Rolls-Royce (RR) H1 2024 earnings summary

Executive summary

• Transformation initiatives and operational excellence drove a 74% year-over-year increase in operating profit to £1.1bn, with margin up to 14.0%, and strong free cash flow growth across all divisions.

• 2024 guidance for operating profit and free cash flow was raised, with shareholder distributions reinstated at a 30% payout ratio of underlying profit after tax.

• Strategic transformation and commercial optimisation are progressing ahead of schedule, with a focus on cost efficiency, resilience, and balance sheet strength.

• Free cash flow increased to £1.2bn, net debt reduced to £0.8bn, and liquidity position remains strong at £6.8bn.

Financial highlights

• Group revenue up 19% year-over-year to £8.2bn; operating profit up 74% to £1.1bn; operating margin at 14.0%, up 4.4 percentage points.

• Free cash flow reached £1.2bn, more than tripling the prior year; net debt reduced to £0.8bn, lowest in over five years.

• Return on capital improved to 13.8% for the rolling 12 months.

• Statutory operating profit was £1.6bn, including a £545m impairment reversal.

• Basic EPS (statutory) at 13.71p, underlying EPS at 8.95p, both up significantly year-over-year.

Outlook and guidance

• 2024 operating profit guidance raised to £2.1bn–£2.3bn (previously £1.7bn–£2.0bn); free cash flow guidance raised to £2.1bn–£2.2bn.

• More than 75% of mid-term profit and 65% of free cash flow improvement expected by end of 2024.

• Supply chain challenges expected to persist for 18–24 months, with £150m–£200m cash impact in 2024; mitigation actions underway.

• Civil Aerospace large engine flying hours forecast at 100–110% of 2019 levels; 500–550 OE deliveries and 1,300–1,400 shop visits expected.

• Operating margin expected at 13–15%; return on capital 16–18%.