(Alliance News) – Shares of Rolls-Royce Holdings PLC soared on Thursday after it raised its outlook and announced plans to pay a dividend for the first time since before the Covid-19 pandemic.
Chief Executive Officer Tufan Erginbilgic said: “Our transformation of Rolls-Royce into a high-performing, competitive, resilient and growing business is progressing at 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. We are on track to achieve our medium-term objectives.”
Erginbilgic added: “These results and our increased financial resilience give us confidence to raise our 2024 guidance and reinstate shareholder distributions in respect of full-year 2024 results.”
In response, shares in the jet engine maker jumped 8.9% to 489.80 pence in London on Thursday. It was the best performer in the FTSE 100 index, which was little changed.
In the first half of 2024, Rolls-Royce said pre-tax profit was flat at £1.42 billion compared with the previous year. However, operating profit more than doubled to £1.65 billion from £797 million as the operating margin increased to 18.6% from 10.6% a year earlier. On an underlying basis, the operating margin improved to 14.0% from 9.7%.
Revenue rose 18% to £8.86bn from £7.52bn. Basic earnings per share fell to 13.71p from 14.70p on a statutory basis, but rose to 8.95p from 4.90p on an underlying measure.
Free cash flow improved to GBP 1.16 billion from GBP 356 million and return on equity rose to 13.8% from 9.0%. Net debt fell to GBP 822 million from GBP 1.95 billion on 31 December.
As expected by many investors, Rolls-Royce has confirmed that shareholder distributions will be reinstated with full-year 2024 results. The firm intends to pay out 30% of underlying pre-tax profit by 2024 and a 30% to 40% ratio thereafter.
The company last paid dividends before the pandemic, in January 2020.
Reflecting the strong first half, Rolls-Royce raised its 2024 underlying pre-tax profit guidance to £2.1-£2.3 billion, up from £1.7-£2.0 billion previously. Underlying pre-tax profit was £1.26 billion in 2023.
The company expects free cash flow of £2.1-2.2 billion for 2024, up from a previous forecast of £1.7-1.9 billion. In 2023, it was £1.29 billion.
Rolls-Royce said the first half showed “significantly improved operating profit and margins in a challenging supply chain environment.”
The biggest improvement was in Civil Aerospace, which posted an operating margin of 18.0%, up from 12.4% a year ago. This was driven by higher aftermarket benefit from long-term service agreements on large engines and time and materials, stronger performance in business aviation in both original equipment and aftermarket, and improvements in net contractual margins.
Defense posted an underlying operating margin of 15.5%, up from 13.6%, driven by higher after-sales profit in Combat and Transport.
Submarine growth was also strong in the period, the company said. Power Systems posted an operating margin of 10.3%, up from 7.0%, driven by pricing measures, especially in Power Generation.
“Across all divisions, our cost efficiency actions have helped mitigate the impact of inflation,” Rolls-Royce added.
Underlying total cash costs as a proportion of underlying gross margin improved to 0.49 times from 0.64 times.
By Jeremy Cutler, Alliance News Reporter
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