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Rolls-Royce said it would hit its profit targets two years early, sending shares in the UK aerospace group up 15 per cent and catapulting it into the ranks of the 10 biggest companies on the blue-chip FTSE 100 index.
The engine maker told investors on Thursday that it would meet targets, set in 2023, for underlying operating profit and free cash flow this year as it continued to benefit from a rebound in travel since the pandemic and a simplification of the business under chief executive Tufan Erginbilgiç.
Its latest results underlined the scale of the recovery for Rolls-Royce, whose engines are used on commercial aircraft, in the five years since governments shut the skies during the Covid-19 crisis.
Rolls-Royce’s order book for large engines rose 13 per cent to 1,843 engines at the end of 2024. “Large engine flying hours” — a key metric for the company as it is only paid when its engines are in use — rose 17 per cent year on year in 2024 to reach 103 per cent of 2019 levels, exceeding pre-pandemic levels.
The surge in Rolls-Royce shares pushed their gains to nearly 700 per cent since Erginbilgiç succeeded Warren East as chief executive at the start of 2023. The former BP executive quickly branded the company a “burning platform” that was in need of radical change to survive.
Following the 15 per cent jump in the shares on Thursday, Rolls-Royce ranks as the 10th-biggest company in the FTSE 100. It has gained £54bn market value since Erginbilgiç took over.
Alongside the benefits of improved conditions in its civil aviation business, Erginbilgiç has culled middle managers, shaken up senior management and reduced duplication.
Rolls-Royce, which also has a large defence business, said it had delivered £350mn of savings by the end of 2024, and expected more than £500mn in 2025.
In 2023, Erginbilgiç had set targets of between £2.7bn and £2.9bn for both underlying operating profit and free cash flow that would be met by around 2027.
After announcing that the targets would now be achieved this year, the 188-year-old manufacturer set new midterm targets on Thursday, including delivering underlying operating profit of between £3.6bn and £3.9bn by 2028.
Erginbilgiç said the targets were a “milestone not a destination”, adding that the company saw “strong growth prospects beyond the midterm”.
Erginbilgiç told the Financial Times that the UK government’s decision to raise defence spending would allow major projects Rolls-Royce is involved in — including the Aukus submarine programme and next generation fighter jets — to continue without facing any cuts.
Rolls-Royce said it would launch a £1bn share buyback and announced a dividend of 6p a share for 2024.
The group has faced criticism from some of its major airline customers over its engines, with British Airways last year blaming the cancellation of hundreds of flights on delays to the delivery of engines and parts.
In its results on Thursday, Rolls-Royce warned that the availability of spare parts was still “constrained”, and that it expected supply chain issues to persist for a further 12 to 18 months.
“We are actively managing these challenges and are working to mitigate the impacts,” it said.
Its 2025 financial guidance included an estimated hit of between £150mn and £250mn from supply chain issues.
