Rolls-Royce targets vast upturn in profits

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Rolls-Royce has set out ambitious new profit targets and a plan to sell its electric aircraft division as new chief executive Tufan Erginbilgic tries to make good on his promise to turn around the UK aerospace company.

The FTSE 100 group said on Tuesday that it aimed to lift operating margins at its core civil aerospace business from 2.5 per cent in 2022 to 15-17 per cent by about 2027.

The demanding targets are the centrepiece of a long-awaited shake-up by Erginbilgic, a former BP executive who was parachuted into the top job in January to help Rolls-Royce recover from the damage inflicted by the pandemic and previous restructurings.

The group said it was seeking annual savings of up to £500mn and targeting £3.1bn in free cash flow by about 2027. Last month, it announced plans to cut up to 2,500 jobs to streamline its operations and boost returns.

“We are setting compelling and achievable financial targets for the midterm which will take Rolls-Royce significantly beyond any previous financial performance,” said Erginbilgic.

The prospect that Erginbilgic will improve the group’s performance has already sent shares in Rolls-Royce up 160 per cent this year, making it the best performer on the blue-chip FTSE 100 index. The shares were up 4 per cent in early trading on Tuesday.

Rolls-Royce, whose engines power large civil aircraft as well as submarines and military jets, will also divest assets with the aim of raising between £1bn and £1.5bn over the next five years.

The disposals will include Rolls-Royce’s electric propulsion activities and interests in advanced urban air mobility. However, the company added that it remained committed to its nuclear activities in small modular reactors.

Erginbilgic said that Rolls-Royce was “well positioned” to re-enter the lucrative market for narrow-body aircraft which has led the aviation recovery since the Covid pandemic. Rolls-Royce said it could do so by “choosing a partnership approach for the next new engine programme” and leveraging its new UltraFan technology.