Rolls-Royce Holdings PLC plans to unveil a new share buyback program worth up to 1.5 billion pounds ($2 billion) at the time it reports its annual earnings this week, according to unspecified sources. The programme would mark an increase in capital returns following the company's buyback of 1 billion pounds announced last year.
Management upgraded the group's annual guidance last year, citing expectations for stronger profit and improved free cash flow as demand from commercial aircraft manufacturers strengthened. That upgraded guidance and the proposed return of capital together signal a material recovery in the business relative to the severe downturn experienced earlier in the decade.
The civil aerospace arm of the company was hit hard by the COVID-19 pandemic in the early part of the decade. The planned buyback and the earlier guidance upgrade have been framed by the company as evidence of a turnaround in performance as market conditions for commercial aviation improve.
Rolls-Royce is due to release its annual results on February 26. For the year, the company is expected to report an underlying operating profit in a range between 3.1 billion and 3.2 billion pounds.
The prospective buyback would be announced alongside the annual results, and would follow the 1 billion pound share repurchase programme the company implemented in the previous year. The scale of the new repurchase, if confirmed in the results announcement, would represent a larger capital return compared with the prior-year programme.
Summary
Rolls-Royce is preparing to disclose a fresh buyback of up to 1.5 billion pounds when it reports annual results on February 26. The planned repurchase accompanies an earlier upgrade to full-year guidance and follows a 1 billion pound buyback last year. The company expects underlying operating profit for the year to fall between 3.1 billion and 3.2 billion pounds.
Key points
- Planned buyback of up to 1.5 billion pounds to be announced with annual results - impacts equity holders and market liquidity.
- Company previously upgraded guidance, citing stronger profit and free cash flow driven by improving demand from commercial airplane makers - affects aerospace and aviation sectors.
- Scheduled earnings release on February 26 and prior-year 1 billion pound buyback provide context for the size and timing of the proposed capital return - relevant to investors and credit markets.
Risks and uncertainties
- The planned buyback is contingent on the formal announcement at the company's annual results - timing and final scope are uncertain until the release on February 26 - this affects shareholders and market participants.
- Future performance and cash flow remain dependent on continued improvement in demand from commercial aircraft manufacturers; changes in that demand would influence profitability and the company's ability to return capital - relevant to the aerospace and aviation supply chain.
- The company is recovering from a severe downturn in its civil aerospace business during the pandemic era; the scale and sustainability of the recovery are not guaranteed by the information provided - this bears on investors assessing balance sheet and cash-flow resilience.