UK-based global major power and propulsion systems group Rolls-Royce has reported a strong performance during the first half of this year (1H24). The group credited this performance to the success of its transformation programme and strategic initiatives.

The group reported an underlying operating profit of £1.1-billion, which was a 74% increase, year-on-year (y-o-y). The operating margin in 1H24 was 14%, which was a 4.4 percentage points (ppts) increase over that recorded in 1H23. The group also reported a 13.8% return on capital, which was a 4.8 ppts increase, y-o-y. Free cash flow in 1H24 was £1.2-billion, a 225% increase over the £0.4-billion achieved in 1H23. Group net debt was reduced to £0.8-billion (from £1.95-billion on December 31, 2023), a reduction driven by statutory net cash flow from operating activities (which came to £1.7-billion).

Underlying revenues in 1H24 came to £8.18-billion (1H23: £6.95-billion). Statutory revenues in 1H24 were £8.86-billion (1H23: £7.52-billion). The underlying profit before taxation during 1H24 was £1.15-billion (1H23: £0.67-billion) while the statutory profit before taxation in 1H24 was £1.416-billion, compared with £1.419-billion in 1H23.

“Our transformation of Rolls-Royce into a high-performing, competitive, resilient and growing business is proceeding with pace and intensity,” highlighted group CEO Tufan Erginbilgic. “We are expanding the earnings and cash potential of the business in a challenging supply chain environment, which we are proactively managing. We are on track to deliver our mid-term targets. Our strong first-half results reflect the continued delivery of our strategic initiatives and a relentless focus on commercial optimisation and cost efficiencies across the group. 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.”

Regarding the group’s businesses, Civil Aerospace saw the biggest improvement, with a 1H24 operating margin of 18%, sharply up from the 1H23 figure of 12.4%. The Defence business had a 1H24 underlying operating margin of 15.5% (1H23: 13.6%). Germany-based Power Systems reported an operating margin of 10.3% in 1H24 (compared with 7% in 1H23).

One of the elements in Rolls-Royce’s transformation strategy was its efficiency and simplification programme. This was expected to deliver cumulative savings of more than £250-million, by the end of this year. The programme was on course to reach its mid-term savings target of £400-million to £500-million.

“Within this, we are also on track to deliver c. £200-m[illion] per annum of organisational design benefits by the end of 2025,” stated Rolls-Royce. “Our new organisational design came into effect on 1 June 2024, which creates a leaner, more focused organisation with fewer layers. In addition, we continue to focus on driving procurement synergies across the group. By the end of 2024, we expect to deliver c. £0.5-b[illio]n of cumulative gross third-party cost savings against our mid-term target of £1.0-b[illio]n, to partly offset inflationary pressures.”