Rolls-Royce to restart dividend as recovery gathers pace

By Paul Sandle

LONDON (Reuters) – Rolls-Royce (OTC:) said it would restart its dividend after it upgraded forecasts for 2024, as chief executive Tufan Erginbilgic’s plan to make the British aero engine maker more profitable gains traction.

Shares in the company jumped 11% to an all-time high of 501 pence in early deals.

The company is now forecasting underlying operating profit of between 2.1 billion and 2.3 billion pounds ($2.70-2.95 billion) for 2024, up to 300 million pounds more than it guided in February and well ahead of market expectations.

Erginbilgic, a former BP (NYSE:) executive who joined Rolls in January last year, said his transformation of the company was proceeding with “pace and intensity”.

Rolls-Royce, which is Airbus’s exclusive supplier on its widebody planes and also makes engines for Boeing (NYSE:)’s 787 jets, had not paid a dividend since 2020 when flying stopped during the pandemic.

“These results and our increased financial resilience give us the confidence to raise our 2024 guidance and reinstate shareholder distributions in respect of the full year 2024 results,” Erginbilgic said in a statement.

The dividend will start at a 30% pay-out ratio of underlying profit after tax, the group said.

A strong first-half performance saw underlying operating profit rise to 1.15 billion pounds from 673 million pounds a year earlier, despite the tight aerospace supply chains.

“We are expanding the earnings and cash potential of the business in a challenging supply chain environment, which we are proactively managing,” the CEO said.

Rolls-Royce’s operating margin rose by 4.4 percentage points to 14%, with the biggest gain in its civil aerospace unit which delivered an operating margin of 18%.

The group, which also powers ships and submarines and makes power generation systems, also raised its forecast for free cash flow in 2024 to between 2.1 billion pounds and 2.2 billion pounds.

($1 = 0.7788 pounds)