Rolls-Royce to Pay First Dividend Since Pandemic as Profits Surge, Reports Reuters

By Paul Sandle

LONDON (Reuters) – Rolls-Royce has announced it will reinstate its dividend for the first time since the pandemic, as Chief Executive Tufan Erginbilgic’s recovery strategy begins to show results. The British aero engine manufacturer has also upgraded its profit and cash flow projections for 2024.

Shares in Rolls-Royce surged by 11% to a record high, reaching 501 pence. The company anticipates an operating profit of up to 2.3 billion pounds for 2024, an increase of 300 million pounds from its February predictions, significantly exceeding market expectations.

Erginbilgic, who previously worked at BP and joined Rolls-Royce in January of last year, stated that his transformation plan is advancing with “pace and intensity.” Rolls-Royce, which serves as the exclusive engine supplier for Airbus’s widebody aircraft and also provides engines for Boeing’s 787, had not distributed any dividends since air travel ground to a halt during the pandemic in 2020.

“These results and our increased financial resilience give us the confidence to raise our 2024 guidance and reinstate shareholder distributions for the full year 2024 results,” Erginbilgic remarked.

Analysts from Jefferies indicated that while expectations had risen prior to the announcement, Rolls-Royce exceeded both profit and cash flow estimates. The civil aerospace sector stood out as a highlight, with flying hours surpassing pre-pandemic levels and the delivery of 120 large engines, an increase from 115 engines the previous year.

In the first half of the year, underlying operating profit climbed to 1.15 billion pounds, up from 673 million pounds in the same period last year. “We are expanding the earnings and cash potential of the business in a challenging supply chain environment, which we are proactively managing,” the CEO added.

Erginbilgic acknowledged that difficulties in sourcing parts could cost the company between 150-200 million pounds this year, with similar challenges expected to continue for another 18-24 months. Rolls-Royce’s operating margin increased by 4.4 percentage points to 14%, with the civil aerospace division achieving an impressive operating margin of 18%.

The company is committed to investing 1 billion pounds to enhance the durability and efficiency of its engines, particularly in hotter climates like the Middle East. Additionally, Rolls-Royce raised its forecast for free cash flow in 2024 to between 2.1 and 2.2 billion pounds, up from a previous estimate of 1.7 to 1.9 billion pounds.

The dividend payout will commence at 30% of underlying profit after tax.