By Geoffrey Smith
Investing.com -- Rolls-Royce (LON:RR) stock soared to its highest in over a year on Thursday after the U.K. engine maker reported a sharp improvement in its financial performance in 2022, helped by the revival of international air travel.
The company also said it has identified opportunities for substantial improvements in profitability and expects to complete a strategic review later in the year.
Underlying earnings per share leaped to 195 pence from 11 pence in 2021, while underlying operating profit rose by more than half to £652 million (£1 = $1.2034), as airlines around the world dusted off jets that had been grounded by the pandemic, renewing the maintenance payments that provide Rolls-Royce's bread and butter. Large-engine flying hours rose by more than 35% last year.
The improved operating performance, along with asset sales, turned a 2021 cash outflow of over £1.5 billion into free cash inflow of £505M.
The company said it expects further improvements this year, with average underlying operating profit of around £900M and average free cash flow of around £700M.
"While our performance improved in 2022, we are capable of much more," said chief executive Tufan Erginbilgic, who had warned staff at the start of the year that their company risks going the same way as Nokia's (NYSE:NOK) once-dominant mobile phone division.
Erginbilgic has already suspended the company's dividend in an effort to regain the investment-grade credit rating that it had enjoyed until the pandemic. The need to cut debt has become more pressing as the cost of servicing it has risen, thanks to a year of aggressive interest rate hikes by central banks around the world. Net debt fell to £3.2B from £5.5B last year, thanks to the company's asset sales.
He said the group's transformation program "will improve our efficiency and commercial outcomes, and deliver a sustainable reduction in working capital." A strategic review, already underway will be completed in the second half of this year and will "prioritise our investment towards the most profitable opportunities."
By 04:20 ET (09:20 GMT), Rolls-Royce shares were up 17.8%, just off an intraday peak that was the stock's highest level since January 2022.