Rolls Royce Shares Soar as Transformation Fuels Record Profits and Upbeat Guidance

Rolls-Royce has delivered yet another strong set of results, sending its shares to record highs after the British engineering giant raised annual profit guidance on the back of what chief executive Tufan Erginbilgic declared an “unmatched” growth trajectory within the FTSE 100. Underlying operating profits for the year are forecast to reach between £3.1 billion and £3.2 billion, with upgraded free cashflow expectations now at £3 billion to £3.1 billion, improving on previous projections. The shares jumped as much as 8.5 per cent to £10.72, continuing a surge which has seen them rise 141 per cent over twelve months—a more than tenfold increase since Erginbilgic assumed the role in early 2023 and pronounced the company a “burning platform.”

This fresh impetus comes alongside an 11 per cent increase in adjusted revenue to £9.1 billion and a 50 per cent leap in first-half underlying operating profit to £1.7 billion, driven by enhanced margins and a decisive renegotiation of loss-making contracts within the civil aerospace arm. The group aims for an ambitious 80 per cent improvement in the average flying time of its new Trent engines by 2027 and has already secured or achieved over half of this target. Its ability to extend “time on wing” remains crucial, with most earnings derived from the duration its engines operate in the air.

Defence remains a pillar of strength, with £4 billion of new orders swelling the backlog to £18.8 billion, representing about four years’ revenue. Notable wins include a £500 million Ministry of Defence contract for RAF Typhoon engine support and a £1 billion US Air Force sustainment package for AE 2100 engines. Power systems margins also improved, partly thanks to divestment of less profitable lines, helping the division move emphatically back into robust profitability.

The group has sold a stake in its small modular reactor business to CEZ Group, netting a £679 million gain and taking a central role in the UK’s first SMR project, set to commence in the mid-2030s. SMRs, manufactured in factories and assembled on site, offer a cost-efficient, expedited addition to the UK’s energy arsenal. Meanwhile, statutory revenue increased by 7 per cent to £9.5 billion and pre-tax profit more than trebled to £4.8 billion.

Erginbilgic pointed to more than £450 million in cost savings so far, with a target to surpass £500 million by year end. Roughly 2,500 jobs have been cut, largely in middle management, offset by ongoing engineering hires. Operating margin, which languished at 5.1 per cent in 2022, now stands at 19.1 per cent over the first half, while output from the power systems arm has recovered from a near-zero margin position.

Rolls-Royce is now in a net cash position of £1.1 billion versus net debt of £3.3 billion at 2022’s close. The board has reinstated its dividend, launched a £1 billion share buyback and posted an interim dividend of 4.5p, underscoring confidence in the group’s trajectory. Medium-term ambitions have been revised upwards, with underlying operating profit targeted at between £3.6 billion and £3.9 billion, and an operating margin of 15–17 per cent by 2028—raising speculation that further upgrades may soon follow if current momentum endures.