Performance had significantly improved in all core divisions, the British jet engine firm revealed in its annual financial report.
Rolls-Royce stock soared on Thursday after the aircraft engine manufacturer shared its full-year financial results.
The firm’s share price was up some 17% in daily trading, at around £7.40 (€8.97) a piece.
On the back of strong profits, Rolls-Royce announced that it would buy back £1 billion (€1.2bn) worth of stock and restart dividend payments for the first time since the Covid-19 pandemic.
Dividends, worth 6p a share, will be paid out this June.
Underlying profits climb
Rolls-Royce confirmed that underlying profit came in at £2.5bn (€3bn) in 2024, an annual jump of 55%.
Free cash flow, meanwhile, totalled £2.4bn (€2.9bn), increasing almost 90% year-on-year.
“All core divisions delivered significantly improved performance, despite a supply chain environment that remains challenging”, CEO Tufan Erginbilgic said in a statement.
“Strong 2024 results build on our progress last year, as we transform Rolls-Royce into a high-performing, competitive, resilient, and growing business”, he added.
Supply chain issues
Rolls-Royce noted that supply chain issues should persist for a further 12 to 18 months, but said that is “actively managing” these challenges.
The wider aviation industry has struggled to source parts in recent years as post-pandemic demand for travel has left manufacturers struggling to keep up.
Rolls-Royce’s 2025 financial guidance includes an estimated hit of £150m to £200m (€181.7m to €242.3m) linked to supply chain issues.
Despite this, Rolls-Royce said on Thursday that it would also achieve more than £500m (€605.8m) in cost savings in 2025 – hitting a target two years earlier than planned.
The manufacturer said it is now aiming to see underlying profit in a range from £3.6bn to £3.9bn (€4.4bn to €4.7bn) by 2028.
The desired operating margin is between 15% and 17%.
Free cash flow, meanwhile, is targeted between £4.2bn and £4.5bn (€5.1bn and €4.45bn).
Financial turnaround
“These mid-term targets are a milestone, not a destination, and we see strong growth prospects beyond the mid-term”, Erginbilgic added.
Erginbilgic has been focused on making Rolls-Royce more efficient and financially sustainable since he took the reins in 2023.
To this end, the firm announced plans to cut 2,500 jobs in that same year, as well as selling off assets with less potential.
Business gains through cost-cutting measures
Rolls-Royce said on Thursday that it was beginning to see the benefits of those decisions.
“There was always a risk that Rolls-Royce’s recovery story would lose momentum as it runs out of easy wins. Its latest results and upgraded guidance show that is not the case”, Russ Mould, investment direction at AJ Bell, said.
“It’s no longer about stabilising the business; the narrative has shifted to growth and Rolls-Royce is making solid progress.”
