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Rolls-Royce shares surged more than 20 per cent at one point on Wednesday after it said its turnaround plan was starting to deliver, enabling it to raise its profit forecast for the year.
The FTSE 100 company, whose engines power some of the world’s largest commercial aircraft such as the Airbus A350 and Boeing 787, said it expected underlying operating profit to be £1.2bn to £1.4bn this year, up from a previous expectation of £0.8bn to £1bn.
Shares in Rolls-Royce rose 24 per cent to 190p, the highest level since the start of the Covid-19 pandemic in March 2020, in early trading on Wednesday as the results beat analysts’ forecasts of £934mn.
They eased to 181.73p — a rise of 19 per cent — by mid-morning.
The company, which makes most of its money from servicing and maintaining engines, said higher volumes due to the rebound in international travel, as well as cost efficiencies in its civil and defence units, helped drive performance.
Chief executive Tufan Erginbilgic, who launched a transformation programme at the beginning of the year, said it had “started well with progress already evident in our strong initial results and increased full-year guidance for 2023”.
“Despite a challenging external environment, notably supply chain constraints, we are starting to see the early impact of our transformation in all our divisions,” he added.
The company is due to report half-year results next week. It said underlying operating profit for the first six months would come in at between £660mn and £680mn, more than double market expectations of £328mn.
Rolls-Royce is benefiting from a rebound in long-haul travel that is driving demand for engine maintenance from airlines as well as from its turnaround plan.
Since taking over, Erginbilgic has shaken up senior management, including the heads of its civil and defence businesses, cut spending on non-core projects and is renegotiating some of its sales and maintenance contracts with customers. The company has previously flagged £1.6bn worth of “onerous” contracts.
The transformation programme has identified seven areas of improvement, including reducing the company’s working capital and increasing efficiency. It is also looking at synergies across the group, including opportunities to centralise key functions.
The group said free cash flow would reach as much as £1bn in 2023 helped by “early transformation benefits”.
The main civil aerospace business will return to an operating profit of about £400mn in the first half of the year, compared with a loss of £79mn in the same period the previous year.
The company also expects its defence business to report a 38 per cent increase in operating profit as the war in Ukraine rages on.
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