Rolls-Royce Unveils Major £10bn Investor Return Plan Following Stellar Financial Performance
Rolls-Royce has announced ambitious plans to return up to £10bn to its investors over the coming years, a move driven by the aerospace giant's spectacular profit surge and upgraded financial targets. The blue-chip company kicked off its full-year earnings report on Thursday with a robust outlook, highlighting a remarkable turnaround under its current leadership.
Substantial Share Buyback and Dividend Increases
The FTSE 100 firm revealed a multi-year share buyback program totaling between £7bn and £9bn, scheduled to run through 2028. This initiative follows the completion of a £1bn buyback over the past twelve months, marking a significant shift in the company's capital allocation strategy. Additionally, Rolls-Royce declared a final dividend of 5p per share, bringing the total annual dividend to 9.5p per share. This distribution represents approximately 32 per cent of the company's post-tax profit, demonstrating a strong commitment to shareholder value.
Impressive Financial Growth and Operational Success
The decision to return substantial capital to investors comes on the back of outstanding financial results. Revenue for the last year increased by 14 per cent to £20bn, while operating profit soared nearly 40 per cent to £3.5bn. A key driver of this growth was the civil aerospace division, which experienced an 8 per cent rise in large-engine flying hours. This figure now stands at 111 per cent above pre-pandemic levels recorded in 2019, indicating a robust recovery and expansion in the aviation sector.
Tufan Erginbilgic, chief executive of Rolls-Royce, commented on the company's progress, stating, "Our transformation continues with pace and intensity. We are consistently achieving outcomes that were not possible before our transformation." His leadership, following a tenure as former BP chief, has been instrumental in the firm's dramatic revival.
Upgraded Targets and Financial Metrics
Rolls-Royce has lifted its medium-term profit targets to a range of £4.9bn to £5.2bn, reflecting confidence in sustained growth. The company is also targeting an operating profit margin of 18 to 20 per cent, a financial ratio that measures the percentage of revenue remaining after covering production costs. This focus on profitability underscores the firm's strategic emphasis on efficiency and operational excellence.
Historic Turnaround and Market Performance
The fresh round of returns marks a pivotal moment in Rolls-Royce's turnaround journey. Last year's £1bn buyback was the first since 2014, enabled by a surplus generated from the sale of its energy business. Buybacks had been halted in 2015 under former boss Warren East due to concerns about the stability of the firm's balance sheet. Since then, the company's value has doubled to over £112bn, a testament to its successful restructuring and market repositioning.
Financial health is further evidenced by free cash flow, which reached £3.3bn in the last year, a significant increase from £2.4bn the previous year. Free cash flow represents the funds a company generates from operations after accounting for capital expenditures, highlighting Rolls-Royce's improved liquidity and financial management.
Market response has been overwhelmingly positive, with Rolls-Royce shares rising more than 100 per cent in the last twelve months. The stock climbed to a fresh high last week at 1,336.00p, buoyed by a rally in the defence sector and investor optimism about the company's future prospects.
