Rolls-Royce has announced the reinstatement of dividends and launched a £1bn share buyback programme as its full-year profit significantly exceeded expectations.
The FTSE 100 engineering behemoth, which has major UK sites in Derby and near Bristol, proposed a 6p per share dividend for investors on Thursday, marking its first payout since the onset of the pandemic, as reported by City AM.
A £1bn share buyback scheme will also kick off immediately and run through 2025, according to a market statement. Shares surged over 14% in early trading as investors eagerly jumped aboard.
This comes as underlying profit hit £2.5bn, comfortably surpassing a previous forecast of between £2.1bn and £2.3bn. Revenue of £17.8bn also outperformed analysts’ consensus of approximately £17.3bn.
Following this impressive performance, Rolls-Royce has raised its medium-term targets for profit and free cash flow. Underlying operating profit is now projected to land between £3.6bn and £3.9bn by 2028, while free cash flow is anticipated to range from £4.2bn to £4.5bn.
“We are moving with pace and intensity,” stated CEO Tufan Erginbilgic, who has spearheaded a remarkable turnaround in his first two years at the helm. He continued: “Based on our 2025 guidance, we now expect to deliver underlying operating profit and free cash flow within the target ranges set at our Capital Markets Day, two years earlier than planned.”
He concluded: “Significantly improved performance and a stronger balance sheet gives us confidence to reinstate shareholder dividends and announce a £1bn share buyback in 2025.”
Rolls-Royce’s shares have seen a significant uptick since Erginbilgic took the helm in January 2023, driven by a potent mix of soaring travel demand and geopolitical tensions fuelling orders for its jet engines and defence technology.
The company’s stock price has nearly doubled over the past year and increased almost sixfold over the previous two years.
“The group’s turnaround has been so impressive that some of its 2027 guidance has been hit two years early, causing the group to upgrade its mid-term guidance,” commented Aarin Chiekrie, an equity analyst at Hargreaves Lansdown.
“Revenues are being boosted by the upward trend in engine-flying hours, which are now cruising above pre-pandemic levels. But that’s just one part of the puzzle.”
He added, “Layoffs, contract renegotiations, process changes, and increased use of data to drive efficiencies have put Rolls on a much healthier platform. As a result, margins have moved much higher, helping to convert the increased flying hours and revenue into profits.”