Rolls-Royce, the British jet engine manufacturer, has made a significant financial comeback, announcing a £1.5bn return to shareholders. This includes reinstating its dividend for the first time since the COVID-19 pandemic and initiating a £1bn share buyback.
The FTSE 100-listed company reported a remarkable 55% increase in underlying operating profits for 2024, reaching £2.5bn. This surge in profitability was accompanied by a 15% rise in underlying sales, which totaled £17.8bn. Additionally, the company generated £2.4bn in cash, nearly doubling its previous year’s figures.
The market responded positively to Rolls-Royce’s announcement, with its share price climbing 15% to a record £7.39 on Thursday morning. This resurgence marks a stark turnaround from the financial struggles the company faced during the pandemic, when it was forced to raise billions in emergency funding to survive the downturn in long-haul air travel.
Strategic Recovery and Growth
Under the leadership of Chief Executive Tufan Erginbilgiç, appointed in 2023, Rolls-Royce has aggressively pursued financial and operational restructuring. Erginbilgiç has spearheaded a strategy focused on raising customer pricing, optimizing costs, and capitalizing on the recovery of global air travel.
One of the key indicators of this recovery is the increase in flying hours of Rolls-Royce engines on passenger jets, which in 2024 surpassed pre-pandemic levels for the first time. Rolls-Royce supplies engines for Airbus’s larger twin-aisle aircraft as well as Boeing’s 787 Dreamliner. Amid this success, the company is also exploring a return to the lucrative single-aisle jet engine market.
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The CEO announced that the company was on track to meet operating profit targets set for 2026 by the end of this year—two years ahead of schedule. However, he cautioned that supply chain disruptions, which cost Rolls-Royce up to £200m in 2024, could persist for another 18 months. These disruptions particularly affected the Trent 1000 engine used in Boeing’s 787 aircraft.
Impact of Defence Spending and Global Politics
Rolls-Royce stands to benefit significantly from increased UK defence spending, which is set to rise to 2.5% of GDP. The company is involved in several high-profile defence projects, including the UK’s joint fighter jet program with Japan and Italy, the AUKUS nuclear submarine partnership between the UK, Australia, and the US, and the Royal Navy’s nuclear-powered submarine fleet.
Erginbilgiç welcomed the increased investment in sovereign defence capabilities, highlighting its importance in an increasingly uncertain global environment. He emphasized that such spending would enable companies like Rolls-Royce to strengthen their supply chains and expand their workforce.
Geopolitical uncertainties, particularly related to US defence policies, have also come into focus. Former US President Donald Trump and billionaire entrepreneur Elon Musk have signaled intentions to scrutinize defence spending. However, Erginbilgiç stated that Rolls-Royce had not received any indications that its US contracts would be affected.
Strong Balance Sheet and Investor Returns
Rolls-Royce’s improved financial position has enabled the company to make substantial returns to shareholders. The reinstated dividend, worth 6p per share, will amount to approximately £500m and will be paid in June 2025. The company is also initiating a £1bn share buyback program.
Erginbilgiç defended these payouts, asserting that financially strong companies must reward investors to sustain long-term growth and attract further investment.
“If you don’t return some of the investment that shareholders have made, how do you expect to be a financially strong company in the future?” he remarked.
Future Outlook
Looking ahead, Rolls-Royce aims to increase its underlying operating profit to between £3.6bn and £3.9bn by 2028. Having shouldered substantial debt during the pandemic, the company has now returned to a net cash position of £475m as of the end of 2024.
With a renewed focus on profitability, strategic expansion into new aviation and defence markets, and increasing investor confidence, Rolls-Royce is positioned for sustained growth. The company’s resurgence underscores its resilience and adaptability in navigating economic challenges and capitalizing on emerging opportunities.
