Rolls-Royce to pay first dividend since pandemic as profits surge

By Paul Sandle

LONDON (Reuters) -Rolls-Royce will pay a dividend for the first time since the pandemic as Chief Executive Tufan Erginbilgic's recovery plan gathers pace, with the British aero engine maker raising its 2024 profit and cash flow forecasts on Thursday.

Shares in the company, which make the engines for Airbus's long-haul jets, jumped 11% to a record high of 501 pence.

Rolls forecast an operating profit of up to 2.3 billion pounds (2.95 billion) for 2024, 300 million pounds more than it estimated in February and well ahead of market expectations.

Erginbilgic, a former BP executive who joined Rolls in January last year, said his transformation was proceeding with "pace and intensity".

Rolls, Airbus's exclusive engine partner on its widebody planes and a supplier to Boeing's 787, had not paid a dividend since flying stopped during the pandemic in 2020.

"These results and our increased financial resilience give us the confidence to raise our 2024 guidance and reinstate shareholder distributions in respect of the full year 2024 results," Erginbilgic said.

Jefferies analysts said even though expectations had risen ahead of the results, Rolls had over-delivered on both profit and cash flow.

Civil aerospace was a stand out, they said, noting that flying hours had risen above pre-pandemic levels and the group had delivered 120 large engines, up from 115 a year earlier.

First-half underlying operating profit rose to 1.15 billion pounds from 673 million pounds a year earlier.

"We are expanding the earnings and cash potential of the business in a challenging supply chain environment, which we are proactively managing," the CEO said.

Challenges in obtaining parts would cost 150-200 million pounds this year, he said, and the situation could persist for a further 18-24 months.

Rolls' operating margin rose by 4.4 percentage points to 14%, with the biggest gain in its civil aerospace unit which delivered an operating margin of 18%.

The group is investing 1 billion pounds improving the durability and efficiency of its engines, particularly in hotter locations like the Middle East.

Rolls, which also powers ships and submarines and makes power generation systems, raised its forecast for free cash flow in 2024 to 2.1-2.2 billion pounds from 1.7-1.9 billion.

The dividend pay out will start at 30% of underlying profit after tax, it added.

($1 = 0.7788 pounds)

(Reporting by Paul Sandle; editing by James Davey and Mark Potter)