The British aerospace and defence company Rolls-Royce has more than doubled its annual profits, as it cut costs and reported record-breaking orders amid mounting military tension around the world.
The defence engineer said it was “well under way” with plans to increase profitability by making savings, including plans to cut up to 2,500 jobs by the end of next year.
The austerity programme at Rolls-Royce has been implemented by the chief executive, Tufan Erginbilgic, who warned when he took over in January last year that the company was a “burning platform”.
Analysts also attributed the improved performance in its defence business to the increasingly unsettled political backdrop, a day after the arms maker BAE Systems posted higher profits amid the Ukraine and Israel-Gaza wars.
Rolls-Royce’s £1.6bn profit for 2023, compared with £652m in 2022, helped by the cost savings.
Alongside cost savings, the aerospace engineering specialist reported better-than-expected revenues, which increased by 22% to £16.5bn as sales rose in its main transport, combat and submarine markets.
Rolls-Royce said engine flying hours – an important performance measure for the group – recovered to 88% of the levels in 2019 before the Covid-19 pandemic and were up 36% year on year.
It added that large engine orders were the highest they had been since 2007 and forecast that large engine flying hours would bounce back to – or even surpass – pre-pandemic levels in 2024.
The company said its defence order book had reached a record £9.2bn by the end of the year, bolstered by contract awards for the Aukus submarine defence agreement between Australia, the UK and the US.
Sales also rose in its combat division, thanks to increased production of its new F130 engines for the US air force’s fleet of B-52 bombers, coupled with its work on the global gombat air programme.
GCAP is a cooperation between the UK, Italy and Japan to build a next generation stealth fighter, which will be known as the Tempest in the UK and is slated to replace the Royal Air Force’s Eurofighter Typhoon from 2035.
Russ Mould, the investment director at the stockbroker AJ Bell, said Rolls-Royce was benefiting from an improved outlook as countries prioritised military spending “thanks to heightened global tensions”.
He said this, coupled with savings programme started by Erginbilgic, justified Rolls-Royce’s prediction that underlying earnings would rise to between £1.7bn and £2bn in the year ahead.
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The company said it had already achieved about £150m of its £400m to £500m cost savings target announced in October, when it revealed that between 2,000 to 2,500 roles would go as part of the plans.
The group said: “Our actions to deliver sustainable cost efficiencies and improve competitiveness are well under way.”
However, it cautioned that supply chain challenges would continue for up to another two years. It also flagged pressures from geopolitical uncertainty and inflation.
Rolls-Royce, which employed 42,000 people before the latest round of job cuts, said in October it planned to remove “duplication” and deliver cost efficiencies through the latest stage in its transformation plan.
The plans include creating a new procurement division in order to reduce costs by leveraging the group’s scale, with aims to slash those costs by £1bn. It also said some back-office operations, such as human resources and finance, would be brought closer together.
Erginbilgic said: “Our transformation has delivered a record performance in 2023, driven by commercial optimisation, cost efficiencies and progress on our strategic initiatives. This step change has been achieved across all our divisions despite a volatile environment with geopolitical uncertainty, supply chain challenges and inflationary pressures.”