Rolls-Royce to reinstate dividend for first time since pandemic

Unlock the Editor’s Digest for free

Rolls-Royce has raised its profit forecast and plans to pay a dividend for the first time since the pandemic as chief executive Tufan Erginbilgiç’s efforts to restore the UK engineering group’s fortunes pay off.

Shareholders in the FTSE 100 company, whose engines power civil aircraft, submarines and military jets, last received a payout in 2020, shortly before the pandemic.

Announcing its first-half results on Thursday, Rolls-Royce said it would resume payouts at its full-year results. Payments will start at a 30 per cent payout ratio of underlying profit and then shift to a ratio of between 30 per cent and 40 per cent a year.

Shares in Rolls-Royce surged 10 per cent in early trading after the announcement, taking their gains this year to over 60 per cent.

Since taking over as chief executive in early 2023, Erginbilgiç has focused on rebuilding the group’s balance sheet and improving its profitability.

Rolls-Royce is also benefiting from the rebound in international travel as the company makes most of its money maintaining and servicing its engines when they are flying.

Alongside the resumption of the dividend, Rolls-Royce increased its forecast for underlying operating profit this year to between £2.1bn and £2.3bn. It is targeting free cash flow of between £2.1bn and £2.2bn, higher than its previous guidance of £1.7bn to £1.9bn.

The company is “expanding the earnings and cash potential of the business in a challenging supply chain environment, which we are proactively managing”, Erginbilgiç said on Thursday.

Revenues in the first six months of the year rose to £8.1bn, up from £6.9bn a year ago. Underlying operating profit surged to £1.15bn from £673mn.

Despite the strong results, Erginbilgiç warned that the supply chain environment remained difficult. The industry has struggled with a shortage of skilled labour and key components coming out of the pandemic, which has hampered plans by Airbus and Boeing to ramp up production of aircraft.

Erginbilgiç said he expected the supply chain challenges to last for another 18 to 24 months.