Rolls-Royce shares surge on positive results
Rolls-Royce has delivered remarkable financial results for 2024, reinstating its dividend and announcing a £1 billion share buyback programme as CEO Tufan Erginbilgic's transformation strategy accelerates.
Key financial highlights from Rolls-Royce’s 2024 results
Rolls-Royce has demonstrated exceptional financial momentum in 2024, with results significantly exceeding market expectations. The aerospace and defence giant reported an underlying operating profit of £2.46 billion, up considerably from £1.59 billion in 2023.
The company's revenue surged 16% to £17.85 billion, compared to £15.4 billion in the previous year. This substantial growth reflects strengthening demand across Rolls-Royce's core business divisions and successful implementation of strategic initiatives.
Free cash flow more than doubled to £2.42 billion from £1.29 billion in 2023, showcasing the company's enhanced financial efficiency. This exceptional cash generation has transformed Rolls-Royce's balance sheet position.
Perhaps most impressively, Rolls-Royce finished the year with a net cash balance of £475 million, a dramatic turnaround from the £1.95 billion net debt position at the end of 2023. Operating margin also improved significantly to 13.8%, highlighting the success of cost-saving measures.
Dividend return and £1 billion share buyback
In a major milestone for shareholders, Rolls-Royce has reinstated its dividend for the first time since the Covid-19 pandemic forced its suspension. The company will pay a 6p per share dividend, representing a 30% payout ratio of underlying profit after tax.
This dividend restoration marks a significant moment in Rolls-Royce's recovery journey and demonstrates management's confidence in sustainable profitability. The move has been eagerly anticipated by investors since the pandemic disruption.
Additionally, Rolls-Royce has authorised a substantial £1 billion share buyback programme scheduled for completion throughout 2025. This decision reflects strong confidence in future cash generation capabilities.
The combination of dividend reinstatement and share buyback programme sends a powerful signal to the market about Rolls-Royce's financial health. These shareholder returns come after prioritising debt reduction and balance sheet strengthening.
Mid-term guidance and accelerated growth projections
Rolls-Royce has upgraded its mid-term financial targets, with CEO Tufan Erginbilgic stating that the company is now running two years ahead of schedule in delivering its 2027 financial targets.
For 2025, Rolls-Royce projects underlying operating profit of £2.7-£2.9 billion and free cash flow of £2.7-£2.9 billion. These figures represent continued strong growth from the already impressive 2024 results.
Looking further ahead to 2028, the company has set ambitious targets including operating profit of £3.6-£3.9 billion and operating margin of 15-17%. Free cash flow is projected to reach £4.2-£4.5 billion with return on capital of 18-21%.
These forward-looking projections have been received positively by analysts, with many revising their valuations upward. The accelerated timeline for achieving previously established targets reflects the effectiveness of the transformation programme.
Civil aerospace performance driving recovery
The civil aerospace division has emerged as a key driver of Rolls-Royce's financial turnaround, benefiting from both increased demand for widebody aircraft engines and growing aftermarket services.
Large engine flying hours have recovered strongly to 103% of 2019 pre-pandemic levels, compared to just 88% in 2023. This recovery has boosted aftermarket revenue, which typically carries higher margins than original equipment sales.
Significant improvements in maintenance and service contracts have contributed to enhanced profitability. Rolls-Royce has renegotiated several key contracts to ensure better cost recovery and improved terms.
The company expects further growth in this segment, projecting large engine flying hours to reach 110-115% of 2019 levels in 2025. This continued recovery is expected to further enhance aftermarket revenue and cash generation in the coming years.
Defence sector securing major contracts
Rolls-Royce's defence business has strengthened its position with several significant contract wins that provide long-term revenue visibility. Most notably, the company secured a £9 billion submarines contract with the UK Ministry of Defence.
Additionally, Rolls-Royce won major US defence contracts, including participation in the US Air Force's Survivable Airborne Operations Centre (SAOC) and the TACAMO programme. These contracts demonstrate the company's strong position in mission-critical defence systems.
The defence sector has historically provided stable revenue streams that help balance the more cyclical civil aerospace business. These recent contract wins further enhance this stability while adding substantial backlog.
With geopolitical tensions driving increased defence spending globally, Rolls-Royce is well-positioned to benefit from this trend. The company's specialised technologies in propulsion and power systems remain in high demand from military customers worldwide.
Power systems division showing strong growth
The power systems division has shown impressive growth in 2024, with significant increases in profitability across power generation and energy storage solutions. This division serves diverse markets including industrial, marine and infrastructure customers.
Investments in next-generation engine technology are progressing well, with new products on track for a 2028 market launch. These innovations focus on improved efficiency and compatibility with sustainable fuels.
The division has successfully navigated challenging market conditions while maintaining strong order intake. This demonstrates the resilience of its business model and the essential nature of its products.
Continued expansion in emerging markets has created new growth avenues for the power systems segment. The company has particularly targeted data centre power solutions as a key growth opportunity.
Efficiency and cost-saving measures exceeding targets
Rolls-Royce's efficiency and simplification programme has delivered exceptional results, with over £350 million in cost savings achieved by the end of 2024. This significantly contributes to the improved profit margins across all business divisions.
The company now expects to achieve more than £500 million in annual savings by 2025, exceeding its previous target. These savings come from organisational restructuring, process improvements and supply chain optimisation.
Third-party costs have been reduced by over £550 million, with cumulative savings expected to exceed £1 billion by the end of 2025. This focus on cost discipline has transformed Rolls-Royce's operational efficiency.
These cost-saving initiatives have been implemented without compromising product quality or customer service – a delicate balance that management has successfully maintained. The result is a leaner organisation with enhanced competitive positioning.
Challenges and future outlook
Despite the strong performance, Rolls-Royce acknowledges ongoing supply chain challenges that are expected to persist for another 12-18 months. The company is actively working to secure parts availability and mitigate risks in its operations.
The civil aerospace market recovery remains a critical factor in Rolls-Royce's continued success. While flying hours have surpassed 2019 levels, maintaining growth momentum is essential for future revenue generation.
Competition in core markets remains intense, requiring continued innovation and efficiency improvements. Rolls-Royce is investing in next-generation technologies to maintain its competitive edge in key market segments.
Overall, Rolls-Royce's 2024 results mark a significant turnaround, with higher operating profit, improved cash flow, and strengthened financial resilience. The dividend reinstatement, share buyback programme, and upgraded growth targets demonstrate strong momentum heading into 2025.
Rolls-Royce share price – technical analysis
The chart of Rolls-Royce since October 2022 is remarkable. From 12 October 2022 to 27 February 2025, the shares are up 1011%. This compares with Nvidia’s 1061% return over the same period.
The uptrend has exhibited remarkable strength; while it has seen losses, these have usually been stemmed at the 100-day simple moving average (SMA). The 200-day SMA has not been touched since November 2022. The latest surge does risk leaving the price overextended in the short-term, and we have seen similar periods of consolidation, most notably in 2023 when the highs of March were not broken until July.
Rolls-Royce chart
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