Rolls-Royce Holdings PLC (LSE:RR.) shares soared 21% to 186p after the engine maker bumped up full-year guidance on the back of a strong first half and a successful start to its transformation plan.
Operating profit came in at between £660mln and £680mln during the first half, the FTSE 100 aerospace and defence group said in an unscheduled trading statement, which was more than double analyst expectations.
Free cash flow of £340mln to £360mln was recorded, thanks to end-market growth and focus on commercial business and cost efficiency, compared to City forecasts of around £50mln.
“Despite a challenging external environment, notably supply chain constraints, we are starting to see the early impact of our transformation in all our divisions,” boss Tufan Erginbilgic said.
Rolls-Royce’s civil aerospace and defence departments led the way, both recording increased operating profits of around £400mln and £260mln respectively, up from a loss of £79mln in the former and 38% in the latter.
The aftermarket business enjoyed high profitability, with the company's work on maintaining its engines aided by the aviation sector's recovery, with higher demand and strong pricing actions fuelling defence wing growth.
Profits increased by £1mln to £120mln in Rolls-Royce’s power systems division, with the company anticipating a stronger second-half performance due to seasonally higher volumes.
“Our multi-year transformation programme has started well with progress already evident in our strong initial results and increased full-year guidance,” Erginbilgic noted.
The company now anticipates full-year underlying operating profit of up to £1.4bn, raised by approximately £400mln, alongside free cash flow of around £1.0bn – a £200mln hike.
Broker Jefferies said Civil and Defence were the two main drivers of the company's lifted guidance.