Rolls-Royce Holdings PLC (LSE:RR.) reported 143% growth in underlying profits for last year, higher than expected as it cut costs and demand for its aircraft engines recovered from the pandemic lull.
The power systems group expects demand to continue to grow this year, with further efficiencies from chief executive Tufan Erginbilgic's transformation plan.
Shares in Rolls, which were the best performer in the FTSE 100 last year, rose over 8% on Thursday morning to 355.71p, their highest since 2018.
Underlying operating profit came in at £1.6 billion for 2023, up £0.9 billion on the previous year as revenue grew 21% to £15.4 billion. Free cash flow more than doubled to £1.3 billion.
Guidance from the company had been for profits of £1.2-1.4 billion and cash flow of £900 million to £1 billion.
Civil Aerospace was the main driver of growth, with profits up 497% to £850 million as large engine flying hours (EFH) recovered to 88% of 2019 levels, up from 65% in 2022, and large engine orders were the highest in more than 15 years.
Defence grew 30% to £562 million, also boosted by the AUKUS submarine agreement and work on our future programmes in the UK and US.
Power Systems profits were up 44% to £413 million as Rolls captures strong demand for power generation solutions and services in the fast-growing data centre market.
For 2024, guidance is for underlying operating profit of between £1.7 billion and £2 billion, with free cash flow of between £1.7 billion and £1.9 billion.
Civil aerospace engine flying hours are expected to grow to 100-110% of 2019's level, with 500-550 original equipment deliveries and 1,300-1,400 total shop visits.
Erginbilgic said the transformation plan had delivered a record performance for 2023, driven by "commercial optimisation, cost efficiencies and progress on our strategic initiatives" with a "step-change" across all divisions despite inflationary pressures and a volatile economic and geopolitical environment in the background.
Supply chain challenges were also faced, which are expect to persist for 18-24 months, he said.
Analyst Aarin Chiekrie at Hargreaves Lansdown said the results "capped off a stellar year" and in the new year, the group "continues to benefit from sector-wide tailwinds like a huge backlog of plane orders and pent-up consumer demand for travel, meaning there’s set to be more of the group’s market-leading engines on wings".
The group’s mid-term guidance, which lays out targets for 2027, now looks well within reach, he said.
Rolls is targeting underlying operating profit of £2.5-2.8 billion, operating margin of 13-15%, free cash flow of £2.8-3.1 billion and return on capital of 16-18% by 2027.