Covid crisis: Rolls-Royce resumes dividend payments, commits £1bn to repurchases

Rolls-Royce has announced plans to return £1.5bn to shareholders as the British jet engine manufacturer reinstates dividend payments for the first time since the coronavirus pandemic.

The FTSE 100 company reported a 55% increase in underlying operating profits for 2024, reaching £2.5bn.

It also raised its future earnings guidance. Rolls-Royce’s underlying sales rose to £17.8bn, reflecting a 15% increase from 2023, while cash generation nearly doubled to £2.4bn.

Following the announcement, the company’s share price surged 15% on Thursday morning, reaching a record high of £7.39.

Rolls-Royce, which operates across civil aviation, fighter jet engines, and nuclear reactors for submarines, faced significant financial strain during the pandemic when long-haul air travel collapsed.

To navigate the crisis, the company secured emergency funding and later appointed Tufan Erginbilgiç as chief executive in 2023 with a focus on increasing its valuation.

His strategy, which involved higher charges for customers, aligned with the recovery of air travel and rising defence spending following Russia’s full-scale invasion of Ukraine.

In 2024, the number of hours flown by Rolls-Royce engines on passenger jets exceeded 2019 levels for the first time.

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The company supplies engines for Airbus’s large twin-aisle aircraft and Boeing’s 787, and is considering re-entering the market for single-aisle jet engines.

Erginbilgiç stated that the company is on track to achieve its operating profit targets set in late 2023—two years earlier than expected.

However, he warned that supply chain disruptions, which cost up to £200m during the year, could persist for another 18 months. These issues have particularly affected the Trent 1000 engine used in Boeing’s 787 aircraft.

He also welcomed the UK government’s decision to raise defence spending to 2.5% of GDP, saying, “Given the uncertain world we are in, I welcome that, because sovereign capability will be even more important in this uncertain world.”

He added that increased spending would help companies develop supply chains and train more workers.

Geopolitical uncertainty, including concerns surrounding former US President Donald Trump and his adviser Elon Musk’s stance on defence spending, has contributed to the UK’s military budget increase. Erginbilgiç further noted that Rolls-Royce had received “no indications that its work for the US would be affected.”

The decision to issue shareholder payouts, he explained, was a result of “significantly improved performance and a stronger balance sheet.”

This move comes 18 months after the company announced 2,500 job cuts, mainly affecting management roles.

Defending the payouts, Erginbilgiç stated, “If that’s not the case, you don’t shape your destiny. How are you going to be a financially strong company if you don’t give back some of the investment that investors are making?”

The dividend will amount to 6p per share, totaling approximately £500m, and will be paid in June 2025. This is accompanied by a £1bn share buyback.

Looking ahead, Rolls-Royce aims to increase its underlying operating profit to between £3.6bn and £3.9bn by 2028. The company also reported a return to a net cash position of £475m by the end of 2024, following the heavy debts incurred during the pandemic.

 

NIGERIAN TRIBUNE