Rolls-Royce profits surge on global travel rebound

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Rolls-Royce’s first-half profits surged fivefold after the rebound in international travel and better pricing for servicing engines helped buoy its performance.

The FTSE 100 group, which upgraded its full-year profit forecast last week, said underlying profit in the first six months of the year was £673mn, up from £125mn. Pre-tax profit was £511mn, up from a loss of £111mn in the same period the year before.

Free cash flow came in at £356mn, up from outflows of £68mn in the same period last year. The group’s net borrowings were £2.8bn, down from £3.2bn.

Tufan Erginbilgic, who launched a turnaround programme when he took over as chief executive at the start of the year, said that despite the “good progress,” there was still a “lot more to do”. The rate of improvements, he added, were always higher earlier in the plan. 

“Early on, you make obvious interventions. I am not saying easy interventions. If they were easy, someone else would have done them . . . Early on, the rate of improvement is normally high,” he said.

The main area of improvement so far has been within the civil aerospace business that has historically accounted for about half of its revenues. The division makes its money from long-term service agreements to maintain and service engines for the world’s large airliners, such as the Airbus A350 and Boeing 787. 

Large engine flying hours are up 36 per cent year on year and are now back to 83 per cent of pre-pandemic levels. 

Erginbilgic said the improvement in the civil aerospace margin to 12.4 per cent — the highest for at least 15 years — had been achieved despite engine flying hours not yet recovering to pre-pandemic levels. The company had managed to increase the price of shop visits by 12 per cent. It is also in talks with major airline customers to renegotiate unprofitable and low-margin contracts.

“We are really expanding the earnings and cash potential of the business,” he said.

The recovery in aviation demand also helped bring in new engine orders. Rolls-Royce reported 240 orders in the first half — more than double the 96 in the same period in 2022 — including a record order from Air India for 68 Trent XWB-97 engines that power the A350 jet. 

Operating profit in its defence business, whose engines power fighter jets as well as the Royal Navy’s fleet of nuclear submarines, climbed by a third to £261mn. 

Its power systems business, which produces diesel engines and generators and which Erginbilgic has previously described as being “grossly mismanaged”, reported broadly flat operating profit. 

Erginbilgic said the company would publish medium-term financial targets at an investor day in November and announce the result of a strategic review. He declined to comment on whether the review would entail white-collar job losses. 

“Deleveraging and returning to an investment grade credit rating is a priority,” he told analysts.

Rolls-Royce shares, which had jumped more than 20 per cent last week after it upgraded its guidance, were up 3 per cent to 190p in London trading. They have surged 90 per cent since the start of the year.