmation is given and should be interpreted in accordance
with the provisions of section 418 of the Act.
On behalf of the Board, the Audit Committee has reviewed the
effectiveness, performance, independence and objectivity of the
existing external auditor, PricewaterhouseCoopers LLP (“PwC”), for
the year ended 31 December 2024 and concluded that the external
auditor was in all respects effective. PwC has expressed its
willingness to continue in office as auditor of the Group. Accordingly,
resolutions will be proposed at this year’s AGM for the reappointment
of PwC as auditor of the Group and to authorise the Audit Committee
to determine its remuneration.
APPROVAL
Approved by the Board and signed on its behalf by:
Warren Fernandez
Company Secretary
6 March 2025
Continued
114
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
CORPORATE GOVERNANCE REPORT
The Audit Committee report, Nomination Committee report,
Directors’ Remuneration report, Statement of Directors’
responsibilities, Risk management and Risks and uncertainties
sections of the Strategic Report, together with the Sustainability
review and the Section 172 statement, also form part of this
Corporate Governance report.
STATEMENT OF COMPLIANCE
Throughout the year ended 31 December 2024, the Company has
applied the principles and complied with the provisions of the Code.
1. PRINCIPLES A‑E: BOARD LEADERSHIP AND
COMPANY PURPOSE
LONG‑TERM SUSTAINABLE SUCCESS
The Board comprises individuals from a diverse range of backgrounds
and with a wealth of knowledge, understanding and experience. The
Chairman is responsible for leadership of the Board. The division of
responsibilities is described further in section 2 on page 116.
The Board’s overarching objective is to generate value for the
Company’s shareholders in a way that is sustainable in the long‑term
and contributes to wider society. The Section 172 statement on
pages 45 to 50 sets out the ways in which the Board took
shareholder and other stakeholder considerations into account in its
decision‑making in 2024.
OUR PURPOSE, STRATEGY AND VALUES
Melrose is a global aerospace technology business focused on value
creation driven by continuous operational and financial improvement
over the longer term. Our positive trajectory is underpinned by the
strong organic growth prospects within the aerospace sector,
alongside attractive opportunities to further expand and differentiate
our business through cutting‑edge proprietary technology.
The Company’s purpose and strategy remain underpinned by the
principles and values of acting with integrity, honesty, transparency
and decisiveness, and we believe in prioritising the safety of our
people, ensuring the quality of our products, and delivering through a
lean operating model, high productivity and sustainable business
practices. We see the decarbonisation of the aviation sector as a
priority, and indeed a central tenet of GKN Aerospace’s mission to be
the most trusted and sustainable partner in the sky. Whilst the sector
and our customers provide many opportunities for further progress
towards cleaner air travel through our innovation and technology
leadership, we see no reason why this priority cannot be achieved at
the same time as generating superior financial returns for our
shareholders.
The Board recognises that culture, values and standards are key
contributors to how a company creates and sustains value over the
long‑term. High standards of business conduct guide and assist the
Board’s decision‑making, and in doing so, help promote the
Company’s success, recognising, amongst other things, the likely
consequences of any decision in the long‑term and wider stakeholder
considerations. The standards set by the Board mandate certain
requirements and behaviours with regard to the activities of the
Directors, our employees and others associated with the Group.
RESOURCES AND CONTROLS
As described in more detail in the Risk management section of the
Strategic Report and the Audit Committee report on pages 2 to 101
and 124 to 131 respectively, the Company has established a
framework of reporting procedures, lines of responsibility and
delegated authority, which is updated as required and understood by
all Board members and the Group’s senior management team. These
reporting processes allow the Board and the Group’s senior
management team to allocate resources in a sustainable and
appropriate manner, enabling the Group to meet its objectives and
measure performance effectively, whilst promoting sustainability. The
Board and the Audit Committee each have access to the Group’s
senior management team and to external assistance in order to
satisfy themselves that appropriate and effective controls are in place,
including PricewaterhouseCoopers LLP (“PwC”), who undertake the
Group’s external audit and BM Howarth who conduct the Group’s
internal audit with additional ad‑hoc support from Ernst & Young.
STAKEHOLDER ENGAGEMENT
Through presentations and regular meetings between the executive
Directors, analysts and institutional shareholders, including those
following the announcements of the Company’s annual and interim
results and trading updates, the Company seeks to build on a mutual
understanding of objectives with its shareholders and other
stakeholders. This has been particularly important following the
Company’s change in business strategy to operating as a global
aerospace technology business. During 2024, in addition to the
above‑mentioned presentations and regular meetings, the Company
held a technology day for investors and analysts in Bristol, UK, and
published a brochure in relation to risk and revenue sharing
partnerships (“RRSPs”) to help investors and analysts better
understand the Group’s portfolio of RRSPs. The executive Directors
also engaged with key investors in the UK, Germany, the US and
Canada as part of the investor roadshow programme. In addition, the
Company continued its programme of engagement with key investors
and corporate governance bodies in respect of specific material
topics, including the 2024 Directors’ Remuneration Policy which was
subsequently approved by shareholders at the 2024 AGM, as well as
open‑agenda discussions between key shareholders and members
of the Board. Following the appointment of Mr Chris Grigg to the
Board on 1 October 2024 as Non‑executive Director and Chair
designate, the Company reached out to key shareholders to promote
an opportunity to meet Mr Grigg in early 2025.
Engagement with key shareholders, proxy advisors, employee
bodies, ratings agencies (including sustainability ratings agencies)
and other governance bodies remains a central part of the
Company’s approach to stakeholder engagement and governance
and will continue in the lead up to the 2025 AGM.
Further details on the Company’s engagement with stakeholders,
including the material topics discussed with investors and corporate
governance bodies, are contained in the Section 172 statement on
pages 45 to 50.
In line with the 2018 UK Corporate Governance Code (the “Code”) issued by the Financial
Reporting Council (the “FRC”), and the UK Listing Rules issued by the Financial Conduct
Authority, this section of the Annual Report and financial statements details the ways in
which the Company has applied the principles and complied with the provisions of the
Code applicable during the year ended 31 December 2024.
115
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
CORPORATE GOVERNANCE REPORT
In order to promote effective engagement with, and encourage
participation from, its workforce, Melrose operates a Workforce
Advisory Panel (the “WAP”). The WAP is chaired by the Chief Human
Resources Officer with other members comprising the Group General
Counsel and Company Secretary and members of the divisional
Human Resources leadership teams. Each member of the WAP is
responsible for determining how the workforce should be defined,
promoting workforce engagement, disseminating information and
collating the voice of their workforce. Each member of the WAP is in
turn responsible for demonstrating how key workforce views are fed
into executive management decisions, which may include executive
remuneration, as well as ensuring that the workforce is aware of their
impact on such executive management decisions. The WAP meets
twice a year and an annual report is prepared by the chair of the WAP
for the Board which highlights workforce engagement and key views.
Further details on the WAP are contained in the Sustainability review
on page 89.
WORKFORCE POLICIES AND PRACTICES
Melrose’s reputation for acting responsibly plays a critical role in its
success as a business. It maintains high standards of ethical conduct
which are reflected in the Group compliance policies, and cover best
practice with respect to anti‑bribery and corruption, anti‑money
laundering, anti‑facilitation of tax evasion, competition, conflict
minerals, trade compliance, data privacy, whistleblowing, treasury
and financial controls, anti‑slavery and human trafficking, document
retention, joint ventures, diversity and inclusion, environmental,
human rights, supply chain, biodiversity and water.
The Company also operates an externally hosted whistleblowing
portal which is readily available to all Group employees. This is
supported by regularly updated policies, procedures and awareness
campaigns to create an environment in which the workforce feels it is
safe to raise concerns in confidence without fear of retaliation, and to
foster an ethical and supportive Group culture. The Board and the
Audit Committee are provided with updates on material whistleblowing
events as they are reported from time to time to the Group’s senior
management team. The Audit Committee is also provided with
quarterly and annual reports on whistleblowing activity which
highlight whistleblowing activity across the Group, together with a
summary of the whistleblowing processes and awareness activities
undertaken during the year; this is then fed back to the Board.
2. PRINCIPLES F‑I: DIVISION OF
RESPONSIBILITIES
THE BOARD
Details of the structure of the Board and its key responsibilities are
shown on page 105.
There were four formally scheduled Board meetings held during the
year and the attendance of each Director at these meetings is shown
on page 118.
Business review meetings are held in addition to scheduled Board
meetings. There were four business review meetings held during the
year, and the attendance of Directors at these review meetings is set
out on page 118. These meetings provide the Directors with a
comprehensive understanding of the current performance of, and the
key issues affecting, the Group’s business lines and functions without
the formality of a Board meeting. Members of the Group’s executive
committee and other members of senior management are
periodically invited to attend and present at these meetings, providing
the Directors with an opportunity to further strengthen the
relationship with the executive management team as well as enabling
detailed insight into the operation of the business. The Board also
undertakes regular site visits.
Detailed briefing papers containing financial and operational business
summaries and an agenda are provided to the Directors in advance
of each Board, committee or (where relevant) business review
meeting. The Directors are able to seek further clarification and
information on any matter from any other Director, the Company
Secretary or any employee of the Group whenever necessary.
Decisions are taken by the Board in conjunction with the
recommendations of its committees and advice from external
consultants, advisors and the Melrose senior management team.
The Board has an encrypted electronic portal, enabling Board,
committee and business review papers to be delivered securely and
efficiently to Directors. This facilitates a faster and more secure
distribution of information, accessed using electronic devices, and
reduced resource usage, which in turn helps to reduce paper waste.
The Company Secretary is responsible for advising and supporting
the Chairman and the Board on corporate governance matters as
well as assisting the Chairman in ensuring a smooth flow of
information to enable effective decision‑making. All Directors have
access to the advice and services of the Company Secretary and,
through him, have access to independent professional advice in
respect of their duties, at the Company’s expense. The Company
Secretary, supported by the Assistant Company Secretary, acts as
secretary to the Board, the Audit Committee, the Nomination
Committee and the Remuneration Committee.
In accordance with its articles of association (the “Articles”), and in
compliance with the Companies Act 2006, the Company has granted
a qualifying third‑party indemnity to each Director. This indemnity is
provided both within the Company’s Articles and through a separate
deed of indemnity between the Company and each of the Directors.
The Company also maintains directors’ and officers’ liability insurance.
Continued
116
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
The roles of each of the Chairman and the Chief Executive Officer of
the Company are, and will remain, separate in accordance with the
Code and Board policy.
The Chairman is responsible for leadership of the Board. The
Chairman sets the Board agenda and ensures that adequate time is
given to the discussion of issues in order to facilitate constructive
discussions with effective contributions from the Non‑executive
Directors, particularly on those issues of a strategic nature. The
Chairman, with the support of the Company Secretary, also facilitates
constructive Board relations by providing accurate and clear
information in a timely manner. Responsibility for ensuring effective
communications are made to shareholders rests with the Chairman
and the executive Directors.
The Chief Executive Officer is responsible for strategic direction and
decisions involving the day‑to‑day management of the Company.
SENIOR INDEPENDENT DIRECTOR
The Senior Independent Director’s role is to provide a sounding board
for the Chairman to act as an intermediary for the Company’s other
Non‑executive Directors where required, and to ensure that any key
issues that are not being addressed by the Chairman or the executive
management are addressed.
NON‑EXECUTIVE DIRECTORS
The Company’s Non‑executive Directors are encouraged to, and do,
scrutinise the performance of the executive Directors in all areas,
including on strategy, risks and financial information, through their roles
on the Company’s committees, at the Board’s scheduled meetings
and business review sessions, and on an ad‑hoc basis. The
Non‑executive Directors come from a diverse range of backgrounds
and as such are able to draw on their own specialist knowledge to give
necessary guidance and advice, and to hold management to account.
The Board currently consists of two executive Directors, six
Non‑executive Directors (inclusive of the Senior Independent Director)
and the Non‑executive Chairman. As described in the Governance
overview section on pages 103 to 107, the Chairman is stepping
down from the Board on 31 March 2025 and the Senior Independent
Director’s tenure, which was due to come to an end in May 2025, has
been extended for a limited period to 31 December 2025 to facilitate
and implement the effective succession of Mr Grigg as Chairman,
and to assist with succession planning for key Board roles thereafter,
including the appointment of a successor Senior Independent
Director. The Board is satisfied that there is, and will continue to be,
sufficient challenge by Non‑executive Directors of executive
management in meetings of the Board, and that no individual or small
group of individuals dominates its decision‑making.
Together with the Chairman, the majority of the Non‑executive
Directors are members of the Nomination Committee and as such,
they play a key role in appointing and removing executive Directors.
As considered in section 3 on page 118, the Non‑executive Directors
are also key in evaluating the performance of the Directors.
NON‑EXECUTIVE DIRECTOR INDEPENDENCE
In accordance with the provisions of the Code, consideration has
been given to the independence of all Non‑executive Directors. The
Board considers all of the Non‑executive Directors to be
independent.
Upon Mr Justin Dowley’s appointment to the role of Chairman, he
was considered independent. While Mr Dowley’s tenure exceeds the
maximum nine‑year period recommended by the Code, his term was
extended with strong shareholder support through a period of
significant change for the Company, ensuring continuity and stability
and aiding the continued development of a strong and diverse
pipeline for succession planning in line with the Company’s recently
transitioned strategy to a global aerospace technology business.
Mr Dowley’s tenure as a Non‑executive Director will end on
31 March 2025.
Mr Grigg will succeed Mr Dowley as Chairman on 30 March 2025.
Mr Grigg is considered independent.
Mr David Lis is the appointed Senior Independent Director, and acts
as an intermediary for the other Directors and shareholders.
In accordance with the Code requirements, at least half of the Board,
excluding the Chairman, comprises Non‑executive Directors
determined by the Board to be independent, and this will remain the
case after Mr Grigg succeeds Mr Dowley as Chairman as outlined
above.
The Non‑executive Directors are not entitled to any cash bonus or
shares under the Melrose Performance Share Plan or any other
incentive plans, nor do they receive taxable benefits or pension
contributions. The Board does not consider it appropriate to impose
minimum shareholding requirements on the Non‑executive Directors
at this time.
CORPORATE GOVERNANCE FRAMEWORK
AND TERMS OF REFERENCE
The Board has an overarching corporate governance framework to
ensure continued alignment of the Board and committee members’
roles and division of responsibilities with the Code and the Group’s
top‑down, bottom‑up risk management approach. Each member of
the Board is provided with a copy of the Company’s corporate
governance framework, which was reviewed, updated and approved
by the Board during 2024.
Each committee has its own written terms of reference. The
Company Secretary supports the committees in updating these
terms of reference in order to comply with the Code and other good
corporate practice. The terms of reference are more formally reviewed
on an annual basis in the committee meetings as well as on an
ad‑hoc basis where necessary. The terms of reference are available
via the Melrose website at www.melroseplc.net/governance/
documents‑and‑policies/.
117
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
CORPORATE GOVERNANCE REPORT
BOARD INDUCTION, TRAINING AND SUPPORT
An induction programme tailored to the needs of individual Directors
is provided for new Directors joining the Board. The primary aim of
the induction programme is to introduce new Directors to, and
educate them about, the Group’s businesses, its technology,
strategy, operations, finances and governance arrangements.
Individual induction requirements are monitored by the Chairman and
the Company Secretary to ensure that new Directors gain sufficient
knowledge to enable them to contribute to the Board’s deliberations
as quickly as possible.
The Board also receives annual training and regular updates on key
sustainability issues that impact the sector in which the Group’s
business operates, and on the specific measures that are required to
be implemented to drive improved sustainability performance over
the longer term for the benefit of all stakeholders.
TIME COMMITMENTS AND ATTENDANCE OF
DIRECTORS AT MEETINGS
When considering appointments to the Board, the Board, in
conjunction with the Nomination Committee, reviews any other
demands on a candidate’s time. New Directors are required to
disclose any directorships held and other business interests, and
existing Directors are required to obtain the Chairman’s consent for
additional external appointments. The ability of Directors to have
sufficient time to meet their Board responsibilities is considered on an
annual basis as part of the performance evaluation process. Other
than Mr Peter Dilnot’s position as a trustee of the charity Autistica and
Mr Matthew Gregory’s position as a trustee of Britten Pears Arts,
which the Board has concluded do not affect their ability to meet their
Board and executive responsibilities, the executive Directors do not
hold any significant appointments, nor do they have any
non‑executive directorships in any FTSE 100 company.
The following table shows the attendance of each of the Directors at
the scheduled meetings of the Board and its committees held during
the year. The quorum necessary for the transaction of business by
the Board and each of its committees is two. The table also shows
attendance at business review meetings held between scheduled
Board meetings. Non‑executive Directors are invited but are not
required to attend such meetings.
3. PRINCIPLES J‑L: COMPOSITION,
SUCCESSION AND EVALUATION
BOARD COMPOSITION
The Board believes that the Directors bring a combination of skills,
experience and knowledge to the Board that is complementary to
the activities of the Company. Biographies of the Directors are
shown on pages 108 and 109, and on the Company’s website at
www.melroseplc.net/governance/board-leadership/. These biographies
identify any other significant appointments held by the Directors.
During the year, Mr Dilnot and Mr Gregory were appointed as Chief
Executive Officer and Chief Financial Officer on 6 and 7 March
respectively, succeeding Mr Simon Peckham and Mr Geoffrey Martin
who stepped down as Chief Executive and Group Finance Director
respectively. Mr Christopher Miller stepped down as Executive
Vice‑Chairman on 7 March 2024 and Ms Victoria Jarman, Non‑executive
Director, stepped down from the Board at the 2024 AGM.
On 1 October 2024, Mr Grigg and Dr Barkshire were appointed as
Non‑executive Directors of the Company. Mr Grigg will succeed
Mr Dowley as Chairman on 30 March 2025 and Mr Dowley will step
down from the Board on 31 March 2025.
While the Board has made significant progress in improving its
diversity in recent years, meeting the UK Listing Rules and the FTSE
Women Leaders Review target of having 40% female representation
on its Board for a number of years and continuing to meet the Parker
Review target of having one Director from an ethnic minority
background on the Board, recent changes to the Board have meant
that the Company does not currently meet the target of 40% female
representation with three of the current nine Board members being
female. Following Mr Dowley stepping down from the Board on
31 March 2025, 38% of the Board will be female. The UK Listing
Rules and the FTSE Women Leaders Review also set a target for at
least one senior board position, being that of Chairman of the Board,
Senior Independent Director, Chief Executive Officer or Chief
Financial Officer, to be held by a woman (the FTSE Women Leaders
Review having set a target date of the end of 2025).
Continued
(1) In addition to the above scheduled meetings, ad‑hoc Board and committee meetings
are held from time to time which are attended by a quorum of Directors and are
convened to deal with specific items of business.
(2) Mr Dowley attended Audit Committee meetings by invitation.
(3) Mr Gregory attended all Board meetings and business review meetings held following
his 7 March 2024 appointment to the Board and attended Audit Committee meetings by
invitation.
(4) Mrs Lawrence attended Nomination Committee and Remuneration Committee
meetings by invitation.
(5) Mr Grigg was appointed as a Non‑executive Director of the Company on 1 October
2024. He attended all Board and applicable committee and business review meetings
following his appointment. Mr Grigg attended the 13 November 2024 Audit Committee
meeting by invitation.
(6) Dr Barkshire was appointed as a Non‑executive Director of the Company on 1 October
2024. He attended all Board and applicable committee and business review meetings
following his appointment.
(7) Ms Jarman resigned as a Non‑executive Director of the Company on 2 May 2024.
She attended all Board and applicable committee meetings, together with all business
reviews, prior to her resignation except for the Audit Committee meeting held on
6 March 2024 which she was unable to attend due to a conflicting engagement.
(8) Mr Miller, Mr Peckham and Mr Martin resigned from the Board on 7 March 2024.
They attended all Board and business review meetings held prior to their resignation.
Mr Martin attended the 6 March 2024 Audit Committee meeting by invitation.
ATTENDANCE OF DIRECTORS
Board
Audit
Nomination
Remuneration
Business
review
Number of meetings(1)
4
4
2
2
4
Justin Dowley
4
4(2)
2
2
4
Peter Dilnot
4
–
–
–
4
Matthew Gregory
3(3)
4(3)
–
–
3
David Lis
4
4
2
2
4
Charlotte Twyning
4
4
2
2
4
Heather Lawrence
4
4
2(4)
2(4)
4
Gillian Elcock
4
4
2
2
4
Chris Grigg(5)
2
1
1
1
1
Ian Barkshire(6)
2
1
1
1
1
Victoria Jarman(7)
1
0
–
1
2
Christopher Miller(8)
1
–
–
–
1
Simon Peckham(8)
1
–
–
–
1
Geoffrey Martin(8)
1
1
–
–
1
118
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
The Board and the Nomination Committee recognise that Melrose does
not currently meet this requirement. Melrose’s position, along with the
target for 40% female representation on the Board, is under active review
and is fully factored into ongoing succession planning discussions.
Russell Reynolds Associates, an external recruitment consultancy
firm unconnected with the Company and its Directors, has been
retained to identify suitable candidates for the Board’s consideration.
SUCCESSION PLANNING
Succession planning is coordinated via the Nomination Committee in
conjunction with the Board and includes all Directors and the
executive committee. It remained a core focus in 2024 in light of the
Company’s strategic transition to operating as a global aerospace
technology business.
Mr Dilnot and Mr Gregory were appointed as Chief Executive Officer
and Chief Financial Officer on 6 and 7 March 2024 respectively, and
collectively they provide strong FTSE plc and aerospace sector
experience in addition to executive management continuity. Mr Dilnot
previously served as Melrose Chief Operating Officer since April 2019
as well as serving as Chief Executive Officer of GKN Aerospace for
periods during his tenure as an executive Director of Melrose, while
Mr Gregory previously served as Chief Financial Officer of
GKN Aerospace, and prior to that served as the Chief Financial
Officer and latterly Chief Executive Officer of FirstGroup plc.
As previously announced, having led the Board through the Group’s
recent strategic transition, Mr Dowley’s tenure as Chairman will end
on 30 March 2025 and as Non‑executive Director of the Company on
31 March 2025. During the year the Board, led by our Senior
Independent Director Mr Lis, completed its search for Mr Dowley’s
successor as Chairman. The Board was delighted to appoint
Mr Grigg as Non‑executive Director and Chairman designate on
1 October 2024. Mr Grigg will succeed Mr Dowley as Chairman on
30 March 2025. Mr Grigg has extensive senior executive experience
as a former FTSE Chief Executive Officer as well as 10 years’
experience as Non‑executive Director of BAE Systems plc, latterly
serving as its Senior Independent Director.
The Board also appointed Dr Barkshire as Non‑executive Director on
1 October 2024. Dr Barkshire was the Chief Executive Officer of
Oxford Instruments plc between 2016 and 2023, spending over 20
years at the company including as Chief Operating Officer and Group
Technical Director.
Mr Lis, Senior Independent Director, will have served as Non‑executive
Director of the Company for nine years in May 2025 and as such his
tenure was due to expire at that point. However, the Nomination
Committee and the Board have approved an extension to Mr Lis’s
tenure as Senior Independent Director up to 31 December 2025 to
facilitate and implement the effective succession of Mr Grigg as
Chairman, to assist with succession planning for key Board roles
thereafter and the development of a diverse Board thereafter,
including the appointment of a successor Senior Independent
Director. It will also assist in continuing to build the Board’s
sector‑specific and senior FTSE plc experience to ensure continued
rigorous oversight of Melrose under its new strategy and business
model as a global aerospace technology business. Mr Lis will
therefore be standing for re‑election at the 2025 AGM.
The Nomination Committee and the Board also reviewed talent
management and succession plans relating to the Group’s executive
committee, to ensure the continued development of a diverse pipeline
for succession.
BOARD PERFORMANCE REVIEW
Evaluation approach and process
The Code requires that FTSE 350 companies undertake an externally
facilitated Board and committee evaluation once every three years.
The last external Melrose Board and committee review was in 2023,
for which the Company engaged Lintstock Ltd. Lintstock Ltd is a
specialist corporate governance consultancy and, other than the
Board and Committee reviews, has no other connection with the
Company or its Directors.
Whilst the Company is not required to undertake another externally
facilitated Board and committee evaluation until 2026, during 2024
the Company continued its ongoing internal review of the Board and
its committees, both internally within each of those bodies and with
the Chairman of the Board and the chair of each committee
respectively. As in prior years, the Company also conducted an
evaluation of the Chairman of the Board’s performance. These
evaluations were conducted and facilitated by the completion of
questionnaires, and discussions at the applicable Board and
committee meetings, with follow‑up actions taking place where
relevant. Each director was also invited to attend an individual
meeting with the Chairman of the Board in order to discuss any
relevant matters they wished to be considered as part of the ongoing
review, as well as an individual meeting with the Senior Independent
Director in respect of the evaluation of the Chairman.
A range of topics were discussed as part of the evaluations, including
the composition and skill set of the Board, succession planning and
diversity, and risk management.
Outputs of the evaluation and Board focus for 2025
The review concluded that the Board and its committees, the
Chairman of the Board, the Senior Independent Director and the
Chair of each committee continue to be highly effective with good
levels of satisfaction with the Board and each committee.
In order to further enhance the Board’s effectiveness, the following
areas have been designated as the subject of focus for the Board and
management during 2025:
• continuing to monitor Board and senior management succession
to ensure effective management at all levels;
• continuing to build the Board’s sector‑specific and senior FTSE plc
experience in conjunction with building a diverse Board, to
encourage continued rigorous oversight of Melrose under its new
strategy and business model as a long‑term aerospace business;
• ensuring the adequacy of the Board’s visibility over the impact of
principal risks on the business divisions, and continuing to monitor
and enhance the Group’s management of risk, including in
anticipation of forthcoming changes to Provision 29 of the 2024
Code;
• continuing to ensure a disciplined approach to capital allocation,
informed by regular review and challenge of the commerciality of
future technologies, expected new aircraft programmes, and
emerging sectoral trends; and
• continuing to scrutinise the cash profiles of the businesses and to
drive cash performance.
119
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
CORPORATE GOVERNANCE REPORT
Annual (re‑)election of Directors
Pursuant to the Company’s Articles and in accordance with the
provisions of the Code, all of the Directors stood for re‑election (or
where applicable election) at the 2024 AGM. As detailed on page 103
Mr Dowley will not be standing for re‑election by shareholders at this
year’s AGM. With the exception of Mr Grigg and Dr Barkshire, who
are standing for election for the first time, all of the remaining
Directors of the Company will be standing for re‑election. In each
case an ordinary resolution will need to be passed to approve such
(re‑)elections.
In considering whether each Director should stand for re‑election, the
Nomination Committee, in consultation with the Board, considers
whether the Board has the appropriate balance of skills, experience,
independence and diversity to enable the Board to carry out its
duties and responsibilities effectively. The time commitments of each
Director are also reviewed as part of this assessment, and Directors
are required to disclose any directorships held and other business
interests. The annual performance review referred to above assists
with determining whether each Director should stand for re‑election.
Following performance reviews of each of the Directors, and having
considered in turn the individual skills, relevant experience,
contributions and time commitment of the Directors to the long‑term
sustainable success of the Company, the Chairman is of the opinion
that each Director’s performance continues to be effective and
demonstrates commitment to the role.
Mr Dilnot, Chief Executive Officer, is standing for re‑election due to his
considerable public company and industrial business experience.
Mr Dilnot joined Melrose in April 2019, serving as an executive Director
and Chief Operating Officer during that time in addition to fulfilling the
role of Chief Executive Officer of GKN Aerospace for periods during his
tenure. In parallel, Mr Dilnot served as a Non‑executive Director at
Rotork plc for seven years, including three years as Senior Independent
Director until he left the board in December 2023. Mr Dilnot was
previously the Chief Executive Officer of international recycling
company Renewi PLC (formerly Shanks Group PLC) and a senior
executive at Danaher Corporation. He also spent seven years at the
Boston Consulting Group in London and Chicago, working primarily
with industrial businesses. Mr Dilnot has an engineering and aviation
background, and started his career as a helicopter pilot in the British
Armed Forces. He also holds a degree in mechanical engineering.
Mr Gregory, Chief Financial Officer, is standing for re‑election due to his
extensive knowledge of GKN Aerospace, having served as Chief
Financial Officer for the business since September 2022. Mr Gregory is
a seasoned Chief Financial Officer with considerable public company
leadership experience, having served as both Chief Executive Officer
and Chief Financial Officer of FirstGroup plc and Chief Financial Officer
of Essentra plc. Mr Gregory has strong strategic and operational
expertise, including in driving strategy and operational turnaround in
complex multinational listed manufacturing and transportation
companies, alongside international and corporate development
experience. Mr Gregory is a qualified chartered accountant, having
started his career at Ernst & Young, working in London and Milan.
Mr Lis, Senior Independent Director, has held several senior roles in
investment and fund management. Mr Lis brings to the Board
extensive financial experience and deep insight into the expectations of
Melrose’s institutional investor base. While Mr Lis will have served on
the Board for nine years in May 2025, the Nomination Committee and
the Board have approved an extension of Mr Lis’s tenure as a Director
and Senior Independent Director to 31 December 2025 in order to
facilitate and implement the effective succession of the Non‑executive
Chairman and to assist with succession planning of key Board roles
thereafter (including a successor Senior Independent Director), and to
maintain an important degree of continuity among senior Board
positions within the Company as it emerges from a transformational
period that will have seen changes to its top three director roles of
Chief Executive Officer, Chief Financial Officer and Chairman.
Mr Grigg, Non‑executive Director, is standing for election as a Director
for the first time following his appointment to the Board on 1 October
2024. Mr Grigg has extensive senior executive experience as a former
FTSE Chief Executive Officer, and within the aerospace and defence
sector. Mr Grigg was a Non‑executive Director of BAE Systems plc for
10 years until December 2023, latterly serving as its Senior
Independent Director. In his executive career, Mr Grigg was Chief
Executive of British Land from January 2009 and left the board in
December 2020. Earlier in his career, Mr Grigg was Chief Executive of
Barclays Commercial Bank, and Treasurer of Barclays Bank plc. Prior
to Barclays, he spent 20 years at Goldman Sachs, latterly as a partner,
having started his career at Morgan Grenfell. Mr Grigg is currently Chair
of the National Wealth Fund (formerly known as the UK Infrastructure
Bank) and its nominations committee, having served in those roles
since April 2021. Mr Grigg is also Chair of Evelyn Partners and its
nominations committee, having served in those roles since February
2022, prior to which he served as a Non‑executive Director, and serves
as a member of the FTSE Women Leaders Review’s independent
steering body.
Dr Barkshire, Non‑executive Director, is also standing for election as
a Director for the first time, following his appointment to the Board on
1 October 2024. Dr Barkshire brings a wealth of executive experience
to the Board, having spent most of his career driving the development,
commercialisation and delivery of innovative technologies and
specialised products to the world’s leading industrial companies.
Dr Barkshire was the Chief Executive Officer of Oxford Instruments plc
between 2016 and 2023, spending over 20 years at the company in a
number of leadership positions, including Chief Operating Officer,
Group Technical Director and Divisional Head. Earlier in his career,
Dr Barkshire was Senior Principal Scientist at GEC‑Marconi Materials,
before which he was a Research Fellow at the University of York.
Dr Barkshire is a Fellow of the Royal Academy of Engineering and is
currently a member of the Strategic Advisory Board of the UK National
Quantum Technologies Programme as well as Chair of Illumion
Limited, a technology start‑up company.
Continued
120
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
The following Non‑executive Directors are standing for re‑election due
to their independence, diversity, skills and experience. In particular:
• Ms Twyning was appointed as a Non‑executive Director on
1 October 2018 and has chaired the Nomination Committee since
1 January 2022. Ms Twyning brings a diverse range of experience
and commercial acumen to the Board as well as a deep
understanding of the Melrose business as she enters her third
three‑year term. After a successful legal career specialising in
competition and M&A law in the City, Ms Twyning has held various
senior positions across a number of sectors, most recently in
aviation and transportation. Ms Twyning has proven executive
leadership and operational skills in large, complex organisations
and has consistently succeeded in driving performance, leading
large‑scale sustainable transformations and building the
foundations for growth throughout her career. She now enjoys a
portfolio career, comprising a number of non‑executive, trustee
and advisory roles.
• Mrs Lawrence was appointed as a Non‑executive Director on
1 June 2021 and has chaired the Audit Committee since
5 May 2022. Mrs Lawrence originally qualified as a chartered
accountant and subsequently spent well over a decade working
in senior roles within corporate finance and investment banking
where she honed her experience across industrials and
transportation businesses. Mrs Lawrence has significant
non‑executive experience, including as a Non‑executive Director
of Antofagasta PLC, as well as having the necessary expertise
required to perform the role of Chair of the Audit Committee.
• Ms Elcock was appointed as a Non‑executive Director on
21 June 2023. Ms Elcock has extensive asset management and
investment research experience, including covering the aerospace
and defence sector. Ms Elcock is the founder and former Managing
Director of Denny Ellison, an independent investment research and
training company. Prior to this, she worked as an equity research
analyst for several years at Putnum Investments and Insight
Investment. Ms Elcock also brings insight gained from several other
non‑executive director roles, and has two engineering degrees
from MIT and an MBA from the Harvard Business School.
Biographies of each of the Directors are shown on pages 108 and 109,
and on the Company’s website at www.melroseplc.net/governance/
board‑leadership/. Detailed justifications for each Director’s
re‑election (or election, as the case may be) are set out in the Notice
of Annual General Meeting, on pages 245 to 252.
4. PRINCIPLES M‑O: AUDIT, RISK AND
INTERNAL CONTROL
OBJECTIVES AND POLICY
A key responsibility of the Board and the senior management team is
to safeguard and increase the value of the businesses and assets of
the Group for the benefit of its shareholders. Achievement of these
objectives requires the development of policies and appropriate internal
control frameworks and maintaining such policies and frameworks to
ensure that the Group’s resources are managed properly and that any
key risks are identified and mitigated where possible.
The Board is ultimately responsible for the development of the
Group’s overall risk management and internal control frameworks,
and for reviewing and maintaining their respective effectiveness. In
assisting the Board with these responsibilities, the Audit Committee
reviews the effectiveness of, monitors, and oversees, the Group’s risk
management, internal financial control systems and processes, and
compliance controls, and provides both feedback and
recommendations to the Board. The role of the senior management
team is to implement these risk management and internal control
policies and frameworks across the Group’s business operations.
The Directors recognise that the systems and processes established
by the Board are designed to manage, rather than eliminate, the risk
of failing to achieve business objectives and cannot provide absolute
assurance against material financial misstatement or loss.
The Board assumes ultimate responsibility for risk management and
internal controls, including determining the nature and extent of the
principal risks it is willing to take to achieve its strategic objectives (its
‘risk appetite’) and ensuring an appropriate culture has been
embedded throughout the organisation. The Audit Committee
supports the Board in monitoring risk exposure against risk appetite,
whilst the Board remains responsible for reaching its own conclusions
regarding the recommendations it receives as well as forming its own
views on the effectiveness of risk management and internal controls.
The risk management and internal control system is complemented
by ongoing monitoring and review, to ensure that the Company is
able to adapt to an evolving risk environment. During 2024 this
included a review of the changes being made, with effect for financial
years commencing on or after 1 January 2026, to enhance Provision
29 of the Code in relation to the monitoring and review of the
effectiveness of companies’ risk management and internal controls
frameworks and disclosures to be made in relation to the same.
Preparations are underway to ensure the Company is well‑positioned
to make the first disclosure under Provision 29 of the 2024 Code in its
2026 Annual Report.
The Audit Committee report is set out on pages 124 to 131 and
provides details of the role and activities of the Audit Committee and
its relationship with the internal and external auditors.
121
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
CORPORATE GOVERNANCE REPORT
MANAGING AND CONTROLLING RISK
The Group’s approach to risk management is regularly reviewed and
enhanced. The Board is responsible for determining the nature and
extent of the principal risks the Group is willing to take in order for the
Group to meet its long‑term strategic objectives. The systems,
processes, and controls in place accord with the Code which enable
the Board to undertake a robust assessment of the Company’s
emerging and principal risks. The Board confirms that such an
assessment has been completed. Further details on the Group’s risk
management strategy are set out on pages 34 to 36.
Further information regarding the Group’s financial risk objectives
and policies can be found in the Chief Financial Officer’s review on
pages 26 to 33. A summary of the principal risks and uncertainties
that could impact upon the Group’s performance is set out on
pages 37 to 44.
INTERNAL FINANCIAL CONTROLS
AND REPORTING
The Group has a comprehensive system for assessing the effectiveness
of the Group’s internal controls, including strategic business planning
and regular monitoring and reporting of financial performance.
A detailed annual budget is prepared by senior management and
thereafter is reviewed and formally adopted by the Board.
The budget and other targets are regularly updated via a rolling
forecast process and regular business review meetings are held with
senior management to assess performance. The results of these
reviews are in turn reported to, and discussed by, the Board at each
meeting. The Board also holds a series of scheduled business review
meetings throughout the year with senior management to review the
performance of each business line and each key business function.
As discussed in the Audit Committee report on pages 124 to 131, the
Group engages BM Howarth Ltd as internal auditor with additional
support, as required, from Ernst & Young. A total of 17 GKN Aerospace
sites across the Group were assessed by BM Howarth Ltd during
2024 as part of the rolling internal audit programme.
The Directors can report that based on the sites reviewed in 2024,
there has been progress across the Group following the 2023 internal
audit programme and that the majority of the recommendations
presented in internal audit reporting have been or are in the process
of being implemented.
The Audit Committee also monitors the effectiveness of the internal
control process implemented across the Group through a review of
the key findings presented by the external and internal auditors.
Management is responsible for ensuring that the Audit Committee’s
recommendations in respect of internal controls and risk
management are implemented.
During 2024, the Audit Committee discussed and approved in
principle management’s proposal to transition from an externally
supported internal audit function to an in‑house internal audit function
as part of its regular assessment of internal audit and in conjunction
with BM Howarth’s resignation from its role. Further information
regarding the decision and progress made can be found in the Audit
Committee report on page 131.
ETHICS AND COMPLIANCE
The Company takes very seriously its responsibilities under the laws
and regulations in the countries and jurisdictions in which the Group
operates and has in place appropriate measures to ensure
compliance. A compliance framework is in place comprising a suite of
Group‑wide policies relating to anti‑bribery and corruption,
anti‑money laundering, anti‑facilitation of tax evasion, competition,
conflict minerals, trade compliance, data privacy, whistleblowing,
treasury and financial controls, anti‑slavery and human trafficking,
document retention, joint ventures, diversity and inclusion,
environmental, human rights, supply chain, biodiversity and water.
Other than in respect of certain policies where it would not be
appropriate for them to have such a broad reach, these policies
generally apply to all Directors, employees (whether permanent,
fixed‑term, or temporary), pension trustees, consultants and other
business advisors, contractors, trainees, volunteers, business agents,
distributors, joint venture partners or any other person working for or
performing a service on behalf of the Company, its subsidiaries and/
or associated companies in which the Company or any of its
subsidiaries has a majority interest.
Online compliance training continued to be conducted within the
business, covering topics such as anti‑trust, trade compliance and
export controls, data privacy, anti‑bribery and corruption, and
anti‑money laundering, to enhance and supplement the existing
compliance regime.
The Company’s Modern Slavery Statement is approved by the
Board annually and the most recent statement is available on the
Company’s website at www.melroseplc.net/governance/documents-
and-policies/. GKN Aerospace (through GKN Aerospace
Services Limited) has also published its own Modern Slavery
Statement, which is available on GKN Aerospace’s website at
www.gknaerospace.com/media/b3dpbks3/gkn-anti-slavery-
statement-fy2023-final-signed.pdf. Both statements have been
published in accordance with the requirements under the Modern
Slavery Act 2015. To support the Company’s belief in the importance
of this matter, it has a Group‑wide policy on the prevention of modern
slavery and human trafficking, which has been rolled out to
employees, along with an online compliance training module.
Please also refer to the Audit Committee report on page 129 for
details of the Company’s whistleblowing policies and procedures.
Continued
122
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
5. PRINCIPLES P‑R: EXECUTIVE
REMUNERATION
POLICIES AND PRACTICES
Melrose’s remuneration philosophy is that executive remuneration
should be simple, transparent, support the delivery of value creation,
and pay only for performance.
To support Melrose’s strategic transition to operating as a global
aerospace technology business, during 2024 the Company’s
remuneration structure was revised to reflect our strategic direction
and our focus on value creation, driven by continuous operational and
financial improvement over the longer term. The 2024 Directors’
Remuneration Policy, which was approved by shareholders at the
2024 AGM, rebalanced the Company’s remuneration structure to
align with Melrose’s FTSE 100 peers. In particular, the 2024 Directors’
Remuneration Policy rebalanced Melrose’s weighting of fixed to
variable remuneration, and of medium‑ to longer‑term incentivisation,
using a structure more closely aligned with other FTSE 100 companies.
DEVELOPMENT OF POLICIES
The Remuneration Committee has a formal and transparent
procedure for developing the Company’s policy on executive
remuneration and for determining director and senior management
remuneration. Shareholders are consulted to seek their views and
takes those views into account when formulating proposals on
executive remuneration. The Remuneration Committee obtains
advice from external remuneration advisors, and undertakes
benchmarking exercises as needed with respect to executive pay to
ensure that the executive remuneration structure remains appropriate.
Shareholders have the opportunity to vote on executive remuneration
through their binding vote at least every three years on the Directors’
remuneration policy and their advisory vote annually on the Directors’
remuneration report. No Director is involved in deciding their own
remuneration outcome.
INDEPENDENT JUDGEMENT AND DISCRETION
The Remuneration Committee exercises independent judgement and
discretion when authorising remuneration outcomes, taking account
of both Company and individual performance, and wider
circumstances. As mentioned above, the Remuneration Committee
obtains regular advice from external remuneration advisors in order to
ensure that proposals are in line with the Code, and benchmarked
against the Company’s peers. The current Directors’ Remuneration
Policy provides the Remuneration Committee with the ability to
exercise discretion to override formulaic outcomes. The
Remuneration Committee exercised discretions in connection with
the executive Directors who resigned during 2024. Details of those
discretions are set out on pages 142, 143 and 152. Other than those
discretions, the Remuneration Committee did not exercise any
discretions during 2024. There were no deviations from the Directors’
Remuneration Policy in respect of 2024 and the Remuneration
Committee did not exercise any discretion to alter the 2024 outcomes
from the application of the performance conditions.
Details regarding Directors’ remuneration, both generally and in
relation to the requirements of the Code, are set out in the Directors’
Remuneration report on pages 136 to 155, which is presented in the
following two sections:
• the annual statement from the Chair of the Remuneration Committee,
which can be found on pages 136 and 137; and
• the Annual Report on Remuneration, which can be found on
pages 138 to 155.
The current Directors’ Remuneration Policy, which was approved by
shareholders at the 2024 AGM, is available on the Company’s website(1).
(1) The full details of the 2024 Directors’ Remuneration Policy approved at the 2024 AGM can be found on
pages 145 to 152 of the 2023 Annual Report (www.melroseplc.net/investors/results-reports-and-presentations/).
123
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
The responsibilities of the Audit Committee (the “Committee”) include overseeing
financial reporting, internal financial controls and internal control and risk
management systems, in addition to making recommendations to the Board
regarding the appointment of the Company’s internal and external auditors.
AUDIT COMMITTEE REPORT
ROLE AND RESPONSIBILITIES
The Committee’s role and responsibilities are set out in its terms of
reference. These were last reviewed in November 2024 in line with
best practice and are available on the Company’s website at
www.melroseplc.net/governance/documents-and-policies and at the
Company’s registered office. In discharging its duties, the Committee
embraces its role of protecting the interests of all stakeholders with
respect to the integrity of financial information published by the
Company and the effectiveness of the audit. The responsibilities of
the Committee include:
• reviewing and monitoring the integrity of the financial statements of
the Group, including the Annual Report and financial statements
and interim financial statements, and reviewing and reporting to the
Board on the significant financial reporting issues and judgements
which they contain;
• keeping under review the effectiveness of the Group’s financial
reporting;
• reviewing the effectiveness of, and monitoring and overseeing, the
Group’s risk management processes (excluding cyber security and
fraud risk, which are retained by the Board), internal financial
controls and internal control and risk management systems that
identify, assess, manage and monitor financial risks and risk
management systems;
• overseeing the adequacy and security of the Company’s
arrangements for its employees to raise concerns in confidence in
accordance with the Company’s whistleblowing policy, including
about possible wrongdoing in financial reporting or other matters;
• monitoring and evaluating the independence and effectiveness of
the external audit function, taking into account relevant UK laws,
regulations, the Ethical Standards and other professional
requirements and the relationship with the auditor as a whole and
approving the external audit plan and fee;
• reviewing, challenging and reporting to the Board on the going
concern assumption and the assessment forming the basis of the
longer‑term viability statement;
• reviewing and, where necessary, challenging the consistency of
accounting policies, the methods used to account for significant or
unusual transactions, and compliance with accounting standards;
• reviewing the Company’s procedures for detecting fraud, and its
systems and controls for the prevention of bribery;
• reviewing and, where necessary, challenging the provision of
non‑audit services by the external auditor;
• developing and overseeing the selection process for the
appointment of the external auditor and in respect of an external
audit tender, making a recommendation to the Board on the
appointment of the external auditor following on from such tender
process;
• monitoring and evaluating the independence and effectiveness of
the internal audit function including ensuring the internal audit
function has the unrestricted scope and resources necessary to
enable it to fulfil its mandate and approving the internal audit plan
and fee; and
• reviewing and considering the Annual Report and financial
statements to ensure that they are fair, balanced and
understandable and advising the Board on whether it can state
that this is the case.
Heather Lawrence
Audit Committee Chair
Member
No. of meetings(1)(2)
Heather Lawrence (Chair)*
4/4
David Lis*
4/4
Charlotte Twyning
4/4
Gillian Elcock*
4/4
Ian Barkshire(3)
1/1
(1) Reflects regularly scheduled meetings of the Committee.
(2) Ms Jarman resigned as a Non‑executive Director and as a member of the Committee
on 2 May 2024. One Committee meeting was held between 1 January 2024 and the
date of Ms Jarman’s resignation which Ms Jarman was unable to attend due to a
conflicting engagement.
(3) Dr Barkshire was appointed to the Committee on 1 October 2024. One meeting of the
Committee took place between his appointment and 31 December 2024 which
Dr Barkshire attended.
*
Indicates Committee members with financial expertise. In total, following the retirement
of Ms Jarman, 60% of the Committee has financial expertise.
124
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
COMPOSITION
The Committee comprises independent Non‑executive Directors.
Mrs Heather Lawrence continued to act as Chair of the Committee.
Mrs Lawrence, Mr David Lis and Ms Gillian Elcock bring significant
and relevant financial experience to their roles on the Committee.
Furthermore, each member of the Committee, including Dr Ian Barkshire
and Ms Charlotte Twyning, brings strong corporate governance
experience to the Committee. The Committee as a whole has
competence relevant to the sector in which the Group operates, as can
be seen from the details of the relevant experience of each member of
the Committee as described in the biographies on pages 108 and 109.
The Company Secretary acts as secretary to the Committee.
To enable the Committee to provide robust challenge of the reports
submitted to it, the Committee invited the Chief Financial Officer, the
Group Financial Controller, the Head of Financial Reporting and
senior representatives of the external and internal auditors to attend
its meetings during 2024. The Chair of the Committee also spoke with
the Chief Financial Officer and other members of the Melrose finance
team prior to each Committee meeting. The Committee may invite
any other Directors and/or employees to attend meetings where this
is considered appropriate and during the year, the Chairman of the
Board attended all the Committee’s scheduled meetings. In addition,
the Committee meets at least once a year with the external and
internal auditors without management present, and the Chair of the
Committee speaks with the external and internal auditors prior to
each Committee meeting.
SUMMARY OF MEETINGS IN THE YEAR
The Committee is expected to meet not less than three times a year.
During 2024, and consistent with 2023, the Committee met four times
(March, June, July and November). The scheduling of these meetings
is designed to be aligned with the financial reporting timetable,
enabling the Committee to review the Annual Report and financial
statements, the interim financial statements and the audit plan in
advance of the year‑end audit and to maintain a view of the internal
financial controls and processes throughout the year.
SIGNIFICANT ACTIVITIES RELATED TO THE 2024
FINANCIAL STATEMENTS
As part of its duties the Committee undertook the following recurring
activities that receive annual scrutiny:
• review of the 2024 Annual Report and financial statements and the
interim financial statements, including the going concern
assumption for the Group and the assessment forming the basis of
the longer‑term viability statement. As part of this review, the
Committee received reports from the external auditor on their audit
of the Annual Report and financial statements and their review of
the interim financial statements, as well as papers prepared by
management in respect of going concern, longer‑term viability and
significant accounting and control matters;
• consideration of the 2024 Annual Report and financial statements
in the context of being fair, balanced and understandable and a
review of the content of papers prepared by management in
relation to the 2024 Annual Report and financial statements. The
Committee advised the Board that, in its view, the 2024 Annual
Report and financial statements when taken as a whole is fair,
balanced and understandable and provides the information
necessary for shareholders to assess the Company’s position and
performance, business model and strategy;
• review of the effectiveness of the Group’s internal financial controls
and internal control and risk management systems and disclosures
made in the 2024 Annual Report and financial statements on
this matter;
• review of the effectiveness of the Group’s internal and external
auditors; and
• review of, and agreement to, the scope of work to be undertaken in
respect of the 2024 financial statements by the external auditor and
the scope of work to be undertaken in 2025 by the internal auditor.
125
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
AUDIT COMMITTEE REPORT
In addition to these matters, the Committee considered the following significant issues in relation to the financial statements during the year:
Significant issue considered by the Audit Committee
How the issue was addressed by the Audit Committee
Accounting for revenue under IFRS 15
A high proportion of the Group’s revenue relates to the sale of
products and services where invoices are raised and revenue
recognised when control of the goods is transferred to the customer.
However, the Group has one major revenue stream which includes
recognition of variable consideration – unbilled work done, relating to
certain risk and revenue sharing partnerships (“RRSPs”) in a small
number of Aerospace businesses.
As required, management continues to review the key assumptions
that have a significant impact on the allocation of overall transaction
prices for impacted aerospace engine components. It is particularly
important to reassess the operational progress and status of engine
programmes. Specifically, in relation to variable consideration for
certain RRSPs, revenue is significantly constrained until there is better
visibility over the outcome to comply with the requirement that
amounts are only recognised when it is highly probable that they will
not reverse in the future.
Following continued positive commercial and operational progress on
certain affected engine programmes during the year, it was
concluded that an update to assumptions was appropriate, in line
with an agreed framework. The changes have had an impact on 2024
results (£91 million, including a retrospective catch up of £50 million)
and they will impact future results too.
The amount of variable consideration recognised in the year is
£274 million (2023: £173 million). The increase during the year is due
to a ramp‑up in volumes and operational benefits as well as
implications of changes in assumptions. There remains a significant
level of constraint in the unbilled work done contract asset.
(Refer to notes 3, 4 and 17 of the financial statements)
The Committee received an update prepared by management and
again discussed the implications of IFRS 15, which included an
assessment of estimates used in calculating variable consideration
and the unbilled work done contract asset for certain RRSPs.
The support for changes in estimates, impacting both the amount
and timing of revenue recognition, was considered and this was
deemed to follow commercial progress on specific programmes.
The impact of changes will be more significant in the future.
The Committee discussed the audit work performed by
PricewaterhouseCoopers LLP (“PwC”) to assess whether the
proposed revenue to be recognised, together with incremental
disclosures, was appropriate.
The Committee was satisfied that the approach and assumptions
used remained both reasonable and appropriate. Specifically, the
significant levels of constraint in the unbilled work done contract
asset are monitored closely.
However, it is understood that it remains reasonably possible that
assumptions may change which could lead to the recognition of
further unbilled work done in the next year.
Classification of adjusting items and use of Alternative
Performance Measures (“APMs”)
The reporting, classification and consistency of adjusting items
continues to be an area of focus for the Committee, in particular,
given the guidance on APMs provided by the Financial Reporting
Council (“FRC”) and European Securities and Markets Authority
(“ESMA”).
The Committee considers this a key consideration when reviewing if
the financial statements are fair, balanced and understandable.
(Refer to notes 3 and 6 of the financial statements)
The Committee has reviewed the nature, classification and
consistency of adjusting items, whilst considering the guidance
provided by the FRC and ESMA. These items are defined and
discussed in the Chief Financial Officer’s review and detailed in note 6
to the financial statements.
Specifically, the Committee focused on the areas of estimation within
significant restructuring project costs, which totalled £111 million
(2023: £149 million) and the accounting for the Group’s disposal of
three non‑core businesses, where there was a net loss of £43 million
in the year.
Following a review of management’s paper and challenge, the
Committee was satisfied that there have not been any changes to the
substance of the policy.
The Committee also considered disclosure of the Group’s APMs with
respect to applicable guidelines and noted that these are set out in
detail in the glossary to the financial statements. Reconciliations of
adjusted performance measures to statutory results are set out in
note 6 to the financial statements. The Committee found the
disclosures to be clear and transparent, assisting shareholders in
measuring the operating performance of the Group. The Committee
therefore concluded that adjusting items were appropriately captured
and disclosed.
Continued
126
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Significant issue considered by the Audit Committee
How the issue was addressed by the Audit Committee
Restatement of contract assets and liabilities
The Group changed its presentation of working capital items in the
balance sheet to address the netting of specific balances within
certain programmes. It was determined that the appropriate
presentation should be on a gross basis for a small number of
material issues.
Prior‑year comparatives have been restated as required by IAS 1, with
a restated 31 December 2022 balance sheet included as required by
IAS 8. The balance sheets were impacted by increasing inventories
(31 December 2023 and 2022: £3 million and £3 million respectively),
contract assets (31 December 2023 and 2022: £173 million and
£144 million respectively) and contract liabilities (31 December 2023
and 2022: £176 million and £147 million respectively). These changes
have not had any impact on net assets in the balance sheet or on the
other primary statements.
(Refer to note 1 of the financial statements)
The Committee reviewed the nature of the changes made and
reasons for change in the balance sheet at 31 December 2024, along
with the prior‑year restatements and associated disclosures detailed
in note 1 to the financial statements.
The Committee discussed the reasons for change with PwC, the
audit work performed by them and their conclusion regarding the
restatements.
Considering all of the above, as well as management responses, the
Committee was satisfied that the approach adopted was reasonable
and disclosures were appropriately presented.
Group’s capital structure
The Group had three material transactions impacting the capital
structure during the year:
• the finalisation of a £500 million and commencement of a
£250 million share buyback programmes;
• crystallisation and net settlement of the Melrose Employee Share
Plan (“MESP”); and
• a capital reduction to create further distributable reserves in the
parent company.
Whilst the accounting, presentation and disclosure of these
transactions and their associated cash outflows, £431 million for the
share buyback programmes and £198 million for the net settlement of
the MESP, were not judgemental, they were material.
(Refer to notes 1, 9, 10, 23 and 26 of the financial statements)
The Committee reviewed a paper presented by management and
challenged certain aspects of the disclosure presented in the financial
statements. Following responses from management and PwC, the
Committee was satisfied that each of the transactions had been
treated appropriately.
Impairment testing of goodwill
Impairment testing is inherently subjective as it includes assumptions
in the calculation of recoverable amount for each of the groups of
cash-generating units (“CGUs”) being tested. Assumptions include
future cash flows of the relevant groups of CGUs, discount rates that
reflect the appropriate risk and long‑term growth rates which are
consistent with the industry and geography of operations.
Due to consequential impacts from continued disruption of supply
chains and interest rate rises, businesses within the Group are
continuing to mitigate the impact of volatile customer scheduling
through cost reduction and efficiency actions.
No impairment of goodwill balances has been recorded in the Group
financial statements for 2024 consistent with the strong performance
seen during the year and expectations for the future.
(Refer to note 11 of the financial statements)
The Committee challenged the outcome of the impairment testing in
respect of both groups of CGUs. In doing so, the Committee
considered a paper prepared by management and the
appropriateness of the disclosures in the financial statements in
respect of the impairment testing performed.
The Committee discussed with PwC the audit work performed by
them and their conclusion regarding the disclosures presented.
Considering all of the above, as well as management responses and
PwC’s views, the Committee was satisfied that the assumptions used
and impairment conclusions, together with disclosures, were
appropriately presented.
127
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
AUDIT COMMITTEE REPORT
Significant issue considered by the Audit Committee
How the issue was addressed by the Audit Committee
Deferred tax asset (“DTA”) in the UK
The Group has significant deferred tax assets on its balance sheet,
particularly relating to the UK. These have arisen from tax losses and
other temporary differences on, for example, property, plant and
equipment and pension liabilities. DTAs are recognised only to the
extent it is probable that future taxable profits will be available against
which the assets can be utilised. A recoverability assessment has
been undertaken using the Group’s latest approved profit forecasts
which reflect industry growth rates and supply and demand factors.
The assessment takes both positive and negative evidence into
account, and sensitivity analysis has been undertaken which considers
the impact of lower growth rates and levels of operating profit.
At 31 December 2024, the Group has a net UK DTA of £277 million
(31 December 2023: £237 million). Given the long‑term nature of the
aerospace industry, with typical Structures programme life cycles of 25
to 35 years, the forecast recovery of the UK DTA is consistent with this.
(Refer to notes 3 and 22 of the financial statements)
The Committee challenged the assessment performed by
management. In doing so the Committee considered a paper
prepared by management and the appropriateness of the disclosures
in the financial statements in respect of the estimations used.
The Committee also discussed with PwC the audit work performed
by them and their conclusion regarding the disclosures presented.
After discussion and challenge, the Committee was satisfied that the
assumptions used and conclusions reached together with
disclosures, were supportable.
Going concern and viability
The Committee is required to assess the going concern assumption
for the Group and the basis of the longer‑term viability statement
before making a recommendation to the Board.
The assessment of going concern uses the same forecast data as in
many other areas of estimation within the financial statements and
considers the banking covenant tests.
(Refer to note 2 of the financial statements)
The Committee reviewed and approved management’s
recommendation to prepare the financial statements on a going
concern basis. The key principles debated were the level of
committed facility headroom on bank covenants and the flexibility of
liquidity arrangements to meet obligations. In addition to base case
modelling, which uses approved financial forecasts, a severe but
plausible downside scenario was also considered.
The Committee considered a paper and financial model prepared by
management in respect of the longer‑term viability statement to be
included in the Annual Report and financial statements as well as
analysis conducted by the external auditor. The Committee
challenged the assumptions and judgements made by management
before concluding that the longer‑term viability statement was
appropriate.
Continued
128
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
RISK MANAGEMENT AND INTERNAL CONTROL
One of the key roles of the Committee is to review and monitor the
Group’s risk management, internal financial control systems and
processes, and compliance controls. The Committee has a high
degree of risk and compliance expertise to enable it to fulfil this role.
In particular, Mrs Lawrence and Mr Lis have each held senior roles at
various financial institutions while Dr Barkshire has a wealth of
executive experience having served as both Chief Executive Officer
and Chief Operating Officer of a UK listed public company.
Furthermore, Mrs Lawrence, Mr Lis and Ms Elcock have held various
non‑executive directorship positions on the boards of UK listed
public companies.
During 2024, the Committee continued to keep the Company’s
internal financial controls systems that identify, assess, manage and
monitor financial risks and other internal control and risk management
systems, and the effectiveness of the Group’s risk management
system, under review. This was achieved through regular reports from
management regarding their assessment of control and risk
management (including twice‑yearly risk management reports) as
well as updates and reporting from the Group’s internal auditors,
BM Howarth, and review of reports from the Group’s external
auditors, PwC. The Committee also appraised responses to cyber
security risks and received regular updates on whistleblowing
reports. The scope, mandate and review schedule of the Group’s
internal audit programme was reviewed and approved in advance by
the Committee.
The executive committee, with support from the Melrose legal team,
the financial compliance and assurance team and other members of
senior management, led the Group‑wide risk review and reporting
process through the year for the benefit of the Committee and the
Group as a whole. The top‑down, bottom‑up risk review process
involves multiple rounds of direct engagement with all members of
the Group’s executive committee as well as other key senior risk
owners and supports the Committee’s oversight of developing risk
areas, mitigations, controls and trends.
Following the Company’s change of strategy during 2023 to operating
as a global aerospace technology group, Ernst & Young supported
the risk management process by analysing the Group’s principal risks
profile against other aerospace and defence companies based on
their public disclosures. Senior management conducted a similar
analysis during 2024.
The Committee reviewed and challenged the Group’s risk
management processes and also reviewed and challenged the
interim and annual risk management reports prepared for the
Committee by senior management relating to the Group’s principal
risks profile. These reports guided the Committee on relevant
updates relating to the development of the Group’s principal risks
(including in respect of risk trends and mitigation activities) as
reported in the Risks and uncertainties section on pages 37 to 44.
They also aided the Committee’s discussions with the Board on risk
appetite, as detailed further on page 35.
Management also reported on the Group’s internal control systems
supported by the internal audit review.
The Group’s risk management and internal financial control systems
were reviewed and the Committee confirmed their effectiveness to
the Board. No significant weaknesses were identified.
UK CORPORATE GOVERNANCE
CODE AMENDMENT
The Committee has reviewed and discussed the changes to the UK
Corporate Governance Code (the “Code”) being made in the 2024
Code. In particular for financial years commencing on or after
1 January 2026, Provision 29 of the Code requires the Board to
monitor and review the effectiveness of the Company’s risk
management and internal controls frameworks and related
disclosures. Preparations are under way to ensure the Company is
well‑positioned to make its first set of disclosures under Provision 29
of the 2024 Code in the 2026 Annual Report. Steering and working
committees have been established and a roadmap has been
developed with work in progress to assess current financial,
operational, reporting and compliance controls and to identify and
implement appropriate enhancements to existing control processes
co‑led by the Melrose legal team and the financial compliance and
assurance team. Senior management will be reporting regularly to the
Committee on progress during 2025.
WHISTLEBLOWING
The Committee is required to oversee the adequacy and security of
the Company’s arrangements for its employees to raise concerns in
confidence in accordance with the Company’s whistleblowing policy,
including about possible wrongdoing in financial reporting or other
matters. The Company runs a well‑established Group‑wide
whistleblowing platform, which is overseen by the Committee and
supported by the Group’s senior management team and ultimately
reported to the Board. The platform is monitored by the Melrose legal
team. All employees have access to a multi‑lingual online portal,
together with local hotline numbers that are available 24/7, in order to
raise concerns, confidentially and (if desired) anonymously, about
possible wrongdoing in any aspect of the business, including financial
and non‑financial matters. The most material whistleblowing cases
are notified to the Chair of the Committee promptly, and quarterly
whistleblowing reports are prepared by senior management for
discussion at each Committee meeting with a view to ultimately
reporting such matters to the Board.
COMMITTEE EVALUATION
The Code requires that FTSE 350 companies undertake a formal and
rigorous annual evaluation of the performance of the Board, its
committees, the Chairman of the Board and individual Directors. In
particular, FTSE 350 companies should undertake an externally
facilitated Board and committee evaluation once every three years.
The last external Melrose Board and committee review was
undertaken by Lintstock Ltd in 2023 and as such, the Company is not
required to undertake another externally facilitated Committee
evaluation until 2026. During the year, the Company continued its
ongoing internal review of the Committee and collected feedback
from Committee members with a similar range of focal topics as
featured in the 2023 external review. Specifically, the assessment
covered: (i) the constitution and performance of the Board and each
committee; (ii) the Chairman of the Board; and (iii) individual
performance reviews. Alongside such formal feedback, the
Committee continued to facilitate direct ongoing contact between its
members and the Chair of the Committee about any relevant matters
that the members wished to raise as part of the ongoing review.
129
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
AUDIT COMMITTEE REPORT
EXTERNAL AUDIT
Assessment of effectiveness of
incumbent external auditor
The Committee reviews and makes recommendations with regard to
the reappointment of the external auditor. In making these
recommendations, the Committee considers auditor effectiveness
and independence, partner rotation and any other factors which may
impact the external auditor’s reappointment.
The Committee has reviewed the performance and effectiveness of the
incumbent external auditor, PwC. For 2024, a series of questions
covering key areas of the audit process that the Committee is expected
to have an opinion on were considered by the Committee, including:
• the calibre, experience, resources, leadership and technical and
industry knowledge of the engagement partner and of the wider
external audit team;
• the planning and execution of the audit process;
• the quality and timeliness of communications from the external
auditor; and
• the quality of support provided to the Committee by the external
audit partner.
Committee members, together with the Group finance team led by
the Chief Financial Officer, were requested to provide detailed
feedback on the effectiveness of the external auditor. The Chair of the
Committee also sought feedback from the internal auditor. The
Company Secretary subsequently produced a paper summarising
the responses, which was considered by the Committee. The
Committee concluded that the quality of the external audit team was
appropriate, the external audit process was operating effectively, and
PwC had proved effective in its role as external auditor for the
first year.
Non‑audit services
Under the Competition and Markets Authority (the “CMA”) and EU
regulations (as they form part of retained UK law), there are
restrictions on the type and amount of non‑audit services provided by
PwC. These cap the level of permissible non‑audit services awarded
to the external auditor at 70% of the average audit fee for the previous
three years. The cap applies in respect of the current financial year,
with audit fees in 2021, 2022 and 2023 being relevant. PwC were
appointed as external auditor in 2024 and as such there were no
PwC audit fees in the previous three years. Whilst there is no
historical audit fee data, the Committee is satisfied that the level of
permissible non‑audit services is below 70% of the in‑year audit fee.
A policy on the engagement of the external auditor for the supply of
non‑audit services is in place to ensure that the provision of non‑audit
services does not impair the external auditor’s independence or
objectivity. The policy outlines which non‑audit services are
pre‑approved (being those which are routine in nature, with a fee that
is not significant in the context of the audit or audit‑related services),
which services require the prior approval of the Committee and which
services the auditor is excluded from providing.
The general principle is that the audit firm should not be requested to
carry out non‑audit services on any activity of the Company where
the audit firm may, in the future, be required to give an audit opinion.
In accordance with best practice FRC guidelines, the Company’s
policy in relation to non‑audit services is kept under regular review.
The policy was reviewed during the year against the FRC Revised
Ethical Standard (2024) and no updates were required to be made.
The policy was last updated in 2020 to reflect current market practice
and the then current FRC Revised Ethical Standard.
Having undertaken an external auditor tender process in 2022, during
the course of 2023 non‑audit services formerly provided by the
incoming auditor, PwC, were migrated to other firms as part of the
transition process to PwC as the Company’s new external auditor for
the financial year ending 31 December 2024. PwC ceased the
provision of all non‑audit services to the Group as of 12 August 2023
except as expressly approved by (among others) the Committee.
During 2024, no services were provided by PwC other than for
statutory audit and audit‑related assurance services except for the
performance by PwC of a review of the Company’s interim financial
statements for a fee of £470,000 which had been approved by the
Committee as a permissible non‑audit service. The Committee is
satisfied that the Company was compliant during the year with the
FRC’s Ethical Standards for Auditors in respect of the scope and
maximum permitted level of fees incurred for non‑audit services
provided by PwC.
The Committee closely monitors the amount of non‑audit work
undertaken by the external auditor and, in accordance with its
non‑audit services policy, directs non‑audit work to other firms unless
there is a particular justification for PwC to carry out such work. In
such cases, the Chair of the Committee must first approve such work.
An analysis of the fees earned by the external auditor for audit and
non‑audit services can be found in note 7 to the consolidated
financial statements.
Auditor objectivity and independence
The Committee carries out regular reviews to ensure that auditor
objectivity and independence are maintained at all times. As in
previous years, the Committee specifically considered the potential
threats that each limited non‑audit engagement may present to the
objectivity and independence of the external auditor. In each case,
the Committee was satisfied with the safeguards in place to ensure
that the external auditor remained independent from the Company
and its objectivity was not, and is not, compromised. No fees were
paid to PwC on a contingent basis.
At each year end, the external auditor submits a letter setting out how
it believes its independence and objectivity have been maintained.
The external auditor is also required to rotate the audit partner
responsible for the Group audit every five years and significant
subsidiary audits every five years.
Based on these strict procedures, the Committee remains confident
that auditor objectivity and independence have been maintained.
Continued
130
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
INTERNAL AUDIT
An internal audit programme is used within the Group. BM Howarth,
an external firm, provides internal audit services to the Group in
accordance with an annually agreed Internal Audit Charter and
internal audit plan. Where additional or specific resource is required,
additional support is provided by Ernst & Young. A rotation
programme is in place, such that every site will have an internal audit
at least once every three years, with the larger sites being reviewed at
least once every two years. The rotation programme allows local
management’s actions and responses to be followed up on a timely
basis. The internal audit programme of planned visits for the
forthcoming year is discussed and agreed with the Committee during
each year.
The internal auditor’s remit includes assessment of the effectiveness
of internal financial control systems, compliance with the Group’s
Policies and Procedures Manual and a review of the Group’s balance
sheet. A report of key findings and recommendations is presented to
senior management, including the Head of Financial Reporting,
followed by a meeting to discuss these key findings and to agree on
resulting actions. Internal audit site visits were conducted by BM
Howarth across a total of 17 GKN Aerospace sites in 2024.
To supplement the internal audit programme, a balance sheet review
process is conducted twice‑yearly of all site balance sheets (save
where an internal audit has been undertaken during the half year).
These are undertaken by central and operational finance team
members and are carried out cross‑divisionally for objectivity and
independence. Self‑certification questionnaires are also completed
for all sites on a monthly basis. Analysis from these exercises is
discussed monthly at internal meetings attended by the Head of
Financial Compliance & Assurance, the Chief Financial Officer and
other key members of the finance team.
A report of all significant findings is presented by the internal auditor
to the Committee at each meeting and implementation of
recommendations is followed up at subsequent Committee meetings.
Any control findings are followed up by the business to ensure a
strengthening of the site‑based accounting functions, including
specific action plans to address any shortcomings identified. In the
event that significant deficiencies are found in internal financial
controls, these are immediately brought to the attention of the Chief
Financial Officer and the senior finance management team so that
urgent action plans can be agreed. Follow‑up site visits were
performed during 2024 which identified significant progress in the
improvement of financial controls at sites.
A review of the internal audit process and scope of work covered by
the internal auditor is the responsibility of the Committee, to ensure
their objectives, level of authority and resources are appropriate for
the nature of the businesses under review. This also considers the
insights provided, improvements achieved and feedback from a
number of sources including key representatives of the Company.
During 2024, as part of its regular assessment of internal audit the
Committee discussed and approved in principle management’s
proposal to transition from an externally resourced internal audit
function to an in‑house internal audit function. The Committee
decided that such a transition would be appropriate following the
change of business strategy and having regard to prevailing market
practice of having an in‑house internal audit function among FTSE
100 and aerospace peers (compared to the prior approach by
Melrose under its former strategy where the Group composition was
expected to change through frequent transformational M&A), as well
as to the changing internal controls requirements being introduced by
the 2024 Code. It was considered that the change to an in‑house
function would enable the Company to drive continuous improvement
over the long‑term both within the function and within the business
more widely. As such, following BM Howarth’s decision to resign from
its role, the Committee approved the proposal to bring the function
in‑house during 2025 under the leadership of a new Head of
Assurance role. A recruitment process was undertaken with an
external consultancy firm to secure a Head of Assurance to bring
relevant and recent FTSE 100 leadership experience to the internal
function, and the Committee approved an appointment in early 2025.
The Committee approved the re‑appointment of BM Howarth for a
transitional period. BM Howarth are expected to continue to provide
internal audit services during the first half of 2025 following which the
internally‑led function, with transitional support from Ernst & Young to
facilitate the smooth transition to the internalised function, will take
the internal audit programme forward.
The Committee would like to thank the Group finance team, the
internal auditor, the external auditor and the Group Company
Secretariat for their hard work throughout 2024.
Heather Lawrence
Chair, Audit Committee
6 March 2025
131
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
The Nomination Committee (the “Committee”) has overall responsibility for making
recommendations to the Board on all new Board appointments and for ensuring that the
Board and its committees have the appropriate balance of skills, experience, independence,
diversity and knowledge to enable them to discharge their respective duties and
responsibilities effectively.
NOMINATION COMMITTEE REPORT
DISCHARGE OF RESPONSIBILITIES
The Committee discharges its responsibilities through:
• regularly reviewing the size, structure and composition of the
Board, including by means of overseeing the annual performance
review processes of the Board and its committees, and providing
recommendations to the Board of any adjustments that may be
necessary from time to time;
• giving full consideration to succession planning in order to ensure
an optimum balance of executive and Non‑executive Directors in
terms of skills, experience and diversity, and in particular
formulating plans for succession for the key roles of Chairman of
the Board, Chief Executive Officer and Chief Financial Officer;
• reviewing the career planning and talent management programme
related to senior executives of the Company to ensure that it meets
the needs of the business;
• managing the Board recruitment process and evaluating the skills,
knowledge, diversity and experience of potential Board candidates
in order to make appropriate nominations to the Board;
• reviewing and approving the Board of Directors’ Diversity policy
and the Melrose Diversity, Equity and Inclusion policy; and
• keeping up to date and fully informed on strategic issues and
commercial changes affecting the Company and the markets in
which it operates.
The Committee’s terms of reference, which were last reviewed and
updated by the Committee in December 2024, are available to view
on our website, www.melroseplc.net, and from the Company
Secretary at Melrose’s registered office.
COMMITTEE MEMBERSHIP AND ATTENDANCE
The Committee comprises six out of seven of the Company’s
independent Non‑executive Directors.
The Committee is expected to meet not less than twice a year. During
2024, the Committee held two scheduled meetings. The attendance of
its members at these Committee meetings is shown in the table above.
The Company Secretary acts as secretary to the Committee. On
occasion, the Committee invites the Chief Executive Officer to attend
discussions where his input is required (for example, in relation to
senior management talent review and succession planning).
Member
No. of meetings(1)(2)
Charlotte Twyning (Chair)
2/2
Justin Dowley
2/2
David Lis
2/2
Gillian Elcock
2/2
Chris Grigg(3)
1/1
Ian Barkshire(3)
1/1
(1) Reflects regularly scheduled meetings of the Committee.
(2) Ms Jarman resigned as a Non‑executive Director and as a member of the Committee
on 2 May 2024. No meetings of the Committee were held during 2024 prior to her
resignation.
(3) Mr Grigg and Dr Barkshire were appointed as members of the Committee with effect
from 1 October 2024 and attended the Committee meeting held on 13 November 2024
(being the only meeting held during the period 1 October 2024 to 31 December 2024).
Charlotte Twyning
Nomination Committee Chair
132
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
BOARD COMPOSITION
AND SUCCESSION PLANNING
The Committee keeps the membership of the Board under review,
including its size and composition, and makes recommendations to
the Board on any adjustments it thinks are necessary. The Committee
recognises the value in attracting Board members from a diverse
range of backgrounds who can contribute a wealth of knowledge,
understanding and experience. The Committee works with the Board
in order to ensure both of these matters are taken into account to aid
effective succession planning across the short, medium and long
term. The Committee also reviews succession planning and talent
development at senior management level to ensure plans are in place
for orderly succession to senior management positions as further
described below.
In connection with Melrose’s strategic shift to operating as a global
aerospace technology business, succession planning for the executive
Directors was a key focus for the Committee in 2023. Mr Peter Dilnot
and Mr Matthew Gregory were appointed as Chief Executive Officer
and Chief Financial Officer on 6 and 7 March 2024 respectively,
succeeding the former Chief Executive and Group Finance Director
and providing strong management continuity. Mr Dilnot had served as
Melrose Chief Operating Officer since April 2019 as well as serving as
Chief Executive Officer of GKN Aerospace for periods during his
tenure, while Mr Gregory had served as Chief Finance Officer of
GKN Aerospace since September 2022.
Succession planning arrangements for the Board as a whole were
reviewed by the Committee in 2024 including in the context of the
change in business strategy of the Company, as well as a review of the
tenure, diversity and independence of those already on the Board.
As previously announced, having led the Board through the Group’s
recent strategic transition our Chairman Mr Justin Dowley will step
down from the Board on 31 March 2025. During the year the Board,
led by our Senior Independent Director, Mr David Lis, completed its
search for his successor as Chairman. The Board was delighted to
appoint Mr Chris Grigg as a Non‑executive Director and Chair
designate on 1 October 2024 following a thorough recruitment
process conducted by Stonehaven International (“Stonehaven”), an
external recruitment consultancy firm unconnected with the Company
and its Directors. Mr Grigg will succeed Mr Dowley as Chairman on
30 March 2025. Mr Grigg has extensive senior executive experience
as a former FTSE Chief Executive Officer as well as 10 years’
experience as a non‑executive director of BAE Systems plc, latterly
serving as its Senior Independent Director.
The Board also appointed Dr Ian Barkshire as Non‑executive Director
on 1 October 2024 following a thorough recruitment process
conducted by Stonehaven. Dr Barkshire was the Chief Executive
Officer of Oxford Instruments plc between 2016 and 2023, spending
over 20 years at the company including as Chief Operating Officer and
Group Technical Director. Dr Barkshire has a wealth of experience in
driving the development, commercialisation and delivery of innovative
technologies to the world’s leading industrial companies.
NON‑EXECUTIVE DIRECTORS’ TENURE
Mr Lis, Senior Independent Director, will have served as
Non‑executive Director for nine years in May 2025. This is a key date
in the consideration of his independence under the UK Corporate
Governance Code (the “Code”) and as such his tenure was due to
expire at the 2025 AGM. However, the Nomination Committee and
the Board have approved an extension of Mr Lis’s tenure as Senior
Independent Director to 31 December 2025 to facilitate and
implement the effective succession of Mr Grigg as Chairman, and
to assist with succession planning for key Board roles thereafter,
including the appointment of a successor Senior Independent
Director. Mr Lis will therefore be standing for re‑election at this
year’s AGM.
Details of the tenure of the other Non‑executive Directors can be
found on pages 108 and 109.
RE‑ELECTION AND ELECTION OF DIRECTORS
The effectiveness and commitment of each of the Directors is
reviewed annually as part of the Board performance review upon
recommendations from the Committee. The Committee reviewed
each Director in turn to satisfy itself as to their individual skills, relevant
experience, contributions and time commitments to the long‑term
sustainable success of the Company. Whilst noting that Mr Dowley
will not be standing for re‑election by shareholders at this year’s
AGM, the Committee and the Board have each satisfied themselves
that each of the remaining Directors should stand for re‑election or
election (as applicable), and the justifications for such (re‑)elections
are set out on pages 120 and 121 of this Annual Report and in the
Notice of Annual General Meeting on pages 245 to 252.
SKILLS
The Board possesses a wide range of knowledge and experience,
both executive and non‑executive, from a variety of sectors. In order
to ensure the maximum effectiveness of the Board, the Committee
continues to review the balance of skills and experience of Board
members with a view to continuing to build the Board’s
sector‑specific and senior FTSE plc experience to ensure continued
rigorous oversight of Melrose under its new strategy and business
model as a global aerospace technology business – a process that is
well underway. The Committee considers that the current Directors,
including the Non‑executive Directors, have a diverse range of skills
and experience that is necessary both to discharge their duties as
Directors of the Company, and to create a culture of collaborative and
constructive discussion, which enables the Board to contribute
effectively to the delivery of the Company’s strategy. The balance of
skills across the Board is reviewed regularly by the Committee. As set
out on page 105, the current Directors have skills and experience
across five areas that the Committee considers to be key to delivering
the Company’s strategy: accounting, finance and investment;
aerospace and aviation; industrial and technology; legal and
corporate governance; and sustainability.
133
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
WIDER SUCCESSION PLANNING
The Committee does not have direct responsibility for the succession
planning arrangements below Board level, with responsibility for the
succession planning arrangements regarding the senior management
team resting with the Chief Executive Officer. However, the
Committee takes an active interest in discussing and reviewing
succession planning arrangements for the executive committee,
including the career planning and talent management programmes
currently in operation for them, and met with the Chief Executive
Officer during the year to review those programmes. This allows the
Committee to ensure that the right balance of skills, experience and
diversity are reflected and being developed in the senior management
team. The Committee is satisfied as to the Company’s current Board
and senior management succession planning arrangements and will
continue to keep these under review and discussion in 2025.
The Board also has access to key individuals within this executive
committee and wider senior management team through a
combination of site visits, the business review cycle, Board and
committee meetings, as well as being provided with relevant
information in order to monitor diversity among them.
DIVERSITY, EQUITY AND INCLUSION(1)
Melrose is a meritocracy and individual performance is the key
determinant in any appointment, irrespective of ethnicity, gender or
other characteristic, trait or orientation. However, the Board and the
Committee also recognise the importance of diversity, and the
Committee keeps its approach to diversity under regular review,
including ensuring the development of a diverse Board and reviewing
its diversity policies on an annual basis. Melrose encourages diversity
at all levels of the Group.
The Board has made significant progress in improving its diversity in
recent years, meeting the FTSE Women Leaders Review target of
having 40% female representation on its Board for a number of years
and continuing to meet the Parker Review target of having one
Director from an ethnic minority background on the Board. However,
recent strategic changes to the Board’s composition, in parallel with
the Company’s strategic transformation to operating as a global
aerospace technology business, have meant that the Company does
not currently meet the target of 40% female representation with three
of the current nine Board members being female. Following
Mr Dowley stepping down from the Board on 31 March 2025, 38% of
the Board will be female.
The FTSE Women Leaders Review also set a target for at least one
senior board position, being that of Chair of the Board, Senior
Independent Director, Chief Executive Officer or Chief Financial
Officer, to be held by a woman by the end of 2025. While two of the
committee Chair roles are held by women, including the key role of
Audit Committee chair, the Committee recognises that Melrose does
not currently meet the target for at least one senior position to be held
by a woman. This target, along with the target for 40% female
representation on the Board, is under active review and is being
factored into ongoing succession planning discussions. Russell
Reynolds Associates, an external recruitment consultancy firm
unconnected with the Company and its Directors, has been retained
to identify suitable candidates for the Committee’s consideration.
NOMINATION COMMITTEE REPORT
Diversity overview(2)
1
2
Board gender
diversity
1 Male
67%
2 Female
33%
1
2
Board ethnic
diversity
1 White
89%
2 Ethnically diverse
11%
1
2
Executive
Committee(3)
1 Male
78%
2 Female
22%
1
2
Executive Committee
and direct reports(3)
1 Male
65%
2 Female
35%
(1) All Diversity, Inclusion, and Belonging initiatives and activities referenced throughout this report are applicable only within the scope of legally permitted jurisdictions.
(2 ) As at 31 December 2024.
(3) The Executive Committee comprises the Company’s ‘senior management’ as defined by the Code and its ‘executive management’ as defined by the UK Listing Rules.
Continued
134
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
The Committee currently takes into account a variety of factors before
recommending any new appointments to the Board, including
relevant skills to perform the role, experience and knowledge needed
to ensure a rounded Board and the benefits each candidate can bring
to the overall Board composition. The Committee also takes into
account race, ethnicity, country of origin, nationality, cultural
background and gender in the selection process to ensure a diverse
Board and it also strongly encourages executives to adopt the same
approach when making appointments to the executive committee
and the wider senior management team. The most important priority
of the Committee, however, has been, and will continue to be, to
ensure that the best candidate is selected, and this approach will
remain in place going forward.
The Committee notes the recommendation of the Parker Review that
FTSE 350 companies set a target for the percentage of UK‑based
senior management positions that will be occupied by ethnic
minorities by the end of 2027. Following engagement by the Company
Secretariat with a member of the Parker Review Committee, and
external advice to track the scope and timing of setting such targets
among FTSE 100 peers, both the Committee and Board agreed that
it was not feasible for Melrose to set a sufficiently informed ethnic
diversity target for senior management by 31 December 2023, the
date by which the Parker Review requested the target be set. Melrose
had not traditionally collected sensitive data, such as ethnic diversity
data, from its employees, and the Parker Review had not originally
specified that the target should relate to UK‑based employees. Legal
and regulatory barriers limited the Company’s ability to gather the
relevant data in certain jurisdictions. Furthermore, Melrose’s change
in business strategy meant that there was significant change to the
structural composition of the senior management population of the
Group in the first half of 2024, making the setting of a meaningful
target challenging until those changes had taken place. With the
structural senior management changes completed during 2024,
following discussion and review with the Committee the Company
has now set a diversity target for UK‑based senior management
(being executive committee members and their direct reports). The
Company’s target is for 13% of its UK‑based senior management
population to comprise individuals identifying as minority ethnic by
31 December 2027 (representing a 4% increase from the position at
30 June 2024).
The Committee acknowledges that diversity, equity and inclusion is a
changing landscape, and reviews its diversity policies on an annual
basis, with any recommendations for amendments being approved
by the Board. The policies, which can be viewed on the Company’s
website at www.melroseplc.net/governance/documents-and-policies
include a Board of Directors’ Diversity policy and a Melrose Diversity,
Equity and Inclusion policy. The Board of Directors’ Diversity policy
sets out the Committee’s commitment to ensuring that Board
membership and pipeline for succession remains diverse, which is
equally applicable to each of the Board’s committees. It also sets out
the Company’s diversity targets for the Board, the details of which are
noted above. The Melrose Diversity, Equity and Inclusion policy,
which is applicable to all Melrose employees, sets out Melrose’s
position on diversity, equity and inclusion in its workforce. Melrose is
actively engaged in supporting initiatives to increase the diversity of
its workforce, and to improve socio‑economic and ethnic diversity
within the engineering sector as a whole. The principles of the policy
apply throughout the Group, and our divisions are encouraged to
promote diversity.
Further details of Melrose’s commitment to diversity and the various
diversity initiatives undertaken within the Group can be found in the
Sustainability review on pages 51 to 99. Additionally, further details on
diversity and Board skills can be found on page 105 of the
Governance overview.
EVALUATION
The Code requires that FTSE 350 companies undertake an externally
facilitated Board, committee and individual director evaluation once
every three years. The last external Melrose review was conducted in
2023, for which the Company engaged Lintstock Limited.
Whilst the Company is not required to undertake another externally
facilitated Board, committee and individual director evaluation until
2026, during 2024 the Company continued its ongoing internal
review, both within each of those bodies and with the Chairman of the
Board and the chair of each committee respectively. As in prior years,
the review included an evaluation of the Chairman of the Board’s
performance. These evaluations were conducted and facilitated by
the completion of questionnaires, and discussions at the applicable
Board and committee meetings, with follow‑up actions taking place
where relevant. Each director also had an individual meeting with the
Chairman of the Board in order to discuss any relevant matters they
wished to raise as part of the ongoing review as well as an individual
meeting with the Senior Independent Director in respect of the
evaluation of the Chairman. The outcomes of the review were
presented and discussed at the December Board meeting. Alongside
such formal feedback, the Committee continued to facilitate direct
ongoing contact between its members and the Chair of the
Committee about any relevant matters that the members wished to
raise as part of the ongoing review of the Committee’s performance.
Charlotte Twyning
Chair, Nomination Committee
6 March 2025
135
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
CHAIR’S ANNUAL STATEMENT
Dear Shareholders,
On behalf of the Board, I am pleased to present our second annual
report on Director remuneration (the “Annual Report on
Remuneration”) since Melrose’s transformation into a world‑leading
aerospace technology business. 2024 was another strong year for
Melrose, achieving statutory revenue for the Melrose Group of
£3,468 million (2023: £3,350 million) and an adjusted operating profit
of £540 million (up 42% versus 2023) as the Group continues its
trajectory towards achievement of its 2025 financial targets.
In line with Melrose’s strategic shift to its current business model, the
Remuneration Committee (the “Committee”) proposed a revised
approach to executive remuneration with a rebalanced remuneration
structure aligned more closely with and benchmarked against the
Company’s FTSE 100 peers. The directors’ remuneration policy was
subsequently approved at the 2024 AGM (the “Remuneration Policy”),
receiving strong shareholder support with 96.84% of votes cast in
support of the approval resolution. Under the Remuneration Policy,
fixed and variable aspects of remuneration were rebalanced using a
structure and mechanics that are more reflective of the majority of
FTSE 100 companies. This included the introduction of the 2024
Performance Share Plan (the “2024 PSP”) in respect of long‑term
incentivisation, which replaced the 2020 Melrose Employee Share
Plan (the “2020 MESP”).
During the year, Melrose’s co‑founders, Mr Christopher Miller and
Mr Simon Peckham, and long‑standing Group Finance Director,
Mr Geoffrey Martin, stepped down from the Board. These former
Directors were participants in the 2020 MESP associated with
Melrose’s original business model, which crystallised during 2024
as further described below.
Melrose remuneration structure
Our remuneration strategy continues to be based around four key
principles – namely, that executive remuneration is simple,
transparent, supports the delivery of the value creation strategy, and
pays only for performance.
The remuneration strategy supports the Company’s shareholder
value creation strategy, which is founded upon continuous
operational and financial improvement over the longer term. Our
positive trajectory is underpinned by leading positions on all the
world’s major aircraft platforms, strong organic growth prospects
within the aerospace sector, and attractive opportunities to
differentiate our business through cutting‑edge proprietary
technology.
The Committee is satisfied that the executive remuneration structure
approved by shareholders in 2024 is appropriate and supportive of
the Company’s long‑term growth strategy. As such, no changes are
proposed this year to the Remuneration Policy, which was set out on
pages 145 to 152 of the Company’s 2023 Annual Report.
Operation of the Remuneration Policy during 2024
In line with the changes made to rebalance executive remuneration
pursuant to the new Remuneration Policy, the Chief Executive
Officer’s and the Chief Financial Officer’s salaries for 2024 were set at
a level better aligned with those of other FTSE 100 companies, while
pension contributions were reduced to 10% of base salary, bringing
the contributions to a level consistent with the Group’s wider UK
workforce. Maximum annual bonus opportunities were set at 200%
of base salary for the Chief Executive Officer and 150% of base salary
for the Chief Financial Officer.
The Group’s long‑term incentive arrangements were re‑set, with the
2020 MESP (which crystallised on 31 May 2024) replaced by the 2024
PSP. Initial grants of awards under the 2024 PSP were made during
the year to the executive Directors and to other eligible participants.
Further details of the awards granted to the executive Directors under
the 2024 PSP, and of the implementation of the Remuneration Policy
during the year, are set out in the Annual Report on Remuneration on
pages 138 to 155.
The Committee understands that shareholders expect executive
remuneration to be aligned with the overall experience of the
Company, its shareholders, employees and other stakeholders. We
believe that the remuneration structure introduced under the
Remuneration Policy, and the outcomes produced by the operation of
this structure during 2024, were appropriate and resulted in a strong
alignment between the executive Directors, shareholders and other
stakeholders.
David Lis
Remuneration Committee Chair
1. References in the Directors’ Remuneration report to the ‘Chief Executive’ refer to Simon Peckham who stepped down as Chief Executive on 6 March 2024.
136
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
The 2020 MESP crystallised on 31 May 2024 in accordance with its
terms relating to value created under the Company’s former “Buy,
Improve, Sell” business model. The 2020 MESP was approved by
shareholders at the general meeting of the Company held on 21
January 2021 and was adjusted at the general meeting of the
Company held on 30 March 2023.
The performance period of the 2020 MESP ran for four years to 31
May 2024, having been extended with shareholder approval in 2023
due to the demerger of the Dowlais business during that year. The
2020 MESP followed the 2017 Melrose Employee Share Plan which
ran for a performance period of three years and matured in May 2020
with no award to the executive Directors. As such, the 2020 MESP
was the only long‑term incentive plan under which the executive
Directors (and other participants) were remunerated for the value
created during a seven‑year period.
Participants in the 2020 MESP were entitled to a 7.5% share of the
increase in invested capital above a 5% annual charge over the
performance period (and subject to adjustment for returns to
shareholders during the performance period) and a very substantial
increase in invested capital of £5.2 billion was achieved for
shareholders over the performance period. Further details regarding
crystallisation of the 2020 MESP are set out on pages 142 and 143 of
the Annual Report on Remuneration. Former executive Directors
Mr Miller, Mr Peckham and Mr Martin (the “Resigning Directors”) were
participants in the 2020 MESP. The Committee considered the long
tenure and contributions of the Resigning Directors, which included
over £8 billion of shareholder returns during their combined 58 years’
service to Melrose, culminating in the exceptional shareholder value
of over £5 billion delivered during the 2020 MESP performance
period. In addition, during the Resigning Directors’ tenure the
Company was successfully transformed, shifting from its “Buy,
Improve, Sell” strategy and business model to becoming a long‑term
global aerospace technology leader, which included the effective
transition to the new leadership team. In light of this exceptional
performance, the Committee deemed it appropriate to exercise
certain discretions in connection with the Resigning Directors’
settlement arrangements and entitlements under the 2020 MESP.
Details of these discretions are set out on pages 142, 143 and 152.
Other than the discretions referred to above in relation to the
Resigning Directors, the Committee did not exercise any discretions
during 2024, there were no deviations from the Remuneration Policy
in respect of 2024, and the Committee did not exercise any discretion
to alter the 2024 outcomes from the application of the performance
conditions. Full details are set out in the Annual Report on
Remuneration on pages 138 to 155, including further details in
respect of 2024 key decisions on pages 138 and 139.
Stakeholder engagement
The 2023 Directors’ Remuneration report and the Remuneration
Policy both received strong shareholder support at the 2024 AGM,
receiving voting outcomes of 98.33% and 96.84% respectively.
The support of our shareholders, many of whom have been long‑term
investors in Melrose, is not taken for granted. We engaged with a
wide variety of stakeholders on the Remuneration Policy, including
through communications with key shareholders together representing
over 65% of our register and proxy advisers, and were pleased to
receive the support we did at the 2024 AGM. It is important to us that
we conduct thorough and open‑minded engagement, understanding
the focus on executive remuneration in the wider governance
community and the views of our key shareholders in particular.
Your Board remains of the view that the new Melrose remuneration
structure set out in the Remuneration Policy is appropriate for the
Company’s current strategy and that it will continue to drive long‑term
performance and shareholder value in a manner that reflects
Melrose’s long‑standing remuneration principles.
The Directors’ Remuneration Report will be put to an advisory vote at
the 2025 AGM. We encourage you to provide your support for the
2024 Directors’ Remuneration Report at the 2025 AGM.
Yours sincerely
David Lis
Chair, Remuneration Committee
6 March 2025
2. Mr Peckham, Mr Martin and Mr Miller resigned from the Board on 7 March 2024.
137
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
ANNUAL REPORT ON REMUNERATION
In this section of the Directors’ Remuneration report, we set out:
• the actual performance and executive remuneration outcomes for
the 2024 financial year;
• the application of the Remuneration Policy to the 2024 financial
year and how the Remuneration Policy operated in 2024; and
• details of how the Remuneration Policy is intended to be
implemented in 2025.
The Remuneration Policy was approved by shareholders at the
annual general meeting held on 2 May 2024 with over 96% of
votes cast in favour of the resolution. The full details of the
Remuneration Policy can be found on pages 145 to 152 of the
2023 Annual Report which is available on our website at
www.melroseplc.net/investors/results-reports-and-presentations/.
Key elements of the Annual Report on Remuneration
and where to find them
Element
Page
Single figure of remuneration
139 to 151
Share interests awarded in the 2024 financial year
141 to 143
Statement of Director shareholdings and interests
144 to 152
Performance graph
147
CEO pay ratio
147 and 148
Percentage change in remuneration of the CEO
148 and 149
Relative importance of spend on pay
151
Consideration of matters relating to Directors’ remuneration
138 and 139
Statement of voting
155
Payments to past Directors or for loss of office
152
Melrose’s remuneration strategy
The Committee continues to follow a consistent remuneration
strategy based around four key principles – namely, that executive
remuneration is simple, transparent, supports the delivery of value
creation, and pays only for performance. This strategy remains
central to the Company’s success and in driving the Company’s
original “Buy, Improve, Sell” model and now driving its growth as a
UK listed global aerospace technology company.
These four key principles of the remuneration strategy are wholly
aligned with the 2018 UK Corporate Governance Code (the “Code”)
factors of clarity, simplicity, risk, predictability, proportionality and
alignment to culture. The Committee ensured that it took all of these
elements into account when establishing the Remuneration Policy, as
well as its application to executive Directors during 2024.
2024 key decisions
The Committee remained committed to a responsible approach to
executive pay in accordance with the Remuneration Policy which was
approved at the 2024 AGM and its four key remuneration principles.
An inflationary increase of 5% was made to the executive Directors’
base salaries with effect from 1 January 2024, which was consistent
with the salary rises awarded to the wider UK workforce at that time.
The inflationary increase did not apply to the salaries for
Mr Peter Dilnot as Chief Executive Officer or Mr Matthew Gregory as
Chief Financial Officer, with their new salaries set out in the 2023
Annual Report taking effect from their appointment to their new roles
on 6 and 7 March 2024 respectively. There were also inflationary
increases of 5% made to the Non‑executive Chairman’s fee and the
Non‑executive Director basic fees with effect from 1 January 2024,
consistent with the inflationary increases applied to the executive
Directors. There were no changes to the additional fees payable to
Non‑executive Directors for holding the position of Senior
Independent Director or committee chair positions. A one‑off
additional fee of £10,000 was paid in 2024 to Ms Charlotte Twyning,
Non‑executive Director and Chair of the Nomination Committee, for
services provided in addition to her regular activities as a
Non‑executive Director and Nomination Committee Chair during a
year which included among other things key changes and planning
relating to the roles of Chairman, Chief Executive Officer, Chief
Financial Officer and Senior Independent Director. This included the
effective implementation of a series of key succession plans including
in respect of the key executive Director roles of Chief Executive
Officer and Chief Financial Officer, the appointment of two further
Non‑executive Directors to complement the Company’s change in
strategy, the successful search for and appointment of the
Chair‑designate, and further future succession planning related to the
Senior Independent Director.
For 2025, an increase of 3% was made to the executive Directors’
base salaries with effect from 1 January 2025 as set out on page 145,
which was consistent with or below the increases awarded across
the wider UK workforce. There were increases of 3% made to the
Non‑executive Chairman’s fee and Non‑executive Directors’ basic
fees with effect from 1 January 2025, consistent with the increases
determined for the executive Directors’ base salaries, as set out on
page 153. As was the case in respect of 2024, there were no
changes to the additional fees for holding the position of Senior
Independent Director or committee chair positions for 2025.
The pension contribution rate for the Chief Executive Officer and the
Chief Financial Officer was reduced from 15% to 10% of base salary
in order to bring the contribution to a level consistent with the Group’s
wider UK workforce as it stood after the demerger of the Dowlais
group.
In determining the 2024 remuneration outcomes and the
remuneration approach for 2025, the Committee was mindful of the
evolving macroeconomic challenges impacting the global economy.
As set out in this report, the executive Director salary increases were
determined to be appropriate in light of the Company’s performance
in 2024, whilst recognising and balancing the need to appropriately
remunerate and incentivise the executive team to continue to deliver
value to shareholders.
DIRECTORS’ REMUNERATION REPORT
Continued
138
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
The Committee feels that it has been able to balance all relevant
stakeholder considerations when setting salaries for 2025 and has
benchmarked against FTSE 100 peers based on analysis from its
external remuneration consultants.
In accordance with the Remuneration Policy, the maximum annual
bonus opportunity for 2024 was set at 200% of base salary for the
Chief Executive Officer and 150% of base salary for the Chief
Financial Officer. As with salary, these annual bonus opportunities
were prorated for 2024 such that they were payable for the portion of
the year from 6 and 7 March, being the dates on which Mr Dilnot and
Mr Gregory commenced their new roles as Chief Executive Officer
and Chief Financial Officer respectively. Although the annual bonus
outcomes for 2024 were finally determined by the Committee in 2025,
we refer to them here for completeness, as they are a key decision
relating to the reporting period. As described in more detail below,
the targets comprising the financial elements of the 2024 annual
bonus were not achieved in full and as such a partial award was
made for the financial elements of the bonus, and the Committee did
not seek to exercise any discretion to adjust this. The Committee
determined that while good progress had been made in respect of
the strategic objectives, not all of them had been fully achieved and
as such a partial award was also made for the strategic elements of
the bonus. Taking financial and strategic elements together, the 2024
annual bonus was awarded to each of Mr Dilnot and Mr Gregory at
86.6% of their total bonus opportunity for the year. For the reasons
set out in this report, the Committee believes that the bonus outcome
for 2024 is appropriate, taking into consideration several factors,
including the Company’s strong business performance and the wider
stakeholder experience.
Single total figure of remuneration for the executive Directors for the 2024 financial year (audited)
The following chart summarises the single figure of remuneration for 2024 in comparison with 2023. In accordance with the regulations
governing the reporting of executive Director remuneration, the table below includes the value of long‑term incentives vesting in the relevant
financial year. This means that the full value of the 2020 MESP which crystallised on 31 May 2024 is shown for the year ended 31 December
2024 for each executive Director, although this represents rewards earned over a four‑year performance period.(1)
Executive Director
Period
Total salary
and fees
£000
Taxable
benefits
£000
Bonus
£000
LTIP
£000(2)
Pension
£000(3)
Total
£000
Total
Fixed
£000
Total
Variable
£000
Peter Dilnot(4)
2024
890
3
1,467
42,963
94
45,416
986
44,430
2023
487
2
463
–
73
1,025
562
463
Matthew Gregory(5)
2024
567
2
740
n/a
57
1,365
625
740
2023
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Christopher Miller(6)
2024
117
–
n/a(7)
50,123
18
50,258
135
50,123
2023
596
2
n/a(7)
–
89
688
688
–
Simon Peckham(6)
2024
117
1
115
57,283
18
57,533
135
57,398
2023
596
4
566
–
89
1,256
689
566
Geoffrey Martin(6)
2024
95
2
94
57,283
14
57,489
112
57,377
2023
487
14
463
–
73
1,037
574
463
(1) The ‘Total’ figures in the above table may not add up to the sum of the component parts due to rounding.
(2) The 2020 MESP crystallised on 31 May 2024. The values included in the above table are calculated in accordance with the applicable regulations based on a closing share price of
615.8p on the crystallisation date. These amounts were paid in shares and nil cost options over shares exercisable in 2025 and 2026, except for an amount of cash equal to the relevant
director’s tax liabilities on the transfer of shares or exercise of nil cost options which was withheld by the Company to satisfy those liabilities. Of Mr Dilnot’s total entitlement,
approximately 24% was satisfied in shares, approximately 21% was settled in cash to satisfy tax liabilities, and the balance of approximately 55% was satisfied by the grant of nil cost
options. Further details in relation to the crystallisation of the 2020 MESP are set out on pages 142 and 143.
(3) All amounts attributable to pension contributions were paid as a supplement to base salary in lieu of pension arrangements except for £10,000 per annum in respect of Mr Gregory
which is paid into his pension scheme.
(4) Mr Dilnot was appointed as Chief Executive Officer on 6 March 2024, prior to which he served on the Board as Chief Operating Officer. Figures in the above table reflect his combined
remuneration in respect of 2024 in both roles, including in respect of annual bonus which was governed by the bonus scheme applying to Mr Dilnot’s role as Chief Operating Officer for
the period from 1 January 2024 to 5 March 2024 and by the bonus scheme applying to Mr Dilnot’s role as Chief Executive Officer for the period from 6 March 2024 to 31 December 2024.
(5) Mr Gregory was appointed as an executive Director on 7 March 2024. The amounts included in the single figure of remuneration for 2024 for Mr Gregory relate to the period following
his appointment. Mr Gregory did not participate in the 2020 MESP.
(6) Mr Miller, Mr Peckham and Mr Martin retired as executive Directors on 7 March 2024. The amounts included in the single figure of remuneration for 2024 for Mr Miller, Mr Peckham and
Mr Martin relate to the period during which they were executive Directors with the exception of the LTIP which is the total value of their awards on crystallisation of the 2020 MESP on
31 May 2024.
(7) Mr Miller, former Executive Vice‑Chairman, did not participate in the annual bonus scheme.
Initial grants of awards were made to the executive Directors under the
2024 PSP, further details of which are set out on page 141 of this report.
The 2020 MESP crystallised on 31 May 2024, further details of which
are set out on pages 142 and 143 of this report.
The Committee has reviewed the remuneration outcomes for the year
and confirms that the Remuneration Policy operated as intended
during the year, and felt that the incentive outcomes were in line with
the overall performance of the Group. Other than the discretions
described on pages 142, 143 and 152 in relation to Mr Miller,
Mr Peckham and Mr Martin, the Committee did not exercise any
discretions during 2024, there were no deviations from the
Remuneration Policy in respect of the year, and the Committee did
not exercise any discretion to alter the 2024 outcomes from the
application of the performance conditions.
Business performance
The Group enjoyed another strong year in 2024, delivering profits at the
top end of expectations, achieving statutory revenue of £3,468 million
(2023: £3,350 million), and an adjusted operating profit of £540 million
(up 42% versus 2023). Further details of the Group’s performance
during the year are set out in the Chief Executive Officer’s review on
pages 8 to 11 and the Divisional reviews on pages 16 to 23.
This Annual Report and financial statements, and specifically the
Group’s strategic KPIs on pages 24 and 25, demonstrates the
Group’s trajectory towards achieving its 2025 financial targets.
139
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
Financial Objectives (70%)
Threshold
Target
Maximum
Actual
Performance
Percentage
of maximum
bonus earned
Operating profit (as a percentage of target) (50%)(1)
90%
100%
109%
106%
% of this part of the award that is payable
25%
70%
100%
88.8%
Cash generated before interest and tax
(as a percentage of target) (20%)(1)
58%
100%
184%
180%
% of this part of the award that is payable
25%
70%
100%
98.5%
Financial Objectives sub‑total:
64.1%
(1) Targets and actual performance adjusted to reflect the impact of disposals made during the year, removing post disposal actual and budgeted profit and cashflow in each case.
Strategic Objectives (30%)
Percentage of
maximum
bonus earned
Successfully transition
to an aerospace‑only
business – maximum
10%
Melrose’s aerospace‑only business model has been successfully implemented and a market‑leading FTSE 100
management team is now in place. Progress towards 40% female representation among the executive leadership
team and their direct reports has been made and an ethnic diversity target for the executive leadership team and their
direct reports has been set. The merger and repositioning of the Melrose and GKN Aerospace corporate functions
has also been completed.
10%
Drive improved
operational efficiencies
and performance –
maximum 10%
Operational productivity has been substantially enhanced towards targeted levels, against a backdrop of ongoing
industry‑wide supply chain challenges. Continuous improvement of inventory management through reduction in days
of inventory in line with budget and to align with delivery requirements has also faced challenges in the context of
continued supply chain constraints with days inventory outstanding not having reduced to targeted levels, despite
strong internal progress having been made.
2.5%
Promote and embed the
new Melrose equity case
internally and among the
wider investor base –
maximum 5%
The new Melrose equity case has been embedded through communication to investors, a new capital allocation
strategy has been established to support the aerospace‑only business model and the repositioning of Melrose as an
aerospace‑only business among key analysts and ratings agencies has been achieved. Management has continued
to successfully target and build the US investor base.
5%
Complete restructuring
and portfolio
improvements –
maximum 5%
Targeted improvements in customer pricing on certain programmes have been achieved to deliver future profitability
of the relevant programmes, and unprofitable and/or non‑core sites have been exited mitigating their impact on the
Group’s financial performance.
5%
Strategic Objectives sub‑total:
22.5%
Total annual bonus for 2024:
86.6%
2024 Annual Bonus (audited)
The 2024 Annual Bonus has applied a consistent approach to
previous years, in line with the Remuneration Policy. The Committee
awarded the Chief Executive Officer and the Chief Financial Officer a
bonus of 86.6% of their maximum bonus opportunity based on 2024
performance. The Remuneration Policy has been applied such that
the maximum annual bonus opportunity was 200% of base salary for
the Chief Executive Officer and 150% of base salary for the Chief
Financial Officer. Further, the bonuses for the Chief Executive Officer
and Chief Financial Officer were prorated for 2024 such that they
were payable for the portion of the year from 6 and 7 March 2024
onwards (being the dates on which the relevant individuals
commenced their roles as Chief Executive Officer and Chief Financial
Officer respectively). For the period from 1 January to 5 March 2024,
Mr Dilnot was entitled to a prorated bonus with a maximum
opportunity of 100% of his former salary as executive Director and
Chief Operating Officer of the Company, and for the period from
1 January to 6 March 2024 Mr Gregory was entitled to a prorated
bonus for his role as Chief Financial Officer of the GKN Aerospace
business. The full breakdown of the award calculation is set out
below. Former executive Directors Mr Peckham and Mr Martin also
received an annual bonus in respect of 2024. Details of their annual
bonus awards are set out on pages 139 and 152.
As is shown by the table, performance against the targets comprising
the financial elements of the 2024 annual bonus, being performance
in respect of operating profit (representing 50% of total opportunity)
and cash generated before interest and tax (representing 20% of total
opportunity) demonstrated strong progress and as such an award of
64.1% of the total bonus opportunity was made for the financial
objectives of the bonus. The Committee did not seek to exercise any
discretion to alter this. With respect to the strategic element
(representing 30% of total opportunity), having given detailed and
thorough consideration to each of the strategic objectives and
management’s performance against them during 2024, the
Committee determined that not all the strategic objectives had been
fully met during 2024 and therefore that the strategic elements should
be awarded at 22.5% of the total bonus opportunity. The Committee
determined that no exercise of discretion to alter this element of the
award was required. Full disclosure of the strategic objectives and the
Committee’s determination in respect of performance against them is
provided below. In aggregate, the awards made in respect of the
financial and strategic elements equalled 86.6% of the total bonus
opportunity for the year. The Committee considers that the payout is
consistent with the wider stakeholder experience, including
shareholders and employees.
In determining the 2024 annual bonus award, the Committee was
mindful of the macroeconomic environment impacting the global
economy, and aware of the guidance published by the Investment
Association setting out the issues that remuneration committees
should consider as they assess 2024 remuneration outcomes and set
remuneration for 2025. In light of the Company’s performance during
2024, the Committee believes that the annual bonus awarded for
2024 is appropriate and in line with that guidance.
DIRECTORS’ REMUNERATION REPORT
Continued
140
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
The 2024 bonus payment to the Chief Executive Officer will be made
in cash in accordance with the Remuneration Policy, as he has
exceeded his minimum shareholding requirements. As per the terms
of the Remuneration Policy, the 2024 annual bonus payments are
potentially subject to clawback. In accordance with the terms of the
Remuneration Policy, 50% of the 2024 bonus (post‑tax) payment to
Mr Gregory will be required to be deferred into shares. Such shares
will be subject to leaver and clawback conditions. No further
performance conditions will apply.
Long‑term incentive arrangements (audited)
As at the end of the period, the Company’s long‑term incentive
arrangements comprised the 2024 PSP and the Melrose Automotive
Share Plan (the “MASP”). The 2020 MESP crystallised during the year
as further described below.
2024 PSP awards
The 2024 PSP was approved by shareholders at the 2024 AGM on
2 May 2024.
On 11 June 2024, awards were granted under the 2024 PSP to the
executive Directors with values equivalent to 300% of base salary for
the Chief Executive Officer and 200% of base salary for the Chief
Financial Officer. In each case the 2024 awards were prorated from
the commencement date of the 2024 PSP so as to be made at
7/12ths of 300% of salary for the Chief Executive Officer and 7/12ths
of 200% of salary for the Chief Financial Officer. The value of the
awards was calculated using a grant price of 625.84 pence per share,
being the average closing price over the five dealing days preceding
grant. Mr Dilnot’s award was granted over 272,633 shares and
Mr Gregory’s award was granted over 129,559 shares.
The awards are subject to performance conditions relating to growth in
earnings per share (45% of the total award), relative TSR performance
(45% of the total award) and strategic objectives (10% of the total
award). Details of the performance conditions are set out below.
Growth in earnings per share (45% of total award)
This part will vest in accordance with the following vesting schedule
based on the growth in fully diluted adjusted earnings per share of the
Company over the three financial years ending 31 December 2026.
EPS Targets
Vesting
(% of EPS part
of award)(1)
Threshold
25% CAGR
25%
Target
29% CAGR
70%
Stretch
32% CAGR
100%
(1) Straight line vesting in between the performance points above.
TSR performance (45% of the total award)
This will vest in accordance with the following vesting schedule based
on the Company’s TSR performance against the constituents of the
FTSE 100 (excluding investment trusts) over the three‑year period
from 1 June 2024 to 31 May 2027.
Ranking of the Company’s TSR
Vesting
(% of TSR part
of award)(1)
Below median
0%
Median
25%
Upper quartile or higher
100%
(1) Straight line vesting in between the performance points above.
Strategic Objectives (10% of the total award)
This will vest by reference to achievement of strategic targets relating
to quality (5%) and sustainability (5%) over the three years from
1 January 2024 to 31 December 2026 as set out below.
Reduction in Quality Escapes (5%)
Vesting
(% of Quality
Escapes part
of award)(1)
Threshold
performance
20% reduction in Escapes
vs 2023 baseline results
25%
Maximum
performance
33% reduction in Escapes
vs 2023 baseline results
100%
(1) Straight line vesting in between the performance points above.
Reduction in Scope 1 & 2 Emissions Intensity (5%)
Vesting
(% of
Emissions
Reduction part
of award)(1)
Threshold
performance
28% reduction in Scope 1 & 2 Emissions
Intensity vs 2023 reported emissions
25%
Maximum
performance
34% reduction in Scope 1 & 2 Emissions
Intensity vs the 2023 reported emissions
100%
(1) Straight line vesting in between the performance points above.
In choosing EPS, TSR and strategic objectives as the metrics, the
Committee has sought to provide a balance between incentivising
delivery of value in profitable financial growth (EPS), aligning the
executive Directors and senior management with shareholders
through a TSR measure, and ensuring that key strategic objectives
are achieved.
The 2024 PSP awards are subject to a three‑year vesting period
running from the grant date. A further two‑year post‑vesting holding
period then applies to any awards that vest.
141
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
2020 MESP
As announced on 3 June 2024, the 2020 Melrose Employee Share
Plan (the “2020 MESP”) crystallised on 31 May 2024, in accordance
with the rules governing the 2020 MESP (the “MESP Rules”).
The performance period of the 2020 MESP ran for four years to
31 May 2024 and followed the 2017 Incentive Plan which ran for a
performance period of three years and crystallised in May 2020 for no
value. As such, the 2020 MESP was the only long‑term incentive plan
under which the executive Directors were remunerated for value
created during a seven‑year period.
Participants in the 2020 MESP were entitled to share in 7.5% of the
growth in invested capital over the performance period after applying
a 5% annual charge and subject to adjustment for returns to
shareholders during the performance period. The aggregate
entitlement of all participants under the 2020 MESP was subject to a
cap which set an upper limit on the total number of shares that could
be issued to participants. In addition, the number of shares and nil
cost options over shares which a participant could receive or which
could become exercisable in any calendar year was subject to a
rolling annual cap, with entitlements in excess of that cap satisfied by
the grant of nil cost options exercisable in subsequent years. Certain
adjustments were made to the 2020 MESP during 2023 as a result of
the demerger of the Dowlais group, including a 12 month extension to
the performance period and an adjustment to invested capital to
reflect the demerger of the Dowlais group, as set out in the 3 March
2023 circular to shareholders and approved at the 30 March 2023
general meeting.
The table below sets out the aggregate value of entitlements under
the 2020 MESP on crystallisation.
Value on crystallisation date (31 May 2024)
Invested capital at 31 December 2022(1)
£2,706,759,986
Index adjustment/minimum return
£216,106,075
Invested capital at crystallisation date
£2,922,866,061
Number of issued ordinary shares on 30 May 2024
(excluding treasury shares)
1,300,537,788
Average price of an ordinary share for 40 business
days prior to and including 30 May 2024
627.6p
Deemed market capitalisation of Melrose based on
average price of an ordinary share for 40 business
days prior to and including 30 May 2024
£8,162,175,157
Overall change in value for shareholders since
31 December 2022
£5,239,309,096
Value to participants at crystallisation date
7.5% of change in value
£392,948,182
Application of cap
(£28,065,929)
Aggregate value attributable to plan participants
£364,882,253
(1) While the 2020 MESP awards were granted with effect from the deemed commencement
date of 31 May 2020, in connection with the demerger of the Dowlais group, the invested
capital was allocated between the continuing Melrose group and the Dowlais group as at
31 December 2022, as further described in the circular dated 3 March 2023. As a result,
the invested capital is shown here as accruing from 31 December 2022, notwithstanding
the four‑year performance period of the 2020 MESP, as adjusted for dividends paid and
distributions made on or in respect of the Company’s ordinary shares (including pursuant
to the Company’s share buyback programme) during the period from and including
1 January 2023 to and including 30 May 2024.
The long‑term incentive plan values in the 2024 single total figure of
remuneration table on page 139 reflect the total value of the individual
2020 MESP entitlements of the executive Directors.
On crystallisation of the 2020 MESP, Mr Miller became entitled to
receive ordinary shares and (due to the cap on the number of shares
which could be received in any calendar year as referred to above) nil
cost options in respect of a total of 8,139,503 ordinary shares. Each
of Mr Peckham and Mr Martin became entitled to receive ordinary
shares and (due to the cap on the number of shares which could be
received in any calendar year as referred to above) nil cost options in
respect of a total of 9,302,289 ordinary shares. Mr Dilnot became
entitled to receive ordinary shares and (again due to the cap) nil cost
options in respect of a total of 6,976,717 ordinary shares.
On 3 June 2024, certain awards under the 2020 MESP were settled
by the transfer from treasury of ordinary shares to participants and
the grant of nil cost options, with the balance settled by cash
payments in an amount sufficient to settle the tax liabilities relating to
participants’ 2020 MESP awards to relevant tax authorities (the “Cash
Settlement for Tax Purposes”).
In satisfaction of his entitlements under the 2020 MESP, on 3 June 2024
1,643,404 ordinary shares were transferred to Mr Dilnot, 1,457,359
ordinary shares were settled in cash pursuant to the Cash Settlement
for Tax Purposes, and nil cost options (exercisable in 2025 and 2026
into ordinary shares of the Company) were awarded to Mr Dilnot over a
total of 3,875,954 ordinary shares. Ordinary shares held by Mr Dilnot
resulting from crystallisation of the 2020 MESP are required to be
retained for a two‑year holding period following the crystallisation date.
As announced in 2023, co‑founders Mr Miller and Mr Peckham and
long‑standing Group Finance Director Mr Martin (the “Resigning
Directors”) did not stand for re‑election at the Company’s Annual
General Meeting on 2 May 2024 having ceased to be directors on
7 March 2024 in connection with the Company’s change in strategy and
business model. They ceased employment with the Company on
1 June 2024. The Committee considered the long tenure and
contributions of the Resigning Directors which included over £8 billion of
shareholder returns during their combined 58 years’ service to Melrose,
culminating in the exceptional shareholder value of over £5 billion
delivered during the 2020 MESP performance period. The Committee
further considered the Company’s transformational exit from Melrose’s
“Buy, Improve, Sell” strategy and business model and the successful
strategic shift to becoming a long‑term global aerospace technology
business during their tenure, and the effective transition to the new
leadership team led by Mr Dilnot and Mr Gregory. Having regard to
these factors and the continued application of clawback, good leaver
status was therefore attributed to the Resigning Directors and with
respect to the 2020 MESP the Committee exercised its discretion in
accordance with the MESP Rules to accelerate the nil cost options
granted to the Resigning Directors such that they became exercisable
upon grant, and the holding period relating to the ordinary shares
transferred to the Resigning Directors in settlement of their entitlements
under the 2020 MESP was waived.
DIRECTORS’ REMUNERATION REPORT
Continued
142
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Accordingly, on 3 June 2024 following crystallisation of the 2020
MESP in accordance with its rules, Mr Miller received his entitlement
by way of the transfer from treasury of 4,476,726 ordinary shares and
a cash payment in respect of his remaining entitlement to 3,662,777
ordinary shares pursuant to the Cash Settlement for Tax Purposes.
Each of Mr Peckham and Mr Martin received their entitlements under
the 2020 MESP by way of the transfer from treasury of 4,930,212
ordinary shares and a cash payment in respect of his remaining
entitlement to 4,372,077 ordinary shares pursuant to the Cash
Settlement for Tax Purposes.
MASP
The MASP measures the creation of shareholder value in the Dowlais
group (which was demerged from the Melrose group in 2023) above
a threshold invested capital (the “Threshold MASP Crystallisation
Value”) over a performance period to 31 May 2025, with participants
being granted options to acquire ordinary shares in Dowlais for nil
consideration, subject to achieving the necessary performance. The
MASP is governed by the plan rules tabled and approved at the
general meeting that was held on 30 March 2023 (the “MASP Rules”).
No further options were granted under the MASP during 2024, and
no further options will be granted prior to crystallisation. Mr Dilnot is
the only current Director with a participation in the MASP.
Following completion of the demerger, 2% of the Dowlais shares were
placed on trust with an employee share ownership trust (“ESOT”)
established by Melrose for the purposes of satisfying awards under
the MASP. Options over these shares were granted following the
MASP commencement date and the extent to which the options vest
and become exercisable depends on performance, measured by the
increase in value of invested capital over the period from and
including completion of the demerger up to (but excluding) the
crystallisation date on 31 May 2025 (the “MASP Crystallisation Date”)
or, where an exceptional corporate event affecting the Company or
Dowlais occurs prior to that event (such as a change of control or
winding up), an earlier date as determined in accordance with the
MASP Rules. On the MASP Crystallisation Date, to the extent the
vesting conditions have not been met, the ESOT will transfer the
relevant shares back to Dowlais (or its nominee) to be cancelled.
Other than where an exceptional corporate event affecting the
Company or Dowlais occurs, the increase in value of invested capital
for the purposes of the MASP is calculated by reference to the
average market capitalisation of Dowlais for the 40 business days
prior to (but excluding) the MASP Crystallisation Date. If the MASP
Crystallisation Date had been 31 December 2024, the Threshold
MASP Crystallisation Value would not have been met by reference to
the average market capitalisation of Dowlais for the 40 business days
prior to (but excluding) 31 December 2024, and therefore no options
would have vested and become exercisable.
Minimum shareholding requirements
and equity exposure of the Board (audited)
Executive Directors are subject to two concurrent minimum
shareholding requirements, the full details of which are set out in the
Remuneration Policy as approved at the 2024 AGM. In summary, the
first is to always hold at least a value of shares equal to 300% of
salary, for which they are given a period of five years from appointment
to meet. The second requirement is for executive Directors to hold all
the shares they acquire pursuant to the vesting of awards granted
under the 2024 PSP and crystallisation of the 2020 MESP, after
satisfying tax obligations following the crystallisation of that plan and
subject to capital adjustments, for a two‑year holding period.
An executive Director leaving the Company is subject to a
post‑cessation minimum shareholding requirement of 300% of salary
(or actual shareholding on cessation, if lower) for a two‑year period
following the date of cessation. This obligation is enforceable under
direct contractual arrangements between the Company and each
executive Director.
The following table sets out all ordinary shares in the Company held
by the executive Directors as at 31 December 2024, as well as an
indication as to the size of these shareholdings relative to the entire
issued share capital of the Company (excluding treasury shares) as at
31 December 2024. It also sets out the number of ordinary shares of
the Company held by each executive Director at the end of the 2023
and 2024 financial years and the impact on the value of these
ordinary shares taking the closing mid‑market prices for those dates.
Details of interests in the equity of the Company held by the executive
Directors as at 31 December 2024 pursuant to the Company’s
long‑term incentive schemes are set out in the subsequent table.
Except as set out in the tables on page 144, the executive Directors
have no subsisting interests in the equity of the Company.
143
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
Executive Director shareholdings
Executive Directors
Applicable
shareholding
requirement
(% salary)(1)
Current
shareholding
(% salary)(2)
Shareholding
requirement
met?
Shareholding
(% ordinary
share capital)
as at
31 December
2024(3)
Shares
beneficially
held on
31 December
2023(4)
Shares
beneficially
held on
31 December
2024(4)
Value of
shares on
31 December
2023(5)
£
Value of
shares on
31 December
2024(2)
£
Difference in
value of shares
between
31 December
2023 and
31 December
2024(6)
£
Peter Dilnot
300%
971%
Yes
0.133%
65,444
1,708,848(7)
371,329
9,463,600
9,092,271
Matthew Gregory
300%
22%
No(8)
0.002%
–
26,410
–
146,259
146,259
Christopher Miller(9)
300%
6,719%
Yes
0.590%
7,592,553
7,592,553
43,080,146
42,047,559
(1,032,587)
Simon Peckham(9)
300%
1,791%
Yes
0.157%
2,023,965
2,023,965
11,483,977
11,208,718
(275,259)
Geoffrey Martin(9)
300%
2,403%
Yes
0.172%
2,218,576
2,218,576
12,588,200
12,286,474
(301,726)
(1) The shareholding requirement under the Remuneration Policy is 300% of base salary and must be met within five years of appointment.
(2) For these purposes, the value of a share is 553.8 pence, being the closing mid‑market price on 31 December 2024, and salary is 2024 base annual salary as set out in the table on
page 145.
(3) Based on the total number of ordinary shares in issue as at 31 December 2024, exclusive of treasury shares.
(4) For these purposes, the interests of each executive Director listed in the table include any ordinary shares held by a person closely associated with that executive Director within the
meaning of the EU Market Abuse Regulation, as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018.
(5) For these purposes, the value of a share is 567.4 pence, being the closing mid‑market price on 29 December 2023, being the last business day of the 2023 financial year.
(6) The figures in this column may not add up to the sum of the component parts due to rounding.
(7) Mr Dilnot also holds nil cost options exercisable in 2025 and 2026 into ordinary shares in the Company in respect of a total of 3,875,954 ordinary shares. These options were granted to
Mr Dilnot in satisfaction of his entitlements under the 2020 MESP as further described on page 142.
(8) Under the Remuneration Policy, executive Directors are required to always hold at least an amount of shares equal to 300% of salary and are given five years from appointment to meet
this requirement.
(9) Mr Miller, Mr Peckham and Mr Martin resigned as executive Directors on 7 March 2024. The as at 31 December 2024 shareholdings and figures stated in the table above are calculated
according to the number of shares they held at 7 March 2024 and salary is 2024 base annual salary.
Executive Director share scheme interests
Share Scheme
Grant date
Nature
of interest
Number of
shares at
31 December
2024
Subject to
performance
conditions
Face value
on grant
date
£000(1)
Shares
in holding
period
Performance
period end
Vesting
date
End of
holding
period
2024 PSP
Peter Dilnot
11/06/24
Nil cost option
272,633
272,633
1,706
n/a
31/05/27
11/06/27
11/06/29
Matthew Gregory
11/06/24
Nil cost option
129,559
129,559
811
n/a
31/05/27
11/06/27
11/06/29
2020 MESP
Peter Dilnot
03/06/24
Nil cost option
3,875,954(2)
n/a
23,868
n/a
n/a
03/06/24
31/05/26
(1) For these purposes, the face value of a share for options granted under the 2024 PSP is 625.84 pence, being the average closing price over the five dealing days preceding grant in
accordance with the PSP rules for determining the number of shares over which options are granted. For options granted under the 2020 MESP, the face value of a share is
615.8 pence, being the closing share price at the date of crystallisation of the 2020 MESP as set out at note 2 to the single total figure of remuneration table on page 139.
(2) Mr Dilnot’s nil cost options were granted on 3 June 2024 in satisfaction of his entitlements under the 2020 MESP following its crystallisation on 31 May 2024 and, as such, there are no
subsisting performance conditions relating to those nil cost options. 3,100,763 of those nil cost options are exercisable on or after 1 January 2025 and 775,191 are exercisable on or after
1 January 2026. The number of shares to which the nil cost options relate are subject to increase on exercise to reflect dividends or distributions to shareholders since the grant date.
The numbers of shares referred to in the table above and in this note are the numbers of shares into which the 2020 MESP nil cost options are exercisable as at the grant date. All shares
held as a result of the exercise of the nil cost options will be subject to a holding period ending on 31 May 2026, being the second anniversary of crystallisation of the 2020 MESP.
DIRECTORS’ REMUNERATION REPORT
Continued
No executive Director may dispose of any ordinary shares without the
consent of the Chairman of the Board, which will not normally be
withheld unless prohibited under applicable law or regulation and
provided the executive Director will continue to hold at least the
‘minimum number’ of ordinary shares referred to in the table above
following any such disposal.
There have been no changes in the ordinary shareholdings of the
executive Directors between 31 December 2024 and 6 March 2025
(the date of this report).
Please see page 152 for a table setting out the equity interests of the
Non‑executive Directors as at 31 December 2024.
144
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Key decisions and statement of implementation for 2025
Salary review
The Committee has awarded salary increases to the executive
Directors of 3% for 2025, which is consistent with the rate of salary
increases awarded to the wider UK workforce. The executive Director
salary increases were determined to be appropriate in light of the
Company’s performance in 2024, whilst recognising and balancing
the need to appropriately remunerate and incentivise the executive
team to continue to deliver value to shareholders. In considering
salary levels for 2025, the Committee took advice from its
remuneration consultants regarding anticipated salary levels for the
year among FTSE 100 companies while also having regard to the
Investment Association’s updated Principles of Remuneration as
published in October 2024.
The Committee is satisfied that the executive Director salary levels are
appropriate having regard to the objectives of the Remuneration
Policy and feels that it has been able to balance all relevant
stakeholder considerations when setting salaries for 2025.
The executive Directors’ salaries for 2025 are as follows:
Executive Directors
Position
Salary with
effect from
1 January
2025
£000
Salary with
effect from
6 and 7(1)
March 2024
£000
Peter Dilnot
Chief Executive Officer
1,004
975
Matthew Gregory
Chief Financial Officer
716
695
(1) Mr Dilnot was appointed as Chief Executive Officer on 6 March 2024 and Mr Gregory
was appointed as Chief Financial Officer on 7 March 2024.
Pensions and benefits
For 2025, standard benefits will be provided to the executive
Directors in line with the Remuneration Policy at a pension
contribution rate of 10% of base salary, a level consistent with the
Group’s wider UK workforce.
Annual bonus
As part of the Remuneration Policy, the maximum annual bonus
opportunity for executive Directors is set at 200% of base salary.
Consistent with 2024, this will be applied for 2025 such that the
maximum opportunity will be 200% of base salary for the Chief
Executive Officer and 150% of base salary for the Chief Financial Officer.
Pursuant to the Remuneration Policy at least 50% of the annual
bonus is required to be based on financial measures. For 2025, 70%
of the annual bonus opportunity will be based on performance
against financial measures with the remaining 30% based on
strategic objectives. The financial performance metrics will comprise
cash flow and operating profit, which the Committee considers to be
the appropriate metrics for the Company. The Committee considers
that the details of the financial measures and strategic objectives are
commercially sensitive but will disclose the nature of all measures on
a retrospective basis, where appropriate, on a similar basis to the
disclosure on page 140 in respect of the annual bonus for the year
ending 31 December 2024.
If an executive Director does not satisfy the 300% of base salary
minimum shareholding requirement, up to 50% of any bonus award
after tax will be used to acquire shares to the extent necessary to
enable the executive Director to meet his or her minimum
shareholding requirement (as further described on page 143).
Long‑term incentive arrangements
The Committee intends to grant awards under the 2024 PSP to the
Chief Executive Officer and the Chief Financial Officer (as well as
other eligible members of senior management) during 2025. The
intention is that the Chief Executive Officer will be made an award at
the maximum level of 300% of salary and the Chief Financial Officer
will be made an award at 200% of salary. Detailed performance
measures will be set by the Committee and, consistent with the PSP
awards granted in 2024, are expected to be subject to three
independent performance metrics to be measured over a
performance period of three years, comprising growth in fully diluted
adjusted EPS (45%), relative TSR performance versus the FTSE 100
(excluding investment trusts) (45%), and strategic objectives (10%)
including in respect of reduction in Scope 1 and 2 emissions intensity.
Unless performance of a participant during the performance period is
sufficient to earn 25% of the relevant maximum opportunity, none of
the PSP awards granted to that participant will vest, with 100% of the
PSP awards granted to a participant vesting if maximum performance
is achieved.
No payment is required for the grant of a PSP award.
As soon as reasonably practicable after the end of the performance
period, the Committee will conduct a performance assessment. The
Committee will determine the extent to which the PSP awards will
then vest, taking into account the extent to which performance
conditions have been satisfied. PSP awards will vest on the vesting
date set by the Committee at grant, which will normally be the third
anniversary of the grant date. An additional two‑year post‑vesting
holding period applies to PSP awards made to executive Directors.
145
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
Regulatory disclosures
Chief Executive Officer remuneration for previous 10 years
In accordance with the regulations governing the reporting of
executive Director remuneration, the total figure of remuneration set
out in the table below includes the value of long‑term incentives
vesting in the relevant financial year. This means that the full value of
the 2020 MESP which crystallised on 31 May 2024 is shown for the
year ended 31 December 2024 for both Mr Dilnot and Mr Peckham,
although this represents rewards earned over a four‑year
performance period. The 2017 Incentive Plan crystallised in May 2020
for no value following a three‑year performance period. The 2012
Incentive Plan which crystallised in May 2017 is shown for the year
ended 31 December 2017, and represents rewards earned over a
five‑year performance period. Per the terms of the Company’s current
long‑term incentive arrangements, any awards in relation to the 2024
PSP are not scheduled to vest until June 2027, and only then if the
performance conditions are met.
DIRECTORS’ REMUNERATION REPORT
Continued
Financial year
Chief Executive Officer
Non‑LTIP
£000
LTIP
£000
Total
remuneration
£000
Annual bonus
as a percentage
of maximum
opportunity
Long‑term
incentives
as a percentage
of maximum
opportunity
Year ended 31 December 2024(1)
Peter Dilnot
2,454
42,963(2)
45,416
86.6%
n/a(3)
Simon Peckham
249
57,283(2)
57,533
100%
n/a(3)
Year ended 31 December 2023
Simon Peckham
1,256
–
1,256
95%
–
Year ended 31 December 2022
Simon Peckham
1,221
–
1,221
100%
–
Year ended 31 December 2021
Simon Peckham
1,186
–
1,186
100%
–
Year ended 31 December 2020
Simon Peckham
680
–(4)
680
20%
n/a(5)
Year ended 31 December 2019
Simon Peckham
976
–
976
72%
–
Year ended 31 December 2018
Simon Peckham
1,049
–
1,049
95%
–
Year ended 31 December 2017
Simon Peckham
994
41,770(6)
42,764
90%
n/a(7)
Year ended 31 December 2016
Simon Peckham
988
–
988
95%
–
Year ended 31 December 2015
Simon Peckham
929
–
929
88%
–
(1) In the year ending 13 December 2024, Mr Peckham was Chief Executive for the period from 1 January 2024 until 6 March 2024 and stepped down as an executive Director on
7 March 2024. Mr Dilnot was Chief Executive Officer for the period from 6 March 2024 onwards. In the table above, the ‘total remuneration’ figure shows, in respect of Mr Peckham, his
total remuneration in respect of his service in the period from 1 January 2024 to 7 March 2024 and in respect of Mr Dilnot, his total remuneration in respect of his service in the period
from 6 March 2024 to 31 December 2024 and as such there is an overlap on 6 and 7 March 2024. Included in the table above for each of Mr Peckham and Mr Dilnot is the total value of
the long‑term incentives vesting in the year on crystallisation of the 2020 MESP.
(2) The values derived in 2024 from the 2020 MESP represent the relevant executive Director’s share, determined in accordance with the terms of plan, of the shareholder value created
over a period of four years. These amounts were paid in shares and nil cost options over shares exercisable in 2025 and 2026, not cash, except for an amount of cash equal to the
relevant executive Director’s tax liabilities which was withheld by the Company to satisfy those liabilities. Of Mr Dilnot’s total entitlement, approximately 24% was satisfied in shares,
approximately 21% was settled in cash to satisfy tax liabilities, and the balance of approximately 55% was satisfied by the grant of nil cost options. Further details in relation to the
crystallisation of the 2020 MESP are set out on pages 142 and 143.
(3) On the crystallisation on 31 May 2024 of the 2020 MESP, participants as a whole were entitled to 7.5% of the increase in invested capital above a 5% annual charge (and subject to
adjustment for returns to shareholders during the performance period), measured at the end of a four‑year performance period. Because the value derived on the crystallisation of the
2020 MESP depended upon the shareholder value created over the relevant period, it is not possible to express the value derived as a percentage of the maximum opportunity.
(4) The 2017 Incentive Plan crystallised in May 2020 for no value.
(5) Although the 2017 Incentive Plan crystallised in May 2020 for no value, because the value that would have been derived on the crystallisation of the 2017 Incentive Plan and options
depended upon the shareholder value created over a three‑year performance period, it would not have been possible to express the value derived as a percentage of the maximum
opportunity.
(6) The value derived in 2017 from the 2012 Incentive Plan represents the Chief Executive’s share, determined in accordance with the terms of those shares, of the shareholder value
created over a period of approximately five years. This amount was paid in shares, not cash, except for an amount of cash equal to the relevant executive Director’s tax liabilities which
was withheld by the Company to satisfy those liabilities.
(7) On the crystallisation in May 2017 of the 2012 Incentive Plan, participants as a whole were entitled to 7.5% of the increase in shareholder value from 22 March 2012 to 31 May 2017.
Because the value derived on the crystallisation of the 2012 Incentive Plan depended upon the shareholder value created over the relevant period, it is not possible to express the value
derived as a percentage of the maximum opportunity.
146
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Total Shareholder Return
The total shareholder return graph below shows the value as at 31 December 2024 of £100 invested in the Company in October 2003,
compared with £100 invested in the FTSE 100 Index, the FTSE 250 Index and the FTSE All‑Share Index. This shows a TSR of 3,069%
(compared to the FTSE 100 Index TSR of 320%) and demonstrates very clearly the long‑term performance of the Company.
The Committee considers the FTSE 100 Index, the FTSE 250 Index and the FTSE All‑Share Index to be appropriate indices for the year ended
31 December 2024 for the purposes of this comparison because of the comparable size of the companies which comprise the FTSE 100
Index and the FTSE 250 Index and the broad nature of companies which comprise the FTSE All‑Share Index. The data shown below assumes
that all cash returns to shareholders made by the Company during this period are reinvested in ordinary shares.
Oct 03
Oct 06
Oct 09
Oct 12
Oct 15
Oct 18
Oct 21
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Melrose Industries
FTSE All Share
FTSE 100
FTSE 250
Total Shareholder Return (£)
Oct 24
CEO pay ratio
Our median CEO to employee pay ratio for 2024 was 1,112:1. The significant increase in the ratio for 2024 results from the crystallisation of the
2020 MESP, details of which are set out on pages 142 and 143 of this report, as well as the implementation of the Remuneration Policy which
increased the Chief Executive Officer’s base salary and increased bonus entitlement which is a factor of base salary. Excluding the impact of
crystallisation of the 2020 MESP, the median CEO to employee pay ratio for 2024 was 47:1. The following table provides pay ratio data in
respect of the Chief Executive Officer’s total remuneration compared to the 25th, median and 75th percentile UK employees.
Financial year
Method
25th percentile
pay ratio
Median
pay ratio
75th percentile
pay ratio
Year ended 31 December 2024
Option A
1,403:1
1,112:1
907:1
Year ended 31 December 2024
Option A – excluding 2020 MESP
60:1
47:1
39:1
Year ended 31 December 2023
Option A
32:1
25:1
21:1
Year ended 31 December 2022
Option A
32:1
26:1
20:1
Year ended 31 December 2021
Option A
34:1
29:1
23:1
Year ended 31 December 2020
Option A
20:1
16:1
13:1
Year ended 31 December 2019
Option A
30:1
24:1
19:1
147
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
The employees used for the purposes of calculating the pay ratios in the table on page 147 were those employed in the UK by any business
within the Group on 31 December 2024 (for the avoidance of doubt, including the Chief Executive Officer), and the remuneration figures were
determined with reference to the financial year ending 31 December 2024. Option A was chosen as it is considered to be the most accurate
way of identifying the relevant employees. This captures all relevant pay and benefits and aligns to how the single figure table is calculated for
the Chief Executive Officer and other Directors. The value of each employee’s total pay and benefits was calculated using the single figure
methodology consistent with the Chief Executive Officer, with the exception of the annual bonus, which was calculated using 2023 financial
year bonuses (which were paid during 2024) where the 2024 financial year data was not available at the last practical date before the
finalisation of this report. No elements of pay have been omitted. Where required, remuneration was approximately adjusted to reflect full‑time
and full‑year equivalents based on the employees’ contracted hours and the proportion of the year they were employed.
The following table provides salary and total remuneration information in respect of the employees at each quartile (rounded to the
nearest £1,000).
Financial year
Element of pay
25th percentile
pay employee
Median
employee
75th percentile
pay employee
Year ended 31 December 2024
Salary and wages(1)
£39,000
£47,000
£53,000
Total pay and benefits
£42,000
£53,000
£65,000
(1) Base salary includes overtime and shift allowances/premiums. The individual at the median received shift premium and overtime during the year.
DIRECTORS’ REMUNERATION REPORT
Continued
We have considered the pay data for the three employees identified
and believe that it fairly reflects pay at the relevant quartiles amongst
the UK workforce. The Committee considers that the median pay
ratio is consistent with the relative role and responsibilities of the Chief
Executive Officer and the identified employee. Base salaries of all
employees, including our executive Directors, are set with reference
to a range of factors, including market practice, experience and
performance in role. Pursuant to the Remuneration Policy, the Chief
Executive Officer’s remuneration package has been rebalanced to
align more closely with the Company’s FTSE 100 peers across fixed
and variable aspects. As a consequence, the Chief Executive
Officer’s fixed pay and annual bonus opportunity have been
increased while maximum potential long‑term incentive plan
outcomes have been reduced compared to the Company’s
remuneration structure for previous years. Chief Executive Officer
remuneration remains more heavily weighted towards variable pay
than typical employee remuneration due to the nature of the role, and
this means that the ratio is likely to fluctuate depending on the
outcomes of incentive plans in each year, and is indeed likely to be
higher in years where long‑term incentive arrangements crystallise (as
was the case during 2024).
Percentage change in Directors’ remuneration
The table opposite sets out, in relation to base salary, taxable benefits
and annual bonus, the percentage increase in pay for each Director
compared to the average increase for a group consisting of the
Group’s executive committee and their senior direct reports. The
reporting legislation in this regard requires companies to publish the
annual percentage change in the total remuneration of Directors and
employees of the Company. The Company itself does not have any
employees other than the executive Directors. However, in the
interests of providing a relevant comparison to stakeholders, we
choose to voluntarily disclose a comparison against the
aforementioned group of senior management, which we consider to
be an appropriate comparator group because of their level of seniority
and the structure of their remuneration packages. The spread of the
Company’s operations across various countries means that
remuneration policies vary to take account of geography such that
the Committee considers that selecting a wider group of employees
would not provide a meaningful comparison.
We are required to report on this change based on actual amounts
received by the Directors. The percentage changes for 2024 versus
2023 for Mr Miller, Mr Peckham and Mr Martin reflect the fact that
they ceased to be Directors on 7 March 2024 and as such those
comparisons are not meaningful. The percentage changes for 2024
versus 2023 for Mr Dilnot reflect the fact that he became Chief
Executive Officer on 6 March 2024 having formerly served as Chief
Operating Officer and his remuneration package changed with his
change in role. The percentage increases for 2021 versus 2020 and
for 2020 versus 2019 were naturally impacted by the COVID‑19
pandemic, which included temporary salary and fee reductions and
reduced annual bonuses for the executive Directors in 2020.
148
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
2024 vs 2023
2023 vs 2022
2022 vs 2021
2021 vs 2020
2020 vs 2019
Element of
remuneration
Basic
salary/fee
percentage
change(1)
Benefits
percentage
change/
amount
£000(2)
Annual
bonus
percentage
change(3)
Basic
salary/fee
percentage
change(1)
Benefits
percentage
change/
amount
£000(2)
Annual
bonus
percentage
change(3)
Basic
salary/fee
percentage
change(1)
Benefits
percentage
change/
amount
£000(2)
Annual
bonus
percentage
change(3)
Basic
salary/fee
percentage
change(1)
Benefits
percentage
change/
amount
£000(2)
Annual
bonus
percentage
change(3)
Basic
salary/fee
percentage
change(1)
Benefits
percentage
change/
amount
£000(2)
Annual
bonus
percentage
change(3)
Executive Directors
Peter Dilnot(4)
83%
17% / 3
217%
5%
22% / 2
0%
3%
(88)% / 2
3%
–
– / 15
–
–
– / –
–
Matthew
Gregory
n/a
n/a / 2
n/a
–
–
–
–
–
–
–
–
–
–
–
–
Christopher
Miller(5)
(80)%
(80)% / 0
n/a
5%
33% / 2
n/a
3%
15% / 2
n/a
12%
(30)% / 2
n/a
(6)%
(20)% / 2
n/a
Simon
Peckham(5)
(80)%
(80)% / 1
(80)%
5%
263% / 4
0%
3%
(45)% / 1
3%
12%
(26)% / 2
415%
(6)%
(2)% / 3
(71)%
Geoffrey
Martin(5)
(80)%
(80)% / 2
(80)%
5%
18% / 14
0%
3%
31% / 12
3%
14%
(6)% / 9
422%
(6)%
7% / 10
(72)%
Non‑executive Directors
Justin
Dowley
5%
n/a
n/a
5%
n/a
n/a
3%
n/a
n/a
12%
n/a
n/a
(6)%
n/a
n/a
David Lis(6)
3%
n/a
n/a
5%
n/a
n/a
16%
n/a
n/a
10%
n/a
n/a
(4)%
n/a
n/a
Charlotte
Twyning(7)
14%
n/a
n/a
4%
n/a
n/a
22%
n/a
n/a
12%
n/a
n/a
(6)%
n/a
n/a
Heather
Lawrence(8)
4%
n/a
n/a
14%
n/a
n/a
119%
n/a
n/a
–
–
–
–
–
–
Victoria
Jarman(9)
(64)%
n/a
n/a
5%
n/a
n/a
77%
n/a
n/a
–
–
–
–
–
–
Gillian
Elcock(10)
110%
n/a
n/a
–
–
–
–
–
–
–
–
–
–
–
–
Chris Grigg(11)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Ian
Barkshire(11)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Senior
employees(12)
11%
11%
(21)%
8%
10%
8%
4%
2%
2%
6%
92%
167%
(1)%
11%
45%
(1) The annual percentage change is required to be calculated by reference to actual basic salary or fee (as applicable) paid for the financial year compared to that paid for the prior
financial year. For the Non‑executive Directors, this fee includes both their basic fee and any additional fee received for holding the position of the Senior Independent Director, and for
holding the Chairmanship of the Audit Committee, the Remuneration Committee and/or the Nomination Committee.
(2) Benefits data is calculated on the same basis as the benefits data in the single total figure table. It does not include any pension allowances. Given that the executive Director benefits
are minimal, a small change to the amount of those benefits (for example, an annual increase to the premium charged for private medical insurance) will necessarily result in a large
increase. To provide comfort that these are not large increases in quantum, the benefits data as provided in the single total figure table is included, for context.
(3) The annual percentage change in bonus is calculated by reference to the bonus payable in respect of the financial year compared to the prior financial year, in each case for the
applicable executive Directors and senior employees. Neither the Executive Vice‑Chairman nor the Non‑executive Directors are eligible to receive an annual bonus.
(4) Mr Dilnot was appointed as Chief Executive Officer on 6 March 2024 (prior to which he served as Chief Operating Officer) and accordingly the comparison between 2024 and 2023 is in
respect of different roles, so is not a meaningful comparison.
(5) Mr Miller, Mr Peckham and Mr Martin resigned from the Board with effect from 7 March 2024 and received salary and benefits in their capacity as Directors in respect of part of the year
only. As such, the comparisons between 2024 and 2023 are not meaningful.
(6) Mr Lis was appointed as the Senior Independent Director with effect from 5 May 2022. The increase in his basic fee from 2021 to 2022 reflects the additional fee received in respect of
being appointed to this role for the period 5 May 2022 to 31 December 2022 which was not applicable to 2021, so is not a meaningful comparison.
(7) Ms Twyning received an additional payment of £10,000 in 2024 for services provided in addition to her regular activities as a Non‑executive Director and Nomination Committee Chair
as further described on page 138. As such, the comparison between 2024 and 2023 is not like‑for‑like. Ms Twyning was appointed as the Chair of the Nomination Committee with
effect from 1 January 2022. The increase in her basic fee from 2021 to 2022 reflects the additional fee received in respect of being appointed to this role for 2022 which was not
applicable to 2021, so is not a meaningful comparison.
(8) Mrs Lawrence was appointed to the Board with effect from 1 June 2021, and as Chair of the Audit Committee with effect from 5 May 2022. The increase in her basic fee from 2021 to
2022 reflects the fee actually received for the prorated period of directorship in 2021 for the period 1 June 2021 to 31 December 2021 versus a full year for 2022, and reflects the
additional fee received in respect of being appointed to the role of Chair of the Audit Committee for the period 5 May 2022 to 31 December 2022 which was not applicable to 2021, so
is not a meaningful comparison.
(9) Ms Jarman resigned from the Board with effect from 2 May 2024. As such, the comparison between 2024 and 2023 is not meaningful. Ms Jarman was appointed to the Board with
effect from 1 June 2021. The increase in her basic fee from 2021 to 2022 reflects the fee actually received for the prorated period of directorship in 2021 for the period 1 June 2021 to
31 December 2021 versus a full year for 2022, so is not a meaningful comparison.
(10) Ms Elcock was appointed to the Board with effect from 21 June 2023 and received a fee in 2023 in respect of part of the year only. As such, the comparison between 2024 and 2023 is
not meaningful.
(11) Mr Grigg and Dr Barkshire were appointed to the Board with effect from 1 October 2024 and as such no prior‑year comparison is available.
(12) Senior employees comprises members of the Company’s executive committee and their senior direct reports, excluding the Chief Executive Officer.
149
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
Wider workforce considerations
Melrose is committed to creating an inclusive working environment
and to rewarding our employees throughout the organisation in a fair
manner. The Committee is mindful of wider workforce remuneration
and conditions, and uses its awareness of these arrangements to
ensure that Melrose executive pay is aligned with the Company’s
culture and strategy.
The Committee is responsible for setting the remuneration policy for
the executive Directors and for setting remuneration for the
Non‑executive Chairman, the executive Directors and the Group’s
senior management team. The Chief Executive Officer and senior
management team are responsible for setting wider workforce
remuneration, and are responsible for engaging with the wider
workforce in relation to remuneration throughout the year. The
Committee considers such approach to be appropriate on the basis
that it maintains oversight of pay, policies and incentives at a senior
management team level, which enables it to ensure that the approach
taken to executive remuneration is consistent. The Chief Human
Resources Officer also monitors, via the Workforce Advisory Panel as
well as through the human resources team, that senior management
remuneration is consistent with the remuneration that the business
provides to its wider workforce, and that the incentives it operates
align with the business’s culture and strategy. This approach provides
the Committee with comfort that it is discharging its obligations under
the Code, and that there is consistency and engagement across all
levels of the Group. Based on these disclosures, the Committee is
satisfied that the approach taken to remuneration at all levels is
consistent with the Company’s remuneration philosophy.
The Committee is aware of the continuing macroeconomic
challenges impacting the global economy and the resulting impact on
cost of living and inflation against a challenging economic
environment with general uncertainty. The Committee has sought to
ensure that executive pay decisions in respect of 2024 and 2025 have
been taken with this background in mind, and with the benefit of the
oversight described above and advice from its external remuneration
advisors. The Committee took these into consideration when making
its decision for the executive Director salary increases for 2025, which
were consistent with the increases awarded across the wider UK
workforce.
Melrose and GKN Aerospace continue to pay all UK employees at
least the national living wage save for apprentices, interns and
year‑in‑industry students, who are paid in accordance with the
national minimum wage rates for their age group. Additionally, all
employees in the UK are offered the opportunity to work for at least
15 hours per week.
Retirement provisions
The Group provides retirement benefits to senior management and
the executive committee determines the retirement benefits provided
to the wider workforce.
Long‑term incentives
Participation in the 2024 PSP is limited to the Group’s senior
management.
DIRECTORS’ REMUNERATION REPORT
Continued
150
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Relative Importance of Spend on Pay
The following table sets out the percentage change in dividends and the overall expenditure on pay (as a whole across the Group).
Expenditure
Year ended
31 December 2023
£ million
Year ended
31 December 2024
£ million
Percentage
change
Remuneration paid to all employees(1)
1,095
965
(12)%
Distributions to shareholders by way of dividend and share buyback
173(2)
498(3)
188%
(1) The figure is the total staff costs as stated in note 7 to the financial statements.
(2) The figure for the year ended 31 December 2023 includes the amount returned to shareholders by way of share buyback in 2023.
(3) The figure for the year ended 31 December 2024 includes the amount returned to shareholders by way of share buyback in 2024.
Non‑executive Directors
Single figure table (audited)
The following table sets out the single figure of remuneration for 2024 in comparison with 2023 for the Company’s Non‑executive Directors(1):
Non‑executive Directors
Period
Total basic
fees
£000
Total other
fees
£000(2)
Other (bonus,
pension,
LTIP, taxable
benefits)
£000
Total
£000
Total
Fixed
£000
Total
Variable
£000
Justin Dowley (Chairman)
2024
422
–
n/a
422
422
–
2023
402
–
n/a
402
402
–
David Lis
2024
91
40
n/a
131
131
–
2023
86
40
n/a
126
126
–
Charlotte Twyning(3)
2024
91
25
n/a
116
116
–
2023
86
15
n/a
101
101
–
Funmi Adegoke(4)
2024
–
–
n/a
–
–
–
2023
43
–
n/a
43
43
–
Heather Lawrence
2024
91
30
n/a
121
121
–
2023
86
30
n/a
116
116
–
Victoria Jarman(5)
2024
31
–
–
31
31
–
2023
86
–
n/a
86
86
–
Gillian Elcock(6)
2024
91
–
n/a
91
91
–
2023
43
–
n/a
43
43
–
Chris Grigg(7)
2024
23
–
n/a
23
23
–
2023
–
–
–
–
–
–
Ian Barkshire(7)
2024
23
–
n/a
23
23
–
2023
–
–
–
–
–
–
(1) The ‘Total’ figures in the above table may not add up to the sum of the component parts due to rounding.
(2) These are additional fees for holding the Chairmanship of the Audit Committee, the Remuneration Committee and the Nomination Committee, and for holding the position of the Senior
Independent Director. There are no additional fees payable for membership of a committee. All of our Non‑executive Directors are members of at least one committee.
(3) Ms Twyning received a one‑off fee of £10,000 in 2024 for services provided in addition to her regular activities as a Non‑executive Director and as Nomination Committee Chair as
further described on page 138.
(4) Ms Adegoke resigned as a Non‑executive Director of the Company on 16 June 2023 and the fees referred to above for 2023 reflect her fees for the period 1 January 2023 to
16 June 2023.
(5) Ms Jarman resigned as a Non‑executive Director of the Company on 2 May 2024 and the fees referred to above for 2024 reflect her fees for the period 1 January 2024 to 2 May 2024.
(6) Ms Elcock was appointed as a Non‑executive Director of the Company with effect from 21 June 2023 and the fees referred to above for 2023 reflect her fees for the period 21 June 2023
to 31 December 2023.
(7) Mr Grigg and Dr Barkshire were appointed as Non‑executive Directors of the Company with effect from 1 October 2024 and the fees referred to above for 2024 reflect their fees for the
period 1 October 2024 to 31 December 2024.
151
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
Payments to past directors or for loss of office (audited)
As announced in 2023, Mr Miller, Mr Peckham and Mr Martin (the
“Resigning Directors”) did not stand for re‑election at the Company’s
Annual General Meeting on 2 May 2024 having ceased to be directors
on 7 March 2024. They ceased employment with the Company on
1 June 2024 (the “Termination Date”).
In connection with the settlement arrangements entered into with
respect to their resignation, (i) Mr Miller was paid a gross sum of
£239,890 as compensation in lieu of notice plus £100 for restrictive
covenants, (ii) Mr Peckham was paid a gross sum of £230,490 as
compensation in lieu of notice plus £100 for restrictive covenants, and
(iii) Mr Martin was paid a gross sum of £196,037 as compensation in
lieu of notice plus £100 for restrictive covenants. In each case
compensation in lieu of notice was calculated on the basis of salary
plus contractual pension entitlement in respect of the period from the
Termination Date to 30 September 2024.
Under the terms of their settlement arrangements Mr Peckham and
Mr Martin remained eligible to participate in the 2024 annual bonus
scheme with a maximum entitlement of 100% of base salary,
calculated on the basis of a full year of service in 2024 in respect of
which Mr Peckham received £511,241 and Mr Martin received
£417,783 in each case in addition to the annual bonus amount set out
in the single total figure of remuneration table on page 139. Although
the maximum bonus opportunity for new executive Directors was
increased to 200% of base salary pursuant to the 2023 directors’
remuneration policy, the maximum bonus opportunity for
Mr Peckham and Mr Martin remained at 100% of base salary. In
respect of 2024, while the bonus opportunity of Mr Peckham and
Mr Martin was not prorated, the level of bonus to be awarded was
conditional on an annual bonus being achieved by the incoming Chief
Executive Officer but with a maximum percentage of salary
entitlement for Mr Peckham and Mr Martin capped at half the
maximum percentage of salary entitlement of the incoming Chief
Executive Officer. To the extent the bonus awarded to the incoming
Chief Executive Officer was higher than 100% of his salary, the bonus
awarded to Mr Peckham and Mr Martin would not exceed 100% of
their salaries, and to the extent the incoming Chief Executive Officer’s
bonus was lower than 100% of his salary, Mr Peckham and
Mr Martin’s bonus would be correspondingly lower. The Committee
considered such arrangement to be in the interests of the Company
as it would incentivise Mr Peckham and Mr Martin to ensure that the
transition to the incoming Chief Executive Officer and Chief Financial
Officer was effective on a continuing basis beyond their Termination
Date in the longer‑term interests of the Company during a strategically
transformational full year, and that they were focused on and
recognised for achievement of the Company’s key financial and
strategic objectives for the entire year as encapsulated in the 2024
annual bonus scheme. As the incoming Chief Executive Officer was
awarded an annual bonus for 2024 at over 100% of base salary,
Mr Peckham and Mr Martin became entitled to an annual bonus for
2024 at 100% of base salary.
The Resigning Directors remained entitled to receive benefits up to and
including their Termination Date and remained entitled to the benefit of
private health insurance, subject to and in accordance with the rules
of the Company’s scheme from time to time, until 31 March 2025.
Details of Mr Miller, Mr Peckham and Mr Martin’s entitlements on
crystallisation of the 2020 MESP are set out on page 142. For the
same reasons applicable to the Committee discretions described on
page 142 in respect of the 2020 MESP, pursuant to the settlement
arrangements referred to above the term of the post‑cessation
minimum shareholding requirement of 300% of salary (or actual
shareholding on cessation, if lower) was adjusted for each Resigning
Director such that it expires on 31 May 2025, rather than 31 May 2026.
Ms Jarman resigned from her position as Non‑executive Director
on 2 May 2024. She received her Non‑executive Director fees from
1 January 2024 up to and including 2 May 2024. Non‑executive
Directors do not receive any taxable benefits, pension contributions
or variable remuneration. Other than the amounts disclosed above,
no other remuneration payment was made to Ms Jarman in the year
and therefore no payment was made for loss of office.
No other payments to past Directors or for loss of office have been
made to former Directors during the year.
Share interests
The following table sets out the subsisting interests in the equity of
the Company held by the Non‑executive Directors as at 31 December
2024, as well as an indication as to the size of these interests relative
to the entire issued share capital of the Company, including treasury
shares:
Non‑executive Directors
Ordinary shares held
as at
31 December 2024(1)
Shareholding
(% ordinary share capital) as at
31 December 2024(2)
Justin Dowley
519,215
0.0404%
David Lis
70,000
0.0054%
Charlotte Twyning
42,896
0.0033%
Heather Lawrence
7,500
0.0006%
Gillian Elcock
3,680
0.0003%
Chris Grigg
27,736
0.0022%
Ian Barkshire
17,000
0.0013%
Victoria Jarman(3)
11,166
0.0009%
Total
699,193
0.0544%
(1) For these purposes, the interests of each Non‑executive Director listed in the table
include any ordinary shares held by a person closely associated with that Non‑executive
Director within the meaning of the EU Market Abuse Regulation, as it forms part of UK
domestic law by virtue of the European Union (Withdrawal) Act 2018.
(2) Based on the total number of ordinary shares in issue as at 31 December 2024,
exclusive of treasury shares.
(3) Ms Jarman resigned as a Non‑executive Director on 2 May 2024. The figures stated in
the table above are calculated according to the number of shares Ms Jarman held at
2 May 2024.
There have been no changes in the ordinary shareholdings of the
Non‑executive Directors between 31 December 2024 and 6 March
2025 (the date of this report).
DIRECTORS’ REMUNERATION REPORT
Continued
152
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Non‑executive Directors’ fees
Non‑executive Directors’ basic fees and the Non‑executive
Chairman’s fee have been increased by 3% with effect from
1 January 2025, in line with increases made to the executive
Directors. We note that while all Non‑executive Directors serve on at
least one of the Company’s committees (and most serve on multiple
committees), there are no additional committee membership fees.
As noted in the single figure table above, the Company remains of the
view that it is not appropriate for our Non‑executive Directors to
receive any taxable benefits, pension contributions or variable
remuneration. During 2024, as noted in the single figure table above,
Ms Twyning received a one‑off fee of £10,000 in addition to her basic
fee and fee for serving as Nomination Committee Chair for services
provided in addition to her regular activities as disclosed earlier in
this report.
The Non‑executive Director fee levels for 2024 and 2025 are set out in
the table below.
Fee element
Fee with effect
from
1 January 2024
£
Fee with effect
from
1 January 2025
£
Non‑executive Chairman fee
421,800
434,500
Basic Non‑executive Director fee
90,500
93,300
Additional fee for holding the position of the
Senior Independent Director
20,000
20,000
Additional fee for holding the Chairmanship of
the Audit Committee
30,000
30,000
Additional fee for holding the Chairmanship of
the Remuneration Committee
20,000
20,000
Additional fee for holding the Chairmanship of
the Nomination Committee
15,000
15,000
Service contracts and letters of appointment
Consistent with the best practice guidance provided by the Code, the
Company’s policy is for executive Directors to be employed on terms
of service agreements, which may be terminated by either the
executive Director or the Company on the giving of 12 months’
written notice (subject to certain exceptions).
The executive Directors’ service contracts do not provide for
predetermined compensation in the event of termination. Any
payments made would be subject to normal contractual principles,
including mitigation as appropriate. The length of service for any one
executive Director is not defined and is subject to the requirement for
annual re‑election under both the Code and the Company’s Articles
of Association.
There is no unexpired term as each of the executive Directors’
contracts is on a rolling basis.
The Non‑executive Directors do not have service contracts but have
letters of appointment for an initial term of three years, which may be
renewed by mutual agreement. Generally, a Non‑executive Director
may be appointed for one or two periods of three years after the initial
three‑year period has expired, subject to re‑election by shareholders
at each AGM. The terms of appointment do not contain any
contractual provisions regarding a notice period or the right to receive
compensation in the event of early termination.
Each executive Director’s service contract and each Non‑executive
Director’s letter of appointment are available for inspection at the
Company’s registered office during normal business hours.
Details of the Non‑executive Directors’ current terms of appointment
are set out below:
Non‑executive Directors
First appointment
Expires*
Justin Dowley (Chairman)
1 September 2011
2025
David Lis (Senior Independent Director)
12 May 2016
2025
Charlotte Twyning
1 October 2018
2027
Heather Lawrence
1 June 2021
2027
Gillian Elcock
21 June 2023
2026
Chris Grigg
1 October 2024
2027
Ian Barkshire
1 October 2024
2027
* Subject to annual re‑election.
153
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
Governance
Responsibilities
The Board has delegated to the Committee responsibility for
overseeing the remuneration of the Chairman of the Board and the
executive Directors.
The Committee’s responsibilities include:
• establishing and maintaining an executive Director remuneration
policy that is appropriate, consistent and reflective of Melrose’s
remuneration philosophy;
• determining the remuneration policy for the executive Directors;
• setting remuneration for the Chair, executive Directors, Company
Secretary and the next level of senior management in accordance
(as applicable) with the Directors’ remuneration policy; and
• operating the Company’s long‑term incentive arrangements.
As described above, the Committee is responsible for setting the
remuneration of the Group’s senior management team. The Chief
Executive Officer is responsible for engaging with the senior
management team in relation to remuneration, and the senior
management team is responsible for engaging with the wider
workforce in relation to remuneration. Responsibility for determining
the remuneration of the Non‑executive Directors (other than the
Chairman of the Board) sits with the Board. No Director plays a part
in any decision about his or her own remuneration.
The Committee’s terms of reference, which were last reviewed
by the Committee in March 2025, are available on our website,
www.melroseplc.net/governance/documents-and-policies, and
from the Company Secretary at Melrose’s registered office.
Evaluation
The Code requires that FTSE 350 companies undertake a formal and
rigorous annual review of the performance of the Board, its
committees, the Chairman of the Board and individual Directors. In
particular, FTSE 350 companies should undertake an externally
facilitated Board and committee performance review once every
three years. The last external Melrose Board and committee review
was undertaken by Lintstock Ltd in 2023 and as such, the Company
is not required to undertake another externally facilitated Committee
evaluation until 2026. During the year, the Company continued its
ongoing internal review of the Committee and collected feedback
from Committee members with a similar range of focal topics as
featured in the 2023 external review. Specifically, the assessment
covered: (i) the constitution and performance of the Board and each
committee; (ii) the Chairman of the Board; and (iii) individual
performance reviews. Alongside such formal feedback, the
Committee continued to facilitate direct ongoing contact between its
members and the Chair of the Committee about any relevant matters
that the members wished to raise as part of the ongoing review.
Committee Membership and Attendance at meetings
All members of the Committee are independent Non‑executive
Directors within the definition of the Code. None of the Committee
members have any personal financial interest (other than as
shareholders in the Company) in matters to be decided, nor do they
have any conflicts of interest from cross‑directorships or any
day‑to‑day involvement in running the business.
The members of the Committee during 2024 and their attendance at
the scheduled meetings of the Committee held during 2024 were as
follows:
Member
No. of meetings(1)
David Lis (Chairman)
2/2
Justin Dowley
2/2
Charlotte Twyning
2/2
Victoria Jarman(2)
1/1
Gillian Elcock
2/2
Chris Grigg(3)
1/1
Ian Barkshire(3)
1/1
(1) Reflects regularly scheduled meetings of the Committee that took place in 2024.
(2) Ms Jarman stepped down from the Board and the Committee on 2 May 2024 and
attended the one Committee meeting held between 1 January 2024 to 2 May 2024.
(3) Mr Grigg and Dr Barkshire were appointed to the Committee on 1 October 2024 and
both attended the one Committee meeting held between 1 October 2024 and
31 December 2024.
Compliance with legislation and the Code
We apply the principles of, and are fully compliant with, the key
provisions of the Code and the Financial Conduct Authority’s Listing
Rules and Disclosure Guidance and Transparency Rules, including in
relation to minimum shareholding requirements, post‑cessation
minimum shareholding requirements, pension alignment, malus and
clawback, and discretion to override formulaic outcomes.
The Directors confirm that this report has also been prepared in
accordance with the Companies Act 2006 and Schedule 8 of the
Large and Medium‑sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013.
The four principles of the Melrose remuneration structure are wholly
aligned with the Code factors of clarity, simplicity, risk, predictability,
proportionality and alignment to culture. The Committee ensured that
it took all of these elements into account when establishing the
Remuneration Policy, as set out at page 151 of the 2023 Annual
Report, as well as its application to executive Directors during 2024.
DIRECTORS’ REMUNERATION REPORT
Continued
154
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Advisors to the Remuneration Committee
During the year, the Committee received reward advice and advice
on the remuneration reporting regulations from Ernst & Young LLP
(“EY LLP”) and Alvarez & Marsal Tax LLP (“A&M”).
EY LLP’s fees for advice to the Committee during 2024 were £4,500
excluding VAT and were charged on a time/cost basis. During the
year, EY LLP also provided the Company with tax and consulting
advice. The Committee is satisfied that the advice provided by EY
LLP in relation to remuneration matters is objective and independent.
A&M’s fees for advice to the Committee during 2024 were £112,774
excluding VAT and were charged on a time/cost basis. A&M did not
provide the Company with any other advice. The Committee is
satisfied that the advice provided by A&M in relation to remuneration
matters is objective and independent.
The Company Secretary acts as secretary to the Committee and
attends Committee meetings. Where appropriate, the Committee
invites the view of senior personnel, such as the Chief Executive
Officer and Chief Financial Officer, and interacts with other Board
members.
Statement of voting at general meetings
The charts opposite set out the votes on: (i) the 2023 Directors’
Remuneration Report, (ii) the Remuneration Policy at the 2024 AGM,
(iii) the Dowlais demerger resolution setting out (amongst other matters)
adjustments to the 2020 MESP, and (iv) the 2020 MESP at the
January 2021 general meeting.
The Directors’ Remuneration report will be put to an advisory vote at
the 2025 AGM on 30 April 2025.
This report was approved by the Board and signed on its behalf by:
David Lis
Chairman, Remuneration Committee
6 March 2025
Resolution to approve the
Directors’ Remuneration Report
for the year ended 31 December 2023 (2 May 2024)
1
2
1 Votes cast for the resolution
98.33%
2 Votes cast against the resolution
1.67%
Votes withheld 68,764,317
Resolution to approve the 2024
Directors’ Remuneration Policy (2 May 2024)
1
2
1 Votes cast for the resolution
96.84%
2 Votes cast against the resolution
3.16%
Votes withheld 186,978
Resolution to approve Dowlais demerger,
share consolidation and adjustments to
2020 MESP (30 March 2023)
1
2
1 Votes cast for the resolution
99.69%
2 Votes cast against the resolution
0.31%
Votes withheld 8,718,447
Resolution to approve and implement the
2020 MESP (21 January 2021)
1
2
1 Votes cast for the resolution
82.64%
2 Votes cast against the resolution 17.36%
Votes withheld 228,313,488
155
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
GOVERNANCE
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and
financial statements in accordance with applicable laws and
regulations.
Company law requires the Directors to prepare financial statements
for each financial year. Under that law, the Directors are required to
prepare the Group financial statements in accordance with United
Kingdom adopted international accounting standards. The Group
financial statements also comply with International Financial
Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board. The Directors have chosen to prepare
the parent company financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards and applicable law), including FRS 102 “The
Financial Reporting Standard applicable in the UK and Republic of
Ireland”. Under UK company law, the Directors must not approve the
financial statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and the Company and of
the profit or loss of the Group and the Company for that period.
In preparing the parent company financial statements, the Directors
are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are reasonable
and prudent;
• state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
• prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Company will continue in
business.
In preparing the Group financial statements, International Accounting
Standard 1 requires that Directors:
• select and apply accounting policies in accordance with
International Accounting Standard 8 and ensure that they have
been applied consistently across the Group;
• present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable
information;
• provide additional disclosures when compliance with the specific
requirements in IFRS are insufficient to enable users to understand
the impact of particular transactions, other events and conditions
on the Groups’ financial position and financial performance; and
• make an assessment of the Group’s ability to continue as a going
concern and to disclose any uncertainties related to this
assessment.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that the
financial statements comply with the Companies Act 2006. They are
also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company’s
website. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from legislation in
other jurisdictions.
DIRECTORS’ RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with the relevant
financial reporting framework, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Company and the undertakings included in the consolidation taken
as a whole;
• the Strategic Report includes a fair review of the development and
performance of the business and the position of the Company and
the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties
that they face; and
• the Annual Report and financial statements, taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company’s position and
performance, business model and strategy.
This responsibility statement was approved by the Board of Directors
on 6 March 2025 and is signed on its behalf by:
Matthew Gregory
Peter Dilnot
Chief Financial Officer
Chief Executive Officer
6 March 2025
6 March 2025
156
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
LEVERAGING OUR STRONG
MARKET POSITION TO
IMPROVE PROFITABILITY
IN THIS SECTION
158
Independent auditors’ report to the members of Melrose Industries PLC
168
Consolidated Income Statement
169
Consolidated Statement of Comprehensive Income
170
Consolidated Statement of Cash Flows
171
Consolidated Balance Sheet
172
Consolidated Statement of Changes in Equity
173
Notes to the Consolidated Financial Statements
226
Company Balance Sheet for Melrose Industries PLC
227
Company Statement of Changes in Equity
228
Notes to the Company Balance Sheet
237
Glossary
157
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
Opinion
In our opinion:
• Melrose Industries PLC’s Group financial statements and Company financial statements (the “financial statements”) give a true and fair view
of the state of the Group’s and of the Company’s affairs as at 31 December 2024 and of the Group’s loss and the Group’s cash flows for the
year then ended;
• the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards as applied
in accordance with the provisions of the Companies Act 2006;
• the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic
of Ireland”, and applicable law); and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report, which comprise: the Consolidated Balance Sheet and Company
Balance Sheet for Melrose Industries PLC as at 31 December 2024; the Consolidated Income Statement, the Consolidated Statement of
Comprehensive Income, the Consolidated Statement of Cash Flows, and the Consolidated and Company Statement of Changes in Equity for the
year then ended; and the notes to the financial statements, comprising material accounting policy information and other explanatory information.
Our opinion is consistent with our reporting to the Audit Committee.
Separate opinion in relation to IFRSs as issued by the IASB
As explained in note 2 to the financial statements, the Group, in addition to applying UK-adopted international accounting standards, has also
applied international financial reporting standards (IFRSs) as issued by the International Accounting Standards Board (IASB).
In our opinion, the Group financial statements have been properly prepared in accordance with IFRSs as issued by the IASB.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe
that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in
the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided.
Other than those disclosed in note 7, we have provided no non-audit services to the Company or its controlled undertakings in the period
under audit.
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF MELROSE INDUSTRIES PLC
158
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Our audit approach
Context
2024 is our first year as independence auditors of the Group. As part of our audit transition, we carried out procedures over opening balances
at 1 January 2024 by shadowing the predecessor auditor, reviewing the predecessor auditor’s working papers and re-evaluating the
predecessor auditor’s conclusions in respect of key judgements included in the opening Group balance sheet.
Overview
Audit scope
• Following our assessment of the risks of material misstatement of the financial statements we subjected 10 individual components to full
scope audits for Group reporting purposes. In addition, for three individual components we completed the audit of one or more financial
statement line item’s (‘FSLI’s’) and for one further component the audit of one or more FSLI’s and specified procedures over one FSLI.
• The Group engagement team audited the Company and other centralised functions, including those covering the Group treasury and tax
operations, post-retirement benefits and goodwill impairment assessments. The Group engagement team performed audit procedures over
the Group consolidation and financial statement disclosures and performed risk assessment analytics over balances out of scope for
non-significant components.
• Taken together, the components at which audit work was performed accounted for approximately 86% of the Group’s revenue. Our scoping
provided sufficient coverage over each significant financial statement line item of the Group financial statements and, provided us with the
evidence we needed for our opinion on the Group financial statements taken as a whole.
• As part of the Group audit supervision process, the Group engagement team met with and discussed the approach and results of audit
procedures with component teams and reviewed their audit files and final deliverables. In person site visits to components in the UK,
Norway, Sweden, Netherlands and US were also performed.
Key audit matters
• Variable consideration in respect of certain risk and revenue sharing partnerships (‘RRSPs’) (Group)
• Classification of adjusting items (Group)
• UK deferred tax asset recognition and recoverability (Group)
• Recoverability of the Company’s investments in subsidiary undertakings (Company)
Materiality
• Overall Group materiality: £21 million based on approximately 0.6% of revenue.
• Overall Company materiality: £111 million based on approximately 1% of total assets.
• Performance materiality: £15.8 million (Group) and £83.3 million (Company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were
addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
159
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
Continued
This is not a complete list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Variable consideration in respect of certain risk and revenue sharing
partnerships ('RRSPs') (Group)
Refer to note 2 – summary of material accounting policies – revenue,
note 3 – critical accounting judgements and key sources of estimation
uncertainty – estimates of future revenues and costs of long-term contractual
arrangements, note 4 – revenue, and note 17 – trade and other receivables.
A key source of estimation uncertainty for the Group involves the
recognition of variable consideration related to certain Risk and Revenue
Sharing Partnerships (‘RRSPs’) in the Engines segment. The total variable
consideration recognised in the year respect of these certain RRSPs is £298
million (2023: £193 million).
In respect of certain RRSPs, the Group:
• Has an irrevocable right to the aftermarket having substantially completed
their work at the manufacturing stage; and
• The cash received for the delivery of their OE components is not
representative of the full amount due to the Group as an RRSP partner.
For the RRSPs where this is the case, the Group are required to record variable
consideration in accordance with IFRS 15 and therefore an assessment of the
future income from each RRSP is made. This considers the expected fleet size,
flight hours and cycles, frequency of shop visits and the expected profitability
over the life of an engine. In line with IFRS 15, this variable consideration is
then constrained, in accordance with the Group’s previously implemented
framework, to ensure that revenue is only recognised to the extent it is highly
probably it will not reverse. The constraints reflect the length of the programmes
and the complexity of the engines which can develop technical issues and may
not be fully compliant with time on wing specifications.
Small adjustments in assumptions can have a significant impact on the results
of any individual financial year and these changes to forecasts and constraints
can result in revisions to revenue previously recognised, either as a result of
changes to assumptions or the unwind of risk constraints as future cash flows
become more certain. The key assumptions impacting the models are engine
life and an assessment of the aftermarket income over that period, and the
forecast margin. During the year, £50 million (2023: £30 million) of revenue has
been recognised in respect of released constraints as risks have reduced due
to the passage of time and £41 million (2023: £27 million) of revenue has been
recognised as a result of changes in assumptions.
As a result of the above judgements and estimates we have assessed this as a
key audit matter.
We focussed our work on a number of contracts where we consider there to
be the highest degree of management judgement or estimation and designed
specific procedures over recognition of variable consideration. We also
performed targeted sample testing on the remaining population of contracts.
The audit procedures performed included:
• Walkthrough procedures to evaluate the design and implementation of the
relevant controls relating to judgements and areas of estimation uncertainty in
preparing the variable consideration models for RRSPs;
• We read the RRSP contracts to understand the key terms including
performance obligations, pricing structures, programme share and the
existence of termination clauses;
• We attended meetings with programme controllers to understand the operational
matters impacting the performance of specific contracts and any amendments
to contractual arrangements that could have an impact on performance;
• We obtained correspondence with the customer and discussed with the
programme controllers the status of the relationship with the customer,
looking for indications of disputes of possible claims;
• We assessed how management has forecast the size of the aftermarket
consideration for recognition as variable consideration, comparing the key
assumptions to industry data and by reconciling the models back to data
provided by the engine manufacturers;
• We compared the previously forecast results of a sample of contracts with
the actual results to assess the performance of the contract and the historical
accuracy of forecasting;
• We considered the timeframe over which spares revenue will be generated and
consider appropriateness of the anticipated engine life utilised in the model;
• We agreed expected shipset OE sales to sales/volume forecasts used within
the business, as well as comparison to third party sources;
• We obtained and documented an understanding of the latest cost position on
each contract including any penalties;
• We used a spreadsheet interrogation tool to identify whether the models are
operating appropriately. This included reperforming calculations for a sample
of programmes;
• We read and challenged management’s accounting papers over the positions
taken in respect of its key contract judgements;
• We assessed the reasonableness of the constraints applied against the
margin recognised over the contract to date and whether this was being
unwound in line with management’s framework;
• For relevant contracts, we assessed the recoverability of balances as at
31 December 2024;
• We considered whether there are indicators of management override of
controls or bias in arriving at their reporting net position; and
• We also assessed the adequacy of disclosure within the financial statements.
Based on the work performed, we consider that managements estimation of
variable consideration recognised in the year is materially appropriate, in the
context of the financial statements taken as a whole.
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF MELROSE INDUSTRIES PLC
160
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Key audit matter
How our audit addressed the key audit matter
Classification of adjusting items (Group)
Refer to note 2 – summary of material accounting policies – alternative
performance measures, note 3 – critical accounting judgements and key
sources of estimation uncertainty – adjusting items, note 5 – segment
information, and note 6 – reconciliation of adjusted profit measures.
In addition to the performance measures prescribed by International Financial
Reporting Standards, the Group also presents its results on an adjusted
basis. The Directors consider the adjusted results important to understand
the underlying results on a consistent and comparable basis. The two key
adjusted results used by the directors are Adjusted operating profit and
Adjusted profit before tax.
The adjusted results differ significantly from the statutory ones. When
consistently calculated and properly presented, alternative performance
measures offer investors additional insights into the Group’s performance.
However, if misused, these non-GAAP measures can mislead investors and
obscure true financial performance. Judgement is required in deciding which
items to exclude from adjusted profit.
The adjustments between statutory and adjusted results are:
• Amortisation of intangible assets acquired in business combinations
(£255 million);
• Movement in derivatives and associated financial assets and liabilities
(£112 million);
• Restructuring costs (£111 million);
• Acquisition and disposal related gains and losses (£44 million);
• Melrose equity-settled compensation scheme charges (£14 million); and
• Net changes in fair value items (£8 million).
We identified a key audit matter regarding the classification of adjusting items,
due to the significant adjustments and risk that costs, or income may be
misclassified, potentially distorting adjusted profit inappropriately.
We have gained a comprehensive understanding of the relevant controls
concerning the classification of adjusting items and have evaluated the design
and implementation of these controls.
We have considered the judgments made by management to determine what
should be classified as an adjusting item and obtained corroborative evidence
for a sample of these items.
As part of our procedures, we challenged management’s rationale for
designating certain items as adjusting. We assessed these items against the
Group’s accounting policy, considering their nature and value.
In auditing management’s disclosure, our challenge focused on areas requiring
significant judgment, such as restructuring costs.
We evaluated the appropriateness and completeness of disclosures regarding
the impact of adjusting items, particularly in notes 2 and 6 of the consolidated
financial statements, and found them to be suitable. This included assessing the
explanations provided by management on reconciling items between adjusted
and statutory performance.
Overall, we found that the classification judgements made by management were
in line with its policy for adjusted results, have been consistently applied, and
there are no material uncorrected misstatements resulting from our testing.
UK deferred tax asset recognition and recoverability
(Group)
Refer to note 2 – summary of material accounting policies – taxation,
note 3 – critical accounting judgements and key sources of estimation
uncertainty – measurement of deferred tax assets in the UK, and note
22 – deferred tax
The recognition and recoverability of UK deferred tax assets in the Group,
where there have been significant taxable losses in the past, is based on a
number of significant estimates. Deferred tax assets can be recognised in
relation to these losses to the extent it is probable that there will be sufficient
future taxable profits to utilise them.
The Group has recognised significant deferred tax assets based on anticipated
future profitability. This requires several assumptions about future UK
profitability, including short to medium term forecasts and the long- term
growth rate.
At 31 December 2024, the Group recognised £277 million (2023: £237 million)
of deferred tax assets in the UK which are expected to be utilised over a 25 to
35 year period. Given the length of forecasts required to recover the deferred
tax asset, this presents a heightened risk that deferred tax assets previously
recognised may not be recoverable. Given the inherent uncertainty in long-
term forecasts, management has performed sensitivities over key estimates,
concluding that a reasonable change in key assumptions does not result in
deferred tax assets being irrecoverable.
We have obtained an understanding of the relevant controls for the assessment
of the recognition and recoverability of deferred tax assets and evaluated the
design and implementation of these controls.
We evaluated management’s methodology for assessing the recognition and
recoverability of deferred tax assets supported by the availability of sufficient
taxable profits in future periods against which brought forward tax losses can be
utilised. Our evaluation of these future profits also considered both the business
model and applicable UK tax legislation.
We assessed the future profit forecasts of the UK tax Group and tested that
the key assumptions around revenue growth, margin improvements and cost
base, including the forecasts for periods beyond the normal five-year forecasting
horizon, were reasonable. In doing this, we verified that the forecasts did not
include taxable profit growth that could not be demonstrated as probable. We
have also challenged whether the forecasts are consistent with the Group’s
assessment of the impact of climate change and planned actions.
Where applicable we assessed the consistency of the forecasts used to justify
the recognition of deferred tax assets to those used elsewhere in the business,
including for impairment reviews, for the going concern assessment and longer
term viability statement.
We also assessed the adequacy of disclosures over this area.
Overall we found management’s assessment to be supportable and the
recovery period over which the asset has been considered to be in line with
comparable Groups.
161
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
Continued
Key audit matter
How our audit addressed the key audit matter
Recoverability of the Company’s investments in subsidiary undertakings
(parent)
In the notes to the Company Balance Sheet for Melrose Industries PLC,
refer to note 1 – material accounting policies – impairment of assets, and
note 3 – investments.
Investments in subsidiary undertakings of £10,593 million (2023: £10,593 million)
are accounted for at cost less provision for impairment in the balance sheet at
31 December 2024.
Investments are tested for impairment if indicators exist. If such indicators
exist, the recoverable amounts of the investments in subsidiaries are estimated
in order to determine the extent of the impairment loss, if any.
A review of potential indicators of impairment was performed by management
focusing on the developments in the year, concluding that no such indicators were
present and therefore that the investments’ carrying values remain recoverable.
We evaluated management’s assessment of whether any potential indicators
of impairment existed at 31 December 2024. In doing this, we considered the
market capitalisation of the Company at 31 December 2024, which exceeded
the carrying value of investments in subsidiary undertakings.
We also considered the latest expected performance of the Group by comparing
the latest cash flow forecasts audited as part of other key audit matters to those
estimated in the prior year by management as well as the performance in the year.
Overall, we found that management’s judgement that there has been no
indicator of impairment to be appropriate.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a
whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which
they operate.
The Group operates in many countries across the world and the size of operations within each territory varies. We define a component as a
single reporting unit which feeds into the Group consolidation.
In selecting the components that are in scope each year and establishing the overall approach to the Group audit, we determined the type of
work that needed to be performed by us, as the Group engagement team, or component auditors within PwC UK and other PwC network
firms operating under our instruction, to ensure that we had sufficient coverage from our audit work over each significant line of the Group
financial statements. Where the work was performed by component auditors, we determined the level of involvement we needed to have in the
audit work in these territories to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our
opinion on the Group financial statements as a whole.
As a result of our risk assessment procedures and the detailed scoping exercise performed at the planning stage of our audit, we identified
14 components across 5 countries at which we determined we need to perform audit work. Taken together, these components accounted for
approximately 86% of the Group’s revenue. The in-scope components were audited by the Group engagement team and 5 component teams.
• Out of the 14 reporting packages, we identified 1 component which required a full scope audit of its complete financial information due to its
size and risk characteristics. We also performed audit procedures on a specific line item or line items and specified procedures on one
financial statement line item in respect of the financial information of 1 component based on risk characteristics.
• We subjected 9 non-significant components to full scope audits and for the remaining 3 components, we performed audit procedures on a
specific line item or line items within that component that we considered had the potential for the greatest impact on the significant
accounts in the financial statements because of the size of these accounts.
The Group engagement team audited the Company and other centralised functions, including those covering the Group treasury and tax
operations, post-retirement benefits and goodwill impairment assessments. The Group engagement team also performed audit procedures
over the Group consolidation and financial statement disclosures and performed risk assessment analytics over balances out of scope for
non-significant components.
Where work was performed by component auditors, we determined the level of involvement we needed to have in the audit work at those
reporting units to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the
consolidated financial statements.
In October 2024 we held a meeting with the key partners and senior staff from the PwC member firms involved in the audit. At this meeting we
considered developments specific to the Group, key audit matters and discussed our approach to the Group audit. We also head from key
members of Group management including the Chief Financial Officer.
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF MELROSE INDUSTRIES PLC
162
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
We issued formal written instructions to all component auditors setting out the audit work to be performed by each of them and maintained
regular communication with the component auditors throughout the audit cycle. These interactions included attending certain component
clearance meetings and holding regular conference calls, as well as reviewing and assessing any matters reported. The Group engagement
team also reviewed selected audit working papers for certain component teams to evaluate the sufficiency of audit evidence obtained and to
fully understand the matters arising from the component audits.
In addition, senior members of the Group engagement team have visited component teams across all major components in the UK, Norway,
Sweden, Netherlands and US. These visits were in-person for these locations. They included meetings with the component auditor and with
local management, and attendance at Business Line close meetings.
Reflective of its nature, our audit of the Company financial statements focused on the investments in subsidiary undertakings and validating
amounts owed to and from subsidiary undertakings.
The impact of climate risk on our audit
In planning and executing our audit, we also considered the potential impact of climate change on the Group’s business and the financial
statements. The Director’s continue to develop their assessment of the potential impacts of climate change as explained in detail within the
Sustainability Report.
As a part of our audit we made enquiries of management to understand the extent of the potential impact of the physical and transitional
climate change risk on the financial statements. We also discussed the climate change initiatives and commitments from managements plans,
and the impact these have on the Group, including on future cash flow forecasts.
Management considers that the impact of climate change does not give rise to a material financial statement impact. We evaluated
management’s risk assessment and understood the Group’s governance processes.
Using our knowledge of the Group, we assessed that the key areas in the financial statements which are more likely to be materially impacted by
climate change are those areas that are based on future cash flows. As a result, we particularly considered how climate change risks and the
impact of climate commitments made by the Group would impact the assumptions made in the forecasts prepared by management that are
used in the Group’s impairment reviews, for going concern purposes and assessment of the recognition and recoverability of deferred tax assets.
Based on our procedures, we have not identified any material error in the assessment of the impact of climate on the financial statements.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the
individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the
financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Financial statements - Group
Financial statements - Company
Overall
materiality
£21 million.
£111 million.
How we
determined it
Approximately 0.6% of revenue
Approximately 1% of total assets
Rationale for
benchmark
applied
Using our professional judgement, we have considered a range of
potential benchmarks in determining materiality (specifically revenue
and certain profit based benchmarks), given that using 5% of current
year profit before tax would have resulted in using a lower level of
materiality than in prior years, despite the Group's revenue and
adjusted operating profit increasing year-on-year. We have selected
a level of materiality that has taken into consideration a range of
outcomes suggested by these alternative benchmarks. The materiality
selected is equivalent to approximately 0.6% of revenue for the current
year, comparable with that used by the predecessor auditor as a
percentage of revenue in 2023.
We determined our materiality based on total assets, which is more
applicable than a performance-related measure as the Company is
an investment holding Company for the Group. The higher Company
materiality level was used for the purposes of testing balances
not relevant to the Group audit, such as investments in subsidiary
undertakings and intercompany balances.
163
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF MELROSE INDUSTRIES PLC
Continued
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of
materiality allocated across components was £3 million to £15.5 million. Certain components were audited to a local statutory audit materiality
that was also less than our overall Group materiality.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature
and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our
performance materiality was 75% of overall materiality, amounting to £15.8 million for the Group financial statements and £83.3 million for the
Company financial statements.
In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and
aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range was appropriate.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £1 million (Group audit)
and £5.55 million (Company audit) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the Group’s and the Company’s ability to continue to adopt the going concern basis of
accounting included:
• Testing the appropriateness of the underlying cash flow forecasts and performing a retrospective review of actual performance to the prior
year model;
• Reviewing the debt agreements to confirm the terms and conditions, including covenants. The covenants were consistent with those used
in management’s going concern assessment;
• Corroborating to the debt agreements that management has the option to extend the facilities for two additional one-year periods;
• Agreeing borrowings currently in place to third-party confirmations and considering the Group’s available financing and maturity profile. This
supported the Directors’ conclusion that sufficient liquidity headroom remained throughout the assessment period;
• Testing the mathematical accuracy of the covenant calculations, including confirming that the adjustments recorded to determine adjusted
EBITDA were appropriate;
• Reviewing management’s base case and severe but plausible downside scenario, ensuring the directors have considered all appropriate
factors, including the cash flows, the liquidity position of the Group, available borrowing facilities, the timing of contractual debt repayments
and the relevant financial and non-financial covenants;
• Performing sensitivity analysis to assess the impact of movements in significant assumptions on the overall liquidity headroom and banking
covenants; and
• Assessing the adequacy of disclosures included in the going concern statement included within the financial statements.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern for a period of at least twelve
months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of
the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Group’s and the
Company’s ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw
attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the
going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
164
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon.
The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to
conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on
the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report based on these responsibilities.
With respect to the Strategic report and Directors’ report, we also considered whether the disclosures required by the UK Companies Act
2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as
described below.
Strategic report and Directors’ report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors’ report for the
year ended 31 December 2024 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not
identify any material misstatements in the Strategic report and Directors’ report.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.
Corporate governance statement
The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of the corporate
governance statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code specified for our
review. Our additional responsibilities with respect to the corporate governance statement as other information are described in the Reporting
on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance
statement, included within the Corporate Governance report is materially consistent with the financial statements and our knowledge obtained
during the audit, and we have nothing material to add or draw attention to in relation to:
• The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
• The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and an
explanation of how these are being managed or mitigated;
• The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of
accounting in preparing them, and their identification of any material uncertainties to the Group’s and Company’s ability to continue to do so
over a period of at least twelve months from the date of approval of the financial statements;
• The directors’ explanation as to their assessment of the Group’s and Company’s prospects, the period this assessment covers and why the
period is appropriate; and
• The directors’ statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and meet
its liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary
qualifications or assumptions.
165
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF MELROSE INDUSTRIES PLC
Continued
Our review of the directors’ statement regarding the longer-term viability of the Group and Company was substantially less in scope than an
audit and only consisted of making inquiries and considering the directors’ process supporting their statement; checking that the statement is
in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with the
financial statements and our knowledge and understanding of the Group and Company and their environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial statements and our knowledge obtained during the audit:
• The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the
information necessary for the members to assess the Group’s and Company’s position, performance, business model and strategy;
• The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and
• The section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the Company’s compliance with the
Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review by the auditors.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities, the directors are responsible for the preparation of the financial
statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also
responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the Group and industry, we identified that the principal risks of non- compliance with laws and regulations
related to export control, and we considered the extent to which non-compliance might have a material effect on the financial statements. We
also considered those laws and regulations that have a direct impact on the financial statements such as the Listing Rules of the UK Financial
Conduct Authority, the Companies Act 2006 and tax legislation. We evaluated management’s incentives and opportunities for fraudulent
manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to
posting inappropriate journal entries, either in the underlying books and records or as part of the consolidation process, and management
bias in accounting estimates and judgements. The Group engagement team shared this risk assessment with the component auditors so that
they could include appropriate audit procedures in response to such risks in their work. Audit procedures performed by the Group
engagement team and/or component auditors included:
• Discussions throughout the year with management, internal audit, Group and Business Line legal counsel, and the head of export control,
including consideration of known or suspected instances of non-compliance with laws and regulation and fraud;
• Reading the minutes of Board meetings to identify any inconsistencies with other information provided by management;
• Reviewing legal expense accounts to identify significant legal spend that may be indicative of non- compliance with laws and regulations;
• Review of selected component auditors’ working papers;
• Challenging and auditing the significant estimates and judgements made by management given the potential risk of management bias;
• Identifying and testing unusual journal entries, in particular journal entries posted with unusual account combinations, and testing all
material consolidation journals;
• Incorporating an element of unpredictability into our procedures, aligned to the fraud risk in the Group; and
• Reviewing financial statement disclosures and testing to supporting documentation to assess compliance with applicable laws and regulations.
166
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance
with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not
detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery or intentional misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques.
However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to
target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a
conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior
consent in writing.
OTHER REQUIRED REPORTING
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not obtained all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches
not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the Company financial statements and the part of the Directors’ Remuneration report to be audited are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the members on 2 May 2024 to audit the financial statements
for the year ended 31 December 2024 and subsequent financial periods. This is therefore our first year of uninterrupted engagement.
OTHER MATTER
The Company is required by the Financial Conduct Authority Disclosure Guidance and Transparency Rules to include these financial
statements in an annual financial report prepared under the structured digital format required by DTR 4.1.15R - 4.1.18R and filed on the
National Storage Mechanism of the Financial Conduct Authority. This auditors’ report provides no assurance over whether the structured
digital format annual financial report has been prepared in accordance with those requirements.
Christopher Richmond (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
6 March 2025
167
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
FINANCIAL STATEMENTS
Consolidated Income Statement
168
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Continuing operations
Notes
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Revenue
Cost of sales
4, 5
3,468
(2,646)
3,350
(2,696)
Gross profit
Operating expenses
822
(826)
654
(597)
Operating (loss)/profit
5, 6
(4)
57
Finance costs
Finance income
7
7
(105)
3
(79)
14
Loss before tax
Tax
8
(106)
57
(8)
9
(Loss)/profit after tax for the year from continuing operations
(49)
1
Discontinued operations
Loss for the year from discontinued operations
13
–
(1,020)
Loss after tax for the year attributable to owners of the parent
(49)
(1,019)
Earnings per share
Continuing operations
– Basic
– Diluted
10
10
(3.7)p
(3.7)p
0.1p
0.1p
Continuing and discontinued operations
– Basic
– Diluted
10
10
(3.7)p
(3.7)p
(75.5)p
(75.5)p
Adjusted(1) results from continuing operations
Adjusted operating profit
Adjusted profit before tax
Adjusted profit after tax
Adjusted basic earnings per share
Adjusted diluted earnings per share
5, 6
6
6
10
10
540
438
350
26.8p
26.4p
390
331
263
19.5p
18.7p
(1) Defined in the summary of material accounting policies (see note 2).
Consolidated Statement of Comprehensive Income
169
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
Notes
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Loss after tax for the year
(49)
(1,019)
Items that will not be reclassified subsequently to the Income Statement:
Net remeasurement gain/(loss) on retirement benefit obligations
Fair value (loss)/gain on investments in equity instruments
Income tax (charge)/credit relating to items that will not be reclassified
24
12
8
27
(47)
(4)
(119)
35
29
Items that may be reclassified subsequently to the Income Statement:
Currency translation on net investments
Share of other comprehensive expense from equity accounted investments
Transfer to Income Statement from equity of cumulative translation differences
on disposal of foreign operations
Derivative gains on hedge relationships
Income tax charge relating to items that may be reclassified
15
13
8
(24)
17
–
(6)
3
(1)
(55)
(195)
(12)
(152)
2
(8)
13
(365)
Other comprehensive expense for the year
(11)
(420)
Total comprehensive expense for the year attributable to owners of the parent
(60)
(1,439)
FINANCIAL STATEMENTS
Consolidated Statement of Cash Flows
170
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Notes
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Operating activities
Net cash used in operating activities from continuing operations
Net cash from operating activities from discontinued operations
27
27
(121)
–
(7)
36
Net cash (used in)/from operating activities
(121)
29
Investing activities
Disposal of businesses, net of cash disposed
Settlement receipt from loans held with demerged entities
Purchase of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Purchase of computer software and capitalised development costs
Disposal of equity accounted investments
Equity accounted investment additions
Interest received
13
15
15
55
–
(108)
–
(15)
–
(3)
3
(320)
1,205
(95)
4
(11)
3
–
2
Net cash (used in)/from investing activities from continuing operations
Net cash used in investing activities from discontinued operations
27
(68)
–
788
(67)
Net cash (used in)/from investing activities
(68)
721
Financing activities
Repayment of borrowings
Drawings on borrowing facilities
Costs of raising debt finance
Repayment of principal under lease obligations
Purchase of own shares, including associated costs
Dividends paid to owners of the parent
20
9
9
(10)
767
(3)
(32)
(431)
(72)
(1,371)
628
(11)
(32)
(93)
(81)
Net cash from/(used in) financing activities from continuing operations
Net cash used in financing activities from discontinued operations
27
219
–
(960)
(6)
Net cash from/(used in) financing activities
219
(966)
Net increase/(decrease) in cash and cash equivalents, net of bank overdrafts
Cash and cash equivalents, net of bank overdrafts at the beginning of the year
Effect of foreign exchange rate changes
27
27
30
57
(7)
(216)
292
(19)
Cash and cash equivalents, net of bank overdrafts at the end of the year
27
80
57
As at 31 December 2024, the Group had net debt of £1,321 million (31 December 2023: £572 million). A definition and reconciliation of the
movement in net debt is shown in note 27.
Consolidated Balance Sheet
171
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
Notes
31 December
2024
£m
Restated(1)
31 December
2023
£m
Restated(1)
31 December
2022
£m
Non-current assets
Goodwill and other intangible assets
Property, plant and equipment
Investments
Interests in equity accounted investments
Deferred tax assets
Derivative financial assets
Other receivables
Retirement benefit surplus
11
14
12
15
22
25
17
3,094
821
69
8
651
12
1,201
–
3,351
777
114
7
527
46
859
–
6,846
2,599
62
435
373
36
745
93
5,856
5,681
11,189
Current assets
Inventories
Trade and other receivables
Derivative financial assets
Current tax assets
Cash and cash equivalents
Assets classified as held for sale
16
17
25
18
528
949
10
5
88
–
513
815
13
6
58
18
1,028
1,540
38
29
355
–
1,580
1,423
2,990
Total assets
5
7,436
7,104
14,179
Current liabilities
Trade and other payables
Interest-bearing loans and borrowings
Lease obligations
Derivative financial liabilities
Current tax liabilities
Provisions
Liabilities associated with assets held for sale
19
20
28
25
21
1,510
8
33
72
20
108
–
1,286
54
40
42
20
188
10
2,463
63
60
86
141
281
–
1,751
1,640
3,094
Net current liabilities
(171)
(217)
(104)
Non-current liabilities
Other payables
Interest-bearing loans and borrowings
Lease obligations
Derivative financial liabilities
Deferred tax liabilities
Retirement benefit obligations
Provisions
19
20
28
25
22
24
21
469
1,401
204
115
517
59
76
426
576
152
64
482
99
98
507
1,433
306
141
619
581
330
2,841
1,897
3,917
Total liabilities
5
4,592
3,537
7,011
Net assets
2,844
3,567
7,168
Equity
Issued share capital
Share premium account
Merger reserve
Capital redemption reserve
Other reserves
Translation and hedging reserve
Retained earnings
26
26
1
1,000
109
–
(2,330)
286
3,778
309
3,271
109
753
(2,330)
273
1,182
309
3,271
109
753
(2,330)
638
4,379
Equity attributable to owners of the parent
2,844
3,567
7,129
Non-controlling interests
–
–
39
Total equity
2,844
3,567
7,168
(1) Inventories, trade and other receivables and trade and other payables have been restated (see note 1).
The Financial Statements were approved and authorised for issue by the Board of Directors on 6 March 2025 and were signed on its behalf by:
Matthew Gregory
Peter Dilnot
Chief Financial Officer
Chief Executive Officer
6 March 2025
6 March 2025
FINANCIAL STATEMENTS
Consolidated Statement of Changes in Equity
172
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Issued
share
capital
£m
Share
premium
account
£m
Merger
reserve
£m
Capital
redemption
reserve
£m
Other
reserves
£m
Translation
and hedging
reserve
£m
Retained
earnings
£m
Equity
attributable
to owners
of the
parent
£m
Non-
controlling
interests
£m
Total
equity
£m
At 1 January 2023
309
3,271
109
753
(2,330)
638
4,379
7,129
39
7,168
Loss for the year
Other comprehensive expense
–
–
–
–
–
–
–
–
–
–
–
(365)
(1,019)
(55)
(1,019)
(420)
–
–
(1,019)
(420)
Total comprehensive expense
Purchase of own shares(1)
Dividends paid (note 9)
Demerger distribution (note 13)
Derecognition of non-controlling interests
on demerger
Equity-settled share-based payments
Deferred tax on equity-settled share-based
payments (note 8)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(365)
–
–
–
–
–
–
(1,074)
(93)
(81)
(1,973)
–
2
22
(1,439)
(93)
(81)
(1,973)
–
2
22
–
–
–
–
(39)
–
–
(1,439)
(93)
(81)
(1,973)
(39)
2
22
At 31 December 2023
309
3,271
109
753
(2,330)
273
1,182
3,567
–
3,567
Loss for the year
Other comprehensive income/(expense)
–
–
–
–
–
–
–
–
–
–
–
13
(49)
(24)
(49)
(11)
–
–
(49)
(11)
Total comprehensive income/(expense)
Purchase of own shares(1)
Dividends paid (note 9)
Capital reduction(1)
Equity-settled incentive scheme related(1)
Equity-settled share-based payments (note 23)
Deferred tax on equity-settled share-based
payments (note 8)
–
–
–
(308)
–
–
–
–
–
–
(2,271)
–
–
–
–
–
–
–
–
–
–
–
–
–
(753)
–
–
–
–
–
–
–
–
–
–
13
–
–
–
–
–
–
(73)
(449)
(72)
3,332
(157)
1
14
(60)
(449)
(72)
–
(157)
1
14
–
–
–
–
–
–
–
(60)
(449)
(72)
–
(157)
1
14
At 31 December 2024
1
1,000
109
–
(2,330)
286
3,778
2,844
–
2,844
(1) Further information is set out in note 1.
Further information on issued share capital and reserves is set out in note 26.
Notes to the Consolidated Financial Statements
173
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
1. Corporate information
Melrose Industries PLC (“the Company”) is a public company limited by shares. The Company is incorporated in the United Kingdom under
the Companies Act 2006 and registered in England and Wales. The address of the registered office is given on the back cover. The nature
of the Company and its subsidiaries’ (together “the Group”) principal activities by operating segment are set out in note 5 and in the Divisional
reviews on pages 16 to 23. The Consolidated Financial Statements of the Group for the year ended 31 December 2024 were authorised in
accordance with a resolution of the Directors of Melrose Industries PLC on 6 March 2025.
These Financial Statements are presented in pounds Sterling which is the currency of the primary economic environment in which the Company
is based. Foreign operations are included in accordance with the policies set out in note 2.
Corporate structure
Capital structure
On 2 October 2023, the Group commenced a £500 million share buyback programme which completed in September 2024. During the year
ended 31 December 2024, 70,967,661 shares (2023: 18,761,840 shares) were purchased at an average price of 571 pence (2023: 494 pence)
per share with cash spent of £411 million (2023: £93 million), inclusive of costs of £5 million (2023: £1 million). These are held as treasury shares
and the total costs of the purchase have been recognised in retained earnings.
On 1 October 2024, the Group commenced a £250 million share buyback programme which is expected to complete by the end of March 2026.
During the year ended 31 December 2024, 4,173,411 shares were purchased at an average price of 484 pence per share for total consideration
of £20 million, inclusive of costs of £nil. These are held as treasury shares and the total costs of the purchase have been recognised in retained
earnings. A liability of £18 million has also been recognised in respect of the shares expected to be purchased under the share buyback
programme during the close period, as there was an irrevocable instruction to contracted financial institutions to complete purchases at
31 December 2024.
On 3 June 2024, the Melrose Employee Share Plan (“MESP”) crystallised. Of the 54,346,536 shares awarded, 25,498,465 were withheld by
the Company in exchange for a cash payment sufficient to allow holders to meet their income tax and employee national insurance liabilities
in respect of the MESP. In accordance with IFRS 2: Share-based Payment, £157 million has been recognised in retained earnings.
Following approval from shareholders on 2 May 2024, the Group undertook a capital reduction on 11 July 2024. This reduced share capital by
£308 million, the share premium account by £2,271 million and the capital redemption reserve by £753 million.
Disposals and discontinued operations
On 1 March 2024, the Group disposed of its Fuel Systems business, the assets and liabilities of which were classified as held for sale at
31 December 2023. On 25 April 2024, the Group disposed of its St. Louis operation. On 28 June 2024, the Group disposed of its Orangeburg
operation. All disposals represented non-core parts of the Structures segment.
On 20 April 2023, the Group completed the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses through
the flotation of Dowlais Group plc (“Dowlais”) on the London Stock Exchange. The results of the Dowlais businesses were classified within
discontinued operations for the year ended 31 December 2023.
See note 13 for further detail.
Prior year restatement of inventories, trade and other receivables and trade and other payables
During the year, the Group has changed its presentation of inventories, trade and other receivables and trade and other payables within the
Balance Sheet. The change related to contract balances for certain programmes. The Group was previously netting certain amounts under
these arrangements, however, it was determined that the appropriate current and prior year presentation should be on a gross basis in line
with the requirements of IFRS 15: Revenue from Contracts with Customers. Prior year comparatives have been restated accordingly. The
impact of this change on the Balance Sheet at 31 December 2023 was to increase inventories by £3 million, non-current other receivables by
£70 million, current trade and other receivables by £102 million, current trade and other payables by £107 million and non-current other payables
by £68 million. The impact of this change on the Balance Sheet at 31 December 2022 was to increase inventories by £3 million, non-current
other receivables by £75 million, current trade and other receivables by £114 million, current trade and other payables by £116 million and
non-current other payables by £76 million.
1.1 New Standards, Amendments and Interpretations affecting amounts, presentation or disclosure reported in the current year
In the current financial year, the Group has adopted the following new and revised Standards, Amendments and Interpretations. Their adoption
has not had a significant impact on the amounts reported in these Financial Statements:
•
Amendments to IAS 1: Classification of liabilities as current or non-current and non-current liabilities with covenants
•
Amendments to IFRS 16: Lease liability in sale and leaseback
•
Amendments to IAS 7 and IFRS 7: Supplier finance arrangements
Notes to the Consolidated Financial Statements continued
FINANCIAL STATEMENTS
174
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
1. Corporate information continued
1.2 New Standards, Amendments and Interpretations in issue but not yet effective
At 31 December 2024, the following Standards, Amendments and Interpretations were in issue but not yet effective:
•
Amendments to IAS 21: Lack of exchangeability
•
Amendments to IFRS 9 and IFRS 7: Amendments to the classification and measurement of financial instruments
•
IFRS 18: Presentation and disclosure in financial statements
•
IFRS 19: Subsidiaries without public accountability – disclosures
The Directors do not expect that the adoption of the above Standards, Amendments and Interpretations will have a material impact on the
Financial Statements of the Group in future periods.
2. Summary of material accounting policies
Basis of accounting
The Consolidated Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006 and UK adopted
International Financial Reporting Standards (“IFRSs”) as issued by the IASB. The Consolidated Financial Statements have been prepared on an
historical cost basis, except for the revaluation of certain financial instruments and investments which are recognised at fair value at the end of
each reporting period. Historical cost is generally based on the fair value of the consideration given in exchange for assets.
Alternative Performance Measures
The Group presents Alternative Performance Measures (“APMs”) in addition to the statutory results of the Group. These are presented in
accordance with the Guidelines on APMs issued by the European Securities and Markets Authority (“ESMA”).
APMs used by the Group are set out in the glossary to these Financial Statements and the reconciling items between statutory and adjusted
results are listed below and described in more detail in note 6.
Adjusted profit measures exclude items which are significant in size or volatility or by nature are non-trading or non-recurring or any net change
in fair value items booked on an acquisition.
On this basis, the following are the principal items included within adjusting items impacting operating profit:
•
Amortisation of intangible assets that are acquired in a business combination, excluding computer software and development costs;
•
Significant restructuring project costs and other associated costs, including losses incurred following the announcement of closure for
identified businesses, arising from significant strategy changes that are not considered by the Group to be part of the normal operating costs
of the business;
•
Acquisition and disposal related gains and losses;
•
Impairment charges that are considered to be significant in nature and/or value to the trading performance of the business;
•
Movement in derivative financial instruments not designated in hedging relationships, including revaluation of associated financial assets and
liabilities;
•
The charge for the previous Melrose equity-settled compensation scheme, including its associated employer’s tax charge; and
•
The net change in fair value items booked on acquisitions.
Further to the adjusting items above, adjusting items impacting profit before tax include:
•
Acceleration of unamortised debt issue costs written off as a consequence of Group refinancing;
•
Significant settlement gains and losses associated with debt instruments including interest rate swaps following acquisition or disposal
related activity or non-trading transactions, which are not considered by the Group to be part of normal financing costs; and
•
Finance costs in respect of the Group’s net debt strategically allocated to a demerger group of businesses and subsequently settled on
demerger.
In addition to the items above, adjusting items impacting profit after tax include:
•
The net effect on tax of significant restructuring from strategy changes that are not considered by the Group to be part of the normal
operating costs of the business;
•
The net effect of significant new tax legislation; and
•
The tax effects of adjustments to profit before tax, described above.
The Board considers the adjusted results to be an important measure used to monitor how the businesses are performing, as this provides a
meaningful reflection of how the businesses are managed and measured on a day-to-day basis and achieves consistency and comparability
between reporting periods, when all businesses are held for a complete reporting period.
The adjusted measures are used to partly determine the variable element of remuneration of senior management throughout the Group and are
also in alignment with performance measures used by certain external stakeholders.
175
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
2. Summary of material accounting policies continued
Adjusted profit is not a defined term under IFRS and may not be comparable with similarly titled profit measures reported by other companies.
It is not intended to be a substitute for, or superior to, GAAP measures. All APMs relate to the current year results and comparative periods
where provided.
Basis of consolidation
The Group’s Financial Statements include the results of the parent undertaking and all of its subsidiary undertakings. In addition, the Group’s
share of the results and equity of joint ventures and associated undertakings (together “equity accounted investments”) is included. The results
of businesses acquired during the period are included from the effective date of acquisition and, for those sold during the period, to the effective
date of disposal. Where necessary, adjustments are made to the Financial Statements of subsidiaries to bring the accounting policies used into
line with those used by the Group.
All intra-Group balances and transactions, including unrealised profits arising from intra-Group transactions, have been eliminated in full.
Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein. The interest of non-controlling shareholders is
initially measured at the non-controlling interests’ proportion of the share of the fair value of the acquiree’s identifiable net assets. Subsequent to
acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests’
share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the
non-controlling interests having a deficit balance.
Going concern
The Consolidated Financial Statements have been prepared on a going concern basis as the Directors consider that adequate resources exist
for the Company to continue in operational existence for the foreseeable future, being 12 months from the date of this report (the relevant period).
The Group’s liquidity and funding arrangements are described in the Chief Financial Officer’s Review. There is significant liquidity headroom
of £0.5 billion at 31 December 2024 and sufficient headroom throughout the going concern forecast period. Forecast covenant compliance
is considered further below.
Covenants
The Group’s banking facility has two financial covenants being a net debt to adjusted EBITDA covenant and an interest cover covenant, both of
which are tested half yearly in June and December. Covenant calculations are detailed in the glossary to these Consolidated Financial Statements.
The financial covenants during the period of assessment for going concern are as follows:
31 December
2024
30 June
2025
31 December
2025
Net debt to adjusted EBITDA (banking covenant leverage)
3.5x
3.5x
3.5x
Interest cover
4.0x
4.0x
4.0x
Testing
The Group has modelled two scenarios in its assessment of going concern. A base case and a severe but plausible downside case.
The base case takes into account end markets and operational factors, including supply chain challenges, throughout the going concern period
and has been monitored against the actual results and cash generation in the period since 1 January 2025. Climate scenario analysis was used
to model the impact of climate change on the Group’s cash flow position. Climate change is deemed to not have a material impact over the
period of 12 months for the assessment of going concern or 36 months for the assessment of viability of the Group.
The severe but plausible downside case models more conservative revenue assumptions for 2025 and the first half of 2026. The sensitised
assumptions are specific to each business taking into account their markets, but on average represent a c.10% reduction to the Group’s forecast
revenue in 2025, and a c.5% reduction in the first half of 2026. The sensitised revenues have had a consequential impact on profit and cash flow,
along with a further downside sensitivity applied to increase working capital by approximately 2% of revenue. Given that there is liquidity headroom
of £0.5 billion and the Group’s banking covenant leverage was 2.1x, comfortably below the covenant test at 31 December 2024, no further sensitivity
detail is provided.
Under the severe but plausible downside case, even with significant reductions, no covenant is breached at the forecast testing dates
being 30 June 2025 and 31 December 2025. Testing at 30 June 2026 is also favourable, assuming arrangements similar in nature with
existing agreements.
Business combinations and goodwill
The acquisition of subsidiaries is accounted for using the acquisition method. The cost of acquisition is measured at the fair value of assets
transferred, the liabilities incurred or assumed at the date of exchange of control and equity instruments issued by the Group in exchange for
control of the acquiree. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity
so as to obtain benefits from its activities. Costs directly attributable to business combinations are recognised as an expense in the Income Statement
as incurred.
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
176
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
2. Summary of material accounting policies continued
The acquired identifiable assets and liabilities are measured at their fair value at the date of acquisition except those where specific guidance
is provided by IFRSs. Non-current assets and directly attributable liabilities that are classified as held for sale in accordance with IFRS 5:
Non-current assets held for sale and discontinued operations, are recognised and measured at fair value less costs to sell. Also, deferred tax
assets and liabilities are recognised and measured in accordance with IAS 12: Income taxes, liabilities and assets related to employee benefit
arrangements are recognised and measured in accordance with IAS 19 (revised): Employee benefits and liabilities or equity instruments related
to the replacement by the Group of an acquiree’s share-based payments awards are measured in accordance with IFRS 2: Share-based
payment. Any excess of the cost of the acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group
reports provisional amounts where appropriate. Those provisional amounts are adjusted during the measurement period, or additional assets
or liabilities recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known,
would have affected the amounts recognised at that date.
The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and
circumstances that existed as of the acquisition date and is subject to a maximum period of one year.
Goodwill on acquisition is initially measured at cost, being the excess of the sum of the consideration transferred, the amount of any non-controlling
interest in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree over the acquirer’s interest in the net fair
value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated
impairment losses. Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the
carrying value may be impaired.
If, after reassessment, the Group’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration
transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest in the
acquiree, the excess is recognised immediately in profit or loss as a bargain purchase gain.
As at the acquisition date, any goodwill acquired is allocated to the cash-generating units acquired. Impairment is determined by assessing
the recoverable amount of the cash-generating unit to which goodwill relates. Where the recoverable amount of the cash-generating unit is less
than the carrying amount, an impairment loss is recognised in the Income Statement and is not subsequently reversed. When there is a disposal
of a cash-generating unit, goodwill relating to the operation disposed of is taken into account in determining the gain or loss on disposal of that
operation. The amount of goodwill allocated to a partial disposal is measured on the basis of the relative values of the operation disposed of and
the operation retained.
Equity accounted investments
A joint venture is an entity which is not a subsidiary undertaking but where the interest of the Group is that of a partner in a business over which
the Group exercises joint control with its partners over the financial and operating policies. In all cases voting rights are 50% or lower.
Associated undertakings are entities that are neither a subsidiary nor a joint venture, but where the Group has a significant influence. The results,
assets and liabilities of equity accounted investments are accounted for using the equity method of accounting. The Group’s share of equity
includes goodwill arising on acquisition.
When a Group entity transacts with an equity accounted investment of the Group, profits and losses resulting from the transactions with the
equity accounted investments are recognised in the Group’s Consolidated Financial Statements only to the extent of interests in equity
accounted investments that are not related to the Group.
Revenue
Revenues are recognised either at the point of transfer of control of goods and services, or recognised over time on an activity basis using
the costs incurred as the measure of the activity. Costs are recognised as they are incurred.
The nature of agreements into which the Group enters means that certain of the Group’s arrangements with its customers have multiple
elements that can include any combination of:
•
Sale of products and services;
•
Risk and revenue sharing partnerships (“RRSPs”);
•
Design and build; and
•
Construction contracts.
Contracts are reviewed to identify each performance obligation relating to a distinct good or service and the associated consideration. The Group
allocates revenue to multiple element arrangements based on the identified performance obligations within the contracts in line with the policies
below. A performance obligation is identified if the customer can benefit from the good or service on its own or together with other readily
available resources, and it can be separately identified within the contract. This review is performed by reference to the specific contract terms.
177
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
2. Summary of material accounting policies continued
Sale of products and services
This revenue stream relates to a high proportion of Group revenue.
Invoices for goods are raised and revenue is recognised when control of the goods is transferred to the customer. Dependent upon contractual
terms this may be at the point of despatch, acceptance by the customer or certification by the customer. The revenue recognised is the
transaction price as it is the observable selling price per product.
Cash discounts, volume rebates and other customer incentive programmes are based on certain percentages agreed with the Group’s customers,
which are typically earned by the customer over an annual period. These are allocated to performance obligations and are recorded as a reduction
in revenue at the point of sale based on the estimated future outcome. Due to the nature of these arrangements an estimate is made based on
historical results to date, estimated future results across the contract period and the contractual provisions of the customer agreement.
Risk and revenue sharing partnerships (“RRSPs”)
This revenue stream, whilst material, affects a small number of businesses and is exclusively in the Engines segment. Revenue is recognised
under RRSPs for both the sale of product as detailed above and sales of services, which are recognised by reference to the stage of completion
based on the performance obligations in the contract. In most RRSP contracts, there are two separate phases where the Group earns revenue;
sale of products principally to engine manufacturers and aftermarket support. Further information on the revenue recognised from RRSPs is
shown in note 4.
The assessment of the stage of completion is dependent on the nature of the contract and the performance obligations within it.
The value of revenue is based on the standalone selling price for each element of the contract.
Revenue is recognised at the point control passes to the customer. For products and services, this has been identified as the point of
acceptance or certification by the customer. Where the amount of revenue recognised is not yet due for collection under the terms of the
contract, it will be recognised as variable consideration within the unbilled work done contract asset (“unbilled work done”) detailed in note 17.
Revenue is not recognised where recovery is not highly probable due to potential significant reversals in the future. This can be affected by
assessment of future volumes including aftermarket expectations which are impacted by technology development, fuel price and competition.
Participation fees are payments made to engine manufacturers and original equipment manufacturers relating to RRSPs and long-term
agreements and are detailed in note 17. They are recognised as contract assets to the extent they can be recovered from future sales.
Where participation fees have been paid under the RRSP, the amortisation is recognised as a revenue reduction under IFRS 15, as
performance obligations are satisfied.
Generally, during the design and development phase of a typical RRSP contract, the Group performs contractually agreed-upon tasks for a
customer. It is usual for the Intellectual Property Rights (“IPRs”) that underpin technology advancement or know-how to remain with the Group
such that the customer cannot benefit from the IPRs either on their own or together with other resources that are readily available to the
customer. Where IPRs are transferred to the customer, the Group has generally determined this is not separately identifiable from other promises
in the contract due to an exclusivity clause for the supply of product. Accordingly, it has been determined that generally the Group’s promise to
transfer goods to its customer is a performance obligation that is separately identifiable and this uses development and know-how as an input.
Design and build
Generally, revenue is only recognised on the sale of product as detailed above, however, on occasions cash is received in advance of work
performed to compensate the Group for costs incurred in design and development activities. The Group performs an assessment of its
performance obligations to understand multiple elements. Where it is determined there is only one type of performance obligation, being the
delivery of product, any cash advance is factored into the revenue allocated across the deliveries required under the contract.
Where the performance obligation has not been satisfied amounts received are recognised as a contract liability. If there is more than one
performance obligation, revenue is allocated to each one based on a standalone selling price for each element of the contract.
Due to the nature of design and build contracts, there can be significant ‘learning curves’ while the Group optimises its production processes.
During the early phase of these contracts, all costs including any start-up losses are taken directly to the Income Statement, as they do not meet
the criteria for fulfilment costs.
Construction contracts
Where multiple performance obligations are identified, revenue is recognised as each performance obligation is met. This requires an assessment
of total revenue to identify the allocation across the performance obligations, based on the standalone selling price for each obligation.
In cases where one of the following criteria is met, revenue is recognised over time:
•
The customer simultaneously receives and consumes the benefits provided by the Group’s performance;
•
The Group’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or
•
The Group’s performance does not create an asset with an alternative use to the Group and it has an enforceable right to payment for
performance completed to date.
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
178
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
2. Summary of material accounting policies continued
Due to the nature of the criteria above, only certain contracts in the Group qualify for over time recognition. On this basis revenue is recognised
using the input method, which uses costs incurred and the assessed margin across the contract. The input method is used to measure progress
as it best depicts the transfer of control to the customer. The margin and associated revenue are calculated based on the estimated transaction
price and expected total costs, with considerations made for the associated contract risks.
If any of the above criteria are not met, revenue is recognised at a point in time when control transfers to the customer which, in line with the sale
of goods and services above, is the point of delivery or customer acceptance dependent on the terms of the contract.
Unbilled work done addresses contract matters, such as price or scope amendments, which are included based on the expected value or most likely
amount. A constraint is included unless it is highly probable that the revenue will not significantly reverse in the future. This constraint is calculated
based on a cautious expectation of the life of certain RRSPs. Variations in contract work, claims and incentive payments are included in revenue from
construction contracts based on an estimate of the expected value the Group expects to receive. Variations are included when the customer has
agreed to the variation or acknowledged liability for the variation in principle. Claims are included when negotiations with the customer have reached
an advanced stage such that it is virtually certain that the customer will accept the claim.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and any impairment in value.
The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bring the asset into operation, and
any material borrowing costs on qualifying assets. Qualifying assets are defined as an asset or programme where the period of capitalisation is
more than 12 months. Purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to
acquire the asset.
Where assets are in the course of construction at the balance sheet date, they are classified as capital work in progress. Transfers are made to
other asset categories when they are available for use, at which point depreciation commences.
Right-of-use assets arise under IFRS 16 and are depreciated over the shorter of the estimated life of the asset and the lease term.
Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:
Freehold land
nil
Freehold buildings and long leasehold property
over expected economic life not exceeding 50 years
Short leasehold property
over the term of the lease
Plant and equipment
3-15 years
The estimated useful lives of property, plant and equipment are reviewed on an annual basis and, if necessary, changes in useful lives are
accounted for prospectively.
The carrying values of property, plant and equipment are reviewed annually for indicators of impairment, or more frequently if events or changes
in circumstances indicate that the carrying value may not be recoverable. If such indication exists an impairment test is performed and, where the
carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount. The recoverable amount
of property, plant and equipment is the greater of net selling price and value in use. In assessing value in use, estimated future cash flows,
considering the implications of climate change (see note 11 for further detail), are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate
largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from
the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal
proceeds or costs and the carrying amount of the item) is included in the Income Statement in the period that the item is derecognised.
Intangible assets
Intangible assets are stated at cost less accumulated amortisation and accumulated impairment losses.
On acquisition of businesses, separately identifiable intangible assets are initially recorded at their fair value at the acquisition date.
Access to the use of brands and intellectual property are valued using a ‘relief from royalty’ method which determines the net present value of
future additional cash flows arising from the use of the intangible asset.
Customer relationships and contracts are valued on the basis of the net present value of the future additional cash flows arising from customer
relationships with appropriate allowance for attrition of customers.
Technology assets are valued using a replacement cost approach, or a ‘relief from royalty’ method.
179
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
2. Summary of material accounting policies continued
Amortisation of intangible assets is recorded in operating expenses in the Income Statement and is calculated on a straight-line basis over the
estimated useful lives of the asset as follows:
Customer relationships and contracts
20 years or less
Brands and intellectual property
20 years or less
Technology
20 years or less
Computer software
5 years or less
Development costs
20 years or less
Where computer software is not integral to an item of property, plant or equipment, its costs are capitalised and categorised as intangible assets.
Computer software is initially recorded at cost. Where these assets have been acquired through a business combination, this will be the fair value
allocated in the acquisition accounting. Where these have been acquired other than through a business combination, the initial cost is the
aggregate amount paid and the fair value of any other consideration given to acquire the asset.
Intangible assets (other than computer software and development costs) are tested for impairment annually or more frequently whenever events or
changes in circumstances indicate that the carrying value may not be recoverable. Impairment losses are measured on a similar basis to property,
plant and equipment. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis.
Research and development costs
Research costs are expensed as incurred.
Costs relating to clearly defined and identifiable development projects are capitalised when there is a technical degree of exploitation, adequacy
of resources and a potential market or development possibility in the undertaking that are recognisable; and where it is the intention to produce,
market or execute the project. A correlation must also exist between the costs incurred and future benefits and those costs can be measured
reliably. Capitalised costs are expensed on a straight-line basis over their useful lives of 20 years or less. Costs not meeting such criteria are
expensed as incurred.
Inventories
Inventories are valued at the lower of cost and net realisable value and are measured using a first in, first out or weighted average cost basis.
Cost includes all direct expenditure and appropriate production overhead expenditure incurred in bringing goods to their current state under
normal operating conditions. Net realisable value is based on estimated selling price less costs expected to be incurred to completion and
disposal. Provisions are made for obsolescence or other expected losses where necessary.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, balances with banks and similar institutions, and short-term deposits which are readily
convertible to cash and are subject to insignificant risks of changes in value.
For the purpose of the Consolidated Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined
above, net of outstanding bank overdrafts.
Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at fair value of the consideration received net of issue costs associated with the borrowings.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate
method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement.
Gains and losses are recognised in the Income Statement when the liabilities are derecognised or impaired, as well as through the
amortisation process.
Government refundable advances
Government refundable advances are reported in trade and other payables in the Balance Sheet. Refundable advances include amounts
advanced by a government, accrued interest and directly attributable costs. Refundable advances are provided to the Group to part-finance
expenditures on specific development programmes. The advances are provided on a risk sharing basis, i.e. repayment levels are determined
subject to the success of the related programme. Balances are held at amortised cost and interest is calculated using the effective interest
rate method.
Leases
Where a lease arrangement is identified, a liability to the lessor is included in the Balance Sheet as a lease obligation calculated at the present
value of minimum lease payments. A corresponding right-of-use asset is recorded in property, plant and equipment. The discount rate used to
calculate the lease liability is the Group’s incremental borrowing rate, unless there is a rate implicit in the lease. The incremental borrowing rate is
used for the majority of leases. Incremental borrowing rates are based on the term, currency, country and start date of the lease and reflect the
rate the Group would pay for a loan with similar terms and security.
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
180
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
2. Summary of material accounting policies continued
Following initial recognition, the lease liability is measured at amortised cost using the effective interest rate method. Where there is a change in
future lease payments due to a rent review, change in index or rate, or a change in the Group’s assessment of whether it is reasonably certain
to exercise a purchase, extension or break option, the lease obligation is remeasured. A corresponding adjustment is made to the associated
right-of-use asset.
Right-of-use assets are depreciated over the shorter of the estimated useful life of the asset and the lease term.
Lease payments are apportioned between finance costs and a reduction in the lease obligation so as to reflect the interest on the remaining
balance of the obligation. Finance charges are recorded in the Income Statement within finance costs.
Leases with a term of 12 months or less and leases for low value are not recorded on the Balance Sheet and lease payments are recognised as an
expense in the Income Statement on a straight-line basis over the lease term. Expenses relating to variable lease payments which are not included in
the lease liability, due to being based on a variable other than an index or rate, are recognised as an expense in the Income Statement.
Financial instruments – assets
Classification and measurement
All financial assets are classified as either those which are measured at fair value, through profit or loss or other comprehensive income,
and those measured at amortised cost.
Financial assets are initially recognised at fair value. For those which are not subsequently measured at fair value through profit or loss,
this includes directly attributable transaction costs. Trade and other receivables, contract assets and amounts due from equity accounted
investments are subsequently measured at amortised cost.
Recognition and derecognition of financial assets
Financial assets are recognised in the Group’s Balance Sheet when the Group becomes a party to the contractual provisions of the instrument.
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the
financial asset and substantially all the risks and rewards of ownership of the asset to another entity.
Impairment of financial assets
For trade receivables and contract assets, the simplified approach permitted under IFRS 9 is applied. The simplified approach requires that at
the point of initial recognition the expected credit loss across the life of the receivable must be recognised. As these balances do not contain a
significant financing element, the simplified approach relating to expected lifetime losses is applicable under IFRS 9. Cash and cash equivalents
and other receivables are also subject to impairment requirements.
Finance income
Finance income is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured
reliably. Finance income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take
a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are
substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted
from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in the Income Statement in the period in which
they are incurred.
Investments
The Group has investments in listed shares and unlisted shares, that are not traded in an active market, which are classified as financial assets,
measured at fair value. Fair value for listed shares is calculated by reference to quoted market price. Fair value for unlisted shares is determined
by assessment of expected future dividends discounted to net present value. Any changes in fair value are recognised in other comprehensive
income and accumulated in retained earnings. Dividends from investments are recognised in the Income Statement when the Group’s right to
receive the dividend is established.
Trade and other receivables
Trade and other receivables are measured and carried at amortised cost using the effective interest method, less any impairment. For trade
receivables, the carrying amount is reduced by an allowance for expected lifetime losses. Subsequent recoveries of amounts previously
written off are credited against the allowance account and changes in the carrying amount of the allowance account are recognised in the
Income Statement.
Trade receivables that are assessed not to be impaired individually are also assessed for impairment on a collective basis. In measuring the
expected credit losses, the Group considers all reasonable and supportable information such as the Group’s past experience at collecting
receipts, any increase in the number of delayed receipts in the portfolio past the average credit period, and forward-looking information such
as forecasts of future economic decisions.
Other receivables are also considered for impairment and if required the carrying amount is reduced by any loss arising which is recorded in the
Income Statement, although for the Group this is not material.
181
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
2. Summary of material accounting policies continued
Financial instruments – liabilities
Recognition and derecognition of financial liabilities
Financial liabilities are recognised in the Group’s Balance Sheet when the Group becomes a party to the contractual provisions of the instruments
and are initially measured at fair value, net of transaction costs. The Group derecognises financial liabilities when the Group’s obligations are
discharged, significantly modified, cancelled or they expire.
Classification and measurement
Non-derivative financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense
recognised on an effective interest rate basis. The effective interest method is a method of calculating the amortised cost of a financial liability
and of allocating interest expense over the relevant periods. The effective interest rate is the rate that discounts estimated future cash payments
throughout the expected life of the financial liability, or, where appropriate, a shorter period to the gross carrying amount of the financial liability.
Derivative financial instruments and hedging
The Group uses derivative financial instruments to manage its exposure to interest rate, foreign exchange rate and commodity risks, arising from
operating and financing activities. The Group does not hold or issue derivative financial instruments for speculative trading purposes. Details of
derivative financial instruments are disclosed in note 25 of the Financial Statements.
Derivative financial instruments are recognised and stated at fair value in the Group’s Balance Sheet. Their fair value is recalculated at each
reporting date. The accounting treatment for the resulting gain or loss will depend on whether the derivative meets the criteria to qualify for
hedge accounting and is designated as such.
Where derivatives do not meet the criteria to qualify for hedge accounting, any gains or losses on the revaluation to fair value at the period end
are recognised immediately in the Income Statement. Where derivatives do meet the criteria to qualify for hedge accounting, recognition of any
resulting gain or loss on revaluation depends on the nature of the hedge relationship and the item being hedged.
Derivative financial instruments with maturity dates of less than one year from the period end date are classified as current in the Balance Sheet.
Derivatives embedded in non-derivative host contracts are recognised at their fair value in the Group’s Balance Sheet when the nature,
characteristics and risks of the derivative are not closely related to the host contract. Gains and losses arising on the remeasurement of these
embedded derivatives at each balance sheet date are recognised in the Income Statement.
Hedge accounting
Hedge accounting is performed in accordance with IFRS 9: Financial Instruments. In order to qualify for hedge accounting, the Group is required
to document from inception the relationship between the item being hedged and the hedging instrument, along with its risk management
objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis,
the Group documents that the hedge will be highly effective, which is when the hedging relationships meet all of the following hedge
effectiveness requirements:
•
there is an economic relationship between the hedged item and the hedging instrument;
•
the effect of credit risk does not dominate the value changes that result from that economic relationship; and
•
the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges
and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.
The Group discontinues hedge accounting only when the hedging relationship (or a part thereof) ceases to meet the qualifying criteria (after
rebalancing, if applicable). This includes instances when the hedging instrument expires or is sold, terminated or exercised. The discontinuation
is accounted for prospectively.
The Group designates certain hedging instruments as either cash flow hedges or hedges of net investments in foreign operations.
Cash flow hedge
Derivative financial instruments are classified as cash flow hedges when they hedge the Group’s exposure to the variability in cash flows that are
either attributable to a particular risk associated with a recognised asset or liability, or a highly probable forecasted cash flow.
The Group designates the full change in the fair value of a foreign exchange forward contract (i.e. including the forward elements) as the hedging
instrument for all of its hedging relationships involving foreign exchange forward contracts.
The effective portion of any gain or loss from revaluing the derivative financial instrument is recognised in the Statement of Comprehensive
Income and accumulated in equity. The gain or loss relating to the ineffective portion is recognised immediately in the Income Statement.
Amounts previously recognised in the Statement of Comprehensive Income and accumulated in equity are recycled to the Income Statement
in the periods when the hedged item is recognised in the Income Statement or when the forecast transaction is no longer expected to occur.
However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and
losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or
non-financial liability.
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
182
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
2. Summary of material accounting policies continued
Hedges of net investments in foreign operations
Derivative financial instruments and certain loan instruments are classified as net investment hedges when they hedge the Group’s net investment
in foreign operations. The effective element of any foreign exchange gain or loss from revaluing the hedging instruments at a reporting period end
is recognised in the Statement of Comprehensive Income. Any ineffective element is recognised immediately in the Income Statement.
Gains and losses accumulated in equity are recognised immediately in the Income Statement when the foreign operation is disposed.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow
of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the
obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a rate
that reflects the current market assessment of the time value of money and, where appropriate, the risks specific to the liability.
Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
Contingent liabilities acquired in a business combination
Contingent liabilities acquired in a business combination are initially measured at fair value at the acquisition date. At the end of subsequent
reporting periods, such contingent liabilities are measured at the higher of the amount that would be recognised in accordance with IAS 37:
Provisions, contingent liabilities and contingent assets and the amount initially recognised less cumulative amount of revenue recognised in
accordance with the principles of IFRS 15: Revenue from contracts with customers.
Pensions and other retirement benefits
The Group operates defined benefit pension plans and defined contribution plans, some of which require contributions to be made to
administered funds separate from the Group.
For the defined benefit pension and retirement benefit plans, plan assets are measured at fair value and plan liabilities are measured on
an actuarial basis and discounted at an interest rate equivalent to the current rate of return on a high quality corporate bond of equivalent
currency and term to the plan liabilities. Any assets resulting from this calculation are limited to past service cost plus the present value of
available refunds and reductions in future contributions to the plan. The present value of the defined benefit obligation, and the related current
service cost and past service cost, are measured using the projected unit credit method.
The service cost of providing pension and other retirement benefits to employees for the period is charged to the Income Statement.
Net interest expense on net defined benefit obligations is determined by applying discount rates used to measure defined benefit obligations
at the beginning of the year to net defined benefit obligations at the beginning of the year. The net interest expense is recognised within
finance costs.
Remeasurement gains and losses comprise actuarial gains and losses, the effect of the asset ceiling (if applicable) and the return on plan assets
(excluding interest). Remeasurement gains and losses, and taxation thereon, are recognised in full in the Statement of Comprehensive Income
in the period in which they occur and are not subsequently recycled.
Actuarial gains and losses may result from differences between the actuarial assumptions underlying the plan obligations and actual experience
during the period or changes in the actuarial assumptions used in the valuation of the plan obligations.
For defined contribution plans, contributions payable are charged to the Income Statement as an operating expense when employees have
rendered services entitling them to the contributions.
Foreign currencies
The individual Financial Statements of each Group company are presented in the currency of the primary economic environment in which it
operates (its functional currency). For the purpose of the Consolidated Financial Statements, the results and financial position of each Group
company are expressed in pounds Sterling, which is the functional currency of the Company, and the presentation currency for the Consolidated
Financial Statements.
In preparing the Financial Statements of the individual companies, transactions in currencies other than the entity’s functional currency
(foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date,
monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date.
Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the
fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the Income Statement
for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the Income Statement for
the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in
equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity.
183
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
2. Summary of material accounting policies continued
For the purpose of presenting Consolidated Financial Statements, the assets and liabilities of the Group’s foreign operations are translated at
exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period,
unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used.
Exchange differences arising, if any, are recognised in the Statement of Comprehensive Income and accumulated in equity (attributed to
non-controlling interests as appropriate). Such translation differences are recognised as income or as expenses in the period in which the related
operation is disposed of. Any exchange differences that have previously been attributed to non-controlling interests are derecognised but they
are not reclassified to the Income Statement.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and
translated at the rate prevailing at the balance sheet date.
Taxation
The tax expense is based on the taxable profits for the year and represents the sum of the tax paid or currently payable and deferred tax.
Taxable profit differs from net profit as reported in the Income Statement because it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using
tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date.
A tax provision is recognised for those matters for which the tax determination is uncertain but it is considered probable that there will be a future
outflow of funds to a tax authority. The provisions are measured at the best estimate of the amount expected to become payable.
The assessment is based on the judgement of tax professionals within the Group supported by previous experience in respect of such activities
and in certain cases based on specialist independent advice.
Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets
and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognised for all taxable temporary differences except where:
•
the deferred tax liability arises on the initial recognition of goodwill, or the initial recognition of an asset or liability in a transaction which a) is
not a business combination, b) at the time of the transaction affects neither the accounting profit nor taxable profit or loss, and c) at the time
of the transaction, does not give rise to equal taxable and deductible temporary differences; and
•
the timing of the reversal of the temporary differences associated with investments in subsidiaries and interests in equity accounted
investments can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and at the time of
the transaction, does not give rise to equal and opposite temporary differences.
Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the
extent that it is probable that taxable profit will be available against which the deductible temporary differences, and carry-forward of unused tax
assets and unused tax losses can be utilised except where:
•
the deferred tax asset arises from the initial recognition of an asset or liability in a transaction which a) is not a business combination, b) at the
time of the transaction affects neither the accounting profit nor taxable profit or loss, and c) at the time of the transaction, does not give rise
to equal taxable and deductible temporary differences; and
•
in respect of deductible temporary differences associated with investments in subsidiaries and interests in equity accounted investments,
deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future
and taxable profit will be available against which the temporary differences can be utilised; and at the time of transaction, does not give rise
to equal and opposite temporary differences.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is
settled, based on tax rates and tax laws that have been enacted or substantively enacted at the relevant balance sheet date.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against liabilities and when they
relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Tax relating to items recognised directly in other comprehensive income is recognised in the Statement of Comprehensive Income and not in the
Income Statement. Tax relating to items recognised directly in equity is recognised in the Statement of Changes in Equity.
Revenues, expenses and assets are recognised net of the amount of sales tax except:
•
where the sales tax incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the sales tax
is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
•
where receivables and payables are stated with the amount of sales tax included.
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Balance Sheet.
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
184
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
2. Summary of material accounting policies continued
Share-based payments
The Group has applied the requirements of IFRS 2: Share-based Payment. The Group issues equity-settled share-based payments to certain
employees. Equity-settled share-based payments are measured at fair value of the equity instrument excluding the effect of non-market based
vesting conditions at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on
a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest and is reviewed at the end of each
reporting period with the charge being adjusted to reflect actual and estimated levels of vesting.
Fair value is measured by use of option pricing models. The expected life used in the model has been adjusted, based on the Directors’ best
estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.
Non-current assets and disposal groups
Non-current assets and businesses classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell.
Non-current assets and businesses are classified as held for sale if their carrying amount will be recovered principally through a sale transaction
rather than through continuing use. This condition is regarded as having been met only when the sale is highly probable and the asset or
business is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify
for recognition as a completed sale within one year from the date of classification.
Government grants
Government grants are not recognised in the Income Statement until there is reasonable assurance that the Group will comply with the
conditions attached to them and that the grants will be received. Government grants are recognised in the Income Statement on a systematic
basis over the periods in which the Group recognises the related costs for which the grants are intended to compensate.
Specifically, government grants where the primary condition is that the Group should purchase, construct or otherwise acquire non-current
assets (including property, plant and equipment) are recognised as deferred government grants in the Balance Sheet and transferred to the
Income Statement on a systematic and rational basis over the useful lives of the related assets.
Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial
support to the Group with no future related costs are recognised in the Income Statement in the period in which they become receivable.
Climate change
In preparing the Consolidated Financial Statements, the Directors have considered the impact of climate change with specific regard to the risks
identified in the Task Force on Climate-related Financial Disclosures (“TCFD”) report on page 65 as well as the Group’s Transition Plan including
emission targets.
The Directors have considered the impact of climate change in respect to the following areas and have determined that there is no material
impact on the financial reporting judgements and estimates:
•
Group’s going concern assessment (note 2);
•
Estimated future cash flows used in impairment assessments, where applicable, of the carrying value of non-current assets (such as
goodwill) (note 11);
•
Inventory valuation with respect to climate-related shift in demand (note 16);
•
Recoverability of trade receivables and contract assets related to unbilled work done on risk and revenue sharing partnerships, which
consider the future expectations of airframe and engine manufacturers as well as airline customer behaviours (note 17); and
•
Forecasts of future profitability to assess the recoverability of deferred tax assets in the UK, the Netherlands and the US (note 22).
The Group’s Transition Plan sets out the actions the Directors intend to take in the transition to a net zero economy, how they plan to execute
on the interim and long-term emissions reduction targets, and how they plan to achieve Net Zero by 2050. The Transition Plan also sets out how
climate considerations are integrated into strategic thinking and future planning, such as major capital expenditure, acquisitions, and disposals.
The main short-term and medium-term objectives to meet this target are:
•
Reduce absolute Scope 1 and 2 emissions 50% by 2030 from a 2020 baseline. This will be met by sourcing at least 50% of the Group’s
electricity from renewable sources by 2025 (where renewable energy is commercially and reasonably available in the relevant jurisdiction)
through either continued investment in onsite renewable energy as well as procurement of power purchase agreements and renewable energy
certificates. The Group will also continue to invest in energy efficiency measures to reduce overall energy consumption. The estimated investment
needed to meet these scope 1 and 2 emission improvements are incorporated into current financial planning and forecasting.
•
The Group is uniquely positioned at the early stages of an aircraft life cycle to play a role in eradicating emissions for the entire sector
and ultimately unlocking its potential to positively contribute to a low carbon economy. The targets to achieve 80% of total Research and
Development (“R&D”) expenditure on climate-related R&D per year to contribute to aerospace decarbonisation by 2025 and achieve 100% of
new products which contribute to aerospace decarbonisation by the end of 2025 demonstrate the emphasis Melrose places on developing
innovative and breakthrough technologies such as battery electric and hydrogen propulsion. During the year, £55 million was spent on
climate-related R&D. Future investments required to meet these targets are incorporated into our forecasts.
185
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
3. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described in note 2, the Directors are required to make judgements and estimates
about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are
based on historical experiences and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year
in which the estimate is revised if the revision affects only that year, or in the year of revision and future years if the revision affects both current
and future years.
Critical judgements
In the course of preparing the Financial Statements, critical judgements within the scope of paragraph 122 of IAS 1: Presentation of Financial
Statements have been made during the process of applying the Group’s accounting policies.
a) Adjusting items
Judgements are required as to whether items are disclosed as adjusting, with consideration given to both quantitative and qualitative factors.
Further information about the determination of adjusting items in the year ended 31 December 2024 is included in note 2.
There are no other critical judgements, other than those involving estimates, that have had a significant effect on the amounts recognised in the
Financial Statements. Those involving estimates are set out below.
Key sources of estimation uncertainty
Assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that may have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.
b) Assumptions used to determine the carrying amount of the Group’s net retirement benefit obligations
The Group’s pension plans are significant in size. The defined benefit obligations in respect of the plans are discounted at rates set by reference
to market yields on high quality corporate bonds. Significant estimation is required when setting the criteria for bonds to be included in the
population from which the yield curve is derived. The most significant criteria considered for the selection of bonds to include are the issue size of
the corporate bonds, quality of the bonds and the identification of outliers which are excluded. In addition, assumptions are made in determining
mortality and inflation rates to be used when valuing the plan’s defined benefit obligations. At 31 December 2024, the retirement benefit
obligation was a net deficit of £59 million (31 December 2023: £99 million).
Further details of the assumptions applied and a sensitivity analysis on the principal assumptions used to determine the defined benefit liabilities
of the Group’s obligations are shown in note 24. Whilst actual movements might be different to sensitivities shown, these are a reasonably
possible change that could occur.
c) Estimates of future revenues and costs of long-term contractual arrangements
The Group has certain large, complex contracts where significant judgements and estimates are required in order to allocate total associated
consideration.
A key judgement is the measurement of unbilled work done, in particular relating to certain risk and revenue sharing partnerships (“RRSPs”).
A detailed review of the Group’s RRSP contracts determined where terms and conditions result in unbilled work done and this is further set out in
note 17. Distinguishing between a contractual right and the economic compulsion of partners with regard to the sale of original equipment (“OE”)
components and aftermarket activities relies on an interpretation of complex legal agreements. This specific point governs whether unbilled work
done is recognised on the sale of OE components and this can significantly impact the level of profitability from one period to the next. Further
disclosure is set out in note 4.
The forecast revenues and costs in respect of RRSP contracts are inherently imprecise and significant estimates are required to assess
the pattern of future maintenance activity, the costs to be incurred and escalation of revenue and costs. The estimates take account of
the uncertainties, constraining the expected level of revenue as appropriate. Measurement of unbilled work done is driven by forecasting
aftermarket revenue per delivered engine which is in turn contingent on overall programme success, levels of discounting that might be offered
by the engine manufacturers (the Group’s customers), engineering requirements needed for optimal performance of the engine and the allocation
of revenue to individual units. In addition, where programmes are at an early stage the wider implications of any competing engines as well as
complications outside of the Group can be difficult to assess. Any of these inputs could change in the next year as programmes evolve and due
to the size and scale of these contracts, almost any modification could result in material changes in future periods.
The unbilled work done contract asset calculated is the best estimate of revenue allocated to completed performance obligations using input
assumptions and constraints as detailed further in note 17. As the impacted RRSP contracts mature, there are reasonably possible changes
to assumptions acknowledging the wide range of programme risks, which include the length of an engine’s life, potential programme cost
pressures, and the cost of any additional development work. Any changes could lead to the unbilled work done contract asset on the Balance
Sheet of £922 million (31 December 2023: £595 million) increasing to between £982 million and £1,022 million which would lead to recognition
of additional revenue and profit in the next year of between £60 million and £100 million.
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
186
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
3. Critical accounting judgements and key sources of estimation uncertainty continued
d) Measurement of deferred tax assets in the UK
The Group has significant deferred tax assets, arising mainly from tax losses and other deductible temporary differences, in the UK. Significant
judgements and estimates are required to assess whether it is probable that sufficient taxable profits will arise in the UK to utilise the deferred tax
assets recognised.
In evaluating the ability to recover deferred tax assets in the UK, the Group considers both positive and negative evidence, including scheduled
reversals of deferred tax liabilities, projected future taxable income and results of recent operations. Sensitivity analysis is undertaken to assess
the impact of factors such as a reduction in long-term growth rate or operating profit on the forecast future taxable profit.
In projecting future taxable income, the Group uses projections prepared for internal forecasting to estimate future forecast UK taxable profits.
The assumptions about future taxable income require the use of estimates and are consistent with the plans the Group uses to manage the
underlying businesses, and to test for impairment of goodwill as discussed in note 11.
4. Revenue
An analysis of the Group’s revenue is as follows:
Continuing operations
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Revenue recognised at a point in time
Revenue recognised over time
2,452
1,016
2,388
962
Revenue
3,468
3,350
As set out in the accounting policies in note 2, the Group has four primary revenue streams. There is little judgement or estimation in the revenue
recognition of three of these areas; (i) sale of products and services, (ii) design and build and (iii) construction contracts. However, in the fourth
area, as disclosed in note 3c, there is estimation involved in accounting for certain RRSP contracts. RRSP contracts generally include the sale
of products and services as well as certain aspects of design and build arrangements. Further details are set out below.
The Group has three customers, which each contribute more than 10% of Group revenue, with revenue of £683 million and £414 million in the
Structures segment and £659 million in the Engines segment.
Risk and revenue sharing partnerships
The Group has approximately £20 billion (31 December 2023: £16 billion) in respect of contractual transaction prices including a constrained
estimate of unbilled work done, on five engine programmes, out of a wider population of such programmes, which has been allocated to
contracted performance obligations not satisfied at 31 December 2024. These performance obligations will be satisfied and revenue will be
recognised over a period of up to 30 years (2023: 30 years).
The amount of revenue recognised from RRSP contracts during the year was £859 million (2023: £680 million), which included an increase
in the unbilled work done contract asset of £274 million (2023: £173 million). Within this, there is revenue from the delivery of product which
is recognised at a point in time of £802 million (2023: £629 million) and revenue from provision of service which is recognised over time of
£57 million (2023: £51 million). Due to the nature of certain of these RRSP arrangements, there is an associated unbilled work done contract
asset including movements during the year which is disclosed in note 17.
The nature of products and services delivered in RRSP contracts varies depending on the individual terms. Typically, they include a design
and development phase (which has been determined not to be a distinct performance obligation and so no revenue is recognised) and two other
phases where the Group does have performance obligations and earns revenue:
i)
Sale of structural OE engine components, such as turbine cases, principally to engine manufacturers, where revenue is recognised at a point
in time; and
ii)
Aftermarket support which can include: sale of spare parts where revenue is recognised at a point in time and stand ready services for life
of engine obligations to maintain permanent technical, and other programme related, support functions where revenue is recognised over
time. Obligations can occur at any time during the engine life and include: engineering and technical support for engine configuration
changes and provision of aftermarket inventory support solutions.
187
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
4. Revenue continued
RRSP revenue recognised over time
The nature of these RRSP contracts on long-term engine programmes means that, as a partner, the Engines segment can share revenue
earned from maintenance, repair and overhaul services which are provided by the engine manufacturers (the Group’s customers) or their
sub-contractors, but not by the Group itself. The Group has a stand ready obligation to contribute to certain of the partnerships which typically
results in the provision of services such as technical and other programme support activities over the whole life of the engine. These services
occur over the life of the engine and due to the nature of compensation from customer arrangements, which is often flight hour based, as well
as costs which are less predictable, revenue is recognised over time using the engine manufacturer’s actual overhaul costs as an input method.
This method is considered appropriate as it best reflects the customers’ receipt and consumption of benefit from the Group’s stand ready
performance obligation.
The total contract revenue includes amounts from: expected sales of OE engine components, expected sales of spare parts and aftermarket
revenue per delivered engine for stand ready services for the life of engine obligations. The total contract revenue is allocated to all of the
performance obligations.
During the year, £50 million (2023: £30 million) of revenue has been recognised relating to performance obligations satisfied by the Group in previous
years as risks have reduced and the constraint reassessed. There has been a further £41 million (2023: £27 million) of revenue recognised from
changes in assumptions which will also impact the revenue allocation between future years. Assumption changes were made following operational
progress by engine manufacturers with their customers, providing more certainty over future costs and volumes for the RRSP partners.
5. Segment information
Segment information is presented in accordance with IFRS 8: Operating Segments, which requires operating segments to be identified on the
basis of internal reports about components of the Group that are regularly reported to the Group’s Chief Operating Decision Maker (“CODM”),
which has been deemed to be the Group’s Board, in order to allocate resources to the segments and assess their performance.
The operating segments are as follows:
Engines – An industry leading global tier one supplier to the aerospace engines market, including structural engineered components; parts
repair; commercial and aftermarket contracts.
Structures – A multi-technology global tier one supplier of both civil and defence air frames, including lightweight composite and metallic
structures; electrical distribution systems and components.
In addition, there is a corporate cost centre which is also reported to the Board. The corporate cost centre contains the Melrose Group head
office costs and charges related to certain of the Group’s senior management long-term incentive plans.
Reportable segment results include items directly attributable to a segment as well as those which can be allocated on a reasonable basis.
Inter-segment pricing is determined on an arm’s length basis in a manner similar to transactions with third parties.
The Group’s geographical segments are determined by the location of the Group’s non-current assets and, for revenue, the location of external
customers. Inter-segment sales are not material and have not been disclosed.
The following tables present the results and certain asset and liability information regarding the Group’s operating segments and corporate cost
centre for the year ended 31 December 2024.
a) Segment revenues
The Group derives its revenue from the transfer of goods and services over time and at a point in time. The Group has assessed that the
disaggregation of revenue recognised from contracts with customers by operating segment is appropriate as this is the information regularly
reviewed by the CODM in evaluating financial performance. The Group also believes that presenting this disaggregation of revenue based on
the timing of transfer of goods or services provides useful information as to the nature and timing of revenue from contracts with customers.
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
188
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
5. Segment information continued
Year ended 31 December 2024
Continuing operations
Engines
£m
Structures
£m
Total
£m
Timing of revenue recognition
At a point in time
Over time
1,136
323
1,316
693
2,452
1,016
Revenue
1,459
2,009
3,468
Year ended 31 December 2023
Continuing operations
Engines
£m
Structures
£m
Total
£m
Timing of revenue recognition
At a point in time
Over time
931
262
1,457
700
2,388
962
Revenue
1,193
2,157
3,350
b) Segment operating profit
Year ended 31 December 2024
Continuing operations
Engines
£m
Structures
£m
Corporate(1)
£m
Total
£m
Adjusted operating profit/(loss)
422
144
(26)
540
Items not included in adjusted operating profit(2):
Amortisation of intangible assets acquired in business combinations
Movement in derivatives and associated financial assets and liabilities
Restructuring costs
Acquisition and disposal related gains and losses
Melrose equity-settled compensation scheme charges
Net changes in fair value items
(131)
7
(15)
–
–
–
(124)
–
(75)
(43)
–
(8)
–
(119)
(21)
(1)
(14)
–
(255)
(112)
(111)
(44)
(14)
(8)
Operating profit/(loss)
283
(106)
(181)
(4)
Finance costs
Finance income
(105)
3
Loss before tax
Tax
(106)
57
Loss after tax for the year from continuing operations
(49)
Year ended 31 December 2023
Continuing operations
Engines
£m
Structures
£m
Corporate(1)
£m
Total
£m
Adjusted operating profit/(loss)
310
110
(30)
390
Items not included in adjusted operating profit(2):
Amortisation of intangible assets acquired in business combinations
Restructuring costs
Melrose equity-settled compensation scheme charges
Acquisition and disposal related gains and losses
Movement in derivatives and associated financial assets and liabilities
Net changes in fair value items
(135)
(26)
–
–
(3)
1
(125)
(111)
–
–
(6)
2
–
(12)
(38)
(3)
123
–
(260)
(149)
(38)
(3)
114
3
Operating profit/(loss)
147
(130)
40
57
Finance costs
Finance income
(79)
14
Loss before tax
Tax
(8)
9
Profit after tax for the year from continuing operations
1
(1) Corporate adjusted operating loss of £26 million (2023: £30 million), includes a charge of £1 million (2023: £nil) in respect of a new Performance Share Plan for
certain senior managers in the Group.
(2) Further details on adjusting items are discussed in note 6.
189
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
5. Segment information continued
c) Segment total assets and liabilities
Total assets
Total liabilities
31 December
2024
£m
Restated(1)
31 December
2023
£m
31 December
2024
£m
Restated(1)
31 December
2023
£m
Engines
Structures
Corporate
4,595
2,284
557
4,082
2,438
584
1,757
1,134
1,701
1,521
1,149
867
Total
7,436
7,104
4,592
3,537
(1) Inventories, trade and other receivables and trade and other payables have been restated (see note 1).
d) Segment capital expenditure and depreciation
Capital expenditure(1)
Depreciation of
owned assets(1)
Depreciation of
leased assets
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Engines
Structures
Corporate
63
54
1
55
63
–
43
74
–
43
74
–
7
17
1
7
17
1
Continuing operations
118
118
117
117
25
25
Discontinued operations
–
51
–
43
–
6
Total
118
169
117
160
25
31
(1) Including computer software and development costs. Capital expenditure excludes lease additions.
e) Geographical information
The Group operates in various geographical areas around the world. The parent company’s country of domicile is the UK and the Group’s
revenues and non-current assets in the rest of Europe and North America are also considered to be material.
The Group’s revenue from external customers and information about its segment assets (non-current assets excluding deferred tax assets,
non-current derivative financial assets and non-current other receivables) by geographical location are detailed below:
Revenue(1) from
external customers
Segment assets
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
31 December
2024
£m
31 December
2023
£m
UK
Rest of Europe
North America
Other
569
567
2,232
100
579
540
2,138
93
739
2,061
1,145
47
882
2,166
1,179
22
Continuing operations
3,468
3,350
3,992
4,249
Discontinued operations
–
1,582
–
–
Total
3,468
4,932
3,992
4,249
(1) Revenue is presented by destination.
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
190
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
6. Reconciliation of adjusted profit measures
As described in note 2, adjusted profit measures are an alternative performance measure used by the Board to monitor the operating
performance of the Group.
a) Operating profit
Continuing operations
Notes
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Operating (loss)/profit
(4)
57
Amortisation of intangible assets acquired in business combinations
Movement in derivatives and associated financial assets and liabilities
Restructuring costs
Acquisition and disposal related gains and losses
Melrose equity-settled compensation scheme charges
Net changes in fair value items
a
b
c
d
e
f
255
112
111
44
14
8
260
(114)
149
3
38
(3)
Total adjustments to operating (loss)/profit
544
333
Adjusted operating profit
540
390
a. The amortisation charge on intangible assets acquired in business combinations of £255 million (2023: £260 million) is excluded from
adjusted results due to its non-trading nature and to enable comparison with companies that grow organically. However, where intangible
assets are trading in nature, such as computer software and development costs, the amortisation is not excluded from adjusted results.
b. Movements in the fair value of derivative financial instruments (primarily forward foreign currency exchange contracts where hedge
accounting is not applied) entered into to mitigate the potential volatility of future cash flows, on long-term foreign currency customer
and supplier contracts, including foreign exchange movements on the associated financial assets and liabilities are shown as an adjusting
item because of volatility and size. This totalled a charge of £112 million (2023: credit of £114 million) in the year.
c. Restructuring and other associated costs in the year totalled £111 million (2023: £149 million), including £1 million (2023: £59 million) of
losses incurred in closing businesses within the Group. These are shown as adjusting items due to their size and non-trading nature and
during the year ended 31 December 2024 these included:
•
A charge of £90 million (2023: £137 million) primarily relating to the continuation, and finalisation in many cases, of significant restructuring
projects across sites in the Engines and Structures divisions.
This included three significant ongoing multi-year restructuring programmes, covering European footprint consolidations which commenced in
2021, and a significant restructuring programme in North America which commenced in 2020. These programmes incurred a combined charge of
£64 million in the year (2023: £62 million). Since commencement, the cumulative charge on these three restructuring programmes to 31 December
2024 has been £281 million (31 December 2023: £217 million). As at 31 December 2024, £12 million is included in restructuring provisions in
relation to the multi-year programmes which will be substantially settled in cash in 2025.
The North American multi-site restructuring was accelerated by the disposal of two businesses during the first half of the year
and is substantially complete, with costs expected to continue at a much reduced level into 2025. The European programmes
have continued to progress with one of the two programmes now complete. The other European multi-site restructuring programme
completed the closure of all intended sites by the end of 2023, with integration expected to conclude in 2025.
•
A charge of £21 million (2023: £12 million) within the Corporate cost centre in relation to actions taken to merge the Melrose corporate
function with the previously separate Aerospace division head office team. These restructuring actions reshape the Corporate cost centre to
serve as an ongoing pureplay aerospace business.
d. Acquisition and disposal related net losses of £44 million (2023: £3 million) are inclusive of a loss of £43 million on the disposal of three
non-core businesses in the Structures segment (see note 13). The loss of £43 million includes a net liability of £25 million that crystallised
on disposal relating to the withdrawal from a multi-employer post-retirement pension scheme. Consideration is £25 million which is net of
a deferred payable of £39 million and costs of £1 million. The net loss is recorded as an adjusting item due to its non-trading nature.
One of the three businesses divested was loss-making and was purchased by a customer. The resulting amount payable for the sale reflects
the fair value of assets and programmes transferred including the resolution of all contractual matters.
e. The Melrose equity-settled Employee Share Plan matured during the year. The charge of £14 million (2023: £38 million), which includes a
charge for employer’s tax payable of £14 million (2023: £28 million), is excluded from adjusted results due to its size and volatility.
f.
The net changes in fair value items in the year totalled a charge of £8 million (2023: credit of £3 million) and are shown as an adjusting item
due to their size and volatility.
191
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
6. Reconciliation of adjusted profit measures continued
b) Profit before tax
Continuing operations
Notes
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Loss before tax
(106)
(8)
Adjustments to operating (loss)/profit as above
Finance costs on demerger settled net debt
Accelerated unamortised debt issue costs
Bond redemption gains
g
h
i
544
–
–
–
333
17
2
(13)
Total adjustments to loss before tax
544
339
Adjusted profit before tax
438
331
g. Finance costs in respect of the proportion of the Group’s net debt strategically allocated to the demerger group of businesses at the start of
the previous year and subsequently settled on demerger were excluded from adjusted results to ensure the finance costs of the continuing
Group were appropriately shown alongside the trading performance of the continuing business.
h. In the previous year, following the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses, the existing
bank facilities at that time were repaid and all unamortised bank fees were written off. This was shown as an adjusting item due to its
non-trading nature.
i.
The Group repurchased £10 million (2023: £120 million) of the 2032 £300 million bond, on which a gain of £nil (2023: £13 million) was
realised. This is shown as an adjusting item due to its non-trading nature.
c) Profit after tax
Continuing operations
Note
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
(Loss)/profit after tax
(49)
1
Adjustments to loss before tax as above
Tax effect of adjustments to loss before tax
Tax effect of significant restructuring
8
8
544
(128)
(17)
339
(77)
–
Total adjustments to (loss)/profit after tax
399
262
Adjusted profit after tax
350
263
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
192
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
7. Expenses
Continuing operations
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Operating (loss)/profit is stated after charging/(crediting):
Cost of inventories
Amortisation of intangible assets acquired in business combinations
Depreciation and impairment of property, plant and equipment
Amortisation of computer software and development costs
Lease expense(1)
Staff costs
Research and development costs(2)
Loss on disposal of property, plant and equipment
Expense of writing down inventory to net realisable value
Reversals of previous write-downs of inventory
Impairment recognised on trade receivables
Impairment reversed on trade receivables
2,646
255
104
41
1
965
69
4
58
(46)
1
(2)
2,696
260
101
42
1
1,095
60
–
53
(44)
8
(2)
(1) Represents low value leases of £1 million (2023: £1 million).
(2) Shown net of government and customer funding and includes staff costs totalling £33 million (2023: £27 million).
The analysis of auditor’s remuneration is as follows:
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts
5.1
4.6
Fees payable to the Company’s auditor and their associates for other audit services to the Group:
The audit of the Company’s subsidiaries
Non-statutory audit of certain of the Company’s businesses
0.2
–
0.2
0.9
Total audit fees
5.3
5.7
Audit-related assurance services:
Review of the half year interim statement
Other assurance services
0.5
–
0.4
0.3
Total audit-related assurance services
0.5
0.7
Total audit and audit-related assurance services
5.8
6.4
Reporting accountant services
–
0.2
Total audit and non-audit fees
5.8
6.6
Details of the Company’s policy on the use of the auditors for non-audit services and how auditor’s independence and objectivity were safeguarded
are set out in the Audit Committee report on pages 124 to 131. No services were provided pursuant to contingent fee arrangements.
An analysis of staff costs and employee numbers is as follows:
Continuing operations
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Staff costs during the year (including executive Directors)
Wages and salaries(1)
Social security costs(2)
Pension costs (note 24)
– defined contribution plans
Share-based compensation expense(3)
788
116
60
1
891
136
58
10
Total staff costs
965
1,095
(1) In the prior year, wages and salaries for discontinued operations were £251 million in the period prior to disposal.
(2) Includes an employer’s tax charge of £14 million (2023: £28 million) on the change in value of the employee share plans, shown as an adjusting item (see note 6).
(3) In the year ended 31 December 2023, this was shown as an adjusting item (see note 6).
193
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
7. Expenses continued
Year ended
31 December
2024
Number
Year ended
31 December
2023
Number
Average monthly number of persons employed (including executive Directors)
Engines
Structures
Corporate
4,228
9,668
26
3,960
10,733
48
Continuing operations
13,922
14,741
Discontinued operations
–
23,880
Total average number of persons employed
13,922
38,621
An analysis of finance costs and income is as follows:
Continuing operations
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Finance costs
Interest on bank loans and overdrafts
Amortisation of costs of raising finance
Net interest cost on pensions
Lease interest
Unwind of discount on provisions
Finance costs on demerger settled net debt(1)
Accelerated unamortised debt issue costs(1)
(91)
(4)
(4)
(6)
–
–
–
(49)
(4)
(1)
(5)
(1)
(17)
(2)
Total finance costs
(105)
(79)
Finance income
Interest receivable
Bond redemption gains(1)
3
–
1
13
Total finance income
3
14
Total net finance costs
(102)
(65)
(1) Shown as adjusting items (see note 6).
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
194
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
8. Tax
Continuing operations
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Analysis of tax (credit)/charge in the year:
Current tax
Current year tax charge
Adjustments in respect of prior years
15
–
19
4
Total current tax charge
15
23
Deferred tax
Origination and reversal of temporary differences
Adjustments in respect of prior years
Tax on the change in value of derivative financial instruments
Adjustments to deferred tax attributable to changes in tax rates
Non-recognition of deferred tax
Recognition of previously unrecognised deferred tax
(32)
(9)
(30)
–
2
(3)
(61)
(3)
29
(1)
4
–
Total deferred tax credit
(72)
(32)
Tax credit on continuing operations
(57)
(9)
Tax charge on discontinued operations
–
28
Total tax (credit)/charge for the year
(57)
19
Analysis of tax credit on continuing operations in the year:
£m
£m
Tax charge in respect of adjusted profit before tax
Tax credit recognised as an adjusting item
88
(145)
68
(77)
Tax credit on continuing operations
(57)
(9)
The tax charge of £88 million (2023: £68 million) arising on adjusted profit before tax of £438 million (2023: £331 million) results in an effective tax
rate of 20.1% (2023: 20.5%).
The £145 million (2023: £77 million) tax credit recognised as an adjusting item includes a credit of £128 million (2023: £77 million) in respect of
adjustments to loss before tax of £544 million (2023: £339 million) and a credit of £17 million (2023: £nil) in respect of internal Group restructuring.
The tax (credit)/charge for the year for continuing and discontinued operations can be reconciled to the (loss)/profit before tax per the Income
Statement as follows:
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
(Loss)/profit before tax:
Continuing operations
Discontinued operations (note 13)
(106)
–
(8)
25
(106)
17
Tax (credit)/charge on (loss)/profit before tax at 25.0% (2023: 23.5%)
Tax effect of:
Disallowable expenses and other permanent differences within adjusted profit
Disallowable items included within adjusting items
Temporary differences not recognised in deferred tax
Recognition of previously unrecognised deferred tax
Tax credits and withholding taxes
Adjustments in respect of prior years
Tax charge classified within adjusting items
Effect of changes in tax rates
Effect of rate differences between UK and overseas rates
(27)
8
8
2
(3)
2
(9)
(20)
–
(18)
4
(9)
8
5
–
3
13
–
(2)
(3)
Total tax (credit)/charge for the year
(57)
19
195
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
8. Tax continued
The reconciliation has been performed at a tax rate of 25.0% (2023: 23.5%). The reconciliation rate usually represents the weighted average of
the tax rates applying to profits and losses in the jurisdictions in which those results arose in the year. However, for 2023 and 2024 this rate was
not representative due to offsetting profits and losses in the relevant jurisdictions and as such the UK corporation tax rate was used.
Tax charges/(credits) included in other comprehensive income are as follows:
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Deferred tax movements on retirement benefit obligations
Deferred tax movements on hedge relationship gains and losses
4
1
(29)
8
Total charge/(credit) for the year
5
(21)
There is also a tax credit of £14 million (2023: £22 million) recognised directly in the Statement of Changes in Equity in respect of deferred tax on
equity-settled share-based payments.
Global Minimum Tax rules and Franked Investment Income – litigation
The Group is within the scope of the OECD Global Minimum Tax (“Pillar 2”) rules which came into effect from 1 January 2024. The current
tax charge includes an immaterial (less than £1 million) amount of tax arising from the introduction of the Pillar 2 rules. For the years ending
31 December 2024 and 31 December 2023, the Group has applied the mandatory exception to recognising and disclosing information about
deferred tax assets and liabilities related to Pillar 2 taxes.
Since 2003, certain entities in the Group have been involved in litigation with HMRC in respect of various advance corporate tax payments and
corporate tax paid on certain foreign dividends which, in the Group’s view, were levied by HMRC in breach of the Group’s EU community law rights.
During 2024, the High Court handed down several decisions considering time limits for valid claims and computational issues. The decisions are
broadly positive for the Group, however they have been appealed. The continuing complexity of the case and uncertainty over the issues raised
means that it is not possible to predict the final outcome of the litigation with any reasonable degree of certainty.
9. Dividends
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Interim dividend for the year ended 31 December 2024 of 2.0p
Final dividend for the year ended 31 December 2023 of 3.5p
Interim dividend for the year ended 31 December 2023 of 1.5p
Second interim dividend for the year ended 31 December 2022 of 1.5p (4.5p)(1)
26
46
–
–
–
–
20
61
72
81
(1) Adjusted to include the effects of the one for three share consolidation that took place on 19 April 2023.
A final dividend for the year ended 31 December 2024 of 4.0p per share totalling an expected £51 million is declared by the Board. The final
dividend of 4.0p per share was declared by the Board on 6 March 2025 and in accordance with IAS 10: Events after the reporting period, has
not been included as a liability in the Consolidated Financial Statements.
During the year, the Group completed a £500 million share buyback programme, which commenced on 2 October 2023, with £411 million of
cash spent, inclusive of costs of £5 million (see note 1). In the prior year, the Group spent cash of £93 million, inclusive of costs of £1 million on
this programme.
On 1 October 2024, the Group commenced a £250 million share buyback programme, with £20 million of cash spent, inclusive of costs of £nil.
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
196
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
10. Earnings per share
Earnings attributable to owners of the parent
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Earnings for basis of earnings per share
Less: loss from discontinued operations (note 13)
(49)
–
(1,019)
1,020
Earnings for basis of earnings per share from continuing operations
(49)
1
Year ended
31 December
2024
Number
Year ended
31 December
2023
Number
Weighted average number of ordinary shares for the purposes of basic earnings per share (million)
Further shares for the purposes of diluted earnings per share (million)
1,307
17
1,349
56
Weighted average number of ordinary shares for the purposes of diluted earnings per share (million)
1,324
1,405
On 1 October 2024, the Group commenced a £250 million share buyback programme, with 4,173,411 shares repurchased by 31 December 2024.
These are held as treasury shares and are excluded from the number of shares for the purposes of calculating earnings per share.
On 2 October 2023, the Group commenced a £500 million share buyback programme, with 70,967,661 shares repurchased during the year ended
31 December 2024 (2023: 18,761,840 shares).
Earnings per share
Year ended
31 December
2024
pence
Year ended
31 December
2023
pence
Basic earnings per share
From continuing and discontinued operations
From continuing operations
From discontinued operations
(3.7)
(3.7)
–
(75.5)
0.1
(75.6)
Diluted earnings per share
From continuing and discontinued operations
From continuing operations
From discontinued operations
(3.7)
(3.7)
–
(75.5)
0.1
(75.6)
Adjusted earnings from continued operations
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Adjusted earnings for the basis of adjusted earnings per share
350
263
Adjusted earnings per share from continuing operations:
Year ended
31 December
2024
pence
Year ended
31 December
2023
pence
Adjusted basic earnings per share
Adjusted diluted earnings per share
26.8
26.4
19.5
18.7
197
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
11. Goodwill and other intangible assets
Goodwill
£m
Customer
relationships
and contracts
£m
Brands and
intellectual property
£m
Other(1)
£m
Computer
software
£m
Development
costs
£m
Total
£m
Cost
At 1 January 2023
Additions
Disposals
Transfer to held for sale(2)
Disposal of businesses(3)
Exchange adjustments
2,585
–
–
–
(1,575)
(49)
4,670
–
–
–
(1,749)
(154)
393
–
–
–
(184)
(2)
1,047
–
–
–
(401)
(15)
56
3
(1)
(1)
(33)
(1)
570
13
(3)
(1)
(100)
(15)
9,321
16
(4)
(2)
(4,042)
(236)
At 31 December 2023
Additions
Reclassification from property, plant
and equipment(4)
Disposals
Disposal of businesses(3)
Exchange adjustments
961
–
–
–
–
9
2,767
–
–
–
–
32
207
–
–
–
–
(4)
631
–
–
–
–
(2)
23
2
–
–
(1)
–
464
13
2
(10)
–
(1)
5,053
15
2
(10)
(1)
34
At 31 December 2024
970
2,799
203
629
24
468
5,093
Accumulated amortisation and impairment
At 1 January 2023
Charge for the year:
Adjusted operating profit
Adjusting items
Disposals
Transfer to held for sale(2)
Disposal of businesses(3)
Exchange adjustments
–
–
–
–
–
–
–
(1,598)
–
(228)
–
–
694
53
(93)
–
(12)
–
–
46
–
(496)
–
(69)
–
–
237
6
(36)
(3)
–
1
1
17
1
(252)
(39)
–
3
1
59
5
(2,475)
(42)
(309)
4
2
1,053
65
At 31 December 2023
Charge for the year:
Adjusted operating profit
Adjusting items
Disposals
Disposal of businesses(3)
Exchange adjustments
–
–
–
–
–
–
(1,079)
–
(188)
–
–
(11)
(59)
–
(10)
–
–
1
(322)
–
(57)
–
–
2
(19)
(3)
–
–
1
–
(223)
(38)
–
5
–
1
(1,702)
(41)
(255)
5
1
(7)
At 31 December 2024
–
(1,278)
(68)
(377)
(21)
(255)
(1,999)
Net book value
At 31 December 2024
970
1,521
135
252
3
213
3,094
At 31 December 2023
961
1,688
148
309
4
241
3,351
(1) Other includes technology and order backlog intangible assets recognised on acquisitions.
(2) Transfer to held for sale in 2023 related to the contractually agreed sale of a non-core business in the Structures segment (see note 1).
(3) Disposal of businesses in 2024 relates to the sale of non-core businesses in the Structures segment. Disposal of businesses in 2023 related to the demerger
of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses (see note 1).
(4) Reclassification from property, plant and equipment for depreciation capitalised as development costs (see note 14).
The goodwill generated as a result of major acquisitions represents the premium paid in excess of the fair value of all net assets, including
intangible assets, identified at the point of acquisition. The carrying value of goodwill includes a premium, paid in order to secure shareholder
agreement to the business combination, that is less than the value that the Directors believed could be added to the acquired businesses.
The goodwill arising on bolt-on acquisitions is attributable to the anticipated profitability and cash flows arising from the businesses acquired,
synergies as a result of the complementary nature of the business with existing Melrose businesses, the assembled workforce, technical
expertise, knowhow, market share and geographical advantages afforded to the Group.
The future improvements applied to the acquired businesses, achieved through a combination of revised strategic direction, operational
improvements and investment, are expected to result in improved profitability. The combined value achieved from these improvements is
expected to be in excess of the value of goodwill acquired.
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
198
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
11. Goodwill and other intangible assets continued
Goodwill
31 December
2024
£m
31 December
2023
£m
Engines
Structures
620
350
608
353
Total
970
961
Impairment testing
The Group tests goodwill annually or more frequently if there are indications that goodwill might be impaired. The effective date of the annual
impairment test is 31 October, aligned with internal forecasting and review processes. In accordance with IAS 36: Impairment of assets, the
Group assesses goodwill based on the recoverable amount, being the higher of the value in use basis and the fair value less costs to sell basis.
The value in use methodology has been used to determine recoverable amount in both the current and prior years.
Value in use calculations have been used to determine the recoverable amount of goodwill and other relevant net assets allocated to the Engines
and Structures groups of CGUs for the year ended 31 December 2024. The calculation uses the latest approved forecasts extrapolated into
perpetuity with growth rates shown below, which do not exceed the long-term growth rate for the relevant market.
Based on the impairment testing completed, no impairment was identified in respect of either of the groups of CGUs. No sensitivity analysis has
been provided as there is no reasonably possible change in key assumptions that could result in an impairment in either the Engines or
Structures groups of CGUs.
The basis of impairment tests and the key assumptions are set out in the tables below:
Groups of CGUs – value in use
31 December 2024
Pre-tax
discount rates
Long-term
growth rates
Years in forecast
Engines
Structures
10.25%
10.50%
3.3%
3.3%
5
5
Groups of CGUs – value in use
31 December 2023
Pre-tax
discount rates
Long-term
growth rates
Years in forecast
Engines
Structures
12.25%
12.50%
3.4%
3.4%
5
5
Risk adjusted discount rates
Cash flows within the Engines and Structures groups of CGUs are discounted using a pre-tax discount rate specific to each group of CGUs.
Discount rates reflect the current market assessments of the time value of money and the territories in which the group of CGUs operates.
In determining the cost of equity, the Capital Asset Pricing Model (“CAPM”) has been used. Under CAPM, the cost of equity is determined
by adding a risk premium, based on an industry adjustment (“Beta”), to the expected return of the equity market above the risk-free return.
The relative risk adjustment reflects the risk inherent in each group of CGUs relative to all other sectors and geographies on average.
The cost of debt is determined using a risk-free rate based on the cost of government bonds, and an interest rate premium equivalent to
a corporate bond with a similar credit rating to the Group.
Assumptions applied in financial forecasts
The Group prepares cash flow forecasts derived from financial budgets and medium-term forecasts. Each forecast has been prepared using a
five-year cash flow period. The key assumptions used in forecasting cash flows relate to future budgeted revenue and operating margins likely
to be achieved and the expected rates of long-term growth by sector. Underlying factors in determining the values assigned to each key
assumption are shown below.
Impairment testing has considered the impact of climate scenarios used by the Group to assess climate-related risks and opportunities. Demand
for the Group’s products may be impacted by the different scenarios over the medium to long-term. Whilst recognising these scenarios contain
major assumptions, the modelling indicates no material impact on existing revenue assumptions, with any potential reduction in Melrose’s
existing products being offset by the Group’s transition plan into lower-carbon products under existing financial planning. The potential of
transition risks such as the transitioning of carbon intensive machinery to more carbon efficient or electric models also did not indicate a material
impact on the existing financial cost in the short to medium-term forecasting. The impairment testing also considers the potential costs from
climate-related risks under physical scenarios RCP 2.6 and 8.5. Risks such as flooding and storm events were predicted to not have a material
impact on cost within the financial forecasting horizon.
199
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
11. Goodwill and other intangible assets continued
Revenue growth and operating margins:
Revenue growth assumptions in the forecast period are based on financial budgets and five-year term forecasts by management, taking into
account industry growth rates and management’s historical experience in the context of wider industry and economic conditions. Projected
revenue is built up with reference to markets and product categories. They incorporate past performance, historical growth rates, projections
of developments in key markets, secured orders and orders forecast to be achieved in the short to medium-term given trends in the relevant
market sector. Revenue assumptions are made using external market data, where available.
Operating margins have been forecast based on historical levels achieved considering the likely impact of changing economic environments and
competitive landscapes on volumes and revenues and the impact of management actions on costs. Forecasts for operating costs are based on
inflation forecasts and supply and demand factors, which take account of climate change implications for affected markets. Impairment testing
includes short to medium-term planning (five years) for both of the groups of CGUs, which will address known risks from climate change and
other environmental factors impacting forecast costs as well as the opportunities in associated markets as they prepare for changes which
impact revenues.
The key drivers for growth in revenue and operating margins are global demand for commercial and military aircraft. Consumer spending,
passenger load factors, raw material input costs, market expectations for aircraft production requirements, technological advancements,
and other macro-economic factors influence demand for these products.
Long-term growth rates:
Long-term growth rates are determined using long-term growth rate forecasts that take into account the international presence and the markets
in which each business operates.
Allocation of significant intangible assets
The allocation of significant customer relationships and contracts, brands, intellectual property and other is as follows:
Customer relationships and contracts
Brands, intellectual property and other
Remaining
amortisation period
Net book value
Remaining
amortisation period
Net book value
31 December
2024
years
31 December
2023
years
31 December
2024
£m
31 December
2023
£m
31 December
2024
years
31 December
2023
years
31 December
2024
£m
31 December
2023
£m
Engines
Structures
14
4
15
5
1,259
262
1,355
333
14
14
15
15
138
249
149
308
Total
1,521
1,688
387
457
12. Investments
Investments, carried at fair value
31 December
2024
£m
31 December
2023
£m
Shares
69
114
The Group holds a 10% equity share in HiiROC Limited, a hydrogen technology company, a 3% investment in PW1100G-JM Engine Leasing
LLC, an engine leasing business, and a 1% investment in Dowlais Group plc which was retained following the demerger in 2023.
There was a loss on remeasurement to fair value of £47 million (2023: gain of £35 million) and a foreign exchange translation gain of £2 million
(2023: loss of £3 million). A dividend of £5 million (2023: £5 million) was received during the year which was recorded within operating profit.
Certain of the investments are measured as a level 3 fair value under the IFRS 13 fair value hierarchy. To calculate the value at 31 December 2024,
the expected dividend flow was discounted to net present value using a discount rate of 10.5%. If the discount rate changed from 10.5% to 9.5%
the fair value would increase by £7 million.
13. Disposals and discontinued operations
On 1 March 2024, the Group completed the disposal of its Fuel Systems business, which was previously classified as held for sale, for
consideration of £50 million. The costs charged to the Income Statement associated with the disposal were £4 million and were recognised
during the prior year, but paid during the year. Net assets disposed were £11 million and the profit on disposal in the year was £39 million after
the recycling of cumulative translational gains of £nil.
On 25 April 2024, the Group completed the disposal of its St. Louis operation with total consideration payable of £58 million, of which £39 million
remains outstanding at 31 December 2024. The costs charged to the Income Statement associated with the disposal were £1 million and an
additional net liability of £25 million was crystallised relating to the withdrawal from a multi-employer post-retirement pension scheme. Net assets
disposed were £9 million and the loss on disposal was £90 million after the recycling of cumulative translational gains of £3 million.
On 28 June 2024, the Group completed the disposal of its Orangeburg operation for consideration of £34 million. The costs charged to the
Income Statement associated with the disposal were £nil. Net assets disposed were £29 million and the profit on disposal was £8 million after
the recycling of cumulative translational gains of £3 million.
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
200 MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
13. Disposals and discontinued operations continued
The results of the three non-core businesses disposed during the year are not classified within discontinued operations as they do not meet the
criteria of being a major separate line of business.
On 30 March 2023, shareholders approved the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses
through the flotation of Dowlais Group plc (“Dowlais”) on the London Stock Exchange. On 20 April 2023, the Group completed the demerger
of Dowlais and its results were classified within discontinued operations. A demerger distribution of £1,973 million was measured at fair value.
Total demerger costs were £64 million.
Classes of assets and liabilities disposed of during the year were as follows:
£m
Property, plant and equipment
Inventories
Trade and other receivables
Assets classified as held for sale
32
56
5
21
Total assets
114
Trade and other payables
Current and deferred tax
Provisions
Liabilities associated with assets held for sale
22
13
20
10
Total liabilities
65
Net assets
Consideration, net of costs(1)
Liabilities crystallised on disposal
Cumulative translation difference recycled on disposal
49
25
(25)
6
Loss on disposal of businesses
(43)
Net cash inflow arising on disposal
Consideration received in cash and cash equivalents, net of costs(2)
Less: cash and cash equivalents disposed(3)
60
(5)
55
(1) Consideration of £26 million net of £1 million of disposal costs. Included within consideration is a deferred amount payable of £39 million accrued at 31 December 2024,
with the cash outflow expected in two equal instalments in the years ending 31 December 2025 and 31 December 2026 respectively.
(2) Cash consideration of £65 million net of £5 million of disposal costs paid in the year, of which £4 million were accrued at 31 December 2023.
(3) Included within assets classified as held for sale.
Financial performance of discontinued operations:
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Revenue
Operating costs
–
–
1,582
(1,550)
Operating profit
Net finance costs
–
–
32
(7)
Profit before tax
Tax
–
–
25
(28)
Loss after tax
Loss on disposal of net assets of discontinued operations, net of recycled cumulative translation differences but before
transaction costs
Demerger transaction costs(1)
–
–
–
(3)
(978)
(39)
Loss for the year from discontinued operations attributable to owners of the parent
–
(1,020)
(1) Demerger transaction costs of £39 million comprised total cash costs incurred of £58 million, offset by a non-cash contribution from Dowlais of £19 million.
Cash flow information relating to discontinued operations is shown in note 27.
201
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
14. Property, plant and equipment
Land and
buildings
£m
Plant and
equipment
£m
Total
£m
Cost
At 1 January 2023
Additions
Right-of-use asset reassessments
Disposals
Disposal of businesses(1)
Transfer to held for sale(2)
Exchange adjustments
1,169
34
2
(3)
(641)
(8)
(30)
3,128
150
–
(37)
(2,102)
(12)
(100)
4,297
184
2
(40)
(2,743)
(20)
(130)
At 31 December 2023
Additions
Right-of-use asset reassessments
Disposals
Disposal of businesses(1)
Exchange adjustments
523
83
8
(3)
(36)
3
1,027
90
–
(35)
(54)
8
1,550
173
8
(38)
(90)
11
At 31 December 2024
578
1,036
1,614
Accumulated depreciation and impairment
At 1 January 2023
Charge for the year
Disposals
Disposal of businesses(1)
Transfer to held for sale(2)
Impairments
Exchange adjustments
(330)
(38)
2
120
7
(1)
10
(1,368)
(111)
34
834
9
–
59
(1,698)
(149)
36
954
16
(1)
69
At 31 December 2023
Charge for the year
Disposals
Disposal of businesses(1)
Reclassification to intangible assets(3)
Impairments(4)
Exchange adjustments
(230)
(33)
3
17
–
(3)
(1)
(543)
(68)
31
41
(2)
–
(5)
(773)
(101)
34
58
(2)
(3)
(6)
At 31 December 2024
(247)
(546)
(793)
Net book value
At 31 December 2024
331
490
821
At 31 December 2023
293
484
777
(1) Disposal of businesses in 2024 relates to the sale of non-core businesses in the Structures segment. Disposal of businesses in 2023 related to the demerger of
the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses (see note 1).
(2) Transfer to held for sale in 2023 related to the contractually agreed sale of a non-core business in the Structures segment (see note 1).
(3) Depreciation charge reclassified to development costs within intangible assets (see note 11).
(4) Impairments in 2024 are shown as an adjusting item as they relate to a significant restructuring project (see note 6).
Assets under the course of construction at 31 December 2024 totalled £145 million (31 December 2023: £126 million).
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
202
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
14. Property, plant and equipment continued
Property, plant and equipment includes the net book value of right-of-use assets as follows:
Right-of-use asset
Land and
buildings
£m
Plant and
equipment
£m
Total
£m
At 1 January 2023
Additions
Right-of-use asset reassessments
Depreciation
Transfer to held for sale(1)
Disposal of businesses(2)
Impairments
Exchange adjustments
265
21
2
(23)
(1)
(117)
(1)
(6)
46
10
–
(8)
–
(28)
–
(1)
311
31
2
(31)
(1)
(145)
(1)
(7)
At 31 December 2023
Additions
Right-of-use asset reassessments
Depreciation
Disposal of businesses(2)
Impairments(3)
Exchange adjustments
140
65
8
(20)
(1)
(3)
(1)
19
5
–
(5)
–
–
–
159
70
8
(25)
(1)
(3)
(1)
At 31 December 2024
188
19
207
(1) Transfer to held for sale in 2023 related to the contractually agreed sale of a non-core business in the Structures segment (see note 1).
(2) Disposal of businesses in 2024 relates to the sale of non-core businesses in the Structures segment. Disposal of businesses in 2023 related to the demerger of
the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses (see note 1).
(3) Impairments in 2024 are shown as an adjusting item as they relate to a significant restructuring project (see note 6).
15. Equity accounted investments
31 December
2024
£m
31 December
2023
£m
Aggregated amounts relating to equity accounted investments:
Share of current assets
Share of non-current assets
Share of current liabilities
Share of non-current liabilities
4
11
(5)
(2)
4
9
(6)
–
Interests in equity accounted investments
8
7
Group share of equity accounted investments
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
At 1 January
Share of results of equity accounted investments
Additions
Disposals
Disposal of businesses(1)
Exchange adjustments
7
(2)
3
–
–
–
435
4
–
(3)
(417)
(12)
At 31 December
8
7
(1) Disposal of businesses in 2023 related to the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses (see note 1).
16. Inventories
31 December
2024
£m
Restated(1)
31 December
2023
£m
Raw materials
Work in progress
Finished goods
249
209
70
235
198
80
528
513
(1) Work in progress has been restated (see note 1).
203
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
16. Inventories continued
In 2024, the write down of inventories in continuing businesses to net realisable value amounted to £58 million (2023: £53 million). The reversal
of write downs in continuing businesses amounted to £46 million (2023: £44 million). Write downs and reversals in both years relate to ongoing
assessments of inventory obsolescence, excess inventory holding and inventory resale values across all of the Group’s businesses.
Climate change may impact the demand from customers for certain products, however given the speed of inventory turnover the Directors
consider that there is no material impact and inventory is appropriately valued.
The Directors consider that there is no material difference between the net book value of inventories and their replacement cost.
17. Trade and other receivables
Current
31 December
2024
£m
Restated(1)
31 December
2023
£m
Trade receivables
Allowance for expected credit loss
Other receivables
Prepayments
Contract assets
407
(7)
255
33
261
430
(10)
162
33
200
949
815
(1) Contract assets have been restated (see note 1).
Trade receivables are non interest-bearing. Credit terms offered to customers vary upon the country of operation but are generally between
30 and 90 days.
Non-current
31 December
2024
£m
Restated(1)
31 December
2023
£m
Other receivables
Contract assets
8
1,193
21
838
1,201
859
(1) Contract assets have been restated (see note 1).
As described in note 25, certain businesses participate in receivables working capital programmes and have the ability to choose whether to
receive payment earlier than the normal due date, for specific customers on a non-recourse basis. As at 31 December 2024, eligible receivables
under these programmes have been factored and derecognised in line with the derecognition criteria of IFRS 9: Financial Instruments.
All receivables are solely payments of principal and interest and are held to collect.
An allowance has been made for expected lifetime credit losses with reference to past default experience and management’s assessment
of credit worthiness over trade receivables, an analysis of which is as follows:
Engines
£m
Structures
£m
Discontinued
operations
£m
Total
£m
At 1 January 2023
Income Statement charge
Utilised
Disposal of businesses(1)
Exchange adjustments
4
1
(2)
–
–
3
5
(1)
–
–
13
1
–
(13)
(1)
20
7
(3)
(13)
(1)
At 31 December 2023
Income Statement charge/(credit)
Utilised
Exchange adjustments
3
2
(2)
–
7
(3)
–
–
–
–
–
–
10
(1)
(2)
–
At 31 December 2024
3
4
–
7
(1) Disposal of businesses in 2023 related to the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses (see note 1).
The concentration of credit risk is limited due to the large number of unrelated customers. Credit control procedures are implemented to ensure
that sales are only made to organisations that are willing and able to pay for them. Such procedures include the establishment and review of
customer credit limits and terms. The Group does not hold any collateral or any other credit enhancements over any of its trade receivables
nor does it have a legal right of offset against any amounts owed by the Group to the counterparty.
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
204 MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
17. Trade and other receivables continued
The ageing of impaired trade receivables past due is as follows:
31 December
2024
£m
31 December
2023
£m
0 – 30 days
31 – 60 days
60+ days
–
2
5
–
–
10
7
10
Included in the Group’s trade receivables balance are overdue trade receivables with a gross carrying amount of £17 million (31 December 2023:
£19 million) against which a provision of £7 million (31 December 2023: £10 million) is held.
There are no amounts provided against balances that are not overdue as these are deemed recoverable, following an assessment for impairment
in accordance with policies described in note 2.
The ageing of the balance deemed recoverable of £10 million (31 December 2023: £9 million) is as follows:
31 December
2024
£m
31 December
2023
£m
0 – 30 days
31 – 60 days
60+ days
10
–
–
9
–
–
10
9
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.
The Group’s contract assets comprise the following:
Participation fees
£m
Unbilled receivables
£m
Unbilled work done
£m
Other
£m
Total
£m
At 1 January 2023 (restated)(1)
Additions
Utilised
Disposal of businesses(2)
Transfer to held for sale(3)
Exchange adjustments
204
8
(17)
(9)
–
(10)
232
962
(983)
–
(1)
(4)
450
193
(20)
–
–
(28)
85
–
(12)
(10)
–
(2)
971
1,163
(1,032)
(19)
(1)
(44)
At 31 December 2023 (restated)(1)
Additions
Utilised
Settlements(4)
Exchange adjustments
176
8
(11)
–
3
206
1,016
(935)
–
4
595
298
(24)
35
18
61
5
(1)
–
–
1,038
1,327
(971)
35
25
At 31 December 2024
176
291
922
65
1,454
(1) Unbilled receivables and other contract assets have been restated (see note 1).
(2) Disposal of businesses in 2023 related to the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses (see note 1).
(3) Transfer to held for sale in 2023 related to the contractually agreed sale of a non-core business in the Structures segment.
(4) Settlements principally relate to utilisation of provision balances held, as commercial matters are resolved.
An assessment for impairment of contract assets has been performed in accordance with policies described in note 2. No such impairment has
been recorded.
Climate change and the effect on customers’ ability to pay is considered in the allowance for expected credit losses. Climate-related considerations
have been taken into account in the forecasting of revenues and costs in respect of RRSP contracts in a similar manner to those described in the
impairment testing section (note 11). The Directors have concluded that climate change related impacts are not material in the recoverability of trade
receivables and contract assets related to unbilled work done on risk and revenue sharing partnerships.
Participation fees
Participation fees are described in the accounting policies (note 2) and are considered to be a reduction in revenue for the related customer
contract. Amounts are capitalised and ‘amortised’ to match to the related performance obligation.
Unbilled receivables for over time recognition
Unbilled receivables for over time recognition represent work completed with associated margins where contracts contain a legal right to
compensation for work completed, including a margin, and there is no alternative use for the customer’s asset.
205
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
17. Trade and other receivables continued
Unbilled work done
Unbilled work done only has a material impact on one entity in the Group, exclusively relating to certain RRSP arrangements in the Engines
segment. During the year ended 31 December 2024, the net impact of additions and amounts utilised of £274 million (2023: £173 million)
was recorded in revenue.
Where the Group has a contractual right to aftermarket revenue, IFRS 15 requires that the total contract revenue is allocated to the performance
obligations. The principal contractual term that determines the existence of unbilled work done is the absence of a termination clause that the
customer can unilaterally exercise and which results in future purchases being considered optional. Where there is such a termination clause and the
Group commercially relies on economic compulsion of the contracting parties, the two phases of activity are treated as distinct and no unbilled work
done contract asset is recognised. In the absence of such a term, there is a contractual link between the sale of OE components and aftermarket,
which results in unbilled work done, and the total contract revenue is allocated to the distinct performance obligations.
Unbilled work done is measured using a weighted average unit method, taking account of an estimate of stand-alone selling price for individual
performance obligations and is recognised when control of the OE component passes to the customer (the engine manufacturer). Due to the
long-term nature of agreements, calculation of the total programme revenues is inherently imprecise and as set out in note 3c requires significant
estimates, including an assessment of the aftermarket revenue per engine which reflects the pattern of future maintenance activity and
associated costs to be incurred. In order to address the future uncertainties, risk adjustments as well as constraints have been applied to the
expected level of revenue as appropriate and these are reviewed annually. This approach best represents the value of goods and services
supplied taking account of the performance obligations, risk and overall contract revenues.
As a consequence of allocating additional revenue to the sale of OE components, an unbilled work done contract asset has been recognised
which will be satisfied through cash receipt during the aftermarket phase. The constraints applied to unbilled work done are reassessed at each
period end, and will unwind as risks reduce and when uncertainties are resolved. This is expected to lead to additional revenue recognition in
future periods in relation to items sold in the current and preceding periods. Further information is provided in note 4.
18. Cash and cash equivalents
31 December
2024
£m
31 December
2023
£m
Cash and cash equivalents
88
58
Cash and cash equivalents comprises cash at bank and in hand which earns interest at floating rates based on daily bank deposit rates and short-
term deposits which are made for varying periods of between one day and one month. The carrying amount of these assets is considered to be
equal to their fair value.
19. Trade and other payables
Current
31 December
2024
£m
Restated(1)
31 December
2023
£m
Trade payables
Other payables
Customer advances and contract liabilities
Other taxes and social security
Government refundable advances
Funded development costs
Accruals
Deferred government grants
580
81
509
51
6
80
190
13
501
110
353
56
5
64
183
14
1,510
1,286
(1) Customer advances and contract liabilities have been restated (see note 1).
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
206
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
19. Trade and other payables continued
As at 31 December 2024, and as described in note 25, included within trade payables were drawings on supplier finance facilities of £80 million
(31 December 2023: £86 million). Trade payables are non-interest-bearing. Normal settlement terms vary by country and the average credit
period taken for trade and other payables is 73 days (31 December 2023: 91 days).
Non-current
31 December
2024
£m
Restated(1)
31 December
2023
£m
Other payables
Customer advances and contract liabilities
Other taxes and social security
Government refundable advances
Funded development costs
Accruals
Deferred government grants
51
316
2
45
17
18
20
–
293
1
44
49
16
23
469
426
(1) Customer advances and contract liabilities have been restated (see note 1).
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
Non-current amounts; other payables, other taxes and social security and accruals fall due for payment within one to two years; government
refundable advances are forecast to fall due for repayment between 2025 and 2055 and the deferred government grants will be utilised over
the next five years.
Funded development costs
When the Group is awarded design and development work as part of a related serial production of components contract, management assesses
whether the two phases of work are distinct under IFRS 15: Revenue from contracts with customers.
Where it is considered there is only one performance obligation under the contract, being the delivery of manufactured product, any cash
received from customers which contributes to ‘funding’ the up-front design and development expenditure incurred, is deferred on the
Balance Sheet as an obligation and released to revenue in the Income Statement based on satisfaction of performance obligations, being the
delivery of product.
Customer advances and contract liabilities include cash receipts from customers in advance of the Group completing its performance obligations
and are generally utilised as product is delivered. Non-current amounts in respect of customer advances and contract liabilities will be utilised
as follows: one to two years £101 million, two to five years £122 million and over five years £94 million (31 December 2023: one to two years
£118 million, two to five years £22 million and over five years £85 million).
The Group’s Customer advances and contract liabilities comprise the following:
31 December
2024
£m
Restated(1)
31 December
2023
£m
Customer cash advances
Material rights given
RRSP related obligations
211
23
591
132
30
484
825
646
(1) Customer cash advances and RRSP related obligations have been restated (see note 1).
Customer cash advances
There are a discrete number of contracts with customers, where commercial terms lead to customer advances relating to serial production of
components. Where cash is received in advance of performance, this usually addresses non-standard commercial impacts on the Group such
as long lead times on inventory.
Customer cash advances, received before the Group delivers product, are deferred on the Balance Sheet as an obligation and released to
revenue based on satisfaction of performance obligations.
Material rights given
Where the Group has agreed contracts with customers that contain any unusual pricing features, these are assessed to determine if material
rights have been transferred to the customer. A material right could occur when there is a material step down in price or if contracts are modified
with lump sum cash receipts offset by a reduction in future pricing.
If a material right has transferred to the customer, any cash received in advance of the Group performing its obligations under a contract is
deferred on the Balance Sheet and released to revenue in the Income Statement based on the terms of the contract.
207
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
19. Trade and other payables continued
RRSP related obligations
As detailed in the accounting policies (note 2), significant estimates disclosure (note 3), revenue disclosures (note 4) and contract asset disclosure
(note 17), the Group has certain RRSP arrangements, with more complex revenue recognition considerations. Whilst the Group has an unbilled
work done contract asset of £922 million (31 December 2023: £595 million), detailed in note 17, which represents the Group having completed
certain of its performance obligations in advance of cash receipt, it also has contract liabilities.
These include:
•
Cash received for a ‘stand ready’ obligation (described in note 4) of £158 million (31 December 2023 – restated: £134 million) to contribute to
aftermarket activities of certain RRSPs, which typically results in the provision of services such as technical and other programme support
activities over the whole life of the engine. This will be recognised over time in line with the engine manufacturer’s actual maintenance, repair and
overhaul costs.
•
A pricing rebate provision for estimated discounts provided by engine manufacturers on the sale of OE of £72 million (31 December 2023:
£68 million).
•
Cash received to compensate where the production cost incurred on an RRSP contract is in excess of the Group’s share of the programme,
totalling £29 million (31 December 2023 – restated: £29 million). This will be released to the Income Statement when the Group has satisfied
its performance obligations.
•
Cash received in respect of RRSP contract amendments of £94 million (31 December 2023: £59 million). This will be released over the life of
the contract in accordance with the original terms of the contract.
•
A provision for engineering and warranty commitments in respect of RRSP contracts of £35 million (31 December 2023: £30 million). This is
expected to be utilised over the warranty terms of the contracts.
•
Other contract liabilities of £203 million (31 December 2023 – restated: £164 million).
20. Interest-bearing loans and borrowings
This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings. Details of the Group’s exposure
to credit, liquidity, interest rate and foreign currency risk are included in note 25.
Current
Non-current
Total
31 December
2024
£m
31 December
2023
£m
31 December
2024
£m
31 December
2023
£m
31 December
2024
£m
31 December
2023
£m
Floating rate obligations
Bank borrowings – US dollar loan
Bank borrowings – Sterling loan
Bank borrowings – Euro loan
Other loans
Bank overdrafts
–
–
–
–
8
–
–
–
53
1
1,131
16
261
–
–
467
1
106
–
–
1,131
16
261
–
8
467
1
106
53
1
Fixed rate obligations
2032 bond
–
–
–
10
–
10
Unamortised finance costs
8
–
54
–
1,408
(7)
584
(8)
1,416
(7)
638
(8)
Total interest-bearing loans and borrowings
8
54
1,401
576
1,409
630
At 31 December 2023, the Group had committed multi-currency term loans and revolving credit facilities of US$1,240 million, €400 million and
£300 million. During the year, the US$ facilities increased by US$399 million and all facilities were set to mature in April 2026, with the potential to
be extended for two additional one-year periods at the Group’s option. As at 31 December 2024, the Group has committed multi-currency term
loans and revolving credit facilities totalling US$1,639 million, €400 million and £300 million.
Subsequent to 31 December 2024, the Group has arranged additional committed bank facilities of €355 million maturing in January 2027 and
facilities totalling US$70 million and £50 million maturing in January 2026.
At 31 December 2024, drawings under the facilities were US$1,416 million, €316 million and £16 million. Applying the exchange rates at
31 December 2024, the headroom equated to £532 million. There are also a number of uncommitted overdraft, guarantee and borrowing
facilities made available to the Group.
Costs of refinancing of £3 million (2023: £11 million) were capitalised during the year and £4 million (2023: £6 million) of amortisation of finance
costs were charged to the Income Statement.
Throughout the year, the Group remained compliant with all covenants under the facilities disclosed above. A number of Group companies are
guarantors under the bank facilities. Further details on covenant compliance for the year ended 31 December 2024 are contained in note 25.
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
208
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
20. Interest-bearing loans and borrowings continued
The bank margins on the bank facility depend on the Group leverage and were as follows:
31 December 2024
31 December 2023
Margin
Range
Margin
Range
Facility:
Term loan
1.40%
1.0% – 2.3%
1.30%
0.9% – 2.2%
Revolving credit facilities
1.40% – 1.55%
1.0% – 2.4%
1.30% – 1.55%
0.9% – 2.4%
At the start of the year the Group held capital market borrowings with an outstanding nominal value of £10 million from an original £300 million bond,
issued in May 2017 and due to mature in May 2032. During the year, an agreement was reached with remaining bondholders that resulted in the
outstanding nominal value being bought back and cancelled for a total cost of £10 million.
Maturity of financial liabilities (excluding currency contracts and lease obligations)
The table below shows the maturity profile of anticipated future cash flows, including interest, on an undiscounted basis in relation to the Group’s
financial liabilities (other than those associated with currency risk, which are shown in note 25, and lease obligations which are shown in note 28).
The amounts shown therefore differ from the carrying value and fair value of the Group’s financial liabilities.
Interest-bearing
loans and
borrowings
£m
Interest rate
derivative financial
liabilities
£m
Other financial
liabilities
£m
Total financial
liabilities
£m
Within one year
In one to two years
In two to five years
After five years
Effect of financing rates
82
1,432
–
–
(105)
1
1
–
–
–
857
44
12
76
(18)
940
1,477
12
76
(123)
31 December 2024
1,409
2
971
2,382
Within one year
In one to two years
In two to five years
After five years
Effect of financing rates
88
45
565
11
(79)
–
–
–
–
–
799
21
7
32
–
887
66
572
43
(79)
31 December 2023
630
–
859
1,489
21. Provisions
Loss-making
contracts
£m
Property
related costs
£m
Environmental and
litigation
£m
Warranty
related costs
£m
Restructuring
£m
Other
£m
Total
£m
At 1 January 2024
Utilised
Charge to operating profit(1)
Release to operating profit(2)
Disposal of businesses(3)
Transfers(4)
Exchange adjustments
58
(23)
12
–
(18)
–
(1)
23
–
3
(1)
–
–
–
54
(10)
18
(10)
(2)
–
–
27
(4)
3
(1)
–
–
(1)
59
(118)
86
(1)
–
–
1
65
(11)
8
(1)
–
(31)
–
286
(166)
130
(14)
(20)
(31)
(1)
At 31 December 2024
28
25
50
24
27
30
184
Current
Non-current
15
13
9
16
25
25
11
13
25
2
23
7
108
76
28
25
50
24
27
30
184
(1) Includes £96 million of adjusting items and £34 million recognised in adjusted operating profit.
(2) Includes £3 million of adjusting items and £11 million recognised in adjusted operating profit.
(3) Disposal of businesses relates to the sale of non-core businesses in the Structures segment (see note 1).
(4) Transfer to accruals following certainty of the timing and value of employer tax on equity-settled compensation schemes.
209
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
21. Provisions continued
Loss-making contracts
Provisions for loss-making contracts are considered to exist where the Group has a contract under which the unavoidable costs of meeting
the obligations exceed the economic benefits expected to be received under it. This obligation has been discounted and will be utilised over
the period of the respective contracts, which is up to 15 years.
Calculation of loss-making contract provisions is based on contract documentation and delivery expectations, along with an estimate of directly
attributable costs and represents management’s best estimate of the unavoidable costs of fulfilling the contract.
Utilisation in continuing operations during the year of £23 million has benefitted adjusted operating profit. In addition, £12 million has been
charged (2023: £21 million) on a net basis, of which £10 million (2023: £21 million) is shown as an adjusting item (see note 6).
Property related costs
The provision for property related costs represents dilapidation costs for ongoing leases and is expected to result in cash expenditure over the
next eight years. Calculation of dilapidation obligations are based on lease agreements with landlords and external quotes, or in the absence
of specific documentation, management’s best estimate of the costs required to fulfil obligations.
Environmental and litigation
There are environmental provisions amounting to £8 million (31 December 2023: £7 million) relating to the estimated remediation costs
of pollution, soil and groundwater contamination at certain sites and estimated future costs and settlements in relation to legal claims and
associated insurance obligations amounting to £42 million (31 December 2023: £47 million). Liabilities for environmental costs are recognised
when environmental assessments are probable and the associated costs can be reasonably estimated.
The Group has on occasion been required to take legal or other actions to defend itself against proceedings brought by other parties. Provisions
are made for the expected costs associated with such matters, based on past experience of similar items and other known factors, considering
professional advice received. This represents management’s best estimate of the likely outcome. The timing of utilisation of these provisions is
frequently uncertain, reflecting the complexity of issues and the outcome of various court proceedings and negotiations. Contractual and other
provisions represent management’s best estimate of the cost of settling future obligations and reflect management’s assessment of the likely
settlement method, which may change over time. However, no provision is made for proceedings which have been, or might be, brought by
other parties against Group companies unless management, considering professional advice received, assess that it is more likely than not that
such proceedings may be successful.
Warranty related costs
Provisions for the expected cost of warranty obligations under local sale of goods legislation are recognised at the date of sale of the relevant
products and subsequently updated for changes in estimates as necessary. The provision for warranty related costs represents the best
estimate of the expenditure required to settle the Group’s obligations, based on past experience, recent claims and current estimates of costs
relating to specific claims. Warranty terms are, on average, between one and five years.
Restructuring
Restructuring provisions relate to committed costs in respect of restructuring programmes, as described in note 6, usually resulting in cash
spend within one to two years. A restructuring provision is recognised when the Group has developed a detailed formal plan for the restructuring
and has raised a valid expectation in those affected that it will carry out the restructuring by either starting to implement the plan or by
announcing its main features to those affected by it. The measurement of a restructuring provision includes only the direct expenditures arising
from the restructuring, which are those amounts that are necessarily entailed by the restructuring programmes.
Other
Other provisions include indemnities and the employer tax on equity-settled incentive schemes which are expected to result in cash expenditure
during the next two years.
Where appropriate, provisions have been discounted using discount rates between 0% and 5% (31 December 2023: 0% and 7%) depending on
the territory in which the provision resides and the length of its expected utilisation.
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
210
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
22. Deferred tax
The following are the major deferred tax assets and liabilities recognised by the Group and movements thereon during the current and prior year.
Deferred tax assets
Deferred tax liabilities
Tax losses and other
assets
£m
Deferred tax in
relation to revenue
recognition and
other liabilities(1)
£m
Deferred tax on
intangible assets
£m
Total deferred
tax liabilities
£m
Total net
deferred tax
£m
At 1 January 2023
Income Statement credit/(charge)
Credit to equity(2)
Disposal of businesses(3)
Transfer to held for sale(4)
Exchange adjustments
Movement in set off of assets and liabilities(5)
373
55
43
(189)
(1)
(18)
264
(150)
(85)
–
31
–
10
(18)
(469)
73
–
347
–
25
(246)
(619)
(12)
–
378
–
35
(264)
(246)
43
43
189
(1)
17
–
At 31 December 2023
Income Statement credit/(charge)
Credit to equity(2)
Disposal of businesses(3)
Exchange adjustments
Movement in set off of assets and liabilities(5)
527
95
9
21
(3)
2
(212)
(82)
–
–
(7)
39
(270)
59
–
–
(3)
(41)
(482)
(23)
–
–
(10)
(2)
45
72
9
21
(13)
–
At 31 December 2024
651
(262)
(255)
(517)
134
(1) Includes accelerated capital allowances.
(2) Includes a tax credit of £14 million (2023: £22 million) recognised directly in equity in respect of equity-settled share-based payments and a charge of £5 million
(2023: credit of £21 million) recognised within other comprehensive income.
(3) Disposal of businesses in 2024 relates to the sale of non-core businesses in the Structures segment, and includes deferred tax of £8 million in respect of liabilities
crystallised on disposal. Disposal of businesses in 2023 related to the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses
(see note 1).
(4) Transfer to held for sale in 2023 related to the contractually agreed sale of a non-core business in the Structures segment.
(5) Set off of deferred tax assets and liabilities in accordance with IAS 12 within territories with a right of set off.
As at 31 December 2024, the Group had gross unused corporate income tax losses of £2,327 million (31 December 2023: £2,039 million)
available for offset against future profits. A deferred tax asset of £522 million (31 December 2023: £446 million) has been recognised in respect
of £2,160 million (31 December 2023: £1,799 million) of these gross losses. The movement in deferred tax assets relating to tax losses arises
primarily through the Income Statement. There is also a credit of £3 million (2023: £nil) included within other comprehensive income. No asset
has been recognised in respect of the remaining losses due to the divisional and geographic split of anticipated future profit streams. Most of
these losses may be carried forward indefinitely subject to certain continuity of business requirements. Where losses are subject to time expiry,
a deferred tax asset is recognised to the extent that sufficient future profits are anticipated to utilise these losses. The Group continues to
recognise deferred tax assets as it is confident that it will have future taxable profits against which the deferred tax assets will be realised.
In addition to the corporate income tax losses included above, a deferred tax asset of £38 million (31 December 2023: £33 million) has been
recognised on tax credits (primarily US) and US state tax losses.
Deferred tax assets have also been recognised on Group retirement benefit obligations at £3 million (31 December 2023: £7 million) and on other
temporary differences at £305 million (31 December 2023: £261 million). The gross deferred tax assets therefore amount to £868 million
(31 December 2023: £747 million).
Deferred tax liabilities have been recognised on intangible assets at £423 million (31 December 2023: £479 million) and in relation to revenue
recognition and other temporary differences at £311 million (31 December 2023: £223 million). The gross deferred tax liabilities therefore amount
to £734 million (31 December 2023: £702 million).
Of the total net deferred tax asset of £134 million (31 December 2023: £45 million), after offset of deferred tax liabilities in relation to other
intangible assets, £277 million (31 December 2023: £237 million) relates to the UK. This is made up primarily of tax losses and fixed asset
temporary differences. Deferred tax assets are recognised only to the extent it is probable that future taxable profits will be available against
which the assets can be utilised. A recoverability assessment has been undertaken using the Group’s latest profit forecasts to assess the level of
future taxable profits. These profit forecasts reflect industry growth rates and supply and demand factors, which take account of climate change
implications for affected markets, as discussed in note 11.
The assessment takes both positive and negative evidence into account, and sensitivity analysis has been undertaken assessing the impact
of lower growth rates and levels of operating profit. The assessment reflects the fact that, under UK tax law, the amount of both UK capital
allowances (tax depreciation) that can be claimed, and brought forward tax losses that can be utilised are restricted; use of tax losses is
restricted to broadly 50% of current year taxable profits. It is noted that there are UK tax losses pre-dating 1 April 2017 that are not recognised
as the utilisation of these is further limited under UK tax law.
211
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
22. Deferred tax continued
Based on work performed, positive evidence outweighs the negative evidence and so continued recognition is supported as it is probable that
the UK business will generate taxable income and tax liabilities in the future against which these losses and other tax assets can be utilised. The
business is long-term in nature, with typical Structures programme life-cycles of 25 to 35 years, and the period over which the deferred tax asset
will be utilised is consistent with this.
Any future changes in tax law or the structure of the Group could impact the use of losses and other deductible temporary differences, including
the period over which they can be used. In view of this, and the significant estimation involved, management continually monitors the position
(see note 3).
Other significant deferred tax assets, after offset of deferred tax liabilities in relation to other intangible assets, relate to the Netherlands, £158 million
(31 December 2023: £110 million), and the US, £193 million (31 December 2023: £150 million). These assets also arise primarily from tax losses,
and similar assessments have been undertaken in relation to future forecast profits being generated in these territories. Using similar forecasting
considerations to those discussed in note 11, climate change is deemed not to have a material impact on the future taxable profits of the Group
and its ability to utilise unused tax losses and deductible temporary differences.
There are no material unrecognised deferred tax assets at either 31 December 2024 or 31 December 2023, other than the losses referred to
above. No deferred tax is recognised on the unremitted earnings of overseas subsidiaries except where the distribution of such profits is planned.
If these earnings were remitted in full, tax of £1 million (31 December 2023: £2 million) would be payable.
23. Share-based payments
The Melrose 2020 Employee Share Plan (“the MESP”)
On 3 June 2024, the MESP crystallised as expected resulting in 54,346,536 shares being awarded to plan participants. Prior to crystallisation,
the Remuneration Committee determined that 25,498,465 shares would be withheld by the Company in exchange for an equivalently valued
£157 million cash payment, being sufficient to allow the holders to meet their income tax and employee national insurance liabilities in respect
of the MESP. The remaining 28,848,071 shares were converted into Ordinary shares and issued to participants. A further 3,875,954 nil cost
options, held by an Executive Director, remain outstanding as at 31 December 2024 and are exercisable in 2025 and 2026.
During the year, the Group recognised a charge of £14 million (2023: £35 million) in respect of the MESP, inclusive of a £14 million charge in
respect of related national insurance (2023: £28 million), recognised in adjusting items (note 6). Further details in respect of the MESP are set
out in the Directors’ Remuneration Report on page 142.
Melrose Performance Share Plan (“the PSP”)
On 2 May 2024, at the Annual General Meeting, shareholders approved the creation of the PSP. On 11 June 2024, 798,965 options were
granted to eligible participants under the terms of the PSP. The options will vest on 11 June 2027, subject to the achievement of a number
of vesting conditions, with each vested option converting into one Ordinary share of the Company. Further details are set out in the Directors’
Remuneration Report on page 141.
During the year, the Group recognised a charge of £1 million in respect of the PSP, inclusive of a £nil charge in respect of related national
insurance which is recognised within adjusted operating profit. A summary of the movements of the Group’s PSP share-based payment plans
during the year is shown below:
Number of options
Outstanding at 1 January 2024
Granted during the year
Forfeited during the year
Exercised during the year
–
798,965
–
–
Outstanding at 31 December 2024
798,965
All outstanding options have an exercise price of nil pence and have an exercise date of 11 June 2027.
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
212
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
24. Retirement benefit obligations
Defined contribution plans
The Group operates defined contribution plans for qualifying employees across several jurisdictions. The assets of the plans are held separately
from those of the Group in funds under the control of Trustees.
The total costs charged in relation to the continuing businesses during the year of £60 million (2023: £58 million) represent contributions payable
to these plans by the Group at rates specified in the rules of the plans.
Defined benefit plans
The Group sponsors defined benefit plans for qualifying employees of certain subsidiaries. The funded defined benefit plans are administered
by separate funds that are legally separated from the Group. The Trustees of the funds are required by law to act in the interest of the fund
and of all relevant stakeholders in the plans. The Trustees of the pension funds are responsible for the investment policy with regard to the
assets of the fund.
During the prior year, £439 million of net retirement benefit obligations were disposed with the demerger of the GKN Automotive, GKN Powder
Metallurgy and GKN Hydrogen businesses (note 1).
Also during 2023, a buy-in policy was purchased for £45 million which fully insured pensioner members who were in the GKN Group Pension
Scheme Number 4. The present value of funded defined benefit obligations for GKN Group Pension Scheme Number 4 was actuarially calculated
and the plan asset was set equal.
The most significant defined benefit pension plans in the Group at 31 December 2024 were:
GKN Group Pension Schemes (Numbers 1 and 4)
The GKN Group Pension Schemes (Numbers 1 and 4) are funded plans closed to new members and were closed to future accrual in 2017.
The valuation of the plans was based on a full actuarial valuation as of 5 April 2022, updated to 31 December 2024 by independent actuaries.
In June 2023, the UK High Court ruled that certain historical amendments for contracted-out defined benefit pension schemes were invalid if they
were not accompanied by the correct actuarial confirmation. The ruling was subject to appeal with a judgment upheld on 25 July 2024. The
Group is in the process of evaluating the impact with the Trustees and is monitoring developments in relation to this matter.
GKN US Consolidated Pension Plan
The GKN US Consolidated Pension Plan is a funded plan, closed to new members and closed to future accrual. The US Pension Plan valuation
was based on a full actuarial valuation as of 1 January 2024, updated to 31 December 2024 by independent actuaries.
The cost of the Group’s defined benefit plans is determined in accordance with IAS 19 (revised): Employee benefits using the advice of
independent professionally qualified actuaries on the basis of formal actuarial valuations and using the projected unit credit method. In line with
normal practice, these valuations are undertaken triennially in the UK and annually in the US.
Contributions
The Group contributed £20 million (2023: £72 million) to defined benefit pension plans and post-employment plans in the year ended 31 December 2024.
The Group expects to contribute approximately £27 million in 2025.
Actuarial assumptions
The major assumptions used by the actuaries in calculating the Group’s pension liabilities are as set out below:
Rate of increase
of pensions in payment
% per annum
Discount rate
%
Price inflation
(RPI/CPI)
%
31 December 2024
GKN Group Pension Schemes (Numbers 1 and 4)
GKN US plans
2.7
n/a
5.5
5.5
3.0/2.6
n/a
31 December 2023
GKN Group Pension Schemes (Numbers 1 and 4)
GKN US plans
2.6
n/a
4.5
4.8
2.9/2.5
n/a
Mortality
GKN Group Pension Schemes (Numbers 1 and 4)
The GKN Group Pension Schemes (Numbers 1 and 4) use the SAPS ‘S3PA’ base tables with scheme-specific adjustments. The base table
mortality assumption for each of the UK plans reflects best estimate results from the most recent mortality experience analyses for each scheme.
Scaling factors vary by scheme.
Future improvements for all UK plans are in line with the 2023 Continuous Mortality Investigation (“CMI”) core projection model (Sk = 7.0, A = 0%,
w2022 = w2023 = 15%) with a long-term rate of improvement of 1.25% p.a. for both males and females.
GKN US Consolidated Pension Plan
GKN US Pension and Medical Plans use base mortality tables in line with PRI – 2012 tables. Future improvements for all US plans are in line
with MP2021.
213
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
24. Retirement benefit obligations continued
The following table shows the future life expectancy of individuals age 65 at the year end and the future life expectancy of individuals aged 65
in 20 years’ time.
GKN Group
Pension Schemes
(Numbers 1 and 4)
years
GKN US
Consolidated
Pension Plan
years
Male today
Female today
Male in 20 years’ time
Female in 20 years’ time
21.5
23.7
22.7
25.1
19.7
21.7
21.2
23.1
Balance Sheet disclosures
The amounts recognised in the Consolidated Balance Sheet in respect of defined benefit plans were as follows:
31 December
2024
£m
31 December
2023
£m
Present value of funded defined benefit obligations
Fair value of plan assets
(1,022)
986
(1,193)
1,118
Funded status
Present value of unfunded defined benefit obligations
(36)
(23)
(75)
(24)
Net liabilities
(59)
(99)
The plan assets and liabilities at 31 December 2024 were as follows:
UK
Plans(1)
£m
US
Plans
£m
Other
Plans
£m
Total
£m
Plan assets
Plan liabilities
955
(983)
31
(54)
–
(8)
986
(1,045)
Net liabilities
(28)
(23)
(8)
(59)
(1) Includes a liability in respect of the GKN post-employment medical plans of £6 million and a net deficit in respect of the GKN Group Pension Scheme
(Numbers 1 and 4) of £22 million.
The major categories and fair values of plan assets at the end of the year for each category were as follows:
31 December
2024
£m
31 December
2023
£m
Government bonds
Corporate bonds
Property
Insurance contracts
Multi-strategy/Diversified growth funds
Private equity
Other(1)
276
59
5
378
202
13
53
363
60
9
439
130
24
93
Total
986
1,118
(1) Primarily consists of cash collateral and liability driven investments.
Excluding the insurance contracts purchased in respect of GKN Group Pension Scheme Number 4, the assets were well diversified and the
majority of plan assets had quoted prices in active markets. All government bonds were issued by reputable governments and were generally
AA-rated or higher. Interest rate and inflation rate swaps were also employed to complement the role of fixed and index-linked bond holdings
for liability risk management.
The Trustees continually review whether the chosen investment strategy is appropriate with a view to providing the pension benefits and to
ensure appropriate matching of risk and return profiles. The main strategic policies included maintaining an appropriate asset mix, managing
interest rate sensitivity and maintaining an appropriate equity buffer. Investment results are regularly reviewed.
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
214
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
24. Retirement benefit obligations continued
Movements in the present value of defined benefit obligations during the year:
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
At 1 January
Current service cost
Interest cost on obligations
Remeasurement gains – demographic
Remeasurement (gains)/losses – financial
Remeasurement losses – experience
Benefits paid out of plan assets
Benefits paid out of Group assets for unfunded plans
Settlements
Disposal of businesses(1)
Exchange adjustments
1,217
–
53
(12)
(132)
2
(70)
(3)
(12)
–
2
2,429
2
71
–
3
23
(79)
(7)
–
(1,214)
(11)
At 31 December
1,045
1,217
(1) Disposal of businesses in 2023 related to the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses (see note 1).
The defined benefit plan liabilities were 11% (31 December 2023: 13%) in respect of active plan participants, 26% (31 December 2023: 27%)
in respect of deferred plan participants and 63% (31 December 2023: 60%) in respect of pensioners.
The weighted average duration of the defined benefit plan liabilities at 31 December 2024 was 12.4 years (31 December 2023: 12.7 years).
Movements in the fair value of plan assets during the year:
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
At 1 January
Interest income on plan assets
Return on plan assets, excluding interest income
Contributions
Benefits paid out of plan assets
Plan administrative costs
Settlements
Disposal of businesses(1)
Exchange adjustments
1,118
49
(115)
17
(70)
(2)
(13)
–
2
1,941
66
(93)
65
(79)
(4)
–
(775)
(3)
At 31 December
986
1,118
(1) Disposal of businesses in 2023 related to the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses (see note 1).
The actual return on plan assets was a loss of £66 million (2023: £27 million).
Income Statement disclosures
Amounts recognised in the Consolidated Income Statement in respect of these defined benefit plans were as follows:
Continuing operations
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Included within operating (loss)/profit:
– plan administrative costs
– settlement loss
Included within net finance costs:
– interest cost on defined benefit obligations
– interest income on plan assets
2
1
53
(49)
4
–
56
(55)
215
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
24. Retirement benefit obligations continued
Discontinued operations
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Included within operating profit:
– current service cost
Included within net finance costs:
– interest cost on defined benefit obligations
– interest income on plan assets
–
–
–
2
15
(11)
Statement of Comprehensive Income disclosures
Amounts recognised in the Consolidated Statement of Comprehensive Income in respect of these defined benefit plans were as follows:
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Return on plan assets, excluding interest income
Remeasurement gains arising from changes in demographic assumptions
Remeasurement gains/(losses) arising from changes in financial assumptions
Remeasurement losses arising from experience adjustments
(115)
12
132
(2)
(93)
–
(3)
(23)
Net remeasurement gain/(loss) on retirement benefit obligations
27
(119)
Risks and sensitivities
The defined benefit plans expose the Group to actuarial risks, such as longevity risk, inflation risk, interest rate risk and market (investment) risk.
The Group is not exposed to any unusual, entity specific or plan specific risks.
A sensitivity analysis on the principal assumptions used to measure the plan liabilities at the year end was as follows:
Change in assumption
Decrease/(increase)
to plan liabilities
£m
Increase/(decrease)
to profit before tax
£m
Discount rate
Inflation assumption(1)
Assumed life expectancy at age 65 (rate of mortality)
Increase by 0.5 ppts
Decrease by 0.5 ppts
Increase by 0.5 ppts
Decrease by 0.5 ppts
Increase by 1 year
Decrease by 1 year
58
(63)
(34)
37
(38)
39
(2)
2
n/a
n/a
n/a
n/a
(1) The inflation sensitivity encompasses the impact on pension increases, where applicable.
The sensitivity analysis above was determined based on reasonably possible changes to the respective assumptions, while holding all other
assumptions constant. There has been no change in the methods or assumptions used in preparing the sensitivity analysis from prior years.
Sensitivities are based on the relevant assumptions and membership profile as at 31 December 2024 and are applied to obligations at the
end of the reporting period. Whilst the analysis does not take account of the full distribution of cash flows expected, it does provide an
approximation to the sensitivity of assumptions shown. Extrapolation of these results beyond the sensitivity figures shown may not be appropriate
and the sensitivity analysis presented may not be representative of the actual change in the defined benefit obligation as it is unlikely that the
change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
216
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
25. Financial instruments and risk management
The table below sets out the Group’s accounting classification of each category of financial assets and liabilities and their carrying values at
31 December 2024 and 31 December 2023:
Engines
£m
Structures
£m
Corporate
£m
Total
£m
31 December 2024
Financial assets
Classified as amortised cost:
Cash and cash equivalents
Net trade receivables
Classified as fair value:
Investments
Derivative financial assets
Foreign currency forward contracts
Interest rate derivatives
Embedded derivatives(1)
Financial liabilities
Classified as amortised cost:
Interest-bearing loans and borrowings
Government refundable advances
Lease obligations
Other financial liabilities
Classified as fair value:
Derivative financial liabilities
Foreign currency forward contracts
Interest rate derivatives
Embedded derivatives(1)
–
205
59
–
–
–
–
(48)
(79)
(380)
–
–
–
–
195
–
–
–
6
–
(3)
(150)
(477)
–
–
(3)
88
–
10
8
8
–
(1,409)
–
(8)
(63)
(182)
(2)
–
88
400
69
8
8
6
(1,409)
(51)
(237)
(920)
(182)
(2)
(3)
31 December 2023
Financial assets
Classified as amortised cost:
Cash and cash equivalents
Net trade receivables
Classified as fair value:
Investments
Derivative financial assets
Foreign currency forward contracts
Interest rate derivatives
Embedded derivatives(1)
Financial liabilities
Classified as amortised cost:
Interest-bearing loans and borrowings
Government refundable advances
Lease obligations
Other financial liabilities
Classified as fair value:
Derivative financial liabilities
Foreign currency forward contracts
Embedded derivatives(1)
–
168
57
–
–
–
–
(43)
(35)
(345)
–
–
–
252
–
–
–
9
–
(6)
(150)
(419)
–
(4)
58
–
57
47
3
–
(630)
–
(7)
(46)
(102)
–
58
420
114
47
3
9
(630)
(49)
(192)
(810)
(102)
(4)
(1) The embedded derivative is measured as a level 3 fair value under the IFRS 13 fair value hierarchy.
Reconciliation of liabilities arising from financing activities
As at 31 December 2023, liabilities arising from financing activities, as defined by IAS 7, totalled £821 million comprising: external debt of £629 million
(excluding £1 million of bank overdrafts) and lease obligations of £192 million. During the year a cash outflow in those liabilities totalled £725 million as
follows: net drawdown of external debt of £757 million (note 27) and repayment of principal on lease obligations of £32 million (note 28). There is also
an increase to liabilities arising from financing activities relating to non-cash items totalling £92 million comprising: an increase in external debt of
£15 million due to changes in foreign exchange rates and other non-cash movements and an increase in respect of lease obligations of £77 million.
As at 31 December 2024, liabilities arising from financing activities, as defined by IAS 7, totalled £1,638 million comprising: external debt of
£1,401 million (excluding £8 million of bank overdrafts), and lease obligations of £237 million.
217
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
25. Financial instruments and risk management continued
Liabilities arising from financing activities, as defined by IAS 7, totalled £1,799 million at 31 December 2022 comprising: external debt of
£1,433 million (excluding £63 million of bank overdrafts) and lease obligations of £366 million. During the year ended 31 December 2023 a
cash outflow in those liabilities totalled £781 million as follows: net drawdown of external debt of £462 million, net repayment of external debt
of £1,205 million following the demerger of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses and repayment of
principal on lease obligations of £38 million (note 28). There is also a decrease to liabilities arising from financing activities relating to non-cash
items totalling £197 million comprising: a decrease in external debt of £61 million due to changes in foreign exchange rates and other non-cash
movements (including costs of £11 million (note 20) of raising debt finance) and a decrease in respect of lease obligations of £136 million. As at
31 December 2023, liabilities arising from financing activities, as defined by IAS 7, totalled £821 million comprising: external debt of £629 million
(excluding £1 million of bank overdrafts) and lease obligations of £192 million.
Fair values
As at 31 December 2024, there were no bonds outstanding. At 31 December 2023, the bond maturing in 2032 had a carrying value of £10 million
and a fair value of £9 million.
The Directors consider that the carrying amount of other financial assets and liabilities approximate to their fair values.
Credit risk
The Group’s principal financial assets were cash and cash equivalents, trade receivables and derivative financial assets which represented the
Group’s maximum exposure to credit risk in relation to financial assets.
The Group’s credit risk on cash and cash equivalents and derivative financial assets was limited because the counterparties were banks with
strong credit ratings assigned by international credit rating agencies (investment grade). Exposure is managed on the basis of risk rating and
counterparty limits. The value of credit risk in derivative assets has been modelled using publicly available inputs as part of their fair value.
The Group’s credit risk was therefore primarily attributable to its trade receivables. The amounts presented in the Consolidated Balance Sheet
were net of allowance for expected credit loss, estimated by the Group’s management based on prior experience and their assessment of the
current economic environment. Note 17 provides further details regarding the recoverability of trade receivables.
The following financial assets and liabilities are subject to offsetting, enforceable master netting arrangements and similar agreements:
31 December 2024
Gross amounts of
recognised financial
assets/(liabilities)
£m
Gross amounts of
recognised financial
assets/(liabilities) set off
in the Balance Sheet
£m
Net amounts of
financial
assets/(liabilities)
presented in the
Balance Sheet
£m
Related amounts of
financial instruments
not set off in the
Balance Sheet
£m
Net amount
£m
Cash and cash equivalents
Derivative financial assets
88
22
–
–
88
22
(35)
(16)
53
6
Financial assets subject to master
netting arrangements
110
–
110
(51)
59
Interest-bearing loans and borrowings
Derivative financial liabilities
(1,409)
(187)
–
–
(1,409)
(187)
(133)
184
(1,542)
(3)
Financial liabilities subject to master
netting arrangements
(1,596)
–
(1,596)
51
(1,545)
31 December 2023
Gross amounts of
recognised financial
assets/(liabilities)
£m
Gross amounts of
recognised financial
assets/(liabilities) set off in
the Balance Sheet
£m
Net amounts of financial
assets/(liabilities)
presented in the Balance
Sheet
£m
Related amounts of
financial instruments
not set off in the
Balance Sheet
£m
Net amount
£m
Cash and cash equivalents
Derivative financial assets
58
59
–
–
58
59
(12)
(50)
46
9
Financial assets subject to master
netting arrangements
117
–
117
(62)
55
Interest-bearing loans and borrowings
Derivative financial liabilities
(630)
(106)
–
–
(630)
(106)
(40)
102
(670)
(4)
Financial liabilities subject to master
netting arrangements
(736)
–
(736)
62
(674)
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
218
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
25. Financial instruments and risk management continued
Capital risk
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern.
The capital structure of the Group as at 31 December 2024 consists of net debt, as disclosed in note 27, and equity attributable to the owners
of the parent, comprising issued share capital, reserves and retained earnings as disclosed in the Consolidated Statement of Changes in Equity.
Liquidity risk management
Overview of banking facilities
The Group’s facilities consist of multi-currency term loans and revolving credit facilities, as detailed in note 20.
In addition to the headroom on the multi-currency committed revolving credit facility, cash, deposits and marketable securities, net of overdrafts,
in the Group amounted to £80 million at 31 December 2024 (31 December 2023: £57 million) and are offset to arrive at the Group net debt
position of £1,321 million (31 December 2023: £572 million). The combination of this cash, the headroom on the revolving credit facility, and the
additional facilities taken out subsequent to 31 December 2024, allows the Directors to consider that the Group has sufficient access to liquidity
for its current needs. The Board takes careful consideration of counterparty risk with banks when deciding where to place cash on deposit.
Covenants
The committed bank funding has two financial covenants, being a net debt to adjusted EBITDA covenant and an interest cover covenant,
both of which are tested half-yearly in June and December. The net debt to adjusted EBITDA covenant test level is 3.5x and the interest cover
covenant is set at 4.0x.
At 31 December 2024, the Group net debt to adjusted EBITDA covenant was 2.1x and interest cover was 7.4x.
Working capital
The Group has a small number of uncommitted working capital programmes that provide favourable financing terms on eligible customer
receipts and competitive financing terms to suppliers on eligible supplier payments.
Businesses which participate in these customer related finance programmes have the ability to choose whether to receive payment earlier
than the normal due date, for specific customers on a non-recourse basis. As at 31 December 2024, the drawings on these facilities amounted
to £338 million (31 December 2023: £268 million). No new schemes were added during the year and the increase in the amount factored
represents year-over-year revenue growth and the reversion of terms to pre-COVID levels for one key customer.
In addition, some suppliers have access to utilise the Group’s supplier finance programmes to accelerate the payment of their invoices.
The programmes are provided by a small number of the Group’s banks, with any financing cost incurred for early payment borne by the supplier.
The Group continues to pay the invoice on its original due date and no security is provided under the terms of these programmes. The range of
payment due dates for those liabilities that are part of these arrangements is 90 to 180 days after the invoice date, with the range of payment due
dates for comparable trade payables that are not part of these arrangements being 0 to 180 days. If the Group exited these arrangements there
could be a potential impact of up to £43 million (31 December 2023: £42 million) on the Group’s cash flow. The amounts owed to the banks
are presented in trade payables on the Balance Sheet and the cash flows are presented in cash flows from operating activities. As at
31 December 2024, total facilities were £173 million (31 December 2023: £143 million) with drawings of £80 million (31 December 2023:
£86 million). The arrangements do not change the timing of the Group’s cash outflows.
Hedge of net investments in foreign entities using loans and derivatives
Interest-bearing loans and borrowings are designated as hedges of net investments in most of the Group’s subsidiaries in the US and Europe to
reduce the exposure to the related foreign exchange risks.
The value of these were as follows:
31 December
2024
£m
31 December
2023
£m
Local borrowing currency:
US dollar
Euro
1,131
261
467
106
219
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
25. Financial instruments and risk management continued
The foreign exchange movement on the local currency borrowings, which is recorded in currency translation on net investments within other
comprehensive income, was a loss of £14 million (2023: gain of £43 million). As at 31 December 2024, the cumulative loss in the foreign
currency translation reserve for continuing hedges on net investments using borrowings was £39 million (31 December 2023: £25 million).
Finance cost risk management
The bank margin on the bank facility depends on the Group leverage, see note 20 for details.
The Group uses interest rate derivatives to fix a proportion of the floating rate exposures of the Group’s borrowings.
The interest rate derivatives are designated as cash flow hedges and were highly effective throughout 2024. The fair value of the contracts as at
31 December 2024 was a net asset of £6 million (31 December 2023: £3 million). The movement of £3 million for the year ended 31 December 2024
(2023: £6 million) comprised a credit of £3 million (2023: £2 million) booked to derivatives gains on hedge relationships within other comprehensive
income, and a £nil (2023: £4 million) reduction in the interest accrual.
Interest rate sensitivity analysis
Assuming the net debt, inclusive of interest rate derivatives, held as at the balance sheet date was outstanding for the whole year, a one
percentage point rise in market interest rates for all currencies would decrease profit before tax by the following amounts:
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Sterling
US dollar
Euro
–
(3)
–
–
(1)
(1)
On the basis of the floating-to-fixed interest rate derivatives in place at the balance sheet date, a one percentage point fall in market interest rates
for all currencies would decrease Group equity by £26 million at 31 December 2024 (31 December 2023: £9 million).
Exchange rate risk management
The Group trades in various countries around the world and is exposed to movements in a number of foreign currencies.
The Group therefore carries exchange rate risk that can be categorised into two types: transaction and translation risk, as described in the
paragraphs below. The Group’s policy is designed to protect against the majority of the cash risks but not the non-cash risks.
The most common exchange rate risk is the transaction risk the Group takes when it invoices a customer or purchases from suppliers in a
different currency to the underlying functional currency of the relevant business. The Group’s policy is to review transactional foreign exchange
exposures, and place necessary hedging contracts, quarterly on a rolling basis. To the extent the cash flows associated with a transactional
foreign exchange risk are committed, the Group will hedge 100% at the time the cash flow becomes committed. For forecast and variable cash
flows, the Group hedges a proportion of the expected cash flows, with the percentage being hedged lowering as the time horizon lengthens.
The Group hedges on a sliding scale, typically hedging around 90% of foreign exchange exposures expected over the next twelve months,
with the percentage decreasing by approximately 10 percentage points for each subsequent year. This policy does not eliminate the cash risk
but does bring some certainty to it.
The translation rate risk is the effect on the Group results in the period due to the movement of exchange rates used to translate foreign
results into Sterling from one period to the next. No specific exchange instruments are used to protect against the translation risk because
it is a non-cash risk to the Group, until foreign currency is subsequently converted to Sterling. However, the Group utilises its multi-currency
banking facilities, where relevant, to maintain an appropriate mix of debt in each currency. The hedge of having debt drawn in these currencies
funding the trading units with US dollars or Euro functional currencies protects against some of the Balance Sheet and banking covenant
translation risk.
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
220
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
25. Financial instruments and risk management continued
As at 31 December 2024, the Group held foreign exchange forward contracts to mitigate expected exchange rate fluctuations on future cash
flows from sales to customers and purchases from suppliers. The fair value of all foreign exchange forward contracts across the Group was a net
liability at 31 December 2024 of £174 million (31 December 2023: £55 million). There were no foreign exchange contracts where hedge
accounting was applied as at 31 December 2024 (31 December 2023: no contracts where hedge accounting was applied).
The following table shows the maturity profile of undiscounted contracted gross cash outflows of derivative financial liabilities used to manage currency
risk, being foreign exchange forward contracts used to manage transaction exchange rate risk:
0–1 year
£m
1–2 years
£m
2–5 years
£m
5+ years
£m
Total
£m
Year ended 31 December 2024
Foreign exchange forward contracts
912
618
1,287
138
2,955
Year ended 31 December 2023
Foreign exchange forward contracts
549
370
464
58
1,441
Foreign currency sensitivity analysis
Currency risks are defined by IFRS 7: Financial instruments: Disclosures as the risk that the fair value or future cash flows of a financial asset
or liability will fluctuate because of changes in foreign exchange rates.
The following table details the transactional impact of hypothetical changes in foreign exchange rates on financial assets and liabilities at the
balance sheet date, illustrating the (decrease)/increase in Group operating profit caused by a 10% strengthening of the US dollar and Euro
against Sterling compared to the year-end spot rate. The analysis assumes that all other variables, in particular other foreign currency exchange
rates, remain constant. The Group operates in a range of different currencies, and those with a notable impact are shown below:
Impact on operating profit
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
US dollar
Euro
(20)
2
2
(5)
The following table details the impact of hypothetical changes in foreign exchange rates on financial assets and liabilities at the balance
sheet date, illustrating the increase/(decrease) in Group equity caused by a 10% strengthening of the US dollar and Euro against Sterling.
The analysis assumes that all other variables, in particular other foreign currency exchange rates, remain constant.
Impact on Group equity
31 December
2024
£m
31 December
2023
£m
US dollar
Euro
(5)
(2)
–
(1)
In addition, the change in equity due to a 10% strengthening of the US dollar against Sterling for the translation of net investment hedging
instruments would be a decrease of £113 million (2023: £47 million) and for the Euro, a decrease of £25 million (2023: £11 million). However,
there would be no overall effect on equity because there would be an offset in the currency translation of the foreign operation.
Fair value measurements recognised in the Balance Sheet
Foreign currency forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates
matching the maturities of the contracts.
Interest rate swap contracts are measured using yield curves derived from quoted interest and foreign exchange rates.
221
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
25. Financial instruments and risk management continued
Hedge accounted derivatives
The following table sets out details of the Group’s material hedging instruments where hedge accounting is applied at the balance sheet date:
Average fixed rate
Notional principal
Fair value of net assets
Hedging instruments
31 December
2024
%
31 December
2023
%
31 December
2024
£m
31 December
2023
£m
31 December
2024
£m
31 December
2023
£m
Pay fixed, receive floating interest rate derivatives
Within one year
In one to two years
In two to five years
3.51%
3.55%
3.51%
3.49%
3.49%
3.49%
1,062
820
438
414
414
414
–
2
4
–
–
3
Total
6
3
During the year, the Group entered into pay fixed, receive floating interest rate derivatives totalling US$625 million and €175 million, which were
outstanding as at 31 December 2024. Pay fixed, receive floating derivatives, which totalled US$440 million and €80 million, that were outstanding
at 31 December 2023 were still outstanding as at 31 December 2024.
Derivative and financial assets and liabilities are presented within the Balance Sheet as:
31 December
2024
£m
31 December
2023
£m
Non-current assets
Current assets
Current liabilities
Non-current liabilities
12
10
(72)
(115)
46
13
(42)
(64)
All hedging instruments are booked in the Balance Sheet as derivative financial assets or derivative financial liabilities.
The fair value of derivative financial instruments is derived from inputs other than quoted prices that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices) and they are therefore categorised within level 2 of the fair value hierarchy set out in
IFRS 13: Fair value measurement. The Group’s policy is to recognise transfers into and out of the different fair value hierarchy levels at the date
the event or change in circumstances that caused the transfer to occur. There have been no transfers between levels in the year.
The following table sets out details of the Group’s material hedged items at the balance sheet date where hedge accounting is applied:
Change in fair value for
calculating ineffectiveness
Balance in translation
and hedging reserve
for continuing hedges
Balance in translation
and hedging reserve
for discontinued hedges
31 December
2024
£m
31 December
2023
£m
31 December
2024
£m
31 December
2023
£m
31 December
2024
£m
31 December
2023
£m
Hedged items
Floating rate borrowings – interest risk
(3)
(2)
(5)
(2)
–
–
There is no balance held in the cash flow hedge reserve from hedging relationships for which hedge accounting is no longer applied.
26. Issued share capital and reserves
Share capital
31 December
2024
£m
31 December
2023
£m
Allotted, called-up and fully paid
1,351,475,321 (31 December 2023: 1,351,475,321) Ordinary Shares of 0.1 pence (31 December 2023: 160/7 pence) each
1
309
1
309
On 19 April 2023, a share consolidation took place whereby shareholders received one new share in the Company for every three existing
shares held.
On 2 October 2023, the Group commenced a £500 million share buyback programme which completed in September 2024. During the year
ended 31 December 2024, 70,967,661 shares (2023: 18,761,840 shares) were purchased. These are held as treasury shares and the total costs
of the purchase have been recognised in retained earnings.
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
222
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
26. Issued share capital and reserves continued
On 1 October 2024, the Group commenced a £250 million share buyback programme which is expected to complete by the end of March 2026.
During the year, 4,173,411 shares were purchased. These are held as treasury shares and the total costs of the purchase have been recognised
in retained earnings. A liability of £18 million has also been recognised in respect of the share buyback programme to reflect an element that was
irrevocable, during the Group’s close period, as at 31 December 2024.
On 3 June 2024, the Melrose Employee Share Plan (“MESP”) crystallised. Of the 54,346,536 shares awarded, 25,498,465 were withheld by
the Company in exchange for a cash payment sufficient to allow holders to meet their income tax and employee national insurance liabilities
in respect of the MESP. The 28,848,071 shares issued to participants were issued from treasury shares.
The total number of shares held in treasury at 31 December 2024 is 65,054,841 (31 December 2023: 18,761,840).
Following approval from shareholders on 2 May 2024, the Group undertook a capital reduction on 11 July 2024. This reduced share capital by
£308 million (by reducing the nominal value of a share from 160/7 pence to 0.1 pence), the share premium account by £2,271 million and the
capital redemption reserve by £753 million. Retained earnings increased by a corresponding £3,332 million.
The rights associated with each class of share are described in the Directors’ Report.
Merger reserve and Other reserves
The Merger reserve represents the excess of fair value over nominal value of shares issued in consideration for the acquisition of subsidiaries.
Other reserves comprise accumulated adjustments in respect of Group reconstructions.
Translation and hedging reserve
In order to provide useful information about the Group’s hedging arrangements, the translation reserve and hedging reserve are combined.
Including the different components of hedging in one place enables a clearer explanation of the two components of hedging. These components
are disaggregated with movements within other comprehensive income/(expense) during the year shown below and further explanation provided
in note 25.
Cash flow hedge
reserve
£m
Foreign currency
translation reserve
£m
Translation
and hedging
reserve
£m
At 1 January 2023
–
638
638
Movements within other comprehensive expense:
Retranslation of net assets
Associated deferred tax
Foreign exchange differences on borrowings hedging net assets
Associated deferred tax
Change in fair value of derivatives designated in cash flow hedges
Associated deferred tax
Amounts reclassified to the Income Statement
–
–
–
–
2
(1)
–
(250)
(7)
43
–
–
–
(152)
(250)
(7)
43
–
2
(1)
(152)
At 31 December 2023
1
272
273
Movements within other comprehensive income:
Retranslation of net assets
Associated deferred tax
Foreign exchange differences on borrowings hedging net assets
Associated deferred tax
Change in fair value of derivatives designated in cash flow hedges
Associated deferred tax
Amounts reclassified to the Income Statement
–
–
–
–
3
(1)
–
31
–
(14)
–
–
–
(6)
31
–
(14)
–
3
(1)
(6)
At 31 December 2024
3
283
286
The cash flow hedge reserve represents the cumulative fair value gains and losses on derivatives for which cash flow hedge accounting
has been applied. Movements and balances on derivatives designated in net investment hedges are shown as part of the foreign currency
translation reserve.
The foreign currency translation reserve contains exchange differences on the translation of subsidiaries with a functional currency other than
Sterling, together with gains and losses on the translation of liabilities and cumulative fair value gains and losses on derivatives that hedge the
Company’s net investment in foreign subsidiaries.
Amounts reclassified to the Income Statement during the year includes a credit of £6 million (2023: £152 million) following the disposal
of businesses.
223
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
27. Cash flow statement
Notes
Year ended
31 December
2024
£m
Restated(1)
Year ended
31 December
2023
£m
Reconciliation of operating (loss)/profit to net cash used in operating activities generated
by continuing operations
Operating (loss)/profit
Adjusting items
6
(4)
544
57
333
Adjusted operating profit
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of computer software and development costs
Restructuring costs paid and movements in provisions
Defined benefit pension contributions paid(2)
Change in inventories
Change in receivables(3)
Change in payables
Tax paid
Interest paid on loans and borrowings(4)
Interest paid on lease obligations
Acquisition and disposal costs
Divisional management incentive scheme related payments
Melrose equity-settled compensation scheme related payments
6
540
101
41
(135)
(20)
(71)
(449)
191
(10)
(84)
(6)
(1)
(20)
(198)
390
100
42
(160)
(67)
(10)
(123)
(13)
(17)
(79)
(5)
(65)
–
–
Net cash used in operating activities
(121)
(7)
(1) Inventories, trade and other receivables and trade and other payables have been restated (see note 1).
(2) The year ended 31 December 2023 included £45 million for the purchase of a buy-in policy for GKN Group Pension Scheme Number 4 (see note 24).
(3) Change in receivables includes increases to unbilled work done contract assets of £309 million (2023: £173 million).
(4) The year ended 31 December 2023 included £17 million of finance costs on the proportion of the Group’s net debt strategically allocated to demerged businesses
and settled on demerger (see note 6).
Reconciliation of cash and cash equivalents, net of bank overdrafts
31 December
2024
£m
31 December
2023
£m
Cash and cash equivalents per Balance Sheet
Bank overdrafts included within current interest-bearing loans and borrowings (note 20)
88
(8)
58
(1)
Cash and cash equivalents, net of bank overdrafts per Statement of Cash Flows
80
57
Cash flow information relating to discontinued operations is as follows:
Cash flow from discontinued operations
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Net cash from discontinued operations
Defined benefit pension contributions paid
Tax paid
Interest paid on lease obligations
Interest paid on loans and borrowings
–
–
–
–
–
54
(5)
(8)
(3)
(2)
Net cash from operating activities from discontinued operations
–
36
Purchase of property, plant and equipment
Purchase of computer software and capitalised development costs
–
–
(62)
(5)
Net cash used in investing activities from discontinued operations
–
(67)
Repayment of principal under lease obligations
–
(6)
Net cash used in financing activities from discontinued operations
–
(6)
Net debt reconciliation
Net debt consists of interest-bearing loans and borrowings and cash and cash equivalents.
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
224
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
27. Cash flow statement continued
Net debt is considered to be an alternative performance measure as it is not defined in IFRS. The most directly comparable IFRS measure is
the aggregate of interest-bearing loans and borrowings (current and non-current) and cash and cash equivalents. A reconciliation from the most
directly comparable IFRS measure to net debt, used as a basis for banking covenant calculations, is given below:
31 December
2024
£m
31 December
2023
£m
Interest-bearing loans and borrowings – due within one year
Interest-bearing loans and borrowings – due after one year
(8)
(1,401)
(54)
(576)
External debt
Less:
Cash and cash equivalents
(1,409)
88
(630)
58
Net debt
(1,321)
(572)
The table below shows the key components of the movement in net debt:
At
1 January
2024
£m
Cash flow
£m
Acquisitions
and disposals
£m
Other non-cash
movements
£m
Effect of foreign
exchange
£m
At
31 December
2024
£m
External debt (excluding bank overdrafts)
(629)
(757)
–
(1)
(14)
(1,401)
Cash and cash equivalents, net of bank overdrafts
57
(21)
51
–
(7)
80
Net debt
(572)
(778)
51
(1)
(21)
(1,321)
28. Commitments
Amounts payable under lease obligations:
Minimum lease payments
31 December
2024
£m
31 December
2023
£m
Amounts payable:
Within one year
After one year but within five years
Over five years
Less: future finance charges
39
120
146
(68)
45
102
75
(30)
Present value of lease obligations
237
192
Analysed as:
Amount due for settlement within one year
Amount due for settlement after one year
33
204
40
152
Present value of lease obligations
237
192
It is the Group’s policy to lease certain of its property, plant and equipment. The average lease term is 13 years. Interest rates are fixed at
the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
The Group’s obligations under lease arrangements are secured by the lessors’ rights over the leased assets.
Certain leases within the Group contain extension or termination options to allow for flexibility within these lease agreements. Where these
options are not reasonably certain to be exercised, they are not included in the lease obligation. The value of these associated undiscounted
cash flows is £43 million (31 December 2023: £179 million).
225
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
28. Commitments continued
The table below shows the key components in the movement in lease obligations.
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
At 1 January
Additions
Interest charge
Reassessment of lease obligation
Payment of principal
Payment of interest
Disposal of businesses(1)
Transfer to held for sale(2)
Exchange adjustments
192
70
6
8
(32)
(6)
–
–
(1)
366
31
8
2
(38)
(8)
(158)
(1)
(10)
At 31 December
237
192
(1) Disposal of businesses in 2024 relates to the sale of non-core businesses within the Structures segment. Disposal of businesses in 2023 related to the demerger
of the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses (see note 1).
(2) Transfer to held for sale in 2023 related to the contractually agreed sale of a non-core business in the Structures segment.
Capital commitments
At 31 December 2024, there were commitments of £74 million (31 December 2023: £115 million) relating to the acquisition of new property,
plant and equipment.
29. Related parties
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed
in this note. Sales to and purchases from Group companies are priced on an arm’s length basis and generally are settled on 30 day terms.
During the year ended 31 December 2023, £417 million of equity accounted investments were disposed with the demerger of the GKN
Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses into Dowlais, who became a related party upon demerger.
During the year ended 31 December 2023, the Group entered into a Transitional Services Agreement with Dowlais to provide services and
support to ensure continuity immediately following the demerger. As a result, income of £1 million was recognised in the Income Statement
for continuing operations during the year ended 31 December 2023.
Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories
specified in IAS 24: Related party disclosures. Further information about the remuneration of individual Directors is provided in the audited part of
the Directors’ Remuneration Report on pages 139 and 151.
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Short-term employee benefits
Share-based payments
Termination benefits
5
1
2
5
5
–
8
10
30. Contingent liabilities
As a result of acquisitions made by the Group, certain contingent legal and warranty liabilities were identified as part of the fair value review of
these acquisition balance sheets. Whilst it is difficult to reasonably estimate the timing and ultimate outcome of these claims, the Directors’ best
estimate has been included in the Balance Sheet where they existed at the time of acquisition and hence were recognised in accordance with
IFRS 3: Business combinations. Where a provision has been recognised, information regarding the different categories of such liabilities and the
amount and timing of outflows is included within note 21.
Given the nature of the Group’s business many of the Group’s products have a large installed base, and any reworks related to such
products could be particularly costly. The costs of product reworks are not always covered by insurance. Reworks may have a material adverse
effect on the Group’s financial condition, results of operations and cash flows.
The Group has contingent liabilities representing guarantees and contract bonds given in the ordinary course of business on behalf of
trading subsidiaries. No losses are anticipated to arise on these contingent liabilities. The Group does not have any other significant
contingent liabilities.
FINANCIAL STATEMENTS
Company Balance Sheet for Melrose Industries PLC
226
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Notes
31 December
2024
£m
31 December
2023
£m
Fixed assets
Investments
3
10,602
10,608
Debtors:
Amounts falling due after one year
Creditors:
Amounts falling due within one year
4
5
569
(5,840)
549
(4,893)
Net current liabilities
(5,271)
(4,344)
Total assets less current liabilities
5,331
6,264
Provisions
6
(4)
(22)
Net assets
5,327
6,242
Capital and reserves
Issued share capital
Share premium account
Merger reserve
Capital redemption reserve
Retained earnings
7
1
1,000
109
–
4,217
309
3,271
109
753
1,800
Shareholders’ funds
5,327
6,242
The Company reported a loss for the financial year ended 31 December 2024 of £246 million (2023: profit of £737 million).
The financial statements were approved by the Board of Directors on 6 March 2025 and were signed on its behalf by:
Matthew Gregory
Peter Dilnot
Chief Financial Officer
Chief Executive Officer
6 March 2025
6 March 2025
Registered number: 09800044
Company Statement of Changes in Equity
227
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
Issued
share capital
£m
Share premium
account
£m
Merger
reserve
£m
Capital redemption
reserve
£m
Retained
earnings
£m
Shareholders’
funds
£m
At 1 January 2023
309
3,271
109
753
3,191
7,633
Profit for the year (note 2)
Other comprehensive expense
–
–
–
–
–
–
–
–
737
(5)
737
(5)
Total comprehensive income
Purchase of own shares(1)
Dividends paid
Demerger distribution
Equity-settled share-based payments
Deferred tax on equity-settled share-based payments
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
732
(93)
(81)
(1,973)
2
22
732
(93)
(81)
(1,973)
2
22
At 31 December 2023
309
3,271
109
753
1,800
6,242
Loss for the year (note 2)
Other comprehensive expense
–
–
–
–
–
–
–
–
(246)
(6)
(246)
(6)
Total comprehensive expense
Capital reduction(1)
Purchase of own shares(1)
Dividends paid
Equity-settled incentive scheme related(1)
Equity-settled share-based payments
Deferred tax on equity-settled share-based payments
–
(308)
–
–
–
–
–
–
(2,271)
–
–
–
–
–
–
–
–
–
–
–
–
–
(753)
–
–
–
–
–
(252)
3,332
(449)
(72)
(157)
1
14
(252)
–
(449)
(72)
(157)
1
14
At 31 December 2024
1
1,000
109
–
4,217
5,327
(1) Further information is set out in note 1.
Refer to the Section 172 statement in the Strategic Report on pages 45 to 50 for further details on the Company’s Distribution Policy.
FINANCIAL STATEMENTS
Notes to the Company Balance Sheet
228
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
1. Material accounting policies
Basis of accounting
Melrose Industries PLC (“the Company”) is a public company limited by shares. The Company is incorporated in the United Kingdom under
the Companies Act 2006 and registered in England and Wales. The address of the registered office is given on the back cover. The nature of
the Group’s operations and its principal activities are set out in the Strategic Report on pages 1 to 101.
The Financial Statements have been prepared under the historical cost convention and in accordance with Financial Reporting Standard 102
(FRS 102) issued by the Financial Reporting Council. The functional currency of Melrose Industries PLC is considered to be pounds Sterling
because that is the currency of the primary economic environment in which the Company operates.
On 2 October 2023, the Company commenced a £500 million share buyback programme which completed in September 2024. During the year
ended 31 December 2024, 70,967,661 shares (2023: 18,761,840 shares) were purchased at an average price of 571 pence (2023: 494 pence)
per share with cash spent of £411 million (2023: £93 million), inclusive of costs of £5 million (2023: £1 million). These are held as treasury shares
and the total costs of the purchase have been recognised in retained earnings.
On 1 October 2024, the Company commenced a £250 million share buyback programme which is expected to complete by the end of
March 2026. During the year ended 31 December 2024, 4,173,411 shares were purchased at an average price of 484 pence per share for
total consideration of £20 million, inclusive of costs of £nil. These are held as treasury shares and the total costs of the purchase have been
recognised in retained earnings. A liability of £18 million has also been recognised in respect of the shares expected to be purchased under
the share buyback programme during the close period, as there was an irrevocable instruction to contracted financial institutions to complete
purchases at 31 December 2024.
On 3 June 2024, the Melrose Employee Share Plan (“MESP”) crystallised. Of the 54,346,536 shares awarded, 25,498,465 were withheld by
the Company in exchange for a cash payment sufficient to allow holders to meet their income tax and employee national insurance liabilities
in respect of the MESP. In accordance with IFRS 2: Share-based Payment, £157 million has been recognised in retained earnings.
Following approval from shareholders on 2 May 2024, the Company undertook a capital reduction on 11 July 2024. This reduced share capital
by £308 million, the share premium account by £2,271 million and the capital redemption reserve by £753 million.
Melrose Industries PLC meets the definition of a qualifying entity under FRS 102 and has therefore taken advantage of the disclosure exemptions
available to it in respect of its separate Financial Statements. Melrose Industries PLC is consolidated in its Group Financial Statements.
Exemptions have been taken in these separate Company Financial Statements in relation to share-based payments, presentation of a cash flow
statement, the remuneration of key management personnel and financial instruments.
The principal accounting policies are consistent with the prior year and are summarised below.
Going concern
The Financial Statements have been prepared on a going concern basis as the Directors consider that adequate resources exist for the
Company to continue in operational existence for the foreseeable future, being 12 months from the date of this report (the relevant period).
The Company is a guarantor of the Group’s committed multi-currency term loans and revolving credit facilities and at 31 December 2024 these
totalled; US$1,639 million, €400 million and £300 million. The Group’s liquidity and funding arrangements are described in the Chief Financial
Officer’s Review. There is significant liquidity headroom of £0.5 billion at 31 December 2024 and sufficient headroom throughout the going
concern forecast period. Forecast covenant compliance is considered further below.
Covenants
The Group’s banking facility has two financial covenants being a net debt to adjusted EBITDA covenant and an interest cover covenant, both of which
are tested half-yearly in June and December. Covenant calculations are detailed in the glossary to these Consolidated Financial Statements.
The financial covenants during the period of assessment for going concern are as follows:
31 December
2024
30 June
2025
31 December
2025
Net debt to adjusted EBITDA (banking covenant leverage)
3.5x
3.5x
3.5x
Interest cover
4.0x
4.0x
4.0x
229
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
1. Material accounting policies continued
Testing
The Group has modelled two scenarios in its assessment of going concern. A base case and a severe but plausible downside case.
The base case takes into account end markets and operational factors, including supply chain challenges, throughout the going concern period
and has been monitored against the actual results and cash generation in the period since 1 January 2025. Climate scenario analysis was used
to model the impact of climate change on the Group’s cash flow position. Climate change is deemed to not have a material impact over the
period of 12 months for the assessment of going concern or 36 months for the assessment of viability of the Group.
The severe but plausible downside case models more conservative revenue assumptions for 2025 and the first half of 2026. The sensitised assumptions
are specific to each business taking into account their markets, but on average represent a c.10% reduction to the Group’s forecast revenue in 2025, and
a c.5% reduction in the first half of 2026. The sensitised revenues have had a consequential impact on profit and cash flow, along with a further downside
sensitivity applied to increase working capital by approximately 2% of revenue. Given that there is liquidity headroom of £0.5 billion and the Group’s
banking covenant leverage was 2.1x, comfortably below the covenant test at 31 December 2024, no further sensitivity detail is provided.
Under the severe but plausible downside case, even with significant reductions, no covenant is breached at the forecast testing dates being
30 June 2025 and 31 December 2025. Testing at 30 June 2026 is also favourable, assuming arrangements similar in nature to existing agreements.
Investments
Investments in subsidiaries are measured at cost less impairment.
For investments in subsidiaries acquired for consideration, including the issue of shares qualifying for merger relief, cost is measured by reference
to the nominal value of the shares issued plus fair value of other consideration. Any premium is ignored.
The Company has an investment in listed shares, which are classified as financial assets, measured at fair value. Fair value is by reference
to quoted market price. Any changes to fair value are recognised in other comprehensive income and accumulated in retained earnings in
accordance with IFRS 9: Financial Instruments. Dividends received from investments are recognised in the Income Statement when the
Company’s right to receive the dividend is established.
Impairment of assets
Assets, other than those held at fair value, are assessed for indicators of impairment at each balance sheet date. If there is objective evidence
of impairment, an impairment loss is recognised in profit or loss as described below.
Non-financial assets
An asset is impaired where there is objective evidence that, as a result of one or more events that occurred after initial recognition, the estimated
recoverable value of the asset has been reduced. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value
in use.
Where indicators exist for a decrease in impairment loss, the prior impairment loss is tested to determine reversal. An impairment loss is reversed
on an individual impaired asset to the extent that the revised recoverable value does not lead to a revised carrying amount higher than the
carrying value had no impairment been recognised.
For amounts owed by Group undertakings, the Company recognises lifetime expected credit losses when there has been a significant increase
in credit risk since initial recognition. However, if the credit risk on the financial instrument has not increased significantly since initial recognition,
the Company measures the loss allowance for that financial instrument at an amount equal to one year’s expected credit losses.
Financial instruments
Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument.
Financial liabilities are classified according to the substance of the contractual arrangements entered into.
Financial assets and liabilities
All financial assets and liabilities are initially measured at fair value, which is the transaction price (including transaction costs). After initial
recognition, amounts owed to/from Group undertakings are subsequently measured at amortised cost using the effective interest rate method.
Financial assets and liabilities are only offset in the Balance Sheet when, and only when, there exists a legally enforceable right to set off the
recognised amounts and the Company intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Financial assets are derecognised when, and only when, a) the contractual rights to the cash flows from the financial asset expire or are settled,
b) the Company transfers to another party substantially all of the risks and rewards of ownership of the financial asset, or c) the Company,
despite having retained some, but not all, significant risks and rewards of ownership, has transferred control of the asset to another party.
Financial liabilities are derecognised only when the obligation specified in the contract is discharged, cancelled or expires.
FINANCIAL STATEMENTS
Notes to the Company Balance Sheet continued
230
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
1. Material accounting policies continued
Share-based payments
The Company issues equity-settled share-based payments to certain employees. The required disclosures are included in the Group
Consolidated Financial Statements.
Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled
share-based payments is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of the shares that will
eventually vest and is reviewed at the end of each reporting period with the charge being adjusted to reflect actual and estimated levels of vesting.
Fair value is measured by use of option pricing models. The expected life used in the models is adjusted, based on the Directors’ best estimate,
for the effects of non-transferability, exercise restrictions, and behavioural considerations.
Where equity-settled share-based payments are made available to employees of the Company’s subsidiaries, these are treated as increases
in equity over the vesting period of the award with a corresponding increase in the Company’s investment in subsidiaries.
Taxation
Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws
that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions
or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred. Timing differences are
differences between the Company’s taxable profits and its results as stated in the Financial Statements that arise from the inclusion of gains and
losses in tax assessments in periods different from those in which they are recognised in the Financial Statements.
Provisions
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an
outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount
of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows
at a rate that reflects the current market assessment of the time value of money and, where appropriate, the risks specific to the liability.
Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
Critical accounting judgements and key sources of estimation uncertainty
There were no critical accounting judgements that would have a significant effect on the amounts recognised in the Parent Company Financial
Statements or key sources of estimation uncertainty at the balance sheet date that would have a significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities within the next financial year.
2. Result for the year
As permitted by section 408 of the Companies Act 2006, the Company has elected not to present its own Profit and Loss Account for the year.
Melrose Industries PLC reported a loss for the financial year ended 31 December 2024 of £246 million (2023: profit of £737 million).
The auditor’s remuneration for audit services to the Company is disclosed in note 7 to the Group Consolidated Financial Statements.
Directors’ remuneration is disclosed in the Directors’ Remuneration Report on pages 136 to 155. There were no other employees of the
Company in the year (2023: none).
231
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
3. Investments
External
investments
£m
Investments in
subsidiaries
£m
Total
£m
At 1 January 2024
Revaluations
15
(6)
10,593
–
10,608
(6)
At 31 December 2024
9
10,593
10,602
External investments represent a 1% investment in Dowlais Group plc which was retained following demerger on 20 April 2023. This investment
was remeasured to fair value at 31 December 2024 of £9 million.
The Company evaluates its investments in subsidiary undertakings annually for any indicators of impairment. The Company considers the
relationship between its market capitalisation and the carrying value of its investments, among other factors, when reviewing for indicators
of impairment. As at 31 December 2024, the market capitalisation of the Company of £7,124 million was in excess of the carrying value of
its investments (£10,602 million) net of intercompany positions (£5,314 million).
The recoverable amount of the investments in subsidiaries has been determined using the information set out in note 11 to the Group
Consolidated Financial Statements and is in excess of its carrying value, therefore no impairment has been recognised.
The following subsidiaries and significant holdings were owned by the Company as at 31 December 2024:
Equity interest %
Class of share held
Canada
600-1134 Grande Allée Ouest, Quebec, G1S 1E5
Fokker Elmo Canada Inc.
100
Ordinary
China
No 71 Xiangyun Road, Langfang Economic & Technical Development Zone, Langfang
Fokker Elmo (Langfang) Electrical Systems Co. Ltd
100
Registered investment
1 Xinwang Road, Jingjiang Economic and Technic Development Zone, Jingjiang, Jiangsu
GKN Aerospace (Jingjiang) Co., Ltd
100
Registered investment
Unit 03, Floor 7, Block B, No.899 Yaohua Road, Pudong New District, Shanghai
GKN Aerospace (Shanghai) Co., Ltd
100
Ordinary
No. 3, Wanfugang Road, Jingjiang Economic and Technological Development Zone, Jingjiang City, Jiangsu Province
Kaifei Aerospace Manufacturing Co., Ltd
40
Ordinary
France
Boulevard De L Europe, BP 177 91006 Evry-Courcouronnes CEDEX
Arianespace Participation S.A.
1.6320
Ordinary
765 rue Albert Einstein, CS 70402, 13591 Aix-en-Provence Cedex 3
NH Industries SAS
5.5
Ordinary
20 rue Lavoisier, 95300 Pontoise
GKN Aerospace France SARL
100
Ordinary
Germany
Brunhamstr. 21, 81249, Munich
GKN Aerospace Deutschland GmbH
100
Ordinary
India
Block 2A No. 311, NPR Complex. Survey No 197, Hoody Village, K R Puram Hobli, Whitefield Road,
Bangalore – 560048, Karnataka
Fokker Elmo SASMOS Interconnection Systems Limited
49
Ordinary
Shop No. 002, Lumkad Sky Vista, S. No. 230/AViman Naga/3/2, Viman Nagar, Pune,
Maharashtra, 411014
GKN Fokker Elmo India Private Limited
100
Ordinary
135, 2nd Floor, RMZ Titanium, Old Airport Road, Bengaluru, 560 017
GKN Aerospace Engine Systems India Private Limited
100
Ordinary
Jersey
JTC House, 28 The Esplanade, St. Helier, JE2 3QA
GKN Finance Limited
100
Ordinary
FINANCIAL STATEMENTS
Notes to the Company Balance Sheet continued
232
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
3. Investments continued
Equity interest %
Class of share held
Malaysia
10th Floor, Menara Hap Seng, No.1 & 3, Jalan P. Ramless, 50250 Kuala Lumpur
GKN Engine Systems Component Repair Sdn Bhd
100
Ordinary
Mexico
Ave. Washington 3701 Ed. 18, Parque Industrial Las Americas, Chihuahua, 31200
FAE Aerostructures SA de CV
100
Ordinary
The Netherlands
Singel 126-130, 1015 AE, Amsterdam
Ridderkerk Property 1 BV
100
Ordinary
Markt 22, 3351 PB, Papendrecht
Fabriek Slobbengors Beheer B.V.
Fabriek Slobbengors C.V.
Hoofdkantoor Slobbengors Beheer B.V.
Kantoor Industrieweg C.V.
49
49
49
49
Ordinary
Ordinary(1)
Ordinary
Ordinary(1)
Anthony Fokkerweg 4, 3351 NL, Papendrecht
Fokker Elmo B.V.
Fokker Elmo Holding B.V.
Cooperative Delivery of Retrokits (CDR) V.O.F.
Fokker Technologies Group B.V.
GKN Aerospace Netherlands B.V.
GKN Fokker Aerospace B.V.
Fokker (CDR) B.V.
100
100
50
100
100
100
100
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Grasbeemd 28, 5705 DG, Helmond
SFT Helmond B.V.
100
Ordinary
Norway
Kirkegårdsveien 45, 3616 Kongsberg
GKN Aerospace Norway AS
Kongsberg Technology Training Centre AS
Kongsberg Terotech AS
100
33.33
50
Ordinary
Ordinary
Ordinary
Romania
Str. Condorilor 9, 600302, Bacau
FOAR S.R.L.
49
Ordinary
5-7 Dimitrie Pompeiu Blvd, Hermes Business Campus, Building 2, 3rd Floor, 2nd District, Bucharest, 020337
Fokker Engineering Romania S.R.L.
100
Ordinary
Sweden
SE – 461 81, Trollhättan
GKN Aerospace Sweden AB
GKN Sweden Holdings AB
100
100
Ordinary
Ordinary
Kryptongatan 11, 431 53 Mölndal
Permanova Lasersystem AB
100
Ordinary
Thailand
9/21 Moo 5, Phaholyothin Road Klong 1, Klong Luang, Patumthanee, 12120
GKN Aerospace Transparency Systems (Thailand) Limited
100
Ordinary
Turkey
Ege Serbest Bölgesi, SADI Sok. No:10, 35410 Gaziemir, Izmir
Fokker Elmo Havacilik Sanayi Ve Ticaret Limited Sirketi
100
Ordinary
233
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
3. Investments continued
Equity interest %
Class of share held
United Kingdom
11th Floor, The Colmore Building, 20 Colmore Circus Queensway, Birmingham, B4 6AT
Alcester Capricorn
Alcester EP1 Limited
Alcester Number 1 Limited
Alder Miles Druce Limited
Birfield Limited
British Hovercraft Corporation Limited
Brush Holdings Limited
Colmore Lifting Limited
Colmore Overseas Holdings Limited
Eachairn Aerospace Holdings Limited
Falcon Works Property Limited
Firth Cleveland Limited
GKN Aerospace Civil Services Holdings Limited
GKN Aerospace Civil Services Limited
GKN Aerospace (FFT) Limited
GKN Aerospace Services Limited
GKN Aerospace Holdings Limited
GKN Aerospace Transparency Systems (Kings Norton) Limited
GKN Aerospace Transparency Systems (Luton) Limited
GKN Bound Brook Limited
GKN Building Services Europe Limited
GKN CEDU Limited
GKN Composites Limited
GKN Computer Services Limited
GKN Defence Holdings Limited
GKN Defence Limited
GKN Enterprise Limited
GKN Export Services Limited
GKN Fasteners Limited
GKN Finance (UK) Limited
GKN Hardy Spicer Limited
GKN Holdings Limited
GKN Limited
GKN Pistons Limited
GKN Quest Trustee Limited
GKN Sankey Finance Limited
GKN SEK Investments Limited
GKN Technology Limited
GKN Trading Limited
GKN Westland Aerospace (Avonmouth) Limited
GKN Westland Aerospace Advanced Materials Limited
GKN Westland Aerospace Aviation Support Limited
GKN Westland Aerospace Holdings Limited
GKN Westland Design Services Limited
GKN Westland Limited
GKN Westland Overseas Holdings Limited
GKN Westland Services Limited
GKN 1 Trustee 2018 Limited
GKN 4 Trustee 2018 Limited
Guest, Keen and Nettlefolds, Limited
Laycock Engineering Limited
McKechnie 2005 Pension Scheme Trustee Limited
Melrose Aerospace Limited
Melrose Euro Investments Limited
Melrose GBP Investments Limited
Melrose Intermediate Limited
Melrose NOK Investments Limited
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary and deferred
Ordinary
Ordinary
Ordinary
Ordinary and deferred(2)
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary and
convertible preference
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
FINANCIAL STATEMENTS
Notes to the Company Balance Sheet continued
234
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
3. Investments continued
Equity interest %
Class of share held
United Kingdom continued
11th Floor, The Colmore Building, 20 Colmore Circus Queensway, Birmingham, B4 6AT continued
Melrose PLC
Melrose USD 1 Limited
Nevada UK Holding Limited
P.F.D. Limited
Raingear Limited
Rigby Metal Components Limited
Rzeppa Limited
Sageford UK Limited
Sheepbridge Stokes Limited
Westland Group PLC
Westland Group Services Limited
Westland System Assessment Limited
100
100
100
100
100
100
100
100
100
100
100
100
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary and
redeemable preference
Ordinary
Ordinary
Ordinary
Capital Square, 58 Morrison Street, Edinburgh, Scotland, EH3 8BP
A. P. Newall & Company Limited
GKN Investments II GP Limited
GKN Investments II LP (this partnership is controlled by, and its results are consolidated by, the Group and as such
advantage has been taken of the exemption set out in regulation 7 of the Partnerships (Accounts) Regulations 2008)
100
100
100
Ordinary
Ordinary
Membership interest
2nd Floor, Nova North, 11 Bressenden Place, London, SW1E 5BY
Dowlais Group plc
1
Ordinary
Number 22 Mount Ephraim, Tunbridge Wells, England, TN4 8AS
HiiROC Limited
10.21
Ordinary
USA
2 Sun Court, Suite 400, Peachtree Corners, Georgia, 30092
Fokker Elmo Inc.
100
Common stock
1209 Orange Street, Wilmington, Delaware, 19801
Melrose North America, Inc
PW1100G-JM Engine Leasing, LLC
100
2.76
Common
Class C unit
2710 Gateway Oaks Drive, Suite 150 N, Sacramento, California, 95833
GENIL, Inc.
GKN Aerospace Camarillo, Inc.
GKN Aerospace Chem-tronics Inc.
GKN Aerospace Transparency Systems, Inc
100
100
100
100
Ordinary
Ordinary
Ordinary
Common stock
251 Little Falls Drive, Wilmington, Delaware, 19808
GKN Aerospace Aerostructures, Inc
GKN Aerospace GTC LLC
GKN Aerospace Florida LLC
GKN Aerospace, Inc.
GKN Aerospace New England, Inc.
GKN Aerospace Newington LLC
GKN Aerospace St. Louis LLC
GKN Aerospace Precision Machining, Inc.
GKN Aerospace Services Structures LLC
GKN Aerospace South Carolina, Inc.
GKN Aerospace US Holdings LLC
GKN Westland Aerospace, Inc.
100
100
100
100
100
100
100
100
100
100
100
100
Common
Membership interest
Membership interest
Common stock
Ordinary
Membership interest
Membership interest
Ordinary
Membership interest
Common stock
Membership interest
Common stock
80 State Street, Albany, New York, 12207
GKN Aerospace Monitor, Inc.
100
Common
135 North Pennsylvania Street, Suite 1610, Indianapolis, Indiana, 46204
GKN Aerospace Muncie, Inc.
100
Common
Each of the subsidiaries and significant holdings listed are included in the Consolidated Financial Statements of the Company and are held in
each case by a subsidiary undertaking, except for Melrose Aerospace Limited, GKN Limited and Dowlais Group plc, for which the applicable
share interests are held directly by Melrose Industries PLC.
Notes
(1) The Group owns 49% directly with a total effective ownership of 49.98% in the company.
(2) The Group has a direct interest in 100% of the issued ordinary share capital. The deferred shares are held by third parties.
235
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
4. Debtors
31 December
2024
£m
31 December
2023
£m
Amounts falling due after one year:
Amounts owed by Group undertakings
Deferred tax
505
64
475
74
569
549
Amounts owed by Group undertakings are either interest-bearing or non interest-bearing depending on the type and duration of the receivable
relationship. They are unsecured, accumulate interest in a range between 0% and 6% and are due to mature in April 2028. At 31 December 2024,
the amount receivable of £505 million (31 December 2023: £475 million) has been classified as an amount falling due after one year in accordance
with the expectations of management that it will not be settled within the next year.
The Directors consider that amounts owed by Group undertakings approximate to their fair value.
The deferred tax included in the Balance Sheet is as follows:
31 December
2024
£m
31 December
2023
£m
Tax losses available for carry forward
Other timing differences
57
7
36
38
64
74
The tax losses may be carried forward indefinitely. Further details in relation to the recoverability of the deferred tax assets are disclosed in note
22 of the Group Consolidated Financial Statements.
5. Creditors
31 December
2024
£m
31 December
2023
£m
Amounts falling due within one year:
Amounts owed to Group undertakings
Accruals and other creditors
5,819
21
4,890
3
5,840
4,893
Amounts owed to Group undertakings are unsecured, accumulate interest in a range between 0% and 6%, have no fixed date of repayment and
are repayable on demand.
The Directors consider that amounts owed to Group undertakings approximate to their fair value.
6. Provisions
Incentive plan
related
£m
At 1 January 2024
Charge to profit and loss account
Utilised
22
3
(21)
At 31 December 2024
4
The incentive plan related costs are expected to be utilised within one to two years.
FINANCIAL STATEMENTS
Notes to the Company Balance Sheet continued
236
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
7. Issued share capital
Share capital
31 December
2024
£m
31 December
2023
£m
Allotted, called-up and fully paid
1,351,475,321 (31 December 2023: 1,351,475,321) Ordinary Shares of 0.1 pence (31 December 2023: 160/7 pence) each
1
309
1
309
On 19 April 2023, a share consolidation took place whereby shareholders received one new share in the Company for every three existing
shares held.
On 2 October 2023, the Company commenced a £500 million share buyback programme which completed in September 2024. During the year
ended 31 December 2024, 70,967,661 shares (2023: 18,761,840 shares) were purchased. These are held as treasury shares and the total costs
of the purchase have been recognised in retained earnings.
On 1 October 2024, the Company commenced a £250 million share buyback programme which is expected to complete by the end of
March 2026. During the year, 4,173,411 shares were purchased. These are held as treasury shares and the total costs of the purchase have
been recognised in retained earnings. A liability of £18 million has also been recognised in respect of the share buyback programme to reflect
an element that was irrevocable, during the Group’s close period, as at 31 December 2024.
On 3 June 2024, the Melrose Employee Share Plan (“MESP”) crystallised. Of the 54,346,536 shares awarded, 25,498,465 were withheld by
the Company in exchange for a cash payment sufficient to allow holders to meet their income tax and employee national insurance liabilities
in respect of the MESP. The 28,848,071 shares issued to participants were issued from treasury shares.
The total number of shares held in treasury at 31 December 2024 is 65,054,841 (31 December 2023: 18,761,840).
Following approval from shareholders on 2 May 2024, the Company undertook a capital reduction on 11 July 2024. This reduced share capital
by £308 million (by reducing the nominal value of a share from 160/7 pence to 0.1 pence), the share premium account by £2,271 million and
the capital redemption reserve by £753 million. Retained earnings increased by a corresponding £3,332 million.
The rights associated with each class of share are described in the Directors’ Report.
8. Related party transactions
The Company has taken the exemption in FRS 102.33: Related party information not to disclose intercompany balances and transactions in the
year with fully owned subsidiary undertakings.
GLOSSARY
237
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
Alternative Performance Measures (“APMs”)
In accordance with the Guidelines on APMs issued by the European Securities and Markets Authority (“ESMA”), additional information is provided
on the APMs used by the Group below.
In the reporting of financial information, the Group uses certain measures that are not required under IFRS. These additional measures
(commonly referred to as APMs) provide additional information on the performance of the business and trends to stakeholders. These measures
are consistent with those used internally, and are considered important to understanding the financial performance and financial health of the
Group. APMs are considered to be an important measure to monitor how the businesses are performing because this provides a meaningful
comparison of how the business is managed and measured on a day-to-day basis and achieves consistency and comparability between
reporting periods.
These APMs may not be directly comparable with similarly titled measures reported by other companies and they are not intended to be a
substitute for, or superior to, IFRS measures. All Income Statement and cash flow measures are provided for continuing operations unless
otherwise stated.
Income Statement measures
APM
Adjusting items
Closest equivalent statutory measure
None
Reconciling items to statutory measure
Adjusting items (note 6)
Definition and purpose
Those items which the Group excludes from its adjusted profit metrics in order to present a further measure of the Group’s performance.
These include items which are significant in size or volatility, or by nature are non-trading or non-recurring or the net change in fair value items booked on an acquisition.
This provides a meaningful comparison of how the business is managed and measured on a day-to-day basis and provides consistency and comparability between
reporting periods.
APM
Adjusted operating profit
Closest equivalent statutory measure
Operating (loss)/profit(1)
Reconciling items to statutory measure
Adjusting items (note 6)
Definition and purpose
The Group uses adjusted profit measures to provide a useful and more comparable measure of the ongoing performance of the Group. Adjusted measures are
reconciled to statutory measures by removing adjusting items, the nature of which are disclosed above and further detailed in note 6.
Adjusted operating profit
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Operating (loss)/profit
Adjusting items to operating (loss)/profit (note 6)
(4)
544
57
333
Adjusted operating profit
540
390
APM
Adjusted operating margin
Closest equivalent statutory measure
Operating margin(2)
Reconciling items to statutory measure
Adjusting items (note 6)
Definition and purpose
Adjusted operating margin represents Adjusted operating profit as a percentage of revenue. The Group uses adjusted profit measures to provide a useful and more
comparable measure of the ongoing performance of the Group.
Continued
GLOSSARY
238
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
APM
Adjusted profit before tax
Closest equivalent statutory measure
Loss before tax
Reconciling items to statutory measure
Adjusting items (note 6)
Definition and purpose
Loss before the impact of adjusting items and tax. As discussed above, adjusted profit measures are used to provide a useful and more comparable measure of the
ongoing performance of the Group. Adjusted measures are reconciled to statutory measures by removing adjusting items, the nature of which are disclosed above
and further detailed in note 6.
Adjusted profit before tax
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Loss before tax
Adjusting items to loss before tax (note 6)
(106)
544
(8)
339
Adjusted profit before tax
438
331
APM
Adjusted profit after tax
Closest equivalent statutory measure
(Loss)/profit after tax
Reconciling items to statutory measure
Adjusting items (note 6)
Definition and purpose
(Loss)/profit after tax but before the impact of adjusting items. As discussed above, adjusted profit measures are used to provide a useful and more comparable
measure of the ongoing performance of the Group. Adjusted measures are reconciled to statutory measures by removing adjusting items, the nature of which are
disclosed above and further detailed in note 6.
Adjusted profit after tax
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
(Loss)/profit after tax
Adjusting items to (loss)/profit after tax (note 6)
(49)
399
1
262
Adjusted profit after tax
350
263
APM
Constant currency
Closest equivalent statutory measure
Income Statement, which is reported using actual average foreign exchange rates
Reconciling items to statutory measure
Constant currency foreign exchange rates
Definition and purpose
The Group uses GBP based constant currency models to measure performance. These are calculated by applying 2024 average exchange rates to local currency
reported results for the current and prior year. This gives a GBP denominated Income Statement which excludes any variances attributable to foreign exchange
rate movements.
239
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
APM
Adjusted EBITDA and Adjusted EBITDA for banking covenant leverage purposes
Closest equivalent statutory measure
Operating (loss)/profit(1)
Reconciling items to statutory measure
Adjusting items (note 6), depreciation of property, plant and equipment and amortisation of computer software and development costs. Adjusted EBITDA for banking
covenant leverage purposes also includes an imputed lease charge and other adjustments required for banking covenant leverage purposes(3)
Definition and purpose
Adjusted operating profit for 12 months prior to the reporting date, before depreciation of property, plant and equipment and before the amortisation of computer
software and development costs.
Adjusted EBITDA and Adjusted EBITDA for banking covenant leverage purposes are measures used by external stakeholders to measure performance.
Adjusted EBITDA and Adjusted EBITDA for banking covenant leverage purposes
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Adjusted operating profit
Depreciation of property, plant and equipment and amortisation of computer software and development costs
540
142
390
142
Adjusted EBITDA
682
532
Imputed lease charge
Other adjustments required for banking covenant leverage purposes(3)
(38)
(15)
(37)
20
Adjusted EBITDA for banking covenant leverage purposes
629
515
APM
Adjusted tax rate
Closest equivalent statutory measure
Effective tax rate
Reconciling items to statutory measure
Adjusting items, adjusting tax items and the tax impact of adjusting items (note 6 and note 8)
Definition and purpose
The income tax charge for the Group excluding adjusting tax items, and the tax impact of adjusting items, divided by adjusted profit before tax.
This measure is a useful indicator of the ongoing tax rate for the Group.
Adjusted tax rate
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Tax credit per Income Statement
Adjusted for:
Tax impact of adjusting items
Tax impact of significant restructuring
57
(128)
(17)
9
(77)
–
Adjusted tax charge
(88)
(68)
Adjusted profit before tax
438
331
Adjusted tax rate
20.1%
20.5%
APM
Adjusted basic earnings per share
Closest equivalent statutory measure
Basic earnings per share
Reconciling items to statutory measure
Adjusting items (note 6 and note 10)
Definition and purpose
Profit after tax attributable to owners of the parent and before the impact of adjusting items, divided by the weighted average number of ordinary shares in issue
during the financial year.
The Board considers this to be a key measure of performance when all businesses are held for the complete reporting period.
Continued
GLOSSARY
240 MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
APM
Adjusted diluted earnings per share
Closest equivalent statutory measure
Diluted earnings per share
Reconciling items to statutory measure
Adjusting items (note 6 and note 10)
Definition and purpose
Profit after tax attributable to owners of the parent and before the impact of adjusting items, divided by the weighted average number of ordinary shares in issue
during the financial year adjusted for the effects of any potentially dilutive options.
The Board considers this to be a key measure of performance when all businesses are held for the complete reporting period.
APM
Interest cover
Closest equivalent statutory measure
None
Reconciling items to statutory measure
Not applicable
Definition and purpose
Adjusted EBITDA calculated for banking covenant leverage purposes (including adjusted EBITDA from businesses disposed) as a multiple of net interest payable on
bank loans and overdrafts.
This measure is used for bank covenant testing.
Interest cover
Year ended
31 December
2024
£m
Adjusted EBITDA for banking covenant leverage purposes
Adjusted EBITDA from businesses disposed in the year
629
20
Adjusted EBITDA for interest cover
649
Interest on bank loans and overdrafts
Finance income
91
(3)
Net finance charges for covenant purposes
88
Interest cover
7.4x
Balance Sheet measures
APM
Working capital
Closest equivalent statutory measure
Inventories, trade and other receivables less trade and other payables
Reconciling items to statutory measure
Not applicable
Definition and purpose
Working capital comprises inventories, current trade and other receivables, non-current other receivables, current trade and other payables and non-current other payables.
This measure provides additional information in respect of working capital management.
APM
Net debt
Closest equivalent statutory measure
Cash and cash equivalents less interest-bearing loans and borrowings
Reconciling items to statutory measure
Reconciliation of net debt (note 27)
Definition and purpose
Net debt comprises cash and cash equivalents and interest-bearing loans and borrowings.
Net debt is one measure that could be used to indicate the strength of the Group’s Balance Sheet position and is a useful measure of the indebtedness of the Group.
241
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
APM
Bank covenant definition of net debt at average rates and banking covenant leverage
Closest equivalent statutory measure
Cash and cash equivalents less interest-bearing loans and borrowings
Reconciling items to statutory measure
Impact of foreign exchange
Definition and purpose
Net debt (as above) is presented in the Balance Sheet translated at year end exchange rates.
For bank covenant testing purposes net debt is converted using average exchange rates for the previous 12 months.
Leverage is calculated as the bank covenant definition of net debt divided by adjusted EBITDA for banking covenant leverage purposes. This measure is used for
bank covenant testing.
Bank covenant definition of net debt at average rates and banking covenant leverage
31 December
2024
£m
31 December
2023
£m
Net debt at closing rates (note 27)
Impact of foreign exchange
1,321
(16)
572
12
Bank covenant definition of net debt at average rates
1,305
584
Banking covenant leverage
2.1x
1.1x
APM
Leverage
Closest equivalent statutory measure
Cash and cash equivalents less interest-bearing loans and borrowings
Reconciling items to statutory measure
None
Definition and purpose
Leverage is calculated as net debt at average rates (as above) divided by adjusted EBITDA.
This measure is used by external stakeholders to assess the financial stability of the Group.
Leverage
31 December
2024
£m
31 December
2023
£m
Leverage
1.9x
1.1x
Continued
GLOSSARY
242
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Cash Flow measures
APM
Adjusted operating cash flow (pre-capex)
Closest equivalent statutory measure
Net cash (used in)/from operating activities
Reconciling items to statutory measure
Non-working capital items (note 27)
Definition and purpose
Adjusted operating cash flow (pre-capex) is calculated as net cash from operating activities before net cash from operating activities from discontinued operations,
restructuring costs paid and movements in provisions, defined benefit pension contributions paid, tax paid, interest paid on loans and borrowings, interest paid on
lease obligations, acquisition and disposal costs, divisional management incentive scheme related payments, Melrose equity-settled compensation scheme related
payments and the repayment of principal under lease obligations.
This measure provides additional useful information in respect of cash generation and is consistent with how business performance is measured internally.
Adjusted operating cash flow (pre-capex)
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Net cash (used in)/from operating activities
Operating activities:
Net cash from operating activities from discontinued operations
Restructuring costs paid and movements in provisions(4)
Defined benefit pension contributions paid
Tax paid
Interest paid on loans and borrowings
Interest paid on lease obligations
Acquisition and disposal costs
Divisional management incentive scheme related payments
Melrose equity-settled compensation scheme related payments
Debt related:
Repayment of principal under lease obligations
(121)
–
112
20
10
84
6
1
20
198
(32)
29
(36)
137
67
17
79
5
65
–
–
(32)
Adjusted operating cash flow (pre-capex)
298
331
243
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
FINANCIAL
STATEMENTS
APM
Free cash flow
Closest equivalent statutory measure
Net increase/decrease in cash and cash equivalents (net of bank overdrafts)
Reconciling items to statutory measure
Acquisition and disposal related cash flows, dividends paid to owners of the parent, transactions in own shares, payments made in respect of equity-settled
compensation schemes and movements on borrowing facilities
Definition and purpose
Free cash flow represents cash generated after all trading costs including restructuring, pension contributions, tax and interest payments.
This measure provides additional useful information in respect of cash generation and is consistent with how business performance is measured internally.
Free cash flow
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Net increase/(decrease) in cash and cash equivalents (net of bank overdrafts)
Debt related:
Repayment of borrowings
Drawings on borrowing facilities
Costs of raising debt finance
Equity related:
Dividends paid to owners of the parent
Purchase of own shares, including associated costs
Melrose equity-settled compensation scheme related payments
Acquisition and disposal related:
Disposal of businesses, net of cash disposed
Settlement receipt from loans held with demerged entities
Equity accounted investments additions
Disposal of equity accounted investments
Cash flows from discontinued operations
Acquisition and disposal costs
Finance costs on demerger settled net debt
GKN UK pension plan buy-in
30
10
(767)
3
72
431
198
(55)
–
3
–
–
1
–
–
(216)
1,371
(628)
11
81
93
–
320
(1,205)
–
(3)
37
65
17
45
Free cash flow
(74)
(12)
APM
Adjusted free cash flow
Closest equivalent statutory measure
Net increase/(decrease) in cash and cash equivalents (net of bank overdrafts)
Reconciling items to statutory measure
Free cash flow, as defined above, adjusted for restructuring cash flows
Definition and purpose
Adjusted free cash flow represents free cash flow adjusted for restructuring cash flows.
This measure provides additional useful information in respect of cash generation and is consistent with how business performance is measured internally.
Adjusted free cash flow
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Free cash flow
Restructuring costs paid
(74)
126
(12)
125
Adjusted free cash flow
52
113
Continued
GLOSSARY
244 MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
APM
Free cash flow pre-interest and tax
Closest equivalent statutory measure
Net increase/(decrease) in cash and cash equivalents (net of bank overdrafts)
Reconciling items to statutory measure
Free cash flow, as defined above, adjusted for interest and tax cash flows excluding finance costs on demerger settled net debt
Definition and purpose
Free cash flow pre-interest and tax represents free cash flow adjusted for interest and tax and excluding finance costs on demerger settled net debt.
This measure provides additional useful information in respect of cash generation and is consistent with how business performance is measured internally.
Free cash flow pre-interest and tax
Year ended
31 December
2024
£m
Year ended
31 December
2023
£m
Free cash flow
Tax paid
Interest paid on loans and borrowings
Interest paid on lease obligations
Interest received
Finance costs on demerger settled net debt
(74)
10
84
6
(3)
–
(12)
17
79
5
(2)
(17)
Free cash flow pre-interest and tax
23
70
APM
Capital expenditure (capex)
Closest equivalent statutory measure
None
Reconciling items to statutory measure
Not applicable
Definition and purpose
Calculated as the purchase of owned property, plant and equipment and computer software and expenditure on capitalised development costs during the year,
excluding any assets acquired as part of a business combination.
Net capital expenditure is capital expenditure net of proceeds from disposal of property, plant and equipment.
APM
Capital expenditure to depreciation ratio
Closest equivalent statutory measure
None
Reconciling items to statutory measure
Not applicable
Definition and purpose
Net capital expenditure divided by depreciation of owned property, plant and equipment and amortisation of computer software and development costs.
APM
Dividend per share
Closest equivalent statutory measure
Dividend per share
Reconciling items to statutory measure
Not applicable
Definition and purpose
Amounts payable by way of dividends in terms of pence per share.
(1) Operating (loss)/profit is not defined within IFRS but is a widely accepted profit measure being (loss)/profit before finance costs, finance income and tax.
(2) Operating margin is not defined within IFRS but is a widely accepted profit measure being derived from operating (loss)/profit(1) divided by revenue.
(3) Included within other adjustments required for banking covenant leverage purposes in the year ended 31 December 2024 are unrealised annual savings from
spend incurred in the year on restructuring projects of £5 million (2023: £20 million) offset by the elimination of EBITDA from sites disposed in the year of
£20 million (2023: £nil).
(4) Excludes non-cash utilisation of loss-making contract provisions of £23 million (2023: £23 million).
NOTICE OF ANNUAL GENERAL MEETING
The Annual General Meeting of Melrose
Industries PLC (the “Company”) will be held
at 12.00 pm on Wednesday 30 April 2025
at The Royal Aeronautical Society,
4 Hamilton Place, London W1J 7BQ.
This document is important and requires your immediate
attention. If you are in any doubt as to the action you should take,
you should consult your stockbroker, bank, solicitor, accountant,
fund manager or other independent financial advisor authorised
under the Financial Services and Markets Act 2000 if you are
resident in the United Kingdom or, if not, another appropriately
authorised independent financial advisor.
If you have sold or otherwise transferred or sell or otherwise transfer
all of your shares in the Company, please send this document, together
with the accompanying form of proxy, as soon as possible to the
purchaser or transferee or to the agent through whom the sale or
transfer was effected for delivery to the purchaser or transferee.
Notice is given that the Annual General Meeting of the Company will
be held at The Royal Aeronautical Society, 4 Hamilton Place, London
W1J 7BQ at 12.00 pm on Wednesday 30 April 2025 for the purposes set
out below. Resolutions 1 to 14 (inclusive) will be proposed as ordinary
resolutions and resolutions 15 to 18 (inclusive) as special resolutions.
Ordinary resolutions
1. To receive the Company’s audited financial statements for the
financial year ended 31 December 2024, together with the
Directors’ report, the Strategic Report and the Auditor’s report on
those financial statements.
2. To approve the Directors’ Remuneration Report for the year ended
31 December 2024, as set out on pages 136 to 155 of the
Company’s 2024 Annual Report.
3. To approve a final dividend of 4.0 pence per ordinary share for the
year ended 31 December 2024.
4. To re‑elect Peter Dilnot as a Director of the Company.
5. To re‑elect Matthew Gregory as a Director of the Company.
6. To re‑elect David Lis as a Director of the Company.
7. To re‑elect Charlotte Twyning as a Director of the Company.
8. To re‑elect Heather Lawrence as a Director of the Company.
9. To re‑elect Gillian Elcock as a Director of the Company.
10. To elect Chris Grigg as a Director of the Company.
11. To elect Ian Barkshire as a Director of the Company.
12. To re‑appoint PricewaterhouseCoopers LLP as auditor of the
Company to hold office from the conclusion of this meeting until
the conclusion of the next Annual General Meeting of the Company
at which accounts are laid.
13. To authorise the Audit Committee to determine the remuneration of
the auditor of the Company.
14. That, in accordance with section 551 of the Companies Act 2006
(the “Act”), the directors of the Company (the “Directors”) be and
are generally and unconditionally authorised to allot shares in the
Company, or to grant rights to subscribe for or to convert any
security into shares in the Company (“Rights”):
(A) up to an aggregate nominal amount of £426,200; and
(B) comprising equity securities (as defined in section 560 of the
Act) up to an aggregate nominal amount of £852,401 (such
amount to be reduced by the aggregate nominal amount of
any allotments or grants made under paragraph (A) of this
resolution) in connection with a fully pre‑emptive offer:
(i)
to ordinary shareholders in proportion (as nearly as may be
practicable) to their existing holdings; and
(ii) to holders of other equity securities as required by the
rights of those securities or, subject to such rights, as the
Directors otherwise consider necessary,
and so that the Directors may impose any limits or restrictions and
make any arrangements which they consider necessary or
appropriate to deal with treasury shares, fractional entitlements,
record dates, legal, regulatory or practical problems in, or under the
laws of, any territory or any other matter, such authorities to expire at
the conclusion of the Company’s next Annual General Meeting after
this resolution is passed or, if earlier, at the close of business on 30
June 2026, but, in each case, so that the Company may make offers
or agreements before the authority expires which would or might
require shares to be allotted or Rights to be granted after the
authority expires, and so that the Directors may allot shares or grant
Rights in pursuance of any such offer or agreement notwithstanding
that the authority conferred by this resolution has expired.
245
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
ADDITIONAL
INFORMATION
Special resolutions
15. That, subject to the passing of resolution 14, the Directors be and
are generally empowered to allot equity securities (as defined in
section 560 of the Act) for cash pursuant to the authorities granted
by resolution 14 and/or to sell ordinary shares held by the
Company as treasury shares for cash, in each case as if section
561 of the Act did not apply to any such allotment or sale, provided
that this power shall be limited:
(A) to the allotment of equity securities in connection with an offer
of equity securities (but in the case of an allotment pursuant to
the authority granted under paragraph (B) of resolution 14,
such power shall be limited to the allotment of equity securities
in connection with a fully pre‑emptive offer):
(i)
to ordinary shareholders in proportion (as nearly as may be
practicable) to their existing holdings; and
(ii) to holders of other equity securities, as required by the rights
of those securities or, subject to such rights, as the Directors
otherwise consider necessary, and so that the Directors may
impose any limits or restrictions and make any arrangements
which they consider necessary or appropriate to deal
with treasury shares, fractional entitlements, record
dates, legal, regulatory or practical problems in, or under
the laws of, any territory or any other matter;
(B) to the allotment (otherwise than in circumstances set out in
paragraph (A) of this resolution) of equity securities pursuant to
the authority granted by paragraph (A) of this resolution or sale
of treasury shares up to an aggregate nominal amount of
£63,930; and
(C) to the allotment of equity securities or sale of treasury shares
(otherwise than under paragraph (A) or paragraph (B) of this
resolution) up to an aggregate nominal amount equal to 20% of
any allotment of equity securities or sale of treasury shares
from time to time under paragraph (B) above, such authority to
be used only for the purposes of making a follow‑on offer
which the Directors determine to be of a kind contemplated by
paragraph 3 of Section 2B of the Statement of Principles on
Disapplying Pre‑Emption Rights most recently published by
the Pre‑Emption Group prior to the date of this notice,
such powers to expire at the conclusion of the Company’s next
Annual General Meeting after this resolution is passed or, if earlier,
at the close of business on 30 June 2026, but, in each case, so that
the Company may make offers or agreements before the power
expires which would or might require equity securities to be allotted
(and/or treasury shares sold) after the power expires and so that the
Directors may allot equity securities (and/or sell treasury shares) in
pursuance of any such offer or agreement notwithstanding that the
power conferred by this authority has expired.
16. That, subject to the passing of resolution 14 and in addition to any
power granted under resolution 15, the Directors be and are
generally empowered to allot equity securities (as defined in
section 560 of the Act) for cash pursuant to the authorities granted
by resolution 14 and/or to sell ordinary shares held by the
Company as treasury shares for cash, in each case as if section
561 of the Act did not apply to any such allotment or sale, provided
that this power shall be:
(A) limited to the allotment of equity securities pursuant to the
authority granted by paragraph (A) of resolution 14 or sale of
treasury shares up to a nominal amount of £63,930 such
authority to be used only for the purposes of financing (or
refinancing, if the authority is to be used within 12 months of
the original transaction) a transaction which the Directors
determine to be an acquisition or other capital investment of
a kind contemplated by the Statement of Principles on
Disapplying Pre‑Emption Rights most recently published by
the Pre‑Emption Group prior to the date of this notice; and
(B) limited to the allotment of equity securities or sale of treasury
shares (otherwise than under paragraph (A) of this resolution)
up to an aggregate nominal amount equal to 20% of any
allotment of equity securities or sale of treasury shares from
time to time under paragraph (A) above, such authority to be
used only for the purposes of making a follow‑on offer which
the Directors determine to be of a kind contemplated by
paragraph 3 of Section 2B of the Statement of Principles on
Disapplying Pre‑Emption Rights most recently published by
the Pre‑Emption Group prior to the date of this notice,
such powers to expire at the conclusion of the Company’s next
Annual General Meeting after this resolution is passed or, if earlier,
at the close of business on 30 June 2026, but, in each case, so that
the Company may make offers or agreements before the power
expires which would or might require equity securities to be allotted
(and/or treasury shares sold) after the power expires and so that the
Directors may allot equity securities (and/or sell treasury shares) in
pursuance of any such offer or agreement notwithstanding that the
power conferred by this authority has expired.
NOTICE OF ANNUAL GENERAL MEETING
Continued
246
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
17. That the Company be and is generally and unconditionally
authorised for the purpose of section 701 of the Act to make one or
more market purchases (within the meaning of section 693(4) of the
Act) of ordinary shares in the capital of the Company provided that:
(A) the maximum aggregate number of ordinary shares authorised
to be purchased is 191,662,555;
(B) the minimum price which may be paid for an ordinary share
is the nominal value of an ordinary share at the time of
such purchase;
(C) the maximum price which may be paid for an ordinary share is
not more than the higher of:
(i)
105% of the average of the middle‑market quotation for an
ordinary share as derived from the Daily Official List of the
London Stock Exchange for the five business days
immediately preceding the day on which the ordinary
share is purchased; and
(ii) the higher of the price of the last independent trade and
the highest current independent bid on the trading venue
where the purchase is carried out, in each case, exclusive
of expenses;
(D) this authority shall expire at the conclusion of the Company’s
next Annual General Meeting after this resolution is passed or,
if earlier, at the close of business on 30 June 2026;
(E) the Company may make a contract of purchase of ordinary
shares under this authority which would or might be executed
wholly or partly after the expiry of this authority, and may make
a purchase of ordinary shares in pursuance of any such
contract; and
(F) any ordinary shares purchased pursuant to this authority may
either be held as treasury shares or cancelled by the
Company, depending on which course of action is considered
by the Directors to be in the best interests of shareholders at
the time.
18. That a general meeting other than an Annual General Meeting may
be called on not less than 14 clear days’ notice.
Recommendation
The Board believes that each of the resolutions to be proposed at the
Annual General Meeting is in the best interests of the Company and its
shareholders as a whole. Accordingly, the Directors unanimously
recommend that ordinary shareholders vote in favour of all of the
resolutions proposed, as the Directors intend to do in respect of their
own beneficial holdings.
By order of the Board:
Warren Fernandez
Company Secretary
31 March 2025
Registered Office:
11th Floor The Colmore Building
20 Colmore Circus Queensway
Birmingham
West Midlands
B4 6AT
247
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
ADDITIONAL
INFORMATION
Explanatory notes to the proposed resolutions
Resolutions 1 to 14 (inclusive) are proposed as ordinary resolutions,
which means that for each of those resolutions to be passed, more
than half the votes cast must be cast in favour of the resolution.
Resolutions 15 to 18 (inclusive) are proposed as special resolutions,
which means that for each of those resolutions to be passed, at least
three‑quarters of the votes cast must be cast in favour of the
resolution.
Resolution 1 – Receipt of 2024 Annual Report and
Financial Statements
The Directors are required to lay the Company’s financial statements,
the Strategic Report and the Directors’ and Auditor’s reports on those
financial statements (collectively, the “2024 Annual Report”) before
shareholders each year at the Annual General Meeting (“AGM”).
Resolution 2 – Approval of Directors’ remuneration report
The Directors’ remuneration report (the “Directors’ Remuneration
Report”) is presented in two sections:
• the annual statement from the Chair of the Remuneration
Committee; and
• the annual report on remuneration.
The annual statement from the Chair of the Remuneration Committee,
set out on pages 136 and 137 (inclusive) of the 2024 Annual Report,
summarises, for the year ended 31 December 2024, the major decisions
taken on Directors’ remuneration, any substantial changes relating to
Directors’ remuneration made during the year, and the context in which
those changes occurred and decisions have been taken.
The annual report on remuneration, set out on pages 138 to 155
(inclusive) of the 2024 Annual Report, provides details of the remuneration
paid to Directors in respect of the year ended 31 December 2024,
including base salary, taxable benefits, short‑term incentives, long‑term
incentives vested in the year, pension‑related benefits, any other items
in the nature of remuneration and any sum(s) recovered or withheld
during the year in respect of amounts paid in earlier years.
The Company’s auditors for the financial year ended 31 December 2024,
PricewaterhouseCoopers LLP (“PwC”), have audited those parts of the
Directors’ Remuneration Report which are required to be audited and
their report may be found on pages 158 to 167 of the 2024 Annual Report.
The Directors’ Remuneration Report is subject to an annual advisory
shareholder vote by way of an ordinary resolution. Resolution 2 is to
approve the Directors’ Remuneration Report and will not affect the way
in which the Directors’ remuneration policy has been implemented.
Resolution 3 – Declaration of final dividend
The Board is recommending, and shareholders are being asked to
approve, the declaration of a final dividend of 4.0 pence per ordinary
share for the year ended 31 December 2024. The final dividend will,
subject to shareholder approval, be paid on 9 May 2025 to the holders
of ordinary shares whose names are recorded on the register of
members of the Company at the close of business on 28 March 2025.
Resolutions 4 to 11 (inclusive) – Re‑election and election
of Directors
In accordance with the UK Corporate Governance Code (the “Code”)
and the Company’s Articles of Association (the “Articles”), every
Director will stand for re‑election at each AGM.
The Board considers that the contribution of each Director who is
standing for re‑election is, and continues to be, important to the
sustainable success of the Company for the following reasons:
• Peter Dilnot, Chief Executive Officer, is standing for re‑election due to
his considerable public company and industrial business experience.
Peter joined Melrose in April 2019, serving as both an Executive
Director and Chief Operating Officer during that time, in addition to
fulfilling the role of Chief Executive Officer of GKN Aerospace for
periods during his tenure. In parallel, Peter served as a Non‑executive
Director at Rotork plc for seven years, including three years as Senior
Independent Director until he left the board in December 2023. Peter
was previously the Chief Executive Officer of international recycling
company Renewi PLC (formerly Shanks Group PLC) and a senior
executive at Danaher Corporation. He also spent seven years at the
Boston Consulting Group in London and Chicago, working primarily
with industrial businesses. Peter has an engineering and aviation
background and started his career as a helicopter pilot in the British
Armed Forces. He also holds a degree in Mechanical Engineering.
• Matthew Gregory, Chief Financial Officer, is standing for re‑election
due to his extensive knowledge of GKN Aerospace, having served
as Chief Financial Officer for the business since September 2022.
Matthew is a seasoned Chief Financial Officer with considerable
public company leadership experience, having served as both Chief
Executive Officer and Chief Financial Officer of FirstGroup plc and
Chief Financial Officer of Essentra plc. Matthew has strong strategic
and operational expertise, including in driving strategy and
operational turnaround in complex multinational listed manufacturing
and transportation companies, alongside international and corporate
development experience. Matthew is a qualified chartered
accountant, having started his career at Ernst & Young, working in
London and Milan.
• David Lis, Senior Independent Director, has held several senior roles in
investment and fund management. He brings to the Board extensive
financial experience and deep insight into the expectations of
Melrose’s institutional investor base. While David will have served on
the Board for nine years in May 2025, the Nomination Committee and
the Board have approved an extension of David’s tenure as a Director
and Senior Independent Director to 31 December 2025 in order to
facilitate and implement the effective succession of the Non‑executive
Chairman, to assist with succession planning of key Board roles
thereafter (including a successor Senior Independent Director), and to
maintain an important degree of continuity among senior Board
positions within the Company as it emerges from a transformational
period that will have seen changes to its top three director roles of
Chief Executive Officer, Chief Financial Officer and Chairman.
NOTICE OF ANNUAL GENERAL MEETING
Continued
248
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
• Charlotte Twyning, Non‑executive Director, is standing for re‑election
due to her diverse range of experience and commercial acumen as
well as her deep understanding of the Melrose business as she
enters her third three‑year term. Charlotte was appointed as a
Non‑executive Director on 1 October 2018 and has chaired the
Nomination Committee since 1 January 2022. After a successful
legal career specialising in competition and M&A law in the City,
Charlotte has held various senior positions across a number of
sectors, most recently in aviation and transportation. Charlotte has
proven executive leadership and operational skills in large, complex
organisations and has consistently succeeded in driving
performance, leading large‑scale sustainable transformations and
building the foundations for growth throughout her career. She now
enjoys a portfolio career, comprising a number of non‑executive,
trustee and advisory roles.
• Heather Lawrence, Non‑executive Director, is standing for
re‑election due to her diverse range of experience across the
industrials and transportation sectors, having held senior roles within
corporate finance and investment banking, as well as having the
necessary expertise required to perform the role of Chair of the Audit
Committee. Heather was appointed as a Non‑executive Director on
1 June 2021 and has chaired the Audit Committee since 5 May
2022. Heather originally qualified as a chartered accountant and
subsequently spent well over a decade working in senior roles within
corporate finance and investment banking where she honed her
experience across industrials and transportation businesses.
Heather has significant non‑executive experience, including as a
Non‑executive Director of Antofagasta PLC.
• Gillian Elcock, Non‑executive Director, is standing for re‑election due
to her extensive asset management and investment research
experience, including covering the aerospace and defence sector.
Gillian is the founder and former Managing Director of Denny Ellison,
an independent investment research and training company. Prior to
this, she worked as an equity research analyst for several years at
Putnam Investments and Insight Investment. She also brings insight
gained from several other non‑executive director roles. She has two
engineering degrees from MIT and an MBA from the Harvard
Business School.
In accordance with the Articles:
• Chris Grigg, Non‑executive Director, is standing for election as a
Director of the Company following his appointment to the Board on
1 October 2024. Chris will assume the position of Chairman from
30 March 2025. Chris has extensive senior executive experience as
a former FTSE Chief Executive Officer, and within the aerospace and
defence sector. He was a Non‑executive Director of BAE Systems
plc for 10 years until December 2023, latterly serving as its Senior
Independent Director. In his executive career, Chris was Chief
Executive of British Land from January 2009 and left the board in
December 2020. Earlier in his career, Chris was Chief Executive of
Barclays Commercial Bank, and Treasurer of Barclays Bank plc.
Prior to Barclays, he spent 20 years at Goldman Sachs, latterly as a
partner, having started his career at Morgan Grenfell. Chris is
currently Chair of the National Wealth Fund (formerly known as the
UK Infrastructure Bank) and its nominations committee, having
served in those roles since April 2021. He is also Chair of Evelyn
Partners and its nominations committee, having served in those
roles since February 2022, prior to which he served as a
Non‑executive Director, and serves as a member of the FTSE
Women Leaders Review’s independent steering body.
• Dr Ian Barkshire, Non‑executive Director, is standing for election as a
Director of the Company following his appointment to the Board on
1 October 2024. Ian brings a wealth of executive experience to the
Board, having spent most of his career driving the development,
commercialisation and delivery of innovative technologies and
specialised products to the world’s leading industrial companies. Ian
was the Chief Executive Officer of Oxford Instruments plc between
2016 and 2023, spending over 20 years at the company in a number
of leadership positions, including Chief Operating Officer, Group
Technical Director and Divisional Head. Earlier in his career, Ian was
Senior Principal Scientist at GEC‑Marconi Materials, before which he
was a Research Fellow at the University of York. Ian is a Fellow of the
Royal Academy of Engineering and is currently a member of the
Strategic Advisory Board of the UK National Quantum Technologies
Programme as well as Chair of Illumion Limited, a technology
start‑up company.
Biographical details of each Director standing for re‑election or election
(as applicable) can be found on pages 108 and 109 (inclusive) of the
2024 Annual Report. All of the Non‑executive Directors standing for
re‑election or election (as applicable) are currently considered
independent under the Code.
Resolution 12 – Re‑appointment of auditor
The Company is required to appoint an auditor at each general
meeting at which accounts are laid before shareholders, to hold office
until the next such meeting.
The Audit Committee has reviewed the effectiveness, performance,
independence and objectivity of the existing external auditor, PwC, on
behalf of the Board, and concluded that the external auditor was in all
respects effective.
This resolution proposes the re‑appointment of PwC until the
conclusion of the next AGM of the Company at which accounts are laid.
Resolution 13 – Authority to agree auditor’s remuneration
This resolution seeks authority for the Audit Committee to determine
the level of the auditor’s remuneration.
Resolution 14 – Authority to allot shares
This resolution seeks shareholder approval to grant the Directors the
authority to allot shares in the Company, or to grant rights to subscribe
for or convert any securities into shares in the Company (“Rights”),
pursuant to section 551 of the Act (the “Section 551 authority”). The
authority contained in paragraph (A) of the resolution will be limited to
an aggregate nominal amount of £426,200, being approximately
one‑third of the Company’s issued ordinary share capital (excluding
treasury shares) as at 26 March 2025 (being the latest practicable date
prior to the publication of this notice).
In line with guidance issued by the Investment Association, paragraph
(B) of this resolution would give the Directors authority to allot shares
in the Company or grant Rights in connection with a fully pre‑emptive
offer up to an aggregate nominal amount of £852,401, representing
approximately two‑thirds of the Company’s issued ordinary share capital
(excluding treasury shares) as at 26 March 2025 (being the latest
practicable date prior to the publication of this notice). This resolution
provides that such amount shall be reduced by the aggregate nominal
amount of any allotments or grants under paragraph (A) of this resolution.
249
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
ADDITIONAL
INFORMATION
As at 26 March 2025, the Company held 32,872,550 ordinary shares in
treasury, representing approximately 2.57% of the Company’s issued
ordinary share capital (excluding treasury shares) as at such date.
If approved, the Section 551 authority shall, unless renewed, revoked
or varied by the Company, expire at the end of the Company’s next
AGM after the resolution is passed or, if earlier, at the close of business
on 30 June 2026. The exception to this is that the Directors may allot
shares or grant Rights after the authority has expired in connection
with an offer or agreement made or entered into before the authority
expired. The Directors have no present intention to exercise the
Section 551 authority.
Resolutions 15 to 16 – Partial disapplication of
pre‑emption rights
If the Directors wish to allot new shares or other equity securities or sell
treasury shares for cash (other than in connection with an executive or
employee share scheme), company law requires that these shares are
offered first to shareholders in proportion to their existing holdings. The
statutory pre‑emption rights may be disapplied by shareholders.
The purpose of resolution 15 is to authorise the Directors to allot new
shares and other equity securities of the Company or sell shares held in
treasury for cash: (a) in connection with a fully pre‑emptive offer, subject
to any arrangements that the Directors consider appropriate to deal with
fractions and overseas requirements; (b) otherwise than pursuant to (a)
up to an aggregate nominal value of £63,930, without first making an
offer under company law to existing shareholders in proportion to their
existing holdings; and (c) otherwise than pursuant to (a) and (b), 20% of
the amount referred to in (b) for the purposes of making a follow‑on offer
which the Directors determine to be of a kind contemplated by
paragraph 3 of Section 2B of the Pre‑emption Group’s Statement of
Principles (the “Pre‑Emption Group Principles”). The limit of £63,930 is
equivalent to 5% of the total issued ordinary share capital of the
Company (excluding treasury shares) as at 26 March 2025, being the
latest practicable date prior to publication of this Notice.
Resolution 16 is being proposed as a separate resolution to authorise
the Directors to allot additional shares and other equity securities or sell
shares held in treasury for cash up to a maximum nominal value of
£63,930 (representing a further 5% of the issued ordinary share capital
of the Company (excluding treasury shares) as at 26 March 2025, being
the latest practicable date prior to publication of this Notice) otherwise
than in connection with a pre‑emptive offer to existing shareholders (the
“Acquisition/SCI Disapplication”). This authority is limited to allotments
and sales for the purposes of financing acquisitions or specified capital
investments contemplated by the Pre‑Emption Group Principles (or
refinancing any such acquisition or investment within 12 months after
the original transaction). The Directors intend to use this authority only in
connection with an acquisition or specified capital investment which is
announced contemporaneously with the issue or which has taken place
in the preceding 12‑month period and is disclosed in the announcement
of the issue. The resolution also disapplies pre‑emption rights in relation
to a further 20% of the amount subject to the Acquisition/SCI
Disapplication for the purposes of making a follow‑on offer which the
Directors determine to be of a kind contemplated by paragraph 3 of
Section 2B of the Pre‑Emption Group Principles.
The Board acknowledges the provisions of the Pre‑Emption Group
Principles and confirms that it will follow the general principles set out
therein. Having taking into consideration shareholder feedback, the
Board has opted for a limit of 5% of the issued ordinary share capital of
the Company (excluding treasury shares) in resolutions 15 and 16,
rather than the limit of 10% set out in the Pre‑Emption Group
Principles, in order to seek alignment with shareholder preferences,
balanced with the Board’s belief that the 5% limit provides sufficient
flexibility to the Company at this time. The Directors believe that it is
appropriate to seek these authorities to give the Company the flexibility
to raise further equity funding and to pursue acquisition opportunities
as and when they arise, and to seek authority to make the follow‑on
offers so as to ensure that pre‑emption is respected.
If approved, these powers shall apply until the end of the Company’s
next AGM after the resolutions are passed or, if earlier, until the close of
business on 30 June 2026. The exception to this is that the Directors
may allot equity securities after the power has expired in connection
with an offer or agreement made or entered into before the power
expired. The Directors have no present intention to exercise these
powers and if ever used, the Directors intend to follow the shareholder
protections and approach to follow‑on offers as set out in paragraphs 1
and 3, respectively, of Section 2B of the Pre‑Emption Group Principles.
Resolution 17 – Authority to purchase own shares
This resolution seeks shareholder approval to grant the Company the
authority to purchase its own shares pursuant to sections 693 and 701
of the Act.
This authority is limited to an aggregate maximum number of
191,662,555 ordinary shares, representing approximately 14.99%
of the Company’s issued ordinary share capital (excluding treasury
shares) as at 26 March 2025 (being the latest practicable date prior
to the publication of this notice).
The maximum price which may be paid for an ordinary share will be an
amount which is not more than the higher of: (i) 5% above the average
of the middle market quotation for an ordinary share as derived from
the Daily Official List of the London Stock Exchange for the five
business days immediately preceding the day on which the ordinary
share is purchased; and (ii) the higher of the price of the last
independent trade and the highest current independent bid on the
trading venue where the purchase is carried out (in each case,
exclusive of expenses).
If approved, the authority shall, unless varied, revoked or renewed,
expire at the end of the Company’s next AGM after the resolution is
passed or, if earlier, at the close of business on 30 June 2026. The
Directors intend to exercise their authority to continue the share
buyback programme commenced by the Company at the beginning of
October 2024.
Any shares purchased in the market under this authority may be either
cancelled or held as treasury shares. No dividends are paid on shares
while they are in treasury and no voting rights attach to treasury shares.
The Company does not have any outstanding share warrants.
NOTICE OF ANNUAL GENERAL MEETING
Continued
250
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Resolution 18 – Notice period for general meetings other
than AGMs
This resolution seeks shareholder approval to allow the Company to
continue to call general meetings (other than AGMs) on 14 clear days’
notice. In accordance with the Act, as amended by the Companies
(Shareholders’ Rights) Regulations 2009, the notice period required for
general meetings of the Company is 21 clear days unless shareholders
approve a shorter notice period (subject to a minimum period of 14 clear
days). In accordance with the Act, the Company must make a means of
electronic voting available to all shareholders for that meeting in order to
be able to call a general meeting on less than 21 clear days’ notice.
The Company intends to only use the shorter notice period where this
flexibility is merited by the purpose of the meeting and is considered to
be in the interests of shareholders generally, and not as a matter of
routine. AGMs will continue to be held on at least 21 clear days’ notice.
The approval will be effective until the Company’s next AGM, when it is
intended that a similar resolution will be proposed.
Explanatory notes as to the proxy, voting and attendance
procedures at the AGM
1. The holders of ordinary shares in the Company are entitled to
attend the AGM and are entitled to vote. A member entitled to
attend, speak and vote at the AGM is also entitled to appoint a
proxy to exercise all or any of his/her rights to attend, speak and
vote (both on a show of hands and a poll) at the AGM in his/her
place. Such a member may appoint more than one proxy, provided
that each proxy is appointed to exercise the rights attached to
different shares. When two or more valid but different appointments
of proxy are delivered or received for the same share for us at the
AGM, the one which is last validly delivered or received (regardless
of its date or the date of execution) shall be treated as replacing or
revoking the other or others as regards that share). If the Company
is unable to determine which appointment was last validly delivered
or received, none of them shall be treated as valid in respect of that
share. A proxy need not be a member of the Company.
2. A form of proxy which may be used to appoint and give proxy
instructions for use at the AGM is enclosed with this notice. To be
effective, a form of proxy must be completed and returned,
together with any power of attorney or authority under which it is
completed or a certified copy of such power or authority, so that it
is received by the Company’s registrar at the address specified on
the form of proxy not less than 48 hours (excluding any part of a
day that is not a working day) before the stated time for holding the
meeting (or, in the event of an adjournment, not less than 48 hours
before the stated time of the adjourned meeting (excluding any part
of a day which is not a working day)). Returning a completed form
of proxy will not preclude a member from attending the meeting
and voting in person.
3. In the case of joint registered holders, the signature of one holder
will be accepted and the vote of the senior who tenders a vote,
whether in person or proxy, shall be accepted to the exclusion of
the votes of the other joint holder or holders. For this purpose,
seniority shall be determined by the order in which the names
stand in the register.
4. Any person to whom this notice is sent who is a person nominated
under section 146 of the Act to enjoy information rights (a
“Nominated Person”) may, under an agreement between him/her
and the shareholder by whom he/she was nominated, have a right
to be appointed (or to have someone else appointed) as a proxy for
the AGM. If a Nominated Person has no such proxy appointment
right or does not wish to exercise it, he/she may, under any such
agreement, have a right to give instructions to the shareholder as
to the exercise of voting rights. The statement of the rights of
shareholders in relation to the appointment of proxies in notes 1
and 2 above does not apply to Nominated Persons. The rights
described in notes 1 and 2 can only be exercised by the holders of
ordinary shares in the Company.
5. To be entitled to attend and vote at the AGM (and for the purposes
of the determination by the Company of the number of votes they
may cast), members must be entered on the Company’s register of
members by 6.30 pm (BST) on 28 April 2025 (or, in the event of an
adjournment, on the date which is two days, excluding any day
which is not a working day, before the time of the adjourned
meeting). Changes to entries on the register of members after this
time shall be disregarded in determining the rights of any person to
attend or vote at the meeting.
6. As at 26 March 2025 (being the latest practicable date prior to the
publication of this notice), the Company’s issued ordinary share
capital consists of 1,278,602,771 ordinary shares of £0.001 pence
each (excluding treasury shares), carrying the right to one vote
each. Therefore, the total number of voting rights in the Company
on 26 March 2025 was 1,278,602,771.
7. CREST members who wish to appoint a proxy or proxies through
the CREST electronic proxy appointment service may do so by
using the procedures described in the CREST Manual (available at
www.euroclear.com). CREST Personal Members or other CREST
sponsored members, and those CREST members who have
appointed a service provider(s), should refer to their CREST
sponsor or voting service provider(s), who will be able to take the
appropriate action on their behalf.
8. In order for a proxy appointment or instruction made using the
CREST service to be valid, the appropriate CREST message (a
“CREST Proxy Instruction”) must be properly authenticated in
accordance with Euroclear UK & Ireland Limited’s specifications,
and must contain the information required for such instruction, as
described in the CREST Manual. The message, regardless of
whether it constitutes the appointment of a proxy or is an
amendment to the instruction given to a previously appointed
proxy, must, in order to be valid, be transmitted so as to be
received by the issuer’s agent (ID RA19) by 12.00 pm (BST) on 28
April 2025. For this purpose, the time of receipt will be taken to be
the time (as determined by the time stamp applied to the message
by the CREST Application Host) from which the issuer’s agent is
able to retrieve the message by enquiry to CREST in the manner
prescribed by CREST. After this time any change of instructions to
proxies appointed through CREST should be communicated to the
appointee through other means.
251
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
ADDITIONAL
INFORMATION
9. CREST members and, where applicable, their CREST sponsors, or
voting service providers, should note that Euroclear UK & Ireland
Limited does not make available special procedures in CREST for
any particular message. Normal system timings and limitations will,
therefore, apply in relation to the input of CREST Proxy Instructions.
It is the responsibility of the CREST member concerned to take (or,
if the CREST member is a CREST Personal Member, or sponsored
member, or has appointed a voting service provider, to procure
that his/her CREST sponsor or voting service provider(s) take(s))
such action as shall be necessary to ensure that a message is
transmitted by means of the CREST system by any particular time.
In this connection, CREST members and, where applicable, their
CREST sponsors or voting system providers are referred, in
particular, to those sections of the CREST Manual concerning
practical limitations of the CREST system and timings.
10. The Company may treat as invalid a CREST Proxy Instruction in the
circumstances set out in Regulation 35(5)(a) of the Uncertificated
Securities Regulations 2001.
11. If you are an institutional investor you may be able to appoint a
proxy electronically via the Proxymity platform, a process which
has been agreed by the Company and approved by the
Company’s registrar. For further information regarding Proxymity,
please go to www.proxymity.io. Your proxy must be lodged by
12.00 pm (BST) on 28 April 2025 in order to be considered valid.
Before you can appoint a proxy via this process you will need to
have agreed to Proxymity’s associated terms and conditions. It is
important that you read these carefully as you will be bound by
them and they will govern the electronic appointment of your proxy.
12. Any corporation which is a member can appoint one or more
corporate representatives who may exercise on its behalf all of its
powers as a member provided that they do not do so in relation to
the same shares.
13. Under section 527 of the Act, members meeting the threshold
requirements set out in that section have the right to require the
Company to publish on a website a statement setting out any
matter relating to: (i) the audit of the Company’s accounts
(including the auditor’s report and the conduct of the audit) that are
to be laid before the AGM; or (ii) any circumstance connected with
an auditor of the Company ceasing to hold office since the
previous meeting at which annual accounts and reports were laid
in accordance with section 437 of the Act. The Company may not
require the shareholders requesting any such website publication
to pay its expenses in complying with sections 527 or 528 of the
Act. Where the Company is required to place a statement on a
website under section 527 of the Act, it must forward the
statement to the Company’s auditor not later than the time when it
makes the statement available on the website. The business which
may be dealt with at the AGM includes any statement that the
Company has been required under section 527 of the Act to
publish on a website.
14. Any member holding ordinary shares attending the meeting has
the right to ask questions. The Company must answer any such
questions relating to the business being dealt with at the meeting
but no such answer need be given if: (i) to do so would interfere
unduly with the preparation for the meeting or involve the
disclosure of confidential information; (ii) the answer has already
been given on a website in the form of an answer to a question;
and/or (iii) it is undesirable in the interests of the Company or the
good order of the meeting that the question be answered.
15. Voting at the AGM will be by poll. The Chairman of the AGM will
invite each shareholder, corporate representative and proxy
present at the meeting to complete a poll card indicating how they
wish to cast their votes in respect of each resolution. In addition,
the Chairman of the AGM will cast the votes for which he has been
appointed as proxy. Poll cards will be collected during the meeting.
Once the results have been verified by the Company’s registrar,
Equiniti, they will be notified to the Financial Conduct Authority,
announced through a Regulatory Information Service and will be
available to view on the Company’s website.
16. A copy of this notice, and other information
required by section 311A of the Act, can be found at
www.melroseplc.net/investors/shareholder-meetings.
17. You may not use an electronic address provided in either this
notice or any related documents (including the form of proxy) to
communicate with the Company for any purposes other than those
expressly stated.
18. The following documents will be available for inspection upon
request at the Company’s registered office during normal business
hours on any weekday (Saturdays, Sundays and public holidays
excepted) from the date of this notice up to and including the date
of the AGM and at the place of the AGM for 15 minutes prior to and
during the meeting:
(A) copies of all service agreements under which Directors of the
Company are employed by the Company or any subsidiaries;
and
(B) a copy of the terms of appointment of the Non‑executive
Directors of the Company.
19. You may register your vote online by visiting Equiniti’s website at
www.shareview.co.uk. In order to register your vote online, you
will need to create an online portfolio using your Shareholder
Reference Number which is set out on the enclosed form of proxy.
Once signed up and logged in simply click “View” on the “My
Investments” page and follow the on‑screen instructions. The
return of the form of proxy by post or registering your vote online
will not prevent you from attending the AGM and voting in person,
should you wish. Alternatively, shareholders who have already
registered with Equiniti’s online portfolio service, Shareview, can
appoint their proxy electronically by logging on to their portfolio at
www.shareview.co.uk using your usual user ID and password.
Once logged in simply click “View” on the “My Investments” page,
click on the link to vote then follow the on‑screen instructions.
A proxy appointment made electronically will not be valid if sent
to any address other than those provided or if received after
12.00 pm (BST) on 28 April 2025.
NOTICE OF ANNUAL GENERAL MEETING
Continued
252
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
Shareholder analysis
Balance Ranges
Total number
of holdings
Percentage
of holders
Total number
of shares
Percentage
issued capital
1–5,000
13,474
91.13%
8,703,666
0.64%
5,001–50,000
795
5.38%
11,076,242
0.82%
50,001–500,000
306
2.07%
52,769,233
3.90%
Over 500,000
210
1.42%
1,278,926,180
94.63%
Total
14,785
100.00%
1,351,475,321
100.00%
Held by
Individuals
13,617
92.10%
13,016,552
0.96%
Institutions
1,168
7.90%
1,338,458,769
99.04%
Total
14,785
100.00%
1,351,475,321
100.00%
Financial calendar
Ex‑dividend date for final dividend
27 March 2025
Record date for final dividend
28 March 2025
Annual General Meeting
30 April 2025
Payment date of final dividend
9 May 2025
Announcement of interim results
31 July 2025
Intended payment of interim dividend
15 September 2025
Expected preliminary announcement of 2025 results
March 2026
Registrar
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
If you require any help or need to
contact Equiniti, please visit
www.shareview.co.uk.
Brokers
Investec
30 Gresham Street
London EC2V 7QN
J.P. Morgan Cazenove
25 Bank Street
London E14 5JP
Legal Advisors
Simpson Thacher & Bartlett LLP
CityPoint
One Ropemaker Street
London EC2Y 9HU
Bankers
Banco Santander S.A.,
London Branch
Bank of America Europe
Designated Activity Company
Bank of China Limited,
London Branch
Barclays Bank plc
BNP Paribas Fortis SA/NV
Citibank, N.A., London Branch
Commerzbank
Aktiengesellschaft,
London Branch
Coöperatieve Rabobank U.A.
Crédit Agricole Corporate and
Investment Bank
Crédit Industriel et Commercial
Deutsche Bank
Luxembourg S.A.
HSBC Bank plc
Industrial and Commercial Bank
of China Limited, London Branch
ING Bank N.V., London Branch
J.P. Morgan Chase Bank N.A.,
London Branch
MUFG Bank, Ltd.
National Westminster Bank plc
Royal Bank of Canada
Skandinaviska Enskilda Banken
AB (publ)
UniCredit Bank AG
Wells Fargo Bank, N.A.,
London Branch
A range of shareholder information is available at Equiniti’s online portfolio service www.shareview.co.uk, where you can register for a
Shareview Portfolio to access information about your holding and undertake a number of activities, including appointing a proxy, changing a
dividend mandate and updating your address. To register, you will need your 11‑digit Shareholder Reference Number (“SRN”), which can be
found on your proxy form or dividend voucher.
Gifting your shares
If you have a small number of shares and the dealing costs or minimum fee make it uneconomical to sell them, you may like to donate them to
benefit charities through ShareGift, a registered charity. Further information is available on the ShareGift website at www.sharegift.org or call
+44 (0)20 7930 3737.
Share fraud warning
Many companies have become aware that their shareholders have received unsolicited telephone calls or correspondence concerning
investment matters. Fraudsters use persuasive and high‑pressure tactics to lure investors into scams. They may offer to sell shares that
turn out to be worthless or non‑existent, or to buy shares at an inflated price in return for an upfront payment. For more detailed information
on this kind of activity or to report a scam, please call the Financial Conduct Authority’s Consumer Helpline on +44 (0)800 111 6768 or visit
www.fca.org.uk/consumers/scams.
(1) A share capital reduction, including a reduction of the nominal value of each ordinary share from 160/7 pence each to £0.001 each, became effective on 11 July 2024.
(2) Based on the total number of ordinary shares in issue as at 31 December 2024, inclusive of treasury shares.
COMPANY AND SHAREHOLDER INFORMATION
As at 31 December 2024, there were 14,785 holders of ordinary shares of
£0.001(1) pence each in the Company. An analysis of these shareholdings
as at 31 December 2024 is set out in the table below(2)
253
MELROSE INDUSTRIES PLC ANNUAL REPORT 2024
ADDITIONAL
INFORMATION
Designed and produced by
Printed by Park Communications – a carbon neutral printing company
The material used in this Report is from sustainable resources. The paper mill
and printer are both registered with the Forestry Stewardship Council (FSC)®
and additionally have the Environmental Management System ISO 14001.
It has been printed using 100% offshore wind electricity sourced from UK wind.
Melrose Industries PLC
Registered Office
11th Floor, The Colmore Building
20 Colmore Circus Queensway
Birmingham
West Midlands
B4 6AT
Tel: +44 (0) 121 296 2800
Registered Number: 09800044
Head Office
Stratton House
5 Stratton Street
London
W1J 8LA
Tel: +44 (0) 20 7647 4500
www.melroseplc.net
London Stock Exchange
Code: MRO
SEDOL: BNGDN82
LEI: 213800RGNXXZY2M7TR85