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Rolls-Royce said annual profits more than doubled last year and forecast further growth in 2024, sending its shares up 9 per cent and extending a blistering rally over the past year.
The FTSE 100 company, which is in the midst of a revamp under new chief executive Tufan Erginbilgic, beat analyst expectations on all metrics. It said underlying operating profit rose by £938mn to £1.6bn, while revenues increased to £15.4bn. It generated record free cash flow of £1.3bn.
Plunged into crisis by the coronavirus pandemic, Rolls-Royce’s recovery has been driven by a sustained rebound in the aviation sector, robust orders for its defence business and a turnaround plan.
The results also surpassed the most recent guidance Rolls-Royce published last July. The company now expects underlying profit to hit as high £2bn this year, with the business generating as much as £1.9bn of free cash flow.
The company, whose engines power large civil aircraft as well as submarines and military jets, has enjoyed a sharp shift in its fortunes since Erginbilgic took the helm just over a year ago.
Erginbilgic, a former BP executive, launched a restructuring programme to streamline the group’s operations and boost returns across its three divisions of civil aerospace, defence and power systems, which makes diesel and gas engines for ships and power generation. The revamp will result in up to 2,500 jobs being lost from its workforce of about 42,000, a cut of almost 6 per cent, by the end of 2025.
Its share price, which has more than doubled over the past 12 months, was up 9 per cent in early trading.
Nick Cunningham, analyst at Agency Partners, said while the company beat expectations “across all the operating businesses . . . proportionately the biggest element of outperformance came from power and defence”.
This “across the board performance” suggests that “management actions, not just external recovery play a large part in this performance”.
So-called large engine flying hours — a key metric as Rolls-Royce gets paid for the time its engines are in the air — recovered to 88 per cent of pre-Covid 2019 levels and up from 65 per cent in 2022, the company said on Thursday.
“Given that engine flying hours were only slightly ahead of expectations it seems likely that pricing and other terms of business were the main drivers of the strong profits,” said Cunningham.
However, Rolls-Royce held off reinstating payouts for investors that have been on hold since the pandemic plunged the group into crisis.
Rolls-Royce said it was committed to reinstating payments “once we are comfortably within an investment grade profile and the strength of our balance sheet is assured”.
Erginbilgic credited the company’s transformation for the “record performance”, which he said was “driven by commercial optimisation, cost efficiencies and progress on our strategic initiatives”.
Under Erginbilgic, the company has also taken a tougher on the pricing of some of its sales and maintenance contracts to focus on profitability, leading to some missed sale opportunities.
He defended the company’s tougher stance on negotiations with customers on Thursday.
“We are working with our customers. We are a partner. For any partnership to be sustainable, it needs to be win-win,” he told reporters, noting that 2023 was the highest for orders in 15 years.
The company is also investing £1bn to improve the time its engines can spend in the air. Dubai-based Emirates last year ruled out buying Airbus A350-1000 jets until durability issues on Rolls-Royce’s largest engine, the Trent XWB-97, had been ironed out. The engine has faced issues in hot, dusty climates.
