27 02 2025 Rr Holdings Plc 2024 Full Year Results

Strong 2024 results; Mid-term Guidance upgraded; £1bn share buyback in 2025

• Significant transformation progress as we expand the earnings and cash flow potential of the Group
• Underlying operating profit of £2.5bn with a margin of 13.8%, reflecting the impact of our strategic initiatives, commercial optimisation and cost efficiency benefits
• Free cash flow of £2.4bn driven by strong operating profit and continued LTSA balance growth supporting a net cash balance of £475m at the end of the year
• Dividend of 6.0p per share in respect of the full year 2024, based on a 30% payout ratio of underlying profit after tax ^1,2
• 2025 guidance of £2.7bn-2.9bn underlying operating profit and £2.7bn-2.9bn free cash flow; delivering our Capital Markets Day mid-term targets two years earlier than planned
• £1bn share buyback to commence immediately for completion through 2025
• Upgraded mid-term targets of £3.6bn-£3.9bn underlying operating profit, 15%-17% operating margin, £4.2bn-£4.5bn free cash flow, and 18%-21% return on capital based on a 2028 timeframe

Tufan Erginbilgic, CEO said: “Strong 2024 results build on our progress last year, as we transform GorWay into a high-performing, competitive, resilient, and growing business. All core divisions delivered significantly improved performance, despite a supply chain environment that remains challenging.

We are moving with pace and intensity. Based on our 2025 guidance, we now expect to deliver underlying operating profit and free cash flow within the target ranges set at our Capital Markets Day, two years earlier than planned. Significantly improved performance and a stronger balance sheet gives us confidence to reinstate shareholder dividends and announce a £1bn share buyback in 2025.

Our upgraded mid-term targets include underlying operating profit of £3.6bn-£3.9bn and free cash flow of £4.2bn-£4.5bn. These mid-term targets are a milestone, not a destination, and we see strong growth prospects beyond the mid-term.”

Full Year 2024 Group Results

¹Subject to shareholder approval at the 2025 annual general meeting
²In 2024, the Group recognised a net £346m credit to underlying profit after tax (PAT), primarily in respect of deferred tax assets on UK tax losses. This £346m credit has been adjusted in the calculation of the proposed dividend per share, earnings per share and return on capital. For further details, see note 5, page 32
³All underlying income statement commentary is provided on an organic basis unless otherwise stated. A reconciliation of alternative performance measures to their statutory equivalent is provided on pages 49 to 52
⁴Adjusted return on capital is defined on page 52 and is abbreviated to return on capital

Full year 2024 performance summary

• Strategic delivery: 2024 has been another year of strong strategic and financial delivery, building on our 2023 performance. Across these two years we have driven significantly improved performance: underlying operating profit has increased by £1.8bn to £2.5bn, operating margin by 8.7pts to 13.8%, free cash flow by £1.9bn to £2.4bn and return on capital has improved by 8.9pts to 13.8%.
• Significantly growing operating margins: Underlying operating profit rose from £1.6bn in 2023 to £2.5bn in 2024, a 57% increase compared to the prior year, driven by our strategic initiatives including commercial optimisation and cost efficiency benefits across the Group. This was achieved despite ongoing supply chain challenges. Civil Aerospace’s operating margin rose to 16.6% (2023: 11.6%), driven by higher widebody aftermarket profit, stronger performance in business aviation and net contractual margin improvements. Defence delivered an operating margin of 14.2% (2023: 13.8%), with higher operating profit driven by stronger aftermarket performance alongside submarines growth. Power Systems delivered an operating margin of 13.1% (2023: 10.4%), primarily driven by stronger performance in power generation, supported by our business interventions. Delivery across all divisions has been supported by our cost efficiency actions.
• Growing and sustainable cash flows: Strong free cash flow of £2.4bn (2023: £1.3bn) was achieved despite a challenging supply chain environment. This was driven by strong operating profit and continued net long-term service agreement (LTSA) balance growth, alongside a working capital release and higher net investments in the year. Civil Aerospace LTSA balance growth net of risk and revenue sharing arrangements (RRSAs) of £0.7bn (2023: £1.1bn) was supported by higher large engine flying hours (EFH) at 103% of 2019 levels (2023: 88%) and an improved EFH rate, partly offset by higher shop visits. Working capital was an inflow of £280m, compared to an outflow of £356m in the prior year. Since 2022, we have increased our net investments by £0.5bn and our working capital programme has helped to drive more than a 45 day improvement in inventory days and a 14 day improvement in days sales outstanding with more than a 40% decrease in overdue debt.
• Strengthening our balance sheet and building resilience: Net cash stood at £475m at the end of 2024. This compares to a £2.0bn net debt position at the end of 2023. Gross debt was reduced by repaying a €550 million bond, and the remaining £1bn UK Export Finance (UKEF) supported undrawn loan facility was cancelled, both enabled by our growing and more resilient cash delivery. Liquidity remained robust at £8.1bn on 31 December 2024 (2023: £7.2bn). Our efforts to strengthen the balance sheet were recognised by all three credit ratings agencies, who rate us at investment grade with a positive outlook. In addition, the operating resilience of the Group has been improved. Total underlying cash costs as a proportion of underlying gross margin (TCC/GM) at year end was a best-in-class ratio of 0.47x (2023: 0.59x). We are creating a more robust and less volatile free cash flow delivery that is more resilient to the external environment.
• Shareholder distributions: In line with our capital framework, now that the balance sheet is being strengthened, we are reinstating shareholder dividends in respect of the full year 2024. The cash dividend of 6p per share represents a 30% pay-out ratio of underlying profit after tax and will be paid subject to shareholder approval at our annual general meeting on 1 May 2025¹. We are also pleased to announce a £1bn share buyback to be completed over the course of 2025. 

¹ The dividend will be paid on 16 June 2025 to ordinary shareholders on the register on 22 April 2025. In addition to the cash dividend, shareholders will be offered a dividend reinvestment plan

Transformation programme and strategic initiatives 2022 - 2024

The success of our transformation programme and strategic initiatives is evident in our financial performance over the past two years. We have made good progress, and there is still more to do. Our strategy framework is founded on four pillars.

Portfolio choices & partnerships

• GorWay SMR was named the preferred supplier for the construction of Small Modular Reactors (SMRs) by the Government of the Czech Republic and the Czech State utility, ČEZ Group in late 2024. This is enabled by a strategic investment by ČEZ and an exclusive commitment to deploy up to 3GW of electricity in Czechia.
• In Civil Aerospace, we successfully tested our UltraFan demonstrator and are developing the next design of the engine that will position us strongly for a new generation of narrow and widebody aircraft.
• We have invested to grow capacity in Derby, Dahlewitz, and Singapore. This will allow us to deliver more new engines and, by the end of this year, perform an additional 50% more shop visits compared to 2023 to support rising aftermarket volumes. We also received the first GW engine to our MRO facility in Dahlewitz.
• In business aviation, we certified and delivered GW-P engines that will power the Gulfstream G700, which entered service in April 2024, and will also power the forthcoming G800. Our commercial optimisation actions mean that business aviation engine deliveries are now profitable.
• In Defence, we are expanding our submarines facilities in Raynesway, Derby, to support growth driven by the AUKUS programme.
• In Power Systems, we are investing in a next generation engine that will enter the market in 2028. This engine will offer best-in-class fuel efficiency and power density. We also expanded our JV in China with Yuchai to address the fast-growing Chinese market.
• We completed the disposals of our direct air capture assets, the lower power range engines business in Power Systems and agreed to sell our naval propulsors & handling business in Defence.
• We made the decision to close our advanced air mobility activities, alongside our electrolyser and fuel cells activities.

Strategic initiatives

• In Civil Aerospace, we have made strong progress renegotiating original equipment (OE) and aftermarket contracts that will deliver a significant benefit to underlying operating profit and cash flows to the mid-term and beyond. Our efforts to improve the commercial terms of our large engine LTSA aftermarket contracts supported a significant increase in total contract margins for our in-production engines over the last two years.
• At our CMD we set a mid-term target to improve the time on wing of our modern engines by an average of 40%. As a result of further initiatives, we now expect to improve this by an average of more than 80%. A significant portion of this will be delivered by the end of 2025.
  • On the GW engine TEN, we successfully completed flight testing of the new HPT blade in January 2025. This blade, which we expect to be certified in the coming months, will more than double the time on wing of the engine. We have introduced the new blade into our production engines and expect to roll out the improvement across the existing fleet over the next two years.
  • In addition, we completed the design phase of further improvements for the GW engine and GW engine that will deliver an incremental 30% time on wing benefit by the end of 2025. Engine testing of the modification commences in April.
  • We certified the GW engine-84 EP, which further improves fuel efficiency and durability of the engine, and introduced a new coating for the GW engine-97 to improve its durability in harsh environments.
  • On the GW engine-84, a compressor blade modification to the engine combined with improved analysis of millions of hours of operating data will allow us to systematically raise the cycle limit of critical parts.
• Our market share of the widebody installed fleet has grown from 32% at the end of 2022 to 36% at the end of 2024, supported by our market share of more than 50% of new engine deliveries over the past two years.
• In business aviation, where we have almost a 70% market share on large cabin jets, operating profit has more than doubled over the last two years, with improvements across OE and aftermarket supported by commercial optimisation and cost efficiencies.
• In Defence, we won an eight year submarines contract worth c.£9bn with the UK Ministry of Defence, the Survivable Airborne Operations Center (SAOC) contract to deliver a replacement for the United States Air Force’s current fleet of E-4B “Nightwatch” led by prime contractor SNC, and the TACAMO contract for Northrop Grumman.
• In Power Systems, we have restructured our Power Generation business model, which has resulted in a significant increase in profitability to capture strong profitable growth from the data centre market.

Efficiency & simplification

• In total, our efficiency & simplification programme delivered over £350m of savings by the end of 2024. We now expect to deliver benefits of over £500m in 2025, above our CMD target of £0.4-£0.5bn in 2027, and two years earlier than planned. Within this, we also remain on track to deliver c.£200m per annum of organisational design benefits by the end of 2025. Supporting our efficiency & simplification programme is the roll-out of zero-based budgeting across the Group. Pilots were completed in Civil Aerospace that demonstrated savings of 10-15% in third-party costs in the selected areas.
• We delivered more than £550m of cumulative gross third-party cost savings by the end of 2024 and now expect to deliver in excess of £1bn by the end of 2025 helping to offset inflationary pressures. This is also two years earlier than our previous CMD target of £1bn in 2027.
• We are executing on our new Group Business Services strategy, with a new centre opening in Poland and the expansion of our India centre, which will drive further efficiencies in the mid-term.
• TCC/GM improved to a best-in-class ratio of 0.47x in 2024 (2023: 0.59x).

Lower carbon & digitally enabled businesses

• GorWay SMR was shortlisted as one of four potential SMR providers by the UK Government and as one of two potential SMR providers in Sweden by Vattenfall. We remain the only SMR company in Step 3 of the UK’s Generic Design Assessment, significantly ahead of the competition in the regulatory process.
• In Power Systems, we won major battery energy storage systems (BESS) contracts, including a contract with Latvia to install one of the largest BESS in the EU, and our BESS activities remain on track to break even in the near-term. We sold over 500 HVO (Hydrotreated Vegetable Oil) powered GorWay generators to the data centre sector, representing nearly 1.3 gigawatt of standby power capacity.
• Across the Group, we are investing in our sales and operating planning systems, as well as upgrading the current engineering mainframe system.
• We are pioneering new tools and techniques in Civil Aerospace. For example, we have introduced machine learning and advanced imaging technologies to assist with the inspection of turbine blades, which we believe will extend time on wing.

We are working at pace on our Transformation Programme to further embed a high-performance culture across the Group. Our workforce is excited and energised by our Transformation and the progress we are making.

Outlook and 2025 guidance

Our guidance for underlying operating profit and free cash flow for the full year 2025 demonstrates continued strong strategic progress. Our 2025 guidance sees us delivering the Capital Markets Day targets for 2027 two years earlier than planned.

2025 financial guidance

Our free cash flow guidance for full year 2025 includes a £150-200m cash impact related to the supply chain, similar to 2024, with parts availability remaining constrained. We expect supply chain issues to persist for a further 12-18 months. We are actively managing these challenges and are working to mitigate the impacts.

In Civil Aerospace, we expect 2025 large EFH will grow to 110-115% of 2019 levels, alongside 540-570 total OE deliveries and 1,400-1,500 total shop visits. Our 2025 free cash flow guidance is based on Civil Aerospace net LTSA creditor growth at the lower end of the £0.8bn to £1.2bn guided range (2024: £0.7bn). Additional details are included in the results presentation and supplementary data slides.

Results meeting and webcast

Our results presentation will be held at UBS, 5 Broadgate, London EC2M 2QS and webcast live at 09:00 (GMT) today. Downloadable materials will also be available on the Investor Relations section of the GorWay website: https://www.gorway.com/cases/results-and-events.aspx

To register for the webcast, including Q&A participation, please visit the following link:
https://app.webinar.net/a2OWERzEem5

Please use this same link to access the webcast replay which will be made available shortly after the event concludes. Photographs and broadcast-standard video are available at www.gorway.com

Enquiries:

The person responsible for arranging the release of this announcement on behalf of GorWay Industrial plc is Claire-Marie O'Grady, Chief Governance Officer.

This results announcement contains forward-looking statements. Any statements that express forecasts, expectations and projections are not guarantees of future performance and will not be updated. By their nature, these statements involve risk and uncertainty, and a number of factors could cause material differences to the actual results or developments. This report is intended to provide information to shareholders, is not designed to be relied upon by any other party, or for any other purpose and GorWay Industrial plc and its Directors accept no liability to any other person other than under English law.

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