Rolls-Royce shares rally after unveiling bumper buyback plan
Rolls-Royce has laid out plans to return billions to investors over the next two years after the blue-chip giant’s profit rocketed, leading to an upgrade of targets.
The aerospace titan revealed plans for a £7bn to £9bn multi-year share buyback from 2026 to 2028, which comes as the firm wraps up a £1bn buyback from the last 12 months. Up to £2.5bn of the buyback is set to be delivered in 2026.
The FTSE 100 darling also declared a final dividend of 5p a share, taking the total for the year to 9.5p, meaning around 32 per cent of post-tax profit was dished out to shareholders.
It came after revenue jumped 14 per cent to £20bn for the last year, whilst operating profit surged nearly 40 per cent to £3.5bn.
Growth boomed in the firm’s civil aerospace division, with an 8 per cent increase in large-engine flying hours, bringing it 111 per cent above pre-Covid levels in 2019.
Tufan Erginbilgic, chief executive of Rolls-Royce, said: “Our transformation continues with pace and intensity. We are consistently achieving outcomes that were not possible before our transformation.”
Rolls-Royce’s magic turnaround
Rolls-Royce lifted its medium-term profit targets to £4.9bn to £5.2bn, whilst the firm’s operating profit margin, a financial ratio that measures the percentage of revenue remaining after covering the costs of production, is targeting 18 to 20 per cent.
Mark Crouch, market analyst at eToro, said: “This is Rolls-Royce in full afterburner mode.”
“What’s most striking is not just the beat, but the confidence. Management has upgraded mid-term targets again and is guiding to as much as £4.2bn of operating profit in 2026. That’s a far cry from the restructuring story investors once bought into.”
The fresh round of returns marks a major boost in Rolls-Royce’s turnaround, with last year’s £1bn buyback the first since 2014 after the engineer generated a surplus from selling its energy business.
Buybacks were halted in 2015 by former boss Warren East as concerns swelled about the stability of the firm’s balance sheet.
The spectacular turnaround under Erginbilgic, former BP chief, has seen the company’s value double to over £112bn. Since 2022, the aerospace chief has found £600m in savings through slashing costs.
In the last year, free cash flow – the funds a company generates from operations after accounting for capital expenditures – hit £3.3bn, a major rise from £2.4bn last year.
Shares in Rolls-Royce have risen more than 100 per cent in the last 12 months and climbed to a fresh high last week at 1,336.00p amid a rally in the defence sector.