Rolls-Royce hikes guidance and brings back dividend after profit almost doubles
Rolls-Royce has hiked its full-year guidance and announced plans to reinstate its dividend after profit nearly doubled year-on-year.
The FTSE 100 giant said it will start pay-outs when it reports 2024 full-year results. These will begin at a 30 per cent ratio of underlying profit after tax, with an ongoing pay-out ratio of 30 to 40 per cent per year.
It came as Rolls hiked full-year guidance for underlying operating profit to between £2.1bn and £2.3bn, and free cashflow to between £2.1bn and £2.2bn.
Shares rose over eight per cent in early trading.
Tufan Erginbilgic, chief executive, said: “Our transformation of Rolls-Royce into a high-performing, competitive, resilient, and growing business is proceeding with pace and intensity. We are expanding the earnings and cash potential of the business in a challenging supply chain environment, which we are proactively managing.”
Both pre-tax and operating profit nearly doubled to £1.04bn and £1.1bn respectively. Underlying revenue increased to £9.2bn, from around £7bn.
Rolls-Royce enjoyed an exceptional share price rally last year after bringing in Erginbilgic to spearhead a turnaround. That rise has continued into 2023, with shares up over 50 per cent this year to date.
Booming travel demand has led to higher orders for the London-listed firm’s jet engines. At the same time, its defence order book has reached record levels, bolstered by contract awards for the Aukus submarine defence agreement and increasing geo-political tension around the globe.
Commenting on Thursday’s performance, Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said: “The uplift in fortunes was largely driven by improved profitability in the Civil Aerospace division. Efficiencies, contract improvements, and increased volumes were all to thank for this.
“Large engine flying hours (EFH) are cruising just above 2019 levels, driven by a growing fleet of young planes and a strong demand for travel.
“After such a strong first half, Rolls-Royce was confident enough to upgrade its full-year targets, which now include free cash flows of between £2.1-2.2bn. Even at the low end, that would mark a more than 60 per cent uplift from last year’s £1.3bn record level.
He added: “This very healthy cash generation has helped Rolls make eyewatering headway on lowering its debt levels, which means dividends are back on the table. Before this morning, markets were pricing in around 3p per share next year, but with today’s upgrades, there’s scope for that to be closer to 5p per share.”
Basic earnings per share sit at 8.95p, up from 4.9p last year.