Rolls-Royce earnings take off on rebound in flights

Rolls-Royce has hailed ‘significantly improved’ first-half results, with earnings soaring more than fivefold against a continued resurgence in air travel.

The engineering giant revealed its underlying operating profits for the six months ending June climbed to £673million from £125million in the equivalent period last year.

Profitability was driven by margins in its civil aerospace division jumping by nine percentage points as the group saw a sustained recovery in large engine demand, supported by a record order from Air India.

Results: Rolls-Royce’s profitability was driven by a sustained recovery in large engine demand

It also benefited from a rise in flying hours of its engines, which rose to 83 per cent of 2019 levels, thanks partly to the Chinese government lifting lockdown restrictions.

The rebound in airline travel helped underlying revenues in the civil aerospace arm leap by over £900million to £3.26billion, just under half the firm’s total underlying turnover of £6.95billion.

Sales in the group’s other divisions, defence and power systems, also grew strongly, with the former bolstered by higher military spending and the latter buoyed by demand from the marine and mining industries.

Rolls-Royce’s half-year results come a week after the company upgraded its annual guidance as chief executive Tufan Erginbilgic, who once described Rolls-Royce as a ‘burning platform’, claimed his turnaround plan was working.

Full-year underlying operating profits are expected to be £1.2billion to £1.4billion, against a prior forecast of £800million and £1billion, while free cash flow is predicted to be £900million to £1billion.

The better free cash flow forecast is despite the business assuming major headwinds related to legacy Boeing concessions, two fires at suppliers’ premises, and a recent legal judgement that could cost it around £100million.

In early July, the High Court ruled that Rolls-Royce made incorrect invoices for the supply of aircraft engine spare parts made by Goodrich, a subsidiary of Raytheon. A decision on exact costs is yet to be finalised. 

On Thursday, Erginbilgic said: ‘Despite a challenging external environment, notably supply chain constraints, we are starting to see the early impact of our transformation in all our businesses. 

‘Better profit and cash generation reflect greater productivity, efficiency, and improved commercial outcomes. We have tightly managed our cost base to offset inflationary cost pressures.’

Among the measures included in the turnaround plan are price hikes and cutting approximately 3,000 non-manufacturing jobs.

Rolls-Royce Holdings shares were 0.4 per cent lower at 183.2p on Thursday morning, although they have still doubled in value over the past 12 months.

Andy Chambers, director at Edison Group, said: ‘The recovery from the dark days of the pandemic years appears to be progressing well, and investors may now be able to take a more favourable view of Rolls-Royce’s potential once again.’