Rolls Royce Shares Rallied Higher on Strategy Update and Targets

The Rolls-Royce Holdings PLC (LON: RR) share price rallied 4.90% at 8:10 GMT after issuing an update about its mid-term targets and strategies ahead of its capital markets day. The company aims for an operating profit ranging from £2.5 billion to £2.8 billion.

The plane engine manufacturer targets an operating margin of 13% to 15%. The firm aspires to generate free cash flow worth between £2.8 billion and £3.1 billion. The company aims for a return on capital from 16% to 18%.

Rolls Roye has also set specific targets for each of its divisions, including Civil Aerospace, which is striving for a substantial improvement, elevating its margin from 2.5% in 2022 to 15% to 17%. The defence division plans to enhance the margin from 11.8% in 2022 to 14% to 16%.

The Power Systems division is also expected to improve its margin from 8.4% in 2022 to 12% to 14%. These targets are based on expectations for the year 2027. The company anticipates progressive, albeit not necessarily linear, improvement year-on-year and is willing to accelerate its achievement if possible. 

The targets, underpinned by performance enhancements and corresponding actions, are embraced throughout the organisation and reinforced through robust performance management and clear lines of responsibility.

Rolls-Royce embarked on a transformation program and strategic review in February to elevate its performance. The company intends to leverage its strengths and competitive advantages to unlock its full potential. 

The company intends to build a high-performing and resilient business by achieving profitable growth and competitiveness, fostering sustainable free cash flows, strengthening the balance sheet and enhancing shareholder returns.

Rolls Royce Chief Executive Tufan Erginbilgic said: “Rolls-Royce is at a pivotal point in its history. After a strong start to our transformation programme, we are today laying out a clear vision for the journey we need to take and the areas where we must focus. We are creating a high-performing, competitive, resilient and growing Rolls-Royce that will have the financial strength to control and shape its own destiny. We are confident in our ability to achieve these ambitions and have a clear and granular plan to deliver on our targets. We have made significant progress, with 2023 profit and cash forecast to be materially ahead of 2022. We are setting compelling and achievable financial targets for the mid-term, which will take Rolls-Royce significantly beyond any previous financial performance.”

Rolls-Royce share price. 

The Rolls Royce share price rose 4.90% to trade at 254.60p from Monday’s closing price of 242.70p.